Foreign Relations of the United States Diplomatic Papers, 1938, The Far East, Volume IV

611.9431/162½

Memorandum by the Chief of the Division of Far Eastern Affairs (Hamilton)⁹⁴

[Washington,] October 10, 1938.

Today in many parts of the world various foreign governments are embarked upon courses of action definitely prejudicial to American rights and interests. These courses of action have force as their mainspring; they are the negation of the procedure of orderly processes. They are resulting, directly or indirectly, in confiscation of American property; discrimination against American trade and American nationals; and denial to Americans of equality of commercial opportunity.

In the Far East, Japan has been pursuing for a number of years a course of active aggression in China. As a result of that aggression, American rights and interests in China have been and continue to be impaired. Up to the present we have pursued a course of keeping the record clear by the filing with Japan of representations in protest and in reservation of our legal rights. Our representations have had very little practical effect in remedying the situation. The fighting continues; American properties continue to be bombed and to be occupied by Japanese soldiers, in the Chinese territory over which Japan has gained military control, Japan is setting up special companies—some of a monopolistic character and some enjoying a preferred position; Japan has inaugurated a system of exchange control which enables Japan to deflect to its own purpose normal trade and commerce and which places Japan in position effectively to discriminate against all non-Japanese trade and commerce; and Japanese nationals have resumed trading on the Yangtze while Americans and other foreigners are still prevented or seriously restricted by the Japanese in their efforts to resume normal trading activities. It requires no gift of prophecy to perceive that if Japan is successful in the present hostilities, Japan will inaugurate measures the net effect of which will be that American rights and interests in China will be subjected to Japan’s dispensation and American trade and commerce will be continued only in lines which Japan itself (or its allies) is unable to supply. Most of the American property which has been occupied by the Japanese military will probably be returned, eventually. But mere representations and the maintenance of our legal position will not serve to eliminate the other instances of Japanese interference with and impairment of American rights and interests in China.

Not only in the Far East but also in the Americas and in Europe some governments are pursuing courses of action which have impaired and which threaten further to impair American rights and interests.

In the light of this situation, which is becoming increasingly serious, the question arises whether there are any means which this Government might advisedly adopt to make more effective its efforts to protect American rights and interests.⁹⁵

It is suggested that an effective means toward this end would be the broadening of our commercial policy so as to enable the American Government to adopt retaliatory measures in the field of trade and commerce against nations whose actions, whether within their own territories or in the territories of third nations, result in impairment of the legal rights and interests of American nationals and discriminations against American trade. Section 338 of the United States Tariff Act of 1930⁹⁶ gives the Executive a considerable measure of discretion in taking action against foreign nations which discriminate within their own boundaries against the trade of the United States in favor of third countries. A new technique of discrimination has, however, developed in which the offending nation treats all commerce with reasonable similarity in its own territory but through force (military, economic or financial) causes to be set up in its own favor in the territory of another nation or nations machinery tending to destroy or damage the established interests and trade of third nations. That is the situation confronting the United States in Manchuria and in the Japanese-occupied parts of China proper. The American law which authorizes retaliation does not cover such a situation. In dealing therewith it would probably be necessary for the Executive to ask that the Congress broaden by amendment the scope of existing law and perhaps grant certain additional specific powers for certain express purposes. Such powers might include, for example, authorization to impose special dues upon the shipping of the offending nation, to raise the tariff within specified limits on certain of the products of that nation, to impose duties on products now on the free list (so as to include raw silk) and the like. While it may be doubted whether the Congress would give the Executive blanket authority in this regard, it is suggested that the Congress might be willing to give the Executive certain limited and definitely specified powers.

The nature of the powers which the Executive would request of the Congress would require careful examination. There would need to be, also, careful examination of the question whether the grant to the Executive of wider powers of retaliation in the commercial field than now exist would run counter to this Government’s historic commercial policy and long-continued advocacy of the principles of equality of commercial opportunity and of most-favored-nation treatment.

It is the belief of the author of this memorandum that a grant to the Executive of additional discretionary authority to take certain types of specified action in the commercial field against countries whose governments pursue policies which in effect result in discriminations against American trade and commerce either in their own territories or in the territories of third countries would give this Government a highly useful weapon in endeavoring to obtain more adequate protection for American rights and interests abroad. Such a weapon would need be used but sparingly. Its mere existence would, it is suggested, tend to have a deterring and sobering effect on certain nations. The broadening of our commercial policy, as envisaged in this memorandum, would be generally uniform in relation to all parts of the world. The question whether the policy should be actively implemented in reference to any particular part of the world would, however, naturally depend upon the circumstances of the situation confronting American rights and interests in that part of the world.

The resting of a course of retaliatory action on the basis of the withholding of privileges to a particular country because of the impairment by that country of American rights and interests would be something which the foreign government concerned could understand. A foreign government would have no warrantable basis for contending that it should continue to enjoy in the United States and its possessions equality of opportunity while that government was taking action either in its own territory or in the territory of a third country resulting in impairment of American rights and interests. Also, the course now envisaged would not, it is believed, jeopardize our policy of non-involvement and impartiality, as it would be followed only in cases of clearly proven discrimination against and impairment of American rights and interests.

If you are of the opinion that the suggestion made in this memorandum warrants consideration, I would suggest that such further study as may appear desirable be instituted with a view to drawing up any needed projects of law. I need hardly emphasize that in so far as the Far East is concerned this whole question is an urgent one.⁹⁷

M[axwell] M. H[amilton]

94. Addressed to the Adviser on International Economic Affairs, Feis, and the Assistant Secretary of State, Sayre. See also memorandum of July 30 by the Chief of the Division of Trade Agreements, vol. iii, p. 244.
95. The Secretary of State on March 31 had suggested to officers of the Department the study of possibilities for commercial retaliation against Japan by American executive action.
96. Approved June 17, 1930; 46 Stat. 590, 704.
97. Notation by the Adviser on Political Relations, Hornbeck: “Concur.”