Foreign Relations of the United States, 1969–1976, Volume III, Foreign Economic Policy; International Monetary Policy, 1969–1972

74. Memorandum From Secretary of State Rogers to President Nixon¹

Washington, September 1, 1971.

SUBJECT

• Eighth U.S.-Japan Joint Economic Committee Meeting

With the assistance of my colleagues on the Cabinet Committee,² as well as that of Peter Peterson and Henry Kissinger, we have been working at formulating the positions to be taken and the objectives to be sought in the meeting with the Japanese on September 9 and 10, which I will chair.³

In the light of this work I propose, with your approval, that the American delegation follow the guidelines set forth below. I am sending a copy of this memorandum to each member of the delegation, as well as to Mr. Peterson and Dr. Kissinger, for any comments they may desire to make. Additionally, I and my Cabinet Committee colleagues are meeting on September 2 with representatives of the non-governmental Advisory Council on Japan-U.S. Economic Relations.⁴

Very simply stated, our underlying objective is to preserve and strengthen our vitally important relationship with Japan. We should stress the importance which we attach to close cooperation with Japan and our recognition of her role as a responsible, cooperative world power. At the same time, we should attempt to persuade Japanese ministers to accept the fact that such a role requires early and effective measures to establish an appropriate balance in its external economic relationships, including those with the U.S.

If we are to achieve these objectives, and recognizing there may be special characteristics of the Japanese system, we must avoid appearing to single out Japan for discriminatory treatment on economic matters. As when dealing with other major countries, proposals from our side should be consistent with a broader equilibrium in the world economy.

We must also remember the oft-repeated Japanese plea to the United States, “Tell us what you want us to do, but don’t publicly press us to do it.”

The Japanese ministers should be made to understand that the U.S. will have to achieve a major turn-around in its balance of payments. Speaking plainly, this will require that countries which have run huge surpluses in their balance of payments with us will no longer be able to do so. Some countries which have had deficits with us will have to see those deficits increase. Given the large trading relationship between Japan and the United States, which we wish to see expanded, and the U.S. need for a satisfactory multilateral equilibrium, we will require a reasonably balanced trading relationship between the two countries. Our analysis strongly indicates that a global trade surplus of the dimension necessary for the U.S. equilibrium cannot be achieved with a deficit in our Japanese trade. It is our intention to review constantly progress in our over-all balance, and to appraise the consistency of developments in important bilateral accounts, to assure achievement of our goal. We hope Japan recognizes the validity of this analysis and aim, and will periodically review progress with us.

To this end, we should seek as priorities:⁵

1) A clear understanding by the Japanese ministers that the United States considers a major revaluation of the yen in relation to the dollar to be a condition precedent to a satisfactory economic relationship with the United States. We would not at this meeting indicate the level which we would consider satisfactory or negotiate bilaterally on this subject. If the Japanese proposed a figure in the neighborhood of 10%, we would need to indicate a larger order of magnitude is necessary. We would also indicate that we feel negotiations on this subject should be carried out in whatever multilateral forum is agreed upon by Europe, Japan and ourselves, referring to the September 15 meeting of the “Group of Ten.”

2) We should seek elimination of Japanese quotas and other restrictions illegal under the GATT as well as non-tariff barriers and export subsidies, including tax incentives for exports.

We are particularly interested in the removal of quotas on certain farm products, computers, aircraft, and integrated circuits.

Additionally, we should seek:

3) Significant unilateral reductions of Japanese tariffs.

4) Japanese encouragement of imports, especially by general stimulation of the Japanese economy and investment in social infrastructure.

5) We should recognize as constructive the establishment unilaterally by the GOJ of a system to monitor Japanese exports to the United States of sensitive goods; e.g., automobiles, calculators, consumer electronics.

6) We should seek substantial, indeed dramatic, increase in the amount of Japanese economic aid, especially in Southeast Asia. Even more important than the amount would be softening of terms; e.g., less emphasis on export promotion and more on simple grant assistance.

7) We should seek increased Japanese military procurement in the United States as the Japanese defense budget rises.

8) Elimination of restrictions on capital investment inconsistent with our Treaty of Friendship, Commerce and Navigation and with the obligations which the Japanese have assumed in the OECD.

Fortunately, all of the above, except for the degree of revaluation which we seek, are included to a greater or lesser extent in the GOJ’s eight-point program already approved⁶ or in the package which the Foreign Office, the new Foreign Minister, and Sato are trying to get accepted.

At this meeting the Japanese will above all want to know our price for removal of the 10% surcharge. This is however, important to us in our negotiations relating to our total position with other countries, as well as Japan, and must in any case await a satisfactory overall exchange rate settlement. All we can say at this meeting is to promise its removal, as soon as our external position is assured.

We should stress, however, the very important steps which we are taking within the United States to correct the contribution of our own inflation to our trade imbalance.

On the side of our cooperation with Japan, we should offer cooperation with the Japanese in the following areas in which we have mutual interests.

a) Joint effort to seek liberalization of the trade policies of the European Community.

b) Work within the OECD High Level Group to prepare the way for a major multilateral attack on trade barriers.

c) Development of international procedures for adjudicating investment disputes in developing countries.

d) A program to encourage private investors of both countries to establish joint ventures in less developed countries in an effort to obtain greater security for these investments.

e) Closer scientific collaboration in seeking solutions to common problems in the fields of transportation and ecology.

f) In the field of nuclear energy we should reaffirm the offer which we have made to ten countries—the EEC, UK, Canada, Australia, and Japan to discuss the possibility of selling them classified U.S. technology for use of the gaseous diffusion process for enrichment of uranium on a multilateral basis.

g) We should assure the Japanese that immediately upon the completion of the ECONCOM Meeting, the President will send the Agreement for Reversion of Okinawa to the Senate with a very strong recommendation for its early ratification.⁷

William P. Rogers

1. Source: National Archives, Nixon Presidential Materials, NSC Files, Agency Files, Box 285, State Volume 13. Secret. Attached to a copy of a September 5 joint memorandum from Kissinger and Peterson to the President proposing NSDM 130 (Document 75). A handwritten note on the joint memorandum initialed by Kissinger and Peterson reads, “Sent forward 9/6/71.”
2. Probably a reference to the members of the Cabinet who would comprise the U.S. delegation to the Joint Economic Committee Meeting.
3. Documentation on the process of formulating position papers is in the National Archives, Nixon Presidential Materials, NSC Files, Country Files—Far East, Box 536, Japan Volume V 7/71-9/71. On September 1 Kissinger sent a memorandum to Peterson and Irwin informing them that the State Department was responsible for all issues other than economic ones, and that the CIEP Working Group would prepare the negotiating paper on economic issues. (Ibid., RG 59, S/S Files: Lot 80 D 212, NSSM 122)
4. Not further identified.
5. In an August 31 memorandum Under Secretary Johnson reported to Secretary Rogers on the August 27 SRG meeting on NSSM 122. Johnson noted that the discussion of economic issues was “brief and inconclusive.” Peterson stressed the seriousness of the balance-of-payments situation and thought U.S. and Japanese balance-of-payments objectives were incompatible. Kissinger asked: “(a) How much revaluation of the yen did we want?, and (b) Had the President ever been given the opportunity to decide whether we wanted a monetary system based on fixed exchange rates or one based on floating rates? The President didn’t just want to patch up an old system. If possible, he would like a good new one.” Johnson reported that there was further, inconclusive discussion of the size of the yen revaluation and whether it should be pursued multilaterally or bilaterally. (National Archives, RG 59, S/S Files: Lot 80 D 212, NSSM 122)
6. The Japanese positions were set out in telegram 8399 from Tokyo, August 26. (Ibid., Nixon Presidential Materials, NSC Files, Country Files—Far East, Box 536, Japan Volume V 7/71-9/71)
7. There is no indication of Secretary Rogers’ approval or disapproval.