Dominance through Cooperation - The Japan Strategy of I.G. Farben

Abstract

This paper analyzes the Japan strategy of I.G. Farben in the inter-war period. It deals with export strategy as well as the licensing of technologies. It concludes that I.G. Farben suffered from a variety of difficulties in its Japan business, especially in the area of direct investment, and that, in spite of this, it succeeded in developing active business operations in Japan, especially in its exports of dyestuffs and nitrogenous fertilizer and in its licensing of the Haber-Bosch process for synthetic ammonia.

Akira Kudo, Institute of Social Science University of Tokyo

Introduction

This article deals with the Japan strategy of I.G. Farben, a giant German chemical firm which dominated the world market in the inter-war period. ₁ In that era, I.G. Farben was one of the technological as well as organizational leaders in the world chemical products market. For I.G. Farben, Japan was an opportunity as well as a challenge: the Japanese market supplied it with a new business opportunity, and Japanese chemical companies were new challengers to its world dominance.

The Japanese economy in the inter-war period can be characterized by its high growth rate. It experienced an annual growth rate of more than 4 per cent, among the highest in the world at that time. ₂ Moreover, the speed of Japan's industrialization was remarkable, matched only by some small East European countries. Japan seized the opportunity of the First World War to begin heavy and chemical industrialization, the pace of which did not slacken even during the World Depression of the 1930s. Japan can claim to be among the first Newly Industrializing Economies (NIE).

By contrast, the key feature of the Japanese economy during the inter-war period was economically nationalism in its tariff, commercial and foreign capital policies, although these differed in both structure and severity between the 1920s and the 1930s. In the 1920s, as in most other countries, the trade policy line followed was one of relatively free trade, although policy measures to protect domestic industries, such as imposition of custom duties and limits on the quantity of imports, were implemented. The prevalent attitude toward European and American firms was one that welcomed their direct investment in line with the liberalization policy followed since the turn of the century. Around the turn of the century, the gold standard was established, which was abandoned at the outbreak of the First World War, but reintroduced in January 1930. Also the Commercial Law Act was enforced, and foreigners acquired the right to deal in real estate and make direct investments. Various restrictions were, however, placed on the management control that could be assumed by European and American firms over their subsidiaries based in Japan. In general, the 1920s were a time of relatively weak economic nationalism.

Moving into the 1930s, we find rapidly increasing protectionism in Japan, such as tariff rises on imported industrial products, as well as the promotion of domestic products and the replacement of imports with domestic products. The tone of the Japanese government's foreign capital policy also changed to one that favored the exclusion of direct investment in Japan, a move influenced by the increased political intervention of the military. ₃ Against this background of growing economic nationalism, Japanese firms, which formed the backbone of Japan in its emergence as a first NIE, began to assert strongly their independence from European and American firms, both technically and in managerial terms. Moving from domination of the domestic market to advance into Asian markets, these Japanese companies became the new challengers to the old order of the international cartels. ₄

In short, Japan was a first NIE characterized by a high growth rate as well as growing economic nationalism. This situation raises a number of questions. How did I.G. Farben perceive the Japanese market and companies, especially the Japanese market for chemical products and the Japanese chemical industry? How did it positione them in its world strategy? What kind of business organization did it build up toward Japan following its observation and strategy? What kind of entry strategies did it adopt for the Japanese market? What kind of business activities did it pursue in Japan? What were the results of those activities? The case of I.G. Farben provides us with a good example of the strategy of Western big business toward Japan in particular as well as toward NIEs in general.

1 Overview

(1) Japanese Market and Companies

(a) Emerging Market and Industry

The Japanese market for chemical products had already developed to some extent and was developing further around the end of the 19th century and the beginning of the 20th century, along with the development of the textile industry and agriculture in Japan. Import items included dyestuffs, dyeing assistants, fertilizer, and pesticide. A modern chemical industry, represented by those products, had not yet emerged in Japan. Japan was, therefore, mostly dependent on imported chemical products. It was in those years that German chemical companies began to advance into the Japanese market. German dyestuffs companies, the ancestors of I.G. Farben, began to export their products to Japan on a full scale around 1890, and pharmaceuticals on a considerable scale from around 1900 on.

It was during the First World War that the modern chemical industry, especially the dyestuffs industry, emerged in Japan with the emergence of many small firms, the establishment of one large company, and diversification attempts by existing firms in other industries. This can be seen as a part of the world-wide diffusion of technology and production capabilities in the industry with the war as a turning point. Thereafter, the share of those new products in the production and exports of the Japanese chemical industry rose, while traditional products such as vegetable wax and peppermint oil lost their importance. The importance of the chemical industry in the Japanese industrial structure also increased: its share in the production value of the manufacturing sector, which was less than 10 per cent just before and during the First World War and stayed at this level in the 1920s, rose to 15 per cent in the 1930s. It constituted a part of the heavy and chemical industrialization of Japan. ₅

In the 1920s, however, the newborn Japanese modern chemical industry suffered from international competition. Most new products remained import items: dyestuffs, nitrogenous fertilizer, and chemicals were representative. The industry was always threatened by imported products, especially by those sold at low prices. One of the main reasons for the imports at low prices was a change in Europe after the war: the development of the division of labor in the European chemical industry, which made major exporting nations of chemical products also major importers. On the other hand, most European nations strengthened their protectionist tariff and trade policies, focusing on dyestuffs and nitrogenous fertilizer. As a result, they rushed into the Asian market, where the indigenous chemical industry was underdeveloped with low prices. In fact, the Asian market, especially the Chinese and Japanese markets, absorbed 15 per cent of the world imports of chemical product in those years and became the largest market, replacing the United States which had been largest before the war.

The rapid growth of the Japanese market continued well into the 1930s. However, German exports to the Japanese market were seriously affected by the collapse of the international gold standard and the fragmentation of the world economy into several economic blocks in general, as well as by the December 1931 re-imposition of the ban against the gold import, the fall of the yen, and the rise in import tariffs thereafter in Japan in particular. As is evident from Figure 1, German chemical exports to Japan in 1932 decreased to less than half those of 1929, with a significant drop in nitrogenous fertilizer export, and then stagnated through the 1930s.

There was another factor underlying this decrease in exports in addition to the emergence of `strong protectionism' in Japan, prompted by the fall of the yen and the rise in import tariffs: the continued gain in the production capabilities attained by the Japanese chemical industry. In the field of dyestuffs, Japanese firms expanded their production so rapidly so that they accounted for 3.2 per cent of total world-wide sales by 1938. ₆ In the field of fertilizers, Japanese firms continued to invest in plants and equipment even during the World Depression, when manufacturers abroad were producing a glut in the market. In pharmaceuticals, the great progress made by the Japanese industry and the introduction of a license system by the government led to a decrease in German exports. In fact, I.G. Farben named the Kitazato Institute as a potentially strong competitor in the field of serum. ₇ Thus, the chemical industry became an early cornerstone of industrializing Japan.

(b) German-Japanese Trade of Chemical Products

The German chemical industry, the biggest exporter in the world market, focused on the European market. In the 1920s, West Europe remained the largest market for German exports of chemical products, accounting for almost 40 per cent of its total exports. The importance of the non-European market, however, should not be neglected. The Asian market, especially the Japanese market, was important. Japan's share in German exports of chemical products was 8.4 per cent in the middle of the 1920s, being ranked third after the United States and the former Austrian-Hungarian empire. ₈ This was also true for I.G. Farben. In 1913, Japan was ranked seventh among I.G. Farben's export markets, absorbing 19.2 million marks. After the First World War, the importance of Japan as an export outlet increased. In 1926, exports to Japan accounted for 4.1 per cent of I.G. Farben's total sales including sales in the domestic market, making Japan the second largest market after China (5.0 per cent) outside Europe. It was ranked third with its share of 3.0 per cent in 1929, and second with the share of 3.5 per cent in 1932. Its importance decreased only after the middle of the 1930s, being ranked sixth with a share of 1.0 per cent in 1938. ₉

The balance of trade regarding chemical products between the two nations continued to show an enormous excess of German exports. In 1929, German exports to Japan were 92 million reichsmarks and imports from Japan were only 3 million reichsmarks. The German surplus, therefore, amounted to 89 million reichsmarks. Even in 1935, when German exports to Japan decreased as shown in Figure 1, the surplus was 27 million reichsmarks with exports of 28 million reichsmarks and imports of 1 million reichsmarks. ₁₀

Regarding the contents of German chemical exports to Japan, dyestuffs were most important in the earlier years. In 1913, dyestuffs had an 83 per cent share of I.G. Farben's exports to Japan, the rest being held by pharmaceuticals (9 per cent) and chemicals (8 per cent). ₁₁ As shown in Figure 1, however, nitrogenous fertilizer became, by 1929, Germany's single most important chemical exported to Japan, far surpassing dyestuffs and other chemical products. Other important items than nitrogenous fertilizer in the same year were chemicals, pharmaceuticals, and dyestuffs in that order.

This export structure of the German chemical industry reflected roughly that of I.G. Farben. The importance of the Japanese market was considerably important for I.G. Farben, not only in dyestuffs and fertilizers, as we will see blow, but also in other products. Its export of chemicals to Japan accounted for 2.1 per cent of its total sales including domestic sales in 1926, making Japan seventh as an export market. Japan's share was 3.2 per cent in 1932, ranking second. In pharmaceuticals, Japan was ranked the second largest export market of I.G. Farben after the United States in 1932. In photographic products, too, Japan was ranked second after the United States in 1926 with a 6.1 per cent share of total sales, with lesser importance in later years. ₁₂

(c) Japanese Chemical Companies

The features of the bilateral trade, as shown in the balance of trade and in the trade items mentioned above, reflect clearly the discrepancy in the development of each chemical industry. The one way flow of technology and direct investment from Germany to Japan also reflects the backwardness of the Japanese chemical industry.

It is hardly necessary to emphasize the significant place I.G. Farben occupied, not simply in the German industry, but in the world chemical industry as a whole. Naturally, for the newborn Japanese industry, I.G. Farben was a formidable giant. It was capitalized at 650 million reichsmarks (some 300 million yen) at its establishment, whereas Mitsui Kozan Kabushiki Kaisha (Mitsui Mining Co., Ltd), the largest Japanese mining company which was diversifying into chemical production, was capitalized at only 52.50 million yen, and the government-owned Nihon Senryo Seizo Kabushiki Kaisha (Japan Dyestuff Manufacturing Co., Ltd, hereafter referred to as Nihon Senryo) at a mere eight million yen.

As factors in the background of I.G. Farben's Japan strategy, however, we should point out not only the backwardness, but also the development and aggressiveness of the Japanese chemical industry. The Japanese chemical industry grew so rapidly as to almost dominate the domestic market and moved into exports in the 1930s. Its exports increased by the enormously high rate of 17.3 per cent from 1932 to 1937, ahead of Canada (11.3 per cent), Britain (5.1 per cent), the United States (4.0 per cent), Italy (4.0 per cent), and Germany (3.4 per cent). Its shae in the world market also almost doubled from 1.7 per cent in 1932 to 3.2 per cent in 1937. It was ranked ninth, though still far behind the three major exporting nations: Germany (25.4 per cent), Britain (13.6 per cent), and the United States (12.9 per cent). ₁₃ per cent share of total sales, with lesser importance in later years

Moving from domination of the domestic market to advance into the Asian market, Japanese companies became the new challengers to the old order of the international cartels. At the same time, they began to assert strongly their independence from European and American firms, both technically and in managerial terms against the background of growing economic nationalism, although they held a strong desire to introduce technology and management skills from European and American companies. ₁₄

(2) Strategy and Organization of IG Farben toward Japan

(a) Strategy toward Japan

How did I.G. Farben appraise the Japanese market for chemical products and the Japanese chemical industry? It seems to me that I.G. Farben recognized them fairly exactly through its business organization, as I will describe later. Then, how did I.G. Farben position the Japanese market and competition in its world strategy? In a word, it attached importance to advancing into the Japanese growing market, and it also tried hard to respond to ambitious Japanese chemical companies.

I.G. Farben saw Japan not only as an important export market in itself but also as a sales base for East Asian markets, including China. In fact, Japan with its political stability and communications infrastructure had become an important foothold for business activities in the large Chinese market.

Ultimately, I.G. Farben used toward Japan all three forms of international business activities: export of products, licensing of technologies, and direct investment. It exported its products such as dyestuffs and nitrogenous fertilizer to Japan, and licensed its technologies such as the Haber-Bosch process for synthetic ammonia to Japanese companies. It also made direct investments in Japan, both in manufacturing and in sales outlets, mainly in the latter. At first, however, I.G. Farben was extremely reluctant to pursue anything but an export strategy.

The Japanese chemical industry and the Japanese government were eager to introduce advanced technologies from European and American firms. They repeatedly requested technical cooperation with, and/or licensing from I.G. Farben. I.G. Farben was tacitly following a policy of not granting such requests, for example in the case of technical know-how about the Haber-Bosch process and technologies in the dyestuffs field, which we will see below.

An extreme illustration of I.G. Farben's lack of interest in offering technical cooperation is found in the reaction of the top executives of the Community of Interests (Interessengemeinschaft) to a proposal of technological cooperation which Fritz Haber made to them in 1924 upon his return from a trip to Japan. Haber possessed great prestige at BASF and the Community of Interests because of the remarkable success of the Haber-Bosch process, and he proposed that the community should offer technological cooperation to Japan in the field of inorganic chemistry as an indispensable means of compromise to entice the Japanese government into abolishing the import license system for German chemical products. However, the community council flatly rejected his proposal. Especially obstinate in opposing Haber's proposal was Carl Bosch, the very person who had worked closely with Haber in the development of the Haber-Bosch process, and who was then chairman of the board of directors of BASF and one of the leading figures in the community. Bosch maintained that, if the community started cooperating with the Japanese in the field of inorganic chemistry, the Japanese would then press hard for cooperation in the field of dye production as well. Calling attention to `der fast krankhafte Ehrgeiz der Japaner' (the almost morbid ambition of the Japanese), Bosch asserted that 'our objective, under any circumstances, ought to be not to offer any help whatsoever to the Japanese in their efforts to build up a profitable chemical industry, and in particular, a dyestuffs industry of their own, but rather to slow their progress in these efforts as long as possible, and moreover to reduce these efforts into a failure as best as we can.' ₁₅

It is true that there were some occasions when I.G. Farben gave positive consideration to offering technological cooperation. For instance, it considered offering technological cooperation to Nihon Senryo in the field of rayon and aluminum production as a means of discouraging the latter from developing synthetic indigo. It should be pointed out, however, that I.G. Farben brushed the idea away as soon as it discovered that Nihon Senryo was not competent enough to develop synthetic indigo. ₁₆

I.G. Farben's strategy can be understood in the light of the fact that it is usually difficult for a leading firm in the chemical industry, unlike its counterpart in the electrical machinery industry, to maintain its technological supremacy over its competitors by using its patents as leverage. It should also be recalled that the Japanese government had requisitioned German patents during the First World War, and that in April 1921 the Japanese government promulgated a Revised Patent Law which made chemical materials, but not processes, ineligible for patent protection.

In some fields of chemical production, such as nitrogenous fertilizer, Japanese firms introduced the necessary technologies from France and Italy after these had been diffused from Germany during the First World War, while in other fields they used technologies devised by themselves. In the field of dyestuffs, Japanese firms were trying hard to develop the products for themselves by copying German products. Mitsui Mining's effort to develop synthetic indigo and Nihon Senryo's to develop naphthol dyestuffs were two outstanding examples. Needless to say, the lifting of patent protection in itself did not immediately guarantee that high-technology products could be easily developed. There are a wide variety of intricate details that had to be learned or discovered before the previously patented information could be put to practical application. Nevertheless, there is no denying that these developmental efforts posed a serious threat to I.G. Farben.

Thus, in order for I.G. Farben to protect its technology, which became ineligible for patent protection, it had no choice but to deny licensing to Japan. Not only that, I.G. Farben even went so far as to dump its synthetic indigo products in the Japanese market in the hope of discouraging Mitsui Mining from developing these. ₁₇ It also had recourse to a number of other measures, including reorganization of its sales base in Japan, as will be mentioned below, and readjustment of its sales policies. In addition to these, I.G. Farben concluded a series of bilateral agreements with individual Japanese firms and with the Japanese industry as a whole as a means of securing its outlets.

In the 1930s, when `strong protectionism' emerged in Japan, I.G. Farben concluded several agreements with Japanese companies either on its own or as a member of international cartels so that it succeeded in securing a stable share in the Japanese market as well as in the Chinese and other Asian markets. I.G. Farben, however, had to acknowledge meanwhile that the Japanese market had been saturated with Japanese products. Of the two alternatives to product export which were theoretically available, namely, direct investment and licensing, the former was virtually out of the question, even apart from the growing political instability in East Asia, since the Japanese government was bent on rejecting the inflow of foreign capital.

The Manchurian Incident of September 1931 marked a turning point for the Japanese government's policy toward foreign capital, with the previous policy of welcoming foreign capital investment replaced by that of rejection. Foreign capital was to be either phased out or 'Japanized', and foreign firms were prevented from exercising control over the management of their joint ventures. ₁₈ As shown in Table 1, I.G. Farben made direct investment more in sales outlets and less in manufacturing. Only three companies, Asahi Bemberg, Nihon Tokushu Seizo, and Titan Kogyo, were manufacturing companies. Its direct investment in manufacturing firms, though not in distribution firms, was seriously restricted as before, with the result that its participating ratio in Nihon Tokushu Seizo remained at ten per cent, and that in Asahi Bemberg as low as 1.81 per cent in 1945

I.G. Farben thus opted to change its strategy, beginning to offer Japanese firms the licenses to use its know-how for the production of dyestuffs and nitrogenous fertilizer, and to export plants to the licensees. The new strategy seems to have much in common with those which advanced countries of today adopt in their relations with NIEs.

(b) Organization for Japan Business

In the 1920s, despite its 'weak protectionist' stance, the Japanese government sometimes took bold steps to sustain sections of the domestic chemical industry under threat from foreign competition. For instance, it enforced, in June 1924, an import license system to protect the dyestuffs industry which was badly in need of support. This system was, in effect, meant to discriminate against German goods. One of the counter-measures devised by the German dyestuffs industry was reorganization of its distribution outlets within Japan.

At the time, major German dyestuffs companies belonging to the industry-wide Community of Interests (Interessengemeinschaft) were being pressed hard to rationalize their business organizations as the post-war hyperinflation in Germany was brought under control. The consolidation of their sales outlets outside Germany was one of the most important and difficult tasks, because each member company considered its own traditional sales outlets, trade rights and trade marks as too precious to be subjected to reorganization and reshuffling. Nevertheless, the effort to consolidate the German sales outlets in Japan was completed relatively smoothly, most likely because each German company took a serious view of the growth potential of the Japanese industry's production capabilities and the adverse effects of the discriminatory import license system.

Interestingly enough, in the course of deliberation on the consolidation of sales organizations in Japan, BASF presented a plan which called for an immediate and complete integration of the sales branches of all the German companies concerned, while Hoechst proposed an export quota system, and Bayer suggested a partial integration as a compromise between the two. This conflict of plans preceded and anticipated a dispute at the top management level concerning the reorganization of the Community of Interests, namely, a conflict between a merger plan proposed by Carl Bosch of BASF and a share-holding plan by Carl Duisberg of Bayer. Eventually, the immediate integration measure won the day. In December 1924, Doitsu Senryo Gomei Kaisha (German Dyestuff Co.) was established in Kobe as the sole representative for the Community of Interests with the exception of Cassella. Established with a capital outlay of 300,000 yen, the office was staffed by two employees from BASF, and one each from Bayer, Hoechst, Agfa, and Griesheim-Elektron, with Richard Veit of Bayer appointed as chief manager. It was just one year after this that Bosch's plan was accepted and, as a result, I.G. Farben was established back in Germany.

Much the same pattern of reorganization took place in other fields. For fertilizer, products like nitrogenous fertilizer, H. Ahrens & Co. Nachf. was established in Tokyo as the sole representative for the Community of Interests from the outset. As shown in Table 1, sales organizations for medicine, photographic products and titanium were reorganized or newly established one after another.

As a consequence of this reorganization, the strategy of the Community of Interests in Japan was to be carried out though a set-up composed of three strata. Situated at the top was a council of the Community of Interests composed of the chief executives of the eight participating companies. This council would directly involve itself in making decisions on matters of crucial importance.

Placed directly subordinate to this council was the Japan Commission (Japan-Kommission) (later renamed East Asian Commission (Ostasien-Kommission)), charged with the task of devising the community's strategy toward Japan and carrying it out with the council's consent. Hermann Waibel of BASF was appointed as the first chief of this commission. Later, after the establishment of I.G. Farben, this commission was abolished. Waibel remained responsible for East Asian business and regularly attended meetings of the Sales Commission, one of three commissions directly subordinate to the top management, as well as of the Patent Commission, making reports and proposals regarding business in Japan, China, Manchuria, and other East Asian regions. He also regularly attended the Arbeitsausschuβ (the inner circle of the board of directors) to give reports on East Asian business. ₁₉

At the bottom of the hierarchy were local sales organizations, such as Doitsu Senryo and H. Ahrens, each responsible for directly handling the sales of a specific variety of goods in Japan. Those organizations can be seen as an extension abroad of business divisions of I.G. Farben. There was no regional headquarters in Japan nor in East Asia. This hierrarchical set-up was basically kept intact despite partial revisions even after the establishment of I.G. Farben. ₂₀

Concurrently with the adoption of a licensing strategy in the middle of the 1930s, organizations of Japanese and East Asian business were strengthened. The Arbeitsausschuβ of October 1935 decided to establish an Ostasienausschuβ according to Bosch's proposal. The reason for it was to strengthen business activities in East Asia, and especially to respond to the increasing 'competitive pressure from Japan.' Waibel remained the head of the commission. ₂₁

I.G. Farben also began to emphasize intelligence activities in Japan and East Asia. To be sure, German marketing subsidiaries in Japan, such as Doitsu Senryo, had been fairly active in collecting information, but I.G. Farben became far more active as the licensing issue developed. For instance, Max Ilgner, executive chief of its Public Relations Office, made a tour of inspection in East Asia from 1934 to 1935, and wrote a detailed three-volume report entitled `Report of the Far Eastern Tour, 1934-35.' In 1937 and 1938, Anton Reithinger, the head of the Research Division (Volkswirtschaftliche Abteilung), also made a research tour in Asian countries. <sub>22</sub> Several other reports, including `The Japanese Chemical Industry,' were also compiled, most likely by the Research Division. ₂₃

What kind of business activities, then, did I.G. Farben pursue in Japan, and what were the results of them? I will try to answer these questions by taking up three major businesses: dyestuffs, nitrogenous fertilizer, and synthetic oil.

2 Export Strategy - Dyestuffs ₂₄

(1) German Dominance and the Japanese Challenge in the 1920s

(a) The Import License System

As mentioned above, in the period before the First World War, the major German chemical companies, which dominated the world dyestuffs market, were already exporting their products to Japan on a considerable scale. Dyestuffs were an important export item. By 1913, immediately before the First World War, the Japanese market had become substantially important for German dyestuffs producers. In that year, Japan ranked as the eighth largest export market for German dyestuffs producers, importing 4.9 per cent of total German dyestuffs exports. ₂₅

With the outbreak of the first World War, however, the world market for dyestuffs experienced a shift from a German monopoly to greater competition. European nations and the United States adopted policies aimed at protecting and fostering their dyestuffs industries, and they continued and strengthened those policies after the end of the war. German and Swiss producers lost their market shares, while manufacturers in the United States, Britain, and France gained better positions. Moreover, companies from Italy, the Soviet Union, Czechoslovakia, and Poland emerged in the world market.

The First World War also brought about profound changes to the Japanese market as well as to the Japanese dyestuffs industry. With the outbreak of the war, Japanese imports of dyestuffs from Europe, especially from Germany, became impossible, and a vacuum was created within the Japanese dyestuffs market, which had formerly been dominated by German products. This led to a sudden large increase in the number of smaller indigenous dyestuffs producers. A single exception was the establishment of Nihon Senryo, which was set up as a state-owned company with share capital of 8 million yen (about 4 million US dollars) under a government policy of fostering the domestic dyestuffs industry. Moreover, one of the largest mining companies in Japan, Mitsui Mining, which was one of the main manufacturing companies of the Mitsui zaibatsu enterprise group with share capital of 52.50 million yen (about 26 million US dollars) and which had already experimentally diversified into the dyestuffs business shortly before the war, began actual operations on a commercial scale at this time. ₂₆

Immediately following the end of the war, imports into Japan were begun once more. Not only German but also Swiss and American products began to flow into the market. However, it was the German products that managed to regain their dominant position because of their superior quality. The German dominance led the Japanese Ministry of Agriculture and Commerce (which was divided in March 1925 into two ministries: the Ministry of Agriculture and the Ministry of Commerce and Industry) to set up an import license system in June 1924. This system gave the ministry the power to ban the importing of those goods that could be produced domestically. It targeted German products and functioned, in effect, as a selective barrier against German imports. The effectiveness of the import license system proved remarkable. The amount of imports from Germany was curbed as planned, for the time being, although imports from Switzerland and the United States took their place. ₂₇ This proved a blow for the German dyestuffs companies, which had, by the end of 1925, joined forces to create I.G. Farben.

(b) The Agreement with Japanese Dyestuffs Firms

I.G. Farben entered into negotiations with the Japanese Ministry of Commerce and Industry and the Ministry of Foreign Affairs, who represented Japanese dyestuffs manufacturers, especially the smaller ones.

Two years of tough negotiations produced the signing of an agreement between I.G. Farben and Japanese dyestuffs makers in August 1926. This was later called the Saito - Waibel Agreement after the representatives who signed it (Ryoei Saito was an official of the Ministry of Foreign Affairs; Hermann Waibel, a director of I.G. Farben who was responsible for Japan and East Asia). The main points contained in this agreement were:

• abolition by the Japanese government of its current import license system for German products;
• in exchange, imposition by I.G. Farben of voluntary restrictions on its exports to Japan of those dyestuffs that the Japanese were capable of producing domestically;
• as a general rule, unrestricted exports to Japan by I.G. Farben of all other products, such as synthetic indigio, that the Japanese were unable to produce.

The agreement thereby provided for the arrangement of a kind of international division of labor within the industry between the Japanese and German producers. The main reason for I.G. Farben's signing of this agreement at a comparatively early stage of Japanese industrial development was the fact that the Japanese government had early on put into effect an import licensing system that targeted German products. ₂₈ Subsequently, the agreement became the basis for the reconstruction of Japanese--German economic, as well as political, relations with the conclusion of the Japan--German Commerce and Navigation Treaty in July 1927.

(2) The Japan Strategy of International Dyestuffs Cartels

(a) The Japan Strategy of the Three-Party Cartel

With the implementation in April 1928 of the Saito--Waibel Agreement between I.G. Farben and the Japanese dyestuffs industry, the import license system became invalid. From that time on, I.G. Farben concentrated its efforts on those products, such as synthetic indigo, that had not yet been commercially developed in Japan, while at the same time it did its best to hinder the efforts of Japanese firms to develop new products.

One of the most powerful weapons it had to frustrate the Japanese was a low-price policy, which was criticized by Japanese firms as no more than a form of dumping. Another powerful weapon was I.G. Farben's refusal to provide technical assistance to Japanese firms, despite the repeated requests to it and other European companies from the Japanese dyestuffs industry and the government for technical cooperation and help. Although I.G. Farben did not openly reject these requests, it was tacitly following a policy of not responding to them in order to maintain its competitive edge.

Then, in April 1929, German, Swiss, and French dyestuffs producers concluded an international cartel. It was called the three-party cartel. German producers had come together through the establishment of I.G. Farben as early as 1925, while three leading Swiss companies, Ciba (Gesellschaft für chemische Industrie in Basel), J.R. Geigy AG, and Chemische Fabrik vorm. Sandoz, had formed a Community of Interests dating back to the First World War. French companies had also been concentrated into a dyestuffs union, CMC (Centrale des Matières Colorantes). In addition, these companies of the three countries had already concluded bilateral agreements. Then, in April 1929, they signed a new trilateral agreement, while renewing their bilateral agreements. This international cartel held a four-fifths' share of total world exports of dyestuffs products. The distribution of its total sales was 71.67 per cent for Germany, 19.00 per cent for Switzerland, and 9.33 per cent for France. While other international dyestuffs cartels had previously been formed on the basis of individual products and experienced a history of formations and collapses, the three-party cartel in 1929 became one of the most powerful international cartels of its time due to its scheme of distributing its total sales and because of its large share of the world market. The three parties used the same letterhead (the logo consisting of the figure 3 in a triangle) for their mutual correspondence, symbolizing their close cooperation. Their Japan strategy was no exception to this pattern of cooperation. ₂₉

Even before the formal establishment of the three-party cartel, a united front of European and American producers had been formed against Japan. In October 1928, a half year after the effectuation of the Satio--Waibel Agreement, most Western producers simultaneously raised the export price to Japan of all kinds of dyestuffs by a uniform 5 per cent. This concerted action was proposed by I.G. Farben and was followed by Swiss and American companies. In fact, Swiss companies were at first opposed to this action, partly for the technical reason that the different export prices of each company's products made it difficult to raise prices uniformly. A more important reason for their initial opposition was, however, that the Swiss companies were afraid that Japanese companies, especially Nihon Senryo, in an attempt to dominate the Japanese market, would not follow the Western companies' price increases. The fear of the Swiss producers became a reality and Japanese firms did not follow suit. As a result, while the market share of the three-party cartel fell, that of the Japanese firms rose. Moreover, Japanese exports, mainly to the Chinese and other East Asian markets, exceeded 1,000 tons. ₃₀

Other evidence of the development of cooperation between European producers in their Japan business exists. At the beginning of 1929, I.G. Farben had been negotiating through its agent in Japan, Doitsu Senryo, with Nihon Senryo for the conclusion of a comprehensive market agreement. Ciba, the leading Swiss company, learned of this and, at first, feared I.G. Farben's exclusive cooperation with Japanese producers. It called the attention of I.G Farben and Swiss partner companies to the necessity of cooperation in Japan business once more. I.G. Farben admitted that negotiations were taking place with Nihon Senryo, but added that any agreement would not be comprehensive. ₃₁

Details of the negotiations are unknown. It is, however, certain that while the three-party cartel wanted the conclusion of a comprehensive agreement with the Japanese, on the Japanese side, both Nihon Senryo and Mitsui Mining adopted a strategy of concluding individual or special agreements rather than comprehensive ones with their Western competitors. `When manager Voigt [of I.G. Farben] held occasional discussions with some leading representatives of Nihon Senryo and the Ministry of Commerce and Industry, the Japanese side repeated that they were prepared to negotiate for comprehensive regulations on dyestuff problems with the German side in principle, but that it was still premature to begin these negotiations.' ₃₂

The reason for their attitude was clear. The Japanese dyestuffs industry was still developing. It suffered from a lack of production lines in some principal dyes such as synthetic indigo, as well as from limited areas of export. Therefore, the Japanese side was afraid that it would tie its hands if it concluded a comprehensive agreement. Rather, it preferred to conclude a series of partial agreements and to aim at developing new products, while expanding its production capabilities and widening its export areas from China to Indo-China and British India. The tactics of I.G. Farben as well as those of the three-party cartel were entirely different from those of the Japanese side. The western firms wanted to contain the Japanese production capabilities. I.G. Farben's explanation to the Swiss companies mentioned above may, therefore, have concealed its own real aims. What is certain, in any case, is that I.G. Farben endeavored to obtain the consent of the Swiss companies.

These moves toward cooperation were promoted through the formation of the three-party cartel. At the same time, I.G. Farben, the leader of the three-party cartel, tried to obtain the agreement of the cartel's other member companies concerning its Japan strategy. For example, I.G. Farben reached an accord with three Swiss firms, its partners in the three-party cartel, not to provide technical assistance to Japan. While Jiro Inabata, managing director of Nihon Senryo, made a tour of Europe, visiting Kuhlmann (Compagnie Nationale de Matières Colorantes et Manufactures de Produits Chimiques du Nord réunies Etabissements Kuhlmann) and St. Denis (Société Anonyme des Matières Colorantes et Produits Chimiques de St. Denis) of France, and Durand & Huguenin AG of Switzerland to look into the possibility of securing technical cooperation or assistance, his efforts were frustrated by I.G. Farben, which informed Inabata through Ciba that no company that was a member of the three-party cartel could give technical assistance to Japan without the consent of the other members. ₃₃

(b) The Japan Strategy of the Four-party Cartel

In February 1932, the British company, ICI (Imperial Chemical Industries, Ltd), joined the three-party cartel that had been composed of German, Swiss, and French companies. Thus, a four-party cartel was established. This international cartel dominated almost 90 per cent of the world's total exports and sales were distributed according to the following ratio: 65.602 per cent for I.G. Farben, 17.391 per cent for Swiss I.G., 8.540 per cent for French CMC, and 8.467 per cent for British ICI. The logo on its common letterhead was changed to the figure 4 in a circle. Around that time, the international dyestuffs cartels had included all the main producers in Europe in their network. The three-party and, later, the four-party cartel had concluded individual or special agreements with dyestuffs producers in Italy, Poland, Czechoslovakia, the Netherlands, and other nations. Their member companies had participated in, and concluded inter-firm agreements with firms in those nations. Thus, only producers in the United States and Japan remained outside their network in the world market, and only the Asian and South American markets remained as areas of free competition. ₃₄

The Asian region thus became a focal point as one of the last remaining non-cartelized free markets, with Japanese companies, which were expanding rapidly in this region, considered as outsiders by the international cartels.

I.G. Farben, the leader of the four-party cartel, implemented its Japan strategy with the agreement of the other member companies of the four-party cartel, in the same way as it had done during the life of the three-party cartel. Its strategy for Japanese companies was different from that for other outsider companies, such as those in the United States. There were several reasons for this. First, while the US market absorbed one-fourth of the total global output of dyestuffs and was the largest market for German producers, the Japanese market ranked eighth in importance for Germany. Second, while European companies had undertaken direct investment in the United States (for example, I.G. Farben in General Aniline & Film Corp. and the Swiss companies in Cincinnati Chemical Works, Inc.), they had no direct investment in the manufacturing sector in Japan. ₃₅ Third, the governments of Japan and the United States differed from each other in their attitudes toward international and domestic cartels: the American situation was prohibitive, while the Japanese one was tolerant or even promotive.

The strategy of the international cartels toward one influential outsider, L.B. Holiday & Co., in the British market where ICI was dominant, gives us some basis for another comparison. Holiday held a 25 per cent share of British exports. Even with the depreciation of the pound sterling after September 1931, the firm did not raise its prices, but pegged them in order to increase its market share. This price policy greatly resembled that of Japanese dyestuffs producers in 1928. Responding to this, I.G. Farben and ICI took the ingenious measure of cutting prices, on the one hand, and stopping the supply of intermediate chemicals to Holiday, on the other. This approach was also similar to that of I.G. Farben's toward Japan. In contrast to I.G. Farben's situation in Japan, however, I.G. Farben had an alternative to direct investment. In fact, I.G. Farben drew up a plan to purchase Holliday in league with ICI, and, when it failed, it established a joint venture with ICI to compete with Holliday. ₃₆

During this time, the exports of European firms to Japan were showing a downward trend. I.G. Farben's exports to Japan fell sharply from 1,138 tons in 1932 to 630 tons in 1933, due mainly to the fall of the yen following the re-imposition of a ban on the export of gold in December 1931. Moreover, the amendment of import tariffs in May 1932 added 35 per cent to the dyestuffs tariff. ₃₇ Meanwhile, however, Waibel of I.G. Farben reported in February 1932 that the company still enjoyed steady sales in Japan due to its cooperation with American companies as well as its emphasis on higher-quality products. He also made the optimistic observation that the company could improve its relations with Japanese companies, and that it could for the time being minimize the negative effects of the depreciating yen through an appropriate response. ₃₈ Reality, however, later showed such optimism to be wrongly placed. The Japanese side observed that it `soon became impossible' to import those items listed in the Saito--Waibel Agreement, and that the agreement `appeared to have become merely nominal.' ₃₉

The falling yen not only made it more difficult for I.G. Farben and other members of the four-party cartel to export to the Japanese market, it also threatened the companies with Japanese competition in the Chinese and other Asian markets. Subsequently, the Japanese dyestuffs industry, protected by the depreciation of the yen and other measures, enjoyed a second boom period, peaking in 1939. Japanese output capacity increased further, and Japan held a 3.2 per cent share of total world sales in 1938. Its share of the Asian market was even higher and reached 10.5 per cent in 1938. According to an estimate made by I.G. Farben, in the same year, Nihon Senryo had a 60 per cent share of the domestic market, Mitsui Mining 20 per cent, Nihon Tar Kogyo (Nihon Tar Industries, Ltd, later renamed Nihon Chemical Industries, then Mitsubishi Chemical Industries) 10 per cent, and other firms 10 per cent. ₄₀

(3) The Conclusion of Special Market Agreements

(a) The Special Agreement with Nihon Senryo

Although I.G. Farben targeted Japanese firms as a whole, it concentrated on two leading companies that had the potential to develop new products. One was Nihon Senryo, which was putting its efforts into the development of a broad range of products centering on naphthol dyestuffs. The other was Mitsui Mining, which was developing alizarin dyestuffs, azo dyestuffs, and indanthrene dyestuffs with the express purpose of developing synthetic indigo. Thus, the international cartel and its member companies were forced to find new ways to deal with a challenging situation. One way was by intensifying their efforts to conclude a series of bilateral agreements with individual Japanese firms and with the Japanese industry as a whole as a means of securing their outlets.

I.G. Farben's response was to pursue a strategy devised in the 1920s that aimed at concluding bilateral agreements with Japanese industry. With the advance of Japanese products, which were capturing ever greater shares of the market, it was becoming increasingly difficult to keep the market open for free competition among members of the international cartel. On the other hand, the international cartel had grown stronger, making it possible for I.G. Farben to carry out negotiations with the Japanese to its own advantage through collaboration with its allies.

The first individual or special market agreement concluded between I.G. Farben and Nihon Senryo was that regarding naphthol dyestuffs. I.G. Farben had already recognized the necessity of some kind of cooperation with Nihon Senryo on naphthol dyestuffs in the summer of 1927. ₄₁ At the beginning of 1931, Nihon Senryo put onto the market Blue Salt-NSV to compete directly with I.G. Farben's Variamine Blue-B, while at the same time putting in an application for a process patent in Japan. I.G. Farben immediately voiced a protest over this. The two sides entered into a patent dispute. In the end, I.G. Farben, recognizing the fact that a patent dispute would take a long time to resolve in Japan, chose to compromise in order to avoid a renewed price war. Thus, in March 1931, the so-called Japan Variamine Blue Agreement with Nihon Senryo was tentatively concluded. ₄₂

Under the agreement, Nihon Senryo agreed to honor the patents of I.G. Farben in Japan (including Korea and Formosa), to pay license fees to I.G. Farben, and not to export identical products to the Asian market outside China. In exchange, I.G. Farben recognized the right of Nihon Senryo to sell Blue Salt-NSV in the Japanese market. Moreover, an accord was reached on sales quotas for the Japanese market; for Variamine Blue-B of I.G. Farben (or Blue Salt-NSV of Nihon Senryo), I.G. Farben was allotted a 68 per cent share and Nihon Senryo 32 per cent, and for Naphthol-AS of I.G. Farben and the equivalent Naphthoid-AS of Nihon Senryo, which were dyeing assistants, I.G. Farben was allotted a 32 per cent share and Nihon Senryo 68 per cent. At the same time, the sales prices for the Chinese market were to be the same. ₄₃

The agreement in March 1931 was a tentative one, and later a formal one was signed. It was concluded by I.G. Farben without any previous discussion within the three-party cartel. Three Swiss firms, the partners in the three-party cartel, at first criticized I.G. Farben, saying that it should have requested their prior consent and that it made excessive concessions to the Japanese side, but in the end, they consented to the formal agreement. ₄₄ This agreement was renewed in March 1935 and later automatically extended several times, until it expired in 1941. ₄₅

I.G. Farben also concluded the so-called Japan Astraphloxine Agreement, again with Nihon Senryo, in February 1934. The main points of this ran parallel to the Variamine Blue Agreement. In return for relinquishing exports, Nihon Senryo got a 50 per cent share of the Japanese market and I.G. Farben the remaining 50 per cent. Sales prices were to be the same. This agreement was also renewed and lasted until the end of 1939. ₄₆

I.G. Farben concluded the two agreements independently. This time, however, it obtained the consent of its partners in the international cartel. Thus, those individual or special agreements -- on individual items as well as by individual companies -- represented the means by which the international cartel could include the Japanese outsiders in their network.

(b) The Special Agreement between I.G. Farben, the International Dyestuffs Cartel, and Mitsui Mining

It was also I.G. Farben that led the international cartel in the negotiations with Mitsui Mining, the other leading dye producer in Japan. The first agreement covered sulphur black dye, for which, by 1928, Japan had almost attained self-sufficiency. Among producers, Miike Dyestuff Works of Mitsui Mining was the leader, holding a 70 per cent share of the market. For Mitsui Mining, too, sulphur dye was the most important item at that time. ₄₇ In April 1931, the three-party cartel concluded an agreement regarding the sales and prices of exports to China with a leading trading company, Mitsui Bussan Kabushiki Kaisha (Mitsui & Co., Ltd), as Mitsui Mining's representative. British ICI and two leading American firms, National Aniline & Chemical Co. (Nacco) and E.I. Du Pont de Nemours & Co., were also drawn into this agreement. Mitsui Mining was awarded a 17.5 per cent share of exports to the Chinese market. ₄₈ When the agreement expired at the end of 1933, it collapsed because of Mitsui Mining's withdrawal from it, while the agreement between the six parties (the three-party cartel, ICI, Nacco, and Du Pont) was extended.

After the agreement of the six parties with Mitsui collapsed, I.G. Farben began to reconstruct the agreement. ₄₉ On the one hand, it had to readjust its relations with Du Pont, which was planning direct investment in China together with ICI and was opposed to an automatic extension of the six-party agreement. On the other hand, it had to negotiate not only with Mitsui Mining, but also with all other Japanese producers of sulphur black, following the collapse in March 1934 of a Japanese domestic cartel that had been formed in October 1931. The competition among Japanese producers became keener than before, and their response to I.G. Farben's proposal became disunited. Mitsui Mining, the leading company in this field in Japan, failed to show any interest in an agreement. Nihon Senryo was opposed to any restrictions on exports, although it agreed to cooperation in principle. Some other producers were in favor of an agreement. ₅₀ In the end, a new agreement was not concluded, partly because of Du Pont's disturbing behavior, and mainly because the position of the many competing Japanese producers was not united.

Meanwhile, the Japanese producers of sulphur black were keen to export to China, Manchuria, and Dutch Indo-China. Some firms even directly invested in China. This represented a new threat for European exports to MitsuiChina. ₅₁

Other than the agreement on sulphur black dye, in October 1931, I.G. Farben concluded an agreement with Mitsui Bussan, which was to be the sole representative of Mitsui Mining, with regard to alizarin blue. This agreement concerned the division of the Japanese market, and at first this was apportioned at a ratio of 60 per cent to I.G. Farben and 40 per cent to Mitsui. The agreement was, however, repeatedly revised, until its termination in 1940, when market shares were in fact reversed to 40 per cent for I.G. Farben and 60 per cent for Mitsui. ₅₂

(4) The Mitsui Indigo Agreement

(a) The Provisional Agreement

Among the market agreements that I.G. Farben, the three-party cartel, and the four-party cartel concluded with the Japanese producers, the agreement with Mitsui Mining on synthetic indigo was the most important.

In 1925, Japanese imports of the dyestuffs amounted to 974 tons or 2.62 million yen (approximately 1.3 million US dollars), which accounted for 31.8 per cent in volume or 35.9 per cent in value of the Japanese total imports of dyestuffs. Synthetic indigo ranked second in importance after aniline. I.G. Farben was dominant in the export of synthetic indigo to Japan with a 72.7 per cent share, although Swiss, French, and American producers had already succeeded in commercializing the product after the First World War. For I.G. Farben, too, synthetic indigo was its second principal export item to Japan after aniline. ₅₃

The history of Mitsui Mining's attempts to synthesize indigo dates from the First World War. The company was unable to introduce the production technology from Germany and other nations and had to develop the production process by itself. In April 1926, after several years of trial and error, the company finally managed to achieve its aim of indigo production, but only within the laboratory. Therefore, it was natural that the Saito--Waibel Agreement of August 1926 did not list synthetic indigo as one of the items whose export was to be voluntarily restricted by I.G. Farben. The development and production of the dyestuffs was not subsidized until October 1929, when Mitsui Mining finally managed to obtain a government subsidy. Construction of a new factory began in February 1931, being completed at the beginning of 1932. The factory's output finally found its way into the market in the latter half of 1932. By 1933, Mitsui Mining became the largest supplier of indigo in the Japanese market and it began to export to China. ₅₄

Meanwhile, leading European and American producers of indigo were expanding their network of oligopolistic agreements in the Asian market. Two leading American companies, Nacco and Du Pont, which had embarked in rapid succession on ventures of indigo exports to the Far East, strengthened their efforts. At the beginning of 1931, the three-party cartel and ICI concluded an agreement with these two American companies, concerning the sales ratio and prices of indigo and other products in the Chinese market. This agreement was called the China Six-Party Dyestuffs Agreement. Later, the six parties added Aziende Colori Nazionali Affini of Italy and Dow Chemical Co. of the United States to the agreement. ₅₅

On the basis of these agreements concerning the Asian market, the six parties concluded an agreement regarding indigo with Mitsui Bussan, the representative of Mitsui Mining, in February 1934. This concerned cooperation over the sales price and market share within the Japanese market, which was to be 25 per cent for the six parties and 75 per cent for Mitsui Mining. This was a temporary agreement that remained valid until July 1934. ₅₆

(b) The Formal Agreement

Soon after, negotiations for the conclusion of a formal agreement were begun. The biggest issue of contention was the regulations governing Japanese exports to China, especially the decision on the Japanese quota for the Chinese market. I.G. Farben perceived that these negotiations offered a unique opportunity to protect the Chinese market from a recurrence in the fall of product prices. Thus, it prevailed upon its cartel partners with the argument that, should the agreement be imperfectly concluded, Mitsui Mining would undoubtedly be able to exert a fairly strong influence on the price levels of not only the Japanese, Chinese, and Manchurian markets, but others as well. AS I.G. Farben held the largest share in the Asian market, which it wanted to keep, it took the initiative in these discussions with the other partners, in order to try and maintain the status quo. ₅₇

Hermann Waibel of I.G. Farben prepared a draft proposal, to which the other members of the four-party cartel as well as Nacco and Du Pont gave their consent. Subsequently, Waibel energetically negotiated with Mitsui Mining. During the negotiations, he had to revise his original draft at least twice in order to get Mitsui's consent. Finally, in May 1935, one year after the lapse of the tentative agreement, a settlement was reached in the negotiations in line with the latest of Waibel's revised points. ₅₈

The formal agreement, which I.G. Farben called the Mitsui Indigo Agreement, stipulated that Mitsui export its products only to China (including Manchuria, Hong Kong, and Dalian) and held the Japanese exports of 20-per-cent-purity indigo to China at a three-year total of 96,300 piculs. As compersation for this, the six parties were limited in their exports to Japan. The distribution of the Japanese market, including Korea and Formosa, was 85 per cent for Mitsui and 15 per cent for the six parties. The prices for the Japanese and Chinese markets were set at the same time. ₅₉

(c) The Renewal and Revision of the Formal Agreement

The formal Mitsui Indigo Agreement was to expire at the end of 1937. Mitsui Mining was fully satsfied with its performance within the Japanese and Chinese markets and, therefore, with the agreement as it stood. As it did not want to have to accept new restrictions, which would inevitably be imposed by the uncertainties of the prevailing political climate in the Far East due to the outbreak of the Sino--Japanese War in July of the same year, it welcomed the agreement's extension. Its foreign competitors also agreed to extend the agreement. Therefore, the agreement was extended unchanged until the end of June 1938. ₆₀

Upon the agreement's expiry, the member companies of the international cartel had in mind a further extension. Mitsui Mining agreed, but it made requests for the abolition of, or at least a change in, the restrictions on the areas of export, and for the carrying over of the unused quota amount for 1937 to the next year. The international cartel re-examined what course it should take in the negotiations. The result was that it decided to compromise regarding the requests from the Mitsui side, that is, to change the existing stance limiting Mitsui Mining's exports to China and Manchuria, and to allow exports of indigo to Dutch and British Indo-China, with a ceiling. I.G. Farben, as the representative of the four-party cartel, began negotiations with Mitsui Mining on the basis of the decision, while at the same time obtaining the agreement of the two American indigo producers, Nacco and Du Pont. However, even with the willingness of the international cartel to compromise, the negotiations proved tough and lengthy, especially because Mitsui Mining had, meanwhile, gone so far as to demand the total abandonment of the quota system. Moreover, when the Japanese side eventually agreed to the continuation of the quota system, they thrust a request before the international cartel, asking to be allowed to carry out exports to some areas on a scale far exceeded the expectations of the cartel. ₆₁

The reason it took so long to reach a conclusion was not only Mitsui Mining's requests, however, but also the fact that opinions were divided within the cartel regarding the demands made. A confrontation arose between I.G. Farben on the one hand, and the Swiss, French, and British firms, on the other. The former faction was in favor of making concessions to Japan, while the latter wanted to take a tough stance. ₆₂

In the end, the international cartel made large-scale concessions to the Japanese side, approving Japanese exports not only to China and Manchuria, but also to Dutch and British Indo-China, the Philippines, Thailand, the Straits Settlements, Iran, Egypt, Belgium, and Mexico. Moreover, an agreement was reached, in April 1939, on the removal of quotas from the Japanese market. ₆₃ This agreement was extended until the end of 1940, but the war in Europe began before it had expired, and thus ICI broke the agreement. ₆₄

Meanwhile, Mitsui Mining had increased its production to enable it to dominate the Japanese market and, moreover, to advance into the Asian market throughout the latter half of the 1930s. At the same time, the international cartel sought to maintain a foothold in the Asian market by cooperating wich American firms as well as by making concessions to Mitsui Mining. I.G. Farben showed itself more willing than the other cartel member firms to cooperate, and the other firms followed I.G. Farben's lead while secretly opposing its stance. In the end, the international cartel as a whole made concessions to Mitsui Mining.

Thus, there was no confrontation great enough to cause a collapse of the cartel until September 1939, when the Second World War broke out. In other words, despite the increased tensions, which reflected international political conflicts, the four-party cartel succeeded in coordinating both the economic interests of the members and its relations with the American companies. Thus, on the face of it, the attempts to include the Japanese developer of indigo, Mitsui Mining, in the spnere of influence of the international cartel succeeded. However, the real situation was that the international cartel was forced into an immediate back down when faced with Mitsui Mining's demands.

Few market agreements on dyestuffs were dissolved before the outbreak of the Second World War. The 1931 agreement between I.G. Farben and Mitsui Mining on the export of sulphur black to China was a rare case. Most international cyestuffs cartels did not weaken until the outbreak of the war, and most achieved great success in regulating the volume and prices of exports in the world market. ₆₅ The Mitsui Indigo Agreement between the six parties and Mitsui Mining was one such representative case. The success, however, was achieved only through a series of concessions by the international cartel to Japanese firms.

(5) Conclusion

Based on our examination of the strategy employed by international cartels vis-à-vis the Japanese market, the following conclusions can be made. First, the international dyestuffs cartels including the three-party and the four-party cartel pursued a comprehensive agreement with the Japanese producers. The leader of the international cartels, I.G. Farben, was more willing to compromise with the Japanese than the other member companies, which followed the lead of I.G. Farben with some criticism and hesitation. Second, the Japanese side wanted a series of individual or special agreements in order to keep its hands free in developing new products such as naphthol dyestuffs and indigo. Third, through negotiations, the international cartels or their member companies, especially I.G. Farben, concluded a series of individual or special agreements with individual Japanese firms as well as with the Japanese dyestuffs industry as a whole. The Japanese firms, who were the toughest competitors among firms outside the cartels, became partially drawn into the international cartels. Fourth, however, the Japanese firms proved to be troublesome members, so much so that I.G. Farben and the other cartel members were forced to make successive concessions. Fifth, although the international cartels succeeded in including the Japanese firms in their networks, they failed to restrain the ambitions and capabilities of the Japanese firms in developing new products. Finally, the Japanese firms, led by Mitsui Mining and Nihon Senryo, succeeded in introducing and exploiting European and American technologies as well as management skills, concluding a series of special or individual agreements with the international cartels led by I.G. Farben.

3 Licensing Strategy - Synthetic Amonia and Synthetic Oil

(1) Licensing of the Haber-Bosch Process ₆₆

(a) Change in I.G. Farben's Strategy

The world-wide diffusion of the Haber-Bosch process was largely occasioned by the requisition by the allied countries belligerent to Germany during the First World War of the patented process. Following this, development of similar manufacturing methods took place in a number of countries, including France, Italy and the USA. ₆₇ Japan was no exception to the process of global diffusion of the Haber-Bosch process. After the introduction of the Casale process in 1923 by Nihon Chisso Hiryo (Nihon Nitrogenous Fertilizers), a succession of various processes for ammonia synthesis, including the Claude, Fauser, Mont Cenis (Uhde) and NEC processes were introduced into Japan. Development and commercialization fo the Tokyo Industrial Institute process was carried out in Japan Regarding this situation, one cannot help but feel a strong sense of agreement with the following remark made by the I.G. engineer stationed in Japan: `The Japanese mentality is always in guest of something new, and it seems to matter little whether the "new" thing is really superior to the older one or not.' ₆₈ The development of the Japanese ammonium sulphate industry in the 1920s was supported technologically by this energetic introduction of technology.

The patent for the Haber-Bosch process was confiscated by the Japanese government during the First World War, and the exclusive right to use the patent was sold to Toyo Chisso Kumiai (Oriental Nitrogen Association) established by the major zaibatsu groups. However, Japanese chemical firms, including those of the zaibatsu groups, had no knowledge of how to put this process to commercial use. As soon as the war was over, therefore, some companies contacted BASF in the hopes of acquiring the necessary know-how. BASF, however, demanded an outrageous fee of 68 million yen, and the Japanese firms had to give up the idea of acquiring the technology from BASF. Indeed, by quoting the prohibitively high fee, BASF made it known that it had no intention of offering licensing or technical cooperation. It should be kept in mind that the term `licensing' here is used in a broad sense, because BASF's patent was still under confiscation by the Japanese government when this episode took place. ₆₉

The reason why only the Haber-Bosch process had not been introduced in contrast to the numerous other processes for ammonia synthesis is to be found, above all, through an analysis of I.G. Farben's strategy. I.G. Farben did its utmost to refrain from employing the alternative strategies of licensing or direct investment where expansion of exports was at all possible. This position was not only adopted vis-à-vis Japan but was employed world-wide.

In the 1920s, in the field of nitrogenous fertilizer, the Japanese market still had some room to absorb imports, despite the rapid growth of domestic production. As shown in Figure 1, nitrogenous fertilizer became, by 1929, Germany's single most important chemical exported to Japan, far surpassing dyestuffs and other products. Partly because Japan was designated by the international fertilizer cartel as a market for open competition, foreign companies in the late 1920s competed fiercely against each other for larger shares of the Japanese market, giving rise to a phenomenon called `gain dumping' (gain meaning foreign ammonium sulphate). A second equipment investment boom in the ammonium sulpahte industry in Japan, following on from the first one of the early 1920s, was experienced in the period from the end of the 1920s to the early 1930s. This exactly coincided with a period of worsening global overproduction as the world-wide depression deepened. For I.G. Farben, the equipment investment boom in the Japanese ammonium sulphate industry meant the loss of the Japanese market and posed a threat to the Chinese market.

It was against this backdrop that in December 1930 I.G. Farben, acting on behalf of the international nitrogen cartel (Convention Internationale de l'Azote, or CIA) established with firms in continental Europe, Britain, and Chile, consulted with the Japanese fertilizer industry, and worked out a draft agreement called the Fujiwara-Bosch Draft Agreement which was meant to put an end to the heated price competition. It called upon the Japanese industry to refrain completely from exporting its nitrogenous fertilizer, and upon the foreign industries to curtail their exports to Japan in exchange or this, but it miscarried because of strong domestic opposition in Japan as well as the collapse of the CIA. Several months later, in April 1931, a Tentative Agreement on Domestic and Foreign Ammonium Sulphate was signed, but this, too, failed to come into effect. ₇₀

The CIA was re-established in July 1932. In March 1934, the CIA succeeded in concluding an Overall Ammonium Sulphate Agreement with the Japanese nitrogenous fertilizer industry through I.G. Farben. This was followed by the signing of the second agreement in February 1935, and third agreement in November 1935. ₇₁

I.G. Farben was successful in limiting Japanese exports to China through these agreements but, in return, was forced to limit its own exports to Japan and China. Consequently, as an alternative to exports, I.G. Farben began to consider licensing. Moreover, the vigorous growth of the Japanese market for ammonium sulphate in the early 1930s had result Resulted in a succession of new Japanese entrants and expansion plans by existing competitors aimed at ensuring a share of the high profit margins. a number of these firms sounded out I.G. Farben as to the possibility of the introduction of the Haber-Bosch process.

Although the Japanese fertilizer producers had already been using the Casale process and the Claude process, they were eager to introduce I.G. Farben's Harber-Bosch process. This zeal to introduce the process must have derived, at least partly, not only from the Japanese curiosity and inquisitiveness mentioned above, but also from its having been rased by Japanese specialists to be the best. I.G. Farben was offered extremely favorable conditions because of the strong desire for introduction, and high potential for plant exports was also attractive. This situation prompted a change in I.G. Farben's strategy. The patent for the Haber-Bosch process had expired by then, so the arrangements made between I.G. Farben and Japanese fertilizer manufacturers were strictly speaking for technological guidance, but in a broad sense they might be regarded as licensing arrangements.

At this time, I.G. Farben was considering a change in strategy not only as regards Japan, but also Finland, Egypt, and Spain. It was also considering a plan for direct investment in Japan via a joint venture to be set up with the Mitsubishi zaibatsu. However I.G. Farben's choice of licensing seems quite natural in view of the rapid development of the Japanese market.

(b) Five Cases of the Introduction of the Haber-Bosch Process

As can be seen from Table 2, five Japanese firms were involved in the importing of the Haber-Bosch technology at this time. They were Taki Fertilizer Works, Yahagi Kogyo, Nihon Tar Kogyo Dai Nihon Tokkyo Hiryo, and Dai Nihon Seito. Of these, only Dai Nihon Seito, besides Taki, is listed among the 200 largest firms for 1930, being ranked in eighth position. Ni on Tar Kogyo had not been yet established in 1930. ₇₂

The case of Taki Fertilizer Works was, in fact among the first cases of actual licensing of the Haber-Bosch process in the whole world, following only the politically forced licensing by BASF to a French firm in Toulouse during the chaotic post-war years and the licensing in 1927 by I.G. Farben to the Norwegian subsidiary Norsk Hydro-Elektrisk Kvaelstof AS. ₇₃

In 1935, Taki Fertilizer was a phosphate fertilizer manufacturer with a paid-up capital of million yen (approximately one million US dollars); it had approximately 800 employees in 1938. ₇₄ It was ranked as 159th among the 200 largest Japanese firms in 1930 as regards assets. ₇₅ However, while it was not a small firm, it could not be regarded as representative of the large-sized firms of this period. Also, the calcium superphosphate sector was an area of the chemical industry that was not especially sophisticated. The very fact that such a firm should enter into a contract as this early date for technology transfer with I.G. Farben, the world's largest chemical firm at the time, and that it should undertake the challenge presented by the high technical standards of ammonia synthesis, is of considerable interest.

An analysis of these five cases, covering the steps involved from the initial approaches, to the signing of technology transfer agreements, up to start of operations, while showing a number of differences in individual cases, reveals several more or less common points. ₇₆ For example, one common point evident is the positive effort made on the Japanese side for the realization of the contract. Moreover, the Japanese firms competed with each other in efforts to realize contracts. This would seem to be a kind of bandwagon effect. A second point was that the question of plant supply became the main point of dispute in negotiations. I.G. Farben wanted to ensure a commission in the form of the export of German equipment, but Japanese firms desired supply to be carried out domestically, wherever possible. However, and this is the third common point, the actual contract drawn up stated that equipment supply was to be largely from Germany. Furthermore, responsibility for activities, from planning, equipment installation and test runs, on to operations, was to be taken by I.G. Farben engineers and foremen dispatched to the site. Fourth, in many cases, technical problems developed, and these gave rise to disputes between I.G. Farben and the Japanese parties. These disputes were largely caused by the reluctance of the Japanese parties to entrust operations completely to I.G. Farben, including those of a technological nature, and the desire of the Japanese to participate actively. It is fair to highlight the difference between this arrangement and the full turnkey basis generally adopted currently in technology transfer to developing countries. Finally, despite the various problems, a number of Japanese firms went on to draw up expansion plans based on a greater scale of equipment.

(2) Licensing of the I.G. Process for Synthetic Oil ₇₇

(a) I.G. Farben's Licensing Strategy

By the mid-1930s, I.G. Farben was taking steps to license its synthetic oil production process and to export the necessary equipment to foreign customers.

In 1923, BASF had decided to use the Bergius hydrogenation process to try to produce large quantities of synthetic fuel oil. I.G. Farben was formally established in December 1925, and six months later it began construction of a facility that could produce 100,000 tons of synthetic oil using the I.G. process, itself a refinement of the Bergius process. In April 1927, the firm began operating high-pressure reaction chambers. Thereafter, technical problems prevented I.G. Farben from achieving any sort of economies of scale; this fact, and the fact that the German economy was obviously worsening, led a commission report presented at the firm's board of directors in June 1929 to call for a temporary halt to synthetic oil production. Production did continue, but I.G. Farben was not able to solve its problems until December 1933, when the firm reached an agreement with the Nazi government to supply it with synthetic oil, and in so doing secured both a price and a market for its product.

Over time, however, I.G. Farben's ties with the Nazi government became more a burden than a blessing, largely because of its increased payment and the emergence of competing operations. At this point, the firm began to move uncertainly in several directions. One of these was the attempt to license its I.G. production process and profit from the resulting licensing fees; another was to invest in firms that had moved into synthetic oil production, expecting to receive a substantial dividend income; and a third was the adoption, as part of the firm's participation in the second Four-Year Plan in October 1936, of a policy of plant expansion and product diversification. ₇₈

I.G. Farben's initial attempts to market its I.G. process were thus made in the mid 1930s, about the same time it began selling its know-how of the Haber-Bosch process, and at a time when synthetic oil production in Japan was very much in its infancy.

The Japanese government did not begin to formulate a synthetic oil production policy until after the Manchucian Incident in September 1931, when it moved from simply encouraging research into coal liquefaction technologies to promoting large-scale production projects in this area. ₇₉ Following Japan's withdrawal from the London Disarmament Conference in January 1936, the government issued a set of guidelines for fuel production in July of the same year. The guidelines attempted to foster the large-scale development of alternative fuels; they cited the need for legislation to this end and for the subsidization of firms engaged in coal liquefaction, synthetic gasoline research, or low-temperature carbonization. ₈₀

The following year, the Ministry of Commerce and Industry formulated its own plans to promote synthetic fuel production. The plans called for an annual production level of 2 million kiloliters to be achieved within seven years. The figure included production by low-temperature carbonization, which, if achieved, would represent a self-sufficiency rate of 50 percent. The ministry estimated that achieving this goal would require a capital expenditure of about 750 million yen. It also expected that coal liquefaction would account for half the synthetic fuel produced. The legal support for this endeavor was given in August 1937 with the issuance of the Synthetic Fuel Production Law and a law establishing the Imperial Fuel Industry Co., Ltd, both of which went into effect in January 1938. ₈₁ In May 1937, the Ministry of Commerce and Industry had set up its own Fuel Bureau, of which one of the express functions was to promote synthetic fuel production. Managers for the bureau were commissioned naval and army officers, while synthetic fuel production was put under the direction of a naval officer. ₈₂ War with China began two months after the bureau was established.

The aforementioned laws were milestones in the development of government policy with regard to synthetic fuel production. The Synthetic Fuel Production Law established procedures for licensing production in this area. Licenses could only be issued to companies where a majority of stockholders, executive positions, capital, and voting positions were held by Japanese nationals or Japanese corporations. The law also required that licensed companies annually produce at least 10,000 kiloliters of synthetic fuel. For these companies, the law made provisions for the expropriation of land, allowed the companies exemption from taxes, and gave them start-up money, among other measures, in addition to setting prices for these products and guaranteeing them a market. ₈₃ Imperial Fuel Industry itself was to be a national enterprise, of which half the capital was government-owned. The government guaranteed it special privileges as well as the requisite technical expertise and also planned to supply fully half the funds the company was expected to need over the seven years to follow.

In February 1936, Ruhrchemie AG contracted to license its Fischer-Tropsch synthetic fuel process to Mitsui Bussan. ₈₄ By this time, considerable work was already being done in Japan on developing processes of hydrogenation, for which the I.G. process was a prototype. Research as well as trial production of coal hydrogenation was being carried out at thirty locations, including the South Manchurian Railway's Central Research Institute, the Ministry of Commerce and Industry's Fuel Institute, the Institute of Physical and Chemical Research and Mitsubishi Mining's Research Institute. Coal Hydrogenation was clearly the major focus of research during this time. ₈₅ Within I.G. Farben itself, due note of all this activity was made, and the firm's interest in Japan increased accordingly. ₈₆

From the start, there was almost no thought on I.G. Farben's part concerning direct investment in Japan, either in the form of a joint venture or as an exclusive operation. I.G. Farben had had no experience in actual materials production in the Far East and was undoubtedly wary of the political and economic hazards such an undertaking might involve. Even in Eastern Europe, the firm invested almost nothing through 1939. Its interest, therefore, was mainly in licensing its production process and selling the equipment needed for the process -- at least this was the case as of the mid 1930s.

(b) Failure of Licensing and Its Reasons

As shown in Table 3, I.G. Farben expended a good deal of effort in trying to license its production process and export its equipment to Japan, but in the end was unsuccessful. Having examined what steps I.G. Farben undertook and considering the firm's own analysis of the situation, ₈₇ it is possible to ascertain some of the reasons for the lack of success. I.G. Farben faced some problems: the lack of cooperation from International Hydrogenation Engineering and Chemical Co. (IHEC), an international joint venture which held patent rights to all hydrogenation processes; the inflexible nature of the firm's own negotiating tactics; and the opposition of the Japanese Navy.

IHEC certainly served as a check on I.G. Farben's freedom of action. This was the most apparent in the negotiations with South Manchurian Railway. IHEC, however, thereafter became more interested in licensing Japanese firms but continued to differ with I.G. Farben on how licenses should be given. This disagreement had the effect of increasing the cost of licenses, although it did not make their acquisition or sale impossible. Similarly, IHEC took a cautious approach in shipping equipment to Japanese customers, nothing that British and American steel producers would stop shipping to Japan if they lacked the support of the major oil companies, specifically Royal Dutch Shell and Standard Oil Co. (N. J.). ₈₈ In both of these areas, then, IHEC affected I.G. Farben's operations. On the other hand, IHEC had no influence on German equipment manufacturers, and whatever checks IHEC applied to I.G. Farben, as least as of the middle of 1939, it had not completely circumscribed the firm's ability to function in Japan.

The terms I.G. Farben offered to customers in Japan were quite prohibitive. To Mitsubishi Mining, for example, it presented a bid for equipment of almost 22 million yen, which was much more than Mitsubishi Coal Liquefaction's share capital of 20 million yen. To make the situation worse, Japan's foreign currency reserves began to decline quite rapidly after 1937. In fact, government officials only allowed Ogura Oil enough access to foreign currency to cover part of its project. Under the circumstances, I.G. Farben's high bids must have dampened the enthusiasm of potential clients. But they were not high enough to eliminate interest altogether. This is clear, for example, in the reminiscences of Ogura Oil's top manager, Nobuhei Nakahara. ₈₉ In addition, I.G. Farben was fully prepared to help finance the operations of clients like the North China Project and Nissan Chemical.

Another factor affecting I.G. Farben's fortunes in Japan was the opposition of the Japanese Navy, which had already done some research into hydrogenation processes. H. Ahrens' Hermann Bosch had perceived early on that by acquiescing in the purchase of the know-how of I.G. Farben's process, the navy would in effect be admitting its own failure in this area. ₉₀ In fact, the navy's opposition doomed Ogura Oil's plans, as well as those of the army. The Synthetic Fuel Production Law had guaranteed prices and markets for producers. But since this meant that the government would be the major consumer of the product, the guarantee was meaningless even if synthetic fuel producers were successful, as long as the navy, which accounted for the greatest source of demand, remained opposed. The navy was even able to influence the companies in which Imperial Fuel Industry invested and to which it lent the funds at its disposal. Thus, the navy decisively affected the ability of Ogura Oil and others to obtain funding and outlets for their products. In this context, then, the passage of the laws in 1938 designed to encourage synthetic fuel production actually had the effect of reducing the chances for the success of firms like I.G. Farben. Through the middle of 1939, it was the opposition of the Japanese Navy, much more than IHEC's position or the terms that could be offered to clients, that had the most adverse effect on I.G. Farben's fortunes in Japan.

To conclude: In the mid 1930s, I.G. Farben began to take steps to license Japanese companies to use its I.G. process for synthetic oil production. At that time, Japanese companies were moving from the research stage into actual production of synthetic fuel oil. But I.G. Farben failed to conclude a single contract with a Japanese firm in this area until January 1945, when it reached a licensing agreement with the Imperial Army. I.G. Farben's lack of success in finding Japanese companies to sign, at least during the 1930s, when it was feasible to ship plant equipment to Japan, seems particularly unusual given the fact that synthetic oil production was beginning to assume considerable importance in Japan. It was peculiar as well because of the fact that I.G. Farben had already been successful in selling its Haber-Bosch process in Japan. Indeed, the firm itself went to considerable lengths to try to discover why, in spite of all its efforts, it was so unsuccessful.

Conclusion

The First World War gave rise to a modern chemical industry in Japan. In the post-war period, the Japanese government adopted a policy of selective, or limited, protectionism to nurture this infant industry. Given the growing importance of the Japanese market, I.G. Farben advanced actively into the market. It re-established its sales outlets in Japan and then undertook their reorganization, which resulted in the establishment in 1924 of Doitsu Senryo as the sole agent of the German dyestuffs industry in Japan.

During the 1920s, I.G. Farben refused to agree to Japanese companies' requests for licensing arrangements, and its strategy toward Japan was basically formed around product export. In pursuing this strategy, I.G. Farben tried to conclude several bilateral agreements. The only agreement concluded during the decade was the Saito-Waibel Agreement on dyestuffs, which enabled I.G. Farben to gain a foot hold in the Japanese market in exchange for voluntary restrictions on exports.

In the 1930s, `strong protectionism' emerged in Japan, making the market less accessible to I.G. Farben's exports. Meanwhile, the strengthening of international cartels enabled the company, the core member of the cartels, to conclude several agreements with Japanese companies on market share, prices and export territories, either on its own or as a member of the cartels. The agreement with Mitsui Mining on synthetic indigo and the Agreement on Domestic and Foreign Ammonium Sulphate are two examples.

By the mid-1930s, I.G. Farben had to acknowledge that the Japanese market had been saturated with Japanese products and that the prospects for further expansion of its product exports to Japan were foreclosed. Of the two alternatives to product export which were theoretically available, namely, direct investment and licensing, the former was virtually out of the question, even aside from the growing political instability, since the japanese government was bent on rejecting the inflow of foreign capital. I.G. Farben thus opted to change its strategy, beginning to offer Japanese firms the licenses to use its know-how for the production of dyestuffs and nitrogenous fertilizer, and to export plants to the licencess. In the case of synthetic oil, the situation was different. I.G. Farben could not export the product to Japan, and it was ready from the outset to respond positively to enquiries about licensing arrangements for synthetic oil production.

I.G. Farben made at least one licensing agreement in dyestuffs. There is a record suggesting that in 1934 or thereabouts I.G. Farben concluded a licensing agreement with Nihon Tar Industries. But the agreement did not seem to bear much fruit: when an engineer from Mitsubishi visited I.G. Farben's plants, I.G. Farben suspected him of being an industrial spy. ₉₁

In sharp contrast to this, the licensing strategy proved quite successful in the field of fertilizers. I.G. Farben offered licenses to a total of five companies, beginning with a licensing arrangement made with Taki Fertilizer Works in May 1935. In the field of synthetic oil, I.G. Farben started to negotiate with Japanese companies earlier than it did in the field of nitrogenous fertilizer. In the early 1930s, it approached South Manchurian Railways, and later contacted more than a dozen companies including the Mitsubishi Mining and Ogura Oil. However, no licensing agreement resulted from these contacts. The most important reason for the failure of these efforts seems to have been the stiff opposition mounted by the Japanese Navy, which developed its own process and was interested in seeing private companies put this into commercial use.

FIGURE 1 GERMAN CHEMICAL EXPORTS TO JAPAN, 1929-36

TABLE 1 I.G. FARBEN'S DIRECT INVESTMENT IN JAPAN AS OF 1945

Table 2 Introduction of the Haber-Bosch Process in Japan (a)

Table 3. Enquiries from Japan for which Permissions to Export was not Granted (as of January 25, 1941)

Notes

Note 1: This article is a summary of the main points I made in my book I.G. Farben no Tainichi Senryaku: Senkanki Nichidoku Kigyo Kankeishi (I.G. Farben's Japan Strategy: A History of Japan-German Business Relations during the Inter-war Period), Tokyo, University of Tokyo Press 1992. It adopts the perspective of `I.G. Farben and Japan' or I.G. Farben's Japan strategy, while the first one took the perspective of `I.G. Farben in Japan' or the influence of its technology and management transfer into Japan. See A. Kudo, I.G. Farben in Japan: The Transfer of Technology and managerial Skills, in: Business History, Vol. 36, No. 1, 1994, especially pp. 172-179. Some repetition was unavoidable, although I tried to avoid as far as possible. Back.

Note 2: T. Nakamura, Senkanki Nihon Keizai Seich no Bunseki (An Analysis of the Japanese Economy in the Inter-war Period), Tokyo, University of Tokyo Press, 1971, 3. Back.

Note 3: For tariffs, see R. Miwa, 1926 nen Kenzei Kaisei no Rekishiteki Ichi (The 1926 Revision of Tariffs in a Historical Perspective), in: T. Sakai et al. (eds.), Nihon Shihonshugi: Tenkai to Ronri (Capitalism in Japan: Development and Reason), Tokyo, University of Tokyo Press, 1978; for foreign capital policies and foreign direct investment in Japan, see M. Udagawa, Business Management and Foreign-Affiliated Companies in Japan before World War II, in: T. Yuzawa and M. Udagawa (eds.), Foreign Business in Japan before World War II, Tokyo, University of Tokyo Press, 1990. Back.

Note 4: For the Japan strategies of international cartels, the challenge of the Japanese firms to them, and the response of international cartels, see T. and A. Kudo, International Cartels in Business History in: A. Kudo and T. Hara (eds.), International Cartels in Business History, Tokyo, University of Tokyo Press, 1992, pp. 8--22; further A. Kudo, Western Multinationals in Japan: Missed Opportunities and Lessons from Inter-War Business History, in: Asia Pacific Business Review, Vol. 2 No. 1, 1995. Back.

Note 5: T. Suzuki, Kyushu ni okeru Kagaku Sangyo no Hatten (Development of Chemical Industry in Kyushu), in: T. Kojima (ed.), Kyushu ni okeru Kindai Sangyo no Hatten (Development of Modern Industries in Kyushu), Fukuoke University of Kyushu Press, 1988, pp. 221--2. Back.

Note 6: I.G. Farben Control Office of the Decartelization Branch, Economics Division, of the Office of Military Government for Germany (US), Activities of I.G. Farbenindustrie AG in the Dyestuffs Industry, Frankfurt am Main, 1946, p. 15, Hoechst Archiv. Back.

Note 7: I.G. Farben Control Office of the Decartelization Branch, Economics Division, of the Office of Military Government for Germany (US), Activities of the Former >>Bayer<< I.G. Farbenindustrie AG in the Pharmaceutical Industry, Frankfurt am Main, 1946, pp. 90, 134, Hoechst Archiv. Back.

Note 8: A. Kudo, Gendai Doitsu Kagaku Kigyoshi I.G. Farben no Seiritsu, Tenkai, Kaitai (A History of Modern German Chemical Enterprise - Emergence, Development, and Dissolution of I.G. Farben), Kyoto, Minerva Shobo, forthcoming; H. Takeda, Kokusai Kankyo (International Environment), in: 1920 nendaishi Kenkyukai (ed.), 1920 nendai no Nihon Shihonshugi (Japan's Capitalism in the 1920s), Tokyo, University of Tokyo Press 1983, p. 23. Back.

Note 9: G. Plumpe, Die I.G. Farbenindustrie AG. Wirtschaft Technik und Politik 1904-1945, Berlin, Duncker & Humblot 1990, S. 51, 455. Back.

Note 10: Die Chemiewirtschaft Japans, BASF Archiv; Bundesarchiv Abteilungen Potsdam, 80 IG Farben 1, Vowi. Abteilung. There are some differences between the German and Japanese statistics. Back.

Note 11: Plumpe, op. cit., S. 51. Back.

Note 12: Ibid., S. 439, 446, 448. Back.

Note 13: Ibid., S. 562. Back.

Note 14: See the concept of `half developed natio in: T. Nakaoka (ed.), Gijutsu Keisei no Kokusai Hikaku - Kogyoka no Shakaiteki Noryoku (Technology Development in International Comparison - Social Capability of Industrialization), Tokyo, Chikuma Shobo, 1990. Back.

Note 15: Bosch an die Herren des Gemeinschaftsrate, 19. Juni 1925, etc., Hoechst Archiv. Back.

Note 16: Auszug aus der Niederschrift über die Sitzung des Arbeitsausschusses, 23. November 1926, Hoechst Archiv, etc. Back.

Note 17: Doitsu Senryo an die Abteilung Export 1, 21 Juni 1926, etc., Hoechst Archiv. Back.

Note 18: Udagawa, Business Management, op. cit., pp. 2-3. Back.

Note 19: Bundesarchiv Abteilungen Potsdam, 80 IG Farben 1, A1305, A73, A125, A1270; A4963, A4964, A2031, A2032, A1066, A4921, EKB32/334. Back.

Note 20: Protokoll über die Besprechung der Firmen Ludwigshafen, Leverkusen und Hoechst über das Japan-Geschäft am 11. Dezember 1923: Protokoll über die Sitzung der Japan-Kommission am 13. Mai 1924; etc., Hoechst Archiv. Back.

Note 21: Bundesarchiv Abteilungen Potsdam, 80 IG arben 1, A1270, Bl. 9-10. Back.

Note 22: 1934-1935 Dr. Max Ilgner Ostasien 81, IG AG Marktforschung T52/11; Bundesarchiv, Abteilungen Potsdam 80 IG Farben 1, Vowi. Abteilung. Back.

Note 23: Die Chemiewirtschaft Japans, BASF Archiv; Bundesarchiv Abteilungen Potsdam, 80 IG Farben 1, Abteilung. Back.

Note 24: For more details, see Kudo, I.G. Farben no Tainichi Senryaku, op. cit., chaps. 1-4. Back.

Note 25: Compiled from a document held in the Hoechst Archiv. See also Kudo, op. cit., p. 24. Back.

Note 26: For details, see ibid., pp. 29--31. Back.

Note 27: For details, see ibid., pp. 61--3. Back.

Note 28: For details of the conclusion of the Saito-- Waibel Agreement, see ibid., pp. 80--6. Back.

Note 29: A. Kudo, Gendai Doitsu Kagaku Kigyoshi, op. cit. For details, see V. Schröter, Die deutsche Industrie auf dem Weltmarkt 1929 bis 1933: Auβenwirtschaftliche Strategien unter dem Druck der Weltwirtschaftskrise, Frankfur am Main, Peter Lang 1984, S. 295--8; H. G. Schröter, Kartelle als Form industrieller Konzentration: Das Beispiel des internationalen Farbstoffkartells von bis 1939, in: Viertel jahrschrift für Sozial- und Wirtschaftsgeschichte, 74. Band, Heft 4, 1987, S. 488--94; do., Cartels as a Form of Concentration in Industry: The Examples of the International Dyestuffs Cartel from 1927 to 1939, in: German Yearbook on Business History 1988, 1990, pp. 122--8. Also see H. G. Schröter, The International Dyestuff Cartel 1927-1939 with Special Reference to the Developing Areas of Europe and Japan, in: Kudo and Hara (eds), op. cit. Back.

Note 30: Nihon Senryo Seizo Kabushiki Kaisha, Nissen 20 nenshi (20 Years History of Nihon Senryo), Osaka, 1936 p. 67; Japan Association of Tar (ed.), Nihon Tar Kogyo Shi - Hokozoku Seisan no Shiteki Tenkai (A History of Tar Industry in Japan -- Historical Development of the Production of Aromatic Compounds), Tokyo, 1965, pp. 391--2. On the anxiety of the Swiss companies, see Vertretung von Sandoz Kobe an Sandoz, Basel, 8. November 1928, Firmenarchi Geigy of the Firmenarchiv Ciba-Geigy (hereafter referred to as FA Geigy) VE/IGK 15. Back.

Note 31: Ciba an Sandoz, 19. Februar 1929; I.G. Farben an Ciba, 6. März 1929, FA Geigy VE/IGK 15. Back.

Note 32: I.G. Farben an CMC, Geigy und Durand & Huguenin 2. Mai 1929, FA Geigy VE/IGK 15. Back.

Note 33: I.G. Farben an CMC, Geigy und Durand & Huguenin 2. Mai 1929; Ciba an Geigy, 13. Mai 1929; Geigy an I.G. Farben, CMC und Durand & Huguenin, 15. Mai 1929; Ciba an Geigy, 27. Mai 1929, FA Geigy VE/IGK 15. Back.

Note 34: For details, see V. Schröter, op. cit. S. 300--2; H. Schröter, Kartelle, S. 498--9, 504--7, do., Cartels, pp. 130--1, 135--8, 142. Back.

Note 35: For details of the process of European in the United States, see H. Ito, Kokusai Senoyo Karuteru and Du Pont (International Dyestuffs Cartels and Du Pont), in: Management Studies, Osaka City University Vol. 28, No. 2, 1977, pp. 6-17; V. Schröter, Participation in market control through foreign investment: IG Farbenindustrie AG in the United States: 1920-38, in: A. Teichova, M. Lévy-Leboyer, and H. Nussbaum (eds.), Multinational Enterprise in Historical Perspective, Cambridge, Cambridge University Press, 1986, pp. 171--84; H. Schröter, Kartelle S. 485, 508; do., Cartels, pp. 118, 138--9. Back.

Note 36: H. Schröter, S. 501--4; do., Cartels, pp. 133--5. Back.

Note 37: Osaka Paints and Dyestuffs Manufacturers' and Dealers' Association (eds.), Enogu Senryo Shokoshi (History of Manufacturing and Transactions of Paints and Dyestuffs), Osaka, 1938, pp. 1498, 1685. Back.

Note 38: Auszug aus der Niederschrift über die Sitzung des Arbeitsausschusses, 17. Februar 1932, Hoechst Back.

Note 39: I. Harada, Senryo (Dyestuff), Tokyo, Daiyamondo Sha, 1938, p. 294; Osaka Paints and Dyestuffs Manufacturers' and Dealers' Association, op. cit., p. 1703. Back.

Note 40: Nihon Senryo Seizo Kabushiki Kaisha, op. cit., p. 76; Y. Yamashita, Wagakuni ni okeru Senryo Kogyo no Sosei (Emergence of Dyestuffs Industry in Japan) (3), in: Journal of Commercial Science, Chuo University, Vol 5, No. 5/6, 1964, pp. 95--6; I.G. Farben Control Office of the Decartelization Branch, Economics Division, of the Office of Military Government for Germany (U.S.), Activities of I.G. Farbendindustrie AG in the Dyestuffs Industry, Frankfurt am Main, 1946, p. 15, Hoechst-Archiv; H. Schröter, Kartelle, S. 511; do., Cartels, p. 141. Back.

Note 41: Waibel, Voigt, Bericht über die Besprechung über das Japan-Geschäft, 31. August, 1. u. 3. September 1927, Hoechst Archiv. Back.

Note 42: I.G. Farben an Geigy und CMC, 22. April FA Geigy VE/IGK 15. Back.

Note 43: I.G. Farben an Geigy und CMC, 29. Juni 1931; I.G. Farben an Geigy und CMC, 4. Juli 1931, FA Geigy VE/IGK 15. Back.

Note 44: Ciba an Geigy, 27. Oktober 1930; Geigy and Ciba, 24. April 1931; Ciba an Geigy, 27. April 1931, FA Geigy VE/IGK 15. Back.

Note 45: I.G. Farben an Geigy und CMC, 30. Dezember 937; I.G. Farben an Geigy und CMC, 29. Dezember 1938, FA Geigy VE/IGK 15-1; I.G. Farben Control Office, op. cit., pp. 90--1. Back.

Note 46: I.G. Farben an Schweizer, Französische und Englische Gruppe, 28./29. Oktober 1936; I.G. Farben an Geigy und CMC, 22./24. Januar 1938; I.G. Farben an Schweizer, Französische und Englische Gruppe, 1. Dezember 1938, FA Geigy VE/IGK 15/1; I.G. Farben Control Office, op. cit., pp 88--9. Back.

Note 47: For details, see M. Shimotani, Nihon Kagaku Kogyoshi Ron (Historical Treatise on Japanese Chemical Industry), Tokyo, Ochanomizu Shobo, 1982, pp. 196-216; T. Shzuki op. cit., pp. 257--9, 288. The original sources are in Mitsui Mining Co.'s unpublished history of the company Back.

Note 48: K. Suzuki, Senji Keizai Tosei kano Mitsui Bussan (Mitsui Bussan under Wartime Economic Control), III, in: Journal of the Mitsui Research Institute for Social Economic History, No. 20, 1986, pp. 211--2. The original sources are unclassified documents of the institute. Back. Kartelle, S. 511; do., Cartel

Note 49: Bundesarchiv, Abteilungen Potsdam, 80 IG Farben 1, A 1305, B1. 54--5; I.G. Farben an Schweizer, Französische und Englische Gruppe, 29. Mai 1935, FA Geigy VE/IGK 15/1. Back.

Note 50: I.G. Farben an Schweizer, Französische und Englische Gruppe, 29. Mai 1935; 12. Juli 1935; 16. Juli 1935 FA Geigy VE/IGK 15/1; K. Suzuki, op. cit., pp. 211--3. Back.

Note 51: Schweizerische Gesellschaft für Chemische Industrie an Mitglieder, 1. Juli 1936, FA Geigy VE/IGK 15/1. Back.

Note 52: I.G. Farben an Geigy und CMC, 5. Dezember 1931, FA Geigy VE/IGK 15; I.G. Farben an Schweizer, Französische und Englische Gruppe, 18./20. Juni 1936; 15. April 1937; 16. Juni 1939, FA Geigy VE/IGK 15/1. Back.

Note 53: For details, see Kudo, I.G. Farben no Senryaku, op. cit., pp. 127--8. Back.

Note 54: For details, see ibid., pp. 128--9, 147--9. Back.

Note 55: Memorandum of March 16, 1931, FA Geigy VE/IGK 15; Minute of the Special Meeting of the Four Part Cartel held in Frankfurt of August 26/27, 1937, re Far FA Geigy VE/IGK 15/1; I.G. Farben Control Office, op. cit. pp. 77-85; V. Schröter, Weltmarkt, S. 310. Back.

Note 56: K. Suzuki, op. cit., pp. 216--7, 239. Back.

Note 57: I.G. Farben an Schweizer, Französische und Englische Gruppe, 24. April 1935; Proposed cable from I.G. Farben to Du Pont, no date, attached to ICI to German, Swiss and French Group, April 30, 1935, FA Geigy VE/IGK 15/1. Back.

Note 58: ICI to German, Swiss and French Group, April 30, 1935; I.G. Farben an Schweizer, Französische und Englische Gruppe, 24. April 1935; 3. Mai 1935; 16. Mai 1935; Ciba an Deutsche, Französische und Englische Gruppe, 26. April 1935, FA Geigy VE/IGK 15/1. Back.

Note 59: Agreement, May 14, 1935, FA Geigy VE/IGK 15/1. Back.

Note 60: I.G. Farben an Schweizer, Französische undEnglische Gruppe, 2. Mai 1938; 4. Juni 1938, FA Geigy VE/IGK 15/1; K. Suzuki, op. cit., pp. 217--9. Back.

Note 61: I.G. Farben an Französische und Englisch Gruppe, 2. Juli 1938; 5. Dezember 1938; 28. Dezember 1938 Minutes of the Meeting of the Board of Directors of the Four-Party Cartel held in Paris, November 3, 1938, FA Geigy VE/IGK 15/1; K. Suzuki, op. cit., p. 219. Back.

Note 62: Aktennotiz, 8. März 1939, FA Geigy VE/IGK 15/1. Back.

Note 63: Minutes of Special Meeting held at Frankfurt on Main, March 8, 1939; I.G. Farben an Schweizer, Französische und Englische Gruppe, 14. März 1938; 5./6. Juni 1939; Minutes of the Meeting of the Board of Directors of the Four-Party Cartel held in Basle, March 30, 1939, FA Geigy VE/IGK 15/1. Back.

Note 64: I.G. Farben Control Office, op. cit., pp. 86-7 K. Suzuki, op. cit., p. 219. Back.

Note 65: H. Schröter, Kartelle, S. 512--3; do., Cartels pp. 142--3. Back.

Note 66: For more details, see Kudo, I.G. Farben no Tainichi Senryaku, op. cit., chaps. 5 and 6. Back.

Note 67: L. F. Haber, The Chemical Industry, 1900-1930, Oxford, Clarendon Press, 1971, pp. 90--1, 219. Back.

Note 68: Besprechung in Leuna über Auslandsprojekte 9. Juni 1939, BASF Archiv, Nachlaβ Pier, 1 Japan 1936--46. Furthermore, this engineer undertook the licensing in Japan of the IF process relating to synthetic oil. See A. Kudo, I.G. Farben's Japan Strategy: The Case of Synthetic Oil in: Japanese Yearbook on Business History 1988, 1989, pp. 94--5. Back.

Note 69: With reference to the activities for the Haber-Bosch process in Japan in the 1920s, refer to the following: T. Watanabe (ed.), Gendai Nihon Sangyo Hattatsushi XIII Kagaku Kogyo (Jo) (History of Modern Japanese Industrial Development, Vol. 13, Chemical Industry, Part I), Tokyo, Kojunsha Shuppankyoku, 1968, pp. 312--8 (written by T. Suzuki; H. Morikawa, Zaibatsu no Keieishiteki Kenkyu (Studies in the Business History of Zaibatsu), Tokyo, Toyo Keizai Shinposha, 1980, pp. 168--75; J. Hashimoto, Ryuan Dokusentai no Seiritu (The Establishment of the Ammonium Sulphate Monopoly), in: Journal of Economics, University of Tokyo Vol. 45, No. 4, 1980, pp. 48--9. In connection with technology transfer and the investment boom in the 1920s, refer to bid., pp. 49-55; T. Suzuki, Nihon Ryuan Kogyoshi Ron (Treat on History of Japanese Ammonium Sulphate Industry), Kurume University of Kurume, 1985, pp. 62-108. Back.

Note 70: Hashimoto, op. cit., pp. 59-63. Back.

Note 71: H. Ahrens & Co. Nachf., 29. März 1934 mit 2 Anlagen: Agreement, M. Kobayashi and H. Bosch, 23 March 1934, T74/11 CIA Internationale Konventionsverträge 1923-34; Exposé über die internationale Stickstoff-Verständigung, 25. März 1935, T74/10, BASF Archiv. Back.

Note 72: T. Yui and M. Fruin, Nihon Keieishi ni okeru Saidai Kogyo Kigyo 200 sha (The Largest 200 Japanese Firms in Japanese Business History), in: Japan Business History Review, Vol. 18, No. 1, 1983, pp. 41--5. Back.

Note 73: English translation of the words addressed to Mr. Taki by Dr. Münzing on the occasion of the transference of the Haber-Bosch Ammonium Sulphate Plant to the Japanese management, Taki Chemical Co., Ltd (descendent of Taki Fertilizer Works), Historical Archives, File Box, Ammonium Sulphate Plant -- H. Ahrens. Back.

Note 74: Taki Chemical, Taki Kagaku 100 nenshi A Hundred Years History of Taki Chemical), Kakogawa, 1985 p. 83; also Taki Chemical, Plant Report Tables from 1933 o 1947. Back.

Note 75: Yui and Fruin, op. cit., pp. 41-5. Back.

Note 76: In detail, see Kudo, I.G. Farben no Tainioni Senryaku, op. cit., chap. 5. Back.

Note 77: For details, see ibid., chap. 7. Back.

Note 78: Kudo, Gendai Doitsu Kagaku Kigyoshi, op. cit. Very little consideration was given from the beginning to exports. Aside from cost and shipping problems the firm had difficulty predicting where a profitable export market might be. Part of the reason for this was no donot the fact that developing a synthetic fuel production capability and sustaining a production capability therein were crucial elements in achieving economic autarky and military self-sufficiency. Fuel could be stored but any demand arising from such action would be extremely limited and in any case, importing synthetic fuel could be considered inherently contradictory. Back.

Note 79: In August 1928, a report issued by a Fue Committee made up of representatives from the various ministries called for `helping industries that develop alternative fuels to oil and encouraging research in this area,' and for `undertaking research in coal liquefaction.' However, the report did not go beyond simply encouraging such work. In May 1930, a Ministry of Commerce and Industry commission of inquiry called for measures to encourage research into coal liquefaction as part of a national fuel policy, but it went no further. In September 1933, a Liquid Fuel Committee composed of ministry representatives drew up a set of guidelines for a national fuel policy. One of the four main proposals was for the promotion of alternative fuel development. The committee directly called for industrial development in this area and cited the need to complete research on coal liquefaction and then develop concrete plans for large-scale production. In a to the oil Industry Law of March 1934, the Lower House of the Diet attached a resolution calling for the government to develop as quickly as possible a basic policy for the acquisition and development of oil resources and the production of alternative fuels. See H. Takeda, Nenryokyoku Sekiyu Gyosei Zenshi (An Administrative History of the Early Years of the Fuel Bureau), in: Sangyo Seisakushi Kenkyusho (ed.), Sangyo Seisaku Kenkyu Shiryo (Research Material on Industrial Policy), Tokyo, Sangyo Seisakushi Kenkyujo 1979, pp. 205-8, 213, 221-2 and 226. See also M. Miwa, Jinzo Sekiyu Seizo Keikaku to sono Zasetsu - Senzen Nihon no Ekitai Nenryo Mondai (Synthetic Oil Production Planning and the Failure Thereof: Prewar Japan's Liquid Fuel Problem), unpublished master's thesis, Tokyo Kogyo Daigaku, Faculty of Engineering, 1985, chaps. 2 and 3. Back.

Note 80: Takeda, op. cit., p. 236. Back.

Note 81: Jinzo Sekiyu Jigyoshi Hensan Kankokai (ed.), Honpo Jinzo Sekiyu Jigyoshi Gaiyo (A Summary History of Japan's Synthetic Oil Industry), Tokyo, Jinzo Sekiy Jigyoshi Hensan Kankokai, 1956, pp. 3-5. See also Nihon Ta Kogyokai (ed.), Nihon Tar Kogyoshi (A History of Japan's Tar Industry), Tokyo, Nihon Tar Kogyokai, 1965, pp. 305-7; and Ministry of Trade and Industry (ed.), Shoko Seisakushi 20 kan, Kagaku Kogyo (Jo) (A History of Commercial and Industrial Policy, Vol. 20, Chemical Industry, Part. 1), Tokyo, Shoko Seisakushi Kankokai, 1968, pp. 277-8 (by C. Nakamura). Back.

Note 82: R. Enomoto, Kaiso 80 nen (An 80-Year Retrospective), Tokyo, Hara Shobo, 1976, pp. 191, 194. Back.

Note 83: Preliminary calculations by government of officials (c. 1937) estimated that gasoline produced by direct liquefaction would sell for 74-75 sen per gallon. For synthetic fuel, the figure was 67-68 sen. Compared to gasoline produced from natural oil, these figures were higher by 22 to 30 sen. Thereafter, however, profitability was not an issue. See A. Okabe, Sekiyu (Petroleum), Tokyo, Nihon Keizei Hyoronsha, 1986, p.85. Back.

Note 84: Jinzo Sekiyu Jigyoshi Hensan Kankokai, op. cit., p. 7. Back.

Note 85: Enomoto, op. cit., p. 177. Back.

Note 86: Aus Besprechungen mit Tillmann und Vigeveno 18. Juli 1938, BASF Archiv. Back.

Note 87: See Kudo, I.G. Farben no Tainichi Senryaku op. cit., chap. 7. Back.

Note 88: Aus Besprechungen mit Tillmann und Vigevero, 18. Juli 1938, op. cit., BASF Archiv. Back.

Note 89: Toa Fuel Industry Co., Ltd, Tonen 30 nenshi (Ge) (A Thirty-Year History of Toa Fuel, Vol. 2), Tokyo, Toa Fuel Industry Co., Ltd, 1971, pp. 355-6. Back.

Note 90: Bosch an Krauch, 21. Februar 1936, BASF Archiv. Back.

Note 91: Rundschreiben Leverkusen, 2. Juli 1934, Hoechst Archiv. Back.