368. Memorandum From the Deputy Secretary of Defense (Gilpatric) to President Kennedy0

SUBJECT

  • U.S./Japanese Defense Relationships

In my memorandum to you to December 17, 1962,1 I referred to the proposal, which Secretaries Rusk and Dillon broached to Foreign Minister [Page 767]Ohira last December, that either Mr. McNamara or I visit Tokyo early this year for the purpose of briefing high Japanese officials on the military threat to the Japan area and of raising the question of how to solve the U.S. balance of payments problem arising out of its military expenditures in Japan. In accordance with arrangements worked out by Ambassador Reischauer, I met with Prime Minister Ikeda and Foreign Minister Ohira in Japan on February 6-7.2 The attached memorandum, which was reviewed and approved by the Japanese Foreign Office, summarizes the discussions which took place at those meetings.

You will note from the memorandum that Prime Minister Ikeda and Foreign Minister Ohira specifically agreed to the following two positions:

1.
The importance of increasing the Japanese defense budget; and
2.
The desirability of establishing a defense study group, within the framework of the Security Consultative Committee, to pursue our further defense cooperation, including the study of balance of payments effects on our respective foreign exchange expenditures.

Based on these discussions and my own assessment of the Japanese/U.S. defense relationships, it is my conclusion that the objective of entirely offsetting the present U.S. adverse balance of military expenditures in Japan, now running at well over $300 million a year, through the purchase by the Japanese of U.S. military equipment is unlikely of achievement in the near future, primarily for two reasons:

1.
The increase in the Japanese defense budget to a level which would permit any large-scale purchasing of U.S. equipment will take a period of years because of the necessity for creating political support by the Japanese people for a sharp acceleration of its defense buildup.
2.
Even were the necessary funds available to the Japanese defense authorities, there may not be a sufficient amount of U.S. military hardware that the Japanese are likely to purchase to offset our total expenditures. Much of the materiel they need can be supplied out of indigenous production. For example, since the Japanese do not require sophisticated or high performance aircraft they can produce their own fighter and transport planes with the technology they presently possess. Similarly their shipyards are capable of designing and constructing patrol craft, minesweepers and small submarines, the only naval vessels which are planned for the Japanese maritime defense forces. Only for such advanced antiaircraft missile systems as Nike-Ajax, Nike-Hercules and Hawk and electronic gear for ground environment ACW Systems have the Japanese turned to U.S. sources. Consideration of price has not been a [Page 768]major factor in Japanese procurement planning in the past. Thus, much of their local production is at prices far in excess of U.S. production costs. If it does become a factor in the future as a result of greater demands on their budget, there may be a larger potentiality for Japanese procurement in the U.S. This possibility, however, cannot be expected to have an effect on the procurement level in the immediate future.

Accordingly, under existing circumstances the fastest way that I see for the U.S. to reduce or eliminate its current adverse balance of military expenditures in Japan would be through a series of additional measures, of which the following are examples, aimed at cutting down U.S. dollar outlays in Japan:

1.
Decreasing the numbers of Air Force personnel and dependents in Japan by rotating, instead of permanently stationing, the U.S. tactical units now in Japan or by repositioning those units in a dollar area such as Okinawa;
2.
Transferring to the U.S. the home-porting in Japan of naval vessels whose crews with their families now are on permanent station in Japan;
3.
Thinning out the present Army logistics base in Japan by returning to the continental U.S. support units that would not be needed there prior to D-day; and,
4.
Removing, transferring to the Japanese, the depot operation now used for MAP support in Japan.

Such measures, while reducing the U.S. gold flow to Japan, would undoubtedly increase the U.S. military budget and might impair the capabilities and readiness of U.S. forces in the Far East.

A possible alternative course of action for reducing U.S. defense expenditures in Japan would be through a major redeployment of U.S. forces there. This step, however, could lead to the loss of our U.S. bases in Japan which, in the judgment of the Joint Chiefs of Staff, should be retained in their present status barring a major change in U.S. strategy for the Far East.

In the light of the foregoing analysis of the Japanese situation, it appears that we should revise our goals there as follows:

1.
We should continue our efforts to persuade the Japanese Government, as rapidly as possible within the political realities that it faces, to increase its defense budget and at the same time to develop those elements of a cooperative logistics plan which would serve to maximize the offsetting of our defense expenditures through Japanese military procurement in the U.S. and sharing of U.S. facilities in Japan. Realistic military sales/cooperative logistics goals for offset would be $50 million for FY 64, $100 million for FY 65, and $150 million for FY 66.
2.
We should redouble our efforts to find ways and means of reducing the balance of payments costs of U.S. military forces in Japan short of a major redeployment of forces. Such efforts would be aimed at achieving a $50 million reduction in FY 64, $100 million in FY 65, and $150 million in FY 66. These actions will undoubtedly affect military readiness and therefore the options available to us to accomplish this end should be carefully considered, along with the recommendations of the Joint Chiefs of Staff, before selecting the particular actions to achieve these goals.

With your approval, we will press forward on the following line of action to meet the above objectives:

1.
The State Department will be requested to follow up on my discussions immediately for the establishment of a bilateral defense study group which will consider all aspects of our cooperative defense program including those related to balance of payments. This group would include representatives from Defense, State and Treasury and appropriate Japanese
2.
The Defense Department will undertake an analysis of options available to us, by priority, to achieve the U.S. support reductions required to meet the above stated goals.
3.
The Defense Department will develop an analysis of Japan’s defense force missions throughout the period 1964-70 and related modernization requirements as a basis for future bilateral discussions. This analysis will include suggested goals for an accelerated Japanese buildup program and a plan of cooperative logistics including sales designed to achieve the FY 64-66 desired offset goals.
4.
The Defense Department, in conjunction with State and Treasury, will aim at another series of meetings with the Japanese Government by April, hoping to achieve more specific commitments from the Japanese prior to their ‘64 budget cycle which starts in the fall of ‘63.

Roswell Gilpatric
[Page 770]

Attachment3

MEMORANDUM

I.

In my meetings with the Prime Minister and the Foreign Minister of Japan to review with them in behalf of the President of the United States the general status of international security affairs and the defense of the United States and Japan, I made the following points as reflecting the thinking of the United States Government:

  • —The security of the United States and Japan is a matter of mutual concern to both nations. Unity in developing and maintaining such security over the long run requires a coordinated effort by each nation in a manner commensurate with its political and economic posture in the world.
  • —Japan is one of the most vital strategic centers of the world and as such is a target for Communist attack of both a direct and an indirect nature. A Japan inadequately defended against Communist air or naval blockade might lose much of its independence and could be utilized to project Communist power decisively into the Pacific.
  • —The nuclear power of the U.S. should serve to deter any Communist atomic attack on Japan. However, Soviet and Chinese Communist conventional military forces, including submarines and aircraft, are deployed around waters and land immediately contiguous to Japan. Such forces represent Communist ability to test the strength and resolution of Japan and the U.S. to resist Communist attempts to dominate Japan through limited and conventional means of warfare.
  • —Japan’s own self defense, as well as its need to back up its political and economic posture in the world with greater defensive power, make it increasingly necessary that Japan develop as a stronger member of the U.S./Japan partnership.
  • —An expanded Japan/U.S. defense system of cooperation in all matters related to defense and logistic support activities in Japan should be developed. This system of cooperation can be built on the foundations of the existing mutual security agreements and on the close associations previously developed with Japanese authorities.
  • —It is hoped that a defense study group composed of representatives of both governments will be set up to advise their political executives [Page 771]of both immediate and long term actions which can be taken to develop this system of defense cooperation. Such advice would cover force missions, force requirements, equipment, supporting facilities, supply sources, cost and timing.
  • —It is recognized that defense strength rests on the economic health of both nations. In addition to the other very great costs of maintaining the United States defense posture in and around Japan, over the past ten years we have spent more than $7 billion in procurement by U.S. forces of Japanese equipment, material and services. At the present time, balance of payments has become an economic problem of great significance to both nations. It is therefore hoped that Japan and the U.S. will strive to equalize each other’s defense foreign exchange expenditures through reciprocal procurement or barter programs or take other actions designed to minimize the balance of payments effects of the U.S./Japan defense partnership.
  • —The United States Government recognizes that defense expenditures are a problem of particular political sensitivity in Japan and that it would be politically infeasible for Japan to attempt to equal the 9-1/2 percent of the gross national product that the United States devotes to defense expenditures or even the somewhat smaller percentages attained by our major European allies. We do, however, believe that it would not be unrealistic for the Government of Japan to aim at an appreciable acceleration of its defense buildup.

II.

In my conversations with the Prime Minister and Foreign Minister they assured me that they were in agreement with the points I had made and were themselves determined to build up Japanese defense capabilities to the maximum that political and economic conditions in Japan would permit. Specifically we agreed on the following two positions:

1.
The importance of increasing the Japanese defense budget;
2.
The desirability of establishing a defense study group within the framework of the Security Consultative Committee to pursue our further defense cooperation, including the study of balance of payments effects on our respective foreign exchange expenditures.

Roswell Gilpatric
  1. Source: Department of State, Central Files, ORG 7 OSD. Secret. Attached to a copy of Document 369.
  2. See the source note, Document 365.
  3. A lengthy review of Gilpatric’s visit is contained in airgram A-1195 from Tokyo, February 20; a set of memoranda of his conversations during the trip is in airgram A-1215, February 25. (Both Department of State, Central Files, ORG 7 OSD)
  4. Confidential.