German-Japanese Cooperation, Synthetic Oil: A Case History

The factory system at Monowitz-Buna, a part of the Auschwitz system, used slave workers to produce synthetic rubber and oil.

While German-Japanese negotiations about armaments and related equipment gave ample scope to private German interests, one episode, involving the German chemical industry, illustrates better than others the Nazi government’s inability or unwillingness to subordinate private interest to her ally’s need. This concerned the negotiations between the Japanese government and IG Farbenindustrie A. G, about the synthetic production of oil by the hydrogenation process.

Japan had first shown an interest in German techniques of synthetic oil production during the mid-1930s. In 1936 Mitsui had acquired a manufacturing license for the Fischer-Tropsch process from the German patent-holder, Ruhrchemie. This was meant to strengthen Japan’s own as yet insignificant synthetic oil industry. After 1937 synthetic oil production, particularly in Manchuria, received strong backing from the Japanese government under a new plan for the development of Japan’s natural and synthetic oil resources. When the manufacturing techniques available in Japan were judged inadequate to fulfill the plan’s goals, the Japanese government in the late 1930s approached IG Farben with a request for a manufacturing license for the hydrogenation process.

The delicacy of the subsequent negotiations was largely due to the peculiar status of the hydrogenation patent. The inventor of the process, Dr. Friedrich Bergius, had sold his patent to IG Farben in the mid-1920s and that company, in turn, had sold it to the Standard Oil Company (New Jersey) in 1927. After this date, IG Farben merely retained hydrogenation rights for Germany, and a 20-per-cent royalty in the rights and processes sold to Standard Oil. In 1931, Standard Oil turned its foreign (non-U.S.) hydrogenation patent rights over to its subsidiary, International Hydrogenation Patents Company (IHP) in The Hague. A half-interest in that company was later sold to Royal Dutch-Shell.60 IG Farben’s sale of the patent rights outside Germany also limited the dispositions which the company could make in regard to its technical data (Erfahrungen) in the hydrogenation field. Potentially the most valuable of IG Farben’s possessions in the eyes of the Japanese, the technical data could only be sold to a properly licensed party, at least according to IG’s agreement with Standard Oil.

When the Japanese army in 1938 attempted to acquire a manufacturing license for hydrogenation, it should have gone to IHP which held the licensing rights for the Far East, Considering IHP too closely allied with British and American oil interests, the Japanese instead turned to IG Farben. The German company, evidently pleased at Japan’s new interest in the hydrogenation technique, transmitted the Japanese request to IHP. IG Farben probably expected or knew that the Japanese army, as soon as it had obtained the license, would turn to IG for technical data and the use of IG engineers in the establishment of the first hydrogenation units in Japan.

By December 1938, IHP had notified IG Farben that Japan could be given a license, provided IG remitted 80 per cent of the royalties to IHP. The matter rested here for some time, because IG Farben in early 1939 had begun to lose interest in the Japanese project. It turned out that the Japanese plan was merely to build a plant to produce 15,000 tons of oil per year; IG Farben was apparently reluctant to part with its technical data for the sake of so small a contract. Later in the year, however, IG Farben’s views once more changed. The company discovered that the Japanese planned to use hydrogenation of tars rather than of coal. Under these circumstances, IG Farben was ready to sell Japan its data on tar hydrogenation while retaining its more valuable data on the hydrogenation of coal.

On this basis, a preliminary contract (Vorvertrag) was concluded between IG Farben and Mitsubishi, acting for the Japanese army, in the fall of 1939. A Japanese army mission was expected in Germany at the end of the year to settle final details. Before the negotiations had proceeded to this stage, however, highly political considerations were introduced by a third party, the American government, which brought Japanese efforts to a temporary halt.

In its attempt to exert mild but steady economic pressure on Japan, the American government in late 1939 insisted that no American company holding patent rights for synthetic oil production should license a Japanese manufacturer. The government’s moral embargo extended to foreign companies in which American firms had a controlling interest. On instructions from its American parent company, Standard Oil, IHP in December 1939 informed IG Farben that the preliminary contract with Mitsubishi had to be canceled.

If the American government invoked political motives to disrupt the German-Japanese business negotiations, IG Farben’s own commercial interests dictated that the company fall in line with the American decision. The Japanese contract was not lucrative enough to warrant the application of pressure on IHP or the breach of a contract. From the company’s point of view, this was not the time to strain relations with IHP or its American parent company, particularly since an IHP hydrogenation license for the Soviet Union was needed before IG Farben could proceed with a large and profitable hydrogenation project there. The IG records suggest that it was mainly the scale of the Russian project which caused the company to favor the Soviet Union over Japan; there is no evidence that the German government had influenced this choice for political reasons. From December 1939 to August 1940 the Japanese project made no progress. Most likely the Japanese did not press very hard after they had been turned down in December. They renewed their request for a hydrogenation license, however, after the American government had embargoed the export of aviation gasoline to Japan in late July. The Japanese now contemplated much bigger facilities than before; they spoke of a plant producing 100,000 tons of oil per year. The more ambitious dimensions of the Japanese project rekindled the interest of some IG Farben representatives. Since the Russian project had meanwhile been abandoned, consideration of that, it was thought, need no longer influence IG’s stand on the Japanese request. Some company spokesmen advocated the sale of IG’s technical data to Japan regardless of the solution of the complicated licensing question. Recommending this course of action to the company’s directors, IG’s Büro Sparte I thought that the German government might be prevailed upon to order IG Farben to go through with the sale of its technical data—a not unreasonable expectation at a time when Germany and Japan were drawing together politically, and the United States had begun to support Britain. Should the company act under government orders, the Büro concluded, Standard Oil would surely “understand” the political necessity which was forcing IG Farben to break its contract.

The advocates of this view were soon overruled by higher echelons in the company. By early September 1940 IG Farben officially declared that the fulfillment of Japanese wishes in contravention of the company’s contractual obligations to Standard Oil was opposed to the best interest of the company. Profits from the Japanese project were judged insufficiently attractive to warrant the very considerable risk of reprisals at the hands of Standard Oil to which IG Farben might expose itself. Since the company recognized the political implications of the Japanese request, however, it was willing to leave the final decision up to the German government.

By November 1940 the government had decided not to overrule the company’s arguments. Whether the government thought that political considerations were irrelevant or held that Germany’s political interest coincided with the interests of the company is not certain. At any rate neither the company nor the government changed its mind when Japan pursued the matter through her embassy in Berlin.

The basic reasons underlying IG Farben’s stand are set forth with great candor in the company records over the next few months. One consideration which weighed heavily with the company was the fear of reprisals should IG Farben give its data to the Japanese in the face of IHP’s ban on the license. The company thought it likely that in case of a contract violation Standard Oil might well sue in the courts of neutral countries in which IG Farben had extensive assets. The American company was thought to stand a good chance of being awarded damages out of IG Farben assets.

Throughout much of 1941 the company also seems to have suspected the Japanese of pursuing the license and data question as a mere blind to cover their quest for IG Farben technicians and German hydrogenation equipment. These, the company feared, would be used to improve Japan’s own hydrogenation technique. The company was therefore determined not to part with its specialists or its costly technical data unless the Japanese also purchased the license and the data. IHP’s refusal to sanction the license relieved IG Farben of the need to disclose its true objections to the Japanese.

But fear of reprisals alone did not determine IG’s policy. The company did not wish to damage its close and profitable relations with Standard Oil, particularly the patent exchanges in the synthetics field which the two companies had entered into in 1930. Though exchanges of data had been broken off shortly after the outbreak of the war in Europe, IG Farben considered the suspension temporary and was ready to subordinate most other matters, including the Japanese project, to the preservation of amicable working relations with Standard Oil after the war.63 While this consideration may have weighed most heavily with the company, in its communications to the German government IG naturally stressed the loss of foreign exchange should the company assets in neutral countries be forfeited as a result of court action.

The argument about loss of foreign assets may have counted heavily with the Nazi government. Whether it is the only explanation for the government’s refusal to aid its Japanese ally is not known. During his visit to Berlin in the spring of 1941 Foreign Minister Matsuoka discussed the hydrogenation project with IG Farben representatives in the presence of government officials. IG referred on this occasion to the “contractual difficulties” which stood in the way of the Japanese project, and Matsuoka pointed out in conclusion that if the procurement of oil through synthetic production proved impossible, Japan would simply have to go and “get her oil.”64 It is possible that the German government thought it could encourage Japanese expansion in Southeast Asia by withholding German aid in the hydrogenation field. Such an explanation is consistent with German policy during the spring of 1941, although no evidence for such a Machiavellian scheme has been found.

The scant evidence for the second half of 1941 rather points in another direction. Economic, not political, considerations still dominated the German government in the hydrogenation question as late as October 1941. By then, Foreign Minister Ribbentrop had approved the Japanese request for licenses and data, primarily at the insistence of the Wohlthat delegation and the German embassy in Tokyo; it was the ministry of economics that still held out against the Japanese, and although its precise grounds are not known, they were most probably of an economic nature. The ministry’s assent had apparently not yet been secured when Pearl Harbor and the German declaration of war against the United States changed the picture. Ribbentrop ordered IG Farben to accede to the Japanese request for technical data. A consideration of IG’s relations with the American company, he insisted in early 1942, was no longer appropriate.

Faced with this demand, IG Farben sought to comply in a manner best calculated to safeguard its own and Standard Oil’s financial interests in the hydrogenation patent. Theoretically, at least two ways of circumventing the still existing legal obstacles against giving Japan the data suggested themselves to IG Farben. One method was based on the happy circumstance that a branch of IHP had remained in Holland when the company itself had moved to the western hemisphere shortly before the German invasion of the Netherlands. If Germany chose to consider the branch of IHP in The Hague as the patent-holder and applied pressure on the hapless Dutch, a hydrogenation license for the Japanese would no doubt be forthcoming, either directly from IHP or, with IHP’s assent, through IG Farben, The other method would have had Japan declare that she had acquired the hydrogenation license by compulsory licensing. In either case, IG Farben would be free to negotiate with the Japanese about the sale of its technical data, by then the true object of all Japanese efforts. If the first method was chosen, the Japanese would have to pay whatever price the Germans, in conjunction with IHP, put on the license. In this case, IG Farben was ready to put the royalties in a special account for later settlement with IHP and Standard Oil after the war. The second method would enable the Japanese to acquire the license for a nominal fee or at no expense at all. After some wavering, IG decided to pursue the first course.

In early June 1942 representatives of the Dutch IHP and IG Farben worked out an arrangement whereby IHP granted IG Farben a Generallizenz which would entitle IG, in turn, to license the Japanese and sell them its own techniques. The financial terms contemplated by the Germans and the Dutch at this stage of the negotiations are not known. At any rate, before the German-Dutch agreement had been in effect very long, IG Farben began to express doubt that the Japanese would recognize IG’s Generallizenz. If Japan discovered that the license was of such recent date and had been acquired from an enemy alien, she would no doubt refuse to cooperate with IG Farben’s plan.

The Japanese fell out of step, but for different reasons. IG Farben, proceeding on the course chosen, by early July 1942 had drafted a licensing agreement with the Japanese army on the basis of the Generallizenz; the draft was submitted to the foreign ministry and the ministry of economics for approval. From the available IG Farben records it would seem that the matter was then stalled for the next three months. If this was indeed the case, one reason may perhaps be found in Japan herself. Now that the Japanese had conquered the oil resources of the Dutch East Indies and were bringing them back into production, the pressure on Berlin for a hydrogenation license may well have relaxed. There is at least indirect evidence for this conjecture in the fact that the Japanese government during 1942 sharply reduced the priority of its own domestic oil industry, both synthetic and natural, in unrealistic reliance on the continued availability of southern oil supplies.66 But by October 1942 the Japanese resumed their negotiations with IG Farben. During 1943, as American submarines took an ever-growing toll of Japanese tankers bringing oil from the south, the urgency of their requests must have mounted.

Still the Germans would not be rushed. Between October 1942 and August 1943, the negotiations were deadlocked over the legal issue of Japan’s license. As IG Farben had feared, the Japanese government contended that it need not purchase a license at all, since it had already acquired all of IHP’s patent rights in the Far East by compulsory licensing. Hence, the Japanese argued, the sole object of their future negotiations was IG Farben’s technical data, for which Japan was prepared to pay “adequate compensation.” The Japanese also declared that they were ready to acquire a license for any IG hydrogenation patents taken out after Pearl Harbor day, since the compulsory license was held to cover only rights existing prior to that day. During the spring and early summer of 1943, IG Farben refused to accept the Japanese version of the legal issues at stake. The real reasons for the company’s position are not entirely clear: perhaps it really felt bound by its recent licensing contract with IHP; perhaps it refused to recognize compulsory licensing because of the financial loss to itself and IHP. Only pressure from the German government, the company argued, would force it to change its stand.

The government was slow in applying such pressure. It may finally have done so. At any rate, in August 1943, IG Farben declared itself ready to recognize the compulsory license acquired by Japan and to proceed with negotiations about technical data and post-Pearl Harbor patents.

Despite the agreement on the legal issues, negotiations about the technical data continued for another eighteen months. The IG Farben records suggest at least two reasons for the further delay: IG’s continued uneasiness over the recognition of Japan’s compulsory license, and disagreement over the financial terms of a settlement. IG’s qualms over the legal situation are sufficiently evident from the company’s insistence on a written assurance from the German government that the sale of the data had taken place at the government’s behest. Without such a declaration, the company was unwilling to conclude its contract with the Japanese.

In addition, disagreements over the price and payment schedule for IG Farben’s technical data delayed the conclusion of the agreement. The company’s records for 1944 are sparse but there is evidence that the financial terms of the final settlement were not entirely satisfactory to the company. It can only be surmised, therefore, that IG Farben held out against such terms as long as it could. Whether the German government eventually prevailed on the company to settle on Japan’s terms is not known.

It was not until January 11,1945, that the Japanese military attaché, General Komatsu, and representatives of the company concluded the final contract. IG Farben agreed to sell the Japanese war minister a license on all IG’s hydrogenation rights and, more important, all the company’s data and processes, on the further understanding that Japan had already acquired IHP’s hydrogenation rights by compulsory licensing. The price for IG’s rights and data was fixed at 18 million Reichsmark, which included payment for technical assistance, which IG promised to furnish in the establishment of the first three hydrogenation units in Japan. Of this sum, 20 per cent was payable upon conclusion of the agreement, 30 per cent within six weeks after the transfer of the data, and the remaining 50 per cent in five installments over a five-year period.

The remainder of the hydrogenation story is fragmentary. In the IG Farben records there is evidence that the first installment was paid on February 16, almost five weeks after the agreement was signed, and one week after certain data (Zeichnungen und Bestellentwürfe) had been turned over to the Japanese. Whether a complete set of the data was ever delivered to the Japanese is not known. Nor is it clear how much IG Farben was paid in the remaining few weeks of the war.

There can be little doubt that the transfer of data, if it did indeed take place, came far too late to do Japan any good. The German government certainly bears some responsibility for the interminable delays in the negotiations; it alone could have overruled the legitimate but militarily irrelevant considerations which had prevented IG Farben from sharing its knowledge with the Japanese at a time when such assistance might still have benefited the German-Japanese cause.

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