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

No. 1345

Sir: Reference is made to your despatch No. 2535, dated August 7, 1937, enclosing a memorandum from the Commercial Attaché entitled “American Funds Frozen in Japan”,13 in which it is suggested that this Department take immediate action to secure the transfer into United States dollars of some 30 million yen of surplus funds owned in Japan by American citizens.

The situation reported by the Commercial Attaché is substantially a repetition of developments which have taken place during the past several years in numerous countries which have instituted rigorous exchange controls. In such situations, in the absence of pertinent treaty provisions, neither the imposition of non-discriminatory restrictions on payments abroad nor the recall of holdings from abroad appear to afford ground for protest as a violation of rights of other [Page 805] governments. Such situations have, however, been the occasion for the development of the widely prevalent system of clearing and payments agreements and the bilateral balancing of trade implicit in such agreements. On grounds of policy which have been frequently stated, this Government has not only not entered into such clearing agreements but has consistently opposed such agreements as being the most disruptive, discriminatory and restrictive types of trade-control devices. This Department is, therefore, not disposed to take action looking toward the withdrawal of funds of American concerns from Japan by offset against funds of Japanese concerns in the United States, as the Commercial Attaché would appear to suggest.

The Department has found it useful in such situations to do what it can informally to seek to induce governmental authorities to make exchange available for the gradual paying off of frozen commercial indebtedness of this kind, certainly to the extent that exchange is made available to creditors of other nationalities either by the free action of the exchange control authorities or as part of clearing or other control arrangements. It therefore believes you should take suitable occasion to explain to the Japanese authorities that the American enterprises concerned are naturally embarrassed by the tying up of their liquid working capital as a result of exchange controls, and that this Government hopes the Japanese Government will do everything within reasonable possibilities to provide the exchange necessary to liquidate this indebtedness.

Moreover, it may be assumed that in view of the experience of American business firms with the exchange controls and currency depreciations in numerous countries in all parts of the world, the American firms having funds in Japan will be familiar with the problems arising in such situations. There will no doubt be many requests for the assistance of American officials in the premises. Such requests should be given sympathetic consideration within the ordinary framework of appropriate assistance to private interests affected by foreign governmental regulations. The exchange control systems lend themselves readily either to practices of arbitrary discrimination or to discriminations on grounds of commercial or other policy affected by the nationality of the foreign private interest concerned. The Embassy should be vigilant to watch for developments of this kind, which may give occasion for the exercise of good offices, for informal representations and eventually for formal representations or protest.

In several cases where considerable amounts of blocked funds owed to Americans have accumulated, the eventual negotiations for the liquidation of such frozen funds have been conducted by private organizations such as the National Foreign Trade Council, by direct negotiation with the foreign government concerned.

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In such negotiations this Government has sometimes been able to play an effective informal role in bringing the negotiations to a successful conclusion.

The Embassy is requested to keep the Department informed of all developments in this field in view of its commercial economic and financial importance. It should endeavor to secure accurate estimates in bulk and in reasonable detail of the volume of frozen funds, and keep close observation over any agreements which the Japanese authorities may enter into with other governments dealing with this matter.

Very truly yours,

For the Secretary of State:
Sumner Welles
  1. Neither printed.