Cable No. 1468, Ambassador Kuriyama to the Foreign Minister, 'Japan-United States Summit Meeting (Small Group Meeting) (2 of 2)'

Number: [TN: blacked out]

Primary: North American Affairs Bureau Director-General

Sent: United Nations, February 12, 1994, [TN: time blacked out]

Received: MOFA, February 13, 1994, [TN: time blacked out]

To: The Foreign Minister      

From: Ambassador Kuriyama

Japan-United States Summit Meeting (Small Group Meeting) (2 of 2)

No. 1468 Secret Top Urgent

(Limited Distribution)

Outgoing Telegram No. 1456 Divided Telegram

(Prime Minister) First, speaking of macroeconomic measures, with a fiscal situation worsening more than that in the United States, our country made a decision for the market’s largest economic stimulus measures of 15 trillion yen (approximately 140 billion dollars), including tax cuts on a scale of 6 trillion yen (55 billion dollars). This will be, for Japan’s negotiators, a significant tax cut of six thousand dollars. The earlier Reagan tax cut was 0.9 percent of GDP, but this Japanese tax cut is 1.2 percent of GDP, something on a much larger scale than the Reagan tax cut. Furthermore, this is only the first step leading to a full-scale tax cut. I am aiming, once having obtained the agreement of the governing coalition’s parties, for an agreement this year for legislation to reform the tax system, including income tax reductions. Stock adjustments are advancing for both households and enterprises. I think that we will move before the end of this year to a substantial recovery led by domestic demand.

I understand that you have a strong interest in numerical targets. However, setting numerical targets among objective standards harms free economic activities and goes against my administration’s basic position of promoting dynamic economic management. Neither I nor my cabinet would be able to accept something leading to our denying our own reform. There are a number of problems concerning numerical targets. First, it would be difficult to set appropriate target values. In fact, I hear that the US side has gone round and round in its position, lacked consistency, and been unable to put forth a positive explanation of it. In addition, it is influenced by movements in the global economy and exchange rates. Our government would find it difficult to accept your side’s asking for fixed parts procurement by Toyota and Nissan, among others, as that would lead to managed trade. The former Soviet Union implemented a planned economy but, even so, it was difficult to achieve numerical targets.

Among our American friends, there are those who argue that a 20 percent share was realized by means of numerical targets in the semiconductor agreements, but this is in fact not accurate. Central to Japan’s semiconductors are RAM (random-access memory) chips, that is, so to speak, general-purpose integrated circuits. The United States is good at MPU (microprocessing unit) logic circuits. Japan’s manufacturers need to use US-made MPUs, and separation is possible in industrial fields. That is to say, a share of 20 percent was not achieved by means of numerical targets but because separation was possible.

Finally, regarding the continuing of negotiations, cooling off may be a way to go at this point in time, but my understanding is that we have come to the point of reaching agreement, with a little more effort, on government procurement and insurance. I think it important to reach agreement as soon as possible and think it possible, without cooling off, to proceed with negotiations from fields where they are possible. I would like the responsible officials to continue working on them.

(Clinton) First, regarding government and procurement, insurance, I have received reporting that our positions are far apart, so I cannot agree without consulting the negotiators.

What you are saying about numerical targets is right. Attributing the success of the semiconductor agreements, compared to other fields, solely to numerical targets is incorrect. However, we are not pursuing only numerical targets. I believe that there are also instances when exchange rates, Japanese domestic demand for American products, the efforts made on the US side, the quality of US goods, and such are more suitable than numerical targets.

On the other hand, there have been 30 US-Japan trade agreements in the past 10 years. They were concerned with the regulations on process and did not concern results, so they were not effective. If an agreement on process is inappropriate and numerical targets are unfair, then what would be a fair compromise? From the viewpoint of objective standards in the Framework Agreement, when evaluating progress in each field, other than numeric objectives, it would be fine to add such things as changes in the balance of trade, domestic Japanese demand, exchange rates, and the efforts made on the US side. If objective standards, which include many things, are not introduced and changes in the balance of trade cannot be measured, then we will end up not knowing if there has been progress.

(Prime Minister) Indicating that the approximately 30 agreements on market opening in the past 10 years have not been effective and that there have been no results from them is off the mark. For example, as a result of the 1980 NTT procurement agreement, NTT’s procurement of foreign products increased by 46 times, rising from 17 million dollars in 1980 to 780 million dollars in 1992. This is only one example, but my understanding is that the 30 trade agreements have been functioning effectively.

(Vice President Gore) Both countries understand that we are in an important time in the US-Japan relationship. There is a need to emphasize President Clinton’s comment that we value the relationship of friendship between the United States and Japan and that it is important to cooperate on the issues that the United States and Japan are facing in common. However, there is also a need to recognize that, compared to the security relationship, trade relations are not going well. Therefore, in order to maintain good relations between the United States and Japan, there is a need for both the United States and Japan to make great efforts.

There is a need to consider with great care over the next several months, not only whether or not to continue these talks, but why a large imbalance in trade continues without change in general. In both negotiations among ourselves and in external statements, we need to avoid ambiguity. The Framework Talks did not go well. The economic stimulus measures are projected, in spite of the Prime Minister’s bold efforts, to reduce Japan’s trade surplus of 140 billion dollars by only 3 billion dollars this year. Is not the most important point that there is a fundamental misunderstanding about the numerical targets? We are not pursuing numerical targets as they are in the semiconductor agreements. We are calling for objective standards to measure, in eliminating ambiguity, whether change is happening or not.

A cooling off period will be necessary. During this period we will consider all possible options. Exceptional interest will be necessary in order to maintain the overall good relationship between the United States and Japan.

(Prime Minister) Regarding numerical targets, they have been sufficiently discussed by the responsible officials. I do not intend to go over it again here. Both sides well understand in regard to the interpretation of numerical targets.

(Foreign Minister) As the Vice President, President, and Prime Minister have indicated, it is important that relations between the Japan-United States be good. When economic relations are not good, frustration arises between Japanese and Americans. The Prime Minister himself is apprehensive over the large-scale and long-term existence of the imbalance between Japan and the United States. With this recognition, he has adopted deregulation and macroeconomic stimulus measures.

United States Trade Representative Kantor and I, too, agree that opening Japanese markets is important. Both Representative Kantor and Deputy Director Cutter have made clear in the negotiations that numerical targets are no more than one element among the objective standards. However, whether in semiconductors or in auto parts, numbers have become targets. Also, I understand the US side’s argument that extending past trends into the future is not a numerical target. However, regardless of government intentions, once a number is set, that number takes on a life of its own among the people, industry, and the press and, before we know it, winds up becoming a target. This really has happened in the past. The Prime Minister has made efforts to promote administrative reform and deregulation. In such circumstances, there has been critical reporting from the media, asking, if Japan were to agree to numerical targets, what would be the nature of the Hosokawa administration’s reforms.

Not giving up on the negotiations, and with each side seizing every opportunity, I would like to go ahead with negotiations, no matter how many times. But both Representative Kantor and I agree in recognizing that new ideas probably will not emerge even if we continue negotiations now.

(Christopher) If we stop negotiations, there is the danger of the negotiators losing their jobs. (laughter) After a cooling off period, I would like to leave it to the negotiators on what to do in the future.

(End)