Treaties, Laws and Speeches

Japan's Foreign Trade in 1938

Bureau of Foreign Trade

JAPAN'S foreign trade in 1938, including that of Japan Proper and Karafuto or Southern Saghalien, showed an import excess of only 30 million yen at the end of October. This represents a remarkable improvement over the similar total trade figure for the corresponding period of 1936 and of 1937 when the import excess rose to huge proportions. In 1938, the volume of foreign trade declined from the beginning of the year to July, causing serious apprehension among observers. However, after July it showed improvement.

Yet, the improvement in the trade balance is not a positive one brought about by increased exports, but rather is a negative one effected by decreased imports. This may be seen from the grand totals of trade figures as of the end of October when exports stood at 2,131 million yen and imports at 2,162 million yen—a decrease of about 20 per cent for exports and 35 per cent for imports in comparison with the corresponding period of the preceding year. The trade balance improvement was due to the fact that imports fell off in larger measure than exports.

In the following pages, certain details of Japan's foreign trade in 1938 will be analysed and the promotional measures now being taken will be outlined.

The General Situation

Japan's foreign trade in 1938 was characterized by several peculiar features. Firstly, her trade with the Kwantung Leased Territory, Manchoukuo and China, which is classified as trade within the Yen bloc, continued to rise despite the general downward trend of her foreign trade. In other words, whereas the exports destined for third Powers fell off seriously, those for the Kwantung Leased Territory, Manchoukuo and China rose favourably from the beginning of the year, totalling 924 million yen at the end of October—an increase of 279 million yen or 42 per cent over the corresponding figures of the preceding year. In imports, trade within the Yen bloc totalled 459 million yen at the end of October, showing an increase of nearly 26 per cent over the similar figures for the preceding

year. Moreover, the exports to these regions rose so rapidly that the export excess for the period under review showed an increase of more than 70 per cent.

Responsible factors for this favourable trend in the export trade, coming as it did after the remarkable decline witnessed after the beginning of the China Affair in July, 1937, are the increased demand for materials of production needed in 1938 for Manchoukuo's 5-year industrial development plan and the special demands to meet various needs for construction, peace preservation and military operations in China. These factors have been interwoven with speculative demands arising from anticipation of further consolidation in various control policies in Japan.

Secondly, Japan's foreign trade in 1938 was marked by a decline in transactions with the so-called third Powers, those outside of the Kwantung Leased Territory, Manchoukuo and China. That the trade with these Powers should have been extremely unfavourable is an obvious corollary to the increase in trade within the Yen bloc, inasmuch as foreign trade as a whole declined. Japan's trade with third Powers for 1938 totalled 1,207 million yen in exports and 1,703 million yen in imports by the end of October, showing decreases of about 40 per cent and 42 per cent respectively and leaving an import excess of 496 million yen.

Thirdly, various changes were witnessed in regard to the relative proportions of different goods imported. Government control of foreign exchange and imports was strengthened after 1937 in order to make completely effective use of the capital available in view of the prevailing situation wherein the importation of war supplies and other materials needed to meet immediate requirements had to be precipitated and the importation of civilian supplies for consumption within the country and of materials for the manufacture of goods for export had to be held down. Thus, war supplies and other needed materials continued to be imported in large quantities in 1938 in increasingly larger proportions to other imports. With the exception of agricultural products, coal and fertilizers, all of these other imports declined sharply. Especially sharp was the decline in imports of cotton, wool, raw rubber and pulp, which are important materials for the manufacture of goods for export. During the first 10 months of 1938, imports of these four items fell off by 778 million yen or 60 per cent as compared with the corresponding figures for 1937. This amount of decrease corresponds to 67 per cent of the total decrease witnessed in imports during the period.

Fourthly, the relative proportions among various items of exportation

have also undergone some changes, which, however, are not so conspicuous as the changes in articles of importation. Notable among such changes is the fact that, while exports to third Powers generally are tending to decline, goods manufactured from native materials are gradually coming to be exported in larger proportions in comparison with goods for export which depend on imported materials. Another change has been in the gradual decline in the position of exports of miscellaneous goods, which had provided an impetus in promoting Japan's export trade in recent years.

That Japan's export trade with third Powers is in an unfavourable situation has already been stated. This situation may be made clearer by the table given below, which presents trade figures for the ten months between January and October of the past three years.

JANUARY-OCTOBER TRADE OF JAPAN (in 1,000 yen)

Causes of the Decline

This decline in exports may be traced to several causes. Firstly, the worldwide economic depression centring around the prevailing depression in the United States has been responsible in large measure for this trend. According to an investigation on world trade by the League of Nations, the combined foreign trade of the entire world during the first eight months of 1938 showed a decrease of about 12 per cent as compared with the corresponding period of the preceding year. Among the leading Powers, the

United States imported 42 per cent less than in the previous year, while Great Britain, Germany and other countries producing materials or mainly depending upon agriculture also fared ill in foreign trade. Japan's exports to the United States had fallen off by some 42 per cent by the end of September in 1938 as compared with the corresponding period in 1937—a decrease amounting to approximately 204 million yen in value, which corresponds to as much as 42 per cent of the total decrease in Japan's export trade for the same period. At any rate, this decline in Japan's exports to the United States as well as the general downward trend of her export trade with other third Powers may be regarded as having been in no small measure due to the worldwide depression.

Secondly, other causes peculiar to this country have existed, as may be seen from the percentage of Japan's export trade against the combined world trade, which averaged only 3.32 per cent during the first eight months of 1938 against 3.52 per cent for the corresponding period of the preceding year. (If Japan's exports to third Powers alone are to be considered, the percentage fell from 2.86 per cent to 1.94 per cent.) Further, by the end of September, 1938, Japan's export trade with third Powers fell off by as much as 40 per cent, while the combined world trade declined only by 12 per cent. These figures obviously indicate that there have been some causes peculiar to this country for the recent unfavourable trend in Japan's foreign trade.

Notable among such peculiar causes is the control on foreign exchange and import trade, which has been tightened to such an extent as to make it difficult to import materials for the manufacture of goods for export, thereby making Japan's commodity prices comparatively higher than in many other countries. The boycotting of Japanese goods, which has been carried on vigorously by Chinese residents abroad, may also be considered a contributing factor here. On account of the above-mentioned difficulty in obtaining materials for the manufacture of export goods, the export trade in cotton yarn and fabrics, rayon yarn and fabrics, hosiery goods and woollen textiles, which depend largely on imported cotton, wool, pulp and such fibrous materials, declined by about 30 per cent. These exports to third Powers actually fell off by more than 40 per cent, although those to the Kwantung Leased Territory, Manchoukuo and China rose by about 21 per cent during the first nine months of 1938 as compared with the corresponding period of the preceding year. This downward trend, which was less sharp during the early part of 1938 as there were previous contracts outstanding, became acute in May and the percentage of decline stood

at about 46 per cent in the combined exports and about 58 per cent in those to third Powers for the month of July as compared with the same month in 1937.

Meanwhile, exports to third Powers of raw silk, silk fabrics, tinned and bottled provisions and ceramic goods, which are home products not affected by the restrictions on imports, fell off only by 22 per cent during the first nine months of 1938 as compared with the corresponding period of 1937. It may also be pointed out that the decline in the exportation of goods manufactured from imported materials was made sharper than it might otherwise have been by such additional obstacles as the complicated procedures required for imports, the lack of smoothness in the distribution of imported materials and the conversion of some of the materials imported for the manufacture of exports to uses as materials for goods to meet domestic demands.

As regards commodity prices in Japan, investigation by the Department of Commerce and Industry reveals that wholesale prices according to the September indices for 1938 rose by a little more than 10 per cent over the corresponding period of the preceding year, those for staple goods for import and export rising by 6 per cent and a little over 10 per cent respectively during the same interval. This trend presents a notable contrast to the wholesale prices in Great Britain and the United States, where commodity prices have continued to decline since March, 1937, with the result that Japan's wholesale prices have become considerably higher as compared with those in Great Britain and the United States, the upward trend of prices in Japan being more acute as regards goods for consumption than as regards materials for production, and consequently as regards goods for export than as regards imported articles.

As for the boycotting of Japanese goods, its effect was felt most seriously in the South Seas region where Chinese residents are numerous. Due to the boycotting, coupled with the business depression prevailing there, Japan's exports to these regions dwindled by about 56 per cent during the January-September months of 1938 as compared with the corresponding period of 1937. Boycotting of Japanese goods is also under way in some parts of the United States, Great Britain, etc. instead of being confined to the above-mentioned regions.

Moreover, these factors, which have combined to hamper Japan's foreign trade, have been, it may be conceded, further interwoven with other circumstances such as the hesitation on the part of overseas buyers of Japanese goods due to their anticipation of a

lower yen in the future or their insufficient knowledge of financial and industrial conditions in this country, the insufficient supply of labour for manufacturing industries for export on account of the absorption of labour by munitions industries and other so-called "boom industries," and the lack of smoothness in the dispensation of shipping bottoms.

Counter-Measures

With the general situation of Japan's foreign trade as outlined above, the Government is taking various special measures to meet immediate requirements in addition to the facilities previously provided for the purpose of promoting export trade. The wartime trade policy is aimed not so much at balancing the nation's international receipts and payments in a negative way as at increasing the power to import to the maximum while balancing international receipts and payments in a positive way by maintaining and promoting export trade. Such wartime measures are summarized below.

Firstly, procedures to be gone through in obtaining import licences have been unified with the object of facilitating and speeding up procedures required for the importation of raw materials. For this purpose, a portion of the Foreign Exchange Bureau of the Department of Finance has been moved into the Department of Commerce and Industry building in order to keep the two Departments in closer contact than heretofore in coordinating procedures of granting foreign exchange licences and import licences. Further, the regulations governing import licences have been so revised as to simplify necessary formalities.

Secondly, efforts have been made to prevent conversion of raw materials imported for the manufacture of exports to domestic uses. For this purpose what is known as the link system was adopted. This system was first introduced some time ago when it was so arranged that an import licence be given for the importation of the same volume of wool as was contained in the woollen goods exported, the wool imported under this system being required to be exported again as woollen goods within a fixed space of time. This measure was primarily designed to encourage export of woollen goods. Later, with or without slight alterations, this system has been applied to cotton goods, rayon goods, brushes, manila paper and toilet soap. Another measure taken for the same purpose is known as the bonded factory system, under which system bonded factories may obtain import licences with special facility in case they

desire to import materials with the object of reshipping them for export as manufactured goods.

Still another measure calculated to meet the same purpose was the creation of the foreign exchange fund, which was founded by earmarking 300 million yen out of the 800-million-yen specie reserve of the Bank of Japan with a view to facilitating the financing of capital needed for the importation of raw materials for the manufacture of export goods. This fund has been made available for cases where adequate precautions are taken through the link system, the bonded factory system and other measures to prevent the conversion of imported materials to domestic uses. The issuance of what is known as "allowances" of raw materials for the manufacture of miscellaneous goods for export may also deserve cursory mention. Raw materials for miscellaneous goods for export have become the most difficult to obtain owing to the strengthened restrictions on imports, but in view of the important part these goods have been playing in Japan's foreign trade, special discretion has been shown in the procedures of exchange control in favour of the importation of raw materials for the manufacture of such goods for export. In a similar manner, special attention has been paid to the effective distribution of such materials after investigating into the industrial requirements of the prefectures interested with the aid of the prefectural authorities concerned and the Department of Commerce and Industry, in an effort to make the "allowances" of raw materials for miscellaneous goods for export as satisfactory as possible.

Further improvement is now being planned so that nothing may be left undone as regards the importation of materials for the manufacture of export goods.

Thirdly, attention is called to the rectification of high commodity prices. Any measure calculated directly to lower the prices of export goods would be open to criticism from abroad as a recourse to dumping. Therefore, efforts are being made to control general commodity prices in this country through the enforcement of regulations governing sales prices and other measures that may be deemed necessary in controlling commodity prices.

Fourthly, the existing "export compensation system" has been enlarged in scope so that the same system may be applied to goods for export to all parts of the world market and the compensation premiums be lowered, with a view to facilitating the financing of foreign trade. At the same time, it has been arranged that what is to be known as the system of compensating losses of loans advanced on exports will be newly introduced in order to improve trade

finances.

Fifthly, remedial measures have to be taken, apart from those to be worked out through diplomatic channels, in order to remove the economic pressure which has been brought to bear on Japanese goods in overseas markets. For this purpose close contact is being maintained within the various quarters concerned so as to make Government aid available for Japanese merchants in regions where Chinese residents are thriving in business and to rectify mistaken views of the Japanese situation on the part of overseas buyers with the aid of trade information agencies and other private organizations in markets where feelings unfavourable to Japan prevail or knowledge of the Japanese financial conditions is lacking.

Sixthly, exports to the Kwantung Leased Territory, Manchoukuo and China are being controlled in order not to exceed the volumes actually needed in those countries. This control is being effected through enforcement of official regulations, control of distribution and other measures, with a view to increasing the exportation to third Powers of goods manufactured out of imported materials so as to amplify the nation's power to buy from third Powers, inasmuch as the exports to the "Yen-bloc" countries rose amazingly during 1938.

Moreover, foreign trade among the same group of countries has to be restored to normalcy as speedily as possible. For this purpose, it is necessary to expedite operations for the development of their natural resources and promote the importation of materials from these resources into Japan. Hence, the problem of controlling exports to the "Yen-bloc" countries will have to be considered in conjunction with the question of how to promote import trade with these countries.

In the seventh place, other measures are being taken with the object of generally improving foreign trade. The most notable among such efforts is the organization of missions tasked with investigation of overseas markets. These groups have been sent to various parts of the world since 1937, when five of the missions toured the Near East, East Africa, West Africa and South America. The information brought back by these missions having proved considerably serviceable for the purpose of formulating Japan's future trade policy towards these parts of the world, three more similar missions were sent to India, Central America and North America respectively in September, 1938.

Another measure taken for similar purposes calls for the opening of trade facilities bureaus abroad, which were opened at 14 places in foreign countries during 1937. The number of these offices

were increased by 12 during 1938 in order to make this system more widely available throughout the world.

The measures outlined above are calculated to meet the urgent requirements of the prevailing situation. Yet it is not anticipated that they will bring immediate results in trade statistics. The Government is fully prepared to take further measures in order to improve the export of Japanese goods. It will keep in close touch with the existing industrial machinery for this purpose, for it in no way regards its own measures as a panacea for Japan's foreign trade. The expected stimulation of exports will play an important part in increasing Japan's power to buy from abroad and in making it possible for the nation's wartime economy to operate smoothly. Upon the life of the people, the importance of Japan's foreign trade is not so apparent. Economic conditions within the country have remained stable for the past several years. The Government's attention to matters of foreign trade is a part of its general concern for the development of all phases of national economy and national strength.