So that as we cast about looking for somebody to blame, men bers of this committee and on the full Ways and Means Committe should look inward and find that we bear a large responsibility fo the situation in which we find ourselves today. Thank you, M: Chairman.

Mr. VANIK. Thank you, Don, we very much appreciate your ver fine testimony.

Mr. PEASE. Thank you, Mr. Chairman.

Mr. VANIK. Your entire statement will be included in the recor as submitted.

Next we have a panel of the administration, Robert Hormats Deputy U.S. Trade Representative; David Biltchik, Deputy Assist ant Secretary for International Economic Policy, Department o Commerce; Anthony C. Albrecht, Deputy Assistant Secretary for East Asian and Pacific Affairs, Department of State; and James H Starkey, Deputy Under Secretary for International Affairs, Depart ment of Agriculture.

We will be happy to have your testimony. Your entire state ments will be included in the record as submitted. You may reac from them or excerpt from them, whatever you choose.

The first witness will be Ambassador Hormats. We are happy to have your testimony.

STATEMENT OF AMBASSADOR ROBERT D. HORMATS, DEPUTY U.S. TRADE REPRESENTATIVE

Mr. HORMATS. Thank you very much, Mr. Chairman.

I am pleased to be here to testify in favor of your resolution. I do so for a number of reasons. One, it calls attention and conveys the sense of the Congress, the concern of the Congress, on an issue which is extremely important to the United States and, two, it sends a message that there are still a number of specific unresolved problems in our trade relationship with Japan which demand attention from the executive branch of this Government and from the Government of Japan.

We have made progress over the last several years, and I believe that in the last several years the Government of Japan has liberalized trade in a number of ways. There has been progress in the auto sector, for instance, in eliminating tariffs on autos, in making commitments to eliminate tariffs on most of the auto part imports, and in dealing with a number of standards.

However, there is a long way to go; let us face it. Our ability to export autos into Japan is still restricted by a number of practices by the Government of Japan. Some of these are the result of tax policy and others are a result of what I might call socioeconomic constraints, distribution problems.

I have on several occasions indicated the necessity of the Government of Japan and Japanese firms making what I call affirmative action efforts to enable American firms to be able to better compete in the Japanese market.

In addition, with respect to autos there are two missions which will visit the United States this fall. One is to purchase auto parts, and the other is to investigate the possibility of investment in the production of parts for incorporation in Japanese cars.

Let me just discuss the first one at this time. We have had a series of consultations with American parts producers and unions which are involved in the production of parts. We have also had discussions with the Government of Japan.

It is our judgment that there is a very real possibility of the United States exporting more auto parts to Japan. We feel extremely strongly that the Japanese firms which come here as part of this mission in September should be in a position to make substantial commitments and provide substantial benefits to American parts producers and American labor.

We believe there is no reason why the United States cannot export on a significant level parts into Japan.

Let me touch briefly on the question of the negotiations on the Government procurement code. We have had several rounds of discussions with Japan focusing on the question of the inclusion of Nippon Telegraph & Telephone procurement under the Government procurement code.

It is our judgment that the obligations of the code should apply to overall procurement by NTT. We have been pressing this position, and we shall continue to do so. We believe that American manufacturers of telecommunications equipment can be, and indeed will be, competitive in the Japanese market if given an opportunity.

We have insisted on opening this area because it is one in which we do have a major competitive advantage.

There are a number of other areas on which in your resolution you have touched on, Mr. Chairman. These are beef, citrus, leather, tobacco and other items. We can go into those in detail later if the committee wishes.

Let me just conclude by making a couple of points in general about the overall trade relationship with Japan.

Negotiations with the Japanese are never easy. They tend to be protracted, they tend to be rather difficult. I think it is also fair to say that the Government of Japan, while being constructive and helpful, frequently does not fully understand the implications of its actions on the domestic situation in the United States and on the world trading system.

Its actions particularly in sensitive sectors have a major impact on the world. Too frequently, the Government of Japan and, more importantly, the industries in some cases do not fully realize the significance of their impact. They tend to move very slowly in responding to the sorts of concerns which this committee has evidenced and which indeed other committees over the last several years have indicated.

We are continuing to work with the Government of Japan. It is not an easy problem. We have had some success. I think it is fair to say that the Government of Japan has developed over the last several years a much greater awareness of the need to be sensitive to the concerns of other countries in the trading area.

We have a distance to go. We are pressing on a number of fronts, perhaps in some cases not as hard as this committee or this Congress has wanted, but we have done what we have considered to be a responsible and a tough negotiating job.

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We are remaining very firm and very tough on the issues that we believe are of major importance to our exporters. I think it is fair to say that we have made progress with this approach and we will continue to do so.

We do not tend to look at the relationship with Japan solely in terms of a bilateral balance. Let me explain why.

We have a large bilateral deficit in the area of trade with Japan. With respect to some countries, and particularly the European community, we have a large and, indeed, growing surplus. The international trading system is based on multilateralism.

With some countries we have deficits, and with some we have surpluses. If we focus too much on the deficits with some countries we will give a great deal of ammunition to those countries or groups of countries, such as the European community, with which we have large surpluses, and they may very well use the same tactics against us in areas where we would not want them to use it. While the resolution justifiably calls attention to the major problems we have with Japan, it is important to focus on them and not deal too long on the overall aggregate deficit with Japan. Our hope is that if we deal with the specific problems we open up opportunities for our people, our industries and our farmers to export to Japan.

Through that method over a period of time, we will hopefully see a single reduction in the overall deficit between the United States and Japan. This is the focus of our approach.

I can assure you that armed with the support of this committee and this resolution we will redouble our efforts in this direction. Thank you, Mr. Chairman.

[The prepared statement follows:]

STATEMENT OF AMBASSADOR ROBERT D. HORMATS, DEPUTY U.S. TRADE

REPRESENTATIVE

Mr. Chairman, I appreciate this opportunity to comment on House Concurrent Resolution 376 concerning the bilateral trade deficit between the United States and Japan. The magnitude of the United States' trade deficit with Japan is a matter of concern to the Administration, as it is to the Congress. It is an issue we have raised frequently with the Government of Japan. Expansion of our exports underlies most of the specific trade negotiations and consultations we have had with Japan.

Our efforts to induce Japan to liberalize various import barriers should over time improve export opportunities for American industry and agriculture and thus contribute to a reduction of the deficit. Many of these barriers are quotas or tariffs. These can be addressed through traditional trade negotiations. Increasingly, however, we are finding that our market access problems are the result of fundamental differences between our two societies.

The Government, financial, and business sectors in Japan relate to each other in ways which differ from those same sectors in the United States. In many instances these different Japanese practices do not violate obligations under the General Agreement on Tariffs and Trade or the unfair trade practice statutes of the United States. Sometimes these practices do, however, provide a competitive advantage to Japanese firms or serve to restrict Japanese imports of American products. Addressing these socioeconomic differences successfully requires a continuing and persistent effort. Decisions to change these practices are not made quickly, nor are the adjustments themselves.

The magnitude of the U.S. trade deficit with Japan serves to focus attention on the remaining problems of access to the Japanese market. You have mentioned in your resolution a number of these problem areas including beef, citrus, leather, manufactured tobacco products, telecommunications equipment, and computer information sharing.

In some of these problem areas, such as beef and citrus, Japan has begun the process of liberalization. We expect further progress. Other problem areas, such as

telecommunications equipment and manufactured tobacco products, are the subject of current discussions between our two governments. While Japan has not always responded as positively or as promptly as we would have liked, Japan's responses for the most part have been constructive.

As an example of Japanese willingness to cooperate, the Government of Japan agreed to the establishment of the Joint United States-Japan Trade Facilitation Committee (TFC) as a formal channel for addressing non-tariff barriers to U.S. exports to Japan which result from Japanese Government trade practices or procedures. The TFC provides U.S. exporters an easily accessible government channel for seeking liberalization or removal of non-tariff barriers to trade.

Several other examples of Japanese cooperation are: The Japanese Government eliminated its tariff on autos in 1978. In a package of unilateral initiatives announced in May 1980 at the time of Ambassador Askew's visit, the Government of Japan agreed to facilitate access to the Japanese auto market by further simplifying standards and licensing procedures in the 12 areas identified as problems by the United States. In addition, the Government of Japan said it would continue its policy of encouraging economically viable investment by Japanese auto manufacturers in passenger car, truck, and component industries in the United States.

Several initiatives in the auto parts area were also contained in the May 1980 package. The Japanese Government agreed to eliminate tariffs on imports of almost all auto parts in 1981, subject to Diet approval. In addition, the Japanese Government is sponsoring two auto parts missions to the United States in September. The first is a buying mission for the purpose of promoting exports of U.S.-made auto parts to Japan. As the President's July 8 statement in Detroit implies, we expect significant, tangible results from this mission. The second mission will explore the feasibility of licensing and investing in the U.S. auto parts industry to produce parts for Japanese autos. A primary purpose of this investment would be to create jobs, a point you stressed in your visit to Japan in June, Mr. Chairman.

We are currently engaged in intensive negotiations with the Japanese Government to seek the inclusion of all procurement by the Nippon Telegraph & Telephone Public Corporation under the Government Procurement Code. We are disappointed that we have not made more progress to date. We are seeking to resolve the issue by the end of this year. Our position continues to be that NTT should be subject to the full discipline of code obligations. The Japanese have been cooperative on this issue though our positions remain considerably apart.

The critical point of these examples is that Japan, despite the fact that it maintains numerous barriers to imports, has made positive responses to requests for liberalization. Japan has already acted to increase access to Japanese markets. In some instances it has acted unilaterally. In other cases our two governments are working together in a cooperative spirit to achieve further liberalization. This is not to say that negotiations do not have their frustrating moments, or that we are making significant progress across the board. But it is a demonstration that progress can be and is being made.

As the attention to individual trade problems in this resolution implies, and as I am confident this committee recognizes, there are dangers in focusing to too great a degree on our bilateral deficit with Japan rather than on specific barriers which contribute to this deficit. The international trading system is, as you know, a multilateral system. The key issue for any individual country is its overall trade balance, not its trade balance with any particular country. While we have deficits in our trade balances with some countries, we have surpluses with others. In specific cases, these surpluses may be as large and as persistent as the deficits. for us to focus primarily on the deficits would leave us vulnerable to similar criticism and pressure from those countries with which we enjoy a surplus. Such a focus is not consistent with the design and advantages of a multilateral trading system.

Japan is one of the major participants in the international trading system. As such, it derives many benefits from, and bears serious responsibilities for preserving and strengthening, that system. In my contacts with Japanese Government officials and private citizens, I find an increased recognition of their responsibilities toward the trading system. I believe this recognition is evidenced in the liberalization of Japanese trade barriers to date. While liberalization has not been as thorough or as rapid as we would desire, we are confident that further progress can be made. That is clearly our objective. We want nothing more than a fair chance for our industry and farmers to compete fairly in the Japanese market-and expect nothing less. Mr. Chairman, we are well aware of the import barriers which Japan continues to impose. We are devoting a significant portion of our resources to obtaining liberalization of those barriers. I know that this subcommittee, the entire Congress, and the American people feel strongly about this as well. Your resolution, which we support as a vehicle for focusing even greater attention on the need for Japan to

continue its liberalization efforts, further strengthens our resolve. I assure you that liberalization will continue to be a major priority for the Office of the U.S. Trade Representative and for this administration.

Mr. VANIK. The next witness is David Biltchik.

STATEMENT OF DAVID BILTCHIK, ACTING ASSISTANT SECRETARY FOR INTERNATIONAL ECONOMIC POLICY, DEPARTMENT OF COMMERCE

Mr. BILTCHIK. I have nothing to add to Bob's statement. I will wait until the panel discussion.

[The prepared statement follows:]

STATEMENT OF David BiltchIK, ACTING ASSISTANT SECRETARY FOR INTERNATIONAL ECONOMIC POLICY

I appreciate this opportunity to discuss with you the important area of JapanUnited States trade. The large U.S. trade deficit with Japan in recent years has, as you know, been of serious concern to the administration as well as the Congress. In House Concurrent Resolution 376 the drafters note that the United States has had a substantial merchandise trade deficit with Japan, averaging approximately $10 billion the past few years.

I submit for the record a brief historical statistical summary of United StatesJapanese trade.

Let me point out, however, that while our trade deficit with Japan is our largest bilateral imbalance, we had last year a trade surplus with the Common Market of $12.6 billion. Moreover, this positive (from our point of view) bilateral imbalance is currently running at an impressive $23.2 billion annual rate from January to June 1980. Just to complete this bilateral balancing picture, we are also running a deficit with the oil-producing countries at an annual rate of $43.9 billion (January to June 1980).

One could go on with a bilateral or global statistical picture. But let me try and put the statistics in perspective.

For example, while we are very concerned about our deficit with Japan, the French are just as upset about their $4 billion trade deficit with the United States. Looking at the composition of our trade with Japan, you see that last year we imported, in the transportation sector, over $9.5 billion worth of Japanese autos, trucks, parts, and motorcycles. To be precise, the figure was $9.7 billion, or $1 billion larger than our total deficit with Japan.

I, for one, am confident that the combinaton of a more competitive U.S. auto industry and measures that this administration has underway, including the auto parts buying and investment missions, and the recent decision to increase from 4 to 25 percent the U.S. tariff on light truck cab chasses will result in a diminished appetite for Japanese vehicles in this country.

I submit for the record a detailed analysis of the composition of U.S. trade with Japan in 1978 and 1979.

The auto sector is but one of many where a joint effort of Government and business, working in tandem with the Japanese, can produce an improved competitive position for U.S. industry.

House Concurrent Resolution 376 lists a number of areas where Japanese trade barriers and business practices restrict our exports, including beef, citrus, manufactured tobacco products, etc.

In some of these areas the Japanese have begun to liberalize their import restrictions. In others, we are currently negotiating, and the United States-Japan Trade Facilitation Committee, created just 21⁄2 years ago, has already helped us resolve 15 cases. We are actively pursuing other barriers, attempting to open the Japanese market to such products as U.S. shock absorbers, fertilizer, modified food starches, etc.

Mr. Chairman, I submit for the record a brief history of the Trade Facilitation Committee's recent activities.

President Carter will shortly announce a comprehensive program to "reinvigorate" our economy. Exports expansion will receive a top priority in this program. House Concurrent Resolution 376 would try to shift this responsibility to someone else-in this case, the Japanese. But I firmly believe that the task is ours-business, labor, and Government.

As I stated earlier, we share your concern over our trade deficit with Japan. We will pursue all avenues open to us to assist industry in reducing this deficit. We