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

611.9417/191

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

[Washington,] December 7, 1936.

Conversation:	Dr. Claudius T. Murchison, President, Cotton Textile Institute, Chairman of the Group;
	Mr. Donald Comer, President, American Cotton Manufacturers Association;
	Mr. Hervey Kent, Treasurer, Exeter Manufacturing Company;
	Mr. Robert Philip, Editor of Cotton and Secretary to the Group;
	Mr. Fred Morrison, Counsel to the Group;
	Mr. A. M. Fox, United States Tariff Commission;
	Dr. Hornbeck;85
	Mr. Dooman;
	Mr. Veatch.

At the suggestion of Dr. Murchison and Mr. Comer, Mr. Dooman and Mr. Veatch reviewed what this Government had done in its attempts to deal with the problem of the competition of Japanese cotton piece goods in the American market. It was pointed out that last spring the two Governments had reached agreement upon a limitation of 45,000,000 square yards. The conversations had broken down finally, however, because of the fear on the part of the Japanese industry that indirect shipments to the United States, perhaps via Canada or Mexico, could not be controlled by the Japanese Exporters Association and might, therefore, wreck the arrangement; it had been suggested that the American Government should take some action to control such shipments but this Government had been forced to reply that it had no power to take such action. The opinion was expressed that the Japanese Government had been willing to go further than the Japanese industry, just as this Government had reason to expect that the American industry would look with disapproval upon an agreement allowing a total annual importation of 45,000,000 square yards.

Dr. Murchison asked for advice upon the approach to the Japanese. In reply Mr. Dooman stated that on the basis of his experience, he would suggest the following three rules to govern negotiations by the American group:

1. No offer or proposal should be put forth by the American group which would appear to the Japanese to be obviously unfair and outside the realm of consideration by them.

2. On the other hand, the American group should expect the Japanese to take a bargaining position, that is, to advance an offer somewhat below the best terms to which they would be willing to agree. Consequently, the American group should also be prepared to modify the terms first advanced rather than to be unyielding upon the first offer.

3. The American group should close its mind to the possibility of any alternative action by this Government upon this proposal if it is to be successful in securing a direct agreement with the Japanese; it will be difficult to reach agreement with the Japanese in any case and probably impossible if it is felt that the American industry can fall back on some alternative means of protection.

Mr. Fox suggested certain considerations that must be kept in mind by the American group if it is to reach an agreement with the Japanese industry. He stressed particularly the inadequacy of tariff action to check the competition of Japanese goods and expressed the opinion that only quantitative limitation by Japanese exporters themselves could be considered a desirable answer to the present problem.

Mr. Comer stressed the interest of the American industry in the domestic market and his feeling that the Government should give full protection for the industry in that market. If the Government was unwilling to take such action, however, then he wished to know how far the American industry would have to go in granting the Japanese a share of this market—how many spindles would have to be held out of production and how many workers left unemployed.

In reply to Mr. Comer’s questions the broad interests of this Government in maintaining peaceful economic and political relations with Japan were given emphasis. It was recognized that the American Government would not allow the destruction of a major American industry such as cotton textiles but reference was made to Dr. Murchison’s opinion that much damage would be done to the American industry before Congress could be convinced that severe restrictions should be placed upon Japanese imports. The desirability of securing an amicable settlement of this problem before the American industry was greatly injured was stressed. Some members of the group expressed the opinion that an agreement between the American and the Japanese industries would serve only as a stop-gap or palliative, since the Japanese industry was likely to expand much further and the situation, therefore, probably would not remain static. Dr. Murchison was of the opinion, however, that an arrangement could be made with the Japanese industry to provide for a constant study and adjustment of the problems arising out of the competition between the two industries and that such an arrangement might be the best possible permanent answer to the problem.

The opinion was expressed that representatives of the two industries probably would find themselves some distance apart even after each group had made what it had considered in advance to be the greatest possible concessions. Probably the American group then would be faced with the necessity of offering to go halfway toward bridging the gap or of giving up the idea entirely. Mr. Fox suggested that the American group might be able to make attractive offers to the Japanese on a number of textiles other than cotton piece goods (for instance, cotton hosiery, underwear, bedspreads and chair coverings) since in a number of these lines Japanese competition is not yet severe. If the Japanese could be given an opportunity for expansion in other lines, they might be willing to restrict their shipments in such lines as cotton piece goods and cotton velveteens, which have already reached important proportions. Dr. Murchison stressed the desire of the industry to prevent the concentration of Japanese competition in any particular lines of American production. On this point it was felt that some arrangement might be reached with the Japanese providing that imports from Japan of any particular line or specialty should not exceed a certain percentage of the American production, say 10 percent. It was also felt that the American industry might avoid the appearance of proposing a static situation for Japanese goods in the American market by agreeing to an expansion of Japanese imports as American consumption might expand.

Some attention was given to the legal problems which might arise out of the efforts of the American industry to lead the Japanese industry to limit and regulate the export of cotton textiles to the United States, and perhaps the marketing of such textiles in the United States. Mr. Murchison mentioned the intention of the American group to secure, if possible, an informal opinion from the Department of Justice before the departure for Japan. In the event that there is uncertainty regarding the legality of such an arrangement between the American and Japanese industries, Mr. Murchison wondered if the two Governments might not be able to set up the agreement themselves after the representatives of the two industries had prepared the groundwork. The officials of the American Government made no attempt to answer this inquiry categorically. They emphasized the hope that had been entertained in the Government that many problems of Japanese competition might be handled by agreements between the Japanese and American industries and that such an agreement on cotton textiles might serve as an encouraging precedent. It was recognized also that the Government itself might be open to attack, under the anti-trust legislation, if it sought restrictive action by the Japanese. The attitude of the Government, as well as the plans of the textile group visiting Japan, clearly were dependent upon advice as to the legal questions involved.

Dr. Murchison said that he was informed quite confidentially that the Japanese industry plans to secure American counsel during the conversations with the American group in Japan. Specifically, he understood that Mr. W. S. Culbertson, counsel for Mitsui and Company, was to be in Japan during the course of the conversations. There was some feeling that the presence of an American lawyer in the picture as an adviser to the Japanese would perhaps add to the difficulties. Dr. Murchison expressed the opinion, however, and many others agreed, that the advice of Mr. Culbertson to the Japanese side might prove helpful rather than obstructive, since his experience as a member of the Tariff Commission and as a diplomatic representative of this Government abroad should have given him a broad point of view on the problems to be considered.

85. Stanley K. Hornbeck, Chief of the Division of Far Eastern Affairs.