Foreign Relations of the United States, 1955–1957, Foreign Economic Policy; Foreign Information Program, Volume IX

61. Report Prepared by the Council on Foreign Economic Policy Subcommittee on Cotton¹

Washington, April 20, 1956.

UNITED STATES POLICY REGARDING IMPORT RESTRICTIONS AND EXPORT SUBSIDIES ON COTTON

Summary and Conclusions

I. Problem

To determine the position the Executive Branch should take regarding assistance to the cotton textile industry in meeting international competition.

II. Background

Sharply rising imports of cotton cloth and other cotton products from Japan have precipitated demands by the U.S. textile industry, addressed both to the Executive Branch and to the Congress, for import quotas on cotton textiles. The industry’s concern has been heightened by the new cotton export program and the prospect of a further increase in the spread in the price of U.S. produced cotton in domestic and world markets.

The U.S. textile industry—with the support of the National Cotton Council representing the growers and handlers of raw cotton—contends that the increased imports constitute a serious menace to its own welfare and also to the domestic market for raw cotton.

The main arguments are: (1) Japanese textile producers can purchase raw cotton at lower prices than the U.S. industry; (2) labor costs in Japan are far below those in the United States; (3) the Japanese textile industry has been extensively modernized since the war; (4) GATT concessions made to Japan, effective September 1955, have stimulated an additional flood of Japanese textiles into the United States.

III. Discussion

For discussion of facts bearing on the problem and consideration of alternatives see Tab A.²

IV. Conclusions

1. For the cotton textile industry as a whole (with the possible exception of certain segments) the available evidence does not support the contention at this time that increased imports have contributed substantially towards causing (or threatening) serious injury to the industry. It does not appear that action by the Government with respect to imports would materially affect existing basic problems of the industry such as (a) intense internal competition resulting from overcapacity; (b) competition at home and abroad from man-made fibers; (c) uncertainties in the price of raw material; (d) the build-up of textile industries in areas that were formerly important markets for U.S. textile exports; and (e) competition at consumer levels with hard goods. Nor does it appear that action by the Government on imports would significantly alter the fact that the rate of earnings of the textile industry is below the average for all manufacturing industry. This profit record is part of a long term decline in textile earnings which began in 1907 and has been reversed only in the two World War periods. For the cotton textile industry the interwar period of the 1920’s and 1930’s was characterized by low average earnings, frequent losses and a reduction of capitalization. In the 17 years between 1939 and 1956 the rate of earnings in textile mill products lagged well behind the average in all but four years.

2. The new cotton export program will result in an increase in the differential between domestic and export prices of U.S. raw cotton. In the interest of equity, it may be appropriate to extend to the cotton textile industry the same benefits that foreign users of U.S. cotton may derive from the program. It would be possible under existing legislative authority to provide such benefits to the domestic textile industry. (P.L. 395, 84th Congress, Section 22 of the Agricultural Adjustment Act, Section 32 of P.L. 320, 74th Congress.)

3. Relatively low prices for foreign raw cotton compared with our domestically supported prices is a major element in giving foreign mills a competitive advantage over U.S. mills with respect to raw material costs. If in the long run the domestic price support program could be adjusted to eliminate the differential between domestic and world cotton prices, one primary reason for the textile industry’s demands for protection would be removed and the competitive position of cotton vis-à-vis man-made fibers would be improved.

4. The escape clause procedure of Section 7 of the Trade Agreements Act provides the appropriate recourse for relief for the textile industry as a whole, or segments of the industry, which consider themselves injured by increased imports. However, the time element involved in making determinations under Section 7 may be too long to relieve present industry pressures on the Administration. Nevertheless, the Tariff Commission investigations and findings with respect to pending textile cases should proceed as promptly as is practicable consistent with the requirements of the law and of sound governmental procedure. The affected industries should be fully informed as to Tariff Commission procedures and urged to cooperate by furnishing the necessary information to the Commission at the earliest possible time.

5. The concern of the domestic textile industry that the present unilateral Japanese restrictions on exports to the United States do not provide real assurance against increased exports could be dissipated, or at least reduced, by an exchange of letters between the Japanese Foreign Minister and the Secretary of State. Such voluntary limits by the Japanese Government on exports to the United States can provide a reasonable degree of stability to the import picture against which domestic textile producers can plan their own operations. Formal agreements on a government-to-government or industry-to-industry basis involve legal and commercial policy problems that rule against their use in this case.

6. The imposition of import quotas or use of export subsidies for cotton textiles in present circumstances would represent a reversal of U.S. foreign economic policy. Such action could (a) jeopardize the efforts to build up a system of freer trade and payments through GATT; (b) lead to countermeasures by other governments which would have the effect of further reducing U.S. foreign markets for raw cotton, cotton textiles and other U.S. exports; (c) adversely affect United States-Japanese political and economic relationships and thereby weaken the U.S. position in the Far East; (d) open the way for similar demands from other industries and (e) run counter to the Administration policy of minimizing controls over industry.

V. Recommendations

1. With respect to cotton textile imports, the United States should agree to an exchange of letters with the Japanese Government in which the latter would make a commitment to limit cotton textile exports to the United States by categories. This commitment should cover at least a one-year period and should provide that the United States will be advised, at least six months in advance, of an intention to terminate the commitment. The United States letter in exchange should merely acknowledge receipt of the Japanese letter and avoid appearance of a formal government-to-government agreement.

2. Import quotas or fees on textiles should not be adopted at this time, and the Executive Branch should continue to resist pressures for such import restrictions.

3. With respect to cotton textile exports, the United States should extend to the domestic cotton textile industry the same raw cotton price benefits for international trade purposes that the United States gives foreign users of its raw cotton under the new cotton export program. The manner in which such benefits will be extended should be worked out under existing legislative authority by the Department of Agriculture, in consultation with the Departments of State and Commerce, and reviewed by the Cotton Subcommittee of the Council on Foreign Economic Policy.

4. Every effort should be made to keep the differential between the domestic and export prices of United States raw cotton as small as possible consistent with the objectives of the cotton export program announced on February 28, 1956.³

1. Source: Department of State, E–CFEP Files: Lot 61 D 282A, Import Restrictions and Export Subsidies on Cotton—CFEP 538. Official Use Only. Submitted to the Council under cover of a memorandum from CFEP Secretary Cullen, dated April 21, for consideration at its meeting on April 25.
2. Not printed.
3. On April 25, the Council on Foreign Economic Policy accepted the four recommendations of the Cotton Subcommittee and in addition decided that the United States should intensify its efforts to induce other countries to give most-favored-nation treatment to imports of Japanese textiles. (Eisenhower Library, CFEP Chairman Records, Organization, Procedures and Accomplishments of the Council on Foreign Economic Policy Prepared for Mr. Clarence Randall)