893.6363 Manchuria/100
The Ambassador in Japan (Grew) to the Secretary of State
[Received December 1.]
Sir: I have the honor to refer to my despatch No. 1036, dated November 1, 1934,58 and to previous correspondence on the subject of the proposed oil sales monopoly in Manchuria, and to report the following later developments in the case.
Representations
Under date of November 5, 1934, the Foreign Office replied to the representations made by this Embassy, acting under instructions from the Department, on August 31, 1934, in regard to the proposed oil monopoly in Manchuria. The reply of the Foreign Office was in the form of a memorandum, which was sent to this Embassy without a transmitting note, but which was sent to the British Embassy in Tokyo under cover of a transmitting note marked “Confidential”. The two memoranda were identical, except that the references to the dates of representations and to the Embassies which made them, [Page 136] naturally differ in the two memoranda. A complete translation of the memorandum received by this Embassy is enclosed. The Foreign Office memorandum sets forth that the Japanese Government is not concerned with the plans of the “Manchukuo” Government for the control of the petroleum industry; that the Japanese Government approves of the adoption by the “Manchukuo” government of the principle of the Open Door, but that the Japanese Government cannot be responsible to other countries for the industrial policy of “Manchukuo”; that “Manchukuo” claims the same right as is possessed by other countries to control industries important to its national existence but does not intend to impose unfair or discriminatory treatment upon the economic activities of foreigners within its territories; that the Manchuria Oil Company is not endowed with monopolistic privileges and that the Japanese Government cannot prohibit the investment of Japanese capital in the Company; and that the monopoly plan of the “Manchukuo” government does not contemplate the restriction of the purchase of the monopoly’s supplies of oil to the products of the Manchuria Oil Company, and that the interests of foreign concerns will be considered as far as possible in the purchase and sale of oil.
A comparison of the reply of the Foreign Office with the representations made by the American Government, through the Embassy, on August 31, 1934, reveals the fact that almost no attempt has been made in the reply to refute the allegations contained in the representations. In the representations the American Government stated that “The development of a monopoly control in any field would be a matter prejudicial to the treaty rights of American nationals and would run counter to the principle of the open door” and “The American Government … has given thought to treaties to which Japan and the United States are parties and to various declarations in which the Japanese Government has given assurances that there will be maintained in Manchuria the principle of the open door”. The Japanese memorandum entirely ignores the question of the treaty rights of American nationals in Manchuria. In the second paragraph, when the statement is made that “the plan of the Government of Manchukuo for the control of the oil industry … is not within the knowledge or concern of the Imperial (Japanese) Government”, the Japanese Government practically renounces its various declarations to the effect that the principle of the open door would be maintained in Manchuria. Although not so stated, it is probable that the Japanese argument is based on the ground that the Japanese declarations in regard to the maintenance of the open door were intended to cover only the period of the Japanese military occupation of Manchuria, and ceased to be operative after “Manchukuo” became an “independent state” and [Page 137] therefore possessed of the right to regulate its own internal affairs. This attitude would seem to be implied in the statement in paragraph 2 of the memorandum to the effect that “the plan of the Government of Manchukuo for the control of the oil industry is a project of that Government itself”.
While it may be argued that the Japanese Government never specifically guaranteed the maintenance of the principles of the open door and equal opportunity in Manchuria after the government of “Manchukuo” was organized, the Japanese recognition and endorsement of the new regime was largely predicated upon the maintenance of those policies, as is evidenced by the speech of Count Uchida, then Minister for Foreign Affairs, before the Diet on August 25, 1932, and the Japanese Government’s public statement of September 15, 1932, issued on the occasion of the recognition of “Manchukuo”, which reads in part as follows:
“As regards the economic activities of foreigners, the Manchukuo Government made clear in their communication of March 10 above alluded to that they would observe the principle of the Open Door. What Japan desires in Manchuria is to do away with all anti-foreign policies there so that the region may become a safe place of abode for natives and foreigners alike, while, at the same time, guaranteeing her legitimate rights and interests there; and therefore, it is hardly necessary to repeat the assurance that Japan sincerely hopes that ail the peoples of the world will pursue their economic activities in Manchuria on a footing of equal opportunity and will thereby contribute to the development and prosperity of that region”.
The Protocol between Japan and “Manchukuo” of September 15, 1932, itself is predicated upon the observance by “Manchukuo” of international obligations applying to that territory, as is shown by the second paragraph of the preamble of the Protocol:
“Whereas Manchukuo has declared its intention of abiding by all international engagements entered into by China in so far as they are applicable to Manchukuo.”
It is difficult to see how the Japanese Government can ignore these definite declarations, but that it has done so is not only shown by the excerpt quoted above from the Foreign Office memorandum of November 5, 1934, but also in another part of the memorandum, which states that
“… while the Imperial (Japanese) Government as a matter of course hopes to see a reconciliation of the views of the said two countries it cannot be responsible to various countries for the industrial policy of the Government of Manchukuo”.
The statement in the American representations to the effect that the American Government has assumed and continues to assume that the Japanese Government wishes to implement its undertakings, was also completely ignored in the reply.
[Page 138]The statement in paragraph 4 of the Japanese memorandum to the effect that “According to the Manchuria Oil Company Law as outlined in the previous memorandum the said company is not endowed with any monopolistic privileges whatsoever” is an obvious subterfuge. The Manchuria Oil Company (which is four-fifths Japanese-owned) is apparently to be ranked as a semi-official “Manchukuo” concern, and as such is to be granted permission to manufacture petroleum products for the monopoly, the monopoly thus taking over the output of the concern and placing it in a privileged position, although not a monopolistic position. The Company, having an assured outlet for its entire product, can reasonably be expected to expand rapidly, and while its output at first will fill only about 50 per cent of the demand in Manchuria, there is little doubt that the proportion of the demand supplied by the Manchuria Oil Company will gradually increase, until eventually almost the entire demand for petroleum products in Manchuria will be filled by the Company and by the Shale Oil Refinery of the South Manchuria Railway at Fushun, which is also to be given similar privileges in regard to the monopoly. Thus it appears that, while it is quite true that under the law no monopolistic privileges are given to the Manchuria Oil Company and to the Shale Oil Refinery, the practical effect will be to give them eventually almost a monopoly of the supply of oil products to Manchuria. And, it should be observed, the Manchuria Oil Company is one-fifth “Manchukuo” owned and four-fifths Japanese owned, while the Shale Oil Refinery at Fushun is entirely Japanese owned.
The above facts also dispose of the contention in the memorandum that “it (the “Manchukuo” government) has no intention of imposing upon the economic activities of foreigners within its borders unfair, discriminatory treatment based on national origins”.
The statement in paragraph 5 of the memorandum that “the purport of the plan of the Government of Manchukuo does not contemplate purchasing all of the oil to be sold by the Government from the products of the Manchuria Oil Company” is likewise an evasion of the obvious fact that, under the monopoly system to be established by “Manchukuo”, a Japanese-controlled oil company is to be given a privileged position which is denied to concerns controlled by other nationals.
The Embassy therefore considers the Foreign Office memorandum to be entirely unsatisfactory.
The Monopoly Law
According to a Rengo news despatch dated Hsinking, November 13, the Petroleum Monopoly Law has been approved by the Cabinet and Privy Council of “Manchukuo” and was promulgated on that date. The Embassy understands that the substance of the Law has been telegraphed to the Department by the Consulate General at Mukden [Page 139] through the Legation at Peiping but encloses for the information of the Department a translation made in the Embassy of the Law as it appeared in the Tokyo Asahi, a usually well-informed newspaper. It will be observed that, in addition to the expected monopoly provisions, the Law includes some of the provisions of the Petroleum Industry Law of Japan, such as the licensing of the importation and refining of petroleum, the requirement that agents must store oil if desired by the government, and the requirement that all books and documents of individuals or firms handling petroleum products shall be open to inspection by the government.
Article 4 of the Law provides that oils which have been refined or imported under governmental permission shall be purchased by the “Manchukuo” government. This is obviously a clause inserted in the Law for the purpose of permitting the government to grant permission to the Manchuria Oil Company and the Fushun Shale Oil Refinery of the South Manchuria Railway to refine oils which will then be bought up by the monopoly, thereby assuring the two refineries of a steady market for their output.
The supplementary rules provide that the “Manchukuo” government will honor requests made by the present importers of or dealers in petroleum products to sell their equipment to the government, provided that such requests are made within one month after the date of enforcement of the Law. It appears probable that this clause means that if the foreign oil companies apply to the government to buy their installations and equipment within one month after the date of enforcement of the law, their applications will be favorably received, but that if they delay such applications until later, they will have little chance of selling their property except at a heavy loss. The clause therefore would appear to constitute an attempt to force the foreign oil companies to abandon their protests against the oil monopoly and to consent to the liquidation of their business in Manchuria, in order to save something from the ruin of their trade in Manchuria. The date of enforcement of the law has not yet been fixed but a rumor is current that the date will be February 1, 1935. The foreign oil companies therefore may be compelled to come to a decision in regard to the liquidation of their business in Manchuria by March 1, 1935.
There is also enclosed a copy of a statement issued by the “Manchukuo” government at the time of announcement of the monopoly law, as published in the Japan Times and Mail of November 14, 1934,58a The statement contains nothing of interest except the assurance that “the Government intends to compensate any loss caused to the present petroleum importers and dealers by the enforcement of new regulations”.
[Page 140]Actions of the Foreign Oil Companies
As the Department was informed in Peiping’s telegram No. 378, October 21, 6 p.m. to the Department, the foreign oil companies were requested to furnish the authorities at Hsinking by November 15, 1934, with statistics of their sales and imports during the past two years together with lists of agencies and also all plants and equipment to be turned over to the monopoly. By agreement the foreign oil companies operating in Manchuria sent the authorities at Hsinking a simple statement that they were unable to supply the information demanded, without explanation. This they believed to be the wisest course, as compliance might be construed as acceptance of the monopoly scheme and might thereby weaken any diplomatic action which might be taken.
Respectfully yours,