611B.9417/116

Memorandum by Mr. Roy Veatch of the Office of the Economic Adviser

Conversation: The Japanese Ambassador,
Mr. Seijiro Yoshizawa, Counselor, Japanese Embassy,
Mr. Sayre,
Mr. Turner,98
Mr. Veatch.

The Ambassador called to deliver the response of his Government to the problem placed before the Ambassador by Mr. Sayre in their conversation of December 27, 1935.99 First, he was authorized to say that exports of cotton piece goods to the Philippines would not be resumed by Japanese exporters until after the end of January and an announcement to that effect might be made by the American Government.

He was further authorized to say that the Japanese Government had secured the agreement of the Exporters Association to limit their quotas of shipments to the Philippines for the second half of the agreement1 period to a total of 19,000,000 square meters. This agreement represented a concession on the part of the exporters, since they considered it to be their right to export a total of 23,500,000 square meters during this period, taking advantage of the allowable transfer of 10 percent of the quota for the second year.

Mr. Sayre expressed the opinion that this arrangement apparently represented no concession on the part of the Japanese from their position that the entire quota should be measured by arrival statistics only. He asked whether the Ambassador had received any response to the Ambassador’s suggestion that 14,000,000 square meters should be deducted from the quota for the rest of the two year period and the Ambassador replied that his Government had made no mention of his proposal in its cable.

Mr. Sayre referred again to the statistical basis of the agreement, i. e., the Philippine customs statistics of imports, based on liquidations. [Page 809] The Ambassador then said that it was “problematical” or “controversial” as to whether the agreement should be interpreted as referring to the Philippine statistics of liquidations or to Philippine statistics of arrivals. The Ambassador then called attention to Paragraph I of a typewritten statement which he handed to Mr. Sayre2 in which was quoted a certain section of the Philippine Customs Regulations referring to importations. He also read a quotation from Section 1248 of the Philippine Customs Regulations defining importations as beginning when goods enter the waters under Philippine jurisdiction and as being completed when the duty on these importations has been paid or when a deposit has been made and the goods cleared through the customs. These quotations had been furnished the Japanese Government by the Japanese Consul General in Manila and it was apparent that the Japanese Government had been making special effort to establish its contention that Philippine statistics of arrivals, whether or not they were in existence at the time the agreement was reached, were the statistics to which reference was made.

In discussion of the rest of the typed statement presented by the Ambassador it became apparent that although the Japanese contended that the measure of importation should be on the basis of arrival statistics the Ambassador was not speaking of a shift from the present liquidation statistics to arrival statistics. When this point was raised he replied that he felt it would be difficult or undesirable to shift from the liquidation statistics to arrival statistics in the middle of the agreement period—having started with one set we should continue through to the end with it. He did agree that strict adherence to the basis of liquidation statistics would make it impossible for the Japanese exporters to ship any more cotton goods to the Philippines before June, 1936. He contended, however, that insofar as the total quota was concerned the Japanese would not fare badly upon the liquidation basis since their shipments into the Philippines during the last three months of the two year period would not be recorded as imports during the period under limitation—they could, therefore, ship into the Philippines during May, June and July, 1937, as much as 28,000,000 square meters and therefore cancel off the amount shipped into the Philippines before August 1, 1935, which has been charged against the quota because it has been liquidated during the quota period.

After discussion the Ambassador agreed, however, it would not be desirable for the Japanese to make such heavy shipments at the end of the two year period since they would wish to maintain a stabilized position in the Philippine market and probably would be unable to secure an extension of the agreement if they made such unusual shipments.

[Page 810]

Mr. Sayre sketched again his understanding of the positions of the two Governments. The United States Government had offered to recede from the rigid position which it might take of insisting upon strict adherence to the letter of the agreement. To be quite frank, he was unable to see that the Japanese Government had made any approach to a compromise, however,—in effect they still held strictly to their interpretation of the agreement.

Mr. Sayre then called attention to the wide-spread impression in the United States that the Japanese have broken the agreement and have already over-shipped their quota very substantially. This Government regrets this impression and wishes to clear up the whole situation through a press release as soon as possible. It is unable, however, to explain the statistical difficulties, and therefore to clear the Japanese of blame for intentional evasion of the agreement, until it can announce at the same time a readjustment of the agreement.

Mr. Sayre had made frequent reference to the Ambassador’s proposal during their conversation on December 27. The Ambassador now sought to clarify what his proposal had meant, saying that it was about the same as the present proposal of the Japanese Government. He had not had in mind a shift from liquidation statistics to arrival statistics and he had meant that the 14,000,000 square meters, to be accepted by the Japanese in the quota (rather than the entire 28,000,000 square meters awaiting liquidation on August 1) should be carried over as an unliquidated amount at the end of the two year period.

Mr. Sayre returned to the present Japanese proposal, based entirely upon actual arrivals of Japanese goods in the Philippines since the opening date of the agreement and said that he could not present this proposal to his committee and to the textile people and hope for acceptance. He had been ready to place before them some such compromise as that which he had understood the Ambassador had suggested during their last conference and he had felt that he could carry through an agreement upon that basis. He wished to say also that he did consider it desirable to shift to arrival statistics as a basis for the agreement from February 1st. This would be advantageous to the Japanese and make it possible for them to carry out the agreement smoothly and to stabilize the position for their textiles in the Philippines rather than to run the danger of the recurrence of wide fluctuations in their shipments.

The Ambassador again stated that his proposal had not been fully understood, that he had not had in mind a shift to arrival statistics. Therefore it had been his expectation that there would be a normal carry-over of an unliquidated amount at the end of the two year period. He had not intended to suggest, however, that necessarily the entire [Page 811] amount of 14,000,000 square meters should be carried over at the end of the period.

The Ambassador went on to say, however, that the situation was now very clear to him. He understood the suggestion that the agreement be measured by arrival statistics from February 1st on, but he was of the opinion that his Government would wish to have the entire two year period measured by arrival statistics if any shift was to be made in the statistics. In any event, he was quite sure that Japanese exporters would not absorb the whole of the 14,000,000 square meters, representing the “bulge” which so concerned the American Government. Perhaps some compromise could be reached, however, so that a part of this amount would be absorbed by the Japanese.

Mr. Sayre restated the position of this Government so that it might be repeated clearly to the Japanese Government. He suggested that that Government be informed that we have two points to propose. First, that arrival statistics shall be used to govern the agreement after February 1, and, second, that if this shift is made the 28,000,000 square meters awaiting liquidation on August 1, or some part of it, should be apportioned during the remaining eighteen months. This Government would be glad to consider suggestions of the Japanese Government as to how this apportionment might be made.

The Ambassador then asked if it would not be possible for the American Government to agree that, if the Japanese Government should accept the entire amount of the 14,000,000 square meters as included in the quota, some amount less than 14,000,000 square meters could be carried over at the end of the agreement.

In reply Mr. Sayre said that this Government might be able to make a considerable sacrifice, along this line, if the Japanese Government could arrange for some limitation on the shipments of rayon goods to the Philippines. Rayon shipments had increased inordinately during the last few months, being three times as large in November as in August, the rate of increase apparently continuing during December. It is probable that present shipments of rayon are in excess of the demand in the Philippines and that Japanese exporters would sacrifice very little, if anything, in reality by agreeing to shipments limited to a monthly figure much below this level.

Mr. Yoshizawa expressed the opinion that it would be very difficult to secure any such agreement. The suggestion is psychological more than it is economic. The Japanese rayon industry is very proud of the fact that it now leads the world in production and it would be loath to accept any limitation on its exports. Furthermore, the impression is growing in certain quarters in Japan that Japanese exports to the United States or American territories are being limited too [Page 812] much, especially in view of the present trade balance between the two countries.

After further discussion the Ambassador said that he understood the importance of rayon shipments to the Philippines in their effect upon the cotton textile agreement. He asked if it was the intention of this Government to bring up the question of rayons even apart from the present discussion of the cotton textile agreement.

In reply Mr. Sayre said that rayons were becoming an increasingly difficult question to handle since heavy Japanese shipments afforded American exporters an opportunity to charge that the spirit of the cotton textile agreement was being broken. On the other hand, he would wish to bow to the judgment of the Ambassador and Mr. Yoshizawa as to whether it would be wise at the present time to mention the subject of rayons in their communications with their home Government. He would be quite willing to keep rayon out of the discussion until a satisfactory agreement had been reached on cotton textiles.

Mr. Sayre showed the Ambassador and Mr. Yoshizawa, copies of the statement, which it was proposed to release to the press,3 concerning the intention of the Japanese exporters to withhold shipments to the Philippines until after February 1. The Ambassador and Mr. Yoshizawa found no objection to the proposed release.

  1. William T. Turner, of the Division of Far Eastern Affairs.
  2. For memorandum of December 27, 1935, see Foreign Relations, 1935, vol. iii, p. 1045.
  3. For agreement, see memorandum of October 11, 1935, ibid., p. 1007.
  4. Infra.
  5. For text of statement, see p. 813.