786          FOREIGN RELATIONS, 19 3 4, VOLUME III

ment in a position which would make it more difficult for the authori-
ties to recede and compromise without serious loss of face.
  6. I therefore feel that it would be advisable for us to go over the
ground again in an informal conversation as envisaged in paragraph
4 of the Department's telegram No. 201, to be held preferably between
the Counselor of the Embassy and the Vice Minister for Foreign
Affairs or a bureau chief. For the purposes of clarity our points could
be embodied, if the Department approves, on an informal sheet of
paper which could be left with the Japanese official with the under-
standing that our representations were oral and not formal.
  7. The British Embassy is recommending to its Foreign Office that
the British representations be altered to the same basis as those sug-
gested above.
  8. The following are the lines suggested for the informal and oral
representations:
  (a) After expressing appreciation of the explanations made in the
Japanese memorandum of October 31, state that these explanations,
as well as those which it is understood were made orally by the Vice
Minister of Commerce and Industry on November 20, have not been
sufficient to dispel the anxieties felt by the American oil interests.
  (b) While noting the assurances given by the Japanese Govern-
ment that there is no intention, in the granting of annual quotas, of
ignoring the interests of those engaged in the oil industry in Japan
or of impairing the continuous character of the industry, the Ameri-
can Government still feels constrained to point out that the wide pow-
ers conferred by the law in the granting of quotas are such as to render
it impossible for American oil interests to gauge with any degree of
certainty the scale of their future business in Japan.
  (c) It appears from the Japanese memorandum that even if Amer-
ican oil interests are granted permission to manufacture refined prod-
ucts in Japan, they will not be permitted to share in the natural
growth of the industry but will be restricted at best to the refining of
an amount not exceeding their present import quotas, while any in-
crease in the demand will be allocated to the Japanese refiners. The
American Government expresses the hope that the Japanese Govern-
inent will see its way clear to permit those interests to continue their
business on equal terms with the Japanese oil interests.
  (d) The American Government notes that the Japanese memoran-
dum does not refer to the stock-holding requirements of the petroleum
industry law, which are considered by the American oil interests to
be the most burdensome provisions of the law. Because of the elastic
nature of these provisions, added to the uncertainty of future sales and
the lack of any assurance of compensation for the increased investment
entailed by the stock-holding provisions, the American oil interests
are unable to decide whether it is commercially feasible to invest
further funds in their business in Japan.
  (e) The American Government therefore hopes that the Japanese
Government will again consider the problems confronting the Ameri-
can oil interests in Japan and will endeavor to remove the causes of
their anxieties.