in the Party, and it is now difficult to say what the future will bring. The collapse of party politics after almost fifty years' effort can be attributed in the final analysis to ignoring the real bases for political divergencies. These bases exist in the conflict between medievalism and modern thought. The mechanization of industry is affecting every aspect of Japanese life and is bringing in its train a horde of new problems which in advanced countries would be primary political issues. Instead, they have in effect been banned from the political arena, and effort is being made with the cooperation of the politicians to solve them within the framework of what the press is pleased to call "Japanese tradition and polity". An example from the particular will clarify this generality: The cotton spinning and weaving industry is the most important industry in the country. The fact that the operatives are largely young girls recruited from the farms, that they are indentured for a period of years, and that they are housed in dormitories and paid a low wage is well known. This arrangement works admirably in the interests of both the mill operators, who are supplied with cheap labor, and the landowning classes, whose tenants obtain added income, but at the same time it is admirably calculated to preserve medieval concepts and to prevent the inevitable-a desire by labor for a greater share in the profits of industry. These conditions lead to the observation that it is unlikely that a two-party system can rest on solid ground in Japan until there comes into existence a substantial number of trained mechanics and artisans employed in mechanized factories. Unlike the native artisans, working along manual lines, they divest themselves readily of feudal concepts of relations between employer and employee, and what is also to the point, they are apt to have more schooling than the average laborer. One of the results of the war with China is a growing heavy metals industry, and as aftermath of the war there might well be introduced into Japanese politics a new honesty and vigor. Respectfully yours, JOSEPH C. GREW REPRESENTATIONS ON ESTABLISHMENT OF OIL MONOPOLIES IN JAPAN AND MANCHURIA " 894.6363/304: Telegram The Ambassador in Japan (Grew) to the Secretary of State TOKYO, January 8, 1937-7 p. m. [Received January 8-9: 10 a. m.] 3. Embassy's 268, December 24, 6 p. m.28 1. The Standard and Shell gasoline quotas for Korea for the first half of 1937 have been reduced by 37.7% from one half of the 1936 27 Continued from Foreign Relations, 1936, vol. IV, pp. 786-806. " Ibid., p. 805. quotas and their quotas for other petroleum products have been reduced to a less degree. The foreign oil companies assume that this step has been taken to make room for the products of the newly established Chosen Oil Company although it is expected that some other reason will be advanced for this cut in their trade. No definite assurances have ever been given in regard to their trade in Korea but in this connection see item 2 of the 5 point memorandum of April, 1935 29 (Embassy's despatch No. 1253, April 19, 1935). 2. The British Ambassador has telegraphed the above facts to his Foreign Office with the expectation that the Foreign Office will bring them to the attention of the Japanese Ambassador in London. 3. I shall send Dickover 30 to the Chief of the Bureau of Commercial Affairs of the Foreign Office tomorrow, not to make formal representations but simply to refer orally and informally to our representations of December 24; to bring to his attention the facts of the Korean quota reduction; and to point out that such developments are extremely discouraging to the foreign oil companies. Sir George Sansom, the Commercial Counselor of the British Embassy, will take the same step on behalf of the British interests at approximately the same time. GREW 894.6363/305: Telegram The Ambassador in Japan (Grew) to the Secretary of State TOKYO, January 11, 1937-1 p. m. [Received January 11—6: 55 a. m.] 4. Embassy's 3, January 8, 7 p. m. 1. In Dickover's talk on Saturday morning with Matsushima, Chief of the Commercial Bureau of the Foreign Office, the latter agreed with apparent sincerity that it was out of the question for the foreign oil companies either to invest further money in Japan or to guarantee an adequate return to Mitsui when their future was so uncertain as was indicated by the latest developments in the Japan and Korea quotas. He said that the Minister for Foreign Affairs had asked him to take up with the Ministry of Commerce and Industry the whole problem of the foreign oil interests in Japan and that Arita was pressing him almost daily to persuade that Ministry to seek an early adjustment of the situation by meeting in some degree the reasonable requirements of the foreign oil companies. The impression received by Dickover is that our representations of Decem 29 30 31 Memorandum of April 13, 1935, Foreign Relations, 1935, vol. III, p. 896. Erle R. Dickover, First Secretary of Embassy in Japan. 31 Hachiro Arita, Japanese Minister for Foreign Affairs. ber 24 32 have fallen on good ground, at least so far as the Foreign Office is concerned, and that Arita is genuinely disturbed at the situation of the oil companies. 2. Sansom in his talk with Matsushima also received the distinct impression that the Foreign Office is sympathetic to the plight of the oil companies. GREW 894.6363/307: Telegram The Ambassador in Japan (Grew) to the Secretary of State TOKYO, January 15, 1937-6 p. m. [Received January 15-9: 40 a. m.] 6. Embassy's 4, January 11, 1 p. m. 1. Matsushima, the Chief of the Commercial Bureau of the Foreign Office, today handed Dickover the following note verbale in reply to our representations of December 24. The note was delivered in English as well as Japanese (a most unusual proceeding with the Foreign Office) in order, as Matsushima said, to avoid any misunderstanding. "Translation. Note verbale. The Department of Foreign Affairs having consulted the competent department on the subject of the aide-mémoire of the United States Embassy dated December 24, 1936 have the honor to state in reply as follows: The Japanese Government have no intention to make any discrimination between business operations of the Standard Vacuum Oil Company which represents the American oil interests in Japan and those of any other oil industrialists. Nor have they any thought whatever of driving out of Japan the American oil interests represented by that company. To be more precise the phrase 'they will be taken into full consideration' in the reply addressed by the Director of the Mines Bureau in the Department of Commerce and Industry to the General Manager of the Standard Vacuum Oil Company under date of October 21, 1936 did not mean that consideration would be given to the question as to whether or not the four points enumerated in the letter addressed by the General Manager of the said company to the Minister for Commerce and Industry on October 9, 1936, would be carried into effect. On the contrary the reference was intended to be a confirmation in writing of the four points. The company therefore need entertain no misgiving and it is hoped that this information will be conveyed to it so that there shall be no misunderstandings in this connection. The Japanese Government hereby declare that so long as the above mentioned company faithfully observes the Japanese laws and regulations concerned they will always be prepared to give favorable con 32 See Embassy's telegram No. 268, December 24, 1936, 6 p. m., Foreign Relations, 1936, vol. IV, p. 805. sideration to its business operations. At the same time they desire to point out that the company should speedily fulfill the obligations required by the Japanese laws and regulations." 2. The note verbale was accompanied by a paper marked "unofficial" replying to my oral representations of December 24 and stating that: (a) In regard to the kerosene quotas for the latter part of 1936, increases were given to the Japanese companies and not to the foreign companies because of an increase in the domestic production of oil. It is therefore an exceptional matter and was treated in accordance with the first of the four points upon which the foreign oil companies request assurances. (b) The proposed tariff revision admits of no reasonable objection as it is applicable without distinction to any person or concern. 3. A note verbale substantially identical with the foregoing was handed to Sansom today. We concur with the British Embassy that this result of our representatives [representations?] is gratifying as definitely confirming the assurances previously given orally to the companies. GREW 894.6363/314 The Ambassador in Japan (Grew) to the Secretary of State No. 2347 [Extract] TOKYO, April 2, 1937. [Received April 19.] SIR: [Here follows a report on developments in the situation affecting American and foreign oil interests under the Japanese Petroleum Industry Law of 1934.] FUTURE POSITION OF THE FOREIGN OIL COMPANIES IN JAPAN As was reported in despatch No. 2337, dated April 1, 1937, the Japanese Government is apparently determined to proceed with its grandiose scheme to render Japan fairly self-sufficient in liquid fuel through the hydrogenation of coal, oil synthesis by the Fischer method, low temperature carbonization of coal, and the mixing of absolute alcohol with gasoline. The project, which contemplates the investment of about Yen 750,000,000, will establish the Imperial Fuel Company, which will act as the financing and administrative organ of all the synthetic gasoline plants to be established in Japan, Korea and presumably Manchuria. The plan contemplates the use of about 9,000,000 metric tons of coal per annum and, it is estimated, will render Japan about 60 per cent self-sufficient in gasoline and about 45 per cent self-sufficient in heavy oil (fuel and diesel oil) at the end of 33 "Not printed. seven years. Government subsidies amounting to about Yen 114,000,000 will be necessary to attain this end, in addition to the Government's investment in the Imperial Fuel Company. In view of the fact that coal hydrogenation industries in other countries have not been commercially feasible because of the high cost, as compared with the cost of petroleum gasoline, of the gasoline produced by such hydrogenation industries, it might be thought that the Japanese scheme is impractical. Foreign experts who have studied the question in Japan, however, are of the opinion that the project is feasible, largely because of the low cost of labor and coal in Japan, although it is improbable that the object can be attained in seven years (ten years being a more likely period) or that the scheme will cost only Yen 750,000,000. It is considered more probable that the total cost of the project will be about Yen 1,200,000,000. However, if the military authorities are determined to proceed with the plan and render Japan reasonably self-sufficient in liquid fuel, there is every reason to believe that they will eventually accomplish their object, regardless of the cost to the nation. The plans have been delayed for a time by the dissolution of the Lower House of the Diet before the Imperial Fuel Company bill and the bill providing for subsidies for the hydrogenation industries could be approved, but the bills will undoubtedly be reintroduced into the next session of the Diet and there is no reason to believe that they will not be approved. This scheme of the Government is of great importance to the foreign oil interests in Japan, principally because it will, if carried out, deprive them of their market here for gasoline and kerosene, although it is probable that they could continue to do some business in other petroleum products. As was stated before, the plan contemplates the production of 60 per cent of Japan's requirements of gasoline by the 1943-44 fiscal year. This production does not include the gasoline refined in Japan from imported crude oil. The existing Japanese oil refineries, plus those already sanctioned, will be able to produce the remaining 40 per cent of Japan's requirements. In regard to kerosene, the authorities are already in a position to dispense with imports from foreign sources at any time. The position therefore is that, by 1944, or a year or two later, there will be no room in the Japanese trade for imports of so-called "white products". The assurances recently received from the Japanese Government concerning the future position of the foreign oil companies in Japan do not protect the companies against reduction of quotas caused by increase of indigenous production of gasoline substitutes. The assurances only specify that "consideration will be given that the decrease is apportioned fairly in the light of actual conditions at the time". It may therefore reasonably be assumed that the decrease in the demand for petroleum gasoline caused by the increase in pro |