The prospects for Japan-U.S. relations in a rapidly changing minternational environment were explored in depth in a September 27, 1991, CRS seminar entitled "The Future of U.S.-Japan Relations: Global Partnership or Strategic, Rivalry?" A full transcript of the proceedings was published in February 1992 by the House Committee on Ways and Means as a Committee Print. This report summarizes the principal findings of that seminar.
Japan-U.S. relations are more uncertain and subject to greater strain today than at any time since World War II. Longstanding military allies and increasingly interdependent economic partners, Japan and the United States have worked closely together to build a strong, multifaceted relationship based on democratic values and interests in world stability and development. But Japan today is our foremost economic and technological competitor. It consistently runs the largest annual international trade surplus with the U.S. ($59 billion in 1993). The end of the Cold War, lackluster international economic conditions, and the focus on economic issues in U.S. politics have raised new questions about the appropriate U.S. policy toward this Asian ally.
Japan-U.S. relations are more uncertain and subject to greater strain today than at any time since World War II. Longstanding military allies and increasingly interdependent economic partners, Japan and the United States have worked closely together to build a strong, multifaceted relationship based on democratic values and interests in world stability and development. But Japan today is our foremost economic and technological competitor.
Japan-U.S. relations are more uncertain and subject to greater strain today than at any time since World War II. Longstanding military allies and increasingly interdependent economic partners, Japan and the United States have worked closely together to build a strong, multifaceted relationship based on democratic values and interests in world stability and development. But Japan today is our foremost economic and technological competitor. The Cold War thaw, discord in U.S.-Japanese relations over the Iraq-Kuwait crisis of 1990-1991, a protracted U.S. recession, and exigencies of U.S. election-year politics raised new questions about the appropriate U.S. policy toward this Asian ally.
The Clinton Administration and the 103rd Congress are in the early stages of a major review of U.S. trade, international and security relations with Japan, the principal U.S. ally and trading partner in Asia. A number of recent developments have raised tensions in this mutually beneficial relationship, which is still characterized by deepening economic interdependence and close political and security cooperation. These include the end of the Cold War, which has eliminated a common military threat; the recent renewed rise in Japan's trade surplus after several years of decline; and increasing international assertiveness by Japan, sometimes in conflict with U.S. policy.
The U.S. officials interviewed for this study see little chance of an immediate improvement in U.S. relations with Japan over the next year. Trends in the United States and Japan in recent years have led to deepening U.S. frustrations, especially over economic issues. These developments have combined with fundamental changes (notably the collapse of the USSR) affecting U.S.-Japanese political-military ties to lead many U.S. officials to question the allocation of costs and benefits in the U.S.-Japan relationship and to press for arrangements that will alter the allocation in the interests of the United States. U.S. officials assume that their Japanese counterparts are undertaking similar reassessments.
Former U.S. Ambassador to Japan Mike Mansfield once classified U.S. Japanese relations as "the most important bilateral relationship in the world, bar none." Over the past decade, tensions between the two nations increased markedly, due largely to U.S. concerns over the sharp rise in the U.S. Japan bilateral trade imbalance and to the growing competitive challenge posed by Japan. This paper provides a chronology of major trade events between the United States and Japan from 1980 through 1990 in order to provide a perspective of major trade issues between the two nations. The appendix provides selected data on trade between the two countries over this period.
The following references to the current periodical literature are taken from CRS, public policy literature file (PPLT). Congressional users may request full text of items by phoning 707-5700. Others users should consult their local library.
It has been more than a year since the United States and Japan established their bilateral framework for trade negotiations and other economic relations. The framework set down rules and deadlines to address various economic issues, particularly market access in Japan for U.S. exports and the Japanese global trade surplus. The two sides have failed to reach agreements on any of the major issues. The United States is left with several policy options to resolve the breakdown in trade negotiations.
The United States and Japan have been deadlocked for over a year in an effort to reach agreements under the July 1993 Framework for a New Economic Relationship. The overriding obstacle has concerned the issue of how to measure progress under future agreements to open Japan's market further to foreign goods and services.
ave Japan's trade concessions resulted in more U.S. exports? One premise of the more results-oriented trade policy toward Japan now being pursued is that past concessions have not caused U.S. exports to Japan to rise. The only success story seems to be that of semiconductors in which a specific goal of 20 percent of the Japanese market was set and attained.
On May 25, 1989, President Bush proposed that the United States undertake the Structural Impediments Initiative (SII), a series of discussions with Japan to address certain fundamental Japanese economic policies and business practices that the United States claims impede U.S. exports and investments. The SII was, in part, a Bush Administration response to the stubborn U.S. trade deficit and other problems that have caused friction in the U.S. trading relationship with Japan. It was also a response to congressional pressure to deal more aggressively with Japanese unfair trade practices and to calls from critics to adopt a "managed" trade policy toward Japan.
On May 25, 1989, President Bush proposed that the United States undertake the Structural Impediments Initiative (SII), a series of discussions with Japan to address certain fundamental Japanese economic policies and business practices that the United States claims impede U.S. exports and investments. The SII was, in part, a Bush Administration response to the stubborn U.S. trade deficit and other problems that have caused friction in the U.S. trading relationship with Japan. It was also a response to congressional pressure to deal more aggressively with Japanese unfair trade practices and to calls from critics to adopt a "managed" trade policy toward Japan.
Trade relations between the United States and Japan in the 1980s were marked by U.S. efforts to pressure Japan to absorb increasingly greater amounts of U.S. exports. The United States sought to improve its steadily worsening bilateral trade deficit with Japan by negotiating to lower barriers to U.S. exports through the General Agreement on Tariffs and Trade, the Market Oriented, Sector Selective Talks, the Super 301 process, the Structural Impediments Initiative, and other bilateral fora. The United States succeeded in having Japan take some market-opening measures, and despite fluctuations, U.S. exports to Japan of most of the products which were the subject of negotiations by the two countries between 1985 and 1990 have increased.
President Clinton proposed to Prime Minister Miyazawa the idea of a framework for U.S.-Japanese negotiations during their April 13, 1993 meeting in Washington. The two leaders agreed to instruct subordinates to prepare details of such a framework in time for presentation in July in Tokyo when the President would meet with the Prime Minister and the other G-7 leaders at the annual economic summit.
In a world in which economic and trade performance are fast gaining acceptance as important components of national power and well being, Congress has become increasingly interested in the comparative success of U.S. business in the vast, rapidly growing Asia-Pacific region. For the most part, Congress has tended to view Japan as the main competitor of the United States in Asian markets and the standard against which U.S. success is measured. The stakes for the United States are considerable. Exclusive of Japan, the Asia-Pacific region accounted for $ 92 billion in U.S. exports in 1993 and $ 138 billion in imports, or about 20 percent of total U.S. exports and 24 percent of U.S. global imports. A number of projections indicate that Asia will account for the largest share of world trade growth in the next decade. Japan's growing economic presence has been accompanied by a relative increase in its political influence vis-a-vis that of the United States, a factor of considerable long term significance for U.S. interests, and it would appear the availability of alternative Asian markets has strengthened Japan's resistance to U.S. trade demands.
In both Japan and in the United States, industrial associations play an important role in enhancing government understanding and interaction with industries and in easing cooperative efforts among firms. This report examines the role of industrial associations and related organizations in high-technology policymaking and in accelerating technological development.
American companies are facing increased competitive pressures from foreign firms. Many observers feel that U.S. firms lag behind their foreign competitors in the development, application, and marketing of new technologies and techniques. The Japanese industrial enterprise is characterized by a large proportion of private sector financing and many other factors, which this report analyzes at length. The question being debated by Congress is whether or not U.S. government programs and policies are an acceptable and effective means of supporting the efforts of American industries to operate in a manner consistent with success in world markets.
This report surveys U.S. automobile policy in the 1980s in order to clarify the effects of foreign lobbying. The conclusion is that the success of Japanese and other foreign lobbying on automobile policy has been mixed. Some decisions have gone their way; others have not. Their success is partly because they have aligned their efforts with those of powerful domestic interests.
Japanese officials interviewed for this project in May-early June 1993 were generally sanguine about relations with the United States at the start of the Clinton Administration, but the Administrations's strong emphasis on U.S.- Japan trade issues in recent months deepened their pessimism over the near term prospects of U.S.-Japan relations. They were uncertain whether U.S.- Japanese talks on trade issues prior to the Clinton-Miyazawa summit of July 1993 would reflect a basic change in U.S. trade policy that in term would alter their generally pessimistic outlook.
Japan is positioned to deploy its troops overseas for the first time since World War II. Under a controversial peacekeeping operations (PKO) bill passed by the Japanese Diet (parliament) on June 15, 1992, Japan is allowed to dispatch Self-Defense Forces (SDF) soldiers abroad for noncombat service with United Nations peacekeeping forces (PKF). [1] The politically sensitive PKO legislation comes two years after Japan was stung by international criticism for its failure to send troops to the Persian Gulf, even just for noncombat support. The day after the passage of the bill, Prime Minister Kiichi Miyazawa pledged an early dispatch of SDF personnel to Cambodia.
Measured in dollars, Japan's global trade surplus stands at a record level. Also in recent months the Japanese yen has appreciated markedly against the dollar. The two events seem to foster a sizable degree of concern among many Americans, perhaps, taken to be evidence of Japan's economic success and the United States' economic failure. Things need not be as they seem, however.
With Japan the United States has had one of its most important and most difficult trading relationships. Japan ranks second to Canada as the largest U.S. export market. It is also the second largest single source of imports to the United States. Trade issues are likely to become even more important as the whole U.S.-Japanese relationship changes in the post-Cold War period. How each country views and reacts to the other is changing as economic issues replace foreign policy and national security issues as the driving force of the relationship.
With Japan the United States has had one of its most important, and, at the same time, one of its most difficult, trading rela- tionships. Japan ranks second to Canada as the largest U.S. export market. It is also the largest single source of imports to the United States.
Japan's banking sector currently is carrying between $400 billion and $800 billion in non-performing loans that threaten the solvency of certain financial institutions and weaken the Japanese financial system. This problem is of interest to the United States because the stability of Japan's banking system affects the health of that nation's economy, its rate of economic growth, and international capital flows. This, in turn, may affect American exports to, imports from, and investments in Japan. It also has affected Japanese investments in the United States and may affect the resolution of issues being negotiated or recently agreed to with that nation under the Framework Talks.
The Japanese economy has been in recession for three years, making it the longest recession in Japan's post-war experience. Groups within and outside Japan are calling on Japan to adopt aggressive fiscal policy measures to boost the Japanese economy and to aid in the recovery of the world economy. Japan has enacted a number of limited measures to stimulate, but it is unlikely to move more aggressively to adopt deficit-financing measures to stimulate its economy for a number of reasons: political and government leaders oppose deficit financing in principle; and under present economic conditions, Japanese officials are more concerned with the effects a fiscal stimulus program will have on the yen, on Japan's trade account, and on its economic recovery.
In the 1980s, Japan's economy posted strong economic growth, in stark contrast to the more pedestrian growth other developed economies experienced. In this period, referred to as the "bubble" economy, Japan experienced a sharp increase in the values of land and stocks. The fast paced growth came to a halt in 1991, however, as the Ministry of Finance grew concerned over prospects of a rising rate of inflation, and, accordingly, tightened the nation's money supply. Since then, Japanese economic growth has fallen sharply and the economy has experienced asset deflation, rising levels of unemployment, and falling corporate profits and investments.
Japan has quickly risen to prominence as a donor of official development assistance (ODA), providing volumes of aid on par with the United States since the late 1980s. Originally a tool to bolster Japan's postwar economic recovery, Japanese aid has gradually assumed importance as a foreign policy tool. Faced with increased pressure from the international community to play a greater role in meeting global challenges and lacking the military and diplomatic resources of other nations, Japan has increasingly turned to its foreign aid as a source of world influence.
Japan's global current account surplus is expected to reach $150 billion in 1993, up substantially from a modest $36 billion in 1990. The movement of Japan's current account surplus in this period is, perhaps, more dramatic as a share of GDP, going from a substantial 3.6 percent in 1987, down to a modest 1.2 percent in 1990, and up again to about 3.1 percent in 1992. Japan's growing surplus is criticized as a consequence of that country's barriers to trade, and as a drag on the economic recovery of the world economy.
Some indirect measures of Japan's import barriers indicate that Japan's import behavior is unusual, but some do not. Japan's trade surplus is large, but the United States exports as much to that market as it does to other major industrialized nations. Japan's imports of manufactures, however, are low relative to levels in other industrialized nations.
A prominent feature of Japan's capitalism consists of families of companies called keiretsu that are linked by crossholdings of stock shares, intra-group financing, and certain coordinating mechanisms. Two types of keiretsu exist: large horizontally organized industrial conglomerates, such as Mitsubishi, Mitsui, and Sumitomo, and vertically integrated manufacturers, such as Toyota, Nippon Steel, and Matsushita Electric. They have become a contentious issue in U.S. trade negotiations with Japan for several reasons.
Japan's top 21 banks have reported Y13.6 trillion (US$136 billion) in non-performing loans, but experts consider the true figure to be in the range of Y40 to Y60 trillion (US$400 to US$600 billion). If 90, Japan's banks may take five to seven more years to write off their bad loans and restore health to their balance sheets. Current write-offs are being financed primarily by sales of stocks held by banks whose values have appreciated. This problem of bad loans is depressing Japan's economic growth rate and making resolution of trade disputes and further opening of Japan's financial markets more difficult.
Recent Japanese political instability has complicated U.S.-Japan relations and posed new challenges to the achievement of important American economic, foreign policy and security objectives. Since July 1993 Japan has been governed by coalitions under three different prime ministers. The first coalition, under Prime Minister Morihiro Hosokawa, pushed through electoral and campaign finance reform legislation of potentially long-term significance, but failed to overcome political, bureaucratic and interest group resistance to its economic and administrative reform agenda. Its successor's have appeared to have progressively less power and will to carry out promised reforms or assume international leadership commensurate with Japan's global economic weight.
The surprise election of Socialist Party leader Tomiichi Murayama as Prime Minister on June 29, 1994, reflects an ongoing process of change and realignment in Japanese politics that, in the short term, has made the management of U.S.-Japan relations significantly more difficult and impeded the resolution of important issues. Although Murayama has pledged continuity in U.S.-Japan relations, and key cabinet posts have been given to senior LDP leaders with experience in dealing with Washington, his election could have a number of negative implications for U.S. interests. Among other possibilities, the change could temporarily set back the cause of political reform in Japan, further delay the recovery of the Japanese economy from a three-year long slump, pose new obstacles to trade negotiations aimed at more fully opening Japanese markets to U.S. goods and services, and bring into question Tokyo's cooperation under certain scenarios on the issue of North Korea's nuclear weapons program. The likely hiatus in major decisionmaking may continue at least until the next general election.
Japan's politics and government are undergoing a historic transition. The 38-year one-party rule of the Liberal Democratic Party (LDP) came to an end on July 18, 1993, when the party was voted out of power, even as it remained the single largest party in the lower house of Japan's bicameral Diet, or parliament. Seven non-communist parties, with little in common save their shared interest in dethroning the LDP, formed a shaky coalition.
Prime Minister Toshiki Kaifu's concurrent two-year term as president of the Liberal Democratic party (LDP) and Prime Minister of Japan expires at the end of October 1991. The May 1991 death of Shintaro Abe, the front runner to replace him, opened the field to nearly a dozen candidates. These include Kaifu for another term, senior LDP faction leaders Kiichi Miyazawa, Michio Watanabe, and Hiroshi Mitsuzuka, former Prime Minister Noboru Takeshita, and several others. A clear favorite from this group has not emerged, in part because most except Kaifu are rumored to be involved in current and past stock market and banking scandals.
This report provides information and analysis for use by Members of Congress as they deliberate on the Japanese response to the Gulf crisis and, perhaps more important, what it may mean for future U.S.-Japanese relations. The first chapter briefly reviews Japanese government actions in response to the crisis, from August 1990 to February 1991. A second section examines in detail the various factors and constraints that affected Japanese policy. The final section offers conclusions and examines implications of the episode for future U.S.-Japanese relations. Published sources for the report are cited in footnotes.
Over the past 30 years, U.S. trade negotiators have pressured Japan to open its market to foreign goods and services. These outside pressures, known as gaiatsu in Japan, have been based partly on economically coercive bargaining and partly on invitation. The coercive element, which has entailed threats of retaliatory market constriction should a satisfactory resolution of the market opening dispute not be forthcoming, generally has been a necessary ingredient in obtaining concessions from Japan. The invitational component, which has included requests for U.S. pressures from Japanese interests who favor reforms, generally has facilitated Japanese concessions and made the gaiatsu process unique.
Japan,s rise as a leading economic power has been attributed to many factors. Increasingly, attention has focused on Japan,s ability to apply innovative technologies to develop new products. Technology development and applications are at the core of a system in which the government and the private sector facilitate industrial policies and practices. Japanese research and development efforts increasingly stress what one Japanese policymaker calls the "fusion" solution, or combining advances in different technologies to generate new products and innovations.
Japan's sea shipment of a ton of plutonium from France to Japan on Nov. 7, 1992, faced strong public opposition, as did a previous one in 1984, from various public interest groups, independent analysts, and Members of Congress. The shipment arrived safely in Tokyo Jan. 4, 1993. Several more shipments at intervals of about 3 years are expected. While the plutonium is owned by Japanese utilities, it was produced from uranium enriched in the United States and supplied under a U.S.-Japan agreement for nuclear cooperation, revised in 1988. Although the agreement ties some strings to what Japan can do with nuclear imports from the United States, it also in effect gives to Japan a 30-year advance consent to ship plutonium subject to informing the United States.
Japan's current political instability began in July 1993, when the Liberal Democratic Party (LDP) -- in power since 1955 - was voted out and replaced by a fragile multiparty coalition government under Prime Minister Morihiro Hosokawa. The new government faced turmoil in April 1994, when Hosokawa suddenly resigned amid a personal financial scandal. Then-deputy prime minister/foreign minister Tsutomu Hata succeeded, but only at the head of a minority government after the Socialist party, a key coalition partner, quit the Hata coalition. Although beset by its own internal squabbles, the LDP remained the single largest party in Japan's bicameral Diet, or parliament. In late June, Hata was forced to resign under threat of an LDP-led no-confidence motion.
Japan's current political instability began in July 1993, when the Liberal Democratic Party (LDP) -- in power since 1955 -- was voted out and replaced by a fragile multiparty coalition government under Prime Minister Morihiro Hosokawa. The new government faced turmoil in April 1994, when Hosokawa suddenly resigned amid a personal financial scandal. Then-deputy prime minister/foreign minister Tsutomu Hata succeeded, but only at the head of a minority government after the Socialist party, a key coalition partner, quit the coalition. Although beset by its own internal squabbles, the LDP remained the single largest party in Japan's bicameral Diet, or parliament. In late June, Hata was forced to resign under threat of an LDP-led no confidence motion.
Japan's uncertain political transition began in July 1993, when the conservative Liberal Democratic Party (LDP) -- in power since 1955 -- was replaced by a fragile multiparty coalition. Under Prime Minister Morihiro Hosokawa, the coalition faced turmoil in April 1994, when Hosokawa resigned abruptly amid a personal financial scandal. Then-deputy prime minister/foreign minister Tsutomu Hata succeeded, but only at the head of a minority government as the Social Democratic Party (SDP), a key coalition partner, quit the coalition. Though beset by its own internal squabbles, the LDP remained the single largest party in Japan's bicameral Diet, or parliament. In late June, Hata was forced to resign under threat of an LDP-led no-confidence motion.
Japan's political uncertainty continues as it has since July 1993, when the conservative Liberal Democratic Party (LDP) -- in power since 1955 -- was replaced by a fragile multiparty coalition. Under Prime Minister Morihiro Hosokawa, the coalition faced turmoil in April 1994, when he resigned amid a personal financial scandal. Then-deputy prime minister/foreign minister Tsutomu Hata succeeded, but only at the head of a minority government as the Social Democratic Party (SDP), a key coalition partner, quit the coalition. Though beset by its own internal squabbles, the LDP remained the single largest party in Japan's bicameral Diet, or parliament. In late June, Hata was forced to resign under threat of an LDP-led no-confidence motion.
Japan's war reparations following World War II came in two stages. In the first, 1946-1949, U.S. and allied governments arranged for U.S. occupation authorities to ship about $160 million in Japanese industrial equipment to China, the Philippines, Indonesia, and the British colonies in East Asia.
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