493.949/12–2150
Memorandum by the Director of the Office of Northeast Asian Affairs (Johnson) to the Deputy Assistant Secretary of State for Far Eastern Affairs (Merchant)
Subject: SCAP Policy on Control of Exports from Japan to Communist China and Hong Kong.
In January 1950, State and Army advised SCAP that: (a) exports of 1A items from Japan to Communist China (including Manchuria) and North Korea should be presumptively denied; (b) controls on 1B items exported from Japan to these destinations should be at least as restrictive as might thereafter be imposed by the UK or Western European countries.
In administering security controls on Japanese exports, SCAP directed the Japanese Government to submit to GHQ for validation applications for export of 1A and 1B items. After June 25, 1950 SCAP withheld action on applications for export of 1B items to Communist China but some 1B items were shipped on the basis of previously [Page 686] validated export licenses. On December 6, 1950, SCAP directed the Japanese Government to suspend exports of goods requiring export licenses to the China mainland (including Hainan and other islands under the control of the Peoples’ Government), Manchuria, North Korea, Hong Kong and Macao unless new approval of the Japanese Government and SCAP validation is dated on or after December 6. The few export commodities unaffected by the new restrictions are of little importance in trade with the China mainland. In order to permit a continued flow of normal commodities for domestic consumption in Hong Kong, SCAP has indicated that he intends to license export shipments to that area subject to “absolute guarantees” on end-use from the Hong Kong Government representative in Tokyo.
SCAP has urgently requested information from the Department of Army regarding US policy on types of goods to be licensed and how licenses will be processed, indicating that he intends to be guided closely by US policy. He has been kept fully informed of US actions, including the suspension of licenses amounting virtually to embargo on trade with Communist China and the highly restrictive measures adopted by the Department of Commerce on an “interim, emergency” basis regarding exports, including non-positive-list items, from the US to Hong Kong and Macao.
In the first eight months of 1950, Japanese trade with the areas of interest was as follows (in thousands of dollars)
| Imports from | Exports to | |
| Communist China | 28,140 | 7,025 |
| Hong Kong | 185 | 19,147 |
| All areas (GARIOA imports included) | 607,720 | 457,678 |
Japan’s imports from Communist China were less than 5% of her total imports in this period, but were important in supplying to Japan coking coal, iron ore, soybeans and salt available elsewhere only at much higher cost. Trade with Hong Kong, which is conducted on an open account basis, is important to Japan principally as a source of foreign exchange earnings. The imbalance is presumably explained by the fact that while a substantial amount of Japanese goods is sold to other parts of Asia through Hong Kong, imports into Japan are largely procured directly and do not move through the intermediary of Hong Kong. The trade with Communist China has been on a compensating basis, and the apparent imbalance is explained by the lag in Japanese deliveries. If deliveries are not made, China will have claims against Japan which will be a cause of future difficulty.
[Page 687]No comments have been received from SCAP on the latest Department of Commerce regulations sent to him for information on December 15. So long as SCAP refuses to license shipment to the China mainland of items subject to export control, virtually no exports will move from Japan to that area. Nevertheless, action by SCAP in conformity with the US embargo would appear desirable. If, as has been reported, the Chinese Communists are embargoing exports to Japan, a parallel decision by SCAP to suspend all shipments to the mainland of China may be safely assumed, if SCAP has not already done so in view of the US decision.
While the current Department of Commerce policy on US–Hong Kong trade may be unnecessarily restrictive for Japan–Hong Kong trade, it is believed that the Department should not attempt to dissuade SCAP from applying equally severe regulations if he considers it advisable to do so, nor from making such modifications as he deems desirable. Discussions on a somewhat more liberal US policy toward Hong Kong are going forward now and the results will be communicated to SCAP in the near future.
Recommendation: It is recommended that the Department not undertake at this time to advise SCAP on policy for control of exports from Japan to Communist China and Hong Kong, and that it leave the decision to SCAP’s discretion under the basic instruction of January 1950.1
- Mr. Merchant appended the following handwritten note to this memorandum: “I agree—at least until US Govt has hammered out a policy for Hong Kong. In any event we shld keep SCAP informed of all developments here.”↩