99. Report Prepared by Herbert N. Blackman of the International Resources Staff, Department of Commerce1
STATUS OF JAPANESE VOLUNTARY LIMITATIONS ON COTTON TEXTILE EXPORTS TO THE UNITED STATES
1. Background
On January 16, 1957, the Japanese Government announced a five year program for the control of cotton textile exports to the United States. This program was developed after months of discussions between United States and Japanese officials. The Japanese set an over-all annual ceiling of 235 million square yards for cotton fabrics and cotton manufactured goods. Ceilings were established for 5 major groups of cotton manufactures and for a number of specific items, such as ginghams, velveteens, blouses, shirts, brassieres, pillowcases, dish towels, etc. Provision was also made for consultation between the two Governments, should new areas of concentration of imports develop in the cotton textile field.
The voluntary action by the Japanese Government was the culmination of a series of efforts by the Administration to meet the growing problem of the adverse impact of low-cost imports on our domestic textile industry, in a manner consistent with the basic foreign trade policy of the United States and with the maintenance of friendly relations with Japan. As a result of the program and the discussions leading to it, escape clause actions on blouses and ginghams were withdrawn, and the recommendation by the Tariff Commission for a sharp increase in velveteen duties was not accepted.
[Page 254]2. Industry Attitude
The domestic textile industry, as a whole, has welcomed the program as a stabilizing influence on the textile market, but always with the caveat that its success would depend on effective implementation. The one important exception to the favorable industry response has been the attitude of the Southern Garment Manufacturers Association. This group sponsored the anti-Japanese textile laws in Alabama, and South Carolina, and sought similar laws in other states. They have continued to withhold any indications of support although they have generally refrained from overt public attack on the program. Secretary Weeks and Assistant Secretary McClellan made special efforts this spring, including a meeting with the Board of Directors in Atlanta, to convey to the Southern Garment Manufacturers Association a better understanding of the situation. In these efforts they were assisted by leaders of the American Cotton Manufacturers Institute and the National Cotton Council.
Though the textile industry has responded favorably to the Government’s efforts with respect to Japanese cotton textile imports, it has continued to oppose OTC, GATT and the Trade Agreements Program as it is presently administered and operated. Industry leaders, however, are giving careful thought to specific recommendations for what they would consider to be improvements in the legislation.
3. Implementation—United States
Both the Japanese and the United States Governments have adopted new measures to help the control program work. The United States (Commerce and Treasury) has revised completely its statistical classification of cotton textile imports. With this new classification and the import procedures agreed upon between Commerce and Treasury, a more precise identification of cotton textile imports will be possible. More detailed and useful data on imports of cotton textiles from all countries will be published monthly. These will show, among other things, United States imports of the items for which the Japanese have assigned specific quotas. A procedure has been arranged under which Customs Appraisers will verify the accuracy of importers’ classification of cotton textiles. This should reduce the differences between Japanese export statistics and United States import statistics. The examination process by the Appraisers will cover all cotton textile imports for the first three months of the program (July–September 1957). After that the examination will be on a 10 percent sample basis.
Customs will also endeavor to identify all cases in which unauthorized transshipment is suspected. Information about certain [Page 255] of these cases will be passed on to the Japanese Government for appropriate remedial action. The Census Bureau will also undertake a comparison and reconciliation of Japanese export and United States import statistics. This should provide further indication of the degree of success of the program and may also reveal possible flaws in enforcement.
4. Implementation—Japan
For their part the Japanese have instituted a comprehensive export licensing system which operates and is enforced both on the governmental level and also on the trade association level. A principal purpose of the licensing system is to prevent unauthorized transshipment to the United States. For the type of goods which are likely to be consumed in the United States, the sailing route of the vessel, the financial arrangements, and import policy of reported country of destination are checked. Also, in some cases a delivery verification certificate is required to be filed with the Government. Violators of the regulations may be refused further export allocations.
The Japanese Government is preparing special reports on shipments to the United States under the control program. However, the regular statistical export classifications have not been revised. This may lead to some confusion.
The Japanese statement of control procedures has been submitted only recently and is still being studied by the United States Government agencies.
5. Trends of Shipments under the Program
1957 statistics from United States and Japanese sources are available to date only for the first four months of the year. The United States import classification revision became effective as of July 1, so that data for the earlier months of the year are not entirely adequate. However, it is clear from the available data that imports of cotton products from Japan from January through April 1957 were well below the comparable period of 1956. In part this may be due to the complications in Japan involved in setting up control procedures.
On an over-all basis, United States imports of cotton textiles from Japan are reported at $23 million in the first four months of 1957 compared with $33 million in the same period of 1956, a drop of 30 percent. The biggest drop has occurred in the cloth group for which imports during January-April were more than 50 percent below the first four months of 1956. In the apparel field, shipments [Page 256] from Japan of sport shirts, dress shirts and knit T shirts in the first four months are well below the annual rate which the quotas permit.
On the basis of present trends and of reports from Japan, it is probable that the cloth quota may not be taken up in full, but the quotas for made-up goods probably will be.
6. Changes in Quotas
On July 9, 1957, the Japanese Embassy advised that the Japanese Government had decided to take advantage of the provision in the program which states, “within the over-all annual total, the limit for any Group may be exceeded by not more than 10 percent.” The Japanese propose to reduce Group I, cloth, by 6.2 percent, to increase Group II, certain made-up goods, and Group III, woven apparel, by 6 percent each and increase Group V, miscellaneous, by 10 percent. These shifts are consistent with the program.
7. Special Problems
In the process of preparing and putting into effect the revised United States import procedures a number of problems have come to light.
First, it has been found that the definition of “gingham” used by the Japanese for the control program excludes “gingham stripes”. This is at variance with generally accepted commercial practice in Japan, the United States and other countries as well. The Japanese contend that their definition was submitted in their original proposal during the 1956 discussions. Such a definition was included in their submission but no special note was made of it, nor was it accepted by the United States side. There is no definition of gingham in the final program. All during the discussions the Japanese stressed the importance of adhering to accepted commercial standards.
Preliminary discussions have been started with the Japanese on this matter. They have been informed that the United States takes a serious view of the matter because “gingham” is one of the sensitive items on which the success of the entire program will depend.
A second problem, which has come to light in the course of a series of discussions with Customs personnel at New York early in July, relates to transshipments. A number of cases have been found in which significant quantities of blouses and ginghams have reached the United States even though licensed by the Japanese for other destinations (Panama, Switzerland, United Kingdom). These cases are indicative of some of the devices which may be resorted to by certain traders. They also cast some doubt on the effectiveness of the Japanese transshipment controls. The Japanese Embassy has already been advised of these cases. It is of interest to note that one [Page 257] series of these cases was called to our attention by the Japanese who asked us to determine whether the shipments in question had actually been landed in the United States.
A few other relatively minor developments, such as an upsurge of corduroy apparel imports early in the year, were also informally brought to the attention of the Japanese. The Japanese expressed appreciation at receiving this information.
8. Discriminatory State Textile Laws
At the time of the establishment of the program the Japanese Government in a note indicated that it expected that the United States would take all feasible steps to eliminate discriminatory state textile legislation, such as that in Alabama and South Carolina. The Justice Department still has under consideration a proposal to take legal action against the States in question. Various efforts by textile industry leaders to obtain repeal have not thus far been successful. On the other hand, however, efforts to enact such laws in Georgia and Connecticut were defeated.
The seriousness with which the Japanese view these State laws is indicated by the fact that Prime Minister Kishi2 raised the issue during his recent Washington visit.
9. Side Effects of the Program
The Japanese voluntary control program for cotton textiles has led to demands from other domestic industries and from Congressmen that similar procedures be followed for other commodities affected by import competition. In the case of wool fabrics and other wool products, the New England Congressional delegation in both Houses has been particularly active to this end. Considerable pressure has also been exerted for quotas or voluntary agreements with respect to plywood and stainless steel flatware. Thus far the Administration response has been that the cotton textile situation was “exceptional”, in that the usual remedies, such as escape clause procedure, were not feasible and that other problems must be examined and resolved on the basis of the particular circumstances.
Except for Hong Kong, there is no indication thus far that other nations have sought to take advantage of the existence of Japanese controls by increasing their shipments to the United States. With respect to Hong Kong, there has been a very sharp increase in shipments of low cost shirts, largely flannel, to the United States. These appear to be shirts manufactured in Hong Kong from locally produced or Japanese fabrics. The Japanese have been very much [Page 258] concerned about the increase of Hong Kong shirt shipments to the United States because they feel that Hong Kong is capitalizing on their controls. They are also concerned lest it be interpreted in the United States as an evasion of the Japanese control system. As a consequence, the Japanese are reported to be screening carefully and limiting shipments to Hong Kong of fabrics which might be used in production of shirts for the American market.
The increase in Hong Kong shipments has been sharp enough in recent months so that a demand from United States industry for limitations of Hong Kong shipments would not be surprising. This situation is being watched carefully.