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

Conversation: Mr. Claudius T. Murchison, President, Cotton Textile Institute
Mr. Frank H. Hillery, President, Cotton Textile Exporters Association
Mr. Fred W. Morrison, Attorney for cotton textile interests
Mr. Sayre
Mr. Fox
Mr. Dooman
Mr. Veatch

Mr. Murchison called by appointment to report upon his conversation with President Quezon and, following that, his discussion with Mr. Inouye, Commercial Attaché of the Japanese Embassy, with respect to the extension of the agreement with Japan covering the Philippine cotton textile market.

President Quezon had quite monopolized the conversation which the textile group had had with him, urging the American textile industry to support his tariff plan, that is, the act of the Philippine legislature now awaiting action by President Roosevelt which would empower the President of the Commonwealth to increase or decrease tariff rates. President Quezon said that if he were given these tariff powers the American industry would have nothing to worry about so far as the Philippine market was concerned. Mr. Murchison said that the implication was clear, however, that President Quezon would expect some return in the way of better conditions in the American market for Philippine products if he should increase the Philippine tariff on foreign textiles in order to give American goods better protection in that market. It was clear to the American group that President Quezon wished these tariff powers in order to bargain for continued protection in the American market for Philippine sugar and coconut oil. Mr. Hillery’s comment upon this situation made it clear that the American cotton textile exporters would be prepared at the present time, as they have been formerly, to support the Philippine demand for better trade treatment in the American market if the Philippine Government first provides for better protection of American textiles in the Philippine market.

Mr. Sayre and Mr. Fox presented the point of view that any advantages created for American textiles in the Philippine market by large tariff increases at the present time could only be temporary at best and that they would be out of line with the announced policy [Page 793] with respect to the eventual termination of trade preferences between the two countries. Quite aside from constitutional questions involved in the tariff legislation under discussion it was made clear that from the standpoint of policy, approval of this legislation by the President of the United States would be undesirable.

During the discussion of this point Mr. Hillery and Mr. Morrison inquired if it would be possible for this Government to allow the Philippine Government (either through executive action by President Quezon in the event the tariff bill is approved, or through tariff legislation of the Philippine Assembly) to raise the tariff on cotton textiles, and presumably, also, on rayons, to the same extent that the Madrigal Bill would have provided. The great concern of the American exporters is with the volume of their sales in the Philippines, and in view of the failure of the present agreement with Japan to protect that volume the American industry would be most pleased with tariff action by the Philippines. Mr. Hillery pointed out that some of the principal American exporting houses deal only in exporting and do not enter the domestic market in the United States so that their stake in the Philippine trade is very important. In view of this fact, the exporters felt that this Government should be willing to make some concessions to the Philippines in return for higher tariffs to protect American textiles.

In reply to this argument it was pointed out that it would be very difficult to extend any additional privileges in the American market for Philippine sugar and coconut oil due to the opposition of American agricultural interests, and the further point was made that increases in the Philippine tariff would almost certainly lead to the establishment of Japanese branch textile mills in the Philippines. Mr. Hillery’s comment on the latter point was that American concerns might also be glad to establish branch plants in the Philippines if they could have adequate protection against imports from Japan, but he had no particular reply to make to the comment that such action on the part of American capital would not appear to serve interests of American workers.

Mr. Murchison then described the difficulties that had arisen as a result of the conversation with Mr. Inouye. Mr. Inouye had expressed the opinion that the Japanese industry might object to substituting a private agreement for the present informal agreement between the two governments, the principal ground for such objection, if it should exist, being the fear that the American Government might wish to end its commitment with respect to increases in the Philippine tariff on cotton textiles. Mr. Murchison had surmised from remarks made by Mr. Inouye that the Japanese were well informed regarding the plans of the United States in connection with [Page 794] the settlement of its trade relations with the Philippines, and that the Japanese suspected a desire on the part of the United States to free itself from any commitments so that it might bargain with the Philippines without restriction.

After discussion, Mr. Sayre and Mr. Dooman expressed the opinion that this Government might very well continue the sort of informal commitment which it had made in response to the action of the Japanese Government in arranging for control by Japanese exporters of shipments of cotton textiles to the Philippines, and that such a commitment might be continued by this Government even though the actual agreement respecting the Philippine market should be taken over by the private industries in place of the governments.

It was agreed, therefore, that Mr. Murchison should ask Mr. Inouye if the Japanese industry would be willing to go ahead with the private agreement in the event the United States Government would be willing to continue its commitment in connection with such an agreement, Mr. Murchison being free to express the opinion that he would be able to secure such a commitment by the American Government. Meanwhile the Office of Philippine Affairs in the Department of State would be instructed to study the question and to advise Mr. Sayre as to whether there would be any difficulties in the way of such a commitment on the part of this Government.