Ambassador Schieffer Addresses Research Institute of Japan

Ambassador J. Thomas Schieffer
Speech and Q&A
Research Institute of Japan, Tokyo

April 19, 2006

AMBASSADOR SCHIEFFER: Well, thank you very much. I'm very flattered that so many people would turn out today. I asked here when I was sitting at the table if they were giving away a car or something after my speech, because I was not used to getting this many people to hear me.

It is a real pleasure to be here today. The Research Institute of Japan has long played an important and influential role in Japanese society. Many noted speakers have come here to share their thoughts with you. I am honored that you would want to hear from me. I am especially appreciative of the Jiji Institute for extending the invitation.

For a little over a year now, I have represented the United States in Japan. It has been a wonderful experience. The Japanese people have welcomed me with open arms.

I have had a chance to travel throughout Japan, and from Hokkaido to Okinawa, Japanese have offered their understanding, friendship, and support to me personally and to the people of the United States. It is clear to me that America has a great and loyal ally in Japan. There is much to do in the world, and it gives the American people great comfort to know that they have a friend in the Japanese people.

During much of my stay here I have dealt with security issues. The ongoing Defense Posture Review Initiative, the war in Iraq, the reconstruction of Afghanistan, the Six-Party Talks, and the strategic role of Japan and the United States in Asia have occupied much of my time.

So, too, has the controversy over the Japanese ban on United States beef. Today, though, I would like to talk more about the long-term economic relationship between the United States and Japan. I believe this is a unique time in our history, and I am convinced that great opportunity exists for a global alliance between Japan and the United States, an alliance that will extend beyond our security needs and provide for the prosperity of our citizens.

Economics is an inexact science. Part of the problem of understanding it is that just when theory becomes orthodoxy, something comes along to turn it upside down.

Take for instance the theories of John Maynard Keynes. During the 1930s and beyond, Keynesian economics was quite controversial. But when President Kennedy and his Council of Economic Advisers adopted many of its tenets - and they worked - Keynesian economics became orthodoxy. So much so that no less an authority than Richard Nixon came along to express the view that, "We are all Keynesians, now." That was a pretty astonishing statement coming from a Republican president whose party had for decades argued that many of Keynes's theories were almost subversive.

As the years went by most people seemed to agree that government spending and accommodative monetary policy could stimulate economies so that recessions could be mitigated or avoided altogether. The real problem, most politicians and economists argued, was not managing growth but being sure that inflation did not get out of hand.

Then along came the Japanese bubble, the lost decade, and the ogre of deflation to remind all of us that we never really know everything about the business cycle and the ability of government to intervene successfully against downturns.

Over the years I have thought a lot about the relationship of government to economics. And while I am no economist, a few things can be said about that relationship that I think are quite true.

The first is that no matter what the state of the economy, people are going to worry about it. When times are good, they worry that they won't last. When times are bad, they worry that they will never end. Worry is what we do when it comes to economics. And that worry is what causes governments to be so concerned about their economies. After all dictatorships and democracies discovered a long time ago that bad economies are bad for incumbent governments.

The second thing I have observed is that the law of unintended consequences is never repealed. No matter how much government plans or analyzes its moves in the economy, they will always have consequences that no one anticipated. Those consequences can be good or bad, but they will be unanticipated and lead to second-guessing by all involved. The irony is that when we finally figure out the consequences to what we have done, it is often very difficult to take corrective measures.

My third observation is that money has neither conscience nor courage. Left to its own devices money will seek the highest return for the lowest risk. This is an extremely disappointing conclusion to most people. They want money to do good things, to reward the just and punish the unjust. And when it does not, they are disappointed. The good news though is that you can give money a conscience and courage. The bad news is that somebody has to pay for it. There really is no such thing as a free lunch.

The fourth thing I have observed over the years is that the private sector is better at managing most enterprises than is the public sector. When it comes to maximizing revenues and minimizing expenses, owners do a better job than government bureaucrats. For whatever reason, it just seems that people manage their own money better than they manage the money of others.

Finally, I think Adam Smith was right. There is an invisible hand that moves markets, and that hand generally moves, as Smith said, out of self-interest. As Smith wrote so many years ago, "It is not from the benevolence of the butcher, the brewer, or the baker, that we can expect our dinner, but from their regard to their own interest."

The job of government is to try to strike a balance between all those competing interests. It is not an easy job, but it is not impossible either. When governments appeal to the best that is in their citizens, when they are truthful about their motives and they administer their functions with integrity, good things generally happen. When they are dishonest in intent, corrupt in practice, and appeal to the worst that is in us, then bad things always follow.

America and Japan share common economic values. We both believe that hard work should be rewarded. We both believe that integrity must be practiced in every part of a business - from the boiler room to the boardroom. And we both believe that free markets offer the best hope of providing the most for the many.

As we look out on the global economy of the 21st century, we have nothing to fear. We both have highly educated, highly motivated, highly innovative workforces that have already built the two largest economies in the world. We did not get to where we are because we could not create or compete with the rest of the world.

Today, the United States and Japan hold more patents than any other two countries. We spend more in terms of real dollars on research and development than any other two countries. We have led the technological and communications revolution that is sweeping the world. We have no reason to fear the future, because we are the ones who created the future.

Yet, Americans and Japanese are often anxious about the role their economies will play in a globalized world. We worry that cheap labor and intellectual property piracy will rob our citizens of their livelihoods, that trouble in the Middle East will overwhelm the energy markets, that technological change will come so quickly and with such devastating consequences that our cultures will be destroyed. To be sure, we face difficult choices, but we also have the resources and knowledge to meet them. All we have to do is to summon the courage to act.

Communications and technology are knocking down barriers between peoples, markets, and cultures every day. Some people are indifferent to that because they think it will not affect them. Some think they can wall themselves off from that change by retreating into a past that never really existed. And some are determined to understand that change so that they can be a part of it and benefit from its coming.

We - Japanese and Americans alike - must be a part of that last group. We can choose not to be a part of a changing world but we cannot choose to stop the world from changing. It will do so whether we want it or not.

Japan and the United States must do more to integrate our economies. Some will say that there is great risk in doing that; I say there is greater risk in facing a globalized world separately than together.

Last year, Prime Minister Koizumi led the fight to privatize the Japanese postal system. He was right. As I said earlier, people look after their own money better than they look after other people's money. Japan will benefit from private sector management of the 3.2 trillion dollars in assets that the postal system now has. That capital will create more jobs and more prosperity for Japan than it ever did when it was locked up in the public sector.

Last month, the Prime Minister said he wanted Japan to double the amount of foreign direct investment it now has, and he was right again. The United States has far and away the largest economy in the world. The value of foreign direct investment in the United States is equal to 22% of our gross domestic product. On the other hand, the value of foreign direct investment in Japan equates to just a little over 2% of your GDP, the lowest rate of all the G-8 countries. It is worth noting that Japan is emerging from its lost decade at a time when foreign direct investment doubled as a result of Prime Minister Koizumi's first initiative in this area. We do not think that is a coincidence.

Foreign direct investment does not cost jobs; it creates jobs. Japanese automakers alone have invested $28 billion in America and now employ more than 56,000 Americans. Recently, Dr. Toyoda was in my office. He told me that Toyota sold more than 2.2 million vehicles in the United States last year, and 1.55 million of them were made in the USA. Toyota's investment in the United States was good for America and good for Japan.

Here in Japan the Boeing Company has been a leading investor, and those investments have created jobs for Japanese and markets for products that did not exist before for Japan. In the mid sixties, foreign parts represented only 2% of Boeing's best-selling airplane, the 727. When the new Dreamliner comes on line, 35% of it will be made right here in Japan. Boeing has become much more than just an American company. It is an engine that drives economic growth in many countries around the world.

Sometimes we get the impression that a globalizing world means no more than the shifting of manufacturing jobs from the developed world to the developing world. And that's really not the case.

What is happening in the world is that communications technology and productivity are shrinking the number of people that are needed to do the kinds of jobs we have had in the past. From 1995 to 2002, the number of manufacturing jobs in America shrank by 2 million. During the same time, the number of manufacturing jobs in Japan shrank by a little more than 1.7 million. I think if you asked most people in the United States and Japan where they thought those jobs went, they would say "China." Yet the reality of the situation is that China during the same period lost 15 million manufacturing jobs.

Now, no doubt many manufacturing jobs that would have been performed by Americans and Japanese in the past are now being performed by Chinese. But the truth is that a lot of jobs are not moving as much as they are just disappearing.

Governments may from time to time intervene to slow down or reduce the impact of those job losses on communities and industries where they occur, but they are fighting a losing battle. Unless workers are retrained and re-educated for other employment, they will not be able to find long-term job security. Uncompetitive industries will eventually go out of business no matter how much protection the government offers.

When railroads started using electricity and diesel fuel to drive their trains, there was simply no job left for shoveling coal. The money spent to protect the jobs of the past would have more beneficial impact if it were spent to train people for the jobs of the future.

The rapidity with which a business cycle can occur these days is so great that we must be sure that our regulatory environment can keep up with it. Government regulation is meant to protect the health and safety of our citizens and the integrity of the marketplace. It should not be used to create barriers to competition.

Where businesses are prevented from selling legitimate products by protectionist regulations, consumers are paying a hidden tax through the form of higher prices. Just as importantly, businesses that could grow and employ more by offering cheaper and better products are prevented from doing so. That is a lose-lose situation. Alternatively, businesses that are allowed to compete in markets employ more workers and provide better, cheaper products. And that is a win-win situation. Let me give you an example of what I'm talking about.

For several years the Hartford Insurance Company was prevented from entering the Japanese market in variable annuities. In the United States the variable annuity market was quite large - $137 billion in the year 2000. By contrast it was quite small here in Japan - less than $1 billion that year. When Hartford was finally allowed to enter the Japanese market six years ago, it did so with gusto. It established relationships with Japanese banks, hired Japanese salesmen, and found a ready market of Japanese customers. Today, a little more than six years later, the variable rate annuity market in Japan is more than $40 billion and growing. Now, the Hartford Insurance Company of the United States has about 30% of that market. But the other 70% is shared by someone else. Surely there can be no argument that 70% of a $40 billion market is much better than 100% of a $1 billion market. Yet that market would not likely have grown had Hartford not have been allowed to compete here in Japan.

The marketplace, not the government bureaucracy, is the best place to decide where the winners and losers in business will be found. Let me give you an example of what I mean by that.

The Starbucks Company of Seattle decided they had a product that the Japanese people would buy. They hired Japanese consultants who advised them that Japanese customers would never buy take-out coffee in paper cups. Their recommendations pretty much flew in the face of the whole Starbucks business plan. But Starbucks believed in their product and they were willing to take the risk of coming to Japan. And thank goodness they did. Not only did Japan embrace an old product prepared and served in a different way, they did so with an enthusiasm that not even Starbucks could have envisioned. Today, Starbucks has more than 500 stores in Japan and employs more than 10,000 Japanese. Again, that was foreign direct investment that was good for America and good for Japan.

The United States and Japan can do more together. We can integrate our economies and create more jobs, more growth, and more prosperity for both of us. We do not have to be self-delusional to understand the benefits of self-interest. Nobody wins when we try to shut each other out of our respective markets. All of us win when we let those markets create more than either of us had to begin with.

But we must understand that there can be no one-way streets. Each of us must accept the proposition that it will be as easy for an American to do business in Japan as it is for a Japanese to do business in America and vice-versa.

When I was the American Ambassador to Australia, our two countries negotiated a free trade agreement. In support of that proposition I always got the Australians' attention when I told them about my home state of Texas.

Texas has a population of more than 21 million, a number slightly higher than Australia's 20 million. Now, the Australians sometimes were a little frightened to think that there were more Texans in the world than Australians, but they really could live with that. What grabbed their interest was when I told them that the Texas economy was almost twice as large as the Australian economy.

If I were in Texas explaining that phenomenon, I might say that Texans are smart, they work hard, and they have created a special place.

All that is true, but the real reason Texas has an economy almost twice the size of Australia's is because Texans have free access to the 280 million Americans who live outside Texas. I told the Australians that they should support a free trade agreement with us, because in the future Australian entrepreneurs and businesses would find it a whole lot easier to find a niche in a market of 320 million than a market of just 20 million.

Think for a moment of what the economic throw weight of a combined US- Japan economy of 427 million people would be in a globalized world. It is hard for me to see how our ability to compete and grow with others would be diminished. On the contrary, combining our economies would allow each of us to grow in ways we cannot even contemplate today.

There is much for us to do in the world, and the best way to do it is to work together. That is why we must do all we can to resolve trade disputes like that surrounding beef as quickly as possible. The longer they go on, the more corrosive they become to our whole economic relationship. We must work to resolve them so that we can work together to create more jobs and more prosperity for our citizens.

These are days filled with economic challenge, but they are also days of enormous economic opportunity. We can feed the world. We can clothe the world. We can spread prosperity to the desperate and give health to the ill. We can educate our children and the children of the destitute. We can stimulate the arts and enrich our cultures. And we can do all those things better when we do them together. We must not be afraid to succeed because the future looks different than the past.

Albert Einstein once said that, "Imagination is more important than knowledge." I am convinced that we have the knowledge to compete in a globalized world. Now all we must do is imagine what it would be like to do it together.

Domo arigato gozaimasu. Thank you.

MODERATOR: Well, Ambassador Schieffer, thank you so much for giving us the talk on the economic situation of Japan and the United States, as well as how our two countries should move going ahead jointly. I thank you very much for your presentation. I hope you will bear with us for a few more minutes and allow us to ask you some questions if you do not mind. Well first of all, Ambassador Schieffer's speech was mainly about the economy. So perhaps with regard to the Japan-US bilateral issues and diplomatic issues, questions can be asked. And the first questioner will be former ambassador to the US from Japan, Ambassador Saito. He is presently president of the FEC International Friendship Exchange Council. The Japanese name of his organization has been changed since this April, but may I first of all ask Ambassador Saito to ask a question to Ambassador Schieffer?

QUESTION: Thank you. I am Saito. Ambassador Schieffer, thank you so much for a most enlightening and encouraging and informative speech. I thank you very much. My question might not be in line with the speech just given by the ambassador, but allow me to ask you two questions. Looking at the Japan-US bilateral relationship, it is going on very well, but there are certain potential issues lying ahead, like the BSE issue of American beef, as well as the realignment issue of US forces. But for the past one year or so you have been attending to the negotiation with Japan. What was the most difficult time that you had experienced or felt fed up with Japanese counterparts when you were involved in negotiation? What were they?

And my second question is regarding China. The rising China, both for the United States and for Japan, is posing a new challenge indeed. But as far as Japan is concerned, we hope that China can be more transparent in their defense buildup so that China will not be a threat to the Asian region. But it may not necessarily be the case that China is being fully transparent on their defense buildup, so I'd like to know the thoughts of Ambassador Schieffer. How should both Japan and the US deal with China going forward in your view? And if there is something that Japan and the US can do jointly vis-a-vis China, what are they? What would be your suggestions? Thank you.

AMBASSADOR SCHIEFFER: Ambassador, you asked me what the most difficult negotiation had been on both BSE and DPRI. Unfortunately, neither one of those negotiations is complete, so I think I'll just wait to see if there's something more difficult ahead then there's been from behind before I answer that. With regard to China, I think that it is worth noting that the United States has the best relationship it has ever had with Japan right now. And I think the same could be said of the relationship that we have with China. And the important thing to remember in that, I think, is that our good relationship with China didn't come at the expense of our relationship with Japan. On the contrary, the stronger our relationship with Japan became, I think the easier it became to have a good relationship with China. And I think that is not only good short-term policy but good long-term policy as well.

At the same time, you're all familiar with the fact that Japan and China are not having particularly good days with one another right now. I think all of us - the Chinese, the Japanese, and the Americans - look forward to a day when Japan and China can have better relations and can have the kind of relationship that will serve the interests of peace and stability in the region for many, many years to come. But I think the Chinese and the Japanese are both somewhat anxious about each other, anxious about what the position they will hold in the future is. And I think that that is not to be unexpected. The fact that China and Japan are great powers at the same time is probably the historical anomaly. And I think both sides have to get used to that. But Asia works, it seems to me, when the United States and Japan stand together and can work with China. And both China and Japan are going to have major roles to play in the future, not only of Asia, but the future of the international order. And I think we have to do everything we can to encourage that cooperation and good work together. But ultimately the people of Japan and the people of China have got to decide what their relationship is going to be, and I don't think they've quite decided that yet.

MODERATOR: Well thank you very much. Let's turn to another question. The next question will be posed by someone who has been responsible for leading the Japanese side on the Japan-US trade negotiations. Presently this person is the chairman of the Japan Economic Foundation. Mr. Hatakeyama would like to ask you the next question. Now Mr. Hatakeyama, please, would you like to ask a question?

QUESTION: Thank you so much, Ambassador Schieffer, for most interesting speech today, mainly covering the economy. But looking at the Japan-US partnership relationship, which has been your title of speech today, and you have emphasized the need to work together bilaterally, and you have talked about the FTA between Australia and the United States. I see that with regard to FTA between Japan and the US or EPA between Japan and the United States, maybe you have been careful not directly referring to those matters today. So what do you think about the likelihood of FTA or EPA to be concluded between United States and Japan? That would be my question. And also, apart from your personal position, if we look at the US administration as a whole, what would be the US administration's view about an FTA or EPA between Japan and the US? That's my first question.

Now going onto my second question, METI Minister Mr. Nikai just the other day had said that maybe East Asian EPA, economic partnership agreement with East Asia had been announced. And as we hear, some resistance has been voiced from the United States vis-a-vis that view. What do you think about this? The US has concluded NAFTA and is working on FTAA involving all of the Latin American region. So the US is trying to have closer ties with the countries in the region. And Japan too, in this part of the world, in the Eastern Asian part, perhaps Japan can work towards concluding an EPA, and maybe the US can bless Japan to do that further. So can I receive your observation on this matter? Thank you.

AMBASSADOR SCHIEFFER: It's far beyond my poor power to offer a blessing to anyone. But I think the idea of a free-trade agreement, or an EPA, as the Japanese often talk about it, is something we ought to consider. I think the United States, though, always approaches a negotiation with an FTA from this perspective: It has to be comprehensive. And when we say comprehensive, that means it has to include agriculture. And if an agreement could not include agriculture, then it's a nonstarter for us. On the other hand, when we look at the European Union and we look at Japan and the United States in the negotiations on the WTO, for instance, we have basically said that we are prepared to entertain ideas about changing the system. In the Uruguay round, you'll recall that we agreed that the European Union could subsidize its agriculture sector to the tune of $60 billion. Here in Japan, we said that we would be satisfied with Japan subsidizing its agriculture market by $30 billion. And in the United States, we were allowed to subsidize our markets by $19 billion. What we have said in the WTO round is that we're prepared to back away from subsidies. And what we would encourage people to think about is to - if they're trying to mitigate the impact of greater trade in the agriculture sector, then maybe they could do it in a different way, and it would work better.

Here in Japan, for instance, you have an aging population. I believe that the average age of the Japanese farmer is about 65. If Japan began to think about this as a political problem instead of just a subsidy problem - in other words, if Japan started to think about ways that they could pay, make direct payments to those farmers to mitigate the impact of freer trade - then I think that that would be seen as a positive sign from us that Japan might be willing to consider addressing the issues that would come up in a free trade agreement. Now that obviously is something that Japan has to decide upon. But from our standpoint, if Japan were to begin to think about things in that way, then it might remove the main obstacle to a free trade agreement between United States and Japan, which is the agriculture sector.

You'll note, I think that the United States has entered into agreements - or has entered into negotiations with the Republic of Korea. And heretofore, the Republic of Korea has been very strong in their protection of their agriculture sector. We made very clear in the beginning that it would be futile to carry on negotiations if they were not prepared to change some of the practices that they've had in the past. And I think that they said that they were prepared to consider alternatives, and I think that brought us to the table. So I think that there is a way that Japan in the United States could sit down and talk about an FTA. I think it would be of great benefit to both countries, but we have to figure out the way to address the agriculture sector so that it is included in the negotiations. If we are unable - we don't have to come up with a complete solution for it - but if the beginning point is that Japan is not prepared to do anything about opening its markets to American agriculture products, that it's a nonstarter for us.

Now with regard to the East Asian EPA, I think it's an interesting idea. What makes the United States uncomfortable is when people start talking about somehow trying to exclude the United States from Asia. We believe that as a Pacific nation, we have tremendous interests in Asia, and we want to be a part of Asia. And we think that it works quite well when we're a part of Asia, and it won't work when we're not a part of Asia. So if there is skepticism on our part, it only comes from the notion that somehow someone might be trying to exclude us from the area. And that would be something that would not be met with favor in the United States.

MODERATOR: Thank you very much for your answer, Ambassador. The next questioners are experts, and they're going to ask their specific areas of expertise. First, the questioner is an expert in international politics, particularly US-Japan diplomacy, and he is going to ask questions. That is Mr. Tadae Takubo.

QUESTION: Thank you very much for your good speech. Earlier, Ambassador Saito asked similar questions. I'll try not to be redundant, but I would like to ask about US policy vis-a-vis China. Starting last September, the deputy state secretary suggested that China should be a responsible stakeholder. So I would like to ask two questions concerning that. One concerns Chinese military forces. "Two-plus-two" expressed two years ago in February that their military situation is uncertain, so do you see it as a threat, or you don't see it as a threat - it's below a threat? And I would like to ask you for your answer and the reasons for that. The next question deals with the Taiwan situation. I think the Taiwan policy of the Bush administration is somewhat askew, but you want the current status quo, and Chen Shui-bian is the one who is going to do that, but China has more than 800 short-range ballistic missiles across the strait, so doesn't that contrary to the status quo policy of the US?

AMBASSADOR SCHIEFFER: I think what Deputy Secretary Zoellick was trying to say when he talked about China needing to think of itself as a stakeholder in the international system - I think what he was trying to say is, if you're going to benefit from the international system, which China is clearly doing at this point in time, by engaging in huge trade, that's a tremendous benefit, and when you get that kind of benefit out of a system, then you have to be prepared to be a part of it and to help it function around the world. And that's what I think he was saying, that the time has passed when China can basically sit it out when it comes to the great issues that all of us face. And I think that you see that right now in the situation in North Korea and the situation in Iran. China has a role to play in both those great problems that the international community faces, and we encourage them to play a constructive role in that process and believe that they can.

Now with regard to the Chinese military buildup, or how we view China, I think that basically we look at China and we see two things. The first thing is very positive and very constructive. We see a China that has embraced the idea of free markets. We believe that that has created an enormous amount of prosperity in China and has given China the opportunity to grow its way out of some of the economic problems that it faces. We think that's a great opportunity for the United States and Japan, and other Western nations to participate in that growth and to do the same sorts of things that we have done here in Japan, and you have done in America. We think that's very positive, and we think that economic opening has moderated Chinese foreign policy.

Now the thing that we view with more concern is the continued military buildup in China. Is that buildup for their domestic needs, or do they have something else in mind? And I think the answer is not known at this point in time, and what we continually say to the Chinese is, "We would like for you to tell us why you need to increase your military budget in the way that you are doing."

Now with regard to Taiwan, I think the administration has managed the situation very well. And basically the president said fairly early in the administration that we believe in a one-China policy, but a one-China policy is a peaceful reconciliation between China and Taiwan, and that neither side should take provocative action that would disturb the status quo and that neither side should depend upon a military solution to the problem. I think that that has basically been well understood in China. I think it is well understood in China, and I think that the fact that we continue to adhere to that policy adds a great deal of stability to the situation. We believe that the situation can be resolved over time, and it can be resolved peacefully. And that's what our policy is, and that's what our hope is.

MODERATOR: Thank you very much. Let's go onto the next question. Next questioner is former chairman of the Joint Staff Council. Presently, he is organizing NPO activities, primarily engaging in demining of the land mines. Mr. Nishimoto would like to ask you a question.

QUESTION: I am Nishimoto. Thank you so much for giving me the honor of asking a question to the ambassador from the United States. Presently, I am looking at the realignment issue of the US forces in Japan, which is now approaching a climax period. Well, a centerpiece issue of the realignment is how to go ahead with the assurance of security and how to secure security within this part of the region without having a multilateral security system in place, so that US forces here in Japan - well, there is a relocation issue about Futenma and how to relocate the Marine Corps to Guam and the aircraft carried by the carrier are to be relocated to Iwakuni and so forth. It all relates to the overall security picture of this region. So Ambassador Schieffer, with regard to the issue of the negotiation for the realignment of the US forces here, what is the important point for you? And how would you assess the negotiations thus far? What are the requests that you would like to make to the Japanese government? May I receive your observations on this matter? Thank you.

AMBASSADOR SCHIEFFER: I'll answer the last part first. The negotiations are tough. Nukaga-san is a very adept minister. He knows his portfolio, and he's trying to make the absolute best possible deal that he can for Japan. On the other side, Secretary Rumsfeld is a pretty good negotiator too. He's trying to make the best deal for the United States. Hopefully what we'll be able to do at the end is to create a deal in which both sides achieve their main policy goal, and that is to reduce the footprint in Japan of American forces without reducing capability. And in fact, we believe that we, through these negotiations, can not only not reduce capability but enhance capability as a result of it. I think it is important to remember what the defense posture review initiative is - that it is a smaller piece of a bigger picture for the United States. This administration began with the realization that American forces were deployed around the world largely because that's where the war ended, and we believe that much has changed now, in the last 60 years. And when we look at our forces in Germany and realize, for instance, that the need to defend against the Red Army moving into Germany has been reduced to such a great extent that we believe that we can change where some of those forces are deployed. If you look here into Asia, we have the same kind of thoughts in that we want to be sure that we can meet the contingencies of the 21st century, and the contingencies of the 21st century include something that we didn't think was that great a threat in the last century, and that is terrorism. Terrorism has changed the equation, because it is of a transnational character, and it can move from state to state. And we believe that our forces have to have the ability to pursue it wherever it may occur. And so that means that our forces have to be more agile, have to be more mobile, and have to be capable of moving quicker to places that they might need to go.

And the way I demonstrate that is to remind people that during the 2000 presidential campaign, to my knowledge not one candidate or one commentator said that the first conflict for America in the 21st century would be in Afghanistan, and yet it was. The reason it was in Afghanistan was because the Taliban had moved there. So that's what we talk about when we talk about having to change our force alignment.

Now that's the new threat that we face, but the traditional threats of state-to-state conflict still exist in this part of the world, and we have to be sure in this part of the world that we can respond to both traditional state-to-state conflict and the non-traditional transnational security threat of terrorism. And that's at the heart of what we are trying to do. Now it is a very complicated process to talk about American forces in Japan. But we recognize that we have to figure out a way in which both Japan and the United States feel like that they are getting something out of the alliance, and what we are trying to do through this process is to create an equal alliance, not an alliance of a senior partner and a junior partner. And an equal alliance is one in which we do things out of our own self-interest, but we do them together because it is in our self-interest.

And I think it was very significant that Prime Minister Koizumi said a couple of months back that the nuclear-powered carrier in Yokosuka would be in the interest of Japan. He didn't say that "The Americans make us do it," or "What choice did we have?" He said it's in Japan's interest that that nuclear-powered carrier come to Japan. And I think that demonstrated the maturity of the alliance and where we want it to go. We want to have more joint facilities with Japan. We want to have the ability to train together and to operate together and to be more interoperable. And that doesn't mean that every conflict that the United States might be involved in would involve Japan, but it does mean that the more that we train together, the more that we know each other, the more that we do together, the better chance of maintaining peace not only in Japan, but the whole region. And that is I think the goal that all of us want to achieve.

MODERATOR: Thank you. I'm going to ask the last questioner, Mr. Takanarita, who is on the editorial board of the Asahi newspaper.

QUESTION: Thank you very much for your speech. You talked about the global economic activities, and you emphasized that it is going to benefit both Japan and the United States through the global activities. A lot of Japanese feel that direct foreign investment in Japan are vulture funds, so I felt really encouraged listening to you. I have two questions. One concerns BSE, and the other is the protectionism in the United States. As for BSE, people talked about scientific and rational approach, but my concern recently is that there is a perception gap between the two countries. Well, this terminology reminds me of the trade friction time between the US and Japan in the eighties. The reason why I say that is that it is already a safety standard accepted in the United States, and people are irritated why those world standards are not accepted in Japan, but the Japanese consumers are saying that we are what we decide, sometimes consumers are called gods, because they decide everything. Since we are the ones who make the decisions, you ought to comply with our wishes. That's what the Japanese consumers are feeling. So right now two-thirds of the Japanese consumers are saying that they have no intention of buying US beef, even if reimport begins, according to a certain poll. So I believe it is not really scientific argument, but it is the perception gap that we exist. This is entirely psychological, in a sense. So how can we solve this issue? Do you have any good ideas how we can solve this psychological discrepancy issue?

The other is the protectionism. In the United States and in Japan - in Japan, protectionism has been rampant with respect to the agriculture products. But United States took the leadership in free trade. But more recently, even in the United States there are some protectionism going on, I feel, because the United Arab nation could not - or the Dubai people could not start the purchase of the US harbor workers. And there are certain complaints against the intervention of the Japanese currency, and WTO is felt that a lot of congressional people are saying that WTO cannot be advancing any more; we have to go bilateral agreements. That I think is a protectionist tendency. So in this tendency, what is it that the Bush administration is trying to do in order to contain such protectionist tendencies?

AMBASSADOR SCHIEFFER: Those are very good points you make. I think the desire for protectionism is growing around the world. And I think that's unfortunate. I believe that the prosperity of the world has occurred because we've had the kind of trade that we've had between nations. And I think that the more trade that we can have, the better chance we have for prosperity in the future. Now the trouble with that is that when somebody loses their job in their community and their hometown, they don't tend to take a broader view. And I can't blame them for that. But I think what we have to do is to continue to educate our publics to the benefits of free trade. And yes, the economies change as a result of it, but they grow bigger. In the United States, for instance, when the NAFTA treaty was debated, it was a very difficult process in the Congress, and the rhetoric was quite hot on both sides. People predicted that if NAFTA was passed, then it would bankrupt the United States, and all the jobs would go to the cheap labor market in Mexico. That didn't happen. And in Mexico and in Canada, the same kind of argument went by, but cooler heads prevailed, and NAFTA came into being. As a result of that, you've had the greatest expansion of the American economy in history. You've had the greatest expansion in Canada and Mexico. And the three countries together are much more prosperous today as a result of that treaty then they were beforehand. And I think you just have to look at that, and the statistics are just overwhelmingly positive. You have to keep bringing people back to those statistics. But it's not easy. Trade promotion authority in the United States Congress in the House of Representatives passed by one vote, and that one vote has allowed us to make deals with Australia, Morocco, and CAFTA and enter into negotiations with Malaysia, Singapore, Chile - we've done agreements with Singapore and Chile. So it really has ushered in an increase in bilateral trade agreements.

Let me answer the WTO part of your question first. I don't think bilateral agreements detract from the WTO round; in fact I think they actually encourage people in the WTO round, because those that are recalcitrant have to face the possibility of getting left behind. And I think when these bilateral agreements are done, then they encourage people to follow a multilateral path as well. I don't think that the United Arab Emirates were denied entry into the American market because of protectionist tendencies. I think that there was a concern on security. And I think it is one of the side effects of the 9/11 attacks, and I think that was much more the cause of it than protectionism itself. But America is not immune from protectionism, nor is Japan, nor is most of the world. Everybody wants free trade, and then they raise their hand and say, "except for such and such." It's understandable, but we need to do as much as we can to remove those exceptions, because I really do think that the market provides the most for the many when it's allowed to operate.

Perception gap, BSE - I think you're absolutely right. I think there is a perception gap between the American consuming public and the Japanese consuming public. And Japanese are absolutely stunned when I tell them that Americans have great confidence and faith in the system that puts meat on their table every day. And they are convinced that it is safe and that it is healthy and that there is no problem with it. And Japanese come, and they find that hard to believe. And the only thing I can say is that you're exactly right - there's a difference in perception there.

Now how you solve that problem? You get the government to lift the ban. If the government lifts the ban, then we can go to the marketplace and hopefully convince the consumer that it's a product that's healthy and safe. We believe the science supports this, that the science of the situation says that it's safe for Japan to import American beef. We'll take our chances in the marketplace. But when we're not allowed to go into the marketplace, it's a question of why do you advertise a product that you can't sell? And if we could get that ban lifted, then we'll take our chances with the Japanese consumer. We recognize that we have a huge hill to climb when it comes to that. We have to go back and win that consumer on almost a house-by-house basis. But we think we can do that because we think we can present a rational argument to them on why the product is healthy and safe. But as long as the market is closed to us, we're really not able to make that argument. I can go and make speeches here and tell audiences that it's healthy and safe, but it's not in the marketplace. It's not in the supermarket where that consumer is or the restaurant where that consumer is that they are able to make a choice, because they have no choice right now.