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Office of the Press Secretary

                         BACKGROUND BRIEFING

February 11, 1994

The Briefing Room

3:47 P.M. EST

SENIOR ADMINISTRATION OFFICIAL: Good afternoon. Because I was in the rather long meeting between the President and the Prime Minister, I've agreed to give you some background notes from that meeting.

Present in that meeting were the President, the Vice President, Tony Lake, and myself and a notetaker. On the Japanese side were the Prime Minister, Foreign Minister Hata, Vice Minister Matsuura and a notetaker on their side as well.

The meeting began with a discussion of the overall relationship and its great importance from a strategic, political and economic sense. There was then a discussion of the political reform efforts in Japan. And the President commented on efforts for campaign reform here in the United States. Prime Minister Hosokawa indicated the difficulty that he had found in achieving reform in Japan. And there was a friendly discussion of that subject.

Then there was a reference to the economic stimulus package that Prime Minister Hosokawa has been negotiating in Japan. The President responded that he had understood the difficulty of getting that through, but that he felt that it did not meet the standards that we had expected based upon the meeting in Tokyo last July. There was reference to the fact that it was a significant step but not enough to comply with the agreement.

Then there was a discussion of the framework agreement. And that, I would say, consumed the majority of the time of the rather long meeting. You understand that this was consecutive translation, and that accounts for a good deal of the time that was spent.

I would describe those talks as being direct, intense, yet friendly. The Prime Minister indicated that he'd had reports from his negotiators who were negotiating through most of the night, and that he felt that they were very close on two of the sectors -- the government procurement and the insurance sector. Interestingly, there was no reference at all to the auto sector. And the Prime Minister suggested that they continue negotiations to try to close those gaps.

The President indicated he could not agree to that suggestion. He thought that the gulf was wide. And the President said he thought it was time for a period of reflection. He indicated, as he did in his statement, that our door is open if the Japanese have something to say to us to implement the framework agreement in the way we understood it to be -- expected to be implemented, but that our concern was that the markets be opened.

And he wasn't prepared to continue the negotiations under the present circumstances.

There was further discussion of the stimulus package. And the President and the Vice President reinforced their disappointment with the stimulus package indicating it would reduce by only a relatively small amount the trade imbalance, especially the international trade imbalance. I would say one of the interesting aspects of the meeting was that the President frequently emphasized that this was not just a problem that the United States had with Japan but that all of the other major trading partners had a similar problem. And that was referred to in connection with the fact that the stimulus package would open the market only modestly.

There was an extensive discussion which was reflected in the press conference over the issue of numerical targets. Prime Minister Hosokawa sought to portray the difference as being a difference over whether or not the United States was seeking numerical targets. The President, I think, very forcefully indicated to him that that was not the issue. The issue was the question as to whether or not there could be an agreement over objective criteria, which would enable us to judge whether or not there were tangible results. Those two phrases are words taken from the framework agreement.

And I think that that exchange, which was rather intense and extended, I think, is the core of the difference between the two countries on this issue. And I think that reflects why the President feels that it would be pointless to go back into these discussions until the Japanese have moved on that issue. We feel quite confident that we're interpreting the framework agreement as it was written and that after eight months of very determined negotiation on our part, serious negotiation, no progress has been made. And until there is a change in attitude, I think the President felt that what he described as a period of reflection would be necessary before it was meaningful to go back into negotiations.

The meeting ended with really a renewed discussion of that point, which was, I say, fairly intense exchanges on the subject of numerical targets. And it broke up for lunch at that point. I must say -- I might also say that both Foreign Minister Hata and the Vice President participated in this discussion toward the end.

I'd be glad to take a few questions on any aspect of this matter or others.

Q In July, with the framework, the suggestions that senior officials made at that time was that the framework set out a deadline -- that if the Japanese did not come up with a firm agreement by the deadline that the U.S. would take other unspecified actions, which we all took to assume that the U.S. would move toward sanctions under American law. Now, you seem to be saying, well, we haven't reached an agreement, so we're going to think about it for a while. Why should we not conclude from that the administration is in effect saying to the Japanese, well, you didn't live up to your agreement, but you can now have some more time to try to --

SENIOR ADMINISTRATION OFFICIAL: I'm glad to have a chance to address that. And I want to separate two things. First, the President said we needed to have a period of reflection before we resume negotiations. In other words, he said it was pointless to go back into negotiations until there had been some change on the position of the Japanese. But with respect to actions that the United States might take, I think that the time is very much open on that. At Tokyo, as you'll recall, we reserved all of our powers and all of our authorities under U.S. trade laws. We will be considering that. And that was not the reference with respect to the period of reflection. The period of reflection related to the suggestion of

the Prime Minister that we continue negotiations. The President thought that would not be justified at the present time. But as my colleague and others will be telling you, we will be reviewing all of our available options to open the markets. And there need to be no delay in the review of those options. And I think -- there is no doubt about that from my standpoint as far as the meeting went.

Q If I could just follow up on that, is there a relatively fixed or foreseeable period of time within which the administration may propose what those options will be -- proposed sanctions or some other action, or is that completely open-ended?

SENIOR ADMINISTRATION OFFICIAL: I think I'll leave that mainly to my colleague. But there is a good-sized menu -- some of them can be taken promptly, some of them would be over a longer-term. But the United States will be reviewing all of its options with the aim to opening the markets. And, frankly, I think the President was really quite clear about his disappointment in the failure of the negotiations. If you look back at his statement, its succinct, but it could hardly be more definite that we've been unable to reach agreements in any of the four areas we identified last July. That's a very firm statement. He goes on to say that Japan's offers simply did not meet the standards we agreed on last July in Tokyo. Once again, a very forceful statement as to the way he felt about the negotiations up to this point.

Q If the Japanese attitude does not change and no agreement is reached in the foreseeable future, what are the potential consequences for U.S.-Japanese economic relief and for world trade in general?

SENIOR ADMINISTRATION OFFICIAL: Well, I think the situation is primarily bilateral in character in the sense that we will be looking toward and expecting the cooperation of Japan in implementing the GATT Agreement. As the President indicated, we've cooperated on a number of international or global economic issues and we would not feel that they were impacted directly by this -- by the failure of these agreements here. So I would think the remedies would be bilateral. But as you'll hear from my colleague either today or at some future time, I think we'll be wanting to put this in the broader context -- as the President did all through the meeting -- of the effect of the closed Japanese markets not only on the United States but on the other G-7 trading partners. So I think that could have a result in that setting as well.

Q Well, are the consequences serious or are they marginal when you look at it overall?

SENIOR ADMINISTRATION OFFICIAL: I would say the situation between the United States and Japan at the present time in the economic sector would have to be one that would be characterized as considerable importance to us. The framework agreement was of great importance and obviously the failure of eight months of negotiations has to be a development of considerable importance.

Of course, I want to emphasize that this relationship is a very broad one with strategic and political and diplomatic aspects and I would not expect those to be impacted. But I would not underestimate the fact that they have been unable to reach agreement here. In a sense, in terms of our economic relationships, it's a turning point because as both the President and the Prime Minster said, this is a new spirit of candor in the relationship which both of them, I think, feel reflects the maturity of the relationship -- in other words, were able to disagree as friends.

Q You've seen this thing derailed for sometime, you've seen this coming. Why is it that you're unprepared or that

the timetable is wide open for you to decide what actions you'll take?

SENIOR ADMINISTRATION OFFICIAL: I'm sorry to challenge the premise of your question, but the Japanese over the last several days have been giving us reasons to think that they might be, at the last minute, meeting our criteria or -- these intense negotiations with two special emissaries in the last six or seven days obviously caused Ambassador Kantor and Bo Cutter and others to concentrate on seeing whether it was possible to reach agreement. We didn't lightly come to this conclusion, but about 4:00 a.m. this morning I think they concluded that they were not close.

Q So can you in any way -- if I could just follow up -- can you in any way quantify what you mean by wide open timetable in reaching these decisions? Are you talking about a week, two weeks, a month?

SENIOR ADMINISTRATION OFFICIAL: You mean the decision about what to do next?

Q Yes.

SENIOR ADMINISTRATION OFFICIAL: I think I'll leave that to my colleague. (Laughter.) But it's -- it is not the long period of reflection that --

SENIOR ADMINISTRATION OFFICIAL: I'm going to leave it to my colleague. (Laughter.)

Q If I were a MITI minister right now, I think I'd be quite pleased with today's results. We've tied the Americans up for about eight months now in negotiations; we continue to have a $60 billion trade surplus that's going up. The President had two lines in his speech about how things have failed, and paragraph after paragraph of understanding about Hosokawa and reform and change. Why shouldn't it be read that way in Tokyo?

SENIOR ADMINISTRATION OFFICIAL: Well, I won't promise to put myself in the mind of a MITI minister, but I think they ought to recognize that this is an important turning point in the relationship; that we've no longer -- as the President said -- going to disguise our differences. We're no longer going to reach cosmetic agreements. I think the fact that when we came right down to the end of the negotiations, the United States held firm on its position rather than reaching a cosmetic agreement or rather than trying to disguise an agreement by saying how close we've come.

And I would say that the President's saying to the Prime Minister that he could not go forward on the basis of the fact that we were very close, that you could continue discussions -- that should send a message to the ministers in Japan.

Q But if I could just follow up -- isn't a no agreement and a cosmetic agreement the same from a Japanese point of view, if there's really no response other than that from the American side? They're the ones who have the trade surplus. They're the ones who have the markets.

SENIOR ADMINISTRATION OFFICIAL: Well, the test will come in what actions we take. And I think you can understand that the United States will want to consider those very carefully, both multilateral actions and bilateral actions that we would take. But I think that a MITI minister might look back six months from now if they haven't done something to take steps that would enable the negotiations to be reopened, that this had been a very important point in history.

Thanks very much.

SENIOR ADMINISTRATION OFFICIAL: First I'd like to say, we finished at 4:00 a.m. this morning. That's the earliest I've finished negotiations since I've in my position.

I want to answer one question I think Tom Freidman just asked -- it's fascinating. He said we'd been tied up for eight months. We opened up the Japanese rice market for the first time in history. We reformed the Japanese construction industry for government procurement for the first time in history by invoking sanctions in getting them to move. We got four sales of supercomputers, the most sales we've ever had in history in Japan. Three are massive parallel processors. And we opened a 1377 review of their cellular telephone agreement, which is a first step towards, of course, trade action. I would hardly call that being tied up for eight months.

Q In fairness, none of those were part of these negotiations, but that's okay. (Laughter.)

SENIOR ADMINISTRATION OFFICIAL: I can't walk and chew gum at the same time.

What you saw today was the ending of the former United States policy of trade insanity -- that is, doing the same thing over and over again, expecting a different result -- represents a clear break with the past. Before we would accept cosmetic agreements, the status quo is unacceptable; there's no more business as usual with Japan in trade.

This is a turning point in our trade relationship. However, let me make it clear. Our relationships with Japan are a three-legged stool. There's strategic and there's political and there is economic and trade. Two of those legs are very strong. One needs support and needs to be fixed. And that's what we're about.

My colleague was quite eloquent and correct about we're looking at all our options right now. We're prepared and have been prepared quite a menu. We will proceed promptly, responsibly, and carefully. We will insist that the Japanese market, which is out of step with the rest of the developed world in terms of being closed, be opened up. Our relationships with Japan are long-term ,but so is our ability to open up their market. This is a long-term process, but we will begin promptly.

I would just like to reiterate one thing that my colleague said. The framework explicitly reserved to the United States our powers under our trade laws. We are not negotiating now under the framework in these four sectors. We're reviewing all our options and will proceed promptly.

I'll take questions.

Q A lot of the options you're considering I think people would look at as retaliatory or punitive. Can you explain options you might be looking at, if not name them specifically, which might lead to the result that the U.S. was seeking in these negotiations?

SENIOR ADMINISTRATION OFFICIAL: Our options cover the full range and spectrum of what we have available. They can be characterized in many different ways. Most of them are very effective.

Q But how do you expect them, within the current context of what's going on in Japan politically, to affect the kind of change in their negotiating position that you want?

SENIOR ADMINISTRATION OFFICIAL: We expect them to be effective or we wouldn't implement them and that's part of the review, being responsible and careful but we move promptly.

Q For Americans who are not practicing diplomats, maybe you could be kind enough to just lay out what --


Q some kind of those -- what are those options? I mean, are you talking about inspections of Japanese cars, like the ones U.S. cars have to go through over there? Give us a view of the spectrum at least.

SENIOR ADMINISTRATION OFFICIAL: I think it would be unfortunate and somewhat indelicate for me to lay out the number of options we have available just a few hours after we have completed these very difficult negotiations. And I'm not going to do so this morning. I think it will become readily apparent in the near future.

Q Tuesday is the technical deadline, at least, on the 1377 cellular phone issue. Do you anticipate that you will reach a decision and make an announcement on the cellular phone 1377 by Tuesday?

SENIOR ADMINISTRATION OFFICIAL: I anticipate we'll make a decision by Tuesday, yes.

Q Will you announce it so we know about it?

SENIOR ADMINISTRATION OFFICIAL: I've never been shy about announcing things. My colleague has to leave and would like to make a brief statement.

SENIOR ADMINISTRATION OFFICIAL: And then we'll come back to questions.

SENIOR ADMINISTRATION OFFICIAL: And he did an incredible job which has been ignored I think in the global agreements that were reached.

SENIOR ADMINISTRATION OFFICIAL: Let me just say a few words about the third basket of the framework with Japan. If you remember when this was originally established, there were to be three baskets. One was a structural economic basket, second, sectoral, and a third, the so-called common agenda, or the global package which was requested by the Japanese. We embarked upon discussions with them eight months ago and the results have been, I would say, far beyond our wildest dreams.

A number of issues that we put on the table, that the United States very much wanted the Japanese participation in, the Japanese have moved very dramatically and in a very surprising way. Let me give you a number of examples. First in the area of population and AIDS in which the United States has been far and away the largest donor in the world, the Japanese have been a very small contributor to global population and AIDS programs. The Japanese committed themselves in this agreement to a $3 billion package over a seven-year period of time on population and AIDS. That is approximately a ten-fold increase by the Japanese. Put it in the context of the United States this year will spend about $500 million on population, somewhat more than that on AIDS. So the Japanese have moved very dramatically.

Second example, we have a number of programs on environmental clean-up coming out of the United States and Central

and Eastern Europe. The Japanese have joined that effort; we have got a joint agreement with the Japanese to which they are going to contribute more than $1 billion in loans and credits, to environmental clean-up in Central and Eastern Europe.

Third, on timbering, the Japanese have been very reluctant in the past to join discussions on timbering -- very important all over the world. We have now forged three very specific joint programs in Papau, New Guinea, in the Philippines and in Brazil. We have a joint agreement with the Japanese which we are working on the business of nuclear waste disposal -- ocean dumping, a major problem in the northern part of Japan as the Russians have been dumping there. And the three of us will be working together in part through the Gore-Chernomyrdin agreement and in part through this framework.

There are a number of pre-construction technologies, a number of other environmental programs. We have just sent to Japan as part of this agreement, 30 U.S. engineers who will be working on manufacturing technology. And that program -- first time that has ever happened -- 30 U.S. engineers from large companies working on the floors on the manufacturing floor of large Japanese companies. That program will be expanded in June from 30 to 100 going over each year. There are a series of these. We will be taking on other discussions after this settlement, and we have a whole series of others for the next six months between now and the G-7 in NATO -- the G-7 in Naples.

I would say again, this was beyond our wildest dreams in terms of the response of the Japanese to requests that we made, and in terms of a -- truly, a common agenda on a series of enormously important global concerns in which the United States and Japan are joint partners and the Japanese have certainly begun to live up to their major responsibilities as a world power.

Q You used the phrase "promptly" and talked about how we'll have a sense of these options before long. Can you clarify that at all? I mean, what kind of time frame are you anticipating in this review?


Q Well, can you tell us whether something's going to happen?

Q During these negotiations, various negotiators on the U.S. side have said that if they didn't work out, the U.S. would unilaterally set the measures that they had been seeking to get Japanese agreements on. Is the U.S. going to unilaterally express what those measures are? And if they are, when are --

SENIOR ADMINISTRATION OFFICIAL: In terms of our review and process of decision-making in this regard, obviously a number of the options that we have available are unilateral in nature. Some are bilateral and some are multilateral, and we'll look at all of those options.

Q some time frame you can give us on --

SENIOR ADMINISTRATION OFFICIAL: Well, again, it's --I'm not going to be drawn into that because the next thing you know you'll ask me what day and what time. It's going to be prompt, it's going to be careful, it's going to be responsible and it's going to be effective.

Q Just to clarify, your colleague said that it was clearly distinct that the cooling off period, the future of negotiations and whatever options the United States chooses to take

SENIOR ADMINISTRATION OFFICIAL: If the Japanese come back and accept the basis upon which we will be willing to enter into these agreements, thereby these agreements -- as the President said -- will become real and effective, not cosmetic, then of course we would welcome those negotiations. Under the current circumstances, we don't expect those negotiations to go forward.

Q Can you clarify one thing, which is, your colleague talked about considering a range of options. Without pinning you down, which you won't be, on what those are or the timing of them, can you say that some punitive or negative consequences will ensue to the Japanese as a result of their failure to live up to what you think is the bargain you struck in Tokyo?

SENIOR ADMINISTRATION OFFICIAL: Since the American University speech by the President on February 26, 1993, the policy of this government in trade and international economics has been twofold -- open markets, expand trade; and trade is a two-way street. We're going to insist, under that dictum, that the Japanese markets begin to open up and converge with the type of open markets we see in the other developed countries of the world. That is now not the case.

Japan, for instance, as compared to other G-7 countries only imports about half the manufactured goods as to gross product. In terms of telecommunications, the Japanese market is open about 5 percent, it's 25 percent average in the rest of the G-7 or G-6 countries. By any measure you can come up with ,the Japanese markets are the most closed in the developed world, and we insist that they be opened.

Q Well, but this follows up on Tom's question about why a MITI minister wouldn't be happy with letting the status quo continue. Are you saying that whatever sanctions the United States decides to pursue, that it will pursue something?

SENIOR ADMINISTRATION OFFICIAL: The one thing this administration has not done, and this president has not allowed, because he's been the most successful President in trade in American history, is let the status quo maintain. We're in a new world, a tripolar economic world where we all have to take responsibility, whether it's opening markets through the NAFTA, the Uruguay Round, through APEC's trade and investment framework; or it's through opening up Korea Telecom through invoking sanctions; or Japan construction through invoking sanctions; or through a market access agreement in Tokyo; or through a framework agreement in Tokyo, we've been -- this President has been not only able but willing to do so.

So, there is not doubt where we stand on this issue. If -- I don't know how Mr. Kumagai feels today; I have not talked to him. But the fact is, I think he has no doubt about our resolve.

Q One, just technical question -- the framework talks, the way that they were set up, there was going to be a sixmonth period on priority sectors and another six-month period on second-tier sort of sectors. Does this mean all of that's off, that you're free now to act on those second-tier sectors. And the second question, sir, is front and center on these issues, of course, the imbalance in auto trade. Do you expect that one of the first actions by the administration will be on the auto sector?

SENIOR ADMINISTRATION OFFICIAL: Well, you know I'm not going to answer the second question. We'll go back to the first

question. As Secretary Bentsen said in Tokyo, and it's the policy of this administration, if we had no agreements in these sectors, we'd reassess the viability of the framework. That's the part of the options that we will be reviewing promptly and carefully and responsibly.

Q Does that mean to say that the frameworks, the second round of the frameworks, could still -- there could be a second round of framework talks, like --

SENIOR ADMINISTRATION OFFICIAL: I think my answer was very clear.

Q In the spirit of this new candor, can you at least tell us -- can you at least tell us if the review and the actions pursuant thereto will be taken before the G-7 Summit the next time --

SENIOR ADMINISTRATION OFFICIAL: Yes. Both the review and actions.

Q G-7?


Q Two major things have happened since the framework was reached. One is that there has been tremendous political turmoil in Japan, and the other is that the recession continues and lingers on. To what extent is the United States willing to factor that now into any results of the negotiations?

SENIOR ADMINISTRATION OFFICIAL: The best thing that could happen for the Japanese economy is to open up their economy to foreign competitive goods in order to lower the price of products in Japan, raise the standard of living and ensure the Japanese companies become more competitive and more innovative. Nothing could be more effective than a bigger macroeconomic stimulus in that regard.

Thank you.

END4:19 P.M. EST