TRANSCRIPT: DEP. USTR FISHER 1/26 AT JAPAN FOREIGN PRESS CLUB
(Japan must introduce greater competition into economy)Tokyo -- The United States wants an economically strong, vital, and vibrant Japan because America will prosper if Japan does, and because a prosperous Japan is a more stable security partner, according to Deputy U.S. Trade Representative Richard Fisher.
In remarks at the Foreign Correspondents' Club of Japan January 26, Fisher said: "To achieve real sustainable growth, create jobs, assure a healthy competitive industry, and support an aging population, Japan must introduce greater competition into its economy. ... (O)ur experience has shown that the best way to do so is to open, deregulate and restructure the economy."
Regulatory reform has been the centerpiece of America's Japan trade policy for years, Fisher said, because the administration believes that such reform will strengthen Japan's economy over the long term.
Fisher cited three areas in which the United States has suggested changes to enhance efficiency and lower costs:
"We are pressing for changes that will reduce Japanese telephone charges, which are presently amongst the highest in OECD, including bringing down interconnection charges, which are as much as five times those in the United States, and making rights of way for laying new networks more reasonable. Currently, for example, new carriers who wish to string wire on NTT telephones must pay NTT $17,000 per telephone pole in adjustment costs. Now very few can afford that cost.
"We are pushing Japan to adopt performance-based standards and testing requirements on housing materials to help Japan meet the government's -- the Japanese government's -- stated goal of reducing housing costs by 20%.
"We are asking that Japan move from a monopoly to a competitive electricity market by, among other actions, eliminating burdensome tests on inspection requirements and starting to use performance-based standards to help meet their goal -- the Japanese government goal -- of reducing energy costs by one third -- in order to reach world levels. That is, a unit of electricity in Japan costs a Japanese business three times what it costs in the [rest of the] industrialized world."
According to Fisher, the Clinton Administration is working with the Japanese Government on this year's deregulation package and looks forward to a "forward-leaning and vigorous package of measures which will make a real difference, for all involved, not just for foreign companies seeking to compete in Japan, but for Japanese companies, as well."
"Open, rules-based trade is fundamental to Japan's own prosperity. It is fundamental to Asia's recovery. It is fundamental to global economic health. It is fundamental to the health of the United States' economy," he said.
In this regard, Fisher continued, it is critical that Japan abide by its trade commitments which will strengthen Japan's own ability to compete while preserving the openness of foreign markets.
"Japan must first fully implement its trade bilateral and multilateral market opening agreements in sectors such as insurance, and autos, and glass, and procurement and agriculture," Fisher said.
"Second," he said, "it is critical that Japan ensure that its trade with other nations in sectors such as steel, where exports to the U.S. in some key products have surged over 400% over the past year, is fair and rules-based."
Finally, he said, the United States and Japan need to work together to expand open and fair trade. "We were very disappointed, as many know, with APEC, that is the last ministerial. But we look forward to completing the sectoral liberalization initiative this year in the WTO and to working with Japan and other nations to launch a new ambitious, new round of WTO talks in the United States at the end of this year -- at the WTO ministerial ... in Seattle."
The United States offers this advice because of a strong interest in having a confident, healthy and prosperous partnership with Japan, Fisher said. "This partnership is vital not only to Japan, but to our own country and to all the regions of the world."
Following is a transcript of Fisher's remarks and the question-and-answer period that followed:
(begin transcript)
Richard Fisher
Deputy U.S. Trade Representative
Luncheon SpeechForeign Correspondents' Club of Japan
Tokyo, Japan
January 26, 1999Thank you very much for that kind introduction. I'm sitting here thinking that nine years ago, which was the last time I had the privilege of speaking to the Press Club, I had come -- this was the very, very beginning, actually, of our visit -- and I had just come from a baseball game my son had played in.
My son was the second 'gaijin' in history to play in the Tokyo Senior Boys' League. He played for a team called the Minato Moose. The Minato Moose was coached by the famous -- I might say infamous -- Mrs. Nomura. And the night before that speech, he had finally earned his right to play on the team. And he came home very proudly after a very long practice outside of Yokohama and was given the two characters to put on his uniform, his number and his patch for the Tokyo Senior Boys' League. He had finally made the team. My wife and I stayed up all night long. We had to take the thread out of one of her dresses, because it matched the color of his uniform, to have it sewn on by six o'clock in the morning.
My job was to remove the thread. My wife's job was then to sew the two characters onto his uniform. And so the next morning he departed for practice and that evening the door opened in our tiny little space in our little flat, and the door opened, he threw down his baseball glove, and he broke into tears. And he said, "Mama and Dad, you sewed the two characters on upside down!" So, I made a vow at that point that in my understanding of Japan, I would seek never to have an upside down understanding, but a right side up understanding.
It has been nine years since I last spoke at this Press Club, at the beginning of my tenure as a U.S.-Japan Leadership Fellow. My life, as you mentioned, has been quite eventful in that interim period, but as the 14th century Buddhist monk Kenko writes in his Essay on Idleness:
"It is very boring when you meet a man after a long separation, and he insists on relating at interminable length everything that has happened to him in the meantime."
So in deference to this great Buddhist sage, I will spare you my own reminiscences and talk instead about what has happened to all of us in the meantime and where we might go from here.
Many changes in Japan have taken place since I left. In fact, many changes have taken place in the world at large.
-- The Cold War ended. Germany was reunited. The Soviet Union dissolved into 15 not-so-easy pieces.
-- America's economy, which, when I was here, was in a slowdown, was burdened by dramatically high government deficits and considered by many to be in terminal decline, best characterized by Professor Paul Kennedy's Rise and Fall of Great Powers -- an America few had hoped for -- is now in its longest peacetime expansion ever.
-- On the other hand, Japan's economy, then considered an irresistible force -- the day I arrived, the Nikkei-Dow was at 39,000; it had a pristine government balance sheet, and a sky-is-the-limit sense of promise as summarized by the book written by Ezra Vogel, Japan as Number One -- has since been in a decade-long decline and suffering from financial decay.
-- Moreover, the Asian region, which was then emerging as the world's most important growth center, has plunged into a financial crisis and economic contraction, creating tremendous economic hardship and signs of political unrest in the region.
These changes in the region and the world have made the U.S.-Japan bilateral relationship more important than ever for each other and for the world.
-- From a security point of view, Japan remains our most important ally in the region. Unsettling developments in the region, from the firing of a missile by North Korea last year to the political unrest caused by the financial crisis, makes our strong and vital security alliance with Japan even more vital. That security relationship is the cornerstone -- it is the cornerstone -- of our peace and security in this region, and it provides ballast in an uncertain and stormy regional sea.
-- In the same way, our two economies have never been more important to each other. Accounting for about 80% of regional GDP, early Japanese economic recovery is necessary for regional recovery, and is necessary for world recovery.
-- Japan is, I like to remind people, our third largest market, behind Canada and Mexico, but it remains our largest single overseas market, as well as our greatest trade policy challenge. While American companies are enjoying good sales in certain sectors, in others they have faced decades of serious market access problems. On the other hand, Japan is becoming increasingly dependent on American consumers, who now buy nearly one-third of all Japanese exports.
In short, this is an important relationship worth nurturing, for the sake of security, for the sake of peace, for the sake of prosperity for Japan, for the United States, for the region, and for the world. And we must work to perfect our relationship. Doing so will require what my friend Yotaro Kobayashi calls a sense of 'tsuuka,' or instinctive trust and rapport.
In such a relationship the parties involved never really have to specify what they want from a relationship. But let me say up front what we want from our relationship with Japan: we want a strong, vital, vibrant Japanese economy.
Japan's Challenge
Now Japan clearly faces serious challenges in the years ahead:
-- Since the end of 1990 the Japanese economy has grown by an average of less than 1% a year; in the last two years the economy has contracted.
-- Huge fiscal spending has been needed to spur economic growth, but that growth is not sustainable without dramatic structural change to boost productivity needed to boost competitiveness, in turn, and to assure that Japan can meet the needs of its aging society.
-- The banking system remains deeply troubled by bad debt. The Diet has passed some very useful laws, but implementation remains to be seen. The insurance industry -- particularly the life industry -- is plagued by problems with asset quality and is in need of significant overhaul.
-- Unemployment is rising, particularly among the young. Despite years of sacrifice by young people and their parents, university graduates are not getting jobs. A Japanese friend of mine whose daughter is graduating from Sophia University this spring tells me that 30% of her graduating class cannot find work.
-- There is a deep-seated pessimism among the Japanese people. The Associated Press reported last week, for example, that the Japanese reading public is snapping up books on failure.
-- And finally, as trade imbalances rise, as the moderator pointed out, trade tensions are building with Japan's main trading partners, including the United States.
From the Machinery Age to the Information Age
Now my impression is that at the root of Japan's problems lies an economic structure that no longer can deliver higher standards of living for Japanese; a structure that has slowed the transition from the age of machinery to the age of information; a structure that has slowed the transition from an age in which governments controlled economic outcomes to one in which they are impartially and transparently applying regulation. I think it is important as friends, as allies, and as brothers and sisters in a key strategic relationship, that we share with you our own experience with a difficult predicament as we were presented with, indeed, while I was here nine years ago.
U.S. Experience:
The U.S. success due to decision to deregulate structures built in the 1930s and the 1940s and the 1950s, in which the government imposed controls on input, output and prices, is, I think, a story worth telling.
Deregulation didn't just appear out of nowhere in the United States. It was the product of efforts and struggles and, by the way, mistakes over many decades. It was led by pioneers such as George Stigler of the Chicago School and the Brookings Institute in the 1960s, by Senator Edward Kennedy, who championed airline deregulation in 1974, and the Carter Administration which eagerly embraced the agenda under Alfred Kahn's able leadership in the late 1970s. Alfred Kahn, whom many of you probably do not even remember. In fact, we used to comment on his odd personal behavior during our administration. He really is a tremendous hero in the United States because of his active force behind deregulation.
All this was the result of bruising political battles between liberalization forces in the Carter Administration and in the Reagan Administration and their successors, against vested interests in the trucking and railway and shipping industries.
The Clinton Administration has continued this policy of aggressive regulatory reform, including continued efforts to deregulate telecommunications, culminating in the Telecommunications Act of 1996. And this Administration's "open skies" efforts have enhanced airline liberalization throughout the world.
This effort has paid off. Airlines have dropped their airfares 26%. Long distance telephone call [rates] have plummeted. Railways were able to cut costs, which we now estimate at between $50-70 billion in operating costs, and finally started making profits again.
But perhaps most important of all -- and this is the key point -- deregulation created jobs.
-- Total employment in the U.S. airline industry has increased nearly 80% over the past decade while Japan's airline industry created only 32% more jobs.
-- The U.S. has created 17 % more telecom-related jobs since 1993; and Japan only 3.3% has been the rate of increase in telecom jobs.
Now the private sector, of course, went through its own restructuring after no longer being protected by regulators who were protecting franchises in Washington. If you look at the data, for example, those of you who want to go into the weeds on the subject of the Fortune 500 companies, you see a dramatic shift that took place once this process began. If you look at the data for the top 500 operating corporations in America, and you were to look at the data that ran from the 1970s through 1987, you would find, in analyzing that data, that margins of the top 500 companies -- that is margins of profit -- did not increase by one tenth of 1% over that period. That their inventory turnover did not increase by one tenth of 1% over that long period. That their return on assets did not increase by one tenth of 1% over that period. Instead what they did was leverage up their return on equity based on gifts given by the marketplace. One was leveraging their balance sheet. And the second were tax reductions that they were given by the Reagan Administration.
When that game came to a halt, when it was patently clear that they could no longer hide behind the protection afforded them by Washington, they went to work and began to do business the old-fashioned way, to work their plant and equipment more efficiently, to cut prices and redundancies, and they could no longer hide behind the umbrella of inflation as the wall came down and the Cold War was over, and more labor was released to the marketplace, more commodities released to the marketplace, and they had no choice but to adjust to the modern economy and begin to work their way up the value-added ladder.
And I might add, one other change that took place, which I think is ill-understood, or under-understood in our country, was also the dramatic shift in ownership of our corporate structure. I like to point out to audiences that when Bill Clinton was elected President, 26.5 million Americans owned equity mutual funds. Today the figure is closer to 70 million. Now, of course, we are eager to take credit for that phenomenon, but the fact is it occurred in a very short period over the last six years. And as a result, the demands for corporate governance have reinforced the need for corporations to operate efficiently and continue to adjust to the information age. And the result is that American business, and the American economy, is primed to lead in the information age. By removing the protection of inefficient regulation, by forcing creative minds of the private sector to lead the transition from the old way of doing business to the new, we overcame the predicament forecast by the Paul Kennedys and Ezra Vogels of the world.
Japan's Problem:
This transition has been much slower in Japan. The Japanese Government, to our eye, based on our experience, is too concerned about regulating outcomes. As a result, almost everything a Japanese company pays today -- from telephone calls, to energy bills, to the rent they pay on their offices -- is more expensive than their foreign competitors.
Each of these things makes firms weaker and makes them less able to compete internationally. And this, in turn, creates a cycle in which industries, unable to compete, lobby for protection. So rather than encouraging companies to become leaner, to become more efficient, to become more productive, it is our view that the Japanese Government is sheltering them from competition and creating a downward spiral.
Japan's construction industry, one of the world's least efficient, illustrates the extent of the problem. Though the need for structural adjustment in the industry has been long acknowledged in Japan, it's interesting to note that there are 55,000 more construction companies established today than there were here in 1989.
And by the way, other signs of this working through the system are clearly evident. One of the things, just adding parenthetically, and perhaps non-sequentially here, it's interesting to note that spreads have been widening on corporate bond issues since last year as the market is increasingly beginning to distinguish what markets would call losers from winners in the marketplace.
The Government -- plain and simple -- has just not provided a good environment for companies to adjust. The legal system is seriously underdeveloped. Recently there is a shortage of lawyers to deal with corporate bankruptcies, there are few trained lawyers and accountants to do due diligence on real estate deals, bankruptcy laws are inadequate, and the lack of international accounting standards impedes mergers and acquisitions. Moreover, regulations restrict labor mobility, poor corporate governance inhibits profit-maximizing behavior, and land restrictions raise the price of investment.
The market has also questioned the practice of pumping money into the corporate sector via government-linked financial institutions. One analyst has noted that this runs the risk of becoming -- that is, this constant government-linked support -- of becoming a narcotic, delaying needed structural change.
The result is that Japan is falling behind. For example:
-- Investment in the telecom area has fallen for the past two years, in sharp contrast to the United States and Europe where telecom investment is increasing rapidly.
-- Japan's long-protected airlines are among the world's costliest and least efficient. Japan's poor yet costly airport and port facilities are leading to Japan-passing as airlines and shipping firms are starting to build their hubs in cheaper, more efficient facilities throughout Asian cities.
-- Japan has lost high tech jobs to Korea and to Taiwan in the DRAM area while failing to enter new areas. For example, while Japanese companies -- and government -- endlessly debated which standard to use for advanced digital compression technology (which is called MPEG), American companies simply forged ahead and developed a new product and now dominate the sector, where Japan should have been extremely competitive.
-- And Japan continues to fall behind in medical technology due to a system which does not reward innovation. The new reference pricing system, which is being contemplated, if implemented, will hobble Japanese medical and pharmaceutical industry even more than its position today.
One result is that Japanese entrepreneurs are leaving the country. Japan is the only OECD country with net emigration, with many of Japan's best and brightest making the decision to look elsewhere for challenge and opportunity, and Japan can ill-afford such a brain drain.
Restructuring and Regulatory Reform
Our goals are complementary to those of Japan. I want to state it again, and I will state it repeatedly: we want an economically strong, vital, vibrant Japan, because we prosper if you do and because a prosperous Japan is a more stable security partner.
To achieve real sustainable growth, create jobs, assure a healthy competitive industry, and support an aging population, Japan must introduce greater competition into its economy. And, as I have just pointed out, our experience has shown that the best way to do so is to open, deregulate and restructure the economy.
Regulatory reform has been the centerpiece of America's Japan trade policy for years. It goes back to 1980 where nearly half of our trade agreements have been aimed at pro-competitive regulatory reform. It includes the Market Oriented Sector Specific [MOSS] talks in the 1970s to remove restrictions on telecommunications and medical and pharmaceutical technology. It includes our talks on the Structural Impediments Initiative.
And it includes our Enhanced Deregulation Initiative at the Denver Summit by President Clinton and former Prime Minister Hashimoto. We believe that the initiatives we are pursuing will strengthen Japan's economy over the long term.
For example:
-- We are pressing for changes that will reduce Japanese telephone charges, which are presently amongst the highest in OECD, including bringing down interconnection charges, which are as much as five times those in the United States, and making rights of way for laying new networks more reasonable. Currently, for example, new carriers who wish to string wire on NTT telephones must pay NTT $17,000 per telephone pole in adjustment costs. Now very few can afford that cost.
-- We are pushing Japan to adopt performance-based standards and testing requirements on housing materials to help Japan meet the government's -- the Japanese government's -- stated goal of reducing housing costs by 20%.
-- We are asking that Japan move from a monopoly to a competitive electricity market by, among other actions, eliminating burdensome tests on inspection requirements and starting to use performance-based standards to help meet their goal -- the Japanese government goal -- of reducing energy costs to one third -- or, excuse me, by one third -- in order to reach world levels. That is, a unit of electricity in Japan costs a Japanese business three times what it costs in the [rest of the] industrialized world.
And we are working with the Japanese Government on this year's deregulation package which can build in the areas I just mentioned and other areas on the package that we agreed to in Birmingham last year. We look forward to a forward-leaning and vigorous package of measures which will make a real difference, for all involved, not just for foreign companies seeking to compete in Japan, but for Japanese companies, as well.
Open, Rules Based Trade
Open, rules-based trade is fundamental to Japan's own prosperity. It is fundamental to Asia's recovery. It is fundamental to global economic health. It is fundamental to the health of the United States' economy.
In this regard, it is critical that Japan abide by its trade commitments, for these commitments, at their core, will introduce greater competition necessary to strengthen Japan's own ability to compete while preserving the openness of foreign markets.
Japan must first fully implement its trade bilateral and multilateral market opening agreements in sectors such as insurance, and autos, and glass, and procurement and agriculture.
Second, it is critical that Japan ensure that its trade with other nations in sectors such as steel, where exports to the U.S. in some key products have surged over 400% over the past year, is fair and rules-based. As you know, the Clinton Administration is firmly committed to ensuring that free trade remains fair trade.
And finally, we need to work together to expand open and fair trade. We were very disappointed, as many know, with APEC, that is the last ministerial. But we look forward to completing the sectoral liberalization initiative this year in the WTO and to working with Japan and other nations to launch a new ambitious, new round of WTO talks in the United States at the end of this year -- at the WTO ministerial, which will take place, incidentally, in Seattle.
Conclusion
We have suggested ways, based on our own experience and, by the way, on our own trial and error, for Japan to overcome its current difficulties. We are giving this advice because of our strong interest in having a confident, healthy and prosperous partnership with Japan. And as I've said, this partnership is vital not only to Japan, but to our own country and to all the regions of the world.
Japan faces a very difficult task, one that it will address in its own way, of course, and taking into account its own needs. We believe Japan is up to this task. In the past 50 years this country has astonished the world. It has become Asia's economic and technological leader. It has built Asia's most prosperous and peaceful society. And there is no question that it has the strength and capability which the crisis of the moment -- and the hopes for the next century -- demand of the Japanese people.
These things were true the last time I spoke at the Press Club; and they are true today.
Thank you very much.
(Question-and-answer period begins)
Q: You've discussed the problems in various industries. There's another area which may be not directly in your field, but you also commented on it. That is agriculture, I mean, the rice price. One of the weaknesses in this society is not just the government's protection but also the consumer's weakness in demanding things. And of course, the rice price issue, originally from total closure, now moving on to a high tariff, is a new area. But the question there is, how should or could the tariff be, and what is acceptable or not?
At the moment, I think the government has 351.7 yen per kilo or something of rice to be added, and they are planning to have an additional one-third tariff on top of that if more than 30,000 tons are to be imported beyond earlier agreements.
Question: I realize that the movement from total foreclosure to letting in rice under a high tariff is some sort of progress, but it is not felt by the consumers. What is your position at this point? I know that there is some advocacy, even within the Japanese government. Mr. Sakaiya in Paris the other day, apparently thought that this rate of 351 per kilo is too high, that earned him the title of an idiot by a colleague, the Agriculture Minister, [who] said only an unelected official could make such a statement. He doesn't know anything about it, about agriculture policy [inaudible], something like this he said. That's quite an outspoken comment. What comment do you have?
FISHER: I thought you were saying, to me, to put it clearly you're an idiot, but I hope you're not drawing that conclusion.
Well, first of all, the subject is the tariffication of rice and obviously what we would like to see is an open, fresh, competitive market here in Japan. There are the basic issues of whether or not something is WTO-consistent. The effort was to move to a -- as explained by the Japanese government -- to a WTO-consistent program through tariffication. And rather than prejudice some of the discussions we are having and other governments are having, certainly it has caught peoples' eyes because it was suddenly announced. I think the element of surprise in trade is always something that people have trouble dealing with. I would not, personally, use the harsh terms that you just used to describe the people involved in either making or communicating the decision. But we want to make sure that the high-quality rice producers of the United States and other countries have access to this market. I think Japanese consumers can distinguish amongst the quality of products, and as long as we have a fair shot at it and we have significant access, we are very confident that our rice can sell well in this marketplace.
Q: But I believe that the U.S. government, including, perhaps, Charlene Barshefsky, the U.S. Trade Representative, are on record as saying that the tariffication plan that's now on paper is unacceptable. Is that, in fact, correct? And what would be acceptable?
FISHER: Well, I had discussions today at the Agricultural Ministry on this subject and I prefer to keep those discussions private.
Q: Talking about the last topic you mentioned, the WTO, millennium, or maybe Clinton --
FISHER: We don't call it -- we don't want it to take a millenium to negotiate the round.
Q: Or maybe "Clinton Round."
FISHER: I like the sound of that.
Q: You've probably noticed that the EU has been seeking Japan's support in the banana war. And that might lead, if you read and heard what he's discussing here and in Brussels, to have sort of [a] united front in the coming round between the EU and Japan. First of all, on the overall approach of the round. So could you specify what, exactly, will be the U.S. approach? People are in favor of what they call the global approach, that is, you don't achieve results in any particular field without balancing it [inaudible] against a U.S. sectorial approach where you are looking for specific results, period. Is it -- am I -- is it -- where lies the difference? And secondly, you said you want to work with Japan on the success of this round. Obviously, there is something going on beyond the scene for some other countries to work against the U.S.
FISHER: First, I find it interesting that, having just given a speech about the need to transform a society in the information age, the questions so far have been on rice and bananas. The very high end of the value-added curve.
I realize that it is tremendously more exciting to write about tensions between different regions and blocs and countries as they approach a significant negotiation like the WTO ministerial and the next round that we contemplate. Let me first say that the President in his State of the Union address made it very clear [that] we do seek a round. To answer your question in its most simplistic form, the purpose of that exercise is to advance the cause of further liberalization of trade. I think it's important to understand, particularly in this world and the world in which we live presently, and the world we are likely still to encounter as 1999 runs its course, is that trade liberalization and greater market access, and the accomplishments we've had over the last decade in particular, especially the last six years in so many different areas, but also since the GATT was founded, are not the cause of financial turmoil, and we feel very strongly that they must not become its victim.
And so the purpose is to push the envelope of free trade, to push the envelope of further trade liberalization, to increase the availability of market access throughout the world. There are some very broad groupings where clearly discussions and -- full discussions -- need to take place. One is agriculture, the other is services. There are also some vital sectors in which we have commitments by countries, including Japan, for example, in the APEC exercise, to reduce barriers and increase the ability to trade around the world.
So the first -- we don't use the term "Millenium Round" because, again, one of the things we're very, very concerned about, we say half-jokingly we don't want to take a millenium to negotiate it. But the point is, if you look at the good intentions of the other rounds, they have taken many, many years to negotiate. This world moves at a much faster pace. Point number one.
Point number two, we have to very importantly take into account in this current drive for a new round and other activity that we hope to stimulate through a WTO ministerial, that the developing nations are taken into account. And for many of them it is way too expensive and takes too long to have a multi-year, seven-year, ten-year negotiation.
So we do look to negotiate and have global agreements on very broad-ranging subjects like agriculture and services. We expect to make progress either in the interim on the APEC package, which was agreed to at Kuala Lumpur, and other sectoral areas. We also are looking at the operations of the WTO and how they interface with international financial institutions.
The President spoke in his speech, by the way, of putting a human face on trade. That wasn't just addressed to his constituents in the United States. It was also addressed to the world at large. For many people, the WTO is, as we say in Texas, a mare's nest of rules and regulations. We have to make it a living, breathing mechanism. We are now currently in the process of discussing within our own hemisphere, the Free Trade Area of the Americas Initiative, business facilitation measures, how to improve -- rather reduce -- frictions at customs points and so on. These kind[s] of exercises are worth contemplating within the WTO at large.
So we are beginning the process of consultation with our Japanese and our European and other colleagues. And we are trying to, in the end, live up to one basic desire that we have, which is to make sure we continue to push forward the process of trade liberalization world-wide.
Q: I'd love, actually, to offer a gentle rebuttal to your long litany of American economic triumphalism, but I think that would be a debate rather than a question, so I'll --
FISHER: Even the British were triumphal, by the way.
Q: -- I'll ask you a question on another issue. If China were to devalue the yuan, what impact do you think that would have on American imports from China and, indeed, on the whole profile of American imports from the Asia region? Would it shift the competitiveness of the Asian countries significantly so as to increase the Chinese share of U.S. imports? I'd be grateful if you wouldn't answer that by saying you don't think the yuan would be devalued. Just treat it as a hypothetical situation.
FISHER: Well, I love entertaining hypothetical situations, but when you comment on currency markets, what you say, and you think it's hypothetical, can have an effect. Not that I would have an effect very much, but the fact is I made my living for 20 years trading currencies, including investing in China, and the B-share markets and the red-chip and h-chip markets. I know this much: that markets are not forecastable. It is not in China's interest to devalue their currency. It is in their interest to maintain their currency. And I think it is foolish to make projects based on assumptions of either devalution or revaluation or movement in the currency.
The fact is that we do run a very large trade deficit presently with China. We sell them about $12 billion a year in goods. We import from them some $60 billion more than that. And we are working to improve our market access in China. That's just under the current circumstances and we hope that there are no circumstances that would exacerbate that problem, but rather we seek to resolve that imbalance.
Q: Ambassador, it's kind of the other side of the coin of what was just asked, but obviously Brazil has devalued their own currency. From a trade perspective, looking at Asia, what ramifications, if any, do you envision from this move? Do you think that Asian economies are so -- or have been so hit over the last two years that there will not be a corresponding move either on the currency side -- I'm not trying to ask a hypothetical -- or on the trade side?
FISHER: Well, the Brazilian real has depreciated some 24 to 25%, unless something has happened in the last couple of days, since the beginning of the year. We run a -- bilaterally -- a surplus with Brazil. They have had nice economic growth and I think under anybody's expectation, public or private, there is a concern that there will be a recession ensuing in Brazil. The question is one of severity. Brazil is led by a very able president who we have great faith in, President Cardoso. It's interesting, by the way, just to go back to my speech, which I hope some of you listened to, the transformation he has made from dependency theory and the old way of doing business to being very market-oriented. But now it's a real test for Brazil. It's a young democracy. It's a young capitalist society. By the way, [it is a] huge trading nation. But they are now going through a rather rough spot.
In terms of its affect on the rest of the world, we're sort of in a little race against time here. We obviously would like to see Japan and Asia lift up while other countries in the world go through adjustments as they deal with their own business cycles and with the forces that are put upon them by international financial markets. And this makes us even more eager for Japan to resume economic growth and to begin to sort of carry the load in Asia, as the economy in Brazil and perhaps some of their immediate neighbors, slows down in reaction to their current problems.
You know as well as I do, that this is an issue of capital exports and the interest rate levels necessary to keep sufficient capital in the country. The United States and Secretary Rubin have worked very closely with the Brazilians and with the Cardoso Administration to try to be of assistance. But the fact is that the conditionality for all programs resides with the Brazilians. It's a domestic problem and they have to do the best that they possibly can.
I want to come back to a point made about triumphalism. The President said in his State of the Union address that we will not be complacent. We take nothing for granted in the United States, including our current successes. We are deeply concerned about developments in the rest of the world. We want to make sure that others become strong and competitive and, indeed, even challenge our own ability to compete in the world at large. But I want you to understand, that we're not smug about this. This is something that we are proud of our accomplishments, to be sure. We have, indeed, taken very painful measures to adjust our society. And my speech was not so much to be didactic as it is basically as a friend to share our own experience.
Q: [inaudible]
FISHER: We'll do that some other time. We'll have a good debate.
Q: Mr. Ambassador, my question is about the controversial steel issue. As you already know, the Japanese steel exports to the United States in December showed a dramatic decline, down 25% from the previous month, or representing the first drop in 13 months or 14.9% or below 39% of the average monthly export for the whole of 1998. Having said that, MITI said that this verifies the explanations MITI has been conveying to the U.S. administration and they expect adequate responsive measures. Now what will be the responses of the USTR and also American government? And what measures can be contemplated? And also, if I may, just another part of the question. As you know, people I know say [inaudible] a voluntary export restraint agreement is impossible under WTO, but something like an old MSA -- Multilateral Steel Agreement -- may be arranged depending on the responses from the parties concerned. You think this Multilateral Steel Agreement would be a response to the world steel question? Thank you.
FISHER: Well, first of all, I want to make it very clear that we are not seeking a voluntary export restraint program. We have, indeed, received from the MITI Japan's preliminary steel export data for December shipments to the United States. They reflect a level of -- correct me if I'm wrong -- 367,000 metric tons. You made the point that the December export rate declined, I think you said 39%. I believe the figures were 37% below the average monthly rate for 1998, down some 60% from the September high. We just received this data, by the way, yesterday. It was handed to me in a meeting. Our preliminary look indicates that it is, indeed, a move in the right direction, but the trend must be more substantial and on a sustained basis to meet U.S. expectations for a return to pre-crisis levels.
The Department of Commerce preliminary steel data for December will be released this Thursday. We'll need to take a closer look at that data. And, again, I just want to repeat what our President has stated, which is we will monitor imports from Japan closely over the next several months. It's his expectation -- it's our expectation -- that they will soon return to pre-financial crisis levels so that our steel trade can be normalized and so that trade friction can be avoided.
Generally speaking, one of the problems that we are facing in the world at large is a dramatic excess capacity in numerous sectors. It's important that the world respect the rules and transparent trade laws that have been put in place by countries, including those of the United States. People know what the rules are. And they should expect that we will adhere to the rules in a WTO consistent manner.
Q: If I could follow up on steel. Some non-Japanese observers have argued that a not insignificant amount of Japanese steel exports to the United States are going to American steel makers, who are taking that steel and converting it into other kinds of steel for sale to both American companies and Japanese companies operating in the United States. Do you know if there is any truth to that?
FISHER: Well, U.S. demand for Japanese steel did not increase by 4 million tons or 154% in 1998 simply out of new demand. The surge was driven by excess supply, which resulted from a demand drop in Japan and Southeast Asia. So I've heard the argument. I would rebut it. You have to look. It's a very complicated issue in terms of inventory accumulation and so on. The question is the displacement from markets that imploded on Japan and the replacement in the United States or elsewhere, particularly in the United States where we are viewed as the market of last resort, first resort, and only resort.
Q: Follow up to this steel question. I don't quite understand why this steel issue can be so important when, in fact, in terms of steel's share in the overall U.S.-Japan bilateral trade, it is probably something like 1%, whereas other sectors like autos and consumer electronics, like digital cameras and so on, seem to take up a far greater share of bilateral trade. Why is steel so important?
FISHER: The question is, again, whether or not the rules are being abused. We have rules that govern dumping behavior in the United States. It may be 1% but nonetheless it's illustrative and it's important even though statistically the number 1%, the fact is that 1% affects human lives. It affects the owners of companies, the shareholders of companies. And there are rules of the road which are very clear and very transparent in our society, and we expect our trading partners to adhere to, just as they expect us to adhere to theirs.
Again, I think it's an issue that is not of insignificance because it's only 1%. And just, again, to get back to the substance of what I was attempting to communicate in my prepared remarks, this is an overall problem besetting the world. It is -- it sort of underscores the issue that Japan, more than ever, needs to make a transformation from being extremely efficient at producing in sectors where there is tremendous capacity world-wide. Having become one of the great competitors in the machinery and the iron and steel age, as it applies to machinery, and the need to transform into the information age. And, again, we hope and pray that as friends and as constructive critics, that the United States can be of assistance as we push this deregulation envelope in that transformation.
Thank you all very much. I appreciate it. Thank you.
Well, listen, apparently I've been rude. I apologize. I've once again sewed on the name upside down. We have some more time, so why don't we go ahead?
Q: The other day we had Mr. Sakakibara from the Ministry of Finance here. He gave a very interesting speech. And during our lunchtime conversation, the issue of insurance came up. And in his inimitable way, Mr. Sakakibara said, "Ha ha ha ha. MOF doesn't have to worry about negotiating with the Americans about insurance anymore because supervision of the insurance industry has been taken over by the FSA." So I asked him, well does the -- has the FSA been given authority to negotiate with the United States about insurance issues? And Mr. Sakakibara skirted the question. He didn't give me a direct reply. What is, in fact, the state of play in the U.S.-Japan insurance negotiation? And are you worried in any way that MOF is trying to shirk any responsibilities it still may have in that regard?
FISHER: You know, I'm glad you asked me that question. This is a very important issue. First, [let me] put it in context. Japan has a huge insurance market. It's important that that market operate in the most efficient way possible. It is, as you know, on the life side, it is a mutually -- it's a mutual-driven market. That is, there aren't many stock-owned funds. There are, indeed, transformations that must take place and the life industry here, in terms of the way it operates. The property and casualty market is a little bit different but nonetheless there are also significant risks in that market, as well.
We in the United States and also companies in Europe have very strong balance sheets in terms of our operating insurance companies. And also are eager to compete in this market in order to drive down the cost of premiums for Japanese savers and provide them the kind of protection they buy insurance for in all different areas.
We believe, again, that this is important that it be a very competitive market because competition stiffens the ability to and brightens the ability to deliver good product to consumers and to businesses.
And so we have been having, up to recently, discussions as to how to do so. Now I must tell you that this week I have sought meetings with Mr. Sakakibara and with the financial supervisory authority and they have denied me the ability to meet with them. This is very, very rare in international relations when you have a bilateral agreement -- in this case an agreement that was signed in 1996 building on an agreement that was signed in 1994 -- without even knowing what I want to talk about they refuse to see me.
This is not good for U.S.-Japan relations. It's very un -- it's not only unpleasant, but it sends all the wrong signals at this time when we have these kinds of difficult issues to confront together. Now the Financial Supervisory Authority has, as we understand, been given responsibility for this effort. The Ministry of Foreign Affairs has been of assistance from the standpoint of explaining some of these matters to us. But it is always important to go directly to talk to those in charge. And I understand very well that there are tremendous pressures on the financial supervisory authority. They have a very important task to perform in the Japanese economy, working in the banking and the securities and the insurance industry. But we are deeply concerned about it, to be utterly frank, and we are concerned at an unwillingness to engage in a discourse. The issue should be, how do we take this very large market, primary and secondary sectors are 95% of the insurance market here, that's standard life and property and casualty, and make them competitive in order to provide reinsurance, that is, the reassurance, to Japanese savers and policyholders that they need to continue having a vital, healthy financial market in Japan.
So we believe that competition is good for the insurance industry. We believe we should have conversations on how to enhance the strength and viability of the industry through competition, and we are very disappointed that our Japanese colleagues won't even talk to us about it, despite the fact [that] we have an agreement to do so.
Now, I've only been doing this now for a year, but to my knowledge, this is unprecedented.
Q: Two questions -- two answers ago, you said that Japan should emulate the United States and join the information age. I believe your boss, Ms. Barshefsky, has predicted that the United States will have a $300 billion trade deficit this year, which is part of the product of joining the information age, namely, we don't produce any manufactured goods to export anymore, apart from the problems of putting them in other markets. Why is the United States a market to be emulated with a trade deficit of that proportion is one question? The other one relates to what you just said, which is an example of what appears to be a growing -- what -- enmity, I would say, between the trade negotiators of the two countries on both sides. You all just don't seem to like each other anymore. Not just the Japanese. The Americans have been equally rude to the Japanese. Would you agree with that? I think that has become particularly noticeable since the auto negotiations where all those negotiators finished those talks hating each other. Is there something that can be -- is that the situation? And is there something that can be done to get rid of -- apart from the problems of talking about insurance. The entire aura, the entire air, of enmity between the two countries in discussing these problems.
FISHER: Well, let me deal with your first question first. Ms. Barshefsky has noted that there are some forecasts that are trade deficit in goods in 1999, may well exceed $300 billion. I think every other country in the world should be grateful for that. We've been growing our economy. Others have failed to grow their economy. And therefore others have a market to sell into. And I do not buy your argument that this indicates some kind of dramatic deficit in the capacity to produce goods that are sellable elsewhere in the world. It is true that we have moved our economy dramatically up the value-added ladder. We have a distinct comparative advantage in intellectual property and other high value-added goods, but at the same time, we are the largest seller of agricultural goods in the world. We make great manufactured products that are bought and sold around the world. And I think, if you'll forgive me, your assumption that we run a deficit because of some incapacity of manufacturing is a faulty assumption. And I do think it's important that we have played our role in the world.
Now on the other hand, there are limits of tolerance. And there are certainly, there's no limit to hope that others will start growing so that they can re-balance, but this has been the role that we, in essence, have had to play as the market of last, first, and, in some cases, only resort.
As to this business of hatred and enmity, I find that very disturbing. We are negotiators. In every country that I deal with -- and I deal with all of Asia and all of Latin America and even with Canadians and our Mexican friends and the Central Americans and the Caribbean nations -- we have differences of opinion. We will have issues that need resolution. And so you conduct diplomacy to reduce whatever tensions might arise therefrom and to solve these problems.
Personally, having spent time in Japan, having sacrificing my son to one of the best little baseball teams in the Tokyo Spring Junior League, or Senior League, I have personally a very fond regard for Japan. I admire the society. I admire its culture. I admire its people. And in no case do I go home at night with a sense of hatred or enmity towards the people that I sit across the table from. And, by the way, in no case does President Clinton go home at night with a sense of enmity or hatred for the people that he may not always see eye to eye with.
When I mentioned in my speech our own experience, it's with a sincere effort to convey the fact, first of all, that when you're down you don't stay down. It may be the best minds in the world that think you're finished. Paul Kennedy's a great academic, even though he teaches at Yale. And as for Vogel, who's a Harvard prof and has got a first rate mind, they were wrong. So I think it's very important to understand that the purpose of this exercise is to work with and to resolve the differences with, a critical, valuable ally, which is Japan. And I know it's sensational to talk about all the individual differences we have on rice and steel and so on, but put that in the context of a much richer tapestry of a relationship that we have, and I think it'll help you put things in perspective.
Q: Ambassador Fisher. Well, as a journalist, I wouldn't be very happy if you met Mr. Sakakibara while I went home. It's news to me when you cannot meet him. But you said it's one of those rare instances where such things happen. Could one of those rare instances include when the Japanese wanted to have Mr. Rubin -- I'm not talking about Christiane Armanpour's husband -- I'm talking about THE Mr. Rubin. When he was expected here and Mr. Rubin overflew Japan, or does your department understand the depth of feelings here after Mr. Clinton's visit to China? And in the context of Ed Lincoln's remarks of "tough love", et cetera?
FISHER: Well, first of all, the President made a trip directly to Japan. I think he had a very positive experience here just recently, with good meetings with his counterpart, the Prime Minister. I think he expressed our affection for and our interest in this country. And secondly, I want you to note that on Thursday I travel to Beijing. I came to Japan first. Thank you.
(end transcript)
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