Foreign Relations of the United States, 1955–1957, East Asian Security; Cambodia; Laos, Volume XXI

151. Memorandum by George S. Springsteen of the Economic Development Division, Bureau of Economic Affairs¹

Washington, March 15, 1957.

SUBJECT

• Background of Mr. Randall’s Proposal for Greater Economic Cooperation in Asia

1. In December, 1956,² Mr. Clarence B. Randall, Special Assistant to the President, visited the Far East to discuss foreign economic problems with top-level U.S. officials. Meetings with Mission representatives took place in Tokyo (covering Japan and Korea), Bangkok (covering Thailand, Viet Nam, Laos, and Burma), and Manila (covering the Philippines and Taiwan).

Mr. Randall’s Proposals and Treatment to Date

2. As a result of these meetings, Mr. Randall and his staff prepared a Report³ setting forth their observations and proposals, including suggestions for regional economic cooperation. On January 22, 1957, Mr. Randall wrote the Secretary (Tab A)⁴ setting forth his views for “an orderly approach to the economic integration of the region.” This letter advanced three recommendations:

(a) Establish a small interagency committee, to be chaired by a member of Mr. Randall’s staff, to prepare for and follow up on suggestions (b) and (c) below.

(b) Convene a planning meeting of key U.S. officials from the Far East, together with Washington representatives, to “quietly” discuss all aspects of suggestion (c) below.

(c) Convene an informal meeting of Far East countries, convened by some nation like the Philippines, to “discuss with each other their mutual economic problems, seeking avenues of mutual assistance.” Participants would be Burma, Thailand, Viet Nam, Cambodia, Laos, Philippines, Taiwan, Korea, and Japan. At such a conference the Far East nations, working against the background of the fact that many possess untapped natural resources which constitute an important potential for expanded trade, and that duplication exists in national development programs which could be reduced by better coordination, could work out means for more effective development on a regional basis and suggest better ways for regional utilization of existing resources.

3. The Secretary replied (Tab B)⁵ to Mr. Randall early in February, indicating that while his idea “is a good one,” its implications should be thoroughly explored and specific suggestions proposed before proceeding to any conference stage. The Secretary noted that the Japanese have given this problem considerable thought and suggested that Mr. MacArthur, just then leaving as Ambassador to Japan, should first explore Mr. Randall’s idea informally with Japanese officials to see if something of a concrete nature might be developed.

4. Mr. Randall replied (Tab C)⁶ to the Secretary on February 12 indicating that he proposed to establish an interagency Committee early in March to explore his idea. We have since learned that Mr. Randall proposes first to discuss this problem with the Secretary when he returns from Canberra.

5. Meanwhile, Ambassador MacArthur’s discussions with the Japanese indicate that Japan has not developed any area-wide approach to the problem of regional integration. Instead, Japanese thinking tends in the direction of a country-by-country, project-by-project approach to the problem. MacArthur believes, however, that more active and coordinated U.S. participation is required to assure on the one hand that Japan has access to necessary raw materials, and, on the other hand, that countries of South and Southeast Asia develop more rapidly. He recommends that a conference be called of U.S. economic officers from the region to formulate a constructive program as suggested in the Randall report, that no regional conference or new regional organization be called into being to deal with this issue, but that we instead rely on a country-by-country, project-by-project approach, and that a specific individual with a small staff be appointed to give concentrated and unified direction to this matter.

6. The key to Mr. Randall’s proposal is the complementary economic relationship which presently exists between Japan and the countries of South and Southeast Asia to achieve economic development. The latter lack the capital to purchase such equipment but have the natural resource potential to develop means of payment. Japan on the other hand lacks the raw materials required for her industrial development but could get them in South and Southeast Asia in increasing quantities if the resources there were developed. From this situation stems the idea of what Mr. Randall calls “regional integration.”

Predecessors to Randall Proposal

7. This is not a new idea. During the American occupation of Japan, the Supreme Commander of the Allied Powers (SCAP) undertook extensive studies of the resource availability in the area of Free Asia with a view to their development for Japanese use.

8. During the Korean Crisis (1951), an Interdepartmental Committee on Far East Mobilization (ICFEM) was established by the Office of Defense Mobilization (ODM). This Committee, chaired by William Yandell Elliott of Harvard, concerned itself with such matters as the utilization of Indian mineral resources for Far Eastern development, nickel development in Indonesia, Korea tungsten availabilities, financing availabilities for resources development, and loan policy in relation to Japan, all matters similar to these envisaged for the Interdepartmental Committee which Mr. Randall proposes to establish. The Committee endeavored, with only a fair degree of success, to stimulate action for regional economic advancement.

9. The ICFEM ceased to operate in August, 1952, and its functions were taken over by a small office established in the Department of State under Joseph Dodge. Mr. Dodge’s designation was that of Consultant to the Secretary on Far East Matters Affecting Japan. This office, which in various ways sought to continue the work of the ICFEM, was abolished in 1953.⁷

10. Since 1953 there has been no similar coordinated organization effort in the U.S. government to deal with the matters of regional cooperation. The problem instead has been treated by other means. The United States, in 1955, took the initiative among Asians for discussing regional development by inducing an Asian nation to call a regional conference to discuss such matters when Mr. Harold Stassen, then head of FOA, persuaded the Indians to call a conference of Colombo Plan members for this purpose. Such a conference was held in Simla, India, in May, 1955. Only Asian members of the Colombo Plan were present. In retrospect, the Simla Conference is a benchmark for judging the Asian attitude towards regionalism. The countries present clearly opposed the establishment of a regional fund that might be multilaterally administered, expressed a preference for bilateral aid, and while approving the idea of undertaking projects of significance to more than one country of the area, cautioned that such projects should not be at the expense of more urgent national projects. The Simla Conference tended to indicate that while countries are concentrating on internal development, they are little inclined to be concerned with regional problems or regional means of solving their own problems. India and Japan appear to have been the only two countries at Simla favoring a regional approach; all others were opposed.

11. In 1955 Congress authorized the establishment of a $200 million “President’s Fund for Asian Economic Development” (referred to as AEDF). Only $100 million, however, was appropriated for this fund. Congress, in its authorization, declared that “in utilizing the fund the President should give preference to projects or programs that will clearly contribute to promoting greater economic strength in the area as a whole or among a group or groups of countries of the area.” To date, very little of this money has been expended although almost all of it has been earmarked for specific projects which may or may not develop. One particular project, the Orissa Iron Ore development in India, which would provide high grade ore for export to Japan, and which both countries are interested in developing with U.S. assistance from the AEDF, has not moved forward because of ICA attitudes. Japan and India, both of whom are prepared to invest in the project, are reluctant to plan for this project without agreement in principle from the U.S. that this project would be eligible for AEDF financing for part of its costs. ICA, principally Mr. Hollister, refuses to give such an indication, chiefly because of an anti-India bias. The Department, including the Secretary has repeatedly urged that ICA move on this project. Without some concrete indication of U.S. interest, the project cannot be moved off “dead center.”

12. The United States has at appropriate opportunities endeavored to underscore the importance of regionalism to the development of the area. At the 1955 meeting of the Colombo Plan Consultative Committee, the U.S. suggested the establishment of an Asian Nuclear Research and Training Center under Colombo Plan auspices to which the U.S. would make a sizeable contribution.⁸ During 1956 some basic surveys were undertaken of this proposal and a progress report made at the 1956 meeting.⁹ Preparations are now under way to convene an international working group to consider specific steps to establish the Center. The initiative in this matter rests with the United States.

13. More recently (January, 1956) Mr. Stassen suggested the convening of a special meeting of the Colombo Plan Consultative Committee for purposes of developing increased economic relations between the free nations of the Far East and South Asia. This suggestion was not advanced further because the suggested timing of the meeting fell in the midst of Congressional consideration of the fiscal year 1957 Mutual Security program.

14. Among countries of the region, various suggestions have been advanced from time to time for regional cooperation. Japan, for instance, has suggested that some scheme be developed for utilizing GARIOA payments to the U.S. for development purposes in the area, particularly for mineral resources exploitation. ECAFE studied the desirability of an Asian Payments Union but rejected it because the volume of intra-regional trade was relatively small.

15. The IBRD at one time also ventured a suggestion for a triangular trading arrangement involving the U.S., India, and Japan, the purpose of which would increase India’s flow of raw material resources to Japan.

16. All these various past proposals clearly indicate that considerable thought and sometimes effort has gone into coping with the problem Mr. Randall’s proposals bring to the fore.

Basis of Increased Japan–South and Southeast Asian Relations

17. As indicated above, the basis for increased relations between Japan and other free countries of the area rests on the one hand on Japanese industrial potential and, on the other hand, on the natural resource potential of the other countries. Simply stated, the future of Japan’s stability is predicated on the increased import of relatively low-priced raw materials for processing into higher-priced exports. Japan has the know-how to accomplish the latter task of adding value to inexpensive raw materials. The Japanese estimate, for instance, that to provide for a continued growth of the economy in the future (about 7–8 per cent per annum), steel ingot production must rise from 12,920,000 metric tons in 1957 to 17,040,000 million tons in 1960. Iron ore imports to meet this production must increase from 7,490,000 tons in 1957 to 10,750,000 tons in 1960. The increased production of steel is dependent on more than the availability of raw material resources. It is also dependent on market outlets. It is here that the production and resource availability aspect of the problem come together. If, for instance, Japan could get more raw material resources, such as iron ore, from South and Southeast Asia (India, Malaya, and the Philippines), these areas would then have additional means by which to procure more goods, including Japan’s, for development purposes.

18. It must be emphasized, however, that the industrial raw materials, such as iron ore and coking coal, are not the principal items required. As indicated in the following table, principal Japanese imports are textile materials (principally cotton) and foodstuffs (principally rice and wheat).

	($1,000)
TOTAL IMPORTS	3,229,657
Textile Materials (Raw Cotton 479,911)	798,444
Food and Beverages (Wheat 164,697) (Rice 109,392) (Sugar 127,217)	558,333
Metal Ores and Scraps (Iron Ore 146,586) (Scrap 183,892)	456,617
Mineral Fuels (Petroleum 312,789) (Coal 90,519)	412,486
Other Raw Materials (Lumber 81,075)	359,695
Chemicals	163,281
Machinery	161,108
Other	223,961

19. About one half of Japan’s total imports now come from the dollar area. (In prewar period (1935) a similar percentage prevailed.) Development of additional resources in South and Southeast Asia need not reduce this dependence. The situation now is one of additional resources rather than one of switching from one area to another. The development of such resources would also provide a sound basis for increasing the level of Japan’s trade to the area. In 1955 South and Southeast Asia took 28 per cent of Japan’s total exports (as compared to 32 per cent in 1954) and supplied 21 per cent of Japan’s total imports (as compared with 19 per cent in 1954).

20. While the desired purpose is an increasing volume of trade flow rather than a diversion, the growth of regional cooperation may raise serious trade problems and policy issues. In a framework of intra-regional cooperation, uneconomic production may be stimulated or developed on the assumption that there will be guaranteed markets in the area. This may lead to the use of long-term marketing agreements or other devices such as preferential arrangements to assure markets for the new production. The result could be the growth of a discriminatory trading system which would be contrary to United States commercial policy principles and objectives. Thus, any specific regional development or trade proposal would have to be examined carefully on its merits, in the light of its probable effects on the United States and of U.S. policy objectives in the area.

21. By implication the Japanese often indicate that if free world sources of raw materials are not forthcoming, they may have to turn to Communist China and the Soviet Union. In 1955 Japanese trade with the Sino-Soviet bloc did increase, but did not total more than 3 per cent of the total trade of Japan. The bloc did provide some raw material, such as coal, salt, and rice, but its ability to increase export of these goods for Japan is dependent more on political rather than economic consideration. Nevertheless, Communist China will continue to be an attraction for Japan both as a source of raw materials and as a market for exports. Increased resource availability in South and Southeast Asia and better markets there would reduce this attraction.

22. Japan has concluded reparations agreements with the Philippines and Burma totalling more than the equivalent of $1 billion. The Philippines, over a twenty-year period, will receive $550 million of reparations in services and equipment and, in addition, $250 million in long-term economic loans. The $550 million of services and equipment will be made available at a rate of $25 million a year for the first ten years, and at an average rate of $30 million for the succeeding ten-year period. Burma’s agreement is for a ten-year period, totalling $200 million at a rate of $20 million a year. In addition Japan will make available $50 million for “economic cooperation” projects, chiefly in the form of joint ventures with the Burmese. Other reparations agreements are pending with Viet Nam and Indonesia. The Japanese hope that these agreements will assist the development of the area.

1. Source: Department of State, Central Files, 890.00/3–1557. Confidential.
2. December 7–23.
3. “Report on Foreign Economic Policy Discussions between United States Officials in the Far East and Clarence B. Randall and Associates”, December 1956, not printed. (Enclosure to memorandum dated January 14 from Lieutenant Colonel Paul H. Cullen, Secretary of the Council on Foreign Economic Policy, to Bryce N. Harlow, Administrative Assistant to the President; Eisenhower Library, Harlow Records)
4. Not found attached. (Department of State, Central Files, 890.00/1–2257)
5. Dated February 8, not found attached. (Ibid., 890.00/2–857)
6. Not found attached. (Ibid., 890.00/2–1257)
7. For documentation concerning this office, see Foreign Relations, 1952–1954, vol. XIV, Part 2, pp. 1269 ff.
8. Documentation concerning the proposal for the training center is in Department of State, Central File 890.00, and ibid., FE Files: Lot 58 D 209, Asian Nuclear Center 1956–7. The 1955 meeting of the Consultative Committee was held at Singapore, October 17–21. For text of the communiqué, see Department of State Bulletin, December 12, 1955, p. 994. For Hollister’s statement of October 20 concerning use of the atom for social and economic progress, see ibid., November 7, 1955, p. 747. Documentation concerning Colombo Plan matters is principally in Department of State, Central File 890.00.
9. The 1956 meeting was held in Wellington, November 19–December 8. For text of Robertson’s address, see Department of State Bulletin, December 19, 1956, p. 957.