Chapter I.
General Overview-The International Community and Japan's Foreign Policy in 1997

B. Efforts toward a peaceful and prosperous Asia-Pacific

1. Japan-United States relations

a) Overview

The governments of Japan and the United States have worked to enhance cooperative relations in the political, security, economic and global issues spheres, in a manner consistent with the "Message from Prime Minister Hashimoto and President Clinton to the Peoples of Japan and the United States" and the "Japan-U.S. Joint Declaration on Security," both issued during the April 1996 visit to Japan by President William Clinton. This basic policy of both governments was reaffirmed during Prime Minister Hashimoto's visit to the United States in April and Japan-U.S. cooperative relations developed still further in 1997.

The basis of Japan-U.S. relations is the alliance based on the Treaty of Mutual Cooperation and Security between Japan and the United States of America (the Japan-U.S. Security Treaty), and in September 1997, new "Guidelines for Japan-U.S. Defense Cooperation" were issued at the Japan-U.S. Security Consultative Committee (SCC) meeting in New York, based on the Japan-U.S. Joint Declaration on Security. December 1996 marked the issuance of the Final Report of the Special Action Committee on Okinawa (SACO), which had been established to promote the consolidation, realignment and reduction of U.S. facilities and areas in Okinawa, and efforts continue to be made to steadily implement the Report. (For further details on the Japan-U.S. Security Arrangements, see Chapter II, Part A, Section 1.)

Japan-U.S. economic relations basically continued to be sound, reflecting improvement in the trade imbalance and steady resolution of specific issues, as well as favorable economic conditions in the United States.

Japan's trade surplus with the United States, however, has been increasing since October 1996, and the United States has been urging Japan to achieve domestic demand-led economic growth. Particularly at a time when currency and stock market fluctuations originating in the Southeast Asian countries are having an impact on the world economy, the United States is emphasizing the need, with respect to stabilizing the Asian economy, for a strong Japanese economic recovery, financial system reform and promotion of deregulation.

A strong rapport has been built up between Prime Minister Hashimoto and President Clinton, and the two leaders exchange views with great frequency, not just on Japan-U.S. bilateral relations but on a broad range of international issues. Minister for Foreign Affairs Keizo Obuchi, who took office in September, has had two meetings with Secretary of State Madeleine Albright of the United States of America in the brief time since his appointment. He also visited the United States in December, building rapport with key U.S. officials.

The year 1997 saw close, high-level communication between Japan and the United States, with a number of visits to Japan by eminent U.S. figures, including Secretary of State Albright's visit in February, visits by Vice President Albert Gore in March and December and the April visits of Treasury Secretary Robert Rubin and Secretary of Defense William Cohen. In addition, Thomas Foley was newly appointed U.S. Ambassador to Japan in November.

b) Japan-U.S. economic relations (specific issues)

i) Deregulation

At the Japan-U.S. Summit Meeting in April 1997, both leaders agreed to strengthen bilateral dialogue on deregulation under the Japan-U.S. Framework Talks. In response to this, a Joint Statement was issued in June on enhanced initiatives on deregulation and competition policy in order to establish a dialogue framework. The framework comprises a senior officials group at the deputy-ministerial level and five experts groups; four of them address, respectively, telecommunications, housing, medical devices and pharmaceuticals, and financial services, while the fifth deals with cross-sectoral issues. Leaders also agreed at their November meeting that tangible results would be achieved before the Birmingham Summit of the Eight in 1998.

ii) Civil aviation

With regard to the formal Japan-U.S. civil aviation consultations, held eight times at the deputy-ministerial level since August 1997, the two delegations reached general agreement on 30 January 1998. This signaled resolution of yet another major economic issue between Japan and the United States.

The framework which will be created in response to this general agreement will redress the disparity in carrier numbers and make more equitable the number of points where carriers can fly beyond Japan and the United States. This marks a major improvement in the imbalance between Japan and U.S. carriers, long a subject of concern. It will also entail measures toward the further liberalization of Japan-U.S. aviation relations.

iii) Port transport

Alleging that the Japanese harbor practice of prior consultation created a situation unfavorable to U.S. shipping companies, on 4 September the United States Federal Maritime Commission (FMC) took sanctions against three Japanese carriers which use U.S. ports, imposing a levy of US$100,000 every time a liner vessel owned or operated by these carriers entered a U.S. port. The Japanese Government held consultations on improvement of the prior consultation system with the relevant domestic parties, and also entered into consultations with the U.S. Government, effectively resolving the issue on 17 October. After agreement was reached among the relevant domestic parties, a memorandum was exchanged between the two governments, and on 13 November the FMC announced that the sanctions would be suspended indefinitely. However, during this process, the FMC collected US$1.5 million in levies from the three Japanese carriers. The Japanese Government believes that these sanctions by the FMC constitute a violation of the Treaty of Friendship, Commerce and Navigation between Japan and the United States of America, and will be discussing this issue with the U.S. Government.

iv) The Japan-U.S. Common Agenda for Cooperation in Global Perspective

Since the Common Agenda was launched in July 1993, the areas of cooperation the Agenda covers have undergone major expansion. At the Vice-Ministerial Plenary Meeting in May 1997, this broad spectrum of cooperative activities was rearranged and integrated into 18 areas ("initiatives") under four pillars: promotion of health and human resources; response to challenges to global stability; protection of the global environment; and advancement of science and technology. The area of cooperation on environmental education has also been added to this integrated framework.

The number of third countries, NGOs and other parties participating in the Common Agenda has also grown, with the Agenda becoming increasingly international. In February 1996, the first Common Agenda Round Table was held in Japan among key figures from Japan's private sector, with Gaishi Hiraiwa, honorary chairman of the Japan Federation of Economic Organizations, acting as Chair. The Common Agenda Round Table held a workshop in April 1997 on environmental education and Japan-U.S. cooperation, making valuable proposals on Japan-U.S. Common Agenda activities.

In November, the Okinawa-Hawaii Conference was held in Okinawa, where views were exchanged on cooperation by both sides in the areas of intellectual and technical cooperation, tourism development, and the environment and development. As a result of the meeting, Okinawa and Hawaii announced that they hoped to contribute to the resolution of global issues through bilateral cooperation, coordinating their efforts with those of Japan and the United States under the Common Agenda. This launched a unique experiment in Japan-U.S. interregional cooperation.

v) People-to-people exchange

Promoting greater exchange and mutual understanding between Japanese and American youth is of great importance for the world in the 21st century. The Japanese Government is therefore promoting a comprehensive initiative targeted at U.S. high school students, college students, college graduates, teachers, young researchers, young artists and other youth to enhance their understanding of Japan, with the purpose of providing more American young people with opportunities to learn about Japan. In addition, Prime Minister Hashimoto decided to send 40 high school students from Okinawa to the United States every year for one-year home stays, starting in the summer of 1998. Responding to this, the U.S. Government contributed US$50,000 to send 10 American high school students for six-week home stays in Okinawa in the summer of 1998.

vi) Toward the 21st century

Japan and the United States have overcome obstacles, shared experiences and developed cooperative relations over many years now, as allies and partners sharing the values of freedom, democracy and market economy principles. This relationship between Japan and the United States plays a vital role for the peace and prosperity not only of the two countries themselves, but also of the Asia-Pacific region and of the international community as a whole. The Japan-U.S. relationship is the axis of Japan's foreign policy.

In addition to bilateral security and economic issues, Japan and the United States are engaged in a variety of other issues, including issues related to the stability and prosperity of the Asia-Pacific region, enhancement of the functions of the United Nations and global issues such as environmental conservation. As the world moves toward the 21st century, the two countries must overcome difficulties and build an even more solid relationship, realizing peace and prosperity for not only themselves but also the whole world. Japan-U.S. relations are supported by each individual citizen of the two countries, and it will be essential for the development of this important bilateral relationship that the citizens of both countries deepen mutual understanding and develop strong ties.

2. Japan-China relations

a) Overview

The year 1997 was the 25th anniversary of the normalization of relations between Japan and China, and bilateral relations have shown the kind of development which is most appropriate for a commemorative year, including realization of the exchange of visits by top leaders (Prime Minister Hashimoto's visit to China in September and the visit to Japan in November by Premier Li Peng of China). Japan-China relations have faced difficulties over the past few years with regard to issues such as China's nuclear tests, the Japan-U.S. Security Arrangements, the Senkaku Islands and the interpretation of past history. However, in 1997, there was a great improvement in the atmosphere surrounding bilateral relations due to unflagging efforts by both sides, in due consideration of the roles played by each for the stability and prosperity of the Asia-Pacific region and the world as a whole.

b) Issues related to Japan-China relations

China announced a moratorium on nuclear tests in July 1996, and it has been in force ever since. Japan's grant assistance, which in principle had been frozen, was consequently resumed on Foreign Minister Yukihiko Ikeda's visit to China in March 1997.

With regard to the Senkaku Islands, protest vessels from Hong Kong and Taiwan have continued to take actions such as venturing close to the islands. While maintaining its basic position that the Senkaku Islands are an integral part of Japanese territory and that Japan has effective control over them, and responding appropriately to actions such as encroachment upon Japan's territorial waters, Japan has reacted calmly, based on the recognition shared by Japan and China that Japan-China relations as a whole should not be undermined by this issue.

China expressed great interest from the outset regarding revision of the Guidelines for Japan-U.S. Defense Cooperation, responding particularly strongly over the treatment of Taiwan. Japan has taken every opportunity to explain the content of the revision to China. As a result of a detailed explanation by Prime Minister Hashimoto himself during his trip to China of the basic philosophy behind this revision of the Guidelines, a certain degree of progress was achieved in terms of deepening China's understanding of Japan's position. Although there were issues such as China's response to the revision of the Guidelines, security and defense-related dialogues and exchanges are currently making certain progress, as a result of the consensus of opinion reached between the leaders during Prime Minister Hashimoto's visit to China.

In addition, when Prime Minister Hashimoto made the first visit of a Japanese Prime Minister since World War II to the northeast region of China, he indicated Japan's willingness to build cooperative ties for the future on the basis of recognition of past history. As for the conclusion of the fisheries agreement, which has been an issue in the bilateral relationship, a new agreement was signed during Premier Li Peng's visit to Japan, on the basis that coastal states should in principle manage marine living resources within their exclusive economic zones.

As for the disposal of chemical weapons abandoned in China by the former Japanese Imperial Army, the Japanese Government has announced that the entire government will continue to address this issue in good faith, in view of the entering into force of the Chemical Weapons Convention (CWC) in April 1997.

c) Relations with Hong Kong and Taiwan

Hong Kong was returned to China on 1 July 1997. Japan has indicated to China that retaining Hong Kong's open and free system under the "one country, two systems" principle is important in maintaining the prosperity of Hong Kong. Japan has also provided the greatest possible support for the newly returned Hong Kong through, for example, the conclusion of an air services agreement and an agreement for the promotion and protection of investment and its treatment of Hong Kong passports. On Chief Executive Tung Chee-hwa's visit to Japan in October, he explained that the "one country, two systems" principle had been functioning smoothly, and conducted a frank exchange of views with Japanese leaders.

With regard to relations with Taiwan, Japan has been maintaining its relations with Taiwan only on the unofficial level, in line with the Japan-China Joint Communique. Japan has continued to express that it strongly desires to see a peaceful resolution of the Taiwan issue through peaceful talks between parties on both sides of the Strait, and is watching closely moves toward the resumption of dialogue.

d) The role of Japan-China relations in the international community

In addition to working on difficult bilateral issues, Japan and China have also responded positively to issues involving the region and the international community as a whole. At the Summit Meeting held during Premier Li Peng's visit to Japan, the main topics of discussion were cooperation in stabilizing the Asian economy and other issues for the international community, as well as the international situation, including matters involving Russia and the United States.

With regard to environmental issues, Prime Minister Hashimoto proposed the Japan-China Joint Initiative on Environment Toward the 21st Century, the two main pillars of which will comprise development of an environment information network and an environmental model-city concept. The Chinese side agreed in principle to the initiative. In addition, Japan supports China's early accession to the World Trade Organization (WTO), in terms of strengthening the multilateral trading system as well. Areas of Japan-China dialogue are expanding further, including dialogues in areas such as security and human rights.

e) The outlook for 1998

Having passed a quarter of a century since the normalization of relations in 1972, Japan-China relations have seen progress in a number of areas. At the same time, the difference in political systems and domestic circumstances of the two countries inevitably make it difficult to avoid various frictions as the exchanges between the two countries deepen. In order to resolve these issues, mutual understanding between Japan and China is a matter of growing importance at various levels, including understanding among the younger generation.

In this sense, too, exchange in an even wider spectrum of areas is expected in 1998, the 20th anniversary of conclusion of the Treaty of Peace and Friendship between Japan and China. At the government level, President Jiang Zemin's visit to Japan is scheduled for 1998, in response to an agreement during Prime Minister Hashimoto's visit to China that top-level visits between the two countries at the Head of State level should take place at least once a year in the future. Japan will take such opportunities to work toward the development of further dialogue and cooperation.

3. Japan-Russia relations

With regard to relations between Japan and Russia, the Tokyo Declaration, which was signed during the visit of President Boris Yeltsin of Russia to Japan in October 1993, has been a cornerstone for bilateral relations. Japan's basic policy regarding diplomatic relations with Russia is to make every possible effort to resolve the Northern Territories issue based on the Tokyo Declaration, thereby concluding a peace treaty and fully normalizing relations between Japan and Russia. Japan also supports Russia's reform initiatives and is working to cooperate and strengthen relations in all fields. With regard to the most important Northern Territories issue, Japan considers the question of the attribution of the Four Islands and the development of an environment conducive to the resolution of territorial issues to be parallel issues as if they were two wheels of a wagon, and is making simultaneous efforts in both areas.

In addition, at a meeting of the Japanese Association of Corporate Executives in July 1997, Prime Minister Hashimoto put forward the three principles of trust, mutual benefit and a long-term perspective with regard to Japan's foreign policy toward Russia. He noted that tangible progress based on these three principles had to be made with regard to both the Northern Territories, an issue of the most critical concern to both countries, and Japan-Russia economic relations. These three principles have been greeted favorably by the Russian Government, mass media and so on.

Building upon the achievements of the previous year, political dialogue grew even closer in 1997.

First, Minister of Defense Igor Rodionov of Russia visited Japan, the first such visit by a Russian defense minister, engaging in talks with Director-General Fumio Kyuma of the Defense Agency and paying a courtesy call on Foreign Minister Yukihiko Ikeda. In the talks with Director-General Kyuma, both sides agreed to hold regular talks between defense authorities, to confirm annual exchange plans and to establish a joint working group on confidence building, laying the groundwork for confidence building between the defense authorities of the two countries.

Foreign Minister Ikeda also visited Russia in late May to participate in the Eighth Japan-Russia Foreign Ministers' Regular Consultations; additionally, he held talks with President Yeltsin and First Deputy Prime Minister Boris Nemtsov, with both parties agreeing to develop closer political dialogue between Japan and Russia, thus setting the stage for Japan-Russia relations in the years to come.

First Deputy Prime Minister Nemtsov visited Japan in June, taking part in the Second Meeting of the Japan-Russian Federation Inter-Governmental Committee on Trade and Economic Affairs. Wide-ranging exchanges of views were conducted at this meeting toward the development of bilateral economic relations, with members affirming the importance of expanding domestic and foreign investment in Russia and agreement reached on intergovernmental cooperation to stimulate economic exchange.

A Japan-Russia Summit was also held on the occasion of the Denver Summit, at which leaders reached basic agreement that they would visit each others' countries once a year, that steady progress needed to be made on the Tokyo Declaration and so forth.

As a result of later talks between foreign ministers at the ceremony for the return of Hong Kong at the end of June, the ASEAN Regional Forum (ARF) in July and the United Nations General Assembly in September, a "no-tie" Japan-Russia Summit was held in Krasnoyarsk, Russia, on 1-2 November. The personal relationship of trust and friendship between Prime Minister Hashimoto and President Yeltsin was further deepened on this occasion, and with regard to peace treaty negotiations, leaders also agreed to do their utmost to conclude a peace treaty between the two countries by the year 2000 based on the Tokyo Declaration, making real progress since the Tokyo Declaration.

Moreover, with regard to the economic sector, they agreed on the importance of steadily developing bilateral economic relations, and formulated the Hashimoto-Yeltsin Plan as the platform for promoting bilateral economic cooperation, with the basic philosophy of balanced open-economy development, market economy transition and promotion of cooperation in the energy area. The six measures to be taken under this plan are: (1) investment cooperation initiatives; (2) promotion of integration of the Russian economy into the international economic system; (3) expansion of reform support; (4) cooperation for a training program for Russian business managers; (5) strengthened dialogue on energy; and (6) cooperation in the peaceful use of nuclear power.

In terms of Asia-Pacific cooperation, Japan called upon Russia to join Japan in playing a constructive role as an important regional player and announced its support of Russia's accession to APEC, which led to subsequent official approval of Russia's accession.

In addition, in the area of security, leaders agreed to consider concrete bilateral cooperation measures and to explore the possibility of joint exercises between Japan's Self-Defense Forces and the Russian military in humanitarian and other areas.

Leaders also agreed in regard to the 12 nautical mile zone around the Northern Territories that they would direct both countries' delegations to conclude within the year, if possible, framework negotiations aimed at ensuring that Japanese fishing vessels could operate safely in these waters.

These matters were confirmed at the Ninth Japan-Russia Foreign Ministers' Regular Consultations held on 13 November. With regard to peace treaty negotiations, the foreign ministers responded to the agreement between the leaders in Krasnoyarsk by agreeing to take the work on conclusion of a peace treaty to a new qualitative level, establishing a group headed by both ministers to conduct negotiations at the vice-ministerial level in order to ensure progress in that work, and to hold vice-ministerial talks in Moscow in January 1998.

In terms of economic relations, ministers agreed to move forward positively with approximately 10 concrete measures under the Hashimoto-Yeltsin Plan, through the Inter-Governmental Committee and other such fora.

They also agreed, in regard to further political dialogue, to consider holding the Japan-Russia Foreign Ministers' Regular Consultations by April 1998 during Foreign Minister Obuchi's visit to Russia, and to coordinate further on the details of President Yeltsin's scheduled visit to Japan in mid-April. The meeting therefore proved to be a valuable first step in following up on the Summit in Krasnoyarsk.

With leaders agreeing at the Krasnoyarsk Summit to work toward conclusion within the year, if possible, of the negotiations on a framework to allow Japanese fishing vessels to operate in the waters around the four northern territories, an actual conclusion was reached on 30 December after three years of negotiations.

4. The Korean Peninsula

a) Japan-ROK relations

President Kim Young Sam visited Beppu in January, and wide-ranging exchanges of views between the leaders of the two countries were conducted in a relaxing atmosphere in line with the Cheju Summit in July 1996. At the Summit, the leaders agreed that there were some bilateral issues yet to be resolved, but that even as both sides held firm to their own positions, they should also try to overcome these issues to strengthen forward-looking cooperative relations. Concrete agreement was reached on measures to expand youth exchanges. With regard to the situation on the Korean Peninsula, close consultation among Japan, the ROK and the United States was reaffirmed, and the leaders also agreed that they would further strengthen their bilateral cooperation within the international community. Summits were also held in New York in June and in Vancouver in November.

Since November, the ROK has faced a currency and financial crisis prompted by a sudden plunge in currency and stock values. With the view of providing all possible support as a neighboring country which has friendly and cooperative relations with the ROK, Japan announced that it would provide US$10 billion as second-line reserve assistance in the support package of US$58 billion put together by the International Monetary Fund (IMF) in December, the largest contribution to be made by any country in this package.

Since 1996, Japan and the ROK have conducted a number of talks toward early conclusion of a new fisheries agreement based on the purpose of the United Nations Convention on the Law of the Sea. This issue has also been raised during Foreign Minister Obuchi's ROK visit in December 1997, but no conclusion was reached. (The Government of Japan notified the ROK Government on 23 January 1998 of Japan's intention to terminate the Japan-ROK Fisheries Agreement in accordance with the provisions of Article 10-II of the Agreement. This decision was made under the determination to end the old fishery order under the present Agreement, which was concluded more than 30 years ago, and to promptly establish a new fishery order based on the purport of the United Nations Convention on the Law of the Sea. The existing Agreement will continue to be in force for one year after the notification.)

b) Japan-North Korea relations

i) Issues between Japan and North Korea and moves toward resumption of Japan-North Korea Normalization Talks

Japan and North Korea have been having informal contacts at the working level to discuss arrangements for resumption of the Japan-North Korea Normalization Talks. In August, preparatory talks were held at the deputy director-general level in Beijing for resumption of the Normalization Talks. At the preparatory talks, both sides agreed on the early resumption of Normalization Talks and the early realization of home visits of Japanese spouses living in North Korea, etc.

Following this, concrete agreement was reached at the First Japan-North Korea Red Cross Meeting in September on home visits of Japanese spouses living in North Korea. The first round of home visits, with 15 Japanese wives, took place on 8-14 November.

Since February, suspected cases of abduction of Japanese citizens by North Korea were raised in the Diet and in the press, and drew strong public attention. When the Government of Japan raised this issue during talks with North Korea, the North Korean side stressed its position that there was no reality to these claims. A delegation of the three ruling parties, which visited North Korea in November, brought up this issue in its discussions with the North Korean side and was informed that this matter had nothing to do with North Korea, and that an investigation would nevertheless be conducted, in the context of searching for missing persons. On occasions such as the Japan-North Korea Red Cross Meetings, the Japanese Government has been requesting that the North Korean side conduct a serious investigation and take concrete actions to resolve the issue.

ii) Humanitarian (food) assistance to North Korea

North Korea has been facing a food shortage due to various reasons, such as continued flood damage, over the two years since 1995, and in April 1997, the United Nations issued a consolidated appeal for humanitarian assistance in the amount of about US$184 million. The United States responded with a donation of US$52 million, while the ROK contributed a total of US$26 million, including donations to United Nations organizations outside the appeal. The EU put forward a total of 46 million ECUs (about US$53.8 million), including its donations to the World Food Programme (WFP) and food assistance given directly to North Korea.

While the public opinion toward North Korea remained severe as a result of suspected abduction cases and other factors, Japan decided in October 1997 to take the following measures with a view to playing its due role as a member of the international community from the standpoint of emergency and humanitarian assistance: (1) to contribute US$27 million for WFP emergency food assistance for children and medical organizations as part of the United Nations consolidated humanitarian appeal; and (2) to contribute Japanese yen in an amount equivalent to 1.1 million Swiss francs (94 million yen) for provision of medical kits listed in the International Federation of Red Cross and Red Crescent Societies (IFRC) appeal, through the Japan Red Cross Society. (The WFP will procure 67,000 tons of rice owned by the Japanese Government.)

iii) Korean Peninsula Energy Development Organization (KEDO)

The Korean Peninsula Energy Development Organization (KEDO) is an international organization established in March 1995 by Japan, the ROK and the United States based on the Agreed Framework signed between the United States and North Korea in 1994. The purposes of KEDO are to provide for the financing and supply of a light-water reactor (LWR) project in North Korea, and to provide for the supply of interim energy alternatives.

In August 1997, a groundbreaking ceremony was held to mark the beginning of preliminary work on the LWR project in Kumho, South Hamgyong Province, North Korea. In November a cost estimate of overall LWR project costs was agreed upon among the Executive Board Members. The LWR project thus took an important step forward in its implementation. In September, the European Atomic Energy Community (EURATOM) joined KEDO as an Executive Board Member, along with Japan, the ROK and the United States.

It is extremely important for both Japan's security and international nuclear non-proliferation regime that efforts are made to resolve the problem of North Korean development of nuclear weapons. It is in this light that Japan has participated actively in KEDO's policy making process along with the other Executive Members. In the area of human resources, Japan has seconded policy planning staff and nuclear energy experts to serve on the KEDO Secretariat. In the financial area, Japan has donated US$31.73 million as of December 1997 and has indicated its intention to play a significant financial role within the overall framework of the LWR project, in which the ROK will play the central role.

iv) The Four-Party Meeting and North-South relations

The first Four-Party Meeting, proposed by the presidents of the U.S. and ROK in April 1996, was held in December 1997 in Geneva. This was preceded by a joint briefing for North Korea, conducted by the ROK and the United States in March 1997, as well as three preparatory meetings held in August, September and November respectively. Japan has been supporting this process since its proposal.

In terms of North-South relations, food assistance was provided to North Korea through the Red Cross, but the situation did not develop as far as the re-opening of North-South dialogue.

5. The economic situation in Asia

Starting with the tumble of the Thai baht, Asian currencies and stocks fell dramatically in the latter half of 1997, with economies throughout Asia experiencing major impacts. First of all, the Thai baht, which had been pegged to the U.S. dollar as a practical matter, dropped steeply after the shift to a floating currency system on 2 July.

The impact of the baht's sharp decline spread widely throughout the region, with the fall of the currencies and stocks of Indonesia, Malaysia, the Philippines and other Asian countries. The turmoil in ASEAN currencies and financial markets was, moreover, not limited to the region but spread to Hong Kong and the Republic of Korea, creating serious uncertainty in the world economy as a whole.

To address this situation, in August the International Monetary Fund (IMF) and other international financial organizations, Japan and other countries concerned decided on financial assistance measures for Thailand, while placing various conditions on the Thai Government regarding its macroeconomic policy in order to stabilize the country's economy, finance and exchange rates. Financial assistance was also provided, mainly by the IMF, to Indonesia in October and to the ROK in December. In November, "A New Framework for Enhanced Asian Regional Cooperation to Promote Financial Stability" was adopted in Manila at the Meeting of Asian Finance and Central Bank Deputies, establishing a regional assistance framework to supplement and strengthen IMF assistance.

While the direct cause of this turmoil in Asia's currencies and stock markets was over-valuation of the currencies of these troubled countries, other factors could be pointed out, such as medium- to long-term issues and structural problems, including trade structure problems in the fiscal policy and the vulnerable financial and capital markets of each country. Japan recognizes that the Asian economy's fundamentals are basically sound, with continued potential for high growth. This view was affirmed at the APEC Economic Leaders' Meeting and Ministerial Meeting in November and at the Japan-ASEAN Summit in December. Economic interdependence is reaching an unprecedented level, and given Asia's significance in the world economy, the stability of the Asian economy is quite important for the stability of the world economy as a whole. It is therefore vital to make appropriate efforts on issues such as sound macroeconomic policies and economic structural reform, as well as securing the transparency of the financial sector. In addition to its cooperation for currency and financial stability, Prime Minister Hashimoto, on the occasion of his visit to the ASEAN countries in December, announced that Japan would strengthen its cooperation from a long-term perspective in the areas such as human resources development, technical assistance and infrastructure development.

6. Regional cooperation in the Asia-Pacific

a) Asia-Pacific Economic Cooperation (APEC)

As a framework for regional cooperation, APEC embraces a number of economies with diverse histories, languages, cultures, social and economic systems, and levels of development. This framework is intended to promote trade and investment liberalization and facilitation and economic and technical cooperation, contributing to the stability and prosperity of the Asia-Pacific region by developing both of these aspects in tandem.

Looking at APEC's development to date, the 1993 Seattle meeting proclaimed the philosophy of creation of an Asia-Pacific community, while the Bogor meeting in 1994 set out the goal of free and open trade and investment. This was followed by the development of the Osaka Action Agenda at the 1995 Osaka meeting, outlining concrete guidelines for achieving the Bogor goal. At the Philippines meeting in 1996, all members submitted Individual Action Plans (IAPs) for liberalization and facilitation based on the Osaka Action Agenda. The Ninth Ministerial Meeting (21-22 November) and the Fifth APEC Economic Leaders' Meeting (24-25 November) held in Vancouver, Canada, designated 1997 as the initial year of action, with action plans for liberalization and facilitation turned into concrete action. In addition to trade and investment liberalization and facilitation and economic and technical cooperation, members also discussed the issue of new membership, which had been of some concern. The economic situation in Asia was the subject of particular focus in view of the turmoil on Asia's currency and stock markets.

i) Specific results of the Vancouver Meetings

b) The ASEAN Regional Forum (ARF)

The ASEAN Regional Forum was established in 1994 as a forum for dialogue at which foreign ministers from Asia-Pacific countries, including the United States, China and Russia, gather around one table to exchange views on political and security issues in the region. Ministerial Meetings have subsequently been held every summer, and steady progress is being achieved, with the scope of ARF activities expanding steadily.

At the Second ARF Ministerial Meeting in 1995, participants agreed that the following three-step evolutionary approach should be taken toward achieving ARF objectives: (1) promotion of confidence building; (2) development of preventative diplomacy; and (3) elaboration of approaches to conflicts. In addition, in order to consider concrete measures to be implemented, participants agreed to hold working-level meetings in the three areas of confidence building, peacekeeping operations, and search and rescue (SAR) operations; these meetings have been underway since January 1996. The Third Ministerial Meeting, held in July 1996, was the venue for a frank and vigorous exchange of views concerning regional security issues, and ministers also approved proposals on specific measures formulated by working-level meetings.

Working-level activities continued at a dynamic pace in 1997, adding disaster relief to the three areas above, and meetings held in all four areas. The goal of these meetings is to engage in concrete discussion on ARF activities from an expert perspective. At the same time, they are also important in promoting mutual understanding and building confidence among experts from the various countries.

At the Fourth Ministerial Meeting in July 1997, in addition to an extremely frank exchange of views on the regional situation, ministers agreed to initiate discussions at the government level on preventative diplomacy, designated as the second stage of the ARF process following that of establishing confidence building measures. Agreement was also reached on continuation of the various working-level meetings already in progress.

To improve the security environment in the Asia-Pacific region, ARF members must solidify the foundation of the group's activities through frank dialogue and steady implementation of the confidence-building measures on which consensus has been reached, and, further, must strengthen efforts with regard to preventative diplomacy. Given the diversity in the Asia-Pacific region, security cooperation in this area is expected to make incremental progress, and continued efforts from all countries will be needed for the achievement of long-term regional stability.

The building of confidence and trust among the nations of the Asia-Pacific region and improvement of the regional security environment are extremely important in ensuring Japan's own security and prosperity. Japan must continue its efforts to promote the progress of ARF.

c) The Asia-Europe Meeting (ASEM)

Established with the aim of strengthening ties between Asia and Europe, which have until now been the relatively weak link in the triangle of Asia-Europe-North America relations, the Asia-Europe Meeting (ASEM) had an active year in 1997, following up on the First Asia-Europe Meeting held in March 1996 in Bangkok. In particular, the foundations for the ASEM framework were laid through a succession of ministerial meetings, with the Foreign Ministers' Meeting in February, the Finance Ministers' Meeting in September, and the Economic Ministers' Meeting later in the same month. Substantial dialogue also took place at the private sector level, with the Asia-Europe Business Conference held in July and the second Asia-Europe Business Forum in November.

ASEM conducts activities toward the creation of comprehensive ties between Asia and Europe based on the three pillars of politics, the economy, and culture and other areas. At the first Summit meeting, Japan proposed a number of follow-up measures to be taken in these areas. Firstly, in the political area, from the viewpoint that intellectual exchange at the private sector level is also important, in addition to inter-governmental dialogue, Japan has supported the activities of the Council for Asia-Europe Cooperation (CAEC), established by the major research institutes of both regions. In the economic area, Japan hosted the Economic Ministers' Meeting in Makuhari, Chiba, at which Prime Minister Hashimoto gave the opening address. In addition, based on a proposal for cooperation between customs authorities, the Second Meeting of the ASEM Directors-General and Commissioners of Customs was held in June. In cultural and other areas, Prime Minister Hashimoto proposed a mini Davos-type youth exchange program with a view to promoting youth exchange between Asia and Europe, resulting in the Asia-Europe Young Leaders Symposium (AEYLS) held in Miyazaki Prefecture in March which was attended by more than 100 young leaders.

Forthcoming activities include the Second Asia-Europe Meeting (ASEM2) in London in April 1998, second meetings for the foreign, finance and economic ministers in 1999, and the Third Asia-Europe Meeting in the Republic of Korea in the year 2000. ASEM2 in April 1998 will be of particular importance in determining the direction of ASEM in years to come. Japan is working actively toward the success of this meeting, including coordinating the views of Asian members, together with Thailand, the other Asian coordinator.

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