Chapter IX: Wise Men's Group We have suggested a number of long-range actions which must be taken to reduce the wear and tear on our bilateral relations, as well as to make the United States a more competitive producer in the world's markets. In conclusion, we will discuss the work of the Wise Men's Group-a potentially important joint effort to move the emphasis away from the day-to-day fluctuations of trade figures and toward long-range solutions. The Japan-United States Economic Relations Group, informally known as the "Wise Men," may exemplify the type of effort necessary to most effectively handle our long-range bilateral trade problems. Focusing their attention on the underlying tensions and the medium to long-range problems, the Group is studying our economic dealings "within the context of our overall relationship in which economic, political, security, and cultural dimensions are intertwined." Such an interdisciplinary approach is important. President Carter and Prime Minister Ohira established the "Wise Men's Group" on May 2, 1979, to submit recommendations on the management of economic concerns. (See appendix H for the Revised Draft of the Memorandum of Understanding, the agreement which formed the Group.) The co-chairmen of the Group are former U.S. Ambassador to Japan Robert Ingersoll and the former Japanese Ambassador to the United States and External Affairs Minister, Nobuhiko Ushiba. The three other U.S. members include: Alden W. Clausen, President and Chief Executive Officer, Bank of America; Edson W. Spencer, Chairman and Chief Executive Officer, Honeywell, Inc.; and Hugh T. Patrick, Professor of Economics, Yale University. The Japanese members include: Akio Morita, Chairman and Chief Executive Officer, Sony Corporation; Shuzo Muramoto, President, Dai Ichi Kangyo Bank, Ltd.; and Kiichi Saeki, President, Nomura Research Institute. The Group set December 1980 as the date for their first report of recommendations to their respective heads of government. Thus far, the "Wise Men" have held two joint meetings. In the first meeting, in December 1979, the Group outlined their main areas of concern and began the preparation for specific background research. In the second meeting, in May 1980, the Group formulated a progress report on their study. They explained that since the lines demarcating domestic and foreign economic policy in the two nations "are becoming increasingly blurred because of increased international economic interdependence," many recommendations will concern areas traditionally considered to be domestic. The problems the Group identified as being at the root of our frequent trade disputes, which they will focus on, are: 1. The decline in the rate of the U.S. annual productivity growth; 2. The impression of Japan as a difficult market for outsiders to penetrate, including some deep societal factors making Japan a more insular, isolated entity; 3. The U.S. laws affecting imports which subject them to uncertainty and sometimes constitute unfair protection of U.S. industry, along with the quite different legal systems; 4. The impact of macroeconomic structural and cyclical factors on both nations' balance of payments and trade imbalance; 5. The cause, nature, and prospects for resolution of disputes in specific key areas, i.e., steel, automobiles, the high-technology sector (principally semi-conductors), and agriculture, as examples from which to draw general recommendations on handling trade disputes; 6. The tendency of economic issues to generate political conflict, rather than being left to resolution in the market place; 7. The lack of significant investment in both directions, and the condition for investment in both countries along with the impact of this on the general relationship; and 8. The volatility of the world energy situation, and its special impact on Japan's unique physical and psychological dependence on imported energy. The effectiveness of the Wise Men's Group ultimately depends on the receptivity of the respective governments to listen to them and to implement recommended measures. If the political will exists to respond to what will likely be difficult recommendations, the results will not have an immediate impact, but will be an investment for the future. This type of long-term approach must be utilized if our alliance is to continue. American officials should realize the necessity and significance of the Wise Men's Group and begin offering them the highlevel access the Japanese government has offered to her four members. APPENDIXES APPENDIX A-STATEMENT BY MEMBERS OF THE HOUSE WAYS AND MEANS TRADE SUBCOMMITTEE BEFORE THE JAPAN NATIONAL PRESS CLUB, TOKYO, APRIL 3, 1980 This is our second visit to Japan in the last two years to discuss trade problems between the United States and Japan. We are impressed and appreciative of the many areas where progress has been made to facilitate trade, clarify import procedures, and help ensure a more equitable balance of trade between our two nations. We recognize that there are many steps which the United States must take to improve its trade competitiveness and to become more export oriented. The United States, for example, is taking unprecedented steps to break its domestic inflationary spiral. The United States finally appears to be taking major steps to conserve energy and develop new, non-petroleum energy sources. Approval of the Tokyo Round MTN Agreements in the United States has been accompanied by a new awareness of the importance of trade and the need to become more export oriented. During the last year, our trade imbalance with Japan narrowed a bit from the unacceptable levels of 1978, and 1979 was a relatively "good" year for our trade relations. But we fear for the future. The dollar/yen exchange rate is clearly inappropriate, and we believe that this year the trade imbalance will increase by several billion. There are some who are predicting that in 1981, our bilateral trade imbalance will increase dramatically and exceed by far the imbalance which occurred in 1978. Individuals can disagree on the size of the future imbalance-but there appears to be no disagreement that there will be a growing imbalance. We fear that the coming trade imbalance will place new and difficult pressures on our future relations. The United States faces very hard times in the next year or two. The anti-inflation recession may be severe. The credit crunch could increase unemployment dramatically during the coming months of the American election year. Large trade imbalances will be blamed by many for contributing to America's unemployment problems. Attention will focus on our major bilateral source of merchandise trade deficits: Japan. Therefore, as friends, we urge that Japan continue and accelerate its efforts to remove the final trade barriers which contribute to the impression that Japan still is not a "fair importer." Your actions now can save us from a political flare-up in the near future. In our meetings with Japanese government and business leaders and with American businessmen in Japan, we have stressed the need for progress in a number of areas: -A narrowing of our $8-9 billion trade imbalance in automotive trade, through Japanese investment in the United States, some consideration of including American parts in Japanese autos, and American contributions to the increasingly important replacement parts market in the United States; -Japanese willingness to use American high-technology equipment in telecommunications, computers; -Improvement in certain agricultural and raw materials trade where the United States clearly has comparative advantage; -Resolution of remaining standards, customs, and investment/financing issues needed to facilitate imports into Japan. For the sake of our future relations, there must be further progress in these sectors during the coming months. APPENDIX B-TASK FORCE'S PREVIOUS RECOMMENDATIONS [Summary of the First Interim Report] TASK FORCE ON U.S.-JAPANESE TRADE RELATIONS The Task Force has held three informal meetings with Administration officials: with Ambassador Wolff to discuss U.S.-Japanese issues at the MTN; with Secretary Weil to review developments within the Trade Facilitation Committee (TFC) and the Special Task Force for a National Export Policy; and with Charles Schultze to discuss his trip to Japan and the state of the Japanese economy. In addition, the Task Force has met with representatives of the Japanese Agricultural Ministry who were in Washington to negotiate implementation of the beef import quota increase. FINDINGS AND IMPRESSIONS TO DATE (1) The Japanese appear quite committed to implementation of the specific unilateral actions in the Strauss-Ushiba communique although their pace is slow. In late April, Japanese agriculture officials announced their plan to implement the promised increases in the high quality beef quota. Actual importation can begin July 1, with 5,000 metric tons allowed in during the first six months of the Japanese fiscal year (i.e. April-September). However, American producers have complained about this agreement which followed two months of haggling and negotiating between U.S. and Japanese agriculture officials. None of the beef will be sold at prices below the going Japanese market rate, currently more than $20 per pound. In addition, American producers will not be able to do business directly with Japanese retailers. All transactions must be handled through the Livestock Industry Promotion Corporation (LIPC), a government agency which is well-known for its tight protection of domestic industry interests. (2) The Trade Facilitation Committee is off to a slow start. Since its inception in September, only 7 cases have been formally submitted to the Committee for resolution. Three of these were successfully resolved (in favor of the American exporter), but the two major cases produced flat turn-downs of the American position. One case was dropped and one is still pending. There are problems on both sides of the Pacific. MITI lacks bureaucratic clout with other semiautonomous Japanese agencies. Cases restricted to MITI's jurisdiction have been positively resolved; but no progress has been made on those which require positive action by other government agencies. There may be a need to appeal to higher sources-either Ushiba or some as yet unorganized interagency group. In the U.S., a steering committee has been organized to coordinate various TFC activities within the Commerce Department. A weekly "scorecard" of developments will be maintained by this committee and sent to the Task Force. In response to the lack of specific cases brought to the TFC's attention, Commerce organized a May 5th meeting with industrial trade organizations seeking their help in developing cases. (3) Export promotion efforts are "like pushing a wet noodle." Businessmen remain somewhat skeptical of Administration's efforts, suspecting schizophrenia between those and other Carter proposals on DISC and deferral. Work under the auspices of the American Chamber of Commerce in Japan for the Tokyo branch of the TFC has been somewhat spotty. There is a feeling that the large firms already successful in penetrating Japanese markets are not particularly keen on opening them up for other U.S. competitors. The Commerce Department is currently searching for a top-level U.S. businessman to spearhead a publicity drive for export business programs. (4) Japanese movement on their government procurement practices and untying of foreign aid has been particularly slow. Their participation at the MTN continues to be disappointing. |