693.002/757
The Consul General of Shanghai (Lockhart) to the Secretary of State
[Received October 11.]
Sir: I have the honor to refer to my despatch Number 1639 of September 2, 1938,16 and to transmit herewith as of probable interest copies of a letter, with its enclosure,17 addressed to me under date of September 12, 1938, by the Inspector General of Customs with regard to the urgency of an early implementation of the Anglo-Japanese Customs Arrangement.
While the Inspector General has long been known to favor the early implementation of the Customs arrangement this is the first time that he has, to my knowledge, advocated so forcefully its immediate implementation or pointed out so boldly that Japan has already secured [Page 741] the major advantages she might expect to receive from the arrangement and that financially China has much to gain and little or nothing to lose by its implementation at the present time.
In the face of repeated Japanese warnings that they intend to treat the deposits of Customs revenues now in Japanese banks, after deduction of Customs local expenses, as surplus, the Inspector General calls attention to the danger that Japan will use these deposits as security to obtain immediate cash advances.
While the implementation of the agreement would unquestionably tend to strengthen and regularize the position of the Chinese Maritime Customs staff operating in Japanese controlled areas, this office is not yet convinced that the Chinese Government does not intend to use its failure to receive revenues from the Japanese occupied areas as an excuse for the declaration of a complete or partial moratorium on the payment of amortization and perhaps even of interest on Chinese Government loans. Moreover, under the present conditions the fact that the arrangement envisages the provision of foreign exchange by the Chinese Government to cover all out-payments from loan quota funds received by it in Chinese national currency might be regarded as a disadvantage outweighing any advantages which it could expect to receive from the implementation of the agreement.
Respectfully yours,