Section 3. World Economic Situation and Japan's Responsibilities
The world economy is now in the seventh year of continued expansion against the background of the steadily expanding economies of developed countries and the vigorous growth of some of the developing countries and areas such as Asian NIEs, and world trade also continues to expand. (The real growth rate of the world economy rose from 3.2% in 1987 to 4.1% in 1988, and world trade for 1988 sharply increased by 9.3% over the preceding year in terms of volume: IMF data). Inflation in developed countries has been controlled to a relatively moderate level (the consumer price of all the industrialized countries for 1988 rose in average by 3.2%: IMF data).
Developing countries also achieved a high rate of economic growth due to a rally of primary product prices such as prices of petroleum and minerals. (The economic growth rates of the developing countries for 1988 averaged 4.3%, the highest ever in the 1980s: IMF data).
Although the world economy is generally in good condition, developed countries, it is pointed out, face such problems as growing pressures of inflation in some countries, a decreasing but still large external imbalance, and mounting pressures of protectionism. In this respect, greater cooperation is called for among the developed countries. Many developing countries, on the other hand, still face serious economic difficulties, the problem of accumulated debts requiring an urgent solution.
Moves toward greater regional cooperation, such as the entry into effect of the U.S.-Canada Free Trade Agreement and progress toward the EC single market, and economic reforms in the Soviet Union and other countries of the East are important developments that can influence the structure of the world economy in the future.
2. Tasks of Industrialized Economies and Policy Coordination Among Them
(1) Economic Problems of Developed Countries
(a) The economies of developed countries grew steadily from 3.4% in 1987 to 4.1% in 1988 in real terms. But fears of inflation and trade imbalances have risen. Visible signs of growing inflation appeared in the United Kingdom, Canada and Italy. It is important for the developed countries to deal properly with the problem, watching out for its effects on the growth and external adjustment. The external imbalance had followed a steady diminishing trend through the first half of 1988. But the pace of adjustment has appeared to be slowing down since the latter half of 1988, under scoring the need of continued efforts toward reduction of the imbalances through cooperation among developed countries. Japan's current account and trade surpluses for 1988 on a dollar basis decreased by 8.5% and 2.7%, respectively, over the preceding year. But due partly to the upward surge of exports against the background of economic expansion abroad, Japan's trade surpluses began to expand in the latter half of 1988, registering an increase of 10.6% over the corresponding period of the year before, while Japan's surpluses on current account dipped 1.5%. On the other hand, the U.S. trade deficits for 1988 showed a marked improvement from $152,100 million in 1987, the highest in history, to $119,800 million in 1988, but imports began increasing at a faster pace in the latter half of the year.
(b) The existence of such large external imbalances forms the background of the growing pressures of protectionism in recent years. Particularly, the trends of unilateralism as can be witnessed in the evoking of the so-called Super 301 will not only exacerbate binational trade and economic frictions but also threaten the multilateral free trade system, the basic principle of the GATT, and the development of the world economy itself.
(2) Policy Coordination Among Developed Countries
To deal with the above-mentioned problems, stepped-up efforts for policy coordination among developed countries were made at various international for such as the OECD Council Meeting at Ministerial Level held in May to early June 1989 and also at the Arch Summit held in Paris in July.
It was refirmed in the "Economic Declaration" of the summit that all the summit participating countries would act in concert for the task of harnessing inflation and correcting external imbalances in order to ensure sustained growth without inflation over a long period of time. Regarding the external imbalance problem, the need was emphasized for deficit-incurring countries to further reduce their budget deficits, for surplus countries to expand domestic demand without causing inflation. It was also pointed out that both sides needed to maintain and strengthen coordination in macroeconomic policies and exert on a global scale efforts toward economic restructuring. A message was explicitly added that protectionist measures such as unilateral actions should be restrained with a view to maintaining and strengthening the multilateral free trade system. To that end, strong political will was confirmed at the summit level to carry on Uruguay Round negotiations and conclude successfully the negotiations by the end of the 1990s.
(3) Japan's Policy Efforts
Having grown to be an economic power, Japan has an important responsibility to assume for the stable development of the world economy. Particularly, it is the greatest policy task demanded of Japan to make appropriate contributions to the correction of external imbalances existing among the major industrial countries. This is also extremely important for Japan to maintain harmonious economic relations with other countries and enable its population to enjoy a better quality of life worthy of its level of economic development. With awareness of the above, Japan set forth the correction of external imbalances as a national policy target, and has been steadily implementing measures for domestic-demand-oriented economic management, improvement of market access and deregulations.
(a) Japan has achieved a rather high pace of economic growth through expansion of domestic demand for these years, thus contributing to the expansion of the world economy and the correction of external imbalances. A real economic growth rate of 4.0%, the highest among all developed countries, is projected for fiscal 1989 against the background of buoyant personal consumption and equipment investments.
Trends of Real Economic Growth Rates
Outlook for GNP Growth Rates in Major Countries
(b) The "Action Program for Improving Market Access" that was drawn up in July 1985 was almost completely executed by the deadline of July 1988. Regarding agricultual trade, a decision was made to lift import quotas on beef, oranges, and eight out of 12 farm products. (Import restrictions on beef and fresh oranges will be lifted in fiscal 1991; those on orange juice in fiscal 1992, and those on the eight farm products, step by step by April 1, 1990.) In addition, tariffs lowered or removed on 206 products, including tropical products and petroleum, in fiscal 1989.
(c) There is growing international expectation for the efforts for the promotion of structural adjustments including deregulation. At the Toronto Summit of 1988, for example, tax reforms, government deregulation in distribution and other sectors, and land reform were referred to as specific policy targets for Japan. Among those, tax reform bills passed the Diet toward the end of 1988, and went into effect in April 1989. As for deregulation, a Cabinet decision was made on the "General Plan for Deregulations" in (1) distribution, (2) transpotation, (3) telecommunications, (4) finance, (5) energy, (6) farm produce, (7)"new businesses", (8) inspection and authorization systems in response to the "Deregulation Policy Proposals" presented by the Provisional Council for the Promotion of Administrative Reform in December 1988. Administrative efforts are exercised in these and other fields. Concerning land policy, the Cabinet decided on the "General Plan for Comprehensive Land Measures" to effectively deal with the land problem.
In the field of structural adjustment, an agreement was reached on setting up the "Japan-U. S. Structural Impediments Initiative" between President Bush and (then) Prime Minister Uno on the occasion of the Arch Summit. The forum will discuss structural problems of both countries.
(d) All of these policy efforts have resulted in a sharp increase in Japan's imports, particularly the import of manufactured products, with trade surpluses steadily reducing.
As was pointed out in the foregoing, however, the pace of reduction of Japan's external imbalances has somewhat been slowing down. International criticism persists that the still enormous volume of the Japanese trade surplus makes it difficult to ensure orderly development of world economy. Thus, the international environment surrounding Japan remain tough.
The policy efforts mentioned above may often be painful to make at home, but it must be remembered that such efforts are also important for realizing a better quality of life for the people from a medium- to long-term point of view.
It is under these circumstances that Japan must step up its efforts, with the support of the people, toward sustainable non-inflationary growth of the world economy, correction of external imbalances, and development of harmonious external economic relations.
Trends in Ratio of Imports to Manufactured Imports
Trends in Trade Balance and Current Balance
3. Economies of Developing Countries
(1) Economic Conditions of the Developing Countries
The economies of developing countries as a whole registered a growth of 4.3% in 1988, higher than the 3.3% for 1987, with several favorable signs, such as the recovery of petroleum and primary product prices and expansion of exports (economic growth rate of all the developed countries was 4.1%: IMF data). But the Sub-Saharan African countries with weak economic foundations as well as countries with large external debts, particularly in Central and South America, decelerated their growth, registering 1.5% and 1.1% respectively according to IMF data. In contrast, the NIEs and other Asian countries surged ahead to create a widening difference in the pace of growth between countries and areas.
Japan's trade with the developing countries had been on the decrease since 1985 owing partly to primary product prices hovering at a low level. But Japan's imports from developing countries began to pick up in 1987 amounting to $78,700 million in 1988, up 17.0% over the preceding year. Particularly, imports from the Asian NIEs increased by 32.9% in 1988 (50.2% in 1987). The imports of finished products from the developing countries, in particular, increased about 50% in both 1987 and 1988, far larger than the increase in Japan's imports of finished products from the world as a whole. (25% to 40%)
(2) Accumulated External Debt Problem
The outstanding external debts of developing countries is estimated to have reached $1,320 billion at the end of 1988 (World Bank statistics. A little less than 70% of the external debts are loans from private banks), posing a serious problem to the sound development of the world economy and the international financial system. Outstanding debts grew only 3% in 1988 over 1987, the lowest increase in recent years (11% in 1987), due not only to market-oriented debt reducing measures (resulting in a reduction of $28 billion in 1988) but also to the effect of foreign exchange rate fluctuations and the inert lending operations by private banks (only $7,500 million in 1988). Private fund flow has continued to be stagnant during these few years, and the "capital flowback" - phenomenon in which the amount of money that flows into developing countries exceeds the amount of money that flows out of them to repay their debts - has continued since 1984. (Minus $43 billion as of the end of 1988)
The debt problem is leading to social and political issues sparking off disurbances in some countries. An early solution to the problem is awaited in order to restore social and political stability in those countries.
(b) Basic Idea for the Solution of the Problem
The basic solution to the accumulated external debt problem requires building up of "physical strength" in the indebted economies. Therefore in addition to financial measures, it is important that both developed and developing countries work together to create an environment favorable for economic growth of the developing countries. For this purpose developed countries must implement comprehensive programs covering a wide range of policy areas, involving sustained growth without inflation and improvement of market access. On the part of developing countries, it is important that they carry out structural adjustments, improve investment climates, and endeavor to increase capital inflow by recapturing the capital that has fled from them. It must be stressed that without these efforts on the part of the developing countries, all other efforts will end in vain.
(c) New Debt Strategy
In dealing with the accumulated debt problem, emphasis had been placed on providing new money to secure sustained growth of the developing countries while calling for the principles of case-by-case, voluntary market-oriented operations, and no transfer of private risks to public organizations. In the autumn of 1988, both Japan and France proposed the promotion of debt and debt service reduction by reinforcing the role of international organizations indicating a new direction in solving the problem while maintaining the above principles.
Under such circumstances, the U.S. government which held the key to the solution of the accumulated debt problem announced the "Stengthened Debt Strategy" (proposal) in March 1989 which, while incorporating some elements of the respective proposals, made by Japan and France, had as its axes (1) promotion of debt and debt service reduction, and (2) reinforcement of the role of the IMF and the World Bank.
The "Strengthened Debt Strategy" bases itself on the following roles to be played by the parties concerned. The developing countries must steadily implement economic adjustment places; the international organizations should provide financial support to the developing countries in order to realize debt reduction and also to guarantee interest payment; commercial banks must promote negotiations with debtor countries concerning debt and debt service reduction and the provision of new money; developed countries provide additional financial support and also review the domestic taxation system as a way of creating a favorable environment for resolving the debt problem. The broad framework of the Strengthened Debt Strategy was supported at the G-7 meeting of April 1989, and the support was confirmed at the Arch Summit held later. The IMF and the World Bank decided to provide financial support for debt reduction and guaranteeing interest payment as a way of implementing the new strategy. Specific decisions were made to extend loans to Mexico, Venezuela, the Philippines etc.
Following response to the above decisions, the government of Mexico and its creditor bank reached a basic agreement in July 1989. Each bank choose from three options which are (1) debt reduction, (2) debt service reduction, or (3) provision of new loan.
(d) Japan's Contributions
Japan has been contributing to the solution of the accumulated debt problem through a financial recycling scheme amounting to a total of more than \30 billion (over the three-year period of 1987 to 1990) and the implementation of the fourth medium-term target of ODA. At the Arch Summit of 1989, Japan announced the expansion of the above financial recycling scheme to a scheme of more than $65 billion over a period of five years (87-92) including the three-year period under the ongoing program, and that it would provide more than $10 billion of the $65 billion to countries to which the Strengthened Debt Strategy would be applied. It was also announced that Japan would take taxation measures which would facilitate the Japanese commercial banks to respond to the New Strategy. These specific contributions are highly appreciated by both developed and developing countries.
(3) Dialogue With the NIEs
As diversification among the developing countries takes place, how to involve involve the developing countries which are gaining power in the management of the world economy has become one of the major issues of recent years. Particularly, the NIEs that claim growing presence in the world economy constitute a force that cannot be disregarded. In particular, with their substantial trade surpluses, their impact on world trade is an important factor to be addressed in discussing the global problem of international payments imbalances. Thus, there is a mounting interest on the part of developed countries in the role that the NIEs can play.
Japan underscored the importance of this issue at OECD meetings in early 1988, stressing the need to establish a dialogue between developed countries and the NIEs, instead of taking a unilateral approach to them. Japan has reiterated on various occasions that, while the NIEs should play an appropriate role in the world economy, the fact, that the NIEs are already contributing to the revitalization of the world economy should be appreciated and that above all, the NIEs should be involved in the management of the world economy. Japan's position has gradually gained acceptance by other developed countries, and discussions were repeated mainly at the OECD with the result that an informal seminar with the participation of the OECD countries and the Asian NIEs was held in January 1989 thanks to the efforts of the countries concerned. The seminar was held in an extremely favorable atmosphere, and achieved great results as the first dialogue between the developed countries and Asian NIEs. The ministerial meeting of the OECD (late May to early June) and the Arch Summit (July) welcomed there developments. The OECD is now discussing the follow-up arrangements of the seminar, and further developments in this area are watched with great expectation in view of the significance of the seminar as a ground of communication between the dynamic NIEs, other Asian countries and the developed countries.
Rising Presence of NIEs in the World Economy
4. Regional Economic Integration
Conspicuous in recent developments in world trade are moves toward regional economic integration as symbolized by the U.S.-Canada Free Trade Agreement and the EC market integration plan, in addition to the promotion of the Uruguay Round which will be taken up later.
(1) U.S.-Canada Free Trade Agreement
The U.S.-Canada Free Trade Agreement signed by U.S. President Reagan and Canadian Prime Minister Mulroney in January 1988 went into effect on January 1, 1989.
The U.S.-Canada Free Trade Agreement is the most comprehensive of all binational trade pacts, and consists specifically of (1) abolition of tariffs and export-import procedures and streamlining of customs procedures, (2) free trade arrangements concerning agriculture, energy, and automobiles, (3) regulations concerning services, finance, and investments, and (4) dispute settlement procedures, including safeguards.
(2) EC Market Integration
EC market integration is aimed at completing, by the end of 1992, a single region, a single market, where assets, people, services, and capital are free to move within. It was reconfirmed at the EC summit held in June 1988 that efforts should be exerted toward European Council market integration, and an interim report on it was adopted at the European Council summit of December 1988.
Japan has pointed out on many occasions that such an integrated market should not evolve into closed regionalism or protectionism but that it should be left open to the world. The point was duly incorporated into the "Economic Declaration of the Arch Summit.
5. Uruguay Round
The Uruguay Round of multilateral trade negotiations that began the negotiating phase in February 1987 are trade talks involving 106 countries, launched by the Punta del Este Ministerial Declaration of September 1986. It aims at maintaining and reinforcing the multilateral free trading system as the basis of continued expansion of world economy and trade. The outcome of the Uruguay Round will determine a framework of the world trading system toward the 21st century, and, as such, is bound to have far-reaching effects upon the future economic growth of Japan in no small way. Hence, working toward its success is a top priority of Japan's diplomacy.
Having enjoyed postwar prosperity under the multilateral free trading system based on the GATT, Japan has actively participated in the talks. It is convinced that it is of utmost important to successfully end the Uruguay Round by the end of 1990, at a time when the prevailing world economic and trade situations tend to drift toward the niche of protectionism against the background of unilateralism and regionalism. The contributions to date made by Japan toward its success has won a high international recognition as is evidenced by the high appreciation by other countries of the strenuous efforts made by the then Foreign Minister Uno at the Midterm Review Ministerial Meeting held in December 1988.
In the latter half of the Uruguay Round when the talks are scheduled to get into full stride, Japan intends to play a further responsible role commensurate with its economic power, and make the greatest possible contributions toward their success. Japan plans to host an informal ministerial meeting on the Uruguay Round in mid-November 1989, inviting the major participating countries of the Uruguay Round.
(2) Major Developments
The results of the Midterm Review Ministerial Meeting held in Montreal in December 1988, completed by a subsequent meeting at a high official level Trade Negotiations Committee held in Geneva in April 1989, and the subsequent major developments in principal areas are as follows:
(a) Areas Aimed at Reinforcing the GATT as an Institution (Functioning of the GATT system, Dispute Settlement)
In order to enhance confidence in the dispute settlement mechanism under the GATT system, the Midterm Review succeeded in introducing a 15-month time limit for the GATT's dispute settlement procedures and also in improving various aspects of procedures.
A system of reviewing the trade policy of each country under the GATT (The Trade Policy Review Mechanism) was introduced to further reinforce the GATT functions (with Japan to be reviewed in July 1990), and it was agreed to hold a meeting at the ministerial level at least once every two years.
(b) Areas Aimed at Improving Market Access (Tariffs, Non-Tariff Barriers, Tropical Products, Textiles, Natural Resource-Based Products)
It was agreed at the Midterm Review meetings that an overall tariff reduction of more than 33% should be aimed at in the current Uruguay Round. An agreement was also reached on the framework of carrying on substantive negotiations on non-tariff barriers in the future. Since the Midterm Review, Japan made a proposal aimed at formulating international rules on country of origin, which is regarded as especially important in non-tariff areas. Regarding tropical products, Japan offered to lower tariffs in consideration of the concerns of the ASEAN and other developing countries. This offer was highly appreciated by the countries concerned in that it has helped, in large measure, pave the way for establishing a package agreement in the area of tropical products.
(c) Areas Aimed at Establishing Multilateral Rules and Framework (Agriculture, the internation codes adoped in the Tokyo Round (MTN agreements), Subsidies, Safeguards, GATT Articles)
In the area of agriculture, the Midterm Review meetings agreed on substantial progressive reductions in agricultural support and protection as a long-range objective and on not exceeding the current level of support and protection until the end of the Uruguay Round. Agreement was also reached on the guidelines and framework for the subsequent negotiating process in the second half of the round. Specific submissions have been made by many participating countries since the Midterm Review. As the world's largest net food importing country, Japan strongly insisted, at the review meetings, that due account should be paid to the concept of food security. As a result, the idea was explicitly included as one of the items to be considered in future negotiations.
Regarding the MTN agreements, Japan attaches particular importance to the anti-dumping regulations, and is actively seeking cooperation of other countries in this area. Lively discussions have been made on safeguards, particularly about ways of dealing with the so-called "gray-area measures," which are taken outside the framework of GATT, and which are prevailing.
(d) New Areas (Services, Trade-Related Aspect of Intellectual Property Rights, Trade-Related Investment)
In the area of services, which account for more than 20% of worldwide trade, the Midterm Review agreed on the principles and rules (transparency, national treatment, etc.) that must be dealt with in working out a multilateral framework, as well as work schedule to be followed. Later, discussions have been made on some specific sectors to examine the implication and applicability of these concepts, principles and rules in detail. Discussions have also been continued to reach an agreement on a multilateral framework of services. Regarding intellectual property, the question as to whether the negotiating group should take up the task of drawing up the legal instrument on protection of intellectual property, which blocked the progress of negotiations in the first half of the round, was put aside and it was agreed to continue discussions on substantive matters. The Midterm Review meeting also agreed on the future framework of negotiations on trade-related investment measures. In all areas, discussions have later been shifted to substantive stages.
6. East-West Economic Relations
At present political dialogues between East and West have made progress and the trend in pursuit of greater stability in East-West relations is growing. Also in the economic field, positive moves are being made to expand relations between East and West.
In the Soviet Union despite efforts to rebuild its economy under the Gorbachev Administration, the standard of living is declining rather than improving. Some of the Eastern European countries also face a similar problem in executing their economic reforms. The East needs technology and capital from the West and increasing imports of consumer goods and capital goods in order to solve this problem. Under such circumstances, the Soviet Union decided on urgent import of consumer goods amounting to 10 billion rubies in 1989, and revised its joint venture law in December 1988, encouraging Western corporations to set up joint ventures in the Soviet Union. According to Soviet statistics, there were 164 joint ventures established in the country by companies of capitalist countries as of January 1989. In 1989, the Soviet Union signed investment protection agreements with Belgium, the United Kingdom, West Germany, and France in succession with the intention of stimulating investments in the Soviet Union by Western nations.
Moves were also stepped up in the area of finance (Note). However, the Soviet Union remains wary about accumulating external debts, particularly, the acceptance of new credit. The outstanding balance of the loans extended to the Soviet Union by Western banks bad increased since 1985, reaching $36,500 million at the end of 1988, up 10.4% over the preceding year, according to a report of the Bank for International Settlements (BIS).
A recent development that merits attention is the cooperation extended to the Soviet Union and other countries of the Eastern bloc by the West in the field of manager education, etc. to raise the efficiency of their economies. Apart from the cooperation by companies of the West, the Soviet Union signed cooperation agreements with the United Kingdom, West Germany, and France in 1989 on the reception of Soviets for manager education. In June 1989, the United Kingdom announced that it would provide a fund totaling £25 million to Poland during five years for the training of corporate managers.
Developments toward improved relations were also seen between the EC and COMECON member countries. After establishing formal relations between the EC and COMECON in June 1988, the Trade and Economic Cooperation Agreement was signed between the EC and Hungary in September 1988, and the Trade Agreement between the EC and Czechoslovakia in December 1988. Negotiations or preliminary negotiations are now under way for concluding agreements with the Soviet Union, Poland, and other major member countries of COMECON. The factors underlying these developments are the economic stagnation of the COMECON countries and the resultant stalemate of the COMECON system, the growing difference with the economic expansion of the EC, and a growing sense of crisis on the part of COMECON members over EC market integration scheduled for 1992. But the EC countries, partly because of their high unemployment rates, are cautious about increasing imports from Eastern Europe. The EC still imposes severe import restrictions on non-high-technological industrial products and farm produce which are principal export products of Eastern Europe. Considering the lack of export competitiveness of Eastern European products and the expected growth of exports from the NIEs to the EC, EC-COMECON relations are not likely to develop to the degree COMECON countries are hoping.
In considering East-West economic relations, it may be realistic to take different approaches to the Soviet Union and other countries of Eastern Europe by carefully examining their economic scales, trends of domestic reforms, and their foreign policies. Poland and Hungary stand out in this regard. The process of reforms in these two countries points to a pluralistic democratic society, which is welcomed by the West. It is obvious, however, that the economic stability and development of the two countries is essential for them to advance favorable political reforms. The participant countries of the Arch Summit stated in their declaration on East-West relations that they were ready to "consider, as appropriate and in a coordinated fashion, economic assistance aimed at transforming and opening their economies in a durable manner" so as to sustain the momentum of Poland and Hungary's reforms. Specifically, it was agreed that countries in the West undertake investment, joint ventures, transfer of managerial skills, professional training, and other ventures on their own initiatives, and it was agreed to work along with other interested countries and multinational organizations in providing such support. In view of this accord, a total of 24 countries, including the summit participants and European Free Trade Association (EFTA) member countries, held a meeting in Brussels on August 1 to discuss the question of support to Poland and Hungary. Despite these developments, however, there are some problems that Japan and other countries of the West must bear in mind regarding East-West relations.
First, the success or failure of reforms in the Soviet Union and Eastern Europe is primarily their own problem, and there are limits on the cooperation or support that the West can extend, although East-West economic relations may expand with the general development of East-West relations. Thus, it is important for the West to keep a close watch on the development of reforms in the Soviet Union and Eastern Europe in promoting economic relations with the East. For example, the Soviet Union showed interest in actively taking part in the international economic system under the Gorbachev Administration, and tried hard to gain access to the GATT and the Asian Development Bank. But prerequisites to the Soviet Union's joining in the international economic system would be to recover convertibility of the ruble and reform the economic and social systems of the Soviet Union itself.
Second, there is the problem of preventing strategically important goods and high technology from flowing to the East. COCOM, an unofficial coordinating committee formed by the governments of free nations of the West, has been controlling exports since 1950. Japan has been positively taking part in COCOM activities since 1952. (See the attached table for detailed information on COCOM.) The lists of embargoed items reviewed on a constant basis to restrict only truly strategic goods in order to improve the effectiveness of sanctions in view of the rapid progress of technology in recent years. In response to the withdrawal of Soviet troops from Afghanistan, the United States announced at the NATO Summit Meeting of May 1989, that it was ready to abandon its policy of disapproving exceptional export of COCOM items to the Soviet Union. (Note)
In promoting economic exchange with countries of the East, it is important for all the countries of the West to coordinate their policies to ensure sound expansion of East-West economic relations not only from the economic standpoint but also from the standpoint of national security and political interests. It was reconfirmed in the Arch Summit declaration on East-West relations that the countries of the West agreed to pay due attention to (1) security interests of the West, (2) general principles of international trade, and (3) a sound commercial basis.
The Coordinating Committee for Multilateral Strategic Export Controls (COCOM) was established in 1949 as an informal consultative organ of the free countries in the West in order to control the export of goods and technologies of strategic significance to Communist bloc countries. Its secretariat is in Paris. COCOM conducts its operations through consultation and coordination among the participating countries. It is composed of 17 member countries (Belgium, Luxembourg, France, Italy, the Netherlands, the United Kingdom, the United States, Canada, Denmark, the Federal Republic of Germany, Norway, Portugal, Japan, Greece, Turkey, Spain, and Australia) and it is engaged mainly in the following activities.
(1) Establishing and updating of the lists of controlled goods and technologies.
(2) Exceptional approval of the export of controlled goods.
(3) Cooperation and coordination among the participating countries on the enforcement of export control policies.
(4) Cooperation with third countries in order to ensure the effectiveness of the COCOM controls.
In view of the nature of COCOM's activities, the COCOM member countries are in agreement not to disclose further details of its activities.
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Note: The Soviet Bank of External Economy issued bonds amounting to 100 million Swiss francs in Switzerland in January 1988, and bonds amounting to 500 million deutsche marks in West Germany in July of the same year, while consortiums of banks of West Germany and Italy introduced credit lines of 3 billion deutsche marks and 650 million ECUs, respectively, in October 1988
Note: While COCOM approves exceptions in the embargoed items on case by case examination as a rule, the U.S. government bad exercised a policy of not approving any exceptions in exports to the Soviet Union since the Soviet invasion of Afghanistan.