Foreign Relations of the United States, 1947, The Far East, Volume VI

694.0031/9–1647: Telegram

The Acting Political Adviser in Japan (Sebald) to the Secretary of State

restricted

Tokyo, September 16, 1947.

246. CX 55513. Following is verbatim statement to be made by Chairman at 41st meeting Allied Council September 17, 1947 under Official Matters “Preliminary Report by the Chairman on the Opening of Japan to Private Trade”.⁶⁷

Foreign trade historically has been Japan’s economic lifeblood. Before the war, Japan ranked fifth among the great trading nations of the world. With a population of over 70,000,000 living on the small arable area afforded by the four main islands, and with relatively meager natural resources, Japan maintained herself in large part by importing raw materials, processing them, and exporting the finished products in exchange for food and additional raw materials.

It has therefore been clear, from the beginning of the occupation, that a revived Japanese foreign trade is an indispensable prerequisite to the reconstruction of a stable economy which will strengthen democratic institutions and enable the Japanese people to support themselves peaceably by their own efforts.

From the inception of the occupation, the Supreme Commander was confronted with this vital foreign commerce at a complete standstill and with an industrial establishment subsisting on dwindling stockpiles and running rapidly downhill. Energetic steps were therefore taken to initiate trading with the outside world at the earliest possible moment by the only method then feasible, the establishment of government-to-government trade channels.

Since September 1945, government-to-government trading has been utilized to supply Japan’s immediate requirements. These channels have been necessarily few. On the far side, the Boeki-Cho, or Board of Trade, established in the Commerce and Industry Ministry pursuant to a SCAP directive of 9 October 1945, has been responsible for the physical handling of export and import commodities within Japan and for the necessary financial arrangements with Japanese buyers and sellers. Conversely, trade missions from a number of allied and neutral countries have represented their governments in Tokyo. In the case of trade with the US, which has thus far constituted the largest portion of post-war Japanese foreign commerce, SCAP has utilized the services of the US Commercial Company, a subsidiary of the US Government-Reconstruction Finance Corporation, to receive, ship, and sell Japanese exports to the US. Preliminary estimates of the value of trade passing through government-to-government channels up to 1 July 1947 amount to somewhat over US $200,000,000 for exports and US $500,000,000 for imports, the latter largely accounted for by the substantial US Government-financed shipments of food, medical supplies, petroleum products, and fertilizer brought to Japan to prevent disease and unrest.

Although successful as an interim measure, government-to-government trading was primarily an expedient, and could not substitute for normal competitive private trade. Japan was still under partial blockade. Accordingly, the Supreme Commander, in January 1947, took the intermediate step of reopening international correspondence of a non-transactional nature with private Japanese citizens, and, after some months of intensive preparation, on 15 August 1947, the earliest moment permitted by circumstances, Japan was reopened to limited private trade.

Only a short time has elapsed since then, and it is still premature to report the results of this trade in detail, but it is now possible and appropriate to describe to the Council the procedures being followed, the progress being made, and the considerable problems confronting the occupation in expanding Japan’s foreign trade.

With the opening of Japan to limited private trade, the categories of commercial entrants were increased to four, as follows:

(1). Private trade representatives, or those engaged in buying or selling on behalf of private firms. Their overall quota has been initially limited by available accommodations to 400. Within this overall quota, national quotas have been set by the Inter-Allied Trade Board. Individual private trade representatives are selected by each government and approved by SCAP for 21–day visits, subject to renewal.

(2). Service representatives, or those engaged in shipping, insurance, banking, and other commercial services necessary to facilitate private trade. This number is much smaller, with actual entrants now numbering 25.

(3) Investment representatives, or those washing to make private capital investments or resume pre-war business in Japan, who will be permitted to enter at a later date.

(4) Government trade representatives, who have already been participating in government-to-government trade for some time.

The private trade representatives, of whom some 102 have already entered Japan, are free to negotiate individually with Japanese suppliers and the Japanese Board of Trade on all matters, including price. The Board of Trade is the signatory to each contract with private foreign traders and, subject to SCAP validation, also issues the export licenses required in the case of each transaction to insure conservation of items critically needed for the Japanese economy.

In the absence of a commercial rate of exchange, prices are quoted to private traders in dollars or other “acceptable foreign exchange”, f.o.b. Japan, while Japanese suppliers are paid in yen on the basis of production costs plus a reasonable profit. Dollar prices for Japanese exports are established by the Board of Trade in consultation with SCAP pricing specialists to bring a fair return for value. Basic criteria used are current world markets prices or prices established in principal international markets for the same prototype or substitute merchandise. Where no such prices exist, pre-war prices, adjusted by the change in dollar price index for the commodity group in which the merchandise falls, are used. Firm purchase offers are taken into consideration where necessary. In addition, as trade expands, actual previous sales prices will be used as pricing guides.

Market quotations and other data for use in pricing are received regularly in the form of trade journals and catalogs, radio-transmitted reports and statistical series of the US Department of Commerce, Agriculture and Labor, and reports of market conditions by recently arrived commodity specialists from the US and trade representatives of foreign missions in Japan. Allowances are made for differences in quality and reputation, as well as for duties, shipping costs, and the like in accordance with established formulae. Where necessary, adjustments are made upon receipt of pertinent information represented by private traders.

In accordance with Far Eastern Commission policies, payments for Japanese products are made to a trust fund account in acceptable foreign currency, that is, US dollars, freely convertible currency as announced by the US Treasury, or the currency of nations with which there exist relevant convertibility agreements.

To facilitate trading, the Board of Trade has arranged for merchandise show-rooms in Osaka and Tokyo and has prepared trade directories and other informational literature. In other respects as well, the Japanese Government has been encouraged to play the greatest practicable role in the operation of trade facilities in preparation for its responsibilities in the post-treaty period.

Satisfactory progress has been made under these arrangements. Already considerable impetus has been given to the manufacture and sale of a wide variety of items unsuitable for government-to-government trade because of the small value of each sale, but substantial in aggregate value. Contracts totalling more than $1,860,000 have resulted in the first two weeks. Pre-war commercial contracts have been renewed and both Japanese and foreign private traders have had the opportunity to explore future business possibilities. With the increase in the number of traders up to quota allowances and the development of initial negotiations, further progress may be expected.

The reopening of private trade brings a number of vital problems to the fore. The first of these is financial: How can Japan pay for the raw material imports needed to produce manufactured exports, the proceeds from which can then finance continuing trade? The establishment by SCAP of the occupied Japan export-import revolving fund on 14 August, 1947, is the ingenious solution to the initial financing problem. Utilizing some $137,000,000 of gold and silver of Japanese ownership as a credit base, it is hoped to obtain loans which may reasonably approximate up to $500,000,000. Financial institutions of allied and neutral countries are permitted to participate equally in such loans to the extent that their currencies are usable and are required for Japanese foreign trade.

An additional major obstacle to the further development of foreign trade has been the world shortage of those raw materials needed for Japanese export industry. Among those badly needed are wool, rayon pulp, dye stuffs, jute, coking coal, iron ore, tinplate, hides and skins, and tanning materials. As the world supply situation eases, however, it is anticipated that this problem will be resolved.

Another problem of considerable importance in foreign trade expansion has been the readjustment of Japan to new world commercial conditions after almost a decade of commercial isolation. Not the least of the necessary adjustments are to new styles, new customers and supplies, and the technological displacement of certain Japanese products, such as silk, by new synthetics developed elsewhere. The advice of SCAP specialists on these matters has been valuable, but only actual contact and negotiation with foreign private traders can truly educate Japanese merchants and manufacturers to post-war trade realities of this kind.

Internally, the basic obstacle to the rehabilitation of Japan’s foreign trade has been the economic disruption resulting from a disastrous war, including deteriorated, cannibalized and bombed-out industrial capacity; deterioration of railroad rolling stock and the poor state of domestic transport generally; shortages of coal, reflected in severe seasonal curtailment of electric power; shortages of domestic raw materials, steel and cement; and disrupted labor supply caused by the food situation. It may be anticipated, however, that with general improvement in the domestic economic situation, assisted by reviving foreign trade, many of these obstacles to export production will be overcome.

As one consequence of a disrupted economy, the unstabilized Japanese currency and price structure have imposed difficulties seriously handicapping international commercial transactions. As discussed in the Allied Council at its 29th meeting on 2 April, 1947, the Japanese domestic price level had been rising steadily. Since that time certain improvements have been noted, particularly following upon the recent release of 600,000 metric tons of American imported food and vigorous anti-black market measures by the Japanese Government. Nevertheless, the price structure of Japan is still far from stable and domestic prices are often out of line with each other. Under these circumstances the establishment of an immediate commercial exchange rate would be highly speculative. Instead, to maximize export and the acquisition of foreign exchange, the system of parallel accounts in yen and foreign currencies mentioned earlier has thus far proved to be the most feasible. Nevertheless, until a commercial exchange rate can be established, an obstacle to free trade expansion will remain.

Finally, among the major problems facing the healthy development of Japanese commerce is the restriction of economic activities resulting from the unstable political situation in various countries of the Far East which, rich in natural resources but poor in industry, would naturally be expected to complement Japan’s economy by mutually beneficial trade.

The road to self-support of Japan through foreign trade is still long, but the goal is in sight. Certain obstacles have already been surmounted, but many problems remain to be resolved. What has been accomplished has been done from a full stop. On the basis of what has been achieved, there is ample ground for confidence that Japan’s foreign trade will be developed into adequate instrument for supporting a sound internal peaceful economy and hastening the return of a democratic Japan into the comity of nations.

Sebald

67. In despatch 1207, September 22, from Tokyo, Mr. Sebald noted that his statement was favorably commented upon at the meeting on September 17, both Chinese and British members of the Council stressing the value of Japanese trade (740.00119 Control (Japan)/9–2247).