693.002/417: Telegram
The Consul General at Shanghai (Gauss) to the Secretary of State
[Received December 13—1:10 a.m.]
1138. I saw Japanese Consul General this morning and after disposing of other matters I asked him when we could resume our conversations on the subject of the customs. He stated that the matter is hopelessly deadlocked over the question of bank deposit, that when he asked the British Financial Adviser for an explanation of his objection to the use of the Yokohama Specie Bank he received a reply that it would upset the existing arrangement and he then learned for the first time that on about October 8 when the Japanese were surrounding Shanghai an arrangement was made to transfer and deposit all customs revenues in the Hong Kong and Shanghai Bank instead of the Central Bank. He looked upon this as doomed. I pointed out that when the Central Bank withdrew its head office from Shanghai as the Japanese were about to isolate the port, it was, of course, necessary for the customs to use some other bank of deposit but that I had not known until recently that the Hong Kong [and] Shanghai Bank was being used.
- 2.
- I then inquired if we might put aside the question of bank of deposit for the moment and discuss quite frankly and informally—unofficially if he wished—the other questions involved. For example, [Page 902] what could he tell me of the intentions of the Japanese Government as to foreign loan and indemnity quotas, what assurance would be given as to their payment, what about the integrity of the Customs Administration and the personnel and the equipment such as harbor boats seized by the Japanese Navy, what about the tariffs and customs procedure, would they remain unchanged at all ports and be uniformly inforced, and what about the loan and indemnity quotas from the Tientsin revenues. He replied that he could not commit his Government but he thought that adequate assurance would be given on most of these points in due course when the question of the bank of deposit had been decided and accounts had been opened by the Commissioner in the Yokohama Specie Bank. He indicated that the question of “face” is involved in the matter of the bank deposit and pointed out that this matter of the customs is receiving wide attention in the press in Japan and there was comment on the discussions in the British Parliament. I pointed out that the points I had mentioned were matters on which definitive assurances should be forthcoming before any decisions were reached and implemented on the question of bank of deposit and that it seemed to me that the question of bank deposit might more readily be disposed of if these other points were settled first and satisfactory assurances given. Perhaps then, I suggested, there might not be such serious objection to the Yokohama Specie Bank as the original depository and some arrangement could be worked out whereby the revenues were distributed periodically from that bank to banks of other interested nationalities; in other words, that some compromise might be worked out that would meet the question of “face” which he mentioned and yet represent an arrangement satisfactory to all concerned. I emphasized that on the American side we were not supporting or proposing any particular plan or arrangement, that our interest is in maintaining the integrity of the customs and the customs revenues, that I was not insisting upon deposit in any particular bank, but that on the other hand I could not say whether my Government would be satisfied with an arrangement designating the Yokohama Specie Bank as the sole depository; it seemed to me that the problem needed to be worked out as a whole at least in principle and an understanding reached and the necessary guarantees or assurances given before any particular point such as bank of deposit should be decided upon and the decision implemented. I again mentioned that I was also interested in the customs revenue which had been allocated for the service of the domestic loans and from the standpoint of maintaining the credit and currency structure of China I would be glad to see some arrangement under which the surplus revenues over and above the foreign indemnity [Page 903] and loan quotas might be earmarked for the service of the domestic obligations secured on the customs.
- 3.
- My colleague said he would think over the matter, that he could not commit his Government on any point discussed, and he could not say whether his Government would be agreeable to any scheme under which the Shanghai revenue after deposit in the Yokohama Specie Bank might then be distributed to other banks but this offered some possibility of a solution and if necessary he might have to come to me later to see whether any such compromise could be advanced.
- 4.
- I took occasion at this meeting to say that I was also interested in the disposition made of the consolidated tax revenues which together with the flood relief customs surtax are security for the consolidated note of the American wheat and flour loan of 1931 and the cotton and wheat credit of 1933.
Sent to the Department. Repeated to Tokyo.