200. Memorandum of Conversation0
SUBJECT
- Trade and Related Economic Subjects
PARTICIPANTS
- Department of Commerce
- Mr. Frederick H. Mueller, Secretary of Commerce
- Mr. George H. Becker, Jr., Special Assistant to the Secretary
- Mr. D. Kearns-Preston, Far Eastern Division
- Mr. Saul Baran, Far Eastern Division
- Department of State
- Douglas MacArthur II, U.S. Ambassador to Japan
- Mr. David M. Bane, Director, Office of Northeast Asian Affairs
- Miss Thelma E. Vettel, Acting Officer in Charge, Economic Affairs, Office of Northeast Asian Affairs
- Japanese
- Minister Zentaro Kosaka, Minister of Foreign Affairs
- Mr. Koichiro Asakai, Ambassador E and P of Japan
- Mr. George Shimanouchi, Japanese Ministry of Foreign Affairs
- Mr. Tetsuro Ohata, Commercial Counselor, Embassy of Japan
- Mr. Hidemichi Kira, First Secretary, Embassy of Japan
U.S.-Japan Trade
Minister Kosaka opened the conversation stating that the Japanese Government was pleased that the United States had purchased so much from Japan in 1959 and was also happy to note that statistics of the first half of this year indicated that Japan will be buying much more from the U.S. in 1960. In this connection he stressed the importance to the relations between the two countries of an expanding mutually beneficial trade. He said that the Japanese understood the problems faced in the U.S. as the result of sharp influxes of certain important commodities and was conscious of the need to avoid flooding U.S. markets. He said it was for this reason that Japan had instituted its voluntary export controls for the purpose of orderly marketing in the U.S.
Secretary Mueller responded that the U.S. was appreciative of Japan’s efforts to achieve orderly marketing of its exports. He said that we know that foreign trade is important to the Japanese economy and understand that the Japanese are taking these measures in order to protect an important market in the U.S. Mr. Mueller acknowledged that trade is relatively more important to the Japanese economy than to our own, but said that trade is increasingly important to the U.S. economy. He pointed out that although the U.S. balance of trade is favorable, its balance of payments is unfavorable principally because of our Mutual Security Program. It has therefore become essential for us to emphasize our export program.
Minister Kosaka reminded the Secretary of the importance of small business in the Japanese economy. He pointed out that 38 percent of the Japanese labor force are farmers and 46 percent industrial workers. 97 percent of Japan’s industry and 40 percent of the industrial labor force are engaged in small business (factories with 30 or fewer employees). This fact causes a number of problems. Small businesses are susceptible to pressures from foreign buyers which sometimes result in copying of designs, etc. To solve this problem, for example, the Japanese Government has established design centers and has taken other measures to avoid unfair competition. The Minister also referred to the problem of the invocation of Article XXXV of the GATT against Japan by certain [Page 405] European countries and pointed out that this problem is compounded by the fact that the newly developing African countries intended to carry on the invocation of Article XXXV. Minister Kosaka expressed the belief that the application of Article XXXV against Japan had retarded the normal expansion of Japanese trade with Western Europe, noting that Western Europe accounted for less than 11 percent of Japan’s trade as compared with its trade with Africa which amounted to 12 percent of Japan’s total trade. He requested U.S. assistance in obtaining the discontinuation of application against Japan of Article XXXV.
Liberalization of Trade and Payments
Secretary Mueller pointed out that over a long period of time the U.S. has led in the move against the application of Article XXXV against Japan. He emphasized that we have also been trying to obtain liberalization of trade and payments restrictions in general. In this connection he said that we are somewhat disturbed by Japan’s notification of intention to withdraw or modify tariff concessions under Article XXVIII of the GATT. He remarked that it is difficult, when answering the complaints of U.S. industry regarding Japanese imports, to explain Japanese restrictions against imports from the U.S. Mr. Mueller noted that statistics for the first six months of 1960 showed a 48 percent increase of U.S. exports to Japan.
With respect to trade liberalization Minister Kosaka emphasized that Japan was not retreating from its program for liberalization, emphasizing that action was being taken to remove restrictions on those items in which the U.S. had expressed most interest. For example, he pointed out that pig iron would not be subject to quota restrictions from October and that soon soyabean imports would be liberalized. He said that it was not Japan’s intent to direct restrictions against the U.S. He said the Japanese Government has problems with respect to the farm population as well as small and medium sized business. He pointed out, for example, that the soyabean producers had requested an added 10 percent duty on soyabeans but that the Government had held this to 3 percent. He also expressed the view that although the withdrawal and modification of tariff concessions under Article XXVIII would increase some of the tariff rates this action would result in the removal of quotas on those items, and, in the last analysis, would mean increased trade in the items.
Secretary Mueller asked why soyabeans could be produced in the U.S. and transported to Japan cheaper than they could be produced in Japan, where costs are generally low. Minister Kosaka pointed out that in the U.S. soyabeans are produced on a very large scale, whereas in Japan they are produced on such a small scale that the comparative cost is high. The Minister added that Japanese oil producers desire U.S. beans [Page 406] and are anxious to buy more. He believed that with the removal of import quotas on soyabeans, there will be an increase in imports from the U.S.
Trade with Communist China
In response to Secretary Mueller’s query, Minister Kosaka acknowledged that there was a “clamor” for the revival of Japanese trade with the Chinese Communists by “certain” Japanese. However, he said, the Japanese Government believed this was based on inaccurate knowledge on the part of certain Japanese of the situation within Communist China. He said that Japanese users of certain special materials, such as lacquer, were vulnerable, but they are very few in number. The problem of these users, he said, has been expanded by the press all out of its proper proportion. He said that the Japanese Government is responsible to some extent for not having informed the public more fully about the true situation. On the other hand, the Minister said, the Chinese Communists want from Japan such commodities as cement, rails, steel, etc., for use in building up their own economy. But they want to sell to Japan items such as rice, which Japan does not need. He reiterated that the public should be better informed.
Secretary Mueller said he had heard rumors that the Japanese Government was investigating possibilities for trade with the Chinese Communists, and he was glad to hear the Minister’s views on this matter. He expressed the view that if the Japanese became dependent upon such a political source as Communist China, trade would become a political, rather than an economic matter. Minister Kosaka remarked that the Ikeda Government should have a stronger view on this subject than its precedessor.
United States Export Import Bank Financing for Arabian Oil Company
Secretary Mueller asked about the Arabian Oil Company’s recent approach to the U.S. Export Import Bank. Minister Kosaka said that this was really a matter within the jurisdiction of the Ministry of International Trade and Industry. He said that the Arabian Oil Company was now producing at a rate of about 400,000 kilolitres a year; the target in five years is 10 million kiloliters. In ten years time it is estimated that Japanese demand for crude oil will have reached 96 million kiloliters. With the increasing demand for crude the Japanese hope to be able to obtain some of their requirements without the expenditure of foreign exchange. The Minister did not believe this would have any effect on the investments made by U.S. oil companies. With respect to the matter of Export Import Bank financing of certain storage and distribution equipment, [Page 407] the Minister said that Mr. Waugh1 told the Japanese during his recent visit to Japan, that there was no precedent for making such a loan for oil, but that he would consider it upon his return to Washington in view of Japan’s dependence on trade. He said the Japanese Government hopes some arrangement can be made. He assured the Secretary that the Japanese Government has no intention of causing any damaging effect on U.S. investments.
Secretary Mueller explained that the policy of the Export Import Bank has been not to make any loans of this kind even to our own nationals, and he pointed out the difficulty which could result from an exception from that policy.