(The First Miyakodayori of the year 2001)
Dear Readers,
I hope everyone will have a happy new year. And so will the Japan's economy.
MITI is gone. As the administrative re-organization took place on Jan 6th, 2001, now we are the METI (Ministry of Economy, Trade and Industry). As I have been advocating, I consider our new mission is economic restructuring of Japan. My boss, Dr. Masahiko AOKI, the President of RIETI (Research Institute of Economy, Trade and Industry) has been saying these days, " It is naturally expected that, as the change of government seems to become more possible and frequent than before, the bureaucracy must prepare alternative sets of policies accordingly through public discussion." I totally agree to his statement and it is exactly the mission of the RIETI as a strong " team B " in the policy market at Kasumigaseki.
While Washington is busy presenting a variety of proposals regarding U.S.-Japan economic relations for the new government, I think it is important to activate discussions among their counterparts in Japan as well. (Hence our "Brown-Bag" informal meetings, of which many of you are already aware.) Now that the U.S. and Japan are both experiencing a period of change, if both countries would admit and appreciate the mutually influential, therefore interdependent nature of their economic structural problems. It is the right time to start redesigning total policy infrastructures. I hope RIETI will provide a place for knowledge sharing and discussion forum for all concerned. The following short paragraphs are my personal contribution to the discussion.
1. Ideas on the new Japan - U.S. relationship
First, Bruce Stokes from the Council on Foreign Relations proposed "U.S. -Japan Open Marketplace". He came to MITI last October to present his ideas at one of our "Brown-Bag"lunch seminar series. Then, came out another report from the Council on Foreign Relations presented by the group under the leadership of Laura D'Andrea Tyson. Their recommendations are almost identical except Stokes' idea of Open Marketplace. I welcome the recommendations listed in their reports to spur the Japanese economy into its prompt recovery and restructuring. First of all, they assert the need to stimulate the Japanese economy. The banking and financial infrastructure should be revived. Restructuring of the Japanese economy should be accelerated, which has been much slower than it should be in the times of prolonged recessions. Deregulation of the Japanese market place should be expedited in order to strengthen the new economy and to open the Japanese economy to foreign competition. Competition policy requires to be strengthened, while corporate governance needs reforming. The Commercial Code needs quick modification to enhance corporate restructuring. And last but not least, Foreign Direct Investment (FDI) must be encouraged. The Japanese government now welcomes the FDI, especially as a possible reformer of our market as well as a promoter of the economic integration between the two countries.
During my last visit to Washington, D.C., I was fortunate enough to be given the chance to introduce my view of the U.S.-Japan economic relationship in the AEI Conference "Japan Policy Challenges for the New Administration". I personally found David Asher's idea of creating the U.S.-Japan common market fascinating. He suggested a revision of the Friendship, Commerce, and Navigation Treaty to achieve this common market, which is indeed very similar to Bruce Stokes' Open Marketplace. As we see Germany reforming herself drastically in the European market integration, Japan definitely needs a similar situation to enhance her reform. Though there should exist many difficulties before they are realized, I believe these ideas will function as a catalyst to further materialize integration of the two economies.
2. Do we really need gaiatsu ( foreign pressure ) to achieve these goals?
Should the U.S. pursue a "pro-active" trade policy, as suggested by Mr. Stokes, would it lead to the realization of the ideal of smooth economic relations between the two countries? Does "pro-active" mean gaiatsu? I think the process also should be consistent with the objective. The fundamental question is whether we really need gaiatsu by the U.S. to ensure the domestic reform of the Japanese economy with a view to further liberalizing our market. Nobody disagrees that the change is happening in Japan. While insiders are reluctant to do it by themselves, collaboration with outsiders may be necessary in order to implement reform plans, just as Nissan needed Mr. Ghosn. Another good example is FDI, which is playing the key role by helping to change competition arena and corporate governance system as a new outsider in the Japanese markets together with domestic new business ventures. At one of our "Brown-Bag" lunch seminars, Fred Bergsten wisely called this "privatization of gaiatsu". Stokes says "gaiatsu can be smarter- in choosing allies within Japan". Nobody likes preaching and bashing from the outside. Rather, I believe it would be much appreciated if those outsiders themselves could participate in the Japanese economic arena to help the realization of its true reform and restructuring. Finally, let me add that the abandonment of gaiatsu, suggested by Mr. Lawrence Lindsey who spoke at the AEI Conference, might be a prologue to possible changes of the U.S. attitudes toward the Japanese economy. I think this piece of news deserves for a proper appraisal.
3. What can we learn from the Japan-Singapore Economic Agreement for a New Age Partnership?
Japan is changing its foreign economic policy. Is it too much to say that Japan has started to step forward by itself when Japan, though often criticized as a stubborn follower of the multilateralism of WTO, showed willingness to engage in bilateral market integration with other countries such as Singapore, South Korea and Mexico? Let us take a look at an example where a new concept called the "New Age Economic Partnership Agreement" has been put into practice. Japan and Singapore have already agreed to take up a new approach. This new type of partnership agreement could be far more advanced and responsive to the needs of the "New Age" than the traditional FTA in the following respects: (1)in addition to liberalizing trade in goods and services, we should work towards the smooth transborder flow of people, capital and information; (2) it encourages innovation and competition in the integrated market; and (3) it also incorporates a process of creative experimentation and continuous review and improvement. The new economic agreement emphasizes services, information technology, education, exchange of human resources and economic restructuring in both countries. Another value brought by the "New Age Partnership" is that the distance between the countries concerned is becoming less and less important. What the "New Age Partnership" demands is a new approach to mutually enhance the creativity and flexibility of economic activities as a whole.
4. Do we need a long-term objective for the U.S. and Japan?
Stokes says "new governments in Washington and Tokyo must seize this moment". It is true that we need a more overall, "umbrella-like framework for the U.S.-Japan economic relationship" which would also give direction to individual trade disputes over issues such as NTT, steel, flat glass and so on. Both the U.S. and Japan must come up with assertive sets of policies that have long-term goals defining their economic relationship before the "relationship gets defined by a laundry list of short-term problems." I agree that we have lacked clearly defined joint goals to achieve from mid to long run. Here we have a common market proposal from David Asher of AEI and Bruce Stokes idea of an Open Marketplace. In fact, Richard Armitage Group proposes to encourage Japan-Singapore FTA "as a test case for similar agreement with South Korea, Canada, the United States, and other interested countries." Whatever we call it, it is our mutual task to re-define our economic relationship under the challenge of the globalization and emerging new economy. Though it is a very difficult undertaking, it is worth trying.
We are not trying to avoid day-to-day individual trade conflicts. They will rather increase than decrease when the U.S. economy starts declining. They should be taken care of by appropriate mechanisms we already have enough of. I am proposing that while addressing the long-term and fundamental structural issues, we may be opportuned to find the constructive solutions for individual trade problems. Tyson report says, " sectoral trade disputes are likely to become the exception rather than the rule in the U.S. - Japan economic relations as they were during much of the last twenty years."
As reported by some of the Japanese newspapers on November 28, MITI Minister, Hiranuma has suggested creation of a Japan-U.S. Roundtable on the New Economy as a venue for representatives of governments and business of both countries to discuss policy issues of the new economy and globalization. This Roundtable, MITI Minister explained, should be "small in size, enabling frank exchange of views and ideas", and is expected to undertake the similar role to that of TABD (Transatlantic Business Dialogue). TABD now provides a place for dialogues between the U.S. and Europe industries, making it easier for each government to appreciate needs of the private sector. I hope the New Economy Initiative, including the Roundtable, will help to facilitate communications among all that are involved in the New Economy policy-making and push forward a smooth process of economic integration between Japan and the U.S.
5. Security Issues
By the way, Armitage Group's report is more vocal on the security issues than economy. It calls for the advancement of the U.S.-Japan relationship "Toward a Mature Partnership." They say, "it is time for burden-sharing to evolve into power-sharing," and "Lifting this prohibition (against collective self-defense) would allow for closer and more efficient security cooperation. (Washington) welcomes a Japan that is willing to make a greater contribution and to become a more equal alliance partner." Asher is also proposing to revise the U.S.-Japan Mutual Security Treaty to match the post cold war era. Japan has stopped thinking and talking about military security issues since the defeat at the War. We have been very awkward to discuss our strategic role in the region, however, time may have come to resume strategic thinking in the face of the dramatic changes in the North East Asia, such as Korean Peninsula, Russia and China. Moreover, the Armitage report says, " An economically healthy Japan is essential to a thriving bilateral partnership." Indeed, a mature security role cannot be separated from robust economy. Future discussion on the Japan-U.S. Security Treaty should go in tandem with the talk on the economic integration. This makes the challenge to redefine the U.S.-Japan relationship much more difficult, and yet I believe it deserves serious consideration on both sides of the Pacific.
We would be greatly obliged if you could give us feedback. Thanking you in advance. Best regards,
Nobuo Tanaka
Executive Director
Research Institute of Economy, Trade and Industry (RIETI)
METI My e-mail address has changed. tanaka-nobuo@meti.go.jp is the right one.
p.s. As you may already know, Mr. Konno is appointed as Vice-Minister for International Affairs of METI and his successor, new DG for International Trade Policy Bureau, is Mr. Sano.
