Foreign Relations of the United States, 1961–1963, Volume XXII, Northeast Asia

371. Memorandum From the Director of the Office of East Asian Affairs (Yager) to the Assistant Secretary of State for Far Eastern Affairs (Harriman)⁰

Washington, March 15, 1963.

SUBJECT

• Japanese Cotton Textile Exports

Problem:

On December 28 we levied on Japan a request¹ for export restraints in 36 categories (in addition to 3 categories agreed last fall) of cotton textiles for 1963 on the basis of market disruption as provided in Article 3 of the Long-Term Cotton Textile Arrangement (LTA).² The Japanese have rejected the allegation of market disruption except in 4 categories. There has been a series of exchanges in Washington and Tokyo, the net result of which has left us far from agreement. Our allegation of market disruption on a broad scale has touched off a storm of protest in Japan which has acquired wide political proportions actually threatening damage to our relations with Japan. Moreover, failure to reach early agreement would undoubtedly lead to a confrontation in the GATT which probably would destroy the LTA itself, cause an unpleasant and destructive exchange regarding U.S. trade policy, and seriously affect the prospects for a successful Kennedy Round of Tariff negotiations under the TEA. We must quickly find a solution which will avoid a confrontation with Japan on issues of principle and permit us to negotiate on the actual level of exports for 1963, such a solution must, of course, provide adequate safeguards and assurance to the U.S. industry.

The Issues

The basis for Japanese indignation is the fact that the U.S. has “accused” Japan of market disruption on a broad scale (about 90 percent of its exports to the U.S.) in the face of its long record as the only country to exert rigorous restraints on textile exports to the U.S., all of which were worked out in close consultation with the U.S. They are also conscious of the key role they played in support of the U.S. in bringing about the LTA. Except for 4 categories they do not agree that the LTA definition of market disruption has been met. It is now apparent that continued efforts to negotiate restraints with the Japanese on the basis of the market disruption principle (Article 3) will not be successful. In the end we would probably be required to take unilateral action to impose import restrictions, which would undoubtedly lead to a confrontation with Japan in the GATT.

After extensive exchanges in Washington and Tokyo regarding interpretation of the LTA, no agreement in principle has been reached and the Japanese have refused to discuss restraint levels under Article 3. On the basis of a Cabinet decision, which over-rode a Foreign Office recommendation to move directly to negotiation of restraint levels, the Japanese requested U.S. agreement to six points of principle regarding the LTA, after which they would be willing to negotiate restraint levels under Article 4 of the LTA (which provides for bilateral agreements) (attached).³ It is the consensus in this office and in E that efforts to come to agreement on the six points would be interminable.

The Commerce Department prefers the use of Article 3 because of its provision for the imposition of unilateral controls in the event of lack of agreement or breach of agreed ceilings. This they consider to be a valuable “lever” which they do not believe a bilateral agreement under Article 4 would provide. Naturally the Commerce Department feels its responsibility to provide adequate safeguards for the U.S. industry.

Proposed Solution

We believe that the best solution lies in our moving away from the market disruption principle and presenting a proposal for agreed restraints under a bilateral agreement. Recent private discussions with the Japanese both here and in Tokyo lead us to the conclusion that a U.S. proposal for negotiation that meets the Japanese objection to the market disruption “accusation” may result in avoidance of a clash on the issues of principle. It is obvious that the Japanese Government’s interests lie in avoiding further prolongation of this issue in the public domain, but that it must find a solution which “saves face” on the market disruption issue.

A bilateral agreement which provides agreed specific ceilings on all sensitive categories together with an over-all ceiling on all Japanese exports to the U.S. (which is not provided under the market disruption method), would safeguard the U.S. industry against unforeseen disruptive imports from Japan. Although we deal with almost all other countries under Article 3, the unique record of bilateral textile arrangement with Japan since 1957 should adequately explain this departure.

We have suggested that a proposal be made to the Japanese for a bilateral agreement with 1) an over-all restraint level of about 290 million square yards (Commerce’s estimate of total Japanese exports under our original proposal),⁴ 2) specific ceilings on the 39 categories, and 3) a residual basket ceiling for the remaining 25 LTA categories. Both parties would reserve their rights under the LTA and the GATT.

We have discussed this proposal with Mr. Philip Trezise, who has taken over Mr. Blumenthal’s duties regarding textiles, and are in basic agreement with him. He is now preparing to take up the proposal with Commerce and other interested agencies as soon as possible. His problem will be to convince the other Departments that such a proposal will break the impasse and, at the same time, provide adequate safeguards for U.S. industry.

Mr. Trezise wishes to discuss this matter with you and Mr. Ball before taking it up with the other agencies.⁵

0. Source: Department of State, EA/J Files: Lot 68 D 373, Cotton Textiles January-June 1963. Confidential. Drafted by Vettel.
1. The previous agreement expired on December 31, 1962; see footnote 4, Document 343.
2. Dated February 9, 1962; for text of this multilateral arrangement, see 13 UST (pt. 3) 2672. The arrangement entered into force for the United States on October 1, 1962.
3. Not found attached.
4. At a background press briefing held February 26 W. Michael Blumenthal, Deputy Assistant Secretary of State for Economic Affairs, stated that 1962 shipments in the affected categories, according to figures submitted by the Japanese Government, were 262.5 million yards. (Department of State, EA/J Files: Lot 68 D 373, Cotton Textile Consultation 1963)
5. Negotiations were successfully concluded under Article 4 of the LTA. (Ibid.) Other documentation on this topic prior to January 31, 1963, is ibid., Central File 611.9441; for the remainder of 1963 it is ibid., Central File FT 11-5 JAPAN. For text of the notes effecting the arrangement between Japan and the United States concerning trade in cotton textiles, exchanged at Washington on August 27, 1963, and entered into force that day (operative from January 1, 1963), see 14 UST 1078. Text of the August 27 joint announcement on the arrangement is in Department of State Bulletin, September 16, 1963, p. 440. A review of the bilateral cotton textile trade is in Contingency Paper KEA/C–3, November 15; Department of State, Conference Files: Lot 66 D 110, CF 2361. See the Supplement.