The Secretary of State to the United States High Commissioner in the Philippine Islands (McNutt)

My Dear Mr. McNutt: I have your letter of March 11, 1938, with which you enclosed a copy of a letter dated March 9, 1938, from the Textile Export Association of the United States, New York, New York.32 The Association stated that it believes that the Japanese cotton textile exporters will not consent to a renewal of the existing agreement restricting Japanese cotton textile exports to the Philippines when that agreement, as renewed last year, expires on July 31, 1938; that it has reason to believe that the Philippine Assembly is prepared to approve at any time alterations in the Philippine tariff which would provide added protection to American textiles and would render unnecessary the renewal of the agreement with the Japanese cotton textile exporters; and that action, if any, along these lines should be taken immediately, as the Philippine Assembly will be in session for only a few weeks more. The Association therefore requested that you secure from the authorities in Washington the assurance that if the Philippine Assembly should pass such a measure it would not be opposed in Washington. You requested the views of the Department of State in regard to this matter and an indication of the reply which you should make to the Association.

The agreement between this Government and the Japanese cotton textile exporters has been operating satisfactorily since the Japanese exporters voluntarily prohibited the exportation to Hong Kong of those varieties of cotton textiles which previously had been transshipped to the Philippines. This is shown by the following statistics of arrivals of cotton piece goods in the Philippines (except the port of Jolo) during the past four months, as supplied by the United States Trade Commissioner at Manila:33

Arrivals of Cotton Textiles in the Philippines
(in square maters)

From Japan From
United States
Direct Shipments Trans-Shipments
November 1937 3,528,000 1,197,000 5,992,000
December 1937 3,261,000 nil 5,515,000
January 1938 2,832,000 103,000 6,371,000
February 1938 3,513,000 158,000 4,214,000
[Page 620]

As is indicated by the above statistics, exporters of American cotton textiles, at the present rate of shipment, are handling about sixty percent of the combined Japanese and American trade, whereas, in the negotiation of the agreement, a fairly equal division of the market between American and Japanese manufacturers of cotton textiles was contemplated (cotton textiles other than American or Japanese occupied less than five percent of the market). From a practical viewpoint, therefore, there would appear to be no objection at the present time on the part of the American exporters to the continuation of the agreement until such time as it may be possible to make other arrangements for control of the trade. The Department of State, moreover, is not aware of any reason why the Japanese cotton textile exporters should not desire to renew the agreement for another year. In 1937, the Japanese entered willingly into the renewal of the agreement, and their rigid enforcement of the terms of the agreement (as is shown by their voluntary control of their shipments to Hong Kong) indicates their desire for a continuance of the agreement. This Department, however, will explore the matter of the Japanese desires in this connection before taking a definite position either in regard to the extension of the present agreement or in regard to some other method of control of the trade.

At the same time, it should be understood that the Government of the United States, by the terms of the understanding forming the basis for the agreement, is precluded from taking any action calculated to persuade the Philippine Government to increase its duties on cotton piece goods, to take effect prior to August 1, 1938, so long as the imports into the Philippines of Japanese cotton piece goods do not exceed 45,000,000 square meters annually. Unless and Until, therefore, the Philippine imports of Japanese cotton textiles exceed 45,000,000 square meters in the year beginning August 1, 1937, the Government of the United States would not be in a position to indicate to the Philippine Government its acceptance of any such increase in the tariff on cotton piece goods.

The above explanation of the situation is for your confidential information. In your reply to the Association, it is suggested that you point out that, in accordance with the terms of our understanding with the Japanese textile exporters, this Government will not be in a position to indicate its acceptance of any tariff increase, effective prior to August 1, 1938, on cotton piece goods unless the imports of Japanese cotton textiles into the Philippines exceed 45,000,000 square meters for the year beginning August 1, 1937; that the Department of State has not taken a definite position either in regard to the extension of the present agreement or in regard to any other method [Page 621] of control which would afford American exporters of cotton textiles a fair share in the Philippine market; that the Department of State is reluctant to take a position in this matter until it has had an opportunity to consider the recommendations which the Joint Preparatory Committee on Philippine Affairs will make in regard to the Philippine imports of cotton textiles; and that, in any event, it is believed that there is ample time before the expiration of the agreement to give consideration to the question of renewing the agreement or adopting some other method of control.

Sincerely yours,

Cordell Hull
  1. Neither printed.
  2. J. Bartlett Richards.