693.002/625: Telegram
The Ambassador in Japan (Grew) to the Secretary of State
[Received May 2—8 p.m.]
289. Our No. 287, May 1, 11 a.m., Chinese customs. The British Ambassador has informed me that he completed the customs arrangement this evening with the Foreign Office and that the Foreign Office will give out to the press tonight or tomorrow morning a statement to the effect that an understanding has been reached on all points with the British Ambassador. Craigie also said the Foreign Office will give a communiqué tomorrow afternoon at 2 o’clock giving some details of the arrangement. He expressed the hope that we would be in a position to express “no objection” before the communiqué is issued.
Craigie has sent me the following letter and enclosure:
“2nd May, 1938.
My dear Grew, As we informed your Embassy by telephone this evening, the Vice Minister and I exchanged the notes and confidential letters about the customs at the Ministry of Foreign Affairs this evening at 6; 00 p.m. For various reasons it was necessary to move very quickly in order to prevent a breakdown. For the moment we are merely informing the press of the bare fact that an understanding has been reached on all points and that this has been duly recorded. We are avoiding the word ‘agreement’ and the Japanese are anxious that we should avoid any reference to an ‘exchange of notes’, owing to possible difficulties with the Privy Council. Their thesis is that the notes merely record our understanding and are not in the form usually employed when an exchange of notes is intended to consummate a formal agreement.
You will remember that I mentioned that there were one or two points such as the character of the loans to be covered by this arrangement and methods of transferring the northern quotas to Shanghai which we had discussed in some detail during our deliberation. These points have now been recorded in an agreed record of our final conversation today and I enclose copy of this document for your strictly confidential information.
Believe me, Yours very sincerely, R. L. Craigie.”
[Page 693][“]Record of meeting on the Chinese Maritime Customs question between Mr. Horinouchi and Sir Robert Craigie held at the Ministry of Foreign Affairs on May 2, 1938.
Point 1. Customary Grants.
To prevent any possibility of misunderstanding Mr. Horinouchi and Sir Robert Craigie agreed that the wording of paragraph 3 of the proposed arrangement was intended to cover not only the customary payments normally made by the Commissioners of Customs before remitting the balances to the Inspector General of Customs but also those payments normally made by the Inspector General himself before meeting the service of the foreign obligations.
Point 2. Method of obtaining exchange for transfer of North China quotas.
Mr. Horinouchi pointed out that the Tientsin branches of the Bank of China and the Bank of Communications have considerable credit balances at the Shanghai offices of these banks. The best way to enable the Tientsin branch of the Yokohama Specie Bank to remit the foreign loan quotas from ports in North China to its Shanghai branch would be to let the Tientsin branches of these Chinese banks sell remittance bills against these credit balances. He asked that the British authorities should use their influence to secure the cooperation of the Chinese banks to that end. Sir Robert Craigie stated that although this would involve great difficulty, the British authorities in China would be prepared to place this proposal before the Chinese banks concerned.
In reply to Sir Robert Craigie’s inquiry as to what further measures would be taken for the creation of the necessary exchange, Mr. Horinouchi stated that should this prove necessary, it was intended to use in full the deposits which were to be transferred to the Yokohama Specie Bank from the Hong Kong and Shanghai Bank at Shanghai, Tientsin and Chinwangtao for the payment of foreign loan quotas due from ports in North China.
Sir Robert Craigie stated that, according to a telegram received from His Majesty’s Government’s Ambassador in China, the amount of the balance in the Hong Kong and Shanghai Bank at Shanghai of the Shanghai customs revenue account, the revenue surtax account and the flood relief surtax account amounted to $24,829,703.46 up to and including April 29, last. The similar balance in Tientsin and Chinwangtao was $1,762,841.85.
Point 3. Foreign obligations covered by the proposed arrangement.
Sir Robert Craigie stated that it was his understanding that paragraph 2 was intended to cover not only those loans which were directly secured on the customs revenue but also the foreign obligations having the customs revenue as a contingent security, i. e., the Tientsin–Pukow and Hukuang Railway loans. The contingent liability of the customs, in respect of the latter loan did not arise until 1941, so that, so far as he was concerned, the only loans enjoying a contingent charge which would fall within the scope of the present arrangement were the Tientsin–Pukow Railway loans. Sir Robert Craigie added that the principal and interest of these loans were secured on the railway revenues, but the customs were to make good deficiencies in interest payments. The contingent liability of the customs for the remainder of tne present [Page 694] year was 125,000 pounds; for each year 1929 to 1941 inclusive 307,000 pounds; the liability thereafter slowly decreasing.
Mr. Horinouchi replied that he was prepared to recognize the contingent interest of these loans in the customs revenue on the understand which had a contingent charge on the customs revenue, should also be regarded as covered by the arrangement. As examples he quoted the two principal loans involved namely: (a) 6 percent treasury note in gold yen for the compensation of public properties and salt interests in Tsingtao (1923). (b) Chinese Government 8 percent bonds for refunding internal and foreign short term debts (1922) so-called Japanese portion of the $96,000,000 loan.
He added that the Japanese Government had no present intention of putting forward a claim that any of these loans should be serviced out of the customs revenue.
Sir Robert Craigie stated that no objection would be raised by his Government for their part in the event of the Japanese Government putting forward claims in connection with these Japanese loans. He also concurred in the view expressed by Mr. Horinouchi that the status of the various loans was not affected one way or the other by the fact that they would be regarded as falling within the scope of the proposed arrangement”
Repeated to Shanghai for Hankow.