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

694.0031/12–347

Memorandum of Conversation, by the Assistant Chief of the Division of Commercial Policy (Gay)

[Washington,] December 3, 1947.

Participants:	Frank E. Pickelle, SCAP2
	Colonel Schockner, CAD, Army
	Mr. Moreland, A–S
	Mr. Bowman, OE
	Mr. Fassberg, OE
	Mr. Weiss, CP
	Mr. Gay, CP
	Mr. White, CP
	Mr. Shaw, CP

To acquaint the Department with recent developments, Mr. Pickelle was asked to review the present tariff policy of Japan. In reply he stated he had just learned that Japan’s pre-war tariff, including customs regulations, with some modifications had been proclaimed. This action, while approved by the Financial Division of SCAP, was not cleared by other interested divisions; as a result, considerable confusion exists. However, on the basis of the latest information, import duties are being collected only on GARIOA items (Government and Relief in Occupied Areas). These items include such products as petroleum, sugar, serums and vaccines, insecticides, drugs and medicines, agricultural implements and miso (bean paste). For all practical purposes the Japanese tariff is not in effect.

Replying to Mr. Pickelle’s question as to the position of FEC with respect to the ITO Charter, Mr. Bowman pointed out that the position of the United States Government is set forth in SWNCC No. 373, which provides that “controls of Japan’s foreign trade deemed necessary during the transitional phase should be administered in accordance with the relevant principles of the Draft Charter for an International Trade Organization …” At the present time, he said, the United States is trying to obtain approval in FEC of policy paper No. 273, “Operation of Private Trade in Japan”. When the paper was first introduced in FEC in October of this year, certain delegates (particularly the Chinese and New Zealand delegates) raised objection to the paper on the ground that it was directed toward committing SCAP to a long range policy, whereas the terms of reference of the Far Eastern Commission limits formulation of policy by this body to a short run period. The ITO Charter was also objected to on ground that it is still a document of international discussion. This paper has now been redrafted and the United States plans to reintroduce it shortly, having reworded the document to meet certain of the objections raised by other delegates. It will still contain a commitment to the effect that Japan’s foreign trade should be administered in accordance with relevant principles of the Charter. The US delegate is hopeful that the new policy paper will be accepted by FEC. However, approval may not be obtained for a month or two.

Speaking unofficially, Mr. Pickelle stated that the Geneva draft Charter as it now stands is acceptable to SCAP; that Japan’s foreign trade can be conducted in accordance with the principles of the Charter; and that no special exceptions to the Draft Charter are required. An official position, however, has not been taken by SCAP and a telegram prepared before his departure has yet to be cleared by SCAP. Until this telegram has been cleared and he has been notified, his remarks will have to be taken as unofficial views.

For the benefit of the officers of the Department, Mr. Pickelle read a position paper which had been drafted in SCAP on the subject of feasibility of compliance with the Charter and also a position paper of the Japanese Government. Following the reading of these papers, specific problems arising from current SCAP practices in conducting foreign trade were discussed.

With respect to provisions of the Charter relating to communication of information concerning trade and employment to the proposed ITO and ECOSOC, Mr. Pickelle felt that a policy decision would be necessary from the Far Eastern Commission regarding the scope and channels for passing such information during the occupational phase. Mr. Bowman replied that FEC could not undertake a policy decision regarding the scope and the channel of communicating trade and employment information to ITO. Both Mr. Bowman and Colonel Schockner felt that SCAP could follow the usual practice of transmitting such information through CAD to the ITO. It was agreed that Article 94 a provided an exception to furnishing information which SCAP might consider contrary to security interests of the occupation.

At the present time, Mr. Pickelle said, there is an export embargo on reproductive silkworm eggs which SCAP considers to be a violation of Article 11, although possibly justified under Article 14. The purpose of this Japanese export embargo is to prevent development of sericulture in other countries. Mr. Weiss replied that this prohibition was really a violation of Article 20 and that while SCAP might desire to argue the continuation of this policy under Article 14, it would have to be prepared to drop the practice if a negative ruling should be made by the Organization. Mr. Bowman felt that the advantages which would accrue to Japan by participating in the ITO and complying with provisions of the Organization would far outweigh the benefits to be gained from maintaining this export prohibition on reproductive silkworm eggs.

During the occupational phase it might be necessary, Mr. Pickelle stated, to extend governmental assistance to aid development and reconstruction of particular industries by the use of measures not specially permitted by the Charter. It was understood that such measures would require prior approval of the ITO under Article 13. Mr. Weiss noted that these measures fall under two categories: (1) measures inconsistent with obligations made through tariff concessions pursuant to Chapter IV which require approval of the ITO and the Member or Members with which the obligations were assumed, and (2) measures inconsistent with obligations under Chapter IV other than those arising from tariff concessions which require the approval of the ITO.

To relieve conditions of distress caused by severe shortages of foodstuffs and other essential products, Mr. Pickelle stated that it may be necessary for SCAP to take advantage of such export prohibitions or restrictions as are permitted by the Charter under Article 20(2) (a).

Until equilibrium is restored in Japan’s balance of payments it was pointed out that SCAP considered maintenance of import restrictions a necessity. This was recognized as permitted by Article 21 and not subject to prior approval of the Organization. On this subject, Mr. Weiss pointed out that Article 22 provides that quantitative restrictions shall be applied on a non-discriminatory basis; Article 23, on the other hand, does permit discrimination during periods of widespread disequilibrium in international trade and payments. Under such conditions quantitative restrictions can be applied in a discriminatory manner in a number of specified situations without prior approval of the Organization until March 1, 1952. However, countries practicing discrimination must keep the ITO regularly informed of what they are doing; after March 1, 1952, prior approval of the Organization must be obtained if they are to continue the practice.

Pending restoration of equilibrium in Japan’s balance of payments, Mr. Pickelle stated SCAP felt that it will be necessary to restrict payments for current international transactions. In this connection, it was agreed that provisions of Article 24(9) (a) would permit such practices as may be required.

With respect to Japan’s present restrictions upon the import of gold and silver and upon the importation or exportation of narcotics, it was felt that these restrictions come within provisions of Article 43 of the Charter.

With respect to requirements of Article 37 on the subject of publication and administration of trade regulations and also Article 38 on supplying information and statistics, no difficulties were thought to exist.

On the subject of freedom of transit, Mr. Pickelle felt that SCAP might have to make certain exceptions under Article 94.

With respect to fair labor standards (Chapter II, Article 4) Mr. Pickelle stated that SCAP can comply with the chapter as it now stands.

Mr. Pickelle noted that certain items exported from Japan are in effect being subsidized indirectly by the Japanese Government through the subsidization of certain basic production materials as part of the over-all price stabilization program. However, since the yen sales price charged for an exportable item is the same as that charged for like items sold in the domestic market, no preferential treatment is accorded through subsidy to exportable products. It was pointed out that SCAP felt that rayon may have to be subsidized, in which case Japanese exports might exceed the pre-war level. Subsidization of import of raw material, if it should result in a substantial increase of Japanese exports, may require consultation with ITO members. Subsidization of imports of iron, steel, copper and food indirectly results in subsidization of exports. However, in these categories there does not appear to be a problem.

The absence of an exchange rate and the present system of yen pricing make it highly impracticable to determine accurately whether indirect subsidization will result in sale for export at a dollar price lower than the comparable dollar price for the like production to buyers in the domestic market (Article 26). The establishment of an exchange rate in Japan is not expected to occur until some time in 1948. It had originally been hoped that such a rate could be announced by January 1. However, plans have been postponed. Mr. Weiss pointed out that there may be some changes in the subsidization chapter of the Charter, with the US delegation taking the lead in eliminating the difference with which domestic subsidies and export subsidies are treated under Section C of Chapter IV.

At the present time, Japan’s foreign trade is conducted through a state monopoly. However, insofar as the present situation permits, purchases and sales are currently being conducted in accordance with commercial considerations; it is felt that SCAP is complying with the provisions of the Charter on this subject. Recent purchase of Indian and Egyptian raw cotton, as well as U.S. cotton, were pointed to by Mr. Pickelle as an indication of adherence to this policy, as well as to efforts of SCAP to sell Japanese cotton textiles for sterling as well as dollars.

2. Maj. Frank E. Pickelle, Deputy Chief of the Import and Export Division, Economic and Scientific Section, GHQ, SCAP.