893.512/1519
The American Consul General at Shanghai (Lockhart) to the Japanese Consul General at Shanghai (Hidaka)4
Sir and Dear Colleague: I have the honor to refer to your letter of April 26, 1938, transmitting a memorandum in response to the memorandum handed to Consul General Okamoto by Consul General Gauss on January 18, 1938.5 The latter memorandum pointed out that the Consolidated Taxes are security for the cotton, wheat and flour credits granted to China in 1931 and 1933 by agencies of the United States Government and reserved the right to hold the Japanese authorities accountable for any actions by persons nominated, appointed or acting at the instance or under the direction of the Japanese military or other authorities disregardful of American interests in the matter.
I have forwarded a copy of your memorandum to the Department of State, but feel that I must point out that it appears to me that your contention that the principal and interest of the cotton, wheat and flour credits of 1931 and 1933 have been and are being paid out of the Chinese Customs Revenue has no direct bearing on the matter.
This office is not informed whether all or any part of the payments have been made from the Chinese Customs Revenues but, in case they have been made therefrom, the fact remains unchanged that, although also secured on the five percent flood relief customs surtax, the consolidated obligation of the Chinese Government held by the Export-Import Bank of Washington, D. C., is primarily secured upon the consolidated taxes and becomes immediately due and payable in full from either or both these revenues at the option of the Export-Import Bank of Washington if any installment of principal or interest on the consolidated obligation is not paid promptly when due.
I must therefore insist that no action shall be taken or countenanced by the Japanese authorities in the areas from which the legitimate [Page 313] Chinese authorities have withdrawn which fails adequately to take into account the aforementioned obligation to the Export-Import Bank of Washington, and I take this opportunity to reassert that the right to hold the Japanese authorities accountable for action disregardful of American interests in the matter is fully reserved.
I have [etc.]