894.6363/146: Telegram
The Ambassador in Japan (Grew) to the Secretary of State
[Received December 8—3:27 a.m.]
271. My British colleague has received a telegram from London dated December 5 to the effect that the British Foreign Office has discussed the general oil situation with a representative of the State Department now in London who has concurred in the following views.
- (a)
- The petroleum monopoly in Manchuria and the Japanese petroleum industry law are interrelated aspects of the same problem and should be handled as such; and
- (b)
- If a restriction of the export of oil is eventually decided upon, the step should be taken by the oil companies on a commercial basis leaving the respective Governments so far as possible in the background.
Clive is instructed to make renewed representations to the Foreign Office concerning the effect on our companies of the Japanese petroleum industry law but only after learning that I will take similar action. He has prepared a provisional aide-mémoire which he has [Page 778] shown to me in confidence and which he proposes to hand informally to the Vice Minister for Foreign Affairs after hearing affirmatively from me.
Following is a summary of the British provisional aide-mémoire. It is couched in courteous phraseology.
(1) British Government has carefully studied memorandum of October 31 explaining substance of law and policy of its administration.
(2) Grateful for explanation and pleased that Japanese authorities do not wish to deprive persons engaged in this industry of security for their business. Explanation however has not removed anxiety lest wide powers which the law confers might be so exercised as in effect to constitute discrimination against interests of British oil companies.
(3) While Japanese memorandum states that the insistence upon annual submission of plans of operation does not connote desire to hamper continuance of business nevertheless such insistence would appear to deprive British oil interests of all security as to scale of future operations. British interests unable to count on sharing increase of trade while in the event of a contraction of demand Japanese companies might maintain their position while British quotas could be reduced.
(4) Lack of British refineries in Japan and uncertainty whether they would upon application be permitted to refine upon a scale commensurate with their present business seem to place British oil interests at a disadvantage with Japanese companies. Japanese memorandum states that establishment of refineries would be facilitated for companies whose capital was predominantly Japanese, but even this permission may be withheld in special circumstances, and in any case under such financial arrangements British oil interests would forfeit financial control of their company in Japan, a step which they find themselves unable to contemplate.
(5) Sansom74 of British Embassy after consultation with Dickover75 here inserts following observation which I quote in full:
“(Foreign Office instructions are to include an objection to those provisions of law which provide for
- (a)
- Purchase of petroleum from companies by Government.
- (b)
- Interference by Government in selling price of oil. I feel that we are on unsafe ground here. Any government can properly commandeer supplies in emergency, at current prices, and there does not seem to me to be any sinister implication in the use of the words ‘military affairs’ as well as ‘urgent necessity in public interest’. Similarly as to price fixing, it is not a discriminating provision, as I react it.
I should say that our only just ground of objection here is that, by their cumulative effect, such provisions add to the uncertainty of the companies,—making it difficult to decide future plans. I therefore suggest a modification as follows:) [Page 779]
‘While His Majesty’s Government fully comprehend the desire of Japanese Government to administer the petroleum industry law for the protection of the public welfare and for the maintenance of the interests of industry as a whole, they feel that the provisions of article 7 of the law, together with articles 7, 8 and 9 of the Imperial Ordinance for its enforcement give such scope for official intervention which cannot be foreseen as to make it difficult, if not impossible, for the British oil interests to frame plans for their undertakings with that degree of certainty as to future income and expenditure which ordinary commercial practice entails.’”
(6) Japanese memorandum makes no reference to the stock-holding provisions of the law, which from the standpoint of British oil interests are probably its most onerous. As they stand they seem to empower the holding of unlimited stocks. Present requirements are for 6 months’ stock but Minister of Commerce before Diet suggested they might be extended to 12 months’ stock. British oil interests have repeatedly informed British Government that faced with doubt as to future sales, they are also uncertain as to price for stock holding and possibility of reimbursement for such expenditure, and consequently are unable to decide whether from a commercial viewpoint they are justified in further investment in Japan.
(7) British Government feel that on basis of information furnished by Japanese Government anxieties of British oil interests are justifiable and that further explanations given by officials of Departments of Commerce and Foreign Affairs to representative of British oil interests on November 20 were insufficient to remove those anxieties. End of British aide-mémoire.
Please instruct.