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Stanley O. Roth
Assistant Secretary for East Asian and Pacific Affairs
U.S. Department of State
Speech to the Japan Society
New York, New York, December 8, 1999

Blue Bar rule

"The United States and Japan --
Partnership and Challenges in a New Millennium"

Introduction

Thank you for that very kind introduction. It is a pleasure to speak to such a knowledgeable audience. I would like to spend the next few minutes sketching out how I see relations between the United States and Japan and the importance of that relationship for security and prosperity in the Asia Pacific Region. I recognize that I will touch on a number of subjects where some of you will know more than I, and I hope you will use the discussion period to enlighten me gently.

Before I undertake that challenge, however, I would like to share with you the most startling thing about the U.S.-Japan relationship in Washington: It has been quiet.

Those who follow Japan closely know about the differing U.S. and Japanese perspectives on the Seattle WTO meeting. You know that there have been several pieces of legislation in Congress on Japan -- about steel import surges, market opening, and the telecoms "big bang." Despite that, there have been few headlines about Japan in American papers and no recent hearings in the U.S. Congress on Japan. In fact, the only prediction I made when I was sworn in as Assistant Secretary in 1997 was that Japan would become a front burner issue within the year. That taught me the dangers of predictions, and I have avoided them since.

I draw some comfort from this low profile. It is a sign that policy makers are doing their job -- managing one of the world's key bilateral relationships. Yet, despite this lack of public attention toward Japan, some important, even dramatic changes have been occurring both in Japan and in our relationship with Japan. This quiet may offer us a rare opportunity for constructive progress without the cacophony of dueling headlines.

Security Issues

When I joined the Clinton Administration, high-profile economic and trade issues dominated the relationship -- or at least the public perception of the relationship. Indeed, some wondered if the U.S.-Japan security alliance had not lost its relevance. The Cold War had just ended, and with it the need to gird ourselves to fight a Pacific war against the Soviet Union. There was a sense of renewed isolationism in some quarters in this country and a parallel sense expressed by some Japanese that perhaps the security relationship with the U.S. was growing less important.

Events since then have dispelled such thoughts and made the importance of the alliance self-apparent. The alliance has given us an indispensable structure within which to address issues affecting regional, and often global stability and security. North Korea is a case in point. In 1994, North Korea brought the region to crisis by announcing its intention to withdraw from the NPT. U.S. negotiations with the North yielded the Agreed Framework, and Japan joined us and South Korea in forming the Korean Peninsula Energy Development Organization (KEDO) and pledged to fund a substantial portion of the two light-water reactors which KEDO would build.

On August 31, 1998, North Korea test fired a Taepodong I missile on a flight path over Japan. This brought home to the Japanese people their vulnerability to attack by missiles carrying weapons of mass destruction and the need to cooperate with the United States and South Korea. In the months following, Japan and its leaders struggled to come to terms with the vigorous public reaction to the launch. The Obuchi administration took the long-term view and reaffirmed its commitment to funding the light water reactors.

The rationale for the U.S.-Japan security alliance has never been clearer, and thanks to efforts in both Washington and Tokyo it has never been stronger. Japan hosts 47,000 U.S. military, more than any ally except Germany. Japan also provides approximately $4 billion annually to support the costs of basing these forces, what we call "host nation support." This support is critical to the U.S. military's security mission in the Asia Pacific region and has facilitated our deployments extending through the Indian Ocean to the Persian Gulf.

In 1995, the United States and Japan opened discussions about how best to cooperate in the world after the Cold War. The result was "The Defense Guidelines for U.S.-Japan Defense Cooperation" which were signed in 1997. These guidelines lay out a general flexible framework for defense cooperation between our two countries in peacetime, in case of an armed attack against Japan, or in contingencies elsewhere. Last May, the Japanese Diet debated and passed a legislative package implementing the Guidelines.

At the same time, the United States and Japan have devoted special attention to the question of how to "reduce our footprint" on Okinawa and diminish the burden on the people of Okinawa. As a first step, the Governor of Okinawa has announced that the Marine Airstation will be relocated from the center of Futenma to a less crowded site in Nago. A number of issues remain to be resolved, but the constructive approach that we have seen from Governor Inamine suggests that we will be able to resolve them satisfactorily.

On August 16 of this year, the United States and Japan moved forward on another dimension of our developing security partnership. We signed an MOU to undertake joint research to improve our missile defense capabilities. The Japanese Diet has funded cooperation with us in research on technologies for a theater wide system under development by the U.S. Navy. This is a commitment to research, not deployment. Any decision on deployment will be made by the Japanese Government once development and testing of a system is completed.

Even this long litany of accomplishments cannot obscure the fact that problems remain on our mutual security agenda. We are engaged in an urgent effort to correct the environmental hazard that an unregulated incinerator poses for our military and families stationed in Shinkampo. A number of issues remain to be resolved on the relocation of the Futenma Airstation. Finally, we will be working with the Japanese to ensure that Host Nation Support continues at levels commensurate with the security commitment which the United States has made to Japan.

Foreign Policy

Cooperation on mutual security has been a mainstay of the U.S.-Japan alliance for many years. The natural, indeed almost inevitable complement to those efforts has been an increasingly successful pattern of cooperation in foreign policy.

I mentioned a moment ago how the North Korean threat crystallized for many the importance of our bilateral security alliance and how it led to the formation of KEDO. Japan, South Korea and the United States have worked ceaselessly, and in the closest concert, to develop and maintain a unified policy toward North Korea. Japan itself has committed over a billion dollars to the construction of the light-water reactors at Yongbyon. You may also be familiar with the Perry process. What you may not know is that Dr. Perry made repeated consultations with the Japanese and Korean governments a central aspect of his work. His recommendations are so important in no small measure because they reflect the thinking of leaders in Tokyo and Seoul as well as Washington. Dr. Perry also institutionalized this close coordination in the Trilateral Coordination and Oversight Group, in which senior Japanese, Korean and U.S. officials meet to discuss and coordinate our efforts to engage North Korea.

The reemergence of China on the international stage since 1972 and the modernization of China's economy over the past twenty years have dramatically changed the dynamics of the East Asia region. China's development has offered both challenges and benefits for the Japan and the United States. The United States and Japan have played leading roles in engaging China constructively in efforts to ensure regional peace and security. The U.S., Japan and others have become major trade and investment partners with China. The result has benefited both our two countries and China, and China's approaching entry into the WTO will help ensure that all continue to benefit. The modernization of China's military is a natural concomitant of its economic development and one that does not necessarily threaten any other nation. Nonetheless, it does serve to remind both the Japanese and ourselves of the need to remain prepared to ensure our joint security.

Let me take just a moment to comment on another aspect of U.S. and Japanese relations with China. At times, some Japanese analysts have worried that U.S. was losing interest in Japan, shifting its focus to China as a new emerging partner. We saw this in the wake of President Clinton's summit visit to PRC in June 1998 as a flurry of headlines and commentary, both in the U.S. and Japan, focused on "Japan passing." But a series of meetings between the President and Prime Minister Obuchi, particularly President Clinton's visit to Tokyo the following November, and especially his televised town hall meeting with Japanese, set such fears to rest. As President Clinton, and every President before him has made clear, our relationship with Japan remains the linchpin of our security posture in Asia. And P.M. Obuchi's highly successful visit to the White House in May offered further confirmation of the warmth and depth of the relationship.

U.S.-Japan cooperation on key foreign policy hotspots has extended to issues outside Northeast Asia as well. The most recent reflection of this extended range was the visit of the new Indonesian President, Abdurrahman Wahid, to Japan in mid November. President Wahid stopped there as he returned from a brief visit to the U.S., during which he met with President Clinton. These visits illustrate the high priority both countries give to Indonesian stability and also highlighted the constructive role Japan has played in supporting both Indonesia's democratic elections in June and the UN-led transition effort in East Timor. Since East Timor has been an issue I have focused on intently in recent months, and as some of you may know I returned from East Timor with our UN Ambassador Holbrooke just before Thanksgiving, let me review the Japanese contributions there in a little more detail.

This kind of Japanese and American cooperation has become a habit. For example, we worked together to ensure the success of Cambodia's elections in 1998, which helped that tormented country to begin to move past the violence which had wracked the capital just the year before. Japan has also provided generous support for Palestinian economic development, which will be critical for the Wye Plantation Accords to succeed. In Kosovo, Japan once again stepped forward to assist generously in humanitarian assistance and reconstruction.

Economic Issues

Let me turn now to the issue in our relationship most prone to headlines and stereotypes -- economics and trade. Ten years ago our image of Japan was of the country that could do no wrong. Japanese investors were buying Rockefeller Center and Pebble Beach. Now, many Americans are beginning to wonder if Japan can do anything right. Many of those same investors are back, selling off Pebble Beach and lining up at Christies to auction off the masterpieces they bought in the 80's.

One issue from the 80's continues, however: the trade deficit. When I first working this issue in the early 1980's, our bilateral trade deficit of perhaps $12 billion was a major concern. Current estimates place it in excess of $64 billion, and all experts expect it will continue to grow. To be sure, using what is to economists a more informative number -- the deficit as a percentage of GDP -- the trend is going down, from 1.2% of GDP in the late 1980's to 0.75% in 1998. But, no matter how you present the statistic, the sheer magnitude of the trade deficit is alarming. Any downturn in the U.S. economy could quickly propel the issue back to center stage.

One illustration of the fragility of our trade relationship lies in the steel sector. When U.S. imports surged dramatically in 1998 due to the slump in Asian demand, several members of Congress from Pennsylvania and West Virginia sought legislation to impose quotas on steel imports. The Administration successfully resisted this quota legislation. Instead, we vigorously enforced existing trade legislation to cope with the surge while we opened a bilateral dialogue with Japan on fair trade and competition in the steel sector. These actions substantially reduced Japanese steel exports to the U.S. last year. While Japan has now filed a WTO complaint against U.S. anti-dumping cases, we are confident that our actions are fully WTO-consistent.

A sector with even greater impact on bilateral trade and investment is telecommunications. We are pressing for expanded access to the telecom market in Japan. We have called on Japan to radically cut interconnection rates, police anti-competitive practices by NTT, and facilitate access to rights of way to build new infrastructure.

The benefits from what some have called the telecoms "big bang" are obvious if you look at the impact of regulatory changes in the cell phone market that enabled Motorola and others to enter the market beginning in 1994. As a result of these changes, the number of mobile phone subscribers has doubled every year, from about 2 million in 1993 to almost 50 million in 1999. Monthly and airtime charges have dropped about 40% for most subscribers over the same period. The challenge for Japanese regulators is to create the same opportunities and benefits in telecoms generally for Japanese consumers and for Japanese and foreign manufacturers. Such changes could break the current barriers to widespread Internet usage in Japan and instigate a new spurt of innovation in information technology benefiting all of us.

Important as all of these economic concerns are, I would like to return to the core issue for the United States as we discuss economic issues with Tokyo: the state of the Japanese economy. For the health of the global economy to be secure, Japan must increase its imports from all sources. For nearly a decade, Japan has seen generally flat or even negative growth in its Gross Domestic Product (GDP). The growth rate throughout the 1990's has averaged less than 2%. This year's gains are from increased private sector demand generated largely by government stimulus spending; export contribution to growth was until recently negative or zero. Last month, the Obuchi government announced its most recent stimulus package of $171 billion in cash, loans and guarantees. But the future is hard to predict -- on Monday, we learned of a 1% contraction in quarterly GDP growth, although the government still predicts a positive growth rate for the fiscal year.

The U.S. has urged Japan to use all available tools to promote domestic demand-led growth, including fiscal, monetary, deregulation, competition policy, and market-opening policies.

Four areas of focus in our economic and trade relationship have been:

Just to expand on this last point, trade follows investment and U.S. FDI enables U.S. firms to build the presence in Japan needed to support exports of U.S. goods and services. We are pressing the GOJ to pursue such reforms as more rigorous accounting standards and disclosure, and better corporate governance. U.S. FDI into Japan increased 300% in 1998 over 1997, to $6 billion. And total Japan-bound FDI to date in Japan's current fiscal year is up 200% over last year, largely in the financial sector.

Clearly Japan is changing. Just a few examples that most experts would have called impossible a few years ago:

All of these changes are important for the foreign and Japanese companies involved, but I cite them here because they are more important still for the revitalization of Japan's economy, for the benefit of Japan and all of its trade and investment partners. I expect this will take longer than the U.S. would like, longer than many in Japan would like. It will be slower than Japanese consumers, workers and investors need. Real deregulation and real restructuring mean short-term instability and social change, a cost that will be hard for some to bear, but an investment for the future that Japan must make.

Conclusion

I remain convinced that the U.S.-Japan relationship will be critical for the security and prosperity of Asia as we move into that new millennium.

Ours is a relationship that has been flexible and adaptive, adjusting from a Cold War stance to the economic and security needs of a new era. Yet we now face even greater changes. We see dramatic social, economic, and political changes occurring in countries across the Asia Pacific region. If they occur in a stable context, these changes offer the opportunity for new prosperity and better living conditions for the people of the region, which includes the United States. Otherwise, these changes threaten tremendous dislocation and suffering. If the U.S.-Japan relationship is stable -- diplomatically, militarily, and economically -- then our prospects for managing these changes is enhanced significantly. That is a tremendous challenge. Together we will meet that challenge as we have met and surmounted challenges for over half a century.

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Blue Bar rule

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