Foreign Relations of the United States, 1949, National Security Affairs, Foreign Economic Policy, Volume I

560.AL/5–2049

The Department of State to the British Embassy ¹

confidential

Aide-Mémoire

The Department of State views with concern the continuing reluctance of the British Government to undertake accession to an agreement whereby the merchandise trade with Japan would be carried on during the period of occupation under a reciprocal adherence to the principle of most-favored-nation treatment. It is understood that the present position of the British Government is that such adherence cannot be assured until sufficient time elapsed from the introduction of the new yen exchange rate to allow an observation of the effects of such rate on trade. Indefinite postponement of a British decision prejudices to a serious extent the possibility of obtaining general acceptance of a most-favored-nation agreement covering Japanese trade.

The Department believes that it is to the mutual advantage of the United States and the United Kingdom, and in fact to the general advantage that:

(1) There be such recovery in Japan’s foreign trade as will permit attaining a minimum self-supporting status for the Japanese economy. Such attainment in the foreseeable future is of particular immediate concern to the United States whose people are contributing heavily toward Japanese recovery.

(2) That the development of Japanese trade be along sound economic lines in the context of a multilateral trading system, thus minimizing the danger of future economic disturbance.

(3) That there be an avoidance of an increasing network of discriminations against Japan, which would create the basis for highly dangerous economic and political frictions in the future. Already there are numerous discriminations against Japan; ten of the present contracting parties to the General Trade Agreement practice such discrimination and there will be continuing pressures for such action.

The Department of State believes that an assurance on the part of the leading trading countries of adherence to the most-favored-nation principle in trading with Japan during the period of occupation is an important element in respect of the foregoing considerations. It is important to the occupying authorities in directing the proper rehabilitation of the Japanese economy and it is important from the standpoint of American public opinion in the light of the heavy burden of Japanese support assumed by the American people along with the heavy burdens they are called upon to bear in other parts of the world for general economic recovery.

The Department of State believes, with respect to the alleged fear of extreme Japanese competition, that fundamental changes in the Japanese cost structure will inevitably militate against a marked and sustained Japanese competitive advantage over a broad area of commodity trade. It feels confident that during the period of occupation the occupying authorities can assure the absolute minimum of unfair competitive practices. It believes that the established policy for pricing Japan’s exports and the demonstrated readiness of the occupation authorities to consult with respect to alleged dissatisfactions fully justify this confidence. The Department has repeatedly indicated a readiness to consider reasonable assurances concerning these matters.

The Department of State believes that the establishment of the new yen rate of exchange will substantially remove the uncertainties which have surrounded Japanese trade to the present time. This development should materially lessen the need for and justification of bilateral arrangements such as the sterling agreement which the United States Government has never accepted as a satisfactory substitute for an effective application to Japan of the most-favored-nation trading principle.

On the basis of the objectives and related considerations set forth above it is impossible for the Department to find adequate justification for the continued refusal of the British Government to give assurances with respect to Japanese trade which the United States Government has for the past two years been seeking. In fact it cannot conclude other than that such continued refusal constitutes a serious inconsistency with the agreed commercial policy objectives which the United States and the United Kingdom Governments have helped to sponsor and establish. The Department further cannot overlook the increasing difficulty on the part of the American public in understanding a persistent refusal of the British Government to assure non-discriminatory treatment to Japanese trade for the period that Japan is under a United States supported occupation authority while at the same time our two Governments along with the governments of other friendly countries are collaborating in efforts to hasten world economic recovery.

The Department of State therefore strongly urges that the British Government undertake to reconsider its position on the question of most-favored-nation treatment for Japanese trade in a sincere effort not only to accept on its own behalf the assurances sought by the United States Government but to support the United States Government in its continuing efforts to encourage other governments likewise to accept these assurances.

Washington, [June 17, 1949.]

1. Presented to Sir Derick Hoyer Millar, Minister in the British Embassy, on June 17. The Embassy in London was so informed in Department’s telegram 2093, June 17, 7 p. m., not printed (560.AL/6–1749). The Embassies in Brussels, The Hague, and Paris were informed on June 21 in Department’s telegrams 752, 539, and 2209, respectively, none printed (560.AL/6–2149).