The U.S.-Japan Partnership - 1998

Speech by Ambassador Thomas S. Foley to
the Japan-Midwest U.S. Association
Imperial Hotel
Tokyo, Japan

April 6, 1998

(As prepared for delivery)

Thank you for your kind introduction, Mr. Schornack. Governor O'Bannon, Minister Horiuchi, Minister Obuchi, Mr. Inaba, mayors of cities in the U.S. heartland, Mr. Schornack, Dr. Ishikawa, ladies and gentlemen.

It is indeed a great pleasure to greet you today. I particularly want to welcome those who have come halfway around the world, from the Midwest of the United States, to carry on your Association's tradition of providing a forum for people from government and business circles in our two countries to meet, learn from one another, and explore avenues of cooperation.

Your Association is an example to us all. Never in the nearly three decades since it was launched has there been a greater need for the people of America and Japan to have forums like this where they can get to know one another and lay the foundations of mutual understanding, respect, and trust.

Trade and investment relations between the Midwest and Japan have deep roots. This is a testimony to the competitiveness of your States' products, the sound management of your companies, and the hard work of your people. I was happy to note the announcement last week by Toyota that it will significantly expand its truck production capacity in Indiana. I congratulate Governor O'Bannon on this, the latest success for your region.

I would also like to acknowledge the representatives who are here today from the Japan offices of your States. We work closely with them - and I want to assure you that you are very well served by these men and women.

I took up my post as the U.S. Ambassador to Japan about half a year ago. These several months have been busy, always stimulating, and as rich and challenging as anything I have ever done. I truly believe that this is a crucial moment in the history of U.S.-Japan relations, and feel fortunate for the opportunity to be a participant as this moment unfolds.

I first came to Japan in 1969, five years after entering the House of Representatives. In the years since then, I have visited Japan many times, formed many enduring friendships, learned many lessons which I might have learned nowhere else, and have watched - with delight, concern, and puzzlement, by turns - as the partnership between our nations evolved. I use the word "partnership," and believe it is the right word. It is probably inevitable that the world's two largest economies, with such complex historical connections over the past century and a half, each with such marked interests throughout the Asia-Pacific region, would have a "relationship" of some sort. But a partnership is more than just a relationship.

I believe that the United States and Japan have a true partnership; that this partnership is important not only for our two nations, but for the whole region, and indeed the entire world; and that it is crucial for us to take stock of, and reaffirm, that partnership as we face the dawn of the 21st century.

Our nations share a wide range of interests, and when we act in concert, the U.S.-Japan partnership has profound regional and global implications. In the economic sphere, Japan and the United States account for approximately 40 percent of world GDP, 40 percent of world trade and 40 percent of international aid flows.

This partnership is also a vital component of America's domestic economic health. Japan is our largest trading partner outside of North America. Our imports from Japan often grab the headlines, but we should remember that U.S. exports to Japan are equal to our exports to the U.K., France, and Germany, combined.

The U.S.-Japan partnership has three key elements: - security, - politics and - economics.

I would like to say a few words about the first two, and then give you my views on some economic and trade issues.

Partnership between the U.S. and Japan is the cornerstone of America's policy of engagement in the Asia-Pacific region. U.S. military power has guaranteed peace and stability in the region for more than a generation. It is the bedrock upon which Asia-Pacific economies have developed. And it will be as important to East Asia's future as it has been over the past few decades.

Recent changes in the security relationship have strengthened our alliance and adapted it to the post-Cold War era. Last September we revised the Guidelines for U.S.-Japan Defense Cooperation. The revised Guidelines establish a framework for closer partnership in the next century. Under the Guidelines, we will work together to deal with a variety of challenges:

-- peacekeeping and humanitarian relief; - responding to events affecting Japan's security; - promoting peace and stability in the region.

Over the past three years, we have worked to consolidate U.S. forces in Japan to ease local burdens. This is particularly true in Okinawa, where our military facilities are highly concentrated. The Special Action Committee on Okinawa (SACO) was established in 1995 to consolidate, realign, and reduce U.S. facilities there, while maintaining our operational requirements. The SACO final report provides a concrete plan for returning 21 percent of the total acreage of U.S. facilities in Okinawa and for minimizing U.S. forces' training and operational impact on the lives of local citizens. We are committed to realizing these goals. On the political front, the U.S.-Japan partnership has never been stronger.

President Clinton and Prime Minister Hashimoto meet often and enjoy a warm personal relationship.

In the U.N., the WTO, APEC, IMF and other multilateral institutions, U.S.-Japan cooperation is a key to the successful implementation of any policy. To choose just a couple of trade-related examples, Japan and the United States were able to work together to negotiate a world-wide agreement for zero tariffs on information technology equipment and deregulation of telephone services. These initiatives were first discussed in APEC, and then were adopted by the WTO.

At APEC we are presently working on a far-reaching agreement that will eliminate both tariffs and non-tariff barriers in a number of important industries. These include: environmental goods and services, medical equipment, chemicals, energy, forest products, and fish products, among others.

We look to Japan to play a strong role in finalizing a package of sectors that is commercially meaningful and economically significant.

Our bilateral cooperation is also significant. Last month we celebrated the 5th anniversary of the U.S.-Japan Common Agenda, a unique bilateral initiative to tackle global problems which deserves much greater attention from the media and the public. The two governments have pledged to provide up to $15 billion for a number of very important projects in biodiversity, HIV, disease eradication, education, emergency preparedness, and environmental protection.

On the subject of our economic relationship, I would like to start with a regional perspective, make some observations on Japan's macro economy, and conclude with some remarks on specific sectoral issues.

One cannot help but be stunned by the sudden deterioration of many economies in Asia over the last year. The spectacular fall of currencies asset prices across the region has had profound effects. At present, the situation seems less volatile than just a few months ago. However, markets throughout the region are plagued and haunted by uncertainty.

We believe very strongly that one key to stabilizing this region is the passage of the IMF funding legislation in the U.S. I hope that my former colleagues in Congress will understand the importance of supporting the work of the IMF as it struggles with challenges which, although they may have originated in this part of the world, have ramifications around the globe - including the heartland of America.

Japan has taken a number of constructive steps to aid its neighbors. It has pledged some $30 billion in balance-of-payments assistance, loans, and insurance to Asian countries. Japan has also been at the forefront of increasing the IMF's resources.

But in our view, the most important contribution Japan could make to the restoration of stability and growth in Asia would be to expand its own domestic demand, deregulate, and open its doors further to imports. We urge the Government to exercise bold leadership in this area.

Turning to Japan's domestic economy, I probably do not have to tell you that Japan is facing major challenges on the macroeconomic front. After six years of sluggish growth, the economy is still struggling. Many private experts now predict that economic growth for this fiscal year will be negative - the first time that has happened since the first oil shock of the early 1970's.

Domestic demand will need a considerable boost if Japan is to meet its own 1.9 percent growth forecast for the coming fiscal year. The 16 million yen stimulus package announced by the LDP on March 26 is encouraging, although still lacking in details. Japan will also have to act clearly and decisively to strengthen its financial system if sustained growth is to resume.

Japan's own recovery is crucial to the speedy recovery of East Asian economies hit by currency depreciation and falling asset prices because Japan is far and away the region's biggest market and its largest source of capital. Thus, a vigorous and open Japanese market will underpin East Asian recovery. And increased confidence in Japan will also have an important impact on sentiment in the region - inspiring investor confidence in Asia's underlying strengths.

We believe specific market opening and deregulation initiatives can make a major contribution to increased growth in Japan. To date, the Clinton Administration has successfully negotiated a large number of trade agreements with Japan - 35 agreements in all, covering a host of sectors. These include government procurement, automobiles, paper, construction, agricultural standards, semiconductors, insurance, intellectual property and legal services. Our objective in each of these negotiations is to keep moving toward a free, fair and internationally pro-competitive market place in all sectors.

There is substantial promise in some areas. The Japanese government has been developing a bold vision of financial reform. If fully carried out, the so-called "Big Bang" will sweep away artificial distinctions among types of financial firms, allow the introduction of new competitors and new financial products, and greatly increase transparency and disclosure. Although just beginning, these reforms have already created major opportunities for American companies - which have been quick to respond to the market opening. Although considerably more remains to be done, we are impressed with recent steps toward financial deregulation.

The principal focus of our trade policy efforts in the coming weeks will be the successful completion of the first year of President Clinton and Prime Minister Hashimoto's "U.S.-Japan Enhanced Deregulation Initiative," agreed at the Denver Summit last June. Under this initiative, working groups were created to work on five areas: housing, financial services, telecommunications, deregulation and competition policy, and structural issues. Last month, Deputy USTR Richard Fisher was in Tokyo to further these discussions at the senior level. I can tell you that considerable progress has been made - including the package of measures announced by the Japanese government just last week. Among the key steps to be taken are:

-- liberalization of international resale services which will lead to much lower international telecommunications rates;

-- freeing up direct-to-home satellite television;

-- agreement to recognize U.S. wood standards which will facilitate entry of U.S. imports;

-- faster approval of new pharmaceutical products, reducing the process from 18 to 12 months;

-- important movement towards establishing a government-wide "notice and comment" period for new regulations; and

-- greater resources for the Japan Fair Trade Commission.

Despite this ambitious agenda, much remains to be done before a package which meets the goals set by the President and the Prime Minister is ready. We hope to see further efforts in the weeks remaining before the G-8 meeting in Birmingham, England, in May.

As I stated at the outset, the U.S.-Japan partnership is traditionally described as having three elements: security, politics and economics. I am pleased to be able to report to you this afternoon that the partnership is fundamentally sound on the security and political side. One could argue that things have not been better in the last 20 years. But I must also frankly tell you that we have a great deal of unfinished work to improve the bilateral trade and investment environment. Now, more than ever, we need to work closely and effectively with our Japanese partners to ensure steady progress.

I am optimistic. I think there is a growing consensus that it is in Japan's own interest to boost domestic demand. I am also hopeful that this expansion will be accompanied by accelerated deregulation and import liberalization, which is necessary to lift the Asian economies out of recession and reduce Japan's global and bilateral current account surplus.

I am optimistic, furthermore, that the very strength of the U.S.-Japan partnership means that we can work on these challenges together in a constructive, rather than an adversarial, spirit. In this connection, I would like to thank your Association for working so hard to promote understanding, goodwill, and cooperation between our peoples. For it is upon the people of our two nations that this partnership must rest. You are doing important work, for which I offer my personal gratitude and good wishes.

Thank you.

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