Foreign Relations of the United States Diplomatic Papers, 1935, The Far East, Volume III

611B.9417/157

Memorandum by Mr. Roy Veatch of the Office of the Economic Adviser of a Conversation With the Counselor of the Japanese Embassy (Yoshizawa)

[Washington,] December 26, 1935.

Mr. Yoshizawa asked to discuss with Mr. Veatch certain figures which the Embassy had received from Tokyo, so that the Ambassador might have the advantage of such informal discussion before he called upon Mr. Sayre to deliver the reply of his Government to the suggestion presented to the Ambassador by Mr. Sayre on December 14.

Mr. Yoshizawa stated that his Government had informed the Embassy that it would be glad to make a statement to the press, as suggested by this Government, to the effect that shipments of cotton piece goods to the Philippines would not be resumed until the first of February, 1936. But it was willing to take this action only if two conditions were met by the United States Government. First, that we should agree to measure imports of Japanese goods into the Philippines, for the first four months of the agreement, by Japanese export figures. Second, to use statistics of arrivals in the Philippines for the remaining part of the two years covered by the agreement.

Mr. Yoshizawa said that his Government considered Japanese export statistics to be the best guide to the amount of Japanese goods which had actually been imported into the Philippines since the effective opening date of the agreement, for the Foreign Office had been informed by the Japanese Consul General in Manila that the Philippine statistics were not only inappropriate, because of the lag of months in reporting imports, but were also inaccurate as a measurement of imports from Japan. His Government had transmitted the Japanese statistics of exports of cotton piece goods from Japan to the Philippines for the period August 1 to November 15, when shipments were halted, showing a total of 22,436,637 square meters. On this basis, the maximum for the first six months had not yet been reached.

Mr. Veatch called Mr. Yoshizawa’s attention to the fact that even on the basis suggested by his Government, the total figure for that part of the period covered by the agreement which has already passed should be somewhat larger since it is estimated that shipments from Japan to the Philippines require about two weeks in transit. There should be added to the estimate of actual arrivals in the Philippines, as suggested by the Japanese Government, approximately 3,500,000 square meters which probably were shipped from Japan to the Philippines between July 15 and August 1, all of this amount arriving in the Philippines after August 1 (Japanese exports of cloth to the Philippines totaled 6,900,000 square meters in July). Mr. Yoshizawa agreed to this addition.

Mr. Veatch went on to say however that it would be impossible for this Government to accept the Japanese interpretation and explained in detail the interpretation that American exporters and Philippine importers and all others in this country have of necessity placed upon the agreement since the agreement was based specifically upon Philippine import statistics.

Mr. Yoshizawa then explained in more detail the interpretation that Japanese exporters have placed upon the agreement, saying that they of course understood that the agreement provided that they might ship to the Philippines a maximum of 45,000,000 square meters each year of the two-year period. If the Japanese Government now had to go to the exporters and say that the agreement does not really work that way and that they will be allowed to ship much less than 45,000,000 square meters during the first year, it will be very difficult to secure the support of the exporters.

Mr. Veatch expressed sympathy for the position of the Japanese Government vis-à-vis the Japanese cotton textile exporters, but again impressed upon Mr. Yoshizawa the like problem of the American Government vis-à-vis the American exporters. It was not merely a problem of which set of statistics to use. The American exporters had understood that the purpose of the agreement was to increase to some extent the market in the Philippines for American textiles, and they had expected to be able to ship to the Philippines approximately as large an amount of cotton cloth during each of the two years as would be marketed there by the Japanese exporters. They now say that the agreement has failed completely to improve their position—they are receiving practically no new orders, and business is if anything worse than it was before the agreement was reached. Furthermore, it is understood that there is a supply of Japanese textiles already in the Philippines and on the shelves of dealers equal to the demand for something like four months, so that American exporters see no hope for any considerable improvement in their market in the Philippines before the Spring months, even if no further shipments are made this year by the Japanese exporters.

Mr. Yoshizawa spoke of the figure of 14,000,000 square meters contained in the typed statement which had been presented to the Ambassador by Mr. Sayre on December 14. He supposed that the position of this Government was that this entire amount of 14,000,000 square meters, representing what we termed “excess shipments” during the five months preceding August 1935, should be subtracted from the quota for actual arrivals of Japanese goods during the period covered in the agreement. He pointed out however that if this amount should be added to the 26,000,000 square meters actually shipped into the Philippines since August 1 the total would equal 40,000,000 square meters, and even though the Japanese should take advantage of the 10 percent leeway allowed in their quota for the first year, they could ship into the Philippines during the rest of the first year no more than 9,500,000 square meters. This would amount to less than 2,000,000 square meters per month during the last six months of the first year, and it was his opinion that it would be very difficult for his Government to explain to the Japanese exporters why any such sacrifice should be made by them.

During this discussion it became clear, although Mr. Yoshizawa never made the statement in so many words, that the Japanese Government had interpreted the proposed agreement to the Japanese exporters as meaning merely a limitation of their shipments to the Philippines, during the two-year period, to a total of 45,000,000 square meters per year, and had been able to secure the agreement of the exporters on this interpretation.

Before Mr. Yoshizawa left, he agreed with Mr. Veatch on the following points:

(1) Even should statistics of arrivals or Japanese statistics of shipments be used, the maximum of 26,000,000 square meters for any six months period had already been reached and the Japanese would therefore be bound not to ship again until after January 15.

(2) The suggestion of this Government regarding the statement to be issued by the Japanese Government was reasonable, and the Japanese Government should be willing to do this much even before an agreement had been reached upon the figures to govern the rest of the two-year period. Unless this statement could be issued promptly, it would be too late for it to do any good.

(3) It is desirable to reach agreement as soon as possible upon the readjustment of the agreement so that a statement may be released respecting this readjustment, a statement which would among other things clear the Japanese of blame for any intention to break the agreement.

(4) Both the American Government and the Japanese Government face difficult problems in asking their textile exporters to accept any readjustment of the agreement and it is desirable therefore to make an adjustment which will make it possible for both Governments to make a good case to their exporters. If the United States should insist upon the letter of the agreement, it is probable that the Japanese exporters could not be held to the agreement and it would break down, but at the same time if the United States should yield entirely to the Japanese and the agreement be placed from the first upon statistics of arrivals, it is probable that American exporters and Filipino interests would be led to press for tariff action which also would lead to scrapping the agreement. An adjustment should be made which will make it possible, from both ends, to maintain the agreement.