Foreign Relations of the United States Diplomatic Papers, 1936, The Far East, Volume IV

611.946/285

Memorandum by the Assistant Secretary of State (Sayre) and Mr. Eugene H. Dooman of the Division of Far Eastern Affairs

[Washington,] April 27, 1936.

The Japanese Ambassador called with the Counselor, Mr. Yoshizawa, at Mr. Sayre’s office by appointment at 3:30 p.m. The Ambassador was taken by Mr. Sayre into the Secretary’s office in order to discuss the question of Japanese importation of cotton piece goods into the United States.

The Secretary, after a few preliminary remarks, began by speaking of the fight which he and this Government have been making for the liberalization of the trade of the world. The Secretary spoke of his efforts in London and in Montevideo.⁴⁹ He went on to say that the program for trade liberalization which so vitally concerns the economic recovery and the welfare of the world is growing in strength and gaining in support in various quarters of this country and of Europe. Just at the present time, however, the Secretary pointed out, a political crisis is upon us and we are in a critical and serious situation. If the Japanese Government should not cooperate with us in helping to stabilize the trade situation, it might well cause a commotion which would prove disastrous. This Government therefore finds itself in a situation where it must appeal to the Japanese Government to make its own contribution for the furtherance of our program for the liberalization of world trade. The United States Government is making considerable sacrifices to promote the program and to secure support both in this country and in Europe. As a matter of fact, Japan has an equal interest, we feel sure, in the development of the program. The program calls for a reduction of trade barriers throughout the world and the insistence upon the maintenance of triangular trade. If the program fails, it can mean only the victory of the present movement toward bilateral balancing of trade, and this would mean commercial disaster for Japan as well as the United States. After all, Japan and the United States are fighting the same fight as to excessive trade barriers. This Government therefore feels justified in asking the Japanese Government to support us in the present critical situation.

The Japanese Ambassador at this point asked whether he could correctly report to his Government that the United States Government is asking for a reduction in Japanese exports to the United States,—a step which is superficially inconsistent with the general trade program sought by the United States,—in order to withstand political pressures so as to gain strength to successfully promote its trade program to secure ultimate reduction of trade barriers all along the line. The Secretary replied in the affirmative. The Secretary added that he did not want this critical situation to pass without bringing this matter to the attention of the Japanese Government so that, should there come failure of our liberalizing program, the Japanese Government would not feel they had not been given the opportunity to support the program during the crucial period when it was either to be made or broken. The Secretary then asked the Ambassador to discuss the concrete and technical situation with which we are confronted with Mr. Sayre.

The Ambassador then returned to Mr. Sayre’s office, where Mr. Yoshizawa and Mr. Dooman were waiting, and the conversation was resumed between the four of them.

Mr. Sayre then proceeded to read the following memorandum to the Japanese Ambassador, stopping to comment as he went along in order to explain and slightly amplify some of the passages. The memorandum which he read is as follows:

“More than two years ago, the Japanese Government expressed to the American Government the wish that, in those instances where the American Government contemplated the taking of action designed to restrict imports of a particular commodity from Japan, the Japanese Government be given an opportunity to adjust, if possible, the conditions giving rise to the need for the contemplated restrictive action. In accordance with that wish, the American Government has subsequently approached the Japanese Government whenever instances of dislocations of industrial or market conditions have been caused by imports from Japan, and it has been very gratifying to us that in nearly every one of these instances some arrangement has been made which has satisfactorily adjusted the disturbing conditions. I refer, for example, to the pencil and cotton rug arrangements, which are now approaching the end of their second year. It is in the light of the great measure of success which has been attended by these two arrangements that, in approaching the Japanese Embassy last year, we hoped that it might be possible to conclude a further arrangement, this time in regard to imports of Japanese cotton textiles into the United States,

“We regretted that, after extended negotiations, the Japanese Government could not see its way clear to enter into another gentlemen’s agreement in regard to this trade. However, we appreciated the assurance given us on December 21, 1935, that exports of cotton piece goods from Japan to the United States would be held down to last year’s figures, and we were hopeful that if the rapidly rising curve of imports from Japan were flattened out the agitation in the United States for the taking of some restrictive action against Japanese piece goods would subside.

“Unfortunately this expectation is not being fulfilled. During the first three months of 1936, imports of cotton piece goods from Japan were on a higher level than ever before. This is particularly true of imports for consumption which total 21,530,000 square yards for the quarter as compared with 12,769,000 square yards for the corresponding quarter of 1935 and 36,000,000 square yards for the whole of 1935. General imports (actual arrivals) from Japan for the first quarter of 1936 were 17,886,000 square yards as against 16,730,000 square yards for the corresponding quarter of 1935. Stocks in bonded warehouses were reduced from 11,000,000 square yards at the end of December to 7,165,000 square yards at the end of March.

“These conditions have brought about a recrudescence in an even more persistent and extended form than ever before of the agitation for the taking by this Government of action against imports of Japanese cotton textiles. As I have already remarked to you on several occasions, this Government does not associate itself with that school of thought which takes the stand that the domestic market be denied to all foreign products competing in any way with products of domestic manufacture; nor has the American Government encouraged the movement for placing restrictions upon importations of specific commodities merely because those commodities have increased in volume or because they compete in the American market with the products of American industries. The rapidly mounting volume of imports from Japan of textiles offered for sale at much lower prices than those at which corresponding American products can be marketed, is, however, causing a dislocation of conditions which is entirely disproportionate to the volume of imports as compared with the total production. The disturbing effects of these rapidly mounting Japanese imports is further accentuated by the fact that they are confined to a relatively narrow field. Although imports of countable cotton cloth were equivalent to only about one-half of one percent of the total volume of domestic production in 1935, these imports were confined largely to print cloths, especially bleached print cloths. The ratio of imports from Japan of bleached print cloths to domestic production was 12.6 percent in 1935.

“A complaint was filed on the basis of Section 336 of the Tariff Act with the Tariff Commission, and I may say to you in strict confidence, in the light of the various facts which were brought out after investigation by the Tariff Commission, the Tariff Commission has been obliged to recommend moderate increases in duty in order to equalize cost differences between American and Japanese cloths.

“It would not be in line with the general economic policy of this Government to increase duties. In this particular instance, however, it has been found that cotton textiles are being imported from Japan on such terms, and at such a rapidly increasing rate, that the very existence of established American industries is being endangered and the organization of the cotton industry and the trade in cotton textiles have been greatly disturbed. Notwithstanding these facts, this Government does not wish unilaterally to impose new restrictions upon Japanese imports, or indeed to determine what action should be taken, without full consultation with your Government.

“We fully appreciate the circumstances which prevented your Government from entering into a gentlemen’s agreement last year with regard to imports of cotton piece goods. The situation at this moment is, however, far more pressing than it was last year, and we, therefore, urgently hope that it may be possible for the Japanese Government to reconsider its decision, and that it may be possible to arrange to limit total imports to last year’s figures of approximately 36,000,000 square yards.

“There is, of course, another alternative, and that is promulgating the very moderate tariff increases recommended by the Tariff Commission. It is, of course, impossible to predict exactly the effects of tariff changes, but it is our expectation that a moderate increase in the duties on Japanese cotton textiles will tend to maintain imports from Japan at about last year’s level. We consequently hope that it may be possible for the Japanese Government to see its way clear to entering into a gentlemen’s agreement along the lines that have been suggested, but if this is found impracticable we sincerely hope that the Japanese Government will appreciate our sincere and friendly endeavor to collaborate in every way possible with the Japanese Government with a view to the friendly adjustment of this problem.”

Mr. Sayre emphasized the fact that his proposal was of a most informal kind, made in a personal way as a constructive suggestion and was not to be considered as a formal legal offer. He added that the Tariff Commission’s report is now on the President’s table; and that he had personally requested that the President take no action with regard to that report until he (Mr. Sayre) had had an opportunity to discuss with the Japanese Ambassador the possibility of concluding a gentlemen’s agreement. He added that time was of the essence, and that we should hope to have a definite reply within, say, ten days.

The Japanese Ambassador asked whether Mr. Sayre envisaged an agreement featured with other details than those which he had specified. Mr. Dooman stated that we had in mind certain other details which the Japanese would find very little difficulty in accepting once they had reached the decision that they could, in principle, accept a gentlemen’s agreement. These details, broadly speaking, contemplated that Japanese textiles imported into the United States should be distributed over a wider range of goods than their present restricted range. He stated that Japanese textiles come into competition with American textiles on a relatively narrow front. It was contemplated that they should continue to market those particular lines of textiles which at present are sold in the United States, but that it would be expected that shipments up to the maximum amount to be agreed upon would be more evenly spread out, both in regard to time and lines of goods, than at present.

Mr. Sayre added that the United States would expect the agreed upon figures to be those of imports for consumption.

Mr. Yoshizawa stated that the Japanese Government could not control the trade once shipments left Japan. He feared that the Japanese Government could not accept responsibility for imports for consumption being exceeded. Mr. Dooman thought that Mr. Yoshizawa’s point was well taken, and he suggested to Mr. Sayre that, if the Japanese were asked to limit imports for consumption to 36,000,000 square yards, it would be necessary for the Japanese Government to restrict exports from Japan for the next twelve months to about 29,000,000 square yards which, with the 7,000,000 square yards in bonded warehouses in the United States, would make a total of 36,000,000 square yards.

Mr. Yoshizawa observed that he had had frequent conversations with officers in the Department and that he thought he was fairly well conversant with the whole problem confronting us. He had previously discussed with several of these officers the possibility of the duty on cotton textiles being increased. He could not, however, suppress the feeling that the Japanese Government was now being confronted with an “ultimatum”. Mr. Sayre took exception to the use of this word and stated that what both Governments were called upon to do at this moment was to face the facts. He wondered whether the Japanese Government could suggest an additional alternative to those of a gentlemen’s agreement and an increase in duties. He added that if the Japanese Government had any third alternative in mind it might rest assured that the American Government would give it the most careful and sympathetic consideration.

In concluding the conversation, Mr. Sayre again stated that the American Government is most anxious to collaborate with the Japanese Government in working out problems of mutual concern and he had placed before the Ambassador in all frankness and sincerity the facts which make the present situation a most difficult and critical one.

49. For correspondence concerning these conferences, held in 1933, see Foreign Relations, 1933, vol. i, pp. 452 ff., and ibid., vol. iv, pp. 1 ff., respectively.