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 1979)

The world economy began to show signs of improvement at the turn of the year. But inflation, accelerated by soaring prices of primary products due to a series of oil price increases by the OPEC countries and a slowdown in economic growth in industrially advanced countries, soon added to the trend of stagflation. The situation was compounded by other troublesome problems, notably increasing unemployment, slow improvement in productivity, and the widening balance of payment disequilibrium between the oil-producing and non-oil-producing countries.

The growth of the industrially advanced economies as a whole tended to slow down throughout much of 1979. While business continued to pick up in Japan and West Germany, the U.S. economy, which had continued growing for months without interruption, turned downward. Expansion began to lose momentum in Britain and France. According to an economic outlook of the Organization for Economic Cooperation and Development (OECD), the 1979 real economic growth rate of the member countries as a whole was estimated at 3.4% as compared with 3.9% in 1978.

Prices went up in all advanced countries, where inflationary pressures caused by domestic factors were aggravated by the soaring prices of oil and other primary products.

The employment situation generally fluctuated back and forth in the United States, kept on improving in West Germany, but tended to deteriorate in other major economies as the pace of business expansion slowed down.

Regarding the balance of payments, the OPEC countries chalked up an increased current account surplus, helped by the higher oil prices. But most industrially advanced countries and non-oil-producing developing countries suffered larger current account deficits. Meanwhile, the balance of payments disequilibrium evident between the advanced economies in 1978 was corrected in 1979, largely because of the gaps in business cycles and foreign exchange fluctuations which helped to reduce the payments deficit in the United States on the one hand and aggravated the current account balance in Japan and West Germany on the other.

Foreign exchanges stayed generally calm in the first half of 1979 owing to the improvement made in the balance of payments disequilibrium between the major economies and the occasional market interventions jointly carried out by central banks. After the middle of 1979, the U.S. dollar fell drastically in September following the oil price increases and the worsening inflation in the United States. The dollar later recovered after the Carter administration announced a set of measures aimed at curbing inflation and defending the value of the U.S. currency. The price of gold surged ahead in December 1979 following speculation that the oil-producing countries might turn away from the dollar in favor of other currencies .The new European Monetary System (EMS), inaugurated in March 1979, functioned without trouble. (The central exchange rates were adjusted in September and November.)

World trade continued to grow by several percentage points in 1978, but the growth was believed to have slowed down in 1979 mainly because of the deceleration of economic expansion in the industrially advanced countries.

The situation of oil demand and supply tightened at the beginning of 1979 in the wake of the Iranian revolution. The world faced soaring oil prices caused by successive markups by the OPEC countries and unstable oil supplies. To cope with the situation, the advanced countries held a series of meetings, including the ministerial conference of the IEA and the Economic Summit in Tokyo, and took decisions to cut oil consumption and promote the use and development of alternative and new energy sources. Meanwhile, the higher oil prices brought on inflation in oil-importing countries together with a deflationary effect through the transfer of income. The oil price increases also widened the current account imbalances between the oil-producing and non-oil-producing countries, giving rise to fears about how to recycle the dollars held by the oil-producing countries.


(Progress in International Cooperation)

The year 1979 was the year in which it was recognized very clearly that the various international economic problems are closely interrelated with each other and that medium- and long-term as well as short-term policies are necessary in order to resolve those problems.

What most made the year 1979 turbulent was the energy problem, and international cooperation in the year centered on this problem. The IEA ministerial meeting in March agreed to reduce oil consumption in the member countries by about 2 million barrels a day (5%). In June, the seven industrially advanced countries taking part in the two-day Economic Summit in Tokyo clarified their fundamental stance toward the energy problem by setting specific national oil import/ consumption targets for 1985 as well as for 1979 and 1980 and agreeing on concerted efforts for research and development of alternative and new energy sources. Energy ministers of the seven countries met in September to discuss specific measures to be taken to translate the Summit agreements into action. In the light of unstable oil supplies against the backdrop of the Iranian situation and decisions by major oil companies to cut their oil supplies to non-affiliated oil firms, the IEA held another ministerial conference in December and agreed on adown ward adjustment of each member country's national oil import targets and the group's import targets for 1980 and 1985.

On economic growth, employment and inflation, the leaders at the Tokyo Summit decided to continue their concerted action for demand management, as agreed on at the previous Bonn Summit, with due consideration to the prevailing circumstances. They stressed that a solution of those problems would require not only demand management policies but also structural policies in a medium- and long-range perspective.

The most noteworthy attainment in the area of international trade in 1979 was the successful conclusion of the Tokyo Round of the multilateral trade negotiations, which had been conducted for five years. This was highly significant in that the participating countries, despite their difficult domestic problems, joined hands to maintain and strengthen the system of free trade and attained their purpose. They agreed on a new framework of international trade, including reduction of tariffs and codes on various non-tariff trade barriers. The MTN agreements were put into force on January 1, 1980.

The year 1979 witnessed some significant developments that could lead to a solution of the North-South problem in the 1980s. These will be reviewed in detail in Part 2 below.


(Japan's International Cooperation)

As Japan's status in the world economy has grown important, it has been required to make greater contributions toward the solution of various international economic problems. International cooperation has become increasingly important for the development of Japan's own economy. Japan in 1979 made efforts for a balanced development of the world economy by trying to expand its domestic demand and correct its current account imbalance. Japan also, as host to the Tokyo Economic Summit, exerted an effort for sustained development of the world economy. Japan made a positive contribution to the successful conclusion of the Tokyo Round, and the Government in April 1980 won Diet approval of its legislative bills to implement the MTN agreements. Many economic problems in recent years are too immense to be solved by a single country. Their solution requires closer cooperation among advanced countries and between them and developing countries. Japan needs to intensify its cooperation with other industrially developed countries like the United States and the European Common Market countries and play an increasingly positive role in multilateral fora including developing countries.




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



(1) Background of North-South Dialogue in 1979

(a) The 1970s saw great diversity in development stages among developing countries. While some developing countries made rapid progress in industrialization and attained much faster growth in per capita gross domestic product (GDP) than industrially advanced countries, others (many in Africa) remained as poor as ever, with their national economy remaining almost static, which resulted in a slow annual growth rate of 0.2% on average. The disparity in economic development performance between these two groups of developing countries has now become more prominent. As a result, their development needs have become much more diversified, reflecting their diversified development stages. This creates conflicts of interests among the developing countries in the North-South negotiations, which has been particularly sharpened by the movements of the oil-producing countries and non-oil-producing countries over the question of petroleum.

(b) Oil price increases in recent years have led to the second oil crisis. This has not only reduced the foreign aid capability on the part of the North but also aggravated the economic difficulties of non-oil-producing developing countries on the part of the South. These countries have begun to express explicitly their dissatisfaction with the OPEC countries.


(2) The 5th Session of UNCTAD

(a) The 5th session of UNCTAD held under these circumstances in Manila in May 1979 was the largest North-South dialogue in the year. The conference attained a limited yet significant success, that is, agreements were reached between North and South on such important issues as protectionism including structural adjustment, the Integrated Program for Commodities, the transfer of real resources, transfer of technology, problems related to the least developed among the developing countries and economic cooperation among developing countries. But there was no substantial progress with regard to the MTN assessment, complementary facility, the reform of the international monetary system and accumulated liabilities. Therefore it is assumed that the delegates from developing countries left the conference table unsatisfied.

(b) Comprehensive North-South Negotiations (Global Negotiations (G.N.))

One noteworthy event at the 5th session of UNCTAD which indicated a change of the trend in the North-South dialogue was that a serious conflict of opinions surfaced in the South when some non-oil-producing developing countries in Latin America, in the course of a debate on the question of "interdependence", proposed a discussion of the energy problem, which had been shunned as taboo at previous U.N. conferences. This movement on the part of non-oil-producing developing countries gathered momentum in later months. Many of the non-oil-producing countries, represented at the Economic and Social Council meeting held in Geneva in July 1979, went so far as to criticize the OPEC's pricing policies either directly or indirectly. In order to placate these moves, Algeria, an original OPEC member since its foundation, proposed at the 6th non-aligned summit conference in September 1979 that a round of comprehensive North-South negotiations (Global Negotiations) involving both the energy problem and other North-South economic problems should be launched at the United Nations. The Algerian proposal, as approved at the summit, called for taking up the major issues in five areas - energy, raw materials, trade, development, and money and finance. The proposal was discussed later by the Committee of the Whole and the General Assembly at its 34th session in 1979. It was decided that the Committee of the Whole should make necessary preparations on the agenda and procedures so that the Global Negotiations (G.N.) might be launched at the special session of the General Assembly on International Economic Cooperation for Development scheduled for August 25-September 5, 1980. G.N. may be equivalent to the Conference on International Economic Cooperation (CIEC ) held in 1976-77 in the sense that it will be comprehensive North-South negotiations covering all the five categories of major issues. But it will be larger in scale than the CIEC because it is open to all U.N. member states. Japan, hoping that the G.N. may develop into the largest North-South dialogue in the first half of the 1980s, has positively participated in the preparatory work in the Committee of the Whole (the first session held in April 1980 and the second in May that year) and made a continuous effort to help North and South reach mutual agreement. After the CIEC, the importance of dialogue between the oil-producing and -consuming countries has been pointed out. However, no substantial dialogue on energy has taken place, while oil prices have kept on rising year after year. Japan recognizes that the non-oil-producing developing countries have been the hardest hit by the deteriorating world energy situation and that international cooperation is imperative to alleviate the various difficulties confronting these countries.


(3) New International Development Strategy (IDS)

The special session of the General Assembly on International Economic Cooperation for Development scheduled to begin in late August 1980 is expected to adopt the third International Development Strategy as well as the agenda and procedures for the G.N. (in accordance with General Assembly Resolution 33/193). The preparatory committee for the new IDS met five times between early 1979 and April 1980 to work on the new development strategy.

Recognizing that the new development strategy should provide a framework for a cooperative relationship between North and South in the 1980s and thereafter, Japan took an active part in the preparatory work. However, there has been little progress in the preparatory work and there were fears that the special session of the General Assembly might fail to adopt the new development strategy. The work has been hampered by the difference of views between North and South over the nature of the new international development strategy, a lack of momentum because the special session of the General Assembly is to be followed soon by the more comprehensive round of negotiations called G.N., and the fact that many of the issues to be covered by both sessions overlap each other.


(4) Common Fund for Commodities

After North and South agreed on the fundamental elements of a Common Fund for commodities in March 1979, the Interim Committee of the UNCTAD held three sessions later in the year in a bid to draft an agreement establishing the Fund. The Interim Committee failed to work out a draft agreement satisfying all regional groups in the UNCTAD and held its fourth session in February 1980 to continue its work. However, because the negotiations were highly technical and specific, the work tended to go slowly, particularly on the part of the Group of 77. In the absence of any compromise between regional groups (mainly between the Group of 77 and Group B), it was agreed that the chairman of the Committee would prepare a compromise draft based on the discussions held during the past sessions including the fourth session of the Committee, and that the Committee would hold another fifth session in April 1980 in a bid to break the deadlock utilizing the aforementioned draft. At the fifth session of the Committee, intensive debate was conducted on the chairman's draft, and substantial agreement was reached on all of the 12 articles of the draft that concern the organization of the Common Fund except for some essential points pertaining to allocation of voting rights and conditions of entering into force. Considerable differences remained between North and South over Articles 4 and 5 providing for the capital structure of the Common Fund. But at informal meetings called by the chairman during the fifth session of the Committee, there emerged moves to compromise on the points of dispute and promote a package deal among regional groups. It may be said that these informal contacts have prepared the ground for a comprehensive political solution to be found at future negotiating conferences on the pending problems.


(5) Tokyo Round (MTN)

At the Tokyo Round of Multilateral Trade Negotiations concluded in 1979, agreement was reached on improvement of the framework governing world trade. This "framework" agreement included a provision ("enabling clause") stipulating that the contracting parties may accord differential and more favorable treatment to developing countries notwithstanding the principle of most-favored-nation treatment under Article 1 of the General Agreement on Tariffs and Trade (GATT), and was adopted as the decision of the GATT Contracting Parties. Other MTN agreements concerning non-tariff measures also include various provisions for special and differential treatment to be accorded to developing countries. In bilateral negotiations on tariff reductions, Japan made its offers paying maximum possible consideration to those commodities in which developing countries have trade interests. (Japan gave priority to tropical products, in which developing countries were particularly interested, and completed negotiations on them in 1976. The outcome of the negotiations in this field has already been implemented since 1977.)


(6) Japan's Official Development Assistance

The amount of Japan's official development assistance (ODA) increased by 24% (in yen terms) from \466.3 billion ($2,215 million) in 1978 to \578.1 billion ($2,637 million) in 1979. The ODA ratio to GNP increased to 0.26% from the 0.23% in 1978, although it was much below the average of DAC member countries (0.34% in 1979). Japan, accepting the target of increasing ODA to 0.7% of GNP, is prepared to do its utmost to attain this goal. With a view to materializing this policy intention, the Government appropriated a sum of \840.2 billion as ODA budget in fiscal 1979, which means 16.4% increase compared to the previous fiscal year. Also, Japan has been extending untied grant aid to the least developed countries (LLDC) and the countries which were most seriously affected by the oil crisis (MSAC) as equivalent measures to the relief of their accumulated ODA debts.


(7) Regional Development Banks

In the field of cooperation with regional development banks, Japan has been the biggest subscriber to the Asian Development Bank, and became the biggest subscriber to the African Development Fund in 1980. Japan has been the biggest non-regional subscriber to the Inter-American Development Bank.




III. Efforts to Ensure the Peaceful Use of Nuclear Energy


Recognition of the need to promote power generation by nuclear energy as one of the most reliable sources of energy to replace oil, has deepened particularly since the world oil crisis. Leaders who gathered for the Tokyo Summit held immediately after an OPEC conference stated in a communique that without the expansion of nuclear power generating capacity, economic growth and higher employment would be hard to achieve. By the end of 1979, installed nuclear power plants in Japan were turning out about 12% of the total electricity production. Nuclear power generation during the year totaled 15 million KW, which ranked Japan next only to the United States in the world.

For the purpose of promoting the development of nuclear energy, efforts are required to ensure the safety of nuclear reactors and resolve incidental environmental problems, while full consideration must be paid to the question of how to prevent internationally the spread of nuclear weapons. The peaceful use of nuclear energy entails the question of how to minimize the risk of nuclear proliferation. India's nuclear explosion test in May 1974 triggered people's sense of danger of nuclear proliferation. As one of the results, the nuclear suppliers like Australia, Canada and the United States have adopted policies of applying such stricter restrictions as prior consent to reprocessing of spent fuel and prior consent to transfer of nuclear materials to a third country, for the use of countries seeking to further peaceful use of nuclear energy.

Under these circumstances, Japan has made active diplomatic efforts to pursue its basic policy against any undue restrictions on its peaceful nuclear activities, while positively cooperating in international efforts concerning nuclear non-proliferation in the interest of world peace and its own national security. It was in this context that the Nuclear Energy Division was established in the Ministry of Foreign Affairs in April 1979. During the year, last-ditch efforts were made to conclude the International Nuclear Fuel Cycle Evaluation (INFCE), which was launched in 1977 on the initiative of the United States in search of technical means to reconcile the peaceful use of nuclear energy with nuclear nonproliferation. The INFCE was brought to an end at its Final Session in February 1980 after two years and four months of strenuous work. The results from the INFCE do not bind any of the participating governments in accordance with an initial understanding. However, on the basis of the outcome of the INFCE, the governments are continuing efforts to create a new international order on the peaceful use of nuclear energy through multilateral consultations and bilateral negotiations.

Among other notable developments in 1979 was the adoption in Vienna of the International Convention on the Physical Protection of Nuclear Materials, which had been discussed in the forum of the International Atomic Energy Agency (IAEA) since October 1977. In March 1980, the Convention was opened to all States for signature. The Convention, designed to cope with unlawful acts involving nuclear materials and facilities, has epoch-making significance in international cooperation to establish a new order for nuclear nonproliferation.


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