189. Memorandum of a Conversation Between Secretary of State Dulles and Prime Minister Kishi, Department of State, Washington, June 20, 1957, 4 p.m.1
SUBJECT
- Economic Matters
[Here follows a list of participants (33). Secretaries Dulles, Humphrey, and Weeks led the United States side. Prime Minister Kishi’s principal aides were Ambassador Asakai and Chief Cabinet Secretary Ishida.]
The Secretary opened the meeting and introduced his United States colleagues present.
He stated that the United States recognized the extreme seriousness of the economic problems which Japan faced. Japan, as a member of the Free World society, had to find means for her growing population to live. The Secretary had himself always considered that the chain of unfortunate events beginning in the 1930’s had been largely the consequence of the economic difficulties that descended on the world at that time. It was important to avoid any repetition. He added [Page 398] that there were elements of nationalism and protectionism that had their influence, but the United States did hope in these meetings and beyond to find a way to help Japan through its economic difficulties.
The Prime Minister commented briefly on recent economic developments in Japan. He expressed appreciation of the extensive United States aid to Japan furnished since the end of the war. Japan had enjoyed a satisfactory economic development principally owing to the aid received from the United States. The purpose of his visit was to discuss ways and means of establishing greater understanding and greater cooperation between the two countries. He felt that increased understanding was necessary. If he spoke candidly, it was only in the hope that this would help toward the establishment of greater understanding.
The government of Japan had certain economic plans for the current year. It aimed at a steady rate of economic development. It foresaw an increase of 7.6% in production, an increase of 12.9% in exports and an increase of 15% in capital investment. These increases would be more or less in line with trends of recent years.
The Prime Minister said that until now production and prices had shown favorable trends but investment had increased more than had been expected. The result was that imports had greatly exceeded exports. The Government had since March been obliged to increase money rates in order to tighten import credit, and to restrain investment, with the object of arresting the deterioration of the balance of payments position and stabilizing the economy. The Prime Minister, however, added that he did not wish to create the impression that the economic position in Japan was generally bad. On the contrary he felt that it was on the whole healthy and sound notwithstanding the adverse balance of payments position which had recently developed.
The Prime Minister stressed that it was necessary to bear in mind, in considering Japan’s position, both the balance of payments problem and the need to provide for increased population. Japan was under the necessity of increasing the volume of its foreign trade.
In pursuing the subject of Japan’s economy, the Prime Minister turned to Japan’s trade with the United States. He said that as the United States was the principal market for Japan, Japan had to concentrate its attention on matters arising in the United States market. With reference to Japan’s exports to the United States, Japan was endeavoring to take into consideration the repercussions in the United States industries of imports from Japan. Japan was trying to arrive at methods for orderly marketing of its products in the United States and hoped it could expect greater consideration from the United States particularly with respect to movements in the United States toward restriction of trade with Japan. The Japanese knew that the United States was a free trade country. Other countries followed closely developments in the [Page 399] United States. Any trade restrictive developments in the United States were therefore detrimentally influential in Japan’s trade relations with other countries.
The Prime Minister hoped, with reference to the textile laws passed by the Legislatures of Alabama and South Carolina that the United States would see its way clear to correct the situation.
The Prime Minister indicated Japan’s gratitude for the consideration the United States had given to Japan’s raw material requirements, having special reference to the recently determined United States scrap export quotes.
The Prime Minister then addressed the subject of Japan’s trade with Communist China. Japan, he said, regretted very much that agreement had not been reached in the China Committee deliberations. Trade with China was a matter of importance to Japan, which looked forward to a “reasonable increase” in such trade. But he wished to stress the importance which at the same time he placed upon cooperation among the countries participating in the China Committee.
The Prime Minister stated in order to clarify Japan’s interest in trade with Communist China, that the Government of Japan had no intention of recognizing Communist China or of operating formal diplomatic relations with Communist China. But Japan had certain “historical and geographical connections” with China and it was imperative that Japan expand its trade and economic relations with Communist China.
Japan had been asking for abolition of the China differential trade controls and observed that events had pointed to the elimination of that differential.
The Prime Minister then commented upon his recent tour through Southeast Asia. He had observed on his tour that the standard of living was very low and that this led to political instability and to the existence of various social problems. It created a fertile ground for Communist infiltration. It was imperative that such Communist infiltration be prevented by the granting of assistance to Southeast Asian development. This would also be to the material advantage of Japan in the opening of new markets for Japanese exports, and in the provision of raw material sources. He said that the urgency of the problem was such that no time should be lost.
The Prime Minister said that it went almost without mention that to accomplish their economic development the Southeast Asian countries would have to find “capital and know-how”. The questions presenting themselves were therefore those of financing and the provision of technical assistance for the development of Southeast Asian resources.
[Page 400]During the preceding few years Japan had been receiving aid from the United States to increase the level of productivity in Japan, aid in the form of special or “offshore” procurement, and aid in the form of loans and technical cooperation. This assistance from the United States had been of extreme value to Japan.
The Prime Minister hoped that in view of recent economic developments in Japan, as he had outlined them, including the deterioration in the Japanese balance of payments position, the United States could consider some further financial assistance to Japan in the form of loans.
The Prime Minister then adverted to the program for the introduction of youthful Japanese farm workers into United States farms for a short period. This program was valuable to Japan for the economic boost it gave the Japanese workers. But the program was also valuable in that it furthered understanding between the Japanese and American people.
The Secretary of State in response to the Prime Minister’s observations addressed himself first to the question of the textile laws, which he said might be discriminatory. He observed that this legislation had been enacted before Japan had instituted voluntary restrictions on its textile exports to the United States. Since that time, efforts in the states to obtain similar legislation had consistently failed. The United States Government hoped to bring about repeal or de facto abandonment of the legislation now on the books. If these hopes should not eventuate, there could be action in the Supreme Court by the United States Government seeking invalidation of these laws as being in violation of the FCN Treaty.
However, the Secretary was bound to observe that the court processes in the United States sometimes produced unexpected results. For the time being, therefore, it seemed better to work along the practical lines which he had indicated.
On the subject of trade with Communist China, the Secretary said the United States had always recognized that Japan should properly have a considerable trade with Communist China, both as a source of raw materials and a market for Japanese goods. The principal United States concern was that trade with Communist China might be of a character which would produce a rapid build-up of Communist China’s war potential. China’s war industries at the present time were still in the infant industry stage and China was almost wholly dependent on the Soviet Union for military and war supplies. The danger in the area would be substantially increased if China were to have an independent source of war supplies.
The United States had the principal burden of military defense in the Far East at the present time and felt that its views on the subject of trade with Communist China should have been given more weight [Page 401] than they had been given in the recent Paris deliberations of the China Committee on trade controls. However, the action had been taken by the United Kingdom and some other countries to abolish the “differential”. The United States realized that it would be difficult for a country like Japan to accept restrictions on its exports that were not accepted by other trading countries. The United States hoped, however, that Japan would help insure that the quotas established under the List II procedure would be small. The Secretary added that the United States stressed the importances of such articles as machine tools and electronic equipment. The United States felt quite confident that large quotas in such items would substantially increase China’s war potential without significantly increasing the total volume of trade with Communist China. The Secretary explained that the United States thought that the total volume of trade would not increase, as measured by its value, because the amount of foreign exchange available to Communist China was not large, and it was evident that the Chinese Communist authorities would employ the limited amount of exchange they could generate by purchasing, so far as possible, articles of high strategic importance if the List II quotas should be increased. In that event, he thought Japan’s trade with Communist China in less strategic items would suffer. However, if Japan held down its exports of List II articles to Communist China, it would not hurt Japan in total trade but would on the contrary be offset by compensating sales of less strategic items.
Mr. Dillon, Deputy Under Secretary of State for Economic Affairs, spoke on the subject of Southeast Asian economic development. He said the United States agreed with the Japanese view of the necessity of promoting such economic development. In the new United States proposal this year for MSP legislation, the United States Administration had asked the Congress for the approval of funds to be available for the purpose of economic development. In the subsequent two years it was hoped that such funds would again be increased.
Mr. Dillon then turned to the question of Japanese temporary agricultural labor in the United States. He observed that in the preceding year the United States had approved requests by American employers for permission to employ temporarily 1,000 Japanese farm youths in this country. The United States believed that such a program when properly conceived was very beneficial. In principle, the United States was in favor of it. But there had been considerable concern in the United States as to the impact of the Japanese and other such programs on labor standards in the United States. The Department of Labor had also expressed concern about the possibility of exploitation of such labor groups.
[Page 402]Because of these concerns, the United States was now in the midst of a restudy of the Japanese agricultural labor program in order to determine whether it would be appropriate to expand it. As the study was still in progress, it was not possible for the United States to speak further on the subject at that time.
The Prime Minister said that he was happy to know that the matter was under study in the United States Government. He would like to extend his previous remarks by drawing attention to the very beneficial effect the program was having on United States-Japanese relations. Further, it was well to bear in mind that the Japanese farm youths involved wrote letters home to their families and friends in Japan and that this had aroused greater Japanese interest in life in the United States. The very fact that Japanese boys were accepted on American farms made the villagers in Japan feel closer to similar communities in the United States. He repeated that the program was very beneficial to Japanese relations with the United States.
The Secretary of Commerce, reverting to the subject of the State textile laws, confirmed the remarks of the Secretary of State. The United States had made and would continue to make every effort to remedy the situation. He said the Japanese in fact need not be too much concerned because the laws in question were “dead letter” laws and had “little or no practical effect” in view of their nonenforcement. In view of the fact that efforts to pass similar legislation in other States had failed, the Japanese would realize that the United States had successfully blocked any effort to expand this type of legislation.
Mr. Waugh, of the Export-Import Bank, spoke on the subject of loans. He referred to the known record of the Bank’s loans for the purchase of raw cotton. The annual loans had run between $50 and $60 million each on cotton. He remarked in passing that all of the loans had been paid on or before they had fallen due. He said that the Bank had before it applications for loans for electrical companies and various utilities. During the past year the Bank had extended four credits for $38 million and two credits, for Japanese airlines, amounting to $24 million. He said that the Bank had applications in the amount of $97 million on hand for long-term loans. These involved the electrical and steel industries. The problem had a short-term and a long-term aspect. The Bank was then discussing the immediate short-term problem. It was considering an increase of the cotton loan from $60 to $80 million. He said that he was authorized by his Board to advise the Prime Minister that this application would be “looked upon favorably”.
The Bank was also considering applications for further agricultural loans which would be discussed the next day with the advisers of the Prime Minister. Mr. Waugh asked the Prime Minister whether he agreed, from the point of view of Japan, that it was preferable for the [Page 403] Bank to consider first the short-term problem or whether the Bank should give more immediate consideration to the long-term. He remarked that the total outstanding loans amounted to $124 million of which ½ was for cotton.
The Prime Minister indicated that he would like an early decision on the short-term projects.
Mr. Waugh replied that the Bank would be ready to give a decision before the Prime Minister’s departure.2
The Prime Minister turned to the question of Japanese vested properties in the United States. He understood that these were valued at “some $100 million”. He understood that proposed legislation was before the Congress which would make possible “some return” of these properties.
The Secretary of State said that he was aware of the proposed legislation and that he understood the matter would be very complicated. He understood that a fairly large sum in the United States war claims against Japan had been paid out of funds realized from German vested assets. He would take careful note of the Prime Minister’s observations and the United States would bear them in mind in working on this legislation.
The Prime Minister said that he was happy to hear from Mr. Dillon that the United States Administration was requesting Congressional authorization of funds which might be applied in Southeast Asian economic development. He had recently made a tour of Southeast Asia in the course of which he had placed certain ideas before his opposites in that area. He had sounded out these Prime Ministers on the idea of an Asian development fund. He realized that the idea was still very rough and would need further development. He had given his suggestions on the subject to Ambassador MacArthur and hoped that the United States would study them carefully.
The Secretary of State said that the United States attached great importance to Southeast Asian economic development. It saw an opportunity there for Japan to develop export markets as well as sources of raw material. He observed, however, that to evolve the concept into reality was a difficult and complicated affair. Nevertheless, the United States believed the concept was basically sound and that it should be pursued. The United States would study with “sympathy as to its purpose” the proposal to which the Prime Minister had referred.
The meeting adjourned at 5:30 p.m.
- Source: Department of State, Conference Files: Lot 62 D 181, CF 889. Secret. Drafted by Clifford Matlock and cleared by Robertson.↩
- Documentation regarding decisions taken on this subject before Kishi’s departure has not been found. For a summary of the status of Japan’s subsequent relations with the Bank, see Document 208.↩