U.S.-Japan Economic Relations: Never Better

James P. Zumwalt
Economic Minister-Counselor, U.S. Embassy Tokyo
Kagoshima, February 25, 2005


Good afternoon. It's an honor to address you today in Kagoshima, an area that, from the Bakumatsu period onward has contributed to building modern Japan. Ever since I studied Japanese history in college, I have wanted to visit the home of Saigo Takamori, so I very much appreciate your invitation today. Last night I tasted some authentic Kagoshima shochu, and learned that this delicious beverage enjoys considerable popularity across the whole of Japan. I have to say that I look forward to enjoying some "kuro buta" tonight for dinner. Kagoshima has been an important point of contact between Japan and Korea, China, Southeast Asia and the West - especially due to the early and eager adopters of Western technology in the "Satsuma-han." This flexible way of thinking will be needed to sustain Japan's place as a global leader in the 21st century.

US-Japan Economic Relations - "Gaiatsu"

When many Japanese people think about U.S.-Japan economic relations, they think of the United States applying gaiatsu to open Japan's markets to foreign goods and investment. While there might have been some truth to this image in the 1990s, this view has become outdated, as bilateral economic relations are now healthy and constructive. Many U.S. companies that used to be on the outside are now major investors in Japan. In 2004, U.S. companies invested roughly 200 billion yen in Japan, including household names like Kodak and Wal-Mart. In 2004, Toys R Us opened its 150th store in Japan, and Starbucks has over 30 coffee shops in Kyushu alone. Indeed over 70 U.S. firms have a physical presence in Kyushu.

Of course, like all relationships, U.S.-Japan economic ties still experience rough spots. Although Japan has made great strides in opening its economy to outside capital and ideas, some market access concerns remain. One pressing trade issue is beef. As I'm sure you are aware, Japan banned all imports of U.S. beef in December 2003 following the discovery of a single BSE-infected cow in Washington State. Since that time, the United States has devoted great efforts to address Japanese technical concerns. In October of 2004 our governments agreed on a road map to resume beef trade.

The simple fact is that U.S. beef is safe. The beef we want to sell to Japan is the same as that enjoyed by over 280 million Americans. Not one of these persons has contracted the human form of the disease from eating this beef. The time has come for us to resolve this issue, which will damage other aspects of our bilateral relationship if it is allowed to fester.

But despite this (hopefully) temporary problem, U.S. interest in the Japanese economy now includes many diverse issues, and our highest economic priority remains to advance shared interests of both countries and the world.

Japan is America's Most Important Friend and Ally

The United States and Japan have different cultures, different geographies, different histories, and we fought a ferocious war that ended only 60 years ago. Yet U.S.-Japan relations - symbolized by President Bush and Prime Minister Koizumi's close friendship - are both strong and stable economically, politically, and geo-strategically. The growing economic relationship between the world's two largest national economies is contributing to the health of the regional and global economy. We are your second-largest export market, and you are our fourth. This holds true in spite of Japan's low economic growth in the 1990s and significant changes in trade and investment patterns in the East Asia-Pacific region.

Media reporting has given much attention in recent weeks to the news that Japan's 2004 trade with China exceeded Japan's trade with the U.S. for the first time. This news is an impressive indicator of China's emergence as a major trading nation, but it would be wrong to conclude that Japan's economic relationship with the United States is losing importance. These trade numbers do not reflect the maturity of the U.S.-Japan economic relationship, nor the history of investment flows. An increasingly significant volume of goods and services is provided by Japanese investors in the United States and by U.S. investors in Japan. The total Japanese investment stock in the U.S. stood at $150 billion in 2002, while U.S. investment stock in Japan was $30.2 billion.

Right here in Kyushu, you have several well-known cases of U.S. investment. In Miyazaki, Ripplewood's 2001 acquisition of the Seagaia resort complex has helped to turn it around and preserve a key source of jobs. In Fukuoka, Colony Capital last year acquired ownership from Daiei Inc. of the Fukuoka Dome and neighboring Sea Hawk Hotel and Mall, thus injecting hundreds of millions of dollars into the local economy. Colony Capital is investing aggressively to refurbish the hotel and expand the shopping mall. By bringing in JAL to manage the hotel and by forming a strong partnership with Softbank, the new owner of the baseball team, Colony is expanding the resort's customer base and promoting it as a year-round resort destination. These efforts will contribute significantly to the Kyushu economy.

U.S.-Japan Ties are Enduring

In spite of momentous changes in the world over the past 60 years - the end of the Cold War, the emergence of China as a major world actor, and the growing threat of terrorism - our political relationship has also endured and thrived. This partnership and friendship have remained strong because the United States and Japan share common values, and these common values help our friendship withstand changes that might otherwise affect our relationship. Among our common values are our belief in democracy, our desire to promote human rights, and our conviction that the market economy is the most efficient way of organizing our economies in order to promote growth. And also, we share a belief that it is in our mutual interest to promote sustainable economic growth throughout the world. So these shared values underpin our interests, as the world's two largest economies, to protect and strengthen the world order.

What impresses me even more than the strong economic and political ties between our two nations is the remarkable people-to-people relationship. Americans and Japanese are fascinated and positively influenced by each other. There was a time when this cultural appeal was mostly one way, a time when Katherine Hepburn and Gary Cooper appeared on Kagoshima movie screens, Disneyland in your children's imaginations, and McDonalds hamburgers on your lunch menus. Now the culture flows both ways. On a typical day, an American might drive to work in a Japanese car, eat sushi for lunch, and cheer Hideki Matsui or Ichiro in a Major League baseball game. Student exchanges - such as the one I went on as a high school student - flourish as never before. Since 1993, approximately 500,000 Japanese have studied in the United States, and we are eager to host even more. In that same time, about 25,000 American students have come to Japan.

U.S.-Japan Relations Have Never Been Stronger

U.S.-Japan relations are strong - indeed they have never been better. The warm friendship between President Bush and Prime Minister Koizumi symbolizes this relationship. Americans regard Prime Minister Koizumi as a dynamic, forward-thinking leader who is willing to accept Japan's role as a great power in the world. His commitment to carry through his crucial economic reform package is not only admirable and a benefit to Japan but, perhaps even more important, it will help restore the economy as a global engine for growth. Prime Minister Koizumi has, through active foreign diplomacy, cemented Japan's role as a powerful actor on the world stage.

Our combined economic size means that U.S.-Japan relationship matters to others.

I have explained why U.S.-Japan relations have remained durable and strong. But why does this matter for people outside the United States and Japan? The importance of our relationship to the world can be explained by our size and influence. Our two countries are world leaders - economically, politically, culturally, and militarily. So the fact that we have such a strong relationship is very important, not only to us, but to the entire world, because as the world's two most prosperous and successful societies, the world looks to the United States and Japan for leadership.

Economically, the U.S. and Japan together account for 42% of the world's gross domestic product, which is as big as the 18 next largest economies combined. Our two nations account for about one-quarter of all world trade. Japanese and American companies file about 60% of all patents in the world each year; we make almost 40% of the world's automobiles and account for about half of all money spent on research and development worldwide.

As the world's largest economies, we work together as a positive force to influence world events constructively. We do this in China, where our business communities strive to strengthen China's intellectual property regime and the rule of law, and also in Africa, where we are strengthening the public health system. We are working together to resolve the threats emanating from the Korean peninsula. We stand side by side in the war on terrorism, through activities such as stemming the flow of terrorist assets in the international banking system. From our perspective, Japan is truly a valued partner in shaping the world economic order.

I would like to highlight three areas where we can work together - foreign assistance, promoting trade liberalization and strengthening regional economic institutions.

The United States and Japan are linked in shared grief over the loss of life and property from the recent earthquake and tsunami in the Indian Ocean. In a shared spirit of compassion and responsibility, we are leading an unprecedented international effort to help those affected by this tragedy rebuild their societies. Japan disbursed the remarkable amount of $500 million in grant aid to the affected countries within a matter of weeks. U.S. forces based in Japan were also able to provide logistical support to the Japanese relief effort, by ferrying Japanese food and other supplies to Thailand for distribution throughout the region. We are looking forward to continuing to work closely together in reconstructing the affected countries and in developing a tsunami early warning system in the Indian Ocean.

As this example illustrates, our combined efforts matter because we rank as the world's two largest aid donors. Together we give nearly 40% of all assistance to the developing world, and when you include private sector giving, non-government organization funding, peace-keeping efforts, and military relief, the number leaps dramatically.

Japan has been Iraq's second-largest aid donor and continues to provide critical reconstruction and humanitarian assistance. In November, the Japanese Government increased grant aid to Iraq from $1.5 billion to $1.9 billion, and it has already disbursed around $1.3 billion in grant aid for electricity, water, hospitals, police and fire brigade training, education and other areas. Japan has also pledged to contribute a total of $5 billion for Iraqi reconstruction through 2007, including the $1.9 billion in grant aid. Japan also agreed to forgive 80% if Iraq's bilateral debt to Japan, a vital step to putting Iraq's economy on the road to sustainable growth.

Japan has also been one of Afghanistan's most reliable and generous donors, contributing nearly $1 billion in reconstruction assistance since 2002. $800 million of the pledge has already been disbursed. We are working together to build a road that will link up Afghanistan's many regions and help forge a sense of nationhood. In this way our economic assistance programs provide hope to the Afghan people and enhance the prospects for peace and stability.

We have also been among the principal players in trying to realize a peaceful settlement to ethnic conflict in Sri Lanka, where we are offering economic assistance to convince the two warring parties to seek a peaceful solution to a twenty year old conflict.

Another major area of collaboration is in health, especially in the fight against infectious diseases such as HIV/AIDS, malaria and polio. The USAID-Japan Partnership for Global Health is focused on human capacity building, education, and disease prevention, and USAID and the GOJ are partnering or exploring cooperation in over 30 countries in various regions. The United States and Japan are also close partners on the board of the Global Fund to Fight AIDs, Tuberculosis and Malaria, to which Japan has pledged $260 million.

Because the U.S. and Japan work so effectively on so many development issues, we are especially concerned that between 2000 and 2003, Japanese ODA declined 30% while the American budget for overseas assistance grew by about 50% from $10 billion to $16 billion.

Global Trade Liberalization Efforts

As two great trading nations, the United States and Japan share common interests in promoting global trade liberalization. At present, Japan is focusing its trade liberalization efforts on the creation of a network of bilateral Free Trade Areas (FTAs) with Asian and Latin American countries. We hope this effort will lead to open, high-quality agreements that contribute to the liberalization of the world trading system as a whole. But we also need to work together toward a positive outcome for the Doha multilateral trade negotiations. For it is in this multilateral forum that we can achieve the biggest gains to the world economy. The ultimate goal is a better global trade system that is open, transparent and efficient, benefiting rich and poor countries alike.

Finally, as the two largest economies in the Asia-Pacific region, we can work together in APEC - a group of 21 economies in the region - to advance regional prosperity and security. Our collaboration is critical to the success of APEC. The 21 leaders who meet each year for the APEC forum represent about 40% of the world's population, almost 50% of world trade, nearly 60% of global economic output. So when APEC leaders achieve a consensus, it carries a lot of weight. But achieving consensus among 21 diverse economies is not always easy. That's why it is so important for the U.S. and Japan to work together in APEC.

Historically, APEC's work has focused on facilitating regional trade, investment and economic growth. The vision adopted by APEC leaders in 1994 of free and open trade and investment throughout the region is powerful. Japan played an important role as host of APEC in 1995 when APEC leaders adopted the Osaka Action Agenda to transform that vision into reality. The greatest successes to date have been in reducing business transaction costs by cutting red tape, embracing automation, harmonizing standards, and eliminating unnecessary barriers to trade.

This year the U.S. looks forward to working very closely with Japan to improve the protection and enforcement of intellectual property rights. This work will position APEC economies to lead the world in innovation, while reducing the flow of counterfeit and pirated goods, which can threaten not only people's economic welfare but also their health and safety.

APEC leaders have also supported the process of global trade liberalization, for example by calling for a swift return to the WTO negotiating table in 2003. APEC leaders will again have an opportunity to give a boost to the WTO process when they meet in Pusan, Korea, in November, a few weeks before the world's trade ministers gather in Hong Kong for an important round of WTO negotiations. In addition to political support by APEC leaders, trade negotiators from APEC economies have developed specific proposals to advance the WTO agenda in areas like customs facilitation and reducing tariffs on information technology products.

APEC also is making progress on developing common approaches to negotiating bilateral and regional free trade agreements, to ensure that such agreements are comprehensive, consistent with the WTO, and truly trade liberalizing. This work is particularly important to ensure that the many existing and new agreements in the Asia-Pacific region serve not as stumbling blocks but as building blocks to achieve APEC's trade and investment goals.

In recent years, APEC leaders have also emphasized security, recognizing that free and open trade and investment cannot be achieved if it makes our societies less safe. The U.S. and Japan are collaborating very closely in APEC to strengthen export control systems in other APEC economies. This work will facilitate the flow of goods to legitimate end users while preventing illicit trafficking in weapons of mass destruction, their delivery systems, and related items. We also are working together to enhance safety of regional ports and to develop guidelines for keeping dangerous weapons like shoulder mounted missiles from terrorists.


To briefly review the points I tried to make today: U.S.-Japan relations are very strong, they are enduring, and that strength and endurance stems from our shared values and shared interests. Our combined size of nearly one half of the world's GDP means that working together we wield influence, and can tackle difficult problems together and in multilateral and regional organizations. We can work together to advance our common interests and global welfare in a wide number of fields including foreign assistance, global trade liberalization and in APEC.

You here in the Kyushu have an important role to play in this. You have a long history stemming from before the Meiji Restoration advocating for reform and change. I would encourage you to continue to exercise your "naiatsu" and promote policies in Tokyo that will enable Japan to continue working with the United States to advance our shared interests.

Thank you very much.