somewhat. Between 1977 and 1979, the value and quantity of lumber and veneer sheets/plywood exports increased dramatically:

Domestic concern that an excessive number of raw logs were being exported to Japan has prompted such actions as the Bonker amendment to the Export Administration Act of 1979, which placed additional restriction on the export of western red cedar logs and lumber. There are some long-range prospects for increased use of North American style lumber due to changes in the construction of wood frame houses:

The Ministry of Construction estimates that . . . since 1974 over 20,000 homes have been built in Japan using the platform frame system, most of it during the past two years. The MOC expects the trend to continue accelerating as more Japanese carpenters and homebuilders become familiar with the system and it becomes more competitive in cost and better accepted by the homebuyers. Several Japanese trading companies, homebuilders, and others interested in seeing the platform frame system used have formed an association. This industry group estimates that by 1985 at least 40,000 platform frame houses will be built in Japan annually. Although this is a small percentage of the total number of wood frame houses built in Japan each year, it is a significant beginning when one considers that there were no houses built using this method 6 years ago."

As in the case of other "agricultural" products, we believe a longterm agreement assuring Japan a minimum access to lumber could accelerate expansion of exports of finished products, provide the needed incentive to alter some U.S. saw mill operations, and provide a major new market for America. Such an agreement would help even out the destructive boom/bust cycle that plagues the logging industry.

PROCESSED FOODS

Another area of trade concern is in processed foods: Japanese laws impede or make processed food imports more expensive, by quotas, customs, labeling, and sanitary and food additive controls.

Problems with the quota system include regulations unreceptive to the changing demand of consumers, regulations not reflecting any real threats to local farmers, difficulties for prospective importers in securing import quota allocations, and difficulties in obtaining information concerning the size of import quotas and holders of quota rights. To improve trade in processed foods, we urge the Japanese government to update and liberalize the current import quota system to reflect the present demand and needs, and open the quota allocation system to new imports.

• Ibid, p. 18.

Labeling requirements compel foreign food processors to duplicate labeling tasks and thereby incur extra costs. Although already approved by USFDA, each food carton must be opened, receive a label, and be resealed. This creates unnecessary labor charges, ties up merchandise in the warehouse, delays deliveries, and increases storage costs. The cost of additional labeling when added to the imported products, makes the imports more costly and less competitive in the Japanese market place. Foreign processed food products often receive harsher treatment than domestically produced products. To improve trade in processed foods, qualified foreign firms should be allowed to affix Japanese required labels at their factory.

Food sanitation standards problems arise because each prefecture establishes standards for domestically-produced products, while the Ministry of Health and Welfare establishes standards for imported products. There is no requirement that the standards be uniform, occasionally leading to stricter standards for foreign products than domestic products. Public standards also exist for inspection, sometimes with more severe treatment for imported goods. To improve trade in processed goods, the Japanese government should consider placing the sole responsibility for setting sanitary and inspection standards under the Ministry of Health and Welfare, and establish certain standards and classes for inspectors.

Finally, Japan has a "positive list" for food additives, compared to a "negative list" in use in countries such as the United States. The use of a positive list and the practice of the Food Sanitation Investigators Council to reject additives on the arbitrary basis of "need" (taking into account the "hypothetical daily intake of food" by the average Japanese) constitute a significant nontariff barrier to imported processed food products ranging from peanut butter to maraschino cherries.

The TSG Processed Foods Task Force concluded their report on processed foods as follows:

Although the purpose of Japanese regulations is to assure the safety of food products, there are cases of unnecessary and inconsistently applied Japanese regulations and practices for imported processed foods that result in the perception and existence of trade barriers. Many of these barriers actually benefit no one while they result in considerably higher prices to the Japanese consumer. A greater understanding of the regulations by importers and a more uniform enforcement of the regulations would lead to increased trade."

Unites States-Japan Trade Study Group, "A Special Progress Report," April 1980, p. 41.

Chapter VII: Long-Term Agricultural Trade Solutions

As described before, Japan is our most important agricultural trading partner. Despite the many sectors of "good" agricultural relations, there are Japanese trade barriers in a number of commodities which are sources of extraordinary tension. The barriers symbolize unfair trade during years of unacceptable bilateral trade deficits. On the Japanese side, there is an understandable desire to be as selfsufficient as possible in food. Because of past actions, such as the soybean embargo, there is nervousness about the United States as a supplier. The cost of self-sufficiency, on the other hand, is staggering.1 Under these conditions, we believe that the two nations could take steps which would result in mutual long-term gains. The U.S. should consider the possibility of offering the Japanese an extremely longterm commitment (treaty) for the right and obligation to purchase, at current market prices, set quantities of various foods. Such a commitment would help reduce Japan's concerns about sources of food supply and about the need for costly new programs to increase domestic self-sufficiency. On the U.S. side, it would provide some further stability to American farmers in their planning and marketing. We have an agreement with the Soviets to permit them a guaranteed minimum level of purchase and we have kept our commitment, even in the face of the Afghanistan crisis and the tensions of the past year. Surely, it would be even more useful to consider a similar, more comprehensive agreement with one of our oldest allies and most reliable customers, Japan.

On the Japanese side, a change in domestic farm policy could provide lower cost food for consumers, maintain farmer income, and reduce the areas of trade conflict with the United States. We believe U.S. experience and studies in Japan have shown that some form of direct payment (deficiency payment) between the government and the farmers can maintain farm income and encourage maximum production while permitting consumers the benefit of food at world prices. If necessary, such a system can be partially or totally financed by the conversion of quotas to less expensive tariffs which, while raising the price of food somewhat, eliminate the need for quota holders and middleman markups.

The reform of the Japanese agricultural support systems is, of course, an internal Japanese matter which must be worked out between her long-suffering consumers and her dwindling farmer population.

A combination of U.S. food security treaties coupled with Japanese internal changes, might be helpful in improving the welfare of both nations. We suggest the Administration begin exploring this general proposal within the Executive Branch and the American farm community and, if warranted, with Japan.

1 With farms averaging only 3.2 acres, the cost of these increased self-sufficiency programs is enormous. The USDA has estimated that the net social cost of meeting certain future production goals in 1975-76 prices would be about $8 billion above the cost of purchasing these foods on the world market. Source: "Japan: Production and Imports of Food: An Analysis of the Welfare Cost of Protection", USDA, ERS, FA Economic Report No. 141.

2 If desired, such commitments could be used by the Japanese to increase their food reserves. It would certainly be cheaper to buy and store U.S. wheat purchased at $200 a ton than it would be to pay Japanese farmers $1,500 a ton to grow wheat on newly reclaimed lands.

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Chapter VIII: Energy Independence: The Most Fundamental Answer to Trade Frictions

We believe a large part of Japan's drive to export and reluctance to import is due to her need to earn foreign exchange with which to import oil. Japan is in the frightening position of being almost totally dependent on imported energy. Joint efforts in finding new sources of energy over the coming decade will be the most important step we can take to remove the long-range trade pressures which have created frictions between our two nations.

The short-term and long-term problems of United States-Japan trade cannot be discussed in a vacuum-in particular, the implications of Japan's energy predicament must be considered when examining her actions in the international trade arena. Three-fourths of Japan's imports are basic materials, food, and fuel; therefore, Japan must, more than most, export to pay for her imports.

The common enemy of both our countries is clearly dependence on $32/barrel oil. The following statistics trace the mutual burden of financing oil imports. Until the Gordian knot of oil dependence is broken, both nations will be "tense" on the need to expand exports and limit imports in order to pay their "oil bill”.

1 Japan figures calculated by taking total petroleum imports and multiplying by 92 percent since Japan's imports from OPEC have been around 92 percent of total imports.

Source: Department of Commerce.

Japan recognizes the clear and present danger; the MITI "Vision" of the 1980's places foremost emphasis on the energy crisis:

Until we can prepare other energy sources, the instability of the world's oil supply will cast a dark cloud over the world economy. Our energy supply structure is far more fragile than those of Western industrial nations for the following reasons: (a) Japan depends on foreign countries for about 90 percent of its primary energy requirements, (b) 75 percent of Japan's primary energy comes from imported oil, and (c) the oil producing areas supplying to Japan are concentrated in a few countries with limited transportation routes.

For these reasons, our greatest national priority is to establish long-term energy security. For that purpose, diversification of energy sources and the conservation of energy are essential.

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Assuming that Japan's economy will grow at an average rate of more than 5 percent annually in the '80's, and that the structure of energy consumption will remain unchanged, we will need in 1990 twice as much as the amount of energy consumed in 1977. The most important need in the coming decade is to conserve energy. As a result of our efforts to save the energy consumption by 15 percent, the energy consumption in 1990 will remain 1.7 times that of 1977. Our second objective is to reduce the nation's dependence on oil from the current 75 percent to 50 percent of total energy requirements by 1990. We will have to vigorously promote development and introduction of alternative sources to a level of more than triple the current level in order to raise them from 25 percent at present to 50 percent in 1990 of the total energy mix. . . .

Because of the U.S. special leadership role in the Western Democracies, we face many of the same energy vulnerabilities as Japan. A recognition of our common problem can help us work together in energy in ways that can also help our trade relationships.

The fundamental importance of the energy crisis makes it useful to discuss Japan's past energy situation and future energy plans.

HISTORY OF JAPANESE ENERGY USE

How did Japan get herself into a position where she depends on foreign oil for 99.8 percent of her total oil supply, which in turn provides 75 percent of her total energy supplies?1 Prior to World War II, domestic sources met most of her modest energy needs. In the immediate post war period, the Japanese Government and the Occupation Force placed first priority on rebuilding the coal industry. A 1949 switch in energy policy toward importation of oil began the transformation of the coal-based economy into one based on oil. The major international oil companies, eager to expand their markets, encouraged, and made possible, Japan's growing dependence on oil. The western majors helped build a network of up-to-date refineries in Japan and became dominant in the refining of oil and the distribution of petroleum products within Japan. The reconstruction and development of the Japanese economy, based on energy-intensive industries such as iron, steel, non-ferrous metals, and chemicals, thus depended on both the western majors and the Mideast for a stable supply of inexpensive oil. This supply, while engendering the "Japanese miracle," rendered unfulfilled the development of alternative energy sources. Japan's postwar economic growth, marked by the emergence and expansion of energy-intensive industries, required progressively greater quantities of energy. Because the ratio of industrial energy use to total energy use in Japan is comparatively high, Japan's rapid economic growth compounded the typical modernization-related energy consumption rise. Energy use quadrupled from 1960 to 1974,2 with oil's share in the supply of primary energy rising from one-fifth to nearly three-fourths of the total. During this period of high economic growth, Japan profited greatly by importing cheap raw materials, notably oil, and exporting industrial products.

The low cost of imported oil pushed the development of alternative domestic resources into the background. While consumption of petroleum expanded rapidly in the high economic growth era, consumption

1 "News from Japan", December 20, 1979, p. 3.

? Tsuneta Yano Memorial Society, "Nippon-A Charted Survey of Japan 1978/79," 1978, p. 90.

' United States-Japan Trade Council, "How Energy Crunch Affects Japan," 1975, p. 5.