693.001/352a: Telegram
The Secretary of State to the Ambassador in Japan (Grew)
339. 1. There is given below the text of a note which the Department authorizes you in your discretion to present to the Japanese Foreign Office. In our opinion early presentation of the note would be desirable. However, before presenting the note, please go over the text carefully with a view to making such changes or additions as in your judgment would be helpful. You are authorized to use your discretion as to whether the Department should be consulted in reference to any such changes or additions. The text of the note follows:
“The Government of the United States has had frequent occasion to make representations to Your Excellency’s Government in regard to action taken and policies carried out in China under Japanese authority to which the Government of the United States takes exception as being, in its opinion, in contravention of the principle and the condition of equality of opportunity or the ‘Open Door’ in China. In response to these representations, and in other connections, both public and private, the Japanese Government has given categorical assurances that equality of opportunity or the Open Door in China will be maintained. The Government of the United States is constrained to observe, however, that notwithstanding the assurances of the Japanese Government in this regard violations by Japanese agencies of American rights and interests have persisted.
It is recalled that at the time of the Japanese military occupation of Manchuria the Japanese Government gave assurances that the Open Door in Manchuria would be maintained. Notwithstanding those assurances there was established in Manchuria with Japanese military impulsion, and there is maintained in Manchuria today with Japanese military support, a régime which has progressively established Japanese trade and enterprise in a preferred position. The principal economic activities in that area have been taken over by special companies which are controlled by Japanese nationals and which are established under special charters according them a preferred or exclusive position. A large part of American enterprise [Page 49] which formerly operated in Manchuria has been forced to withdraw from that territory as a result of the preferences in force there. The arrangements between Japan and the régime now functioning in Manchuria allow the free movement of goods and funds between Manchuria and Japan while restricting rigidly the movement of goods and funds between Manchuria and countries other than Japan.
This channeling of the movement of goods is effected primarily by means of exchange control, exercised under the authority of regulations, issued under an enabling law, which provide expressly that for the purposes of the law Japan shall not be considered a foreign country nor the Japanese yen a foreign currency. In the opinion of my Government, equality of opportunity or the Open Door has virtually ceased to exist in Manchuria, notwithstanding the assurances of the Japanese Government that it would be maintained in that area.
The Government of the United States is now apprehensive lest there develop in other areas of China which have been occupied by Japanese military forces since the beginning of the present hostilities a situation similar in its adverse effect upon the competitive position of American business to that which now exists in Manchuria.
On April 12, 1938, I had occasion to invite the attention of the Minister for Foreign Affairs to reports which had reached the Government of the United States indicating that discrimination in favor of Japanese trade with north China was likely to be effected by means of exchange control and to ask for assurances that the Japanese Government would not support or countenance financial measures discriminatory against American interests. Although the Minister for Foreign Affairs stated then that the Japanese Government would continue to support the principle of equal opportunity or the Open Door in China,74 no specific reply has yet been made by the Japanese Government on the subject of these representations.
The Government of the United States now learns that the Japanese authorities at Tsingtao have in effect established an exchange control, that they are exercising a discretionary authority to prohibit exports unless export bills are sold to the Yokohama Specie Bank, and that the Bank refuses to purchase expert bills except at an arbitrary rate far lower than the open market rate prevailing at Tientsin and Shanghai. A somewhat similar situation apparently prevails at Chefoo. Furthermore, reports continue to reach the American Government that a comprehensive system of exchange control will soon be established throughout north China.
Control of foreign exchange transactions gives control of trade and commercial enterprise, and the exercise, either directly or indirectly, by the Japanese authorities of control of exchange in north China would place those authorities in position to thwart equality of opportunity or free competition between Japan and the United States in that area. In such a situation, imports from and exports to the United States, as well as the choice of dealers in north China, would be entirely subjected to the dispensation of the Japanese authorities. Notwithstanding the short time that exchange control has been enforced in Tsingtao, two cases of discrimination have already [Page 50] been brought to the attention of the Government of the United States. In one instance an American dealer in a staple commodity has been unable to export to the United States because Japanese authorities there have insisted that his export bills be sold to a Japanese bank at a rate so far below the current rate of exchange of the Chinese currency in the open market that such transactions would involve a loss rather than a profit; but a Japanese competitor recently completed a large shipment invoiced at a price in United States dollars which was equivalent to the local market price calculated at the current open market rate. In the other instance an American firm was prevented from purchasing tobacco in Shantung unless it should purchase so-called Federal Reserve notes or yen currency with foreign exchange and at an arbitrary and low rate of exchange, conditions not imposed upon the company’s Japanese or Chinese competitors.
The Government of the United States has already pointed out to the Japanese Government that alterations of the Chinese customs tariff by the régimes functioning in those portions of China occupied by Japanese armed forces and for which the Japanese Government has formally assured its support are arbitrary and illegal assumptions of authority for which the Japanese Government has an inescapable responsibility. It is hardly necessary to add that there can be no equality of opportunity or Open Door in China so long as the ultimate authority to regulate, tax, or prohibit trade is exercised, whether directly or indirectly, by the authorities of one ‘foreign’ power in furtherance of the interests of that power.
It would appear to be self-evident that a fundamental prerequisite of a condition of equality of opportunity or Open Door in China is the absence in the economic life of that country of preferences or monopolistic rights operating directly or indirectly in favor of any foreign country or its nationals. On July 4 I spoke to the Minister for Foreign Affairs of the desire of the American Government that there be avoided such restrictions and obstacles to American trade and other enterprises as might result from the setting up of special companies and monopolies in China. The Minister was so good as to state that the Open Door in China would be maintained and that the Government of the United States might rest assured that the Japanese Government would fully respect the principle of equal opportunity.75
Notwithstanding these assurances, the provisional régime in Peiping announced on July 30 the inauguration as of the following day of the China Telephone and Telegraph Company, the reported purpose of this organization being to control and to have exclusive operation of telephone and telegraph communications in north China. There was organized in Shanghai on July 31 the Central China Telecommunications Company,76 and the Special Service Section of the Japanese Army has formally notified foreign cable and telegraph companies that the new company proposes to control all telecommunications in central China. According to a semiofficial Japanese press report, there was organized at Shanghai on July 28 the Shanghai Inland Navigation Steamship Company, to be controlled [Page 51] by Japanese, the reported object of which is to control water transportation in the Shanghai delta area. According to information which has reached my Government, a Japanese company has been organized to take over and operate the wharves at Tsingtao which have hitherto been publicly owned and operated. Should such a development occur, all shipping of whatever nationality would become dependent upon a Japanese agency for allotments of space and stevedoring facilities. The wool trade in north China is now reported to be a Japanese monopoly; and a tobacco monopoly in that area is reported to be in process of formation. Moreover, according to numerous reports which have been reaching my Government, the Japanese Government is proceeding with the organization of two special promotion companies which it has chartered and which it will control with the object of investing in, unifying and regulating the administration of certain large sectors of economic enterprise in China.
The developments of which I have made mention are illustrative of the apparent trend of Japanese policy in China and indicate clearly that the Japanese authorities are seeking to establish in areas which have come under Japanese military occupation general preferences for and superiority of Japanese interests an inevitable effect of which will be to frustrate the practical application of the principle of the Open Door and deprive American nationals of equal opportunity.
I desire also to call Your Excellency’s attention to the fact that unwarranted restrictions placed by the Japanese military authorities upon American nationals in China—notwithstanding the existence of American treaty rights in China and the repeated assurances of the Japanese Government that steps had been taken which would ensure that American nationals, interests and property would not be subject to unlawful interference by Japanese authorities—further subject American interests to continuing serious inconvenience and hardship. Reference is made especially to the restrictions placed by the Japanese military upon American nationals who desire to reenter and reoccupy properties from which they have been driven by the hostilities and of which the Japanese military have been or still “are in occupation. Mention may also be made of the Japanese censorship of and interference with American mail and telegrams at Shanghai, and of restrictions upon freedom of trade, residence and travel by Americans, including the use of railways, shipping, and other facilities. While Japanese merchant vessels are carrying Japanese merchandise between Shanghai and Nanking, those vessels decline to carry merchandise of other countries, and American and other non-Japanese shipping is excluded from the lower Yangtze on the grounds of military necessity.77 Applications by American nationals for passes which would allow them to return to certain areas in the lower Yangtze Valley have been denied by the Japanese authorities on the ground that peace and order have not been sufficiently restored, although many Japanese merchants and their families are known to be in those areas.
American nationals and their interests have suffered serious losses in the Far East arising from causes directly attributable to the present conflict between Japan and China, and even under the most favorable [Page 52] conditions an early rehabilitation of American enterprise in China and of American trade with China cannot be expected. The American Government therefore finds it all the more difficult to reconcile itself to a situation in which American nationals must contend with continuing unwarranted interference with their rights at the hands of the Japanese authorities in China and with Japanese actions and policies which operate to deprive American trade and enterprise of equality of opportunity in China. It is also pertinent to mention that in Japan, too, American trade and other interests are undergoing severe hardships as a result of the industrial, trade, exchange and other controls which the Japanese Government has imposed incident to its military operations in China.
While American interests in the Far East have been thus treated at the hands of Japanese authorities, the Government of the United States has not sought either in its own territory or in the territory of third countries to establish or influence the establishment of embargoes, import prohibitions, exchange controls, preferential restrictions, monopolies or special companies—designed to eliminate or having the effect of eliminating Japanese trade and enterprise. In its treatment of Japanese nationals and their trade and enterprise the American Government has been guided not only by the letter and spirit of the Japanese-American Commercial Treaty of 191179 but by those fundamental principles of international law and order which have formed the basis of its policy in regard to all peoples and their interests; and Japanese commerce and enterprise have continued to enjoy in the United States equality of opportunity.
Your Excellency cannot fail to recognize the existence of a great and growing disparity between the treatment accorded American nationals and their trade and enterprise by Japanese authorities in China and Japan, and the treatment accorded Japanese nationals and their trade and enterprise by the Government of the United States in areas within its jurisdiction.
In the light of the situation herein reviewed, the Government of the United States asks that the Japanese Government implement its assurances already given with regard to the maintenance of the Open Door and to noninterference with American rights by taking prompt and effective measures to cause (1) the discontinuance of discriminatory exchange control and of other measures imposed in areas in China under Japanese control which operate either directly or indirectly to discriminate against American trade and enterprise; (2) the discontinuance of any monopoly or of any preference which would deprive American nationals of the right of undertaking any legitimate trade or industry in China, or of any arrangement which might purport to establish in favor of Japanese interests any general superiority of rights with regard to commercial or economic development in any region of China; and (3) the discontinuance of interference by Japanese authorities in China with American property and other rights including such forms of interference as censorship of American mail and telegrams, and restrictions upon residence and travel by Americans and upon American trade and shipping.
The Government of the United States believes that in the interest of relations between the United States and Japan an early reply would be helpful.”
2. The Department authorizes you in your discretion to inform your British colleague of the contents of the foregoing note.
- See memorandum by the Ambassador in Japan, April 12, 1938, Foreign Relations, Japan, 1931–1941, vol. i, p. 762.↩
- See Foreign Relations, Japan, 1931–1941, vol. i, pp. 605, 606, 614.↩
- See telegram No. 1074, August 6, 6 p.m., from the Consul General at Shanghai, p. 432.↩
- See also pp. 143–209, passim.↩
- Foreign Relations, 1911, p. 315.↩