Aug 2, nssm 122, part two, economic relations

Au8urt 2,

a

NSSM

v.s. -

1.

It.

122

J.Pan Eenomlc R.Iatiotrs

I

An Econ@ic PelEp€ctive

A. B. CD. !.

F. GH. I.

(

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the Econdic lelationshiP rhe Otlg1's of tne Plob1etu let U-s. losition Chdqed Conditions Japd!s Past rerfo@tuce ?he ,rapan63e SyEteh of Infonal cetlo13 so, lffective is the Infomal syst€n?

The Posltion of the P.esdt Jap4ese Ileade13hlp The Septeobe! lconcoE lteetirgs

Econotr1. ploble@ Between JapaD

ad

Japd',E ImPort Restrictiotrs

1. JalarE ou&titative ReEt!ictions 2. Japant. Taliffs 3. oth6! Japanese lestlaints Japaese Expolts to the Unired c.

s. hveEtrent ln ilapa JaPars BaL{ce of Payments 1. ,rap&ese Foleign Aiit 2. JaparE !6reiqn Irvestrent 3. Yen Revaluation 4. The U.S.-irapa Bilatelal U.

Ba1uce or ?ay@.tg

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2

t 5

6 1 9

t0 10

on

t2

t5 L9 23 23

24

1971

Au8urt 2,

a

NSSM

-

122

v.s. - J.Pan E@no lc n latiotrs

I

lrn Ecotrdic Pelalpcttve

a.

B. C. D. E. !.

GII. I.

(

It.

tlle Ecddic i6latiorship The O!191a of rhe Plob1€c Ps! u.S- Posiaiotr Chdged Coiditions ilap4! s Pa.t lelfodece IlG ,raPln€Ee sYgta of hfo6a1 so, lflective is the Intomal syst€n? ahe Posltion ot the P.esolt Jap4ese I]eadef3hlp The Septeobe! lconcoE !{eetirgs

Econotr1.

Ploblec

Between JapaD

rrpo!tB B. Japaese Expolts to the Urired

C. U.S. hveEtrent in Japa D. ilapa'!s Balece of PaYmenlg 1. ,Jap&ese Foreigtr Aiit 2. irapars !6re19n IrvestEent 3. Yen Revaluation 4. The U.s.-irapa Bilatelal Baluce of ?ay'@t5

(,

t 5

6 1 9

ad

A. JapdrE Import Restrictiotrs 1. JalmrE ou&titattve ReEt!ictionE 2. Japant. Taliffs 3. Oth6! J.panese lestlaints

2

t0 10

on

t2

t5 L9 23 23

24

1971

!.E98la

rr.s. -

JapaneEe rcononlc

ielationE

on Sept€nber c-10, the 3th meetinq ot the Joinr U.s.

Japd Comittee on Tlade a.d Econ@ic affairs (Econcor) oiIl take place in l,Jashtngron. Sin.e tne last freeti.g in

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iluly 1969, tne real ecoDofric anat co@lcial ploblens that exiEted in the past have been esacelbated and n., problers have becone hole appalent. The purpose of tnis Eection of NSSM 122 iB to ploviite a perepective fo! a EeasseEsnent or u.s. eanonic policy to,ard Japan. ro achieve tnis objective, the paper rill filsr paint a baclglound imhlch ro plnc€ tn€ lelevanr econoni. and.ome.cial ploblens, Eecoldr oultine the problaEr &d tnirdr suqsesr p6ssibte poticy optionE fo! th€i! Eolurion_

I

An Economic

A.

The Eco.onic Relationshib

EconoFic and trade retarionships berveen ure United states and Japan have b.en qroeins lapidly in r6cent years.

with this gleth hawe cohe borh beDeflrs and problem.. rapan is ou! second talgest foreign cu6rome!

In 1970 re er?olred s4.7 billlon of g@ds to .rapan. rt is a16o ou! faEtest glo{ing harket. r4hite O.S. expolts to a1t countlies glev bw 117 peEcqt in rh6 de.ade of the sixties. ou! exports to ,rapa gles by 302 percenr.

Likeris€ the sniled stateg hakes a @jo! contribution to Japu's e.onony. we tahe 31 pelcent of irapdls e*po!t! and BupPfy 29 Pe!@trt of he! inPort6. The u.s. atso supplies a ldqe portlon ot t-he technology pucia6ed by Japa @er.ea. as r€11 a betnq lesporslble for tne 1a!9e.t Ehde of the fo.elgn capltal irvestlc^t ir Jap.n. Thig figle, though, iE sEll, lelarive to u.s. i.vest@lr in

s.

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of the PlobIeN lx.lual.ing tie effects of oE dr domestie econotrlc difficul,ties, the oiiqins ol txe econonic p.oblens berreen Japd ad the U.s. are baEicauy t o in nurlre!. Ehe filsr has been Japu's sprecederred expoit glorth rate. This glowth has been disequiltblatllg. lrapan,s percentage of rolLd tra.te has grdn t!6 3 percent (94.0 birlion) i. 1960 to 6 pelcenr ($I9 birlion) iD 1970, fhe U.s. ad orhe! natiors have.xperienced dlffidulry in aitjusting to this gr@th ra!e. the effects have beeh especially selious in celtaln aiinaitive sE toi; at tne u.s. econody. Ihe !e3u!t ]1a3 bea aoE econoh.io iU.Elocation ad conEideralrfe f!1crion. seddly, Japd Iu€ inaiBred upon reta].Ding p.otectioniEt co]@rciat poli.ies whlch are deeply looted i! irapeis socio-eco.@ic pasr. rL{oreove!, he! post-va! econ@ic developrent Etlareqy ha. been one of plotectins hiqh The OliqinE

tech.oloqy industlies

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while buyinq foreiqn technotogy to advance lrto new aa nole Eophlsrt.ated induEtlia1 ploauctlon. These ne, industlies ale ]ikewise proreqrea urtil they ce cmDete in tle doresttc ant! expolt tulker ,tth foreign tifrs. vJhile plotecting !e! irdusrliesr Japan has also plohibited, 6til a te- rcnrh. aqo, any sigDificanr outflow of capital not dilectly ried to he! ecotrmic interests. xeping he! capital at hone and ustrg short leh capital flon tne u.s. to linan.e he! exrelna1 secto! has allded he! to filance her capital incsteert ,ithout loEing corlrot over dohestic industry ro foieiqr fims. These capitat le6rlictiorE also helped q6rd the Japane.e lntelnarionaf reselve posltion shic!, p!io! to rid-1t63, Eas crltically 10, fo! a natio. al@st omplstelv aepeDdert on ispolig for raw matef,ial

c.

Past

_ !

s. ?osirion

of Japanrs ovelt harriels to foleig, cohpe_ tition thrt are now causinq probten. ,erc elected afre! l{or1d $!! rr ro prore.t donestic lndu3tries during thâ‚Ź !e_ corstluction peltoa. Tha uulred sratss ditt hot ,!eEs strorgly f6! any major chanses in rokyo,s foreiqn econmlc rlicies.

Jape raE a retatively poo! courtly compaled sith othe! developed nlrions, dd ts lalarce of payhents ,!E lelatively {eak. The rhited srates hail a ravolable rlade surrtus Eith .rapan and Tokyo pronised tn the ,,tosE

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eally l960is to bring irs trade and trvesErenc policie6 in Itne wrEh uose of oehe. deE-oled cdnL.ies.

D. Chdqed conilitions

o

CoralitioE cheged d!&a!ica11y du!1ng tne f960's. Htth a grdth late d@ble that of rost developed cout!i€5, Japeis Glosg Natioraf ploduct (cm) has sulpassed that of caada, arace, the Uniteil xingdon and west celnsy duing the pdt decade. Japanis cNp tasr yea! -- neuly S200 liLlion -- waE tne thi,ld highest in rne wolId afte! tne united srates od tne ossR. Tne inplove@nt bas been even er6 stlikios in its baldce of payrents position. In the p.Bt thee ,€a!s Japa roved up lroE 11th llace to 3!d pIa.e io the wolld in toletg! exchaqe legepes behind only tne ljnit.d;.Siit€6 ua i€'t deftari. i'e inc6as. 1r rapoBe

otEicial leselves fror 92 billion ir Ju6 1966 to S7.5 biuion in ,ruie 19?1 was due l:o a Ialge cu!rent Plus ail a sizarrb capiaal infl@r esp.ciatly in le.ent months. ?he highly favola.b]e posftion ]alge1y leflects long-tem inplovements in nelchadise tlade. !o! the paEr 15 yearE ex?orEs rave g!@. corsiilernbty faste! r.he ilports da tne cullenr accout shiftea f.@ a &nual defici! avelaginq $I45 hirlioD aulins 1956-61 to a Eurptus avelaging 52 billion dlualty sioce niit-1968. rout natf of the inp.overent in Jalan,E cu!.ent account position i3 artllbuted to eco!@ic le1ations (.

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{itn the uhired states. Japar,E rlaale baluco ,trh th6 united states a5 !6l1E6r6d 1n bal4ce of p.yD6nts flqule. has shrfted fr@ . yedly sv6lage of s{30 Eiuaon deflcit f.! 1960-52 to a 51,200 tr1Ilion Eulp1c <tulitrg 1963-70. rhe trade de!1c1! aton€ is a*pecteat ro be ahour 92.5 !i11,!on th1. ye&. Thls about trlc6 laat y6ar,s figuls. !. Jap&rs pa6t P€lfomace fotyo has actn@Ieatged its rce een@ic posirion ad has udlcaEed riiat poliqr shlftB .re'ne.eEs.tr. at n@roua u.s.-Japde.e @ntelence. antt at meetirgs of intelnational econoDic olgaizatios .ince tne ea!1y 19GO,g Tokyo hd prcnised to leduce it'B tlade ud inveEt@n! bauiels.

Jap&, t!a6, ir fact, eitne! rehoveal or reituced @6r of rhe no* obviouE toml legtlictions on i !)orts. raiff,E o, truy prcduct. have bee. r6duced, qu.;filarr@ ros"riicr"nq o! lrpolts have be6 rcst1y iedoved aa balriels ro loEign inrestEnt in Japan have been l@e!eal. Becase t]ree has 6ee. subsEdliar uorrdwide inEe!;st ,n investins ir rapd dd expolting to Jap&, tnis libelalizatlon should hav€ led to a conEidelab1e inclea3e in foleign dllects capiral inveEt@nt ad a bloadening of tne inpolt product his 1n Japd,s ndket. Actualtli, t-\ere has been litt1e of either duling a decad6 when Japd avelaged au anu.I 10 pe.ent Eal idcleaEe in AnP aa an dnual 14 percent incleaE€ ir ispoEts.

I i

-6-

F.

The J.paneEe System

of Intonal cortrols

tladttio! of close @llaboration berreen qoveanent and bu.iness reEults in a sysla of infotMl contlo1s ove! ,rey phases of bustre3s acrivity. lrrcludlDq impolts ud t$e teaiat f1d of dilect foleign inEstent.

JapareEe busln6.snd lare1y violate theEe guidetines, la!ge!, aue to thei! .omltient to tne consensuE and the ability and willingress of tne sysres to lrsrirute salctions.

The effeciicless of tnt6 stsrm is fa.ilitared by the ttorinaca of both dorestic ea inteaational coMelce by gidt tlading .omparies, by ihe very flnanciai d.pen.ten.e of Japdese buEine.s or tne govelmert, ard by the close lies bet een the govelmentr the banks, atrd the rlading The

i

c.

Effective is t}le Tnfomnl sv3rem ?

A judgneht o! th€ effe.r!ven€ss of the system r€ crrttcal ror. judsnent oolicy posirlor. Tr the sylteF is aeemed highly effectiwe, rhen the Japaese covemert polici€s can be held .esporsible for tie plesent @nfigulatlon of rlade and lnveshenr. rf rhe syEtem ts held a3 ireffectlve or malgiial1y eff€ctiver th€n rhe pleEent tlade and inve.ta.nt patterls must be explained by othe! .onBow

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a

valiabre.r e.9., Jape a an island nation. Japa's racr of natural !eEou!ce3, Japan wfth a .ocl!1-o1tr.t sylte! ln ,hiclr {e3t€m inve€tretrt o! ploducts se rot ,1.1116.

A3 J.pets tlaae g!@s i. size ait vaiiety i the eltectiveness of tbls Eyst€tr ,i11 t6s.en. rt is alleaity b€glnning Eo de.Lne, e.g., the tstlle ca6e ett th6 rdtEubi3hi/chlysle! joint v€Drule. rhele ale ,iria dtflelencgs of opiDion s to the effectivdesg of t!1. .y6tdr bur all agee t}!at it is sigrificet.

The attituite ol tna coEtu€nt leaitelship iE thersfole sr1ll .!uclal.

H. 4e Po61!ion oa tne pre.ent Japaese leanershi lADy top Japaese oificials, incluaing p!1re Minlst€! S.lo, rould uttdubredly like to Bub6rutiatly Iore! rne tlaale ed invegtrenr ba!!ie!s ro lealue fli.tio witn the unit6d libelafization ot lesriiction€ encoutelE healy oppo.ltlon flm politi@lty trpoltat olerents. Tho.e .rovehEnt otf tcials l.wo!1.9 liberalizarion hav6 bee. srrongly oppo.ed by othelsr particularly the xinietly of htelnatlonal T.ade $d Inaugtly (MrTl) ana the liinistly of aqliculrufe. tltese Dinlgrrie. ale stlongly influenceit b, trajoi seg*nts of the buBiness coMsity att ag!i4ltu!a1 btele.te {ho baefit flon lesrllcrions. uoleove!, the con6ewariv€. reII ent.enched ad pderful buleauclacy wirhln rh€ ec@6ic nini.tfieE resisls any chsge tlat might a6 1rs pove!3 o! alifrirish tne coutly,E intenatlonal econoruc

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atlvat.ge. Japaiele conslftls, vho unitoubredly hav. ro p.y a high6! pEice lor rary gooils lecause of ihpolt ba!!ter3, !a!6ly c@p1ain lecause t!6ir stanat.ld of 1lwirg ts tnploving lapld1y as ,eal inen6 ir.leases by sone 10 pelcent a yea!.

Sato .nd oure! top offtcials have raken very Eeliously the lecent sulge of u.s. .litlcism against irapaneEe folelr! @lcial policie6. They ale rcried that .anetof, ?lro are disaatisfled rith th6 J.pdes€ te*r1fe irdustly,s uDilatelat le.tiaints on expolts to the united srares and orhe! senators ,ho are itisnayed at othe! aspects of Jap ese e@nomlc policy .oula oate! enougn voteE to block rne t o-thtrd! majoilti, necesslrf to approve the okina-an ,evelsion treaty. Tokyo also f€als a sloving plorectforisr sentinent in the Ullred states, by far its frajo! cEtofre!. AIso the incleasirgly 1a!ge tiade Eurplus that Japan nas enjoyed ,ttn tne Unlted State3 th lecent y€a!s, ,hich is expected to doDble this year, and Japarrs curlent rapid builil-u! of foleiqd exchange reserves have made ir difficult ro jlstily c.rtinuatio, of rertlictive plactlces, In !e3FoE. to growinE foreign cEiricisn $d a deteiioratinq !.tlona1e fo! lestricttve n6aEulesr the Japanese govem_ r6nt announced !n Jue an eiqlrt-point libelallzation p!og!e.

Th6 inlEltance of the plan has been Etlessed by ro! Japan$e govehnent leaders. The plar i5 yet to be veI1 defineit ed is Ialgeiy a lestatment of past libelatization Droni6es.

-9-

e!!Iie! peliodr of severe crtticisn, eudr pubue relatios eflolts &nbin.d Hitn Ehe @ntrnutag !6mval of !o!M1 ftsrllcrions succeeded in sufficlently leducing th€ dtssatis!&rid so t}|at lokyo @utd avold ltbe!.Iizilg a3 quickly or fu1ly s €reacted.

Yet today ls no nl,!.o! of tlle pdt. conatirlo4s have chegeal 6ha!ply. Japq has j.ntelhational l@erar, @Eelves Durlns

be6 aalyred as a boa, destgnea !o leolierr ecddic po1lq,, eepeclally tds,:t tle unlted stlteB. MlrI he qone tlliough a siqnificat trdagetuna ftEhuffle. Japeese bu6heg6 ls 6hdin9 .onelt ove! the derelio!.tion of ec@mic lefacion. {itn rhe unlte.t star4s. TBe3e indicatols na, lelI€ct o. b€ reli6cted i, a ea1 polici, shtlr that coulal (ak6 th€ eigh! point ploqld,eaningful.

I. the s€pr.hber Econc@ lr.eritrc. has

a-r

the .rapoe.e haE .tateit tnat by tne tthe ol the Ecdcom eetirg tl,6y inr€nd ro be abf6 to plesent tite det.ils to! upleenEtng Lhe pts. Th.re suroly vtII be drscussed

.t thl€ @eting. rt ,i11 !e necegsaly at tnis tlE fo! th6 unlreit st.tes to n.ve leassess€d i!3 loleim econdlc poltc, tdald J.pe.

-10Eqqnodc Problem 3et €en rapan ed rhe United stltes rhe rajo! ecoonic p!ob16@ betv..n J.pa sit t!6

Unite.l states fa1I i! fou, bload areas of conce$: irapa,s jtrEDit lestfictioG, Japaese e*polrs to the Ontted States,

u.S. inv€stEnt in irapa, ed Japa's balace of pay@nts. me6e fou! ploblem Eeas as itigossed be1or.

Imo!E ReEtrlctions

resllict i(po!rs, Jap uses quotrE, of shich at ]east halt ale nor Eacllonett by tne GAET, tallffEr ,hlch ae, dal a valiety of other techniques,,htch n.y or Ey not be leqitinate uder iDtehationaf Iaw. l. Japa'E eu.nriEacive qe.Elictions Japa tlas sharply leduced 1ts quatltative idport leEtlicaions (AR,s), paltry as a leEu1t of foleisn cliticisr aa palt1y as a result of it. inproved balsce of Pa!@rt5. Th!e6 yeals .9o Jape i.a 122 cal,r-i1lesal quotaa. Ey ttle end of S€pterbe! of this yea! rle luEbe! is !o be @r ro 40 out of I,o97 jters lierea in the B!@sels Taliff Norenclarlle. This figue is lor grearly diffelenl fro t-he nulbe! ol eR,s inposed by rest o lrope. tie Jlpae.e Govefm.r is Epolred1y To

(r

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planing to leduce its residual Ol,E 6ri1t frther: poEEibly to lo by nexr Epiing. Japd .Iso rlintaias ORIB or so@ 39 adaitio!.1 ttaG for s6ai,t, ed he.1th Gtl aB ,ine Etare-tlad€it j,t@r rai!1y aglioltrat. sie of tnese QA,3 ale b6ns1.t€st with Jap&tE caTT ob1lg.t1onE. r,tay of tne 6nEoalties sri11 subject ro rrqort

* of Iittle c@erqiat lnteE.t to rie o.s. Fo! sore. hdeve!. such aE c@put.!s, allc!.ftr tnrcElated ci! fts ad certaln aglidtrsal products, qqotd po.e rignlficant irpedi4nts to U.s. exports. No !e1i.b1e estiGte of the amst of u.s. e4o!t, lo.t by the oni6 is av.il!5ie, lut tne u.s. &ilr!s5y 1n lokyo Bugqe.t. thlt @nt L. ab@t s200 Diltto. of uhich 95o to s?5 ailrion is i, agttattue. other estimates pEt the total figre high€!; a O.S. cospute! fl@ offi.lal Ecutly sald t_h€ re@val of quotaE 6 cdpur6!3 wou1a 4.u1r 1n . 92oo niuton ]lnc!€ase ln U.s. @nput.! 6spo!ts. (By .6pa!ison, U.S. expolr5 ro irap& rele 941700 niLlion b r9ro.) quotas

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lt riIL be aiflicult ro get Ja!.n to leduce th6 .xtensive piotection tt nautains fo! celtaj.n h19h t€.hno1osy indu3tlies. !,tant ale Japan,s ,,irfarr,, industri*, and roE ale @nrld€led rtraiegic.

2. Japrlls talttfs Atto! th€ @npletlon of th€ R.nn6dy Rourat (xR) JapaeEe tarlffs ui1l stlu !e .6erhat hiohe! tn,. mst other tteveloleal couDtlie., Tlte weighted .ve!ag6 taliff on dutiable n&ufactule3 11 10.7 percent, alftost th€ eac 6 thal of th€ ullted Ringd@ (10.9 pe.cent), although about 25 pelcent hlgher thd ihat of the United state. enit the Comon ualket (3.7 percent ad 3.3 p6!cent, respoctively).

To s6re degre€ Japd ha6 alleady unitaterally leduced iis tadlf.r althouqh rhe rEductions 30 far aE nodest ad @llkely to have a grear tt de-clearlng tnpact.

It accelelatdd ite lchedul. of xR tarltf dtE, puttllq tne.e rr..lu.,r.ns rullw tnro e(!€ct oD Ap!iI l, t911, rtne rcnrns nheJd of, 3chedute. rt recertly untlarelaIIy lorered duties electront. plodu.ts and o! Ialge-sized arromobile3 lftoi r7-L/2 to 10 percent) , The Japane.e announ.esent of June 4 trplies ti,at lulthe! reductions may !e folthcohirg.

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3. orhe! Japanese Re.tlainrE on rrpo.ts Ifrlort. into J.patr are a1.o le.trailed by a valiery of orher fo6a1 ad lnfomal alevies. me fomal systd of lrpolt lic6nEinq has rhlee baEtc e@poneats: (1) rhe Impo!! ouora (ra) systetr, ,hich leqqlles atr ihpor!€! ro obtaL! an fillort eqot. Al1o.ltid Certlflcatq from !{rrr, (2) rhe autonaric I,npo,t Ouota (Are) Ey.t6. ,ilch olerlteg iE the E.m nuner as th€ rO sylta elcepr thar the celrificato iE autonati.ally issu€d ard there iE no coiling on ihportE, lnd (3) .11 lteG rot on rO or aro li'ts ale unde! autdatlc Apploval (aA), uhich !eq!l!eg a j.npolte! ro obrain a ri.er56 frcn a !o!ej,qu exchag6 bank, No qoE!ft.tal applova1 ot AA ire$ ts requii.d, but ?epolts ale p!e3u6!Iy

traals

to MITI ex-post f.cto.

rhe Japoese ha@ ltberal.lred rh. sisteh con.ldelsbry. u y Lters hav6 b66n dloppâ&#x201A;Źd flon tlt. 10 and }IQ lists so thai either UITI'S I[polt Quota Atlocation

Celttftcate ts grdt.d autoratically, o! none is !.quit dr in ,hich ca& only a lteu3e f!@ a foeig! excnange ba.l< is need6d. In 1970 ttre import at.losit lequirerent {as suspended, a':l in august tnis yea! the lendirg rates o! expolt finarce u11t no 1o!qe! be loier than the discout rate on comelci.I b11ls d!.h foi aorestlc t!4sactlors or inports.

But despite ine valiour liberalization nea6uie., t!e!e renalns a wldely hel,o ophlon tndt lnpoEts arâ&#x201A;Ź stlll inpeded by eucn devic.! as the AIq SFten, irpolt llcenging,' aad "aihiniEtratlve guiilance,, the ilfoml lnfruence or bu6inega decigions. T. illustrate, Jarran Ls stlU the ono 6ajor tlading ration to require that all iEpoits, ircludtng th6se

not subject to quaritative lest!1ctiotrs !e liened by a liniteat nunber of fo!eign..-ii$i!t Eaik;.

In .ddiriod Japs Minrains . trube! o! otne! nortdlff beliers utfch als believeil to be he!€ling U.S. er(Po!!.. Plie exanpLe. .e the st&dald rethod of settl€!6t {o! payent) rnich litrlts tbe c!€dit te]@ a JaPeese iDpo!!e! E.y obtain flotr a loreign .uppli.! vithout p!1o! goverueltal applova1 4a tne exclEion of foleign suppliels fld participation in govelmenr plotuerent ploject3 excepi rere itde6tlc supE)Iie. ale eavaiLable 6! ndkedly infelio!. J.puese erpo.re!. alEo benefir flor the fact that rhe paclfic oced shllplng Cdfelene set's 1@e! rates on soE goods .hippeal t!o& JaPd to the u4ited srates rhd on sili1c a@il fld tne Unit6it states to ,t.pa. s. J.peese ?aport. ro ths united siare.

Japols 6xpo!t3 to tire u.s. r4 €En roE tlouble.@ r plobteE for ou! letarlors tnan 116 renaint.g ihport leEEictionE. table r on u:e fo11@iag page rtlu.tlaGs tnis polnc. r{hrte rnporLs fr@ Jape have

lei.inett at lelativelr 1@ 1eve15 in m3t plDducr

a

i

i^t

I

9

9

ti

l;

LP

a)

9n

!)

p

-tl-

tney hae lisen dlaatically in a nurbe! of raufactu!€tt

9ood6-puti@1a!fy passenge! ca!s, tape lecolders, rcto!cyctea I pore! genelaring equiprenr, ad offlc Mchine. ud

o

i l l

calcdators. Uore speciiLcalty, tle ,rapaes. have captuled viltually tne ent].le u.S- heket lo! tape r6do!de.3 r ed ove, half the market fo! rotolcycles a.t sc@rers. rh€ inp.ct of the J+)de6e €)eoft ilrl@ ou tne u.s. @rk6t has b4tr accentlated by two factols. Firlt, rh. r.tsal attlaclion of the u.s. Mlket for not@t col@lcial redons, aat .e6nd, tne uDatulal artlactlveDess of th€ U.S. nalket becas6 of contlnuett lulopqd fomat and infoeal lesllaints 6 irpoltr f!o4 Japan.

Itrpolts flom .rapa irave beer liEtng fasre! than u.s. exporls to irapd. a3 a lesult, the udred states is rlsirg a c@siA€lab1e arit 9!fl1n9 tuoual itelicia itr its balee of traale wirh Japd. tt is e.ti(ared that ttris itef,icir f,ifl go fm a a1!eaat, h19h level of SL.2 bl1lion last ee.! to approitMtely 92.5 blltlon thls yesthe art!@ldinaly glooth of Japs..e erpolt! is due 1n Latge part to a s.r of facrols tnat na. enh4ed Japanese coop€titivenesg. oie is rhe inteqration of .dvsced technotogy into Japeese indusrry. ,lnothe! is rhe developn€nt of cxtlsely €flicient buL cdlierg ,hicn, cdlbined eith tX€ locario, oi Jap{rs facrolies on tn6 seacoa6t, pemlr ver, tou-cost troE_ poltation of both lipolced rau hAr6!ia16 d.t el+o!ts. A EhlEo is a highly lhducrive anil eelr-disctptin€a t.bq tor@ tnat genela11y identllles ,tth its 4p]oye!. A fostlr is a viib va.llety 6f govament erqro.t in.entives, €.g, I t4 xrlte_6ffE f .r expo!r-relared expenses,

o

I

l

a

p.eferdrial bsk cledlE ro! neH inreEtrerr in a.+b!! inilqgtlt6s, 1@e! intele3t lates * ,o*" ,"" "*n"ra., 6ncora9emnt of expolt carre15. A n@b€! of the6e e:rPolt iaentlves d. nou b6in9 elhinateil. arth6ush the expolt pEetlon t4 provisiols h.ve lecertly bsen exrende.r. thes€ al6Elop!6nt5 hnE given !i.o io ,.!iouE p!bl,j,c alld cdgle.stona1 d! rrading e1alion6hip ,lth,rapd, a evideE€d at cdsleE.ionat h€u1D9. oE! tne p€t y€d dd ar ihe le€at u.s.1rap6 Bq1!€5!!en,s c@!e!ene. rtrlE Ei.ing cdceln of u.s. itritultiy ia leflect6it in the ilclesj.ng nurbe! of amping c@plalnt! betng bloqght by V.S. fitm against iEports tlor J6p{.

In the Ilaiie Expeslon Acr 6f f952 tnele i! e 6cape c1au6e rhich pemits lrdeseit protectio, fo! Ireiice ina@tlieE trh1ch ce deDon6rlate serioE itrjury &@ iryorts. It€ !1.o h.v6 a ati-d@plng 1ax and . coqt.r_ ,a1l1n9 duty l.w a9.in6t forelgn su.bslales.

C. O.s. hve!t@n! i! Japan .rap4 has strlct leEtltctlons or foleign irE6i_€nt.

Desplte tne "national tle.tient" gualantee of the O.S.Jalu teaty of Flielat3hip, coeele, sd SatigiEoi-aFent u.s. lnve3to!. de b6in9 denied oppolrsltie. to €3t.b1isn buElnasa opelations in Japan. fh€ book va_rue of I,.s-

'

.t

O

dilect lnvest@nt in Jape ar rhe d.t of 1969 ,aE $!.2 biuion, srall .onpaleit to tnat in orhe! indusrilal .outries. U.S. eamins. on inrelest, licensirg fees dtt loyaltie5, h@ever, f,6le lalse, S700 ui1]ion in 1970. tlhd Jap4 joined rhe Olgatzatiotr fo! Econoric coopelation a.l Dewlopcnt (oEcD) ln I96t, Tokyo agreed ro !e!dt dllect foreign inr6sgl€nr in ,rapa as gen.ral po1iq,. Deiials vould occu!, i,on1y in exceptioDa] cdes ,here s€lioug detlienral effectE ro the economy are feded". Thlee ye-B late! T6kyo dnouced irs intentio. to fib€la1tze controls over tne infld 6f dilect investrent6 o@! €r.tensive aleas of tne ecmohy by Malch f972 (Late. advaced ro Seprehbei 1, 1971) eat tnaicAled rnat tn6 pio@38 woula @n5i5t of fou! stlgesalthough three of the four .rages have bee, .onplet6it ail tiele 6rtinues io be considerable foleign 1rt€lest in diect invegt ent in Japd, tne infld rras haldly incre!.€it.

The t93 drllon infloy 1n 1970 bale1y ropped the previouE hiqh of 933 hillio. in 1963. r.{osr lnvesthen!! have been.i!II--1eEa tn6 $Ioo,OOO--ad de mainty blech offlce6 Epleraling 1a!9e over66aE c@panies. A fes

a-

large-scare lorelgn eqllcy Inveslmdnts vere auoEd bec.usâ&#x201A;Ź

)

J.p.n

c9u1d noc othetwlse obcEtn acc.ss

technology

or.n esscolial lav Mterlrl

to the flror3 such as petroleM.

Japrn has Pulchased advan.cd ccchnol,oAies

Iror

ed

1,n@-h6r

abrolal tbrough Ucenstng ,gree@nts.

rho foultlr .nd !1n.1 lould of the cuE.nE lilrelaLiz.tld

I,.og!.r ia

scLiedql.d

fo!

Septesbe! 1

be doeod up to Auguat. l1E

ot this yc6r .rd Ey

that tiEe the sectors

whtch

will 3tl11 noc q@1lfy for automttc apploval of ! Gxtolh fifty percent foletgn qhelshtp of ner .oop?lteE tn those i sect'ors wilt Frob.bly bo llnticd Eo nuclc.r .nd defe$e-

cj

!e1.ted industries, aglicultulc, olning, !aa1 e8tare, .sd publlc utllltle5, In these resE.icted a!e6s folelgn dtlecr lnvelthent

w111 be

posslt,le but only afte! a .Ese-by<ase

.cieenlnA l,y the J.pa.ese Aovem@nt. Also lt 16 elpacled thit the nMbcr of tndustrles tn ohi.h up ro 1o0z foreign

'

equi.ty

will

elll

bc pefrltted on en ,uro@ttc applovaL b.sIE

he 1ftre.sed.

Japan

ts rclliled about openlag lavestdent flee1y ro

folelsnels beca$e tt fe.!6 cha! rhe .bnoru11y hlgh debr-

to-eqrlty !aeio dJ.pane6e Enufa.cEine u@ld

C.

@ke

-

-!44!4S

"taLeooets" very ea.v for rell-flnenced

-'

0'S' Etft6'

difficult to do.unent' lc aPPears that atr a' stated JaPancsc !e.!.6 fori 1t61Etrg fo!e!8n invest@nt to iif,orlty holdrnss Ir, @st JaPenese Industlies is to erclude Although

foletsllcls fron govctuerE-lndustly consultsllh_cosesus proce6s. thelefora, che 11!.!51!zat!6 m'!su!es 6 foletga d1lecs tnvestoent a@ apP11.Eb1e o!1v to ne' ventules' foletgD ,cqutsiEld of equltv h exi'stiDg codpanie3

st!1! subiect to stlingent fegul.tlot* ' I! ae@fal, acqutsilion of shales of exlst1ng enEelPrtses bv foletgrers 1s

I

i6 n@ lcstrlcted to uP co but not inqludt{E 25 Perceot of the tota! 6h.res lor egglegete forelgn omershtP, and Beven petclnt fo! an tndivid@l fotelSn sbaaeholde!'

ii aP!@!s th.r the U,s. sutorcb!1e 'hp'n!es {Llt 6om hdvr lfpoltinE but dlstlnctlt slnollEv st,Les Neve!the1e6.,

tn cxistlng Jrplncsc co

Pante6.

the mior problâ&#x201A;Źm \rill chtlnue to be wtth JlP.nis felucE.nce Eo PemlE (.) sajority ovmelshiP !a cnv, tl nor sost, lndrstrles, 6.d (b) dtleci tnvesc@.t tn eaisting

(.

-

a

L

D, ,rap.nrs Baldce of lahEnrr Jap.n,s balance of palnents o^ cullenr ac@ut in 1970 ,6s in sllptus by S2 btl1ion. ft is Dlo.iected to lise Ehaely by 1975, plinarily dle to surplures 1n tne tlad€ accourit. surplules of such nlghltudes pos€ seliou6 ploblers fo! the inteftationat tunetaly sy6tem.

It seehs clear tnat Japan,s baldce of payhents ts in f{ldd6tal diseqoilibris, a ili.6qui1lb!i6 that could Ples@bly b€ collect6d onty by a corblnarion of reEules a libelalization of lraparese thpolt restlicrtons, a, inclea.ed foleig, aid ed p!1vate investfienr outlloy, ard a levaluatlon of the y6n. t. Japee.€ loleian A1d Japd,. aid perfom.nce has been disappointlng.

The total net fld of financial lesoEces l!6 Lrapatr to dereloping cou.tries (LDC'g), while Elsing lapldly t! quantlty {ro s1.3 btllion i! 1970 by oEcD EtarllticE), has .lecltned sharplT in qurtlty. ,,{osr of the glowth h rotal fld3 has been in rhe fom of siort-tratuiity e*polt.!edlts.

Officj.al developfretrr aid, on the oth€! hand, has ilscleasett in lalatlon to cNp. the resulr haE tEen a hardeni.q i, the ovelaIl tem. of J.pareFe firancial fI 5 to LDc,s. The 1ars. loIe of e;!o!t cledlts in rap&ese rinanciaMds aald6 to the qrcrinq ilebt burden of the coultlie3 iE last asia.

.

slgIII E.3t Astu counrlies hav. tlade d6f1.tts,tth Japatri the.e ale ploj.cted to s!o, at a taste! !!te rhan tne paltiauy offsettirg flovs of Japaese financlal lesou!.es to the a!eg. fhe ele libelaI invsrtrert pollcte3 orourced Juty 1, 1971 sh6u1d spu! tnduetll.I &veloph6nt i,n East Alla and also chould hetp ctose the

linectns gap.

2. J?pan,s

FoEerqn tnvestenr

Japar,s lasr foleign inv€sthent poltcies discouraged capitat outfl@s excart

ir6ofa! as th.y

contilbuted to rapane.. 6xports o! iteveloped cheap6! .oulces ol lar nateliatE (Eonerines with an advelse iEpact on

u.s. agliculturat erp6rts). Tokyo in the p4t fd yeals has been liberallzing irs.apital outfld estlictLons ad @nsequ6rtly tie outflow hls incleasad lapiit1y. total Japdese €olelq, asBets {excluttinq loleiqn axchanq. ..6crye!) gree t!@ 95 bllrton ih 1965 to ove! $15 blttlo!

1..t year or a! aver.qe anDua] glo{th of 25i. In 1970 tbe inclease vas 351. AII lohal leEtlictions ro Jap&€6e ov€lEeas investnents rele lehoved on l Jutv 1971_ 3, Yen Revaluation closety linked to Japan,s expolt Floreds is tie queslion of the.l,iehational vatue ol the yer. Tokyols naintenance of the exchange .ate establtshed ove! 20 ye&g ago, ,hile export plices have !i6en hole slorly tn.n tho36

-2a(.)

l

l l l

of lolelqn 6 petirols, hns qiven J:panese *po!t! a cdpetitiE edge. B€ti,een 1963 dil 1970 Jap{e3e qpolt pries !o.. 10 pelc€nt @ paled to trenry-one pelc@t lor the rr.s. Japu ats ha. q .d9. ove! r{6stem Elropaa 6urt!1es alrhouqh . Eh.l1 on.. uuch of ir.p.r rs lEtt.r p€lfoeance ls du! to ttr abiuty to tr€€p vage hikas @!e b 11n. rirh ploih.tlvlty gai.n! tlun rcst orher ejE dev.loped natlorg. r6st ce!!&y ts the onlt othe!

Njo! co@try whlch dld as ElL as Japd in aoLitins s!3lp 1Dc!€ases ir Elt la!o! costs, but B0613 r6ralEtlon has fuftne! acc€ntuat.al Japanrs advantage. l revaluatLon of tie ye! euld not be a ptu.ca lut - R.ilu.e th€ @rperirlv.n oss o! J.Danr. erpo!t!.

- R.dluce r.par6re espolt p!..su. ttr the ihlte,:r Stat6! i! .oD6 p!odu.t.

- Help to tncr€ue us exp.lts to Japa! 6d ro other coun!!1es ,rE!e Japan 16 a stlorg codpettto!.

- nale it 6asie! fo! other .ountlies to con.til€! ..valuat-on vis a vts tnE dolla!.

At p.esent tne coJ ts Fublicly opposeat to yer levaluation befole pelhaps a ye.! o! so. covElt@nr lelaels argue tnar r.watuation L3 s.r!.nted unril the eltect. o! trporr ^ot libelalization a.e app.r6nt dd ceft.inly Dor Ettl afte, okinara revelsion rhich wlll probab!.y not take plac€ before

9!9!E!

l

of 1972. R.valuatlo! of tne y€, whl1e OkLnda tehatn.d a do1Ia! alea rcu1d not bG poputa! thele. AoEve!, rokyo coulil devlse . .yEteD to 0!!16r otir*lD 1@8..

Unde!1ylng tokyorE €ffolrs to it lay yen lev.lu.tion i. itr fe.! tltat slch r tuv. hulil ils rltbgple.d a.tEs. poltilcal ropeld.EionB. lruy J.po.se .xpo!te!. I e.leci.Ily tnose faclot lncr6aslng .dipetltton !!on le6s a.Elop€d 6qt!1e! - .uch aE rhe polltica11y tsporrst retttt. prcducels - hav€ a!9q6d tiat tn€i! plof1t @lgins ar ro afin that lcvilutioa rcu1a ar1r6 tid our of busln..3. In .dilltlon, bBtnesd.n rho6e flas have 1a!q6 &sts of do11a! assets - ro! exasp16, thoEe vith lonq-t€d toatr. r.p.y.b1e i.! 4o11.!s ud 6trt!.ct! to buLlat .up. rtj.pql.t.d in dol1alr - nentlon tE 1a!q. 1o.... tn y rcu1d !u!!€r. fihil€ goeem.ni official. haw !.p.!redly s!.t d that rvalu.tlon 1s out ot tne qleEtlon tr tle tr.E te6, tn .ubJ€ct ha3 1!c!6a.1ns1y b€6D . topic o! @nv.rr.tion abrq inport&t seqnent! o! ure bu.heds c@lty.

Th.t t!. po331bl1ity of lcv.luation iE t.rre! .6!ioEly h ,.pe@e busile3s c]!cl.s iE pe!h.!a belt t1le!!.t d bt th.

1!! p.y@nt3 clauses ti6 Japd!& .hLpbuitat6t! lnitu.tly t g& l8€rtlng lnto cot!..t. dtn _!oe19n d.t6.n 1d! y6s ua by 1.rga-EcA1e n d9!n9 actlon !inc. x.y by J.Es... bustn..r@, to plot ct theru.lves aq.in3t leaeE .sed bt y.n levalu.tior. tl1€ Eplinq

O

,

-26-

.'@ Th. o.s, bll.teral batsc. of pAldeDt. vlth

i,

(,

Japd ls in lrlqe ard gffitrg tt.ftctt- rnt! btl.t.i.I b.1ane o! FlyreDt8 le . !.f!e.t1otr of tht ee !ude6t!l 91ob!1 o.s. p.1@nt. p&b14 ad &p.!t. .qrpIu. Fo.ltj.6.

Tae U.E. bllate!.I tl.liclt vtth J.p& t. prl!.lrly h tlt. tral.L accoEt (31.2 btuioD l!.t yed all & ..tlut.it 92.s bllrlo! thl. y.a) sit u,s. E11lt.!? e.t€nalttuE., a latqe poitlon ot .hlch u. mt ,.Lt d to th. iL!.n.. ot J.Pe (9500 Etluon th13 y6.t).

In theory' a b11at6ta1 accost la ! rltltat.r.l tladins systen Ehould not !€ onrlit r.il . pFD14. Eut glver thar the p!6&nt .t!t@ n!. bsilt tn !lg1dtti.. i t,lat the urited 6tat6. hd !.c€d !.arlng 9lob!1 b.r@ of ptlmat! deflclts &dl that the J.pe6se c.s lepEsetrt3 a 3isdficet disaquillbltu. tho bilat.r.1 p.t@!t! balec. t6 estlt.r ts ! c.nea-