Foreign Relations of the United States, 1961–1963, Volume IX, Foreign Economic Policy

241. Memorandum From the Under Secretary of State (Ball) to Secretary of State Rusk⁰

Washington, February 9, 1962.

I am seriously concerned that we may be pressing the Japanese too far in trying to placate various domestic interests.

You will recall that the Hakone meeting took place just two months after a long drawn-out and bitter negotiation for a temporary cotton textile agreement. Ambassador Reischauer reported at the time that the atmosphere in which that agreement was negotiated weakened the position of Prime Minister Ikeda personally and undermined the strength of his Government.

The Hakone meeting apparently had the effect of eliminating most of the ill feeling. It also gave Mr. Ikeda a substantial boost.

Unhappily, a series of events following that meeting have led some of the Japanese newspapers to question whether anything like a “Hakone spirit” ever really existed. These events include the following:

1. At the instance of the Administration, the Tariff Commission has undertaken an investigation which may lead to a recommendation for an equalization fee for cotton textile imports. This would add what would amount to an additional tariff on cotton textile imports computed on the basis of 8-1/2¢ a pound of raw cotton content. Japanese textile imports into the United States are presently frozen at a level below that of 1960 by the existing bilateral agreement. The Japanese estimate—I do not know how accurately—that the equalization fee would reduce imports 50 percent. The news of this investigation has blown up a considerable storm in Japan and has proved again a considerable embarrassment to the Ikeda Government.

2. In November the Japanese believed that they had been assured of the opportunity to participate in bidding for a part of the AID fertilizer procurement for South Korea. At the last moment they had to be disabused of this belief.

3. In the past, our restrictive procurement policy in Japan was not applied to purchases of petroleum products for use by our military forces stationed there. Recently, however, the Defense Department announced that it was discontinuing purchases from a major Japanese supplier. The decision (based on our concern over Soviet crude oil sales abroad) unfortunately was announced in a press release which dealt only with the Japanese refinery concerned. It again produced additional resentment.

4. The Ikeda Government will shortly have to face up to introducing into the Diet the agreement for the settlement of the GARIOA account amounting to $490 million. This is a highly unpopular action and will undoubtedly create a good deal of unpleasant debate.

The cumulative effect of these actions is accentuated by the exist-ence of a serious Japanese balance of payments problem which has necessitated substantial domestic retrenchment and deflation. The bilateral trade account between Japan and the United States was unfavorable to Japan last year in the amount of about $700 million and Japan’s global balance of payments deficit amounted to $650 million.

The present situation is sufficiently serious to be a cause for concern. However, we are about to make it considerably worse by two escape clause actions that are expected to be announced some time this month. In spite of opposition from the State and other Departments, the decision has been made by the President to grant tariff increases under escape clauses on two products of which Japan is a major exporter: Wilton rugs and carpets and sheet glass.

Japanese Wilton rug imports into the United States amounted last year to $8.4 million. The Japanese Wilton rug industry is concentrated almost entirely in the already seething Osaka textile area, which has been seriously inflamed by the bitter negotiations that preceded the short-term textile agreement. Sheet glass is also a major item of trade. Imports of Japanese sheet glass into the United States amounted last year to $4,250,000.

The Japanese Government has made repeated representations to us with regard to both of these escape clause actions, as has the Belgian Government, which is also affected by both of them.

The heckling that the Attorney General received at the hands of students a day or two ago is symptomatic of the instability of Japanese opinion.¹ The Japanese will see in the two escape clause actions a further frustration of the prospects of “economic cooperation” evoked by Hakone. They can hardly overlook the fact that practically every decision affecting Japanese trade that we have taken since then has been adverse to their interests.

I am sorry to have to bother you with this matter, but I have been unable to persuade the President that we should not grant the Wilton carpet and sheet glass escape clauses. I have heard rumors that the carpet industry may have been given the impression some time ago that they would receive the relief they requested. Sheet glass, unfortunately, is principally produced in West Virginia. The President has a special interest in alleviating the depressed conditions in that state, in view of his firsthand experience there during the primary campaign.

Quite understandably the President is anxious to demonstrate that escape clauses are not wholly meaningless in order to encourage support for the trade bill. There are at the moment two other escape clauses pending. These cases concern mosaic tile and baseball gloves. They also affect Japan, although their impact would be relatively slight. However, there is little domestic mileage in either of them, and a tentative decision has been taken to reject the escape clause actions in those two cases.

At the moment we are attempting to negotiate a long-term textile agreement in Geneva. The Japanese have made a proposal that, we are hoping, may form the basis for a definitive agreement. However, the Japanese insist that final acceptance be held up until they see whether we are going through with the equalization fee on cotton textiles. At some point, we shall certainly have to yield on the equalization fee if we are to get the textile agreement concluded. How seriously the granting of escape clauses on Wilton carpets might affect the ultimate conclusion of a textile agreement, I cannot say. Both Wilton carpets and textiles involve Osaka interests which are politically powerful.

I have written this memorandum both to inform you and with the thought that you may wish to discuss this whole question with the President. Perhaps it would be wise to wait until after the Attorney General returns, since he will undoubtedly have been made aware of the Japanese sensitivity at repeated evidences of apparent American protectionism. I talked with him about the problem before he left and told him that I would make sure that the prospective escape clause actions were not taken while he was still in Japan.

My own ability to influence the decision on these matters has been impaired by the fact that I have of necessity felt compelled to oppose all escape clause actions, since I have not seen one yet in which an adequate economic case had been made for the claims presented. This consistent opposition has, I am afraid, given my position an appearance of pig-headedness and negativism.

George W. Ball

0. Source: Department of State, Central Files, 394.41/2-1062. Confidential; Eyes Only. Ball sent this memorandum to Rusk under cover of a February 10 memorandum that reads in part: “Since dictating the attached memorandum a couple of days ago Mike Blumenthal has succeeded in concluding the negotiation of a long-term textile agreement in Geneva. This agreement has been reached, however, on an ad referendum basis and it has been made clear on behalf of the Japanese and several other governments that final approval will depend on our willingness to yield on the equalization fee.” (Ibid.)
1. Attorney General Robert F. Kennedy visited Japan February 4-10, as part of a worldwide good will trip February 1-28.