Foreign Relations of the United States Diplomatic Papers, 1941, The Far East, Volume IV

794.00/271

Memorandum by the Chief of the Division of Commercial Policy and Agreements (Hawkins) to Mr. Joseph W. Ballantine

[Washington,] November 10, 1941.

Mr. Ballantine: In accordance with your request I have considered the Japanese formula with respect to the principle of non-discrimination. Here are a few ideas on the subject.

1) The implication in the Japanese formula is that they seek special advantages in China because they are denied equal treatment throughout the world. The British have set up an Empire preferential system which makes it difficult for Japanese goods to obtain access to markets comprising a large part of the world’s area and population. The British have used their import position to negotiate clearing and payment agreements which affect Japanese trade adversely in other markets. The French obtained preferences for themselves at Japanese expense whenever possible, including French colonies which are neighbors of Japan in the Far Eastern area. Other countries have pursued similar policies at Japanese expense. The United States itself has obtained preferences to the disadvantage of Japan in the Philippines, a Far Eastern neighbor of Japan’s. We have obtained preferences for our trade in Cuba, to the detriment of Japanese exporters of textiles and other products. Most countries which negotiate commercial agreements involving reductions and tariff and other trade barriers have either discriminated overtly against Japan by not extending the reductions to Japanese products or covertly by thinly-disguised discriminations in the form of highly specialized tariff classifications. In brief, the formula proposed by Japan, as it was doubtless intended to do, calls at once to mind the fact that Japan’s opportunity to trade with the rest of the world has been seriously restricted through the discriminatory practices of foreign powers and the excuse for Japan’s efforts to carve out an area of its own where it can find compensation for discriminations suffered elsewhere.

2) The indictment implied in the Japanese proposal has, however, a great deal more cogency in relation to the United Kingdom, France, and other countries than it does to the United States, and the main weakness in the Japanese formula lies in this fact. Japan cannot properly ask us to bring about the reform of world-wide discriminatory practices, for which we are not responsible and over which we have little or no control, as a price of obtaining equality of treatment in China. If they were required to narrow down the indictment to discriminations for which we are responsible, our reply would be more easily formulated and a solution might more easily be found.

3) The terms of the implied Japanese indictment against us can be narrowed down pretty much to the Philippines and Cuba. As regards the former, we have a good answer in view of the plan for eventually putting an end to the Philippine preferences. But we have no very good answer in regard to Cuba. Having thus narrowed down the terms we must face the question whether to try to counter the Japanese position by some trick of drafting (and I can’t think of any that will do), or to meet the issue.

4) The issue could be met by telling the Japanese a) that we can’t be held responsible for all the discriminations in the world but that we are ready to talk to them about those for which we are responsible; b) that as regards the Philippines, we have already adopted the policy of eventually eliminating these preferences; that as part of any settlement with Japan we will adhere to this and meanwhile, pending the actual elimination of the preferences, will not create any new ones of any kind; c) as regards Cuba we are prepared, as part of a deal with Japan, to renounce all rights to guaranteed preferences which we get in Cuba; and that our only reasons for not abolishing the preferences we give to Cuban products are 1) our present legal obligations to maintain them, 2) the fact that Cuba’s economy is so largely dependent on them, and 3) the fact that the products on which Cuba gets preferences in this market are not of any great interest to Japan.

5) From the trade standpoint the benefits obtained would vastly offset the sacrifices we would have to make. Even if we lost the entire Philippine market, its effect on our economy would be small, although particular industries might be hurt somewhat. But the decision has already been made eventually to give up our preferential position in the Philippines and the proposal to Japan would involve nothing new in this respect. In Cuba some of our producers (e. g., cotton textiles and rice) would suffer so far as that market is concerned from the loss of the preferences, but by and large, propinquity and a solid foothold in that market would retain for us a dominant position there (e. g., see position of United States trade in Caribbean countries in which we have no preferences). These small trade losses resulting from the “open door” in Cuba are to be compared with the huge gains resulting from an “open door” in a country like China.

6) Other results of such a move would be to further tremendously the cause of non-discrimination throughout the world. This example might be used by other Governments (e. g., the United Kingdom) as justification for similar moves which they might not otherwise dare to make for fear of political opposition. In this hemisphere the results would, I think, be generally good. Countries which object to the preferences would be more inclined to believe our claim that we grant preferences because of the dependence of Cuba’s economy upon them (in view of the vested interests which have been created over the years) if the United States were itself getting nothing out of the arrangement.

7) All this may sound rather drastic but unless we are prepared in the present state of the world to do some really constructive things in the commercial policy field, liberal trade policies are going to be as dead as the dodo and the chance of laying a solid economic basis for peace will be gone. Domestic politics will allow us to do drastic things in the foreign trade field only in times of international emergency like this when the public has been scared into being foreign-policy minded, and when war-time production and prices make our producer groups less aggressive. Nevertheless, the Administration would have to face severe criticism from a few special interests if the preferences in Cuba were unilaterally abandoned.

8) If, as seems quite likely, the Japanese rejected the offer of the open door in Cuba and the Philippines as payment for the open door in the Pacific area, we would have at least demonstrated concretely our good faith and have put the ball back on their side.