693.002/525: Telegram
The Consul General at Shanghai (Gauss) to the Secretary of State
[Received 3:05 p.m.]
309. I discussed the customs situation yesterday afternoon with the Japanese Consul General who says he has received no instructions in regard to the assurances we desire and that any such assurances must, of course, be given at Tokyo. He suggested that customs revenues in Japanese occupied ports be deposited in the Japanese bank while those in Chinese ports be placed in the British bank, and that the interested foreign representatives should now determine the quotas due from each port for service of foreign obligations, saying that it can also be arranged to release quotas from other Japanese occupied ports. He desires that quotas be fixed for a year and that they be based upon revenues for the past 5 or 6 months. I pointed out that if the assurances we desire are given and implemented in good faith it will be a simple routine process for the Inspectorate General to determine monthly or every 2 months what amounts are due from each port for servicing loan obligations. I again complained of the extremely unsatisfactory situation here under which the customs are restricted in functioning and Japanese ships and Japanese merchants are not paying tonnage dues and customs duties. I also stated that reports indicate continued smuggling in North China. He asserted that smuggling in the north has been stopped and he is anxious to settle the customs question here and suppress irregular practices.
[Page 661]2. It seems to me obvious that what the Japanese now desire is to obtain for their own purposes of customs revenues over and above the lowest possible fixed quotas for customs expenses and foreign obligations, leaving all other questions to be dealt with in future by the puppet governments of their creation.
Repeated to Tokyo, Hankow and Peiping.