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                  Office of the Press Secretary
                         (Naples, Italy) 

                       BACKGROUND BRIEFING

July 8, 1994

                        Palazzo Reale Gym
                          Naples, Italy 

1:30 P.M. (L)

SENIOR ADMINISTRATION OFFICIAL: I'll first talk about the format of the meeting, then a couple of observations the President had made, and then a little bit about the meeting. And then, because my colleague has to get back, I'll turn it to him and then I'll come back.

As you all know, the meeting was a two-part meeting. There was first a three-on-three meeting -- basically, the President and the Prime Minister. Then there was an extended meeting with ministers on their side and our Cabinet ministers. The first lasted for about a half and hour; the second lasted for about an hour and 10 minutes, something like that.

It was interesting. The President had been saying as we'd been talking about what he thought were the important issues that were raised by this whole trip and by the combination this weekend of the G-7 and the bilaterals -- and he commented to us about it on the flight over to Riga. And then when we came out of the meeting and we all went into the room, he said, I've been saying this and it keeps hitting me that we're dealing on this trip with the three critical issues that face the country and the American people. And he saw them all as security issues.

The first was the overall global economy and its direction and prosperity. The second was dealing with the aftermath of the fall of the Russian empire -- the Soviet empire. And the third was the nexus of crime and terrorism and concerns about nuclear proliferation as specifically evidenced in North Korea. And he said that throughout his entire trip, whether it was in Latvia or whether it was in Poland, or it was in these bilaterals that he's begun to have, or tomorrow, it's those issues that keep coming up and keep coming up.

Turning to the meeting itself -- it was quite an interesting meeting. We had seen it, since it's the fourth prime minister that we have experienced in the course of our time in office, as somewhat unpredictable in that we really didn't quite know what to expect. He's a very interesting man. He is quite up on the issues, far more than, I think, the media -- kind of all of us, you and we -- had reason to expect.

He made a particular point of going through and saying to -- talking to the President in some detail about the nature of the coalition and how it came to be, and the nature of the politics of Japan over the last year. And one of the points that he was clearly making a particular effort, both explicitly and implicitly to underline was that he expected this coalition to be around.

He gave absolutely no sign of intending to be or being content with short-timer status. He made a point that after a period in the Hosokawa prime ministership of a very, very slim majority, and in the Hata prime ministership, particularly after the Socialists left, of a minority coalition, that now the two largest parties had come together, and they expected to harmonize their views and create a stable party. And he said that both explicitly and intimated it implicitly throughout the talk.

A second point about the meeting that was interesting both to my colleague and I, who have been through all of these now, was that at the request or the acknowledgement of the Prime Minister at each time, each of the principal ministers - -- the Minister of Foreign Affairs, the Minister of Finance and the MITI minister all spoke at some length underlining and emphasizing the way in which the policy issues of the global economy, of the security issues, of the framework hit their particular ministries, and positions they had taken both in the past and were going to take in the future.

I've been to all of these and have never seen that happen before. It's almost always been a Prime Minister set piece. And that the interesting thing to both my colleague and I was that this one went this way.

Because my colleague is on a short string, I'll stop for a moment and let my colleague talk about the security issues. And then what we thought we'd do is break up the Q&As. And on those issues, my colleague will go through those, then he'll leave, then I'll come back and talk about the economics.

SENIOR ADMINISTRATION OFFICIAL: Thank you. The very first issue discussed between the President and the Prime Minister was the North Korea nuclear issue. And that's appropriate not only because it's such an important issue for global and Asian security, but also, as you know, today the third round of talks with the North Koreans opened in Geneva; they're going on even as we meet here now. And from July 25 to 27, there will be the North-South Korea summit meeting. So it's an important day, and the two leaders discussed this right at the outset.

It was in the context of the Prime Minister reaffirming in very emphatic terms the continuity of Japanese foreign policy, the continuity of Japanese security policy, and the centrality of U.S.-Japanese relations, the U.S.-Japanese partnership for Japan.

The President, on Korea, which was the specific issue discussed in as broad a context of continuity of security in foreign policies, the President explained our approach to the third round, and the Prime Minister applauded the tenacious American efforts to bring this back the diplomatic track, which we've had the support, as the President said, of South Korea and Japan, as well as some constructive participation by China and Russia.

The Japanese Prime Minister made it very clear that they support our diplomatic effort, but also, importantly, that if that diplomatic effort were to falter, it was also very clear, and he made clear, that they would support whatever action was required at the U.N. or in New York.

Q The diplomatic action?

SENIOR ADMINISTRATION OFFICIAL: A diplomatic action, that's correct. That if the talks did not succeed, Japanese policy would remain constant. And this, again, is in the general context of their foreign and security policies remaining constant.

I think that gives you enough on the security side to invite some questions.

Q Before the Japanese changed governments, the United States expended a lot of energy lining up Japan, and also South Korea and Russia and possibly China at least to abstain, to support what then seemed to be looming a serious sanctions initiative. Now you're in the negotiations stage; it's not surprising the Japanese support that. But are you confident you won't have to resell them all over again, should you have to take a hard line?

SENIOR ADMINISTRATION OFFICIAL: Should I repeat the questions? I'll rephrase it to make it easier to answer whenever necessary. Basically, we worked hard to get the Japanese and others lined up behind possible sanctions. Now that they're on a diplomatic track, of course, the Japanese will find it easy, and the question is are we confident that if we have to go back to New York with a sanctions route, we'd still have the support?

Well, the answer is, yes, based on Japan's selfinterest and based on what the Prime Minister said today.

Q What did he say that led you to believe that he would be supportive of sanctions?

SENIOR ADMINISTRATION OFFICIAL: Well, again, let me first preface this by saying, on a day when the Geneva talks are opening up between us and North Korea, and when we're only a couple of weeks away from a historic North-South summit, very frankly, we're not looking for a lead about sanctions. I mean, the lead ought to be that this is a day of opportunity on a positive track. I want to be very clear about that. So if you write the proper lead, I'll be glad to talk about this.

But let's face it, when you negotiate, it is useful to know and to have a coalition of what you will do if the negotiations fail. That makes the prospect of negotiations succeeding all the more likely. We're not out, however, to emphasize this theme the very day we're sitting down with the North Koreans. So far, I haven't answered your question, but I wanted to give the context.

Now, basically, I already quoted what he said --that they support our current efforts in diplomacy in getting where we have, but if the talks do not succeed, the Japanese policy -- like of the previous government, which was supporting us in New York -- would remain constant. So we take him at his word, and he seemed very sincere about this.

Any other questions?

Q What did he say to you about their relationship with North Korea at this point? I mean, given the Socialists' previous history with the North Koreans, what's their relationship now?

SENIOR ADMINISTRATION OFFICIAL: This did not come up, specifically.

Q Was there any discussion about the aid package to the Ukraine? Was there any discussion about that, about the Japanese attitude?

SENIOR ADMINISTRATION OFFICIAL: To an aid package? Oh, the Ukraine, I apologize. No, there was nothing on the Ukraine in the small meeting that I'm aware of. But there is this general theme of nonproliferation, which applies to the Ukraine, and of course applies emphatically to North Korea. It's one of the three big issues that my colleague mentioned in the beginning that, frankly, we think dwarf a lot of other issues that get attention; namely, global growth, aftermath of the Soviet empire, and international activities like nonproliferation and terrorism.

Q Did the Prime Minister speak about broadening the number of countries involved in the search for a solution in North Korean?


Q You mentioned that you didn't know what to expect when you came into this meeting because there were Socialists and it's a brand new administration. Did this meeting change your mind? Was there trepidation before you went into the meeting because of the previous policy statements of the Socialists?

SENIOR ADMINISTRATION OFFICIAL: Trepidation is too strong a word. I mean, the government had already stated publicly the continuity of its foreign and security policies. There are as many LDP members in the coalition as there was in the previous government, including in the key national security portfolios. So we had some reason to expect continuity. But obviously, it is reassuring to get this firsthand at the highest level, including from a Socialist leader.

So I think it was reassuring. But, of course, we'll have to see how this plays out. But we have every reason to believe that in Japan's own self-interest that there will be a continuity in policies in this area.

Q Do you concur in the new Prime Minister's assessment that this is a coalition that is here for a long time? And then, secondly, do you think that this group, which is composed of a lot politicians who were not part of the reform movement in Japan, is in the long-term something the U.S. should embrace and welcome as a permanent coalition in Japan?

SENIOR ADMINISTRATION OFFICIAL: You will understand that I'm not going to get deeply involved in Japanese domestic politics. In terms of longevity, I can only tell you what he portrayed. As my colleague said, he seemed really quite well versed on the issues, contrary to a lot of expectations. I think he's seen the deal with some degree of confidence, given the fact he has not been involved in international conferences before, and in allowing each of his key ministers to speak out -- two from the LDP and the other from the Sakigake Party -- I think this displayed a certain confidence and a symbolism that he expects this to continue.

Now, whether -- is up to the leaders and is up to the Japanese people; it's not our business. We will work to get to the second question with whatever government takes power in Japan. We'd like to think, at depth, that what drives a country's foreign policies are their self-interests. And we believe the self-interests of Japan and the United States are very compatible.

Q Just to follow up quickly -- on that first question, is there anything that he said to you that made you more convinced that this was a long-term coalition?

SENIOR ADMINISTRATION OFFICIAL: Look, a leader is not going to come in and say "I'm only going to be around here for a few weeks." I mean, obviously he's portraying continuity.

Q But you've obviously been impressed by the assurances that he's provided. What's changed your mind?

SENIOR ADMINISTRATION OFFICIAL: Yes. All the points I made, namely he acted with assurance, well-briefed on the issues, called on his fellow ministers, and certainly talked -- he did specifically say that he looked forward to working -- I forget the time frame, so don't hold me to this, but for years or months or some time -- I mean, it'll -- working over time with the President. Don't quote me on the phrase he used, because I don't recall exactly. But he was clearly projecting someone who expected to work with our president on a personal and a policy basis for some time to come.

And, indeed, he suggested that they continue the process of meeting twice a year, which was, as you know, the understanding reached with Prime Minister Miyazawa a year ago. So that certainly reflected the view of someone who expected to be around.

I don't want to delay my colleague too long; I'm happy to stay here. But we maybe should segue over into this areas. Are there any other key questions on security or foreign policy?

I would just close by saying, there are, of course, other areas of interest in foreign policy that they were not able to cover in any depth, but the Japanese and American foreign ministers are meeting this afternoon. I would expect they'll get into those issues as well as Korea.

Thank you very much.

SENIOR ADMINISTRATION OFFICIAL: I'll switch to the economic issues now. There were three issues that were of particular importance that were talked about during the meeting that we had wanted to make certain were discussed as the Japanese side.

The first was the President's strong belief that the focus of the developed nations right now ought to be on a global growth policy, and that in a time while the U.S. recovery has been proceeding quite well, the European one has just begun. And we only have really good first quarter signs for the Japanese recovery, and at a time equally when unemployment rates are still quite high, and when nowhere in the world is there any serious sign of inflation that the focus of the nations of the world ought to be on growth, and that we ought to commit ourselves to a noninflationary growth policy. Prime Minister Murayama agreed with that policy, said that he supported the President on it.

The second point had to do with macroeconomic policy in Japan. The President had asked, and Secretary of the Treasury Bentsen had reasked in the meeting, what were the nature of the government of Japan's policies with respect to macroeconomic policy, and the Prime Minister and then the relevant cabinet ministers all underlined that Japan had gone forward with a tax reduction this year and with a substantial public works program, public sector investment -- that they intended to go forward with the tax decrease in subsequent years. And on the ticklish question of the consumption tax, which has been a burr under the saddle now for the last year -- what all of them said was that they did not want to consider a consumption tax until the economy of Japan had gone well into a recovery phase and there were clear signs that something of that nature was needed.

That was a quite different formulation than we've heard in the past, and we were really quite pleased to hear it.

The third point that we wanted to know about -- we didn't expect to hear much detail on this -- but was the degree to which we could expect a continued commitment to market opening, to the framework. We didn't expect under this to have any -- as I've been saying to all of you -- to come to particular agreements in any of the areas. And he reiterated the commitment of this government to that continuity and, as my colleague said, specifically also said that he wanted such commitments as had been made in the original framework agreement as to two summits a year to continue.

So those three issues in terms of the economics were the ones that were discussed the most. I'll stop and take your questions.

Q You said the President emphasized his strong belief that the focus ought to be on global noninflationary growth. Can you think of a time in recent history when it would not be desirable to have global noninflationary growth?

SENIOR ADMINISTRATION OFFICIAL: I think we would love to have it -- we haven't had it for a while. And what we -- I'm sorry. The question was could I think of a time in which there had been a president who had not been in favor of global noninflationary growth. I said that while I probably could, it was difficult.

But the important point is that we're now in a period when that's what we've got. And it's been the first time - -- that's what we've had for some time. And the President's very strong sense is that at a point in the global recovery, when Europe is just coming back on, and when Japan is only giving early signs of that, and nowhere in the world are there any signs of inflation, that that is a policy that we should continue with.

Q The President said that after his discussion with Murayama he began to understand, get a clear picture of why it was so difficult for them to move forward on the trade issue the past year. Is he conceding that there will be no way of moving on those issues as long as this coalition is in power?

SENIOR ADMINISTRATION OFFICIAL: The question was -- or the point made and question was that the President had indicated in the press conference that he just completed that after the bilateral that he had -- after the discussion with Prime Minister Murayama had a somewhat better sense of the politics of the last year and why there had been difficulties in achieving progress on the trade front, and was this a concession or an acknowledgement that there would be continued difficulties in the future.

It was --

Q -- as long as this coalition is in power.

SENIOR ADMINISTRATION OFFICIAL: No, his sense was the opposite without wanting to seem impossibly naive about this - -- that the point that the Prime Minister had made, which while, on the one hand, you all have written about substantially and all of us have discussed, is that starting with the fall of the Miyazawa government that there had been a substantial political change in Japan; that he kind of went through it as it affected individual parties, and made the point that what you saw in the Hosokawa government was the coalescing of a relatively large number of quite small parties previously unused to power. Then what you saw in the Hata government was a prime ministership first with an even smaller margin, and then with no margin, and that what you finally saw and the analogy he used was of three arrows: he said we have three parties coming together, and that, while one arrow can be broken easily, three cannot be; and that he expected this coalition to come together on consistent policies and he expected it to be there for a long time.

As my colleague has said, we have no basis for really predicting that. We were interested by the strong sense of assurance, the clarity with which he spoke, and if there is this political will and this political stability, then it may well be possible to move forward.

Q Is the whole coalition on board with this income tax cut? I mean, the Socialists have always supported it, but the LDP haven't, and the bureaucrats certainly don't. Is he saying he now has support to push this through or he still has to get it?

SENIOR ADMINISTRATION OFFICIAL: Now, obviously he didn't say -- well, let me go back and say what he did say. He said that our basic -- we have discussed the detail, our basic policies, and they are now in force.

On the macroeconomic position, as I said, he said that we will continue the tax reductions and we will not go forward with a consumption tax until one would judge from the state of the economy that it is necessary. He then had the Minister of Finance, the Minister of Foreign Affairs and MITI all speak, and all of them reiterated that position.

The one that is obviously -- has always been in question there has been the Ministry of Finance, and Minister Takemura was quite specific in underlining that same point. It was interesting to us because it really was a different formulation.

Q Can you explain that a little more clearly?

SENIOR ADMINISTRATION OFFICIAL: What's new about the formulation has been that the debate in Japan has been that any decline in the income tax -- which, as you know, we believe is an essential part of a policy to stimulate the Japanese economy and bring down the current account surplus -- has to be accompanied by a commitment at the same time on a stipulated date to arise in the consumption tax. And it has been the imposed or the required linkage on those on which the agreements -- within the Japanese government, not with us -- have foundered in the past. And it is the making of that link -- one which depends sort of much more on economic results in the future -- that struck us as quite different.

You had a question.

Q A year ago, you said that political instability would not be an excuse for drawing out the trade negotiations. But now the President and others have said that the instability of Japan is actually the reason why the talks have not borne fruit. Have you learned that in the last year, that you have no ability to really force that kind of compromise with the Japanese?

SENIOR ADMINISTRATION OFFICIAL: Please don't take what I'm saying as trying to shave it too finely. I, at the time, meant a different kind of instability -- that the nature of the quite substantial change that was going on at that point in the political reform legislation that Hosakawa had spent most of his time on in the fall of last year was not, in my view, a reason or an excuse to delay the discussions. And they did not.

Had you told me at the time that we would go through four separate governments and prime ministerships, and asked whether that would have an effect, I think I would have said yes. So, looking back, what we've learned is that four changes of government have an impact on continuity.

Q unsuccessful?

SENIOR ADMINISTRATION OFFICIAL: It's certainly been an important contributing factor, yes.

Q Was there anything on dollar-yen at all in the discussion?

SENIOR ADMINISTRATION OFFICIAL: The dollar-yen issue was not directly discussed, no. When you think about the nature of the President's argument that he is strongly for a noninflationary growth policy to be committed to by the G-7, the implication of that is that we should not be trying to slow down growth right now.

And he reiterated in the meeting, as he did in the press conference, that it had never been the policy of the United States to be in favor of a weaker dollar for a trade advantage. But it was not discussed in any way beyond that.

Q Was that also a signal that you're going to be backing away altogether from any kind of intervention?

SENIOR ADMINISTRATION OFFICIAL: No, it was meant to signal -- first of all, let me say once again that the people who speak about dollar-yen relationships in our government are the Secretary of the Treasury and Larry Summers.

It was meant to imply nothing more, nothing less than he'd said in the past. I mean, the President has made the statement that we have not pursued, and do not intend to pursue, a weaker dollar for trade purposes. And he meant nothing more than he's meant in the past.

Q Is it fair, nonetheless, for us -- from the press conference, the remarks of the President and Prime Minister seemed to indicate that they were effectively ruling out any intervention. Is that a fair interpretation that this summit will not result in any coordinated action? That seems to be what they were saying in the press conference.

SENIOR ADMINISTRATION OFFICIAL: We've been saying for weeks now that we did not see a currency arrangement or agreement as necessary, or as likely in any way to come out of this meeting, and we still don't. And you can, I think, draw that inference from the President's comments.

Q Did the President talk to Prime Minister Murayama about his ideas for a new trade agenda, and what did Murayama say if he did?

SENIOR ADMINISTRATION OFFICIAL: The President raised it in general terms, largely because it's an issue that's being discussed specifically by the sherpas -- has been for the last couple of days and today. The Prime Minister said that he was aware of the interest, and that he supported it.

Q Can you tell us more about this initiative?

SENIOR ADMINISTRATION OFFICIAL: Not at this point. I think I'll leave that to the President's press conference this afternoon.

Q In the light of the discussions that occurred during the bilateral, are you satisfied with the formulation of the consumption tax now by the government of Japan? Or would you prefer to have the prospect essentially pushed out forever? And are you satisfied with the size of the tax?

SENIOR ADMINISTRATION OFFICIAL: I think that the really operative point on that is the way the President ended both the bilateral and the press conference; in which he said that this had been a meeting of extremely encouraging words, and that he was now looking forward with great interest to extremely encouraging action.

With respect to the specifics, it is a markedly different formulation. It seems to be one that meets both the needs of the subsidy problems that Japan faces and the political needs of this new coalition.

And we are content with any resolution that meets those needs and also addresses what we think is the substantive problem. And we believe the substantive problem is the need, and has been the need for a strong long-term tax reduction leading to domestically-led, consumer-led growth. And it seemed to us that the possibilities of that emerging were substantially higher at the end of this meeting than we had thought they were going before.

Q Can I have one follow-up? In response to the yen-dollar issue, Mr. Clinton said earlier and you repeated that the emphasis should be on promoting growth. Now, can we infer from that that the President does not think that higher U.S. interest rates would be appropriate in the measure to support the dollar?

SENIOR ADMINISTRATION OFFICIAL: The question was that in light of the comments the President had made on his preferences for a global-wide, noninflationary growth policy, could it be inferred from that the President was not in favor of interest hikes within the United States.

The President believes that the yen-dollar relationship derives from certain fundamental differences in the current macroeconomic performance of the major countries in the world; that there is at this point in the recovery in the United States, there is no sign of gathering inflation, there is no sign of it anywhere else in the world; that the unemployment rates in Europe are substantially higher than they are in the United States; and that given that, that the current policy track we're on is just fine.

Q You said there were various factors around the world. What's the factor in the United States that plays into that relationship?

SENIOR ADMINISTRATION OFFICIAL: We believe that -- the question is, what's the factor in the United States that leads to that relationship.

We think that -- our view for some time is then that you have, within the United States, have extremely balanced, well-balanced fundamentals; that you have growing private sector job growth, you have a sustainable rate of economic growth, and you have quite low inflation, and you have high productivity. We think --

Q in the fall of the dollar?

SENIOR ADMINISTRATION OFFICIAL: No, we think that - -- well, yes, in fact. But we think that the difference comes in terms of the differences between that performance and for the performance both in Europe and in Japan. And if you look at anything about current capital movements, anything in terms of judgments about the current account surplus in Japan you would come to that conclusion as do most economists.

Q So where does it leave the framework talks? Would it be fair to infer that the talks are now in a kind of perpetual limbo?

SENIOR ADMINISTRATION OFFICIAL: The question was, where does this leave the framework talks, and would it be fair to draw the conclusion that the talks are in a perpetual limbo.

No, there was a specific commitment to continuity. We did not want to be negotiating in the middle of the G-7 meetings. And the framework discussions will begin in each of the baskets next week or the week afterwards. So we do not think that they will be in a state of continuing limbo.

Thank you all very much.

END2:08 P.M. (L)