383. Letter From Secretary of Defense McNamara to Secretary of State Rusk0

Dear Dean: Ambassador Reischauer has reminded us that the subject of defense will inevitably arise while you, Doug Dillon and other Cabinet Members are in Tokyo.1 Perhaps it would be useful if I gave you my views as to what we might achieve in moving the U.S./Japan defense relationship forward during your trip.

In his report to the President after his trip to Tokyo last February,2 Ros Gilpatric reported that Prime Minister Ikeda and Foreign Minister Ohira agreed to a Memorandum prepared by the U.S. side which expressed among other things the hope “that Japan and the U.S. will strive to equalize each other’s defense foreign exchange expenditures through reciprocal procurement… or take other actions designed to minimize the balance of payments effects of the U.S./Japan defense partnership” and the following two specific positions:

The importance of increasing the Japanese Defense budget; and
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.

Mr. Gilpatric’s report, which was approved by the President, indicated further that, based on his assessment of Japanese/U.S. relationships, it was his conclusion that the objective of entirely offsetting the present U.S. adverse balance of military expenditures in Japan, running at well over $300 million a year, through the purchase by the Japanese of U.S. military equipment was unlikely of achievement in the near future. In addition to proposed methods of reducing our costs in Japan, the Memorandum concluded that we should revise our military sales goals for offset to $50 million for FY 64, $100 million for FY 65 and $150 million for FY 66. To date the Defense Study Group meetings have been largely unproductive in achieving any long range agreement on offset in Japan or any basis on which detailed procurement planning could proceed with the Japanese Ministry of Defense. Meetings have been so highly secretive and in such small groups that it has really been impossible to utilize Government channels as a principal means of relating Japanese [Page 802]military requirement to U.S. export potential. However, there have been sufficient contacts between U.S. and Japanese industry as well as between U.S. and Japanese Armed Forces representatives, with the coordination of the MAAG, that the offset procurement picture which presents itself to us prior to your meetings in Japan appears as follows:

In comparison with the $50 million objective for FY 64, the Japanese Government currently estimates that purchases of military equipment from the U.S. will total $64.7 million during FY 64, most of which will be through direct transactions with U.S. defense industry.
In comparison with $100 million for FY 65, current Japanese Government estimates and purchases suggest a total of $100 million of which $36 million will be government-to-government transactions and $64 million directly with U.S. defense industry.

It would thus appear from an analysis of Japanese sales forecasts that the very modest steps envisaged for FY 64 and FY 65 towards offsetting procurement have been accomplished and that the principal remaining questions concern:

Completion of the third step of FY 66 planning for $150 million; and
Extension of the scope of the discussions undertaken through the Defense Study Group in such a way as to provide better possibilities for increasing the offset procurement program in the future.

We believe that your meetings in Tokyo offer an opportunity to make some progress on these two points. We recommend that you try to reach a bilateral agreement along the lines of the attached draft Memorandum of Understanding3 during your visit which would serve to formalize Japanese agreement to the Memorandum prepared by Mr. Gilpatric during his visit to a greater extent than was possible at that time. Such agreement, taking advantage of the fact that good progress is being made and offering U.S. credit assistance as a means of achieving the $150 million goal for FY 66, might now establish a more workable basis for future offset procurement planning.

If you agree, I propose that Mr. Leonard A. Alne of my negotiating staff be in Tokyo during your visit for the purposes of consulting with MAAG Japan and establishing a follow-up plan of action to carry out the [Page 803]arrangements of Part III of the proposed Memorandum of Understanding.4


  1. Source: Department of State, Central Files, E 1 JAPAN-US. Secret. A copy was sent to Dillon. Attached to a December 6 letter from Rusk to McNamara; see footnote 3 below.
  2. For the projected Third Meeting of the U.S.-Japan Committee on Trade and Economic Affairs, scheduled for November 25-27, see Document 385.
  3. Document 368.
  4. This draft included reaffirmation of the agreement in principle on offsets reached by Ikeda and Gilpatric in February 1963; a summary of anticipated Japanese equipment purchases in the United States, and of anticipated reductions in U.S. military expenditures in Japan, in FYs 1964 and 1965; and a list of more vigorous efforts to be taken to increase offsets.
  5. In his reply Rusk agreed to discuss offsets and more vigorous action to achieve them during his January trip to Japan, but left open the question of whether a formal Memorandum of Understanding would be necessary. He cautioned that U.S. plans to remove USAF F-102s from Japan as part of the U.S. effort to reduce expenditures might affect the negotiating atmosphere because F-102s were the backbone of the Japanese all-weather interception system. Documentation on U.S.-Japanese discussion of U.S. plans for removal of all F-102s from Japan by July 1, 1965, and of proposals for alternative air defense for Japan is in Department of State, Central Files DEF 6 US and DEF 15 JAPAN-US, and in Washington National Records Center, RG 330, OASD/ISA Files: FRC 67 A 4564, 333 Far East 12/9/63.