*EPF307 07/19/00
Transcript: Barshefsky Says Deregulation Key to Japan's Recovery
(July 19 speech calls for implementing agreements fully) (6320)

The economic relationship between the United States and Japan is as critical to the world economy now as in the past, says U.S. Trade Representative Charlene Barshefsky.

In a July 19 press conference in Tokyo, Barshefsky announced Japan's agreement to lower telecommunication rates for foreign firms competing in the Japanese market, but said additional deregulation of Japan's economy is necessary for that country's economic recovery.

Restoration of domestic demand-led growth in Japan, Barshefsky told reporters, "remains essential, and sustained growth will require the appropriate use of all economic tools -- macroeconomic policies, of course, as well as fiscal policy, the issue of structural change and market opening deregulation."

The Japanese government and the Clinton Administration, Barshefsky said, "have agreed to substantial reductions of NTT's interconnection fees."

According to the agreement, she said, the fees competitors pay for interconnecting with the NTT system at the regional level "will fall by 50% over the next two years, retroactive to April 2000."

Over the same period, Barshefsky added, NTT "will reduce its local switching fees by 20 percent."

The rate cuts will "save competitive carriers over two billion dollars in the next two years," she said.

While touting the benefits to flow from the telecommunications agreement, Barshefsky noted that some past U.S.-Japan deregulation and market-opening agreements "have not reached their potential."

Flat glass "is one example where market shares for the three Japanese domestic producers have remained unchanged for three decades," she said.

Worse, she said, "these firms are actually exerting tight control over distribution channels and therefore of sales."

Other agreements that "have not reached their potential, include construction and government procurement," Barshefsky said.

Failure to implement the agreements fully will "weaken Japan's growth prospects, and block imports," she said.

The U.S. Trade Representative tied Japan's "closed markets and over regulation" to "Japan's period of slow growth or recession."

Eight years ago, Barshefsky said, "Japan made up 1/7th of the United States' two-way trade. This has now shrunk to less than 1/10th."

This diminished presence exists despite the fact that "Japan today relies more heavily on the American market for exports than it did in 1992," she said.

Barshesfky said that people in Japan "are beginning to understand that in order for Japan to create sustained domestic economic growth, it will have to further de-regulate its economy, particularly in areas that are infrastructure-related."

To the extent that Japanese policy restricts information flow through such devices as high interconnection fees, or restricts product innovation by blocking competition, Barshefsky said, "Japan will not be able to create domestic sustained growth."

Following is a transcript of the press conference:

(begin transcript)

"TRADE POLICY IN THE U.S.-JAPAN RELATIONSHIP: 1993 TO 2000"
Ambassador Charlene Barshefsky
U.S. Trade Representative

National Press Club, Tokyo
July 19, 2000

Thank you very much. It's a great pleasure to be here again. I was last here in 1998. The time has certainly passed quickly. May I also indicate that our very esteemed Ambassador, Tom Foley, is here with me. As is Wendy Cutler, who heads our Japan office at USTR, and I did want to acknowledge both of them.

We have come to Japan with a very full agenda and I believe that our visit has been quite productive, thus far. We've agreed on two important items in our bilateral agenda, covering telecommunications and various new steps under our broader deregulation initiative. We are also reviewing options for the launch of a new round of WTO negotiations and we have been briefing our Japanese colleagues on the historic bilateral commercial agreement which we just concluded last week with Vietnam. We've also been discussing progress toward permanent normal trade relation status for China and China's WTO accession, preparation for our meetings in Brunei under APEC, and a number of other areas of mutual concern.

Before I turn to these issues, let me briefly put them in context with some general thoughts on the place of trade in our relationship with Japan, and the work before us as we enter this new century.

My first official visit to Japan was in preparation for the G-7 meetings in Tokyo in 1993. In the years between that event and this week's G-8 meeting we have devoted more time and resources to the U.S. relationship with Japan than to any other. That reflects the importance and magnitude of our trade relationship, the responsibility our two countries share for world prosperity and the complexity and the difficulty of the issues we confront.

In 1993 we came to Tokyo recognizing, first of all, that this was a relationship of central importance for Americans, for Japanese and for our Pacific neighbors. The end of the cold war had, of course, brought us into a new era. But it remained true then as now that every challenge before us -- keeping the peace in a changing Pacific region, protecting the environment, building prosperity -- will be more easily met with a close and enduring alliance between the United States and Japan, the world's two greatest economies, its leading technological powers and the largest Pacific democracies.

Second, in this new era we would build on a strong foundation. We inherited a security alliance four decades old, which was and remains the foundation of peace and security in the Pacific. Our trade negotiations would deal with one of the world's largest and deepest economic relationships. In 1993, 180 billion dollars in two way trade in goods and services. And, in trade, as elsewhere, negotiations between governments would be only one element of the total relationship with its deep and complex network of business associations, personal friendships, cultural ties and family links across the Pacific.

But third, we recognize the trade policy would proceed in an environment marked by deeply rooted tension and disagreement. The 1980s had witnessed a sharply escalating series of disputes. Some like beef or semi-conductors or autos had been addressed to greater or lesser success in specific agreements. But neither country had seemed willing to make more basic reform. The United States had not restored fiscal discipline. Japan remained a substantially more closed and highly regulated economy, sharply limiting imports and accepting virtually no foreign direct investment. And by removing the common threat at the end of the cold war made these frustrations an ever more central part of our larger relationship.

Our work with our Japan colleagues has proceeded ever since based on the awareness of these deeper realities and a commitment to address the more fundamental challenges to our trade relationship. Our first major trade agreement, The Framework Agreement, concluded at the G-7 meeting in Tokyo between President Clinton and then Prime Minister Miyazawa, recognized America's responsibilities, calling for sharp cuts in our budget deficit which had reached in 1992, 290 billion dollars. We fulfilled this pledge through the 1993 budget which is largely responsible for not only eliminating our fiscal deficit, but creating a 211 billion dollar surplus.

Likewise, at the same time, Japan agreed to negotiations. Covering a range of specific industrial factors as well as crosscutting issues of competition, transparency and investment to address questions about the Japanese economy that had given rise to substantial tensions, to give Japanese consumers greater choice and better prices, to create opportunity for exporters, to ensure more substantial import penetration into Japan, and ultimately to create a more open, competitive and stronger Japanese economy.

Since that time, since 1993, we have negotiated 39 market-opening agreements, in industries from cell phones, and insurance to apples and semi-conductors, harbor practices, civil aviation and automobiles. We have worked equally hard with Japan at all levels of government and in consultations with our private sectors to ensure implementation.

Since 1997 we've complemented this work with APEC, with the WTO, and now, with the enhanced initiative on de-regulation. Through the enhanced initiative we have found ways to spark competition in Japan and thus reduce the cost of essential goods and services, whether telecom or housing, financial services or pharmaceuticals, and promote reform across the economy.

Much of the work we have done has been to good effect. Since 1992, despite Japan's long recession, the U.S. has enjoyed a 15 billion dollar growth in goods and services trade with Japan. This has been especially strong in some sectors covered by our agreements such as semi-conductors and medical technology. The growing ability of foreign businesses to invest in Japan is another important and positive indicator, with U.S. direct investment in Japan, rising by 12 billion dollars in 1999. And many of our agreements are making a contribution to a more competitive, less regulated and more consumer friendly Japanese economy. Examples include cellular phone deregulation, where we have seen a range of products at better prices to Japan, and a range of service at better prices to Japan. As a result, 2 in 5 Japanese now own cell phones. Private investment in mobile service will reach 14 billion dollars this year. And millions of families and hundreds of thousands of businesses enjoy greater convenience and efficiency.

Electricity deregulation, a competitive energy market means reduced costs for manufactures, reduced costs for households and long term economic benefit. The enhanced initiative has helped shape Japan's efforts to liberalize the energy sector retail market. Japan took its first major step last March when it opened one third of its energy market to competition creating new business opportunities for U.S. firms and lowering energy costs, which are the highest for any developed country.

Our work on housing has led to adoption of performance based standards, which are reducing the costs and increasing the quality of new homes, allowing construction of four story, multi-family mixed housing, revisions also in the land and house lease law, all of which we estimate will increase housing starts near Tokyo by 17 percent.

We can site similar examples of success in other fields, from de-regulation of medical equipment and pharmaceuticals to better prices of apples in the supermarket. But these successes are balanced by areas where we must do more. Some of our agreements have not reached their potential. Flat glass is one example where market shares for the three Japanese domestic producers have remained unchanged for three decades.

In the aftermath of our agreement, these firms are actually exerting tight control over distribution channels and therefore of sales. Other cases where agreements have not reached their potential, include construction and government procurement, which weaken Japan's growth prospects, and block imports. Other agreements will need renewed considerations. The automotive agreement expires, for example, later this year. Its renewal will be an essential task confronting us in the coming months.

More broadly, the closed markets and over regulation we encountered in 1993 are only partially addressed. The results are evident in Japan's period of slow growth or recession and also in our trade statistics. Nearly eight years ago, Japan made up 1/7th of the United States' two-way trade. This has now shrunk to less than 1/10th, with Japan's share of our exports dropping, and Japan's market share in the US dropping as well. And this is not because Japan has turned elsewhere. In fact, Japan today relies more heavily on the American market for exports than it did in 1992.

These problems are not insoluble, but they do require a full commitment by both sides. While many business leaders and intellectuals in Japan recognize the scope of these problems, at times our counterparts in the Japanese government have been reluctant to discuss these issues. And this, of course, is unfortunate for both sides. It is clear that further reform is most importantly in Japan's own interest.

Let me give you an example in telecommunication. That has been a central item on our agenda this week, and an issue directly related to the G8 Summit's focus on information technology. We have been in intensive negotiations over NTT's interconnection fees. This is an issue that has immediate impact, both on individual Japanese, and on Japan's broader economic prospects. The future of any modern economy depends on bringing down the costs of sharing and transporting information and developing innovative ways of bringing more people and companies into a networked economy.

With the exception of the wireless sector, Japan has lagged in adapting to this reality. According to a recent survey, it ranks only 21st in readiness for e-commerce. Contributing to this has been NTT's special position in the market. The dominance in the wire line market it has always enjoyed. With all its competitors forced to use NTT's lines to reach NTT's customers, NTT has been able to charge whatever it wants for access to its customer base, and thus has restricted competition.

The result has been interconnection rates two to five times those of its peers, which is translated into a similar disparity in the retail price of phone calls and internet access. With NTT collecting fees from 94% of Japan's fixed line internet traffic, rates for internet access were eight to ten times above American levels.

These costs have kept millions of Japanese high school and college students off the net. They mean that hundreds of thousands of small businesses take less advantage of electronic commerce than their competitors elsewhere in the world. They deprive Japanese exporters of the instantaneous contact with customers the modern world demands. Together with other restrictions in the telecom industry, they have put Japan behind much of the rest of the world in internet access and the use of e-commerce, and this has great implications for Japan's technological future.

As we look ahead, restoration of domestic demand-led growth in Japan at home remains essential, and sustained growth will require the appropriate use of all economic tools -- macroeconomic policies, of course, as well as fiscal policy, the issue of structural change and market opening deregulation.

And with that, let me turn to what we believe we have accomplished on telecom and on the broader deregulation initiative. I am pleased to announce, as you know, that we have agreed to substantial reductions of NTT's interconnection fees.

Under the agreement, the fees competitors pay for interconnecting with the NTT system at the regional level, which is of greatest importance to American carriers, will fall by 50% over the next two years, retroactive to April 2000. The bulk of the reductions will come this year. Over the same period, NTT will reduce its local switching fees by 20%. These rate cuts will save competitive carriers over two billion dollars in the next two years.

By 2002, the Japanese government will complete a thorough review of interconnection rates which we believe will result in substantial additional reductions, finally bringing Japan's rates in line with those of other competitive markets.

Together with this, we have agreed to a series of related reforms in the telecom sector. First, the ability to lease subscriber lines on an unbundled basis. This will permit competitors to NTT to roll out high speed internet access. Second, removal of restrictions on how new entrants structure their operations and build out their networks, permitting them to adapt much more quickly to market demands. Third, guaranteed access to NTT's facilities where competitors need to install their own equipment. Fourth, more timely and cost-effective access to "rights of ways," company's need to build competing networks.

As a package, this will help to create a market in Japan which is easier to enter, and alternative networks that are less expensive for Japanese business and families, and would stimulate the kind of innovation and e-commerce usage that should be the hallmark of the Japanese economy.

Second of all, with the completion of our joint status report which we will be releasing after this speech, I am pleased to announce an additional series of deregulatory measures to promote growth and reduce costs in critical areas: energy, finance, law, and others. And let me just give you a few highlights.

In the energy sector, Japan will reduce prices by implementing and enforcing rules that ensure non-discriminatory access to the electricity transmission grid. This is very, very important for energy usage in Japan. Japan will disclose information on the development on transmission rates. It will eliminate the anti-trust exemption for natural monopolies, and it will establish a similar, non-discriminatory framework for access to the natural gas market in anticipation of liberalization next year.

With respect to medical equipment and pharmaceuticals, we have agreed on 25 specific measures to help meet the challenge of providing high quality affordable health care for an aging population. These include reducing the approval process time for new drugs from 18 to 12 months, creating an appeals process for unfavorable pricing decisions on new medical devices and pharmaceuticals, and eliminating unnecessary regulations on many vitamin and mineral supplements. This will all make it cheaper and faster for foreign companies to bring innovative life saving drugs and medical devices into Japan.

With respect to financial services, Japan will build on its "big bang," creating efficiency and choice through a number of measures, for example, allowing financial services firms to compete in a larger range of industries through subsidiaries and strengthening the competition of the pension fund business. It will also make oversight of these industries more transparent to the public and affected industries as the financial services agency will create a system for responding to written inquiries, including published guidance and no-action letters.

Next, insurance. Japan will help new and innovative insurance products move quickly to market, make regulation more transparent as in the case of financial services generally, and ensure that all interested parties are able to comment on any plan to expand the state-owned postal insurance system before it expands. In parallel with this, noting the improvements are 1994 and 1996 bilateral insurance agreements have made to deregulation and product approvals, I informed Commissioner Hino today that the provisions of our insurance agreements, which had restricted certain activities of Japanese companies in the third sector will be lifted on January 1, 2001. The insurance agreements remain enforced now and after the update, and of course, we will be consulting with our Japanese friends on a number of issues, including pro-active efforts to ensure that there is no inappropriate activities related to the third sector before January 1, 2001. But I'm pleased to report that the bilateral insurance agreements which we've negotiated have worked very, very well to help deregulate Japan's insurance market and to bring competition and innovation to all sectors of that market.

Next, housing. I feel as though we have been building a house in Japan. We started three years ago with requests that Japan relax restrictions on the building of two story wood frame houses. Two years ago, three story wood frame houses. This year, four story wood frame houses, which has the been the goal from the beginning. In addition, we will be improving the housing appraisal process and making mortgage terms for resale housing more compatible with those for new houses.

In law, Japan will be modernizing and reforming further the legal system, creating a judicial reform council to oversee the process, to lift the ban on advertising by lawyers, and increase the number of successful applicants to the bar exam by an initial one thousand slots.

And on structural reform, in parallel with these other reforms, we have continued to move ahead with broader structural measures in distribution, competition policy, strengthened anti-monopoly law enforcement and other means.

The enhanced initiative has been a successful and important initiative for both the US and Japan, helping to create growth and promote competition, while improving market access for foreign firms. It is also helped to channel what could have been a series of rancorous trade disputes into a win-win framework. Continuation of this initiative for a fourth year will go together admirably with Prime Minister Mori's call for a new three year deregulation plan within Japan.

There are important issues to be addressed in Japan in the coming year. Complemented by our joint work such as further natural gas deregulation, the introduction in telecom of broad band technology, and pharmaceutical pricing reform. There is no better way for Japan to demonstrate its firm commitment to economic reform than to endorse a fourth year of the initiative. We are also discussing more specific bilateral issues. I've mentioned autos and flat glass, but we will also be discussing government procurement.

And of course, we will continue our close work with Japan on the agenda for the World Trade Organization with the successful opening of WTO talks on agricultural and services.

We have recently offered a comprehensive proposal for agricultural reform, and a plan for the wide ranging liberalization of services trade on a global basis. We are now working with Japan and Europe as we seek consensus on broadening these two areas into a new round of trade negotiations.

As in each step to date, the result of all of our efforts have been to mutual benefit. We have stimulated trade, we have stimulated opportunity on both sides of the Pacific. We believe we have helped to foster Japanese entrepreneurial drive and development, and Japan's public will have received greater choice, lower prices, and higher living standards.

Much has changed since 1993 in our bilateral relationship, in the political landscape of the Pacific, and in both of our countries. But the most important facts remains, the shared values and deep human ties that bring us together, the responsibilities we share as the world's economic leaders, and as fellow democracies.

The fact that today as then, a strong and enduring alliance will enable our two countries to face the challenges of the new century with greater confidence. This was the responsibility before us when we came to Tokyo seven years ago, and it will remain our task as leaders depart for Okinawa in the days ahead. Thank you very much, it has been a great pleasure to be here once again.

Q: Last week the Department of Commerce eliminated the Deputy Assistant Secretary for Japan, and he'll be shifted to the China issue. But (at) the USTR three years ago, (the) Japan China office was in existence, and there was an acting assistant USTR. But the Japan office was created later. So in the Department of Commerce, there seems to be a tendency to slight Japan. But at the USTR, would you not be taking be a similar measure to, kind of, slight Japan?

USTR Barshefsky: There is certainly no attempt or desire on the part of any agency of the U.S. government to "slight Japan." This would be unthinkable. The Commerce Department has not removed a position from Japan. It has instead created a new position for China. At USTR we divided our Japan and China shops because each country merits separate consideration and because we wanted to ensure that we could continue to devote full attention to Japan issues.

Q: Ambassador Barshefsky will have to leave at 3:30 so we will have time until then. If you have a question please raise your hand...

Q: Bruce Ellsworth with Bridge News, thank you very much. I would like to know about the percentage cuts in interconnection fees. In March, the Japanese government had proposed 22.5% for all interconnection rates. And it seems that this compromise could be seen as to the advantage of foreign companies because the cut has been increased fifty. And at the expense of domestic Japanese companies, because it was decreased from 22.5 to 20 in the initial two years. I'm wondering why the USTR would push in this direction. It seems that this would be somewhat counterproductive, at least for some Japanese domestic companies, for the growth of the Internet. And I'm also wondering about other policies Japan needs to pursue to ensure balanced growth worldwide and resolution of the trade deficit in the fiscal policy and monetary policy areas, because there's a lot of question whether Japan will start cutting back on fiscal spending and start raising interest rates. Thank you.

A: The overall effect of a fifty percent reduction in interconnection fees on regional switching, coupled with a 20 percent reduction on local switching, is about a 35 percent reduction overall in interconnection fees. And that is to the benefit of everybody.

We were particularly concerned with regional switching because this was of greatest interest to American and foreign companies as well as of greatest significance to traffic flow, telecom traffic flow, between the United States and Japan, or between any foreign country and Japan. But the combined effect of both rate cuts, because there is also some interchange between the two forms of switching will be about a 35 percent reduction in interconnection fees. So this is quite substantial.

In the third year of the initiative, we believe that reductions will be, again, even more substantial because of the way in which rate calculations will now be made by the government of Japan, and because those calculations depend heavily on the volume of traffic. We know, if we look at the U.S. and Europe, as interconnection rates come down, the volume of traffic increases dramatically. As the volume increases, even more dramatically, interconnection fees will come down even more dramatically. So we will expect further quite substantial rate reductions in the third year.

Q: Yamada from the Industry Standard. For the third year reduction, some press reports have been saying that it could be 60 percent or even further because of the calculation issue that you just mentioned. Can you elaborate on that?

A: Right now, it is clear that at a minimum, there would be about a 16 percent, one-six, 16 percent further reduction of interconnection rates in year three. And about a two-and-a-half percent further reduction in local switching rates in year three.

But these numbers really are not of particular relevance because they are based on what will by then be very outdated traffic flows and traffic volumes.

So, while these numbers are calculable now, I believe it's quite clear you will see rate reductions on both local and regional switching far in excess, far greater, than what they might appear today, in year three.

Q: I'm from AP Radio. Ambassador Barshefsky, we're used to hearing a lot in Japan about "gai-atsu," foreign outside pressure, in negotiations. But here there seems to have been what we can call "nai-atsu," internal pressure, because some Japanese ministries, it appears, actually supported this as well as Japanese business organizations. How much of a factor do you think that was as compared with past negotiations in getting this agreement to this degree and this quickly.

A: I think this was a substantial factor. As I said in my remarks, many in Japan are beginning to understand that in order for Japan to create sustained domestic economic growth, it will have to further de-regulate its economy, particularly in areas that are infrastructure-related. There is no infrastructure more important than information and the rapid dissemination of information.

To the extent government policy in Japan has been to restrict information flow by virtue of, for example, high interconnection fees, or to restrict product innovation because of a lack of competition, Japan will not be able to create domestic sustained growth.

I believe that there is a much greater understanding today in Japan of this reality than perhaps five or ten years ago. And, of course, that understanding is acutely important now as the world economy is moving forward so rapidly, and as information is the bedrock of that movement.

So, in this case, internal pressure within Japan was critical to our being able to achieve the kind of results which we announced today.

Q: I used to be an editor-writer for Nihon Keizai Shinbun; I'm an international critic. Last November and December in Seattle there was a WTO ministerial meeting and you served as chairman. And frankly speaking it was a big failure. Where do you attribute the failure to? And in the future, as you try to start a new round, at the Okinawa Summit in the joint declaration, probably the new round will be started this year, how do you think you can promote a new round? In short, the United States is too much imposing the American system and styles to developing countries and other countries. America is gaining everything. America is so powerful now and America is trying to do everything in their way and there seems to be a problem there. What do you think?

A: Seattle failed to launch a round because no country was ready to do so. Europe and Japan would not agree to liberalize agriculture. The United States had sensitivities on our trade laws and on labor issues. The developing world did not come with a serious intent to agree to liberalization. And the poorest countries wanted first to receive benefits of liberalization up front. One-way preferences, up front.

In that regard, developing countries, particularly higher income developing countries, had no desire to contribute to up-front liberalization for the poorest countries. No country came with the ability to launch a new round in Seattle. The political will was simply not there.

With respect to the G-8, I believe that our leaders will issue a very strong statement on the importance, the necessity of launching a new round of global negotiations and will indicate their firm commitment to help achieve consensus to do so.

Let me add, in the meantime, global negotiations on agriculture and services have begun in Geneva, in the WTO, per a pre-arrangement stemming from the Uruguay Round. And we have been very pleased to put on the table in Geneva the first comprehensive framework proposals in both agriculture and in services, and that is intended to underscore our firm commitment to the multilateral system, and to the launching of a new round.

Q: Uchida is my name, I'm from Japan Agriculture Newspaper. Regarding the new round, there is one point, the new round launching by the end of this year that's the assertion of the United States. But you have the presidential election campaign and it will be very difficult to do it by the end of this year. But what is the reason or rationale for which you think that the launching of the new round is possible and important to do it by the end of this year?

Now, regarding the draft minister declaration on the agriculture which was drafted for Seattle ministerial, what will be the treatment of this drafted declaration? What is the position of the treatment of this draft declaration?

A: The United States position is that consensus for a new round should be sought and achieved at the earliest possible opportunity including this year. Every country has politics. Every country has elections. The United States is concerned that a vacuum not develop, and that the process of trade liberalization move forward. But key to the launch of the new round will be the substance. And when that substance will be achieved whether this year or next, a new round will be able to be launched.

With respect to the agriculture and other texts from Seattle, they will be used if possible. Certainly the concepts used in the Seattle texts on agriculture are critical and are reflected fully in the United States proposal on agricultural negotiations filed with the WTO.

Q: Bruce Ellsworth with the Bridge News again. I just wanted to follow up on other policies that Japan, other than deregulation, that Japan needs to pursue to ensure balanced global growth and easing of the trade surplus such as in fiscal policies and in monetary policies and what the U.S. government is and what the U.S. government would encourage Japan to do. Thank you.

A: I'm not going to make specific recommendations on either monetary or fiscal policy except to say that the United States believes that global growth in general needs to be, in the words of Larry Summers, Treasury Secretary, a balanced up. That is to say, both Europe and Japan need to achieve a further increase in growth to balance those of the United States.

It is obvious that the growth rates among the countries vary quite widely, and that in order to ensure sustainable global growth and global prosperity, both Japan and Europe's growth needs to be balanced up.

Q: Voice of America. Can you speak generally about what you hope will come of the G-8 meeting as the US Trade Representative here. What would you hope will be achieved? Who, generally or specifically?

A: Well, I think the agenda for the G-8 is quite well-known. I don't want to comment too specifically because the outcome of the G-8 will be known in due course. But certainly with respect to trade issues, a strong statement on a new round is something that is very very important. And I think that Prime Minister Mori's focus on information technology is very important and very timely, and a topic that excites the imagination of all of the G-8 leaders.

Q: Hiroshe from Kyodo Press. About launching a new round, WTO new round, last November in Seattle, the ministerial failed. One of the big background factor was the voice of NGOs I think, as I understand it.

NGOs say that multi-national corporations have become very global and various regions' and countries' sovereignty has been infringed upon by multinational corporations and they have had these claims. And you say you want to launch a new round as soon as possible. So in order to launch a new round, NGOs voice has to be reflected, maybe. Is the United States willing to listen to them? And reflect their views? What kind of their positions are you willing to listen to and reflect?

A: I think that it is fair to say that of most countries the United States is very responsive to the views of NGOs and other elements of civil society. That is our history, that is our tradition. And it is very important to the President that our government and our policy-making be as inclusive as possible.

I don't think that Seattle failed to succeed because of the NGOs. It didn't succeed because the countries weren't ready.

I also don't believe that all of the criticisms leveled at the global system by the NGOs are valid, or even sensible, or even, from time to time, make sense.

But I do believe that a number of the criticisms are valid. And in particular, I do believe that the multi-lateral institutions, the WTO, the World Bank, the IMF, the ILO, must be more transparent and more accessible to civil society. Meetings that are conducted in secret, breed suspicion, they breed distrust.

And yet, for anyone who has been in these meetings, it is almost impossible to imagine that they are of a type that should be distrusted, or should give rise to suspicion. And become more public, open up the doors, let people have access to documents. Let people have access to the dispute settlement system. We all do it in our countries, we do it in our own court systems. Why not in the multi-lateral institutions?

I think that the criticisms about transparency of the process and inclusiveness are very legitimate. And I believe if we don't act upon them that the public base of support for open trade will erode. And that will be the biggest threat to the multilateral system, not the failure to launch a round in any given year. But a lack of public trust, a lack of public confidence in the decision makers and in an open world economy.

Q: Sorry to keep kicking a dead horse but I'd like to go back to the telecom agreement again. I'd like to ask you to go into the difference between the regional and the local access charges. You mentioned that the regional charges are more important for American and foreign telecom companies in general. I'd like to know more specifically why that is. The reason I ask is that the local media reporting this agreement today have only focussed on the 20 percent cuts. In fact it wasn't until I got the press release from you guys that I even heard the 50 percent number. It's mentioned nowhere in Japan. And the press conference of the government spokesman this morning I don't believe it came out more than the 35 percent number. Everybody's talking about 20 percent over two years, and then I get this thing from the American government saying 35 percent. If the regional 50 percent cuts are really the important number, why doesn't anyone seem to have noticed that here? Can you talk a little more about that? Thank you.

A: From the point of view of the Japanese government, whose position was 22 and a half percent over three years, one would expect the Japanese government to focus on 22 and a half percent over three years. The fact is the 22 and a half percent over three years pertains to what are called local switches. It does not pertain to regional switches.

And on the regional switch side, the interconnection reduction is 50 percent over two years. There are a hundred local switches in Tokyo. The regional switches are those that aggregate traffic from a number of local switches and provide communication between people in different neighborhoods, served by different local switches, or provide communication between people who don't live in Japan with people who do live outside of Japan. There are four such regional switches in Tokyo.

The traffic of greatest importance to U.S. and foreign companies are the regional switches.

Q: Thank you very much, Ambassador.

(end transcript)

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

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