Section 2. Revitalization of the World Economy and Contributions to the North-South Problem


1. Efforts to Revitalize the World Economy


(1) Trends of World Economy during 1981


In 1981, the world economy still faced a variety of difficulties aggravated by the second oil crisis which include increased inflation and unemployment, and imbalances in international balance of payments. Each nation continued to exert efforts to overcome such economic difficulties.

(a) Developed Countries

In order to realize a stable development of the economy, coping with worldwide inflation and the business recession arising from oil price increases, it was considered essential that commodity price increases be controlled. Consequently, severe retrenchment policies emphasizing monetary aspects were implemented in many countries. As a result of such efforts, price increases began to slowdown (rate of price increase in OECD nations: 12.8% in 1980 to 10.6% in 1981) and relaxing trends were observed in the supply and demand of oil. Nevertheless, price trends have still maintained a high level.

Meanwhile, since many countries began to implement tight monetary policies, interest rates increased to significantly high levels throughout the world (for example, prime rates in the U.S. have been exhibiting high levels of approximately 20% from the beginning of 1980 to the fall of the same year). Such high interest rates were added to deflationary effect created by the price increases of oil, and many industrialized nations were forced into the situation where business recessions prolonged or business recovery delayed (real growth rates of GNP in OECD nations: 1.20% in 1980 to 1.25% in 1981 [estimate]). Under these circumstances, unemployment also increased (unemployment rates in OECD nations: 5.8% in 1980 and 6.8% in 1981), and this situation has grown into a political and social problem in many nations.

Regarding the international balance of payments, the deficit margin in the developed countries has narrowed on the whole. This was largely attributable to reduced imports of oil brought about by efforts to reduce oil consumption and by the business recession (current balance of OECD nations: -$72.7 billion in 1980 to -$35.0 billion in 1981 [estimate]).

Under this environment, many Western nations were engaged in efforts to revitalize their economies, attaching importance to the supply side from the medium- and long-term points of view. The United States and Great Britain, in particular, have set forth policies aiming at the "realization of small government" and the "utilization of the free market economy". On the other hand, in France, policies emphasizing the public sector have been followed since the socialist administration led by President Mitterand came to power in May.

Meanwhile, world trade continues to show sluggishness (down 2.7% from the previous year in 1981 for export values), and more protectionist tendencies have been seen in Western nations against the background of increased unemployment. Such trends led to the so-called trade friction problem among industrialized nations, and the maintenance and strengthening of the free trade system have become a very important task.

(b) Developing Countries

Concerning developing countries, exports from the non-oil-producing nations stagnated as a result of the business recession in developed industrialized countries and the softening trend of primary goods market (exports in comparison with the previous year: up 25.5% in 1980 and up 4.4% in 1981 [estimate]). Sluggish trends in business activities have been observed in many countries (real growth rate of GNP in the non-oil-producing nations: 4.9% in 1979, 4.4% in 1980, and less than 4.4% in 1981 [estimate]). Under these circumstances, the deficits in the international balance of payments expanded (balance in the current account in non-oil-producing developing nations -$38.0 billion in 1979, -$60.0 billion in 1980, and -$68.0 billion in 1981 [estimate]) and, economic situations in the non-oil-producing developing countries were very severe due to the accumulation of external debts and other factors.

In the oil-producing countries, reductions in surplus or shift to deficits were observed in the current accounts with the exception of Saudi Arabia reflecting the easing of the supply and demand of oil (current balance in OPEC nations: $110 billion in 1980 to $60 billion in 1981 [estimate]). Consequently, there have been some anxieties concerning financial difficulties in several nations.

On the other hand, regarding the economic situation in the Eastern bloc, economic recession has worsened mainly in the Soviet Union and Eastern Europe and so on. For these nations, the accumulation of external debts has also become an important issue.


(2) Diplomatic Efforts Made by Japan


(a) Basic Stance

One of the major characteristics of today's world economy is the advancement of interdependency, with each nation being closely tied to the world economy. Under these circumstances, there is no doubt that Japan's prosperity is based on the stability and development of the world economy since the country is highly dependent upon trade, endowed with scarce natural resources. At the same time, in view of Japan's responsibility in the international community as the second largest economic power in the free world, it is important that Japan contributes positively to the efforts for revitalizing the world economy, overcoming the various difficulties in it.

(b) While the world economy faced with severe situations in 1981 as indicated above, Japan was relatively successful in resolving the various impacts of the second oil crisis. (Japan's real growth rate in terms of GNP, the current balance, and the rate of consumer price increase was 2.9%, $4.73 billion, and 4.9%, respectively.) Prices returned to a calm trend in the spring of 1981 and business activities, although in a very slow manner, began to show trends of recovery. Nevertheless, the recovery of domestic demand was slow, import demand remained stagnant, and Japan was forced to depend on external demand for its economic growth. Thus, economic frictions with Western nations, which faced unemployment and other difficulties, have developed into a big issue.

(c) Responses by Japan

(i) Japan has made various diplomatic efforts to appropriately cope with the above-mentioned situations from the following points of view.

a.   Revitalization of the economy

Sluggishness is still observed in the world economy, primarily in Western nations which are suffering from increased unemployment and high inflation. In order to cope with this stagflation, it is important that each nation develop appropriate demand control policies on an individual basis or through mutual cooperation and that various supply-side measures be taken to promote medium- and long-term structural adjustment in order to revitalize the economy.

Concrete measures on the supply side include:

(1) improvement of productivity through the promotion of equipment investment and technological development, (2) improvement of the wage decision mechanism to avoid rigidity, (3) maintenance of vitality in the private sector by preventing the expansion of the public sector, and (4) further promotion of energy conservation and the development of alternative energy sources.

The effects of these measures cannot be obtained within a short period of time, and temporary increases in unemployment and declines in public services may be anticipated during the course of their implementation. Therefore, an important factor for economic revitalization is the winning of public support for these measures.

b.   Maintenance and strengthening of the free trade system

Pressure of protectionism has recently been conspicuously rising in Western nations. This is attributable to the fact that various economic difficulties such as unemployment have become very serious in these nations. Furthermore, it is pointed out that voices requesting the control of foreign competition have become stronger in these countries so that they might protect themselves from declining competitiveness in the major industrial fields.

However, protectionist measures not only impede the sound development of the world economy but also retard the development of domestic economies in long-range terms through the preservation of ineffective domestic industries. Moreover, it is clear that consumers will not be able to enjoy a sufficient selection of quality goods with reasonable prices.

Therefore, it is necessary that each nation exerts further efforts to promote market opening measures in the field of trade and revitalize its economy in order to expand the world economy and balance trade in an expansionary manner.

c. Promotion of energy policies

The international oil situation has basically been relaxing since the second quarter of 1981. However, its future still remains uncertain, and when viewed from the medium- and long-term perspective, there is a possibility that a tightened supply and demand situation will occur, due to various factors including resource depletion policies in oil-producing nations and increases in demand mainly in developing countries. Therefore, Japan and other oil consuming industrialized nations should not be complacent about the current situation but should positively promote efforts for energy conservation as well as the development and introduction of alternative energy sources, aiming at moving away from highly oil dependent economies.

 (ii) Japan has been actively participating and contributing to various international cooperative activities such as in Summit Meetings, OECD, GATT, and IEA, and so on. Based on the thought mentioned above, Japan has played a constructive role in the world community by actively participating in discussions in these forums in 1981 so as to bring about stability and development of the world economy.

As one example, on the occasion of the Seventh Summit Meeting held in Ottawa in July 1981, Prime Minister Suzuki expressed basic ideas covering all the items on the agenda at the beginning of the first day meeting, and his ideas were taken as a basic tone of the entire meeting. In concrete terms, Prime Minister Suzuki stressed the (a) strengthening of unity and cooperation among Summit nations (spirit of harmony), (b) revitalization of the Western economy, and (c) maintenance and strengthening of the free trade system. These points became the substance of the joint declaration. He also referred to the necessity of structural adjustment, the importance of the GATT Ministerial Meeting, and stated that the Summit nations should pay due attention to the expectations and interests of the third world nations including Asian countries. These ideas received the understanding of the participating leaders (for example, this understanding was reflected in the declaration in the section related to the North-South problem such as expansion of official development assistance, agricultural development, and technological cooperation for fostering human resources).

The so-called economic frictions with Western nations developed into a big issue in 1981. Increases in the export of specific items such as automobiles constituted the major problem in the first half of 1981. From the point of view that cooperation should be developed with other nations while maintaining the free trade system, Japan endeavored to implement appropriate measures for each problem.

Because substantial trade imbalances were observed, Western nations strongly urged Japan during the latter half of the year to develop a comprehensive policy to correct such imbalances. In response to such requests, the Japanese government and the ruling party led by Prime Minister Suzuki, tackled the problem related to the external economy in a serious manner and made efforts for further opening the market in addition to promoting adequate economic management which included the recovery of domestic demand, in an attempt to balance trade in an expansionary manner recognizing Japan's position in the world economy. In particular, "the external economic measures" were determined at the Ministerial Conference for Economic Measures held in December 1981. They were itemized as follows: (1) market opening measures, (2) import promotion, (3) export, (4) industrial cooperation, and (5) economic cooperation. Since then, the government has been endeavoring to steadily implement each measure. As part of the market opening measures, the phased reduction of tariffs based on the Tokyo Round Agreement was implemented two years in advance starting from April 1982 (executed for 1,653 items). As to non-tariff matter, measures such as the improvement of import inspection procedures (for 73 items) and the establishment of the Office of Trade Ombudsman (OTO) which deal with grievances concerning openness of Japanese markets were implemented. In addition to these policy efforts, the Japanese government strengthened its publicity activities toward other nations in order to receive deeper understandings on these measures and Japan in general. Japan has continued to exert various efforts to further open its markets.


2. Efforts to Solve the North-South Problem


(1) Major Trends


The world economy continued to be sluggish in 1981. The grave economic situations in developing countries, non-oil-producing countries in particular, have become even more serious. Under these circumstances, a series of large international conferences on the North-South problem were held in 1981 including the North-South Summit, the UN Conference on New and Renewable Sources of Energy and the UN Conference on Least Developed Countries, all of which drew great attention. On the other hand, although efforts were made in the UN General Assembly, the North-South Summit and other fora to realize an early launching of the Global Negotiations (GN), the GN has not been launched.

In the today's international community where the interdependence of all nations has deepened more and more, Japan considers it essential to accelerate the economic and social development of developing countries so as to bring about a harmonious and expansionary development of the world economy which leads to world peace and prosperity. Consequently, Japan continues to exert efforts in promoting constructive North-South dialogues.


(2) North-South Summit


The Brandt Commission report published in February 1980 proposed the holding of a summit meeting which would bring together world leaders from both developing and developed countries in order to solve urgent issues. As a result of this proposal, the North-South Summit (International Meeting on Cooperation and Development) was held in Cancun, Mexico in October 1981. In detail, a preparatory meeting attended by the foreign ministers of 22 countries was held in August 1981, followed by the North-South Summit in October 1981 in Cancun, Mexico which brought together the heads of the above 22 countries. Prime Minister Suzuki attended the meeting, accompanied by Foreign Minister Sonoda and Minister of State, Director-General of the Economic Planning Agency Komoto.

The Summit did not have a formal agenda. Instead, it set forth the "Framework of Discussion." According to that framework, vigorous discussions were held on the following four areas: (a) food security and agricultural development, (b) commodities, trade, and industrialization, (c) energy, and (d) money and finance. Prime Minister Suzuki stressed the importance of promoting the North-South dialogue, economic cooperation, official development assistance in particular, solutions to food and agricultural problems as an important task of mankind during this century, and the "development of human resources," in the spirit of interdependence and mutuality of interest.

Regarding the launching of the Global Negotiations which was one of the focal points of the meeting, an agreement was reached after discussion by the leaders confirming "... the desirability of supporting at the United Nations, with a sense of urgency, a consensus to launch the Global Negotiations on a basis to be mutually agreed"... and this was included in the Summary report by the Co-Chairmen.

The North-South Summit was the first summit meeting on a global scale in history where the leaders of both North and South gathered to discuss issues on cooperation and development and the revitalization of the world economy. It was considered very meaningful for the future management of the world economy and for the maintenance of world peace and prosperity that the national leaders were given an opportunity to freely exchange their views.


(3) The Global Negotiations (GN)


Recognizing the seriousness of the economic plight in non-oil producing developing countries resulting from price increases of oil, it was decided in the 34th UN General Assembly at the end of 1979 that global negotiations including five areas of energy, commodities, trade, development and money and finance should be launched. Subsequently, a series of preparatory negotiations aiming at launching the Global Negotiations have taken place in the UN, but North and South have yet to reach an agreement on the agenda and procedures of the negotiations. In 1981 in particular, the North-South Summit was held in October and it was agreed that reaching a consensus in the United Nations on launching the global negotiations would be desirable. Thus, the development of deliberations at the 36th UN General Assembly held in the fall of 1981 drew great attention.

Japan realizes the political significance of the Global Negotiations and has been actively participating in formal as well as informal discussions as an important party. During the 36th UN General Assembly held at the end of 1981, Japan engaged in close discussions with both developed and developing countries in an effort to reach a consensus, according to its policies that Japan sincerely hopes that every arrangement for launching of GN will be made as early as possible based on the agreement reached at the North-South Summit.

However, at the 36th UN General Assembly, the agreement was not reached as to holding a preliminary conference preceding a GN conference and as to the relationship between the central organ of GN and the specialized fora. Thus, the launching of GN was carried over to 1982 and after.


(4) United Nations Conference on New and Renewable Sources of Energy


The UN Conference on New and Renewable Sources of Energy was held in August 1981 in Nairobi, Kenya, and adopted the "Nairobi Program of Action for the Development and Utilization of New and Renewable Sources of Energy" which deals with the ways and means for developing new and renewable sources of energy. These forms of energy taken up in the Program were 14 kinds including solar, biomass and wind energy.

Japan recognized that this meeting would be the first of its kind to take up the energy issue in the United Nations, the outcome of which would result in a substantial impact on North-South dialogues in the future. Thus, Japan has actively participated in this conference from the n the preparatory stages by sending a chairman in five preparatory meetings. Japan also indicated important of energy specialists to the conference secretariat and other contributions.


(5) United Nations Conference on the Least Developed Countries (LLDC)


Least developed countries (LLDC) are those developing countries which are particularly lagging behind in terms of their development. In order to promote development in these countries during the 1980s, the 5th session of the UNCTAD resolved that the United Nation's Conference on the Least Developed Countries would be held for the completion and adoption of the "The Substantial New Program of Action for the 1980s for the Least Developed Countries" (SNPA).

Based on this resolution, the United Nations Conference on Least Developed Countries was held in September 1981 in Paris, at which the SNPA was adopted by consensus.

At this conference, Japan made positive efforts for the adoption of the SNPA including the consolidation of assistance to the least developed countries. These efforts made by Japan were highly appreciated by the participating countries, the least developed countries in particular.


(6) Developments in the United Nations Conference on Trade and Development (UNCTAD)


The Activities by the UNCTAD in 1981 were focused on the follow-up activities of various issues presented at the 5th session of the UNCTAD, and marked substantial progress in numerous areas. It was of particular importance that an agreement was reached concerning the methods of reviewing protectionism and structural adjustment, a pending issue carried over from the 5th session in the midst of a continuous stagnant world economy and rising pressures of protectionism. Under these developments, Japan acted as coordinator of the Group B (Group of developed Western countries) in the UNCTAD for a one-year period between August 1980 and the end of July 1981. Japan greatly contributed to the promotion of the North-South dialogue and received a high appreciation by all countries concerned.


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