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Siam Moves toward Government Oil MonopolyAuthor(s): Alvin BarberSource: Far Eastern Survey, Vol. 8, No. 14 (Jul. 5, 1939), pp. 167-169Published by: Institute of Pacific RelationsStable URL: http://www.jstor.org/stable/3023392 .

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1939 Siam Moves Toward Government Oil Monopoly 167

fered serious declines, while metals and ores, and chemicals and pharmaceuticals rose sharply. In numer? ous other less important items?such as tobacco, wines, beers, spirits and table waters, candles, soap, oil, fats, waxes, gums and resins, and hides and leather?large percentage gains, though comparatively small in abso? lute figures, have been experienced.

In spite of the annoyance and injuries to British in? terests resulting from such Japanese acts as the estab? lishment of monopolies, export prohibitions, exchange control regulations, tariff revisions favorable to Jap-

anese products, discrimination in the granting of rail?

way facilities, and inefficient telegraph service, Brit- ain's commercial position in Tientsin was, until the

present crisis, still strong. The blockade, by threatening the existence of the concession itself, constitutes an in-

comparably greater danger to British interests.

(See in previous issues: "Japan's Inner Mongolian Wedge," June 5, 1939; "Japanese Extend Exchange Control to North China," May 24, 1939; "The Basic Conflict over Foreign Con? cessions in China," May 10, 1939; "The War and Western Interests in North China," Oct. 12, 1938.)

Irving S. Friedman.

SIAM MOVES TOWARD GOVERNMENT OIL MONOPOLY

Reports from Southeast Asia indicate that Siam is

moving rapidly in the direction of a government mo?

nopoly of oil. This country, without petroleum re? sources of its own, has depended for its supply upon the products of the British Borneo and Netherlands India fields, distributed by the Standard Vacuum and

Royal Dutch Shell groups. Now, with Japanese tech? nical assistance and equipment, a government refinery is in process of construction at Bangkok, and a govern? ment organization for the distribution and sale of

petroleum products in the country has come into existence. Although competition in the trade and rigid control over other distributors seem to be the present national program, developments point to an eventual situation which will find the government alone operat? ing in the field.

As an international commodity, oil seldom smoothes troubled waters and sometimes succeeds in disturbing those which are reasonably calm. The entry of the Siamese Government into the oil business, while hardly an epoch-making event in itself, is the kind which fre?

quently creates international complications because im?

portant Western interests are affected. In this instance, however, the way has been thoroughly prepared in ad? vance by Siamese diplomacy, and the present move

having been anticipated is to some extent discounted, although again, as in the case of Manchoukuo and

Japan itself, Western oil companies see the closing of another "open door" in the Far East.

Siam's requirements for petroleum products are small. A tiny country, it has also been a land largely without roads. Despite the extensive construction pro? gram undertaken by the government in recent years, there are only about 3,500 miles of roads in Siam, of which approximately 2,200 miles are surfaced. It is esti? mated that there were, at the close of 1938, between

12,000 and 12,500 motor vehicles of all kinds in opera? tion, of which about half were registered in Bangkok.

It is obvious that the demand for motor transport fuels is not excessive. As in most of continental Asia, Siamese imports of kerosene have regularly exceeded

imports of gasoline. Taking all refined products to-

gether, Siamese needs are met by imports of upwards of half a million barrels a year, or perhaps 1% of pres? ent production in the Dutch oil fields, which are the

country's most important source of supply. This constitutes a negligible fraction of total world production. {Far Eastern Survey, May 24,1939, p. 130.)

Nevertheless it is important to Siam. The expensively supported army, preoccupied like its colleagues in

larger countries with problems of national defense, has certain minimum requirements for controlling the sup? ply of petroleum products essential for its needs. The demands of the army are reflected in the government oil program. Another factor is the desire of the present regime, seconded by the army, to encourage local in?

dustries, an aspect of the general trend toward self-

sufficiency now evident in Siam, in keeping with the

spirit of the times. (Far Eastern Survey, Dec. 21,1938, p. 289.)

Neither government monopoly nor government in business is a new story in Siam. Until the middle of the last century, staple articles of export were exclusively a

royal monopoly. The Siamese State railways, with their Diesel locomotives, are celebrated in the Far East, and other utilities and public works are government con? trolled. The army has long manufactured for its own use and has recently begun to supply certain articles for

public consumption. Failing the appearance of private capital for investment in new home industries, the gov? ernment has shown itself ready to supply the deficiency. Within the past eighteen months a sugar factory and a

paper mill, both government owned and government operated, have begun to function.

The new oil refinery at Bangkok represents a con- tinuation of this trend. It was foreshadowed in the re? vision of earlier treaties with the United States, Japan and principal European countries recently undertaken

by the Siamese Government for the purpose of elimi-

nating any vestiges of extraterritorial control which

might hamper its economic program. The treaty be? tween Siam and the United States, for example, negoti- ated on November 13, 1937, and ratified in 1938, in? cluded the following significant provision not embodied



168 Siam Moves Toward Government Oil Monopoly July 5

in the old treaty: Nothing in this treaty shall be construed to restrict the right

of either high contracting party to impose on such terms as it may see fit . . . Prohibitions or restrictions upon articles which, as regards production or trade, are or may hereafter be subject within the country to a monopoly exercised by or under the control of the State . . .

With this explicit acknowledgment of its right to do so, the Siamese Government took the oil situation in hand. The Liquid Fuel Act B. E. 2481, enacted toward the close of the last fiscal year (March, 1939) and pro? mulgated in the following month, reserves the "distil-

lation of liquid fuel" exclusively to the government or

under its exclusive control. Liquid fuel is broadly de-

fined in the act and includes all refined products of

petroleum.

Apparently at first the government intended to sup?

ply only its own needs without attempting the business

of general distribution, but the program seems to have

undergone considerable expansion. The capacity of the

Bangkok refinery is 200 tons per day, well in excess of

government requirements for the army, official motor

transport and other purposes, except in gas oil and

Diesel oil. On the basis of estimated consumption in

1937, capacity output of the new refinery would pro? duce from five to six times as much gasoline as the gov? ernment needs and slightly more than sufficient to sup?

ply the total requirements of the country. Assuming a

well-balanced refinery, which is reasonable in view of

the fact that the Bangkok plant is competently de-

signed and equipped, the approximate ratio of refinery

output to total consumption in 1937 would be: for gaso? line 102%, for kerosene 33%, for fuel oil 354%, and for

gas oil and Diesel oil 15%.

While the use of motor vehicles in Siam may be ex?

pected to increase with the new road-building program, and while older rolling stock on the Royal State rail?

ways is being replaced with new Diesel locomotives, there is nothing to prevent the government from build?

ing a second refinery or as many more as needed. In

government circles it is expected that the Bangkok re?

finery will eventually supply the country's approxi? mate requirements for all petroleum products except kerosene. A start is to be made at once, the government has already ordered west coast American crude for June

delivery, and a government selling organization is be?

ing created to handle distribution throughout the

country. For the present the government intends to enter the

distributing field only as a competitor. The Royal Dutch Shell and Standard Vacuum groups which now

control it are not excluded from further participation in the business, but their operations are drastically

regulated by the new Liquid Fuel Act. This law is

closely modeled after the Japanese oil control law of

1934. It contains a similar storage provision, requiring

as a national defense measure that importers must keep in storage not less than half of the liquid fuel which

they are allowed to bring into the country during any one year. It sets up a strict system of import permits covering each shipment into the country, a provision expected to be administered on a quota basis. The gov? ernment, under this plan, will also have its distribution

quota, presumably adjusted to the output of the Bang? kok refinery. In addition to these permits for individual

shipments, the Fuel act requires commercial importers to take out long-term licenses, valid for a period of five

years, and allows the license holder to withdraw from business before the expiration of the license only at the discretion of the minister of economics, who is to ad- minister the act. It also endows this official with full

power to fix wholesale and retail prices, either for the

country as a whole or for any locality.

It is unlikely that either Standard Vacuum or Shell will care to continue their business in the country with? out some modification of the law or unless some under-

standing with the government is obtained in regard to the administration of its more drastic provisions. Fail-

ing this, both companies have in fact indicated that they will withdraw from the country in July, when provi? sions of the law become effective, ninety days after its

promulgation. While the logical implications of the

government program point to the eventual displace- ment of Shell and Standard Vacuum from the Siamese market as the government refinery is able progressively to meet the country's needs, should both distributors withdraw now, the government would immediately face the responsibility of supplying the entire requirements of the country for petroleum products.

As an earlier reference has indicated, the Bangkok refinery is being built with Japanese equipment and un? der the supervision of Japanese engineers. Several years ago Japan built a 2,000 ton tanker for the Siamese Gov? ernment and in the recent past has trained native Siamese as petroleum technologists. Japanese interest in Siam's development is well known and is seen not

only in the oil industry but in such projects as the con? struction of the new port of Bangkok, under taken by Japan for the Siamese Government. Since Japanese participation in these ventures seems to be confined en?

tirely to the technical side there is no justification for

reading political implications into the proceedings or

any reason to expect a deliberate reversal of traditional Siamese policy, which has aimed to steer a careful middle course among the great powers in the East. Siam has resisted every development, including foreign loans, which might tend to limit its independence or freedom of action. Because of the strategic location of its terri?

tory, however, and because the ghost of the Kra Canal has never been entirely laid, the future course of the



1939 Manchoukuo Trade Drain on Yen; Malayan Tin Clash with Agriculture 169|

Siamese Government with respect to Japanese assis? tance in the development of the country will be watched

with interest. (See "Siam Manoeuvering Toward Self-

Sufficiency,,, Dec. 21,1938.) Alvin Barber.

MANCHOUKUO TRADE INCREASES DRAIN ON YEN-BLOC EXCHANGE

The pressure on the foreign-exchange situation of the

yen bloc is one of the weakest features of the Japanese position. Any development that affects that situation is therefore of importance. The trend revealed by the Manchoukuo trade returns for 1938 is a case in point, for the shift from a favorable to an adverse balance in Manchoukuo's trade with "third countries" is con-

tributing to an already stringent exchange problem. In the years prior to the Manchurian Incident in

1931, Manchuria had a favorable balance of trade. With the investment of Japanese capital in development work after the establishment of Manchoukuo, the bal? ance became adverse. However, the unfavorable bal? ance in the trade with Japan was offset by a favorable one with third countries. This continued for a number of years, but the situation has now changed as the re? sult of war demands and the execution of the five-year plan (see "Manchoukuo Now in Third Year of Five- Year Plan," May 10,1939). Imports increased substan-

tially in 1938 and the adverse balance reached a figure three times that of 1935. While the bulk of the imports were supplied by Japan, the demand for machinery and materials from third countries also increased consider-

ably. The effect upon Manchoukuo's balance of trade is seen in the following table (in million yuan):

1935 1936 1937 1938

These figures would indicate that the balance with third countries, though sharply reduced, still showed a

slight surplus in 1938. In the meantime, however, the

meaning of the term "third countries" had changed. Germany and China no longer fall into that category; a

large part of China is now within the yen bloc, while

trade with Germany has been governed since the spring of 1936 by a three-cornered barter arrangement which balances the favorable Manchoukuo-German trade

against the unfavorable Japanese-German trade (see

"German-Japanese Partnership in Eastern Asia," Oct.

26, 1938). Consequently trade with these two countries no longer yields free foreign exchange. In this connec? tion it is important to note that Germany and China, next to Japan, are the largest markets for Manchou- kuo's exports. In 1938 the favorable balance with China amounted to MY42.4 million and with Germany to

M?13.2 million. If these figures are taken out of the

total, the balance with "third countries" becomes ad? verse to the extent of M?44.6 million. The real picture may be presented as follows (in million yuan):

1936 1937 1938

In other words, Manchoukuo is now in the red in its

trade with "third countries." The consequent shortage of foreign exchange is making itself felt in various ways and is handicapping the execution of the five-year plan.

While the sums involved are not large, this deficit comes at a time when Japan is also facing a stringent

foreign-exchange situation. Either Japan must make up the difference, or imports into Manchoukuo of war ma?

terials and supplies for the five-year plan must be re

stricted. Either course will affect Japan adversely. Be

cause of the shortage of essential exchange, Manchou

kuo is exercising strict control and is also endeavoring to obtain more exchange by increasing exports of staple

products (see "The New Stress on Agriculture in Man

churia," June 7,1939). John R. Stewart.

MALAYAN TIN PRODUCERS CLASH WITH AGRICULTURAL INTERESTS

The present conflict between tin and agricultural in?

terests in Malaya has thrown light on several important aspects of the general economy of this area as well as on the future prospects of the country as a primary pro? ducer of one of the world's key minerals. On the one

hand, the Malayan tin mining industry is suffering gen? erally from the incidence of the low export quota im?

posed by the International Tin Committee; tin stocks are oversupplied, prices are low and barely half the

country's dredges are in only part-time operation (see Far Eastern Survey, June 21, 1939, p. 154). On the

other, the tin producers claim that the most urgent problem facing their industry is the need of new land for mining. It is here the conflict has arisen._

The Malayan interests feel that international restric? tion has permitted countries outside the scheme to

more than double their production since 1931 until now

the latter produce roughly 30,000 tons a year out of a

total world production of approximately 150,000 tons, and they feel that they were unduly discriminated

against when smaller producing countries within the

scheme?for example, Bolivia?were allowed larger quotas than they could comfortably fill at first. This

artificial stimulus to production within the restriction

ranks, plus the output of the noncooperating countries, is regarded as a real thfeat to Malaya's dominant posi? tion in the tin world (see Far Eastern Survey, Aug. 24, 1938, p. 200). The only way to meet this threat, it is

