31. Memorandum From the Special Representative for Trade Negotiations (Strauss) to President Carter 1

SUBJECT

  • Color Television Receiver Agreement with Japan

We have successfully negotiated an agreement with the Government of Japan on color television receivers which I believe will alleviate the problems of the domestic unions and industry while not impairing Japanese participation or generating inflationary pressures in the U.S. market.2

The agreement provides for exports of complete and incomplete (meaning almost complete) color television receivers in the amount of 1.75 million per year from July 1, 1977 through June 30, 1980. While these levels appear to be a significant cutback from 1976 imports of around 2.6 million they are more than 50 percent above 1972–75 average annual import levels and, in fact, there is very little restrictive ef[Page 123]fect in terms of the impact on the U.S. market. The Japanese industry has admitted on the public record that a significant part of the growth of imports in 1976 was due to inventory buildup. Our estimates suggest that 500–700 thousand receivers imported in 1976 went into inventories. Thus the impact of Japanese imports in the U.S. market in 1976 was on the order of two million receivers or less. The replacement of complete set imports by sets assembled by Japanese subsidiaries in the United States should be on the order of 400 thousand receivers in 1977 so that a level of 1.6 million receivers imported from Japan in 1977 would have essentially the same impact as 1976.

We estimate that 1977 imports from Japan will be on the order of two million receivers representing substantial growth in Japanese imports in the market as compared with 1976 even if Japanese affiliate production is not counted. Japanese participation will be even higher than the import level suggests due to inventory buildup prior to the effectiveness of the agreement on July 1, 1977 and inventory drawdown after that date. We believe several hundred thousand receivers have been stocked at a minimum, in anticipation of restrictions.

Impact on Japan

The Japanese apparently feel that the agreed levels will be sufficient to permit them to participate in an acceptable way in the U.S. market. The Japanese predict that their own television industry will move off shore over the next five years. There will be three incentives for the Japanese to come into the United States to invest in assembly operations: (1) quantitative restrictions in the agreement; (2) the potential antidumping duty liability (now requiring posting of a 20 percent bond); and (3) potential countervailing duty liability (now requiring posting of a 15 percent bond). The Japanese were offered an option that provided a slightly smaller first year restraint level than 1.75 million but with growth in later years; however, they preferred the current deal.

Three companies are already operating in the United States and these firms will be expanding production in 1977 and 1978. Two other Japanese companies are on the verge of starting production in the United States and are likely to make substantial additions to domestic production capacity in the United States.

As the definition used for the scope of the agreement will permit importation of Japanese components and subassemblies without restriction, there will be no pressure on domestic U.S. capacity in these areas and the Japanese firms will still realize substantial labor input in their own country.

Impact on U.S. Industry and Unions

The level of restraint in the agreement is well above that requested by the domestic industry and unions but can be sold to them on the [Page 124]grounds that they will enjoy the benefits of growth in the domestic color television market. The unions will benefit even where such growth is a result of the operation of Japanese affiliates since such affiliates will generate substantial labor content in the United States. The risk for domestic producers will be that the market will not increase as expected due either to economic problems (which seem unlikely) or competition for the consumer dollar by other products such as video recorders.

In addition to this problem, the risk for unions is that American companies will continue to move their component and subassembly operations off shore. This is an inevitable trend in the industry but its effects will be moderated by the agreement because Japanese companies will be locating assembly plants in the United States.

I believe this agreement can be successfully sold to the domestic industry and unions and I would expect only mild Congressional reaction, if any.

The unions will privately be pleased and publicly say “while it’s a good step in the right direction it should have gone farther in reducing imports.”

Effect on Consumers

We would expect only minimal effects on the pricing and availability of color television receivers as the result of the orderly marketing agreement for the following reasons:

1. There is considerable excess capacity domestically (e.g. about 30 percent in 1976).

2. We expect that capacity and production will be expanded by Japanese firms in the United States in the near future and expansions by domestic producers would also be likely. The lead time for such investments is relatively short because of the assembly nature of TV receiver production.

3. Imports from countries other than Japan will be permitted to increase so long as Japanese producers are not disadvantaged. The United States Government will determine if restrictions on such imports are appropriate.

4. We estimate that there are substantial excessive inventories at both wholesale and retail levels in the near term which will assure adequate supplies under expected market conditions. There is also the one million sets coming in prior to the effective date of the agreement (from Jan. 1, 77 to Apr. 1, 77).

5. We will monitor prices and market conditions throughout the period of the agreement and can liberalize or terminate the agreement if conditions warrant such actions.

[Page 125]

Status

The Japanese are prepared to sign this agreement on May 20 following authorization by their cabinet and by you to proceed. I am convinced that this is a fair and balanced agreement which can be accepted by the Japanese and our domestic interests.

Attached is a description of the elements of the draft agreement which has been initialed on an ad referendum basis (Attachment A).3

Your decision is required by May 21, 1977 and I would need your authorization to sign the agreement by the 19th of May. A directive to me implementing this recommendation is provided in Attachment B.4

  1. Source: Carter Library, Records of the Office of the Staff Secretary, Presidential File, Box 25, 5/19/77 [2]. Confidential.
  2. A May 17 memorandum from Schultze to Carter entitled “Import Relief for the Color Television Industry,” a May 18 memorandum from Blumenthal to Carter entitled “Orderly Marketing Arrangement for Color TV’s,” and a May 19 memorandum from Eizenstat and Ginsburg to Carter entitled “Orderly Marketing Agreement For Color TVs” are all ibid.
  3. Tab A, attached but not printed, is an undated paper entitled “Elements of Color TV Agreement with Japan.”
  4. Tab B, attached but not printed, is an undated memorandum entitled “Decision Memorandum on Television Receivers.” The Decision Memorandum, May 19, is printed in Public Papers of the Presidents of the United States: Jimmy Carter, 1977, Book I, pp. 936–937.