Foreign Relations of the United States, 1964–1968, Volume VIII, International Monetary and Trade Policy

285. Record of Meeting¹

Doc. 1617/Japan

Geneva, July 8, 1965.

UNITED STATES DELEGATION TO THE SIXTH ROUND OF GATT TRADE NEGOTIATIONS

Geneva

Initial Detailed Meeting Concerning U.S. Exceptions List

TOPICS DISCUSSED

Separate prepared Japanese statements (attached) relating to: (a) their own exceptions list and (b) the U.S. exceptions list

[Here follows a list of the six U.S. participants and the nine Japanese participants. Martin Y. Hirabayashi headed the U.S. side; Takashi Oyamada, chief negotiator for Japan in the Kennedy Round, headed the Japanese side.]

U.S. Comments

We began the session by making a few additional concluding remarks relating to the Japanese exceptions list. Referring to the statement which we made at the first meeting concerned with our examination of Japanese exceptions items (see minutes of first substantive bilateral meeting),² we repeated our disappointment with the length of the list and its impact on the U.S. We again expressed our disappointment at the non-tariff barriers imposed by Japan which affect U.S. trade and strongly urged their removal. We can, in no case, consider as meaningful tariff reduction offers on items subject to illegal quantitative restrictions.

While the phase of bilateral discussions just concluded provided an opportunity for an additional exchange of information on exceptions items, we still maintain our initial view that improvements in the Japanese offers could and should be made if the U.S. is to maintain its present offers vis-a-vis Japan. In many instances we still remain unconvinced of the overriding national interest which necessitates Japan’s putting many items on the exceptions list.

Japanese Comments

Mr. Oyamada stated that it is the feeling of his delegation that the U.S. has failed to appreciate the tremendous problems faced by Japan in participating in the Kennedy Round as a linear country, nor of the overriding national interest of Japan in excepting the items recently discussed in the bilaterals. He said that while there are four main reasons for excepting an item from a full tariff cut, two reasons were discussed repeatedly during the bilaterals, i.e., the need to improve industry structure, and the existence of small-scale industry. He said that these two reasons are the most important determinants of the Japanese exceptions list and therefore he wished to read a statement (see attachment A) relating to these justifications.³

In brief, the statement noted the heavy reliance of Japan on trade and the need to improve industry structure in order for Japanese industry to become more competitive. Fifty percent of Japan’s exports are with LDC’s which, in the field of light industry, are taking over many of Japan’s markets. For this reason Japan wishes to shift emphasis from light industry to heavy and more sophisticated industry. In view of the rapid worldwide expansion of trade among industrial nations, Japan, in order to meet the demands of the future, must promote structural change of her domestic industry.

Citing statistics relating to national income in Japan and the technological level of industry, and noting disadvantages of Japanese industry with respect to level of productivity, ratio of borrowed to owned capital, the payment of high interest rates, and problems of a social and regional nature, Mr. Oyamada stated that it is the aim of the Japanese government to establish an industrial structure most suitable for economic growth and at the same time minimize economic and social dislocations within the economy.

The problem of small scale firms is particularly deep-rooted. Citing statistics relating to the number of firms involved and the large number of persons dependent upon these firms for employment, their low productivity and the social implications of subjecting these firms to a full tariff cut, Mr. Oyamada repeated that these firms could not survive a full linear cut. He said Japan cannot stress too much the over-riding national interest in protecting these small scale enterprises.

Commenting on the Japanese economy, he said that the short-run outlook is not bright and that, in fact, the Japanese economy is currently in the throes of a depression. At present the prevailing mood of business in Japan is one of pessimism.

U.S. Response

We pointed out that the U.S. is very much aware of the problems faced by Japan. In fact, the U.S. has many similar problems of its own. In spite of these problems, we are going ahead with significant offers in the Kennedy Round, and we feel that Japan’s offer can be improved even though these problems exist. While not wishing to dwell at length on the various statistical data cited by the Japanese, since we had already done this at some length during the bilaterals, we hoped that Japan could improve its offers in the Kennedy Round since Japan itself had so much to gain from a substantial reduction of trade barriers.

Japanese Comments Relating to U.S. Exceptions

The Japanese representative made the attached statement (Attachment B) relating to U.S. exceptions.⁴ Taking account of the huge value of U.S. Japanese bilateral trade, which amounted to $4.2 billion in 1964, he stated that it was incumbent on the two countries to make a model case of bilateral trade; nonetheless many problems exist. For example, the balance of trade for the past 10 years has been consistently in favor of the U.S. While Japan has sought to redress this balance, the burden of deficit has been exacerbated by U.S. trade barriers and “protectionist” trade policies which limit Japan’s access to the U.S. market. It is Japan’s hope that the U.S. will recognize Japan’s circumstances and cooperate to redress this chronic trade imbalance. In addition to the NTB’s which curb imports, discrepancies between U.S. foreign and domestic trade policies have embarrassed the trading partners of the U.S., including Japan. Moreover, tariff rates on certain items are so high that even a full linear cut would leave them still high and thus provide the U.S. with bargaining power in future tariff negotiations.

The U.S., he said, is now the world’s leading industrial nation whose industrial structure is the most advanced in the world. Japan doubts that U.S. industry would be unable to absorb a full linear cut in many instances and, in general, is disappointed with the U.S. exceptions list. He said that in the opinion of the Japanese, the U.S. has not made sufficient effort to keep exceptions to a bare minimum and they hope that the offer will be improved.

With respect to NTB’s which are applied on many items, Mr. Oyamada said that the existence of these NTB’s nullify offers by the U.S. for tariff reductions. Unless drastic improvements are made, the value of tariff reductions will be discounted by Japan. Among the NTB’s mentioned by the Japanese representative were: Customs valuation system (ASP), and section 402a of the U.S. Tariff antidumping legislation,⁵ escape clause investigations, import restrictions such as Buy American and Mass Urban Transportation Acts,⁶ various state administrative regulations, and voluntary export controls.

Mr. Oyamada said that it is the hope of the Government of Japan that the U.S. will improve its offers on tariff reductions and eliminate or substantially reduce existing NTB’s. In addition, Article XXVIII renegotiations should be pursued along with Kennedy Round negotiations to achieve a solution to outstanding economic problems.

U.S. Response

Rather than comment at length on the various statements made by the Japanese representative, we reserved our more specific comments until the commodity discussions beginning on July 16.

1. Source: Department of State, Central Files, FT 7 GATT. Confidential. Drafted by Edward M. Sacchet, Technical Secretary of the Japan Team of the Delegation, on July 16, cleared by Martin Y. Hirabayashi, Chairman of the Japan Team, and approved by Helen L. Brewster. The source text is enclosure 1 to Tagg A–493 from Geneva, July 22. As of December 26, the U.S. and Japanese Kennedy Round delegations held 38 bilateral meetings; records of these meetings are ibid.
2. Not found.
3. A note in place of Attachment A says that because of a delay by the Japanese Delegation in providing the U.S. Delegation with this text, it was to be forwarded at a later date. It has not been found.
4. Not printed. The Japanese representative’s statement is summarized above.
5. See footnote 3, Document 231.
6. See footnotes 2 and 3, Document 241.