Chapter II. Striving for a More Secure, Prosperous and Humane World

Section 2. Toward the Construction of a New International Framework

2. Ensuring and Expanding Prosperity

2-1. Ensuring Sustainable Growth of the World Economy and Japan's Role

In the post-Cold War world, while the attention has been increasingly paid toward the revitalization of domestic economies in the United States and other major industrialized countries, the overall picture of 1993 was characterized by uncertainty primarily due to a delay in the recovery of the world economy and a serious rise of unemployment. However, there were some promising developments such as the virtual conclusion of the Uruguay Round trade negotiations. In this environment, various efforts of policy coordination are being made in multilateral as well as trilateral (Japan, the United States and Europe) and bilateral fora (among others, Japan and the United States) in such diverse fields as macroeconomics, structural adjustment, trade and energy with a view to ensuring world prosperity. In order to secure world prosperity, these efforts should be made in a mutually complementary manner. In particular, it is essential for regional and bilateral moves to proceed in a manner consistent with multilateral systems such as the General Agreement on Tariffs and Trade (GATT), and with mutual clarity.

(1) Uruguay Round

The substantial conclusion of the Uruguay Round negotiations, which was eventually realized after strenuous negotiations of more than seven years at the end of 1993, serves as a future beacon as a result of international coordination efforts toward world prosperity [a total of 124 governments and the European Union (EU) participated in the negotiations]. Had the Uruguay Round negotiations failed, the multilateral free trading system based on the GATT, which was the very foundation of the postwar prosperity, could have been threatened. This could have led to undermine the credibility of international coordination efforts and endanger the very construction of the postwar framework of world prosperity. Therefore, the significance of its success could not be more important to the international community.

More specifically, the primary significance is that it contributes directly to the vitalization and development of the world economy through trade expansion in both goods and services as a result of the reduction or elimination of trade barriers. The GATT Secretariat estimates that the Uruguay Round agreement will bring about a global economic gain of $230 billion annually in 2005.

Furthermore, the World Trade Organization (WTO) will be created as a result of the Uruguay Round. The existing GATT rules, such as the anti-dumping rules, the rules on subsidies and countervailing measures, which tend to have been misused or abused, are to be strengthened. Moreover, new rules will be established in such areas as services and intellectual property rights where there are little or insufficient international rules. This means that, in the field of international trade, a framework will be established to resolve issues or conflicts under transparent and predictable international rules, not by unilateral or gray measures which are not in line with international rules. In light of the fact that trade issues, when treated bilaterally, tend to become politicized, the establishment of such a system will contribute not only economically but also politically to fostering stable international relations in the future.

Furthermore, the conclusion of the Uruguay Round negotiations, by way of providing the basis for promoting economic development through the expansion of trade, will help address another great task in the post-Cold War era; it will support the reform efforts of the countries in transition, such as those in the former Soviet Union and Central and Eastern Europe as well as the developing countries and integrate them further into the international community.

Below is a review of the Uruguay Round negotiations leading to its conclusion. After the "Dunkel Paper" was submitted at the end of 1991, the momentum for the conclusion first emerged in November 1992 when an agreement was reached at the Blair House between the United States and the EU. The conclusion, however, was carried over into 1993, partly due to the French opposition to the agreement within the EU. In April 1993, the extension of the fast track procedure relating to the delegation of trade negotiating authority to the administration was approved in the U.S. Congress. At the Tokyo Summit in July 1993, the determination of G-7 leaders to conclude the Round before the end of 1993 was reaffirmed. Moreover, immediately prior to the Tokyo Summit, the quadrilateral ministerial meeting among Japan, the United States, Canada and the EU was held in Tokyo. As Japan's offer to mutually eliminate tariffs on distilled spirits (whiskies and brandies) served as a catalyst, a Tokyo agreement on market access was reached giving a great momentum to the progress in the ensuing negotiations. In September, the multilateral negotiation process in Geneva began in parallel with the negotiations between the United States and the EU. The Uruguay Round finally came to a successful conclusion in December 1993, through an arduous process of negotiations as all the participating countries agreed to make somewhat painful contributions.

The major stumbling block of the Uruguay Round negotiations was that the sometimes deadlocked negotiations between the United States and the EU over market access in agriculture, services and goods led to an impasse of the overall negotiations. Partly due to the fact that the Uruguay Round negotiations coincided with the EU integration process, the EU tended to place priority on its own integration process. The United States has increasingly stressed the interests of its domestic industries in the mid- and final stages of the negotiations in contrast to its forward-looking leadership shown in the very daring proposals put forward in the initial negotiating stage with a view to expanding trade in services and agriculture with little feasibility of these proposals nonetheless. While the United States and the EU arguably affected the entire direction of the Round, the mere fact that they finally compromised on the agreement simply indicates that even they could not have borne the responsibility for the failure of such a large-scale international cooperation efforts as the Uruguay Round.

Another feature of the Uruguay Round was that the economically small- and medium-sized countries with similar interests jointly participated in negotiations in groups as in the Cairns Group (Note 11) in the area of agriculture, and became a major player with an influence otherwise denied to them individually. Moreover, it is noteworthy that some developing countries like the NIEs and ASEAN countries showed a positive, contributing stance in the negotiations in certain areas, while in the past Rounds they tended to demand strongly preferential treatments as developing countries and enjoy only the results beneficial for them.

On the whole, Japan has continuously made efforts with a view to enlarging the whole package of the negotiations by way of greatly contributing to an agreement at the Tokyo Ministerial Meeting as well as of making a painful decision to accept the "Denis's proposal" on agriculture in December 1993, although it received such criticism as "Japan is hiding behind the United States and the EU" during the process mainly due to the fact that the attention has overly been focused on the rice issue alone. This was based on the recognition that it was particularly significant for Japan to strengthen and expand the non-discriminatory regime of the multilateral free trading system through the successful conclusion of the Uruguay Round, as Japan, the only Asian industrialized democratic country with no affiliation of regional economic integration, as well as with a massive trade surplus, tends to be subject to the exaggerated publicity for its "special" features.

In order for the trading system established by the Uruguay Round to function efficiently in the future, it is important that trade policies of major countries be executed in accordance with the international framework structured under the World Trade Organization (WTO). It is particularly important for Japan to improve, in the implementing process of the Uruguay Round agreements, domestic systems and procedures to make them more transparent and objective.

(2) Tackling the Unemployment Problem

The unemployment problem is becoming even more serious with the number of unemployed expected to reach about 35 million in the total OECD countries in 1994. Therefore, resolving this problem has become a top priority of the policy coordination among the major industrialized countries. Against such a background, it is important to push forward the difficult task of structural adjustment on their own and to ensure economic growth through policy coordination efforts. Those actions are important in an effort to stem the tide of protectionist measures with an aim of placing blame on other countries.

In the Economic Declaration of the Tokyo Summit, the main theme of which was "employment and growth," a similar recognition was embodied in the "double strategy." This strategy is comprised of macroeconomic policies to promote non-inflationary sustainable growth, and structural reforms to improve the efficiency of markets, especially the labor markets. The OECD has been engaged in a comprehensive study on employment and unemployment issues since 1992. As a follow-up to the interim report of June 1993, which showed the results of a comprehensive analysis and presented policy directions for the employment issues with an emphasis on structural adjustments such as improvement of labor market flexibility, a final report is to be prepared and reported to such fora as the Naples Summit in 1994. Moreover, in the European Union (EU), policies to reduce unemployment are being studied. This was seen in the report made to the European Council in December 1993 entitled "The White Paper on the Mid-term Strategy for Growth, Competitiveness and Employment." The report put forward mainly microeconomic policies in order to create jobs for 15 million people by 2000. In addition, a G-7 high-level meeting on employment and unemployment is scheduled to be held in the United States in March 1994. As structural adjustments, which are indispensable for a fundamental solution to the unemployment problem are tasks that require steady efforts over time, it is necessary to ensure close coordination between such international meetings and the work of the OECD so that each country can maximize the outcome of such international efforts in promoting structural adjustments in their domestic economy.

(3) New Policy Issues

In addition to these immediate tasks, the rapid globalization of the world economy brought about new tasks; it has become increasingly necessary to coordinate requirements of different policy areas and to cooperate internationally on issues which have previously been considered to be within the domain of domestic policies. The provisions concerning the environment and labor standards contained in the North American Free Trade Agreement (NAFTA) deserve attention from such a viewpoint. Also, in multilateral fora, studies are being undertaken with regard to new issues such as those to improve the compatibility of trade policies and environment policies in the OECD and the GATT, and those on the relations between trade policies and competition policies in the OECD. Those multilateral efforts are crucially significant in addressing these tasks.

(4) Moves Toward Regional Integration and Cooperation and the Asia-Pacific Region

Active developments continued in 1993 in regional integration and cooperation such as the integration of the EC market and the establishment of the European Union (EU), the entry into force of the North American Free Trade Agreement (NAFTA) and the first Asia-Pacific Economic Cooperation (APEC) Leaders Economic Meeting.

The process of regional integration and cooperation could tend to lack transparency to extra-regional countries. Institutional regional integrations, such as customs unions and free trade zones, in particular, would inevitably create discriminatory treatments against countries outside the region. How to promote regional moves under the multilateral free trading system based on the principle of non-discrimination principle will be a critical issue not only for the countries concerned, but for the entire world in constructing a framework for future prosperity. Recognizing the importance of this issue, Japan has been asserting that regional integration and cooperation must proceed in a manner consistent with the GATT, and without creating discriminatory effects against extra-regional countries, and thereby contribute to world prosperity.

In the Asia-Pacific region, the approach differs from that adopted in the EU and NAFTA, where economic integration has been promoted building upon an institutional framework. In the Asia- Pacific region, flexible and loose cooperation without such an institutional framework is in progress. This is based on the recognition that in the Asia-Pacific region, where economic systems, development stages and cultural and religious backgrounds are of such diversity, the promotion of free economic activities across the region under the open multilateral free trading system is the way to maintain and strengthen the existing regional economic vitality, thereby contributing to the growth and development of the world economy.

Therefore, APEC in its November ministerial meeting announced a declaration and statement calling for the successful conclusion of the Uruguay Round negotiations by the end of the year and agreed to establish the Trade and Investment Committee to promote debates and liberalization concerning trade and investment in the region. Moreover, in the APEC Leaders Economic Meeting, at which the leaders of the region gathered for the first time, a discussion was held on the role, contributions and cooperation of this region as the growth center of the world economy. The final statement of this meeting stated that this region, which represents "40 percent of the world's population and 50 percent of its GNP, will play an important role in the global economy, leading the way on economic growth and trade expansion."

Although it has only been five years since the APEC was established, and it is still developing, it is entering a new phase with the establishment of the above-mentioned Trade and Investment Committee as well as the holding of the APEC Leaders Economic Meeting. In other words, expectations are rising for steady success, while maintaining the diversity and openness of the region. In this context, Japan announced the five principles for APEC which express its basic doctrine on the APEC, at the APEC ministerial meeting and at the APEC Leaders Economic Meeting. The five principles are:

(i) respect to the diversity and gradual promotion of cooperation;
(ii) forming common views and pursuing common goals through consultation instead of negotiation;
(iii) ensuring compatibility with the GATT;
(iv) pursuing the ideal of "open regional cooperation;" and
(v) enhancing understanding with non-members, international organi zations and others.

Moreover, improving infrastructure and dealing with the environment and the energy problems are major tasks in this region which is undergoing rapid economic development. Toward a solution of these problems, Japan has been making a number of specific proposals, such as formulation of action programs to achieve a trinity of economic growth, stable energy supply and demand and environmental preservation. In addition, while this region will have to seriously consider how it can make contributions in sustaining and developing the prosperity of the entire world, the role of Japan as the major industrialized democratic country in Asia will become even more important. With Japan scheduled to chair the APEC in 1995, it needs to strengthen its contribution to the APEC.

(5) Bilateral Consultations

Along with such a multilateral policy coordination, bilateral consultation, including talks on "Japan-U.S. Framework for a New Economic Partnership" (hereinafter referred to as the Framework Talks) are being held actively. As bilateral consultations often tend to lack transparency, there could emerge suspicions that an agreement might be sought in a way that may adversely affect the interest of third countries. In order to prevent such situations and to make the results of bilateral negotiations beneficial to the overall prosperity of the world, it is necessary, when having bilateral consultations, to ensure that the outcome of such consultations will benefit third countries on a Most Favored Nation (MFN) basis, that they comply with international rules such as the GATT, and that they do not take a managed trade approach, such as setting numerical targets. The Framework Talks are conducted in a manner that particularly stresses the above principles as the "basic principles of management," in such diverse sectors as macroeconomics, government procurement, specific structural and sectoral issues including automobiles, and the common agenda for cooperation in a global perspective.

(6) Energy Issues

With the end of the Cold War and developments in the Middle East, the international agenda on energy issues is gradually shifting its weight from securing energy supply in an emergency to global and long-term issues, including supply and demand of energy on a global scale and environmental problems such as global warming caused by greenhouse gases discharged by the consumption of fossil fuels. This raised the necessity for the international community to cope with the energy issues together with countries in transition and developing countries such as China whose energy consumption has grown dramatically in recent years. Based on such moves, the Meeting of the Governing Board at the Ministerial Level of the International Energy Agency (IEA), held in June 1993, adopted a common new objective, "Shared Goals," building upon initiatives by Japan and other countries, indicating an outline of the medium- and long-term energy policy framework.

Moreover, as regards the energy sector of the countries of the former Soviet Union and Central and Eastern Europe whose economies continue to stagnate due to insufficiency of funds, the European Energy Charter was signed in December 1991 as a political declaration to provide a framework to promote trade and investment in the energy sector by 49 countries including non-European industrialized countries. At present negotiations are under way to conclude the Energy Charter Treaty, which is legally binding, to implement the contents of the European Energy Charter, and three protocols which stipulate the substance of specific cooperation in the fields of energy efficiency and environment, oil and natural gas, and nuclear energy. As the energy issues are taking an increasingly global profile, Japan is actively participating in these negotiations.

(7) Fishery Issues

Reflecting recent moves to strengthen fishery regulations on the high seas, two treaties concerning fishery resource management were adopted at the General Assembly of the Food and Agriculture Organization (FAO) in November. In addition, negotiations are under way to draft a new agreement regarding fishing in the high seas of the Baring Sea. At the same time, the environment concerning whaling continues to remain harsh. At the 45th Annual Meeting of the International Whaling Commission (IWC) held in Kyoto in May 1993, there was a deliberation, which continues from 1992, on the French proposal to create a sanctuary in the Antarctic Ocean continued from the decision of the Commission which was carried over to the 46th Meeting. On the other hand, certain results were attained such as the unanimous adoption of a resolution proposed by Japan on research related to the conservation of large Baleen whales.

(8) Japan's Policy Efforts

Japan, as a major player in the world economy accounting for about 15 percent of the total world GNP and 8 percent of the total world trade volume, needs to play a leading role in policy coordination among major countries in ensuring sustainable growth. In 1993, amid the persisting sluggish Japanese economy, the Government of Japan took various fiscal and monetary measures, as well as structural measures designed to encourage vitality of the private sector such as deregulation with a view to ensuring domestic demand-led non-inflationary sustainable growth and rectifying external imbalances.

Specifically, in April 1993, Japan announced its "New Package of Economic Measures" totaling 13.2 yen trillion (equivalent to about 2.8 percent of nominal GNP) which was an unprecedented scale. In formulating the economic package, maximum efforts had been paid to the need to ensure immediate effects on the economy. For example, the public works were to be implemented in a way to make it possible to place many orders more swiftly by way of front-loading and simplifying procedures, as well as to realize diverse investments in a broad range of fields. Moreover, under the Hosokawa Administration established in August, in order to cope with the severe and protracted economic situation and to formulate harmonious external economic relations, the "Emergency Economic Package" was announced in September containing additional stimulative measures, including deregulation measures and measures to pass on the benefits of yen appreciation to the consumer.

In addition, a study group on economic reforms (the so-called Hiraiwa group), set up as an advisory group to Prime Minister Hosokawa to consider structural reforms, submitted its final report in December and set four targets for economic reforms. These targets were: (a) creativity and vitality; (b) priority for consumers; (c) transparency at home and to the external countries; and (d) harmony with the world. In order to achieve these goals, it made policy recommendations with the following five pillars: (1) implementation of deregulation including an establishment of a powerful third-party organization to monitor reforms; (2) formation of domestic demand-led economy and an economy full of intellectual and creative vitality; (3) creation of a comprehensive welfare vision for the aged society and formation of a society with active and joint participation by men and women; (4) provision of a free and large global market and implementation of diversified overseas aid; and (5) reform of the fiscal structure and activation of financial and capital markets. In order to make these recommendations meaningful, the study group emphasized the importance of consolidating the implementation system and following up on specific measures directed toward reforms. The group also deemed it indispensable not only to seek domestic understanding and cooperation, but also to seek those of the United States and other countries.

In the monetary policy field, Japan's discount rate was reduced for the sixth time in February and for the seventh time in September, to reach the historically low level of 1.75 percent.

2-2. Developing Countries

(1) Coping with the Problems of Developing Countries

As the international community undergoes structural changes, it is crucial for the entire world to ensure stable growth of developing countries which account for about 30 percent of the total world economy. In light of the fact that the economic plight of many developing countries is one of the causes of global-scale problems, including environmental problems, and even many of the regional conflicts took root in the poverty in developing countries, it is necessary for the international community to make concerted efforts to solve the problems which developing countries are facing.

Conditions are beginning to be put in place to allow us to cope fully with the problems. Since the end of the Cold War, the international community has been released from the ideological yoke, and the opportunity for cooperation and dialogue among the countries has been expanded and the mood for constructive dialogue has been enhanced on the side of the developing countries.

Therefore, Japan proposed, at the Tokyo Summit in July, the differentiated approach to provide assistance according to diverse development stages of developing countries and the comprehensive approach to combine provision of aid, promotion of trade and investment and debt strategy, and acquired the support of other G-7 members. Moreover, on the occasion of the Summit meeting, Prime Minister Kiichi Miyazawa and U.S. President Bill Clinton respectively, exchanged views on these various issues with President Suharto of Indonesia who was the Chairman of the Non-Aligned Movement. In addition, some developing countries mainly in the Asia-Pacific region which are economically successful have begun to assist less developed countries. It is also important to encourage and support this so-called "south-south cooperation."

(2) The Problems of Primary Commodities

Many developing countries with weak economic bases still depend largely on exports of primary commodities for their foreign currency earnings. Therefore, the recent fall in primary commodity prices substantially reduced the export income of these countries, seriously affecting their economies. The vitalization and stabilization of primary commodity trade has thus become a crucial issue for the development and growth of the economies of developing countries.

Taking this situation into account, Japan and France agreed on the occasion of the Tokyo Summit to take a joint initiative to propose future cooperation in supporting the developing countries` self-help efforts to expand the markets and to upgrade the level of processing of primary commodities in line with the needs appearing in the international market. The two countries are now working toward that end.

(3) The Accumulated External Debt Problem

The accumulated external debt problem of developing countries still remains one of the crucial issues for the international community Although the debt situation of developing countries as a whole has recently improved, many countries such as Sub-Saharan African countries still have difficulties in recovering their debt servicing capabilities.

To solve this problem, it is indispensable for the debtor countries themselves to make serious efforts to reconstruct their economies by steadily implementing sound macroeconomic policies and structural adjustments. The industrialized countries have supported these self-help efforts of developing countries by implementing various debt relief schemes, primarily through debt reduction. It is concurrently necessary for the industrialized countries to support in a comprehensive manner, by increasing the provision of funds, maintaining sustainable economic growth of their own economies and improving access to their markets.

Japan has been strengthening its support for economic reconstruction and development of developing countries. For example, in order to increase the supply of funds available to developing countries, Japan announced in June 1993, the "Funds for Development" initiative, which combines the "Fifth Medium-Term Target" of ODA with non-ODA financial cooperation, such as loans provided by the Export-Import Bank of Japan and export insurance.

(4) Dialogues with the DNMEs (Note 12)

There are some developing economies like those in East Asia which have recently achieved high economic growth, and it is important to the growth of the world economy that such economies become responsible partners in the world economy, and that the international community should further support their steady development.

As a part of such support, Japan took the initiative to hold dialogues, between the OECD member countries and the Asian NIEs (The Republic of Korea, Hong Kong, Taiwan, Singapore, Thailand, Malaysia), and the four Latin American countries which are advanced in their economic development (Argentina, Chile, Brazil and Mexico). This dialogue has promoted a great deal of mutual understanding on trade and investment policies as well as economic policies between the industrialized countries and the developing countries whose economies are getting closer to those of industrialized countries.

2-3. Contributions through Official Development Assistance (ODA)

(1) ODA Overview

(a) Recent Moves Surrounding Aid

Japan considers ODA as the most important pillar of its international contributions and has worked hard to increase its quantity. As a result, Japan's ODA in 1992 totaled $11,332 million, making Japan one of the world's largest donor countries.

In the post-Cold War world, there exists the need to assist efforts of the former socialist countries in their transition to democracy and a market economy, as well as to tackle growing global-scale problems such as the environment, population growth and refugees. These needs for financial assistance, combined with traditional aid to developing countries, are increasing and diversifying. In this context, the expectations are increasingly pinned on Japan, making the country's role even more crucial. At the Tokyo Summit of July 1993, Japan played a leading role in taking up the question of developing countries as a major item on the Summit agenda and in reaffirming the importance of development assistance, paying due regard to the requests from developing countries.

(b) Response to the Demand of the New Era

The recent changes in the international community make it necessary to constantly review aid policies in order to respond flexibly to the demands of the new era. Specifically, first of all, as the international community takes up the urgent global-scale problems, such as the environment, population growth and AIDS, Japan is in a position to make active contributions through aid in these areas. In particular, in the areas of population growth and AIDS, Japan announced that it would implement assistance of up to $3 billion over a seven-year period from FY 1994 to FY 2000. Secondly, as will be described later, it is particularly important to actively support the reform efforts toward democracy and a market economy in the post-Cold War world. Thirdly, it is also essential to further promote the "triangular cooperation" or "south-south cooperation," the assistance to developing countries at lower stages of development in cooperation and coordination with those which have graduated or are about to graduate from aid. In fact, Japan has already conducted such triangular cooperation in a manner that the experts of the ASEAN countries and Japan work together to extend technical cooperation in an effort to promote resettlement of Cambodian refugees.

(c) Implementation of Appropriate Assistance

Because the major financial resource of aid stems from national taxes, it is necessary to extend effective and efficient assistance and, in addition, to make further efforts with a view to obtaining broader public understanding and support for the necessity of ODA.

From this viewpoint, the Government of Japanhas steadily implemented appropriate assistance, based on the ODA Charter of June 1992 which comprehensively compiled the philosophies and principles of ODA. At the same time, Japan has requested developing countries to make use of its assistance more effectively. Moreover, the Government has been promoting broader access to ODA information through various measures such as publishing annual reports and establishing the "International Cooperation Plaza." In addition, it has enhanced support for Non-Governmental Organizations (NGO) (Note 13), with the aim of promoting the participation in aid of the public at large. Furthermore, in implementing aid, Japan has taken into account the respective development stages of developing countries and has relevantly combined grant aid, loan aid and technical assistance. Toward this end, Japan is executing its finely-tuned aid programs, by way of, first of all, grasping the whole development situation of the respective countries, giving detailed considerations to individual cooperation projects [including conduct of preliminary studies, assessment of the effect on the environment, and consideration paid to women in development (WID)], and implementing evaluation and follow-ups.

(d) Aid Programs Contributing to National Interests

What must not be overlooked in implementing aid is that such aid to developing countries contributes not only to improving the recipient countries' economic development and welfare, but also to Japan's national interests from a medium- and long-term perspective.

In particular, under its Peace Constitution, ODA plays a more important role of international contributions for Japan than in any other country. Coupled with diplomatic efforts in other fields, Japan's contribution to economic development of developing countries helps foster friendly bilateral relations and the international community's trust in Japan's basic diplomatic efforts. Thus this may lead to strengthen Japan's role in the international arena. It is from this perspective that Japan has been taking initiatives in recent years in hosting various international meetings dealing with aid, such as the first meeting of the International Committee on the Reconstruction of Cambodia (ICORC), the Tokyo International Conference on African Development and the Mongolia Assistance Group Meeting.

(e) Discussions at the DevelopmentAssistance Committee(DAC)(Note 14)

At the DAC high level meeting in December 1993, where the aid policy makers of the highest rank of all the member countries gather once a year, the DAC list of ODA recipient countries and territories was revised. This revision became necessary in order to reflect some of the changes in the overall environment surrounding aid, such as the diminished significance of strategic assistance, the need to cope with various global-scale problems, the financial difficulty of donor countries, and the spectacular development of some of the developing countries.

The DAC has been compiling ODA statistics of member countries based on the DAC developing countries list, and many donor countries have come to use this list to see whether the country in question is eligible as an aid recipient. Japan emphasized the importance of assistance to the countries whose economies have just begun to expand but still suffer from distortions in the process of development, especially in the fields of the environment and technology transfer. Taking into consideration Japan's assertion that the DAC list should not be too narrowly defined, the following agreements were reached:

(i) The new DAC list will be classified into two parts which consist of the category of "developing countries and territories" (Part I), and the newly added category of "countries and territories in transition" (Part II).

(ii) Aid flows destined to the countries in Part I will be treated as ODA in DAC statistics. The three Caucasus countries (Armenia, Georgia and Azerbaijan) will be classified in Part I from January 1994.

(iii) The countries in Central and Eastern Europe as well as most countries in the former Soviet Union will be classified in Part II from 1994. And from 1996, some countries classified in Part I which have reached the high income country (HIC) group according to the World Bank threshold (in the case of 1994 threshold, those countries whose GNP per capita in 1992 exceed $8,355 are categorized as HIC) will be reclassified in Part II. However, a set of composite criteria that takes into consideration various indexes other than GNP per capita (e.g. purchasing power parity, human development index of the UNDP, etc.) will be used by the end of 1995, and applied on and after 1996.

(2) Application of the Principles of the ODA Charter

The ODA Charter stipulates four principles(Note 15) including implementing ODA while paying full attention to trends in military expenditures, efforts toward democracy and introduction of a market-oriented economy in developing countries. Together with these four principles, Japan carries out ODA by comprehensively taking into account the recipients` requests, socio-economic conditions and bilateral relations. Explanations of these principles are repeatedly made at bilateral meetings of senior officials and other consultations concerning economic cooperation so as to deepen policy dialogues with developing countries.

Japan actively extends assistance to the countries which show favorable performance in light of the above elements. However, in cases there are unfavorable moves despite such policy dialogues, it responds by calling special attention of these countries or reviewing its aid policy toward them.

For example, the mounting criticism at home and abroad on the Kenyan government's negative practices on human rights, protracted economic reforms and corruptions, prompted Japan to postpone its assistance, particularly for international balance of payments. But based on the improvements seen thereafter in democratization and economic reforms, Japan decided to provide ODA loans in co-financing with the World Bank to support Kenya's export promotion program in October 1993. Moreover, as regards Malawi, the concern about human rights led to suspension of Japan's new aid for international balance of payments from May 1992. But with such improvements as shown in the peacefully conducted national election, Japan decided to resume its assistance in September 1993 in coordination with the international community. With favorable moves seen in Vietnam, Cambodia, Mongolia, Central Asian countries, El Salvador and so forth, Japan is positively extending assistance to promote economic liberalization and democratization through, among others, taking initiatives to host the Mongolia Assistance Group Meeting, the Ministerial Conference on Rehabilitation and Reconstruction of Cambodia, and the International Committee on the Reconstruction of Cambodia. On the other hand, in those countries where human rights oppressions are conspicuous and the democratization process has stagnated, such as Sudan and Haiti, aid policies have been reviewed and assistance has been limited to emergencies and humanitarian purposes.

In regard to "the pursuit of environmental conservation and development in tandem," Japan has been steadily implementing its pledge made at the United Nations Conference on Environment and Development (UNCED) to dramatically improve and expand ODA for the environment by allocating between 900 billion yen and 1 trillion yen during the five years from FY 1992, and in FY 1992 a total of about 280.3 billion yen was implemented. In addition, since 1989, Japan has been dispatching environmental policy dialogue missions to developing countries in Latin America, Southeast Asia and East Africa to explore appropriate environmental projects to be financed under ODA. At the same time, human resource development is being conducted to improve the capacity of developing countries themselves to deal with environmental problems (environmental management system and technology). In implementing aid projects for development purposes, Japan has examined the project's effects on the surrounding environment because it is important to see that environmental considerations are fully taken into account.

In the future, based on Japan's own experiences, it intends to continue to implement the environmental ODA as a priority task by making full use of its technology and knowledge.

(3) Formulation of the Fifth Medium-Term Target (quantitative increase and qualitative improvement)

Japan mostly achieved its Fourth Medium-Term Target which laid down terms for quantitative increase and qualitative improvement of ODA. Upon its conclusion and despite the tight fiscal situation, the Fifth Medium-Term Target for the five years between 1993 and 1997 was drawn up in June 1993, the aim of which is for Japan to make international contributions commensurate with its international standing.

In the Fifth Medium-Term Target, the total ODA amount was announced to be between $70 and $75 billion for the five-year period so as to achieve further increases in quantity. This is a 40 to 50 percent increase over the Fourth Medium-Term Target. Moreover, as for the GNP ratio of ODA, which is internationally recognized as an indicator for international comparison of aid, Japan's 1992 performance was 0.30 percent, which was lower than the average 0.33 percent of the 21 DAC member countries. For this reason, in continuation of the Fourth Medium-Term Target, its steady improvement is targeted.

What must be stressed concerning qualitative improvement is the grant share and grant element (an indicator which shows the degree of softness, compared with commercial-base loans). In the case of Japan, although improvements have been made so far, the quality remains at a low level compared with other aid donor countries. For this reason, enhancement and strengthening of the grant portion of ODA (grant assistance and technical cooperation) have been incorporated. In addition, as mentioned above, a relevant combination of a variety of aid forms according to the diversified situations of developing countries is also stipulated.

As the sector of aid, global-scale problems such as the environment and population growth, the basic human needs, human resource development and socio-economic infrastructure improvement have been listed, building upon the priority areas identified in the ODA Charter. As regards aid for environmental projects, in particular, flexibility is shown in order to support the self-help efforts of developing countries in pursuit of environmental conservation and development in tandem. For example, as far as environmental projects are concerned, those developing countries that are usually ineligible both for ODA loan and grant aid have been made eligible for both forms of aid.

Moreover, in order to implement finely-grained assistance that meets the needs of the people in recipient countries, it is important to conduct careful preliminary studies and close dialogues and exchanges of views with the recipient governments. Toward that end, it is necessary to improve the implementation structure of Japan, primarily the increase of personnel involved with aid. Specifically, (1) improving and increasing aid personnel; (2) strengthening project finding and formulation functions; (3) further improving and expanding various studies including preliminary ones; and (4) enhancing regional studies and development policy studies, in addition to improving assessment activity, are also listed as targets. Moreover, to embark on an effective and efficient implementation of aid, it is necessary to step up efforts to foster those concerned with development assistance, including experts and private consultants, as well as to strengthen collaborations with local municipalities, private organizations and NGOs.

(4) Forms of Japan's Official Development Assistance (ODA)

(a) Technical Cooperation

Because "development aid with a human face" is now being sought, technical cooperation plays an increasingly important role, as it contributes to the nation building of developing countries by human resource development through technology transfers. Official technical cooperation is implemented mainly through the Japan International Cooperation Agency (JICA) in various forms, such as the acceptance of trainees, the dispatch of experts, the provision of equipment, project-type technical cooperation, development studies (Note 16),development cooperation (Note 17), the dispatch of Japan Overseas Cooperation Volunteers, the Youth Invitation Program, and the dispatch of Japan Disaster Relief Teams in international emergency cases. Japan's total technical cooperation in 1992 reached $2.13 billion, but its share in total ODA remains low compared with that of other countries.

In order to swiftly and flexibly meet the diversified needs of developing countries, the increases in quantity and the qualitative improvement of technical cooperation is essential, and for that purpose, it is important to strengthen the aid implementing structure and to enhance the training of personnel involved with aid.

(b) Grant Aid

Grant aid provides funds to developing countries without imposing repayment obligations. It, therefore, can meet the development needs of developing countries centering on basic human needs and human resource development. Grant aid includes general grant(Note 18), grant aid for fisheries, disaster relief, grant aid for cultural activities, food aid and aid for increased food production.

The budget for grant aid has been expanding, reflecting the mounting expectations from developing countries as well as other major donor countries. The total budget (initial budget) for grant aid in FY 1993 was 243.1 billion yen, approximately 1.6 times higher than the amount provided a decade ago.

Because the low ratio of grant within Japan's ODA has been pointed out, and that achieving further qualitative improvement while ensuring quantitative increase is a major task to be addressed, the increase of grant aid is all the more important.

In October 1992, the Tokyo International Conference on African Development was held in Tokyo, in which Japan announced grant aid totaling about $250 to $300 million for three years beginning in FY 1993 to ensure healthy potable water to Africa, primarily focusing in the Sub-Saharan countries suffering from water shortage. This plan aims not only to meet basic human needs, but also to improve the life environment and to reduce the burden of collecting water which is, at present, largely borne by women in those countries. The implementation of this plan will double the level of cooperation in water supply to this region compared with the three previous years.

(c) Direct Government Loans (ODA Loans)

Direct government loans (ODA loans) provide funds to developing countries at low interest rates and over long repayment periods. The average interest rate in FY 1992 was 2.9 percent with a repayment term of 25-30 years. Since ODA loans impose repayment obligations on the recipient countries, they can encourage self-help efforts of the recipient countries and meet demands for the large amount of funds required for the socio-economic infrastructure improvement of developing countries.

The ODA loans provided in FY 1992 totaled 909.9 billion yen on the basis of the Exchange of Notes, down 4 percent from the previous year. In addition, a large amount of debt rescheduling (284.6 billion yen) was implemented in the same fiscal year.

With a view to making an efficient use of aid funds, Japan has promoted a general untying of loans. As a result, the general untied ratio in FY 1992 on the basis of the Exchange of Notes reached 95.8 percent. Moreover, the share of procurement by Japanese corporations was no more than 35 percent in the same fiscal year. This indicates that the Government of Japan guarantees openness of Japanese ODA loans to outside contractors both institutionally and substantially.

In 1993, the first ODA loans were provided to the former Soviet republic Kyrgyz and Central and Eastern European countries (Albania and Hungary), as well as the first project loans to Mongolia and Vietnam, showing that Japan is fully committed to support the efforts of these countries to introduce a market-oriented economy and open-door policies.

(d) Aid Through International Organizations

In addition to the aforementioned bilateral aid, Japan provides assistance through international organizations, which are classified into the following four categories: (1) U.N. aid agencies such as the United Nations Development Programme (UNDP); (2) international development financial institutions such as the World Bank and the Asian Development Bank; (3) institutions with expertise on specific areas such as the International Rice Research Institute (IRRI) and the Center for International Forestry Research (CIFOR) under the Consultative Group for International Agricultural Research (CGIAR); and (4) regional cooperation organizations such as the Asian Productivity Organization (APO). Assistance through these international organizations has the advantage of having access to their highly specialized knowledge and expertise. It also contributes to the implementation of fined-tuned assistance, by enabling extension of aid to regions and areas which cannot be covered by bilateral assistance and promoting the "south-south cooperation," which utilizes the experience and know how of developing countries at a comparatively advanced stage.

Japan's ODA through these international organizations is calculated as the total subscription and contributions to the various organizations. In 1992, that amount totaled $2,848 million (an increase of 31.6 percent from the previous year) and the share of the aid through international organizations in Japan's total ODA was 25.1 percent (19.6 percent in 1991).

(e) Support to Non-Governmental Organizations (NGOs)

Development cooperation made by NGOs to developing countries is important in that it complements ODA and promotes the participation of the public at large in economic cooperation. The Government of Japan has actively supported the activities of NGOs respecting their initiatives.

As part of such support, the Government introduced the Subsidy System for NGO Projects, and a new cooperation system which enables provision of Small-Scale Grant Assistance (Grant Assistance for Grassroots Projects) to projects implemented by locally active NGOs, etc. Both systems are steadily developing with support from NGOs, and the former provided a total of 277.71 million yen to 53 projects and 30 organizations in FY 1992.

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