Chapter II. The International Situation and Japan's Foreign Policy

Part 2: The International Economy

(1) Ensuring Sustainable Growth of the World Economy and Japan's Role

While economic recovery took hold in major industrial countries in 1994, efforts to advance international cooperation and secure world prosperity continued to proceed in various ways, such as in global and regional frameworks and bilateral relationships. In multilateral frameworks, the Uruguay Round of multilateral trade negotiations was brought to a successful conclusion through the efforts of numerous countries including Japan, leading to the establishment of the World Trade Organization (WTO) on January 1, 1995. This was a historic step toward strengthening the multilateral free trading system, and Japan must play a central role in the operation of the WTO.

In the Asia-Pacific region, political will was expressed in the direction of achieving open and free trade and investment within the region at the Economic Leaders Meeting of the Asia-Pacific Economic Cooperation (APEC), held in November 1994. In 1995 Japan must endeavor, in its capacity as the Chair of APEC, to promote further liberalization in the region in anticipation of the APEC Ministerial Meeting and the APEC Economic Leaders Meeting in Osaka, while ensuring at the same time that such regional efforts complement and support global efforts.

In the area of bilateral relations, various consultations, such as the Japan-U.S. Framework Talks, have been conducted. It is necessary for Japan to ensure that these bilateral consultations are consistent with and promote endeavors made in multilateral frameworks, for the prosperity of the world and the Asia-Pacific region.

(a) The WTO Agreement

The Uruguay Round of multilateral trade negotiations, the eighth round of multilateral trade negotiations conducted under the General Agreement on Tariffs and Trade (GATT), was begun in September 1986 for the purpose of liberalizing trade and strengthening the rules on trade. The negotiations, which continued over seven years, became large-scale negotiations, ultimately involving 125 countries and regions. Finally, the negotiations were substantively concluded in December 1993 and formally ended at the ministerial meeting held in April 1994 in Marrakech, Morocco. At this meeting, the participating ministers signed the Final Act, accompanied by the Marrakech Agreement Establishing the World Trade Organization (the WTO Agreement), which compiled the results of the negotiations. Representing Japan at the meeting was Deputy Prime Minister and Minister for Foreign Affairs Tsutomu Hata.

While ratification procedures for the WTO Agreement made progress in the participating countries, strong determination to have the WTO Agreement enter into force as of January 1, 1995, was repeatedly expressed at the OECD Ministerial Meeting in June, the Naples Summit in July, the Quad Ministerial Meeting in Los Angeles in September, and the APEC Ministerial Meeting in November. Finally, at the Implementation Conference held in Geneva in December, the official decision was made to have the WTO Agreement enter into force on January 1, 1995, and the WTO was established on that day.

The WTO Agreement is structured in such a way that the WTO Agreement itself establishes the WTO as an international organization, and the multilateral trade agreements contained in Annexes 1-3 set out various trade rules (see note 9). Among the agreement's features are:
1. the establishment of disciplines governing such new areas as trade in services (including financial transactions, transportation, and distribution), intellectual property rights (including patents, trademarks, and copyrights), and trade-related investment measures (including local content requirements; (see note 10);
2. the strengthening of disciplines governing agricultural trade, which was not adequately regulated under the GATT system (see note 11);
3. the establishment of an integrated framework encompassing all multilateral trade agreements in a single WTO Agreement, in order to ensure that all such agreements are applied in a consistent manner; and
4. the reinforcement of dispute-settlement procedures and institutional frameworks, including measures to deter unilateral measures, strengthen rules on anti-dumping measures, and establish the WTO as an international organization.

The implementation of the WTO Agreement will greatly enhance market access. The economic benefits of the Agreement, according to the GATT secretariat, were projected as of November 1994 to bring about a net increase of $510 billion a year in worldwide income by the year 2005 (see note 12).

In recent years, the persistence of various types of protectionism is still observed in world trade. The establishment of the WTO is very significant from the viewpoint of creating a new basis for discouraging this trend and further promoting the multilateral free trading system that has developed under the GATT since the end of World War II. Maintaining and strengthening the multilateral free trading system will lead to the expansion and prosperity of the world economy, which will in turn lead to the prosperity of the Japanese economy. From such a standpoint, Japan, as a country that has greatly benefited from trade, must contribute positively to the operation of the WTO.

During the course of the Uruguay Round negotiations, not only Japan but also many other countries, including the United States and the countries of the European Union, faced various difficulties. But all the countries fully realized the benefits that the overall WTO Agreement would bring about and shared a recognition that failure to establish the WTO would produce an incalculable negative impact on the multilateral free trading system and the world economy, and so they strove to bring the negotiations to a successful conclusion.

Japan was able to obtain the approval of the Diet for the WTO Agreement and for related domestic implementation laws in time for the Implementation Conference, confirming its will to conclude the Agreement and to complete the conclusion procedures before the Agreement entered into force. This was a reflection of the prevalent recognition within Japan that maintaining and strengthening the multilateral free trading system is indispensable to Japan's own prosperity and that the prompt establishment of the WTO serves Japan's national interest. At the same time this helped demonstrate Japan's attitude to the international community.

In order to further expand the achievements of the Uruguay Round negotiations, it is important that all countries make positive efforts to commit themselves to liberalization in the sectors of maritime transport, basic telecommunications, movement of natural persons, and financial services, in which it has been agreed to continue negotiations, and endeavor to conclude these negotiations within the prescribed time frames. It is also important that such countries and regions as China, Taiwan, the countries comprising the former Soviet Union, and the countries of Central and Eastern Europe satisfy the requirements of the GATT/WTO Agreement and realize an early accession to the organization.

(b) The Unemployment Problem

Despite the recovery of economic growth, the economies of developed countries are confronted with a continuing and critical unemployment problem. That is to say, unemployment levels remain high, especially in Europe, and even the countries where the number of jobless people has declined are witnessing an expansion of low-wage labor. This &quotjobless recovery" problem is an indication that major changes in the international environment, such as economic globalization and technological innovations, have not been adequately addressed, and in 1994 the issue was taken up as a primary area of concern in policy discussions among the developed countries. A G-7 Job Conference was held in Detroit in March 1994 for the purpose of discussing various aspects of employment and unemployment problems. It was agreed at the conference that in order to resolve the problem it would be essential to tackle structural issues, such as deregulation, increasing labor market flexibility, and education and training, which would be more effective if backed up by macroeconomic policy measures. In addition, the G-7 countries affirmed that free trade and technological innovations are sources of high-quality employment and that hindrances and reversals of free trade or technological innovations would run counter to the efforts to create employment.

The OECD, in its final report on the comprehensive study of the unemployment problem it had been conducting since 1992 (The OECD Job Study: Facts, Analysis, Strategies), reaffirmed through objective analysis and study the conclusions reached by the G-7 Job Conference in Detroit and furthermore presented comprehensive, detailed policy recommendations. The subject of jobs and growth was once again taken up as one of the principal topics at the Naples Summit, where the G-7 leaders agreed that the work of the Detroit Conference and the OECD should be followed up on with greater intensity. It was further agreed to hold a G-7 ministerial meeting to address questions concerning the global information infrastructure, the development of which is expected to have an impact on the mid- and long-term expansion of employment.

Now that the international discussions described above have identified the measures needed to deal with employment problems, each country should define and implement specific steps to achieve structural reforms and other improvements, building upon the conclusions of the international discussions. As these structural reforms will be painful over the short term, however, there is the danger that some parties may demand delays in reforms or the adoption of protectionist measures on the pretext of preserving domestic employment. In order to resist such unfounded demands, it will be useful to mutually review, within the framework of the OECD and other multilateral forums, the progress made by each country in comparison with what is actually required based on the conclusions of the international discussions.

(c) New Policy Issues

Owing to the globalization of the world economy, a number of issues that need to be addressed by the international community in the aftermath of the Uruguay Round have emerged. It will be necessary to tackle two types of issues to further develop the world economy by promoting more efficient use of resources. The first involves frameworks for promoting further globalization of the world economy, and the second involves figuring out how to ensure compatibility between the globalization of the economy and the domestic policies of each country. The first type encompasses such issues as the establishment of international frameworks for the liberalization of investment, the harmonization and mutual recognition of standards, and international cooperation to provide information infrastructure, while the second covers such issues as international efforts to study such areas as trade and the environment and trade and labor standards, which examine the propriety of the use of trade measures to address environmental or labor problems in other countries. Discussions and analysis on these issues have been taking place in the past several years in international forums such as the OECD, concerning the creation of rules to govern these issues in the future, and with the conclusion of the Uruguay Round in 1994 momentum was given to these discussions. At the Naples Summit in July 1994, it was agreed to strengthen work on issues such as trade and the environment. At the Quad Ministerial Meeting in September (in which Japan, the United States, the European Union, and Canada participated), it was agreed to continue work on such areas as technology and communications, deregulation, investment, and mutual recognition of standards.

It is expected that work on these issues in various forums such as the OECD, the WTO, the G-7, and the Quad will be pursued more actively in the future. In order to support and further strengthen the multilateral free trading system, it will be necessary for Japan to take an active role in the discussions and analyses of these issues while carefully avoiding any use of such concerns as the environment and labor standards as a pretext for protectionism, while also keeping in mind the concerns of developing countries.

(d) Regional Integration and Regional Cooperation Movements

In 1994, as in the previous year, vigorous activity took place in regional integration and regional cooperation movements. The unification of Europe reached a deeper and broader level, as seen in the inauguration of the European Union in 1993 with the entry into force of the Maastricht Treaty. The North American Free Trade Agreement went into effect in December and a movement to establish a Free Trade Area of the Americas (FTAA) was unveiled at the Summit of the Americas (see note 13). In addition, agreement was reached on accelerating tariff reduction within the ASEAN Free Trade Area (AFTA) and on expanding the coverage of goods in the agreement to which the lower tariffs will apply. APEC has promoted open regional cooperation in a flexible manner, and the fruits of steady cooperation were evident. The forum has further advanced the work of promoting and liberalizing trade and investment by the adoption in 1994 of long-term goals for the achievement of free trade and investment in the Asia-Pacific region within a fixed time frame.

These regional integration and cooperation activities can contribute to the development of the world economy by vitalizing regional economies through an emphasis on economies of scale, by improving the competitiveness of regional industries, and by promoting structural adjustments. Moreover, regional cooperation among countries that share common interests can be beneficial in areas where multilateral rules remain to be fully developed. However, it is possible that a region so integrated may not be sufficiently open to outside countries. The danger that the world economy could be divided into competing trade blocs is particularly great when a number of different regional integration and cooperation movements develop independently of one another, without any mutual cooperation and in the absence of relevant multilateral rules. Consequently, one essential task is to ensure that regional integration and cooperation movements are developed in a way that strengthens and supplements the multilateral free trading system.

From this standpoint, it is increasingly vital that multilateral forums like the WTO and the OECD analyze and monitor regional integration movements. For its part, Japan is striving to ensure that APEC remains transparent to countries outside the Asia-Pacific region.

(e) Bilateral Consultations

In addition to these multilateral policy adjustments, active bilateral discussions have also been taking place, including the Japan-U.S. Framework Talks. Bilateral consultations may raise suspicions that they lack transparency and that they are designed to conclude in ways that adversely affect third-party countries. In order to avoid such situations and to ensure that the results of bilateral discussions are firmly linked to the prosperity of the entire world, it is necessary to ensure that the results of such discussions be applied to third-party countries as well on the basis of the most-favored nation principle, that they conform to such international rules as the General Agreement on Tariffs and Trade (GATT), and that they do not take a managed-trade approach through such measures as the setting of numerical targets.

The Japan-U.S. Framework Talks have covered a broad range of topics, including macroeconomic issues, such sectoral and structural issues as government procurements and autos and auto parts, and the Common Agenda for Cooperation in Global Perspective. Because such a variety of topics have been addressed, the principles described above have been clearly stated as the "Basic Principles of Conduct" in the Framework Talks. The talks have been conducted in accordance with these principles and good results have been obtained. (For a summary of the Japan-U.S. Framework Talks, see Chapter I, Section 6.)

In addition, Japan and the European Union have tackled a variety of economic issues using a cooperative approach that attaches importance to dialogue based on objective analysis, and results have been steadily achieved. Specifically, efforts have been made not only to resolve the pressing issues related to trade and investment, but also to improve overall Japan-EU relations by attempting to strengthen cooperation in a wide range of areas, such as industrial cooperation, policies related to competition, and the environment. Taking into account the great concern expressed by the European Union in the course of this dialogue over the progress of deregulation in Japan, Japan and the European Union have also exchanged opinions on this subject.

(f) Energy Issues

Recent developments in the international situation have brought new directions to international cooperation in the energy sector.

First, the need to integrate the economies of the former Soviet Union into the world market have led roughly 50 countries, including Japan, to undertake negotiations to establish a new legal framework for liberalization of trade and investment in the energy sector. These negotiations were finalized in June 1994 with the adoption of the Energy Charter Treaty, for which a signing ceremony was held in December.

Secondly, due to the changes in the international environment, concerns about energy issues have encompassed not only the securing of energy supplies in emergencies but also the balance between energy supply and demand on a global scale, due to the economic growth in developing countries and environmental problems such as greater emission of greenhouse gases caused by the combustion of fossil fuels. The Asia-Pacific region commands special attention because greater energy consumption in the region caused by rapid economic growth is expected to strain the balance between the supply of and demand for energy resources and also to affect the global environment through greater emission of greenhouse gases. It is important to solve these problems while retaining sustainable development in the region. Japan has actively tackled these problems and presented an energy policy agenda at the APEC Economic Leaders Meeting.

(g) Fishery Issues

In order to address the growing world population, comprehensive deliberations on establishing a global framework for marine wildlife resources conservation and management are going on at the United Nations Conference on Straddling Fish Stocks and Highly Migratory Fish Stocks. Similar efforts are being made at the regional level to set up or review conservation and management measures for fishery resources.

The International Whaling Commission (IWC) established a sanctuary in the Antarctic Ocean in May 1994, banning commercial whaling there. In August, however, Japan lodged an objection asking that the ban not be applied to minke whales, of which there are plentiful resources. Although the atmosphere surrounding whaling is severe, there was some progress, as seen in the adoption at the IWC meeting in May of a resolution confirming and supporting the goal of finalizing a new scheme to oversee commercial whaling.

(h) Japan's Policy Initiatives

As an economic superpower, Japan has an international responsibility to undertake appropriate economic management in coordination with other major countries, so that the world economy will develop in a healthy manner. Japan's economy entered the first stages of recovery in October 1993, but recovery remained sluggish for the duration of 1994. In order to get the economy on its way to full recovery as soon as possible and achieve domestic demand-led stable growth in FY 1994, the Government of Japan has instituted policy initiatives that include a large-scale income tax reduction, the promotion of deregulation, and the expansion of public investment.

Specifically, in February the Government implemented a Comprehensive Package of Economic Measures totaling some15.25 trillion yen (equivalent to approximately 3.2% of Japan's nominal gross national product), the largest initiative ever undertaken in Japan. It consists of three major pillars--the expansion of domestic demand to stimulate the economy, the development of priority measures in areas where important tasks need to be addressed, and the establishment of a suitable environment for future economic development--and also includes a large-scale income tax reduction for 1994 totaling 6 trillion yen.

In March, recognizing the urgent need to promote reforms to realize a substantial and high-quality economic society open to the international community, the Government announced its Outline of External Economic Reform Measures. The plan consists of measures designed to achieve mid-term reductions in the current account surplus, to improve the quality of life of the citizens by correcting differences between prices in Japan and those overseas and by diversifying the selection of goods available to consumers, and to construct a Japanese economy filled with vitality and creativity. The reforms represent a major course-setting initiative (1) to promote domestic demand-led economic management, (2) to strengthen market mechanisms and improve market access by promoting deregulation, (3) to implement voluntary measures in three &quotpriority areas" of the Japan-U.S. Framework Talks, and (4) to coordinate policies in order to build a harmonious international socioeconomic structure. Furthermore, the Cabinet agreed in July 1994 on 279 items for deregulation.

In addition, in accordance with the Government's "Outline of Tax Reforms" and out of concern over the current economic situation, it was decided in October that a reform of the national consumption tax system would be implemented beginning in April 1997. The decision was also made then to put into effect a special, fixed-rate reduction in individual income taxes for 1995 and 1996. A Basic Plan for Public Investment was also adopted in October to provide guidance for the effort to steadily increase the social infrastructure. The plan calls for nearly 630 trillion yen worth of public investment to be made over a 10-year period beginning in FY1995.

(2) Support for Developing Countries and Countries in Transition

(a) Tackling the Issues of Development

While developing countries on the whole are performing well economically, there are widening gaps in economic levels among more successful and less successful developing countries. Asian countries in general have been recording high rates of economic growth since the latter half of the 1980s. In particular, East Asian economies have achieved exceptionally rapid export-oriented growth in recent years. Having overcome a severe debt crisis in the 1980s, many developing countries in Latin America are also achieving positive economic growth. In addition, with the end of the Cold War and the consequent structural changes in the international environment, a number of developing countries are in transition from socialist systems to market economy and democracy. Despite such economic and social progress in some developing countries, severe economic conditions still persist in others, such as those in Sub-Saharan Africa, which have suffered from poverty, overpopulation, starvation, massive external debt, and a continuous decline in real per capita GDP since the second half of the 1980s.

It is essential for world peace and prosperity to promote economic development in developing countries, which currently account for 30% of the world's GDP, and to integrate them into the world economy. In addition, the international community as a whole should actively take steps to redress the problems of developing countries, as they constitute a major cause of such global problems as environmental degradation, overpopulation, AIDS, and regional conflicts. Moreover, the end of the Cold War and the consequent decrease in the importance of ideologies in international relations have made it possible for developing and developed countries to promote mutual dialogue and cooperation. In particular, developing countries appear to have recognized the importance of pursuing market-based economic policies and also of having constructive dialogues with developed countries. This provides a favorable environment for Japan to seriously address the problems of developing countries.

For these reasons Japan stressed the following points at the Naples Summit in July 1994: (1) the need for the developed countries to actively tackle the problems of developing countries; (2) the need to provide developing countries with support tailored to each country's stage of development; (3) the need to extend comprehensive support that includes the provision of aid and facilitation of trade and investment, thereby encouraging economic independence; and (4) the significance of discussing ways to enhance partnerships between developed and developing countries, thereby advancing the integration of developing countries into the world economy. Furthermore, Japan repeatedly emphasized the importance of development issues in an address to the U.N. General Assembly in September 1994 (see Chapter I, Section 4) and at the APEC Ministerial Meeting and the Economic Leaders Meeting in November 1994 (see Chapter I, Section 5).

Japan has expressed positive support for the restructuring taking place in the United Nations Conference on Trade and Development (UNCTAD), which aims to transform the conference from a place of North-South confrontation into an arena for realistic discussions on ways to promote trade and development in developing countries. Japan also sponsors the Asia-Africa Forum, in order to encourage non-Asian developing countries to learn from and make practical use of Asia's development experience. In the aftermath of the conclusion of the Uruguay Round, there remain many important development issues, such as an analysis of factors contributing to the rapid growth of East Asian economies, the impact of ongoing regional cooperation and integration efforts in developing countries, and the issue of Economic Cooperation among Developing Countries. Recognizing this, Japan intends to make further efforts so that dialogues between developed and developing countries produce concrete results.

(i) Commodities

In recent years the commodity market has been generally unstable, with oversupply as the basic trend. This has destabilized the export incomes of many developing countries whose economies depend substantially on commodity exports, and has thereby worsened their economic situations. To revitalize and stabilize commodity trading, commodity agreements and study groups could provide a basis for achieving steady economic development in developing countries. In the longer term, however, it would be desirable for developing countries to rectify their economic structures, that is, to end excessive dependence on exports of only a few kinds of commodities.

In 1994, discussions on future cooperation in various areas of commodity trade bore fruit. Negotiations on revising the International Tropical Timber Agreement were successfully concluded; the International Cocoa Agreement and the International Coffee Agreement entered into force; and negotiations on a new International Grains Agreement were also concluded successfully. In these negotiations Japan has played an important part as a coordinator of the interests of both producing and consuming countries.

(ii) The External-Debt Problem

The economic situation of heavily indebted developing countries has been generally improving, thanks to their efforts to advance the restructuring of their economies and to progress in international debt-relief schemes in recent years. The inflow of capital to developing countries has been resuming. Some developing countries, however, especially those of Sub-Saharan Africa, are still unable to fully service their external debts, and capital inflow to low-income countries remains stagnant. It is necessary for the international community to tackle these problems actively while promoting self-reliance efforts by debtor countries.

In order to solve the external-debt problem, it is essential that debtor countries restructure their economies by adopting sound economic policies and undertaking structural adjustment programs, and restore the confidence of their creditors. At the same time, developed countries need to support self-reliance efforts by debtor countries, by adopting a comprehensive policy package including such measures as expanding the loan supply, maintaining sustainable growth in their own economies, and improving debtor countries' access to the domestic markets of developed countries. In selecting specific measures to be taken, they should pay attention to the particular situation facing each debtor country. In fact, at the Naples Summit in July, the G-7 leaders agreed, as an immediate step against the debt problem, to encourage the Paris Club to continue its efforts to improve the debt treatment of the poorest and most indebted countries.

(iii) Dialogues with the Dynamic Non-Member Economies

A number of economies in East Asia and Latin America have been recording remarkably rapid growth in recent years. In order for their high growth rates to contribute to sustainable growth of the world economy, it is important that developed countries understand the situation of these economies in the context of the world economy and also that these economies become responsible members of the international economic system.

With these concerns in mind, based on a proposal forwarded by Japan, the OECD has started a dialogue on economic issues with certain non-member economies in Asia and Latin America, namely, the Republic of Korea, Taiwan, Hong Kong, Singapore, Malaysia, Thailand, Argentina, Brazil, Chile, and Mexico, which are at an advanced stage of economic development--the Dynamic Non-Member Economies (DNMEs). In October 1994 a "high-level informal meeting with DNMEs" was held in Tokyo to discuss the prospects for future dialogues, and the participants agreed to continue to have dialogues in the future to achieve greater policy convergence in such areas as trade, investment, and the environment. The OECD is also preparing to start a dialogue with China.

(b) Support from the International Community for Countries inTransition

Countries in transition, such as those of Central and Eastern Europe and the former Soviet Union, have been making efforts to achieve democratization, introduce market economy, and become integrated into the world economy, despite their severe economic conditions. In Russia, while inflation began to show signs of abating in 1994, stringent governmental policies caused a fall in production, and the gap between rich and poor widened; it appears the country still has a long way to go before the economy achieves stability. Nevertheless, there has been some progress, including the privatization of a few corporations, primarily small and medium-sized businesses. In Central and Eastern Europe, a number of countries--the Czech Republic, Hungary, Poland, Slovakia, and Slovenia--have been on their way to gradual economic recovery and posted positive economic growth rates in 1994 (Poland began to see positive growth in 1992). In Rumania, Bulgaria, and Albania, however, economic conditions remain sluggish, and the transition to market economy has been far from smooth.

Thus, while some countries are achieving solid results, other countries have encountered obstacles inherent to economic reform and have not made as much progress as might have been expected. There have also been active movements toward democracy and market economy in Asia, Africa, and Latin America, although these tend to be overshadowed by reforms in Central and Eastern Europe and the former Soviet Union.

The success of reform efforts by countries in transition to democracy and market economy is essential not only for the development and the stability of these countries but also for the building of a framework for the peace and prosperity of the entire world. While self-reliance efforts by these countries are indispensable in carrying out reforms successfully, they often encounter difficulties which hinder their reform efforts, such as political and economic turmoil and the weakening of public support due to a decline in the country's standard of living. It is thus essential that the international community cooperate to alleviate such difficulties and provide support and assistance for reform efforts.

In light of these circumstances, the G-7 countries reaffirmed their support for reform efforts in Russia and in other countries in transition at the Naples Summit in July 1994. Among other things, they announced the provision of international financing of over $4 billion over the course of a two-year period to assist economic reforms in Ukraine, where economic conditions are severe. As part of the multilateral effort, Japan has worked actively to assist and promote reform through such international financial organizations as the International Monetary Fund (IMF) and such international organizations as the OECD. Japan also gives priority to stepping up its bilateral cooperation toward countries in transition. Specific examples of such assistance in 1994 included Japan's hosting of the second meeting of the International Committee on the Reconstruction of Cambodia (ICORC) in March as well as its hosting of the fourth Mongolia Assistance Meeting in November, both of which were held in Tokyo; the announcement of an aid package for South Africa (totaling $300 million in official development assistance over the next two years); and the unveiling of assistance for self-government in the Palestine region (intended to be $200 million over two years).

(c) Official Development Assistance

(i) The International and Domestic Environment Surrounding Assistance

Reflecting changes following the end of the Cold War, there is a greater demand for more varied forms of assistance in developing countries and countries in transition, which has remarkably expanded the role played by official development assistance. Many developed countries, however, have faced sluggish economic conditions and budget constraints, while many African countries, which are major recipients of foreign assistance, have experienced slow or even regressive development. These facts have led the world to recognize the phenomenon of so-called aid fatigue. In 1993, as compared to the previous year, only three countries including Japan managed to increase their ODA disbursements (on a dollar basis) among the 21 countries that make up the Development Assistance Committee (DAC; (see note 14). The total amount of ODA (a provisional estimate of the net disbursement) for the entire DAC in 1993 was $54.79 billion, a nominal 11.4% decrease from the 1992 figure of $61.82 billion.

However, since foreign assistance contributes greatly to the social and economic development and welfare of recipient countries, Japan considers it the most important means of diplomacy as well as the principal pillar of Japan's contribution to the international community. Therefore, Japan has determined not to fall under the influence of &quotaid fatigue" like other developed countries but to play a leading role in extending ODA. This will not only promote friendly relations between Japan and developing countries but also enhance the credibility of Japan's foreign policy among developing countries and raises Japan's standing in the international community. Hence, maintaining Japan's current policy toward ODA is in Japan's national interests as well.

(ii) Overview of Japan's ODA

The year 1994 marked the 40th year since Japan first took part in the Colombo Plan and began providing assistance to developing countries. Japan became the world's top donor of ODA for the first time in 1989 and has held this position for three consecutive years since 1991. By 1993, Japan's yearly total ODA had risen to $11.47 billion. At present, Japan provides assistance to over 150 countries and regions, of which Japan is ranked as the top donor in 28 countries. Japan also actively contributes financially to international organizations.

In addition to quantitatively expanding its ODA, Japan has also greatly improved the quality of its assistance. Specifically, the percentage of grants aid (grants, technical cooperation, and contributions to international organizations) has increased. Moreover, there has been a steady improvement in the ratio of untied aid, for which procurement of goods and services is not restricted to firms of the donor country (see note 15). As a result, Japan's ODA is presently among the most open in the world.

The Fifth Medium-Term Target for ODA has been formulated in relation to the quantitative and qualitative improvement of Japan's ODA for the five-year period from 1993 to 1997 (see note 16). In spite of budgetary restraints, Japan intends to continue its efforts to steadily improve its ODA in accordance with this target.

(iii) Japan's Basic ODA Policy

In order to continue to improve and expand Japan's ODA in the future, it is essential to obtain the understanding and support of the Japanese public for the objectives and the content of ODA. Japan is making efforts to gain approval and appreciation from the public both in Japan and in recipient countries, taking the following points into account.

1. Japan's Official Development Assistance Charter
Through the application of the four ODA principles adopted in 1992, Japan supports efforts for sustainable development, democratization, and the introduction of market economy in developing countries. Moreover, with regard to military expenditures and trade in arms by developing countries, Japan is determined to apply the ODA Charter appropriately by seeking to ensure, through dialogues with these countries, that the limited resources of developing countries are used effectively and primarily for development purposes (see note 17).
2. Three Basic Approaches
To ensure that its assistance is effective, Japan implements ODA in accordance with three basic approaches: a Differentiated Approach, whereby the forms of assistance and the sectors targeted are tailored to each recipient country's stage of development; a Comprehensive Approach, whereby economic cooperation is extended in a comprehensive manner that coordinates ODA with trade and investment; and a Balanced Approach, whereby a balance is sought among the three categories of assistance (see note 18).

(iv) Effective Implementation and Tasks for the Future

In order to make the implementation of its ODA more effective and efficient, Japan has been pursuing such measures as the strengthening of preliminary surveys, effective international bidding, coordination among assistance schemes and with other donors, and prompt disaster relief. Japan also has attached importance to evaluations and follow-up activities. Moreover, Japan is responding to the following newly emerging needs.

1. Taking on Global Issues
There is an urgent need for the international community to deal with global issues, such as the environment, population, and AIDS, since no solution to these issues is possible without multilateral cooperation. In addition, a massive outpouring of refugees has resulted from a profusion of regional conflicts, creating not only a humanitarian problem but also threatening international peace and stability. Japan regards this problem as especially important and is strengthening its assistance in this areas.(For further details, see Chapter 4.)
2. Support for Democratization and the Introduction of Market Economy
Japan is actively supporting countries that are making efforts to embrace democracy and institute market economy by providing financial assistance for economic and social infrastructure, by providing technical cooperation aimed at developing human resources, and by sponsoring international support conferences. (For further details, see Chapter 2, Section 2.)
3. Women in Development (WID)
In order to improve the status of women and thereby achieve more balanced social and economic development in developing countries, Japan's ODA program assigns high priority to assistance to benefit women of developing countries.
4. Support for "Economic Cooperation among Developing Countries" and Expanding Cooperation among Developed Countries
It is also essential to actively support "Economic Cooperation among Developing Countries," or so-called South-South cooperation, whereby countries that have advanced to a higher development stage provide assistance to developing countries that are at a lower stage of development. At the same time, greater attention should be paid to coordination among international organizations and donor countries, in regard to aid policy as well as implementation.

(v) Promoting Participatory Development
The interest of the Japanese public in international cooperation has grown rapidly in recent years. The Government of Japan has been making efforts to strengthen the means of assistance in which citizens can participate by providing grant assistance for grassroots projects, subsidies for NGO projects, and assistance for cooperation activities by local governments. Such activities are crucial for eliciting understanding and support within Japan for ODA. These efforts also benefit developing countries by providing assistance where it is needed at the grassroots level.

In order to gain the support of the public, it is essential to improve transparency in the implementation of ODA. From this standpoint, efforts have also been made to widen access to information on ODA and to enhance public relations activities.

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