199. Memorandum of Conversation0
SUBJECT
- Trade Problems
PARTICIPANTS
- Foreign Minister Z. Kosaka
- Ambassador K. Asakai
- Director of Bureau S. Kondo
- Counselor of Bureau H. Tanaka
- Minister A. Nishiyama
- Counselor of Embassy T. Yasukawa
- Counselor of Embassy T. Kato
- Mr. G. Shimanouchi
- Under Secretary L. Merchant
- Ambassador D. MacArthur II
- Asst. Sec. J. Parsons
- Deputy Asst. Sec. C. Adair
- Mr. D. Bane
- Mr. R. Sneider
- Capt. T. Howe
Mr. Merchant opened the discussion of trade problems, mentioning that the U.S. was disappointed by the pace of trade liberalization on [Page 402] the part of Japan. He said that we were very conscious, of course, of the pressures for protectionism which every industrialized country is exposed to. We recognize that these pressures exist in Japan and hope that the Japanese Government can resist them. There are likewise pressures in the United States for greater protection against foreign imports, and the American Government is therefore engaged in a constant struggle to maintain a liberal trade policy. Mr. Merchant stressed that the United States Government needs the support of its trading partners in order to resist effectively protectionist pressures from American industries. He urged the Japanese Government to move as rapidly as possible with trade liberalization, since this is vital to the maintenance by the U.S. of a liberal trade policy. Mr. Merchant expressed the hope that Japan would make progress in this area in the months ahead.
Mr. Adair pointed out that there was considerable public interest in the trade liberalization question at the present time due to the impending Geneva tariff negotiations and the need in another year for Congress to renew the Trade Agreements Act. He expressed the hope that Japan would in particular reduce the number of items on which they sought tariff increases under Article XXVIII of GATT.1 He mentioned that Japan’s resort to Article XXVIII was causing considerable concern in this country and that there were pressures on the U.S. Government to use this Article. However, the US. Government preferred to utilize Article XIX.
Mr. Kosaka expressed Japan’s gratitude for the expansion of U.S.-Japanese trade, and its awareness that this trade is the key to Japan’s economic advances. He said that the Ikeda Government recognized the need for trade liberalization and that it was not afraid of internal political pressures against this move. It planned to increase the number of items liberalized from 40 to 80 per cent in the next three years. However, the pace of liberalization will be affected by the peculiar characteristics of the Japanese economy. Mr. Kosaka pointed out that 38 per cent of the labor force are farmers, while 46 per cent work in the industrial sector. Furthermore, factories of thirty or less employees manufacture 97 per cent of Japan’s industrial goods and employ 40 per cent of the industrial labor force. Liberalization will have the most serious adverse effects on agriculture and small to medium-sized business, where the great percentage of the labor force is concentrated and where efficiency is lowest and there is a low rate of productivity.
Under these circumstances, Mr. Kosaka said, the Japanese plans for liberalization represent a big step forward. The Japanese Government recognizes that the resort to Article XXVIII would result in a slight raise [Page 403] in tariffs for some items but nevertheless there would be the great increase in trade resulting from the elimination of exchange quotas on these items. He pointed out that the proposed tariff increases were very small; for example, the agricultural interests desired an added 10 per cent duty on soybeans, but this was held to 3 per cent. Mr. Kosaka concluded by urging that we take a long range view of the problems involved in Japan for trade liberalization and recognize, in addition, that due to the forthcoming Diet elections trade liberalization is currently a politically sensitive issue.
Mr. Adair reiterated that a bad impression is created by the Japanese request for the renegotiation of tariff concessions previously granted to the U.S. but which have not been effective up to this time because of Japanese quota restrictions. In addition, the Japanese interest in persuading the European trading countries to discontinue application of GATT Article XXXV in trade with Japan would be damaged.
Mr. Kosaka referred to the Article XXXV problem and Japanese hopes that the European countries would discontinue its application. He said that Japan is willing to prevent market disruption and flooding of markets through voluntary measures on its part. Mr. Merchant confirmed that the U.S. wishes to assist the Japanese efforts to persuade other countries to discontinue application of Article XXXV in trade with Japan.