#89-DF-5 "The Global Payments Imbalance, the 'Systemic Crisis' and 
          Japan-U.S. Economic Relations"
         (Ryutaro Komiya, February 1989.)

A WHOLE SENTENCE

ABSTRACT

    The paper asks what facts constitute the threat of a "systemic 
crisis" of the world trading system, analyses the factors and 
conditions which may contribute to fomenting this threat, and discuss 
how to cope with it.
    The paper first discusses what "the world trading system" is, and 
what have been important changes to the system from the beginning of 
the post-war period to the present. The world trading system is the 
worldwide economic system with GATT and the IMF at its central 
components. Within the framework of such a system, the economies of 
many countries have developed remarkably since WW ll. Global economic 
integration has been furthered greatly, and thus we can call this 
"system" a magnificant success.
    At the same time, however, a number of difficulties have emerged 
in the system. Among them, the volatile exchange rate movement, the 
LDC debt problem, large current account imbalances of Japan and the 
United States, an increasing number of serious cases of "trade 
friction", and the growth of protectionism in the U.S. are examined. 
While the first four problems cannot yet be said to have posed a 
threat to the world trading system, the last one has been formenting a
threat of "a systemic crisis". In the United States, a number of 
peculiar characteristics of its international economic relations, such
as being the
key-curency country, an anomaly in its relation with GATT and its very
strong bilateral bargaining power, have allowed protectionism in the 
U.S. to give rise to a threat of a systemic crisis.
    Although protectionism in the U.S. is now posing a threat, the 
fundamental common interests and cooperative relationship among 
Western countries, especially between Japan and the United States, in 
the world trading system are still overwhelming. In order to preserve 
this underlying basis of trust and cooperation, besides requesting 
self-restraint on the part of the United States, Japan should improve 
domestic rules and regulations so as to make them transparent and 
conducive to free trade, make efforts, on the one hand , to liberalize
agricultural imports, and, on the other hand, to improve 
agriculture-related articles of GATT, and maintain a firm commitment 
to free trade principles.