Remarks by Ambassador Thomas S. Foley: Japan and America - Some Observations on the Roots of Our Relationship

(As prepared for delivery)
Japan National Press Club
Tokyo, Japan

December 13, 1999


Thank you Mr. Haruna for your very kind introduction. It is a great pleasure to be here, once again, at the Japan National Press Club. Today I would like to use our time together to look at some of the important themes in our bilateral relationship as they have evolved over the years. By drawing upon those historical antecedents as prelude and guide, we can identify a compass heading for our relationship as we face the challenges of the future.

The Beginnings

In thinking about this theme, and in reading to prepare for today's discussion, I discovered, somewhat to my surprise, that we can pinpoint the beginnings of the U.S.-Japan commercial relationship to a moment in time 200 years ago. On that day in December 1799, the first American ship to undertake trade with Japan began its journey homeward.

This sailing ship, the "Franklin," was based in Salem, Massachusetts. It returned home from its voyage with an exotic and wonderful cargo from the port of Deshima - the Dutch trading "factory" in western Japan: strikingly beautiful furniture, lacquer ware, painted screens and textiles.

Not unlike modern-day consumers, Americans living only a decade or so after our national independence who bought the "Franklin's" cargo were delighted with the beauty and workmanship of their newfound Japanese purchases. They responded like so many of us do today, by appreciating the extraordinary range and high quality of Japanese products. Some things never change.

Economics - The Ties that Bind

Nowadays, almost everyone understands the importance of trade in nurturing and constructing the U.S.-Japan partnership. From its modest beginnings with the "Franklin", our bilateral trade now accounts for over 233 billion dollars a year.

Japan now buys more American agricultural products, drugs, aircraft and semiconductors than any other nation on earth. And we are Japan's number one customer for automobiles, robots and consumer electronics, among a host of other products.

This trade encompasses a huge, complex web of commercial and financial transactions binding together the two largest economies on earth. Japan and the U.S. play a key role in maintaining and strengthening the global trading system.

Our bilateral economic relationship is just as important as what we do - together - to guide the structures of the international economy. While we do not agree on everything, one of the many values we share is a belief in free markets.

We have achieved a number of breakthrough bilateral trade agreements in market sectors ranging from telecommunications to civil aviation to semiconductors to flat glass. Through these agreements, American participation is growing in Japan's financial, telecommunications, and civil aviation sectors.

While American and Japanese consumers, workers, and businesses benefit from these agreements, the effects of our economic partnership go well beyond just our two nations. The U.S. and Japan are the number one and number two markets, respectively, for virtually every country in Asia. The economic vitality of the U.S. and Japan now has a dramatic influence on the economic health of Asia - and the entire world.

Consequently, the world requires a strong, healthy, economically vibrant Japan. While much remains to be done, Japan has made significant progress in reviving its economy. In the past year, Japan has:

  • implemented aggressive fiscal and monetary policies aimed at jump-starting private demand and putting Japan on a sustainable growth track;
  • and it has injected substantial public capital into the banking system - a vital first step in restoring public confidence in Japan's banks and resolving the problem of bad loans left over from the bubble economy of the 1980s.
We welcome these steps Japan has taken to revive its economy.

Now that there are signs of a recovery, it is important that Japan continue to take the measures necessary to encourage and support economic activity until that recovery is clearly and firmly in place. The most recent quarterly negative "growth" figures remind us that much is still required. To strengthen Japan's economy, and ensure long term growth, some important challenges must be faced squarely and addressed wholeheartedly.

The most basic of these is - pure and simple - regulatory reform. According to numerous studies, including some by the Japanese Government itself, excessive regulation and a lack of competition continue to be the major obstacles to Japan's long-term economic progress and increased productivity growth. Indeed, productivity lags most in the very industries that are the most heavily regulated.

Layers of regulation continue to swaddle and choke too many Japanese companies and industrial sectors. They stifle corporate energies and employee talents alike, preventing the growth of emerging sectors, the introduction of new products, and creation of new job opportunities.

Regulatory reform is indispensable in sustaining vigorous economic growth. It can carve away inefficiencies like a fine scalpel. It encourages innovation and competition to replace these inefficiencies and unnecessary, man-made roadblocks.

We have heard this message again at a major multi-national symposium hosted by Keidanren, just last week. The message: regulatory reform around the world is generating significant new investment in the economic realities of the 21st century. In the process, regulatory reform is creating millions of new jobs: good jobs, jobs with futures. It is a simple equation: regulatory reform equals new, better, more productive jobs.

Here, let me underscore the value we place on the inter-governmental discussions designed to advance this regulatory reform. Our two governments have been engaged in intensive discussions for the past two years through the "Enhanced Initiative on Deregulation and Competition Policy."

The latest package of reforms from this initiative, signed by President Clinton and Prime Minister Obuchi just this spring, can have a real impact in further opening Japanese telecommunications, housing, pharmaceutical, financial, energy, and retail sectors to competition. Effective implementation of these agreements will bring real benefits.

Trade has been important in building our relationship throughout our history. And regulatory reform can make our bond still stronger. However, there is another element crucial to the vitality of our economic partnership. Opening the door wider to foreign direct investment - or FDI as it is more often called - will be a much-needed catalyst for renewed economic growth here in Japan . . . and will foster a richer relationship between our two nations.

Right from the beginnings of America as a nation, foreign investment has been the great unsung hero in building up America's economic strength. Foreign capital helped build our continent-spanning railroads and canals, our telecommunications and our factories. And now, foreign investment is helping build and finance America's great high-tech and telecommunications revolution. This is the same revolution that has fueled America's extraordinary economic growth over this past decade.

I would like to share some little known facts about FDI for you to ponder. FDI now funds over 6% of America's GDP, about 12% of our research and development and manufacturing sectors, and around 20% of our banking and financial services industries, resulting in more and better jobs. FDI-related jobs pay salaries that are 20% higher than the national average. And 123.5 billion dollars of the FDI entering the U.S. in 1997 (the most recent year we have complete numbers available) came from right here in Japan.

Let's look at these figures another way. The average salary of the over 800,000 Americans in hundreds of companies growing because of Japanese FDI is $47,000 a year. That is about 5 million yen. These are good wages for people with bills to pay, families to support, children to educate and things to buy.

By contrast, American investment in Japan is much lower than it could be. In fact, Japan has the lowest rate of FDI of any member of the OECD. In the last fiscal year, FDI in Japan amounted to only a little more than a quarter of one percent of its GDP, at least 25 times less than the comparable figure for the US. Why is this? Frankly, investment into Japan is not attractive enough to potential investors. I think that the Japanese Government recognizes this situation is both unhealthy and unsustainable.

Our two governments are now engaging in an intensive dialogue on improving the investment climate and receptivity towards FDI in Japan. Opening the door wider for FDI will be a real win-win for both nations.

The Common Agenda and its intellectual antecedents

Our ties began - and continue to grow - through trade. However, intellectual curiosity, a desire for better understanding, and an interest in putting this knowledge to use has been central to our relationship from the start.

Just six short years after Commodore Perry's arrival in Tokyo Bay, a fisherman casting his nets on that same shoreline caught a glimpse of the "Kanrin Maru" steaming out to the Pacific. This ship carried Japan's first delegation to America to investigate the sources of America's industry and innovation.

In the words of a Japanese statesman of the era, their task was " to send ships to foreign countries everywhere and c to copy the foreigners where they are at their best and so repair our own shortcomings. . ." A second exploration of the United States by Japanese officials, the Iwakura Mission, a dozen years later, heralded an astonishing explosion of interest in adapting American skills and talents to build a new Japan.

From mining to railroads, from higher education to agronomy, some of America's best and most practical thinkers came to Japan to put their skills, ideas - and ideals - to work. Some of these names, Capron, Marsh, Batchelor and Clark, are now half-forgotten in America, but they remain deeply admired by every Japanese student of history.

At virtually the same time, the first of several waves of Japanese impact and influence reached America. The 1880s saw the unique perspectives and aesthetic sensibility of Japanese art seize the attention of painters like James Whistler and Mary Cassatt, forever changing the sense of line and color in American art.

In the twentieth century, "zen" philosophy would capture the imagination of a new generation of American writers, poets and philosophers. More recently still, Japanese design, style and production techniques would have far-reaching effects on American manufacturers and industrial designers - and consumer taste.

In contemplating this veritable rush of innovative development, of using American technology and models and of adapting them to Japanese society and needs - and of adapting Japanese aesthetics and industrial processes to America -- I think there has been a larger lesson. Our two countries have learned to pool their best creative energies and innovative talents for the betterment not only of their own two peoples, but for people everywhere. It is this understanding which leads us to work together today on a multitude of international development challenges under the so-called Common Agenda.

Those of you who have heard me on other occasions know I have great admiration for the "Common Agenda". This is a partnership - forged between Japan and America - that brings together the skills, enthusiasm and knowledge of governments, academia, business and NGOs to tackle environmental, health and social problems throughout the world.

If the economic ties between Japan and America are the sinew and muscle of our partnership, the Common Agenda is fast becoming the heart - or spirit - of our connection. The power of our two great nations gives us a unique moral obligation to lead. Our joint work on global issues under the U.S.-Japan Common Agenda is the most successful such cooperation between any two nations in the world today. It is one of the finest symbols of our common values.

If any confirmation is needed, ask the 450 million--million--children now vaccinated against the scourge of polio in response to the global "Polio Eradication Initiative" partially funded and coordinated via Common Agenda agreements.

Or the people of Zambia who now routinely get vital doses of Vitamin A from the sugar in their morning tea and coffee distributed by NGOs whose efforts we are funding.

Or the biologists and ecologists working to preserve the unique bio diversity in the national parks of western Java as part of the "Parks in Peril program" we are supporting.

Or the people still alive because of new and innovative AIDS prevention and education programs we are co-sponsoring throughout Southeast Asia.

These joint efforts of the Common Agenda imbue our relationship with a spirit of hope and impart that hope to others around the globe.

Security Relations Then and Now

Through wisdom and mutual effort, we have overcome the terrible conflict which divided us more than a half-century ago. In its place, we have achieved an alliance and partnership that is one of the most productive partnerships the world has yet seen. Our security partnership is in fact the essential framework upon which all our bilateral relations rest.

This relationship benefits not only the U.S. and Japan, but also the Asia-Pacific region, and the world at large. One of the great lessons of the 20th century has been that strong alliances between democracies are the best means to provide for the common defense and maintain regional stability. The success of NATO in Europe is one obvious example. But so, too, is the remarkable record of the U.S.-Japan security relationship, a partnership that has helped maintain peace in Asia for more than two generations.

Our security relationship is the cornerstone for our common objective of a stable and prosperous Asia-Pacific region. Both the U.S. and Japan have worked to ensure that our alliance remains healthy, viable - - and ready to meet the challenges of the 21st century.

Two years ago, we established new Defense Guidelines that created a solid basis for more effective, more credible cooperation under normal circumstances, as well as in the case of an armed attack against Japan, or in the event of a regional crisis. Passage of Guidelines-related legislation in Japan earlier this year now provides the legal framework to enable us to work together more closely and effectively.

Concurrently, we are also improving relations between our forces and their host communities in Japan. This is a critical task because the U.S. military facilities throughout Japan are key components of our deterrence capabilities and our rapid response strategy for Asia.

This vigilance is not cost-free. We know this. A few months ago, when I opened our new public affairs office in the Consulate General in Naha, I said, "Okinawa is the vital element of our alliance with Japan and key to our presence in the region. We understand the burden this places on the people of Okinawa and we want to be good neighbors."

To help achieve this aim, we established the bilateral Special Action Committee on Okinawa, or SACO, to realign, consolidate and reduce our bases on that island, while still maintaining our vital operational capabilities. SACO issued 27 recommendations. We have already completed 13 of these, and we are now focusing intently on the remainder.

Security--More than Troops and Equipment

However, our bilateral security cooperation is more than just troops and hardware. Working together to prevent conflicts from erupting into hostilities is surely just as vital to our common security as having the capability to deter potential aggression. Nowhere, perhaps, is such cooperation more vital than on the Korean Peninsula.

Together with South Korea, American and Japanese support for the Korean Peninsula Energy Development Organization (KEDO) remains the key to preventing North Korea from pursuing a nuclear weapons program. Working together, I believe the U.S., Japan and South Korea can bring about a peaceful, substantive dialogue with North Korea. We welcome the recent hopeful signs of an improvement in Japan-North Korea relations.

While the Korean Peninsula is often in the news and in our immediate attention, we must recognize that China will play a central role in Asia's medium and long-term future. The U.S. and Japan share a fundamental interest in an international system that includes a stable, positively engaged China - a China that plays by the rules.

We seek opportunities through U.S.-China-Japan security dialogue to enhance vital transparency and to develop other confidence building measures. Similarly, we consult closely with our Japanese partners--vis-a-vis China - on missile proliferation, missile technology control regimes and nuclear issues, not to mention our very recent accord concerning China's accession to the WTO.

Our mutual security interests are not limited to Northeast Asia, of course. Our two nations have common strategic interests in Southeast Asia as well. As most of you know, Japan's economic and development assistance to Southeast Asia, most notably to Indonesia, exceeds that of any other country. This assistance will remain vital in easing Indonesia's transition to an open, democratic society. In particular, we would welcome a continued strong Japanese contribution to the UN interim administration in East Timor.

As I said, one of the great lessons of the 20th century has been that strong alliances between democracies are the best way to maintain regional stability and to encourage economic growth. Yet another lesson, however, has been the fundamental, basic, inherent correlation between democratic institutions, regional stability and economic prosperity.

The United States and Japan share both democratic values and a desire to assist other nations in developing their own democratic institutions. Our two nations account for about 40% of the world's development assistance. Together, we support projects in Bosnia, Kosovo, Central Africa, and in the Middle East, aiding these societies in their quest for sustainable, stable development as they join the "Community of Democracies." Through these contributions, we embrace our worldwide responsibilities as two of the globe's leading democracies.

A Closing Word

One of Japan's most thoughtful intellectuals and scholars of international affairs, my friend, Prof. Takashi Inoguchi, recently wrote of the world's increasing globalization:

The task for Japanese diplomacy is. . . to find ways of helping the Japanese people understand [this] globalizing process, while promoting the adaptation of the country's domestic systems. . . This task . . . will determine how successfully Japan responds to the needs of globalization in the twenty-first century.

These are big challenges, crucially important tasks.

Two years ago, just after I had arrived in Japan as American Ambassador, I said here at the Japan National Press Club that, as "we move into the 21st century, shifting geopolitical factors, global competition, and technological innovation are creating unprecedented change." I argued that the countries that succeed will be those that can most quickly adapt to these changes and challenges.

At the same time, I urged confidence and optimism in facing these challenges. I added, "that if our view of the future is bleak, we will act without purpose," but, that "I am convinced that our two countries will together meet the challenges before us" and that the future of our alliance and relationship remains bright.

As we enter a new century and a new millennium - and as I begin my third year as Ambassador - I am convinced that - jointly and individually - we will be equal to these challenges.

Thank you very much.