2. "Manchukuo" exists by the favor and support of the Japanese
Government.
  3. The Japanese Government has indicated that it does not intend
to intervene with its protege on behalf of American interests which
will be affected by this subsidiary monopoly. Obviously it serves
Japanese (military) interests that an area, restricting sale of petro-
leum products, should be created in Manchuria to favor the develop-
ment of a market for the higher-priced petroleum products of the oil
shale refinery now being developed at Fushun.
  4. Furthermore, the state of world production and competition in
kerosene products permits, if it does not encourage, the setting up of
just such machinery as has been devised for the purpose of controlling
the sale and distribution of those products in Manchuria. Similar
developments are already present in the consuming areas of China.
  5. There would be, naturally, nothing for American producers to
do but to negotiate with monopoly for sale of crude oil and prepare to
liquidate their distributing machinery in Manchuria.
  Repeated to Tokyo.
                                                         JOHNSON

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 con-
junction 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 al-
most 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 Man-

18 Not printed; it requested information.



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J"APA