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Office of the Press Secretary

For Immediate Release April 12, 1996
                           PRESS BRIEFING

The Briefing Room

2:08 P.M. EDT

MR. MCCURRY: As you know, we had planned for some time to have available to you -- yesterday we had the Secretary of State give you kind of a broad sweep of the trip that the President is about to take. And I indicated yesterday that we really want to put some focus on some of the economic aspects of the President's upcoming trip. In addition, as you know, the President is about to have an event where we're going to hear some very encouraging news on the auto sector and our trade agreements with Japan.

So it's a pleasure to have the National Economic Adviser to the President, the Chair of the National Economic Council, Dr. Laura Tyson; and our U.S. Trade Representative, Ambassador Mickey Kantor, here to talk about both those subjects -- the President's trade report, which you will get later today, and then the President's upcoming trip to Korea, Tokyo and beyond.


DR. TYSON: Good afternoon. As you know yesterday from the briefing from Secretary Christopher, he talked about the importance of our strategic alliance with Japan for preserving peace and security in the Asia Pacific Region. And as you know, a cornerstone of this trip will be the signing of the Joint Security Declaration reaffirming our nations' joint commitment to the security alliance in the post-Cold War world.

But the President will also be discussing economic issues with Prime Minister Hashimoto, economic issues that are of great importance to both countries and important to prosperity in Asia, in the United States and throughout the world.

I think I want to begin by emphasizing the continuity, or constancy, of the President's economic policy towards Japan. He has made opening the Japanese market a key priority of his trade policy. And his trade policy has been one of competing, not retreating; but insisting, at the same time, that we will welcome foreign products and services into our markets, but that our products and services be able to enter the markets of our trading partners on equal terms. And our economic relationship with Japan has been a model for this distinctive approach to trade policy.

You will recall that our trade initiatives, one of our very first trade initiatives that Ambassador Kantor and I and Secretary Brown and others worked very hard on in the first six months of the administration was an establishment of the framework for work with, for our trade relationship with Japan. And that framework encompassed macroeconomic issues, structural issues and sectoral issues, and made a point of targeting sectors in which U.S. companies had a strong competitive position globally, and where we believed the issue of competition in Japan was an issue of breaking down access barriers so our competitive producers could sell into that thriving marketplace.

A distinctive feature of our approach to Japan, the framework, has been its results-oriented nature. Each of our agreements has objective criteria for measuring progress, each of them has time lines for review, and we are following through actively in implementation review and enforcement. The President has also emphasized from the beginning our belief that this is a win-win strategy, that it's a strategy which helps create job opportunities and production in the United States. It's a strategy which produces more choice, lower prices, greater quality for Japanese consumers.

Now, today we have two reports to discuss with you. One is a report by the Council of Economic Advisers and the Treasury Department which looks at some of the results from an aggregate point of view, but also looks sector by sector. And, two, the detailed report on the auto and auto parts agreement in its first six months. I'll talk a little bit about some of the CEA-Treasury findings; and then Ambassador Kantor will talk about some of sectoral results, with special emphasis on auto and auto parts.

As far as the overall results, the CEA and Treasury find that in the 20 areas of agreement -- this report includes 20 agreements, not including now we have 21, as Ambassador Kantor reminded me before we came in, because of our recent civil aviation agreement. But in the 20 agreements up to the recent civil aviation agreement, we find that U.S. exports to Japan having grown over 85 percent since the administration took office in 1993. Growth in exports in these sectors in which we have reached agreements with Japan is three times -- three times -- as fast as our growth in exports to Japan in other sectors. So the agreements are clearly having an effect, and that effect can be seen by looking at the growth in exports in areas of agreement compared to the overall growth in exports to Japan.

Now, our growth in exports to Japan overall has also been strong. If you look at that growth in U.S. exports to Japan, 34 percent since 1993, that's over twice as fast as the growth in our exports to the European Union. And in 1995 we hit a record level of exports to Japan of $64 billion.

Now, we've also been seeing confirmation of the strategy we have been pursuing in other kinds of numbers. For example, we discussed with the Japanese, as part of our framework discussions, their current account situation. The Japanese current account surplus was 3.1 percent of GDP in 1993. It had fallen to 2.2 percent in 1995, and below 2 percent by the last quarter of 1995. And that is exactly what we had discussed with Japan as a sign of progress, a movement -- a significant movement down in their current account surplus. And, indeed, that has occurred.

Another sign of Japan's movement in terms of greater openness comes from the fact that the share of manufactured imports in Japan's industrial production has grown by 40 percent since the beginning of the administration. I remember at the beginning of our framework discussions one of the things people looked at as an indicator of access barriers in Japan was imports as a fraction of industrial production. Well, that indicator has grown by 40 percent in the three years.

And, finally, I think you need to put into context the rapid import growth in Japan against what essentially has been a very low overall growth rate in Japan and the recent depreciation of the yen against the dollar. Indeed, the CEA and Treasury, when they looked at the most recent evidence concluded that, in fact, there are promising signs of a structural change in Japan towards greater import dependence for a given growth rate and a given exchange rate.

Despite slow growth in Japan, in 1995 U.S. exports to Japan grew five times faster than our imports from Japan in that year. So that's the most recent year for which we have full information. And the trade deficit with Japan in that year, a year of slow growth in Japan, declined by nearly 10 percent, which was the first decline in the U.S.-Japan trade deficit in five years. Half of that improvement in 1995 was the result of the auto sector -- U.S. auto exports to Japan increasing by 37 percent and auto imports falling for the first time in a decade.

So I think that we believe that these and other numbers confirm the wisdom of our approach towards Japan. Now, our work is not done. We have always said it's negotiation, it's implementation and it's enforcement. But, clearly, we believe the strategy is working and we will continue to pursue it as we go and discuss our important bilateral relationship with Japan next week.

Let me turn the floor over to Ambassador Kantor.

AMBASSADOR KANTOR: Thank you, Laura. Let me make just a couple remarks about the -- and look at these charts just a second as we go through -- about the auto and auto parts, as well as the CEA study. And then, of course, I think we'd both be glad to answer questions, but I think Laura has now abandoned me -- (laughter) -- left alone.

I think the first thing is to understand a combination of factors have come together to create these very impressive results. Obviously, the trade agreements are critical. What trade agreements do, of course, is allow us to engage in what I call economic judo. Take the kinds of pressure the President was putting on Japan -- his focus, his intensity, the clarity and consistency and constancy of what he was trying to do -- and locks in gains and then opens up the market, either in the aftermarket for auto parts or what we call original equipment market -- those are parts bought at the factory -- or with automobiles themselves in order to build and enhance.

One number that you should remember, I think, in the first three or four months of this agreement when it really went into effect, we jumped by 50 percent in the number of cars being shipped to Japan from the United States. I think that's proof positive, along with the fact that in those four or five months the trade deficit in auto and auto parts was coming down constantly and consistently.

But there are other factors, as well. First of all, the enhanced competitiveness of U.S. workers and U.S. businesses -- we, for two straight years have been the most competitive and productive workers and businesses in the world. That's the first time that had happened in a decade. We hope and expect that to continue and that's because of the President's policies to restore the U.S. economy made it strong, allowed capital to be invested in these industries and our workers responded in a most impressive way.

Macroeconomics has effect on this, as well. Reducing the budget deficit has effect on this, as well. But the constant pressure, the consistency and the clarity, as I said before, make the biggest difference of all. And the results are dramatic. We've had a 251 percent increase since 1992 in the sales of U.S. autos to Japan, those autos made in North America, made either by the big three or Japanese transplants. We've had a 60 percent increase in the sale of auto parts. We've had other things happen as a result of this agreement which will mean even more sales in the future, and a building U.S. presence in Japan where we have been the victim for so long of a sanctuary market.

One is, we now have 730 garages, which is of no mean feat now, which are independent of the influence of Japanese manufacturers, they have been certified, these garages that carry U.S. parts. We've had the deregulation of a number of very important parts -- shock absorbers and struts and power steering assemblies and others that will make a difference, as well. We have the deregulation of the inspection system in Japan to a great degree where you don't have to go to a certified garage for your inspection.

We've opened up for sales 6,000 Japanese energy service stations for various parts, as well as 1,400 of Toyota's dealers for parts, as well. Minister Hashimoto has lived up to -- every one of you -- I think you have a piece of paper that indicates there have been 52 commitments by the Japanese either under the agreement or the joint announcements. Each and every one has been addressed or is being addressed. I think that's quite impressive.

I'm not trying to give hyperbole a bad name. What I'm trying to do is give credit where credit is due. This President understood we came into office, we had to restore our domestic economy and open up foreign markets if we were going to raise our standard of living, whether it was in the speech -- one of the three speeches in Georgetown in '91, the speech to the New York Foreign Policy Association, the speech in Los Angeles World Affairs Council, the speech in Raleigh, North Carolina, on October 4, 1992 on the NAFTA, or at American University in February 1993. One guiding principle drove this President and continues to drive this President: We welcome the products and services of our trading partners into our market, but we expect and insist on the same access to their market.

Now let me just give you very quickly some other results here. You can see U.S. employment and motor vehicles and equipment in our auto industry has gone in just three years from $813,000 to $933,000 -- a $120,000 increase. It is a huge increase.

At the same time, foreign import shares of vehicles sold in this country have dropped from 13.9, nearly 14 percent to 10.5 percent. And Japanese vehicles being imported into the United States have dropped from 10.6 to 7. Again, a very impressive number. So as we send more vehicles and parts to Japan, Japan is sending less vehicles and parts to the United States. Japanese transplant companies are now, for the first time, buying more than 50 percent of their content of the cars made in the United States from U.S. auto parts suppliers. So all this is very good news. And, of course, it not only helps the trade balance, it creates high-wage, high-skilled U.S. jobs.

The third chart here, we can see for the first time sine 1980, in 1994 the U.S. surpassed Japan as a producer of automobiles and motor vehicles. For the first time in 14 years. This is a credit to American workers, to the auto industry and to this President, whose economic policies and trade policies have led to this kind of result and this building production here in the United States.

And, last, what Dr. Tyson was talking about -- I should be more formal, I guess -- the export trend, of course, is clearly exceeding the import trend. In 1995, our exports to Japan increased by 20 percent, imports increased by 3.8 percent -- about a 5 to 1 ratio. In January, 1996, that jumped to a 7 to 1 ratio. And so we continue to make progress. We reduced the deficit with Japan for the first time in years and years and years by 10 percent. And we expect that reduction to continue.

Japan announced in February 1996, in late February, that their numbers in January 1996, indicated they had the lowest trade surplus with the United States they've had in 12 years. We're making progress. We're building jobs. We're raising standards of living. There are many factors that contributed, but none is more important than the commitment of this President and the ability of this President to have an effective domestic economic policy and an effective trade policy.

Yes, sir.

Q To what extent, since the agreement was made this summer, have your quantitative and qualitative goals been met? And, also, to what extent have American parts companies with good, old U.S. trademarks, been invited to design sophisticated parts for cars to be made in Japan in 1999?

AMBASSADOR KANTOR: First, let me take your second question. The second question is, the one is about design ends which are very important at the factory level, agreements are beginning to be reached. There was a survey done of the American parts industry and a huge percentage of companies said they were involved in either negotiation or had reached agreement.

They believe by 1998 we will begin to see very dramatic results from those agreements, design-ends; and then, of course, selling the parts are a result of design-ends. That is why in the original equipment market it takes a lead-in of two or three or four years before you can see a result.

As far as the quantitative and qualitative indicators, frankly, they are being met. They have exceeded our goals, except in one area. We do have a problem we are continuing to address. We have made it clear to the Japanese. We expect by the end of 1996 there will be 200 new outlets for U.S. cars open in Japan. We only have, I think, 30 right now. There are some negotiations going on, and I will let the companies involved announce those when and if they become -- they come to fruition.

But the fact is, we need better efforts by Japan to open up -- to allow to open up new outlets for U.S. cars in Japan.

Q Mr. Kantor, do you think Ford Motor Company's purchase of a stake in Mazda will help open the doors even further? And could that start a trend among the other Detroit auto makers?

AMBASSADOR KANTOR: Well, first of all, I'm not going to speak to your last question. I'll let the folks who run those businesses so well, and who have done so well the last few years answer that. As far as -- Ford has been involved with Mazda, as you know, for a while now. That is a very close relationship and an ownership relationship -- or at least an investment relationship. I'm not sure what effect that is going to have on the kinds of numbers we see.

But these numbers are all going in the right direction. I think the trends are clear. It can only help to enhance. It will not detract from what has happened with these numbers.

DR. TYSON: Can I say one thing about that? This is just in general on trade policy, because I think it's really important. One of the things that our -- our trade efforts should be understood as opening up competitive opportunities. Firms then change their competitive strategies. And that's ultimately what changes market share and changes production and changes jobs in the United States. And you see that in sector after sector.

It is the recognition by firms of greater opportunities in the Japanese market which leads them to undertake investment and change in production strategies and change in selling strategies, which creates the actual trade. And this may be yet another example of that.

Q What would you say about the relationship of the yen-dollar to the overall improvement of the U.S. position and the impact on autos in particular?

AMBASSADOR KANTOR: There is only one person in this administration who talks about yen-dollar relationships. That is Secretary Rubin and he is not with us here today. I would say there is a number of factors. One of the interesting ones Dr. Tyson talked about, and that is while our economy remained stronger than the Japanese economy over the last 37, 38 months, you would expect the reverse to happen.

In other words, as your economy is stronger than a trading partner, you would expect to draw in more imports than you would be allowed to sell exports because of the relative weakness of their economy versus ours. That didn't happen. So we have run against the grain in that regard. And I would also just remind you -- Dr. Tyson said it, I think -- that the yen did, of course, weaken over the last half, I think it was, very dramatically, last half of 1995.

But I'll let Secretary Rubin give you his rendition in his job as to how the yen-dollar ratio may have affected any of these areas.

DR. TYSON: Can I again though bring you -- since the Treasury-CEA report does get at this issue in two ways, number one by pointing out again that any exchange rate relationship is something which affects all trade, but notice that in those areas where we have had agreements with Japan our export performance has been considerably stronger by a factor of three, compared to our overall export growth. So something else is going on here than macroeconomic conditions.

Secondly, what this report suggests is that within the last six months even holding macroeconomic conditions constant or, that is, after looking at the effect of macroeconomic conditions, you still have growth in imports into Japan larger than that which would be predicted by macroeconomic growth rates and exchange rate movements.

So we believe that when you look at those kinds of pieces of evidence you conclude clearly that there is something else here that the agreements are, indeed, playing a role. The CEA this morning did some additional calculations. And one thing I can report to you is in the five months following the auto agreement, auto exports grew at 37 percent. This is against a backdrop of a dollar appreciation of seven percent. Annualize this growth rate in auto exports to Japan is nearly three times the annual average growth rate of auto and auto part exports to Japan between 1991 and 1994.

In that period of time, during that period of time, 1991 to 1994, the dollar depreciated. So when you look at what's happening sector by sector, you see the effect of the agreements; it's not just macroeconomic conditions.

Q Ambassador Kantor, based on your dealings with Mr. Hashimoto in his previous post, what kind of a person is the President going to encounter across the table when he deals with him on security issues, on trade and the other matters that are going to come up next week?

AMBASSADOR KANTOR: The Prime Minister is experienced, focused, well-briefed -- a very good negotiating partner, he is a good politician in the best sense of the word; he understands the art of the possible. I've found him to be not only easy to work with, I find him to be very adroit in working through these agreements.

Remember, we've worked through about 11 agreements now in the framework already; a number of those while he was the trade minister. I remember one particular day we went for about 26 hours with then-Foreign Minister Kono and MITI Minister Hashimoto, and then, of course, we had the auto and auto parts agreement, which was another modestly dramatic meeting, or meetings, without much sleep.

He'll find a good negotiating partner and a strong one, one committed to his country, one who really represents his interests in the most effective way; but on the other hand, someone who understands the importance of this relationship.

Q Mr. Ambassador, can I ask you a quick question? Ambassador Kantor, would you still be interested in being Commerce Secretary?

AMBASSADOR KANTOR: Well, one, I don't think I've ever expressed the former what you said. I have loved this job, and continue to love what I'm doing and I'm deeply grateful to the President for allowing me to do it.

Q That was a no?

AMBASSADOR KANTOR: I didn't say that. I said I love this job, and I --

Q So you would be interested in being Commerce Secretary?

AMBASSADOR KANTOR: Let me just say this. I have known this President for a long, long time, and I have never said no to him. And what I think -- anything else about any of these other issues in this terrible and awful week we have all been through and the legacy of Ron Brown, which we all celebrate, that legacy as we miss him, I will let the President make any other statements.

Q Has the position been offered to you?

AMBASSADOR KANTOR: This is where I'm in good shape. Never in our long history together have I ever, on or off the record, privately or publicly, ever talked about what the President says to me or what I say to the President.

Q How much of the meeting between the President and the Prime Minister do you expect to be taken up by trade issues?

AMBASSADOR KANTOR: Well, I don't know how to divide the time. Obviously, security issues are very, very important. We have a classic, three-legged stool -- political, strategic and economic issues of which trade, of course, is a critical part. We have a number of trade issues to discuss, but the security issues are also extremely important in this visit.

It would be impossible for me to divide up the time between them, but I think you can fairly assume both important areas will be covered.

Q One last question.

Q Can I ask a question about those 20 categories that you're saying --

Q Twenty agreements.

Q Twenty agreements or, I guess, areas in which there has been very high export growth. Most of those -- a lot of those exports would be an area such as autos and computers with the Bush administration and other previous administrations struck agreements in the past. And, as an economist, wouldn't you say that most of the export growth we're seeing now is due primarily to the market opening measures the Japanese have taken in the past before the Clinton administration came to office?

And when you talk about the exchange rate movement, again, as an economist, wouldn't you concede that exchange rate movements affect exports with a lag, and that the fact that dollar has appreciated in the past few months shouldn't have much effect, really what matters is the fact that the dollar depreciated very steeply from 1993 to the middle of 1995.

DR. TYSON: I certainly in no way indicated by anything I said that exchange rates do not with growth rates play a role in the -- in what happens to trade balances. That is, of course, correct, and the administration has always noted that.

What I noted on the exchange rate issue was that -- two things. I noted that since exchange rates should affect all trade, that the fact that we have had much stronger export growth in those agreement sectors is one way of assessing the fact that the agreements themselves have played a role. And I think that is an important point.

A second point is that we now have evidence that, even accounting for changes in exchange rates and accounting for differences in growth rates between the U.S. and Japan, import growth in Japan is stronger than would be predicted by those macro-variables. Where has it been particularly strong? It has been particularly strong in those sectors in which we have negotiated agreements.

And if I just take the auto case, which we're highlighting today, I would want to emphasize again that in the three quarters before the agreement was signed we were shipping an average of 10,000 vehicles a month to Japan. And in the quarter that followed the agreement, it went up to 15,000 vehicles a month. That's a 50 percent increase. I don't think you could look at the timing of that and say that that's the result of something that happened four or five years ago. So I think that the evidence here is fairly strong that the agreements have played a role.

Q In what way would that agreement possibly have influenced the decisions of Japanese consumers to buy American cars? A lot of that 50 percent consists of cars that were shipped from the transplants of -- Toyota and Honda transplants. That had nothing to do with this agreement, did it?

AMBASSADOR KANTOR: Yes, it did. In fact, it was part of the joint announcement, as you recall, Paul.

Let me answer your question, because I think it's a very interesting one and reminds me of something I've said before: No good deed in Washington goes unpunished.

Let's take cellular telephones. In the year preceding the agreement we reached as a result of invoking sanctions with the Japanese in 1994, Motorola had 20,000 subscribers in the Tokyo-Nagoya area, an area of 60 million people. One year after the agreement went into effect, they had 600,000 subscribers.

Number two, until we reach agreement with the Japanese to open up their rice market, both bilaterally with us and then under the Uruguay Round, not one grain of rice in the United States was going in. As you know, in the last two years, tens of thousands of tons of rice have gone into the Japanese market.

In the glass area, we never had an agreement in glass. We've got one under the framework. Our sales of flat glass in the Japanese market are up 100 percent -- 100 percent. And so, with all due respect, I believe these agreements make a difference. They are not the whole story. Did others in the past try and make progress? Of course, they did. We're not the first to try. But has this President recognized how connect a strong domestic economy, open markets, building jobs, raising standard of living, and requiring fairness and a level playing field in trade? Yes, he has and will continue to pursue it.

Q What about the semiconductor agreement? You want to extend the previous administration's agreement in numerical targets for semiconductors, do you not?

AMBASSADOR KANTOR: Well, we want to extend this agreement. It has worked very well. Foreign competitive semiconductor makers are now up to 30.3 percent, I think, market share in Japan as of the last quarter. The agreement is up as of the end of July. We have been discussing this with the Japanese. There's some reluctance has been noted on their part to reach a new agreement. Our industries are meeting on April 26th. We are insisting on a government umbrella to work with the industries in order to continue this very successful agreement.

Q Will the President be bringing up the Kodak and Fuji issue when he is over there?


THE PRESS: Thank you.

END 1:30 P.M. EDT