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State Department that the steamship companies are now in readiness to arrange, through their representatives in New York, for such a conference as suggested at as early a date as possible; and that an agreement will be reached among themselves as to the allocation of the $650,000 payment; and that the payment of the said amount will be made in cash at the time of the consummation of the agreement. [WASHINGTON,] October 31, 1936.

JAPAN'S PROPOSAL THAT PERPETUAL LEASES IN FORMER FOREIGN SETTLEMENTS IN JAPAN BE CANCELED IN FAVOR OF OWNERSHIP RIGHTS

894.52/42

The Secretary of State to the Ambassador in Japan (Grew)

No. 1018

WASHINGTON, April 30, 1936. SIR: Reference is made to your despatch No. 1269, dated May 1, 1935,15 in which there is discussed the question of properties in the former foreign settlements in Japan held under perpetual leasehold. It is noted that effort is being made by the British Embassy at Tokyo to devise an arrangement whereby perpetual leaseholders will abandon their claim to exemption from certain taxation and accept deeds in fee simple for their properties in return for sums of money to be paid them by the Japanese Government. It is noted further that the British Ambassador expressed the hope that no definite steps be taken by the Embassy, "as complications might arise should representations be made by the two Embassies along different lines".

The observations hereinafter submitted are based on an examination of the information in the Department's possession on the subject of perpetual leases in Japan, most of which is derived from a pamphlet entitled, A Survey of the Perpetual Lease Question, printed by the Japan Chronicle, Kobe, Japan, in 1932. This pamphlet will be cited hereinafter simply as Survey.

It is the understanding of the Department that in 1894 when agreement was reached between the British and Japanese Governments in regard to the abolition of the extraterritorial rights of British subjects in Japan, it was proposed by the Japanese Government that simultaneously with the abolition of such rights the leaseholds in Japan of British subjects be converted into freeholds; but that the British Government indicated unwillingness to enter into any such arrangement unless provision were made to compensate leaseholders for the loss of exemption from taxation of leasehold property. The Treaty of Commerce and Navigation concluded on July 16, 1894, be15 Not printed.

tween Great Britain and Japan,16 provided that the leaseholds were to be confirmed at the time of the abolition of extraterritorial rights and that "no conditions whatsoever other than those contained in such existing leases shall be imposed in respect of such property". The treaty concluded on April 3, 1911, between Great Britain and Japan 17 contained no analogous provision, but the British and Japanese Governments agreed, as set forth in an annex to that treaty, that

"the contention of either Government regarding the position of the holders of leases in perpetuity in the former foreign settlements, which it was agreed between the two Governments should form the subject of a separate negotiation, was not in any way prejudiced by the omission of reference to that question in the Treaty."

The Treaty of Commerce and Navigation concluded on November 22, 1894, between the United States and Japan 18 contained a clause corresponding to the clause above described of the Anglo-Japanese treaty of 1894. In 1910, the Japanese Government proposed to the American Government the conclusion of a new treaty of commerce and navigation, and on October 19, 1910, the Japanese Embassy at Washington presented to the Department a draft of a suggested treaty 19 which contained no reference to perpetual leaseholds. On January 23, 1911, the Department informed the Japanese Embassy 19 that the American Government would be prepared to enter upon negotiations for a new treaty of commerce and navigation, but it pointed out that there were "certain . . .20 matters of prime importance which in the opinion of the Department of State should likewise be considered and settled in principle at the outset of the negotiations". In regard to properties held under perpetual lease, it was proposed that "the present status of the perpetual leasehold property in the former foreign settlements, which have now acquired an established character, will be confirmed and maintained until a mutually satisfactory settlement of the various questions involved be arranged by the parties concerned". At the earnest solicitation of the Japanese Government, however, the American Government did not insist upon insertion in the draft treaty of any clause defining or preserving the rights in regard to leasehold property of American citizens, but there was given by the Japanese Government an undertaking that American leaseholders would be given the benefit of the "superior position" of leaseholders of other than American nationality. Your attention is directed in this connection to the telegram dated February 19, 11 p. m.

16 British and Foreign State Papers, vol. LXXXVI, p. 39.

17 Ibid., vol. CIV, p. 159.

18 William M. Malloy (ed.), Treaties, Conventions, etc., Between the United States of America and Other Powers, 1776-1909 (Washington, Government Printing Office, 1910) vol. 1, p. 1028.

19 Not printed.

"Omission indicated in the original instruction.

919456-54-67

(1911), from Mr. O'Brien 21 to the Department.22 (No record can be found of the receipt from the Embassy of a copy of the form which was reported by Mr. O'Brien to have been received by him on February 19, 1911, from the Minister for Foreign Affairs, and it is requested that a copy of that form be furnished to the Department at your early convenience.) At the further solicitation of the Japanese Government, the American Government agreed, as set forth in Article 16 of the Treaty of 1911,23 that the Treaty of 1894 "shall cease to be binding" upon the coming into effect of the new treaty.

It appears, therefore, that while the existing treaty between the United States and Japan contains no provision relating to the status of perpetual leases in Japan held by American citizens, such a provision was omitted in consideration of the agreement of the Japanese Minister for Foreign Affairs to give American leaseholders any benefits which might be granted to other foreign leaseholders (see telegram from Embassy, February 19, 1911, 11 p. m. and Department's reply of February 21, 1911, 3 p. m.24). This Government accordingly has the right to insist that American holders of perpetual leases in Japan shall receive treatment in no respect less favorable than the treatment accorded to other foreign leaseholders in respect of such leases.

The essence of the contentions of the leaseholders appears to be that the land covered by the leases was, in fact, bought outright by the leaseholders from the Japanese Government and that, therefore, "...25 the so-called ground rent is equivalent to nothing more or less than a sum paid as commutation of all present and future taxes" (Survey, page 54). The contention that the perpetual leases were, in fact, title deeds conveying the properties to the leaseholders is supported by the language of a sample document covering a certain property in the foreign settlement of Yokohama (Survey, page 44). The document is entitled "Title Deed for Lot No. . . .". While the preamble recites that the property is leased in consideration of a stipulated sum of money plus an annual payment of rental, the second, third and fourth paragraphs of the document clearly establish that the so-called leaseholder takes full title to the property with the right of sale subject to certain express conditions. The second paragraph of the document provides "That any transfer of said lot or any portion thereof shall be made to no other person than a subject or citizen of a Power having a treaty with Japan and shall be executed before the Consul of the parties concerned and shall be registered at the Kanagawa Ken-Cho". The third paragraph even more definitely estab

21 T. J. O'Brien, then Ambassador in Japan.

22 Not printed.

23

Signed at Washington, February 21, 1911, Foreign Relations, 1911, p. 315. 24 Neither printed.

25 Omission indicated in the original instruction.

lishes the document as a deed of sale and not a lease. That paragraph provides "That no portion of said lot or any building which may be erected thereon shall be sold or leased to any Japanese subject, unless both the Japanese and Consular Authorities grant an official act of authorization under their seals of office legalizing such transfer

or lease..." 26 (Underscoring added.) The fourth paragraph provides in part that "The non-performance of any of the aforesaid conditions will render this Title Deed null and void, and the said lot shall revert to the Japanese Government and the buildings thereon shall become their property".

Assuming that the sample copy is authentic and that it is substantially similar to all the other agreements under reference, there can be no reasonable doubt that the leaseholders are in fact the owners and not merely the lessees of the properties in question. Additional support for this conclusion is found in the wording of the receipts given by the Government Land Office at Yokohama for the "consideration" named in the so-called leases. A sample receipt issued by the office mentioned reads as follows:

Received this . .

"Government Land Office,

day of . . .

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Subject.

. the sum of Mexican Dollars full of Purchase money of Bluff Lot No. . . . $..

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Seal of the Land Office." (Survey, page 55)

Inasmuch as the so-called leasehold properties were actually sold to the leaseholders and since the record discloses that the "purchase money" was considerably in excess of the sale value of similar lands in Japan at that time, it would appear reasonable to assume that the "annual rental" was not intended as additional compensation for the property which had apparently already been paid for in full. The questions are therefore presented why the annual rental was stipulated in the leases; on what basis was it computed; and for what purpose or purposes was it intended to be applied.

The agreements concluded in 1867 and 1868 between the leaseholders of Hyogo and Osaka and the Japanese authorities in respect of lands in those foreign settlements are cited by the leaseholders in support of their contention that the annual rental was intended to be in commutation of all municipal charges. Article 7 of the agreement of May, 1867, reads as follows:

"All the ground leased to foreigners at Osaka and Hyogo will be subject to a payment of an annual rent calculated at a rate that will be considered sufficient to meet the expenses of keeping in repair the

"Omission indicated in the original instruction.

roads and drains, cleansing and lighting of and maintaining orders in the Settlement, and the ordinary land tax payable at the present date to the Japanese Government." (Survey, page 20)

Article 5 of the agreement of August 7, 1868, relating to the same settlements, reads as follows:

"The annual rent of the said ground at Osaka and Hyogo shall be 1 bu per tsubo, which shall be paid in advance into the municipal fund of each place and shall be appropriated to the repairs of roads and drains, lighting the streets or other municipal purpose, subject however to a first charge of 1,524 bu at Osaka and 1,641 bu at Hyogo, which sums shall be paid annually to the Japanese Government as the ordinary land tax due on the said ground." (Survey, page 20)

The earlier arrangement respecting the foreign settlement of Yokohama is not so explicit as those relating to Hyogo and Osaka. The arrangement concluded between the leaseholders of Yokohama and the Japanese authorities and recorded in a memorandum of December 19, 1864, contains the following provision:

27 Finally, in order to avoid all further discussion about the keeping of roads, drainage, cleaning of streets and other municipal objects for which hitherto the Japanese local authorities have been held responsible in view of the high rental paid by all foreign leaseholders, it has been agreed that these objects shall henceforth be secured by the foreign land-renters themselves, and towards the expenses that must be incurred anually there shall be a deduction of 20 percent from the yearly rent paid by all land leased to foreigners, to be paid into a municipal fund." (Survey, pages 7 and 8)

For three years following this agreement the leaseholders of Yokohama administered the foreign settlement but their only revenue was the 20 percent of the annual rentals remitted by the Japanese Government, plus license fees for publicans (afterwards declared illegal and discontinued), which proved inadequate to cover municipal expenses; and the administration of this settlement was again taken over by the Japanese in 1867 and continued to be administered by them until the settlements were incorporated in the Japanese municipal system in 1899. It also appears that the inadequacy of the 20 percent of the annual rental remitted to the leaseholders of Yokohama was recognized in arrangements made in 1868 for the administration of the foreign settlements of Osaka and Hyogo by which 75 percent of the rental was remitted by the Japanese Government for municipal expenses. It further appears that an additional sum of 25 percent of the proceeds of sales of leases of settlement lots was paid into a municipal fund for the three foreign settlements mentioned. At a meeting of the leaseholders held in Yokohama in April, 1909, a committee report contained the following statement:

27 Omission indicated in the original instruction.

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