Chapter III.
Regional Developments

A. Asia and the Pacific

1. The People's Republic of China and its vicinity

While China has achieved remarkable economic development in recent years, its ideology has appeared to face difficulty as the centripetal force of society. Contemporary China also faces a number of severe problems such as the reform of state-owned enterprises, measures to combat unemployment and the handling of massive bad debts. Under these circumstances, China witnessed two major events in 1997, namely the return of Hong Kong in July and the 15th Communist Party Congress in September.

Although the impact of the passing away of Deng Xiaoping, advocate of openness and reform policies, in February, was a focus of attention, the Chinese leadership led by President Jiang Zemin handled these important events without incident, stabilizing China still further. At the same time, the reform of state-owned enterprises and other issues-including the introduction of a stock system-set forth by the Party Congress are not easy to solve, and how these reforms are implemented will be crucial.

In terms of foreign policy, China is conducting an omnidirectional diplomatic approach to achieve a stable international environment, which is considered necessary for the build-up of the Chinese economy. China has also indicated that it wishes to accede to the WTO Agreement, and is playing an active role within APEC and other regional cooperation frameworks.

Japan and China celebrated the 25th anniversary of the normalization of relations in 1997, with exchange between the two countries drawing still closer, starting with mutual visits by Premiers. China expressed concern over the revision of the Guidelines for Japan-U.S. Defense Cooperation, but certain understanding seems to have been reached as a result of the detailed explanations provided by Japan at various levels from the outset of the revision. (Refer to Chapter I, Part B, Section 2 for more on Japan-China relations.)

Looking to U.S.-China relations, President Jiang visited the United States from late October, and while differences of opinion remain in areas such as human rights, the visit obtained results such as the institutionalization of regular high-level dialogues. Between China and Russia, President Jiang visited Russia in April, followed by President Boris Yeltsin's visit to China in November. The two countries declared the completion of the drawing up of the eastern border between China and Russia, and reached consensus on further promoting economic and other cooperation.

Hong Kong was returned to China on 1 July, and became a Special Administrative Region of the People's Republic of China. Although stock prices have gone down in Hong Kong because of the instability of Asian currencies, the "one country, two systems" principle is basically functioning smoothly. While China-Taiwan relations had been strained since 1995, there were moves toward improvement in 1997.

The year 1997 also marked the 25th anniversary of the establishment of diplomatic relations between Japan and Mongolia. Mongolia has made steady progress toward democracy and the market economy, and an opposition party candidate was elected in the May presidential elections.

2. The Korean Peninsula

Domestic politics in the Republic of Korea in 1997 centered on the December presidential elections. The Hanbo incident uncovered in January developed into a massive scandal which extended into the political sphere. The scandal revealed the close relationship between political and economic players, including the illicit accumulation of funds and intervention in the politics of the incumbent president's second son. The ruling New Korea Party put forward Lee Hoi Chang as their presidential candidate, but Rhee In Je, the party's second choice, formed a new party and stood independently. On the opposition side, the alliance between candidates Kim Dae Jung and Kim Jong Pil consolidated support for Kim Dae Jung. As a result of the 18 December polls, Kim Dae Jung, the President of the National Congress for New Politics (NCNP) party, was elected President, signaling the first changeover of power between the ruling and opposition parties and the emergence of the first president from Cholla-do.

In terms of the economy, the Republic of Korea witnessed a series of bankruptcies among medium-sized chaebol in 1997, while financial institutions' accumulation of non-performing loans became an increasingly severe problem. These factors led to a rapid devaluation of the won and stock prices in November. The Korean Government requested IMF support, and on 3 December, both sides agreed to an economic program, with a support package of more than US$58 billion.

In North Korea, the end of the period of mourning for the late President Kim Il Sung was announced in July, and in October Kim Jong Il was elected General Secretary of the Workers' Party. On the economic side, food and energy shortages seem to remain severe, with reports of cereal crops being damaged by high temperatures and drought in the summer of 1997. Cases of the defection of high-ranking officials-Secretary Hwang Jang Yop in February and North Korean Ambassador to Egypt Chang Sung Gil in August-also occurred.

3. Southeast Asia

The Association of Southeast Asian Nations (ASEAN) celebrated its 30th anniversary in 1997, continuing to promote intraregional cooperation widely across political, economic and social areas. In political and security spheres, ASEAN worked to realize the Zone of Peace, Freedom and Neutrality (ZOPFAN), while on the economic side, efforts also progressed toward further promoting intraregional trade and investment through the ASEAN Free Trade Area (AFTA), the ASEAN Investment Area (AIA) and the ASEAN Industrial Cooperation Scheme (AICO), etc. The ASEAN Vision 2020, which embraces the above initiatives, was announced at the ASEAN Summit in Malaysia in December.

In 1997, the number of ASEAN members expanded from seven to nine. Expansion to include all 10 Southeast Asian nations has been an ASEAN objective since the association was established, and at the ASEAN Ministerial Meeting on 31 May in Malaysia, the decision was made to admit Cambodia, Laos and Myanmar simultaneously. However, because of subsequent military clashes in Cambodia in July, the Foreign Ministers' Meeting in Malaysia at the end of July allowed only Laos and Myanmar to join, with Cambodia's accession postponed.

Japan has historically had deep ties with the Southeast Asian countries in a number of areas, and the Japanese Foreign Minister attends the annual ASEAN Post-Ministerial Conferences. Recently, Japan has also been actively promoting dialogue and cooperation with ASEAN at the Asia-Pacific Economic Cooperation (APEC) forum, the Asia-Europe Meeting (ASEM), and the ASEAN Regional Forum (ARF), in which ASEAN has been playing a proactive role. In 1997 in particular, as the 30th anniversary of the founding of ASEAN, Prime Minister Hashimoto visited Brunei Darussalam, Indonesia, Malaysia, Viet Nam and Singapore in January, and issued the Hashimoto Doctrine, which announces Japan's intention of further strengthening close ties with ASEAN, working on the maintenance and conservation of the region's traditions and culture, and working together with ASEAN to address global issues. At the Japan-ASEAN Summit in Malaysia in December, Japan announced that in view of the Asian economic turmoil, Japan would cooperate with ASEAN toward stabilizing Asian currencies and financial markets, and would also assist ASEAN in achieving stable and sustained development through economic structural reform, etc.

In terms of the Cambodian situation, since 1996 there had already been marked discord between the two main parties-the National United Front for an Independent, Neutral, Peaceful and Cooperative Cambodia (FUNCINPEC), led by First Prime Minister Prince Norodom Ranariddh, and the Cambodian People's Party, led by Second Prime Minister Hun Sen-during the approach to the 1998 elections. In 1997, this led to a series of events, including the March terrorist incidents in Phnom Penh. State Secretary for Foreign Affairs Masahiko Koumura subsequently visited Cambodia in April, urging both prime ministers to work toward stabilizing domestic politics and implementing elections in 1998 as scheduled, and to engage in domestic cooperation. In June, further struggles took place in Phnom Penh between the two parties. At the Denver Summit, Prime Minister Hashimoto expressed his regret at the situation in Cambodia, and proposed the dispatch of a special emissary to stabilize the situation. This proposal was supported by President Jacques Chirac of France and President Clinton of the United States, with envoys from Japan and France accordingly dispatched to Cambodia on behalf of the G-8 countries. (Japan's envoy was former Ambassador to Cambodia Yukio Imagawa.) Both ambassadors conveyed to the two Cambodian Prime Ministers a message from the international community urging them not to annul the peace in Cambodia which had been achieved through major effort and sacrifice on the part of the international community, and noting the great importance of internal stabilization and holding the 1998 elections as planned.

Despite these appeals, however, friction between the two parties increased, erupting into a large-scale military clash in Phnom Penh on 5 July. Japan dispatched Self-Defense Forces Transport Aircraft C-130 to Utapao Royal Thai Navy Air Field in Thailand in order to evacuate Japanese citizens in the event that fighting intensified. The military clash in Phnom Penh came to an end some days later, with Minister of Foreign Affairs Ung Huot appointed as the new First Prime Minister in place of Prince Norodom Ranariddh in August.

Japan's stance on the Cambodian issue is that the stabilization of people's lives is the chief priority, and that the Cambodian people should not be forced to suffer again as they did during the long period of internal conflict. Since this incident occurred, Japan has been calling on Cambodian leaders to respect the Paris Peace Accords, maintain the existing constitution and political system, observe basic human rights and implement free and fair elections in 1998 (in which a single prime minister will be elected).

As for the regional economy, the plunge of the Thai baht in July sparked turmoil on Asian currencies and stock markets and rocked the entire Asian economy, rippling out across the whole world. (Refer to Chapter I, Part B, Section 5 for more on the East Asian economic situation.)

Regional economic issues were also the focus of discussions at the ASEAN Summit in Malaysia in December, and a Joint Statement on the financial situation, including strong support for the early implementation of the Manila Framework, was issued.

4. Southwest Asia

India, Nepal and Pakistan all experienced changes of administration in 1997, but the Southwest Asian countries continue to work toward opening and liberalizing their economies. They are also endeavoring to strengthen intraregional cooperation, as exemplified in the decision at the Ninth South Asian Association for Regional Cooperation (SAARC) Summit in May to realize the South Asian Free Trade Area (SAFTA) by 2001. Dialogue was reopened and the tension was mitigated between India and Pakistan, which have been confronting each other over the Kashmir issue. A number of destabilizing factors remain, however, including both countries' suspected development of nuclear weapons. Japan is working to strengthen ties with countries in Southwest Asia, and former Prime Minister Kiichi Miyazawa participated in the Indian Engineering Trade Fair in February as Ambassador on Special Mission, along with many Japanese business leaders. In addition to the visit to Nepal and Bhutan by Their Imperial Highnesses Prince and Princess Akishino in late February and early March, an official economic mission dispatched by the government visited Sri Lanka and Pakistan in May. In July, Prime Minister Sheikh Hasina of Bangladesh visited Japan, while for the first time in approximately a decade, Foreign Minister Yukihiko Ikeda visited Pakistan and India, each about to celebrate the 50th anniversary of its independence.

5. Oceania

Ties between Japan and the countries of Oceania strengthened still further in 1997, manifested in such occasions as Prime Minister Hashimoto's visit to Australia and New Zealand in April and the invitation of South Pacific Forum (SPF) leaders to Tokyo in October for the first-ever Summit Meeting between Japan and the SPF. In Australia, the Howard administration focused on such internal issues as aboriginal land rights, with foreign policy continuing to focus on the Asia-Pacific, as evidenced by Prime Minister John Howard's visit to China in March. In terms of relations with Japan, both countries agreed to regularize bilateral Summit talks (to be held, in principle, once a year), and the 14th Japan-Australia Ministerial Committee Meeting in August saw the adoption of the Japan-Australia Partnership Agenda, affirming bilateral cooperative relations. In New Zealand, within the National Party former Prime Minister Jim Bolger resigned, with Jenny Shipley leading the new coalition government of the National Party and New Zealand First Party which emerged in December. In the Pacific Island region, general elections were held in Papua New Guinea and the Solomon Islands, etc., and administrations changed, signaling the beginning of a generational shift in politics.

B. North America

In contrast to the early 1990s, when discussions in the United States focused on the negative aspects of globalization, the general mood in the country is now far more optimistic. This is particularly true in regard to its economy. With continuing economic expansion, it is pointed out that the economic structure has been transformed, realizing both low unemployment and high growth at the same time. However, public concerns over securing stable employment remain, and problems such as widening income disparities, and the continued inward-looking tendency, have also been noted. Toward the end of the year, many discussions were held on the impact of the economic turmoil in Asia on the U.S. economy.

The Clinton administration began its second term in January. In his inaugural address, the President described the administration's goal as building a bridge to a new century. In his State of the Union address in February, he announced that the administration would engage in unfinished business such as balancing the budget; reforming education as a top priority; undertaking tasks to prepare for the 21st century (promoting science and technology and strengthening family ties and local communities); and handling such foreign policy issues as the enlargement of NATO.

With a robust U.S. economy, President Clinton has made progress on policy tasks such as balancing the budget and the enlargement of NATO. As he maintains a middle-of-the-road stance and, albeit on a small scale, addresses some issues of appeal to the public, his support level remains high. Concerning the reduction of the budget deficit, a central topic in U.S. politics in the 1990s, the Clinton administration and the Congressional Republicans reached an agreement in May on a bill aiming to balance the budget by 2002, although this has been achieved primarily through the increased revenue created by economic expansion, and issues accompanying the aging of society have yet to be tackled. Both sides hailed this as a major achievement.

On the other hand, both political parties were subject to media attention as well as Congressional and judicial investigations, with regard to political ethics and campaign contributions. While public interest was limited, these issues engaged a great deal of attention within political circles. Discussion on campaign finance reform centered on issues such as regulation of soft money (unregulated funds which are used to increase party power, but which are in reality difficult to distinguish from campaign contributions). However, since election expenses have been increasing, the issue was eventually shelved.

In the latter half of the year, fast-track legislation met with opposition from environmental groups and from labor unions concerned about job losses to foreign countries. The President regarded the legislation as important in expanding trade with Latin America in that it would give him trade negotiation authority with limited congressional debate and no amendments. As a consequence, the President was unable to win the support of many Democrats, and the plan of voting on the legislation during 1997 was abandoned; and this showed the President experiencing some difficulties in his relations with Congress.

While the Republican Party had maintained a majority in both houses again in 1996 following a victory in 1994, it has still failed to regain political momentum in 1997 as a result of factors such as the fallout from the Republicans' confrontational stance over the 1995 budget deliberations; dissatisfaction among the conservative elements of the party with the compromises that the party leadership was making with the Clinton administration; and the co-opting by the administration of some of the Republican policy agenda.

Compared to its first term, the second term of the Clinton administration, which began in January 1997, has seen considerably more energy thrown into foreign policy. Assistant to the President for National Security Affairs Samuel Berger delineated the strategic goals of Clinton Administration's foreign policy as follows: (1) building an undivided, peaceful, democratic Europe; (2) cementing America's role as a stabilizing force in a more integrated Asia-Pacific community; (3) helping to bring peace to key regions of the world (Bosnia, the Middle East, etc.); (4) confronting the range of new security challenges such as terrorism, drugs and the environment; (5) assuring budgetary allocations for a modern and ready military force and for effective diplomacy; and (6) working toward openness in the world economy and in regional economies. There was a consequent string of overseas visits by key figures and a vigorous internal public relations campaign, yielding a harvest.

More specifically, the achievements of the Clinton administration include: (1) ratification of the Chemical Weapons Convention; (2) NATO enlargement; (3) reaffirmation of the U.S. policy of engagement toward China, including renewal of China's MFN status and President Jiang Zemin's visit to the United States; (4) re-starting of efforts toward peace in Bosnia; (5) review of the Guidelines for Japan-U.S. Defense Cooperation; (6) holding of the first Four-Party Talks; and (7) agreement on the COP-III protocol.

Looking ahead to 1998 in terms of domestic politics, with the achievement of one major policy goal-balancing the budget- the administration will need to lay out new policy objectives. In terms of foreign policy, issues for 1998 will include: (1) Iraq; (2) the Asian economic crisis (IMF contributions); (3) Senate ratification of NATO enlargement; (4) payment of arrears on United Nations contributions; (5) Bosnia (extension of deployment of U.S. troops past the end of June); (6) fast-track authority (with attention to President Clinton's April visit to Chile); (7) the Middle East peace process; and (8) preparation for President Clinton's visits to China (during 1998), Africa (in March) and South Asia (during 1998). Some of these are difficult to handle. The November mid-term election is already beginning to loom (affecting 34 seats in the Senate and all 435 seats in the House of Representatives, as well as gubernatorial elections in 36 states), and close attention is being paid to the steering of the Clinton administration.

The economy continued to expand in 1997, with prices generally stable and unemployment kept around a low five percent. Much talk was devoted to the "New Economy," which postulated that the U.S. economy had achieved an historic structural transformation. Higher tax revenues as a result of good economic conditions and efforts to cut government spending pushed down the budget deficit to US$21.9 billion in FY1997 (October 1996 to September 1997), a dramatic reduction when compared to the deficit of approximately US$290 billion when President Clinton came to power. In addition, based on the Bipartisan Budget Agreement, the Balanced Budget Act of 1997, which prescribes the budget to be balanced by 2002 while implementing tax cuts of around US$100 billion, was passed. Factors such as a sound macroeconomic environment, robust corporate performance and strong demand, including that from pension funds, maintained a buoyant stock market. However, there are signs that the economy may have entered an adjustment phase spurred by the plunge of stock prices on the Hong Kong market and the Asian currency crisis, among others. The continuing strength of the dollar is beginning to expand the trade deficit, with the U.S. trade deficit with Japan growing again since October 1996.

Canada's general elections in June 1997 saw Prime Minister Jean Chrétien's Liberal Party holding on to power. While placing a high priority on job creation as a policy goal, the Chrétien administration is also working actively to reduce the budget deficit and keep inflation down. These policies have won the administration strong public support, and there have been no political upsets. Quebec independence and secession continues to be an important issue in domestic politics. However, while keeping this issue on the table, Quebec Premier Lucien Bouchard has placed maximum priority on rebuilding the province's economy. In terms of foreign policy, Canada played a central role in the drafting of the Convention on the Prohibition of the Use, Stockpiling, Production and Transfer of Anti-Personnel Mines and on their Destruction (the Total Ban Treaty on Anti-Personnel Land Mines), signed by more than 120 countries at a signing ceremony in Ottawa in December. In November, Canada also hosted the APEC Ministerial and Leaders' Meetings in Vancouver as the Chair for 1997, naming 1997 as the "Year of the Asia-Pacific," and devoting considerable effort to strengthening its ties with the region.

Japan-Canada relations were active in 1997, with a series of visits between the two countries by key figures. These included Speaker of the Senate Gildas Molgat's visit to Japan in March, Foreign Minister Lloyd Axworthy's visit in April, Prime Minister Ryutaro Hashimoto's Official Visit to Canada in November after attending the APEC Vancouver meetings, and Foreign Minister Obuchi's visits in November to participate in the APEC Ministerial Meeting and in December to attend the signing ceremony for the Total Ban Treaty on Anti-Personnel Land Mines. During Prime Minister Hashimoto's visit, the two countries issued a joint statement entitled "Strengthening Japan-Canada Relations Toward the 21st Century." Talks between Japanese and Peruvian Heads of State were also conducted in Toronto in February, to consider a response to the seizure of the Japanese Ambassador's Residence in Peru.

C. Latin America and the Caribbean

Democracy has become increasingly entrenched in Latin America in the 1990s, with countries also reforming their economies on the basis of market economy principles and making progress toward economic integration. These three trends continued in 1997, a year in which the region showed itself to be firmly on the path to economic development, seeking, for example, further progress on regional cooperation.

With the exception of Cuba, the Latin American countries have made the transition to democracy, and 1997 witnessed moves toward even more robust democracies. In Mexico, the Institutional Revolutionary Party (PRI), which had held power for around 70 years, lost its majority in the Federal Chamber of Deputies in the July domestic elections, but President Ernesto Zedillo Ponce de León, a member of the PRI, interpreted this positively as the result of the political reforms that had been pushed forward in Mexico. In Ecuador, President Abdalá Bacaram Ortíz, who had been the cause of political instability, was thrown out by the National Congress in February, causing temporary confusion. Eventually, however, the situation showed signs of settling down. In Cuba, the Fifth Communist Party Congress in October maintained its socialist and revolutionary line, reaffirming the Cuban Communist Party as the sole and ruling party. No concrete moves toward democratization were therefore in evidence.

In economic terms, the Asian currency crisis and the subsequent world-wide plunge in stock prices also had some impact on the newly emerging markets of Brazil, Argentina and Mexico. However, drawing on the lessons of the 1980s debt crisis and the Mexican currency crisis at the end of 1994, these countries worked on foreign exchange control and the strengthening of their financial systems, which, supported by the announcement of prompt economic measures and the robustness of the U.S. economy, allowed them to avoid any major impact. Rather, the Latin American region as a whole recorded sound economic growth. This was considered to be the result of efforts by the Latin American countries to ensure sound macroeconomic operations while moving forward with economic reform based on market economy principles. At the same time, these countries continue to be faced with the question of how to secure sustained economic growth under a retrenchment regime, while at the same time redressing the rising trade deficit and unemployment which have accompanied economic reform.

The shared commitment to the market economy is promoting open-market style economic integration among the Latin American countries. More specifically, 1997 saw the deepening and expansion of economic integration, examples of which include the initiation by the Southern Common Market (MERCOSUR) (comprising Argentina, Brazil, Paraguay and Uruguay) of negotiations toward liberalization of services, with progress also made in negotiations with the Andean Community (comprising Bolivia, Colombia, Ecuador, Peru and Venezuela) toward creation of a free trade area. In addition, the Third Trade Ministerial Meeting was held in Brazil in May in regard to the creation of the Free Trade Area of the Americas that was advocated at the 1994 First Summit of the Americas, held in the United States and attended by the 34 countries of the Americas (with the exception of Cuba). Participants at the May meeting declared that concrete negotiations toward creation of the FTAA would begin at the Second Summit of the Americas, scheduled to be held in Chile in April 1998.

With economic exchange between Asia and Latin America steadily expanding, the latter has been displaying great interest also in the Asia-Pacific region, and at the Vancouver APEC Economic Leaders' Meeting in November, leaders agreed on Peru's admission to APEC as of 1998. Peru will be the third Latin American country to join APEC, preceded by Mexico and Chile.

Japan has been seizing various occasions to strengthen ties with Latin America, with the aim of creating a partnership between Japan and Latin America for a new age-focusing on the 21st century-as advocated during Prime Minister Hashimoto's visit to five of the Latin American countries in 1996. Firstly, in terms of strengthening bilateral ties, Their Imperial Majesties the Emperor and Empress of Japan visited Brazil and Argentina over the end of May and into June, their first trip to Latin America, while Their Imperial Highnesses Prince and Princess Akishino visited Mexico (attending the ceremony marking a century of Japanese migration to Mexico) and Jamaica. Their Imperial Highnesses Prince and Princess Hitachi also visited Chile (attending the ceremony commemorating a century of amity between Japan and Chile) and Guatemala in September. From Latin America, President Zedillo of Mexico came to Japan in March as a State Guest, with seven Heads of State and four foreign ministers also visiting during 1997. Moreover, to strengthen policy dialogue with the main regional groupings in Latin America, Japan held the Ninth Meeting of the Ministers for Foreign Affairs of the Rio Group Troika Countries and Japan on the occasion of the holding of the United Nations General Assembly, and also implemented consultations in Barbados with the Caribbean countries. In addition, recognizing MERCOSUR as a promising newly emerging market in which U.S. and European companies are making marked inroads, Japan engaged in intergovernmental meetings with the MERCOSUR countries in October and also held a Japan-MERCOSUR joint government-private sector meeting in Tokyo toward deepening understanding on MERCOSUR's market environment.

D. Europe

1. Major progress in creating a new European order

The year 1997 proved to be a critical year for Europe, with major progress made toward creating a new order in the areas of politics, economics and security. Firstly, in terms of security, basic guidelines were laid down on the enlargement of the North Atlantic Treaty Organization (NATO); other events included the establishment of a framework for consultations between NATO and Russia. Next, in regard to politics, EU members signed the Amsterdam Treaty, which amends the Maastricht Treaty (the document which forms the basis of the European Union), also stipulating basic guidelines on EU expansion. In economic areas, they confirmed the procedures for starting in January 1999 the third phase of Economic and Monetary Union (EMU); i.e., the introduction of the euro as the single European currency. Each Member State engaged fully in the preparations for participation in this phase.

2. New developments in European security

a) NATO-Russian Federation Founding Act

Since the fall of 1995, NATO has been engaging in dialogue with countries wishing to join the organization, but Russia has consistently opposed any NATO enlargement. However, as a result of a series of talks between NATO Secretary-General Javier Solana and Foreign Minister Yevgeny Primakov of Russia since January 1997, U.S.-Russia Summit talks in Helsinki in March, and intensive negotiations between NATO and Russia in Paris at the end of May, NATO and Russian leaders eventually signed the Founding Act on Mutual Relations, Cooperation and Security Between the Russian Federation and NATO.

This Founding Act states that NATO and Russia will not consider each other to be enemies, and makes it clear that nuclear weapons will not be deployed in new NATO Member States, nor will these countries deploy conventional forces of any major scale. The same document also notes that a NATO-Russia Permanent Joint Council will be established to discuss not only European security but also a broad range of other issues, including peacekeeping operations, arms control, non-proliferation of nuclear, biological and chemical weapons, drugs and terrorism. Under this mechanism, both sides will cooperate to the maximum extent possible, and, where appropriate, can engage in joint decision-making and joint action. The Council will meet monthly at the ambassadorial level, with a biannual meeting among ministers of foreign affairs and defense.

b) NATO enlargement

At the NATO Madrid Summit in July, the leaders decided to launch accession negotiations with Poland, the Czech Republic and Hungary, and the accession protocols for these countries were signed at the December Ministerial Meeting of the North Atlantic Council. Each NATO member will now ratify these protocols, and all three countries are expected to accede to NATO before the April 1999 Summit commemorating NATO's 50th anniversary.

The December Ministerial Meeting of the North Atlantic Council also reached basic agreement on a new command structure responding to the new post-Cold War security environment. The military structure will be reorganized-for example, reducing military command personnel from 65 to 20-to enable it to respond effectively and flexibly to new issues such as crisis management, peace-making and prevention of the proliferation of weapons of mass destruction.

3. Progress toward European integration-deepening and enlargement of the European Union

Progress toward European integration comprises the two aspects of deepening, or strengthening, the extent of EU integration, and enlargement, or increasing the number of Member States. In 1997, Europe saw significant progress in terms of both these aspects.

a) Deepening of the EU: adoption and signature of the Amsterdam Treaty

Structural reform in line with the deepening of European integration and EU enlargement was approached by initiating an Inter-Governmental Conference (IGC) in March 1996 to revise the Maastricht Treaty (the Treaty on European Union). As a result of intensive negotiations by this body in early 1997, the Amsterdam meeting of the European Council in June agreed on an amended treaty-the Amsterdam Treaty.

The Amsterdam Treaty expands the scope of Common Foreign and Security Policy (CFSP) and specifies cooperation by the EU as a body on some judicial and internal aspects such as entry inspections. Specific examples include a new chapter on employment, introduction of the principle of flexibility (whereby some Member States are able to progress further and faster with cooperation than others) and constructive abstention (a mechanism whereby a decision can be made even when certain countries abstain). Member states' interests clashed in regard to structural reforms such as simplification of the decision-making structure toward an enlarged EU (reducing the number of European Commissioners, reviewing the qualified majority voting system, etc.). As a result, no conclusion could be reached, and these issues were left for resolution at a later date.

The signing ceremony for the treaty was held in October in Amsterdam and attended by Heads of State from the Netherlands and Luxembourg, as well as foreign ministers from the various EU Member States. The treaty will enter into force once Member States have completed the ratification procedures.

b) Enlargement of the EU

Ten Central and Eastern European countries, Cyprus, and Turkey are seeking EU accession. The European Council presented a report in July 1997 entitled "Agenda 2000," which proposes opening accession negotiations with Cyprus and five Central and Eastern European states (Poland, Hungary, the Czech Republic, Estonia and Slovenia).

However, some Member States assert that accession negotiations should be opened simultaneously with all applicants, and at the December meeting of the European Council in Luxembourg, the following course of action was decided: (1) to open accession negotiations with the six countries proposed in the European Council report, starting in the spring of 1998; (2) to allow the other five Central and Eastern European countries (Romania, Slovakia, Latvia, Lithuania and Bulgaria) to enter into accession negotiations according to annual developments; (3) to exclude Turkey from negotiations for the meantime in that it has not met the same criteria as other applicants for accession, recognizing that Turkey should be inspected according to these criteria, and to draft a European strategy on accession with a view to promoting Turkey's accession preparations; and (4) to establish a European Conference in which all EU Member States and those states aspiring to accession, Turkey included, will participate.

Turkey reacted strongly to being excluded from accession negotiations, announcing its non-participation in the European Conference and suspending policy dialogue with the EU.

4. Economic situation in Europe

The improvement of the European economic situation, which began in late 1996, has sped up in 1997. The real GDP growth rate of the EU recovered from 1.8 percent in 1996 to 2.6 percent in 1997, and is expected to reach 3.0 percent in 1998 (October 1997 Economic Forecast by the European Commission). Factors behind such trends include a low level of inflation (2.0 percent according to the above Forecast); growing intraregional investment (a 2.6 percent increase according to the above Forecast) underpinned by a favorable financial environment; strong extraregional demand; and a recovery in intraregional demand as companies and consumers regain confidence in the economy.

Major progress has also been achieved in each country toward meeting the economic convergence criteria necessary to move into the third phase of Economic and Monetary Union (EMU), scheduled for January 1999. Strenuous efforts by EU Member States, including budget deficit reduction, have led to the forecast that 11 of the 15 Member States, excluding the United Kingdom, Denmark, Sweden and Greece, will be able to participate from the outset in the transition to the third phase. The resulting introduction of the single currency of the euro is expected to contribute to future European integration.

Unemployment remained the most serious problem facing the European economy. The average unemployment rate forecast for the EU Member States in 1997 was as high as 10.7 percent, with each state facing the dilemma of being unable to work actively on employment promotion measures because of the tight fiscal policies they have had to take in order to meet the EMU economic convergence criteria.

Under these circumstances, momentum was created to actively tackle the employment issue as the EU, in particular with the initiative of the new French Socialist Party government. An ad hoc European Council meeting was held in Luxembourg in November as the first EU Summit focusing solely on employment, resulting in the drafting of guidelines and the adoption of a multilateral monitoring system, etc.

Almost all the economies of Central and Eastern Europe recorded positive growth and stable price rises, with the overall economic situation generally stable. However, while some countries are actively promoting privatization, etc., and making steady progress on economic reform, others have experienced some difficulties, and disparities are beginning to appear in intraregional progress with economic reform.

5. Japan-Europe relations

As outlined above, Europe has made significant progress toward the creation of a new order, a trend which will have an important impact not only on the stability of Europe itself but also on the Asia-Pacific region and the international community as a whole. It is also vital that Japan, the United States and Europe work together in the new post-Cold War international community to resolve global issues such as the environment. The necessary course for Japan is therefore to maintain and develop close consultation and dialogue with Europe, exchanging knowledge and experience and building a mature global partnership which is able to meet the expectations of the international community.

A number of concrete cooperative frameworks have already been created between Japan and Europe, or, more specifically, between Japan and the EU, the United Kingdom, France and Germany respectively, with Heads of State consulting on a regular basis. At the Denver Summit in June 1997, Prime Minister Hashimoto held talks with leaders from the United Kingdom, France and Germany. In the same month, the annual Japan-EU Summit was held in The Hague, while the first Summit between Japan and the Nordic Countries took place in Bergen, Norway. In addition, various key European figures visited Japan over 1997, among them Prime Minister Paavo Tapio Lipponen of Finland, German President Roman Herzog, Italian Foreign Minister Lamberto Dini, NATO Secretary-General Javier Solana, Italian Prime Minister Romano Prodi, German Foreign Minister Klaus Kinkel, Finnish President Martti Ahtisaari, Spanish Prime Minister José María Aznar, Swiss Vice-President and Foreign Minister Flavio Cotti, Lithuanian President Algirdas Brazauskas, Estonian Prime Minister Lennart Meri and Bulgarian President Petar Stoyanov. Thus, 1997 marked another year of vigorous high-level exchange.

In relations with the United Kingdom, Foreign Minister Ikeda made a visit immediately after Prime Minister Tony Blair's Labour government was established in May, meeting with British Foreign Secretary Robin Cook for the regular Japan-U.K. foreign ministers' consultations. While attending the United Nations General Assembly in September, Foreign Minister Obuchi also held talks with Foreign Secretary Cook, with both countries building a close cooperative relationship as a special partnership based on shared global perspectives.

Turning to Germany, the Action Agenda for a Japan-Germany Partnership was revised during Foreign Minister Kinkel's visit to Japan in October, creating a framework for cooperation in line with recent international developments. With France, the exchange of views on the Cambodian situation which took place at the Japan-France Summit in June led to greater bilateral coordination in responding sensitively to international developments, including, for example, the joint dispatch of special envoys to Cambodia. Moreover, close exchanges of views also took place between Japanese and European Heads of State on global issues. For example, in negotiations on the Third Conference of Parties to the United Nations Framework Convention on Climate Change, Prime Minister Hashimoto coordinated closely with Italian Prime Minister Prodi, British Prime Minister Blair and German Chancellor Helmut Kohl.

In Central and Eastern Europe, efforts toward democracy and market economy are making steady progress. These countries' nation-building efforts and reconstruction and rehabilitation in the former Yugoslav region are issues of concern not only to Europe but also global issues common to the entire international community. Based on this awareness, Japan is working together with Europe on an active response to these issues.

In terms of Japan's relations with NATO, high-level talks were held during Foreign Minister Ikeda's visit to Brussels in July and NATO Secretary-General Solana's visit to Japan in October. Japan made use of these opportunities to communicate to NATO Japan's interest in trends in European security as having an important influence also on the Asia-Pacific region, given the high degree of interdependence of the world today. Both sides agreed to continue close exchanges of views and information.

In regard to other regional international organizations, Japan was an active participant in a number of Council of Europe meetings, attending the October Summit, for example, as an observer. Also, Deputy Minister for Foreign Affairs Minoru Tanba of the Ministry of Foreign Affairs attended the Organisation for Security and Cooperation in Europe (OSCE) Ministerial Meeting in December to represent Japan as a "Partner for Cooperation" (the OSCE equivalent of an observer).

E. Russia and the New Independent States

1. Russia

The political climate in Russia remained fluid until March, with President Boris Yeltsin's poor health preventing him from exercising leadership. However, subsequent positive efforts to promote reform policies and to stabilize the domestic situation, underpinned by a young reformist government, saw a certain amount of progress in the areas of macroeconomy and military reform. In terms of foreign policy, too, 1997 proved to be the year in which the policies of the second Yeltsin administration were truly launched, including vigorous diplomacy at the Head of State level. At the same time, Russia still has many difficult problems to resolve in the social and economic areas and in regard to the Chechnya issue, etc. The question of President Yeltsin's successor also remains wide open.

a) Domestic political situation

President Yeltsin was hospitalized with pneumonia at the beginning of the year, and his slow return to health kept him from the reins of leadership until March. During that time, various players began to make their bids for power in the post-Yeltsin period, causing a fluid political situation.

The President took the opportunity of his annual state of the nation address to carry out a thorough cabinet reshuffle as of March, appointing young reformists and setting out active reform measures. He also took a firm lead in regard to fiscal reconstruction, social issues and military reforms aimed at building an efficient army on a scale appropriate to Russia's economic power.

To promote reform, the President worked to stabilize the domestic situation, indicating willingness to engage in dialogue with the Federal Assembly and maintaining at least the minimum of cooperative relations. He also pushed forward the signature of treaties on the delimitation of power with local regions, seeking to build stable relations. In regard to Chechnya, however, while a peace treaty was signed in May as a way of suspending the issue of Chechnya's status, there is still a wide gap between the stance of Russia and that of Chechnya, which is seeking complete independence.

New problems have also emerged. For example, since summer, the financial-industrial groups underpinning the Yeltsin administration have been using politicians in a power struggle regarding tenders on the sale of government-held shares in enterprises, causing a fluid political situation.

At the end of 1997, President Yeltsin was hospitalized for two weeks with a cold. The president's health problems have spurred a power struggle in regard to the next presidential elections, becoming a major destabilizing factor. The question of President Yeltsin's successor seems likely to continue to be the focal point of Russian politics.

b) Economic situation

Since 1995, retrenchment and other measures have restrained inflation, which turned out at 11 percent in 1997. Gross domestic production finally bottomed out in 1997, rising 0.4 percent, with mining and manufacturing production also rising 1.9 percent. Stable exchange rates also continued. Despite these positive signs, the economy as a whole still remains sluggish, including low investment levels, a massive accumulation of corporate debt and fiscal difficulties caused by nonpayment of corporate taxes, etc.

Particular attention has been paid to the government's non-payment of pensions and of the wages of military personnel and civil servants; however, the government announced that it had fulfilled its pledges that all the non-payments should be paid within the year. Restoring fiscal robustness, however, continues to be a major issue.

Progress was made with economic reform in terms of privatization and trade liberalization, etc., but little was done in regard to tax reform, establishment of a land-holding system and development of legislation on foreign investment.

c) External relations

In 1997, Russia continued to place a priority on its relations with the Commonwealth of Independent States (CIS) and to pursue a foreign policy with a balanced focus in all directions, aimed at building a multipolar world.

Looking at Russia's CIS relations, a Belarus-Russia Union Treaty was signed in April, and Agreements on the Black Sea Fleet Division and a Treaty on Friendship, Cooperation and Partnership were signed with Ukraine in May.

At the same time, 1997 saw the CIS forced to re-examine itself as a result of the chorus of criticism of the current CIS at the CIS Summit in October, including unresolved ethnic issues and barriers to free trade. In regard to building a multipolar world, Russia developed broad-ranging diplomacy over 1997, with vigorous efforts at the Head of State level (including the visit to Russia by G-7 leaders and President Yeltsin's November visit to China) and Foreign Minister Primakov's diplomacy in regard to Iraq, as well as visits to the Middle East and the South American countries, etc. Russia's efforts to integrate itself into the international community also met with a certain degree of success: Russia's participation in the Denver Summit as part of the G-8, for example, and its accession to APEC. While Russia maintained its opposition to NATO enlargement, a Founding Act was signed in May which stipulated cooperative relations between Russia and NATO, based on Russia's realistic assessment that such enlargement was inevitable.

2. The New Independent States

The political situation in the New Independent States was generally stable in 1997. Even in Tajikistan, where internal conflict had continued to destabilize the country, a final peace agreement was reached in June which included the framework for a new administration, and while the situation still does not permit optimism, moves toward the restoration of peace are definitely emerging. In regard to ethnic conflict in the Caucasus region, on the other hand, the ceasefire agreement continues to be observed, but at the same time, there are moves to view the division of the region in conflict as a fait accompli.

On an economic level, NIS reform efforts have seen results particularly in macroeconomic terms, but infrastructure development and many other issues remain unresolved, and certain countries are beginning to experience growing difficulty as a result of reform. At the same time, particularly on the coast of the Caspian Sea, the development of energy resources such as Azerbaijan's oil is gradually gaining momentum, and this is expected to provide an engine for economic development in the countries involved.

These positive political and economic elements are contributing to a growing diversity in the policies of the respective New Independent States. In 1997, for example, while Belarus and Russia signed a treaty of union in April and a charter on the Russia-Belarus union in May, moves toward greater CIS integration centering on Russia failed to become an overall trend. At the October CIS Summit in Kishinev, the CIS was subject to considerable criticism, raising the question of CIS reorganization.

The Prime Minister's speech to the Japan Committee for Economic Development in July emphasized the importance of the Silk Road region in "Eurasian diplomacy." Given this importance, Japan worked to develop bilateral ties with the New Independent States, including support for their reform efforts. In May, the Ukrainian Foreign Minister was invited to Japan for talks with his Japanese counterpart. In terms of ties with Central Asian countries, dialogue was deepened through, for example, a mission dispatched in July under the leadership of House of Representatives member Keizo Obuchi and a visit by Director-General of the Economic Planning Agency Taro Aso. In December, a seminar on a comprehensive strategy for Central Asia was held in Tokyo, with eminent persons invited from five Central Asian countries and countries outside the region, and with participants engaging in a frank exchange of views on the future of the Central Asian region.

F. The Middle East

1. Recent Middle East developments and the visit by Prime Minister Hashimoto to Saudi Arabia

Approximately 80 percent 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 and to contribute positively to the peace and stability of the entire region.

As a part of this effort, Prime Minister Hashimoto visited Saudi Arabia on 8-9 November, with both countries agreeing to build a "Comprehensive Partnership Toward the 21st Century" which will embrace politics, economy and new areas (education and human resources development, the environment, medical and scientific technology, culture and sports). Immediately afterward, the Prime Minister's special envoy, then-Head of the Cabinet Councillor's Office on External Affairs Hiroshi Hirabayashi, visited the other Member States of the Gulf Cooperation Council (GCC), agreeing with the leaders of these states to build similar comprehensive ties.

2. Iraq and Iran

The situations in Iraq and Iran, along with the issues regarding the Middle East peace process 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 seven years, Iraq has been facing serious economic problems, including shortages of goods and high inflation. Given this situation, United Nations Security Council Resolution 986 (passed in April 1995), which allows limited petroleum exports to Iraq to fund the purchase of humanitarian supplies such as food and medicine, was put into effect in December 1996. For the first time since oil exports by Iraq were suspended when Kuwait was invaded by Iraq in August 1990, oil exports by Iraq, albeit limited, resumed under the strict monitoring of the United Nations. The Resolution has since been extended and renewed every 180 days. At the same time, the Saddam Hussein administration appears to retain a firm grasp over the country. Iraq has also demonstrated an uncooperative attitude toward the United Nations Special Commission (UNSCOM), which has been working to eliminate weapons of mass destruction, on the grounds that, according to Iraq, its inspection activities are under the sway of the United States and that there is no prospect of the economic sanctions against Iraq being lifted. Tension has therefore continued between Iraq and the Security Council (particularly the United States), which requires Iraq to cooperate fully and unconditionally with UNSCOM. The Government of Japan believes that, in order to secure the peace and stability of the Gulf Region, Iraq must comply fully with all the relevant United Nations Security Council resolutions. Toward this end, the Government of Japan has repeatedly called on Iraq for full compliance with these resolutions.

In the May elections in Iran, former Minister of Culture and Islamic Guidance Sayed Mohammad Khatami was elected President with overwhelming public support. The new administration, inaugurated in August, has espoused political philosophies atypical of the Iranian leadership to date, namely "dialogue among civilizations" and "the rule of law," tackling a number of reforms. However, considerable political force is stacked against these reforms, and close attention will have to be paid to the way the situation develops in days to come.

The international community remains concerned over Iran's actions, including the obstruction of peace in the Middle East through violence, support for terrorism and the development of weapons of mass destruction. The United States in particular has adopted a policy of "dual containment" to strictly contain Iran as well as Iraq. With a court verdict issued in April to the effect that the Iranian Government was involved in a terrorist incident in Germany, EU Member States decided to suspend "Critical Dialogue," and recalled their ambassadors from Iran. Japan also suspended high-level exchanges with Iran. However, the Government of Japan places considerable emphasis on using bilateral dialogue to develop an environment which will further promote positive changes in Iran, and accordingly resumed talks at the vice-foreign minister level, before the November reinstatement of the EU ambassadors.

3. Gulf Cooperation Council (GCC) countries

Close to 70 percent of Japan's crude oil imports come from Saudi Arabia, the United Arab Emirates, Qatar, Kuwait, Oman and Bahrain, the six countries of the Gulf Cooperation Council, headquartered in Riyadh. As noted above, based on the November visit of Prime Minister Hashimoto to Saudi Arabia and the visit of his special envoy to the other GCC countries, it is important to actively promote the construction of comprehensive friendly and cooperative relations with these countries. Such relations should include not only economic but also political and new areas (education and human resources development, the environment, medical and scientific technology, culture and sports).

G. Africa

Positive developments continued in Africa over the course of 1997, including Africa's new trend during the 1990s toward democratization and economic structural adjustment. On the other hand, conflict, refugees and many other issues remain unresolved, particularly in the Great Lakes region, as seen in changes of government by force in countries such as Zaire (now Democratic Republic of the Congo) and the Republic of the Congo.

1. Evolution in 1997

In the political sphere, progress was made in a number of countries toward African countries themselves resolving conflicts. For example, presidential and parliamentary elections took place peacefully in Liberia under the initiative of the Economic Community of West African States (ECOWAS), a regional organization, putting an end to more than seven years of internal conflict. In addition, African countries successfully dispatched interventionary forces to deal with conflicts in the Central African Republic caused by national army riots.

At the same time, in Zaire (now Democratic Republic of the Congo), anti-government forces led by Laurent-Desiré Kabila, head of the Alliances des Forces Démocratiques pour la Libération du Congo-Zaire, used military force to oust the Mobutu administration, establishing a new government in May. In the Republic of the Congo, a military clash broke out between factions behind the president and the former president over the presidential elections, with the former president's faction winning an armed victory. In Sierra Leone, where a military coup d'état had occurred in May, the peace process did not move ahead smoothly despite the peace agreement brokered by ECOWAS in October, and in countries such as Burundi there is still no end in sight to regional conflict. African political stability, a prerequisite for development, is therefore still a major issue. Responding to this situation, international discussion on efforts to redress conflict in Africa has been vigorous, particularly in the United Nations Security Council.

In the economic sphere, based on consultations with the World Bank and the IMF, many African countries are moving forward with the implementation of structural adjustment measures focusing on efforts to introduce market economy principles and to streamline government entities. Achievements, however, vary from country to country. To eliminate poverty and achieve sustainable growth, it will be vital to develop infrastructure and otherwise establish the necessary environment for economic activities, as well as to strengthen human resources through improvement of education systems, etc.

Further, as part of efforts by African countries themselves toward African development, regional organizations such as the Organization of African Unity (OAU), the Southern African Development Community (SADC) and ECOWAS are becoming more and more active.

2. Relations with Japan

Based on the recognition that Africa's political stability and development are important issues for the international community, Japan has worked actively with the international community to support Africa's self-help efforts toward the resolution of the problems facing the continent. At the United Nations Security Council Ministerial Meeting on Africa in September, Foreign Minister Obuchi stressed the need to strengthen the international community's support for Africa, and stated that Japan would actively support efforts by the African countries themselves in regard to both political stability and development.

Efforts in line with this basic position include, first of all, in the area of political stability, the appointment of an ambassador to handle the African conflict issue, conducting dialogue with and appealing to the countries involved, particularly in the Great Lakes region in September. Japan also supported African countries' own efforts to end conflict through, for example, personnel contributions for election monitoring activities, etc., during the presidential and parliamentary elections in Liberia, and donations to the OAU Peace Fund. Further, Japan continued to contribute through international organizations, including support provided through the UNHCR for refugee relief activities.

Second, with regard to development issues, Japan provided support for economic reform and other development efforts by African countries in accordance with the results of the 1993 Tokyo International Conference on African Development (TICAD). In addition, to further strengthen self-help development efforts by African countries and support by the international community for these, Japan will hold the Second Tokyo International Conference on African Development (TICAD II) in Tokyo in October 1998. A series of consultations was held in 1997 to ensure the success of this meeting. In June, the Second Asia-Africa Forum was held in Bangkok to discuss the promotion of Asia-Africa cooperation, and in September, an ambassador was appointed to be in charge of the preparation for TICAD II, and a Preparatory Conference was also held in Tokyo in November, attended by African officials at a ministerial and vice-ministerial level and other donor countries and international organizations. Participants discussed issues and priority areas for formulating a concrete action agenda for the promotion of African development.

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