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THE WHITE HOUSE

Office of the Press Secretary


For Immediate Release February 9, 1994
                            PRESS BRIEFING
                                  BY
               U.S. TRADE REPRESENTATIVE, MICKEY KANTOR
             DEPUTY SECRETARY OF THE TREASURY, ROGER ALTMAN
                 AND DEPUTY ASSISTANT TO THE PRESIDENT
                 FOR ECONOMIC POLICY, W. BOWMAN CUTTER              

                          The Briefing Room

3:16 P.M. EDT

AMBASSADOR KANTOR: First, I'm Mickey Kantor of the United States Trade Representative. I have on my left -- first time he's ever been on my left -- the Deputy Secretary of the Treasury, Roger Altman, and on my right, Bo Cutter, NEC. We have Under Secretary of Commerce Jeff Garten, Under Secretary of State Joan Spiro, Ambassador Barshefsky of Wall Street Journal fame. (Laughter.) Who else do we have here? And we're expecting Council of Economic Advisors to be down here in a moment. Defense Department? Yeah, right. (Laughter.) EPA.

First, let me just give you a bit of a briefing on Prime Minister Hosokawa's visit and talk a little bit about what has been going on in the negotiations. And then I'll, of course, be willing to answer questions. But then Roger and, I think, Bo would like to say a couple of words as well.

As you know, Prime Minister Hosokawa arrives here on Friday morning to meet with the President as a result of the agreements reached in Tokyo during the G-7 meetings between the governments of Japan and the government of the United States in the so-called framework agreement. These meetings are to be held twice a year and discuss global issues, macroeconomic issues, as well as sectoral or sectoral trade issues; all of which will be discussed during this visit.

The Prime Minister will meet with the President during lunch and, of course, there will be, I expect, a press conference I guess on Friday afternoon, if I'm not mistaken.

As you know, the framework is part of the Clinton administration policy as we have attempted to open markets and expand trade. It was reached during the G-7 meetings in July due to the very good work of Roger, Bo and the rest of the people I introduced, including Charlene and Joan -- and Jeff wasn't there yet. He's joined the team and a very valuable member of this team.

That framework agreement called for the governments of Japan and the United States to address three major segments of issues. One, global issues -- including AIDS, population and the environment were three that I remember off the top of my head; two, macroeconomic issues; and third, of course, were the sectoral issues. And the first four sectoral issues which were supposed to be addressed at the fist summit meeting, which is Friday, were telecommunications and medical equipment in the government procurement area, insurance and autos and auto parts.

For the past year, this administration has been engaged in a campaign around the world to open markets and expand trade. This President has been the most successful President in American history in pursuing those objectives. This administration has made


it clear that we don't seek to close markets, we seek to open other markets in order to create jobs here at home and grow our economy. Whether it's the North American Free Trade Agreement or the Uruguay Round of the General Agreement on Tariffs and Trade, where this President led the world in terms of opening markets, we have made it clear that is our goal.

The framework agreement with Japan is exactly -- is consistent with that -- fully consistent with that policy. And let me explain what it does. What it does is to ask Japan, of course, in the macroeconomic area to stimulate their economy in order that they can spur consumer spending and, of course, to grow their economy, the second largest in the world, in order to spur global growth.

In addition, it calls upon Japan to open their markets in these four critical sectors as a first step towards opening Japan's markets generally. It should not escape anyone's attention that the Japanese markets are closed by any measure that you might want to use. If you look at the telecommunications market that we're working on, the Japanese market has five percent foreign import penetration where the G-6, or the other G-6 nations of the G-7, foreign import penetration averages 25 percent. The average manufactured goods to gross product penetration, the Japanese market is 3.1 percent, I think is correct; and it's over twice that much average for the other G-6 nations.

And I could go on and on, but in every sector that you look at, including foreign direct investment, where the Japanese foreign direct investment stock is about four-tenths of one percent, whereas, for instance, the United States is around 22 percent, and Europe, I think, is about 36 percent, you see the difference between a closed market in Japan and an open market in the United States.

Clearly, the only way to address is three ways: One, to set goals -- a goal of increased access of foreign competitive goods in the Japanese market. That is in the framework. Second, to insist that we have concrete results. That is in the framework. Number three, to insist we have measures to implement these agreements in a way that will deregulate the Japanese economy in a way that will make sure we have increased access of competitive foreign goods and services. And last, but certainly not least, measures of results, both quantitative and qualitative, so-called objective criteria in the framework. The reason is it is not in anyone's interest to reach yet one more agreement with Japan that both countries agree to adhere to certain acts to make sure that we grow our markets and not have a measure of result that can be used to determine whether or not we're successful.

There is a unified administration in this regard. There is unity up on the Hill, between Republicans and Democrats of both House and Senate, in supporting this approach. Also in the business community. I would only note the Business Roundtable and the U.S.- Japan Chamber have also supported this approach. And, of course, the labor movement does as well.

Not only are we speaking as a country with one voice, we are negotiating this agreement -- and this is critical -- on MFN, on a multilateral basis. This is not just to seek to open Japanese markets for U.S. exports. The goal here is to open Japanese markets for all foreign exports, because that truly will not only grow trade but spur global growth as well.

We are looking for tangible progress and that is what we hope we can do between now and Friday in our negotiations with our Japanese allies.

Roger.


MR. ALTMAN: I really only have two points I'd like to add. I'd just like to try to remind everyone about the essence of the framework agreement struck last July in Tokyo. The essence was that Japan is out of step with the rest of the industrialized world, and that it's time for Japan to come into line, to converge. It's out of step as measured by the gigantic current account surpluses which Japan is running $130 to $140 billion a year, 3 to 3.5 percent of GDP depending upon how you measure it. These gigantic surpluses at a time when the rest of the industrialized world in is deficit. What's the impact of those surfaces? Well, it drains growth and it drains jobs from the rest of the world.

Second, the import penetration statistics Mickey used -- import penetration for foreign goods and services in Japan is at about half of the G-7 average other than Japan, hasn't budged for 20 years. So by these two very basic measurements, Japan is out of step. What we're seeking through this agreement are steps which will represent the road to convergence so that after a medium-term period of time, Japan will be -- Japan's performance in these areas will be symmetrical to that of the rest of the industrialized world. And it surely is not too much to have asked; and of course we did strike this agreement that it's time for such convergence.

The second point I want to make concerns the old saw of managed trade. One reads every other hour it seems that the U.S. is seeking managed trade, isn't that awful, and so on. Well, that's not what this is about. This is about market access and opening markets, not managing them. Is it managed trade or unmanaged -- is it managing trade or is it unmanaging trade to deregulate the Japanese insurance market so that foreign providers, foreign players are eligible to participate -- eligible? And is it managing trade or unmanaging trade to open up the Japanese public procurement market in these areas, for example, of telecommunications and medical equipment so that foreign producers can be eligible to compete?

Well, that's not managed trade; that's improving market access. We are not seeking guaranteed market outcomes. We are seeking full-fledged market access. And I think it's a critical difference. I think it's been widely misrepresented. And it's most important here on the eve of the summit, I think, that we clarify that because this managed trade argument is a canard.

Bo.

MR. CUTTER: I'll only make one point, which is that the combined macroeconomic measures and the market-opening sectoral measures that we've proposed are not a one-way street; that they are in the interest both of the United States and of Japan. That it's obviously a macroeconomic stimulus package in Japan is in our interest because it would ultimately lower the current account deficit and would have an impact on our capacity to export. Obviously, market opening measures are in our interest.

But we have emphasized from the beginning that both of them are fundamentally in the interest of the Japan economy. A stimulus package is obviously so -- the Japanese economy is mired in the worst recession that it's seen in the last 20 to 25 years. The market opening issues are even more in their interest. It's broadly, I think, perceived and agreed that the way out for the Japanese economy, that it's next source of growth, is to put in place market liberalization efforts which will lead to strong and sustained domestic consumer-led growth.

So we believe that the measures that we've proposed are very much in both nations' interests and that a win-win is possible.

Q You said that you were not interested -- this was not about the U.S. closing our markets. If there is no agreement on


the framework talks, what sort of options do we have that are not closing our markets?

AMBASSADOR KANTOR: We have, of course, a number of interesting options which, of course, we'll discuss. We hope and expect, of course, that we can reach agreement and we'll come to that discussion if we're not able to, but we expect that we will.

Q But there are things that do not close our markets? I mean, wouldn't we be talking about quotas or tariffs or super 301 actions or a strong yen policy or something -- aren't they all things that would end up being -- where we would close our markets to them if they're not opening to us?

AMBASSADOR KANTOR: The mind is a wonderful thing and very creative.

Q What does that mean? (Laughter.)

AMBASSADOR KANTOR: Exactly what I said.

Q Mr. Cutter, in mid-December you told a group of reporters that you had returned from Asia with a feeling that there is a sea change in Japan's attitude toward -- if that's the case, why are these talks so difficult, and do you have a still have that feeling?

MR. CUTTER: What I said was a sea change in Japan's attitude toward the economy and the open nature of the economy. And if you talk to the private sector in Japan, if you look at the commission reports, what private businesses are saying, that's very evident -- is that there is a realization on the private sector side of the Japanese economy and, I think, increasingly in the political structure that there is a -- that Japan's fundamental interests now lie in the liberalization of their markets. That has been the consistent judgment of every commission that's been established, every business group within Japan.

That is, however, not who we're negotiating with right at the moment. We are negotiating with, we've called them bureaucrats. They're perhaps more appropriately called the mandarins of the government of Japan. And those attitudes change slowly.

AMBASSADOR KANTOR: Besides he was referring to the Chesapeake Bay, not the Pacific Ocean. (Laughter.)

Q The political calculations are interesting. You presumably are going to hold up Mr. Hosokawa as the force of light, and perhaps reading from what Mr. Cutter just said, the mandarins as the forces of darkness. What if that doesn't work out? What if you send Mr. Hosokawa home to Tokyo humiliated in the Japanese political context? Is that a risk you're prepared to make?

AMBASSADOR KANTOR: Well, first of all, candid, open, serious discussions in a responsible way between two trading partners whose relationship is the most important bilateral economic relationship in the world don't necessarily have to end up in anyone being humiliated; nor do I expect this to happen; nor does anyone else expect it to happen or want it to happen. That is not what we're trying to achieve here.

What we're trying to achieve is agreements that work, agreements that open the Japanese market for foreign imports. We can no longer live as Roger referred to $131 billion surpluses which the Japanese enjoyed this year in trade with the world; $60 billion -- nearly $60 billion with the United States. It creates both economic and political asymmetries which are not in the best interest of Japan or the United States. Further, opening their markets what the


Japanese will do will lower the cost of goods because of competition, raise the standard of living, and because of competition, become more innovative. This is not only in the best interest of foreign exporters, it's in the interest of the Japanese citizens and their government as well.

And one more item I might add. When Prime Minister Hosokawa formed his new party in 1992, he wrote a very interesting treatise which explained why he formed the new party. And it is very clear that a major reason was to break up the bureaucracy and thereby open trade in order for Japan to become more competitive and to grow a consumer economy.

Q What page did you say that was on?

AMBASSADOR KANTOR: Page 11. Well, page one and 11. You've got to put them both together. And in page three there's another thing about concrete results.

Q He is in a fragile political position.

AMBASSADOR KANTOR: Who knows how many times I've read that?

Q But he's in a fragile political position in Tokyo.

AMBASSADOR KANTOR: We're trying to strengthen it.

Q Can I ask a question of Mr. Altman? Back in 1985 when the United States thought that trade was out of balance, they had the G-7 come up with -- well, it was the G-5 then -- come up with the Plaza Accord to reduce the value of the dollar by 50 percent over two years. Is this something where we could go to the G-7 partners and ask for pressure on Japan, maybe a strong yen policy, in order to try to correct trade balances?

MR. ALTMAN: I learned the hard way not to comment on questions like that. We'll leave that until later.

Q Mr. Altman, you say this isn't managed trade; you've also said you want to deregulate the Japanese economy. But when you try to strike an agreement that has quantitative or qualitative measures, you ask the government to sign it and then you ask them to make sure there's an outcome, aren't you asking them to manage their economy, regulate their economy in a way that assures that outcome?

MR. ALTMAN: What we're seeking in these areas -- the three Mickey mentioned, which are the focus of this six-month period, ending February 11th, is deregulation. We have presented, for example, a highly specific set of proposed deregulatory steps, which Ambassador Barshefsky has led on, in the insurance sector -- very specific, frankly, quite a long list. If the Japanese should accept those -- and they surely should -- then the market would be on its way to being opened. And then once it is truly opened -- and we need measurements to determine that -- but once it is truly open, let the best man win. But now, it's not open at all.

Q Or woman.

MR. ALTMAN: Woman, then. Let the best woman win.

Q But there must be some measurements that tell you whether or not --

MR. ALTMAN: Of course, of course. We agreed in the framework agreement that one of the flaws of the prior agreements -- and Mickey reminds all of us that there are something like 33 of


them -- is that in general, there's no agreement on what constitutes progress. So there have been endless debates about whether a smidgen here or a smidgen there constitutes enormous progress that the Japanese often describe, or, in reality, de minimus progress.

Q What kind of measurement are you looking for --

MR. ALTMAN: Let me just give you an example. It happens to be in financial services, which the Treasury of course is very oriented to. The -- and it concerns asset management. The amounts of money in Japanese public pension funds are mountainous because of the Japanese savings rate and the role that the Japanese postal system plays as a collector of funds. I'm going to give you approximations, but the vast majority of those public pension fund assets are not available for management to any foreign party by regulation. I think something like 90 percent are ineligible for management by foreign parties, regardless of the qualifications of those parties, regardless of the nationalities of those parties and so on.

So, in financial services we would say, a measurement of progress would be a percentage of public pension fund assets which are available for management by non-Japanese parties. And if the Japanese would agree to that, and ultimately, they certainly will, then we could all see. The percentage three years from now is not 90 but 88. Any reasonable person would say, No progress. It's a measurement. And what we achieved in the framework and what we will wait for until hell freezes over is an agreement that there will be measurements. Because this endless debate over, yes, there's progress, no there isn't, has got to end.

Q This question is for either Deputy Secretary Altman or Mr. Cutter. The Japanese stimulus package that came out was described by Secretary Bentsen yesterday as a modest step and Secretary Bentsen said it remains to be seen whether it's adequate to really do the job that the U.S. has been seeking. Would the U.S. have preferred that the tax cut be longer lasting or permanent than the one-year proposal?

MR. ALTMAN: Well, the concern that we expressed, Secretary Bentsen expressed, reflects the apparent one-shot nature of the tax cut. It's a one-year tax cut, and no commitment that it will be ongoing beyond that. Lots of studies have shown that if you're talking about rebates, and as Bo was pointing out yesterday, this appears to be the equivalent of rebates if not the reality of them. The propensity to save them is very high, because they are one-shot items.

Now, the framework commits Japan to pursue polices over the "medium term" which will lead to a "substantial reduction" -- sorry, "highly significant reduction" in their current account surpluses. The medium term can be debated, but it's certainly not one year.

Q Ambassador Kantor, despite the troubles here, you say you are still optimistic about reaching an agreement on Friday. Can you bring us up to date on --

AMBASSADOR KANTOR: I didn't say I was optimistic.

Q You said you still you expect to reach an agreement on Friday. What leads to that optimism in light of the current circumstances?

AMBASSADOR KANTOR: Well, I didn't say I was optimistic. I said --


Q I stand corrected. You said you expect to reach an agreement on Friday.

AMBASSADOR KANTOR: Because I think that there is a willingness as exhibited in the framework on the part of Japan as, I think Bo said, to open their markets because it's not only in the best interest of the Japanese, it's the best interest of the rest of the world. Now, obviously, we are at loggerheads over a couple of issues right now, and we may or may not reach an agreement on Friday. But I think given their commitment to the framework, the government of Japan's commitment to the framework, that we would expect we would reach an agreement. Now, that may not happen.

Q Yesterday we were told that the prospects were gloomy. Has anything changed or is Mr. Hata's arrival -- what do you expect from that? Is that a significant change?

AMBASSADOR KANTOR: Well, we'll see. We haven't met -- he doesn't arrive until this evening. We'll be meeting with him tomorrow and we'll see if that changes both the atmosphere and direction of the talks.

Q Mr. Ambassador, a question here. I was talking to some Japanese negotiators today -- this is sort of a two-part question. One, they describe the talks as, generally, as nearer to conclusion. And the reason they say is that there's agreement generally on macro issues and on procedural issues. And that the only thing left are these targets which the U.S. is insisting on -- that they are trying to essentially downplay this issue of targets and saying, look, we've made a lot of --

AMBASSADOR KANTOR: Well, there's no issue of targets. There is nothing about targets in any of these --

Q forward-looking use of numbers

AMBASSADOR KANTOR: Objective criteria, both qualitative and quantitative, and measure results.

Q Right, but other than that, which they are clearly downplaying, they say that that's the only thing holding it up. They also say that when you were there with Mr. Cutter that Hosokawa and the three ministers that you met clearly told you that Japan would not accept these as goals, and they said they wondered whether you had understood it that way and communicated it that way to the President.

AMBASSADOR KANTOR: Well, what was communicated is the goal is increased access for foreign goods and services into the Japanese market. That's the goal. The measures of the objective criteria, the way you measure success as Roger said -- which is the only way to ensure that we don't have this continual frustration between these two great allies over whether or not these agreements are working with it. Deregulation actually is a fact.

When we were in Tokyo, all was basically was said is they didn't want one target number which would become the sole, determinant of whether or not these agreements were successful or unsuccessful. We're not asking for that, nor have we ever asked for that.

Q The four sectors -- is the progress or lack of progress about the same in each sector?

AMBASSADOR KANTOR: There are some differences but the fact is that we are as of today stuck on dead center. But the fact is that there are some differences within and between the sectors. You can imagine that there would be.


Q Ambassador Kantor, which -- do you need to be able to say that visit was not a complete loss?

AMBASSADOR KANTOR: Well, I don't want to define what is -- because I think there is more to this visit, obviously, than merely the sectoral agreements. But the fact is that these are an important part of what these two leaders will be discussing and what has been negotiated over the past seven months. Although this is --I think Roger described it -- the modest step has been taken in the macroeconomic area and they will be, I think, discussions on global issues. Obviously we have not reached agreement on any of the sectors that we determined we would reach agreement by February 11. But there will be other discussions as well.

This is not like a -- we're not in the middle of a sporting event to see who wins and who loses and who's successful. What we're trying to do is move a relationship to a higher plane in order to open up the second largest economy in the world in order to spur global growth. That's what this is about.

Q Ambassador Kantor, if the Japanese won't agree to the use of objective criteria as you've described them, how big a rupture is that in trying to move to a different plane? And how much does that undo what progress you all have touted since Tokyo and the last seven months?

AMBASSADOR KANTOR: Well, I think it's not helpful.

Q What is the status of the talks today? Have there been any discussions between the two sides?

AMBASSADOR KANTOR: No.

Q And is that -- was that cancelled because you were waiting for Hata to come tonight? And is it true that you walked -- we're being told that the U.S. side walked out of the talks last night.

AMBASSADOR KANTOR: Well, "walked out" is making more dramatic. I think we indicated quite clearly that we thought that the discussions were not progressing and that we should not meet today. We learned this morning that the Foreign Minister is on his way, so we're going to wait until tomorrow to meet with him and see if -- and see what he has to say.

Q Not helpful is the strongest thing you can say about their rejection of the American principle that you all are touting as the key stumbling block right now?

AMBASSADOR KANTOR: Not helpful, I think, is descriptive.

Q Can I ask you how you're going to proceed on the Canadian lumber dispute? (Laughter.)

AMBASSADOR KANTOR: You can ask.

Q And whether you think the process of settling the dispute -- the integrity of that process is now in question because of those --

AMBASSADOR KANTOR: Well, we have, as you know, two problems. One is whether we're going to ask for an extraordinary challenge, or in that connection, and there are allegations of conflicts of interest on part of two of the panel members who happen to be Canadians who happen to vote in the majority. Those issues are being addressed right now.


I indicated quite clearly, yesterday, that if, in fact, the panel is not reconstituted as a result of these concerns over conflicts of interest, then we would pursue an extraordinary challenge.

One more question, yes.

Q Your administration has often characterized the relationship between the U.S. and Japan as a three-stool thing. That you see one stool, the economic stool is weak; the two other legs are strong. I have never seen a two-legged stool stand. Does it mean that you would let --

AMBASSADOR KANTOR: It depends which circus you go to. (Laughter.)

Q You would let, if there's a collapse of talks on Friday, you would let the whole relationship collapse on two legs?

AMBASSADOR KANTOR: Well, you've got to assume that the whole economic leg would be broken. You've got a three-legged stool; one is security, one is political, and the third, of course, is economic. The economic leg is weak. The President described that in his meeting, in fact, with then-Prime Minister Miyazawa is -- it's almost been a year ago, now, I forget, April -- it was April of 1993. The other two legs are very strong. We need to strengthen the economic leg and that's what this framework was described to do.

Thank you very much.

END3:45 P.M. EST