Foreign Relations of the United States, 1961–1963, Volumes VII, VIII, IX, Arms Control; National Security Policy; Foreign Economic Policy, Microfiche Supplement

453. Despatch 416 from Tokyo, November 13¹

Tokyo, November 13, 1961

SUBJECT

• First Meeting of the Joint United States-Japan Committee on Trade and Economic Affairs, November 2, 3, and 4, 1961.

I. Introduction

This despatch, together with the additional references cited immediately below, contains the full record of the first meeting of the Joint Committee which took place in Hakone November 2–4, 1961. As agreed during the preparatory discussions between the two countries, no verbatim record of the Conference was made and the only official account of the Conference proceedings is the final communiqué. Each side was responsible for maintaining its own record. The attached report constitutes the record as compiled by the U.S. rapporteur, and approved by the senior advisors from the Embassy who attended the Conference. Time did not permit any portion of this record to be reviewed by the U.S. members themselves.

It proved possible during the Hakone Conference to utilize simultaneous interpretation only when statements were available in written form sufficiently in advance of oral delivery for translation into Japanese. With a view to conserving Conference time for spontaneous interchange of opinions, both the Japanese Ministers and U.S. Cabinet officers delivered a number of “lead-off” statements on various agenda items from prepared texts. All such statements which were made available to the U.S. rapporteur are reproduced as enclosures to this despatch.

Additional Embassy reports on the Hakone Conference are:

Embassy Despatch 398, November 3—Text of opening addresses by Prime Minister Ikeda, Foreign Minister Kosaka and Secretary Rusk.

Secto 12, November 2—Telegraphic resume of morning and afternoon sessions November 2.

Secto 16, November 3—Resume of November 3 meeting.

Secto 21, November 4—Text of final communiqué.

II. Morning Session, November 2, 1961

A. Opening Ceremonies—9:00–9:15 A.M. (Televised)

Prime Minister Ikeda welcomed the U.S. members of the Committee, referred to his faith in the role of the Committee in strengthening the ties of partnership between Japan and the U.S., and expressed the hope that the meetings would permit both sides to chart the future course of economic relations between the two countries with free and unbiased minds. Foreign Minister Kosaka, in his opening statement, drew special attention to the significance of the Committee as an organizational forum for economic cooperation between the two countries and the absence, heretofore, of such a link which the OECD provides in U.S. relations with Western Europe. Secretary Rusk, in his formal response, emphasized that the purpose of the meeting was to consult rather than to negotiate; he assured the Committee that the U.S. is committed to a liberal commercial policy and that he foresaw no necessary limit to the expansion of mutually profitable exchange of goods between the two countries which President Kennedy’s Administration intended to encourage. For full texts of the three foregoing statements see Embassy Despatch 398, November 3.

B. Restricted Session—9:20 A.M.–12:00 Noon

Foreign Minister Kosaka began with several procedural announcements including the designation of members of the committee to draft the final communiqué (on the Japanese side, Deputy Vice Foreign Minister Shima, and Messrs. Kato, Tsurumi, Ueda, and Nara; on the U.S. side Assistant Secretary Martin, and Messrs. Feldman, Hatcher, Lindley, and Doherty). Kosaka drew attention to the 8-point agenda which had been developed for the Conference:

1. General survey and outlook for Japanese and American economies.

2. Current financial and balance of payments situation in the two countries.

3. Wage systems and labor productivity in Japan and the United States.

4. Expansion of trade and promotion of economic relations between Japan and the United States.

5. Promotion of Japanese and United States economic and commercial relations with other parts of the world.

6. Economic assistance to less-developed countries.

7. Proposals for stabilizing primary commodity prices and their relationship to terms of trade.

8. Other business. [Which would include the political and security implications of national economic and trade policies, including consideration of recent developments in the economic policies and tactics of the Communist Bloc.]

Kosaka stressed there was no need to adhere rigidly to the order of the agenda which he said was drawn up purely to assist him as Chairman in guiding the discussion. Secretary Rusk’s response to Kosaka’s invitation for comments on conference procedure included the comment that great countries such as the U.S. and Japan have a considerable number of issues requiring solution and that it is in the nature of free economies that there is always unfinished business. He said there were pressures from nationals on both sides to take up matters of special interest but if the Committee were to create an impression that it had attempted to negotiate specific issues and failed the great basis of agreement which does exist between the two countries would thereby be underestimated. The Secretary said this unprecedented committee must not be used to negotiate specific issues or there would be enormous pressure to extend the mechanism to bilateral relations with other countries which the U.S., for its part, did not contemplate doing. The Secretary concluded his remarks with the hope that both sides would remember to stress common interests when dealing with the press.

Minister Kosaka suggested State Minister Fujiyama and Dr. Heller lead off on agenda item 1—General Survey and Outlook for the Japanese and American Economies.

Minister Fujiyama delivered a prepared statement, the text of which is reproduced as Enclosure 1. As can be seen therein, the main emphasis of Mr. Fujiyama’s presentation was the importance of exports as the determining factor in Japan’s ability to carry out its ten year plan and the vital role of the U.S. as an export market for Japan’s goods; the statement also reflected Japan’s unhappiness over “Buy America” and “Ship America” policies, textile import restrictions, etc.

Dr. Heller’s opening presentation dealt with (a) the U.S. economic outlook, (b) “the hard policy questions, even dilemmas we face”, and (c) implications of U.S. economic policy for areas of mutual Japanese-American interests.

Dr. Heller said at the outset of 1961 the U.S. was plagued by a $50 billion gap between U.S. actual output of $500 billion and the U.S. potential output of $550 billion (annual rates). This gap was the result of a mild recession which was super-imposed on an incomplete recovery in 1959–60 from the previous recession. The gap was reflected in a 7 percent unemployment rate and over 20 percent excess or idle capacity in industry. Natural cyclical forces plus vigorous government action produced quick improvement in 1961: GNP rose from $500 billion in the first quarter to $515 billion in the second and to $526 billion in the third quarter. Dr. Heller said he thought the present quarter would remain close to $540 billion.

Turning to the prospect for 1962, Dr. Heller said the GNP should reach $565 billion in the second quarter, a 13 percent recovery from the first quarter of 1961. (i.e. the same rate of recovery as took place after the recessions of 1954 and 1958.) Output for 1962 as a whole was expected to be in the range of $565–570 billion. Unemployment was expected to drop to about 5 percent by mid-1962.

Dr. Heller said the basic policy question the U.S. faces is: can we achieve full recovery and faster growth and still maintain reasonable price stability and progress toward equilibrium in our balance of payments? With regard to the prospects for full recovery, Dr. Heller drew a distinction between positive and negative aspects: on the positive side, full recovery would depend on rising plant and equipment investment and further increases in consumption and government expenditures. Beyond mid-1962 Dr. Heller said the picture was not yet clear in terms of the source and composition of demand required to make use of the economy’s expected capacity to produce at a rate of over $600 billion. On the negative side, Dr. Heller said full recovery depends on the price level and balance of payments questions; should U.S. prices rise or the b/p situation worsen, restrictive monetary and fiscal measures might be needed before full equilibrium is reached. Dr. Heller said he hoped this would not be necessary, noting that expansionist monetary and fiscal policies had been followed thus far in 1961 and that the outlook was for the continuation of a relatively easy money policy. Before the Berlin crisis, Dr. Heller said there had been hope for a tax reduction but this had now vanished.

Dr. Heller said much the same dilemma exists with regard to policy for economic growth. The ability to change the 2½ percent rate (at which the U.S. economy has been growing in recent years) to achieve its current potential of 3½ percent and to achieve the objective of a 4½ percent rate involves the same dilemma and requires the incentive of full utilization of resources. Dr. Heller looked to equipment investment and consumption as the prime contributors to a 4 or 4½ percent growth rate.

Turning to policy problems bearing on mutual interests, Dr. Heller made a statement which became one of the focal points of discussion during the remainder of the Hakone Conference. He said Japan has a vital stake in full recovery and faster growth in the U.S.: with a GNP of $565 billion in 1962, U.S. merchandise imports could be expected to rise to $15½–16 billion from the current level of $13.6 billion (approximately 3 percent of U.S. GNP). Dr. Heller also said the figures do not tell the full story because liberalization of trade thrives on full employment and recovery. Japan also has a vital interest in price stability and b/p equilibrium in the U.S. Regarding prices, Dr. Heller noted that Japan’s interests were somewhat conflicting in that higher U.S. prices would lead to larger Japanese exports but that U.S. price stability would contribute to higher U.S. growth rates which, as noted above, would redound to the benefit of Japan’s exports prospects in the U.S. Dr. Heller also noted a similar conflicting interest in b/p considerations: While Japan had an obvious interest in increasing its exports to the U.S. to help its own payments problems, a deterioration of U.S. accounts could lead to the imposition of additional restrictive measures by the U.S.

Dr. Heller closed by observing that it was necessary to strike a proper balance between a desirable expansion of U.S. imports and improving the U.S. competitive position on the one hand while avoiding b/p complications on the other. He suggested the Conference could make a significant contribution to this problem of mutual concern.

Minister Kosaka opened the meeting to questions on the two initial statements. Fujiyama and Dr. Heller engaged in a series of questions and answers in which the following points were brought out: the expectation of a $570 billion GNP is the anticipated result of a series of programs initiated by the Kennedy Administration plus natural growth factors expected in the course of 1962. A policy of easy money will continue in the U.S. and the federal budget will move from a deficit to a surplus in the first half of 1962. In Dr. Heller’s view, the anticipated $2 billion increase in U.S. imports under the expanded GNP he had forecast implied that Japan’s exports to the U.S. would also increase, maintaining approximately the same relative share of total U.S. imports as at present. U.S. policy for recovery from the recession was a combination of measures including easy money and the stimulation of growth through increased expenditures on education and training. To stimulate business growth a plan for special tax credits for plant investment had been drawn up. The Berlin crisis had given rise to increased military expenditures (which Secretary Rusk pointed out had been raised by $6 billion (annual rate) since the beginning of 1960) which had a stimulating effect on the economy; both Dr. Heller and Secretary Goldberg stressed how much the Administration would have preferred a tax reduction instead.

Replying to Minister Sato’s inquiry, Dr. Heller confirmed that the prospects for the U.S. he had presented took into account trends in the international economy with particular reference to Europe where, Dr. Heller said, the consensus was that there would be a slower rate of growth because that area was in general operating at full employment and full capacity.

Secretary Rusk asked Mr. Fujiyama to comment on the role of the government in giving guidance to Japanese industry with a view to carrying out the ten year plan for doubling the national income. Fujiyama replied that in a free economy such as Japan, the role of government is rather small. The goals set by the ten year plan were established in the first instance by a special commission composed of economists and representatives of industry; government policy employs these goals as guides in determing action in fiscal, monetary and trade fields. With the actual growth rate nearly double the 9 percent planned rate because of excessive equipment investment in anticipation of liberalization, it was the role of the government at this stage to take measures to reduce the rate of equipment investment and so reduce the growth rate to a more healthy and stable figure. Replying to Dr. Heller’s inquiry concerning inflationary measures in Japan, he said wholesale prices were remaining steady with the exception of lumber but retail prices had risen 4.7 percent since last year, occasioned largely by wage increases in medium and small scale industry, plus increased charges for services; he said the government was not considering measures to encourage savings and to suppress consumption somewhat. Dr. Heller raised two other questions: Has Japanese monetary policy been effective and how does the government’s plan to reduce taxes fit into the general picture of the Japanese economy at present which is characterized by high consumption and high investment? Mr. Fujiyama’s brief response was to the effect that the GOJ must consider the need for a tax reduction as well as the need for additional funds for public welfare (sic).

After a brief coffee break, Minister Kosaka called on Finance Minister Mizuta to lead off on agenda item 2. The latter’s prepared statement is reproduced as Enclosure 2. The Financial Minister declared that the deterioration of Japan’s international account differed from earlier crises in that it reflected basic trends in Japan’s position in the international economy rather than temporary factors such as speculative imports; consequently he anticipated considerable difficulty in regaining balance in Japan’s accounts and, in this context, requested U.S. assistance and cooperation, especially in the field of short term capital from U.S. commercial banks and the Export-Import Bank to permit continued coverage of the current account deficit by capital account receipts.

Under Secretary Fowler made a lead-off statement for the U.S. on agenda item 2 with a prepared statement, the text of which is reproduced as Enclosure 3. Mr. Fowler’s presentation laid stress on the need for cooperation and joint efforts to manage the common problem both countries face in the management of imbalances in external accounts. The Under Secretary’s presentation included an explanation of the necessity for the U.S. to maintain a large surplus on private current account to finance U.S. expenditures for security and economic development of the Free World, as well as of the need for the U.S. to correct its own serious payment imbalance to protect the soundness of the dollar as a key reserve currency. Mr. Fowler outlined specific areas of cooperation in meeting the need of both countries for substantially increased exports: continued trade liberalization between each other and with other industrialized areas, assistance to less developed areas, and cooperation in the maintenance of a sound trade and payments system for the Free World. The Under Secretary cited the record of U.S. capital outflow to Japan and stated the U.S. was not unhappy over this assistance to Japan’s industry and government notwithstanding the adverse effect on the U.S. balance of payments: He urged that the overall balance of payments relationship between the two countries (which has been unfavorable to the U.S.) be given the same degree of attention as Japan’s unfavorable balance of merchandise trade with the U.S.

Minister Kosaka suggested the Committee adjourn for lunch. Before doing so the Committee briefly discussed and approved (with some modification) the general outline presented by Deputy Vice Foreign Minister Shima for the press briefing which he and Ambassador Reischauer would jointly conduct immediately thereafter.

End of Morning Session.

III. Second Session—3:00 P.M.—November 2

Foreign Minister Kosaka proposed that the discussion shift to agenda item 3 concerning wages and labor productivity, follow with introductory statements on item 4, and then return to a free discussion of agenda item 2 and 4 at the same time, since the two were closely related. He invited Secretary Goldberg to lead off on item 3.

Secretary Goldberg began by commenting that Japan and the U.S. are partners in a basic principle governing labor-management relations, namely that both are committed to a free enterprise system with the right of workers to organize into unions of their own choosing and to engage in free collective bargaining including the right to strike protected by law. He noted that each country has problems, as do the best of partners, and he proposed to deal with these while concentrating on “. . . what unites us rather than what divides us” (reference President Kennedy’s Inaugural Address). Secretary Goldberg said that U.S.-Japanese labor relations are characterized by four major misconceptions:

1. The U.S. labor movement has the conception of Japan as one of the lowest wage countries in the world, a conception shared by many U.S. citizens.

2. The Japanese think of the U.S. labor movement as a protectionist one, hostile to liberal trade policies and in particular hostile to Japanese products.

3. The American labor movement believes the Japanese labor movement to be primarily a political movement not related to trade union objectives.

4. The Japanese apparently think of the U.S. labor movement as an instrument of, or controlled by, governmental policy so that American union action is deemed to be U.S. Government action.

Secretary Goldberg said misconception number one is the key issue and that liberalization of U.S. trade policies would depend on removal of this misconception. He said the strides made in Japan, especially recently, to improve workers’ wages and standards of living were not sufficiently understood in the U.S. He suggested that European countries’ invocation of GATT Article XXXV seemed to reflect the same misconception. Secretary Goldberg said it was in order to set the record straight on misconception no. 1 that the U.S. had introduced its proposal for a joint study. He noted that the GOJ had submitted a counter-proposal (circulated as Conference Document JS3) and reported that he and Labor Minister Fukanaga had discussed the matter at lunch, in the light of which he proposed a further compromise: that the communiqué should contain a statement that both governments propose to consult through regular channels on all aspects of the labor scene bearing on trade relations between the two countries. The Secretary suggested this statement would not only give explicit recognition to the importance of consultation between the two countries in this field but would enable both parties to express their common desire to remove substandard conditions.

Turning to the second misconception, Secretary Goldberg said the facts are that to a surprising degree the labor movement in the U.S. has supported a liberal trade policy. He acknowledged that recently, largely as a result of unemployment, there has been a rise of protectionist sentiment within the labor field. He noted that the U.S. had been the beneficiary of an over-all favorable balance of bilateral trade with Japan but that it was extremely difficult for an individual unemployed worker to take a broad view.

With regard to the third misconception, Secretary Goldberg suggested the mutual task of correcting it would be much easier if the Japanese labor movement were to take a more active role in the ICTFU, the Free World organization of bona fide trade unions. On the fourth misconception, Secretary Goldberg referred to the recent boycott of Japanese suits by the ACW and commented that just as Japan’s labor movement does things the GOJ does not like, so U.S. unions are free to do things the U.S. Government does not like: this, said Secretary Goldberg, is part of the price of freedom.

Concluding his remarks, Secretary Goldberg said he wished to endorse the desirability of continuing the labor exchange program between the two countries which had political as well as economic benefits. Recognition by U.S. labor of the advances made by Japan would lead to a better understanding in the U.S. and help to induce continued support for liberal trade policies.

Labor Minister Fukanaga said he was gratified to learn of the U.S. interest in removing misconceptions in this field. He stressed that cash wages were not an adequate measure of international labor cost comparisons but that the entire structure of the economy must be taken into account. He then turned to his prepared statement, reserving the right to supplement it after studying Secretary Goldberg’s remarks in more detail. The full text of Minister Fukanaga’s remarks is reproduced as Enclosure 4. The main burden of his presentation was for a broadening of the joint study group proposed by the U.S. so as to deal with all fundamental problems relating to the promotion of Japan-U.S. economic relations.

After concluding the reading of his statement, Minister Fukanaga referred to his luncheon discussion with Secretary Goldberg, which, he said, indicated there was considerable flexibility in the U.S. proposal. He felt that Secretary Goldberg’s remarks during the meeting were very close to what he himself had in mind and suggested that the two Ministers continue their discussion privately and report back to the Conference the following day or Saturday morning.

After ascertaining that this proposal was acceptable to the Committee, Minister Kosaka invited Secretary Hodges to make the lead-off statement for the U.S. on agenda items 4 and 5.

Secretary Hodges delivered a prepared statement, the text of which is reproduced as Enclosure 5. One of the central themes of his presentation, which is reflected in the text of paragraph 12 of the final communiqué, was that Japan must trade to live and grow and the U.S. must trade to grow and meet the commitments of the security and growth of the Free World. The Secretary referred to the openness of the U.S. (and Canadian) markets to Japanese goods which places on us the main burden of adjustment to changes in the Japanese economy. He stressed the restraint with which the U.S. had invoked the Escape Clause (3 out of 129 applications), stated that in his view Japan can expect a continued rise in its exports to the U.S., and urged removal of restrictions (both Japanese as well as those of other countries) which impede Japan’s full participation in the pattern of Free World trade and investment which must be developed. The Secretary outlined in this connection U.S. policy toward the Common Market and other regional economic associations and stressed the importance of removal of other countries’ discrimination against Japan under GATT Article XXXV.

MITI Minister Sato responded with a prepared lead-off statement on agenda item 4, the full text of which is reproduced as Enclosure 6. This statement contains a full catalogue of all of Japan’s trade grievances against the U.S.: Minister Sato commented at length on what he regarded as the trend toward additional U.S. restrictions on imports from Japan. He described the Geneva Agreement on cotton textiles as a deviation from the principle of free trade, stated that recent U.S. moves to regulate ocean shipping run counter to internationally accepted standards, and described the refusal of the U.S. to grant more liberal rights to Japanese airlines “New York and beyond” as unfair to Japan. He also referred to European restrictions on Japanese goods as a great bottleneck and expressed concern over the impact of European regional integration as a potential new source of discrimination.

After Minister Kono had remarked that he would defer his planned statement on agenda item No. 5 until tomorrow in order to conserve time, Minister Kosaka opened the session for questions and discussion. Minister Sato said he wished to supplement his prepared statement with a few additional observations: He understood the U.S. responsibility for assistance to less developed areas but he did not feel that this was relevant to the practical problem Japan faces at the present time. Japan’s trade and payments difficulties cannot be resolved by generalities, he said, when the U.S. is the only large market open to Japan. Only by increasing sales in this market, could Japan hope to sustain its imports from the U.S. Commenting on Secretary Hodges’ presentation, Minister Sato said that 75% of Japan’s imports of items falling into the broad category of machinery were of U.S. origin and that this category constituted 20% of Japan’s total imports. He also hoped there could be some further opening up of the Japanese market to imports in the near future. To underline the importance of Japan’s trading relationship with the U.S. in comparison with other countries and areas, Minister Sato circulated a statistical table reproduced as Enclosure 7.

Under Secretary Fowler said he wished to comment on measures taken by the Kennedy Administration to redress the U.S. balance of payments deficit. Noting that some GOJ Ministers had implied that these steps adversely affected Japan, Mr. Fowler referred to the President’s statement of February 6 where the alternatives of restrictive measures or an expansion of exports were squarely faced: Mr. Fowler quoted the President’s policy—“. . . in seeking equilibrium, we must place maximum emphasis on expanding our exports . . . (and) a return to protectionism is not the solution”. Under Secretary Fowler acknowledged that Japan’s export opportunities had been somewhat reduced as a result of changes in ICA procurement policy but said Japan tended to overlook the compensatory actions by the U.S. which prevented an adverse over-all effect on Japan’s balance of payments. He cited the fact that in the first half of 1961, Japan’s net receipts of long term U.S. capital amounted to $71 million compared with only $7 million for all of 1960; assuming a continuation of this rate throughout 1961, Japan’s receipts would be almost as high as Japan’s maximum receipts arising from ICA procurement ($147 million in 1960). Under Secretary Fowler concluded that when full account is taken of all items entering into balance of payments it was clear that U.S. policy to redress its own deficit involved no direct threat to Japan.

Minister Sato replied that he did not intend to criticize the U.S. Administration’s efforts to protect the dollar and noted that Japan was in the same position of trying to increase its own exports. He wondered, however, whether the U.S. policy actions were taken with Japan’s needs in mind. He asked why the U.S. insists on sending cement under ICA procurement all the way from the U.S. to Japan’s close neighbors.

Minister Fukanaga intervened that he hoped the afternoon session would not terminate with the impression that each side’s position was stiff; he said each needed better to understand the other’s position, especially in matters of finance. Minister Kono commented at this point that he was sorry he had not been born a politician in such a wealthy country as the U.S. He said that Japan’s neighbors consist of countries of the Communist Bloc and large numbers of underdeveloped countries. He said it was not possible to create a common market in this area and the U.S. is the only real market for Japan in the whole Pacific area. While agreeing it was possible to talk about the long-run need for equilibrium, Minister Kono said it might be a long and dark path unless an answer could be found for Japan’s very practical trade difficulty arising from the geographic position to which he referred and its unusual dependence on the U.S. market. Minister Kono concluded with the hope that the “white heat” of the discussion indicated both sides were becoming close friends, since only close friends would speak so freely to one another.

Minister Sato said he would be very interested in knowing what the U.S. expected when the Reciprocal Trade Agreement Act came up for renewal and also what prospects there were for revision of the Bonner Bill, and whether there was any real room for negotiation on air routes between the two countries. Secretary Hodges said, in view of the lateness of the hour, he would defer a reply until the next morning. Secretary Rusk said he would have been disappointed if temperatures had not risen today, since frank exchanges of this kind were the very purpose of the meeting. He said he wished to reply to Minister Sato’s query as to whether the U.S. took Japan’s interests into account in framing its own economic policies to redress the U.S. balance of payments deficit. Secretary Rusk said U.S. balance of payments measures were adopted as a matter of global policy but that to the extent possible, special country problems, including those of Japan, were taken into account: he cited the reversal of U.S. policy with regard to the return of U.S. military dependents, restoration of local procurement for commissaries and military exchanges in Japan, and exceptions to ICA procurement policy in the case of fertilizer shipments to Korea. While Japan might not feel that the U.S. had done as much as it could, Secretary Rusk said that he wished to emphasize that Japan’s position was taken into account.

Minister Kosaka reminded the Committee that Dr. Heller had wished to comment on item 2 but that this would now have to be deferred until morning. He then called on Deputy Vice Foreign Minister Shima to present an outline for the press briefing. After fifteen minutes of discussion in which Ministers Fukanaga and Kosaka and Secretaries Goldberg, Hodges, Rusk, Freeman, and Ambassador Reischauer participated, Secretary Rusk’s formulation of the afternoon’s discussion was accepted.

End of Afternoon Session.

IV. Morning Session—November 3—9:00 A.M.–12:15 P.M.

Foreign Minister Kosaka opened the session with a prepared statement on agenda item 5 concerning U.S. policy toward the OECD and the EEC and Japan’s problems in trade with less developed countries. The full text is reproduced as Enclosure 8. In this statement, Minister Kosaka expressed deep disappointment over the trend toward permanent exclusion of Japan from the OECD and Japan’s apprehension about the Common Market with particular reference to UK accession. Kosaka said Japan has no objection to the political objectives of European integration but urged the U.S., in framing its policy, not to overlook the position of Japan as the only industrialized country outside the area. One of the Foreign Minister’s main points in his comments on Japan’s trade with less developed countries was the latter’s insistence on bilateral balancing of merchandise trade with Japan.

Secretary Rusk referred to Minister Sato’s query of the previous afternoon concerning U.S. expectations with regard to renewal of the Reciprocal Trade Agreements act. He drew the Committee’s attention to the wire service report on Under Secretary of State Ball’s address before the National Foreign Trade Convention, copies of which he promised to distribute to all delegates later in the day. Secretary Rusk said this constituted the “opening gun” in what is likely to be a long battle in the U.S. He said that although specific legislative steps could not be promised, he wished to stress the Administration’s recognition of the need for broader and more effective tools to deal with far-reaching changes in trade patterns. He said these changes are not only due to Common Market developments, although the latter symbolized the need for new U.S. negotiating authority in the tariff field to improve U.S. and Free World access to that growing market. Secretary Rusk said the U.S. objective is to create an open competitive free world trading system in which all free countries can take an active part. The Secretary referred to the need for the U.S. to make adjustments to new trade patterns which was not an easy task. He said that to refer to domestic politics in this context is simply to acknowledge that all democracies, including Japan, are subject to the same shortcomings. The Secretary said the American people take exports for granted while imports are regarded as threats to the well being of the economy. The fact that 4½ million U.S. jobs depend on exports is a fact not sufficiently recognized by the American people. Secretary Rusk said that during the “great debate” on the Reciprocal Trade Agreements renewal in the coming months, there will be statements made which will no doubt irritate America’s friends. He asked for Japan’s understanding when this situation arises. After noting that there were still strong forces in the U.S. favoring a liberal trade policy, the Secretary described the dilemma facing many supporters in the remarks of a senator who said, “if you want to be a liberal senator, you must start by being a senator”.

Secretary Rusk said Japan could be of help during the next few months if in Japan’s informational activities, stress were placed on what a good customer Japan is for American goods. The Secretary said he intended to seek Ambassador Asakai’s help on this matter.

Secretary Rusk said he did not wish to shy away from the substantial bilateral gap in U.S.-Japan trade merchandise trade: He said the basic fact remains that so long as the U.S. carries such a heavy defense and foreign aid burden, the U.S. must maintain a substantial surplus in ordinary trade patterns. He added that U.S. defense outlays have an economic effect on the well being of other countries, including Japan, and that U.S. foreign aid expenditures in other areas help develop those countries as markets for Japanese exports. He concluded, however, with the observation that the U.S. is not content with existing U.S.-Japan trade relations nor is the U.S. content with discrimination imposed on Japanese goods by other countries.

Minister Kosaka expressed his great appreciation for the Secretary’s remarks and asked Dr. Heller to comment on agenda item 2 for which there had been insufficient time yesterday. Dr. Heller said he wished to comment on the effects of domestic economic policy on balance of payments. He said internal economic policy is a crucial factor in the solution of external payments problems. He illustrated this point by referring to the conjuncture in the first half of 1961 when, under the delayed impact of the 1960 recession, Japan’s exports to the U.S. fell 16 percent while under the impact of domestic U.S. recovery, U.S. imports from Japan during July-August were up 3.2 percent over the comparable months of 1960. Thus the success of U.S. domestic policy for growth, said Dr. Heller, is of prime importance for Japan as well. Dr. Heller also said the feverish pace of economic growth in Japan—i.e., domestic Japanese economic policy—was the principal basis for the 30 percent increase in Japanese imports. Dr. Heller said these illustrations simply underlined the obligation on both parties to adjust their internal economic policies in the light of their respective external positions.

Minister Sato said he was most impressed with Secretary Rusk’s comments on trade policy and that he placed great expectations on the Secretary’s statement that the U.S. is not satisfied with the present situation. He urged Secretary Rusk to expand on his ideas on ways in which Japan could be helpful at this time.

Secretary Rusk said that in Japan’s superb department store in New York, Takashimiya, Japan could have appropriate displays reminding American buyers how much Japan purchases from the U.S. He said another example could be for Ambassador Asakai to visit an Eastern seaport when a large U.S. export shipment to Japan is due to leave in order to draw press attention to Japan as an export market for U.S. products.

The Secretary added that it is an objective of U.S. policy to reach a stage in terms of our balance of payments where the U.S. can return to more normal handling of foreign aid expenditures; many detailed problems which are a current source of difficulty between the U.S. and Japan on this score can be solved only in the context of an expanded world economy. The Secretary said this is a “mountain-top in the future” and that the Committee could not ignore the thickets which stand in the way of reaching that goal.

Minister Sato said differences of views are to be expected but he was glad to hear that the U.S. understands Japan’s position better, to which Secretary Rusk replied that he hoped there would be better understanding on both sides.

Secretary Goldberg said he felt not enough attention had been given to the significance of Dr. Heller’s comments yesterday concerning the prospect for a substantial growth of U.S. imports under conditions of recovery and growth in the U.S. economy, an increase in imports in which Japan should be able to maintain a significant share. Secretary Goldberg said one of the difficulties on the U.S. side in establishing a climate where such an increase could take place was the isolation of Japan’s trade union movement from that of the U.S. due to Communist influence in the former. Minister Sato said Secretary Goldberg’s comment indicated the importance of maintaining the labor leader exchange program which, he understood, Congress had not approved. Secretary Goldberg replied that he fully agreed on the importance of the labor exchange program and while it was true that Congress had not approved the Administration’s request, it seemed likely that with the cooperation of Secretary Rusk it would be possible to permit a limited continuation next year using AID financing. Minister Fukanaga noted how active both the USSR and Communist China were in inviting union leaders to their countries and he said he looked forward to the efforts of Secretaries Rusk and Goldberg in enabling continuation of the exchange with the U.S.

Finance Minister Mizuta said he wished to comment on Under Secretary Fowler’s observations with regard to U.S. capital outflow covering Japan’s current account deficit. Minister Mizuta said that in the period January through September 1961 Japan’s exports decreased 10 percent while its imports increased 40 percent. To offset the $700 million deficit on current account Japan had a short term capital account surplus of only $480 million, 90 percent of which was in the form of import usance reflecting the rapid rise in imports; when Japan’s imports level off, Mr. Mizuta said the capital inflow of this type will correspondingly decrease and he said this trend was already noticeable. The Finance Minister said that while the short term inflow has helped to cover Japan’s deficit in the past and while Japan was very grateful for the cooperation of U.S. commercial banks, this was not a stable mechanism to which Japan could look as a source for covering its current account deficit when imports return to a more normal level.

Under Secretary Fowler said he would be interested in hearing more about specific measures Japan contemplates taking to increase its exports to the U.S. and other countries. Minister Kosaka said he knew Minister Sato and Secretary Hodges and Minister Kono and Secretary Freeman were discussing these matters privately. He said Secretary Rusk’s suggestion regarding publicity in the U.S. was an excellent idea and he thought U.S. farmers in particular should appreciate how good a market Japan is for U.S. agricultural products. Secretary Rusk cautioned that tact would have to be exercised in this field to avoid any risk of a charge that Japan is intervening in a political debate in the United States.

Secretary Udall commented that he felt that not all members of the U.S. Cabinet have been as active as they can and should be in demonstrating the importance of liberal trade policies. He noted in passing that Japan is one of America’s best customers for coking coal and expressed the view that each Cabinet officer could take a more active role vis-à-vis Congress with regard to trade items within their respective spheres of responsibility. Secretary Rusk said it would be helpful if Japan could keep the U.S. better informed as to the trends of its economy with special reference to sudden increases in purchases from the U.S.; the Secretary said that sharp increases such as 40% in a period of months made adjustment in the U.S. very difficult.

State Minister Fujiyama quickly responded that advance information could certainly be given. He outlined the procedure through which Minister Sato meets with industry leaders and said that in the monetary field, Japan could be influential through over-the-counter or “loan window” controls. Based on these and other contacts between government and industry and financial entities, Minister Fujiyama said projections result which could be communicated to the U.S. Minister Mizuta endorsed the desirability of such an interchange in order to keep the U.S. fully informed of Japan’s long term goals. Minister Sato, in agreeing, said that he felt U.S.-Japan cooperation in the political field has not been matched to date in the economic field. He said staff level contacts could carry out the cooperation of the kind under discussion.

(An informal break in the proceedings occurred at this point as a result of the circulation of a cartoon by Herblock which appeared in the Washington Post recently. Ten copies are attached as Enclosure 9.)

Minister Kono said Secretary Rusk’s statements during the morning had given him great hope but that he wished to express his attitude toward the current status of relations between the U.S. and Japan. In the field of foreign policy Mr. Kono said U.S.-Japanese cooperation is the foundation of Japan’s foreign policy while, in the economic field, the relationship between the U.S. and Japan is regarded as one to be developed. He said Japan thinks of the U.S. first: Japan buys from America first and he hoped the U.S. would buy from Japan first. Minister Kono said Americans keep telling Japan to look for other markets and that this was very unexpected. He referred to trade in agricultural products, noting that the normal expectation would be for Japan to buy such items from less developed countries and sell them Japanese manufactured goods in return; but this was not the case at all: even in raw materials Japan puts first priority on the U.S. and this whole policy of primary reliance on the U.S. as a trading partner had led to the current balance of payments difficulties. Minister Kono said that at the outset of the present Conference the U.S. attitude had not seemed very favorable for an improvement in the present situation but that in the light of Secretary Rusk’s statements, things seemed to be changing. He concluded by noting that the Committee would turn to trade relations with the Communist Bloc later in the day and reminded the Committee that Japan finds itself between the Sino-Soviet Bloc and the Free World.

Secretary Rusk said he appreciated Minister Kono’s remarks but was just a little concerned that Minister Kono may have thought he had written a blank check which Japan could fill in at will.

Coffee Break

Secretary Hodges said he planned to discuss privately with Minister Sato a number of specific issues which need not take up Conference time but wished to make several general observations on U.S.-Japan trade relations. Secretary Hodges referred to American restiveness regarding unemployment in the U.S. and the very expensive measures the Kennedy Administration had adopted to deal with it. He said Japan must take this into account when requesting the U.S. to permit greatly expanded imports from Japan. Secretary Hodges said it was indispensable that international trade be really two-way and drew attention in this connection to the very poor response Japan had made to the U.S. offer for tariff reductions under GATT (Secretary Hodges said the U.S. benefits whose value was calculated at about $100 million met with a Japanese list valued at only $19 million). Secretary Hodges also drew attention to Minister Sato’s prepared statement on textiles where a “rather harsh” reference to “honesty not paying” had appeared: Secretary Hodges said that if Japan had not applied voluntary controls, the problem would simply have arisen much earlier. Secretary Hodges said there were a number of measures both the U.S. and Japan needed to take in world trade: both needed to know their markets, both needed to give greater attention to research-oriented industries, both needed to emphasize quality products and both needed to do a better job of trade promotion and public relations. Secretary Hodges concluded with an observation that he was enthusiastic about future potentialities and foresaw a bright future for world trade.

Minister Sato expressed appreciation for these frank observations. He regretted that a satisfactory conclusion to the Geneva “Dillon Round” negotiations could not be found but noted that Japan’s tariff level is quite low compared to that of the U.S. Regarding shipping matters and air routes, Minister Sato said he realized how serious both these issues were for the U.S. and recognized they could not be resolved easily. Concerning textiles, Minister Sato said he wished to correct any implication that his reference to honesty not paying was intended as a criticism of the United States which was not the case: it was intended to refer to Hong Kong having taken over Japan’s market in the U.S. Minister Sato said he was aware of the frequent criticism that Japan tends to concentrate on too narrow an export market and assured the Committee that it was GOJ policy to seek markets in other parts of the world and over a wide range of goods. He said that discrimination under Article XXXV was a barrier in this connection and expressed the hope that the U.S. would continue its helpful support in obtaining its removal. Agreeing with Secretary Hodges on the need for improved quality and control standards, Minister Sato said it was Japan’s intention to continue to obtain guidance and cooperation from the U.S. in this field.

Secretary Goldberg said that since he did not expect to participate in the private talks on shipping matters, he wished to point out that the U.S. maritime fleet is in serious trouble while Japan’s is flourishing. He said the number of U.S. flagships had declined to below one thousand and that the great bulk of U.S. commerce was now carried in non-U.S. bottoms. He said the high wage policy in the U.S. merchant marine was a contributing factor and that the decline had reached a stage where national security considerations were involved.

Minister Sato commented that this illustrated one of the many jungles in the path of reaching the mountaintop Secretary Rusk had referred to.

Minister Kosaka invited the Committee to turn to item 7 and suggested Secretary Freeman lead off.

Secretary Freeman said that agenda items 6, 7 and 8 were all inter-related and that his statement would deal with some aspects of all of these items. He referred to the extraordinary technological explosion taking place in agriculture in the U.S., Japan and some other countries as well. The Secretary said that if this technology could be effectively applied in other areas of the world, it would be possible to meet the food needs of the world. He said there was an acute need in many parts of the world. The Secretary quoted several brief excerpts from the recently-released U.S. Dept. of Agriculture “World Food Budget 1962–66”.

The Secretary of Agriculture said he wished to clarify U.S. policy in the Food for Peace Program in relation to U.S. domestic agricultural policy. The Secretary said the U.S. has not, does not, and he felt confident, will not engage in dumping practices or disruptive undercutting of markets in U.S. agricultural export programs. The U.S. proposed to maintain its historic markets and its historic share of markets as they expand. U.S. domestic agricultural policy is one of seeking to manage the enormous productivity of the American farmer, a program of “managed abundance”—and to utilize this capacity in a sensible way. The Secretary said the U.S. had not turned U.S. agriculture loose to produce what it could. The Food for Peace Program is not an international relief feeding program. It is designed to fill a gap when emergency situations arise but it is primarily aimed at promoting capital formation in underdeveloped countries.

With regard to international commodity agreements, Secretary Freeman said the Kennedy Administration policy is to work with other countries and through various international organizations to examine what can realistically be done to minimize extreme price fluctuations of agricultural and mineral products around the world. He said he expected that 50 years from now there would have to be very many commodity agreements to avoid complete chaos. The Secretary said that one serious problem both the U.S. and Japan should face is the prospect that in a few years, perhaps five or even less, Indonesia and perhaps the Philippines would become rice self-sufficient. When that happens Burma and Thailand will face a grave crisis because of their extreme dependence on rice exports. The Soviet Bloc can be expected to move into this situation with massive barter deals if the Free World permits this situation to develop without advance planning. Secretary Freeman said that in addition to the need for diversification of agriculture in these countries (for example introduction of corn into Thailand), there was also need for careful consideration of an international rice agreement.

Minister Kono noted that it was time for the press briefing and said that Minister Kono’s response and discussion of this item would be put over until the afternoon. The Committee then approved the general outline of the press briefing as presented by Deputy Vice Foreign Minister Shima.

End of Morning Session.

V. Afternoon Session—November 3—3:00 P.M.

The session opened with a prepared statement by Minister Kono on agenda item 7, the full text of which is reproduced as Enclosure 10. In this statement Minister Kono drew attention to the greater difficulties the Free World (including Japan) has in comparison with the Soviet Bloc in accepting large quantities of agricultural products from the less developed areas of the world.

After Minister Kono and Secretary Freeman had exchanged brief comments on the need for private discussions between the two governments on agricultural problems, Minister Kosaka said it was clear there was need for close cooperation at staff levels in the agricultural field. He mentioned in this connection the possibility of U.S.-Japan cooperation in Peace Corps activities.

Minister Kosaka invited Secretary Rusk to make his presentation on U.S. economic policy toward the Soviet Bloc.

Secretary Rusk noted that this was a highly sensitive topic and urged that all Committee members be discreet in dealing with the press. The Secretary said the U.S. does not believe that trade with the Communist Bloc can be considered in economic terms alone but that it involves political implications of the gravest and most far-reaching consequences. He said there is a crisis in history represented by the clash of two basic ideas, the idea of the inevitability of the Communist revolution on the one hand, a belief that is backed by the resources and power of the entire Sino-Soviet Bloc, and on the other hand, the conception of world society embodied in the UN Charter involving relations across national boundaries in keeping with international law. The Secretary said if there is any doubt as to what the Sino-Soviet Bloc is after it is only because the Free World does not believe what the Bloc has said in unmistakeable ways. The Secretary cited in this connection the December 1960 Party declaration, Khrushchev’s statement of January 6 and the 22nd Party Congress just completed, as well as during the Vienna meeting with President Kennedy. Secretary Rusk said that when Khrushchev says he will bury us or that our children will be Communists by 1980, it means that he intends to use all the resources at his command to bring this about.

The Secretary posed the question of what kind of trade policies are appropriate to pursue with countries that are determined to destroy us. He suggested that we should not make a direct contribution to the strategic strength of the Bloc and said he greatly appreciated Japan’s cooperation in this regard. The Secretary said we should take care to deny recent technological developments, noting how clearly the Soviet Bloc benefits by picking up the final result of heavy research expenditures in the Free World. He added that he could see no reason to extend special advantages to the Soviet Bloc such as in the field of credits which would make it easier for the Soviet Bloc to obtain what they need. Finally, Secretary Rusk said he was especially concerned that some countries might become so dependent on the Soviet Bloc through trade as to be vulnerable to political pressures. The Secretary said that the trade relationship with the Bloc can become an extremely dangerous one if on the part of the Free World the relationship is approached as a purely commercial arrangement while the Soviet Bloc uses trade as an instrument of total policy. The Secretary said he recognized the argument of keeping open contact with the Soviet Bloc through the channel of trade but pointed to 15 years of experience marked by the tombstones of obstacles placed by the Soviet Bloc in the path of friendly relations. Secretary Rusk said U.S. policy in this field had been forced on the U.S.; quiet efforts in 1961 to improve relations have been met by outrageous rebuffs and demands for surrender of vital interests.

The Secretary said he did not wish to suggest there should be no trade with the Soviet Bloc, noting that the U.S. itself had such relations as well as many close friends. He said also he would not wish to suggest that Free World policy should be based on the notion that others are doing the U.S. a favor by adhering to the same general policies as does the U.S. because the issue transcends that of the individual interests of the U.S. or other individual countries.

The Secretary said his presentation was intended to indicate some of the reservations he has in this field. He strongly endorsed economic integration and inter-dependence within the Free World and expressed the hope that trade with the Soviet Bloc would be marginal so that no Free World country becomes dependent and thereby susceptible to political pressures.

Minister Kosaka replied that the points raised by Secretary Rusk were well-understood. He stressed that Japan’s position is one of full commitment to democracy and cooperation with the Free World. He noted, however, that certain forces in Japan oppose this policy. Minister Kosaka then delivered a prepared statement the text of which is reproduced as Enclosure 11 after which he quickly terminated the discussions by stating that he understood there was broad agreement on this topic and that any specific questions would be taken up elsewhere. He then suggested the Committee turn to agenda item 6.

Minister Sato led off with a prepared statement, the text of which is reproduced as Enclosure 12 concerning Japan’s policy in the field of assistance to less developed countries. This statement includes an appeal for closer cooperation between the two countries and, where practicable, joint projects.

Secretary Rusk said that President Kennedy feels strongly about the need to meet rising expectations around the world and that this means building the kind of world in which we ourselves would wish to live. He said that when the President took office it was apparent that there was a need for careful review of the previous 15 years experience with foreign aid; such a review has been completed and he wished to comment on several elements in the new U.S. approach.

Secretary Rusk said steps were needed to ensure that investment lead to the results expected. He said the U.S. did not intend to give assistance to countries whose own indigenous capital flows off to Swiss banks. While the U.S. does not presume to tell others how to manage their own affairs, the U.S. reserves the right to decide what is a good investment. The Secretary said the U.S. considers it unpromising to invest in areas whose regimes are indifferent to the welfare of their own people. More stringent rules have been written into the U.S. aid program with these factors in mind.

Secretary Rusk said it was not money but trained people which constituted the critical bottleneck in Free World assistance programs and this included shortages of people in recipient as well as donor countries including the U.S. He said the U.S. welcomed the increasing number of trained Japanese experts.

Referring to Minister Sato’s reference to cooperation among developed countries, Secretary Rusk said all countries in a position to do so must make their best efforts if the Free World is to succeed. He expressed his respect and appreciation for the large contribution Japan has made in this field in recent years. The Secretary said there are many areas for joint cooperation between the two countries especially in Asia, although he cautioned that the U.S. could not make Japan “an agent” for U.S. aid.

The Secretary noted that the U.S. had sought Congressional authorization to use GARIOA repayments for foreign aid programs but Congress had declined, and therefore the Executive Branch does not have the means for direct linking it had hoped for. The Secretary said Japan should not, however, consider that its request had been completely rebuffed. He said there are ways the U.S. and Japan can cooperate on a case-by-case basis and he assured the Committee that the U.S. was interested in partnership in this field. The Secretary said that wisdom lies in the direction of flexibility and that he personally believed there would be dozens of occasions for cooperation between the two countries.

The Secretary said the U.S. balance of payments problem and especially the gold outflow precludes the U.S. from permitting unrestricted global procurement financed by U.S. assistance programs. He said he did not wish to appear apologetic for this because what the U.S. was trying to do was extend the maximum amount of aid it could with the resources at its disposal; the U.S. reserves of free gold were insufficient to permit unrestricted bidding at this time.

The Secretary concluded with an expression of hope that Japan would find ways to increase its aid especially in the field of training young people. He also hoped that as Japan’s financial situation permitted, the government would move in the direction of longer term loans at lower interest rates because, he said, it was this kind of capital that the less developed areas needed. Finally, Secretary Rusk said he welcomed the partnership which the U.S. has already enjoyed with Japan in the field of assistance to developing countries.

State Minister Fujiyama said he was somewhat surprised to hear the strict attitude the U.S. has in this field. He noted that Japan expected to devote about 2.9% of its GNP to external assistance under the 10 year plan to double the national income. He agreed that the two nations could and should cooperate more fully in this field not only in agriculture but in creating new industry. Mr. Fujiyama said that aid by the industrialized Free World thus far has paid insufficient attention to small and medium sized industry which can best absorb the labor force of emerging countries. He suggested both countries should do more along this line rather than helping various leaders in less developed countries build monuments to themselves.

Minister Fukanaga referred to Secretary Rusk’s comment to the effect that Japan could not be an agent for U.S. aid. Minister Fukanaga said his experience in less developed areas indicated an urgent need for the use of an agent and while the word “agent” might not be the best term, he urged the U.S. to consider making better use of Japan to increase the effectiveness of U.S. assistance. Minister Fukanaga cited the case of Burma which he said did not want to accept assistance openly from either the U.S. or the Soviet Bloc. In the field of technical assistance, he pointed to Soviet Bloc activity in sending technicians to Southeast Asia and declared that Japan was prepared to do more than it had to date. He closed by reiterating his hope that the Cabinet would go back to the U.S. Congress on the question of GARIOA repayments and point out the benefits which could accrue to the U.S. through such a device.

Under Secretary Fowler said he wished to commend Minister Fujiyama for his emphasis on the need to develop small and medium sized industry in less developed areas. He said Japan was an excellent source of skilled personnel for this kind of effort and said the U.S. would welcome further exploration of cooperative steps to promote this objective.

Secretary Freeman drew attention to the fact that more than 80% of the people in the developing countries are engaged in agriculture and that there had to be development in this field also.

Secretary Rusk, returning to the question of Japan as an “agent” for U.S. aid, said he may have spoken too briefly in his earlier remarks which were in no sense directed at Japan specifically but applied with equal force to the U.K., France or any other industrialized country. After reiterating that there are many ways in which the U.S. and Japan can work together and that the U.S. is looking for situations where such cooperation looked promising, Secretary Rusk said he wanted to make it clear that if a country would welcome U.S. money at the back door but did not welcome the U.S. at the front door, the U.S. did not wish to be a party. He said the U.S. had its sensitivities and its pride, and moreover as Secretary of State he had to face the American people.

Minister Mizuta said he was pleased to hear that the U.S. appreciated Japan’s efforts. Commenting that he thought Japan deserved to be commended, he referred to the heavy burden of reparations payments which remained to be met ($312 million paid thus far, $700 million remaining). He also referred to the recent Burmese demand for hundreds of millions of dollars from Japan and said the Burmese negotiators had stated they would refuse assistance from the Soviet Bloc if Japan met their request. Minister Mizuta concluded with an appeal for special consideration by the U.S. on such matters as ICA procurement in view of the substantial efforts Japan is already making in the face of balance of payments difficulties and the burden of reparations.

Minister Kosaka drew attention to the fact that the spirited discussion during this session had continued for more than 2 hours without a coffee break and that it was now time to consider the press briefing. Before doing so, he asked Secretary Goldberg to comment on the unfinished labor items which he understood had been the subject of private discussions.

Secretary Goldberg first mentioned the exchange of agricultural workers which he said did not appear suitable for inclusion in the communique but wished to inform the Committee that the U.S. was prepared to work out a procedure which would permit continuation next year on a somewhat smaller scale. Secretary Goldberg informed the Committee that he had received a telegraphic report on the latest unemployment figures in the U.S.; the figure had fallen below 4 million but, unfortunately, the seasonally adjusted rate was still 6.8%. Secretary Goldberg said this pointed up the desirability of including in the communique some reference to the joint concern of both the U.S. and Japan over the need for an improvement of labor standards which, he stressed, do affect trade policy. Secretary Goldberg said such a reference would demonstrate to U.S. labor that the GOJ also, rather than just the U.S., is concerned over this subject.

Minister Kosaka commented that he was very interested in continuing to send young agricultural workers to the U.S. and Minister Kono added that the Japanese farmers were grateful for the opportunity offered by this program and that the figures mentioned to him privately for the coming year were fully satisfactory.

The Committee approved the outline for the press briefing presented by Deputy Vice Foreign Minister Shima and agreed to meet at 10:00 A.M. Saturday, November 4, to consider the final communique.

End of Afternoon session.

VI. Morning Session—Saturday, November 5—11:15–11:25 A.M.

[NOTE: Formal convocation of the Committee was delayed while the drafting Committee met privately to negotiate last-minute changes in various paragraphs of the communiqué. Individual sentences of the communiqué which presented difficulties for one side or the other were taken to the respective Ministers concerned for approval.]

Minister Kosaka said he understood agreement had just about been reached in the drafting committee and while awaiting receipt of the text of the draft communiqué he asked if any of the Ministers wished to raise any other topics.

Minister Kono drew brief attention to the several outstanding issues between the U.S. and Japan agricultural matters which had been discussed privately with Secretary Freeman and urged continued cooperation on both sides.

Secretary Freeman referred to the U.S. quarantine on Japanese beef and mandarin oranges which he stressed were not imposed to restrict trade in any way but to prevent infestations. Noting that Minister Kono had declared there was not such danger, Secretary Freeman said technicians from both sides should thoroughly re-examine the question. Secretary Rusk confirmed that the U.S. does not use health regulations as a concealed method of trade protection.

Secretary Freeman urged that each question be considered on its merits and that both sides should avoid an attempt to horsetrade. The Secretary expressed his hope that Minister Kono would agree that, in this connection, importations of lemons into Japan should promptly be liberalized, without relating the question to that of U.S. restrictions on mandarin oranges.

Minister Kosaka reported the drafting committee had reached agreement and noted that he and Secretary Rusk were due to make a television appearance in a few minutes. He quickly concluded with an expression of deep appreciation for the exchange of views during the past three days which, he said, covered more ground than could have been achieved in three years through normal channels. He said he looked forward eagerly to the next meeting. He closed with an expression of appreciation to the Committee staff and especially the interpreters. Secretary Rusk said time precluded his making an adequate closing statement but he felt certain the full committee realized how deeply he and his colleagues appreciated the unparalleled hospitality which had been extended to them.

The text of the final communiqué is reproduced as Enclosure 13.

Ten copies of a summary of November 4–5 Japanese press coverage of the Hakone Conference, prepared by the Embassy’s Translation Services Branch, are attached as Enclosure 14.

For the Ambassador:

Edward W. Doherty

Counselor for Economic Affairs

1. Record of first meeting of Joint U.S.–Japan Committee on Trade and Economic Affairs. Official Use Only. 25 pp. Department of State, Central Files, 411.9441/11–1361.