merchants an opportunity to make unwarranted profits. Mr. Kurusu added that as soon as the stocks showed signs of depletion, proposals would be made to the Japanese Government with regard to a fresh start.

Mr. Kurusu then referred to the various items of Japanese imports into the United States upon which restrictions had been imposed, and he wondered whether the American Government understood how the Japanese people as a whole had reacted to the restrictions. He stated that the amounts involved were small in most of the instances to which he referred, and that the Japanese people could not understand why they should be repeatedly called upon to forego opportunities to cut down the large amount owing to the United States on trade balance. As to cotton cloths, Mr. Kurusu stated that the amount involved is negligible when compared with Japan's purchases of raw cotton. He said that about five-ninths of Japan's total textile output is sold to foreign countries, and that if the restrictions that are being imposed on all sides against Japanese cotton textiles continued Japan will have no alternative but to reduce its purchases of raw cotton. He referred again to the large favorable balance of trade of the United States with Japan, and he stated that the imposition of restrictions by the United States on Japanese goods placed Japan in an awkward position when dealing with countries, with unfavorable balances of trade with Japan, which are restricting imports of Japanese goods. He stated that very frequently representations of the Japanese Government to governments of such countries were met by the rejoinder that Japan had a more serious grievance against countries like the United States.

Mr. Sayre remarked that the Japanese viewpoint with regard to recent American action on cotton cloths as presented by Mr. Kurusu did not seem to take sufficiently into account the discussions which had extended over more than a year between the Department and the Japanese Embassy before the action was finally taken. He said that he had urged Mr. Saito to persuade his Government to regulate exports to the United States of cotton cloths, and that toward the end of last year the American Government had received an assurance which had been interpreted to mean that exports to this country would be kept down to last year's levels. Unfortunately, however, the figures for imports for consumption for the first three months of the present year were far in excess of the figures for the corresponding period of last year. Mr. Sayre then showed to Mr. Kurusu a table of statistics. Mr. Sayre went on to say that in all fairness to the Japanese he should say that the actual arrivals of cotton cloths were not much larger than they were for the corresponding period of last year, but that as the Japanese had overshipped last year there were

in bonded warehouses substantial stocks, which were drawn upon and added to the amounts arriving from Japan. The result was that the amount of cotton cloth cleared through the customs was so great as to profoundly agitate the American textile industry. The Tariff Commission had been directed to make an investigation on the basis of Paragraph 336 of the Tariff Act to determine costs of production in the United States and in Japan, and the Tariff Commission had found that additional duties were required in order to equalize such costs of production. Before taking action on the report of the Tariff Commission, a final opportunity was given the Japanese Government to regulate shipments from Japan, and when the Japanese Government found itself unable to enter into any arrangement, this Government reluctantly increased the duties on competitive cotton cloths.

Mr. Sayre said that unfortunately in instances of this character there are available only the two alternatives either of an arrangement being concluded with the Japanese Government or higher duties. It might appear to the Japanese that a gun was being held to their heads, in fact the Japanese Ambassador had remarked in the case of cotton cloths that the American Government was issuing to the Japanese Government an ultimatum. Mr. Sayre said that such was not in fact the case. The circumstances required that some form of action be taken at once.

Mr. Sayre said that there was another case now before the American Government. There had been in recent months a large influx of snap fasteners 60 from Japan, and he feared that it would be necessary that action be taken. The position taken by the Japanese Government in the cotton cloth case did not hold out much promise of the Japanese Government responding favorably to a proposal, if made, with regard to the conclusion of a gentlemen's agreement on snap fasteners, but no decision had been taken whether or not the Japanese Government would be approached. Mr. Sayre said that there are now in the offing a considerable number of other cases which involve the possibility of further action against Japanese goods.

Mr. Kurusu stated that the procedure followed by the American Government is of such character as to accentuate the difficulties caused by Japanese competition. He stated that as soon as reports appear that there is possibility of the American Government taking cognizance of imports from Japan, the tendency of exporters in Japan and importers in the United States is to rush in a large volume of the commodities concerned, and at any price which may yield a profit, before duties are raised or before any restriction as to quantity

60 Also known as zippers or slide fasteners.

has been imposed. It is his opinion that most of the damage was done before restrictive action has been taken. He had come to the conclusion that the only satisfactory method of dealing with questions of this kind would be to prevent the difficulties from actually arising, and with that purpose in mind he believed that it would be advantageous if there were set up in the United States some governmental agency whose primary function it would be to watch market prices and trends of imports from Japan, so that the business men concerned would be apprised beforehand of the possibility of Japanese imports unduly affecting the American market.

Mr. Dooman said that thought had been given on the American side to the setting up of some such body as that suggested by Mr. Kurusu, but that the weight of opinion seemed to be that the body should be non-governmental in character. He explained to Mr. Kurusu that there had been set up a few years ago an association to protect American holders of foreign bonds. It had been determined that the functions of such an association could not be properly carried out by the Government, but that the Government could give such an association its "blessing" and render it assistance in various ways. Similarly, it is thought that the American Government could properly place the information available to it at the disposal of a private agency whose function it would be to render advice to merchants engaged in trade between the United States and Japan. Mr. Sayre remarked that before the conversation was concluded there were certain points affecting American interests which he desired to bring to the attention of Mr. Kurusu.

Mr. Sayre then explained briefly the situation with regard to the red salmon fishing industry in Alaska.61 He expressed the hope that Mr. Kurusu could see his way clear to advise his Government how this Government is concerned over future developments and hopes that the Japanese Government can enter into some arrangement which would serve to preserve the red salmon for American interests. Mr. Kurusu said that the matter lay outside the scope of the Commercial Bureau of the Foreign Office, but that he had some knowledge of the conversations which had taken place during the past few years between officials of the American and Japanese Governments. He recalled that several years ago the American Embassy, in collaboration with Japanese officials and private individuals, had formulated a certain arrangement, and Mr. Kurusu thought it a pity that the arrangement had not gone through. He said, however, that he would transmit to his Government the remarks of Mr. Sayre in this connection.

61 See pp. 942 ff.

919456-54- -63

Mr. Sayre then referred to the recently enacted Japanese law for the control of the automobile industry.62 He said that in the gentlemen's agreements concluded with Japan it was the intention of the American Government to assure to the Japanese a share in the American market. When the cotton rug agreement was renewed, the American Government had taken cognizance of the beneficial effects of that agreement and had voluntarily offered the Japanese an increased share of American business. He thought it important that the Japanese Government should similarly grant to American business increased participation in Japanese markets as such markets developed. He could realize that the Japanese Government would naturally try to foster a native automobile industry, but at the same time he thought it important that the Japanese Government should not restrict for all time the American automobile industry to its present share of the Japanese market, but that as the demand in Japan for automobiles increased American manufacturers should be permitted to supply a portion of that increase. Mr. Kurusu remarked that the point of view expressed by Mr. Sayre interested him very much, and that he would not fail to present it to Tokyo.

The next point presented by Mr. Sayre was the Japanese Petroleum Control Law. Mr. Sayre stated that it was the view of this Government that several features of that law would operate to affect adversely and inequitably American interests, and that although this Government had not thus far made any representations to the Japanese Government on a basis of the legal considerations involved he thought it necessary that the Japanese Government should realize that developments with regard to the petroleum situation in Japan were being followed by this Government attentively and with much concern. He hoped that the Japanese Government would realize that important American interests were involved and that the manner in which the controversy is dealt with by the Japanese Government will inevitably affect the thought and feelings of the American people toward Japan. Mr. Kurusu stated that he was on the whole optimistic with regard to the final outcome. He said that the foreign oil interests had stressed three desiderata: first, that they be given a guarantee that they will be permitted to operate in Japan for a specified period of time; second, that they be given a guarantee as to the quantity of petroleum products that they will be permitted to sell; and, third, that the price of gasoline be increased. Mr. Kurusu went on to say that the Japanese Government had no difficulty in meeting the first two of these points, but it was reluctant to raise the price of gasoline for the reason that the livelihood of taxicab drivers would

"See pp. 981 ff.

See pp. 786 ff.

be adversely affected. He understood, however, that just prior to his departure from Japan it had been decided that the price would be raised. Mr. Kurusu added that certain negotiations were in process between the foreign oil interests and certain private Japanese interests, and that he had reason to anticipate that the negotiations will be brought to a successful conclusion without any great difficulty.

As the conversation had continued for almost two hours, Mr. Sayre suggested that Mr. Kurusu accompany him to lunch.

611.9417/146

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

Adviser

[WASHINGTON,] June 11, 1936.

Conversation: Mr. Toyoji Inouye, Commercial Secretary of the Japanese Embassy,

Mr. Tsuneo Hayama, Third Secretary of the Japanese Embassy,

Mr. Otoshiro Kuroda, Attaché of the Japanese Embassy,

Mr. Veatch.

Mr. Inouye suggested that I lunch with him and Mr. Hayama and Mr. Kuroda in order to discuss particularly the details of a possible joint Japanese-American committee to study and advise upon the solution of problems arising out of Japanese competition in the United States. Mr. Kurusu had mentioned the possibility of such a joint committee to Mr. Sayre and Mr. Dooman and he had suggested that Mr. Inouye might attempt to get some agreement upon details of the plan before Mr. Inouye returns to Japan this summer. In addition to discussion of this plan, Mr. Inouye took the occasion to state strongly his feelings with respect to the expected action of the President increasing the rates of duty on importations of slide fasteners.

PROPOSED JOINT COMMITTEE ON JAPANESE-AMERICAN TRADE Mr. Inouye outlined his scheme as follows: A committee would be set up in Washington, meeting perhaps regularly once a month, to include the officials of the United States Government who deal with Japanese competition and representatives of the Japanese Government in the Embassy in Washington, including Mr. Inouye, who would come from New York for the meetings. A somewhat similar committee would be set up in Tokyo, to be composed of officials of the Japanese Government who deal with the problem, including probably a representative of the Departments of Commerce and Agriculture and per