As is indicated in the enclosure, a major factor in obtaining
agreement to the United States proposal will be the early
establishment of a single general exchange rate for Japan. In so far
as this Mission can determine, individuals in this Headquarters who
are concerned with a solution of that problem do not favor the
establishment of such a rate either at this time or in the near
future. In the event that this Headquarters should be asked to
express its views regarding the establishment of an exchange rate
within the next two to four months, it is our opinion that its
reaction will be that factors which would permit the favorable
establishment of such a rate do not exist as yet. On the other hand,
it is our belief that if the establishment of a rate is postponed
until such time as all agree that ideal conditions exist, it may
well be considered to be postponed indefinitely. As a consequence,
we feel that if the establishment of an exchange rate within the
near future is considered to be desirable, and we believe that it
is, the initiative will necessarily have to be taken in
Washington.
[Enclosure]
Memorandum by Mr. David
M. Bane, of the United States Mission in
Japan, to the Acting Political Adviser in Japan
(Sebald)
confidential
There is enclosed a copy of the agreed summary of discussions
held at London on November 1, 2, 3 and 4, 1948, between
officials of the British Commonwealth and the United States
(headed by Mr. Howard Petersen, former Assistant Secretary of
War) regarding the extension of most favored nation treatment to
Japan’s foreign trade during the remaining period of the
Occupation. SCAP
representatives participated in the discussions held on November
3 and 4.
As is indicated in the enclosed summary, the discussions were
informal and exploratory, no agreement being reached in the
premises,
[Page 1051]
it being
assumed that further consultations in this regard would be held
through normal diplomatic channels prior to the next General
Agreement on Tariffs and Trade meeting to be held at Geneva in
April, 1949. At that time, the United States presumably will
endeavor to obtain agreement to the extension of most favored
nation treatment to Japan by the signatories to the General
Agreement.
In summary, although the Commonwealth representatives were
sympathetic listeners to the U.S. proposal, they appeared, for
the most part, to be unconvinced as to the necessity of, or the
value of such action at this time. They failed to see what
measurable economic advantages would accrue to Japan by entering
into such an agreement. The United Kingdom, Australian and New
Zealand representatives, in particular, expressed the opinion
that the extension of most favored nation treatment to Japan for
the balance of the Occupation was of academic importance only,
and although such action might give the United States certain
psychological advantages, insofar as they could determine, it
would have no appreciable effect upon the volume of Japan’s
foreign trade. They emphasized that it was their desire to
develop their trade with Japan to the maximum level feasible and
that they had demonstrated their willingness to do so by
entering into the sterling area trade arrangement. On the other
hand, they stated that they anticipated considerable political
opposition from their respective governments to their
participation in any such multilateral agreement, and as a
consequence, were hesitant to do so in the absence of any
tangible showing by the United States as to how and to what
extent Japan would profit in fact by most favored nation
treatment.
Additionally, the Commonwealth representatives indicated that
they would be most reluctant to consider the extension of most
favored nation treatment to Japan until they knew a great deal
more about the internal economic situation in Japan,
particularly the price and cost structure, and had received
definite assurances regarding the future pattern and conduct of
Japan’s foreign trade. (For example, they felt that the SCAP might have to force exports,
even to the extent of dumping, in order to meet Japan’s balance
of payments requirements.) Without such assurances, they stated,
it would be practically impossible to overcome the political
opposition which would be predicated in large part upon fear of
Japanese competition in international trade.
In this connection, most of the Commonwealth representatives were
of the opinion that the establishment of a single exchange rate
for Japan might well be considered by their governments as an
essential prerequisite to the extension of most favored nation
treatment to
[Page 1052]
Japan.
Without an exchange rate, they felt that it would be impossible
to determine accurately the probable impact of Japan’s foreign
trade upon their own, or to apply effectively affirmative
measures for their protection such as countervailing or
anti-dumping duties. The establishment of an exchange rate they
thought would help bring the Japanese price and cost structure
in line with that of other countries. Pending the establishment
of such a rate and the receipt of definite assurances from the
United States regarding Japanese trade policies and procedures,
most felt that they would prefer to conduct their trade with
Japan within a bilateral framework.
It might be mentioned in this regard that the conference afforded
the Commonwealth countries an excellent opportunity to bring
pressure to bear for the early establishment of a single general
exchange rate for Japan. Of interest was the view expressed by
the United Kingdom, Australian, and New Zealand representatives
to the effect that the establishment of an exchange rate was a
far more important factor in the reestablishment of normal
trading relations with Japan, in their opinion, than the
extension of most favored nation treatment, and they expressed
the hope that it, too, would be given immediate high level
consideration.
The United States delegation took the general position that
refusal to extend most favored nation treatment to Japan, in
view of U.S. financial obligations involved, was, in effect, a
refusal by the Commonwealth countries to extend most favored
nation treatment to the United States. Although the delegation
admitted that it was not in a position to indicate or estimate
the immediate effect of such action upon the volume or course of
Japan’s foreign trade, it did feel that it would permit the
maximum potential revival of foreign trade during the
Occupation. If granted, it would remove the threat of possible
future arbitrary discrimination and would permit the planned
development of Japanese export industries and the projection of
exports and imports in reliance upon the assurance that Japan’s
trade would not be discriminated against for arbitrary reasons.
Furthermore, if the Commonwealth countries were to agree to
extend most favored nation treatment, certain psychological
advantages would accrue to the United States. It would lend
support to United States efforts to obtain funds to carry on
Occupation activities as well as assist in overcoming political
opposition in other countries to trading with Japan.
The United States delegation further pointed out that it did not
consider the extension of most favored nation treatment to Japan
as a substitute for such bilateral undertakings as the sterling
area trade arrangement, but rather a supplement thereto. It is
recognized that balance of payments difficulties necessitated
resort to bilateral trading
[Page 1053]
arrangements at present; however, the
delegation emphasized that it did not wish to lose sight of the
overall objective of the expansion of international trade along
multilateral lines. With respect to the exchange rate, the view
was expressed that active consideration was being given to this
matter and it was hoped to establish such a rate at the earliest
practicable time.
In evaluating the results of the conference it would appear that
all of the Commonwealth countries represented might well
consider the establishment of a single general exchange rate as
an essential prerequisite to the grant of most favored nation
treatment to Japan. All desired more information concerning
SCAP policies and
procedures with respect to industrial production, labor, and
foreign trade and indicated that they would like definite
assurances in this regard. With the possible exception of
Canada, the Commonwealth representatives could see little
practical advantage to Japan if they did agree to extend most
favored nation treatment, particularly those countries
participating in the sterling area trade arrangement. In fact,
the sterling area trade arrangement participants indicated that
they would prefer, for the remainder of the Occupation, to
conduct their trade with Japan within the framework of bilateral
agreements. Canada, not a participant in the sterling
arrangement and being a source of supply for Japanese raw
materials, might, it is believed, give sympathetic consideration
to the proposition, as would India, Pakistan and Ceylon. On the
other hand, it is not believed that the United Kingdom,
motivated largely by economic pressures predicated upon a
genuine fear of Japanese competition, will agree to the
extension of most favored nation treatment to Japan during the
Occupation unless it receives assurances from the United States
to the effect that Japan will not be permitted to become a
serious competitor in the field of international trade
(tantamount to what might be termed a “cartel arrangement”). In
this regard, the head of the United States delegation made it
clear that the United States, as the executive authority for the
Occupation, could give no assurances other than that Japan’s
foreign trade would be conducted in accordance with established
policies and, insofar as it was possible to do so, in accordance
with the principles of the Charter for an International Trade
Organization.
It is also extremely doubtful if Australia or New Zealand will
agree to the extension of most favored nation treatment to Japan
in view of anticipated political opposition to such a move in
their respective countries. Although their trade relationships
with Japan appear to be largely complementary, politically, they
feel that it will be almost impossible to obtain agreement to
such a proposal unless an adequate quid pro
quo, in terms of an exchange rate and trade assurances,
is
[Page 1054]
received. South
Africa and Southern Rhodesia largely subscribe to this same
view.
In conclusion, it is believed that the conference was of great
value in providing a forum for the exchange of views and in
preparing the way for the possible negotiation of a multilateral
agreement for the extension of most favored nation treatment to
Japan at the next General Agreement on Tariffs and Trade
meeting. It is further believed that it was of value to include
SCAP representation at
London. This Headquarters now has a first-hand report of its own
position and what must be done to obtain agreement in the
premises. Since the successful conclusion of such an agreement
will depend in large measure upon the ability of the SCAP to present an effective case,
it is considered of utmost importance that the matter now be
brought to the immediate attention of this Headquarters by its
own representatives who attended the London Conference.
Additionally, the SCAP
delegation, headed by Mr. Peter McDermott, was in a position to
furnish information concerning, as well as clarify
misconceptions regarding, trade policies and practices in
Japan.
It is my recommendation that a SCAP representative or representatives should
attend the next General Agreement on Tariffs and Trade meeting
at Geneva. In any event, between now and April, 1949, a study
should be made by this Headquarters with a view to evaluating
the economic advantages which might accrue to Japan, other than
psychological or potential, if the Commonwealth countries, as
well as the other signatories to the General Agreement, were to
accord most favored nation treatment to Japan. Further, if it is
decided that it is not possible to establish a single exchange
rate prior to the Geneva meeting (it is believed that every
effort should be made to establish a rate), it is recommended
that the United States delegation should be fully informed of
the circumstances which militate against the establishment of a
rate. Additionally, the United States delegation should be
prepared to discuss in detail the economic situation in Japan,
submit trade projections adjusted as of that date, and be in a
position to give assurances, with such reservations as may be
considered appropriate, regarding trade policies and procedures
to be followed during the remainder of the Occupation.
