611B.9417/144
Memorandum by Mr. Roy Veatch of the Office of the Economic Adviser
| Conversation: | The Japanese Ambassador, |
| Mr. Seijiro Yoshizawa, Counselor of the Japanese Embassy, | |
| Mr. Sayre, | |
| Mr. Turner, | |
| Mr. Veatch. |
In view of a number of unsettled questions requiring further discussion and of the desire which the Japanese Ambassador had expressed previously to discuss general trade relations between Japan and the United States, Mr. Yoshizawa had informed Mr. Veatch on March 23 that the Japanese Ambassador would be glad to call upon Mr. Sayre at his convenience.
Philippine Textile Agreement
Mr. Sayre explained that officers of the Department and experts from other agencies in the Government had been wrestling with the transshipment problem. These officials had been forced to come to the conclusion that both this Government and the Philippine Government were powerless to do anything about this problem, at least at the present time. No legal authority exists for the restriction or denial of consular invoices and there is no administrative authority in the Philippines to take any action regarding imports from Hong Kong. Even if it were possible to deny consular invoices to Japanese goods transshipped from Hong Kong, such action undoubtedly would be considered discrimination against Hong Kong.
In view of the fact that this Government has been unable to do anything about the problem of transshipments, a problem which is giving concern to the Japanese exporters, an effort has been made to meet the Japanese position as far as possible in other ways. Therefore, this Government is willing to accept the Japanese point of view regarding the statistics to be used as a measure of imports of Japanese goods into the Philippines, accepting statistics of arrivals for the [Page 867] entire period of the agreement rather than the usual statistics of the Philippine customs, based on liquidations of duty. By this interpretation there would be charged against the Japanese quota for the first six months of the agreement the actual amount of Japanese goods which arrived in the Philippines during that period, approximately 26,000,000 square meters. According to the terms of the agreement there would remain, therefore, 19,000,000 square meters to arrive in the Philippines during the second half-year period. This Government would, therefore, not insist upon any alteration of the quotas as measured by arrival statistics, although Mr. Sayre personally felt that this was a little unfortunate because this arrangement would ignore entirely the unusually heavy arrivals of Japanese cotton goods in the Philippines in the few months prior to the effective date of the agreement, August 1, 1935.
The Japanese Ambassador wished to clarify the matter of transshipments as affected by Mr. Sayre’s proposal. He said that although the Japanese exporters had known that they could not exercise any control over reshipments of Japanese goods from Hong Kong to the Philippines, the Japanese Government had not stressed that problem when the agreement was reached because transshipments at that time were very small and no great increase was expected. Now that these transshipments have become heavy, however, they have created large difficulties for the exporters from Japan, since these exporters can have no way of knowing how much they can ship to the Philippines under the quota. The Ambassador understood the inability of this Government or of the Philippine Government at the present time to control these transshipments.
Mr. Sayre said that he supposed there was no disagreement regarding the fact that Japanese goods transshipped via Hong Kong or other ports on the way to the Philippines were clearly included in the quotas established by the agreement. This had been the only basis on which the agreement was workable, he said, and he was sure there had been no misunderstanding about the way in which the agreement handled the transshipment problem. The only comment the Japanese Ambassador made to these statements was an affirmative “yes”.
Mr. Yoshizawa asked if Mr. Sayre’s statement implied that the American Government was dropping the consideration of a reduction of the Japanese quota for the second six months by 4,000,000 square meters. In reply, Mr. Sayre said that it had been decided to drop this matter because it was desired to give the Japanese exporters a sufficient margin to make it possible for them to take care of the transshipment problem.
Mr. Sayre said that he recognized that it had been difficult to make the Philippine textile agreement work satisfactorily and that transshipments [Page 868] via Hong Kong were giving Japanese exporters concern, but he hoped that it would be possible for the Japanese Government to appreciate the efforts of this Government to agree to a liberal interpretation of the agreement. He believed it would be greatly to the interest of the Japanese exporters to make the agreement effective so that the American textile people should not go on a rampage, seeking more extreme restrictions upon the Japanese market in the Philippines, a result which he feared would follow if it became necessary for this Government to announce that the agreement had broken down or that the Japanese had not lived up to the terms of the agreement.
Mr. Sayre then asked the Ambassador what he thought of the American proposal. In reply the Ambassador and Mr. Yoshizawa said that the proposal seemed to them “quite fair”.
Mr. Sayre then said that of course we hoped that the Japanese exporters would refrain from making use of the ten percent leeway in their quota this year, since to ship that much more goods before August 1 would make the situation very much worse. In response to this suggestion the Ambassador and Mr. Yoshizawa said that they also thought that it would be undesirable for more than 19,000,000 square meters to enter the Philippines during the second half year of the agreement.
United States Imports of Cotton Piece Goods from Japan
Mr. Sayre asked if the Embassy had received any word from Tokyo in response to the statement regarding the heavy importations into this country in January of cotton piece goods from Japan. In response, Mr. Yoshizawa explained that following his discussion with Mr. Feis on March 9 he had cabled the information to Tokyo with the indication that it was in the nature of a warning from this Government. He had not worded that cable so as to require a reply. He had intended to send a further cable as soon as the figures had been published in this country but since he was out of town most of last week he had not realized that they had been released on March 18. After talking with Mr. Veatch on Monday, March 23, he had sent a further cable.
Mr. Sayre explained the increasing pressure that was being brought upon this Government following the release of the January figures. A great many people were writing in and the industry seemed to be united in demanding action on this subject. It would help the Department of State a great deal in dealing with this strong pressure for new restrictions upon Japanese trade if some reassuring word could be secured from the Japanese Government as quickly as possible. (At Mr. Feis’ suggestion Mr. Veatch improved the opportunity of a telephone call from Mr. Yoshizawa later in the day to remind [Page 869] him of Mr. Feis’ statement on March 9 that the Tariff Commission has had under way for some months an investigation of cotton piece goods under Section 336 of the Tariff Act. Undoubtedly there would be pressure upon the Tariff Commission and upon the President to bring out a report on this investigation and to take action upon it unless there was some reassurance regarding the volume of continuing imports of cotton goods from Japan. He mentioned also the fact that Section 22 of the Agricultural Adjustment Act had been made applicable to the new Soil Conservation Act,41 empowering the President to impose quantitative limitations upon imports affecting the agricultural programs under either Act. A demand for action on cotton textiles had been placed before the Secretary of Agriculture under Section 22 of the A. A. A. before a portion of that Act had been found unconstitutional in the Schechter decision.42 If the domestic industry continues its drive against cotton imports from Japan, it is quite probable that it will again demand action under this provision of law.)
Mr. Yoshizawa said that he would put all this information before his Government and urge that a reply be made as soon as possible.
General Questions of Japanese-American Trade Relations
Mr. Sayre recalled the statement that the Japanese Ambassador had made a few weeks ago that he would like to discuss with Mr. Sayre more general questions of the trade relations between the two countries than had been possible during their recent conversations on particular commodities.
The Japanese Ambassador explained that he had had an opportunity to talk with the Secretary of State recently about such general trade problems and he would appreciate an opportunity to talk the matter through. He did wish to report to his Government upon any possibilities that might exist for a more general trade understanding. Perhaps they might talk about a possibility of the two Governments entering into a trade treaty or something like that if it seems feasible.
In reply Mr. Sayre said that by all means he would like to discuss these matters with the Ambassador. He wondered if the Ambassador had anything in particular in mind, and in reply the Ambassador said that he did not but merely wished to explore the general question.
Mr. Sayre then referred to a despatch of February 19 from the American Embassy at Tokyo reporting upon a conversation between Mr. Kurusu of the Foreign Office and Mr. Dickover of the Embassy. This conversation had indicated that Mr. Kurusu misunderstood very important aspects of the policy of the Department regarding the competition in the United States of imports from Japan. Mr. Sayre [Page 870] then read, for the Ambassador’s information, those parts of the despatch (most of pages two and three) which set forth Mr. Kurusu’s views and called particular attention to Mr. Kurusu’s belief that at the present time American economic interests desiring increased protection against imports brought their problems to the Department of State and got it to act for them in securing such added protection.
Mr. Sayre then emphasized the fact that this Department has brought particular situations to the attention of the Japanese only when they had become quite severe and had given rise to such strong pressure for action in this country that the Executive was to be forced to take action under existing provisions of law or new restrictive legislation was in prospect. Mr. Kurusu had called attention to the fact that most of the items which this Government had brought to the attention of the Japanese Government, requesting voluntary restriction of shipments by the Japanese, had been rather unimportant items in the total trade between the United States and Japan and frequently had involved only a few plants and a few hundred workers in the United States. Mr. Sayre said that in his opinion it was fortunate that the few lines in which some restriction had become necessary were small and relatively unimportant items of trade, since restriction would not greatly affect the volume of Japanese exports to this country. When the very existence of these small industries might be threatened by rapidly mounting imports from Japan they became sore spots and unless these spots could be healed, at least to a certain extent, the broader and more important trade interests of the United States and Japan might be threatened by greater restrictions forced through the legislature by economic interests in this country.
Mr. Sayre said that he was sure the Ambassador realized that the desire of this Government was to protect the common economic interests of the two countries. He felt that these interests were largely complementary—Japan was our chief cotton customer and the United States was the principal market for Japanese silk. In our efforts to protect the trade relations between the two countries we wished to appreciate the psychological problems in Japan just as we had to give attention to the psychology of the situation in this country. We did not want to ask any action by the Japanese Government or Japanese exporters which would cause anti-American feeling in Japan, just as we hoped the two Governments could take such action regarding trade as to prevent the growth of anti-Japanese feeling in this country.
Mr. Sayre called attention also to the similarity of the general interests of the two countries in international trade. Both countries are much interested in international trade and both are dependent to a [Page 871] great extent upon triangular trade. It is in the interest of the United States that the freedom of triangular trade be undisturbed, particularly to protect the foreign market for American cotton. On the other hand, we realize that the Japanese are much concerned about their markets in South America. This Government has leaned over backward in refraining from placing pressure upon Latin American countries who sell more to us than they buy from us, pressure to discriminate in their tariff treatment or other trade regulations so as to favor American goods. American exporters have urged the Government to secure these special favors for American goods but the Government has refused to take any action of this nature. Confidentially, he could say that the Government of Brazil had actually made offers to the American Government for special arrangements favoring American goods in the Brazilian market, but this Government had refused these offers. American textile people may have gone to certain Latin American countries seeking special action to favor American textiles in those markets, but they certainly have received no encouragement from this Government. As a matter of fact, Mr. Sayre wrote a very strong letter to one representative of the textile interests whose activities in certain Latin American countries had come to his attention and this gentleman had never forgiven Mr. Sayre.
Mr. Sayre said that this Government would be glad on its part to try to touch up any sore spots in the trade relations between the two countries wherever it could. Of course, tariff reductions were a matter for Congress to deal with and he didn’t believe that there would be anything to be gained in discussing tariff rates. It was his opinion that the Japanese Government would not profit by any direct trade agreement. Tariff concessions being made to other countries in connection with trade agreements that this Government is negotiating are being extended to Japanese goods and he felt that Japan would profit most through continuing to enjoy these concessions.
Mr. Sayre said that this Government would be happy to discuss any adjustment of trade problems with the Japanese and he wondered if the Ambassador had anything in mind at the present moment.
The Japanese Ambassador said that in his opinion it would be very useful if Mr. Sayre could put down in writing the things that he had said regarding triangular trade.
In reply to this suggestion Mr. Sayre said that he would be very glad to consider the possibility and to talk it over with his associates. He wondered if the Ambassador had in mind merely a statement to the Japanese Government or if he had thought of a statement which could be made public; obviously, a statement would have to be drafted somewhat differently if it were to be made public.
The Ambassador said that he thought it would be particularly helpful if his Government could have a statement on this subject which [Page 872] could be made public so that the Japanese people might know clearly the attitude of the American Government. Mr. Sayre said that he supposed that the Japanese Government would be particularly interested in being able to make clear the attitude of this Government regarding the Latin American market for Japanese goods, and the Ambassador said that he thought that was the most important point.
The Japanese Ambassador, in response to Mr. Sayre’s question regarding any situations in this country affecting Japanese trade which he would like to discuss, referred to the possibility of adoption by Congress of the proposed processing tax on silk. His Government was much concerned about this possibility.
In reply Mr. Sayre said that as the Ambassador knew a similar proposal to this had been brought up last year and that it had been blocked. The present proposal was not receiving the hearty support of the subcommittee on taxes in the House, and Mr. Sayre said he had a hunch that it would not go through. In any event, if adopted it was indicated that this tax would not be directed specifically at silk but would be merely in the nature of a compensating tax on silk in connection with a processing tax on cotton and rayon. It was probable that even if adopted these taxes would not be of a permanent nature.