376. Memorandum From the Assistant Secretary of Commerce for Domestic and International Business (McQuade) to Secretary of Commerce Trowbridge1
SUBJECT
- Japanese Automobile Talks
As reported in the press (see attached article from the Washington Post of December 17),2 the Japanese gave little ground at the first round of U.S.-Japan discussions on more favorable access to the Japanese market for the American automobile industry. However, it is the consensus, of both the American industry and government participants, that the talks served a useful purpose. The Japanese side was left no doubt as to how seriously the United States views the formidable barriers to both sales and the manufacture or assembly of American automobiles in Japan. An immediate favorable response to the U.S. representations was in any case [Page 972] out of the question because of the political considerations involved. It is possible, however, that some action, most likely the removal of QR’s on engines, chassis, and the other auto parts still under quantitative restrictions, may be taken early next year.
Progress will be slower on the other items in the bill of particulars presented by the American delegation. Unlike the elimination of residual QR’s which can be done administratively, reductions in commodity and road taxes require parliamentary action, and the politics of cutting excise taxes in particular, levied as they are on “luxury” items, pose special problems. Nevertheless, this is one area where the support of the Japanese auto industry is likely to be forthcoming, and this may help. Further cuts in the Japanese tariff on automobiles so soon after the Kennedy Round do not appear practical either. The nub of the automobile problem, which is Japan’s policy on foreign investment, is not likely to be resolved in the near future for the automobile or any other industry.
Given the prospect of little change in Japanese foreign investment policy, the elimination of residual QR’s on auto parts is of some interest to the U.S. industry. Their preference, although not precisely stated, would be to establish wholly-owned manufacturing plants in Japan. The Japanese industry and government are greatly concerned that this will be done by takeovers of existing Japanese firms by each of the American big three manufacturers. The possibility of assembling in Japan automobiles produced by their European satellites through a joint venture, or even a licensing arrangement (as in Korea, for example) therefore has some appeal for the American industry. U.S. producers, nevertheless, can be expected to continue their efforts to attain their ultimate goal of manufacture in Japan through a wholly-owned subsidiary as part of their integrated international operations.
It is important also to note, in this connection, that what has not been reported in the press is in the role played by representatives of the American automobile industry in these proceedings. Their principal spokesman, Mr. Joseph Frank of the Ford Motor Company, eloquently, but in low key, made it known that the American auto industry would continue to support a liberal U.S. trade policy, but this position requires “sophisticated understanding” and the industry finds it increasingly difficult to accept these restrictions in view of the rising and formidable competition of Japanese cars and trucks in all markets, including the United States. The implications of this statement were not lost upon the Japanese Government observers present. The Japanese industry representative, for their part, recognized the dependence of their industry, and of all Japanese industry, on American technology. It is expected that the dialogue between the two industries will continue, and it is hoped that the American industry will make the continued sharing of their technology conditional [Page 973] on further progress on the elimination of barriers to their access to sales and operations in Japan.
It is important that the momentum generated by these talks be maintained, and it is likely that this topic will again be reviewed at the U.S.-Japan Sub-Cabinet level talks which will be held in Honolulu at the end of January.
The industry representatives, Gene Kaplan reports, were pleased that this Department was represented at the automobile talks. The Far Eastern Division will continue, together with the other components of the Department concerned with these matters, to follow up further developments on this problem.
- Source: Washington National Records Center, RG 40, Secretary of Commerce Files: FRC 74–30, McQuade, Larry (August–December). Official Use Only. An attached covering note, December 27, indicates that the memorandum was prepared by Eugene J. Kaplan on December 20, and cleared by A. Andrews, Acting Director, Bureau of International Commerce, Mark C. Feer, Deputy Assistant Secretary of Commerce for International Financial Policy, and by McQuade.↩
- Not printed.↩