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Background Briefing by Senior Administration Officials

June 08, 1993

The Briefing Room

3:13 P.M. EDT

MR. STEINBERG: Thank you for coming this afternoon for a BACKGROUND BRIEFING with attribution to Senior Administration Officials on the framework for Japanese trade. [Names deleted]

SENIOR ADMINISTRATION OFFICIAL: Let me introduce immediately my colleagues and the members of our team. [Names deleted]

The purpose of today's briefing is to discuss with you the beginnings of the economic framework discussions between the United States government and the government of Japan. [Names deleted] ... is then going to discuss how we see the framework fitting into the overall structure of U.S.-Japan relationships.

[Name deleted] is then going to discuss what we've called the basic bargain and the macroeconomic side of our discussions. [Name deleted] will discuss the microeconomic side of the framework and what we've called the five baskets. And, finally, I'll make a brief conclusion.

Before I turn it to my colleague, I really want talk only to three topics. The first is the framework, the second is the intent, and the third is to underline what our immediate objectives are. The framework itself, which the four of us -- the five of us -- will describe in more detail throughout this briefing -- I just want to sort of give you a road map for the discussion -- has two substantive sides and it has a joint management approach, and it fits within an overall context of the way we see the relationship.

My colleague will discuss the overall context of the relationship. The two substantive sides I've, in essence, all ready said is that we feel that there is a need for ongoing discussions with respect to macroeconomic policy and with respect to microeconomic policy -- there specifically, sectoral and structural issues. And what we've tried to do is create a framework by which we can bring all of those together into a context or a structure that allows a continuing, ongoing negotiation or continuing, ongoing contact.

The second large -- the second piece of the framework is what we've called a joint management approach. As everybody, I

think, here knows the -- at the meeting between Prime Minister Miyazawa and the President in April, they agreed on a twice-a-year meeting of the heads of state. One of those meetings was always to be at the occasion of the G-7 meetings.

What we've proposed is that there be -- is that the framework will include a management approach or a follow-up approach, in which the leaders will discuss the status of the discussions under the aegis of the framework and there will be deputies meetings at our level prior to the framework -- prior to the leadership discussions so that we can bring it up to date, and we can assess where things are.

We have two intents with respect of this, and we'll all be underlining them, so I'll start. The first is that broadly what we want to do is enhance the quality of the overall American-Japan relationship, specifically with respect to what my colleague will call the economic leg.

Second, we want to create an enduring structure for discussion. Our view is that what we want to do is to bring together a set of different discussions which relate to each other and are really to impossible to disentangle, together in a way that we can integrate them appropriately and correctly.

And finally, I'd like to underline our immediate objectives. In the month of June, our objectives and those of our government of Japan counterparts are not really to discuss the substance, but to put in place a framework under which those discussions will proceed. So therefore, what we hope to accomplish in June in the meetings that will occur on Friday and the meetings that will likely occur subsequent to that in which the team will go to Japan, is to establish this framework as a vehicle for discussion and negotiations and communication. And we would like to be in the position in which the President and the Prime Minister can announce that at the occasion of the G-7 meetings.

All of that having been said, I'll now turn it to my colleague.

SENIOR ADMINISTRATION OFFICIAL: As you all know, President Clinton met with Prime Minister Miyazawa here in Washington last April and they agreed at that time to set up a new framework and a new form of dialogue, in effect to establish a new kind of partnership based on mutual respect and responsibility and one that would have a longer term vision of our joint role in the global economy.

As the President said, and as we have as a working group described it, we see the relationship with Japan as, in effect, a three-legged stool. Each of the legs is critical; one of those legs is the security relationship. That relationship we see as very strong. It's been an anchor for our relationship in the Pacific, an anchor for pacific stability, and it is very fundamentally important to both of us.

The second leg of that stool is our cooperation on a whole range of global or transnational issues ranging from population to environment to issues of health, such as AIDS, for example. Again, there we see a great promise of cooperation, mutual interest, and basically a healthy leg of the stool.

The third leg of that stool is our economic relationship, and that is the one that needs urgent attention. In order to make sure that the overall stool, the overall relationship is healthy -- and again, we want to stress it is our most important bilateral relationship -- we have to address the economic imbalances.

So the President and the Prime Minister agreed to develop a plan to address in a very concrete fashion our economic agenda. As my colleague has said, they have agreed to meet twice yearly. We are proposing that those twice yearly meetings be preceded by a meeting of the deputies. And we have developed a new framework, which we hope will be one for fruitful dialogue, leading up to that heads meeting. And I will turn it over to my colleague, who will continue the description.

SENIOR ADMINISTRATION OFFICIAL: The overarching framework on the economic side is what we call the basic bargain. And under that bargain, we will be asking Japan to do two things: to put in place a series of policies -- in effect, a multiyear fiscal policy, or set of policies, demand-led policies which will have the effect of reducing Japan's global current account surpluses from the present level, which will be 3 percent to 3.5 percent of its GDP this year, to substantially lower levels, say, below two percent after a reasonable period of time.

The Japanese surpluses constitute a drag on world growth, and as such, the whole world has an interest in seeing them reduced. And, of course, it wasn't too long ago when the Japanese global current account was much more reasonable from the point of view of this range we're talking about than it is today.

Second, that Japan would simultaneously pursue a series of policies which would improve the import penetration -- the penetration of manufactured imports into its home market, all manufactured imports on a global basis, by a substantial amount. Japan's level of manufacturing imports, as a share of its GDP, is about half that of other industrial countries, and that illustrates the dimension, or one dimension of the asymmetry associated with the lack of import penetration of foreign-based manufactured goods.

On the U.S. side, our commitment would also be twofold. First, to complete the job in terms of the rectification of our asymmetry, of our imbalance, which, of course, has been our domestic deficit, and not just to say that we will reduce that deficit by $500 billion over five years, but to complete the legislation associated with that and to actually achieve it. And, as you know, that would reduce our deficit in terms of its share of our economy by half.

And, second, to continue the historically open markets, open market, which has characterized the United States for so many years, and which has been of such benefit to the rest of the world, including Japan. Our interest is in opening markets, not in closing them. And we would expect to continue the attitude -- the basic attitude toward trade which has governed U.S. policy for as long as it has.

With that as essentially the umbrella, I'm going to turn it to my colleague, who is going to talk a bit about the macroeconomic framework.

SENIOR ADMINISTRATION OFFICIAL: Thanks very much. Let me say a word or two about process and then amplify a little bit on the underlying economics.

It is anticipated that macroeconomic discussions with Japan will continue in the context of the G-7 ministry of finance cooperative process; that the heads of state meeting will take stock of the macroeconomic situation, the current account imbalance and so forth; and that that meeting will, as Bo said, be preceded by a deputies meeting at which the discussion at the heads of state level on macroeconomic questions will be prepared.

The approach we're taking reflects an analysis suggesting that there are two critical problems that Japan poses for the rest of the world, that Japan is abnormal on two dimensions. The first, which one might refer to as the imbalance problem, refers to Japan's chronic global surplus.

Japan's surplus is today the major asymmetry in the world economic system, just as the American deficits were the major asymmetry in the world economic system in the mid-1980s. At a time when lack of demand is an important restraint on the creation of jobs, both in the United States and in Europe, and at a time when the scope for fiscal expansion is not what it has been in the past because of large deficits, the large -- Japan's substantial soaking up of demand through its substantial surplus represents a serious problem for economic growth both in the United States and in Europe.

The second problem is what one might refer to as the penetration problem. As my colleague indicated, relative to other countries, Japan's level of imports of manufactured goods are very low, and that remains the case even after one adjusts for a variety of respects in which Japan is thought to be special -- the fact that it is an island nation, the fact that it has to import its raw materials, and so forth.

What one finds is that within particular manufacturing industries, Japan's trade is much less than that of its trading partners. The United States, European nations, to a substantial extent import and export goods, within the same broad industries. There is much less of that intra-industry trade in Japan. And it is that which accounts for the very substantial amount of friction that is encountered as American firms and firms from other countries seek to do business in Japan. We are seeking Japan's substantial movement over the next several years towards internationally normal levels of trade as represented by import penetration.

I would just conclude by stressing that the objective here is to expand trade, not to manage it, and to encourage the Japanese government to pursue public policies, government policies, that will have the effect of addressing these two concerns about imbalance and about penetration.

SENIOR ADMINISTRATION OFFICIAL: Consistent with the principles that my colleague has outlined on the macroeconomic side, the microeconomic side of the framework can be characterized by two broad goals. First of all, the goal of market expansion, market access to Japan; and second, the goal that this access be applied on an MFN basis.

We have settled on an approach on the microeconomic side that is a basket approach; that is to say, we have grouped issues in the bilateral relationship with common characteristics into five baskets. An example of a basket is government procurement, where bringing together issues that share common elements, we feel that it's very important to do so that agreements are not negotiated on as ad hoc a basis as at times they have been in the past, leaving, we believe, overall to strengthened and more comprehensive agreements, and in addition, rationalizing the negotiation process itself and expediting its conclusion.

The baskets themselves tend to focus on those areas where the Japanese government exerts considerable control or influence over the issue involved, or where, for a particular sector, the economic asymmetry in trade is particularly severe. As I indicated, these agreements negotiated within each basket would be applied on an MFN basis. The agreements in the U.S. proposal would have multiple benchmark indicators attached to them in order to

assess progress toward market access goals. These indicators can be both qualitative and quantitative in nature, and they would be multiple in scope.

Last, we envision that these negotiations on the sectoral basis would do two things: They would, first of all, address issues that are pertinent to the sectors themselves, including structural issues that pertain to those sectors. In that way, again, leading to more comprehensive agreements and increased access.

Second, these agreements -- the negotiation of these agreements would be quite timebound. We would envision a very short schedule in the negotiating process timed to coincide with biannual visits -- or semiannual visits between President Clinton and Prime Minister Miyazawa, once at the G-7 and then in the middle of the G-7 sometime after the first of the year.

SENIOR ADMINISTRATION OFFICIAL: My colleague and I were just saying that we need to do this more rapidly so that you all have more time questions, so let me conclude quite rapidly.

I wanted to discuss three things. The vision, our principles, and I want to make a point about tone and manner. I guess the overall point I want to make is that we see this as the beginning of an effort to put in place a broad structure to accomplish real change. We know we're at the beginning of that, but the goals are substantial.

The vision really is that the in the changing global economy there are enormous international issues in which the chances of success in dealing with are vastly enhanced if there is a positive and productive bilateral relationship between the United States and Japan, who together create 40 percent of the world's gross domestic product. And that success is going to be good for American and Japanese workers and consumers and good for the rest of the world.

The principles that we'll pursue in following through in this are that -- and these are all ones that we've noted; I simply want to underline them -- we're interested in more trade not less. Everything we do will be multilateral in character. We intend to pursue and we believe in objective benchmarks as a fundamental aspect of this framework. And we are committed to reciprocity so long as it's correctly understood, which is that -- and correctly understood in the sense that for 45 years the United States has maintained the most open economy in the world and, in so doing, has created the driver for the rest of the world.

Finally, tone and manner. As we've looked at the last several years, I think all of us have been struck by the fact that there has been a corrosive nature to the quality of our economic relationships. We hope that in creating a framework of this kind and by creating a larger structure under which -- whose purposes are understood with clarity on both sides, that we can begin to move away from the corrosive nature of the tone that has been struck and strike one over time that is much more appropriate to what is the most important bilateral economic relationship in the world.

That having been said, the five of us are available for questions.

Q: When you mentioned the bargain -- it refers back to his bargain that he described. Does this -- should we take this to mean that if the tax and deficit reduction plan does not succeed in the Congress that this Japan policy cannot go forward?

SENIOR ADMINISTRATION OFFICIAL: First, we think the policy will succeed. Second, that's a new question; that's one we

didn't anticipate. I think the fact that we want to underline is that this has been an issue and an imbalance in the world economy that our trading partners, most specifically Japan, have correctly and appropriately pointed to for years. That is one of the reasons -- its impact on our domestic economy was the larger reason, but that is one of the reasons why the President has focused so much of his energies on dealing with that problem.

If in the worst possible outcome anyone can conceive that problem were not dealt with in line with the policies as put forward by the President, the imbalance would be there. We would still intend to pursue this policy and to pursue correcting that imbalance. But on a substantive basis you're quite right, that imbalance would be there.

Q: I've heard -- and you have as well -- officials over the course of past years call for essentially what you're calling for here in this, open markets, reduce the trade imbalance. Why is anything going to happen now, simply because you're calling for it again? You seem to be offering the same things that you have before, a continued open market as opposed to the possibility of additional protectionist measures. Why would anything change now? Why should the Japanese --

SENIOR ADMINISTRATION OFFICIAL: Let me open with a preamble, make three points and see if my colleagues would also like to comment. The preamble is the following: These are very large economies. Very smart people have dealt with this issue on both sides in the past. It is unlikely that in some sort of stroke that we're going to discover issues that no one else has ever discovered.

We begin by understanding that there is a continuity in the way that government policy is made and that we build on the work of others. I think the most fundamental perception of ours with respect to all of that is the following: that the world economy, the Japanese economy and our economy have changed in fundamental ways over the last decade. The way in which we dealt with our bilateral relationship tended to be on the margin as problems were identified. Because in the midst of change, that's what you do. What we've done is try to look over all of that and to create an overall framework within which discussion can be carried forward in a different and more integrated way. That's distinction one.

Distinction two is the flip side of the question that he asked -- is that this President has proposed a policy which reverses the course of the area of economic policy which was the principal area of complaint on the course of our trading partners and, specifically, Japan. And, therefore, we enter into these framework discussions from a different stance.

The final point is that we've tried to put in place a mechanism by which both within the government and outside of the government we will manage these issues over time. And we think that it has staying power and we think that will matter.

Q: To follow --

SENIOR ADMINISTRATION OFFICIAL: Wait. Let me ask whether there's any follow-up on -- no.

Q: Is there any "or else" to this at all?

SENIOR ADMINISTRATION OFFICIAL: Why don't I -- in order to give somebody else a chance to talk, I ask my colleague to respond to that point.


productive to talk about what else, but let me make a few general comments, since the "what else" is obviously directed toward Section 301 and other trade remedies.

The reason for the use of Section 301, the reason for enactment of Super 301 legislation reflects extraordinary frustration with U.S.-Japan bilateral economic relationship.

We would far rather that our bilateral relationship, bilateral economic relationship with Japan be resolved in a positive way than through the imposition of other mechanisms such as 301 or the reenactment of Super 301. In our view, it would be an extraordinary gain if those mechanisms became superfluous. The fact is we are first embarking upon a process. We don't have a framework in place. We have not had negotiations under the framework. We have not had agreements put into place. We have not had implementation of those agreements. And so our domestic law is, of course, our domestic law and is available to us. It is not the direction in which we would like to go, but for now, we don't have anything tangibly in place.

Q: Do these agreements that you envision, will they be enforcing 301 law, the agreements you are negotiating within the framework, will those be agreements that are enforceable under U.S. Section 301 law as it's envisioned right now?

SENIOR ADMINISTRATION OFFICIAL: The framework does not affect the application of U.S. domestic law, whether 301 or antidumping, or any other aspect of U.S. law.

Q: So these agreements would be enforceable under Section 301?

SENIOR ADMINISTRATION OFFICIAL: These agreements would be enforceable under any aspect of U.S. domestic law. What we are trying to say is that the U.S. views this exercise as a trade expansion exercise. It does not enter into this exercise with the intent of closing the United States markets to exports from Japan or any other country.

Q: On behalf of autoworkers and computer manufacturers and others who may have thought last year and the year before under a different administration that we did, in fact, have a framework and some agreement and partial implementation, have we taken now one or two steps backwards? And when can they look for increased access in Japan's markets?

SENIOR ADMINISTRATION OFFICIAL: I don't think there's any question that what we're doing here should be talked about, should be thought of as a step forward. First, we're putting the economic element in the Japanese relationship in an absolutely central well beyond where it has been in the past.

Second, we're doing it in a way that provides for a common government unified structure for addressing concerns.

Third, we've made clear our commitment to measuring results as we implement our trade policy through the use of multiple benchmarks.

Fourth, we've stated overall objectives that we will be working towards with the Japanese both in terms of their imbalances and in terms of penetration. This is not a retreat from the existing tools of U.S. trade policy. This is a framework within which those tools can be applied in order to ensure that we make as much progress as possible in opening Japanese market and, more generally, in

expanding opportunities for trade with Japan.

Q: But unless I misunderstand, which I may well, you're still only talking about a framework. You're not talking about implementation, agreements.

SENIOR ADMINISTRATION OFFICIAL: What we're here previewing for you is the -- is as my colleague said, the Prime Minister and the President agreed to set up a framework within which these various questions could be discussed. We're having a meeting, as we've told you, to reach a process to reach agreement on that framework. And what we are previewing is the U.S. proposal for that framework. That's exactly right.

Q: Could you explain to us how is it crimping U.S. and worldwide growth? How is Japan's trade surplus crimping global growth? What have your G-7 partners specifically told you about this plan and are they on board? Will you present a solid front in Tokyo in July?

SENIOR ADMINISTRATION OFFICIAL: This is a proposal for redefining the U.S.-Japan economic relationship. It is not a G-7- Japan proposal. Japan's global surplus crimps growth because it means that in a case of each of Japan's trading partners Japan is supplying more goods than it is demanding and that is reducing the demand for goods in the American economy, in the European economy, and that reduction in the demand for goods in turn reduces the level of production and the level of employment. Reducing that surplus is an important vehicle for providing increased aggregate demand, which in turn creates jobs both in the United States and in Europe. We don't have the room for fiscal expansion because of large budget deficits. The Europeans don't have room for fiscal expansion because of large budget deficits. Japan has a substantial shortfall relative to its capacity to produce and still has a budget surplus. And so it does have the room to expand demand and drive the world economy forward.

Q: Aren't you really saying that Japan's loss is the world's gain? Isn't that what this is coming down to?

SENIOR ADMINISTRATION OFFICIAL: I don't think this has anything to do with Japan's loss being the world's gain. Japan's consumers have the possibility of benefiting very substantially from a period of domestic demand-led growth.

Q: What sectors are covered by these benchmarks?

Q: What's the basket? What are the five sectors?

SENIOR ADMINISTRATION OFFICIAL: The five sectors are, first, government procurement by Japan; second, regulatory reform and regulated industries; third, Japan's automobile and automotive parts industry in Japan and in the United States; fourth, U.S.-Japan economic integration -- for example, intellectual property rights; fifth, compliance with existing agreements and arrangements.

Q: Could you give us some examples --

SENIOR ADMINISTRATION OFFICIAL: Let me say, these are contained in the U.S. proposal. They are obviously not agreed to.

Q: Could you give us some example in the area of government procurements, how to --

SENIOR ADMINISTRATION OFFICIAL: I can give you a few illustrative examples. In government procurement, for example, computers and telecommunications. With respect to regulatory reform

and regulated industries, financial services, for example, including insurance. The third basket is self-explanatory. The fourth, on economic integration, I've given the example of intellectual property rights -- technology transfer is another example. And then the last basket, compliance, we have, of course, a number of outstanding agreements and arrangements with Japan, compliance with which is high on the agenda, as well as a reassessment of those agreements and arrangements.

Q: Can you give us some examples of the benchmarks you have in mind? Qualitative and quantitative.

SENIOR ADMINISTRATION OFFICIAL: We can only, at this juncture, speak of benchmarks in general terms. We envision multiple indicators, both of a qualitative and quantitative nature, that would apply to various of these agreements. For some agreements, obviously, quantitative indicators might be more appropriate to that agreement. For others, qualitative indicators might be more appropriate.

The point is simply that if we are to assess progress toward market access we would like to have some objective benchmarks against which to assess that progress. To the extent progress is not made, that may indicate any one of a number of things including having negotiated the wrong agreement.

Q: Are you talking quotas?


Q: Can you give an example of a qualitative benchmark?

SENIOR ADMINISTRATION OFFICIAL: A qualitative benchmark might be, for example, in the case of a sector where one wanted to see substantial process change; a comparison, for example, U.S., European, Canadian, Japanese laws and to try and regularize the Japanese regime more in line with other industrialized nations. That would be one example.

Q: In the auto sector, I believe that comprises a very large part of the U.S. trade deficit with Japan. How specifically would you propose, are you proposing sectoral talks specifically on auto issues, and what possible kinds of benchmarks might apply there?

SENIOR ADMINISTRATION OFFICIAL: I think that we're running ahead of ourselves. Right now, the goal is to lay out the framework. We are not going to be negotiating the specifics of any of these issues prior to the G-7. Post G-7, we would obviously have to lay out what precise issues within each subcategory we wanted to negotiate, where we thought we would like to see change, and, from that, hopefully with Japan's cooperation, devise appropriate benchmark indicators.

Q: But does the process -- if I could just follow up on that -- does the framework envision auto talks as a separate category, perhaps simultaneous with other talks on other topics, or, how will you proceed if this framework is agreed to?

SENIOR ADMINISTRATION OFFICIAL: Were the U.S. proposal accepted, there would be negotiations ongoing in each of the five baskets on the sectors that are contained within each of those baskets.

Q: Have you had any response yet from Japan?

Q: The Japanese government was saying yesterday, the Foreign Minister was saying as late as yesterday that Japan is going

to set the negotiations any benchmarks, American benchmarks. How would you respond to that

SENIOR ADMINISTRATION OFFICIAL: Our negotiations with Japan on the framework have not yet begun, and will not begin until Friday.

Q: On that subject, I wonder why, since the positions are obviously so far apart and you want to have this done in something like 28 days, I wonder why you've gone public with a plan that obviously is not very close to what the Japanese would like to accept, and do you really think you can have a framework for the leaders to sign off on the 28th?

SENIOR ADMINISTRATION OFFICIAL: Why don't -- since we're going to have to leave, why don't I use this as a way of ending. The fact is that -- first of all, as my colleague has said, that we haven't even begun negotiations, and we certainly don't intend to negotiate publicly. Given that the discussions begin on Friday, we felt that it was only appropriate to begin to talk with you all about them -- the second point.

The third point is that we have no indication that the positions of that are a part as you have said -- that all negotiations begin with steps. The way one proceeds with negotiations is one could say, put one proposal on the table and then one begins to discuss it and that's exactly what we're going to do. And we have a substantial amount of confidence, if fact, that in these periods, that in the next period that we'll be able to finish that. And I wanted to thank you all very much.

Q: If two percent of GNP is your target, it's restoring the status quo ante of last year.

Q: Would you address that? The Japan stimulus program, how far will it come, in your view towards this alleged two percent goal? How do we interpret what they are doing, in fact?

SENIOR ADMINISTRATION OFFICIAL: Well, our judgement is, is there is probably more macroeconomic measures they require.

END3:52 P.M. EDT

William J. Clinton, Background Briefing by Senior Administration Officials Online by Gerhard Peters and John T. Woolley, The American Presidency Project

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