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THE foreign trade of Japan has only recently succeeded in recovering from the extreme contraction which it suffered following World War II. Now considerable attention is being given everywhere to the question of its future development. There are misgivings in certain quarters as to the quality of Japanese exported goods, and there also may be some concern that Japan will revert to dumping practices, or that she may be creating undue complications by exercising export and import controls not called for by the realities of current commercial transactions. It is my hope that an understanding of the actual economic conditions which form the basis of Japanese trade, and of the trade policies now being followed by the Japanese Government, will show that such misgivings are groundless.
In terms of value, Japan's trade has shown a remarkable recovery since the end of the war. The total value of exports and imports in 1950 was more than four times higher than in 1946, reaching $820,000,000 for exports and $970,000,000 for imports (including United States aid to Japan). This rise is still continuing at a steady rate. The transition from a buyer's market to a seller's market, brought about by the Korean war, has given further impetus to the rise in exports ever since the latter half of 1950. Some difficulties have been experienced in purchasing critical raw materials, however, which indicates that further expansion in the volume of trade is imperative before Japan can attain economic self-sufficiency.
The problem of how to expand the volume of trade is accompanied by a no less important problem of how to attain equilibrium in the balance of payments. Before the war, Japan's adverse balance of payments in visible trade was offset by a favorable balance in invisible trade. For example, in 1933, the receipts in invisibles, of which services for shipping and insurance comprised 70 percent, came to about 50 percent of the receipts from visibles. After the war, the almost complete disappearance of a merchant fleet and the restrictions upon overseas activities made receipts from shipping and insurance negligible. Even in 1950, when the receipts from invisibles markedly increased, they amounted to only 20 percent of receipts in visibles. A large part of this improvement in the Japanese international balance of payments comes from purchases made by the United States Government procurement agencies in Japan (called "Special Procurements"), whose orders totalled approximately $470,000,000 from the outbreak of the Korean war to October 14, 1951. And American aid, amounting to some two billion dollars, was the main factor which enabled Japan to balance her trade and even to accumulate some foreign exchange after the war.
As a result of the drastic change in the world economic pattern brought about by the Second World War, Japan, like many other countries, is confronted with the task of adapting herself to new conditions. In the prewar period her closest trade relations were with the adjacent Asiatic countries. About 50 percent of her total trade was carried on in the Asiatic area, and the favorable balance from this was always sufficient to cover the deficit in her trade with the United States. Trade with China, Korea and Formosa has only partially recovered since the war, and Japan has come to depend on the United States for some 50 percent of her imports. Although Japanese exports to the Asiatic countries continue to exceed imports from them, the balance is far too small to make good the excess of American imports. Prevailing monetary restrictions make the situation even more difficult. In the circumstances, the termination of American aid will tax to the utmost Japan's efforts to rectify this trade disequilibrium. However, we are resolved not to fail in the task thus laid before us.
When we analyze Japan's foreign trade in terms of commodities we see that it is characterized by the importation of raw materials and foodstuffs. These constituted 87 percent of imports before the war, and industrial products accounted for 88 percent of exports. The same fundamental pattern prevailed after the war. In 1950, 95 percent of imports were raw materials and foodstuffs, and 91 percent of exports were industrial products. But the proportion which foodstuffs occupied in the total value of imports showed a marked increase in comparison with the prewar period. Textiles, a leading export item, accounted for 49 percent of total exports in 1950, followed by sundries, metal and metal products, and machinery. While the ratio of exports of textiles to total exports showed a relative decrease in comparison with the prewar period, there was a notable expansion in the export of metals, metal products and machinery supplied for the industrialization of India and other countries of Southeast Asia.
Japan's trade is characterized by the export of manufactured goods and the import of raw materials, and hence trade relations have tended to be closest with countries which produce raw materials, or with underdeveloped countries. In the period from 1930 to 1934, 51 percent of total exports of Japan went to Asiatic countries and 30 percent to North America, while 46 percent of total imports came from Asiatic countries and 29 percent from North America.
Japanese trade was resumed after the war under a government-operated system which was subject to supervision by SCAP. On August 15, 1947, a system of limited private trade was inaugurated within the larger framework of the government system. In August 1948, Japanese exporters were permitted to make contacts directly with foreign traders; but importation, covered as it was by large aid from the United States, was kept entirely in government hands. Stress was laid on foodstuffs, and the United States was looked to as a source for both imports and exports.
Japanese exports maintained an upward trend in 1949 in spite of the decline of American commodity prices and the devaluation of the British pound sterling. Soon it was discovered, however, that intensified competition for exports among the major countries and a tightening of import controls, due to the world dollar shortage, made further expansion in Japanese exports hard to achieve. As a result, bilateral trade agreements were concluded with a larger number of countries; the hope was to increase the volume of trade through an "import first" policy. Parallel to this, the Foreign Exchange and Foreign Trade Control Law was enacted in December 1949, establishing the principle of free export and private import.
The outbreak of hostilities in Korea brought a general expansion of armament and stimulated the purchases of strategic materials. This in turn gave rise to export restrictions, by various countries, and confronted Japan with a new problem.
The principle of license-free export which became effective in December 1949 aimed at promoting exports by simplifying export procedures and encouraging the activities of private traders; government authorization for exports was required only for exceptional commodities. However, the sharp turn in the international situation necessitated much more stringent restrictions on exports to Communist China at the end of 1950, and drastic additions to the list of commodities requiring export approval. Moreover, the rush for strategic and basic raw materials by various countries, and the world-wide tightening of export controls, has created a high demand for Japanese products. From considerations of domestic supply and consumption, Japan has had to establish export restrictions on certain basic materials. The list of restricted items is being gradually expanded, and it may be that the principle of free exports will have to be revised.
Under such changing conditions, the question how to increase the Japanese export trade is vital to the success of her effort to achieve a stable economy. One of the important problems which the Japanese Government faces on the eve of the country's return to the international community is that of dumping. In the past this has been the source of many complaints against Japan. Even one case of dumping by an inexperienced trader who is eager to clear his stock can have serious repercussions upon all Japan's foreign trade. The Japanese Government, accordingly, has repeatedly warned against such practices. The Foreign Exchange and Foreign Trade Control Law stipulates that exporters must take into due consideration legislation prohibiting unfair competition in the final country of destination, and the Government is obliged to investigate thoroughly to determine whether exports are being made in accord with its provisions. Violators are penalized. The Government's criteria of whether an export transaction comes under the head of dumping are in compliance with the definition set forth in the I.T.O. Charter.
When export prices, domestic prices and exports of light industrial commodities including cotton goods fell sharply in May 1951, due to the depression in the international market, certain traders with small capital began to sell their stocks at unduly low prices. Since this might lead to suspicion of dumping, the Government took measures to check it by requiring prior examination of export prices of cotton yarn, fabrics, secondary textile goods, porcelain, china, canned tuna and other items which constitute major Japanese export commodities. Export prices were thus stabilized and have remained stable. As a result, the value of exports increased and anxiety abroad concerning dumping by Japanese exporters was alleviated.
There is a strong feeling in Japanese business circles that some democratic organization to help prevent unfair practices such as dumping is needed. Fundamentally, dumping problems may be ascribed to the financial weakness of Japanese traders and the diminutive scale on which they operate, as well as to the weakness of the Japanese economy itself, vulnerable as it is to the effects of overseas fluctuations which constantly and with a magnified impact bring pressure upon domestic prices. Thus a longrange effort at accumulation of capital is required. By pushing economic stabilization measures the Government is resolved to remove violent fluctuation of domestic prices and thereby prevent dumping practices at their source. Complaints abroad about dumping by Japanese traders often attribute it to Japan's cheap labor, calling it "social dumping." It is fair to note, however, that Japan's postwar economy has been completely democratized, and that with the enactment of the Labor Standard Law every effort is being made to improve working conditions. The position of the worker is now incomparably better than it was in prewar days. Some quarters point out that, nonetheless, the level of wages for Japanese workers is low by international standards. But wages in Japan are a reflection of the general state of the economy and of the levels of the Japanese people; wages of the workers engaged in export industries are not lower than others in Japan.
The question of the quality of Japanese goods is also part of the problem of dumping. Certain types of Japanese export goods have been criticized for bringing discredit upon Japanese goods in the international market, a condition ascribed to a lack of adequate examination of these goods. The high quality of a large number of Japanese commodities has, however, already been recognized internationally--optical instruments are an example --and the Japanese Government is endeavoring, above all, to improve the quality of goods manufactured for export and is seeking to turn out products which will be considered first-rate by the highest standards. A system of inspection for quality has been adopted for major export items, and the Export Commodities Control Law requires the labelling of grades of export items so that the importer can plainly identify their quality. It also fixes minimum standards and packing conditions for given export items. Moreover, since the mere inspection of finished products was not deemed sufficient to achieve improvement in quality, the Industrial Standardization Law was enacted. This law sets up standards for particular commodities and makes it possible to apply scientific tests of quality at the very outset of the production process. A specially designated mark is attached to the products of a qualified firm, and a large number of standardized goods are now finding their way into the export market. Finally, test and inspection agencies are being established to bring the results of governmental and private research to bear on this problem, and the introduction of foreign techniques is being studied. In short, the Government is striving assiduously to raise the reputation of Japanese exports in the international market.
The question of imports is likewise receiving attention. Japan is dependent upon imports for the supply of foodstuffs, cotton and wool, iron ore, coking coal and many other vital raw materials. Under the private import system, which has been effective since January 1950, the Japanese Government approves imports within the scope of the foreign exchange budget which is drawn up after consideration of the availability of foreign exchange. In order to facilitate the imports of necessary materials and to encourage the initiative of private traders, the import procedures were partially amended in August 1950 and a method called the Semi-Automatic Approval System was established. This system makes possible the approval by private banks of certain listed imports upon application by importers, up to a certain limit fixed in the foreign exchange budget. In October of the same year, the long-term budget system was established, authorizing the conclusion of long-term contracts on iron coking ore, coal, bauxite, phosphate rock, sugar and pulp which require a period of delivery of a year or more. Foreign exchange cover is guaranteed by the Government for approved imports. Moreover, the Bank of Japan gives special consideration to the internal needs for yen of importers and consumers.
Immediately after the Second World War, as explained above, the breakdown of multilateral trade, caused by a general dollar shortage, which resulted in keen export competition and import restrictions, left Japan with no other alternative but to enter into a series of bilateral arrangements in trade. This system is playing an imporant part in our endeavor to achieve an expanded trade equilibrium and to stabilize fluctuating market conditions. Such trade and financial agreements have been concluded with 24 countries, excluding the United States, Canada and the countries of the Soviet bloc. These 24 countries are divided into three groups; dollar open account, dollar cash and sterling cash agreement. In the dollar cash and sterling cash accounts, each transaction is settled on a cash basis either in dollars or pounds sterling; in the open accounts, current transactions are settled on the books maintained by the Governments concerned and actual transfer of foreign exchange takes place only for the periodical settlement of the over-all balances in the manner specified in each agreement. Generally the United States dollar is used as the currency of settlement. This system offers a typical example of bilateral trade.
With the outbreak of the Korean war, however, the world market changed from a buyer's to a seller's market. Purchases of critical commodities through the open accounts became difficult, and trade between Japan and those countries with whom she had such arrangements tended to balance on a lower level. There is a general feeling that the system of bilateralism needs to be reconsidered. The formation of the European Payments Union in July 1950 gave a strong impetus to the principle of multilateral trade, and this resulted in a marked advance of European exports to Southeast Asia. In order to cope with this situation, certain revisions were introduced into the open account system to reduce the frequency of cash settlements by the mutual granting of permanent lines of credit (the "swing"). Japan strongly desires to participate in world trade on a multilateral basis and will advance in this direction at every possible opportunity. She also desires to participate actively in the organization of the European Payments Union, if that is possible.
It must be admitted, however, that Japan still continues to depend heavily on imports from the dollar area, which have increased further since the outbreak of hostilities in Korea. Under these circumstances, the signing of the new Anglo-Japanese Payments Agreement in August 1951 was an event of considerable importance. If this new agreement can be operated successfully, Japan will be able to purchase many vital raw materials which have so far been available only from the dollar area. Furthermore, any surplus sterling holdings may be used for purchases from certain countries outside the sterling area. It is to be hoped that in this way our trade with the sterling area will be considerably increased and our dollar shortage mitigated.
Trade with Southeast Asia is a particularly important question. In the past, China has been Japan's traditional market; and our desire to maintain this relationship is natural. But this must be subordinated now, out of considerations of friendship with democratic nations and adherence to the principle of coöperation with the United Nations. Geographical proximity and historical background have also produced close trade relations with Southeast Asia. After the war, the countries of that area drew up programs of development and industrialization which are now being vigorously carried out. As a result, the demand for capital goods is very high there. Japan, on her part, wishes to import raw materials from Southeast Asia. Since her economy and the economies of these countries are interdependent, and because Southeast Asia is in fact finding it difficult to obtain capital goods due to world rearmament, the Japanese Government will give priority to the export of goods to be used for the development of these areas. The purchasing power of these countries is none too high, however, and the further implementation of the Colombo Plan and the Point Four Program is much to be desired. Japan has established an Export Bank in order to open the way to long-term financing on plant and machine export. She is also trying to alleviate losses suffered by exporters through a credit insurance system.
Despite these measures, the export of capital goods from Japan to Southeast Asia has decreased recently, since her prices for some machinery are higher than international prices--a result of the fact that she is obtaining iron and steel and other basic raw materials from distant countries and freight rates have risen considerably. We hope to lower the cost of production through the rationalization of enterprise, with technical coöperation from the advanced industrial nations. To keep pace with the progress of the world economy, Japan must constantly strive to modernize her industries and raise technical standards. The Japanese economy developed on a fairly high industrial level, but owing to the ravages of war and the inadequacy of capital accumulation it is now far less up-to-date than that of other countries. For example, over half of the rolling machines in the iron and steel industry were installed before 1935. In the machine tool industry, more than about 30 percent of the equipment is superannuated and falls short of precision grade. Conditions such as these lower production, raise costs, affect the quality of goods and seriously hamper the development of export trade. This is one of the most important industrial problems confronting Japan, and every effort is being made to tackle it.
The stabilization of exports requires an elastic home market, and the level of production and employment must be raised if this is to be achieved. If Japan is to be able to contribute her productive strength to the general upbuilding of democratic countries, she must above all overcome the domestic shortage of electric power. The problem of raising capital for the development of power resources is a crucial part of this question. The Japanese Government is taking energetic steps to find the solution to this question of electric power. Moreover, in fostering our export industry, I would like to see in Japan the growth of industries which require a high degree of technology. Specifically this would be in the heavy chemical industries, for thereby we should be enabled to keep pace with the trend of the world market and to obtain higher returns in foreign exchange.
Shipping also constitutes a factor of primary importance in the drive for exports. The 6,000,000 gross tons which Japan possessed in the prewar period fell to around 1,400,000 gross tons at the end of the war. Although the total gross tonnage has increased since then, it is as yet insufficient to transport even half of the volume of trade.
The path of Japan's war-devastated economy has been a rugged one in the six postwar years. Nevertheless, there has been a steady and reassuring expansion of the volume of trade during this period, and gradual and sure progress toward attaining equilibrium in the balance of international payments. The signing of the Peace Treaty, which offers Japan hope of rejoining the international economic community, is a source of great satisfaction. Japan also wishes to contribute to international economic welfare through accession to such international economic organizations as the International Monetary Fund and GATT, and by concluding various agreements with the other countries of the world. To this end she will make every effort to stabilize and improve her domestic industries and, externally, will respect the standards of international integrity and fair trade.