Section 2. Efforts to Solve Global Economic Issues and Other Multilateral Problems



I. Contributions to the Harmonious Development of the World Economy


1. The World Economy in 1977


After having run into serious difficulty in the wake of the oil crisis of 1973, the world economy has been in a recovery phase since mid-1975. However, the pace of recovery slowed in the latter half of 1976 and the recovery in 1977 was inadequate as a whole, showing signs of protracted business stagnation. Within this whole, the U.S. economy continued comparatively smooth growth on the strength of a steady tone in such final demand sectors as personal consumption and housing investment. In Europe, however, business stagnation became more pronounced as a whole, including slow growth in the West German economy. Unemployment centering on young people became especially serious, tending even to develop into a social and political problem. Reflecting the stagnation in the economies of the industrialized countries, the growth of world trade also flagged. It is estimated that the world trade growth rate in 1977 was about 6% as compared with 10.6% in 1976. Against the backdrop of serious unemployment and difficulties in specific sectors, protectionist pressures grew in some industrialized nations, threatening to affect world trade adversely.

As for prices, the overall inflationary trend abated due to the effects of price stabilization measures in Western Europe and quiet in international commodity markets. However, prices still remained at high levels, and inflation control remained a top priority in the economic policies of many countries, as stressed at the London summit talks of industrialized democracies.

International balance of payments disequilibriums were another problem that attracted particular attention in the developed countries in 1977. The pattern of global imbalance in current transactions, as epitomized by the huge surpluses of the OPEC members and the deficits of the industrialized democracies and non-oil-producing developing nations, remained in 1977. However, considerable changes were observed in the international payments positions of the industrialized democracies. The positions of Britain, France, and Italy, which had been in chronic deficit, improved remarkably in terms of their current account balances, while the United States posted a record deficit due to a sharp increase in its imports of oil and a difference in the phase of its business recovery as compared to other countries. On the other hand, West Germany continued to register a surplus and Japan's surplus grew sharply.

Reflecting these trends in the international economy, the international monetary situation tended to fluctuate. The U.S. dollar depreciated sharply against the other major currencies, including the yen, Deutsche mark, and Swiss franc, in and after late September, and considerable strain was put on the EC joint float system.

Under these circumstances, Japan, the United States, and West Germany were expected to stimulate business in view of the size of their economies and their comparatively good economic performance. There were especially strong requests made of Japan and West Germany, both of which had current account surpluses, to expand domestic demand.

As for the energy problem, the supply-demand situation remained slack because of the slow business recovery in all key industrial consumer nations except the United States on the demand side, and increased production in Alaska, the North Sea, Mexico, and elsewhere on the supply side. However, the situation does not warrant any optimism from the medium- and long-range viewpoints in light of predictions that the global oil supply-demand situation will become tight in the 1980s. Under a decision made at the OPEC general meeting in Doha in December 1976, a two-tier price system for crude oil went into effect on January 1. However, prices were again unified in July. The OPEC general meeting in Caracas in December deferred action on the question of raising oil prices, in effect holding prices to their pre-meeting levels.

The North-South problem has become increasingly important to the international economy, and this problem is discussed in detail in Part II below.


2. Progress in International Cooperation


In these economic circumstances as mentioned above, continued efforts were made throughout 1977 to resist the pressures of protectionism, to overcome such difficulties as un employment, international balance of payments disequilibriums, and inflation, and to achieve sustainable growth in the world economy. Especially noteworthy was the vigorous international cooperation among the industrialized democracies and between the developed and developing nations in a context of growing interdependence among nations and heightening interrelationships among the various problems affecting the world economy. Japan played a positive role in this international cooperation and contributed to the stable growth of the world economy.

For instance, at the May 1977 London summit conference of the major industrialized democracies including Japan which are mainly responsible for the management of the world economy, the seven top leaders discussed a wide range of subjects in depth, including business recovery, international balances of payments, trade, energy, and the North-South problem. It was highly significant that the leaders of these nations made clear their political intention to promote greater cooperation for the settlement of various pressing problems and expressed their determination and confidence to overcome these problems in this the most difficult situation the world economy has faced since World War II.

The summit conference provided momentum and guidelines for the management of the world economy in 1977 through 1978, and all the nations concerned directed their efforts toward the common target set at the conference. Noting a trend toward polarization among the industrialized nations in terms of the world economy's recovery, the conferees agreed that the participating countries should act for expansion or stabilization depending on the individual nation's economic situation so as to put the world economy on the track of sustainable growth, and the countries concerned have since been making strenuous efforts in that direction.

In the trade field, pledges were made to demonstrate strong political leadership in order to check protectionism and to strong then the open international trade system. It was agreed that the Tokyo Round of multilateral trade negotiations would be pushed vigorously, and attempts were made to expedite the Tokyo Round of negotiations for substantive progress with the appointment of new chief negotiators for the United States and the EC in 1977. In November, the nations involved presented lists of requests concerning non-tariff measures for manufactured goods and tariff and non-tariff measures for agricultural products. In January 1978, Japan, the United States, the EC, and other parties made initial offers containing responses to the requests and tariff cuts for manufactured goods, thereby starting full-fledged negotiations.

Also on trade, the OECD renewed its so-called "trade pledge" of 1975 and 1976 in the light of increased protectionist pressures.

In the monetary field, the IMF decided on the establishment of a supplementary finance system (the Witteveen plan) in August 1977 and strengthened international cooperation for countries faced with international payments difficulties.

Cooperation among the developed nations in the field of energy was carried out mainly through the IEA. Viewing with concern the danger of a possible tightening of the global oil supply-demand position in the 1980s, the main industrialized consumer nations of the IEA set targets for reducing their dependence on imports of oil at the IEA Ministerial Council meeting in October 1977.

As for the North-South problem, the North-South dialogue was conducted vigorously in such forums as the Conference on International Economic Cooperation (CIEC) and the UNCTAD consultations on primary products. The contents of the dialogue and Japan's contribution are discussed in detail in Part II below.


3. Japan's International Cooperation


When the world economy is in difficulty, nations tend to become egoistic, and this in turn gives rise to a chain reaction of confusion. In 1977, however, international cooperation among nations as mentioned above made it possible to prevent any worsening of the confrontation and confusion in the world economy and to explore means for revitalization and stabilization of the world economy.

Japan endeavored for bilateral and multilateral international cooperation from the standpoint of playing a role commensurate with its economic power as an industrialized democracy in the international community and contributing to the recovery of the world economy.

For example, Japan initiated a series of stimulative measures to expand domestic demand and set itself the highest economic growth target for fiscal 1978 of any industrialized nation. These measures were aimed at contributing to recovery in the world economy as a whole as well as in Japan's domestic economy and also at achieving the international imperative of reducing Japan's current account surplus.

Since the autumn of 1977, Japan has formulated and implemented a number of external economic measures centering around the positive handling of Tokyo Round negotiations, advanced implementation of tariff cuts, expansion of quotas and partial liberalization for items subject to the residual import restrictions, improvement of measures concerning the standard method of settlement and Government purchases of goods, expansion of import financing, promotion of orderly export behavior, stockpiling and advance payment for imports, and economic cooperation. These measures are intended to open the Japanese market wider to other countries in order to protect the free trade system and to facilitate trade adjustments with other developed nations. Such Japanese efforts were also very well received by the United States and the EC.

However, because the international economic environment is expected to remain harsh, it will be necessary for Japan to endeavor to fully implement these measures and to promote further international cooperation.



II. Contributions to the Solution of the North-South Problem


1. In 1977, there was no basic change in the situation in the developing countries in terms of such indicators as low growth rates for their gross national product and per capita income and deficits in their current account.

The major developments in the North-South dialogue in 1977 were the conclusion of the Conference of International Economic Cooperation (CIEC) after more than a year of continuous dialogue between North and South and the holding of such meetings as the negotiating conference on a Common Fund and conferences on the debt problem, both major problems pending since the fourth U.N. Conference on Trade and Development (UNCTAD).

CIEC was proposed by President Giscard d'Estaing of France in view of the need for dialogue between the oil-producing and oil-consuming nations after the oil crisis, and the CIEC dialogue has been continued on energy, primary commodities, development, and finance since 1976. However, the ministerial conference of CIEC in June 1977 failed to reach agreement between North and South on such problems as the continuation of the dialogue on energy and ended with the adoption of a report noting the points of both agreement and non-agreement.

The developing nations remained dissatisfied with the results of CIEC because they could not obtain concessions from the developed countries on such problems as ensuring the purchasing power from their sale of oil and other primary commodities or a general and automatic debt relief, and they felt CIEC's results fell far short of establishing a new international economic order. However, CIEC must also be credited with such remarkable achievements as the convening of the first dialogue on energy for more than one year as well as agreements on the establishment of a Common Fund, on an effective and substantial increase in the transfer of real resources, and on a $1 billion Special Action Program. All of these are highly significant achievements in the history of the North-South dialogue.

Another noteworthy event in 1977 was the implementation of the Integrated Program for Commodities as adopted at the fourth UNCTAD, especially the holding of negotiating conferences on that Common Fund which is the core of the Program. Held in March 1977, the Conference failed to reach an agreement due to divergence of views between the developing countries' call for a commitment on the establishment of the Common Fund and the developed countries' argument that no commitment could be made until the modalities of the common fund were defined. The Conference was resumed in November 1977 on the basis of the CIEC agreement on the establishment of a Common Fund but again ended in failure because of conflicting views between the developed countries' advocating establishment of a Common Fund by depositing substantial portions of the buffer stock funds from individual commodity agreements (the so-called pooling mechanism) and the developing countries' insistence on the establishment of the Fund with direct contributions from Governments (the common fund as a central source of finance). On the 18 commodities covered by the Integrated Program for Commodities, it was agreed to conclude the International Sugar Agreement 1977 and there was a growing possibility that negotiations for a commodity agreement on natural rubber, including a buffer stock arrangement, would be held.

As regards the problem of accumulated debts, a major pending issue within the North-South problem, discussions were continued in UNCTAD after CIEC failed to reach an agreement. As a result, the ministerial meeting of the Trade Development Board held in March 1978 agreed that donor countries would seek to adopt measures for adjusting the terms of past bilateral official development assistance (loans) or take other equivalent measures in order to solve the debt and development problems of the poorer developing countries. This agreement marks a major step forward on this issue.

As for the New International Economic Order (NIEO) proposed by the developing nations, the United States expressed its support in principle at the 63rd Session of the U.N. Economic and Social Council for the NIEO concept as a dynamic process for the establishment of a more equitable international economic order. As a result, it was generally observed that the trend among the developed nations is to recognize the basic concept of NIEO and to seek to define it through the North-South dialogue. On the basis of this understanding, the new International Development Strategy (IDS) for the 1980s will be directed toward the objective of establishing the NIEO, and the question of what to include in this new IDS will become an important subject of future North-South dialogues.


2. In 1977, Japan continued to offer positive cooperation in coordination with other countries in order to solve the North-South problem.

(1) In the trade field, for instance, Japan took the following measures: (A) expressing in a Japan-ASEAN joint communique issued in August 1977 its intention to contribute to the buffer stock under the International Tin Agreement; (B) in principle changing from 1968 to 1975 the base year for the calculation of upper limits (ceilings) in connection with the General Scheme of Preferences, which change resulted in raising the ceilings by about 80%; (C) deciding in January 1978 to participate in the new International Sugar Agreement; and (D) making offers concerning tariff and non-tariff measures and agricultural products in January 1978 as part of the Tokyo Round of Multilateral Trade Negotiations (MTN).

(2) The volume of official development assistance (ODA) increased by 16.7% from about \327.7 billion in 1976 to about \382.5 billion in 1977. Although the proportion of ODA to GNP increased to 0.21% from the 0.20% in the preceding year, it was still far below the average level of all DAC member nations (0.33% in 1976). This situation is very unsatisfactory in light of Japan's basic attitude toward the North-South problem. Japan has thus accepted the target of increasing ODA to 0.7% of GNP and has pledged to make every effort to achieve this target. As an expression of this policy intention, Japan has announced in such forums as CIEC and the OECD ministerial conference that it will at least double its ODA in five years. This basic policy of at least doubling its ODA in five years was reaffirmed when Prime Minister Fukuda and his party visited the ASEAN countries and Burma in August 1977. Commensurate with this, Japan's budget for ODA for FY 1978 was set at \635.4 billion, an increase of 15.8% over the previous fiscal year.

(3) Japan also took part positively in various meetings such as CIEC, UNCTAD, and others as noted above in order to contribute to solving the Common Fund questions, the debt issue, and them any other facets of the North-South problem.



III. Efforts to Ensure Peaceful Use of Nuclear Energy


Inaugurated at the beginning of 1977, the Carter Administration in the United States adopted nuclear non-proliferation as one of its top priority policies. To that end, it imposed strict restrictions on plans for the peaceful use of nuclear energy in the United States and strongly called on other countries, including Japan, to follow suit. While agreeing that Japan and the West European countries should cooperate as much as possible for nuclear non-proliferation, Japan objected to the imposition of excessive restrictions on the peaceful use of nuclear energy and stressed that the reprocessing of spent nuclear fuel for nuclear power generation is indispensable to the effective utilization of uranium resources.

This problem of how to reconcile nuclear non-proliferation with the peaceful uses of nuclear energy was taken up for discussion at the summit conference of the industrialized democracies in May 1977, at which time it was decided to study the problem for two years in international consultations among the developed and developing nations interested in the peaceful use of nuclear energy (the International Nuclear Fuel Cycle Evaluation [INFCE] program). As a result of the efforts made by Japan and other countries, it was agreed that the countries taking part in the INFCE consultations may continue their plans for peaceful use of nuclear energy while the consultations are under way.

Japan had been scheduled to start operation of the Tokai-mura nuclear fuel reprocessing plant in 1977, yet differences of opinion between Japan and the United States over the reprocessing of U.S.-produced uranium delayed the start of operations until, as a result of patient negotiations between Japan and the United States, the U.S. conditionally consented to the start of operation at the plant.

In 1977, Canada and Australia, both suppliers of natural uranium, moved to expand their control over uranium supplied to other countries. In January 1977, Canada suspended uranium shipments to Japan, Switzerland, and the EC nations on the ground that negotiations for revision of its nuclear cooperation agreements had not made satisfactory progress. However, as a result of vigorous negotiations between Japan and Canada, the two countries initialed a protocol on revision of the Japan-Canada Nuclear Cooperation Agreement in January 1978 and the embargo on uranium shipments to Japan was lifted.



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