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

274. Memorandum From the Under Secretary of State (Ball) to President Kennedy⁰

Washington, April 17, 1963.

SUBJECT

• Cotton Textiles

You mentioned the other day that Robert Stevens had been complaining again about cotton textile imports. You asked for a memorandum covering these two questions:

I. What would have happened to cotton textile imports if the Geneva Cotton Textile Arrangements had not been negotiated?

II. What is the relevance of the current level of imports in relation to domestic consumption (7.2% in 1962) in view of our efforts to hold imports to 6%?

I

What Would Have Happened If We Had Not Negotiated the Cotton
Textile Arrangements

Since the Long-Term Arrangement became effective last October first, we have taken almost 160 actions to restrain cotton textile imports from seventeen countries. This means that some two-thirds to three-quarters of our cotton textile imports are under control not only with regard to overall levels but also as to the spacing of shipments throughout the year. This has involved, where necessary, import embargoes which have tied up substantial quantities of goods from such countries as Hong Kong, Portugal, and Taiwan, resulting in losses to American importers, to say nothing of the strains on our international relations.

No other Administration has ever come close to doing so much for the domestic textile industry. Although the industry has been complaining for a decade, the Geneva Cotton Textile Arrangements were without precedent. By blood, sweat, and arm-twisting we achieved an agreement to which twenty-one countries have acceded. (Two others may accede soon.) Had we resorted to mandatory unilateral quotas—for which the industry was clamoring—the United States would have incurred compensation claims on a quarter billion dollars of trade—and have been the net loser in the economic war that would almost certainly have followed.

I have no doubt that the intelligent leaders of the textile industry know they have gotten a good deal—but gratitude does not come easily and their teeth grow longer with each success. Before he died, Spencer Love of Burlington Mills wrote me a letter of thanks for the Geneva negotiations, but the gesture was not characteristic of the industry.

You will recall that when we first undertook the Geneva negotiations, industry spokesmen were prophesying imminent doom unless imports were checked. Mr. Stevens himself told me that the cotton textile industry would “be destroyed” if we could not find a means to stop the growth of imports. Last September Mr. Seabury Stanton, Chairman of the Northern Textile Association, estimated that, without the Geneva arrangements, imports would by then have reached double the present levels. A current article in Fortune¹ suggests that the figure might well have been three times current levels.

Interestingly enough the Fortune article implies that the industry engaged in a certain deliberate overstatement of its predicament. It quotes Kenneth Fraser, the Financial Vice President of J. P. Stevens, as saying: “The stress so many of us put on imports has had a depressing effect on textiles and hasn’t helped us with the financial community. But it was a calculated risk; we finally got Washington to do something.”

The Geneva arrangements put an effective brake on imports. The textile industry knows that it will not again be faced by a sudden and disruptive tide of imported cotton goods, such as occurred during the four years preceding 1961 when imports rose from 2 to 6% of consumption.

We imported $700,000 worth of cotton textiles from Hong Kong in 1956. In 1960—the year preceding the Geneva negotiations—our imports from Hong Kong totalled $64 million. The United States will not tolerate another Hong Kong situation in cotton textiles. This has been said clearly and firmly to foreign governments. They understand this and have reluctantly accepted it.

But by the same token we cannot afford to disregard the spirit in which we were able to secure agreement to the Geneva arrangements. To date, twenty-one Governments have been persuaded to participate on the understanding that importing nations would request restraints on imports only when those imports threatened disruption of the market for specific categories of textile products.

The arrangement is not a license for us to act arbitrarily and we shall be in trouble if we do. Under the terms of the agreement any government may withdraw on 60 days’ notice. If any major producing country were to pull out, the whole structure would come tumbling down. In that event, our domestic industry would be left without protection, even from disruptive imports—unless the Administration were prepared to assume the fantastic costs of imposing unilateral import quotas.

It is, therefore, essential that we administer the agreement with sensitivity to the reactions of the other members—which means that we can’t press any harder than we are already doing.

II

Relation of Current Level of Imports to Domestic Consumption

But, in spite of this, I see no reason why our cotton textile industry should not live happily and prosperously under these arrangements. A little slippage from the 6% should not be cause for alarm. After all, many textile companies (including J. P. Stevens) had their highest sales in history in 1962.

The passage of legislation to eliminate discrimination resulting from the two-price system for cotton would be another major benefit provided by your Administration to the textile industry. Half of our imports of cotton textiles are presently affected by the two-price system. Elimination of this discriminatory system should greatly relieve the pressure of imports—and make the 6% level much more realistic.

Meanwhile, I hope that the industry will stop watching the monthly figures and look at the longer-term trends. The 6% figure makes sense only if regarded as an average over the five-year term of the Geneva arrangements. While domestic sales were slightly off during the early months of this year because purchasers were hoping—no doubt mistakenly—that the elimination of the two-price system would be reflected in some decrease in textile prices, imports fluctuated widely. In January, they were at the lowest point in over a year because of the dock strike; in February, they were double the previous months.

Whether at the level of 6% or 7% or 7.2%, cotton textile imports are not building appreciably. In fact, in dollar value they are not much higher than exports. A little more concentration on developing exports would not only be good for the industry, but help our balance of payments.

After all, if the domestic industry feels put upon, it should compare its fate with that of the British textile mills. U.K. imports have risen to over 40% of domestic production as the result of a systematic rationalization of the industry coupled with a deliberate government policy to assist the less-developed areas in the Commonwealth. And the total British economy has benefitted by the release of skilled labor into the electronics industry.

In connection with our conversations with the textile industry you may get some comfort from Sherman Adams’ report of a colloquy between President Eisenhower and George Humphrey. Adams writes:

"George Humphrey had pointed to what he called critical unemployment in the Pittsburgh area because of Japanese competition in the electrical instrument industry. Eisenhower asked him if it were not possible for American businessmen to make some sacrifices in such a situation in the interests of world peace.

"No,’ Humphrey said candidly. ‘The American businessman believes in getting as much as he can while the getting is good.’

"Maybe that’s the trouble with businessman, George,’ Eisenhower said seriously.”²

George W. Ball³

0. Source: Department of State, Central Files, INCO-COTTON. Official Use Only. Drafted by Ball on April 17. Copies were sent to U, S/S-S, Governor Herter, and the White House for Kaysen.
1. Richard J. Whalen, “The Durable Threads of J.P. Stevens,” Fortune, April 1963, pp. 110-176.
2. Firsthand Report, by Sherman Adams. [Footnote in the source text.]
3. Printed from a copy that indicates Ball signed the original.