A roadmap for greater opportunities through further competition, cooperation and integration
A Study Group on Japan-U.S. Economic Relations in a New Era (Summary of discussion)
| Prof. Motoshige Itoh | Professor, Faculty of Economics, University of Tokyo |
| Mr. Kazuhide Uekusa | Senior Economist, Nomura Research Institute, Ltd. |
| Ms. Yuri Okina | Chief Senior Economist, Economics Department The Japan Research Institute, Limited |
| Mr. Akira Kojima | Managing Director, Editorial Page Editor/International Affairs, Nihon Keizai Shinbun, Inc. |
| Mr. Teruo Masaki | Director, Corporate Senior Executive Vice President Sony Corporation |
| Mr. Masaru Yoshitomi | Dean, Asian Development Bank Institute in Japan |
| Mr. Hitoshi Tanaka | Director-General, Economic Affairs Bureau Ministry of Foreign Affairs |
A roadmap for greater opportunities through further competition, cooperation and integration
The global economy surrounding Japan and the United States
The economy of Japan and the United States and history of the Japan-U.S. economic relations
Policy Agenda in the Future
(1) From friction to cooperation
(2) A roadmap for greater opportunities
(3) Further enhancement of policy dialogue
(4) Establishment of mechanisms
- Establishment of a framework for dialogue with "the Japan-U.S. economic Forum" at its core
- Establishment of "the Japan-U.S. Consultative Meeting on economic policy"
- Strengthening exchanges between the members of the Japanese Diet and the U.S. Congress
- Building a mechanism for promoting exchanges between mid-career business officers
(Provisional Translation)
Executive Summary
(1) From "friction" to "cooperation"
Globalization presents Japan and the United States with an opportunity to cooperate even further to achieve greater economic growth. Strengthening the competitive environment in both countries through structural reform, deregulation, appropriate legislative measures and harmonization of legal systems holds the key to tackling the challenges we face in this new era. Further "cooperation", not "friction", will bring the Japan-U.S. economic relations to the next level. Japan should take the initiative in grasping this opportunity and propose to the United States a joint study on what should be done to improve the competitive environment in both countries.
(2) A roadmap for greater opportunities
The two governments need to fully take up the views of not only the business community, but also those of relevant actors in society such as academic circles, consumers and NPOs in creating a better environment for competition and to foster common grounds for the two economies. This involves a process of determining the best form of a society, and such a process must reflect the diverse interests in society. A framework capable of absorbing all voices of society must be created. Various players of society must work together to create greater opportunities for further development of the two countries. The two countries must pay due consideration to the characteristics of each economic sector in conducting this exercise.
(3) Further enhancement of policy dialogue
The governments of Japan and the United States must further enhance the policy dialogue on such issues as those related to the WTO and regional cooperative activities in which the two countries are engaged with their respective neighbors with a view to ensuring their transparency. The policy dialogue should focus on strategic issues such as the structuring of a global economic order.
(4) Establishment of mechanisms
a. Establishment of a framework for dialogue with "the Japan-U.S. Economic Forum" at its core
i. The leaders of Japan and the United States will establish "the Japan-U.S. Economic Forum" which will consist of representatives from the two governments, business communities, academic communities and NPOs. It will identify economic areas where further actions are necessary to create a better environment, or "common grounds" for competition. After discussing what specific actions should be taken in such areas, this forum will compile a report in about a year and present it to the two leaders.
ⅱ. The two governments will establish a framework for regular dialogue on the governance of frontier science and technology between the top-level intellectuals of both countries.
ⅲ. A "Friends of the Japan-U.S. Economic Relations on the Net" will be created to unite intellectuals and interested people of the field. "The Friends" will exchange views with each other and with members of the Japan-U.S. Economic Forum on the web. They will also actively send out views and information in each country on the net.
b. Establishment of "the Japan-U.S. Consultative Meeting on economic policy"
The two governments will establish a framework for policy consultations that will be composed of their senior officials and will regularly hold meetings from a strategic viewpoint.
c. Strengthening exchanges between the members of the Japanese Diet and the U.S. Congress
It is important to have close communication between the legislators of the two countries for the further development of the two economies and to make the two economies even closer.
d. Creating a mechanism for promoting exchanges between young business people
By promoting exchanges between young business people who are engaged in IT and other cutting edge technology industries, a broad range of people will have a deeper understanding of Japan-U.S. economic relations. It is also necessary to reflect the views of those officers in the foreign economic policies of the two countries.
Preface
Expansion and deepening of the market economy symbolized by the establishment of the World Trade Organization (WTO), revolution in information and communication technology ("IT revolution"), globalization led by multinational enterprises and emergence of various actors including NPOs - these are the symbolic characteristics of the global economy in the 1990s. At the outset of a new era accompanied with these rapid environmental changes in the global economy, the members of this study group examined the current international economic situation. The members freely exchanged their views, in their individual capacities, on what Japan and the United States should do to reap further economic benefits and, at the same time, to promote further development of the world economy. (Opinions expressed by members of the group shall be attributed to each individual, and do not represent any opinions of institutions to which they belong.)
As a result of the discussions, this study group has come to a conclusion that it is beneficial to pursue a forward-looking approach which finds out problems and resolves them before they escalate into disputes rather than a situation-coping approach which tackle problems in individual sectors in the Japan- U.S. economic relationship. A great opportunity exists to jointly reconstruct the strategy for the fundamental structure of the Japan-U.S. economic relationship.
This year, various policy recommendations on Japan have been published in the United States, with the knowledge that a new administration will be inaugurated on January 20 next year. These policy recommendations clearly demonstrate that the Japan-U.S. relationship is an important agenda for the United States. In the past, it is often the case that Japan and the United States have established new frameworks for economic consultation with a new U.S. administration. It is only natural that a new policy initiative is taken with the change of administrations. It is therefore an appropriate time for the Japanese side to propose that Japan and the United States should jointly study Japan-U.S. economic relationship in a new era from a strategic viewpoint.
The following is a summary of discussion of the study group. We hope that this will provide valuable suggestions for planning Japan's future economic policy towards the United States.
Chapter 1
The global economy surrounding Japan and the United States
(1) Current Status of the global economy
The world has experienced fundamental changes since 1990. The world economy has shifted into the age of globalization brought on in part by IT revolution. There are several underlying factors behind these changes.
a. The first factor is the collapse of the Cold War structure that defined international relations after World War II. Since then, most countries with some exceptions such as North Korea and Cuba have become integrated into the market-based economy, resulting in dramatic expansion of the size of the world economy. The gross output of the world economy expanded by about 50% from 19.5 trillion dollars in 1990 to 28.2 trillion dollars in 1998.
b. The second is the establishment of the WTO in 1995. GATT, the predecessor of the WTO, prepared rules governing world trade and contributed to promotion of lowering trade-barriers and expansion of the world trade through eight multilateral trade negotiations (the so called "rounds"). Since its admission to GATT in 1955, Japan has actively participated in the GATT regime, and as a result of consecutive rounds, the average tariff rate of Japan has been lowered to 1.5%. The WTO has established rules not only on goods, but also on services and intellectual property, which facilitate homogenization and unification of the expanding world market. (This report will elaborate this point in the following sections.)
c. Thirdly, the emergence of the "New Economy" brought on by technological advances and IT revolution is equally important. It has brought about remarkable improvement in productivity in certain sectors and in the speed of communication, leading to the emergence of a truly global market and the rapid development of new business models. As a result, corporations fully enjoying the merits of the scale of economy are operating their business on a global scale, bringing in the momentum for drastic reorganization within those industries. With the progress of the integration of the world market and the international division of labor, private companies are pressed to develop an optimal production and supply system on a global scale. The communication industry, auto industry, and financial industry are cases in point.
d. The fourth factor is the expansion and deepening of transnational economic activities. Dramatic increases in world total foreign direct investment (FDI) signify this fact. FDI has grown to twenty times as large as the level of twenty years ago. Its scale was about 370 billion dollars in 1982, then expanding to about 2450 billion dollars in 1990 and about 8000 billion dollars in 1999.
In 1980, FDI from Japan was 1.641 trillion yen. Since the late 1980s when the yen appreciated, Japan's FDI has increased substantially. It recorded a downturn in the early 1990s, but from the late 1990's it started to increase again to 7.439 trillion yen in 1999. 25 to 40 % of Japan's FDI is directed to the United States. As for direct investment to Japan, it started to increase in the late 1990s, showing a sharp rise from 404.6 billion yen in 1990 to 2399.3 billion yen in 1999.
e. We should also take note of another new factor in the global economy, that is the growing presence of NPOs (Non Profit Organizations). With the help of remarkable technological innovation which enables people to communicate instantly, these NPOs are now organized globally, and have become the third influential stakeholder following governments and business communities. They monitor activities of governments and companies, and sometimes take visible actions.
(2) Multilateral Free Trading System
The WTO, established in 1995, not only sets a major framework for current world trade, but also encourages the expansion of rule-based market economy. The number of the original members of GATT was only 22 countries. It has gradually expanded since then, now having 140 member countries and regions of the WTO as of December 22, 2000, and negotiations for accession of 27 countries and regions to the WTO are ongoing. The principle of the market economy and free trading system has become so universal that transition economies such as China and Russia are also engaged in the negotiations to accede to the WTO. After the establishment of the WTO, such new issues as trade and the environment, investment, competition policy and domestic economic rules which transcend border measures, have entered into WTO agenda, and the areas that the WTO covers are expanding even further.
The expansion of WTO membership has led to a higher percentage of member countries being developing or least developed countries. This coexistence of countries at different stages of economic development has made it even more difficult to institute rules that apply equally to all member countries and regions, especially those rules in new areas. Furthermore, conflict of interests between developed and developing countries has made it indispensable to take into account the interest of developing countries for the proper management of the WTO.
At the WTO Seattle ministerial meeting in 1999, the effort to launch a "new round" to succeed the Uruguay round was foiled because of the failure to resolve conflict among major members regarding the scope of the negotiation of the new round and the failure to accommodate the opinions of developing countries. At present, serious efforts continue to be made toward an early launch of a new round. The experience in Seattle demonstrates the mounting resistance (or friction) to trade liberalization under the WTO both in terms of size (expanding membership) and depth (trade liberalization which covers issues beyond border measures). Under these circumstances, plurilateral or bilateral framework targeted at the promotion of regional or bilateral economic cooperation has come to be viewed as complementing the global trade liberalization under the WTO, which is "public goods" of world trade.
(3) Regional and bilateral economic cooperation
a. Regional economic cooperation
The number of regional trade agreements has been increasing rapidly in recent years. As of November 2000, 128 regional trade agreements in effect have been reported to the WTO. The United States, which used to keep a distance from any free trade agreements, has been actively pursuing regional economic cooperation since the mid-1980's. The United States first concluded a free trade agreement with Israel (1985), followed by the U.S.-Canada free trade agreement (1988), the North America Free Trade Agreement (NAFTA, 1992), the U.S.-Jordan free trade agreement (2000), and intends to conclude the Free Trade Area of the Americas which includes 34 countries in the Americas.
The United States and EU established in 1998 the Trans-Atlantic Economic Partnership (TEP), which is a framework for promoting cooperation at the government level in both bilateral areas such as technical barriers to trades and multilateral areas such as the WTO. These two great economic entities also established the Trans-Atlantic Business Dialogue (TABD) in 1994, in which business communities of both sides collaborate to abolish barriers to trade and investment and for the improvement of economic competitiveness.
The EU, while continuously deepening internal economic integration, has been going beyond the preferential treatment agreement it already has with neighboring countries, and is positively pursuing regional economic cooperation with non-EU countries. Strong requests from the business community have been a driving force behind this move, and the conclusion of the free trade agreement with Mexico in 2000 is one of these examples.
b. Japan-Singapore Economic Agreement for a New Age Partnership and future regional economic cooperation
Out of the top 30 countries and regions in terms of GDP in the world, only Japan, China, Korea, Taiwan and Hong Kong have not yet concluded any regional trade agreements. In December 1999, the then Japanese Prime Minister Keizo Obuchi and Singapore Prime Minister Goh Chok Tong agreed to launch a joint study to examine the possibilities of a free trade agreement. This stems from the recognition that Japan has reached a point where it should consider the possibility of the development of regional economic cooperation based on evaluation of its costs and benefits, while ensuring its consistency with WTO agreements. It must be added, however, that there is no change in the primary principle of foreign economic policy of Japan that the multilateral free trading system under the WTO should be maintained and strengthened.
The two leaders agreed to set up a joint study group which consists of business communities, government and academic circles. Intense discussion at the group's meetings held from March to September 2000 produced a report, which concludes that the Japan-Singapore Economic Agreement for a New Age Partnership will be conducive to (i) enhancement of the existing bilateral relationship between the two countries, (ii) institutionalization of regulatory reform of the two countries, by which the two countries can maintain its attractiveness to human resources and capital, (iii) curtailment of business cost, promotion of competition, improvement of economic efficiency and improvement of consumers' welfare through broad liberalization, facilitation and bilateral cooperation, (iv) enhancement of the multilateral free trade system, (v) enhancement of Japan's engagement with South East Asia, and (vi) enhancement of the relationship between Singapore and North East Asia. On the occasion of the visit of Prime Minister Goh of Singapore to Japan in October 2000, Prime Minister Mori and Prime Minister Goh agreed to launch negotiations on the Japan-Singapore Economic Agreement for a New Age Partnership in January 2001, and to conclude it by December 31 of the same year.
Besides Singapore, such countries as South Korea, Mexico, Chile, Canada, and Australia are interested in deepening economic ties with Japan. Japan is currently studying the potentials of bilateral and regional economic cooperation with these countries in various fora.
Chapter 2. The economy of Japan and the United States and history of the Japan-U.S. economic relations
(1) Japanese economy
a. Current Status
The growth rate of the Japanese economy has been around 1 % since 1992. The exceptions were 1995 and 1996 when the increase in demand due to the Hanshin-Awaji earthquake, the rapid expansion of mobile communication market, and the temporary increase in demand before the hike of consumption taxes in April 1997 spurred economic growth. The Japanese economy entered into a serious recession with the Asian economic and the currency crisis after the fall of 1997, and the deterioration of market confidence in Japanese financial system as a result of the bankruptcies of several financial institutions. Japan has finally started to recover in 1999.
However, the potential rate of economic growth remains low. The Japanese economy still faces long-term difficulties such as an aging society and decreasing labor force. There are also other problems such as; huge budget deficit, which is currently 129.3% of GDP and is expected to exceed 645 trillion yen by the end of the fiscal year 2000; a high unemployment rate, which is well over 4%; the existence of large amount of bad debt held by financial institutions; and low productivity in non-manufacturing sectors.
b. Future Challenges
The Global Economy is experiencing a remarkable change, as mentioned in Chapter 1. The IT revolution, the business globalization based on the rule of a market economy, and the new stage of global competition - faced with these fundamental changes in global economy, Japan can only survive by embarking on a path of reform which will lead to a social structure that can meet the challenges of competition. Among the vital elements of such reforms are; (1) reinforcement of market principles in high cost industries, (2) creation of an environment that incubates industries of the new technology, (3) expansion of investment opportunities of higher return, (4) expediting the settlement of bad loans to regain confidence in financial institutions, (5) changing the indirect-finance oriented financial system, and (6) improving corporate governance. In Japan, financial "Big Bang" is scheduled to be completed by 2001. In other sectors as well, drastic reforms should be accomplished and new entry to the market should be accelerated, by the proper combination of deregulation and a stronger competition policy. Regulations based on the producers' interest should be fundamentally reviewed from the perspectives of consumers' interest. Such structural reforms should be started as soon as possible in view of the forecast that the population and labor force will start to decline in 2007. In this regard, economic recovery, developing a safety net for the socially weak, and taking measures for reeducation and retraining are also factors to be considered.
(2) The U.S. economy
a. Current Status
The US economy has continued to grow for 116 consecutive months as of November 2000, which is the longest growth ever. It is expanding without inflation (the inflation rate is around 2%), under almost full employment with the unemployment rate being 3.5-4%. Among several important factors are; (1) capital stock related to IT has accumulated, (2) the introduction of IT has contributed to immense improvement in labor productivity because it had promotes technological advances in manufacturing industry and management innovation such as streamlining corporate structure by reducing intermediate administrators, (3) the IT industry has been deregulated, (4) enactment of relevant laws has encouraged the concentration of resources into core-competence, and (5) M&A and divisions of firms have been activated as a result of such legislation.
The total U.S. trade deficit marked 330 billion dollars in 1999, the highest ever (It was 43.4 billion dollars at the end of 1991.) However, the situation is different from that during the 1980s, when the United States was suffering from the "twin deficits" of trade and the budget. These deficits resulted from excessive government spending, and the increase of individual consumption from large-scale tax cuts. The huge budget and trade deficits even caused instability in the international financial market. The current trade deficit is a result of increased import reflecting the excessive demand in the private sector, not a product of government overspending.
The US budget deficit reached 269.4 billion dollars at the end of 1991, which has gradually declined to produce a surplus in 1998. In 2000, there was a substantial surplus of 237 billion dollars. The shortage of savings in the public sector has been resolved, while that of the private sector remains because of the robust individual consumption boosted by the asset effect of owning stocks. The main reasons for the high performance of the U.S. stock market in the long term are; (1) the productivity of the U.S. economy raised by the IT revolution, (2) the transparency of the U.S. stock market enhanced by the disclosure of firms in the global capital market from the viewpoints of the institutional investors.
b. Future Challenges
The US economy has continued to grow based on the expectation that the growth will continue. The possibility of the collapse of such expectation should not be excluded, with the possibility of a future fall of stock prices by any factor such as crude oil prices. Even under such circumstances, however, it might not be difficult to find proper solutions. Taking fiscal stimulation measures under the present budget surplus is not deemed to be so difficult. Monetary relaxing measures are another way to be taken under the current low inflation.
It must be noted however, that the synchronicity between wages and productivity is often accompanied with a time lag. If the productivity declines in the future, which is currently rising, it might cause inflation with the rise of wages. If there is mismanagement of monetary policy under this scenario, it might cause an economic slowdown, stagflation, stock price decline, and the depreciation of the dollar. Even in the case that a soft-landing scenario assumed by the U.S. government is successfully realized, the next question is who will lead the world economy at the current growth rate.
It is difficult for the US to continue to lead the world economy alone, even if the US realizes a soft-landing successfully. Substantial recovery of Japanese economy is in the interest of the US, and of the world economy. The US recognizes the need for discussion toward expanding the market through harmonization of regulations between Japan and the US, which will create better circumstances for global business strategies.
(3) History of Japan-U.S. economic relations
a. The Japan-United States framework for a new economic partnership was launched during the first Clinton administration, with a view to opening the Japanese market, and to promoting Japan's economic growth led by domestic demand. The first Clinton administration in its early stage pursued a trade policy based on a "result-oriented approach" in which the United States forced Japan to commit itself to numerical targets. The approach was aimed at reducing Japan's trade surplus with the United States by ensuring not only fairness in procedure, but also "fairness" in result. In the face of strong resistance from Japan, the United States gradually renounced this approach. Under the second Clinton administration, the Japan-U.S. deregulation dialogue was launched to achieve further economic growth of both countries by promoting deregulation, while avoiding sector-specific negotiations, which tended to become confrontational. However, in the dialogue held between governments, there may be a danger that a government merely represents the interests of individual business because deregulation inevitably deeply affects the interest of individual economic entities. Therefore, it is necessary to consider how to incorporate various views from consumers and business communities constructively into the dialogue.
b. In the past, the focus of Japan-U.S. economic relations has been on how to resolve the trade imbalance. Negotiations between the two governments have centered on improving market access of sectors concerned. In fact in 1991, the trade deficit of the United States against Japan had grown to 65% of the total U.S. trade deficit.
However, from the viewpoint of economics, it is almost meaningless to take up the bilateral trade imbalance as a trade issue. Incidentally, the situation surrounding the two countries has drastically changed as well. The average economic growth rate of Japan from 1990 to 1999 was only 1.68% while the U.S. economy has been growing continuously for 116 months as of November 2000. Today, the U.S. trade deficit with Japan is about 20% of the total U.S. trade deficit, which is almost equivalent to that with China. Relatively speaking, the issue of the U.S. trade deficit with Japan is less important than in the past.
c. Following the establishment of the WTO and the development of dispute settlement procedures in 1995, unilateral sanctions based on domestic laws such as US trade laws that are inconsistent with WTO agreements were prohibited. Furthermore, the number of cases put forward to the dispute settlement procedure of the WTO has remarkably increased compared with the GATT era as the effectiveness of the procedure has improved. Both Japan and the United States are more likely than ever to utilize this procedure, when market access issues of individual sectors arise. This is only natural for two countries that enjoy a mature bilateral relationship. Japan and the United States should be encouraged to continue to utilize WTO dispute settlement procedures.
d. As written in Chapter 1 and this Chapter, the interdependence of the world economy is deepening, especially, between the economies of Japan and the US. In this highly integrated global economy, border measures such as tariffs on goods are losing their importance, especially among industrialized countries such as Japan and the United States. Under such circumstances, it is important to further improve the environment for competition. The objective is to enhance economic efficiency through competition, and to maximize the welfare of last beneficiaries. For that purpose, deregulation and structural reform are essential in both countries, which will maximize the benefit from the technological innovation and the New Economy. It goes without saying that social factors and backgrounds of both countries should be fully taken into consideration in pursuing these policies.
Chapter 3 Policy Agenda in the Future
(1) From friction to cooperation
With the emergence of New Economy supported by the expansion of the market economy and the IT revolution, the world has witnessed the scale of economy growing and corporations conducting their business globally. This trend will ultimately transform the world market, presently divided by borders, into a unified global market that could produce larger wealth than a simple sum of the individually divided markets. It is the right time for Japan and the United States to take a step in this direction.
Japan and the United States should cooperate to lead the world economy for further growth as the globalization of the market progresses even further. For this, it is essential for the Japanese economy that is now suffering from lingering economic doldrums to regain its strength through structural reform.
It cannot be denied that in the history of the Japan-U.S. economic relations, the discussion had tended to focus on specific sectors and products that the United States had raised. Although we cannot rule out the possibility that a similar situation will remain to some extent, it is no longer fruitful to discuss market access issues such as tariffs on specific sectors and products in a bilateral context under the current world economy. If there is an individual issue that relates to the consistency with the WTO Agreements, it would be wise and desirable for both sides to utilize the WTO dispute settlement procedures in a businesslike manner.
Japan has been labeled as unique for such characteristics as its seniority system, lifetime employment, "keiretsu" system, the main bank system, and the consensus-based decision-making process. The rapid progress of economic globalization and the IT revolution, however, is causing change in what has been termed the "Japanese style management". Social change should be further promoted in order to facilitate competition. The basic direction of that social change should be enhancing market transparency, strengthening accountability of economic actors, and striking a balance between the rights and obligations of actors (i.e. producers v. consumers, plaintiffs v. defendants).
The present age demands that Japan and the United States further promote competition through structural reform, appropriate legislative measures, harmonization of legal systems and policy coordination. Such efforts will make the two economies' markets more attractive. If Japan and the United States can also share the results of such efforts with third countries, it will provide an impetus for further liberalization, paving the way for a worldwide common market, as well as the expansion of the world economy will in turn lead to greater economic benefits for Japan and the United States. Japan-U.S. economic relations in the coming century should be developed through further "cooperation", not "friction" as was sometimes the case in the past. Japan should take the initiative in proposing to the United States a joint study on what should be done to improve the environment for competition in both countries.
(2) A roadmap for greater opportunities
To create a better environment or common grounds for competition in both countries, various factors such as harmonization of systems, deregulation, measures for promoting investment and establishing mutual recognition system for standards should be considered. In proceeding with this process, it is necessary to consider what measures should be adopted in what areas by fully taking into account the views of the business communities. For this purpose, a framework in which public and private sectors cooperate together is more useful than traditional government-led frameworks. In building such a framework, it is necessary to discern in what areas it will be possible to achieve results in the near future, taking into account the globalization of the market economy, the IT revolution and the New Economy. It will also be essential to do this by considering the appropriate roles of governments and private sectors. Focus should be placed on issues outside the scope of WTO rules, such as economic structural issues because issues on specific sectors covered by WTO rules should be placed under dispute settlement procedures of the WTO.
For example, one issue in the business sector is corporate management. Corporate management that will gain the confidence of institutional investors is vital for responding to the increasing need for direct financing from the global capital market rather than indirect financing from banks. Thus, there is a need to review corporate governance, especially that of financial institutions that lend capital.
Policy agenda that could be pursued by the government is to correct the structural problems of non-manufacturing industries with low productivity. Also, regulations must be reviewed with a view to abolishing excessive regulations and introducing relevant measures for promoting competition in such area as the information industry that plays a pivotal role for further in promoting the IT revolution and developing the world economy. Needless to say, structural reforms in the public sectors such as the fiscal structure, public finance and the public pension systems are also important. Furthermore, it is also important to consider how to make use of surplus workers that will be created by the IT revolution and how to secure intellectual workers necessary for promoting the IT revolution.
Besides that, it is also important to exchange views on the governance of cutting-edge technology such as IT and biotechnology between the top-level intellectuals of both countries based on deep knowledge of the issues.
In promoting deregulation and structural reform, we should consider the pros and cons of regulation from the viewpoint of revitalizing the economy as well as of providing benefit to consumers. It is necessary to transform the structure in which consumers pay the price of regulation into a structure in which consumers benefit from greater competition. In order to realize this shift, taking fully into account the viewpoints of consumers is vital. The cooperation of government with business communities, academic communities, consumers, and NPOs is also indispensable to reflect various viewpoints in order to consider what the best form of a society should be.
Also important in discussing the IT revolution and the promotion of globalization is to take into consideration the information provided by the civil society as well as the issues that it raises. Japan and the United States are two major countries that profess market economy and democracy (The two countries provide approximately 40% of the world's GDP.). How the two countries will deal with these issues will have a great bearing on the future of the two economies and the international community as a whole.
In sum, creating the environment or common grounds for competition in both countries must be carried out in each sector in accordance with the specific nature of that sector. Harmonization may be the optional solution in some areas, mutual recognition of standards may be appropriate in other areas and it may sometimes be necessary to introduce new measures. What is important is to ensure that not just the government, but the wishes of the business communities and consumers are fully taken into account and that the actual players in the market take the lead in the process. The ultimate goal is to create greater opportunities for both countries.
(3) Further enhancement of policy dialogue
The Government of Japan and the Government of the United States should enhance their policy dialogue on the following economic agenda surrounding the two nations:
Firstly, it is important for Japan and the United States to continue dialogue on WTO issues, especially on the launch of a new round within the year 2001. The dialogue should be held based on the updated situation that the WTO rules are becoming universal in accordance with the expansion of the membership in the wake of admission of countries that had not adopted a market economy in the past, and that the institution of rules in new areas are being considered in the WTO.
Secondly, it is self-evident that both countries should commit themselves to cooperation through enhanced strategic consultations addressing such issues as; (1) the construction of a global order in the economic field, and (2) the priority of the diverse economic challenges with a global magnitude. These cooperative consultations between Japan and the US will play a significant role in enhancing transparency concerning the status and the scope of the commitment of each country to regional cooperation. Such cooperation is even more important as the two countries are further developing cooperation with their neighboring regions. Japan has to make clear to the United States that the frameworks such as ASEAN+3, of Japan-ASEAN and of Japan, China and Republic of Korea are not intended to exclude the presence of the United States from the region. At the same time, Japan should closely update the information on such frameworks to ensure the commitment of the United States to Asia.
Thirdly, there is a need for discussion on macro-economic policy and fiscal structural reform of the two countries.
(4) Japan and the US should establish the following mechanisms based on the ideas above.
a. Establishment of a framework for dialogue with "the Japan-U.S. Economic Forum" at its core
ⅰ. "The Japan-U.S. Economic Forum"
Japan-U.S. Economic Forum will be established under the initiative of the two leaders of both countries. The main purpose of the Forum will be; (1) to identify economic areas where further actions are necessary to promote competition and to form common grounds between the two countries, and (2) to discuss what specific actions should be taken. The management commission of the Forum consists of representatives from governments, business communities, academic communities and NPOs of both countries. Sector-specific working groups are to be established under this management commission. The forum will compile a report in approximately a year and present the report to the two leaders.
Discussions in this forum will address enhancement and promotion of bilateral economic relationship under the New Economy. Proposed agenda items should include; (1) the harmonization of various economic systems in both countries, (2) the improvement of business environment including investment promotion measures, (3) the mutual recognition of standards, (4) policy coordination in the area of regulatory and structural reform, and (5) the further development of service trade.
In the discussion in the Forum due consideration should be given to the following points; (1) the distinctive nature of each economic sector, (2) consistency and mutual complementarity with the effort to promote trade liberalization under the multilateral trade system, and (3) the overlapping efforts in the Asia Pacific region.
ⅱ. Dialogue on the governance of cutting-edge technology
The two governments will establish a framework for regular dialogue on the governance of frontier science and technology between the top-level intellectuals of both countries. They will also have an exchange of views on the social changes that have been brought about by globalization.
ⅲ. "Friends of the Japan-U.S. Economic Relations on the Net" on the Japan-U.S. economy
A network will be created to connect "Friends" - intellectuals and interested people on Japan-U.S. economic relations from both countries. "Friends" will exchange views with each other and with members of the Japan-U.S. Economic Forum on the web. The views and information emitted from the Friends in the two countries on the web are expected to stimulate the interest and discussion on Japan-US economic relations among citizens. It is also expected that the importance of further strengthening Japan-U.S. economic relations will permeate throughout Japan through the Friends group.
b. Establishment of "the Japan-U.S. Consultative Meeting on economic policy"
Under the "the Japan-U.S. dialogue on economic policy" framework, the responsible officials at a senior level of the two governments will hold meetings on a regular basis to exchange views from a strategic viewpoint on such diverse policy issues as: (1) WTO issues including the launch of a new round, (2) the establishment of a global economic order, and (3) information sharing on regional cooperation and macro economic policy of both countries.
c. Strengthening exchanges between the members of the Japanese Diet and the US Congress
Trade barriers at the border such as tariffs have been sufficiently lowered in Japan and the United States. The key of further bilateral cooperation is within each other's border. Most of the regulatory and structural reforms require legislative measures. Strengthening communication between the members of the legislative branches of both countries is important for the purpose of achieving further economic growth of both countries, and strengthening their economic ties.
d. Building a mechanism for promoting exchanges between young business people
Besides already existing CEO level exchanges between Japan and the US, a mechanism to promote exchanges between young business people engaged in the development of new technologies and industries should be established. The mechanism will provide opportunities for (1) a deeper understanding of Japan-US economic relations, (2) reflecting views from the actual business activities on foreign economic policy, and (3) reviewing regulations in both countries from a business perspective.
(END)
Back to Index
