Section 2. Contribution to Stable Growth of the World Economy and Efforts to Solve the North-South Problem



1. Efforts to Climb out of Recession and to Maintain the Free

Trade System


(1) Trends of the World Economy in 1982

(a) Developed Countries

With the second oil crisis as a turning-point, the world economy slipped into a recession phase. In 1982, the economies of the advanced nations continued to be stagnant, and particularly in the United States and other major developed nations the recession became more pronounced. As a result, the OECD nations as a whole showed a minus economic growth of 0.2%.

As the recession became prolonged, inflation decelerated on the whole because most of the principal nations, making good use of the lessons they had learned from the first oil crisis, firmly maintained a tight money stance with the arresting of inflation as their basic economic policy, and because the primary commodities market softened and the wage-hike rate slowed down. (France was an exception because the Mitterrand administration's initial vigorous expansion policy caused a continuation of the high rate of inflation.) Nominal interest rates in the United States began to fall, reflecting a delicate change in the Federal Reserve Board's monetary policy in mid-1982 and a conspicuous deceleration of inflation. Nominal interest rates in West Germany and Great Britain also decreased steadily, but real interest rates remained at a high level.

As inflation generally decelerated, the employment situation which had continued to deteriorate since 1980 became worse in 1982, reflecting the protracted recession. In December, 1982, the number of unemployed persons in the United States reached 12 million (unemployment rate: 10.8%), in the 10 EC nations 11.8 million, and in all the OECD nations 32 million, the worst since the end of World War II.

The current account balance of the developed nations which had deteriorated sharply in 1979 and 1980 owing to the rise in oil price as a result of the second oil crisis generally turned for the better in 1981. In 1982, however, the current balance situation became different among countries, reflecting the difference in business trends and policy stances. Especially in France, imports increased because of the government's expansion policy and caused the current balance to deteriorate.

(b) Developing Countries

With the protracted stagnation of the world economy, the economies of the non-oil-producing developing countries hit the lowest rate of growth since the end of World War II, with a real GDP growth of 0.9% in 1982, following the already low growth rate of 2.4% recorded in the previous year. The major reasons for this low economic growth in these countries were the decrease in export volume in 1982 and the downtrend in primary commodity prices, reflecting the worldwide economic stagnation. On top of the export slowdown, the increase in their interest payment burden because of high interest rates made the problem of foreign debts critical in some of the developing countries.

The oil-producing countries, too, were affected by the prolonged world economic stagnation which caused a steep decrease in demand for oil. Oil production of OPEC countries in 1982 decreased by 18% from the previous year to 18.44 million B/D. Moreover, at the end of 1981, the spot market price fell from $34.2/bbl at the previous year-end to $29/bbl. (The benchmark price was also reduced by $5/bbl to $29/bbl in March, 1983.) the current account balance of OPEC countries in 1982 seems to have been barely in equilibrium as compared with a surplus of some $60 billion in the preceding year. The economic growth rate of those countries which depended more on oil exports showed a bigger slowdown.

(c) Eastern Bloc Nations

In the People's Republic of China, grain production exceeded that of the year before, and agricultural production as a whole increased by a record 11%. Industrial production also recovered, expanding by 7.7% over the preceding year. Agricultural and industrial production combined achieved a growth of 8.7% exceeding the target growth rate of 4%.

On the other hand, in the Soviet Union, the crops failed for the fourth consecutive year. Growth of industrial production also remained at the level of 2%, far below the target 4.7%, and the economy continued to be sluggish.

In the East European nations, too, production stagnated in the agricultural, mining and manufacturing industries, and there was observed a tendency to scale down economic programs.


(2) Shrinking World Trade and Mounting Protectionism

In 1981, world trade totaled about $2 trillion, showing a decrease of about 1% from the year before. In 1982, against the background of the protracted stagnation of the world economy, it decreased further by 6% to $1.8 trillion, dropping to nearly the level of 1979. This was largely due to decrease in trade of mineral products, mainly crude oil, by 7%, and that of manufactured goods by 1%.

In 1982, the exports of the developed countries decreased by 5% from the preceding year and their imports decreased by 6%. The exports of OPEC nations, mainly of oil, decreased by 20% and their imports decreased by 3%.

Behind this contraction of world trade were not only the sluggishness of the world economy but also the pressure of protectionism which mounted against the background of the serious recession and the highest unemployment rate since World War II.

In the United States, protectionist pressure built up with Congressmen as the moving force. Many so-called reciprocity bills were introduced, including the local contents bill designed to make it compulsory for imported cars to use a prescribed rate of U.S.-made parts. European countries tightened import restrictions on textiles from developing nations. Furthermore, France, for example, introduced disguised forms of import control measures, such as designating the provincial village of Poitiers the only port for customs clearing of video tape recorder imports and making it compulsory to submit import documents in French.

At the same time, a confrontation arose between the United States and European nations concerning restriction of exports to the Soviet Union and trade in steel and agricultural products. There was also trade friction between Japan and the United States and between Japan and the European countries caused by large imbalance in international payments.

The spread of protectionism was not confined to the developed countries. Many of the developing countries, which faced a serious situation regarding mounting external debts and deteriorating international balance of payments, began to introduce import restriction measures as well as to demand counter purchase for imports.


(3) Aggravated Problem of Accumulated Debts

The cumulative debts of the developing nations reached $626 billion at the end of 1982, about seven times the amount in 1971, and their annual repayment amounted to $131.3 billion. Especially in 1982, Mexico, one of the most prominent oil-producing nations, got into a tight spot and had to be rescued from its debts position. Requests for relief from repayment of debts were made also by Ecuador and Venezuela successively, and the situation of other nations with large debts such as Brazil and Argentina in Latin America and the East European nations was also a matter for great concern. Thus, serious problems concerning cumulative debts surfaced and their impact on the international financing system became a grave matter. However, as a result of rescue efforts by the IMF and BIS as well as the cooperation of private banks and financial institutions of various countries, the worst situation has been evaded so far.


(4) Measures taken against the Crisis

To cope with the aggravating condition of the world economy, the major developed countries adopted the common strategy of sustaining economic growth by improving the employment situation and productivity, while basically trying to suppress inflation, making good use of the lessons in economic management learned after the first oil crisis. Besides, many countries began to take measures, if gradually, to change the economic situation and promote business recovery within the framework of limited options. The United States, for example, altered its monetary policy, though slightly under severe restrictive conditions, to cope with increasing unemployment and the high exchange rate of the U.S. dollar.

The Summit meeting of the industrialized countries recognized especially the importance of (a) maintaining and strengthening the free trade system, (b) promoting science and technology and international cooperation in the field to revitalize the world economy over the long period, and (c) cooperating to stabilize currencies. As regards the maintaining and strengthening of the free trade system, the GATT Council meeting in November, reconfirming that despite difficulties it was vital to sustain the GATT system, adopted a declaration opposing new restrictive measures on trade, and agreed to continue discussions on safeguard provisions and other problems.

In order to cope more efficiently with the problem of accumulated debts and to enrich the financial basis of IMF, measures to intensify the financial system, such as the IMF quota increases under the eighth general review and the expansion of the GAB scheme, were taken.


(5) Trend and Role of Japan's Economy

(a) Trend of Japan's Economy

In 1982, Japan's real economic growth rate was 3.0%, lower than the 3.8% in the year before. Of this growth, domestic demand accounted for 2.8 percentage points and external demand 0.2 percentage points, showing that it was a growth led by domestic demand. Meanwhile, mining and manufacturing production increased by only 0.3% over the preceding year, reflecting the stagnation of exports and of equipment investment by medium and small businesses. The employment situation was also serious, with real unemployment increasing by 100,000 over the year before to 1,360,000 on the annual average. On the other hand, wholesale prices remained stable as in 1981 with an annual average increase rate of 1.8%, and consumer prices also calmed down, showing an average increase of 2.7%, compared with 4.9% in 1981.

(b) Responses by Japan

Compared with other nations, Japan's economic climate was quite good and the country today accounts for about 10% of the world's gross product. Japan is thus expected to play an active part, corresponding to its economic power, in the international community.

Therefore, Japan discharged its duties positively as a participant in international organizations and conferences such as the Summit meeting of the industrialized countries, OECD and GATT, as well as made the following efforts independently.

Taking the stand that it is important to maintain and strengthen the free trade system in order to develop and revitalize the world economy, while protectionism was mounting in the Western nations, Japan took the lead in making efforts to open its market to mitigate the imbalance in international trade. Since the end of 1981, a series of measures to open the Japanese market was decided upon at several meetings of the Ministerial Conference for Economic Measures and the measures have been implemented.

Following the adoption in December 1981 of the five-point external economic measures, further measures were taken in January 1982, to ease import inspection procedures on 99 item sand to establish the Office of Trade Ombudsman (OTO) in order to deal promptly and properly with complaints about inspection procedures and other matters concerning access to the Japanese market. Furthermore, in May 1982, with the Versailles Summit of the industrialized nations just ahead, comprehensive 8-point market-opening measures were adopted as a means of contributing to the world community. The eight points were: (1) improvement of import testing procedures, (2) abolition or reduction of tariff on 215 items, (3) relaxation of import restrictions on four items, (4) increase in imports of foreign tobacco and some other items, (5) improvement of the distribution system and business practices, (6) liberalization of trade in services, (7) high technology, and (8) others including procurement by the government, industrial cooperation and export measures. At the same time, a statement by Prime Minister Zenko Suzuki was released, declaring that it was necessary for both the government and private sectors to take a stance of welcoming foreign-made products and investments from overseas.

After the implementation of these measures, there was a respite in the trade friction between Japan and the Western nations. However, as the prospects strengthened that the trade imbalance between Japan and the other countries would increase, demands for further opening of the Japanese market were amplified again. Under these circumstances, the new Cabinet under Prime Minister Yasuhiro Nakasone which was inaugurated in November, resolutely reduced tariffs on tobacco, chocolate and biscuits by a considerable margin, and also abolished or reduced tariffs on other agricultural and industrial products in December under the strong leadership of the Prime Minister. (As a consequence, the number of items on which tariffs would be abolished or reduced in fiscal 1983 came to 323 including the 215 items taken up in the market opening measures of May, 1982.)

In January, 1983, the government decided on additional market opening measures comprising (1) reduction of tariff on 86 items, (2) relaxation of import restrictions on six items, (3) strengthening of the functions of the OTO by establishing an OTO Advisory Council, and improvement of standards and certification systems, (4) promotion of imports of foreign tobacco and other items, and (5) other measures related to export policy and industrial cooperation. At the same time, Prime Minister Nakasone released a statement requesting the nation's understanding of and cooperation in making "Japan open to the world" and asking other countries to cooperate with Japan in the efforts to maintain and strengthen the free trade system. In order to ease standards and certification systems, a Liaison and Coordinating Headquarters headed by the Chief Cabinet Secretary was established and a decision was made in March to improve the systems from the viewpoint of giving equal treatment to both domestic and foreign companies and organizations. In May, "The Law to Amend a Part of the Related Laws to Facilitate the Obtaining of Type Approval, etc.," which consisted of 16 bills, was passed by the Diet.

Along with these positive market-opening measures, a decision was made in March to accelerate implementation of 75% of the public works scheduled for fiscal 1982 to create domestic demand. In October, the Government decided on a comprehensive economic policy comprising (1) expansion of domestic demand by expanding public investment, promoting housing construction, and adopting measures to help small business, (2) steps to relieve recession-beset industries and (3) measures for increasing employment. Thus, in the severe economic climate of the world, Japan adopted economic measures for sustained stable growth by making efforts to revive business activities mainly by expanding domestic demand and by securing stability of employment.



2. Efforts to Solve the North-South Problem


(1) Present Situation

The world economic environment remained harsh in 1982 although there were some encouraging factors such as the fall in interest rates, rebounding of some international commodity prices, calming down of inflation, signs of business recovery in the United States, and reduction of oil prices. The volume of world trade decreased for the second consecutive year and the rate of unemployment was still high. An increasing number of countries suffering from business inactivity adopted stronger protectionist measures and the flow of low-interest funds to the developing countries such as Official Development Assistance (ODA) tended to be sluggish. Also, the North-South dialogue at the United Nations did not make good headway as seen in the little progress of the global negotiations (GN).

Under these circumstances, the economically vulnerable developing countries were faced with such difficulties as slowdown of economic growth, deterioration of the international payments balance, and accumulation of external debts, and had to follow a retrenchment policy and delay their development programs. Especially, the non-oil-producing developing countries were in a serious plight. Their international payments deficit in 1982 totaled $97 billion and cumulative debts amounted to $505.2 billion. It also became apparent that some of these countries had difficulty in repaying their debts. This situation of the developing countries became a big problem of the entire world economy involving the developed countries as well.

The developed countries should recognize anew the deepening of mutually interdependent relations with the developing countries, as well as reconfirm the fact that it is essential for the revitalization of the world economy and for global peace and stability to strengthen the developing countries politically, economically and socially by helping them to develop their economy and society through their own efforts.

As concrete measures to help the developing countries, Japan has been making the following particular efforts:

(1) Revitalization of economic activity (Japan is making efforts to maintain and increase domestic demand.)

(2) Stepping up of positive adjustment measures and opening of market (Japan has taken several steps to open its market.)

(3) Promotion of economic cooperation (Japan is making efforts to increase its ODA under a new medium-term target.)

(4) To cope with the developing countries' difficulties in repaying external debts, basically the debtor countries should make efforts to help themselves, but creditor countries and international organizations concerned should also take appropriate measures.

(5) Promotion of the North-South dialogue at the United Nations United Nations Conference on Trade and Development (UNCTAD) and other forums.


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

UNCTAD activities in 1982, as in 1981, focussed mainly on the follow-up of various issues raised at its 5th conference and on preparations for UNCTAD VI which was held in June, 1983. Substantial progress was seen in numerous areas. Among others, the first review of protectionism and structural adjustment was made in accordance with the resolution passed at UNCTAD V, and frank opinions on that question were exchanged. Further, an agreement was reached concerning the methods of making reviews annually in the future. These were meaningful developments in view of the present state of affairs in which the world economy remains stagnant and protectionist pressure is rising.

As regards UNCTAD VI, Belgrade was selected as the site and the provisional agenda was decided. The UNCTAD Secretariat made preparations for the conference, and various preliminary meetings at regional levels were held concerning the three major agenda items-commodities, trade, and money/finance. Japan, for its part, participated in UNCTAD VI with a positive posture under the perception that it would be the most important forum for North-South dialogue in 1983.


(3) United Nations Conference for Global Negotiations (GN)

As the economic plight of the non-oil-producing developing countries resulting from the jump in oil prices grew increasingly serious, it was decided at the 34th UN General Assembly at the end of 1979 that global negotiations should be launched in the five fields of energy, commodities, trade, development, and money/finance. Subsequently, a series of preparatory negotiations aiming at launching the GN have taken place in the UN, but the North and the South have yet to reach an agreement on the agenda and procedures of the negotiations.

Japan realizes the political significance of the GN and wishes that an agenda and procedures acceptable to both the North and the South will be agreed upon at the earliest possible date and arrangements made to get it started. From this standpoint, Japan has been actively participating in formal as well as informal discussions on the GN as one of its important members.

At the Versailles Summit in June, 1982, active discussions were made on the GN. As a result, the seven advanced countries agreed on holding a plenary session of the GN and adopted a revised seven-country resolution modifying the earlier resolution of the Group of 77 concerning relations between the GN central body and specialized agencies for discussing individual questions. However, the developing countries indicated that they could not accept the proposition by the seven advanced countries, and made a counterproposal. The GN was discussed also at the 37th UN General Assembly. However, an agreement between the North and the South was not reached after all, and it was decided simply that the problem should be discussed further at the UN in 1983 and afterwards.


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