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

611B.9417/175

Memorandum by Mr. Roy Veatch of the Office of the Economic Adviser

[Washington,] December 3, 1935.

Conversation:	Mr. Yoshizawa, Counselor of the Japanese Embassy;
	Mr. Sayre;
	Mr. Hamilton;98
	Mr. Veatch.

Mr. Yoshizawa called on Mr. Sayre to communicate the report which the Embassy had received from Tokyo in response to the information transmitted to the Japanese Ambassador by Mr. Sayre on November 27. The reply from Tokyo had been received Monday, December 2.

Mr. Yoshizawa stated that he was authorized to say that the press account of the statement made by a spokesman of the Foreign Office in Tokyo was correct. The Japanese association of exporters of cotton goods to the Philippines had stopped shipments of cotton piece goods to the Islands on November 16. On the other hand, he was instructed to say that the Japanese Government did not admit the correctness of the figures of imports into the Philippines of Japanese goods cited by this Government (a total of 26,012,000 square meters in the first three months covered by the agreement).

Mr. Yoshizawa explained that the Japanese figures showed only 21,700,000 square meters for the three months in question. When asked to explain the basis for these figures, Mr. Yoshizawa was at some loss to interpret clearly the memorandum in Japanese which he had before him. He said at first that their figures represented clearances through the Philippine customs during the three months plus one third of the goods arriving in July. This statement carried the impression that the Japanese figures were based upon Japanese shipments to the Philippines and the assumption that this goods was then promptly cleared through the Philippine customs. Mr. Yoshizawa made the point that one third of the July arrivals (or shipments?) had been included “for good measure” since it was assumed that it would take some little time to clear these arrivals through the Philippine customs.

Mr. Yoshizawa’s attention was called to the fact that the Japanese figures were quite different from the statistics of the Philippine Customs Service, which were the statistics which had been agreed upon as the measure of imports of Japanese cotton goods.

Mr. Yoshizawa urged the American Government to remember, however, that the measure of imports of Japanese goods into the Philippines should be based on figures which would reflect the ability of the exporters to control the situation—the Japanese exporters can control only shipments and not goods cleared through the Philippine customs.

Mr. Sayre explained the usual delay in the appearance of imports of Japanese goods in the Philippine customs statistics due to the method in which these statistics were assembled and published and suggested that no doubt this was the reason for some divergence between the Japanese and the Philippine figures.

Mr. Yoshizawa suggested that the discrepancy could be accounted for, however, by the fact that imports of Japanese goods from Hong Kong were included in the Philippine figures of 26,012,000 for August–October. He explained that the Japanese exporters could not control reshipment of Japanese goods from Hong Kong or other ports into the Philippines since these goods were cleared from Japanese ports for these other ports and presumably for consumption there and were purchased by Philippine importers only after their arrival at these other ports. He stressed the strong desire of Japanese exporters and of his Government that such imports into the Philippines should not be included in the amount reckoned as imports from Japan. When his attention was directed by Mr. Sayre to the fact that the agreement definitely covered this point and provided that all goods originating in Japan should be covered by the agreement, Mr. Yoshizawa was not prepared to deny this point but he did request this Government to recognize the impossibility of control of this trade by the Japanese and he added that the Japanese would prefer that no shipments of Japanese goods should enter the Philippines from Hong Kong. They neither wished to have shipments of this character covered by the agreement nor to have the agreement evaded by shipments in this roundabout way. He suggested, therefore, that the matter should be left in the hands of this Government and that we should request the Philippine Government itself to prevent imports of Japanese goods when transshipped from non-Japanese ports.

Mr. Yoshizawa’s attention was called to the fact that imports into the Philippines of Japanese goods from Hong Kong had been very small and could not in any sense account for the discrepancy between the Japanese and the Philippine figures of imports during the first three months of the agreement. Some imports had been made from Hong Kong by a Japanese house in the Philippines under a contract that had been made before the agreement had been reached, and it was understood that no further shipments were planned by this company. Undoubtedly some further imports from Hong Kong had been arranged for by non-Japanese merchants in the Philippines in the expectation that the quota set up by the Japanese could be evaded in this manner, but since it has become known that such transshipments of Japanese goods are covered by the agreement and since transshipment via Hong Kong is more expensive than direct shipment, it is expected that there will be no further attempt to bring Japanese goods into the Philippines in this manner. It was suggested, therefore, that imports of Japanese goods from Hong Kong probably would not become a serious problem.

Mr. Sayre attempted to sum up the present situation by saying that the important thing was that the Japanese exporters had halted shipments to the Philippines and this action provided a breathing space within which further study of the facts of the situation might be made, after which agreement could be reached upon the best means of adjusting future shipments to the limitation set by the agreement. Mr. Yoshizawa objected, however, to the statement that the Japanese action would provide a “breathing space”. He wished to make it clear that the Japanese Exporters Association had halted shipments to the Philippines on November 16 only because their own figures showed that they were nearing the maximum limitation for the first six months by the end of October and feared that further shipments in November might fill this quota. They had not halted shipments as a result of the Philippine figures, which indicated that the quota had already been exceeded, since they did not admit the correctness of these figures. He also explained the Japanese exporters’ action in halting shipments as designed to hold the situation as it is until the two Governments could explore the discrepancy between their respective sets of figures.

Mr. Veatch recalled the terms of the agreement, which provided that the published statistics of the Philippine Customs Service should be the measure of imports of Japanese goods into the Philippines under the agreement. It was suggested that agreement on this point had been reached for the specific purpose of guarding against any misunderstanding in the future as to what statistics or what measure of such imports was to be followed. In view of this specific agreement, it was difficult to see on what basis the Japanese Government might now suggest some other measure of these imports, a measure based upon their own export statistics rather than the Philippine customs statistics of imports.

In reply Mr. Yoshizawa said “it is perfectly right” that the two Governments agreed upon the Philippine customs statistics. He then called attention to the fact that heavy shipments of Japanese goods had been made to the Philippines during the summer months, due to the fact that a restriction agreement was being discussed at that time, and it was his understanding that much of this goods did not appear in Philippine customs statistics until after August 1—heavy shipments made in June or July may not have appeared in Philippine statistics of imports until August. He hoped, therefore, that the American Government would recognize the difficulty created by this situation and allow some leeway.

Mr. Sayre assured Mr. Yoshizawa that this Government was convinced of the good faith of the Japanese Government and did not have the least suspicion that any attempt had been made to evade the agreement or to break its terms through shipments in excess of the maximum amounts established in the agreement. This Government was alive to the difficulty created by the fact that there is a great lag in the reporting of imports through the Philippine customs statistics, and it would wish to cooperate with the Japanese Government in every possible way to prevent any misunderstanding of this situation. He was sure that Mr. Yoshizawa recognized the critical attitude which the American textile interests take toward the agreement and the desire of certain political interests to attack it. This Government intended, therefore, to absolve the Japanese Government of all blame for the situation which has developed, and it was intended to place all of the facts before the American textile interests just as soon as a full understanding could be reached with the Japanese Government. It was important, of course, that there should be no misunderstanding with regard to the agreement or with regard to the statistics of imports covered by the agreement. Even though imports into the Philippines may be shown by Philippine statistics within the next two or three months to be greatly in excess of the agreed maximum for the first six months, it would be impossible to increase the quota itself since the American critics of the agreement felt that the agreement itself was overly generous to the Japanese.

Mr. Yoshizawa wished to make it clear that his Government was not suggesting that it wished to use any other figures than the Philippine customs statistics, the statistics which the Japanese Government and the Japanese Exporters Association had agreed should be the measure of imports into the Philippines.

In an attempt to clarify the discussion and to state the clear understanding between himself and Mr. Yoshizawa, Mr. Sayre gave the following summary:

In view of the fact that Philippine customs statistics have shown that the six months’ maximum set for imports into the Philippines of Japanese cotton goods had been reached at the end of three months and that this fact created suspicion or fear on the part of some American and some Philippine interests that the terms of the agreement were being broken, the Japanese Exporters Association had ceased shipments of cotton goods to the Philippines on November 16. The Japanese Government has now approached the American Government to discuss the situation in which the Japanese exporters have been placed due to the fact that some of the imports recorded in the Philippine statistics of imports since August 1 actually were shipped into the Philippines prior to that date, particularly during the period of heavy shipments in the early summer months. In order to emphasize the fact that these statistics are not a proper indication of the efforts of Japanese exporters to abide by the terms of the agreement, the Japanese Government calls attention to the statistics of actual shipments to the Philippines by the Japanese and, therefore, of actual arrivals of Japanese goods in the Philippines during the period of the agreement. It is the hope of the Japanese Government that the American Government will understand the embarrassing position in which the Japanese have been placed by this situation and will be able to cooperate in some equitable adjustment.

In reply to this representation the American Government wishes to assure the Japanese Government that in no respect does it question the good faith of the Japanese Government or of the Japanese exporters with respect to their efforts to carry out the agreement. It is understood that the present difficulty arises out of the method in which Philippine customs statistics of imports are prepared and published. The American Government appreciates the action of the Japanese exporters in halting shipments of cotton goods to the Philippines while the matter can be discussed and the American Government will expect to take steps to make the situation clear and to guard against criticism of the Japanese Government in connection with the apparent overshipment of the maximum amounts set up in the agreement.

Mr. Yoshizawa expressed his agreement and satisfaction with Mr. Sayre’s summary and he emphasized again his understanding that his Government had no intention of insisting on any other measure of imports into the Philippines than the Philippine customs figures, in accordance with the clear understanding in the agreement itself. He was sure that his Government had not intended to advance its own figures as an alternative on which it intended to insist, and he reassured himself on this point by referring to one or two points in the memorandum which he carried, stating that in one place he was instructed to give no publicity to the Japanese figures. It was his understanding that he was to use the Japanese figures merely to stress the dilemma in which the Japanese exporters found themselves.

Mr. Yoshizawa expressed appreciation of the intention of this Government to remove suspicion of Japanese motives, so far as possible, on the part of American textile interests and to explain the real basis of the present difficulties. He offered one further piece of information which might assist the Department, stating that on November 18 the Japanese Government, acting under the powers created by the Exporters Association Act, had adopted a measure which provided for the inclusion of all exporters of cotton piece goods to the Philippines in the Association so that no exporter might escape limitation of his shipments of cotton piece goods to the Philippine market. Mr. Yoshizawa also stressed the point that his Embassy was always reporting to Tokyo the position of the Department of State vis-à-vis the American textile people, making it clear that the Department was under great pressure, that there was the danger of repressive legislation and that the Department appreciated every effort of the Japanese to control their shipments because of the advantage such action gave the Department in its dealings with the American textile interests.

Mr. Veatch suggested that, in addition to reassuring the American textile interests with regard to what has already happened, it probably would be desirable also to take some action which would offer reassurance as to the intention of the Japanese exporters to control future shipments in line with the agreement. At the present time the large stocks of Japanese goods in the Philippine market have depressed prices in that market and have caused considerable uncertainty and hesitancy as to the future of that market. The action of the Japanese exporters in halting shipments on November 16 has caused some improvement but there still is the fear that the large stocks of Japanese goods, stocks apparently capable of supplying the normal demand for six months or more, may continue to be offered on the market at a very low price. This situation has the effect of holding down prices and at the same time importers are not buying American goods because they fear that large amounts of Japanese goods may still be imported. If, in addition to the November 30 statement of the Japanese Foreign Office regarding the halting of Japanese shipments, the Japanese Government could make a further statement to the effect that shipments would not be resumed until they could be made consistent with the terms of the agreement, then the Philippine textile market would be informed that further Japanese goods would not be available until present stocks had been used up, and then only in restricted amounts. This action should have the effect of improving prices in the Philippines for both Japanese and American cotton goods and of strengthening the demand for American textiles to supply that part of the market which could not be supplied by Japanese textiles under the limitations of the agreement. This would serve to remove much of the agitation against the agreement. The Japanese Government might be considering the desirability of such a statement to be made after agreement had been reached with this Government with respect to the figures and the details of necessary adjustments growing out of the present situation.

As Mr. Yoshizawa prepared to leave, Mr. Sayre said he supposed no reply had been received by the Embassy in response to the suggestion of this Government that conversations might be initiated with regard to shipments of Japanese cotton goods to the American market. When Mr. Yoshizawa replied that no word had yet been received, Mr. Sayre asked if he had any indication of the reason for the delay and stressed the danger of legislation against imports from Japan if no voluntary arrangement had been reached by the time Congress convenes in January.

In reply Mr. Yoshizawa said that he felt the proposal to limit shipments of Japanese cotton piece goods to the American market was too “broad” to make it possible to reach a hasty conclusion. In explanation of this statement he said that agreement to limit the shipments of such an important commodity might create a precedent for the suggestion that other commodities should also be limited—such a suggestion might be made with respect to silk for instance.

As he departed, Mr. Yoshizawa asked again if it were clearly understood that the Japanese Government wished that transshipments of Japanese goods via Hong Kong should not be included in the statistics of imports of Japanese goods to be covered by the agreement. Since imports into the Philippines of Japanese goods from Hong Kong or other foreign ports could not be controlled by the Japanese exporters, it was suggested that steps should be taken by the American and Philippine Governments to prevent such imports.

In reply Mr. Sayre said that he also wished to reiterate the position of the Department that insofar as such shipments had been made they were, under the terms of the agreement, clearly to be included in the imports covered by the agreement. If such imports became an important factor, then this Government would be glad to take the matter up and to explore the possibility of legislative action in the Philippines.

98. Maxwell M. Hamilton, Assistant Chief of the Division of Far Eastern Affairs.