Foreign Relations of the United States, 1964–1968, Volume XXIX, Part 2, Japan

39. Action Memorandum From the Assistant Secretary of State for Far Eastern Affairs (Bundy) to Secretary of State Rusk¹

Washington, January 6, 1965.

SUBJECT

• The Sato Visit; Proposed Cabinet-Level Meeting on Economic Problems

During Prime Minister Sato’s visit we should be prepared to state the U.S. Government’s position on a number of important economic problems of common concern to the U.S. and Japan. These problems are described briefly in Tab B,² and are related to the proposed U.S. policy actions outlined in Tab C. Of the eleven specific issues summarized in Tab B, the first five items represent areas in which the United States desires an improvement in Japanese performance;³ the remaining six items represent areas in which Japan desires improvement in U.S. performance.⁴

For some time, the Department has considered means to engage the full and active support of your Cabinet colleagues in a common effort to eliminate needless difficulties in current U.S.-Japanese economic relations. Prime Minister Sato’s visit offers an occasion for review with your Cabinet colleagues the nature of the problem against the backdrop of our total relationship with Japan to gain their understanding and support of positions you will take, and to anticipate subsequent U.S. actions which will be required to implement those positions set forth in Part II of Tab C. We have discussed these issues with working levels in the other agencies concerned and shall have obtained clearances or identified differences before any meeting you might hold with your colleagues. We believe that reconciliation of the differences between the State and Commerce Departments on textiles will require your intercession with Secretary Hodges, bilaterally or in the context of discussion with other Cabinet colleagues of our total relationship with Japan.

Both an immediate and longer term purpose would be achieved by your chairing a meeting at a convenient time between January 7 and 11 with the U.S. members of the Joint U.S.-Japan Committee on Trade and Economic Affairs plus Mr. McGeorge Bundy and Governor Herter to review these economic problems to obtain your colleagues’ support for the actions proposed in Tab C. During the talks with Prime Minister Sato, I believe it will be necessary for the President personally to handle only one of these economic problems, i.e. civil aviation. The others should be handled by you, supported, in the case of the Interest Equalization Tax, by Secretary Dillon, perhaps at your Working Luncheon.⁵ Other members of the Cabinet should support the U.S. positions you take in the conversations that they may have with Prime Minister Sato, Minister Shiina or Ambassador Takeuchi at your Working Luncheon on January 12 or at other social occasions.

Recommendation:

It is recommended that you:

1. Sign the attached eight letters (enclosing Tabs B and C) to the U.S. members of the Joint U.S.-Japan Committee on Trade and Economic Affairs and to Mr. McGeorge Bundy and Governor Herter, inviting them to a meeting at a convenient time between January 7 and 11 to review U.S.-Japan economic problems in preparation for Prime Minister Sato’s visit to Washington (Tab A);⁶ or

2. Approve the preparation of letters along the lines of Tab A which, instead of inviting the addressees to a meeting, transmits Tabs B and C to them and seeks their active support for the positions outlined therein.

Tab C

RECOMMENDED POLICY ACTION ON JAPAN

I. Desired Improvement in Japanese Performance

The following are actions which are in the interests of both the U.S. and Japan as leaders of the Free World. We should stress the mutuality of our interests in the context of the partnership concept enunciated by President Kennedy and Prime Minister Ikeda in 1961.⁷

A. Cooperative Defense Arrangements

1. We want Japan to develop and maintain defense forces which would permit early assumption by Japanese forces of virtually complete responsibility for the defense of Japan.

2. We must insure that the U.S.-Japan military partnership remains more attractive to Japan than the alternatives of military non-alignment or independent defense measures.

B. AID to Developing Countries

1. We want Japan to carry a greater share of the aid burden of the less developed countries in keeping with its position as a leading industrial power and to take a more active role in international forums dealing with economic aid. For example, we would like Japan to participate in the Turkish consortium to demonstrate its full acceptance of the responsibilities of membership of OECD.

2. The volume and terms of Japanese aid should be improved, but the Japanese Government faces political, institutional and financial obstacles unlike ours, which must be recognized when we offer specific suggestions.

3. In suggesting that Japan offer more and better aid to LDC’s we should

a. Emphasize importance to Japan of adequate flow of aid to LDC’s on terms commensurate with LDC’s debt servicing capacity;

b. Agree that Asian countries should be principal beneficiaries of Japanese aid;

c. Urge Japan, in keeping with the position of leadership it has now attained, to contribute in non-Asian regions in support of Free World objectives.

d. Stress the value of Japanese aid in the technical assistance field and look to the possibility of a Japanese Peace Corps-type of program.

C. Sino-Soviet Bloc and Cuban Trade

1. We want continued Japanese cooperation in the Free World economic denial policies against the Communist bloc, especially in the fields of trade with Cuba and the granting of credits.

2. In continuing to press for such cooperation, we must recognize the fact that the Japanese Government cannot do more in this field than other allied Free World countries and is bound to be influenced by the degree to which others cooperate.

D. Liberalization of Trade and Investment

1. Stress our interest in further liberalization of present restrictive practices in Japan aimed at direct foreign investment.

2. In requesting further liberalization of trade and investment, take account of structural problems faced by Japan, and avoid U.S. actions which appear inconsistent with our professed liberal trade policy.

E. Kennedy Round

1. In negotiating with the Japanese for meaningful tariff cuts, make clear we recognize Japan’s concern over discriminatory non-tariff barriers imposed on their exports and indicate support for their elimination.

2. Make certain Japan is included in consultations with “industrialized” countries, and try to accord Japan treatment at least as favorable as that we accord Canada.

II. Indications of Future U.S. Performance

A. Civil Aviation

1. The President should inform Japan that we are developing a U.S. position which can form the basis for early preliminary discussions with the Japanese to lay the groundwork for fruitful formal negotiations in the spring. The President should also state that another impasse in civil aviation negotiations must be avoided.

2. The President should inform Japan that a route “to and beyond New York” is impossible, but there is a good possibility of negotiating a Japanese mid-Pacific route to (but not beyond) New York. (The President’s assistants in the White House will ask for the President’s explicit and prior approval of this position.)

B. Interest Equalization Tax

The Secretaries of State and the Treasury should:

1. Inform Japan of the U.S. intention to extend the IET beyond 1965 and give full justification for such action; and

2. Persuade Japan that

a. Possible alternatives to the IET (e.g. higher U.S. interest rates, exchange controls) would pose even more serious problems for Japan than the tax itself;

b. The IET does not deny Japan, whose interest rates are high, continuing access to the needed resources of the U.S. capital market;

c. The Joint U.S.-Japan Economic Consultative Task Force, which was established in August 1963, should be requested to explore possible financial arrangements which would serve the interests of the U.S. U.S.-Japan Committee on Trade and Economic Affairs at its next meeting.

C. Cotton Textiles

1. If this subject should arise, the Secretary of State should inform Japan that we are prepared to consult as provided by the U.S.-Japan Cotton Textile Agreement⁸ and to give sympathetic consideration to Japan’s proposals for changes in the Agreement. At the same time express U.S. desire to negotiate an extension of the bilateral agreement beyond 1965.

2. The U.S. should treat Japan at least as favorably as any other exporting country in the allocation of any permissible increase in imports.

3. The U.S. should explore carefully the possibilities for increasing the flexibility of the bilateral agreement with Japan.

D. Wool Textiles

1. If this subject should arise, the Secretary of State should inform Japan that a) U.S. industry pressure on the Administration continues to be strong with respect to difficulties stemming from wool textile imports; and b) this will probably have been mentioned informally and briefly by the President, who will suggest that the Prime Minister consider the industry request for a governmental conference to discuss it.

2. The U.S. should make every effort to avoid the imposition of unilateral quantitative restrictions on wool textile imports.

3. The U.S. should assure Japan that any multilateral or bilateral arrangements which may be developed will not discriminate against Japan.

E. North Pacific Fisheries Convention

1. The U.S. should develop a position for the fourth round of negotiations which is designed to lead to early agreement on a new Convention.

2. Through consultations with the interested members of Congress and industry representatives: make clear to them the importance to the U.S. of reaching early agreement on a new Convention and the leverages that are (and are not) available to the U.S. in developing agreement with Japan.

F. Saylor Amendment

The Secretary of State should inform Japan that the repeal of this amendment is high on the list of priorities for action by the 89th Congress.

1. Source: National Archives and Records Administration, RG 59, Central Files 1964–66, POL 7 JAPAN. Confidential. Drafted by Barnett and Vettel and cleared by Trezise, Reischauer, and Feldman.
2. Attached but not printed.
3. The five items were U.S.-Japan Defense Relations, Aid to the Developing Countries, Japan’s Trade with the Communist Bloc, Direct Investment, and the Kennedy Round.
4. The six items were Civil Aviation, the Interest Equalization Tax, Cotton Textiles, Wool Textiles, North Pacific Fisheries Negotiations, and the Saylor Amendment to the Urban Mass Transportation Act.
5. Dillon and Sato discussed the Interest Equalization Tax at a meeting on January 13. (Memorandum of conversation, National Archives and Records Administration, RG 59, Central Files 1964–66, POL JAPAN–US)
6. William Bundy added a handwritten note to this recommendation stating, “We prefer this, as does WH Staff.” Although not indicated on the memorandum, Rusk also concurred, and the appropriate letters from Rusk were sent on January 7 to McGeorge Bundy, Dillon, Freeman, Heller, Herter, Hodges, Udall, and Wirtz. (Ibid., POL 7 JAPAN) Rusk’s calendar for the days preceeding the Sato visit does not reflect the meeting. (Johnson Library, Rusk Appointment Books, 1965)
7. See the joint communiqué issued by Kennedy and Ikeda on June 22, 1961, in American Foreign Policy: Current Documents, 1961, pp. 964–965.
8. The text of the agreement of August 27, 1963, is in 14 UST 1078.