Chapter III.
Regional Developments

A. Asia and the Pacific

1. The People's Republic of China and Vicinity

Pushing forward with its open and reform policies toward the establishment of a "socialist market economy," China has achieved remarkable economic growth. It still, however, faces a number of problems, including the poor performance of state-run enterprises and the agricultural sector, widening income disparities, and energy and environmental issues. China's foreign policy is developing based on the awareness that creating a peaceful and stable international environment and maintaining friendly relations with other countries are essential for its economic development. At the same time, China staunchly defends its position regarding issues of principle that touch upon its sovereignty.

Relations between China and the United States suffered a major setback after Taiwan's leader, Lee Teng-Hui, visited the United States in June 1995, but have since been improving, as evidenced by the Summit Meeting during the Asia-Pacific Economic Cooperation (APEC) meetings in November 1996 and other high-level exchanges.

A number of difficult issues have emerged in the Japan-China relationship, including the series of events involving the Senkaku Islands, but both countries have continued to engage frequently in high-level dialogue, using opportunities such as the UN General Assembly. Particularly notable was the Summit held between Prime Minister Ryutaro Hashimoto and President Jiang Zemin of the People's Republic of China during the APEC meetings in November 1996, with the two countries' foreign ministers also engaging in discussions. Through these frank exchanges of views, both countries reached a consensus that they should address in good faith various bilateral issues, cooperating in further efforts toward the development of the Japan-China relationship. (For further details on Japan-China relations, see Chapter 1, Part B, Section 2.)

In preparation for Hong Kong's return to China scheduled for July 1997, the first Chief Executive of the Hong Kong Special Administrative Region and the members of the Provisional Legislative Council were selected in December.

Taiwan's leader was selected in March through its first direct election, with China conducting military exercises near Taiwan during this period. Consultation through private organizations between the two sides has unfortunately been suspended since then, and Japan strongly hopes that a peaceful resolution will be reached.

Mongolia is making steady progress toward democracy and market economy, and the new administration established in June is making efforts to further strengthen moves in this direction.

2. The Korean Peninsula

There has been no substantial change in the situation of the Korean Peninsula, where military forces continue to face each other across the demilitarized zone. (For further details, see Chapter I, Part B, Section 3.)

a) Republic of Korea

In 1996, just over the halfway mark in the presidential term of Kim Young Sam, the government and ruling party drew criticism for numerous man-made calamities and a slump in the economy. After failing to gain a majority of seats in the elections for the National Assembly in April, the ruling New Korea Party drew protest from the opposition when it built a majority by drawing independents and some opposition party members into a coalition. In addition, the trials (carried out as part of President Kim's policy of "Redressing History") of former presidents Chun Doo Hwan and Roh Tae Woo for their roles in the Kwangju Incident resulted in guilty verdicts in the initial trials and a subsequent first round of appeals. The next round of appeals has been carried over to 1997. There were major strikes in late 1996 in opposition to the ruling party's unilateral bulldozing-through of legislation related to labor laws.

b) North Korea

While it is not entirely clear when Secretary Kim Jong Il will become General Secretary and President of the Workers' Party, Kim Jong Il is thought by most to have control of the country's political reins. The economy has apparently been struggling, with continuing shortages of food and energy, and food shortages are thought to have been exacerbated with flooding similar to that of 1995 occurring again in the summer of 1996.

3. Southeast Asia

The Association of Southeast Asian Nations (ASEAN) countries and other countries of Southeast Asia continue to record rapid economic growth, with expanding trade and investment both within and beyond the region. In terms of foreign affairs, Southeast Asian countries are actively pursuing wide-ranging dialogue and cooperation in the Asia-Pacific region through fora such as APEC and the ASEAN Regional Forum (ARF). The region is also working actively toward the construction of new interregional cooperation, as evidenced by activities such as the Asia-Europe Meeting (ASEM) in Bangkok in March.

Within ASEAN, moves toward creation of the "ASEAN 10" were evident. Myanmar, for example, obtained observer status in July, and in November 1996, an informal Summit was held in Indonesia among the leaders of the 10 Southeast Asian countries, with the ASEAN 7 leaders joined by the leaders of Cambodia, Laos and Myanmar. At the meeting, agreement was reached on the future simultaneous accession of these countries to ASEAN. Moves were also made to expand the number of dialogue countries with ASEAN. India, China and the Russian Federation participated in the ASEAN Post-Ministerial Conference in July as new ASEAN dialogue partners.

The former Indochina countries, Viet Nam, Cambodia and Laos, are promoting economic reforms to transform their countries into market-oriented economies with the goal of achieving the same rapid economic growth which has continued in Southeast Asia. Also, a ministerial meeting for the development of the Mekong River Basin was held in Malaysia in June as an ASEAN initiative, attended by countries bordering the river.

In Myanmar, plans in May and September for a party congress of the National League for Democracy (NLD), led by Ms. Aung San Suu Kyi, were resisted by the government, which closed off the street in front of the home of the NLD leader and detained persons connected with the NLD. The situation has since become increasingly unstable, with large-scale student demonstrations and other events. Through dialogue, Japan has persistently called on Myanmar to advance democratization and improve the human rights situation. At the same time, Japan has also been considering and implementing economic cooperation focused primarily on basic human needs.

Japan worked throughout 1996 to strengthen dialogue and cooperation further with the Southeast Asian countries. Prime Minister Hashimoto attended the ASEM in March. Japan took the initiative in hosting the First Constitutive Group Meeting on Cambodia in Tokyo in July. Foreign Minister Yukihiko Ikeda attended the ARF and the ASEAN Post-Ministerial Conference in Indonesia in the same month, and later visited Singapore and Viet Nam. Japan also engaged in dialogue at the November APEC meetings in the Philippines.

4. Southwest Asia

The countries of Southwest Asia, currently engaged in economic liberalization, are making efforts to strengthen their relations with East Asia. India, in particular, has seen a sharp rise in investment from Europe, the United States and East Asia as a result of economic liberalization policies introduced in 1991, and is now experiencing annual economic growth of 6-7%. In 1996, India participated for the first time in the ASEAN Post-Ministerial Conference and ARF, and was visited by the heads of state of Canada, the Republic of Korea, China, Malaysia and the United Kingdom. The November visit of China's President Jiang Zemin was the first time any Chinese president had visited India. Cooperation within Southwest Asia has been unfolding, one example being the agreement upon intraregional tariff reductions by the South Asian Association for Regional Cooperation (SAARC). At the same time, however, there remain a number of destabilizing factors in this region, including the Kashmir issue and the suspected development of nuclear weapons by India and Pakistan.

General elections were held in many Southwest Asian nations in 1996 and early 1997 (April and May in India, June in Bangladesh, February 1997 in Pakistan), with administrations changing as a result.

Japan is working to strengthen its relations with Southwest Asian countries, and in 1996 officially invited to Japan two heads of state, Prime Minister Mohtarma Benazir Bhutto of Pakistan and President Chandrika Kumaratunga of Sri Lanka. In addition, Foreign Minister Ikeda held talks with his Indian counterpart during the ASEAN Post-Ministerial Conference, and supported the process of democratization in the region by dispatching election observer teams to monitor general elections in Bangladesh and Pakistan.

5. Oceania

In Australia, the Coalition won by a landslide in the March general elections and returned to power after 13 years. The Coalition Government led by Prime Minister John Howard has made steady progress with the domestic political agenda in such areas as gun control, reform of labor-management relations, and partial privatization of the state-owned telephone and telegraph company. One of Prime Minister Howard's first visits abroad after taking office was to Japan in September. In his Summit Talks with Prime Minister Hashimoto, Prime Minister Howard stated that Japan-Australia relations were very strong; that the change in administration would not affect the previous government's emphasis on Japan-Australia relations; and that his administration would continue with the pro-Asia diplomatic policies of its predecessor. In order to commemorate historical milestones in their bilateral relations such as the 20th anniversary of the signing of the Basic Treaty on Friendship and Cooperation in 1996, the 100th anniversary of the opening of the Consulate-General of Japan in Sydney in 1997, and the 40th anniversary of the signing of the Agreement on Commerce between Japan and the Commonwealth of Australia in 1997, the two leaders agreed to stage the Japan-Australia Friendship Anniversaries celebrations from 1996 to 1998 with the cooperation of the private sector. Australian Deputy Prime Minister and Minister for Trade Tim Fischer visited Japan in May, and Foreign Minister John Downer visited Japan in June.

In New Zealand, general elections were held in October. A coalition government was formed in December by the National Party and the New Zealand First Party, and Jim Bolger, who had been promoting economic reforms, was reappointed as Prime Minister. New Zealand experienced a serious economic crisis in the 1970s when the United Kingdom was admitted to the EEC, thus depriving New Zealand of its central export partner, and then with the impact of the two oil crises. Since 1984 when the Labour Party took office, the New Zealand Government has implemented a series of economic reforms, including trade liberalization and the elimination of subsidies; reform of the fiscal, monetary and tax systems; reform of the labor market; and administrative reform. While this series of reforms has recently been bearing fruit, such as the recent economic recovery, it has also had negative effects, including regional disparities in the quality of education due to the introduction of cost-sharing schemes. These negative effects became a point of issue in the October general elections, enabling the New Zealand First Party, which campaigned on this issue, to gain more support. As for bilateral relations, Prime Minister Bolger visited Japan in May and met with Prime Minister Hashimoto.

As advanced democratic nations, Australia and New Zealand hold the same basic values as Japan. Furthermore, although both countries have deep historical and cultural ties with Europe, their economic links with Asia have led them to play a more active role in APEC and other forms of Asia-Pacific regional cooperation as Asia-Pacific nations, and they are also seeking to participate in the Asia-Europe Meeting (ASEM). Japan welcomes and supports the position of Australia and New Zealand regarding the Asia Pacific, and has been working to strengthen relations with these two countries and actively support their participation in ASEM membership.

As for Japan's relations with Pacific Island countries and areas, the South Pacific Forum (SPF) Secretariat and the Japanese Government established the Pacific Islands Centre in Tokyo in October to promote trade, investment and tourism between SPF members and Japan. In addition, the leaders of Papua New Guinea, Palau and the Marshall Islands visited Japan. The communique released in September at the South Pacific Forum expressed support for Japan's foreign policy in a number of aspects, including strong and unanimous support of Japan's October candidacy for a non-permanent seat on the UN Security Council.

6. Asian Women's Fund

The Asian Women's Fund, established through a joint effort of the Government and people of Japan in July 1995, resolved in July 1996 to provide former "comfort women" from the Republic of Korea, Taiwan and the Philippines with two million yen per person as "atonement money" which is to be raised through donations from Japanese citizens, and to implement government-funded medical and welfare support programs. These programs were launched in the Philippines in August 1996, and as of the end of December 1996, atonement money (together with a letter from Prime Minister Hashimoto expressing heartfelt apologies and remorse) had been delivered to nine women. (The programs were also extended to seven women in the Republic of Korea in January 1997, and the Fund has pledged to financially support social welfare services for the elderly in Indonesia.) The Government of Japan shall continue to give full cooperation to ensure the smooth implementation of Fund programs.

B. North America

1. United States

a) Domestic Politics (Emphasizing the Presidential Election)

The budget stalemate between the Clinton Administration and the Republican-dominated Congress, which has persisted since 1995, caused a second partial shutdown of government operations at the end of 1995, which continued into 1996. A compromise was reached in the end, but the perception that the Republicans had "gone too far," together with attacks by the Democrats, led to a drop in the popularity of the Republican Party. At the same time, criticizing the Republicans for extremism and taking a prominent middle-of-the-road stance boosted President Clinton's approval rating. Republicans in Congress, wary of being criticized as a do-nothing Congress in the upcoming elections, began to work toward the passage of pending legislation before the summer recess, and succeeded in passing bills on minimum wages, welfare reform and medical insurance reform, among other bills.

Amid these political developments, on the Democratic side, President Clinton made an early start in preparing for the presidential election campaign and wrapped up the party nomination without any internal opposition. On the Republican side, the leading candidate, Senator Robert Dole (who resigned his seat in June), lost some momentum in settling the nomination battle. The entry of third-party candidate H. Ross Perot into the race also created a stir, but by around March the field was basically narrowed down to President Clinton and Senator Dole. President Clinton led the campaign from start to finish, and was reelected in the November general election. With the low popularity of the Republican Party, there was speculation as to whether the Democratic Party might regain the majority in at least one house of Congress in the general election, but the Republican Party ended up maintaining its majority in both houses.

It was pointed out that factors behind President Clinton's victory included, first of all, the continued strong showing of the U.S. economy, which became widely recognized by the nation in mid-1996, and a consequent undercurrent of support for the incumbent president. In addition, the president combined skillful campaigning, a strategic middle-of-the-road stance and an emphasis on the future, namely the construction of "a bridge to the 21st century," with the announcement of policies addressing issues of direct concern to citizens, such as tax breaks for education. Senator Dole, on the other hand, was unable to offer any clear vision, and his campaign never gained momentum.

There was speculation that the outcome of the congressional elections, which were held at the same time as the presidential election, was affected by respective local circumstances, as well as the fact that many Democratic incumbents did not stand for reelection. Moreover, with a strong economy encouraging people's desire to maintain the status quo, and the more flexible position demonstrated by the Republican Party since the summer, in addition to the increasingly strong sense that President Clinton would be reelected, voters seem to have been looking for a balance between a Democratic president and a Republican Congress. These results cannot be interpreted, however, as a simple endorsement of the status quo in view of general voter apathy, as evidenced by a voter turnout of less than 50%, President Clinton's failure to gain 50% of the popular vote; and the Republican Party's loss of nine seats in the House of Representatives despite gaining seats in the Senate.

In preparation for the launch of the second Clinton Administration on 20 January 1997, there have been successive announcements of changes in the Cabinet and White House staff since the election, and the Administration has staked out a clear middle-of-the-road position. In terms of policy, with regard to domestic issues and the economy, President Clinton has continued to focus on balancing the budget, an issue which includes reform of Medicare (medical insurance for the elderly and disabled) and Medicaid (medical assistance for low-income individuals and families). President Clinton has also made clear that educational reform will be high on the agenda, and has stated that he will be stressing such issues as anti-crime measures, welfare reform and campaign funding reform. With regard to foreign affairs, President Clinton will basically continue the policies of his first term, while clearly stating that top items on his agenda will include enlargement of NATO; strengthening the partnership with Russia; peace in Bosnia and Northern Ireland; engagement policies in regard to China and North Korea; peace in the Middle East; democratization in Cuba; and new threats to security (terrorism, international crime, narcotics, weapons of mass destruction, etc.).

Because of the constitutional ban against three consecutive presidential terms, President Clinton is free from concern about reelection and can be expected to pursue policies with a view toward enhancing his place in history. Two points deserve close attention, namely how he will deal with the Republican-dominated Congress, and, in terms of foreign policy, how he will gain in operating policies the support of what is described as "inward-looking" U.S. public opinion and the Congress.

b) The U.S. Economy

The U.S. economy continues to grow steadily, and employment has continued to increase moderately. Personal consumption, investment in plants and equipment and investment in housing remain strong, and price movements are generally stable. The budget deficit for FY1996 was US$107.3 billion (34.5% lower than the previous fiscal year), the lowest it has been since FY1981, but the Office of Management and Budget (OMB) forecasts an increase to US$125.7 billion in FY1997. As the economy is expected to slow down, with a corresponding drop in tax revenues, further reduction of the budget deficit is likely to be difficult.

c) Specific Economic Issues between Japan and the United States

In early 1996 the United States brought four new issues (semiconductors, insurance, aviation and photographic film) to the table, of which two (semiconductors and insurance) were resolved by the end of the year.

With regard to the semiconductor issue, close cooperation has developed between the semiconductor industries of Japan and the United States over the last 10 years since a bilateral semiconductor agreement was in place. The semiconductor industry as a whole has undergone rapid globalization, and the issue of access to Japanese markets has basically been resolved. Both parties therefore agreed in Vancouver on 2 August to terminate the bilateral agreement and otherwise greatly reduce the role of government, giving to the private sector primary responsibility for addressing issues facing the semiconductor industry.

As for insurance issues, the deadline was extended twice before the talks came to a conclusion on 15 December. The conclusion comprises a number of ambitious reform measures, including liberalization of auto insurance premiums, which are in line with Prime Minister Hashimoto's "Big Bang" initiative, entailing completion of financial system reform by the year 2001.

With regard to civil aviation issues, framework talks on cargo flights that had begun in September 1995 yielded a conclusion in April, on the basis of which a bilateral agreement was created in August. As a result, the imbalance in access to aviation routes by Japanese and U.S. airlines has been greatly improved. It was also decided to further liberalize the air cargo market and to make it more competitive, allowing, for example, the market entry of new companies. In the area of passenger services as well, the Japanese Government commenced negotiations with the U.S. Government in June to discuss further liberalization of this market within the context of equal treatment of the two countries' airlines. Differences in respective positions led to the suspension of negotiations at the end of summer, but in Summit Talks during the November APEC meetings, the two countries agreed to resume negotiations.

As for film talks, in response to the petition filed by Eastman Kodak Company under Section 301 of the Omnibus Trade and Competitiveness Act, the U.S. Government reached a finding on 13 June that the Japanese Government had acted unreasonably, and requested three consultations under: (1) Article 23, General Agreement on Trade and Tariffs (GATT), 1994; (2) Article 23, General Agreement on Trade in Services (GATS); and (3) the GATT Decision on Restrictive Business Practices (1960). (Note that (2) addresses the distribution sector as a whole, and is not restricted to film.) Japan has accepted the U.S. request for consultations on (1) and (2), and aims to achieve dispute resolution in accordance with the WTO Agreement. With regard to (3), on 3 October, the Government of Japan accepted the request by the United States for this consultation, based upon the understanding that the United States accept a consultation requested by the Government of Japan on the U.S. market. On 7 August, Kodak announced that it had filed a claim with the Japanese Fair Trade Commission under Article 45 of the Antimonopoly Law.

With regard to the issue of deregulation, the Ninth Session of the Working Group on Deregulation and Competition Policy (part of the U.S.-Japan Framework Talks) was convened from 19 to 20 November. At the Working Group, both governments engaged in substantive discussions based on a U.S. submission for deregulation and Japan's concerns over U.S. regulations. The Japanese Government will reflect the results of the Working Group's discussion in its interim review of its revisions to the Deregulation Action Program.

In addition, in talks carried out under the auspices of the WTO, the United States and the European Union requested protection of neighboring copyrights (the rights held by performers such as musicians and singers, as well as record producers, etc.). In response, a policy decision was made to expand the retroactive coverage of the neighboring right provisions under the Copyright Law. The Copyright Law was revised accordingly during the Extraordinary Session of the Diet at the end of 1996, basically bringing this issue to conclusion.

2. Canada

In Canada, the Liberal Party Government led by Prime Minister Jean Chrétien enjoyed high popularity, maintaining creation of jobs and reduction of the budget deficit as the top items on the agenda. The biggest issue in domestic policies, Quebec separation and independence, remained calm. The provincial government of Quebec, led by Lucien Bouchard, has also regarded economic revitalization as an urgent priority. Canada's foreign policy stresses the importance of relations with the Asia-Pacific and Latin American regions, with the main objectives being to: (1) promote prosperity and employment; (2) promote security within the context of a stable international framework; and (3) promote Canadian values and culture. Japan-Canada relations continued to function smoothly through 1996, with frequent visits by important officials. Minister of International Trade Arthur C. Eggleton visited Japan (April), President of the House of Councillors Juro Saito visited Canada (June-July), Foreign Minister Yukihiko Ikeda visited Canada (September) and Canadian Prime Minister Chrétien visited Japan (November). When Prime Minister Chrétien visited Japan, the two countries issued the Agenda for Cooperation, explaining the outlook and direction for future Japan-Canada relations.

C. Latin America and the Caribbean

In 1996, three trends which have characterized Latin America since the early 1990s-consolidation of democracy, the promotion of economic reforms based on market economy principles and promotion of economic cooperation and other forms of regional cooperation-continued and strengthened.

All the Latin American countries, with the exception of Cuba, have made the transition to democracy, and democracy is taking a strong hold throughout the region. With the strong support of its neighbors, Paraguay achieved a peaceful end to the coup d'état attempted by General Lino Oviedo last April. While the coup d'état attempt highlighted the vulnerability of democratic institutions in some Latin American and Caribbean countries, it offered an opportunity to prove a strong sense of solidarity and their resolve to maintain their democratic systems. The Sixth Ibero-American Summit held in November in Chile was not limited to reaffirming the importance of democracy, but also saw vigorous debate concerning ways to essentially consolidate democratic systems. A peace agreement was signed in Guatemala in December, putting an end to the country's 36-year civil war, the last in this region. PKO troops continue to maintain law and order in Haiti, which switched from military to civilian rule in 1994, but President Rene Preval, elected and sworn into office in February, has garnered the support of the international community for ongoing efforts to consolidate democracy in Haiti. On the other hand, Cuba remains under single-party rule by the Communist Party, and there have been no notable moves toward democratization. In response to Cuba's February downing of a private U.S. aircraft, the United States passed the Helms-Burton Act, which applies economic sanctions to any foreign company having certain kinds of economic relations with Cuba. However, this law has been criticized by many countries, and it has not necessarily helped toward the democratization of Cuba.

With respect to economic issues, Mexico, Argentina and the other countries which were hit hard by the financial crises of late 1994 climbed back on the road to economic growth, with the entire Latin American and Caribbean region posting relatively solid growth in 1996. Pursuit of economic reforms based on market principles, including privatization of state enterprises and budget deficit reduction, has gradually enabled many countries in the region to achieve goals such as inflation control. Even as they deal with growing trade deficits and high rates of unemployment, the key question will be how to sustain growth under an austerity regime.

A shared commitment on the part of Latin American and Caribbean states to democracy and the market economy has facilitated political and economic cooperation within the region. At the political level, after the aforementioned attempted military coup d'état in Paraguay, a democratization clause making democratic governance a condition of membership was added to the Southern Common Market (MERCOSUR) Agreement, clearly referring to the political role of MERCOSUR. Elsewhere though, a border dispute broke out between Peru and Ecuador in January 1995. Through the effort of neighboring countries, which stressed the maintenance of stability within the region, a list of unresolved issues between the two countries was drawn up in March, and talks aimed at reaching a permanent settlement have begun. At the economic level, 1996 was a year of development of economic integration, with MERCOSUR member states signing agreements with Chile in June and Bolivia in December for the establishment of a free trade zone. (For more information on MERCOSUR, see Chapter II, Part B, Section 1.c.)

Latin American countries have continued to have a strong interest in the Asia-Pacific region, and Peru and other Latin American countries have expressed a strong desire to join APEC. As economic ties between Asia and Latin America expand steadily, contacts at the personal level are also on the rise. President Kim Young Sam of the Republic of Korea visited Latin America in September 1996, while Premier Li Peng of China visited in October, and various heads of state from Latin America made numerous visits to Asia.

Under the circumstances, the five-country tour of Latin America by Prime Minister Hashimoto in August was a momentous event in terms of strengthening wide-ranging friendly relations with the Latin American countries. Japan sees Latin America as one key to the development of a global society in the 21st century, and this trip represented an effort by Japan to build a partnership for a new age-focusing on the 21st century-upon the foundation of its historically friendly relationship with Latin America. This visit did more than just strengthen bilateral relations. It also enhanced international political and economic cooperation, expanded cooperative efforts toward the resolution of global issues, and promoted increased interaction between Asia and Latin America.

In addition, Japan has acted in support of democratization by dispatching personnel under the auspices of the Organization of American States (OAS) and other international organizations to observe elections in Guatemala and Nicaragua. In addition, in an effort to enhance political dialogues with the nations of this region, the Meeting of the Ministers for Foreign Affairs of the Rio Group Troika Countries and Japan is held on a permanent basis on the occasion of UN General Assembly meetings, with 1996 marking the eighth meeting. Japan also engaged in talks with various Central American states, Caribbean nations and the members of MERCOSUR at that time. Visits to Japan from Latin America in 1996 included the March state visit of the president of Brazil, as well as the visits of six heads of state and 10 foreign ministers. Also, a grand ceremony was held in November in Paraguay with the attendance of the president of Paraguay to mark the 60th anniversary of Japanese immigration to Paraguay.

1. Occupation of the Japanese Ambassador's Official Residence in Peru

With respect to the occupation of the Japanese Ambassador's Official Residence in Peru by members of the Tupac Amaru Revolutionary Movement (MRTA), an armed antigovernment group, the Japanese Government has spared no effort to achieve a peaceful resolution and obtain release of all the hostages as soon as possible, abiding by the principles of not capitulating to terrorism and placing top priority upon respect for human life, and has placed full confidence in the efforts of the Peruvian Government to reach a peaceful resolution. (For more information, see Chapter I, Part A, Section 16.)

2. Circumstances Surrounding the Incident

The establishment of a revolutionary government in Cuba in 1959 by Fidel Castro sparked a wave of guerrilla insurgencies in the 1960s by communist parties and other new, armed, leftist groups in many Latin American nations, including Peru. However, Latin America has since moved toward economic liberalization and democratization, Cuba's supportive stance toward guerrilla activities has changed since the end of the Cold War, and peace negotiations have been used in countries such as Nicaragua, El Salvador and Guatemala to enclose antigovernment guerrillas. Accordingly, guerrilla activities have recently been confined to extremely limited operations in Mexico and parts of Central America.

At the same time, however, problems such as social inequality and poverty remain unresolved, and there is a troubling trend toward closer ties between leftist terrorist groups, which feed upon such conditions, and drug syndicates. Terrorist activities continue in Peru and Colombia, especially in rural areas.

Poverty and drugs must be dealt with if terrorism in this region is to be eliminated. Japan has worked actively toward resolution of these problems, treating them as both developing country issues and as global-scale issues. Japan is cooperating in a number of ways to help Peru improve standards of living. Besides contributing to the fight against drugs by providing economic assistance for projects involving water and sewage systems, education, insurance, medical care and other areas in the social and agricultural sectors (including development of irrigation systems and transfer of agricultural technology), Japan is also providing financial support for an Organization of American States (OAS) project aimed at preventing drug abuse by street children in the Andes region (by providing vocational training and other measures). Also, in addition to active financial support for the activities of the United Nations Drug Control Program (UNDCP), which has taken the lead role in anti-drug measures, Japan is also supporting (as part of the Japan-U.S. Common Agenda) efforts to develop alternative crops to replace drug crops in Peru.

D. Europe

In Europe, the European Union (EU) has been pushing forward with political and economic integration. In addition, to build a more stable security framework, the EU has also been working steadily toward the enhancement of existing organizations such as the North Atlantic Treaty Organization (NATO), the Western European Union (WEU) and the Organisation for Security and Co-operation in Europe (OSCE). As Europe becomes more integrated in political, economic and security areas, it will gain an increasingly powerful voice and an increasing amount of influence in the international community.

1. Expansion and Deepening of the European Union

The EU continues to strengthen its position as a pivotal force within Europe, deepening and expanding integration. With regard to the strengthening of the EU, an Inter-Governmental Conference (IGC) began meeting in March to revise the Maastricht Treaty (the Treaty on European Union). Discussions focused on three areas: bringing the EU closer to its people; democratic and efficient EU organizations; and enhancing the EU's capacity to function in regard to foreign policy issues. During the December meeting of the European Council in Dublin, a proposal was put forward by the Presidency regarding revision of the Treaty. The IGC is scheduled to wind down with the compilation of a final draft of amendments at the June 1997 meeting of the European Council in Amsterdam, but it has been a focus of attention in the sense that it is creating a blueprint for the process of European integration.

In terms of expansion of the EU, the Czech Republic and Slovenia applied for membership in 1996. A total of 14 nations in Central and Eastern Europe and the Baltic region now have applications for EU membership pending (Malta suspended its application process in November). Negotiations regarding the membership application by Cyprus will begin six months after conclusion of the IGC, and a schedule for commencement of similar negotiations regarding the applications of various Central and Eastern European nations will be drawn up.

The nations of Central and Eastern Europe, currently in the process of democratization and market economy transition, are looking to be integrated into Western Europe. Many of these nations have already signed Europe Agreements with the EU (cooperation agreements which address, among other issues, future admission to the EU) with the aim of strengthening ties.

As for Northern Europe, Finland and Sweden joined the EU in January 1995. However, Norway and Iceland chose, instead of joining the EU, to work toward stronger cooperation with Europe via the European Economic Area (EEA), an organization which comprises the EU and the members of the European Free-Trade Association (EFTA). This situation stands out as an exception to the trend toward EU expansion.

2. Seeking a New Security Order

Europe continues to work to build a new security framework to enhance further regional stability.

a) Expansion of NATO

Since the fall of 1995, the North Atlantic Treaty Organization (NATO) has been engaged in bilateral dialogues with countries interested in joining NATO. A report was given at the December 1996 Ministerial Meeting of the North Atlantic Council on the progress of the above, and a concrete schedule for expansion was decided upon. In accordance with this schedule, the NATO Summit will be held in Madrid in July 1997, inviting countries seeking admission to NATO. New members will be admitted by 1999, the year of the 50th anniversary of the founding of NATO, and the treaty organization will remain open to new membership thereafter.

The NATO position entails simultaneous promotion of NATO expansion and the building of a cooperative relationship with the Russian Federation. The Russian Federation is opposed to NATO expansion, and has stated that it absolutely will not accept the admission of Ukraine or the Baltic nations, or the deployment of NATO troops or nuclear weapons on the soil of new NATO members. At the same time, however, it is willing to participate in talks with NATO on the strengthening of cooperative relations. In acknowledgment of Russian Federation concerns, NATO officially announced during the December Ministerial Meeting of the North Atlantic Council that nuclear weapons would not be deployed on the soil of new member nations. In addition, NATO has presented the Russian Federation with a comprehensive charter on NATO relations with the Russian Federation, and has decided to initiate meetings between NATO Secretary-General Javier Solana and Russian Foreign Minister Yevgeny Primakov. NATO and the Russian Federation are expected to work together to coordinate further toward the July 1997 NATO Summit.

At the December Ministerial Meeting of the North Atlantic Council, NATO decided that in parallel with work towards expansion, it would also strengthen relations with its member nations through expansion of the Partnership for Peace (PFP) program and establishment of the Atlantic Partnership Council. In addition, NATO is also undertaking concrete steps toward revising the internal chain of command and establishing a Combined Joint Task Force (CJTF).


The Organisation for Security and Co-operation in Europe (OSCE) played a key role in preparing for and conducting the elections held last September in Bosnia and Herzegovina. The cooperation between OSCE and the Implementation Force (IFOR), in which NATO plays a central role, will serve as a model for future cooperation between different security organizations. The December OSCE Summit in Lisbon adopted the Lisbon Declaration and the Security Model Declaration (which calls for the "Creation of a Common and Comprehensive Security Environment"). In addition to confirming moves toward stability throughout Europe, including Russia, this Summit also confirmed that the Conventional Forces in Europe (CFE) agreement, which has been the basis of European security since it went into force in 1992, would be adapted to the new security environment.

The Western European Union (WEU) is considered an indispensable element in EU defense and a means of strengthening NATO as a central pillar in Europe. At the November meeting of the Council of Ministers, the WEU adopted the Ostende Declaration, which prescribes the enhancement of WEU operational capabilities and cooperation in the area of equipment. This development has further strengthened cooperation and coordination with NATO.

3. The Economy

a) European Union (EU)

Europe's economy has been stagnant since mid-1995 (the economic forecast released by the European Commission in November estimates that the real GDP growth rate for the EU as a whole fell from 2.4% in 1995 to 1.6% in 1996), but showed signs of gradual recovery through the latter half of 1996. In 1997, the economy is expected to be fundamentally strong as a result of the following factors: more balanced fiscal and financial policies in EU member countries, resulting in lower long- and short-term interest rates; strong extraregional demand boosting exports; sound supply thanks to strong returns on investment; and stable foreign exchange markets.

On the other hand, unemployment remains a serious problem-1996 predictions indicated an average unemployment rate of 10.9% for EU countries. Furthermore, the chronically unemployed account for nearly half of the total unemployment figure. Employment measures constitute a top priority on the EU agenda.

With regard to economic and monetary union, the EU remains on schedule to move into the third stage of union in January 1999 (implementation of financial policy by the European Central Bank, introduction of a single currency known as the euro, etc.). Still, it will not be easy for all member countries to fully meet the convergence criteria set out in the Maastricht Treaty, which makes stipulations for countries in regard to their participation in economic and monetary union. First, they must ensure extensive budget deficit reductions, control inflation and stabilize their currencies.

b) Market Economy Reform in Central and Eastern Europe

On the whole, the economic situation in this region is stable. All the countries in the region enjoyed positive economic growth in 1995 for the second year in a row. On the other hand, discrepancies have become obvious in progress toward economic reform. Economic reform is proceeding smoothly in some countries, with the Czech Republic joining the OECD in 1995, followed by Hungary and Poland in 1996, but the impetus toward reform has stalled in others.

E. Russia and the Newly Independent States

1. Russia

With the reelection of President Boris Yeltsin of the Russian Federation in the elections of summer 1996, it was expected that the political and economic situation would stabilize, but the president's recurring health problems triggered an open power struggle. Although his successful heart operation at the end of the year and subsequent resumption of presidential duties has quieted the power struggle for the time being, the question of succession remains at issue. In Chechnya, a truce has been realized for the first time in approximately one year and nine months, and steps toward peace are being taken, although sources of potential instability remain.

a) Domestic Situation

The presidential election to determine the basic direction of national policies for the next four years was conducted in June and July. President Yeltsin was allied with Alexander Lebed, a rival candidate who had done well on the first ballot, and appointed Lebed to the posts of National Security Adviser and Secretary of the Security Council. Yeltsin also dismissed conservative aides. He displayed a number of shrewd campaign tactics and on the final ballot defeated Gennady Zyuganov, Chairman of the Central Executive Committee of the Russian Communist Party. In this election the Russian people, while extremely dissatisfied with the current situation, rejected communism as a national structure, opting instead to seek political stability and improved social and economic conditions through reform in line with the principles of freedom, democracy and market economy.

In late June, however, an open power struggle emerged with a recurrence of President Yeltsin's heart problems. At the center of the struggle was Alexander Lebed, who aspired to the president's seat. Yeltsin coped with the unstable situation by dismissing Lebed. President Yeltsin then underwent a coronary bypass operation in November. After a smooth recovery, he resumed presidential duties by the end of the year, thus putting the power struggle issue to rest for the present. The constitution prohibits three consecutive presidential terms, however, so the question of succession promises to become a major focal point of Russian politics.

In Chechnya, negotiations between Alexander Lebed and Chechen separatists resulted in a truce and a peace agreement in August, the first real break in the fighting in approximately one year and nine months. Russian troops were almost completely withdrawn by the end of the year. According to the terms of the peace agreement, both sides consented to defer any decision on the status of the Chechen Republic for five years. This has drawn strong criticism within the Russian Federation from those who feel that the agreement may permit the Chechen Republic independence, thereby damaging the Russian Federation's territorial integrity. The overall direction of events in Chechnya is toward peace, however, even though sources of potential instability remain.

b) Economic Situation

The economy is showing positive signs of recovery. Consistent implementation of an austerity program has paid off, with the inflation rate markedly reduced since the latter half of 1995. Efforts to stabilize the currency are also proving successful, and trade continues to be strong. Nevertheless, the Russian economy remains in turmoil. Production continues to slump, posting negative growth in 1996, despite the tendency toward recovery in 1995. In addition, nonpayment of corporate taxes has created tremendous financial difficulties for the government.

A major priority of the Russian Federation's reform effort thus far has been to achieve macroeconomic stability through a program of fiscal and financial austerity, but economic growth is still lagging, and there is a new tendency in economic policy-making to argue the necessity of greater emphasis upon industrial revitalization.

c) External Relations

With continued strong nationalist sentiment within the country, Foreign Minister Andrei Kozyrev resigned in January and was replaced by Director of the Foreign Intelligence Service Yevgeny Primakov. In his new post, Foreign Minister Primakov has stressed the importance of relations with other members of the Commonwealth of Independent States (CIS) and shifted from primary focus upon relations with the United States and Western European countries toward a foreign policy with a balanced focus in all directions.

With regard to its relations with other members of the CIS, moves toward greater integration are afoot, as evidenced by the conclusion of the Treaty between Russia, Belarus, Kazakhstan and Kyrgyzstan regarding Deepened Integration and the Commonwealth Treaty between the Sovereign Republics of Russia and Belarus.

In terms of Russia's multifocused foreign policy, particular focus is being devoted to the Asia-Pacific region. President Yeltsin visited China in April, and Foreign Minister Primakov visited China, Mongolia and Japan. With the United States and Western European countries, Russia has strengthened working-level cooperative relationships while maintaining its strong opposition to eastward enlargement of the North Atlantic Treaty Organization (NATO).

2. The New Independent States (NIS)

Five years into independence, the nation-building efforts of the New Independent States (NIS) have begun to bear fruit, resulting in relatively stable political situations in 1996. Central Asia was free of political turmoil, and even in Tajikistan, where the conflict remains unsolved, a peace process has begun. There was also no major unrest in the Caucasus region. In Ukraine, the issue of a new constitution had been a cause for concern, but the adoption of the new constitution in June has averted a dangerous confrontation between the president and the legislature for the present. In Belarus, a standoff between the president and the legislature developed into a political showdown in the form of a national referendum in November. As a result of the referendum, a proposed constitutional amendment which would greatly expand the powers of the presidency garnered the support of a majority of voters, but the tension associated with the process was a great cause of concern throughout the international community.

The NIS nations are continuing to experience problems with their domestic economies. There are countries such as Azerbaijan whose natural resources are attracting the interest of the international community, and some countries are reaping benefits, principally macroeconomic, from reform efforts. However, the economic situation does not allow for optimism, with a lack of infrastructure and many other problems remaining.

It is within this context that some of the NIS states began working in 1996 toward deepening the integration of CIS, in which the Russian Federation plays the central role. The Treaty between Russia, Belarus, Kazakhstan and Kyrgyzstan regarding Deepened Integration was concluded in March, and the Commonwealth Treaty between the Sovereign Republics of Russia and Belarus was signed in April. Although some countries are not interested in integration, the developments described above appear to indicate an important trend among the NIS states toward increased integration.

Japan considers the situation among the NIS states to be an important factor affecting the stability of the Russian Federation, the Middle East and, in the long run, the international community as a whole, and as such worked in 1996 to strengthen bilateral relations with these countries. Japan has consistently supported the reform efforts of these nations, and Japan's intention to continue supporting these reforms was reiterated by Foreign Minister Ikeda during his visit to Ukraine last July on his way back to Japan from the Lyon Summit, and by both Prime Minister Hashimoto and Foreign Minister Ikeda during visits to Japan beginning in October by the prime ministers of four different Central Asian nations (Tajikistan, Kazakhstan, Kyrgyzstan and Uzbekistan).

F. The Middle East

1. Recent Middle East Developments and the Visit by Minister for Foreign Affairs Yukihiko Ikeda to the Middle East

Approximately 80% of the crude oil that is imported to Japan comes from the Middle East region. Not only is the Middle East a vitally important region for Japan in terms of securing a long-term, stable energy supply, but achieving peace and stability in the region is of extremely great significance for the entire international community. Recognizing this, Japan intends to further strengthen its relations with the nations of the Middle East region and to positively contribute to the peace and stability of the entire region. As a part of this effort, from 21 to 27 August, Foreign Minister Ikeda visited Egypt, Syria, Jordan, the Gaza Strip and Israel. During this trip, he held talks with the heads of state and foreign ministers of the parties to the Middle East peace process and explained Japan's efforts to promote Middle East peace, urging his hosts to work to expedite the peace process. (For more information on the situation in the Middle East, see Chapter II, Part A, Section 3.)

2. Iraq and Iran

The situations in Iraq and Iran, along with the issues regarding Middle East peace discussed earlier, are additional factors of instability in the Middle East. As a result of the United Nations sanctions that have been in place for more than six years, Iraq is facing serious domestic problems, including shortages of goods and high inflation, but the Government of President Saddam Hussein appears to remain in control of the country. Furthermore, UN Security Council Resolution 986 (passed in April 1995), which allows limited petroleum exports by Iraq to fund the purchase of humanitarian supplies such as food and medicine, went into effect in December 1996. For the first time since their suspension when Kuwait was invaded in August 1990, oil exports by Iraq, albeit limited, have resumed under the strict surveillance of the United Nations. At the same time, Iraq has obstructed inspection attempts by the United Nations Special Commission (UNSCOM), which has been working to eliminate weapons of mass destruction. At the end of August 1996, Iraq sent troops to the Kurdish area in northern Iraq in spite of concerns expressed by the international community. The United States responded with attacks upon Iraqi military installations. Japan believes that, in order to secure the peace and stability of the Gulf Region, Iraq must comply fully with all relevant United Nations Security Council resolutions. To this end, Japan has repeatedly called on Iraq to comply fully with these resolutions.

In Iran, policy decisions are made through a process of confrontation and compromise between the pragmatists, who focus on the importance of the nation's economic reconstruction, and the conservatives, who stress strict adherence to the tenets of Islam. There are concerns in the international community regarding Iran's behavior, including its opposition to the Middle East peace process and its alleged involvement in terrorism. In particular, the United States has adopted a policy of "dual containment" to strictly contain Iran as well as Iraq. In contrast, many of the European countries have adopted policies of "critical dialogue" with Iran. Japan's stance is that it is undesirable to isolate Iran, and Japan continues to strongly urge Iran to take concrete actions to dispel the international community's concerns and to adopt pragmatic policies.

3. Gulf Cooperation Council (GCC) Countries

Japan depends on the six Gulf Cooperation Council countries-Saudi Arabia, the United Arab Emirates, Qatar, Kuwait, Oman and Bahrain-for close to 70% of its crude oil imports. Japan believes that it is important not only to maintain energy transactions, but to strengthen relations in a broad range of fields which include expanding political dialogue through increasing high-level visits, enhancing economic and technological cooperation (including investment), and spurring cultural exchange.

G. Africa

1996 witnessed a continuation of Africa's new, 1990s trend toward democratization and economic structural adjustment, with positive developments taking place in both the political and economic spheres, but many problems remain to be resolved, such as the conflict which erupted in eastern Zaire.

1. Developments in 1996

In the political sphere, the process of democratization moved forward gradually in countries such as the Republic of the Gambia, which had long been under military rule, but in which a national referendum on a new constitution was held in August, followed by a presidential election in September. In other countries, political reforms and movement towards peace were in evidence. Peace agreements were concluded in Liberia and Sierra Leone, both of which had been involved in long-running civil wars, in August and November respectively.

On the other hand, Central Africa continues to face many problems, including serious humanitarian crises. A coup d'état occurred in July in Burundi, where tribal conflict has continued since 1993. The coup was condemned by neighboring countries, which imposed economic sanctions that have further exacerbated conditions there. In addition, ethnic conflict flared up in September in eastern Zaire, which had been taking in large numbers of Rwandan refugees since 1994, thus affecting the lives of more than one million Rwandan refugees there. Although large numbers of refugees have been repatriated amidst the chaos, many refugees remain scattered throughout Zaire and neighboring countries. With such serious humanitarian crises occurring, it is clear that African countries, particularly in Central Africa, still face many challenges. International debate is now underway concerning effective measures to deal with Africa's frequent conflicts.

In the economic sphere, many African countries are moving forward with the implementation of structural reform measures composed primarily of efforts to introduce market economy principles, and to rationalize and increase the efficiency of government bodies, although achievements vary from country to country. Further, many challenges must be met in order to alleviate poverty and ensure sustainable growth, including the development of infrastructure, stimulation of the private sector and expansion of education. In recent years, with such moves toward democratization in most of these countries, regional organizations such as the Organization of African Unity (OAU), the Economic Community of West African States (ECOWAS) and the Southern African Development Community (SADC) are becoming more and more active.

2. Relations with Japan

Japan recognizes that in order to solve the many problems faced by African countries, it is important to provide as much assistance as possible to each country's self-help endeavors. From this viewpoint, Japan has supported the political and economic reforms of the African countries, while at the same time actively taking part in efforts to solve conflicts.

First, in the area of peace and stability, Japan has made personnel contributions, including participation in such activities as the UN peace-keeping operations in Mozambique, election support and monitoring in various countries, and relief activities for Rwandan refugees. With regard to funding, Japan has contributed to such activities as the Trust Fund for the Implementation of the Programme of Work of the Standing Advisory Committee on Security Questions in Central Africa and the Peace Fund of the Organization of African Unity. As for intellectual contributions, in October 1995 Japan co-sponsored the "High-level Symposium on Peace and Development-Problems of Conflict in Africa," and in September 1996 hosted a symposium entitled "High-level Symposium on Conflicts in Africa-Road to Nation-Building in the Post-Conflict Period." Japan also dispatched a government research mission in November to study ways to support the Rwandan refugees.

Second, with regard to development issues, a series of policy dialogues was conducted in accordance with the results of the 1993 Tokyo International Conference on African Development (TICAD). During the Ninth General Assembly of the United Nations Conference on Trade and Development (UNCTAD), which was held in the Republic of South Africa in April, Foreign Minister Yukihiko Ikeda announced "Japan's Initiatives on Assistance to Africa," which comprise the following three pillars: (1) holding the Second Tokyo International Conference on African Development (TICAD II) in 1998 and the preparatory meeting in 1997, both in Tokyo; (2) "Assistance to Human Resources Development" by monitoring assistance for education, accepting about 3,000 trainees to discuss development issues in the region, and promoting south-south cooperation; and (3) "Assistance for the Eradication of the Polio Disease." Also, the Regional Workshop for Western and Central Africa was held in Yamoussoukro, Côte d'Ivoire in July and the High-Level Seminar on African Development was convened in August in Tokyo.

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