Section 2. Efforts to Solve Global Economic Issues and Other Multilateral Problems
I. Contributions to the Harmonious Development of the World Economy
(The World Economy in 1978)
As a whole, the world economy in 1978 picked up considerably as domestic demand expanded in the economies of the industrialized countries and progress was made in the adjustment of international balance of payments disequilibriums. However, there remained problems to be overcome, such as high unemployment and persistent inflationary pressures. In the economies of the industrially advanced countries, which should be the prime movers of the world economy, there was evidence of progress in closing the gap in the paces of business recovery between Western Europe and the United States. But the 1978 real economic growth rate of the member countries of the Organization for Economic Cooperation and Development (OECD) as a whole was estimated at no higher than the 3.7% attained in 1977.
Although prices still remained at high levels, the overall inflationary trend tended to abate. In some countries, particularly in the United States, the inflationary thrust became stronger.
In the employment sector, the jobless rate continued to run high in West European countries. The high unemployment, coupled with the difficulties posed for some sectors of industry by growing competition from the newly industrializing countries, resulted in persistent protectionist demands in many countries.
The year 1978 saw major changes in the global problem of international balance of payments disequilibriums. The current account surpluses of the OPEC countries shrank substantially while the deficits of the non-oil-producing countries, which once decreased, again increased. There was improvement in the current account balances of the industrialized democracies, and their overall balance was expected to turn favorable in 1978. In this process, the pattern of global imbalance in current transactions, as seen in the huge deficit of the United States, Japan's big surplus and West Germany's chronic surplus, began to show signs of improvement in the latter half of 1978.
The international balance of payments disequilibriums, particularly the large deficit suffered by the United States, disturbed the international monetary situation since the autumn of 1977. They became not only an element of future uncertainty for the world economy but also a factor threatening to deter the efforts of individual countries to improve the states of their economies. On November 1, 1978, the U.S. government announced a comprehensive package designed to defend the dollar, which helped to bring the international monetary situation back to relative stability. In Europe, efforts to protect the regional economy against international monetary turmoil resulted in a basic agreement at the Council of Ministers of the European Community in July on the establishment of a new European Monetary System (EMS). The system started on March 13, 1979.
World trade, which recovered in 1976 to show a 10.6% increase, grew by only 4.1% in 1977. It is estimated that the world trade growth rate in 1978 was slightly higher than in 1977.
The global oil demand was believed to have grown rather modestly in 1978, reflecting the slow recovery of the world economy as a whole. Meanwhile, on the supply side, the non-OPEC countries increased production. Reflecting this supply-demand situation, the world oil market tended to be in oversupply since around mid-1977, and oil prices remained virtually unchanged. However, the OPEC general meeting in Abu Dhabi in December1978 decided on a phased increase in oil prices for 1979 for an annual average hike of 10% in the year. Because of the tightened oil supply-demand situation triggered by the turmoil in Iran, actual oil price increases in 1979 were expected to be much bigger than 10%, and it was feared that the oil situation would have an adverse effect on the world economy.
(Progress in International Cooperation)
The year 1978 was a year in which it was recognized very clearly that the various problems facing the international economy are closely interrelated with each other and that countries need to take mutual assistance policies, accompanied by concrete measures, in order to resolve those problems. It was under this recognition that countries pushed ahead their international cooperation for sustained development of the world economy and Japan took part in it positively. Mutual assistance policies were explicitly set out at the fourth economic summit conference held in Bonn in July 1978 after an agreement was reached on "concerted action" at a meeting of the OECD Ministerial Council in June. In the Bonn declaration, the summit countries took up five main subjects, namely, exonomic growth free of inflationary pressure, energy, currency, trade and relations with developing countries, in the context of their interrelationship. Each of the summit countries pledged to implement fairly concrete policies to cope with those problems and agreed to help each other in translating them into action. The fact that the world's major economic powers agreed on mutual cooperation in such concrete form, at a time when the world economy faced a severe situation, was a noteworthy achievement of the Bonn summit. Japan took a consistently positive attitude throughout the Bonn summit and stressed the need for mutual collaboration and solidarity. The countries taking part in the conference took a major interest in the trends of Japan's economic growth and current account balance. Japan detailed the situation it faced and its economic policies, and won the understanding and cooperation of the other summit countries.
It was agreed at the Bonn summit that each country would adopt economic policies and anti-inflation measures suitable to its domestic situation. Each country continued efforts to implement those policies.
The summit countries reaffirmed their resolve to expand international trade and agreed to maintain and strengthen an open trade system. In this connection, they highly evaluated and supported the progress made thus far in the Tokyo Round of Multilateral Trade Negotiations. While the Tokyo Round could not be brought to conclusion in 1978, efforts at final agreement were continued strenuously. The "Trade Pledge," aimed at maintaining the free trade system, was renewed in 1978 at the Organization for Economic Cooperation and Development.
International cooperation in the field of energy was pushed mainly at the International Energy Agency (IEA). The Ministerial Council of IEA in 1977 set the targets for reducing the dependence on imported oil and recommended in 1978 specific measures to be carried out to attain the goals. Energetic and comprehensive efforts are also being made to study the more efficient use of coal, whose importance will increase further in the future along with nuclear energy. It is noteworthy that the IEA Council, which met in early March 1979 against the backdrop of a tightening oil supply-demand situation following the situation in Iran, agreed to reduce oil demand in the member countries by 5%.
In 1978, some notable progress was made in the North-South problem, and the momentum for North-South dialogue was maintained. This subject is discussed in detail in Part II below.
(Japan's International Cooperation)
As countries cooperated with each other to ensure sustained expansion of the world economy, Japan continued its efforts to assume responsibility and play a role commensurate with its economic power as an industrialized democracy in the international community.
There was a growing expectation for Japan to play a positive role as the second biggest economic power in the Free World. There was a keen interest in the trends of Japan's economic growth and current account balance. In these circumstances, Japan set up as policy aims the improvement of employment and restoration of balance in its external accounts. To attain this, the government in September 1978 adopted a comprehensive package, aimed at expanding domestic demand, opening its market still wider and promoting imports through various incentives. Despite these efforts, it became difficult for Japan to attain its 7% growth target for fiscal 1978 due mainly to a steep fall in the surplus in the current account. However, domestic demand was expanded far more than originally planned, and there was a steady improvement toward an equilibrium in the nation's current account balance. In addition to these efforts, Japan took a positive role in the Tokyo Round in line with its basic policy of maintaining and strengthening the free trade system. While prospects for the world economy remain severe, it is imperative for Japan to seek further internationalization of its own economic structure through promotion of international cooperation. To do so would benefit not only the cause of international collaboration but also Japan's own national interest.
II. Contributions to the Solution of the North-South Problem
In the North-South dialogue in 1978, the developing countries took the basic policy of demanding the establishment of a New International Economic Order (NIEO) in such an arena as the U.N. Conference on Trade and Development (UNCTAD) after the ministerial meeting of the Conference of International Economic Cooperation (CIEC) in July 1977 failed to agree on how to continue the dialogue between North and South. On the other hand, the developed countries, while deepening their understanding of the growing interdependence between themselves and the developing countries, were largely concerned about the continued business recession in their own camp. They generally took the attitude that major efforts should be made to cope with the widening gap in development between individual developing countries, particularly with the problem of expanding the shares in the global trade of the newly industrializing countries.
One of the outstanding developments in the North-South problem in 1978 was the major progress made in regard to the implementation of the Integrated Program for Commodities, in particular, the establishment of a Common Fund, a major pending issue in that area. The progress in the year also concerned the problem of the accumulated debts of the developing countries.
As regards the Integrated Program for Commodities (adopted at the fourth UNCTAD and envisaging an integrated approach toward stabilizing the prices of and trade in primary products, and improving the export earnings of the developing countries), both North and South, after several rounds of negotiation, made mutual concessions at the negotiating conference in November 1978 on the establishment of the Common Fund which is a key instrument in attaining the agreed objections of that program. They reached an agreement on the fundamental elements of the Common Fund at the negotiating conference in March 1979. This is rated as one of the outstanding achievements of the North-South dialogue at UNCTAD in recent years. Under this agreement, the Common Fund will comprise a Buffer Stock Finance Account, the $400 million "First Window," which extends loans to international commodity agreements for stabilization of commodity prices, and another account, the $350 million "Second Window," designed to finance measures other than stocking, such as research and development and the promotion of production. Individual commodity agreements will deposit with the Common Fund one-third of the maximum financial requirement (MFR) of its buffer stock operation. In return, each commodity agreement will been titled to borrow up to its MFR from the Common Fund. A negotiating conference will be held before the end of 1979 with a view to adopting the "Articles of Agreement."
Negotiations were held on agreements covering individual commodities, another important pillar of the Integrated Program for Commodities. After two rounds of negotiations, substantial agreement was reached in April 1979 on the framework of an international commodity agreement on natural rubber, including a buffer stock arrangement. (The agreement was finally concluded on October 6, 1979.)
As regards the problem of accumulated debts, a major and long pending issue of the North-South problem, a measure of progress was attained. The ministerial meeting of the Trade Development Board held in March 1978 agreed that the donor countries would seek to adopt measures for the adjustment of terms of past bilateral official development assistance (loans) or other equivalent measures in order to solve the debt and development problems of poorer developing countries.
These achievements in the solution of problems pending since the fourth UNCTAD session in 1976 indicate that political consideration was paid by both North and South in a realistic manner in order to make their dialogue more productive.
From the latter part of 1978 to early in 1979, both North and South made efforts to adjust their respective policies in preparation for the fifth session of UNCTAD in May 1979. They explored possible ways of directing the North-South dialogue in the 1980s. The developing countries held discussions on the regional basis and unified their position by adopting at the ministerial meeting in Arusha, Tanzania, a document entitled "Arusha Program for Collective Self-Reliance and Framework for Negotiations." The document contained wide-ranging demands of the developing countries, indicating that they had been unable to single out a subject for priority discussion at the fifth session of UNCTAD. This seems to imply that the Group of 77, faced with the reality of increasing diversification of the stages of development among the developing countries, needs to strengthen its own political unity -a fundamental question that could affect the future course of the North-South problem.
In 1978, Japan continued to offer positive cooperation in coordination with other countries in order to solve the North-South problem.
(1) Japan positively participated in the negotiating conferences on the establishment of a Common Fund and took a flexible attitude to bridging the gap between North and South, thus making a major contribution to bringing the negotiations to a success. The leading role Japan played in facilitating the agreement was appreciated by the ASEAN and other developing countries. Japan, fully recognizing that its own national interest can be enhanced only through political and economic stability and development of the entire world, will continue to take a positive attitude to the North-South problem. Japan is ready to pursue a fundamental policy of carrying out comprehensive measures to meet the various needs of the developing countries in the course of their development efforts.
(2) In the Tokyo Round of Multilateral Trade Negotiations, Japan in January 1978 made its initial offers concerning tariffs on mineral, industrial and agricultural products and non-tariff measures. Later in the year, it presented its revised offers on tariff staking into full consideration requests made by other countries. Bilateral agreements with other negotiating partners have subsequently been reached. In April 1978, Japan began applying new rules of cumulative origin to the ASEAN countries in connection with the General Scheme of Preferences with a view to encouraging more imports from those countries.
(3) The size of Japan's official development assistance (ODA) increased by 55.5% from about $1.424 million in 1977 to about $2.215 million in 1978. The ODA ratio to GNP increased to 0.23% from the 0.21% in 1977, although it was below the average of DAC-member countries (0.31% in 1977). It leaves much room for improvement in the light of Japan's basic attitude to the North-South problem. Japan, accepting the target of increasing ODA to 0.7% of GNP, made it her policy to make the best effort to achieve this target. As an expression of this policy intention, Japan decided to make a further step from its earlier pledge of "boubling its ODA in a five-year period." Then Prime Minister Fukuda, on the occassion when he visited the United States in May 1978 and attended the Bonn summit in July that year, declared that Japan would double its ODA in a three-year period. In keeping with this policy, Japan's budget for FY 1979 was compiled to include a total of \721.7 billion for the ODA budget, a 13.6% increase as compared with the previous fiscal year. Further, Japan has been extending united grant aid to the least developed countries (LLDC) and countries which were most seriously affected by the oil crisis (MSAC) by way of easing their accumulated ODA debts.
(4) As regards cooperation with regional development banks, Japan is the biggest subscriber to the Asian Development Bank and is due to become the biggest subscriber to the African Development Fund in 1979. Japan also is the biggest non-regional subscriber to the Inter-American Development Bank.
III. Efforts to Ensure the Peaceful Use of Nuclear Energy
Efforts to promote nuclear power generation have been accelerated in many countries, especially since the 1973 world oil crisis. Japan, in particular, lacks oil and other energy resources, and is in a situation where the development of nuclear power generation must be promoted.
On the other hand, the peaceful use of nuclear energy is always accompanied by the question of how to prevent the danger of nuclear proliferation. There has been a growing recognition of the need to tighten international controls to prevent the spread of nuclear weapons, particularly since India's nuclear explosion test in 1974.
Japan has been making active diplomatic efforts to carry out its basic policy of avoiding any undue restrictions on its peaceful use of nuclear energy, while positively cooperating in international efforts toward nuclear non-proliferation in the interests of world peace and her own national security. (To this end, the Nuclear Energy Division was established within the Ministry of Foreign Affairs in April, 1979.)
In 1978, International Nuclear Fuel Cycle Evaluation (INFCE), started in 1977 on the initiative of the United States, was continued in search of technical means to reconcile the peaceful use of nuclear energy with nuclear non-proliferation. Other noteworthy developments include the initialing at the beginning of 1978 of the Protocol Amending the Japan-Canada Nuclear Cooperation Agreement as a result of the vigorous diplomatic efforts of Japan, which led Canada to lift its embargo on uranium shipments to Japan. Australia, which seeks a similar revision of its nuclear cooperation agreements, began negotiations for that purpose with Japan and its other customer countries. In March 1978, the United States enacted the Nuclear Non-Proliferation Act, which called on the administration to revise her nuclear cooperation agreements with Japan, the EURATOM and other countries in the same way as Canada did and Australia is trying to do. The United States began consultations for that purpose with those countries.
At the beginning of 1978, Japan and other developed countries supporting the peaceful use of nuclear energy announced a common export policy, aimed at ensuring nuclear non-proliferation when nuclear materials and equipment are exported. These countries held conferences several times during 1978 with a view to adopting the Convention on the Physical Protection of Nuclear Material. Japan took a positive part in these international efforts toward nuclear non-proliferation.
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