Mr. Richmond went on to say that it was his hope, and that of his colleagues, that Mr. Sayre would indicate his approval of the purposes of the arrangement with the Japanese by initialing the agreement.

Mr. Sayre replied that it was not within the province of this Department to express an opinion with regard to the legality of the agreement: that would be within the province of the Department of Justice. Nor could the Department of State express any opinion with regard to the question whether the substance of the agreement would be fair and equitable to all concerned. He could say, however, that he viewed with approval this effort on the part of the American and Japanese industries to adjust in a spirit of goodwill problems of

common concern.

Mr. Sayre stated that this Government had sought to reach an understanding with the Japanese Government on the question of imports of Japanese cotton piece goods into the United States. An agreement had been practically worked out but it could not be completed because of the refusal of the private Japanese interests to fulfill certain requirements of the Japanese Government. Mr. Sayre went on to say that we had felt that if the cotton piece goods negotiations had been carried on between the American and Japanese interests, instead of between the American and Japanese Governments, a complete and satisfactory agreement could have been reached. He felt that it was a matter for gratification that, in the case of cotton velveteens, the private interests had been able to work out a plan which each side considered to be fair and equitable.

At Mr. Richmond's request, Mr. Sayre read through the draft agreement. Mr. Sayre then stated that he could not, of course, express any opinion with regard to the legality of the document. He stated, however, that it would be closer to the facts if a phrase indicating that the agreement had been concluded "with the approval and consent" of the State Department be corrected to read "with the knowledge" of the Department. Mr. Richmond said that he would be glad to have the correction made.

Mr. Richmond reviewed briefly the efforts during the past two years of the American cotton velveteen industry to obtain protection against Japanese competition. He referred to the fact that an officer of this Department had, a few months ago, expressed to him (Mr. Richmond) the opinion that the most satisfactory protection against Japanese competition would be a voluntary undertaking on the part of the Japanese interests to restrict their exports to the United States. The American industry was somewhat skeptical of the benefits of any such arrangement, but it had nevertheless gone into the matter and had finally succeeded in working out an arrangement with the Japanese.

Mr. Richmond said that the indications which he had received from Mr. Sayre of the American Government's viewing with favor this effort to work out in friendly cooperation with Japanese industry a solution of a common problem would be received with gratification by him and by his colleagues. He felt sure also that the Japanese interests would appreciate receiving, after the agreement is signed, further expression of Mr. Sayre's approval.

Mr. Sayre said that he would repeat that this Government would view with approval efforts on the part of American industry to work out with the Japanese any plans which would tend to stabilize American market conditions, instead of having recourse to measures which might lead to complete exclusion of imports from Japan. He did not think it wise, however, for him to initial the agreement or to express his approval in writing, for the effect of either of these two methods would be to convert the arrangement, which is intended to be a purely private arrangement, into a governmental arrangementand that was the thing which it would be desirable to avoid.

At this point Mr. Sayre left the room in order to fulfill an engagement elsewhere.

Mr. Richmond then outlined to Mr. Dooman his plans to complete the agreement. He said that he and Colonel Howlett would return to New York and would endeavor to obtain the signatures to the contract of the other members of the American group. The contract would then be signed by the Japanese representative. Mr. Richmond said that, as soon as the contract is completed, representatives of the American and Japanese groups, respectively, would call at the Department and at the Japanese Embassy for the purpose of giving notification that the agreement had been completed and to leave copies of the contracts at the Department and at the Japanese Embassy. Mr. Richmond hoped that it might be possible for him and his colleagues to return to Washington on or about January 11.

The conversation ended with an exchange of amenities.

611.9417/198: Telegram

The Ambassador in Japan (Grew) to the Secretary of State

TOKYO, January 25, 1937-6 p. m. [Received January 25-11:55 a. m.]

27. Embassy's 11, January 22, 11 a. m.87

1. The following is a synopsis of the Japanese-American unofficial cotton textile agreement signed on January 22.

37 Not printed.

(a) A quota is established for cotton piece goods or piece goods of which the principal material is cotton for 1937 of 155,000,000 square yards or of the volume of contracts on hand on January 21, 1937, for shipment of such piece goods to the United States whichever amount is smaller. Quota for 1938 is 100,000,000 square yards but 25% of this amount may be added to the 1937 quota and deducted from the 1938 quota. (The figure for 1937 was reached by compromise after calculating the approximate amount of unfilled orders for shipments to the United States in the hands of Japanese mills on January 21. The figure for 1938 is an arbitrary one reached after negotiation and compromise.)

(b) Japanese customs statistics of exports are to be used in calculating shipments under the quotas but similar assistance to that given in the administration of the cotton rug quota will be requested of the American Government.

(c) Existing agreements on cotton goods between the two Governments or industries are not included in the present arrangement.

(d) Japanese goods transshipped into the United States from third countries will be deducted from the quota but the American side agrees to strive to reduce the volume of such transshipments. Reexported goods will not be included in the quota.

(e) A joint committee will be established to deal with difficulties arising under the quota agreement and to assist in negotiating future arrangements.

(f) The Japanese side accepts the principle of the quota limits in regard to cotton specialties and will institute negotiations for such quota agreements.

(g) The American side states that it regards the arrangements made as rendering unnecessary further American governmental restriction of Japanese cotton textile imports and also that the arrangements may serve as ground work for a reciprocal trade treaty between the two countries.

(h) The agreement may be repudiated by the Japanese side on or before February 15, 1937. (This clause was included to enable the Japanese side to refer the agreement to the individual members of the industry. Murchison & regards this provision as a mere formality).89

2. Murchison will confer with the Department upon his arrival in Washington on or about February 16 in regard to the American governmental assistance referred to in 1 (b) above. He also desires that one American member of the joint committee in Japan be an American official, preferably the American Consul General at Osaka or the Commercial Attaché of the Embassy. He will discuss this question with the Department. He will also supply the Department with copies of the minutes of the negotiations and copies of the

88 Claudius T. Murchison, chairman of the American Textile Mission to Japan. 89 The Japanese cotton textile associations ratified the agreement, which was to be effective as of February 15. Rules governing exports from Japan of cotton textiles were published June 26 in ordinance No. 68 in the Official Gazette. (611.9417/195, 220)

agreement and consequently this Embassy will not copy and forward these items.90

3. Murchison states that the members of the mission are greatly pleased to have succeeded in reaching this agreement which they regard as satisfactory. The Embassy believes it likely that Foreign Office pressure was brought to bear upon the Japanese cotton men to induce them to agree to the arrangement.

GREW

611.946 Rag Rugs/185

Memorandum by Mr. Eugene H. Dooman 1 of the Division of Far Eastern Affairs

[WASHINGTON,] January 28, 1937.

Conversation: Mr. Toyoji Inouye, Japanese Commercial Secretary; Mr. Tsuneo Hayama, Second Secretary, Japanese

Embassy;

Mr. Charles R. Cameron, American Consul General,

Osaka;

Mr. Dooman.

Mr. Inouye said that, following the conversation which he had a few days ago at Washington with Messrs. Fox,92 Veatch 93 and Dooman, he had sounded out certain of the principal importers in New York of Japanese rugs with regard to the question whether there had been a marked increase in the demand in the United States for cotton rugs. The information he had received indicated that general business conditions in this line have improved and the demand is greater than it was a year ago. He had also been told that the supply from Japan is so much below the demand that there have been substantial imports from China, Italy and Belgium. He presented a table 94 setting forth the present quotas in the different categories of cotton rugs, and increases recommended in the various quotas. The information Mr. Inouye had was that if the increases recommended were acceptable, the increased quotas would amount to only about fifty percent of the present estimated demand for Japanese cotton floor coverings. Mr. Dooman asked whether Mr. Inouye had given full consideration to the question raised by Mr. Fox, which was, would a request for increased quotas warrant the risk of alienating the cooperation of the domestic industry and cause the latter to seek the taking

90

These were printed by the Cotton-Textile Institute, Inc., of New York, in its Current Information pamphlet of March 10 (vol. 3, no. 3, supplement).

91

Appointed Counselor of Embassy in Japan.

92 A. M. Fox, Director of Research, U. S. Tariff Commission.

** Roy Veatch, of the Office of the Economic Adviser.

*4 Not printed.

of some restrictive action by Congress? Mr. Inouye said that he had given that question thought and had decided that it was a risk worth taking. He explained that if the quotas for the present year are not increased the export guild in Japan, he felt sure, would see to it that the quotas were not exceeded, but that upon expiration of the agreement the guild would permit unrestricted shipments to the United States, which would result in very unfortunate consequences. He thought, therefore, that, in the light of the probability that the demand in the United States had substantially increased, he could ask us to consider favorably the increases proposed.

Mr. Dooman said that a careful survey would be made of market conditions in the United States, and that he would communicate again with Mr. Inouye as soon as the investigations had been completed.

611b.9417/226: Telegram

The Consul at Hong Kong (Donovan) to the Secretary of State

95

HONG KONG, February 6, 1937-9 a. m. [Received 10:25 a. m.]

Reference is made to Consul General Hoover's confidential telegram of May 5, 5 p. m., 1936, regarding exports of Japanese textiles from Hong Kong to the Philippines.

Mr. Shotaro Kakisaki, a representative of the Japan Cotton Yarn and Piece Goods Exporters Association for East Asia called at the Consulate General yesterday to discuss the situation. He presented a card of introduction from my Japanese colleague.

According to Mr. Kakisaki Japanese are unable to prevent Japanese textiles from reaching Hong Kong since they [are] purchased by Chinese firms in good faith with branches in Kobe and Osaka and the business is very difficult to control. He said that if the names of the Chinese firms in Hong Kong exporting these textiles to the Philippines were furnished the Association it would be in a position to prevent their obtaining Japanese textiles for reshipment from Hong Kong to the Philippines. He was informed of the confidential character of consular invoices and his request refused.

However, since this appears the only practicable method of control for Hong Kong the Department may wish to give this request consideration.

The Consulate General has available accurate information taken from consular invoices regarding the country of origin of textile ex95 Foreign Relations, 1936, vol. iv, p. 887.