Foreign Relations of the United States, 1958–1960, Japan; Korea, Volume XVIII

102. Memorandum of Conversation⁰

Tokyo, October 28, 1959, 8:45 a.m.

UNDER SECRETARY’S VISIT TO TOKYO

October 25–November 2, 1959

PARTICIPANTS

• United States
  • Douglas Dillon, Under Secretary
  • Ambassador MacArthur
  • Arthur F. Blaser, Jr., Financial Attaché
• Japan
  • Eisaku Sato, Minister of Finance
  • Toshihiko Sakai, Chief, Foreign Exchange Bureau, Ministry of Finance
  • Naokado Nishihara, Chief, Financial Bureau
  • Yoshisuke Isoda, Financial Commissioner
  • Michiya Matsukawa, Secretary to the Minister of Finance

SUBJECT

• Trade Liberalization and Dollar Discrimination

In opening the conference, Minister Sato stated that today the Japanese Government would be presenting to the Diet its supplementary program for typhoon disaster relief. The Minister expressed his appreciation on behalf of the Japanese Government and the Japanese people for the generous assistance given by the United States Government and the American people in alleviating the suffering and damage caused by this national disaster. In responding, Mr. Dillon expressed his appreciation to the Minister for making time available for the conference, since it was obvious that the pressure of the Minister’s official responsibilities were very great at this time. Mr. Dillon said that he had been looking forward to his visit in Japan for a long time. He continued that he had two matters on which he would like to continue discussion with the Minister. The first of these was trade liberalization.

Mr. Dillon stated that in his calls on the Prime Minister and the Foreign Minister, and in his speech at the Ministerial Conference of GATT,¹ he had discussed trade liberalization, which was, of course, the main business issue of his current visit to Japan. Mr. Dillon continued that everyone had been pleased and happy about the general theme of the recent policy announcements that the Government of Japan would do its best to eliminate dollar discrimination and try also to liberalize its overall trade policy by beginning to reduce trade restrictions. As a policy announcement of intention, this was fine. However, the Government of the United States is concerned about the timing and the extent of the liberalization steps which may be taken.

Minister Sato responded at this point by saying that with regard to timing he had found, upon his return from the United States, that preparations had been lagging somewhat. He had discussed the matter with Mr. Sakai, Chief of the Ministry’s Foreign Exchange Bureau, and indicated to Mr. Sakai his belief that things were moving a little more slowly than he had expected. The Minister left the implication that he had asked the Ministry’s staff to speed up the work. With respect to the extent of liberalization which the US Government has in mind, he inquired whether the Under Secretary had any concrete ideas.

In responding to this question, Mr. Dillon outlined what he termed a basic problem of the US Government. He reminded the Minister that at the tariff negotiations under GATT auspices at Geneva, Torquay and Annecy, the United States Government had made substantial tariff concessions. The reciprocal concessions which had been received from other GATT members were, in many areas, actually nullified because of quotas imposed for balance of payments reasons. In those earlier days it was not too difficult for the Administration to explain to the U.S. Congress and the people that although a number of the concessions received were not immediately effective, when the entire transitional process was finished the United States would have the full benefit of the concessions granted. In the past year or one and one-half years, conditions have changed substantially. The International Monetary Fund has now reached a decision that there are no longer any justifiable balance-of-payments reasons for currency discrimination, particularly discrimination against the dollar. The generally improved economic situation throughout the world has coincided with a very large increase in imports into the United States, and these factors have resulted in a substantial balance-of-payments deficit for the United States. There has, therefore, developed among members of the public in the United States and the Congress the feeling that trade restrictions, particularly discrimination against the dollar, must be removed very quickly. Unless this is done, Mr. Dillon stated, the Congress would probably take action on its own to cut back imports into the United States.

Minister Sato responded that Ambassador MacArthur had already made these points very clearly in earlier talks on the same subject.² The Government of Japan agrees with the views expressed by the Under Secretary.

Mr. Dillon continued that the pressure of public opinion in the United States is such that, in his judgment, discrimination against the dollar must be removed by next spring. The United States Government had understood from the Japanese announcements that the complete removal of discrimination against the dollar might not be effected until the spring of 1961. Mr. Dillon stated that in his opinion such a target date was too far away, and that action to eliminate dollar discrimination must be completed by early next spring. Next year is an election year in the United States. If the Congress takes action in this area, it is likely that such action would be stronger than either the Japanese Government or the United States Government would wish to see, but once taken it would be extremely difficult to reverse. In the absence of positive action by the Government of Japan, the Administration would have no effective means with which to withstand pressures for congressional action. Mr. Dillon noted that in the area of removal of over-all trade restrictions, as contrasted with discrimination against the dollar, it might take a little longer to work out an effective program. However, in this area it is important that Japan not lag too far behind other countries. The United States has been highly gratified in its talks on general liberalization with other countries. Many of these countries are taking significant action to free their trade from restrictions and further significant improvement is expected to take place within the next six months.

Minister Sato then inquired what kind of announcement with regard to liberalization would be significant enough to impress the U.S. Congress. Would such an announcement have to include, for example, soybeans and scrap iron? Mr. Dillon said effective action would mean that dollar discrimination would be eliminated for the bulk of the commodities against which it is now practiced. Mr. Dillon noted that there might be one or two commodities concerning which there might be particularly difficult or special problems. It might be necessary to put these into a different framework, that is global quotas instead of completely free importation from all sources. The important thing is that Japan eliminate discrimination against dollar goods. In responding, Minister Sato stated that he fully understood the Under Secretary’s precaution. He agreed that the timing target date for completion by March 1961 was too late. However, as he had explained to the Ambassador, that particular date had been fixed by taking into consideration all possible factors that might arise. The intention of the Government of Japan is to complete its preparation for making these changes during the remainder of the current fiscal year, so that action could be taken beginning with the commencement of the next fiscal year, April 1, 1960.

Mr. Dillon then referred to his talk with Foreign Minister Fujiyama,³ in which the latter had emphasized that Japan must be cautious and could not afford to dissipate its foreign exchange resources. Mr. Dillon urged that Minister Sato and his Cabinet colleagues think very carefully about this proposition. Although such a policy of slow and careful action might appear to be cautious, in fact it might actually be dangerous or even reckless. The lack of effective action in Japan might result in restrictive action in the United States, the cost of which would be far in excess of any possible cost to the Japanese economy of substantial liberalization measures. Minister Sato acknowledged the point and commented that the same principle applies in the United States Government. Mr. Dillon laughingly agreed and said that that was certainly so, and, in fact, it sometimes happens that way.

0. Source: Department of State, Conference Files: Lot 64 D 560, CF 1508. Confidential. Drafted by Blaser and approved by Dillon on October 31. The meeting was held in the office of the Minister of Finance. A memorandum of conversation on GARIOA, held the same time, is in the Supplement.
1. For text of “Strengthening the Economic Foundation of an Interdependent World,” an address given by Dillon on October 27 at the Ministerial Meeting of the 15th Session of GATT in Tokyo, see Department of State Bulletin, November 16, 1959, pp. 703–707.
2. See Document 94.
3. The meeting with Fujiyama is described in telegram 1289 from Tokyo, October 26. (Department of State, Central Files, 110.12–DI/10–2659)