The Ambassador in Japan (Grew) to the Secretary of State
[Received February 17—9:25 a.m.]
110. Department’s 53, February 11, 6 p.m.
1. On February 12, 1937, there was promulgated a law providing for five new taxes the proceeds of which were to be deposited in the “North China special account”. On September 10 there was created by law No. 85 the “temporary military expenditures account” which is stipulated by the law to be an account independent of and distinct from the “general account” of the Japanese Government. This latter law further provides that on all expenditures connected with the “North China Incident” (which has previously been disbursed from the general account) are to be paid from the above special account and that certain specific revenues including the taxes above referred to are to be paid into such special account. It seems clear from the foregoing that the proceeds of these taxes are not being paid into the general exchequer for meeting the normal and general expenditures of the Japanese Government but that they are on the contrary being earmarked and expended solely for military purposes.
2. We understand that certain American residents have been called upon to pay one or two of the special taxes which have a direct incidence but so far as we know none of them has paid.
3. It is our view that the special taxes above referred to and other similar taxes now before the Diet are for the special and sole purpose of financing military operations in China and that exemptions should be claimed in respect of American citizens on the basis of treaty provisions.
4. We suggest that we be authorized as a first step to make oral representations to the Foreign Office including the leaving of an aide-mémoire which would present the facts and conclusions above outlined and would conclude with a paragraph substantially as follows:
“It seems beyond assault of doubt or cavil that the taxes under reference, along with other taxes which may hereafter be laid down for the specific purpose of providing funds for military purposes in China, fall, insofar as citizens of the United States are concerned, within the prescription set forth in the last paragraph of article I of the Treaty of Commerce and Navigation of 1911 between the United [Page 614]States and Japan, which reads as follows (text omitted). The American Government would, therefore, welcome an expression from the Japanese Government of concurrence in the view that the taxes under reference are not applicable to citizens, whether private or corporate, of the United States, and invites an assurance that measures which have been taken to collect such taxes from citizens of the United States will be discontinued.”