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| Stuart E. Eizenstat
Under Secretary for Economic, Business and Agricultural Affairs Remarks before the Japan American Society of Washington Washington, DC, February 11, 1998 |
Thank you for the opportunity to address you this evening and discuss elements of what has become one of our most important and significant bilateral relationships. It is truly an honor to speak about this important relationship in front of such a distinguished audience. I would like to recognize some individuals who have been so instrumental in shaping and strengthening U.S.-Japan relations over the years.
Two former U.S. Ambassadors to Japan, Mike Mansfield and Armin Meyer, have made an invaluable contribution to the development of our relationship, and our productive and beneficial economic and security ties to the region. Ambassador Saito has been a good friend, an outstanding representative and played a key role in so many important issues in our bilateral relationship. Under the leadership of your co-chairs Bill Frenzel and Takashi Chiba, the Japan American Society has been instrumental in not only strengthening the ties between our two countries, but also in educating and informing Washington and the rest of the country on the key aspects and emerging issues which help shape and define this relationship. I would also like to thank Takashi Chiba for his kind introduction. Finally, I would like to recognize key members of Congress who are in the audience this evening -- Senator Rod Grams, Senator Max Baucus and Congressman Robert Filner and former Congressman Norman Mineta.
The United States and Japan have a relationship based on shared interests and mutual responsibility. It is based on a shared vision of a stable, peaceful and prosperous Asia-Pacific region. It requires that we work together to meet the challenges to our security, our environment and our economic well-being. This is especially true these past few months as together we face one of the most serious economic challenges Asia has seen. The Asian financial crisis underscores how interconnected we are, and how important our bilateral relationship is not only to both of our countries, but also to the region, and to the rest of the world.
Ours is a post-World War II relationship built on a proud record of cooperation in a variety of fields. In the past five decades, the United States and Japan have forged a security alliance which has enabled the countries of East Asia to grow and to prosper in ways never thought possible. Our leaders recognize that, although the Cold War is over, the potential for instability persists in the Asia-Pacific region. The U.S.-Japan security alliance remains indispensable for ensuring the region's peace and stability. The new Guidelines for U.S.-Japan Defense Cooperation, which were approved by both governments in September 1997, demonstrate the visionary leadership necessary to ensure that this crucial security alliance will maintain its strength and vigor on into the 21st century. Our old defense guidelines were designed to address scenarios created by the Cold War. Our new guidelines reflect the world of today. They not only enhance our cooperation in the event of a direct attack on Japan; the new defense guidelines now allow us to cooperate in the event of a regional contingency as well as to work together in cases of humanitarian assistance and peacekeeping operations.
We are working together to address serious global problems as well. Japan's leadership and hospitality were instrumental in the success we achieved last December at the international conference on climate change in Kyoto. As head of the U.S. delegation at the Kyoto conference, I witnessed firsthand the cooperation demonstrated by the Japanese delegation that enabled us to work together to address the problems of global warming. We achieved what was a historic step in Kyoto, and while much work remains on this issue, the agreement we reached in Kyoto was a crucial step and would have been impossible without consultation, cooperation and coordination at the highest levels in Washington and Tokyo.
We must sustain the spirit of cooperation that was so critical to our achievements in Kyoto. Together, we must continue to work cooperatively in a number of areas that will permit more flexibility and enable us to reach our shared goals and objectives. We must lock in treaty rules that permit more flexibility; we must ensure that trading rights and a "clean development mechanism" which will enable companies in the developed world to enter into projects with the developing world work efficiently and smoothly; we must pursue inclusion of activities, called "sinks," that absorb carbon dioxide, such as planting trees, to be offset against emissions targets; and most significantly, we must work together to secure the meaningful participation of developing countries.
We look forward to continued collaboration between our scientists, our energy specialists and our financial experts in the coming years as we work together to address this most crucial challenge to our environment.
While security and environmental matters are crucial in their own right, our relationship and the challenges we face are mostly defined and driven by economics. Tonight, I will address this critical economic relationship and our need to work together to ensure the economic well-being of our two countries in this increasingly dynamic and integrated global economy and at this critical time in East Asia's economic history.
Japan's economic miracle, which began after the war, still stands as a remarkable achievement of growth and a rightful source of Japanese pride. No other nation, before or since, has been able to quadruple its standard of living in less than 20 years. In less than a generation, Japan became an economic powerhouse -- the world's second largest -- and its economy today, worth $3 trillion, accounts for 8% of the world's output. The economic model created by Japan to help it recover from the devastation of World War II was one that included high degrees of regulation, protected markets and a lack of transparency. In today's Japan, this model has increasingly come to be seen as outmoded in the integrated global economy of today.
Our economic relationship has been mutually beneficial. The relationship is important to Japan: The United States is Japan's largest trading partner and most important single export market. Japanese exports to the United States are responsible for tens of thousands of Japanese jobs. American exports to Japan provide the Japanese with thousands of quality products and services at lower prices. It is in both of our interests to expand our relationship, to resolve our disagreements amicably and to work together to increase our mutual prosperity.
The relationship is also important to the United States: Japan is our third largest trading partner and our largest export market in Asia (30% of U.S. Asia exports) supporting millions of U.S. jobs. This is especially true in the west coast states of California, Oregon and Washington, where more than 50% of exports are to Asia. Japanese investment in the United States, while often misunderstood and wrongly criticized, is responsible for thousands of American jobs and as well as providing a wide variety of quality products.
Today's era of economic interdependence in the Pacific Rim also poses great challenges for American and Japanese leadership. In the United States, where most newspapers and news programs report the Nikkei average and the dollar-yen rate daily with the baseball scores, fluctuations in Asian currencies and stock exchanges have a profound affect on investors.
The Clinton Administration is working with Japan and other key friends to address the immediate affects of the present Asian financial crisis as well as efforts to modernize Asian financial markets and regulatory regimes and to bring relationships between government and business into the 21st century.
In dealing with the recent crisis, the United States has worked with Japan and other countries, forging an international response involving the International Monetary Fund, the G-7, the World Bank, and the Asian Development Bank. As Secretary of the Treasury Rubin recently explained, the programs we have supported focus on four key elements: supporting reform programs in individual nations; providing temporary financial assistance when needed; encouraging strong action by Japan and other major economic powers to promote global growth; and fostering policies in other developing countries and emerging economies to reduce the risk of contagion.
Let me stress the important role Japan has played in this crisis and, the level of cooperation between the U.S. and Japan have been key elements in our coordinated response to this crisis. Japan's substantial financial contribution demonstrates the level of commitment to addressing the needs of troubled Asian economies. Since September 1997, Japan has promised at least $29.7 billion in balance of payments assistance, targeted overseas development assistance, commodity loans and trade insurance to Asian nations affected by the current financial crisis. This amount represents more than that pledged by any other nation.
As we work with Japan to address the immediate crisis to the financial system in Asia, Japan must make an additional important contribution to the restoration of stability and resumed growth in the region by addressing fundamental problems with its own financial and trading systems. Japan is the economic engine for Asia. It cannot grow its way out of its recession by export-led growth. Domestic demand-led growth will create more demand for East Asian exports necessary to help their recovery. We realize that reform can be a long, complex and sometimes painful process, yet it is essential for Japan's own long term prosperity and will send a strong message to other Asian countries seeking to improve their own economies and financial systems.
Japan's leadership role in Asia should not be understated. It is obvious that Japan's domestic and international economic policies have an enormous effect on its trading partners, especially on its Asian neighbors. Recovery of other Asian economies requires a dynamic, growing Japanese economy. Japan can and must do more. We urge Japan to demonstrate its leadership by stimulating domestic demand-led growth, deregulating its economy and opening its markets. This will benefit Japan, its neighbors and the global economy.
To discuss the issue of reform in Japan, it is helpful to analyze Japan's current economic condition. Since the puncturing of the economic bubble of the late 1980s and early 1990s, Japan's economy has grown only 1.4% per year, on average. Conventional economics suggests several reasons for the persistence of low growth:
Japan's Economic Planning Agency forecasts GDP growth of 1.9% in 1998, but many private observers expect growth to be virtually flat. Obviously, Japan would have the most to gain by more vigorous growth. So too would the countries of Asia and the United States benefit through greater export opportunities in a more rapidly growing Japan.
In December, the Hashimoto government announced a number of fiscal stimulus measures for inclusion in a fiscal year 1997 supplementary budget that is now before the Diet. We believe these proposals were a constructive first step by senior Japanese policy makers to offset some of the contraction in the 1997 budget and they have fueled market expectations for additional stimulus. I might note that, on the strength of these expectations, the Nikkei and the yen both have risen.
The Japanese Government also announced in December a 30 trillion yen package of measures to ensure the stability of the banking system. The announcement of Japan's plan to commit public funds to protect depositors was constructive. Protection of depositors, institutional reform to improve bank governance, closure of insolvent institutions and improved transparency and disclosure are all important steps in strengthening the financial system. We welcome the Japanese announcement last November an effort to open their financial services market, which should make it more efficient.
Fundamentally, by implementing deregulation and the other reforms proposed last year by Prime Minister Hashimoto, Japan will remove inconsistencies in its financial model and demonstrate the leadership necessary during this time of crisis. While there are attendant social costs to deregulation as inefficient companies are streamlined and new industries are born, we know firsthand from our own experiences with airlines, trucking, energy and financial services that deregulation can and will unleash growth over the long term. I recognize that undertaking deregulation in Japan, which places a high premium on job security, is a daunting task. But heavy regulation leads to stagnation. Today, a few years after U.S. deregulation efforts began, our unemployment rate is the lowest in decades, our economy has expanded for over 70 consecutive months and real wages are increasing. Japan's unemployment rate is growing and economic growth has been stagnant since 1992. If the Government of Japan is attendant to the social needs due to displacement, there is no reason why deregulation needs to be as disruptive as some fear. Quite the contrary, it is indispensable to Japan's recovery in a fiercely competitive world.
One need not look only at American models to see the benefits of deregulation. Japanese industry itself is filled with examples. Those industries in the export sector that were self-reliant and that were more willing to face international competition are world leaders. Japanese labor productivity in auto making and in consumer electronics, for example, are among the highest anywhere. Those industries are among the most innovative on earth and praised as leaders in quality.
Unfortunately, too many Japanese industries where most Japanese are employed are over-regulated and frequently uncompetitive. Key sectors such as agriculture, services, and transportation are inefficient by world standards. For example, in food processing and textiles, Japanese productivity is about only one-third that of the United States. Wholesale and retail sales, employing 11 million people or about 20% of Japan's entire workforce, is only 44% as efficient as its American counterpart. Shielded from direct foreign investment and local competition, this sector makes Japanese consumers pay too much for products and serves to drain capital and labor from more productive sectors of the economy.
This waste in certain sectors induces efficient Japanese companies to relocate offshore with a corresponding loss in good high-wage Japanese jobs. In 1996, for the first time ever, Japan's multinationals sold more through overseas affiliates than through exports from Japan. This hollowing out can only be reversed if Japan becomes a consumer-led economy, more open to the world.
Japanese leaders seem to understand what must be done. As Prime Minister Hashimoto has said, in a rapidly integrated world where people, products, capital and information flow freely, it is clear that Japan's current economic framework, replete with over-regulation, non-tariff barriers, a lack of transparency and a lack of mobility, created 30 years ago to protect nascent industries, is now an obstacle to vigorous development. As a result, he has proposed an ambitious series of reforms which are urgently needed.
Last year, Japan's Economic Planning Agency warned that, unless the Prime Minister's proposed reform of institutions and policies is implemented, Japan will be lucky to achieve an average 2% annual growth over the next five years. MITI, the Ministry of International Trade and Industry, in a report issued before the present downturn in the Japanese economy, projects that without reform, growth will steadily decline: from 2.5% in the next few years, to 1.8% in 2000-2010 to only 0.8% afterwards -- a stronger and more urgent validation of the Japanese EPA's warnings.
We believe that the way to spur growth in Japan is through deregulation and greater encouragement of imports and foreign investment, and this conforms with the Japanese Government's own prescriptions. The collusive practices, cartels and anti-competitive regulations which hinder long-term growth would not be able to survive if imports were able to enter Japan and compete more freely. As reform economist Yukio Noguchi has pointed out, unless agriculture and small companies rationalize and their markets are opened to foreign competition, Japanese living standards are unlikely to improve.
We understand that this is no easy task. It will require imense determination and courage. But, it's in the interest of Japan's and East Asia's future prosperity, and the well-being of its consumers; Japan's own government believes at the highest levels it must be done. It must be done not only because it will encourage domestic industries and service providers to become more efficient, fuel domestic growth and give Japanese consumers more choice, but also because these reforms will serve as a catalyst for Asia's economic recovery.
There are signs of progress toward openness. The recently concluded civil aviation agreement is the latest example. The U.S.-Japan Agreement, announced less than two weeks ago, will provide significant additional opportunities for access to the Japanese market for U.S. airlines, giving travelers to Japan more flights at lower costs and opening the door to U.S. and Japanese companies to codeshare. This will lower prices for consumers and improve efficiency. The agreement includes our first ever code sharing agreement allowing U.S. airlines to serve other Asian markets and to enter into alliances with Japanese and third country airlines to serve other cities in Asia.
Before our civil aviation agreement, we worked together to resolve an impasse over non-competitive practices at Japanese ports. I was involved in long and tense negotiating sessions with my Japanese counterparts to broker a deal satisfactory to both the U.S. and Japanese steamship carriers. This agreement among the carriers and the Japanese Harbor Transportation Association should benefit consumers in Japan and exporters from other parts of the world by making it easier to fight corrupt and inefficient practices at Japanese ports and to bring down the cost of shipping goods to Japan.
Over the past five years, we have negotiated over 20 trade agreements with Japan, more than under any previous administration. From financial services to telecommunications, we have opened markets which were closed and watched as U.S. exports to Japan have grown twice as fast as our exports to the European Union. According to the 1997 national trade estimate report on trade barriers, in those sectors covered by recent trade agreements with Japan, exports have grown by more than 85% since President Clinton took office. This is three times as fast as other U.S. exports to Japan. These agreements prove that, working together, we can tackle difficult issues successfully.
The U.S. Government is committed to remain engaged with Japan. We will continue to negotiate with the Japanese Government to open markets. Our recent successes convince us that we can tackle other issues successfully. We will continue to have deregulation talks with Japan and are encouraged that Japanese trade experts who share our belief in the benefits of open competition are being heard more and more. In fact, Deputy U.S. Trade Representatives Fisher and Lang have demonstrated leadership in setting up our Enhanced Initiative on Deregulation (EID). This dialogue is a productive mechanism to share ideas and to coordinate efforts promoting deregulation. We will continue to suggest that the Japanese permit more foreign direct investment and reform their financial system. Likewise, Japan must show responsible leadership for the rest of Asia. As time will tell, this will benefit both of our countries and will help us lead other economies to greater prosperity and success.
Although I have focused on our economic differences, I do not want to leave anyone with the impression that I view our relationship as adversarial. It is not. Many viewed with suspicion and mistrust Japanese direct investment in the United States and its purchases of U.S. debt years ago -- when in fact these investments and purchases were and are important to the U.S. economy. A few years ago, the popular media and fiction writers took great efforts to portray our two countries as destined to be adversaries. This is nonsense. Our alliance is strong; we are friends. We both realize our economies are interconnected, our interests are intertwined and we share leadership responsibilities to ensure a peaceful and prosperous Asia-Pacific region. We will continue to work together.
But within this spirit of cooperation and partnership, there should be a commitment to open markets and a recognition of the political dynamics that shape our relationship. There are protectionist forces in this country, based on fear and based on misinformation. These sentiments are fueled by a growing trade and current account deficit which will be further aggravated by further growth in the U.S.-Japan bilateral trade deficit. To reduce protectionist pressures here at home, Japan can help by promoting market opening and domestic demand-led growth.
We hold high expectations for Japan. No higher than Japan holds for itself. Our expectations are high because we recognize Japan is a great nation with a great and productive economy and a bright future. We admire the hard work and determination the Japanese have shown to create a peaceful, dynamic society. We expect Japan will continue to grow and play a key role in world affairs. As we rapidly approach the new millennium, we must continue our tradition of working together to meet the challenges and fulfill the promise of a dynamic new era. Our shared vision and future prosperity depend on it.
Thank you.
[end document]
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