611B.9417/119a: Telegram

The Secretary of State to the Ambassador in Japan ( Grew )

12. When the Department reached agreement with the Japanese Government, through the Japanese Ambassador, restricting the amounts of Philippine imports of Japanese cotton textiles for 2 years (see Department’s 863 of October 22, 193511), it was hoped that the groundwork was well laid for a mutually satisfactory settlement of this troublesome question.

However, this hope is now imperiled by various developments.… Certain difficulties have arisen in connection with the working of and the interpretation of the agreement. The agreement, embodied in the memorandum of conversation of October 11, 1935, initialed by the Japanese Ambassador, provided that “the statistics of imports compiled by the Philippine Customs will be used as the basis of determining the volume of imports of Japanese cotton piece goods”. At that time, the only available Philippine Customs statistics of imports were [Page 820] recorded as of the date of liquidation of duty. The liquidation customarily takes place some 3 or 4 months after the arrival of the goods in Philippine ports. As a result, duties were liquidated after August 1, the effective date of the agreement, on a large part of the unusually heavy arrivals of Japanese textiles during several months prior to August. The customs statistics of imports based on liquidation since August 1 include these amounts and show a total of nearly 42,000,000 square meters up to January 1, 1936 (although actual arrivals between these two dates were only 26,000,000 square meters). Estimates based on Japanese export statistics indicate that this total will reach 54,000,000 when all the goods now in the Philippines are liquidated. When compared with the limitations established by the agreement, this statistical record gave rise to a popular impression that the Japanese had violated the agreement.

The marketing of these large quantities of Japanese cotton textiles has meant that the American cotton textile exporters have to date secured no apparent advantage from the agreement. There still remain in the Philippines considerable stocks of most lines of Japanese cotton piece goods in spite of the reduction in shipments from Japan since November, and the American exporters foresee no opportunity for satisfactory future business if these stocks are replenished to any substantial extent during the next few months.

This situation has been discussed repeatedly with the Embassy here but the Japanese Government has maintained throughout that it interpreted the agreement to refer only to arrivals of Japanese goods in the Philippines; it has shown no disposition to compromise along the lines suggested by the Department.

This rigid attitude has blocked all of our efforts to reach a reasonable and mutually satisfactory readjustment of the cotton goods agreement to meet the practical difficulties of the situation which the two Governments sought to remedy by the agreement. In the meantime, the position of American exporters of cotton goods has become much less favorable due to the unusually heavy arrivals of Japanese rayon goods, in direct competition with American cotton goods, since the agreement was put into operation. This development makes it increasingly difficult to secure any support in this country for the cotton textile agreement and endangers the success of the entire undertaking. We fear that if the agreement loses the support of American textile interests they will make every effort through legislation and otherwise to restrict Philippine imports from Japan and this would react unfavorably upon the entire problem of United States imports of competing Japanese products.

In the light of the foregoing circumstances, it appears essential to the Department that the Japanese Government and exporters should [Page 821] agree to such an adjustment of the situation as will offer some expectation of moderate improvement in the position of American cotton textiles in the Philippine trade in the near future. This apparently is the only way to attain the objectives which the two Governments had in mind when they set up the original agreement last October. The Department has consistently maintained the view that the agreement was based on liquidation statistics rather than arrival statistics, and considers that it would be justified in asking that Japanese shipments during the remainder of the agreement be limited in accordance with the letter of the agreement. As it has already indicated to the Japanese Ambassador, however, the Department does not wish to hold rigidly to this position and prefers to work out a mutually satisfactory compromise.

Will you please, unless you perceive objection, seek an interview with the Minister for Foreign Affairs,12 and such other interested officials as may be concerned, and explain the situation along the lines set forward in the preceding. In these explanations please make it completely clear that we are in no way accusing Japan of any attempt to evade the agreement, or attributing blame to it for the existing circumstances. On the contrary, we seek completely to dissipate any such misapprehension as may have arisen following the publication of the Philippine import statistics. However, the difficulties faced by the Department and the American textile trade are genuine, and if they are to be handled with mutual satisfaction, some measure of compromise will have to be shown by the Japanese Government. The Department therefore greatly hopes that the Japanese Government will see its way clear to transmit instructions to its Ambassador in Washington which might form the basis of a compromise settlement of the difficulties that have arisen. It may be that such a settlement could be reached most easily by reaching an understanding on rayon as a part of or as a supplement to the original agreement. The Department has already placed this problem before the Japanese Embassy in a general way and it would be prepared to discuss a definite arrangement. It probably will be possible to go much further in meeting the Japanese point of view with respect to the amount of cotton goods to be imported into the Philippines during the next 18 months if a mutually satisfactory arrangement on rayon can be worked out. Such an arrangement need not be unreasonably restrictive and need not block normal expansion of the rayon market in the future.

It is not desired to transfer general negotiations on this whole field from Washington to Tokyo, and it will therefore not be necessary for you to negotiate on details. The Department looks to you for [Page 822] making a full presentation of the problem to the Japanese authorities with the idea that the position of the Japanese Government in the future negotiations in Washington may become more constructive.

In order to give a further opportunity for working out the details of an adjustment, the Japanese Ambassador at our request has just cabled his Government the proposal that shipments of cotton goods to the Philippines be delayed until March 1 or be limited for the month of February to something like 2,000,000 square meters. The Ambassador has also informed his Government that you will present the American position to the Foreign Office. Further discussion here will await your full and prompt report.

Hull
  1. This instruction transmitted a copy of the memorandum of agreement initialed October 11, 1935; for memorandum see Foreign Relations, 1935, vol. iii, p. 1007.
  2. Koki Hirota.