THE WHITE HOUSE
Office of the Press Secretary (Birmingham, England) ________________________________________________________________________ For Immediate Release May 15, 1998
PRESS BRIEFING BY RICHARD FISHER, DEPUTY UNITED STATES TRADE REPRESENTATIVE Metropole Hotel Birmingham, England
12:50 P.M. (L)
MR. LOCKHART: As promised, Richard Fisher, the Deputy U.S. Trade Representative, is here to discuss his overnight discussions with his Japanese counterparts. There is a fact sheet on the issues that he'll discuss with us this afternoon. It's in the Xerox machine now. We'll pass it out as soon as we have copies ready. And as far as the rest of the day, it still goes as stands. We expect a readout similar to the one we got on the Hashimoto bilat on the Chirac lunch, and a briefing here is still scheduled somewhere in the 6:00 p.m. to 7:00 p.m. range.
AMBASSADOR FISHER: Good morning, good afternoon. My name is Richard Fisher. I'm the Deputy USTR, and it's very good to be here after spending all night -- literally, all night long reaching agreement with my friends the Japanese.
I'm here to announce that we have taken a constructive step forward in our trade relationships with the Japanese under the enhanced initiative on deregulation and competition policy. I'd like to put this within a context for you. We trade large volumes with Japan, as you know. Japan is the second largest nation in the world. We import $121 billion in merchandise goods from Japan; we export $65 billion to the Japanese, and, therefore, we have last year a $55.7 billion deficit.
When we look at different markets, we see tremendous potential in Japan. The telecommunications market, for example, is a $128 billion a year market in Japan. The housing market is $140 billion a year market; $38 billion alone per annum in wood products are sold to construct houses; $60 billion in pharmaceuticals are sold in Japan every year; $20 billion in medical devices. Institutional and individual savings in Japan total $10 trillion, the second largest savings pool outside of the United States. And when we look at retail sales, $1.5 trillion a year in retail sales are made in the Japanese economy.
And so this initiative, as you know, focuses in four principal areas: telecommunications, housing, medical device and pharmaceuticals, financial services and distribution. And during the past year, with an effort that -- this enhanced initiative, having been launched by President Clinton and Prime Minister Hashimoto, we have been instructed to use this enhanced initiative to find ways to open up the distribution system within Japan and to make progress on the deregulation front. What I'd like to report to you is that at the end of this first year, we have achieved significant measures as a first step forward in this enhanced initiative exercise.
For example, in telecommunications, Japan has agreed to adopt a new regime to lower the rates that telecommunications carriers must pay to connect to Japan's local telecommunications network. We have a target date year of the year 2000. And that is a significant progress under a method of accounting which is called long-run incremental cost methodology, the purpose of which is to lower the cost, the interconnection cost of doing telephonic communications in Japan.
Secondly in the telecommunications front, Japan has agreed to introduce measures to facilitate access to land and physical facilities, such as roads -- the new companies need to construct their own networks. Japan has also relaxed, under our agreement that we reached this morning, restrictions in its satellite services market which will permit more than a doubling of the number of channel broadcasts that can be provided to Japanese consumers.
In the area of housing, as I mentioned, it's a $140 billion building material market. During these discussions, we focused principally on wood building materials. That's a $38 billion market. U.S. firms presently only supply about $2.5 billion in products to that market. Under the agreement we reached this morning, Japan has agreed to change its building standards law. New standards in product-testing requirements will be brought into line with U.S. practices in particular. Japan has agreed to abolish the prohibition they had had on three-story two-by-four construction in urban residential housing areas.
I just want to say that there are 1.4 million housing starts a year in Japan. We presently only have about 7 percent of the wood that's used in that market and obviously are eager to expand our market share.
Under the agreement we reached this morning, Japan will further open their market to U.S. building materials and to wood product manufactured in the United States. This should result in about $1 billion of additional sales for American companies.
Q Over how long a period?
AMBASSADOR FISHER: Well, of course, this is opening the market, so it will continue on forward hopefully as far as the eye can see. The point is that presently in that market we only have 7 percent of that market; we'd like to expand it as much as possible.
Q But when you use the $1 billion figure, sir, what does that mean? Over what period?
AMBASSADOR FISHER: That's an estimate as to what we think we will be able to pick up in additional sales per annum going forward.
In the area of medical device and pharmaceuticals, Japan has a $60 billion pharmaceutical market. Importantly, under this enhanced initiative now, Japan is committed that within two years it will cut the approval period for new drugs by one-third, from 18 months to 12 months. This measure will allow the introduction of new medicines to Japan on a more timely basis. They have agreed to greatly expand the acceptance of foreign clinical data in its approval of new medical device and pharmaceuticals.
Presently U.S. medical device firms sell about $5.5 billion of equipment in Japan, the medical device market. It's about a $20 billion market. And faster introduction of innovative products will mean increased revenues for American firms.
Japan has agreed under our agreement to place a high priority on the introduction of innovative products to contain costs and improve health care. This is one area where we have a mutuality of interest. Japan has an aging demography. They are worried about health care cost containment. And of course we have to most productive and innovative and competitive pharmaceutical industry in the world.
In the area of financial service, as I mentioned in my introduction we value the individual and institutional savings pool in Japan at about $10 trillion. Among the important measures being taken under the Big Bang Initiative are the liberalization of securities derivatives, the easing of the registration process for new securities companies, promotion of a more vigorous asset-backed market, a sharp expansion in the scope of financial activities and products that banks and security firms including investment trusts will be allowed to market. And as many of you know already, Fidelity and other companies are setting up shop on the floors of different banks in Tokyo. So this liberalization of the financial sector is an important achievement.
And then lastly I'd just like to mention the distribution issue. Barriers to distribution in Japan have been central to many of our market access problems encountered by our firms in various sectors, from glass to paper to film. Under the agreement that was reached this morning, Japan has agreed to abolish their large-scale retail store law. It's a law that inhibits the establishment and expansion of large retail stores. This is a significant market, as I mentioned earlier, about $1.5 trillion in retail sales in Japan. And we are hopeful that the abolishment of this law will lead to increased placement of U.S. retail establishments, the expansion of Toys 'R' Us and other retail establishments in the Japanese market.
And then finally, on the issue of competition policy, Japan has agreed under this agreement to enhance their anti-monopoly law compliance programs and to give the Japan Fair Trade Commission added staff and also added scope in their operations.
This agreement that we reached this morning is very comprehensive. It ranges across a broad range of issues. It is comprehensive from the standpoint of the depth of the kinds of issues that I've mentioned -- housing, pharmaceuticals, financial services, and so on -- but also deals with the ability of foreign lawyers to practice within the Japanese market and things as small as the utilization of cordless nailers in construction and reclassifying them from what they were classified before, which is as firearms, into actually what they are, which are building tools.
And then lastly we agreed that we would, going forward in our effort to continue the process to focus on deregulation and opening of market access in the product areas and the sectors that I've mentioned, that energy would be added to our discussion. The Japanese are beginning to deregulate an energy sector that totals $150 billion. There are several barriers in terms of government interference in that sector. These barriers include burdensome regulations regarding inspection and testing in the replacement of equipment, limitations on the activities of energy service providers, and the use of very narrow technical standards rather than performance-based standards. And we believe that our energy supply and service companies can sell aggressively into that market. Japan wants to deregulate that market, and we will work together under this enhanced initiative to try to deregulate it, and we believe it will benefit U.S. firms.
In short, we believe there is a mutuality of interest here, and very importantly at this critical time in economic and financial history, when the Japanese are trying to fiscally stimulate their economy, we believe that these efforts at deregulation and enhanced market access go hand-in-glove with the Prime Minister's efforts to pick up fiscal demand in the Japanese economy. We believe they're critical. We believe this process, if it is successful -- and we will work with them to see how it's implemented -- will lead to enhanced import penetration into Japan, which will benefit certainly the United States, but benefit all countries of the world.
Q On telecom's deregulation, you said Japan will commit to lower rates on connecting to local service providers with a year 2000 target. First of all, can you quantify the lowering of those interconnection rates? And second of all, is the year 2000 a target or a deadline, and which 2000 do you mean, the calendar year 2000 or Japanese the fiscal year?
AMBASSADOR FISHER: Our effort is to try to get this done in the calendar year 2000. The Japanese government plans to introduce into their parliament a law to effect the accounting of what's called LRIC, under the acronym that is used in terms of the accounting system. And they plan to introduce that in the early spring of the year 2000 under their budget calendar, and then to proceed from the introduction of that law into the Diet, have it processed through the Diet, hopefully come out of the Diet sometime in the early summer, and then proceed with the implementation under their process of due process and necessary processES that have to take place under Japanese law and procedure, to try to get this implemented before the end of the calendar year 2000.
That's certainly our intention, and that is our hope here. The purpose of it is to lower interconnection costs and telephonic costs within Japan.
Q And can you quantify it?
AMBASSADOR FISHER: In terms of what it means to us?
Q And what it means in terms of lower rates. You said lower rates. What does that mean?
AMBASSADOR FISHER: Well, presently rates in Japan, interconnection rates are roughly three to four times what they are in the United States, and roughly that multiple of what they are in the other developed countries. And so, again, if we can continue to move those downward, which is the ultimate objective of the exercise, the purpose is to make the market more competitive. We know that there is that gap of about three or four to one, and the purpose is to bring it down to parity.
Q Do you expect that the legislation that would be introduced to the Diet would bring those rates down to the U.S. rates?
AMBASSADOR FISHER: Somewhere in the process, and in the interim, that all efforts would be made to again reduce interconnection costs while we're waiting for that legislation, actually just to come out of the Diet, but to be implemented in terms of the affecting of this new accounting system.
Q You hadn't discussed anything about enforcement. How will we know -- how will the U.S. enforce these promises on the part of the Japanese?
AMBASSADOR FISHER: First, in terms of the Japanese Fair Trade Commission, we did discuss the matter of their surveys of the various firms that are affected by change and the follow-up surveys that will take place, the need to enhance the budgetary wherewithal and expand the staff of the JFTC. That's one aspect of the answer to your question. The other is that this is a continuous process.
I want to remind you that this is just the first year of this exercise. It is the first step in what I am convinced will be a long-term process of putting one foot in front of another and we will have to monitor and watch carefully. And, of course, as you say, the proof of the pudding is in the enforcement and the enaction of these programs.
Q But did you -- I mean, in prior bargaining back and forth with the Japanese there had been a variety of stated or unstated targets, where the U.S. would at least state it and the Japanese would say they don't agree with it, but it would be on the table what the U.S. wanted. Was there anything of that sort in this round?
AMBASSADOR FISHER: I'm sorry, could you repeat that?
Q In past efforts with the Japanese the U.S. has made clear the standards by which they would judge the Japanese -- a certain amount of sales, a certain percentage of market and so on. Are there things in which you express to the Japanese the U.S. will be satisfied if they do X and Y?
AMBASSADOR FISHER: They certainly know that we would be satisfied to do X and Y in terms of the implementation of these overall policies. In terms of specific targets, we did not discuss it in that context. We did, however, discuss the need to have anti-monopoly law compliance programs in place; that the Japan Fair Trade Commission will for the first time survey Japan's top 2,000 firms to assess their compliance with the anti-monopoly law and to make an effort to more vigorously enforce its anti-trust laws.
So there are no specific numeric targets, to answer your question, on each one of these sectors. But there are efforts to enhance the system in terms of anti-monopoly law compliance. And, of course, they know what our expectations are. Our expectations are that they will deliver on these programs, that they will implement these programs and that they will lead to an opening of market access in Japan.
Q What are the elements of this agreement that are genuinely new commitments by the Japanese? Because things like financial deregulation is obviously something they're already in the process of doing, large-scale retail law they have committed to repealing many times in the past. What are actually new commitments in this?
AMBASSADOR FISHER: I think all the things I mentioned are new. I believe that the new regime to lower the rates the telecommunications carriers must pay to connect to the local telecommunications network are new. That is, this LRIC accounting system, the long-run incremental cost methodology.
I believe these measures that we announced to facilitate access to land and fiscal facilities such as roads that new companies need to construct their own communications networks are new. In every one of the areas that I've gone through -- telecommunications, housing, in terms of the use of 3-story, 2x4 construction, for example; in terms of the shortening of the period in pharmaceutical approval from 18 to 12 months; in terms of the final decision on the large retail store law -- these have been discussed. But the actual commitment to get this done comes with this enhanced initiative on deregulation.
The financial sector aspects which have been worked out between the Treasury and the Ministry of Finance I think have been widely discussed. The other aspects that I mentioned just now in this briefing are new and have not been widely discussed.
Q How do the derivatives actually help consumers or help give a boost to their economy? And could you explain those financial --
AMBASSADOR FISHER: I would defer that to the U.S. Treasury Department.
Q Can you explain the financial securities aspect of this a little bit?
AMBASSADOR FISHER: I can walk you through the different aspects of what's in the package, if you would like me to. First, a liberalization of security derivatives; secondly, the easing of the registration process for new securities companies; thirdly, the promotion of a more vigorous asset-backed securities market; a sharp expansion in the scope of financial activities and products allowed to banks and security firms, including investment trust products. In addition, stock options have been introduced. Brokers' commissions are to be fully liberalized. The April 1 revision of the foreign exchange laws also expected to ease capital flows. I think those are the specific changes that at least I have in my notes. But we will be handing out an entire list for you later on.
Q The absence of numeric specifics or numeric targets in these latest discussions suggest that the U.S. has largely come to the conclusion that those are not effective ways of getting progress in market opening with Japan because in the past we have been much more willing to press them for specific targets.
AMBASSADOR FISHER: I think you use every tool that's available to you. Our purpose is to open the Japanese market and provide greater market access within Japan to goods imported from all over the world. And, of course, our own bilateral interests are to enhance our market share. But I think whatever tools possible, whether you approach it from a sectoral standpoint or from a product specific standpoint, or I can exercise such as this, I think the Clinton administration has tried to be as innovative as possible. And this is an example, I think, constructive innovation where we are trying to make sure that we have better access to this market, and that it meets with their needs to deregulate also.
Japan's at a critical juncture in their economic history. They are fiscally stimulating their economy. They're stuck in the water in terms of their economic growth. They have a role to play in terms of their leadership role in the rest of the world, and in this case, I think both of our interests happen to meet in these particular sectors which we have not gone at in this same fashion before. I think it's a constructive exercise. But we will use every tool possible and available to us, and every approach possible and available to us, in order to expand our market share in that market.
Q Your answer suggests to me that numeric targets perhaps the administration doesn't really regard as an effective tool any longer.
AMBASSADOR FISHER: I'm not going to comment on what is or is not an effective tool. This approach is the approach that I've outlined and I think it's a constructive step forward.
Q What assurances do you have that you -- replace this deregulation with new regulations --
AMBASSADOR FISHER: Well, again, as you know, some people have said that in the Japanese lexicon the word "deregulation" translated just means "reregulation." We're well aware of that. However, we have the good faith of our fellow negotiators. And secondly, we will continue with a very watchful eye to supervise the implementation of these programs.
Again, just to repeat myself, you take one step forward at a time. The Clinton administration now has reached, if you count this as a trade agreement, 35 agreements under Ambassador Barshefsky and Ambassador Kantor with the Japanese government. And we have been very aggressive in terms of our efforts to try to enhance our market share in that market. So there's never a guarantee, but on the other hand, we believe that these have been negotiated with full faith and we'll proceed in every way possible to see if these programs were implemented.
Q Could you elaborate on something you said in passing as you outlineD the agreement -- the effect of this on lawyers --
AMBASSADOR FISHER: On lawyers?
Q Yes. Lawyers in Japan -- foreign lawyers.
AMBASSADOR FISHER: Well, the Japanese Diet has passed legislation that will reduce restrictions on foreign lawyers in Japan. And in particular, this new law reduces the length of experience required of foreign lawyers before they're allowed to register as foreign legal consultants in Japan -- it reduces the period from five years to three years, as we agreed under the agreement reached this morning.
It allows a foreign lawyer to count the time he spent practicing his home country's law in a third country towards that experience requirement. And, further, Japan has agreed to liberalize the ability of a foreign legal consultant to practice third country law with written advice from foreign lawyers qualified in his home country or her home country.
I think the purpose here of the exercise is to make sure that foreign lawyers and other foreign practitioners can participate in the Japanese market. I'm not a lawyer, personally, but we did make progress on that front, and again, the specifics will be handed out when we hand out the entire program.
Q Can you give us any kind of an overall figure as to your best estimate as to how much in terms of improved market share in dollar terms this will be worth to U.S. firms?
AMBASSADOR FISHER: I'm a Texan and you have to discount almost everything that I say. But when I look at any market like telecommunications where I have $128 billion I can sell into, and right now I have zero market share practically; When I look at a housing market, I have 1.4 million starts and I only have seven percent market share and I know that they buy $38 billion in wood products; when I look at a pharmaceutical market where I have 12 percent market share out a $60 billion market; and when I look at what our financial institutions can do anywhere in the world that thus far haven't penetrated very much into a $10 trillion savings pool; when I think about $1.5 trillion in distribution in terms of retail sales, I see awfully big numbers. And I believe this package is worth billions and billions of dollars.
Q Big number is the overall market, though, it's not --
AMBASSADOR FISHER: And we've got a small portion of it and I want as much of it as I can get.
Q So you don't have an estimate as to what the potential --
AMBASSADOR FISHER: No, I don't have a hardball estimate but, again, I believe the numbers are large.
Thank you all very much.
END 1:15 P.M. (L)