Foreign Relations of the United States Diplomatic Papers, 1934, The Far East, Volume III

893.6363 Manchuria/34: Telegram

The Ambassador in Japan (Grew) to the Secretary of State

Tokyo, August 20, 1934—3 p.m.
[Received August 20—2:20 p.m.]

182. Department’s 132, August 4, noon.¹⁸ Having discussed the reply of the Foreign Office to our informal representations with my British colleague and with local representatives of American and British oil companies, I have arrived at the following conclusions:

1. Further diplomatic representations in Tokyo would appear to be futile because the Japanese Government obviously does not intend to intervene with “Manchukuo” on behalf of American oil interests.

2. Nevertheless, I am convinced that practical steps should be taken by the American Government and oil companies (working in conjunction with the British Government and oil companies) in an effort to defeat the proposal to establish an oil monopoly in Manchuria, not only because such a monopoly would close the Open Door as regards petroleum products, but also because success in this venture would encourage the Chinese in the establishment of monopolies, would almost inevitably result in the discriminatory operation of the petroleum control law in Japan and would certainly lead to other monopolies in Manchuria. Reports have already been published that tobacco and automobile sales monopolies are under consideration by the Manchurian authorities. These two monopolies, together with the oil monopoly, if carried into effect, would in large measure abolish direct American trade in Manchuria.

3. While I hesitate to advise any course of action which might tend to exacerbate feeling between Japan and the United States, at the same time I do not believe that the policy of suppression of contentious issues should be carried to a point where important American policies and interests become seriously jeopardized. Moreover, the projected closing of the door to direct American trade in Manchuria, in the face of repeated official assurances, to the contrary, seems to me to be sufficiently serious in potential consequences to justify our considering the use of a bargaining weapon, as might be found in an indication of retaliatory measures.

4. The representatives of the two large American and British oil companies believe that the Japanese authorities would be influenced by even an indication that the American and British Governments were purposing restriction or stoppage of sales to Japanese and future Manchurian refineries of crude oil of the type which the refineries are fitted to handle most profitably. Deprived of crude oil of high gasoline content from American and British sources, Japanese refineries would rapidly find themselves in a difficult position. I have been reliably informed that Japanese officials recently conducted inquiries as to the possibility of obtaining crude oil from what they termed “neutral” countries but in every case they found the quality to be unsatisfactory, the supply to be inadequate or the cost of transportation excessive. The initial indication of retaliatory measures might therefore well take the form of a request by the American Government for statistical data from American crude oil exporters for the purpose of studying the effect of crude oil exports on American oil interests abroad.

5. With an import and sales licensing system (in reality a quota system designed to restrict imports of refined petroleum products and to favor local refining) already in operation in Japan and with the prospect of a monopoly in Manchuria, it would appear to be selfinjury for the United States to supply the Japanese and future Manchurian refineries with our best oil, thus enabling them in the long run to drive out our long-established oil organizations in Japan and Manchuria and eventually to render useless their installations and investments.

6. Because of the numerous sellers of crude oil, particularly in California, the Japanese representatives of American and British oil companies think that it would be impossible to stop or limit exports to Japan without the support of their respective Governments. I am not in a position here to evaluate the degree of hardship which might be caused to small American exporters of crude oil if such measures were carried out.

7. It is rumored that the Japanese authorities in Manchuria are apprehensive in regard to the plans of the Manchurian authorities to establish an oil sales monopoly, partly because of the diplomatic representations already made and partly owing to accusations of the closing of the Open Door contained in a recent article on the subject of the proposed oil monopoly in the New York Times. It is therefore possible that a reasonable amount of additional pressure might cause a modification or even abandonment of the plans.

8. We must not close our eyes to the fact that a very serious issue is at stake, involving in large degree the future of our commercial interests and our traditional policy in the Far East. The Department may therefore wish to consider the political expediency of discussing with the British Government the commercial feasibility of a partial or total embargo on exports of certain composition oils to Japan.

9. My British colleague is cabling his Government along similar lines.

Repeated to Peiping.

Grew

18. Not printed; it requested information.