681.006/43

Memorandum by the Chief of the Division of Trade Agreements (Grady)

It is at least questionable whether this Government should, as suggested by WE,5 acquiesce in regard to the proposed quota on textiles imported into the French Zone of Morocco. It is true, as WE points out, that our exports of textiles average only about $25,000 to $30,000 annually. However, the following considerations should, I believe, be taken into account:

1. The British Aide-Mémoire4 in effect asks us to agree to the imposition of a quota on textiles imported into Morocco which is designed to shut out Japanese competition in consideration of the alleged advantages we have received as a result of the discriminatory quotas imposed in the British West Indies which have greatly restricted sales of Japanese textiles in those markets.

2. The suggested reply may be interpreted as a tacit acceptance of the foregoing proposition. Such acceptance would, in my opinion, be unwise because

(a)
it would be tantamount to cooperation with the British in placing discriminations in the way of Japanese trade;
(b)
it might well be interpreted by the British as recognition of the alleged benefits we have received from anti-Japanese measures in the British colonies and of our willingness to pay for such alleged benefits; and, hence,
(c)
it would tend to weaken our position to combat the preferential policy which Great Britain has been pursuing in many instances in its relations with non-British countries. It is proposed to hand to the British Ambassador, in the near future, a memorandum setting forth the implications of such a policy.

3. Our acquiescence in the textile quotas might well be interpreted by the Japanese, who have gone a long way to cooperate with this Government by the “voluntary” restriction of exports of textiles to the United States and the Philippines6 and of various other products to the United States, as an unfriendly act.

4. The ostensible reason for changes in the tariff regime in Morocco is the need of increased customs revenue. Although moderate increases in the duties on certain products for which the demand in Morocco is fairly inelastic may be expected to augment the customs [Page 414] revenue, it is difficult to see how import quotas would contribute to that result. It would appear, therefore, that the quotas are proposed by France and Great Britain solely as a means of gaining competitive advantages in the Moroccan market.

5. It is by no means clear that the United States, as contrasted with certain branches of our textile industry, has benefited by the discriminatory quota against Japanese textiles in the British West Indies. Textiles—mainly of cotton—are necessary imports, used by the farm and labor sections of the populations. If they are forced by a discriminatory quota to pay considerably more for their cotton goods, they must either buy less of cotton goods or less of imported foodstuns and manufactured products (other than textiles) than they would be able to buy in the absence of such a quota. A greater portion of the country’s available foreign exchange is required for textile imports if the volume of such imports is maintained. Consequently, any gains in exports of textiles may well be at the expense of other products of the United States.

The effects of the quota may be delayed for some time while stocks of Japanese textiles last.

6. Merely because our interest in the textile trade in Morocco is small, it does not necessarily follow that the proposed textile quota would not injure United States trade with Morocco, for the reasons given under 5 above.

In view of the above considerations, it is suggested that the proposed reply be changed so as to eliminate the acquiescence in the proposed textile quota. The reply would then reaffirm our position that the quota system, being inherently discriminatory, is one which this Government would not be willing to agree to in the case of Morocco, but that this Government is willing, in view of the need of the Moroccan Government for increased revenue, to agree to moderate tariff increases on a selected list of products.

If, despite tariff increases, a case could be made for quota restrictions, consideration might be given to acquiescing in quotas based on a period or periods which would not result in flagrant discriminations as between the several supplying countries, as a temporary trade control measure.

Henry F. Grady