Foreign Relations of the United States, 1958–1960, Foreign Economic Policy, Volume IV

130. Airgram From the Department of State to the Embassy in Japan⁰

G–44

August 30, 1960, 10:11 p.m.

1. In conversation with Japanese Ambassador on August 22 Acting Secretary referred to Japanese notice of intention under Article XXVIII of GATT to withdraw or modify tariff concessions previously made to US on list of items accounting for over $126 million of Japan’s 1959 imports from US. Acting Secretary expressed US concern over such action which seemed to run counter to current efforts liberalize trade, pointing to fact US has avoided recourse to Article XXVIII and is under pressure to resort to that provision of GATT.

2. Asakai characterized this move by GOJ as “healthy” development in that Japan, seeking to liberalize trade, was moving from exchange controls toward “more normal” method of regulation through tariffs.

3. Basis for US concern over recent developments in Japan (e.g. the substantial Article XXVIII submission) indicating possible future protectionist trend in Japanese trade policy outlined in following paragraph. US anxious that GOJ a) fully appreciate extent of political problems faced by US Government in trade field and b) carefully consider possible effects on future of Japan’s trade relations generally of the actions it takes in determining future course of Japan’s trade policy.

4. Because of its adverse balance of payments position Japan, along with certain other countries, has been permitted over the past several years within the framework of the GATT to impose exchange controls to protect its exchange reserves (not to protect domestic industry). Because of the vast improvement in Japan’s payments position its highly restrictive system of exchange controls is no longer justified, and Japan has therefore embarked on a program of trade liberalization. It is not valid, therefore, for the Japanese to maintain that the substitution of increased tariffs (a protectionist measure) for exchange controls is a “healthy” measure. On the contrary, such a move lends credence to allegations that Japan has, in fact, been using its exchange controls for protectionist, rather than balance of payments, purposes.

5. Throughout the life of the GATT, in the face of extensive withdrawals by other countries, the US has managed with considerable difficulty to avoid the use of Article XXVIII except for a few withdrawals for technical reasons. Furthermore, the US has resorted to the escape clause (Article XIX) on only 12 items over the past 25 years. The US Government is presently subject to great pressure to make withdrawals under Article XXVIII, and its ability to resist this pressure is weakened by every notification of withdrawal received from other countries.

6. These increased domestic pressures have resulted from growing foreign competition and from intense feeling in the US with respect to import and exchange restrictions imposed by foreign countries on imports from the US. For example, a vast majority of the 800 briefs submitted, in connection with the forthcoming 1960–61 round of GATT tariff negotiations, to the Committee for Reciprocity Information and the Tariff Commission by representatives of US industry, labor, and consumers have stressed the lack of reciprocity on the part of other countries. They cite the extensive network of trade restrictions and high tariffs imposed by other countries on US exports. Additionally, in August 26 meeting in Dept on wool suits,¹ Potofsky urged US use of Article XXVIII protect wool suit industry. Should the US be forced to resort to Article XXVIII the implications for the future effectiveness of the GATT itself and the adverse effect for Japan (the majority of items affected would undoubtedly be Japanese items) should be obvious to the Japanese.

7. For some time the US has believed in reducing trade barriers of all kinds—whether in the form of tariffs or direct restrictions. We believe that Japan should be even more interested in a worldwide liberal trading system than the US. The US has reduced its tariffs since 1934 from a 1931–35 average of 50 percent ad valorem to an average of less than 12 percent and is now a moderate tariff country. We are informed that Japan’s tariffs average about 17 percent ad valorem. Since this average is calculated on the basis of actual imports, the liberalization of Japan’s import and exchange restrictions would significantly raise this average.

8. For many years the US made reductions in customs duties with the full realization that it would receive no immediate benefit therefrom because of the exchange controls imposed by Japan and other countries. If these controls are replaced with tariffs the US Government will be hard put to avoid withdrawing concessions which are subject to attack by American producers.

9. In the case of Japan the situation is particularly bad because Japan has been much slower than other major trading countries to remove its trade restrictions. Moreover, the American Congress and public are well aware that the US is practically the only country that has been willing to accept rapidly increasing imports from Japan. The Ambassador will recall that in 1955 Japan had a multilateral negotiation, which resulted in its adherence to the GATT by virtue of an arrangement under which the US gave concessions to third countries to compensate them for concessions which they made to Japan.

10. The US is now faced with increased competition and has balance of payment problems. Despite this we have proposed a new round of tariff negotiations and hope to participate in a further substantial reduction of tariff barriers. It would be impossible, however, for any US Government to continue to maintain a liberal trade policy without the cooperation of its trading partners.

11. It seems clearly in Japan’s interest to have a reduction of its tariffs in the context of a liberal free world trading policy rather than to face a situation where the US and other countries are reverting to the protectionist policies which obtained before the Trade Agreements Program.

12. In conclusion you may wish to state that the reason for bringing these facts to the Ministry’s attention at this time is to allow the Japanese Government ample opportunity to give them full consideration in determining the future course of its trade policy. Although we understand the domestic political problem which the Japanese Government faces in its effort to accelerate trade liberalization, the Japanese must realize that the US Government also faces serious domestic political problems in the trade area. Actions on the part of the Japanese Government which give evidence not only of a reluctance to liberalize its present import restrictions but also of a tendency to follow a more protectionist trade policy can only compound the problems which the US Government already faces in its efforts to maintain a liberal trade policy. Any serious deterioration of US-Japan trade relations would undoubtedly have serious adverse effects upon the relations between the two countries in general.

13. Request Embassy approach GOJ at high level along lines of foregoing. We expect to raise these points with Kosaka during his talk with Under Secretary.²

Herter

0. Source: Department of State, Central Files, 394.41/8–3060. Confidential. Drafted by Vettel on August 26; cleared by Adair, NA, FE, and S/S, and in substance with Kallis and Butler; and initialed for the Secretary by Dillon.
1. No further record of this meeting has been found.
2. A memorandum of this September 12 conversation is scheduled for publication in volume XVII. A joint communiqué was issued on September 12; see American Foreign Policy: Current Documents, 1960, pp. 678–679.