INTELLIGENCE MEMORANDUM JAPAN'S CHANGING TEXTILE INDUSTRY: SOME PROBLEMS AND PROSPECTS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001700020030-5
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 25
• Document Creation Date: December 22, 2016
• Document Release Date: March 2, 2010
• Sequence Number: 30
• Publication Date: September 1, 1971
• Content Type: IM

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~~ ci%U I'd...i
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Confidential 25X1
DIRECTORATE OF
INTELLIGENCE
Intelligence 1Vlemoran~.urn
Japan's Changing textile Indust~~:
Some Problems And Pn~spects
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WA~NIN'G
'This doceunent contains information affecting the national
defense of die United States, within the meaning of Tide
I8, sections 793 and 794, of the US Code, as amended.
Its transmission or revelation of its contents to or re-
ceipt by an unauthorized person is prohibited by law.
GROUP 1
C,tdudcd Irom aulomolit
downryrading and
dedouificorion
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CONFIDEN']~'IAL
CENTRAI, INTELLIGENCE AGENCY
Directorate of Intelligence
September 1971
INTELLIGENCE 1NlEI~ORAPJDUM
JAPAN'S CHANGING TEXTILE INDUSTRY:
SOME PROBLEMS AND PROSPECTS
Introductior.
/This memc?;andum examines the Japanese textile
industry's development over the past decade, describes its role in the US
and other major foreign markets in regent years, and assesses the likely
impact of the unilateral restraint program a~~d other factors on the industry.
Discussion
The Textile Industry: Size and Scope
2. Japan's textile industry 1/ is among the world's largest. It ranks
second only to the United States in man-made textile output and behind
the United States, the 'JSSR, India, and China in natural fiber products.
In terms of the international textile trade, Japan leads by far., Japan experts
1. For the purpoces of this memorandum, the textile industry includes
all phases of prveessing from synthetic fiber production' to apparel
production.
Note: This memorandum was prepared by the C-ffice of Economic Research
and coordinated within the Directorate of Intelligence.
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almost one-quarter of its production, a laxger share than any ether developed
country, and is easily the world's leading exporter of textile manufactures
and importer of textile raw materials, mainly wool and cotton.
3. As in other countries, the textile industry in Japan employs large
numbers of persons. There are more than 1 million wor!.;srs making up
13% of the manufacturing labor force, compared with 12?ri in the United
States. The industry includes more than 100,000 firms, although most of
these are small family-type operations. For example, roughly 10,000
concerns are involved in spinning, but only about 100 mills account for
some 90% of output. The prevalence of small-scale operations is also
characteristic of the apparel industry, where only about 500 of the 35,000
to 40,000 concerns employ more than 100 persons.. But in the apparel
sector, the few large firms account for only a small. portion of output.
4. in spite of its ~~ize and recent growth, the relative importance
of the textile industry has been steadily declining over the years. Textile
production increased by more than 120% since 1960 (see Table 1), but
the industry has not kept pace with the even more rapid growth registered
in other Japanese industries such as iron and steel, chemicals, and machinery
(see Figure 1). As a consequence, textile's share of total manufacturing
output fell from I S% in 1960 to 9% in 1970.
5. The declining importance of the industry's export, share is even
more marked. In 1960, overseas sales of textile products accounted for
about 28% of total export earnings, but by 1970 they made up only 12%
of the total. In contrast to ;heir leading position in Ja~,anese exports during
the early and mid-1960s, as Japan's major export commodity, textiles now
rar_k well behind iron and steel and electronics. Textile exports nonetheless
doubled over the past decade, and they still are a very important source
of foreign exchange, earning $2.3 billion last year.
Production Trends
6. The Japanese textile industry has changed dramatically over the
east decade. It .has shif`ed from a basically labor-intensive industry
producing cotton fabrics to a more capital-intensive one producing
synthetics. Synthetics accounted for practically all the growth in textile
production over the past decade; rising five-fold between 1960 and 1970.
By last year synthetics made up about 40% of the total vol~a:ne of textile
production ~ compared with about 12% in 1960 (see Figure 2). For awhile,
Tokyo helped to slow down the decline in importance of the cotton ':extile
2. Composition of textile productio,~t is in terms of tonnage of yarn base.
CONFIDENTIr`~I,
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JAPAN: Indexes of Industrial Nroduction Figure 1
INDEX (1965=100)
0 ~--
1980
B14G9B 071
- .. ,.
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JAPAN: Tex#ile Prod~~ctior~ by Fiber* Figure 2
THOUSAND TONS
1,000 ~
617040 0.71'
Rayon
Wooten
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Japan:
Table 1
Production Index
1960
1965
1966 1967
1968
Total textiles
100
144.9
159.6 173.9
184.3
Chemical fibers
100
234.7
273.7 330.5
380.3
Spinning
100
120.5
124.5 131.8
141.0
~+Teaving
] OC1
112.4
] ] 5.4 ] 22.9
'126.6
1960 = 100
1969
1970
202.2
223.2
438.0
541.8
145.3
153.5
136.6
142.2
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industry by restricting expansion in the synthetic fibers, but controls were
lifted in 1969 and plant capacity for the three major synthetics -polyesters,
acrylics, and nylon -jumped by a whopping 51%, 35%, and 15%,
respectively. Investment in synthetic fiber plants alone has exceeded $1
billion since 1966, and substantial amounts have been spent to adapt the
spinning and weaving sectors to synthetics.
7. In the early 1960s, the growth in synthetic output was based
largely on satisfying the domestic market, but increasingly the industry has
shifted to overseas markets to sustain rapid growth. 13y the end of the
1960s, 18% of the volume of synthetic fiber production was being gold
abroad, compared with 2% in 1960. Synthetic fabric exports now take
almost 50% of total production, compared with only 13% at the start
of the 1960s. Although most of the increase in output in recent years has
been for export, the domestic market is far from stagnating. L;~st year,
domestic consumption of synthetic fabric rose by nearly 10%. Tlie knitting
industry, now based essentially on synthetics, also has done well, especially
in foreign markets. In 1969, about 10% of knit cloth production, for
example, was sold abroad, compared with only about 4% in 1965.
8. The inroads made by synthetics have come primarily at the
expense of rayon and cotton, which now account for 20% and 26%,
respectively, of total textile production. Output bf rayon and cotton fabrics
fell sharply over the past decade, primarily because of declining exports.
Domestic demand for rayon has stagnated, and most of the increased
demand for cotton textiles has been met through imports. Among the
natural fiber products, only woolens registered an increase in output in
recent years. Production of wool fabrics by volume increased by about
one-fourth since 1965 despite a decline in overseas shipments of about 10%.
9. Japan's clothing industry has also been undergoing a change in
its production patterns. An increasing share of output is made up of
outerwear as opposed to tine early and rnid-1960x, when production was
heavily concentrated on underwear. At the same time, there has been steady
progress in upgrading the quality of clothes, a shift to ready-to-wear articles,
and much greater production of permanent press articles. The technology
needed for permanent press ovens and many other innovations has been
obtained in some cases from US firms through licensing agreements. A good
share of the clothing output is exported, but the industry has had trouble
increasing its overseas sales in the past year or so.
Trade Trends
10. Japanese textile exports increased fairly rapidly during the
1966-70 period -showing average gains of nearly 9% annually despite
restrictions on access to foreign markets (see Table 2). As early as the
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Japanese Textile Exports
Million US $
1965
1966
1967
1368
1969 1970
Textile material=
954.5
151.1
138.6
154.6
173.6
200.5
Yarn and thread
183.6
231.9
2G7.4
306.7
396.7
425.8
Fabrics
798.8
869.8
858.0
952.7
1,059.9
1,127.6
Of athi ch
Woolen
86.8
76.4
85.3
104.4
93.9
75.5
Synthetic
985.6
271.9
312.9
353.7
517.6
625.0
Cotton
302.6
285.7
248.9
283.3
221.3
187.6
Rayon
]59.8
955.6
13400
1G5.9
112.9
108.4
Knitted
23.3
42.3
46.6
61.8
86.7
124.4
Non-clothing products
108.1
915.8
115.9
134.0
133.1
139.3
Clothing products
270.0
316.2
312.4
357.5
411.6
413.6
Total
9~,5~15.0
1,684.8
1,632.3
1,905.5
2
174
9
2
306
8
,
.
,
.
Textile machinery
89.9
100.0
106.3
198.6
147
8
196
4
_~
.
.
Ov~~
aZZ total
1, 596.9
1, ?84. 8
I, 73f3. 6
2, 024.1
2, 322. 7
2, 503.2
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mid-1950s, for example, Tokyo agreed to impose voluntary export cortrols
on cotton textile sales to the United States. These were later subsumed
under the 1962 Long-Term Cotton Textile Agreement, which limited most
Japanese cotton textile exports not only to the United States but also to
European Commu;-ity (EC) countries and the United Kingdom. In recent
years, moreover, textile exports -including man-made textiles - to EC
members have been limited further by a variety of methods, including
quantitative restrictions and in some cases bilateral agreements.
11. The United States is by far the most important single overseas
market for Japanese textiles, absorbing $534 million worth of earns, fabrics,
and made-up goods in 1970 (sec Table 3 and Figure 3). Last year the United
States accounted for 23% of , total Japanese textile exports, although
between 1965 and 1970, sales to the US market grew more slowly - at
about 7.5% annually -than total textile exports. Japan is still by far the
largest overseas supplier to the United States; in ! 970 it accounted for
approximately one-fourth of total US imports of manufactured textile
products. 3/
12. Japan is basically a seller of apparel and other made-up goods
to the US market ~. Last year these exports were worth $267 million,
or one-half of total Japanese textile sales to the United States. Since 1965,
sales of apparel hsve increased in value by 12% annually, although the
increase was achieved in part by the steady upgrading of the quality of
apparel exports and by the increase of synthetic blend items, which now
make up more than half of apparel sales to the United States. The improved
product quality is reflected in the increase in value of clothing sales to
the United States last year in spite of a drop in volume.
13. After finished goods, fabrics are the largest Japanese textile export
to the United States. Exports of synthetic fabrics have increased very
rapidly -from $25 million in 1965 to $82 million in 1970 -and Japan
now accounts for almost three-fourths of US imports. Another rapidly
increasing item is knit fabrics (mostly of synthetic fiber). Knit exports to
the US market rose from $1 million in 1965 to $29 million last year.
Exports of other fabrics - mainly cotton and wool -have generally
3. For the purposes of this memorandum, mattt~factttred textile exports
exclude natural fiber raw materials -silk, cotton, a~td wool.
4. For the purposes of this memorandum, rton-clothing textile products
include: tulle, lace, attd embroidery (SITC category 654), special textile
fabrics (SITC category 655) attd made-up articles of textile materials (SITC
category 6515.9). For clotltittg, Japanese trade statistics include clothing
accessories of leather (SITC category 841.3) and headgear (SITC category
841.5). These items are excluded in all trade data it: this memorandum.
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EAST ASIA: Textile Exports to Selected Countries, 1970 ~M,?~oNOS:~
'includes manulacfured fibers, yarns, fabrics, and finished goods,
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Japanese Textile Exports to the United States
Million US $
1965
1966
1967
196
8
1969
1970
Textile materials
414
27.7
13.8
15.4
14.4
13.4
Yarns and threads
13.0
22.6
14.1
24,7
20.1
33.7
Fabrics ~
o ~ ~rhi ch
162.4
967.6
158.6
200.9
209.7
22o.s
Hloolen
57.2
46.9
56
7
75
Cotton
36
.
.7
59.2
Synthetic
.3
2
41.7
37.2
42.1
51
0
40
9
Rayon
4.6
96
33.3
27.0
40.9
.
55.6
.
5
81
K
i
.0
18.6
18.7
20
5
.
n
tted
~ ? 1
2
5
.
21 .6
20.0
.
2.2
5.3
8.7
2?.3
Non-clothing products
21.2
25.1
22.8
30.1
30.8
29.7
Clothing products
131.7
156.1
140.4
174.6
231.2
236.9
Total
369.7
399.1
349.7
445.7
506.2
534.5
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stagnated during the past five years. !n the case of cotton textiles, shipments
are controlled by the 1962 Long-Term Agreement, but this is not the main
roblem.
~ The other
mayor textile export category is yarns, but these make up only about 6%
of total sales to the United States. Their value has increased sharply in
recent years, however, from $13 million in 1965 to $34 million in 1970.
Again, most of the increase reflected higher sales of synthetics.
14. The fastest growing market for Japanese textile products is
Southeast Asia. Sales to the area grew slowly during the first half of the
1960s, when Japan was concentrating on the US market; but since 1965,
exports to Southeast Asia have been growing by 18% annually (see Table
4). Last year these sales amounted to $757 million, or one-third of the
total. The great bulk of exports to the region consist of synthetic fibers,
yarns, and fabrics, and accounts for more than half of total Japanese
shipments of these items. In addition to textile products, the region has
become an .important market for Japanese textile machinery and dyestuffs.
Japan exports more than one-third of its textile machinery output, and
last year Southeast Asian countries bought more than 60% of Japan's
machinery exports of $196 million (see Table 5). Most of the $35 million
its dyestuff exports also went to Southeast Asian countries..
Table 4
Japanese Textile Exports to Southeast Asia
Million US $
1965
1970
Textile materials
36.5
8
Yarns and threads
67.7
209.6
Fabrics
Of which:
194.2
413.9
Cotton
63.3
43.6
Woolen
6.9
14.6
Synthetic
60.7
296.5
Rayon
33.8
t2.5
Knitted
13.6
33.3
Non-clothing products ~
20.5
37.7
Clothing products
10.8
12.7
Total
329.7
757.4
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. Table 5
Japanese Textile-Related Exports to Southeast Asia
Total to World
Total to Southeast Asia
Hong Kong
Taiwan
South Korea
Thailand
South Vietnam
Philippines
Indonesia
Malaysia a/
Singapore
Textile Textile
Products Ma~chii~ery
1,515.0
81.9
2,306.8
195.4
329.7
32.0
757.4
119.9
99.3
5.3
246.6
10.5
24.0
7.1
90.1
i7.6
36.1
6.6
150.3
37.2
33.1
6.6
45.2
24.0
19.5
1.3
20.5
1.9
33.3
2.9
49.9
3.5
43.9
1.4
"~
G J
1
11.3
4005
0.8
9.7
0.4
--
-'
i)7.0
3.5
a. Inelu 2ng exports to Singapore in 1965.
~,~
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15. The rapid increase in exports to the area is largely tied to she
booming textile industries in Hong ICong, Taiwan, and South Korea. Japan
supplies more than 90% of the manufactured textile materials imported
by Taiwan and South Korea and about 50% of Hong Kong's imports. Japan's
ability to sell increasing quantities of textile materials to these three
countries is directly related to their rapidly growing exports of textile
manufactures to the United States and other countries. Japanese sales to
the three rose by 206% between 196 and 1970, while the overseas textile
sales of these countries xo the United States rose by 256%.
16. Exports to Southeast Assa no doubt would have increased more
slowly had Japan not moved into the area with substantial direct investment
in p.?ant and equipment. The Japanese have greatly increased their
involvement in Southeast Asian textile industries and, with a total direct
investment of about $50 million, now have part ownership in more than
100 textile firms throughou? +he area. More importantly the Japanese have
been able to exercise some control ovG.:;:~nv Southeast Asian textile firms
through production r,~ntracts and by handling the ~~nort marketing of their
products. Since the mid-1960s, Japanese investment hus ehifted from plants
producing finished goods to large synthetic fiber and fabric plants. To some
extent, at least, these newer operations compete with Japan's domestic
industry for foreign markets, but of the same time they are b~lyers of
Japanese textile machinery, fabric, yarns, and synthetic fibers.
Japanese-controlled plants abroad now account for about 14% of US textile
imports.
17. Foreign textile markets other than the United States and
Southeast Asia accounted for about 44% of Japan's sales abroad in 1970,
but with a few exceptions sales to these other countries have grown very
slowly. Only textile exports to Canada, Australia, and the USSR have grown
rapidl3~ -reaching at least $80 million ea X11 in 19'?0. In most of the less
developed world excluding Sou~`he.:,st Asia), the growth of sales has slowed
as these nations leave developed their own textile industries behind high
import barriers. In Africa, for example., Japanese textile sales F~ave actually
declined in she past five years.
18. The EC restrictions have been highly effective in keeping Japanese
textile sales. small. In 1970 the EC accounted for less than $100 million,
or 3?Io, of total Japanese textile exports. The great bulk of these consisted
of synthetic fibers; clothing exports totaled less than $25 million. Japanese
textile sales to the EC increased only about 3,% annually during the past
five years, and all the increase was due to rising West German imports,
since sales to the other five dropped. The EC countries are now considering
liberalizing trade with Japan, but restrictions on textiles nonetheless may
not be relaxed appreciably. EC countries -especially Italy and France -
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are anxious to protect their own tax?ile industries, which employ about
12% of their manufacturing labor force, and over the past several years
a complex system of restrictive agreements governing textiles has been
negotiated with Tokyo. It is doubtful that liberalization measures would
be taken that would weaken these significantly.
19. About three-quarters of Japan's textile imports of about $1.2
billion in 1970 were basic commodities, mainly cotton and wool (see
Table 6). Yarns and fabrics accounted for 16%, while finished textile
products, including clothing, constituted only 9% of total textile imports.
In addition to these items the Japanese import some dyestuffs and small
amounts of chemicals used directly by the textile industry. Textile
machinery imports amount to some $100 million annually.
20. Japan's natural fiber manufacturers depend almost entirely on
imports for their raw material requirements. Imports of raw cotton last
year were valued at $471 million, about 17% of which came from the Unites!
States, making Japan the largest overseas market for US cotton. Overall,
Japanese imports of raw cotton, however, declined slightly over the past
decade in line with the fall in domestic cotton yarn production.
Requirements for raw wool are also met entirely by imports, which have
increased in volume but are falling in value as world prices decline. Last
year, wool imports were worth $364 million and came primarily from
Australia and New Zealand. For both cotton and wooly Japan is by far
the largest single import market. Once the world's largest silk exporter,
Japan is now the leading importer of raw silk. Most of its silk imports
cs',me .from South Korea.
21. In contrast to the situation regarding natural fibers, which must
be imported, virtually ail synthetic fiber requirements are met by domestic
production. Arnong the man-made fibers, only rayon requires substantial
amounts of direct raw material imports, mainly rayon pulp. These imports
have tended to decline in recent years, however, in line with the fall in
rayon production. Japan's large and advanced petrochemical industry
provides virtually all the chemical intermediates needed in produc?ng
synthetic fibers. Indeed, production of almost all major raw materials for
synthetic fibers -such as ~~olypropylene, acrylonitrile, and cyclohexane -
has been increasing much faster than synthetic fiber output.
22. Most of the increase in textile imports since 1965 consists of
processed and finished items. Imports of yarn and fabric -mainly woolen
and cotton -jumped nearly fourfold between 1965 and 1970 and were
valued at $190 million last year. Imports of finished products grew even
faster, reaching $113 million in 1970. The most dramatic gain was in
clothing imports, which went from only $6 million in 1965 to $86 million
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JaFanese Textile Imports
Million US $
1965
1966
1967
1968
1969
1970
Textile materials _
807.2
885.4
858.0
9.17.8
885.4
918.8
Yarn and thread
5_5
9.3
19.4
25.5
26.0
42.1
Fabrics
34.2
3E_4
E5.8
87.0
106.1
148.1
Non-clothing products
6.8
6.7
12.4
15.3
21.8
26.3
Clothing products.
6.5
8.6
14.5
22.7
38.1
86.5
Total
860. 2
948.4
970.1
1, 068. ~
1, 077. 4
1, 221. 8
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last year. Somo 80% cif clotlilng imports come from Hong Kong, South
Korea, and Taiwan. '~'heso countries also supply most of Japan's yarn and
fabric.
23. By and large, Japanese imports of manufactured textile products
arc low-value items, mostly Intermediate products. Ono?third of Japan's
cotton fabric imports in 1970, for example, consisted of grey, undyed goods.
A large share of apparel imports from East Asia, moreuver, consists of items
such as pockets, cellars, shoulder pads, and dress shields used in
manufacturing finisr,ed clothes. South Korea is the major East Asian supplier
of such items, which constitute one-third of ita textile exports to Japan.
Problems And Prospects
International Cam etitivc Situation
24. Although the Japanclte textile industry has done fairly well, it
faces many of the same proble~m~s as textile industries in other developed
countries. Wages arc increasing rapidly as more and more work.~rs arc
attracted to higher paying jabs elsewhere, and the industry is ha~?ing trouble
recruiting new workers. Foreign competition, both at home and abroad,
is intensifying; in several areas, Japan has already :ost its cornpctitive edge
to other East Asian countries. Beyond this, the Japancsc face increasingly
restricted foreign markets. Exports to the EC countries arc already ti6htly
restricted, and voluntary export controls on sales to the United Slates limit
sales to this major market. Other countries, including Australia, Canada,
and South Africa, meanwhile arc also pressing for export controls.
25. Outside of North Amcricu the Japancsc already have one of the
higl~cst wage rates in tnc tcxtilc industry, and these rates arc increasing
more rapidly than in most countries. Because of a growing labor shortage,
wage rates in the industry liavc been increasing by about 1570 annually
since 1965 (sec Table 7) - fastc~ than in any other Japan~~sc industry. In
1969, wages averaged about 90 cents an hour. Although well below the
US hourly raft of $3.19 in 1969, Japancsc wages were already higher than
those in France and Italy and ti,ree to eight times higher than in Hong
Kong, South Korea, and Taiwan. The gap almost certainly widened last
year, when Japancsc tcxtilc wages jumped by nearly 2070.
26. Major Japancsc tcxtilc firms have prospered in recent years despite
rapidly rising labor costs. Most of these large firms have made good progress
with modernization programs, concentrating cry synthetics. The
capital-intensive synthetic fiber sector as a result scored gains in labor
productivity of some 2170 annually since 1965 (see Table 8), a raft higher
than the wage increase. Improvements in productivity have enabled Japan
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Table ~
Japan:
Textile Wage Index 1
1965
= 100
1965
1966
1967
1968
1969
1970
Total textile industry
100
109.7
122.6
141.9
167.8
198.8
Synthetic fiber
100
309.1
138.0
160.3
179.7
N.A.
Spinning
100
107.7
120.4
142.1
164.3
N.P_.
Textile fabric
100
101.1
122.0
138.9
163.7
N.A.
Dyeing and finishing
100
112.5
126.6
145.8
169.G
N.A.
Others
100
107.6
111.0
135.5
160.5
N.A.
a. Exc u zng onus payments.
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Table 8
Japan: Index of Labor Productivity in Textiles
1965 =
100
1965
1966
1967
1968
1969
Tonal texti3e industry
100.0
109.6
122.0
131.4
144.9
Synthetic fiber
100.0
121.3
156.8
183.2
216.5
Spinning
100.0
109.9
117.0
124.6
131.3
kTeaving
;00.0
1CD.6
111.1
117.1
126.4
Dyeing and finishing
100.0
112.0
121.0
126.1
136.2
Other
100.0
116.1
119.9
121.1
133.0
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to maintain a competitive edge ir, synthetics. Its unit export prices for
synthetic fibers and fabrics arc, for example, still about 25% below those
of the EC countries.
27. Profits of tltesc large firms were eertcrally up during the latter
1960s, and in recent years many firms have been recording before-tax profits
edual to more titan 30% oC capital investr~tcnt. Although the large synthetic
fiber producers registered a slight drop in profits last year -the first in
five years -because of declining prices, their position remains strong. Like
many Japanese industries, textile firms operate with large amounts of
borrowed funds. Having a high debt-equity ratio, they are extremity
sensitive to evens a slight slump in sales. To help avoid this, many a; e
diversifying their operations while reorganizing through mergers and oth:;r
regroupings with an eye toward limiting price competition.
28. It is the numerous small-scale Japanese firms which have been
bearing the brunt of the textile industry's problems. Wage rates among
natural fiber and fabric producers and garment makers arc increasing at
lease twice as fast as labor productivity. Cotton and other natural fiber
industries for many years have faced increasing competition from foreign
producers -mainly in Icss developed countries. In the last year or so
clothing producers have been adversely affected because other East Asian
producers now can in many instances undersell them by 20%-30Io. The
growth rate of Japartcse clothing exports lots slowed, and during the past
year and a half there has been an increase in clothing imports into Japan.
29. Small-scale producers arc being helped, however, by Japanese
iynport restrictions, wltic}t can be expected to keep foreign competition
wit.,in reasonable bounds. Altttouglt incrcasirtg rapidly, clothing imports still
make up only 4% of total domestic sales, and past experience suggests that
controls will be strcngtltencd should imports become a serious threat to
the domestic industry. Few finished textile goods were included in Tokyo's
recent tariff cuts for Icss developed countries, for example. A second form
of aid to small producers is a financial assistance program aimed at helping
the industry to modernize itself. In addition to that program, over $250
million is being made available to fire industry, including $30 million to
purchase surplus textile rttacltirtcry, $10 million to assist it to meet interest
payments, and $170 mi~liort for long-term, low-interest loans from
government-affiliated banks financing mainly small businesses. In addition,
total guarantce~ on loans by commercial banks to textile firms will be raised
from $36 million to $92 million. The program over the next few years
will undoubtedly accelerate modernization of textile plants and equipment
and slow down fire erosion of the industry's competitive international
position. But it is unlikely to restore Japan's previous position or even halt
the decline entirely.
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Impact of "Voluntary" Export Controls
30. More than 900'0 of the value of Japanese textile sales to the United
States are covered by the recently initiated "voluntary" export controls.
The restraint program covers four major textile categories -cotton, wool,
man-made fabrics, and finished goods made of those materials. Textile raw
materials and yarns are excluded. Tlie restraint program limits the increase
in exports for each of the four major groups for the year beginning July
1971 to 5% of the actual volume of exports to the United States during
Japan's fiscal year April 1970 -March 1971. In the second and third years,
the permitted increase rises to 6% annually, based on the volume achieved
in the previous year. In addition, the Japanese imposed ceilings on their
exports of several specific textile products.
31. Export controls on cotton and wool fabrics will have little or
no impact, since shipments to the United States have been dropping.
Between 1965 and 1970 the import volumes of those items fell by 37%
and 23%, respectively, and the downward trend continued into 1971. Total
US imports of cotton and wool fabrics are stagnating, and the Japanese
are having a hard time competing with less developed countries.
32. In the case of finished goods, growth in tlie volume of Japanese
sales to the United States has recently slowed considerably. US imports
of cotton items from Japan stagnated during the past half decade and
actually fell last year. Imports of woolen finished goods, which make up
less than 2% of the total, grew by 8.5% a year. Imports of finished goods
made from man-made fibers, accounting for over half the total, were
increasing by more than 27% annually, but last year the import volume
of these items rose by a mere llo. Moreover, the slowdown in synthetics
does not seem to be a temporary aberration. Despite Japanese efforts to
flood the US market before any export restraints were imposed, the import
volume of man-made finished goods during the first five months of 1971
was running less than 4% above the same period for 1970. As in the case
of cottons, the trouble stems from other East Asian producers. US imports
from Hong Kong, Taiwan, and South Korea of ^lothing made from
S. Reports on whether all or part of cotta: textile exports to the United
States will be covered by the ~~oltuttary restraint program are unclear. Tokyo
apparently wants to include all cotiwrs and to allow restrictions under
existing bilateral agreements on cottons to !apse at the end of this year.
For the purposes of this memorandum, all cottons are assumed to be
itrcluded in fire restraint program whether or trot they are covered by
existing bllateral agreements. Witlt or without cottons now bebtg governed
by bllateral agreements, however, tl:e analysis remait:s essentially unchanged.
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man-made fibers jumped 32% in volume in 1970 and rose by a whopping
67% during the first five months of 1971.
33. Iirom the Japanese point of view the only major problem in
adopting export controls involves exports of mart-made fabrics, which have
been increasing sharply. Since 1965, US imports from Japan have risen by
more than 12% annually, but the pace accelerated to 29% last year. A
68% increase in volume was recorded during the first five months of 1971.
If the Japanese adhered to the scheduled limits in export growth rate for
each category, they would face a signi scant slowdown in textile exports
to the United States, btrt Tokyo presumably anticipates shifting unused
portions of quotas to other categories. Given the likely decline or stagnation
in shipments of cotton and woolen fabrics, their entire quota and then
some could be reallocated to the man-made fabrics category. There miglrt
also be a substantial portion of the firtis}ted goods quota available for shifting
as well. Witlt these quota shifts among categories, there would still be room
for exports of rt:art-made fabric to continue increasing at a rafid pace.
34. S~If-imposed export ceilings on specific textile products could
pose a more serious threat to Japanese sales than the br?~ad category
controls. But even here, Tokyo apparently has protected itself by setting
very high ceilings. Among the specific items with ceiling limits are knit
fabrics, which accounted for most of the growt}t in synthetic fabric exports
to the Unite4 States last year. Here, the ceiling reportedly allows a 6010
increase in exports during tltc first yern; of controls. Moreover, the Japanese
have increased their knit fabric exports at a ver,~ fast pace since around
November 1970 in order to boost their export volume during the base year
ending in March 1971. In July 1971, the first month of voluntary controls,
the volume ran about 100`% above the July 1970 level. Because of the
rapid increase, shipments were halted in mid-August, but will be resumed
in September at a rate sufficient to boost exports during all of 1971 to
almost double the 1970 level. Most other }tiglt-growth items with specific
ceilings, such as polyester woven fabrics artd certain clothing items, also
registered substantial increases by the first six months of 1971.
35. In sum, the Japanese have so far protected themselves from any
serious adverse effects from the controls. But even without these restraints,
the overall volume of textile exports to the United States over the next
few years probably would not increase by much more than S 10.6% annually
and might have increased even less because of the growing corttpetitiort from
the less developed countries. In value terms, Japanese textile exports should
do better, partly because of price increases but mainl~~ because of the
continuing trend toward higher quality goods. Thus the growth in the value
of Japanese textile exports to the United State;; probably will remain at
around the 6% rate achieved in 1970. Overall Japanese export growth would
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be more seriously hurt if other East Asian textile producers put restraints
on their sales to the U5 market, since their demand for Japanese material
would slow as well.
Difficulties Over the Longer Term
36. Over the longer term the Japanese textile industry will face
increasingly serious problems with or without export controls. The
continuous upgrading of textile products among the low wage, less
developed countries will be the basic source of trouble. In general the
Japanese have already lost much of their international competitive advantage
in all items but synthetic fibers, yarns, and fabrics plus some clothing items.
But even this advantage will gradually erode as the less developed countries
acquire the technology and capital to develop their own synthetic industries,
and the trend will be accelerated by a yen revaluation. Moreover, as the
initial boom in synthetics slackens, there will be greater competition among
producers. But the Japanese can be expected to remain aggressive
competitors who will be depending more on the development of new
products and on their efficient international marketing apparatus. At home
they will still have a large market protected by import barriers against
excessive foreign competition.
37. In general economic terms, the diminishing importance of the
textile industry will have beneficial results. If the Japanese are going to
maintain a high growth rate, they must continue the process of structural
upgrading of their economy to more capital-intensive sectors. This will
involve a shift of workers between sectors, since the employment situation
is already tight and the number of persons entering the work force in the
next decade will be relatively small. A reduction in the 1 million Japanese
te~~tile workers will permit a shift of labor to the high-growth sectors.
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