Memorandum of Conversation, by the Assistant Chief of the Division of Far Eastern Affairs (Ballantine)

Participants: Mr. Suma, Counselor of the Japanese Embassy.
Mr. Sakamoto, First Secretary of the Japanese Embassy.
Mr. Fox of the Tariff Commission.
Mr. Ballantine.

Mr. Suma was told with reference to his inquiry of April 14 whether this Government would be disposed to renew for a further period the existing arrangement relating to the importation of Japanese cotton piece goods into the Philippine Islands which is to expire July 31, 1938, that after consultation with the interested agencies of the government and the concerned American business group we would favor renewing the agreement for a period of one year on the same terms as those of the present arrangement. With reference to Mr. Suma’s request that the quota for Japanese piece goods be increased to sixty million square meters, Mr. Suma was reminded that the quota of forty-five million square meters in the original agreement had been fixed in the mutual expectation that this would divide the Philippine market equally between Japan and the United States and it was pointed out that as the total importation of cotton piece goods into the Philippine Islands had not subsequently increased, we could find no basis for the request of the Japanese Association that the quota be increased over the present figure. With reference to the desire expressed by Mr. Suma that the arrangement be renewed for a period of two years, it was explained that this Government did not desire to commit itself for a longer period than one year in view of a possibility of action being taken during the coming year to affect [Page 622] adjustments in the existing trade relations between the United States and the Philippines. Mr. Suma was also told that we would like to have included in the text of our proposal covering the renewal of the arrangement a statement to the effect that if the quantity of Japanese cotton piece goods imported into the Philippine Islands reached a figure of forty-five million square meters prior to the expiration of the arrangement, the Government of the United States would be released from its commitment with regard to the Philippine import duties on cotton textiles.

After some discussion Mr. Suma agreed to refer to his Government our proposals. He and Mr. Sakamoto appeared to appreciate our explanation of the reasons why we would be unwilling to extend the arrangement for a period longer than one year or to assent to an increase in the Japanese quota. On the other hand, they raised objections on point three. They observed that our right to release ourselves from our commitments in the event that the Japanese found themselves unable to keep their exports within the quota was implicit in the arrangement from the first and saw no necessity for the inclusion of an explicit statement to that effect in the new arrangement. Their specific objections to the inclusion of such an explicit statement were (1) that the arrangement would lose its character as a “gentlemen’s agreement” and become a legal agreement which would have to be submitted by the Foreign Office to the Privy Council and (2) that it would be viewed by the Japanese as a reflection on their good faith.

It was explained to Mr. Suma that there was no question whatsoever in our minds of questioning their good faith in suggesting the inclusion of such a clause, but it was thought that it would merely serve to be helpful in clarifying a point which we agreed was implicit in the arrangement. It was finally decided to leave this latter point open for further discussion, and in the meantime Mr. Ballantine offered to sound out the views of this Government as to whether an oral statement by us to Mr. Suma to be assented to by him to the effect that our right to be released from our commitment in the event that the Japanese exceeded the quota prior to the expiration of the arrangement was implicit in the arrangement would be an acceptable substitute to an explicit statement to that effect in our written proposal.

Mr. Suma and Mr. Sakamoto said that the Japanese Embassy would report our proposal to the Japanese Government and would expect to communicate with Mr. Ballantine immediately upon receipt of further instructions from their Government.