893.61331/118: Telegram
The First Secretary of Embassy in China (Salisbury) to the Secretary of State
Peiping, October 9,
1938—noon.
[Received October 9—7:30 a.m.]
[Received October 9—7:30 a.m.]
611. Embassy’s 596, October 3, 5 p.m.90
- 1.
- A secretary of the Japanese Embassy read a statement yesterday to me in regard to discrimination against the Universal Leaf Tobacco Company. After referring to the agreement made between the British-American Tobacco Company and Japanese military last spring (Embassy’s 226, April 12, 9 [5] p.m.91), he said that the American Company had suggested at that time to the Japanese that it purchase $300,000 Chinese currency worth of foreign exchange, but changing its mind in late May saying that it had given up its intention of buying leaf tobacco in large quantities; that it now wishes to buy without purchase of foreign exchange probably because there is now no need for special protection along the Tsingtao-Tsinanfu Railway as a result of successful Japanese military operations; that the Japanese Embassy and military authorities regard the company as expecting too much (that is, the company is presumptuous); that acceptance of the American authorities’ request would mean discrimination against the British firm; that the latter would then demand withdrawal of conditions of its agreement; that, in regard to the question of purchase of foreign exchange by Chinese and Japanese firms, the fact that they are so purchasing has probably not been noticed by the American company because there is no difference in the exchange value of yen and Chinese currency; that, therefore, there is no discrimination against American interest; and that, taking into consideration both American and Japanese interests, the Japanese Embassy suggests that the American company purchase a certain limited amount of foreign exchange, not so much as that previously proposed, so that difficulties with the British company would thereby be avoided. The secretary stated that if this solution is not accepted he believed the question would become dead-locked.
- 2.
- I pointed out to him that the existence of a voluntary agreement made by a British firm with the Japanese military did not justify [Page 62] this attempt to force an American company to purchase foreign exchange and that Japanese and Chinese firms were not being forced to buy foreign exchange at a loss to themselves in order to purchase tobacco whereas the American firm would have to suffer an approximately 40 per cent loss by purchasing exchange at an arbitrary rate rather than at the actual and favorable market rate of exchange obtainable, I said that, in seeking thus to impose its requirements on an American company, the Japanese authorities appear to be making an attempt to strengthen the Federal Reserve Bank by forcing the American firm to provide that bank with foreign exchange. The Secretary replied that the American company ought to help the Federal Reserve Bank in gratitude for the action of the Japanese military in making purchase of tobacco possible along the railway. I pointed out to him that it had also been Japanese military action some months ago which had made purchase in that area impossible.
- 3.
- If the company actually negotiated last spring in regard to purchase of foreign exchange, the position of the company would seem to be morally considerably weakened.
Repeated to Chungking, Tokyo, and Tsingtao.
Salisbury