U.S. State Department Geographic Bureaus: East Asia and Pacific Bureau

U.S. Department of State
95/10/25 Testimony: Winston Lord on US-Japan Relations
Bureau of East Asian and Pacific Affairs

HOUSE INTERNATIONAL RELATIONS COMMITTEE
Asia Sub-Committee

Testimony by

ASSISTANT SECRETARY OF STATE
FOR EAST ASIAN AND PACIFIC AFFAIRS
WINSTON LORD

October 25, 1995

Mr. Chairman, Members of the Committee:

Thank you for inviting me here today to share with you views on the current state of the U.S.-Japan relationship and where it is going. This is an extremely important and timely topic. Our relations with Japan have been called our most important bilateral relationship, and this has not changed.

The United States' and Japan's interests are predominantly congruent, and I believe they will continue to be so in the years to come. The United States and Japan share an interest in global peace and security and are cooperating around the world to this end. Our diplomatic coordination is close and fruitful. Our agenda on global issues is broad and growing.

The United States-Japan alliance, based on the Treaty of Mutual Cooperation and Security, is essential to the defense of both countries. It is a central element of the United States' policy of forward deployment and contributes directly to security and prosperity throughout the Asia-Pacific region. The U.S.-Japan defense relationship is key to the United States' presence and continuing influence in the Western Pacific and Asia. It is warmly welcomed by the countries of the region.

The United States and Japan, as enormous economic actors, share a responsibility for the well-being of the world economy. Our governments are in frequent contact on questions of global economic management. And they cooperate closely on the maintenance and nurturing of the international economic institutions, including the IMF, the World Bank and the World Trade Organization.

Naturally we also have some differences with Japan. In a relationship as large and active as ours, such differences, particularly on trade, arise. We have had success under the Framework for Economic Partnership and elsewhere in negotiating agreements that resolved about 20 sectoral and structural trade issues. Both countries must continue to address and resolve trade issues constructively as they arise so that these issues do not hamper the rich commerce and overall ties between the United States and Japan.

The United States and Japan have common values as well as interests. We share a commitment to the principles of freedom, democracy, and the promotion and protection of human rights and the rule of law, both at home and in our relations with other countries. It is the vision of a world based on these principles that lies at the center of the excellent relations between our two nations.

Let me first comment briefly about conditions in Japan.

Domestic Political Developments

First, a word about political developments. Prime Minister Murayama's three-party coalition government has been in office since June 1994. Many Japanese initially viewed the coalition with skepticism, because its two principal partners--the conservative Liberal Democratic Party (LDP) and the Socialist Party (JSP)--had been bitter ideological rivals during much of the postwar period. But despite occasional setbacks--including a poorer-than-expected showing in the July 1995 Upper House election--the coalition has proved resilient.

In September, the Liberal Democratic Party elected Ryutaro Hashimoto, the Minister of International Trade and Industry (MITI), to a two-year term as party president. Mr. Hashimoto was subsequently appointed Deputy Prime Minister. He also retained his portfolio as Minister of International Trade and Industry.

The political opposition is dominated by the New Frontier Party (NFP), an amalgamation of several opposition parties and groups that was created in December 1994. This party fared well in the July 1995 Upper House election, but its representation in the Diet is still considerably smaller than that of the ruling coalition.

In December 1994, the Diet enacted several electoral reform measures that could have a profound impact on Japanese domestic politics. The new system, among other elements, establishes a combination of single-seat and proportional constituencies and will shift seats from overrepresented rural areas to urban centers. Whether the reforms will lead to more frequent alternation of administrations between competing political parties remains to be seen.

We anticipate that Japanese political parties and coalitions will continue to undergo realignment for several years, until the consequences of the new electoral system work themselves out. In nationwide local elections held this past April, voters rejected mainstream gubernatorial candidates in Tokyo and Osaka, reflecting growing unpredictability in domestic politics. Elections in the important Lower House of the Diet must be held no later than July, 1997, four years after the last election, but many observers speculate that they will be held sometime during the first several months of 1996.

Political realignment has, of course, affected the decision-making process in Japan, including on issues of critical interest to the United States. However, we have no reason to expect change in Japan's basic policy of strong support for the U.S.-Japan strategic alliance and U.S.-Japan cooperation in general. Today, all political parties, except for the minor Japan Communist Party (JCP), pursue close ties with the United States and endorse the Treaty of Mutual Cooperation and Security.

Domestic Economic Situation

Japan's economy seems headed next year for a modest rebound following four years of its most serious economic downturn since World War II. After achieving one of the highest economic growth rates in the world during the 1970's and most of the 80's, the economy slowed starkly in the early 1990's. Plummeting stock and real estate prices marked the end of the "bubble economy" of the late 1980's. Real economic growth in 1994 was 0.5%, following a contraction of approximately 0.2% in 1993. Private economic analysts project growth in 1995 to be just under one percent. For the past four years the U.S. economy has grown faster than Japan's.

Inflation in Japan remained below 1.0% throughout 1994. Unemployment rose to a seven year high, and considerable hidden unemployment belies the official rate placed at 3.2% in August 1995. Japanese domestic demand has been weak. In the wake of the collapse of the "bubble economy," many firms have substantial over-capacity, which has suppressed private investment. Although industrial production was off by 4.5 percent in 1993, it rose by nearly one percent in 1994.

In an effort to stimulate growth, Japanese monetary authorities have reduced official interest rates to historic lows (of 0.5 percent in October 1995) and the government has enacted a series of fiscal stimulus packages. The latest and largest package, approved September 20, included about $140 billion in additional government spending and lending. These steps appear to be having an impact. Private forecasters expect GDP growth to be around 2 percent in 1996, as a result of the stimulus packages. The outlook beyond that is not clear.

One factor that could affect economic growth is the financial sector where banks continue to struggle with record bad loans. The government has responded to runs on some financial institutions in the past few months and is now in the process of formulating a comprehensive plan to address these problems.

Japan's economic slowdown has contributed to the size of its current account surplus, $129 billion (2.8 percent of GDP) in 1994, down $2 billion from 1993. As Japan's economy resumes growth over the next several years, its current account surplus is projected to decrease to less than $120 billion in 1995 and to approximately $90 billion in 1996 (less than 2 percent of GDP).

The Japanese Government's regulation of a substantial number of business sectors contributes to slow economic growth and to Japan's current account surplus. Many Japanese economic and business leaders have joined outsiders in calling for rapid deregulation. The government's five year deregulation plan announced in March 1995 was judged by both domestic and foreign experts to be weak and lacking a comprehensive view of the kind of deregulation necessary to make the Japanese economy more open to competition. This plan is being reviewed with changes to be announced in March 1996. We are suggesting improvements in a number of specific areas.

Though Japan faces challenges in deregulating and stimulating its economy, its economic fundamentals remain strong. It has a large reservoir of industrial and technical leadership, a well-educated and industrious work force, and high savings and investment rates. Japan's long-term economic prospects remain good.

Japan is a very central economic partner for the United States. We are hopeful that Japan will enjoy more rapid economic growth in 1996 and that with growth U.S. exports of goods and services to Japan will rise. In short, Japan is in a period of political change and it is grappling with economic problems that are not trivial. However, we expect US-Japan ties to remain strong. Japanese institutions do respond to the views of the electorate, when these views are strongly held. The Japanese continue to support close relations and cooperation between the United States and Japan, but the reservoir of goodwill is not something which we can take for granted. It needs to be nurtured, lest it dwindle.

Security Situation

Assistant Secretary Nye will address the security aspects of the U.S.-Japan relationship in some detail, so I will be brief here. However, I want to emphasize one point: the U.S.-Japan strategic alliance, based on the Treaty of Mutual Cooperation and Security, is the key to continuing U.S. influence in East Asia. Let there be no doubt: in this period of rapid change in East Asia, our alliance contributes directly to the security and economic well-being of the American people. The presence of 47,000 U.S. military personnel in Japan, combined with the personnel aboard Seventh Fleet ships (home-ported in Japan), allow us to contribute to the maintenance of stability in the region, forestall regional arms competition, including nuclear arms, and exercise influence over the course of events. The U.S.-Japan security relationship underpins a strong diplomatic partnership, allowing us both to better manage our relations with other Asian countries, indeed the world.

A year ago we set out purposefully to conduct an intensive security dialogue with Japan. Our mutual goal has been to re-examine and reaffirm the rationale and goals of our alliance in this 50th anniversary year of the end of World War II. Assistant Secretary Nye and I, and our deputies, conducted a series of meetings which led to a first-ever meeting in New York on September 27 where Secretary Christopher and Secretary Perry met with their Japanese counterparts, Foreign Minister Kono and Minister of State for Defense Eto. They reaffirmed that our alliance is the critical factor for maintaining peace and stability in the Asia Pacific region. Both sides welcomed the signing of the Special Measures Agreement which allows for the continuation, with some improvements, of host nation cost-sharing programs for the next 5 years. Japanese direct financial support for U.S. Forces amounts to almost $5 billion annually, or about 70% of the cost. This is more than that provided by any other ally. In fact, it is more than the amount provided by all other allies combined. It is less expensive for us to maintain forces in Japan than here at home.

This year-long security dialogue in which we have re-examined the basis of our alliance and charted a new course for the future, one guided by common interests and a renewed commitment to a balanced partnership, will culminate in the November Summit meeting in Japan.

Because the U.S.-Japan alliance is so important, not only to our two countries, but to the entire region, the recent incident in Okinawa is all the more deplorable. The rape of an Okinawan schoolgirl, allegedly by 3 U.S. servicemen who have been indicted, is heinous under any circumstances, and the President, Ambassador Mondale, Secretary Christopher and Secretary Perry have expressed their deep personal regret and shock. This criminal act of a few individuals has provoked an outcry from the Japanese public. Some politicians and editorialists have questioned elements of the Status of Forces Agreement and the social costs associated with the presence of U.S. forces in Japan. The U.S. government has pledged its cooperation with Japanese authorities to see that justice is done in this case, and to take steps to prevent the recurrence of any such incident.

I am happy to report that, in Tokyo earlier today, Ambassador Mondale, US Forces Japan Commander Lieutenant General Meyers, and Japanese Foreign Minister Kono agreed on improvements in the implementation of criminal jurisdiction procedures under the bilateral Status of Forces Agreement. Under this decision, the U.S. has agreed to give sympathetic consideration to Japanese requests for transfer of custody of criminal suspects prior to indictment in specific cases of murder or rape. Diplomatic And Other Cooperation With Japan

The U.S. and Japan share a broad range of other vital interests: regional stability; promotion of political and economic freedoms; protection of human rights and democratic institutions; free passage of goods and services; strengthening of the nonproliferation regime, and peaceful settlement of regional disagreements.

This abiding community of interests existed during the Cold War and continues today, a time of extremely rapid modernization throughout much of East Asia. Despite modernization and economic growth, the pattern of domestic change and international integration is extremely uneven in the region. Japan is our essential partner in promoting common interests and values, not just in Asia, but around the world. We coordinate closely on Asian regional problems -- the North Korean nuclear issue, the peace process in Cambodia, the ASEAN Regional Forum, other regional security fora, as well as on regional economic issues.

Let me highlight briefly those areas where joint U.S.-Japan diplomacy has been particularly successful, and then suggest how the U.S.-Japan diplomatic relationship might develop in the near future.

Japan has played a new, important and growing role in United Nations peacekeeping missions by contributing funds and personnel in Cambodia and Mozambique. It also participated in international efforts to provide humanitarian assistance to Rwandan refugees. Japan has recently indicated that it will send a contingent of peacekeepers to the Golan Heights. We expect that it will continue a policy of measured participation in international peacekeeping. Japan's heightened profile in international peacekeeping strengthens its longstanding bid for a permanent seat on the UN Security Council, which we support.

This September, Prime Minister Murayama visited several nations in the Middle East where he discussed with the region's leaders Japan's role in the peace process. He indicated that Japan will continue to extend economic assistance to Syria, Palestine, and Jordan, and will seek to strengthen economic ties with Israel. We welcome Japan's participation in the peace process, and expect that it will continue to have a significant role.

Japan has joined or supported other U.S. diplomatic initiatives. Japan, along with the Republic of Korea, has been a central partner in our nuclear negotiation with North Korea, and will make a major contribution to programs designed to eliminate the North Korean nuclear threat and reduce tensions on the Korean peninsula. We have also engaged in positive dialogue about Japan's participation in the reconstruction of Bosnia. The Japanese have indicated a willingness to assist in such efforts. They have announced that once the parties fully reconcile Japan will open an embassy in Zagreb to coordinate its rehabilitation efforts in the former Yugoslavia.

An extraordinary, if somewhat unheralded, example of successful cooperation with Japan is the "Common Agenda," which we launched in July 1993 as part of our Framework Agreement in order to address jointly difficult long-term global problems. We are cooperating on a very broad agenda, including global health and population, the environment, and science and technology. In two short years, this enormously successful bilateral partnership has grown to encompass 20 different initiatives.

Among the many highlights, we are collaborating on one of the most successful public health initiatives ever undertaken -- a massive immunization program that has virtually eradicated polio in the Western Pacific and aims to wipe out the disease worldwide by the year 2000. We have worked together closely on population and HIV/AIDS programs with concrete results in countries such as Bangladesh, Kenya, the Philippines and Indonesia. We have also established an extensive and formal Environmental Policy Dialogue under the Common Agenda through which we seek to harmonize our approaches on critical global issues such as climate change, biodiversity and hazardous waste.

Last year we broadened our cooperation and joined efforts in countering the production and trade of narcotics. This year, we began the Women In Development initiative which focuses on enhancing girls' education and will also include assistance in financing and services for women's micro-enterprises in developing countries. These many success stories may not attract headlines, but theyprovide an excellent vehicle for the U.S. and Japan -- as two economic superpowers -- to pool resources and set the pace in finding solutions to common global problems.

We will continue to consult and collaborate closely on a full range of regional and global matters in the future.

The U.S.-Japan Economic Relationship The U.S.-Japan economic relationship is deep and multifaceted. Japan is our largest overseas export market, our largest supplier of imports and an important source of investment, technology, and profits for U.S. firms. However, significant imbalances continue to characterize our economic relations with Japan. Owing in part to structural features of its economy, Japan continues to have a large global current account surplus and a large current account surplus with the United States.

U.S. exports to Japan amounted to $53.5 billion in 1994 and reached $36.4 billion in the first seven months of this year. Yet there remain many impediments to Japan's market. These include concentration in some industries, the pattern of inter-corporate relationships in the various keiretsu, and intrusive government regulations in many industries. The statistics suggest the extent of the problems. Japan's imports of manufactured goods as a percent of GDP were only 2.9% in 1994 as compared to 7.9% for the U.S. and 10 to 22% for other G-7 nations. U.S. and other foreign firms continue to encounter serious difficulties exporting to and investing in Japan.

The U.S. is committed to opening Japan's markets more fully and to ensuring that competitive foreign goods have fair access. We believe it is in Japan's interest to admit more foreign products and to give its consumers the opportunity to purchase goods based on quality and price. The United States has urged Japan to correct its persistent global current account surplus, to remove impediments to the Japanese market and to remove regulations, which hinder domestic and foreign businesses. This is not only in our interest. It is in Japan's interest as well as the health of the global economy.

During the past two years, the United States has pursued its economic goals with Japan through the Framework for Economic Partnership, which the two governments established in July 1993. Under the Framework we have made progress in resolving a variety of sectoral, structural, and macroeconomic issues. And in June in Halifax, President Clinton and Prime Minister Murayama extended the Framework agreement and renewed their commitment to work together on remaining issues.

During the Clinton Administration, the U.S. and Japan have signed over 16 trade agreements, most of them under the Framework, plus four under the Uruguay Round. U.S. and Japanese negotiators concluded results-oriented agreements on flat glass in January, on financial services in February, on Investment in July and on autos and auto parts in August. Earlier we concluded agreements on government procurement, cellular phones, intellectual property rights, construction and various agricultural products, including apples.

Negotiations and agreements over the years have had concrete results. In the past decade Japanese imports from the United States have more than doubled. The portion of manufactured goods in our exports to Japan has steadily increased and now approaches two-thirds. Japan is the United States' largest foreign market for commercial aircraft and agricultural products. Despite such progress, much of course remains to be done. We will continue to highlight the urgency of further opening Japan's market.

One important task is monitoring implementation of our trade agreements to ensure that the Framework's goal of substantially increased access and sales of competitive foreign goods and services is realized. The Administration and the private sector are working hard to see that all agreements are fully and vigorously implemented. We plan to continue to identify quickly any problems in implementation and move to resolve them.

Even as we address bilateral issues, we continue to work with Japan in APEC to build a "Pacific Community." Together we will be striving to ensure the November's leaders meeting in Osaka builds on the successes of Blake Island and Bogor and makes real progress toward trade liberalization in the Asia/Pacific region. Any effort in Osaka to weaken the commitment to comprehensive trade liberalization made by all APEC leaders last year in Bogor will be widely viewed as a step backward for APEC.

As might be expected in a trade relationship as large as that between the U.S. and Japan, there are a few issues on the horizon that have the potential to grow into disputes if we do not act to resolve them. Our hope and our challenge is to address these issues in a constructive manner that will ultimately benefit the U.S., Japan, and the world trading system. Our two nations must deal openly and directly on these problems.

Our approach from the outset of this Administration was to insulate security and other positive elements of the relationship from trade frictions. We did this not as a favor to Japan, but because it was in our interest to do so. We also recognized that the unresolved issues, if allowed to fester, over time could erode domestic support for other elements of the partnership. That is why we have made such serious efforts to address our economic differences even as we have worked successfully to strengthen the other areas of our relationship.Our relationship with Japan rests on solid ground. But as recent events have illustrated, we must constantly nurture our ties and seek to mitigate problems. Ambassador Mondale characteristically put it well: no matter what problem confronts the world, it will be easier to resolve if the United States and Japan work together.

The President's Visit to Japan

The President will travel to Japan in November, to Osaka for APEC and to Tokyo for a state visit and a summit meeting with the Prime Minister. The preparations for the visit have included a thorough review of the extent of our interests and the scope of our cooperation with Japan. The United States and Japan have a very strong relationship of enormous benefit to both nations, the region, and the world. The President's visit provides an opportunity to make clear to Americans and Japanese alike that:

-- The U.S.-Japan strategic alliance is fundamental to our mutual security and to stability and prosperity in the Asia-Pacific region.

-- U.S.-Japan cooperation on diplomatic issues ranging from nuclear arms to Asian security to global peacekeeping, make the world a safer place.

-- The two countries' cooperation on newer global issues like those under the Common Agenda promote the welfare of other countries and at the same time strengthen our bilateral relationship.

-- We have made progress in resolving trade and other economic issues with Japan, and it is in our mutual interest, and that of the global economy, to carry this process forward.

The President's visit to Japan therefore comes at a very important juncture. Together our two countries have travelled an enormous distance in the past half century. Building on that solid record and recognizing the global implications of our bilateral ties, we will strive to bolster one of the world's most productive partnerships.

Thank you.

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