U.S. TRADE POLICY TOWARD JAPAN

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85-01156R000200260006-2
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 36
• Document Creation Date: December 21, 2016
• Document Release Date: March 2, 2009
• Sequence Number: 6
• Publication Date: December 7, 1984
• Content Type: MEMO

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TRADE POLICY COMMITTEE
OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE
EXECUTIVE. OFFICE OF THE PRESIDENT
WASHINGTON DC 20506
December 7, 1984
USTR Review Completed
MEMORANDUM FOR MEMBERS OF TRADE POLICY COMMITTEE
MEMBERS OF CABINET UNCIL ON COMMERCE AND TRADE
FROM: WILLIAM E. BROOK"
SUBJECT: U.S. Trade Policy Toward Japan
As we approach the end of our first four years in office and
begin a second term, we need to review our trade relations with
Japan, our largest overseas trading partner. Such a review is
necessitated by the increasingly contentious nature of our bi-
lateral trade relations.
In light of the absence
rapid escalation of our
reasonable to ask if we
for some progress has b
the situation__ _s wcsan
reach a flash point in
of substantial new U.S. sales, and the
bilateral trade deficit, it is not un-
have wasted four years. I believe not,
Ben made. Xe# =t 's Pq =~1y tea
Lag daily and will in a111 ika1ihn0
L2 5 _Something has to change -__soon_,_,
This paper revisits U.S. trade policy objectives with respect
to Japan. It covers methods by which we have sought to achieve
those objectives, assesses the status of our efforts, presents
the current trade situation and projections for the future, and
offers an array of possible new approaches for your consideration.
Attachment
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I. THE POLICY QUESTIONS
In setting the course of our trade policy toward Japan for the
next four years, we must address two fundamental questions:
our objectives: what is it that we seek to have the Japanese
do?
our tactics: what means can and should we employ to
induce them to do it?
During the first term of the Administration, we have placed
major emphasis in our trade policy toward Japan on the objective
of attaining access in the Japanese market for U.S. goods, services,
and investment equivalent to that enjoyed by Japan in the U.S.
market. While our formal objectives have included other goals,
including expanded Japanese imports of competitive U.S. manufactured
goods, our negotiating efforts have focused heavily on market
access. Those efforts, which have involved four years of intensive
consultations and the repeated raising of the issues at every
level, up to and including the President, have produced some
improvement in our access in specific areas, but no notable
increase in U.S. manufactured exports to Japan. During the
same period, our bilateral trade deficit with Japan has mushroomed
to staggering size, this year equalling our deficit with the
entire world just two years ago.
Since our deficits with other countries have mushroomed also,
and since we recognize that for structural reasons Japan will
inevitably run a trade surplus wide world--and with us--it
may be asked why we are focusing so much on Japan. There are
two reasons. First, the President is meeting the Japanese Prime
Minister at this time and not the others.
Secondly, the problem with Japan is somewhat different than
that with the EC, Canada, or Latin America. In those cases,
exchange rates or debt problems explain most of the deficit.
But in Japan the problem is more complex. Even if we assume
that macroeconomic forces (growth differentials, exchange rates)
explain much of the growth in the U.S.-Japan bilateral deficit,
that doesn't explain why Japan's imports from all countries,
Europe, Korea, Taiwan, etc., are also very low. Indeed the
United States takes 58 percent of all LDC exports, while Japan
with an economy about half the size takes only 8 percent.
Thus, the problem is not just U.S.-Japan. Japan does not provide
much participation in its market to any country regardless of
exchange rates, comparative advantages, etc. In short, Japan's
economy does not respond to international market forces as it
should under free trade circumstances.
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This has given rise to unequal sharing of the burden of world
adjustment and to increasing feelings of unfairness and even
exploitation on the part of industries and countries all over
the world.
This in turn is threatening to poison not only our bilateral
relationship, but indeed the whole world trading system. It
is this that compels us to review our basic objectives and tactics
with regard to Japan.
With regard to our objectives, there are two basic questions. The
first question is whether we should deal with the issue of the
bilateral deficit and Japan's low manufactured imports by continuing
to seek to expand our participation in the Japanese market or
by moving to limit their expansion in the U.S. market. Assuming
that our overall trade policy goal continues to be opening markets,
the second question, simply put, is should we continue our virtually
exclusive emphasis on equal access in Japan, or simultaneously
push for a substantial actual increase in Japanese imports of
U.S. goods, and particularly of manufactured goods?
With regard to our tactics, the question before us hinges on
our objectives. If we continue to seek the removal of barriers
to access, do we do so by continuing to use verbal persuasion
only, or do we in addition make use of sanctions and/or incentives,
such as denying access to the U.S. market, in order to achieve
a change in Japanese behavior. If we seek substantial increases
in imports of U.S. products, how do we pose to the Japanese
both the desired result and the mechanism to accomplish it?
Do we ask for specific import targets? What role do we ask
the Japanese Government to play in reaching those targets?
II. REVIEW OF THE PAST FOUR YEARS
A. Objectives
During its first term, the Administration set five objectives
for U.S. trade policy toward Japan, which were formally adopted
by the Trade Policy Committee in February 1983:
1. Obtaining overall access for U.S. participation in ~/
the Japanese economy in goods, services, and investment
similar to that which Japan enjoys in the U.S. economy.
2. Ensuring trade composition and volume which reflect
U.S. competitiveness.
3. Ensuring fair competition between U.S. and Japanese L/
firms in U.S., Japanese, and third country markets,
and eliminating distortive or disruptive effects that
may arise from Japanese Government industrial policies
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or corporate practices.
4. Avoiding protectionist measures.
5. with Japanese economicadestrengthand'e in
the system.
The complete TPC memorandum elaborating on each of these objectives
is at Tab A.
In pursuing our objectives, we undertook a dialogue with the
GOJ on industrial o-1-icy, opposed domestic content and other
protection s in the Congress, and encouraged Japan to
take the initiative in getting a "New Round" of multilateral
trade liberalization negotiations underway. By far our greatest
emphasis, however, was on the first objective, increasing market
access. In contrast, with the exception of the NTT Agreement
and the High Tech Work Group's Recommendations, we devoted little
effort directly toward the second objective, that of securing
Japanese action to expand their imports of competitive U.S. manu-
factured products.
In our efforts to obtain equivalent market access, we engaged
in intensive negotiations with the Japanese over the past four
years. Those negotiating efforts focused on barriers to access:
removal of either generic types of barriers common to a number
of products (e.g., standards and certification procedures) or
barriers to specific products, services, or investments (e.g.,
quotas on agricultural and leather goods, tariffs on a long
list of products, "Buy Japanese" policies on satellites, restrictions
on telecommunications services, trust banking, legal services,
and numerous others).
B. Tactics
U.S. tactics during this period were characterized by an almost
total reliance on verbal persuasion. We emphasized bilateral
meetings as means for raising the market access issues, ranging
from Presidential/Prime Ministerial visits, a Vice-Presidential
"followup" effort, and frequent exchanges of visits by Cabinet
Ministers, to a series of nearly continuous visits by sub-Cabinet
and working-level USG officials to Tokyo.
With the exception of consultations on a few issues at the GATT,
and a single dispute settlement there (on leather), our approach
has been to seek to secure Japanese market opening by attempting
verbal persuasion rather than by initiating action, either unilateral
or multilateral, against Japan. One tactic that was frequently
discussed but not employed by the United States was the application
of U.S. trade law to restrict Japanese access to the U.S. market,
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either to induce Japan to open its market or to retaliate against
Japanese policies restricting or distorting trade. In considering
a petition filed by a U.S. machine tool maker, intense debate
took place within the Administration over whether to take action
under Section 103 of the Revenue Act of 1971 or Section 301
of the Trade Act of 1974. In the end, no consensus could be
reached among the trade-related agencies, so no action was taken.
The principal tactic of the Administration then has been 'negotiation
by persuasion." To add weight to our attempts at persuasion
we have used Presidential and Cabinet-level visits to set the
tone by which both sides approached trade problems, and to engage
senior political levels in specific issues which merited highest
level attention.
C. Results
In addition to specific agreements covering standards, NTT procure-
ment, beef and citrus, and the adoption by both governments
of the High Tech Work Group's Recommendations, the major result
of our efforts was the issuance by the Japanese Government of
five "packages" of measures to diminish some barriers, including
tariff reductions, legal changes in standards procedures, the
opening up of tobacco and telecommunications monopolies to foreign
competition, and others. But while these steps afforded some
improvement in access, they produced no significant increase
in U.S. participation in the Japanese economy. First, implementation
of the steps announced has in many instances not been carried
out, so that no actual market-opening benefit has ensued. Second,
major barriers to highly competitive U.S. imports remain in
place, without prospect of removal. And third, policies have
been announced that are wholly (satellites) or partially (telecom-
munications) market-restrictive. (See Tab B for a detailed
assessment of specific market access issues.)
Moreover, this more-or-less annual package approach, while respon-
sible for some progress, has been essentially a sporadic and
reactive response by Japan to U.S. pressures, rather than a
sustained, self-initiated program of market liberalization.
Once a package has been issued to stave off U.S. pressure, a
period of inaction - with respect to both the implementation
of commitments announced as well as to outstanding issues unaddressed
in the package - has ensued, allowing frustrations to build.
The packages may thus have contributed to the cycle of crisis
and public acrimony - with the United States in the unwanted
but unavoidable role of unsatisfied demandeur - that has plagued
the U.S.-Japan trade relationship.
The "Ron-Yasu" relationship, while creating the umbrella under
which officials pursued issues, also had the unfortunate result
of leading Japanese officials to operate from the belief that
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it sheltered Japan from "excessive" U.S. actions.
To be helpful to Prime Minister Nakasone, who faced Lower House
elections in December 1983, President Reagan did not push hard
on trade issues during his November 1983 visit. It was agreed
that followup mechanisms would be established by both governments
to address outstanding trade issues. Unfortunately, much of
our effort during the followup had to be devoted to fending
off new, potentially very damaging legislative proposals by
the Japanese--a proposal to remove copyright protection from
software and a proposal to limit-fat-ei-gn"ownership in firms
providing value added telecommunications service networks (VANS).
III. JAPAN'S CURRENT AND PROJECTED TRADE PATTERN - SOARING
EXPORTS AND LOW MANUFACTURED IMPORTS
A. Current Situation
The Japanese economy is currently experiencing an export-led
recovery, with exports in the second quarter of 1984 up 16.3
percent over 1983, compared with a 6.7 percent increase in real
GNP during the same period. Japan's exports are continuing
to grow faster than its imports, resulting in a rapidly expanding
current account and trade surplus. Exports to th~U_nited States
have been growing especially rapidly: the rising surplus with
the United States accounted for 72 percent of the'increase of
Japan's global trade surplus in 1983 and probably'at'-I7eest-as
much in 1984.
The bilateral surplus with the United States is projected at
$34.7 billion in 1984, rising to perhaps $45 billion or more
next year. Table 1 shows the U.S. trade balance with Japan,
the EC, Canada, and the world from 1979 through 1984.
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Table 1
U.S. Trade Balance
($ billion)
1.272 1980 1281 1982 1983 1984
(est.)
with:
Japan -9.1 -10.2 -16.1 -17.1 -19.7 -34.7
EC 8.2 16.7 9.2 3.4 -1.3 -13.1
Canada -5.6 -6.9 -7.6 -13.9 -15.4 -20.9
-----------------------------------------------------------
World -27.3 -23.4 -30.1 -35.2 -60.7 -115.5
As the table shows, our largest bilateral trade deficit is with
Japan. But its share of the U.S. global deficit has remained
relatively constant, and the other deficits are growing more
rapidly. But the deficit with Japan is growing from a large
base, and growing rapidly (by 76 percent this year) . Even more
important in this respect is the character of Japan's trade
with us (and with the other industrialized and industrializing
nations as well). Indeed the key and crucial issue is Japan's
very low level of manufactured imports.
Table 2
IMPORTS OF MANUFACTURED GOODS*
(Constant 1983 Dollars)
Per Capita 8 of GNP
1370 12$2
Japan
$ 144
$ 267
0.8
2.8
United States
353
728
1.3
5.2
Canada
1,347
1,936
5.8
14.7
France**
634
1,135
3.0
12.1
FRG
768
1,428
3.3
13.3
Italy**
384
616
3.5
9.9
Netherlands
1,815
2,347
2.1
25.4
United Kingdom
541
1,218
2.7
15.2
*Source: CIA; ITA, U.S. Department of Commerce; USTR.
**Based on GDP figures.
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As Table 2 shows, Japan's imports of manufactured goods are
very low, lower on a per capita basis and as a share of GNP
than any of the other major industrialized nations. Japan's
heavy dependence on imported raw materials does not account
for the disparity between its small relative volume of manufactured
imports and those of other resource-poor industrialized economies,
as a comparison of the Japanese data in the table with those
for West Germany demonstrates.
Moreover, import penetration in manufactured goods in Japan
has remained low throughout the past 15 years, despite the various
market-liberalizing measures that Tokyo has announced, especially
when contrasted with the sharp growth of import penetration
in this country and the EC, as Graph 1 documents.
Graph 1
IMPORT PENETRATION IN MANUFACTURES
(by value in percent)
X
s-
1 70 1A H ,w '* 1W a 1~
Source: Morgan Guaranty Trus
indicates imports as
measured by the sum
imports. EC data
the Community.
B. Japanese Projections
Company of New York. Value
t
percent of domestic market
of domestic value added and
excludes imports from within
Earlier this year the Industrial Bank of Japan (IBJ) published
an economic analysis for the period 1983-1990, which states
that a straight line projection of present trends, with constant
exchange rates, would lead to an insupportable current account
surplus for Japan by the end of the period. The IBJ concludes
that this can be avoided only by changes in Japan's economic
structure.
The IBJ report estimates that international trade will increase
at an average annual rate of 3.2 percent per year over the period,
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compared with an average of 5.5 percent in the 1970s. The report
foresees a likely increase in protectionism and a less bright
l
environment for trade than in the past decade. However, Japan's
primary markets, the United States and the Pacific regional
countries, are expected to enjoy better economic performance
than the average, and when the market represented by China's
development plans is added, Japan's trade performance should
not deteriorate as much as might be expected. The report adds
that trade frictions may be reduced by the fact that Japan's
competitive strength in internationally traded products is shifting
from a price advantage to a technological advantage.
The report says that Japan's exports might be expected to increase
at an average annual rate of about 5-6 percent, compared with
an average increase of about 10 percent in the 1970s. This
is still high compared with overall international trade growth
and compared with expected growth in domestic demand. In the
absence of a change in the composition of Japan's imports, i.e.,
a continued high percentage of fuel and raw materials, imports
would be expected to grow at only 4.5 percent average per year
given lower expected GNP growth. If this were to occur, however,
the current account surplus would swell to some $80 billion
by 1990. Merely assuming stable oil prices and continued growth
patterns without a change in import composition through the
1980s, leads to a surplus of that size. But the result would
be a cumulative surplus of some $400 billion over the period
1983-1990, which would rival the OPEC surplus of 1974-1981.
Because of the effect that would have on the international economy,
the report concludes, the structure of the Japanese economy
inevitably will have to change in order to restrain exports
and greatly increase manufactured imports.
Japan's official rebuttal to criticism of the size of its current
account surplus--contained in the 1984 International Trade White
Paper--is to point out that Japan is a rich industrial country
which has become a substantial net creditor. Domestic savings
exceed domestic consumption by a substantial ma gin, and Japan
is therefore a net lender abroad. It has long been accepted
as "good" that rich nations run trade and current-aUcount surpluses
in order to finance net flows of real resources to poorer countries.
It should also be recognized that the composition of Japan's
trade reflects its resource base; an island poor in raw materials,
will not, logically, have the same export/import mix as a resource-
rich country. Broadly speaking, the basic structure of Japan's
trade is not inconsistent with the principle of comparative
advantage, which forms the intellectual basis for the open,
liberal trade and payments system.
While some portion of the Japanese trade surplus is structural
and appropriate, part of the surplus is not structural and is
due to a variety of factors, including market barriers in the
capital and current account areas. A significant reduction
in the Japanese surplus--and, in turn, a substantial reduction
in pressures on the system--could result from actions which
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attack the non-structural component of the Japanese trade surplus.
IV. HIGH TECHNOLOGY TRADE AND U.S. NATIONAL SECURITY
An important, and disturbing, part of our trade adenproblem with
Japan is in the field of high technology.
major nation with whom we run a trade deficit in high technology
products.
That particular deficit is not due to any superior competitiveness
of Japanese products. In nearly every sector of high technology
- computers and computer software, telecommunications, satellites
and other space-related products, as well as a host of others
- the United States leads the world, including Japan. In the
market segments for less sophisticated products in the high
tech area, such as telephones, Japan does sometimes have an
edge. Japanese firms use that advantage in more open markets
such as the United States. However, the competitive edge that
U.S. firms have in sophisticated high tech products all too
often does not translate into commercial advantage in the Japanese
market. Rather, their efforts to sell into that market are
impeded by the intentions of Japan to develop "national autonomy"
in these fields or to catch up with and surpass the United States
in the commercial application of advanced technologies. Three
of the major specific issues on our current bilateral trade
agenda with Japan - satellites, telecommunications services
and equipment, and computer software - relate to this problem.
In satellites, Japan has adopted a space development policy
calling for national autonomy, a policy that precludes, as a
practical possibility, the purchase of U.S. or other foreign-
made satellites by NTT and other government agencies, the largest
market. In telecommunications, the liberalization of services
appears likely to be accompanied by a procedure for interconnect
equipment certification that will place a discriminatory burden
upon foreign suppliers. And in software, the GOJ is considering
changes in the legal protection of the rights of program developers
that would spur the development of the domestic industry at
the cost of serious harm to the interests of U.S. software devel-
opers.
Satellites, telecommunications, and software are high technology
industries whose health and prosperity are vital to the economic
and security interests of the United States. Denial of access
to the Japanese market, the second largest in the world, means
that U.S. firms must compete at a growing disadvantage against
Japanese firms in their own market and elsewhere. It means
they must compete with Japanese firms who can exploit the volume
economies of unhindered participation in both the world's largest
markets, and whose development of commercial products is spurred
and supported by government. Faced with aggressive Japanese
competitors, who compete fiercely with one another in their
own market, from which strong foreign competitors are excluded,
the U.S. firms find diminished not only their market share but
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the cash flow on which their investment in R&D and production
capacity expansion depends. The prospect that, because of such
one-sided restrictions on competition, these U.S. industries
might diminish in relative productivity and technological innovation,
is one that has serious implications for the security of this
country. So too does the existence of Japanese restrictions
on U.S. access to Japanese technology, deriving from the freezing
out of foreign firms from government-sponsored programs to support
commercial R&D.
The success of Japan's efforts in high technology will be determined
by their success in the United States, because access to the
largest market for high technology is critical to generate the
cash necessary to fund future R&D. That provides us with multiple
levers to use--if we will--in the pursuit of freer and fairer
competition between our firms and the Japanese. A prime example
is the space station project. The scope of Japan's participation
in the project could--if we so decided--be made contingent upon
an open Japanese market for satellites. Similarly, continued
copyright protection in the United States for Japanese software
could--and should--be made contingent upon continuation of copyright
protection in Japan.
V. ALTERNATIVE STRATEGIES FOR THE NEXT FOUR YEARS
The problem, simply stated, is that Japan does not buy enough
manufactures from the rest of the world. We want Japan to buy
more manufactured goods from us and from others.
A. Market-Oriented, Sector-Selective Option ("MOSS")
This option is intensive negotiations by sector to eliminate
every specific barrier, policy, and practice that in any way
limits import access. Such an intensive and comprehensive approach
for particular sectors has been used in the past with Japan
in only two areas: semiconductors and the yen-dollar talks.
This approach would be as comprehensive as those were, but would
add explicit willingness to use the leverage available to the
United States to achieve a true opening of the sector (see Appendix
on "Leverage").
Specific features of the MOSS approach:
1. Obtain Prime Minister's commitment to basic objective
of a truly free market in key industrial sectors.
2. Focus on a coherent industry/product group. Point./
to how individual negotiating demands work jointly towards mutually
agreed objective.
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3. One negotiating team, headed by a trade negotiator
at the sub-Cabinet level or above, for each key sector; team
stays together throughout the talks. No delegation of detail
to staff negotiations. Keep Vice-Minister at table, do not
negotiate with Director-General of International Bureau; include
domestic Director-General as well.
4. Detailed analysis of industry needed to isolate specifics J
of necessary Japanese actions and to draw on in actual conduct
of negotiations.
5. Same team for followup and monitoring. J
This approach is extremely time- and manpower-intensive. It
requires large amounts of time for very senior officials; the
detailed analysis takes considerable staff time and knowledge
of specific industries.
Selection criteria for the key sectors to be negotiating targets
might include the following:
-- market Size-in-Japan (not in U.S.)
-- Japan market growth potential
-- U.S. has world-class capability
-- sector has high visibility in Japan
These criteria would ensure that negotiations in a selected
set of industries would have (a) maximum potential for direct
dollar impact; (b) maximum demonstration or precedential effect;
(c) maximum "spillover." Examples which would be immediate
candidates would be telecommunications, forest products; non-
examples would be autos, consumer electronics, walnuts.
This approach has several major advantages:
-- It establishes "beachheads" in the Japanese market for
products with potential ripple effects.
-- It's philosophically consistent with our overall commitment
to free markets, reduced government intervention, and
an open liberal trade and payments system.
-- It offers the most direct attack on the Japanese "system,"
which we suspect is a major part of the problem we are
trying to solve; therefore it offers better prospect
for lasting gains.
-- It works in the direction of co-opting Japan into the
worldwide trading system and adjustment process, rather
than accepting its "outsider" stance and developing
a separate set of rules for dealing with Japan.
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B. Import Goal Option
The implicit logic of the MOSS approach, and of the market access/
barrier removal approach emphasized to date, is that the attainment
of an open Japanese market would lay the groundwork for the
achievement of a substantial actual increase in Japanese imports
of competitive U.S. goods.
Intensive analysis over the past several months, however, has
led us to question whether our logic has been correct. We have
assumed, for instance, that Japan's economy, like ours, is run
for purposes of maximizing consumer welfare. For the past 100
years, however, Japan has focused upon developing economic and
industrial strength for purposes of maintaining its national
integrity and power vis-a-vis the West. There is strong evidence
that this is still a wellspring of Japanese economic motivation.
Japan is a highly structured society and economy. Moreover,
its concepts of market power, monopoly, due process, transparency,V/
the role of government and business are such as to make an open
market system like the United States very unlikely.
As a result, even successful removal of barriers doesn't usually
lead to actual increase in imports. Even if a tariff is lowered,
if a company can't get distribution, or dealers, or employees,
or desirable office space, or unloading facilities, it is very
difficult to do business. Hence, simple removal of barriers
has not worked to increase Japanese imports of competitive U.S.
goods, especially manufactures.
In view of this ineffectiveness of barrier removal to right
the balance of real market access and to promote substantial
U.S. participation in the Japanese economy, it is necessary
for Japan to take steps that result in Japan's actually buying
more.
This is not unprecedented in world history. After World War II
the United States had an enormous trade surplus. We took positive
steps to encourage others to export here, to encourage our industries
to buy foreign goods, and to reduce our surplus in the interest
of broader relationships. We want Japan to do the same.
This option would recommend, therefore, that President
and Prime Minister Nakasone agree at this meeting on
of reducing the deficit by 50 percent over the next three
and of doubling Japanese imports of manufactured goods.
C. Recommended Policy Approach
Reagan
a goal /
years
On the basis of intensive interagency consultations in which
we have received the suggestions of all of the major trade-related
agencies, USTR recommends that the Administration adopt a two-pronged
approach in our trade strategy toward Japan over the next four
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CONFIOFN I IAL
years. That approach places equal weight on the objectives
of market access and manufactured import increase.
1. The First Prong: Market Access, Emphasizing "Beachhead"
Sectors
This element of our approach would continue our efforts to remove
any Japanese barrier that prevents the free play of market forces.
While we would continue to address the whole range of barriers,
particular emphasis would be placed on the need for progress
in specific sectors deemed especially important.
The first step in developing this approach is to establish a
Reagan/Nakasone mandate reflecting a commitment to the basic
objective of market-determined trade in key industrial sectors.
Once this mandate is established, the key sectors would be identified
on the basis of economic analysis that considers such factors
as the sector market size and growth potential in Japan, its
visibility in Japan, and U.S. capabilities as a world-class
producer.
Once the sectors are picked, a team headed by a trade negotiator
at the sub-Cabinet level would sit down to negotiate on all
elements involved in selling in Japan: border treatment, standards
setting and testing, regulatory environment, government "guidance"
or interference, distribution and sales channels, and methods
of product transportation.
This approach would require intensive negotiations characterized
by:
a) high-level involvement at all stages;
b) intensive followup until desired results are achieved;
c) U.S. willingness to use pressure in response to any
refusal by the Japanese to remove barriers or to implement
targeted objectives.
An appendix on the subject of U.S. leverage provides a discussion
of the means that could be employed to induce the Japanese to
take the necessary steps.
2. The Second Prong: Japanese Manufactured Imports Action
Program
This second and concurrent element of the two-pronged approach
involves the securing of a concrete Japanese program to bring
about a substantial actual increase over the next two-to-four
years in Japan's imports of manufactured products. To implement
this, Japan would agree to eliminate the barriers identified
in its negotiations with us (prong one), and take the following
additional steps:
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!,I _i\-`!!rNI114
a) The Prime Minister gives the President his commitment that
Japan will adopt as a national goal, announced as a White
Paper, a doubling of imports of manufactured goods and a
halving of the bilateral trade deficit with the United
States.
b) The White Paper would'set out with the usual specificity
of Japanese White Papers, how imports are to grow, and establish
that objective as a national goal necessary for Japan's security
in the trading world. Specific goals would be set for the
key sectors identified in prong one. The United States would
be consulted fully in the drafting of the specifics of the
program and would monitor performance.
c) The White Paper also would outline plans to be implemented
to eliminate trade-restrictive or -distortive elements of
Japan's industrial policies, including providing for: full
transparency of policies, objectives, methods, and procedures;
treatment for foreign firms equal to that given to the most
favored" domestic firms; and import goals for "sunrise"
and "sunset" sectors.
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VI. RECOMMENDATION FOR THE PRESIDENT'S MEETING WITH PRIME
MINISTER NAKASONE, JANUARY 2, 1984
Whichever policy approach option we decide to adopt, this meeting
will be crucial to setting the course - and the tone - of our
trade relations with Japan for at least the next year.
All reports indicate that the Japanese expect trade, particularly
the size of the bilateral defict, to be the major topic on the
President's agenda for the meeting. It is vital that trade
be the major subject of the meeting, and that the Prime Minister
leaves the meeting convinced that the President is deeply concerned
by the trade problem, and strongly believes that it must be
resolved by bold, rapid steps by Japan before the damage it
is inflicting on our overall relations becomes any greater.
The most desirable outcome of the meeting with respect to trade
is the announcement by both sides of Prime Minister Nakasone's
commitment that Japan will implement a manufactured imports
action program with a goal of doubling Japan's manufactured
imports and halving the bilateral trade deficit with the United
States over the next two years.
The opportunity to achieve such a major forward step in opening
up Japan will never be better. Nakasone's situation now is
unique in that he is, for the remaining two years of his tenure
in office, more free of election-related limits to action than
heretofore, and also less politically constrained than any successor
will be again before around 1988. By that time, if the IBJ
scenario unfolds, Japan's current account surplus will already
have begun to rival the OPEC Dollar Drain. Only action now
by this Prime Minister can commit Japan to a national effort
to avoid such a crisis at the end of the decade.
We therefore recommend that the following points be made by
the President in his January 2, 1984, meeting with Prime Minister
Nakasone.
CONFIDENTIAL
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SUGGESTED TALKING POINTS FOR YOUR MEErf. WITH ^ '
PRIME MINISTER NAKASCNE - BILATERAL ISSUES i. .
-- We have made significant progress in strengthening the full spectrum of our
relationship. I appreciate your personal role in this process. We must build on the
momentum of the past two years to create a true "international partnership."
-- We both face a trade problem which is threatening to rend the fabric not only of
our overall bilateral relationship, but of the whole free trade system.
-- I believe we are facing a crisis which we must resolve by working together. It is
not in either of our country's interests to jettison the global trading system.
-- we both want to enhance our overall relationship by building increasingly close
economic and trade relations. Your businessmen have been able to participate freely
and widely in the U.S. economy, and that is good, and we want to keep it that way.
-- But, Yasu, I need your commitment and help to ensure that Americans and others
participate widely in your economy.
-- I know you want to make Japan the most open market in the world in word and deed,
and a leader in the international trade system. But we will both be judged by the
concrete results we produce.
-- I suggest that we catmit ourselves now to the goal of halving our bilateral deficit,
and of doubling Japanese manufactured imports over the next two years. Let our negoti-
ators meet this month to establish the means to carry this out.
Specific Issues
-- Also, adoption now by both of us of a central recamendation of the Advi -
laumission--that market access should be made a national goal in Japan; that Japanese
policies should be openly formulated and implemented, with ample opportunities provided
for foreign entities to present their views; and that existing ccnnitments should be
fully and promptly implemented--should aid our efforts over the next two years.
-- The report of the U.S.-Japan Advisory Commission is an excellent starting point for
strengthening our relationship in the future. We should endorse its thrust and have our
two governments get together to discuss implementation of its many recamendations.
-- Among others, high technology and telecommunications products and services should
receive the highest attention.
-- The yen-dollar agreement was one of the most significant developments in our
economic relationship. Let us move aggressively to implement it.
-- We must accelerate progress on energy cooperation and increased trade in coal and
LNG. I hope that we can lift the ban on exporting Alaskan oil.
-- I am pleased to see more two-way investment.
-- (If raised) I am committed to reducing our budget deficit and getting interest rates
down even further.
-- (If raised) The decision about auto export restraints is Japan's to make. I
agree that it is best to wait-and-see, and monitor the state of our auto industry and
the trade environment.
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