Foreign Relations of the United States Diplomatic Papers, 1935, The Far East, Volume III

611.003 Silk/11

Memorandum by Mr. Leo D. Sturgeon of the Division of Far Eastern Affairs

[Washington,] July 16, 1935.

Conversation:	Mr. Toyoji Inouye, Commercial Secretary, Japanese Embassy;
	Mr. N. Egawa,
	Mr. T. Wakimoto, and
	Mr. Takeshige Ishiguro, Representatives of the Japanese Raw Silk Importers Association of New York;
	Mr. Sturgeon.

Mr. Inouye stated that he and the representatives of the Japanese Raw Silk Importers Association of New York had come to discuss the proposed taxes on rayon and silk in connection with AAA amendments now before the Senate Agricultural Committee. He said that they had called on Mr. Myers of the Agricultural Adjustment Administration and had received copies of the proposed amendments. Mr. Sturgeon said that we had not received copies of the amendments but had received certain information from an officer of the Department of Agriculture. The proposed tax rates were then shown to Mr. Inouye.

Mr. Sturgeon said that he understood that the tax on rayon was a compensatory tax to preserve the relative competitive positions of rayon and silk.

Mr. Inouye said that the tax proposals arose from the theory that rayon is competitive with silk, but that the Japanese contended that it was not; that statistics since 1933, when the AAA was enacted,⁶³ will show that there has been no increase in the consumption of silk, but on the contrary a decline. Mr. Inouye understood that the object of the AAA was to give relief to American farmers, and especially to cotton farmers, but that if Japan is to continue to buy much cotton from the United States there must be purchases of silk from Japan. He added that raw silk is the chief agricultural commodity of Japan and that if the tax rates against silk are enacted the Japanese people will naturally be resentful; that the Japanese farmers do not understand the workings of the American Congress and will think the taxes an act of the Government against the Japanese. He thought the Japanese press also would give the matter wide and unfavorable publicity.

Mr. Egawa pointed out that about 90% of the raw silk brought to this country is not competitive with rayon. He said that the imports could be divided into two parts, 50% going into weaving of clothing, and 50% into knitting, particularly hosiery; and that in the case of knit goods, there is no place for silk to compete with rayon, as experiments have not proved commercially successful. He added that the demands of the American market prevent real silk from competing with rayon.

Mr. Wakimoto said that he understood from Mr. Myer (Department of Agriculture) that the American cotton trade wanted a tax on rayon, and that as a result rayon interests demanded taxes on silk. He said that if Japan sells less silk to the United States it will have to buy less cotton, although even now Japan sells less in this country than it buys here. He believed that the taxes would harm American farmers as their imposition would tend to decrease the sales of raw silk here, thus reducing the purchasing power of Japan in the American market.

Mr. Sturgeon asked if rayon competes with cotton and to what degree. Mr. Inouye replied that there was some competition between raw silk and rayon but it is difficult to say how much rayon competes with cotton. He emphasized again the point that increased consumption of rayon, while that of silk decreased, is proof of rayon’s competitive advantage wherever competition exists.

Mr. Ishiguro said that the proposed taxes were extremely serious for Japan as 40% of its families, or 2,000,000 farmers, are making a living from sericulture. The matter was, therefore, not only serious for silk exporters but for the Japanese sericultural industry.

Mr. Inouye finally stated that the worst feature of the proposed taxes was the probability that they would create ill feeling in Japan against the United States. He wished it to be clear, however, that his call at this time was for the purpose of explaining the Japanese position with respect to the taxes. He said that he was aware that the Administration was not responsible for the proposed taxes, but that he wished to utilize its good offices.

Mr. Sturgeon said that he believed that the gentlemen present were familiar with this Government’s efforts to follow a liberal policy in regard to international trade, and that while no line of action could be promised, the statements made would be carefully noted and brought to the attention of competent officials of the Department. Mr. Sturgeon added that he hoped that Mr. Inouye would in the meantime so explain to his Government the situation existing here that misunderstandings could be eliminated or reduced to a minimum.

63. The Agricultural Adjustment Act, approved May 12, 1933; 48 Stat. 31.