Foreign Relations of the United States Diplomatic Papers, 1941, The Far East, Volume IV

894.24/1750

Memorandum by the Assistant Secretary of State (Acheson) to the Secretary of State

[Washington,] September 22, 1941.

Mr. Secretary:

Trade With Japan

There are attached two memoranda⁴⁷ which survey the policies and practices of the British Empire, the Netherlands East Indies, and the United States regarding trade with Japan. Except for iron ore, manganese, petroleum and cotton (exports of which the British and Dutch are prepared to prohibit if we do so), the three countries have decided as a matter of policy to cut off exports to Japan of products useful from a military viewpoint.

The survey indicates that, contrary to our assumption, we have not gone farther in our restrictions on Japan than the British and the Dutch. Their policy decisions are in advance of ours in many respects. Our own policy, owing in part to the dual control which we exercise over trade with Japan through export control and financial control, is obscure and not fully developed.

In so far as the actual treatment of trade with Japan is concerned, as distinguished from the policy decisions, the situation is about the same in all three countries. Trade is virtually at a standstill.

The obscurity of our policy and the complexity of our financial and export controls have given rise in recent weeks to increasing uneasiness on the part of the British and Dutch regarding our intentions. They have expressed to us their desire for a more definitive but private statement of our policy, including our views on the products mentioned above, regarding which they are prepared to take action parallel to ours. In this connection, there are attached a letter from Mr. Noel Hall of September 13,⁴⁸ a memorandum from the British Embassy of September 22,⁴⁹ a despatch of September 3 from Minister Biddle,⁴⁹ and two memoranda of conversations⁵⁰ with the Minister-Counselor of the Netherlands Legation.

The British and Dutch have told us that they will go as far as we will, but that they do not want to get ahead of us. Today, for the first time, and after years of effort, we have achieved effective joint action against Japan. Indecision or the evidence of weakness on our part will endanger this common front.

Recommendations

There are certain questions now before us involving parallel action with the British and Dutch which require immediate and clear action. The recommendations made below regarding these questions would require no public announcements. In no case would they result in any actual change in our current exports, which are nil due to a combination of export control, payment difficulties and suspension of shipping facilities.

petroleum

At present no petroleum is moving to Japan from any of the three countries. However, there are applications pending before both us and the Dutch which require immediate clarification.

(1) Tentative export quotas (of which the British and Dutch have been advised) have been worked out by the United States, but exportation is dependent upon the issuance of both export licenses and financial licenses. There are three export licenses outstanding for petroleum products valued at $178,000, for which no Treasury licenses have been granted because of the inability of Japan to arrange satisfactory methods of payment. The Japanese have recently informed us that they are not prepared to meet our suggested methods of payment (use of cash held in this country by Japan or, possibly, use of concealed Japanese dollar balances held in South America). They now suggest that payment be made by the shipment to this country of gold or of American currency which they have managed to accumulate in the Far East, particularly in Shanghai. (Payment in gold is ruled out by the policy decision approved by the President not to permit the importation of gold from Japan). We are under no obligation to the Japanese to consider either method of payment, since the only methods discussed with them have been those which they have now rejected.

(2) American oil companies have applied to the Dutch for export licenses, but the Dutch have held up issuance of licenses for the reason that licenses for payment have not been granted by the United States. Should we grant these licenses for payment, our action would be interpreted by the Dutch as an indication that we want to see the oil exported.

Knowledge by the Dutch of our tentative export quotas (which they regard as excessive) and the delay in clarifying our position on the question of payment for both American and Indies oil has caused them to become increasingly uneasy.

It is recommended:

(a) That we inform the Japanese that the methods of payment proposed by them are not acceptable.

(b) That we inform the British and Dutch in strict confidence that if they are prepared to act similarly, we will not permit further exports of petroleum products.

iron ore

Malaya has exported iron ore to Japan for many years. During the last few years the Philippines have also entered this trade. Malayan exports in the most recent years have amounted to about 2,000,000 tons; Philippine exports to about 1,150,000 tons. Japan also imports fairly substantial quantities of pig iron from India.

The British state that, through prohibition of night loading and night clearance, they have reduced exports from Malaya by about forty percent. A quota of 525,000 tons was fixed for exports from the Philippines for the last seven months of this year, which is equivalent to an annual level of 800,000 tons or a restriction roughly comparable to that on Malayan exports. However, because of heavy exports during the early months of this year, Philippine exports for 1941 as a whole will show little or no reduction from the high levels of recent years.

The British have now informed us that they are prepared to prohibit the exportation of iron ore from Malaya if we will prohibit exports from the Philippines.

It is recommended:

(a) That we agree to the British proposal on condition that exports of pig iron from India be prohibited.

(b) That we tell the High Commissioner to suspend the issuance of new licenses pending further instructions, and that we review the situation with regard to any outstanding licenses.

cotton

Over a period of recent years, the United States and India have had roughly equal shares in the Japanese cotton market, the ratio from year to year depending to a large extent on price factors. During the past year, exports of American cotton to Japan were extremely small, while Indian exports continued at the level of the last few years.

Since the freezing order, no cotton has been exported from the United States to Japan, although some has continued to move to occupied China. Exports from India to Japan have been limited on a monthly basis to the 1940 level in so far as they were covered by confirmed credits prior to the freezing order. (Exports to occupied China are also tentatively limited to the 1940 level). These credits are practically exhausted. The British have offered to reduce exports to Japan to whatever level (in terms of value) that we reduce.

It is recommended:

(a) That we accept the British offer and inform them that we are prepared to withhold Treasury licenses for the exportation of cotton, except for cotton bought by the Japanese prior to freezing, the release of which would be dependent upon arrangement being made for the reciprocal release of American-owned goods by Japan.⁵¹

(b) That we approach the British with a view to working out an arrangement for restricting exports of cotton to occupied China to reliable British, American and Chinese mills.

I also recommend that, with reference to each of these products, we inform the British and Dutch that if future events should warrant any changes in our policy, we would discuss the changes with them in advance of taking action.

In conclusion, I should like to emphasize again my feeling that, unless we give the British and Dutch a clear statement of our policy and take immediate and decisive action on the questions now before us, the whole program of concerted action against Japan will be seriously imperiled and, in my opinion, if it collapses it can, in all probability, not again be resurrected within the foreseeable future.

Dean Acheson

47. Dated September 20, vol. v, p. 290, and September 22, supra.
48. Ante, p. 873.
49. Not printed.
49. Not printed.
50. On September 18 and 20, respectively; neither printed.
51. The Chief of the Division of Far Eastern Affairs (Hamilton) on September 25 reported his Division concurred in the suggestion that cotton purchased by the Japanese prior to freezing be released in exchange for the release by Japan of American-owned goods held in Japan.