in Japan or by a combination of such enterprises that restrain competition in this market, limit access to this market and foster monopolistic control of this market. We further ask that you request the cessation of the business practices from which these harmful effects flow."

We provided the Secretary with a considerable amount of substantiating evidence which it is unnecessary to repeat here because you will find a copy of it in your files. We asked the Secretary to be kept informed of his progress in this matter, but to this date, 6 months later, we have had nothing from the Department of State beyond an acknowledgment of the receipt of our letter of August 27 with enclosures.

In the meantime the tuna industry has continued to move, the monopolistic controls of the tuna trade with the United States have continued to tighten in Japan, and the harmful effects which both countries recognized as inevitable in 1953 have continued to flow from these practices.

It may be useful to briefly recapitulate the sequence of events which have led the tuna trade to this pass.

In 1950 the trade agreement with Mexico was abrogated and the tariff on tuna canned in oil, then the principal tuna commodity in trade, automatically reverted from 222 percent ad valorem to 45 percent ad valorem. Instead of making this reversion simultaneous with the announcement of the abrogation, as this industry requested, the Department of State made the announcement in June 1950 but did not make the tariff rate effective until January 1, 1951.

In the ensuing 6 months the Japanese flooded this market with tuna canned in oil to the extent that the entire tuna market in the United States was thoroughly demoralized by the middle of 1951 and our fleet was stopped. This was the first of the major stoppages of this fleet which have since become annual affairs.

In 1951 the Japanese discovered a loophole in United States trade law which enabled them to largely circumvent the tariff barriers applying to canned tuna. They could leave the oil out of the can, substitute water for it, call the product tuna canned in brine and reduce their tariff on canned tuna by this simple step from 45 percent ad valorem to 121⁄2 percent ad valorem. They diverted their production to this commodity form in 1951. Their exports of this commodity grew from 73,000 pounds in 1950 to 8,627,000 pounds in 1951; 18,573,000 pounds in 1952; and 28,248,000 pounds in 1953.

These sledge-hammer blows on the United States industry brought it temporarily to its knees. In 1951 legislation rationalizing the tariff on tuna commodities was introduced in the Congress. Recognizing the critical emergency faced by this industry, the House Committee on Ways and Means reported out temporary remedial legislation which passed the House but got to the Senate too late to be considered and was held over to the 1952 session. Its passage in the Senate was bitterly and successfully contested by the Department of State, although the bill was defeated by only a slight margin.

In order to cool down feelings, relieve pressure on the market, and aid the Department of State in defeating this legislation, the Japanese Government instituted sharp and close controls over both the volume and price of all forms of tuna exports to the United States. On September 25, 1951, canned tuna was placed on the list of commodities for which export licenses were required. On December 15, 1951, frozen tuna was added to the list.

The legislation kept moving through its required steps in the United States Senate and was due to come up for vote there in the spring of 1952. On April 7, a quota covering the exports of both frozen and canned tuna to the United States was established by the Japanese Government to cover the year April 1, 1952, through March 31, 1953. The quota for frozen tuna was set at 24 million pounds for the year. This represented a substantial cutback in the rate of exports that had been going on. News of this action was notified to each member of the Senate shortly before the bill was to come up for debate and vote. It was a shrewd move to defeat the legislation and it contributed to that end.

It was from this period of emergency controls in Japan that the basis of the present troubles arose. To suddenly initiate an emergency total quota on exports where a number of independent firms were involved necessitated the Japanese assigning a separate quota to each of the companies involved, by and large on the historic precedent of the share of the market that company had had in the immediately preceding period. From this innocent and temporary measure the tuna trade with the United States has now come to be completely controlled at all stages from the ocean to market by 2 cartels in Japan whose activities are coordinated and legalized by 3 departments of the Japanese Government.

Very shortly after the defeat of this legislation in the United States Senate the Japanese Government began adjusting these quotas upward. They had

served thier purpose and the economic pressures which these suddenly imposed restrictions had created on the several branches of the Japanese tuna industry required being relieved. As a matter of fact there was a good economic justification for so doing. The curtailment of exports to the United States which these restrictions had caused plus the long layups which had been forced upon the United States tuna fleets by the market condition in this country led to a temporary shortage of tuna for canning in the United States in the winter and spring of 1952-53.

The Japanese Government, still smarting from the near passage of the legislation in the United States Congress, quite refused to relax the volume restrictions on frozen tuna unless the exporter could obtain a signed "assurance" from the importer, on a form devised by the Japanese Government, that he needed the tuna and could not get it elsewhere. Needless to say these forms were readily executed because the price of the tuna was right.

Armed with these signed forms the Japanese Government relaxed its quota on frozen tuna for export at as rapid a rate as the orders and forms came in. In the early winter the annual quota was increased from 24 million pounds to 36 million pounds. Subsequent increases were granted. Instead of the promised volume control of frozen tuna to 24 million pounds during the year April 1952-March 1953, more than twice as much was permitted to be exported during that period. The export of frozen tuna from Japan to the United States in calendar 1952 was 51 million pounds and this increased to 77,100,000 pounds in calendar 1953.

It was at this stage that a misconception of the term "quota" as used in Japan became widely held in the United States Government and the United Sates trade. When the Japanese Government enlarged its 1952 quotas on frozen tuna exports to the United States in 1953 it enlarged them in such a flexible manner that they were no longer an impediment to trade, but the controls were still displayed in evidence. There was still an overall quota for all frozen tuna exporters and individually assigned subquotas inside the overall quota for the individual firm. When this overall quota was near completion it would be increased by another 5,000 tons or perhaps 10,000 tons-whatever the industry thought the production would be. The individual subquota of each individual firm was thus automatically enlarged. The industry knew that these quotas would be enlarged if the catch came into port. Consequently the overall quota and the individual quotas under it became production goals instead of volume controls. As soon as the companies achieved their quotas they asked for an increase, which was granted, and then they drove ahead to complete that production goal.

At this stage there crept in another misconception that is still widely held in the United States Government and has been widely and steadily propagated by the Japanese and particularly by the American importers of frozen tuna. That is the canard that Japanese frozen tuna has consistently sold for more to United States canners than has American caught tuna and therefore has not brought price pressure upon the American tuna market.

The truth is that the opposite is the case. Japanese tuna has been steadily and consistently laid down on United States cannery floors at prices which gave the United States canner a lower cost per case for raw materials from Japanese frozen tuna than from American-caught frozen tuna. This was contrived by two principal methods: (1) Grading the fish into sizes before shipment from Japan so that the labor cost in canning was lower and the yield in cases per ton from the shipment were higher than from ocean run whole fish as produced in America, and (2) eviscerating the fish before shipment so that a larger proportion of the ton of fish bought ended up in the can than from a ton of whole fish. In the last 2 or 3 years almost all of the frozen yellowfin tuna exported to the United States has been eviscerated and a growing part has been further advanced in manufacture than that by taking off the head and tail, or by even filleting out all the bony structure of the fish. American producers were stopped from similar action by the high cost of labor in the United States.

These two treatments together created a situation whereby if a ton of yellowfin tuna from Japan and a ton of the same species from an American boat were laid side by side on the floor of a cannery in the United States and the canner had paid $300 in cash for each of the tons, his actual cost in terms of comparative yield in cases per ton would be $30 to $60 less for the Japanese fish than for the American fish.

The sudden rise of frozen tuna exports to the United States upon the relaxation of these controls by the Japanese Government in 1953 caused a temporary shortage of raw material in Japan for the Japanese tuna canners. They caused to be introduced into the Japanese Diet legislation whose effect would have

been to prevent the shipment of frozen tuna to the United States in any year until the needs of the Japanese canners for raw material was filled.

Needless to say the frozen tuna exporters in Japan fought this legislation vigorously and they successfully prevented its adoption by the Diet in the spring of 1953 although it was generally recognized in Japan that something had to be done legislatively to protect the source of raw material to the Japanese canner in order to protect his position in the United States canned tuna market. In midsummer of 1953, a delegation from the California Fish Canners' Association went to Japan and conferred at length with groups from the several branches of the Japanese tuna industry and with officials from the affected Departments of the Japanese Government. Documents were circulated at the time which purported to be an agreement whereby if the Japanese stabilized the volume and price of their export of tuna canned in brine to the United States and kept their volume of tuna canned in oil for export to the United States at a modest level the United States canners would not make political or other obections in the United States to the unlimited export by Japanese of frozen tuna to the United States in whatever volume the market would bear and the Japanese could produce, nor would they seek politically to increase the tariff on tuna canned in brine.

Needless to say no representatives of the United States tuna producers were participants in or parties to the conferences or conclusions.

As the statistics will show the Japanese exports of tuna canned in brine did level off as to volume directly thereafter and rose very slowly from that level for something over 4 years, after having climbed very rapidly during the preceding 4 years. The f. o. b. Tokyo price also came under regulation. The volume of tuna canned in oil exported to the United States actually declined somewhat. The exports of frozen tuna from Japan to the United States which had been 51 million pounds in 1952 (twice the 1950 figure) went to 77 million pounds in 1953, 97 million pounds in 1954, and 113 million pounds in 1955.

The regulation of the trade in tuna with the United States by Japan in this fashion was contrary to the then existing law in Japan. The occupation government had left Japan with a series of antimonopoly and fair trade laws which were roughly similar to those of the United States in purpose and function and prohibited such cartelization of trade.

This situation was regularized early in 1954 by the amendment of the highly controversial fishery export law which had been introduced into the Diet in 1953 in such a fashion that it was agreeable to both the Japanese canners and the Japanese freezers, as well as to the Japanese Government. In essence the new law provided for the establishment of two cartels for the control of the trade in tuna with the United States both cartels to be under the loose control of the Japanese Government. Authority was given for the establishment of a cartel to handle the trade in canned tuna and the already existing Japan Canned Tuna Export Fishery Association became this cartel. The second cartel was to control all exports of frozen tuna and it was the Japan Frozen Marine Products Export Association.

Almost immediately the Japan Canned Tuna Export Fishery Association established as its sales agency the Tokyo Canned Tuna Sales Co., Ltd., appointed by members of the association. Since its organization all canned tuna exported from Japan has passed through this company whether that tuna was processed by a member of the Japanese Canned Tuna Export Fishery Association or was processed by an outside firm not a member of that association. For several years all of the exports handled by this firm went through eight exporting firms. This was enlarged by the appropriate Ministry in the spring of 1957 to 19 export firms.

Thus the export of canned tuna was placed in the hands of a tightly held, strongly organized, and adequately financed monopoly. It should have been able to adequately serve its members, stabilize the trade in canned tuna with the United States, and carry out any commitments and understandings that may have been reached with its United States counterparts. As will appear below even this strong cartel was not able with complete success to weather all of the political and economic storms that burst upon it with the passage of time.

The trade in frozen tuna was similarly put in hand by the Japan Frozen Marine Products Export Association but because the market was rapidly expanding and the price increasing there was no necessity for immediate tight controls to be established as with canned tuna, and no joint sales company was established at once in that association. It was every company for itself in the market.

It should be pointed out that in these negotiations with Japanese industry, in the Japanese legislation which proceeded from them, and in the reorganization of the tuna export trade into two cartels which then transpired, the Japanese tuna producers or their interest was not consulted any more than was that of his counterpart in the United States being considered over here. This was action by processors to rationalize their problems with the assistance of the Japanese Government and without much consideration as to where the raw material for processing was to come from, or whether the producers of it could earn enough profit to continue to produce their raw material.

This, you will notice as we go on, was the key flaw in this scheme. The producers did not stay put under the pressures that this cartelization of the trade developed. They made moves to counter this pressure, as they both had to do in order to stay in business.

What now ensued in Japan was quiet inevitable. If there were an export quota of canned tuna that could not be exceeded and there were a large number of small companies canning tuna, then each company had to have its individual quota established for it by the association in order that there not be over production. This was quickly negotiated out by the association and each company was assigned a production quota for export largely based on the history of the immediately preceding few years. There were similar problems with the financing of the pack, the financing of the inventory carrying in slack sales periods, and the equivalent sharing of either profits or losses, of which both appeared.

As is normal with quotas, and particularly with those that do not cover all forms of a commodity being regulated, this system set up uneconomic stresses and strains of considerable force. While each canner had a quota for export, there was at this stage no reason why he could not can more than that on speculation if he could find the funds with which to carry the inventory. If he gambled and lost, his excess pack was on the market and had to be absorbed since the bank would force the liquidation of the excess inventory. If another manufacturer needed dollar exchange with which to buy his raw material abroad, it was perhaps a wise thing for him to buy up a defunct tuna canner who had a large export quota and inventory even if it meant a loss in the liquidation of inventory because the dollar exchange realized would bring enough profit in his regular business to cover the losses on tuna.

While there was not the immediacy of action in the frozen tuna export field because of the expanding market, the institution of individual quotas for individual member firms on historic grounds was established in the same manner and with the same faults, but in a more leisurely and loosely controlled fashion. It must be kept in mind that at this stage the Japanese canners and the Japanese frozen tuna exporters were buying their raw material in strict competition with each other at the auction docks in Japan, and that their finished product was selling in strict competition in the same markets in the United States. But the end product was different--the end retail product of the Japanese canner was tuna canned in brine, the end retail product of the Japanese frozen tuna exporter was tuna canned in oil. At the retail level the former had to sell at 5 to 8 cents a can less than the latter to move with equal ease off the retail shelf in the United States. The final stage of movement of the product to market was outside the control of the Japanese in each case, and sometimes the last several stages. The competitive interplay of these forces became fierce and have repeatedly slipped out of the control of the Japanese for longer or shorter periods, with resultant confusion or chaos in the American market.

Into this same market came our product which, by reason of United States antimonopoly law as well as trade practices, was under no control, no regulation, and which was in matter of fact of no visible interest to the United States Government.

It is not to be wondered that the impossible stresses and strains which have developed have come about in this market. One large part of the production is tightly controlled by a cartel in Japan, another large part is partially controlled by another cartel in Japan, and nearly half of the production is free and competitive and under no control. The two cartels and their members are intensively competitive at all stages of buying of raw material, processing, and selling not only with themselves but jointly and severally with the several large elements in the other half of the producing-marketing group which is composed of numerous independent elements, all bitterly competitive with each other and with both of the Japanese cartels.

The Japanese cartels have never been able to quite get within their grasp even the whole of the control of the Japanese end of the business, but in their

wholehearted, active striving to do so they have kept this market continually upset, continually chaotic, and good relations between the two countries in this field in a continual state of disintegration.

The most immense factor in upsetting this control structure which the Japanese industry was trying to erect, with the cooperation of the Japanese Government, was another rather unrelated action by the Japanese Government.

Directly after the war the trawl fisheries of the East China Sea were expanded by the Japanese Government and SCAP with exceeding rapidity to provide needed protein food for the diet of Japan. The fishery overexpanded very badly in proportion to the resources available to it and by 1950 it was clearly evident even to outsiders that the fishing intensity on those stocks of fish had to be lowered and a large number of boats transferred out of the fishery.

At the same time the tuna export market was growing by leaps and bounds, the price of tuna was rising, and nobody at all was fishing on most of the tuna resources of the world.

The Japanese Government sought to solve its trawl over fishing problem, and its foreign exchange shortage problem simultaneously by stepping into this vacuum. It passed legislation which gave subsidies, licenses, and encouragement to almost any fisherman wishing to build a high-seas tuna-fishing vessel. This law stayed in effect from 1952 through 1956 and never has a single law produced such a rapid expansion of a fishery as this one did in the history of the world's fisheries.

In this short period of years a brandnew fleet of large, long-range tuna fishing vessels was built in Japan considerably more numerous and greater in fishing capacity than all of the American tuna vessels put together. This was on top of a tuna fleet of more than 1,000 vessels already in existence. The activity of this fleet, with the active financial and diplomatic assistance of the Japanese Government, expanded its operations throughout the Pacific, then throughout the Indian Ocean as far as east Africa, and then throughout the Atlantic until now in the spring of 1958 it is fishing in all of the seas and oceans of the world where tuna occur in commercial quantities except for a few nooks and crannies around the edges which are due to be occupied during the course of the present year.

The pertinence of this to the present letter is that the annual production of the sorts of tuna produced by this enlarged fleet-yellowfin, bigeye, and albacore a little more than tripled in this 6 years' time, from about 67,000 tons in 1951 to about 225,000 tons in 1957. This was a net annual production gain of 158,000 tons of tuna. At 45 cases to the ton this is the equivalent of 7,100,000 cases of tuna. That was approximately the total volume of canned tuna and tunalike fish sold in the United States in 1949, and it was half the amount of canned tuna and tunalike fish consumed in the United States in 1957.

This immense flood of tuna on top of the production in the world, which in 1951 was already surplus to the world market requirements, was so huge that as it developed year by year between 1952 and 1956 with the new vessels launched each month, it broke the tuna market in the United States, then in Japan, and finally in Western Europe simply by flooding the producers already in business right out of their markets.

The weight of these new forces accumulated upon us and the Japanese together during 1954 and we were the first to break under the pressure because we did not have the Government money and support behind us that the Japanese did.

We ended 1954 with the California canners, our customers, badly overexpanded as to inventory, all of them in a shaky financial condition and under strict credit rein from their banks, an inventory which was not only large in proportion to the market but put in at a cost per case which made it certain they were going to lose money in disposing of it. The Japanese canners also had an abnormally high inventory. The Japanese frozen tuna exporters had more frozen tuna in warehouse in Japan that they had ever had to that date. We had 10,000 tons of tuna frozen aboard boats in San Diego looking for a market. The entire world market was glutted with tuna and all holders of it were short of cash to hold it with. It had to move. The only way we could move the fish out of the holds of our vessels was to get the price down. This we set about doing at the beginning of 1955.

At first our price came down $10 per ton. This moved some fish, but it really did little good and the fish still accumulated in the harbor. A couple of months later our price fell another $10 a ton and a little more fish moved.