Foreign Relations of the United States, 1958–1960, Japan; Korea, Volume XVIII

94. Telegram From the Embassy in Japan to the Department of State⁰

Tokyo, August 27, 1959, 3 p.m.

548. I had long talk with Fujiyama August 25 during which I stressed seriousness of certain recent alarming trends in Japanese-American economic and trade relations.¹ I urged him to bring subject up with cabinet on most urgent basis because this is matter that goes to very heart of Japan-US relationship and if serious disputes develop over trade between us, all our other relationships will suffer. I told Fujiyama I would also take up matter with Kishi and with Finance Minister Sato, MITI Minister Ikeda and Agriculture Minister Fukuda. Following is summary of my talk with Fujiyama. (On August 261 made same presentation to FinMin Sato and today to MITI Minister Ikeda):

I pointed out to Fujiyama that USG under personal leadership of President has worked very hard to resist restrictionist tendencies and that we have welcomed orderly expansion of Japanese exports to US because we appreciate that Japan must trade to live and that entire future of Japan is bound up with future of its trade with free world. I recalled how precipitate expansion in certain lines undercut ability of administration to counter restrictionist pressures, as in case of cotton textile crisis in 1956.² During last six months, I said, Japanese merchandise exports to US have increased 51 percent over same period last year which was previous all-time high of Japanese exports to US. At same time total of Japanese exports to other countries had slightly declined by about one half percent. I said on some items Japanese exports to US last year increased so sharply that they would invite restrictionist reaction.

While Japanese exports to U S had thus sharply increased during first half of 1959, I continued, Japanese merchandise imports from US declined by 2.5 percent but at same time total Japanese imports from other countries increased by 17 percent. Furthermore, during first six months of this year the United States has for first time in post-war history had an adverse balance in its trade with Japan. In addition US military spending and off-shore procurement in Japan is running thus far this year at rate of over $400 million which greatly aids Japan.

The over-all situation is giving me grave concern, I told Fujiyama, for a number of reasons. In first place US Congress will be strongly impressed by figures I had given him and by industry charges that Japan is flooding the US market, unless Japan urgently takes measures to improve situation. In addition to charges by US industry, there is growing concern on the part of US labor. AFL–CIO, which traditionally has supported liberal US trade policy, is now reported giving serious consideration for first time to reversal of US policy, demanding tariff protection and imposition of quotas against low-priced imports. Such shift in position of organized labor will add great strength to efforts of individual industries to secure tariff protection. Problem is made still more threatening for Japan, I continued, by fact that nobody can deny that Japan itself is practicing discrimination and restrictionism with respect to certain US commodities and also with respect to investment and licensing arrangements which US firms would like to have in Japan.

Situation must be viewed as extremely serious and decisive steps must be taken by Japan, and taken quickly to counter the rapidly growing sentiment in US favoring restrictions on Japanese imports by adopting orderly marketing procedures and abandoning restrictive practices against US industry. Among measures which Japan would urgently consider are following:

1. There must be concerted steps to avoid flooding of US market through orderly marketing of Japanese exports, with slow and steady increase and variety of such exports.

2. Japan should make it possible for import trade with US to flow more freely. Liberalization should be undertaken in (A) Japan’s import licensing and foreign exchange allocation system, which serves to restrict trade. This warranted by Japan’s improved balance of payments position. (B) Japan’s discrimination against American goods, which though small quantitatively, is an irritant to sound trade relations. Discrimination exists in certain products (e.g., hides and skins, beef, tallow, lard, soybeans, scrap iron and steel, copper scrap). Discrimination also exists by virtue of bilateral trade agreements with certain other countries.

I said that in past restrictions upon US imports may have been justified on basis balance of payments situation but Japan now has built up greatest foreign reserves in its history. Removal of discrimination and loosening of restrictions may not result in large quantitative increase imports from US, but it would have disproportionately good effect in terms of over-all picture and also by way of improving Japan’s position in forthcoming GATT meeting with respect to restrictions applied by other countries. I said system of directed allocations of foreign exchange for certain imports involves direct discrimination against US. Also unwillingness to permit importation of US automobiles by American businessmen in Japan who are prepared to use their own foreign exchange holdings, pay Japanese customs duties and abide by restrictions on re-sale, was setting against Japan the very elements who could be most active in defending Japanese exports to US. Restriction upon import of such small quantity of US cars, particularly at time when Japan is planning to sell large quantity Japanese cars in US, seemed to me be extreme folly.

3. Relaxation of restrictions on US investment and technical tie ups with Japanese firms. We know that certain steps have already been taken which if properly applied, could bring such relaxation. However situation where until recently 200 applicants were pending without action for two years is leading to unnecessary and justified resentment, again on part of very US interests which should be Japan’s allies against restrictionists in US. Since Japan has made such remarkable economic progress in recent years there should no longer be fear that US capital entering Japanese economy could dominate any industry. In conclusion I said I had spoken with great frankness because I could not think of anything more important to relations between our countries than solid trading relationship based on good faith, and it would not be fair to conceal it is heading for very dangerous crisis, if necessary steps are not taken. If there is liberalization on Japanese side and if steps are taken to put marketing in US on more orderly basis, GOJ would have much better arguments than a present to answer charges of American industry and would have more allies within US in resisting efforts to place restrictions on Japanese imports. Moreover USG itself cannot effectively resist restrictionist tendencies unless GOJ shows that it is earnestly willing to remove unfair obstacles and modify practices which have given rise to legitimate complaints. In other words liberal trade policies are and must be a two way street.

Fujiyama said he appreciated frankness of my presentation and attached greatest importance to information I had given him about increasingly acute restrictionist pressures in US. Question of trade liberalization he said is most important economic policy problem. Unprecedented “jimmu” prosperity of two years ago, he said, had produced severe dislocations within Japanese economy and although foreign exchange position has greatly improved there is fear in certain governmental circles that this only temporary and that situation would rapidly deteriorate if restrictions were lifted. He said there is important body of opinion that liberalization would severely reduce dollar availabilities and that Japan must continue very “cautious” policy. As for himself, Fujiyama said, he did not necessarily share such opinions and he would take matter up on most urgent basis with Ikeda, Sato, Fukuda and top party officials and he welcomed my talking to them also as I had told him I intended to do.

As regards “directed” dollar allocations, Fujiyama said, they had been regarded as inevitable because there are countries which will not buy from Japan unless Japan also buys from them, and importers often will not buy from such countries unless forced to do so because their prices are too high. In case of US, Canada, and Australia, Japan is already importing very substantial amounts so that similar channeling of imports had been necessary. If foreign exchange situation improves, GOJ might resort to extension of credits and other means to improve situation for countries whose trade positions are not too strong. Up to now it has not been felt safe to extend such credits on a large scale. As for automobile situation, restrictions had doubtless been largely based on protectionist policy, but now that Japanese car exports are increasing time has come to re-examine situation. As for capital imports, there has been fear that introduction US capital would lead to “collapse” or takeover of Japanese industries, but such feelings have become less widespread and less intense and Fujiyama personally felt time has come to open doors although this may have to be on a selective basis.

Fujiyama concluded by saying he would discuss entire range of questions I had raised on most urgent basis with his colleagues and he hoped be able talk with me in near future about measures that might be taken to avoid US restrictionist moves.

Both Sato and Ikeda indicated separately that while they had not realized situation was so serious they had themselves been contemplating possibility of certain steps toward liberalization. These might take time and would create difficulties but in view of my presentation they agreed the matter would be discussed within GOJ on urgent basis. Ikeda said he hoped but could not promise that Japan would be able to announce before GATT meeting that it would carry out certain liberalization measures as he agreed this would have favorable effect.

I put the problem very strongly to above ministers and believe that we can induce GOJ to take at least some liberalization steps although a bit of time may be required. It would be very helpful if Department would call in Asakai and stress to him along above lines graveness of present situation and absolute necessity for Japan to make liberalization steps and modify restrictionist policies if we are expected to be able to hold the line against restrictionist pressures in US. Similarly I hope that points in my presentation to Fujiyuma will be strongly put to both Fujiyama³ and Sato when they visit Washington in September.

MacArthur

0. Source: Department of State, Central Files, 411.9441/8–2759. Confidential; Limit Distribution. Transmitted in two sections.
1. MacArthur had a conversation concerning Japanese restrictions on U.S. investment and imports with Hayato Ikeda, Minister of International Trade and Industry, on July 9. (Memorandum of conversation by Seligmann as enclosure to July 17 letter from Leonhart to Bane; ibid., FE/EA Files: Lot 63 D 168, U.S.-Japan Trade Relations) See Supplement.
2. This crisis was resolved when the United States accepted a Japanese decision to initiate a 5–year program to control textile exports. (Current Economic Developments, January 22, 1957, pp. 13–16) Documents concerning discussions during 1958–1960 on textile issues are in Department of State, Central Files 411.9412, 411.9441, 411.946, and 411.949.
3. See Document 97.