Foreign Relations of the United States, Diplomatic Papers, 1937, The Far East, Volume III

793.94/11462: Telegram

The Secretary of State to the Ambassador in Japan (Grew)

Washington, December 10, 1937—7 p.m.

338. Your 596, December 4, 10 p.m.

1. The position of our Government with respect to foreign loans as affecting the Far Eastern situation is as follows:

(a) Should there be a declaration of war in the Far East and/or should the Neutrality Act be applied, it would become unlawful to make loans or credits to the belligerent governments or their agencies.

(b) Except for the possible application of the Neutrality Act, the American Government has no legal authority for controlling either loans to Japanese authorities or American investment in Japan.

(c) It is nevertheless probable that banking interests considering any large financing in the Far East, in which there was an intention of offering securities to the public, would inform the Department in advance. Such issues must be registered under the Securities Act of 1933,⁹⁶ which brings the facts regarding them before a Federal Commission, which, however, is empowered only to assure disclosure of the material facts for the purpose of protecting investors.

In the event of investment in private enterprises in the Far East, however, there has not usually been any such opportunity afforded for taking into account our policies.

2. The following observations on the question raised by Craigie represent the present probabilities:

(a) Even though the Neutrality Act is not applied, it is not to be anticipated that there will be any substantial loans or credits extended to Japanese borrowers during the period of hostilities. Likewise it is not to be anticipated that American enterprise will make new direct investments.

Furthermore, apart from any special considerations which might enter into Far Eastern financing, it is to be observed that the recent and present position and behavior of the American capital market has been such as to make it extremely unlikely that it will be possible to issue any large foreign public security.

(b) Subsequent to the period of hostilities, the possibilities of American investment would be influenced by

(1) the nature of the agreements reached by Japan with China and with other governments in relation to China; that is, if these agreements are such as not to be inconsistent with pledges given by the Japanese Government to respect American rights and interests guaranteed by treaty, there would obviously be less hesitation in making loans and credits than otherwise;

(2) the prospect of stability in the Far East, judged in the light of the nature of the peace settlement and other circumstances; this would affect not only the risk concerned but also sentiment;

(3) the type of economic arrangements, including the treatment accorded foreign investment by the Japanese authorities both within Japan and in any areas of China which they may directly or indirectly control;

(4) the nature of the trade arrangements that would develop; this especially would bear upon the possibilities of private direct investment.

If as a part of the outcome of the present conflict in the Far East the American people and American business interests are left with a sense that the Japanese authorities are likely to continue with plans for further territorial extension of their political authority, it is probable that there would be a more or less automatic abstention from any substantial investment in territories under Japanese control and that this would take place even in the absence of any action whatsoever on the part of the American Government. Official thought would be influenced by the same considerations.

The foregoing bears out what you have already told Craigie.

Hull

96. Approved May 27, 1933; 48 Stat. 74.