Section 2. Japan's Contribution to Stable World Economic Growth and Efforts for a Solution to the North-South Problem
1. Contribution to Stable World Economic Growth
(1) The World Economy in 1983
(a) The Industrialized Countries' Economies
Although the world economy suffered prolonged recession in the wake of the second oil crisis, strong economic recovery in the United States led the way as the industrialized countries, supported by such plus factors as the damping of inflation and the decline in oil prices, began to grope toward recovery in 1983. As a result, the overall growth rate for the OECD countries went from minus 0.5% in 1982 to 2.4% in 1983.
Real GNP (GDP) Growth Rates for the Leading Countries
However, some countries have done better at this recovery than others. Likewise, even though American unemployment has come down to 8.1% as of December 1983 from its peak of 10.6% in December 1982, unemployment is still a difficult problem in Europe, where it continues to run about 10%.
Prices have been calm overall as the prolonged recession has blunted the increase in wage costs, oil prices have slipped, and the industrialized countries, having learned from the experience of the first oil crisis, have steadfastly maintained non-inflationary economic policies.
However, the industrialized countries' current accounts have continued in disequilibrium. Although France and Italy have achieved considerable improvement from the previous year's massive deficits, partly with increased exports to the United States, the United States has recorded a current account deficit of approximately $40 billion, in part because of high American interest rates and the dollar's resultant strength on exchange markets, and Japan has recorded a surplus of approximately $20 billion, both the American and Japanese figures being new records.
(b) The Developing Countries' Economies
Despite the strong economic growth rates achieved by the Republic of Korea, Taiwan, and other newly industrializing economies, the developing countries' economies overall did not get the full benefit of the industrialized countries' recovery in 1983 and things continued harsh for them.
Specifically among the non-oil producing countries, the countries of Latin America suffered economic contraction in the wake of austerity policies in the face of massive external debts. Africa, which includes many of the world's least developed countries, suffered economic stagnation with virtually zero growth compounded by widespread drought resulting in starvation and other grave problems.
The oil-producing countries suffered their fourth straight year of minus growth as oil exports fell under the impact of softer oil markets.
Commodities are the main exports for the developing countries and, although commodity markets showed some recovery after their prolonged slump in the previous year, real prices have remained about the same for all but a few commodities.
(2) World Trade and Protectionism
Given the prolonged recession in the world economy, world trade in 1982 fell 1.5% by volume from the previous year (6% by value), declining nearly to 1979 levels. However, there was a recovery in 1983 led by exports to the United States as the American economy recovered, and world trade was up 2% by volume (down 2% by value) from the previous year. Nevertheless, there are considerable differences of pace of recovery among industries and regions. The oil-exporting countries have been especially hard-hit as the sluggish oil demand and the marker crude price cut decided upon at the March 1983 OPEC London Conference (from $34/barrel to $29/barrel) have meant that their exports declined approximately 20% by value from the previous year both in 1982 and in 1983.
There are still strong-rooted protectionist tendencies in many countries against the background of the severe unemployment and other factors.
In the United States, for example, a local content bill mandating use of a certain percentage of locally manufactured parts in automobiles passed the House of Representatives, measures which lead to easier application of textile import restrictions were announced, and emergency tariffs surcharges were imposed on motorcycles and import quotas on specialty steel. Among the examples in Europe were the EEC's decision to raise tariffs on DAD equipment.
In opposition to this heightening protectionism in a time of prolonged recession, and spurred by the November 1982 Ministerial Declaration on the need to resist protectionism as adopted at the 38th Session of the Contracting Parties to GATT, there was agreement at the May 1983 OECD Meeting of the Council at Ministerial Level and again at the Williamsburg Summit on the need to roll back protectionism. As follow-up to these agreements, it was decided in the OECD that the member countries should all advance implementation of the tariff cuts agreed upon in the Tokyo Round by one year, but yet the situation remains difficult since it proved impossible to reduce and abolish existing protectionist measures and since many developing countries have implemented import-limiting measures in the face of their cumulative external debts.
(3) Cumulative External Debts
Starting with the August 1982 Mexican debt crisis, repayment difficulties have surfaced in Brazil, Argentina, and a number of other Latin American countries in 1983 as well as in Nigeria in April and the Philippines in October. As of the end of 1983, the cumulative external debt of the developing countries had climbed from $766 billion at the end of 1982 to $810 billion (World Bank statistics including short-term debt).
Although the sense of crisis has been mitigated somewhat by the continuing efforts of the IMF, the debtor-country governments, the creditor-country governments, private banks, and international financial institutions including the World Bank, by the recovery in the industrialized countries' economies, and by the fact that their interest burdens were lightened by lower U.S. interest rates in the second half of 1982 and beyond, this problem is still a source of anxiety for the world economy in that it could eventually lead to an international financial crisis.
While the policies imposed by the IMF on the debtor countries as conditionalities of financing, including the tightening of domestic credit and the curtailment of fiscal deficits, are intended to promote those self-help efforts by the developing countries which are so important to any solution to this problem, consideration needs to be given to the possibility that these harsh economic measures could well have a destabilizing impact upon the developing countries' internal political and social situations.
(4) Efforts for Sustained Non4flationary Growth
Despite the many difficulties in the world economy, the industrialized countries, while still working basically to check inflation, have worked for a solid economic recovery built around the shared strategy of achieving sustained recovery through, for example, expanding employment and improving productivity.
Building upon the success of the OECD Meeting of the Council at Ministerial Level in early May 1983, the Ninth Summit Meeting of the Heads of State or Government of seven major industrialized countries and the President of the Commission of the EEC held in Williamsburg (the Williamsburg Summit) later that month (i) agreed on the need on the macroeconomic level, while working to reduce structural fiscal deficits, to pursue appropriate monetary and budgetary policies to bring about lower inflation rates, lower interest rates, higher productive investment, and greater employment opportunities, particularly for the young, (ii) reaffirmed the need to halt protectionism and agreed on the need to dismantle protectionist measures as recovery proceeds and to pursue the activities of the GATT and the OECD, especially the efforts for a new round of multilateral trade negotiations within the GATT, and (iii) agreed on a strategy to solve the cumulative debt problem based upon efforts by the debtor countries, increased private and official financing, more open markets, and worldwide economic recovery.
In addition, the agreement in IMF quotas under the Eighth General Review and the enlargement of the GAB became effective in late 1983 so as to strengthen the capital foundations for the IMF, which has played a leading role in efforts to solve this debt problem.
(5) The Japanese Economy
(a) Japanese Economic Trends
Bottoming out in February 1983, the Japanese economy began to recover building upon domestic demand around the middle of the year and achieved a real growth rate of 3.0% for 1983. Exports also picked up after a two-year slump (up 5.8% from the previous year) and industrial production also accelerated, growing 3.6% from the previous year (against comparable 0.3% growth in 1982). However, unemployment totalled an average of 1.56 million over the year (200,000 more than in the previous year) and the situation remained difficult. Prices were even more stable than in 1982, wholesale prices down 2.2% and consumer prices up 1.9% from the previous year.
(b) Market Opening
Although the Japanese current account was in the red in 1979 and 1980 as a result of the sharply higher oil prices after the second oil crisis, the Japanese economy demonstrated a flexible and resilient response to go back into the black in 1981, and this margin of surplus has been steadily expanded until it topped $20 billion in 1983. Although this situation has been generated largely by such internal structural factors as the high domestic savings ratio and the strength of Japanese export competitiveness and by such external factors as the increase in American imports as part of the rapid economic recovery there, the impact of the strong dollar on international price competitiveness, and lower oil costs, the economies of North America and Europe, plagued by harsh unemployment, have looked askance at their massive trade deficits with Japan and sought Japanese restraints on exports of automobiles, video tape recorders (VTRs), and other manufactured goods and greater market-opening and increased Japanese imports of their goods.
Having built its current prosperity and developed into the second-largest economy in the Free World through trade, Japan has to contribute to maintaining and strengthening the free trade system and world economic growth through balanced growth in trade.
From this perspective and in consideration of the requests of its trading partners, Japan has decided upon and implemented a series of external economic measures centering upon further market-opening since December 1981. The following measures for further market-opening were made in 1983.
(i) In January 1983, a new package of external economic measures was decided upon including (a) reduction or elimination of tariffs on 28 manufactured products and 47 agricultural products such as tobacco products, chocolates, and biscuits, (b) relaxation of the import restrictions on six items, (c) strengthening of the Office of Trade Ombudsman (OTO) (such as the establishment of the OTO Advisory Council) and improving the standards and certification systems, (d) promoting the import of foreign tobacco products and other products, and (e) other export and industrial cooperation policies.
On the issue of standards and certification systems, the Liaison and Coordination Headquarters on Standards and Certification Systems, etc. was established under the chairmanship of the Chief Cabinet Secretary and this Headquarters then decided in March to seek major legal revisions in order to ensure non-discriminatory treatment for Japanese and foreign applicants in certification procedures. The Act to Amend a Part of the Related Laws to Facilitate the Obtaining of Type Approval, etc. by Foreign Manufacturers was enacted by the Diet amending a total of 16 different laws in May.
(ii) In the subsequent October package of comprehensive economic measures, it was decided to seek to stimulate domestic demand by expanding public investment and reducing income and resident taxes as well as (a) to further open Japanese markets as by reducing or eliminating tariffs on 44 items, advancing implementation of the scheduled tariff reductions in line with the Tokyo Round Agreements (one-year advanced implementation with respect to industrial products), and increasing the Generalized System of Preferences quota ceiling for industrial products by approximately 50%, (b) to promote imports as by facilitating import financing and by promoting the procurement of imported goods by the government and related entities, (c) to to promote the inflow of capital as by issuing government-guaranteed bonds in the American market, (d) to promote international transactions in yen and to create an improved climate for the financial and capital markets, and (e) to promote greater international cooperation.
(iii) A further package of external economic measures decided upon in April 1984 included measures (a) to reduce or eliminate tariffs on 76 items (including wine and paper products) and to conduct advanced implementation (two years' worth for industrial products and one year's worth for agricultural goods) of the scheduled tariff reductions in the Tokyo Round Agreements, (b) to relax the import restrictions on beef, citrus fruit, and other items (including the liberalization of imports of prepared or preserved products of pig meat or offals and tropical fruit juices), (c) to liberalize the import of tobacco products and improve their distribution, (d) to improve the standards and certification systems, (e) to promote the import of manufactured goods, (f) to further open the market in the high-technology sector such as for foreign-made telecommunications satellites and other telecommunications business, (g) to promote the liberalization of the financial and capital markets and the internationalization of the yen, and (h) to promote cross-investment.
Despite increasingly strong protectionist pressures in other countries, Japan unilaterally enacted all of these measures in keeping with its determination to maintain and strengthen the free trade system.
(c) Promoting Preparations for a New Round
Prime Minister Nakasone proposed promoting preparations for a new round of multilateral trade negotiations, and President Reagan strongly supported this during his November 1983 visit to Japan. This proposal reflects the government's belief that Japan should undertake international responsibilities commensurate with its economic strength and is premised upon the conviction that establishing the goals of a new round and beginning preparations for such a round at a time when strong-rooted protectionist pressures remain in the industrialized countries despite the fact that the world economy is showing signs of recovery, will contribute to deterring protectionism, expanding world trade, and hence consolidating the foundations for sustained growth in the world economy.
For this new round to be successful demands that all countries achieve a common awareness of the new round's significance, and Japan has been working actively since the proposal was first made at the Japan-United States summit meeting to explain it to its neighors the Republic of Korea and the ASEAN countries and other developing countries and to the industrialized countries and to seek their cooperation.
Although these countries' responses have varied depending upon their current economic straits, their vested interests in the present trade system, and other factors, these responses have been generally favorable on the significance of the new round per se and momentum for this new round is building. Nonetheless, it is still necessary to do further coordination with other countries on the subjects to be taken up in the new round, the timing of the negotiations, and other details.
Fully heeding the other countries' concerns, Japan will continue to make even greater efforts for the early start of preparations for this new round.
2. Working for a Solution to the North-South Problem
(1) Although the United States and some other industrialized economies started on the road to recovery in 1983, the developing countries have yet to shake off the effects of their prolonged recessions and are being forced to implement domestic austerity programs and to defer development plans. There are some hopeful signs for the developing countries, such as the upturn in commodity prices, but their economies remain hamstrung as seen in the deterioration of the external debt positions.
(2) Revitalizing the world economy and ensuring world peace and stability requires strengthening the developing countries' political, economic, and social resilience through assistance to their self-help efforts for economic and social development. Considering that Japan's peace and prosperity is indivisible from world peace and stability and that Japan not only has a high external economic dependence in general but is more dependent upon trade with and resources from the developing countries than the other industrialized countries are, it is clear that working positively to contribute to the solution of the North-South problem is not only essential from a humanitarian standpoint but is also in Japan's own interests.
(3) Realizing the need to contribute to the solution of the North-South problem, Japan is taking the following specific measures.
(a) Economic recovery (through efforts to maintain and expand domestic demand)
(b) Promoting positive adjustment policies and further market opening (the several packages of efforts to further open Japanese markets)
(c) Promoting economic cooperation (efforts to expand and improve Japanese ODA in line with the New Medium-Term Target)
(d) Having creditor countries and international institutions respond appropriately to the debtor countries' repayment difficulties, while maintaining the basic emphasis on self-help efforts by the debtor countries
(4) Japan sought to gain a better understanding of the importance of the North-South problem among the industrialized countries and to contribute to consensus with the developing countries in 1983 at the Williamsburg Summit, the Sixth Session of UNCTAD, the Thirty-eighth United Nations General Assembly, and other international forums. Japan also invited the United Nations Economic and Social Commission for Asia and the Pacific to hold its Fortieth Session in Tokyo and to explore possible paths to solving the North-South problem through regional cooperation.
(a) Williamsburg Summit
Taking into account the views expressed by the ASEAN countries and other developing countries, Japan, while fully recognizing that there can be no prosperity for the North without prosperity for the South, stressed the need to promote the North-South dialogue and to step up assistance to the developing countries' self-help efforts. Japan also argued that the industrialized countries should endeavor to build constructive North-South relations at the Sixth Session of UNCTAD.
As a result, the Williamsburg Declaration on Economic Recovery reflected this Japanese position to a large degree, containing agreement that, while keeping industrialized countries' markets open, special attention will be given to the flow of resources, in particular ODA, to poorer countries both bilaterally and through appropriate international institutions and that the industrialized countries will participate in the Sixth Session of UNCTAD in a spirit of understanding and cooperation.
(b) Sixth Session of UNCTAD
Foreign Minister Abe's heading the Japanese delegation to the Sixth Session of UNCTAD, held for approximately one month beginning June 6, was an impressive demonstration of Japan's positive stance on the North-South problem and was important in greatly improving Japan's standing in the eyes of the developing countries.
(c) Thirty-eighth United Nations General Assembly
The main proposal relating to the North-South problem at the United Nations General Assembly was that for starting the GN.
Given the plight of the non-oil-exporting developing countries in the face of sharply higher oil prices, the Thirty-fourth United Nations General Assembly resolved in late 1979 to launch global negotiations in the five fields of energy, commodities, trade, development, and currency and finance. However, agreement has yet to be reached between North and South on the negotiating procedures, agenda, and other details.
Recognizing the political importance of GN, Japan has been participating positively in informal as well as formal consultations on GN in the hope of completing preparations for launching GN acceptable to both North and South as soon as possible.
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