*EPF504 03/24/00
Transcript: Deputy USTR Fisher March 23 Tokyo Press Conference
(Japan NTT offer "too little over too long a period") (8480)

Deputy U.S. Trade Representative Richard Fisher said two days of discussions with Japanese officials yielded progress in several areas with regard to deregulation and competition, but the two sides were unable reach an agreement on a telecommunications policy to drive down the cost of connecting to the Nippon Telephone & Telegraph (NTT) monopoly.

Speaking to reporters at the American Embassy in Tokyo March 23 after two days of discussions with Japanese officials, Fisher said: "The government of Japan is proposing a policy that would reduce the cost of interconnection by too little over too long a period."

"We are frankly baffled, as well as disappointed that, in essence, one government monopoly, NTT, rather than the government of Japan or the people of Japan are determining whether or not Japan is able to enter the information age," Fisher said.

"You either protect the short-term interests of NTT or you guarantee the long-term prospects of the Japanese people," he added. "We feel very strongly about this issue."

When asked if the United States would consider retaliation against Japan over the telecommunications disagreement, Fisher replied that "the road to Geneva begins in Tokyo.... In other words, that will depend on what the Japanese government does."

"But my basic point I stressed over and over and over again to the Japanese government is that this is not the United States against Japan," he said. "This is Japan against the future."

Fisher said he did not believe the inability to solve the telecommunications issue would cast a pall on the overall U.S.-Japan relationship, but "it does raise questions as to Japan's commitment and total commitment to the process of restructuring its economy."

On a more positive note, Fisher said substantial progress was made in a number of areas as a result of the U.S.-Japan deregulation discussions this year. Among the accomplishments he cited were agreements concerning energy, medical devices, pharmaceuticals, nutritional supplements, housing, pensions, banking, and customs procedures.

Nonetheless, in addition to not reaching an agreement on telecommunications, Fisher said discussions on insurance were ongoing, with an "essential goal" of the U.S. side being to make sure the government of Japan does not expand the postal insurance system.

Following is a transcript of the press conference:

(begin transcript)

Press Conference
Deputy U.S. Trade Representative
Ambassador Richard W. Fisher

March 23, 2000
At the American Embassy
Tokyo, Japan

EMBASSY SPOKESMAN: Good afternoon ladies and gentlemen and welcome to the American Embassy. It's my privilege to introduce Richard W. Fisher. Ambassador Fisher is the Deputy U.S. Trade Representative. Ambassador Fisher will open with a statement and then turn to questions.

AMBASSADOR FISHER: First, I 'm going to speak as slowly as I can. I understand that we have simultaneous translation and I will try to make myself comprehensible even with a bit of a Texas accent. I want to say that we have just concluded two days of discussions under the enhanced initiative on deregulation and competition. For those of you who are interested in a little history, this is an exercise that was initiated by the former Prime Minster of Japan and my President and has been carried on by the current Prime Minister. This is the third year of our exercise and in all three years we have made substantial progress towards the deregulation and restructuring of Japan and bringing about greater efficiencies in competition in both of our countries. I think one way to sort of summarize the premise of the exercise as it relates to Japan is to quote Prime Minister Obuchi in an op-ed piece that he wrote in 1999 in the New York Times, one of our major newspapers in the United States, where he said, and I quote, "We realize that unless we adopt a more flexible economy driven by the market, Japan is doomed to economic and technological decline," end of quote. During the manufacturing age, with a population half that of the United States, Japan's manufacturing output, productivity and quality was as good as or exceeded that of the United States and today with a population half of ours and also with a GDP that is a little less than half of that of the United States, Japan to this day has as much manufacturing output as the United States. Of course, the key to success in the modern world is the transformation to an information age from a machinery age. The key to success to make that transition is regulatory reform. We in the United States have been blessed in that we had an aggressive form of deregulation that started during the Carter years and kicked in significantly, particularly in the last decade and saved our economy from becoming a second-grade power. And as you know, we have enjoyed tremendous employment and unprecedented economic expansion. We note with concern that Japan has had a recession now for a prolonged period and we would like to see a strong vital Japanese economy. It's in our interest to sell into a strong market. But it's in our national security interest also to have a strong vital Japan, particularly in the Pacific region. And finally, if and when our economic cycle runs its course and begins to slow down, it's very important that another economy, particularly the second largest economy in the world, be able to pick up the slack grow and support the rest of the world, including the United States.

We've focused during this year and the third year of this enhanced initiative on deregulation in several areas. I'm happy to report that as a result of our discussions this year and at these high level meetings, that we've just concluded today, that we have made substantial progress in a number of areas. One of the areas has been energy deregulation. To put this in perspective, one company, Tepco, until just recently, services 20 million people in the greater Tokyo area. This has been a monopoly in which there's been very little competition. The cost of energy is critical in driving down the cost of doing business. And it's very important that energy be open to deregulation. And indeed, just two days ago the law was put into place, that is, it has begun to open nearly one third of the electricity market to competition. Now this liberalization of the market is something that we have been working on as part of our exercise although also this is something the Japanese government has been pursuing for some time. And, I think the progress our two governments have made on energy issues will help ensure the success of electricity deregulation initiated just two days ago and laid the groundwork for further liberalization in this sector in the future.

Let me note, by the way of interest, already there have been numerous companies that have declared publicly, Tokyo Gas and several other companies, that they wish to compete in having access to those electricity transmission lines, that used to be totally monopolized by Tepco, in order to sell excess energy at cheaper prices to their industrial customers. And that one of those companies that wishes to have access to this newly deregulated market is NTT. I'll come around to the subject of NTT and telecommunications deregulation in a minute. But we know from the exercise in the energy market that NTT understands the power of deregulation.

Importantly, what we agreed this week is to foster the shift from a monopoly to a competitive market in the electricity sector. Japan has agreed to eliminate the anti-trust exemption for natural monopolies, including electricity and gas, to enforce competition guidelines, to expand them as appropriate and to actively promote competition in this sector. And we have agreed on additional measures that will ensure that this new rule and law, that has been enacted and put into place, actually is carried through and monitored. When we issue our report, we will issue a fact sheet to give you more particulars.

In the important area of medical devices and pharmaceuticals, again this is a society with an aging population, where the average waiting time to see a doctor is three weeks and by the way, an average visit, three minutes. And also with a much longer period of hospital stay than almost any other industrialized country. Indeed, by a multiple of eight over the United States in terms of the amount of time people spend in hospitals and in terms of their average visit. The Japanese pharmaceutical market is a 60-billion-dollar market. And the Japanese market for medical devices is a 20-billion-dollar market. As a result of our conversations this year, Japan has agreed to 25 new, specific deregulation measures. And our U.S. pharmaceutical industry estimates the improvements that have been agreed to in this round will save the industry from 75 to 125 million dollars, per new product, introduced into Japan. We have agreed on several mechanisms, which we will outline for you when we release the fact sheets when we finalize this process. But let me just highlight a couple by way of an appetizer for you. There will be a new appeals mechanism for medical device and pharmaceutical pricing decisions made by the Japanese Ministry of Health and Welfare. There will be an increase in the number of pacemakers and orthopedic implants that are not subject to unnecessary and redundant clinical trials, which allow significant cost savings. A manufacturer will be able to start testing new pharmaceuticals for additional illnesses before the drug is approved to fight the disease for which it was first developed in the first place. Producers of new medical devices, which is a very important market for us, as I mentioned earlier, the overall market for medical devices in Japan is a 20-billion-dollar-a-year market. Now, producers of new medical devices who have had to wait up to two years before to receive reimbursement for their products, Japan has agreed, as a result of our discussions, to provide new medical devices with an additional, or excuse me, a provisional price within four months while a final price is being calculated and implemented. And other restrictions on these different pharmaceutical and medical device markets have been removed. And very, very importantly, in the area of nutritional supplements, vitamins and minerals which are commonplace in most market places in the world -- it's a six-billion-dollar market here in Japan -- Japan has agreed to abolish restrictions on some of the aspects of that market, including the shape and the maximum daily intakes of several common vitamins and minerals.

In the housing area, this is a very important area because housing costs are expensive in Japan. Land utilization needs to be improved for the purpose of housing in Japan. This is a market where, on an annual basis, just in housing alone, the dollar volume of turnover is 42 billion dollars per year. And the government of Japan has substantially revised a land- and house-leasing law this past December. This change will improve housing options for millions of Japanese families. It will create enormous opportunities for domestic and foreign builders and suppliers. And indeed, some experts are projecting that this will lead to a 17-percent increase in new housing, which starts in the area within an hour of Tokyo itself. Japan has agreed to clarify performance-based requirements for fire-proof buildings by June of this Year 2000. And to allow for the construction of four-story, multi-family and mixed- use wood-frame buildings. This is by the way, an important step towards space utilization. And it could ultimately mean hundreds of millions of dollars of additional U.S. wood-product sales into the Japanese market. And very importantly, through these negotiations, the Ministry of Construction has agreed to assist in improving the way resale housing is appraised in Japan. More realistic valuations and increased transparency in this market are designed under the way we have put together, working with our Japanese colleagues, to make for a more liquid housing market in Japan and to help young Japanese families find affordable housing. The average age of a first-time purchaser in Japan is 39. The average age in the United States is 31. The purpose of the exercise is to drive down the age of a first-time homeowner, what we call starter homes in the United States. The work that has been done under this exercise and this year and completed this week will have that effect.

In terms of financial services and negotiation that has been conducted by our Treasury, as you know, we've been involved in the implementation of Big Bang. And the purpose, the broader purpose, and the significance of this exercise is the following: It has begun to loosen the retarding grip of the old economy, controlled by larger, mature companies, the keiretsu, that previously squandered capital, misallocated resources, reinforced bureaucratic inertia and inhibited change of Japanese society. So what this exercise has done in essence is, it has undone the cozy relationship between banks and their customers and has improved the allocation of savings and capital markets. Importantly, the implementation of consolidated accounting which took place on April 1st, 1999 is already changing the way the Japanese firms do business. And these kinds of changes and other changes such as the liberalization of foreign exchange transactions and of securities brokerage commissions has increased the openness and competitiveness of the Japanese financial sector. A striking example of the growing opportunities that we see is that sales of investment trust, that is, which we call them mutual funds in the United States, in the first two months of the Year 2000 already exceeded sales for all of 1999. And the number of foreign affiliated investment trust management companies has now grown from 17 in 1997 to 36 in 1999. We expect the introduction, as a result of our discussions, of defined contribution pension plans currently pending Diet approval to further expand financial sector and investor opportunities. In the general area of competition, which leaders and officials and experts from our Justice Department have been negotiating as part of our team, we believe that it's very important to have a very strong competition policy in Japan. That the conduct by dominant firms, in partially or fully deregulated sectors, that exclude other competitors in an unlawful manner are now subject to active anti-monopoly act enforcement by the Japan Fair Trade Commission as a result of or discussions. And the JFTC will conduct a survey of the competition efforts of, excuse me, the competition effects of the financial ties and other inter-relationships between manufacturers and distributors and take other measures to promote an efficient and competitive distribution and retail sector.

We've agreed on a new cooperation mechanism between the National Police Agency and the JFTC on bid rigging investigations. And the JFTC will seek to strengthen its ability to investigate and eliminate cartels by improving the effectiveness of its searches, including the obtaining of evidence stored on computers. And this is one of the results of our discussions this week.

In the area of customs, which may seem a little boring to some people in the audience, but when you think about it, the ingress and egress of goods and the rapidity with which they move through port facilities are critical. Thanks to hard work over the last few months, Japans customs agency has agreed to lower the overtime fees that it charges to clear goods imported into Japan. And as a result of our discussions, Japan customs will introduce a new, simplified declaration procedure over the next year, which will move imports into Japan more efficiently through streamlined procedures for duty payments and reporting requirements.

With regard to distribution, this has been a subject area dealing largely with large retail-store law and there has been some concern that local authorities might inhibit the ability of large retail stores to set up their operations in local markets under the new laws. The MITI has committed to a broad educational campaign and information sessions to ensure maximum awareness about the new law. They've committed to encourage local governments to coordinate closely and to speed the application processes. And they've also committed to establish official contact points with their Tokyo headquarters and at eight regional offices to deal with complaints from any interested parties.

And then finally, with regard to transparency and government procedures, we've reached an agreement on a number of areas in this general area, that will help towards the elimination of excessive discretionary authority from regulators and that will make Japans regulatory regime more fair, more transparent and responsive to the needs of citizens. One of the key measures is that the government of Japan has now committed to establishing a committee under the management and coordination agency to make recommendations for legislation that will require special public corporations -- there are some 80 of them as I understand it -- such as the Housing and Loan Corporation. They will be required to disclose information to the public in a manner similar to the obligations of central government agencies.

And the way for Japanese and foreign businesses to take advantage of the opportunities presented by restructuring and the kind of liberalization efforts that I've just mentioned. In order to do so, they have to have access to top-flight legal services of the caliber they can find in any major market like London, or Hong Kong or other major financial centers. And the government of Japan is now committed to undertaking a comprehensive review of its legal system through a judicial reform council. And we will be spelling out that again when we lay out the details of our report.

In two areas we still have work to do. One is going on as we speak. And that is with regard to insurance. We have had some meetings in terms of increasing transparency and the product approval systems of the financial supervisory agency. Indeed, I participated in those meetings this morning and I can not yet report to you on the progress that we have accomplished. The meeting certainly was conducted in a spirit of good will. And we expect progress to be made on that front.

The second area deals with the kampo. As part of the postal savings and insurance system as part of the Ministry of Post and Telecommunications, there we're seeking a halt to the expansion of the postal insurance system in the markets that can best be served by the private sector. This is an enormous savings pool. As you know the total insurance assets of kampo exceed some one hundred and thirteen trillion yen. So this is a 113-trillion-pound gorilla, as it were, and this is something that we wish to make sure, the government of Japan has no plans to expand kampo further in the area of insurance in this sector. And to let the private sector do what the private sector does best. We have yet to reach an agreement on this essential goal this week and this is one of our works that still must be undertaken.

And then, finally, the subject that, I think, most people have an interest on, where we are at an impasse. And that is the subject of telecommunications. We have not been able to agree on an interconnection policy. That is the policy that will be pursued by the government towards driving down the cost of connecting into NTT's telephonic monopoly. The government of Japan is proposing a policy that would reduce the cost of interconnection by too little over too long a period. The period that they propose for a transition is a four-year period. This is a recommendation, by the way, that has been criticized openly and roundly by most of the major newspaper editorial pages, by the heads of Sony, and Fujitsu, and Toyota, and indeed even the Keidanren, and many of the trading companies, and by the European Union. So this is not just an American issue. This is an issue that is vital future of Japan's ability to make the transition to the information age. The government of Japan is taking a step that it acknowledges is not the right one to promote competition but is aimed simply at protecting NTT. And this protection is provided despite the fact that no other major, dominant carrier in the world has experienced serious damage because of the lowering of interconnection fees. In fact, the opposite is true. The experience of the U.S. in breaking up AT&T, or in the U.K. in the case of the monopoly power of British Telecom, and other countries shows that the competition actually makes incumbent carriers stronger and more efficient, benefiting not only their competitors but also end-users.

This is an issue where again we have a lot of work to do to resolve our differences. Our strong feeling is that this is the single most inhibiting factor in preventing Japan from making the transition from being as strong as or better than the United States perhaps in the manufacturing sector, when even American scholars were writing books like Japan is number one and some prominent Japanese publicists were writing books about a Japan that can say no that may have been true in the machinery age. But right now Japan is falling far behind the United States, far behind Europe, far behind Korea, far behind even some Latin American countries in terms of the information age.

The inefficiencies of NTT are being borne by consumers and by competitors. And they constitute a significant drag on the Japanese economy. As I mentioned in a previous speech, domestic phone calls in Japan cost three to five times higher than in the U.S. or other countries. And just to hook up a phone costs 72,000 yen in Japan. In Britain, it's zero. In the United States, it's 4,000 yen. And then the NTT phone rates for internet access which are zero in the United States, that is, the cost of the call is a local call, have now been reduced but only to 4,000 yen per month and are inhibiting the ability of Japanese school children to access the internet, and Japanese businesses like Matsushima and others which wish to procure their supplies and their inputs, just as General Motors and Ford are beginning to do in the United States, by driving up the cost of doing so.

We are frankly baffled, as well as disappointed, that in essence one government monopoly, NTT, rather than the government of Japan or the people of Japan are determining whether or not Japan is able to enter the information age or not.

The Japanese government has spent an enormous amount of resources stimulating their economy through fiscal policy. Japanese monetary policy has been accommodative in order to stimulate the economy. But all this is for naught unless we have structural reform in Japan. And in essence, if you think of the financing that has taken place, it is bridge financing to the future. But the bridge itself is structural change and one of the key stanchions or key elements of that bridge has to be information technology. And the inhibitor of the transformation to a Japan that's competitive in the age of information technology is the monopoly that NTT exerts.

Prime Minister Obuchi plans to make information technology and the digital divide a central theme of the Okinawa G-7 Summit. It would appear, certainly within the G-7, that there are already is a digital divide and that Japan is at the bottom. And unless something can be done to make sure that the transition be facilitated by allowing cheaper interconnection into the NTT system, unfortunately Japan's ability to make the transformation to the information age will continue to be retarded for quite a period. Indeed I would suggest that this proposal, I would like to say that MPT's proposal, but reality, it's NTT's proposal of a four-year plan to reduce NTT interconnection rates, as modestly as they have suggested, is a four-year plan to delay growth, to delay new investment, to delay innovation and to delay efficiency gains so that four years from now, Japan will be even further behind the rest of the world. We hope that common sense will prevail. We hope that the Japanese government will do what's right for the Japanese people and for Japanese business. And we'll continue to discuss this with the Japanese government over the next few weeks and leading up to the Summit meeting in Okinawa.

I think that's enough of the monologue. I'd be happy to answer any questions that you might have.

If you're still awake. Yes, sir?

Q: You implied in today's remarks and in your speech the other day many times without saying directly that the interconnection-charge issue is connected to internet access and I'd like, I'd wonder if you could explain in very specific terms how lower interconnection charges will increase the number of people in Japan who use the Internet, in specific terms. If I can ask a second question, What will you do to retaliate against Japan if they do not accept your demands?

FISHER: Well, first of all, in terms of internet connection on a fixed line basis, NTT controls 95% of internet cone activity. The issue is really how much it costs to connect to a server. And the price that's being charged right now has recently been lowered for the phone call aspect of connecting to a service provider. You still have to pay for the service provider. But the phone call itself, which is a local phone call in the United States, is an expensive phone call made here in Japan. And the current rate that's being offered, which is offered by the way to a limited population, is somewhere in the 4,500-yen range. The issue here is really how you can bring about competition to drive down the cost to make a long distance phone call or a phone call within Japan. And right now NTT has total control over the process because you can't connect into the system. But in terms of the specifics of how our proposals might effect this, I will let our experts, particularly Jonathan McHale, walk you through that if you wish. Because I think it's good to let the technology experts, if you want to get into deep detail, review that with you.

I think the point is that if you make a long distance phone call that cost you multiples of what it costs you in any other competitive country, then what you're doing is driving up the cost of doing business. If a large corporation wants to procure supplies from different suppliers and wishes to connect through the Internet, the cost of doing so is going to be much higher in Japan than it is elsewhere in the world. And if we enable greater interconnect activity, we'll be able to drive down those costs. And if we drive down those costs, we end up driving down the costs of doing business in the information age. That's the basic underlying principle, which we have been stressing.

But it's not just the United States that has made this argument. It's the Japanese business community that has made this argument. And it's the Japanese editorial pages that have made this argument. And it's the European Union and others that have made this argument, who want to be able to be able to connect into that system and deliver the different services that they're able to provide.

With regard to your point about retaliation, I think was the word that you used, first, I would hope that common sense would prevail. It's hard for me to believe that a government would want to further set back the ability of business to compete in the information age. Or to further set back the ability of Japanese school children around the country to access, say, the Internet and to further set back the ability to enter the age of information technology for another four years simply to protect the inefficiencies of the government, excuse me, the telephonic monopoly of NTT. And so I'm hoping that we don't get to the point of what you referred to as retaliation.

There are international conventions under the WTO that govern the cost of cone activity. I'd like to say that the road to Geneva begins in Tokyo. In other words, that will depend on what the Japanese government does.

And there are also bilateral initiatives that can be taken by the United States. But my basic point I stressed over and over and over again to the Japanese government is that this is not the United States against Japan. This is Japan against the future. And the blocking point to bridging the current Japan which is a stagnant economy to the kind of vital, vigorous economy we'd like to see in the future of Japan is NTT. Who governs Japan? The elected people, the Diet, the Prime Minister? Or a government monopoly? That's the question.

So we'll see if common sense will prevail. And if not, then we'll see what action might be taken and we reserve all options.

Q: At this point, it appears that both sides can no longer continue working level talks. Does it, is that the fact? If so, does that mean talks will have to be elevated to the Ministerial level and eventually between Ministerial level talks falls through, it would have to be settled between Obuchi and President Clinton?

FISHER: Well, let me explain how the process works. As it was designed by its founders which were the former Prime Minister of Japan and the current President of the United States and carried on by the current Prime Minister of Japan, Prime Minister Obuchi.

There are two co-chairs to this process. I am the American co-chair, as the Deputy United States Trade Representative, and the Deputy Foreign Minister Nogami-san is the co-hair for the Japanese side. We are both charged with preparing a report to each of our leaders. In the past, we have prepared a joint report. And then our leaders, starting by the way, the first time at the Birmingham Summit, with the former Prime Minister and the current President of the United States, then issue a statement and they accept our report. So, in terms of what we have accomplished, which I have summarized, and what we have yet to accomplish, if we are unable to accomplish it then it goes to the Head of State or the Head of Government in order to be resolved. And our two leaders will meet before the Okinawa Summit. Most likely here in Tokyo. And I'm hopeful that we can resolve this issue before then, that is, the remaining outstanding issues that are yet to be resolved. Otherwise this will become an issue that is taken up by our leaders.

Q: Playing Devil's advocate here, the government of Japan, as you acknowledged in your speech a couple days ago, has put a premium on protecting jobs. An NTT deregulation would cost thousands and thousands -- the figure 70,000 has been thrown around here -- jobs. Could you please elaborate on why that is not a valid national goal or a valid policy for a sovereign Japan. I had a second question but go ahead.

FISHER: Well first, protecting jobs is a very valid national job, or excuse me, sovereign responsibility of any government. We take it seriously in the United States. And even under the most conservative data of the OEDC, in the last 10 years, we created 13 million jobs in the United States. Japan created 830,000 jobs. So we take very seriously, not only the job creation but also the financial security of our people. We also have learned from experience. In that the last four years in the United States, 90,000 jobs have been created in the telecommunications sector. And in Britain some 8,000 plus jobs have been created since British Telecom was been deregulated.

Let me make the reverse argument for you. First you and I agree on one thing. It is a sovereign responsibility to protect the job base of a country. And also the financial security of the people that you have been elected to govern. Already, NTT has announced the lay-off of some 20,000 people. I would trace that to its current inefficiencies. And I would suggest to you that if they go down this path, another four years of increased inefficiency and they fall even lower in the pecking order of international competitiveness, they are placing more jobs at risk. Four years from now the pain, which be inflicted on an employment base of this country, will be even greater than if they were to take the measures now to become competitive worldwide. In every case that we're aware of, when these monopolies have been broken up, more jobs have been created than less. So I don't understand the logic of this argument. I think it's a false argument, it's a strawman or a strawwoman.

And by the way, the other straw arguments that are used is that they'd have to increase user fees. Nonsense. Or that they wouldn't be able to provide universal service. Nonsense. The general complaint is that NTT West is hemorrhaging financially. Why does NTT West have 270 million dollars invested in Thailand? Why does it have investments in Vietnam and in other countries? Why aren't those monies brought back home and put to work if NTT is indeed suffering so severely domestically? And one thing is very clear to me, the inefficiencies of NTT West management or NTT East, should not, the cost of that inefficiency should not be put on the back of their competitors or their customers. They can make the changes internally -- the management changes -- that need to be made.

During the course of one of our discussions in Washington, they laid out for me their cost-savings model. This is a company, particularly NTT West, that is supposed to be under severe duress. And under their static model -- by the way, it was not a dynamic model -- they projected savings of five percent per year. Now, a first-year MBA student in any business school in any country, would figure out a dynamic model to begin with and secondly, if you're in a serious bad shape, a more efficient way to save costs that would be greater than five percent per year.

So, (A) we don't accept the fact that jobs will be destroyed. We believe jobs will be created. Our own economy is testimony to this. But if you don't believe the United States, look at the British situation. (B) We don't accept the fact that this would threaten the user fees, which by the way, are already too high. The cost of installation of a phone line in this country exceeds almost any other country in the world. And (C) We certainly do not accept the premise that the inefficiencies of the way NTT operates should be passed on to its competitors. They need to figure out themselves how to deal with those inefficiencies and to become more efficient.

It's interesting, NTT East and NTT West, their expenses per line are double those of comparable U.S. firms. Some 88,000 yen versus 48,000 yen per line, per year in the United States. Oddly enough, this country has a greater population density than the United States. If anything, the numbers should be reversed. We have longer distances to cover in the United States, etcetera. So, I think, again, there's tremendous inefficiency in the way NTT is structured and managed. And I don't think it's at all fair to take that out on the Japanese people and Japanese business and on other competitors, which include Japanese competitors that want to connect into the system.

So you and I agree on your basic assumption. Where we disagree is this argument that has been put forth that jobs will be lost, when in the case of the break up of ATT and the break up of British Telecom have led to greater employment in the telecommunications sector and by the way, dramatically increased investment and new competitors.

One last point I'd like to make on this subject because there is the issue of financial security, particularly in an aging population, such as you have in Japan. I think it's very important to signal to the market place that Japan is serious about structural reform. Again, the Prime Minster and the leaders of this country have been very brave in terms of embracing fiscal stimulus. And markets always ask if fiscal stimulus leads to a constructive purpose. The constructive purpose of stimulus should be structural change. Positioning the economy to be competitive in the future so that debt can be paid down and an economy can be made more productive and more jobs can be created. If there's any one symbolic issue today, given that we are entering the information age, it'll be the changes that are made in the telephone monopoly and telecommunications. And so I think this will either underscore or undermine Japan's commitment to true structural change. And now the proof will be in the pudding.

You either protect the short-term interests of NTT or you guarantee the long-term prospects of the Japanese people. We feel very strongly about this issue.

Q: I have, I'd like to ask about distribution. In June, the large-retail-store law was abolished and is to be changed by location law? Large retail store, large Location law? In areas like Suginami ward of Tokyo. In some localities, there are moves to add additional regulations in the area of environment and they have started upon establishing the ordinances. If you have any views about these new moves on the part of the local governments, please.

FISHER: Well, the questions dealt with distribution and the change in the retail store law. And the fact that this now has been decentralized into local community decision making. This is one of the reasons that we have worked so hard during this past year with the media. In particular, to make sure that there is some kind of ombudsman role-played by that agency to make sure that indeed this new law makes it more efficient in terms of the location of retailers rather than making it less efficient. And that we create a more competitive market rather than a less competitive market. There have been concerns that local governments might interfere with the process to an even greater degree. By the way, those concerns have been expressed by Japanese retailers, as well by large U.S. retailers such as Toys R Us, the Gap and Cost-co, etc. For this reason we have worked with the Japanese government towards having a very smooth implementation and transition period of the new law starting in June 1. So that the law will fully allow competitive retailers to open and expand large stores. Particularly, those that already have stores on the drawing board. Again, the retail market in Japan is 1.5 trillion dollars. It's a huge consuming market and people want to have access to it. And then MITI, itself, is the key central government agency conducting educational campaign and information sessions to ensure maximum awareness of how the new law is supposed to work and that the application processes are indeed sped up and made efficient.

And then finally, as I mentioned in my comment, there will be some eight regional offices to deal with complaints from any interested parties. So this is a subject that we are going to monitor very closely. The Japanese retailers also have an interest in monitoring very closely because the end purpose is to allow more competition and greater efficiency and not the opposite. Whenever you change to new government authorities in any government, there are concerns that those new government authorities might provide higher levels of interference than what you currently had and were trying to get away from. So we're working closely with MITI on that subject and we will have some aspects of that announced when we make our report and once we're able to conclude if we're able to conclude this years enhanced initiative on deregulation report.

Q: You're probably tired of talking about telecommunication, but I have two questions about telecommunication. (1) Yoshiko-san is a name always cited, talking about the high interconnection rate, but it is 10-20 percent, that is the interconnection rate, comprises of. But by looking at the communication rate and including the provider fee, why do you look at the interconnection rate only? Probably, you are advocating just a telecommunications company. If you are talking about the user, you have to look at the total fee, including the providers' fee and not only the interconnection fee. That is the first point. Number (2) is that NTT structure was delayed to privatize and that was an issue. And because of that, as was mentioned by you, Ambassador Fisher, the restructuring internally is delayed. And so, that is the reality. That is why they can not jump to fifty-percent reduction. They don't have probably the capacity at the moment because there are two voluminous organizations. And so if you jump to 50% drastic reduction people fear that maybe NTT will go bankrupt. And why do you jump to 50%? I don't understand why 50% instead of 20%, for example?

FISHER: There are many service providers that compete with each other. There should be many different ways to access, to interconnect with the telephonic system so that competition drives prices down. Simple point.

With regard to 50% being too much. The commitment was made by your government in 1998. NTT has had three years to prepare for this. British Telecom reduced, in 1997, by 27% in one year. And, if you do the numbers, it's pretty simple math. Here we are, having made a commitment in 1998 to implement a system in the year 2000. Now they want to say that beginning in the Year 2000, they will only do six percent a year to 2004, which compounds to about 22% plus percent.

The number that we have put forward -- certainly NTT had plenty of time to prepare -- is not excessive. It has been accomplished by others. We have, by the way in a spirit of cooperation, discussed with the Japanese government a way to bridge the gap. They have thus far not accepted our offer to bridge the gap from so-called Plan A/C to Plan B.

And, I think the argument which you just made, doesn't acknowledge the fact that this commitment was made three years ago, in 1998. What have they been doing all this time? And then lastly in terms of bankruptcy? Come on. This is one of the largest cash flow enterprises that God ever created. Now this is a company whose market capitalization, by the way, just the ownership of its share of Docomo plus Data is equal to the total market capitalization of NTT. That's a rather interesting proposition. What the market's telling you, which is I think a false assumption, is that the value of the rest of ATT's assets are zero. That doesn't make much sense to me. I'd be happy to pay zero for those assets because they're good assets to operate, even though, by the way, they're not efficiently managed presently. But I doubt seriously that NTT is on the verge of bankruptcy. If it were, I'd certainly like to examine their FCC filings very, very closely because that's not what they've been saying publicly.

Q: Related question. Earlier about the first question, that is, the overall Internet usage rate which the proportion of the interconnection rate is very small and this doesn't lead to the interests of the users. Your negotiation this time is not leading to the interest of the users. Especially those people engaged in the magazines for Internet are all saying that why you do not talk about the over all cost. Why are you concerned only about the local interconnection rate? That is what we can not understand if you can once again explain.

FISHER: What we're addressing here is the telephonic aspect of connecting into a system. Maybe I don't understand your question. There are many, many service providers of product on the Internet. What we're saying is that there should be many, many, many providers of telephonic services so that the cost can be driven down as well. But again if you wish to talk about the technology in a specific sector, I'm happy to make my expert available to you. The point is to increase competition. Right now on the telephonic side, there is little to no competition. On the service provider side, if you add the cost of the telephone connection to the Internet service provider.

Well, let me give you a number. I said this in my speech the other day, so let me just refer to it again. Including the telephone charge, my daughter pays 900 yen a month, to connect to the Internet, to have access to the Internet. She has a friend in Tokyo; her name is Yoshiko. Yoshiko pays 7,830 yen per month. The same Internet service provider. What's the difference? Telephonic costs. Why? Why should a Japanese girl be put at a disadvantage to an American girl? You can answer that question.

Q: I have two questions, one is, you mentioned reduction of overtime fees for the processing of incoming goods by customs -- and I was wondering whether those are the reduction in overtime fees that were agreed to in Summer of 1999 or whether these are additional reductions that were agreed to this week, on top of what was agreed to last year?

Second question. You said that if we are able to conclude this year's enhanced deregulation initiative talks, and in the past you have had joint reports, is there a possibility that the U.S. and Japan will not compile a joint report this year because of the NTT disagreement? And the U.S. for the first time has a separate report?

FISHER: Let me find out from my handlers the answer to your first question.

It was this summer. It occurred during this round and it's a result of the talks that we had this year. This is a yearlong exercise we conclude during this period in terms of the formality of it. So it is a direct result of this negotiation, which has been one year in the works since the last time we issued our report.

And then secondly, importantly, as I mentioned to you earlier, there will also be a simplified declaration procedure that will be introduced over the next year. That is the result of this round's discussions.

What was your second question?

Q: Joint report or separate report this year?

FISHER: Well, we always seek to have a joint report. We still have some unresolved issues as I mentioned earlier. We're still having our insurance discussions. I'm leaving this evening but our experts are continuing and we don't have, although we had very good discussions today at the FSA, the Financial Supervisory Authority, we haven't completed those discussions. We hope to complete those by the end of the week, then we have to deal with the Kampo aspects with the Ministry of Post and Telecommunications. And then, of course, we have the outstanding issues on telecommunications. And we don't produce a joint report until we have successfully resolved all the other issues. Or, one can reserve an issue, possibly, although we have not had to do this thus far, where we have not been successful. We prefer to be successful on all fronts.

I have to go back now and report to my leaders what we have done and consult about a further course of action. My counterparts in Japan will do the same thing.

Q: I've two questions. Firstly, Japan doesn't seem like it's going to budge on this issue, at least not any time soon. Do you see this casting a pall over the broader economic relationship or is it more of a side issue. And secondly, the deregulation report is that something you expect Japan to continue to follow up on every year, or is this something to kind of wind up after this latest report?

FISHER: On the second question, we haven't had a discussion on; we're trying to finish up this year so we haven't had a discussion of next year. I think the effort to continue to deregulate and restructure Japan, particularly given the urgency of doing so and the Prime Minister's commitment to getting it done, would lead one to conclude that they would have an interest in continuing the exercise. But frankly, we just haven't discussed the matter so I don't know. We have an interest in continuing this exercise because we consider it to be a fruitful exercise. And again I want to underscore that we have an interest in seeing a very strong and vital Japan. So it's very important for us that these kinds of structural changes continue and from our own experience and from watching what happened in England and elsewhere, deregulation is the key to success.

With regard to casting a pall over our economic relationships, that's awfully morbid language. Japan is an ally of the United States. It's our most important ally in the Pacific. It's a critical economic partner. It's a powerful economic engine when it is stoked up and running properly. And particularly when it enters the information age, we expect it to be powerful once again. We have a very complicated relationship on many different fronts with Japan. I do think that certainly, an inability to solve this issue of telecommunications doesn't cast a pall on our overall relationship. But it does raise questions as to Japan's commitment and total commitment to the process of restructuring its economy. And I would not say it would cast a pall; it would just certainly give pause to those who are firm believers that this process is, certainly of restructuring, is important and that there is a commitment on the part of the government of Japan to getting it done. And we will continue to work with Japan in order to motivate and assist and serve as a partner in that process of restructuring in whatever way that we possibly can.

Thank you very much.

(end transcript)

(Distributed by the Office of International Information Programs, U.S. Department of State. Web site: usinfo.state.gov)

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