be accepted was no longer in his hands-that that decision lay in the hands of the President; that he would get in touch with the President as soon as possible; and that he would let the Ambassador know as soon as possible in regard to the President's decision.

Mr. Yoshizawa expressed the opinion that no great difficulty should be anticipated in regard to cloths coming under 904-c. He stated that the greater part of this cloth went to Puerto Rico, where there was a limited market; that the exporters in Japan had very little capital; that there is little likelihood of the Japanese being able to increase their market in the United States for printed cloths, for the reason that before current designs can be sent out to Japan to be copied the fashions change. Mr. Yoshizawa added that his Government would expect to have the Japanese allotment credited with reexports on which a drawback had been granted.

Mr. Sayre observed that although the facts might be as stated by Mr. Yoshizawa, an announcement indicating that this Government had overlooked this category of Japanese goods would open the Government to severe attack. References would be made to the heavy increase in shipments of rayon from Japan to the Philippine Islands as an example of the ability of the Japanese to find loopholes.

Mr. Yoshizawa replied in the latter connection that his Government had instructed the Embassy to state to the Department that no parallel could be drawn between cotton goods and rayon goods.

After further discussion along the foregoing lines, Mr. Dooman advanced the suggestion that it might be possible to work out an agreement if the Japanese Government could see its way clear to proposing that an agreement be reached to limit imports of goods coming under 904-6 to 30,041,422 square yards, but that this Government would have complete freedom of action to impose duties on goods coming under 904-c if imports for consumption should exceed last year's figures. Mr. Sayre stated that he would be disposed to consider favorably such a proposal if it were advanced by the Japanese Government, but that he could not, in the present circumstances, advance such a proposal himself. The Japanese Ambassador stated that he would report this suggestion to his Government and ask that a reply be telegraphed to him by tomorrow morning.

Mr. Ryder stated that he wished to raise the question of imports of manufactured handkerchiefs. It was realized that it would not be practicable to reach an agreement in regard to imports of this commodity, but in view of the fact that it was the increasing amount of imports of bleached goods used to manufacture handkerchiefs in the United States which had led to all the agitation, Mr. Ryder thought that some definite understanding should be reached in regard to this matter. The Japanese Ambassador replied that he understood the

facts, and that he assumed that it would be our wish that, if an agreement were reached, the question of manufactured handkerchiefs would not be raised by increased imports over last year.

611.946/290

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

[WASHINGTON,] May 9, 1936. Mr. Yoshizawa began the conversation by stating that he was "fed up". The Embassy had received instructions this morning to inform the Department that the Japanese Government could not advance the proposal suggested by Mr. Dooman, for the reason that it would lead to an agreement which the Japanese Government considered objectionable. The Japanese Government, Mr. Yoshizawa continued, would, however, agree to limit imports for consumption of goods coming under 904-6 to last year's figures; that it did not expect that there would be any appreciable increase in imports of goods coming under 904-c, but that if the American Government anticipated that last year's figures of such imports would be exceeded, the Japanese Government would expect the American Government to consult with it before raising the duties on this category of textiles.

Mr. Yoshizawa added that the Embassy was further directed to emphasize the importance attached by the Japanese Government to the American Government agreeing to deduct from the figures of imports for consumption the figures of re-exports of Japanese cloths on which a drawback had been granted.

Mr. Dooman said that unfortunately Mr. Sayre could not be reached at once, and that he would therefore endeavor to place before the Secretary the terms of the Japanese reply, and that he would later communicate with Mr. Yoshizawa by telephone.

NOTE: Mr. Dooman saw the Secretary and explained the terms of the latest Japanese proposal. In response to an inquiry from the Secretary, he expressed the opinion that the terms seemed to warrant acceptance, and he thought that the White House should be informed that a new proposal had been received from the Japanese Embassy which made advisable the postponing of issuance by the President of an Executive Order increasing duties on cotton textiles. The Secretary consulted over the telephone with the President, who gave his approval to the Department giving consideration to the latest proposal. Mr. Dooman then telephoned Mr. Yoshizawa that no action would be taken during the week-end to increase duties on cotton cloths, and he requested that Mr. Yoshizawa call on him next Monday, May 11.

611B.9417/196

Memorandum by the Assistant Secretary of State (Sayre)

[WASHINGTON,] May 12, 1936.

I had lunch today with Mr. Murchison 51 and talked over with him quite informally the textile situation both with respect to Japanese imports into the Philippines and Japanese importations into the United States.

With regard to imports into the Philippines, I gave Mr. Murchison a copy of the accompanying memorandum showing the Japanese importations during April.52 As is apparent from this memorandum, the Japanese cut their direct shipments of February, 1936 (amounting to 4,504,000 square meters) in half during March; and they again cut the March shipments in half during April. As a result, for the first time during the period of the agreement (with the exception of December, 1935 and January, 1936, when the Japanese made practically no shipments), arrivals of United States cotton goods in the Philippines exceeded arrivals of Japanese cotton goods. Mr. Murchison was very pleased with these figures. He asked me whether, in consequence, he had better advise textile representatives in the Philippines to make no further move in approaching Filipino leaders with a view to securing Filipino legislation during the coming session of the Legislature to restrict Japanese shipments. I replied that I did not feel I was in a position to advise the textile groups on what action they should take; but I added that so far as I myself am concerned I had decided to follow a course of watchful waiting since it seemed likely to me that the Japanese were taking active steps to cut down their shipments of textiles so as not to exceed the quotas provided for in the Gentlemen's Agreement.

With regard to Japanese importations into continental United States, I first told Mr. Murchison that we had been carefully weighing the comparative advantages and disadvantages of limiting Japanese imports (a) by a tariff increase and (b) by quantitative restrictions. I said that we had reached the conclusion that restriction by a tariff increase would not be as advantageous to American textile interests as a limitation by quantitative restriction, for the reason that an increase in tariff would cause considerable uncertainty in the textile business since no one could tell in advance just what the Japanese importations would be under a tariff increase. I also said that a tariff increase might not give sufficient protection to domestic textile interests since the Japanese might manage to go over the tariff wall by means of cheapened production or otherwise. Mr. Murchison

51 Claudius T. Murchison, president of the Cotton Textile Institute and former director of the Bureau of Foreign and Domestic Commerce.

"Not printed.

responded that the textile industry thoroughly agreed that quantitative restriction would be far more advantageous than a tariff increase.

I then said that in view of this conclusion we had approached the Japanese to secure, if possible, a voluntary agreement on their part to restrict imports for consumption to a definite figure. I went on to say that although no definite agreement had been concluded we hoped to secure a voluntary agreement from the Japanese to restrict their imports for consumption during the year April 1, 1936 to April 1, 1937 covering bleached goods (the most competitive goods), under Section 904(b) of the Tariff Act, to a figure not to exceed imports during 1935, namely 30,000,000 square yards. With respect to printed, dyed or colored goods (coming under Section 904 (c) of the Tariff Act), I explained that in order to save the face of the Japanese we were not demanding a specific undertaking but that we were urging an understanding that if Japanese imports should exceed the 1935 figures (namely some 6,000,000 square yards) we would then be free to take action at once under Section 336.

I said that I wanted to explain these matters to Mr. Murchison before the agreement was buttoned up so as to secure his reaction as representing the textile groups.

Mr. Murchison replied that he was delighted to hear of the proposed agreement. He said that we deserved the sincere thanks of the textile interests and that he felt they would thoroughly approve the agreement. At the conclusion of our discussion he became almost enthusiastic about the proposed agreement.

He suggested that if I desired, he would be glad to issue a public statement when we put out our press release endorsing the agreement and adding any particular thoughts which I would like to have added. I promised accordingly to send him our proposed press release a day or two before its release with a suggestion of what I would like to have him say.

F[RANCIS] B. S[AYRE]

611.9417/138

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

[WASHINGTON,] May 21, 1936. Mr. Yoshizawa called me on the telephone at my house last night at about 11:30. He said that the Japanese Ambassador and he had just completed a trans-Pacific telephone conversation with the Foreign Office at Tokyo, and that to his great regret he was directed to say that the Japanese Government could not proceed toward the conclusion of a gentlemen's agreement covering the imports into the United

States of cotton piece goods, so long as the American Government is not in position to direct American consuls in Japan to refuse certifi

cation of consular invoices covering shipments of cotton piece goods not covered by Japanese export permits.

Mr. Yoshizawa expressed his deep personal regret that the long and arduous efforts made by the Japanese Ambassador and himself, as well as by officers of the Department, had been fruitless. He expressed the appreciation of the Ambassador for the sympathetic consideration and attitude shown by officers of the Department and of the Tariff Commission. I reciprocated these sentiments, and further expressed the thought that it was fortunate from the point of view of relations between the United States and Japan that the Japanese Government had come to the decision, before concluding the arrangement, that it could not be made to work. Mr. Yoshizawa concurred.

With mutual expressions of regret the conversation ended.

611.9417/137a: Telegram

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

WASHINGTON, May 21, 1936-6 p. m.

63. For the past 3 weeks we have been discussing with the Japanese Embassy in Washington the terms of a proposed "gentlemen's agreement" with regard to imports into the United States of Japanese cotton piece goods. Although agreement had been reached with regard to the general terms of such an arrangement, it was not found possible to dispose of certain technical difficulties. Accordingly, the President today issued a proclamation 5s increasing, as recommended by the Tariff Commission, the rates of duty on certain types of cotton textiles.

53

HULL

611.946 Rag Rugs/155

Memorandum by Mr. Roy Veatch of the Office of the Economic

Adviser

[WASHINGTON,] May 22, 1936.

Conversation: Mr. Tsuneo Hayama, Third Secretary of the Japanese Embassy; and

Mr. Otoshiro Kuroda, Attaché of the Japanese

Embassy;

Mr. Veatch.

Mr. Hayama and Mr. Kuroda came to the Department on May 20 to receive the reply of this Government to the request which they

49 Stat. 3518.