Chapter 8 - Japan's Relations with its leading trading partners
Japan’s place in Asia
8.1
To this point, the Committee has concentrated on
developments in Japan and their
implications for Australia. The
Australia-Japan trading relationship, however, is not conducted in isolation;
it is very much part of a wider regional and global economic network. The
management of future Australia-Japan relations must take account of
developments in this network and, in particular, the tenor of its relations
with other countries. In this chapter, the Committee looks at Japan’s role in the Asia Pacific region,
its relationship with its largest trading partner the United
States and the emergence of China as an economic power.
8.2
Japan is the second largest economy in the world. It occupies an even
more dominant place in the Asian region, where its economy is by far the
largest. With 70% of Asia’s
GDP, Japan is ‘twice as large
as all the rest of the Asian economies put together, and is seven times the
size of the Chinese economy’.[1]
It has a pivotal role in regional trade and investment flows and is deeply
involved in Asian economies in terms of trade, investment and financial
transactions. Japan’s position
at the centre of a network of investments and aid programs throughout Asia strengthens the economic integration
of Japan in the region.[2] Overall, the sophistication and
sheer size of Japan’s economy
will guarantee its place as the leading economic power in Asia for many years to come.[3]
8.3
Asia’s share of the
world’s GDP in 1965 was a modest 9 per cent but since that time, and most
notably during the early 1990s, Asia’s economy has blossomed. In 1995, Asia’s share of world GDP passed the 25 per cent mark.[4] During this period of economic
growth, a close interdependence between Japan and other Asian economies developed. From the late 1980s, Japanese
companies took an increasing interest in direct investment in Asian economies
and Japanese-affiliated companies in Asia have played a substantial part in expanding trade in the region. In
particular, the Japanese manufacturing industry has built an extensive
production network in East Asia.
8.4
The late 1980s witnessed a period of intense
foreign investment when firms from Japan were looking for lower cost production bases abroad to escape
escalating costs at home and the appreciating yen. This surge in manufacturing
in Asia caused an
‘unprecedented shift in productive capacity within the region’.[5]
8.5
Mr Hisamitsu Arai, Vice-Minister for International Affairs, MITI, explained in August
1998, the evolution of this close interdependent relationship between Japan and Asian economies:
The roots of our interdependence lie in the Asian growth
mechanism. In the late 80s, Japanese companies began to establish offshore
operations and Japanese import[s] substantially increased subsequently,
providing [a] new market for Asian economies.
The first countries to grow were the Newly Industrializing
Economies, consisting of the Republic of Korea, Taiwan, Hong Kong, and Singapore.
When the NIEs eventually found their own currencies rising, they responded in
much the same way as Japan had during the period of yen appreciation. They
began to shift to domestic, demand-led growth, and to increase their imports
from ASEAN and China, developing production bases in these expanding economies.
As ASEAN nations and China began to grow at unprecedented rates,
Japan and the NIEs continued to increase their consumption of imports and
their industries continued to move offshore.
As a result, Asia now has an extremely high degree of intraregional
trade interdependence. This intraregional structure is also apparent in terms
of investment. The NIEs have been the major investors in ASEAN and China,
followed by Japan. Trade interdependence within the region—including Japan and
the nine East Asian countries—namely, the four NIEs, four major ASEAN economies
and China—has risen as high as 52 per cent.[6]
8.6
In the process of developing closer economic
ties with Asian economies, Japan’s aid program has often worked hand in glove with private sector
interests. In 1992, Mr Edward J. Lincoln observed
that Japanese bilateral foreign aid remained closely coordinated with, and
connected to, other Japanese commercial interests. There was an understanding
that foreign aid projects should be used to provide the infrastructure needed
by Japanese firms investing overseas. He noted:
A major increase in direct investment, supported by large
amounts of foreign aid helping to create the necessary infrastructure for that
investment, is the principal vehicle for the increasing Japanese investment in Asia.[7]
8.7
Japan has continued to
invest heavily in the region and is now a major generator of foreign direct
investment. According to the OECD Observer:
Japan is now the largest single investor in terms of stock in Thailand,
Indonesia and Malaysia, and the second largest in the Philippines after the United
States. And while Japan has helped to expand Asia’s productive capacity in
the last few decades, it has also played a key role in boosting the inflow of
technology, know-how and human resource development in the region.[8]
The Asian economic crisis
8.8
The emergence of this web of close commercial
ties that link Japan with other Asian economies means that any significant
disruption in one economic system will register in the other.
8.9
During the first half of the 1990s, East Asia
had been the growth centre of the world and its economies were achieving
outstanding success. This economic boom came to a jarring halt in 1997 with the
onset of the Asian economic crisis. It began in Thailand in July 1997 heralded
by a plunge in the value of the Thai baht, and spread rapidly throughout Asia.
8.10
Given the sheer dominance of the Japanese
economy in the Asian region and the close economic interdependence that has
developed between Japan and Asia, Japan has a substantial capacity to influence
regional affairs. Although Japan’s economy had been sluggish since its bubble
economy collapsed in 1990, its poor performance did not trigger the Asian
economic crisis. The genesis of the crisis lay elsewhere. It is true, however,
that once the economic crisis gathered momentum, Japan’s ability to make a
significant contribution to the recovery was constrained by its own ailing
economy. JETRO argued:
East Asian countries had been highly dependent on exports to
Japan, and Japan’s imports from the region are more responsive to Japan’s
economic growth than to price fluctuations. East Asian economic recovery is
therefore intimately tied to economic recovery in Japan, which, it is hoped,
will be speedy and lead to ongoing growth. [9]
8.11
If the Japanese economy remains in recession or
very near to negative growth rates, it’s ability to assist the Asian economies
regain their economic dynamism is severely curtailed. In other words, a
shrinking Japanese economy means a limited role for Japan ‘in salvaging Asian
partners from the serious recession in the wake of the financial crisis’.[10]
Japan’s own recovery a tonic for
the region.
8.12
Some countries, however, are concerned that
Japan will try to export its way out of trouble instead of looking to lift
economic activity through domestic-led growth. Rather than expand its export
market, Japan has been called on to revive its own economy so that it will
create increased demand for imports. A number of economists pointed out:
While a depreciation of the yen may be a necessary component of
Japanese adjustment, it is critical that Japan not rely predominantly on
external demand to extricate itself from recession. Such a development in Japan
would significantly impair the ability of the poorer, more deeply affected,
Asian countries to recover from the crisis.[11]
8.13
Professor Drysdale agreed. He argued that
Japan’s recovery would help economies across East Asia rebound, reinforcing
what is going on in the rest of East Asia and encouraging domestic recovery
even further.[12]
Put in its simplest terms, Professor Haruo Shimada stated:
The single most important role that Japan can play to help Asian
economies to recover from the damage of financial and economic crisis is to
grow and to purchase commodities produced in the hard hit Asian economies. The
vigorous growth of [the] Japanese economy can help recovery of Asian partners
by promoting their exports to [the] Japanese market at better prices.[13]
8.14
In general, the Japanese Government accepts
willingly that it has an obligation to help its neighbours—that it must do more
to revive its economy if it is to serve as an engine of growth for the Asian
region. Moreover, there is recognition that Japan and East Asia are in a
community bound together by common economic interests. The Japanese Government
acknowledged that the country’s efforts for economic revival are extremely
important for the stability and prosperity of Asia but, similarly, Japan cannot
enjoy security and economic growth without the stability and prosperity of the
Asian economy.[14]
8.15
Despite Japan’s recognition of the need to
improve its own economic performance, some in the international world complain
that Japan is not matching its words with action. The United States has urged
Japan to strive for significant rates of economic growth and has repeatedly
insisted that an early restoration of growth is vital for Japan and the whole
region. It warned Japan against the ‘complacency of diminished expectations’
and explained:
...a willingness to accept as adequate, growth in the one percent
range, is to establish a pattern in which global growth may not be fully
balanced and is to run the risks that if there are fluctuations, growth would
again be negative.[15]
The G-7 Ministers meeting in Tokyo in January 2000 also called
on Japan to further strengthen the financial system and to continue structural
reforms.[16]
8.16
DFAT argued that it was possible to overstate
the importance of Japan to the economic circumstances of South East Asian
economies. It pointed out that the Japanese situation is not as critical to the
recovery of a number of South East Asian economies as might be thought because
Japan’s importance as an export destination to a lot of economies has been
declining over a long period of time. Mr Colin Heseltine told the Committee
‘...manufactures of crisis affected Southeast Asian economies comprise a much
higher proportion of total exports into countries such as the US than they do
in Japan’.
8.17
Nonetheless, DFAT acknowledged that, if the
Japanese economy were to recover and to show strong positive growth, then that
would clearly be an important factor. It believed that the value of the yen
against the United States dollar, was probably where the impact on Southeast
Asian economies would be the greatest. It suggested ‘a stronger yen-US dollar
rate would give regional Southeast Asian exporters a competitive edge relative
to Japanese exporters’.[17]
8.18
Clearly, it is in the interests of the whole
region for Japan to shake off its economic malaise as soon as possible.[18] Without a strong and durable
revival in domestic demand, Japan will not be able to provide an expanding
market for other Asian economies. The United Nations Conference on Trade and
Development (UNCTAD) maintained:
Recovery of the Japanese economy will be crucial to recovery in
the rest of Asia.[19]
Direct aid to Asian economies in
crisis
8.19
Since its economic slowdown, Japan has been
preoccupied with domestic troubles. Yet, even in a time of economic adversity,
Japan has not sat on the sidelines nursing its own economic wounds. It has been
conscientious in searching for effective solutions to the Asian economic
crisis.
8.20
Japanese leaders have openly and repeatedly
stated that Japan would honour its responsibilities to help its neighbours
overcome their economic difficulties and to assist in revitalising their
economies.[20]
Prime Minister Keizo Obuchi in August 1998, pledged strong support to those
Asian economies under economic stress. He stated:
...Japan has responded seriously to the turmoil of the currency
and financial markets of the Asian countries...Japan will continue to play a
leading role toward the economic recovery of the Asian countries, providing all
possible assistance.[21]
8.21
Japan worked closely with the IMF, World Bank
and the Asian Development Bank to assist those Asian countries in economic
trouble. From the beginning, the ASEAN countries and Japan agreed to
consolidate further their close economic relations to help the region through
this difficult time. As early as December 1997, the ASEAN member states
publicly thanked Japan for its contribution to financing packages in the
region.[22]
8.22
In February 1998, the Japanese Government
announced an initiative to provide quick and adequate liquidity support for
those Asian economies experiencing economic turmoil—‘Emergency Measures Placing
Special Focus on Stabilizing Southeast Asian Economies’. The following April,
it followed this initiative with additional support measures contained in its
Economic Stimulus Package.
8.23
At this time, Japan, the largest contributor to
international efforts to help Asian economies suffering from the economic
crisis, provided financial assistance of over $US40 billion to Indonesia,
Thailand and Korea. Assistance in this package targeted four main areas:
- support for facilitating trade finance ‘two-step loans’ of
Export-Import Bank of Japan;
- support for economic reforms by setting up an emergency special
interest rate system for yen-denominated government credits with quick
disbursement;
- improvement of support for human resource development such as
receiving trainees and dispatching specialists; and
- support for securing basic necessities such as food and medical
supplies (500 thousand tons of rice from government stock pile on loan, and 100
tons grant by aid).[23]
8.24
This contribution to alleviate economic hardship
by supporting the recovery of the Asian economies was further boosted in
October 1998 with the announcement of the New Miyazawa Initiative. This
initiative was to provide $30 billion in financial assistance to five crisis
hit economies in Asia—Thailand, Malaysia, the Philippines, Indonesia and Korea.
Half of this sum was in the form of yen loans to promote economic recovery and
the other half was to enrich financial reserves to meet the financial demand
for economic reform.
8.25
In general, the measures were to assist Asia’s
structural reform and human resources development and to alleviate the plight
of the most disadvantaged sectors of the society with direct assistance in food
and medical supplies. Mr Sei Nakai, Senior Deputy Director of the International
Bureau, Ministry of Finance, provided details of this package:
With this initiative, Japan stands ready to provide a package of
support measures for the recovery of the region’s real economies, which is the
most urgent challenge facing the Asian countries. Financial assistance of $15
billion will be made available to meet the medium-term and long-term financial
needs of Asia; specifically, to strengthen the financial sectors; to promote
economic recovery; to protect the vulnerable; and to resolve the credit crunch.
Another $15 billion will be set aside for possible short-term capital needs
during the process of implementing economic reforms. Other measures, such as
the provision of guarantees, to help Asian countries raise funds from
international financial markets, also are included in this initiative.[24]
8.26
The Miyazawa Initiative is providing an
invaluable infusion of support to assist the region’s nascent recovery and to
provide assistance for achieving currency and economic stability in Asian
countries.[25]
This initiative stands as testimony to Japan’s commitment to help the Asian
economies restore their economies to good health.
8.27
As of May 1999, two-thirds of this assistance
had been committed. Japan gave notice of its intention to continue to implement
and even build on this initiative ‘both in substance and in scope in the coming
years’. Japan’s Finance Minister, Mr Kiichi Miyazawa, stated that the
government planned to extend financial support to Vietnam as well, apart from
the $30 billion previously announced.[26]
8.28
As Asian economies such as the Republic of
Korea, the Philippines, Thailand and Malaysia showed positive signs of recovery
during 1999, Japan continued to offer support. In May 1999, at the APEC Finance
Ministers meeting, Japan announced the ‘Resource Mobilization Plan for
Asia’—the second stage of the New Miyazawa Initiative. Japanese leaders could
see that the economic turmoil of the past two years had subsided and that the
region had entered a period of relative economic calm. It believed that the
Asian economies, having passed through the initial stage of the economic crisis
and the second stage of preventing further stagnation of their economies, were
now entering a new stage of cooperation in the construction of a more stable
and robust economy. To help them recover fully and to maintain steady growth,
Japan announced that it stood ready to provide assistance to mobilise a total
of ¥2 trillion of domestic and foreign private funds for Asia.[27]
8.29
Many in the international community readily
accept that no other country has matched Japan’s generosity in providing
assistance to countries affected by the Asian economic crisis.[28] It is also a source of
international pride for Japan that it has accepted its responsibility as a
major economy in Asia, and provided by far the largest amount of support for
the crisis-affected Asian countries.[29]
8.30
Mr Michel Camdessus, Managing Director of the
International Monetary Fund, acknowledged the valuable assistance provided by
Japan and noted its new program which dovetailed with Miyazawa’s first
initiative. He observed that the objective was to accelerate the full recovery
of the countries and to facilitate their return to the international market. In
assessing Japan’s resource mobilization plan, he stated:
I think this was a well inspired and timely initiative. By doing
that Japan demonstrates the role of leadership it must have in this part of the
world and in the world in the future. I wanted to say that, seen from the point
of view of the IMF with the responsibilities we have to speed up the recovery
of all these countries, these initiatives are extremely welcome and this is an
occasion for me to express my gratitude to Japan for its permanent support in
all our labors to try to make the world economy a more prosperous one and one which
offers to the poorest real chances of development.[30]
8.31
Although Japan is offering substantial
assistance to the Asian economies, many people, unlike Michel Camdessus, have
criticised Japan for not providing the leadership necessary to guide Asia out
of its difficulties. Given the dominance of its economic standing and its close
relations with countries in the Asian region, many have argued that Japan has
not made an appropriate contribution to regional development: that it has
shunned its responsibility as a regional leader.
8.32
They were not referring to its assistance
programs but to its commitment to restructure its economy. More specifically,
they argued that Japan must show the way ahead by offering a strong and more
open market to its neighbours. To this end, first of all, Japan itself must
aggressively implement structural reform to realise robust economic
fundamentals. They argued that at the same time, Japan should promote further
opening and improvement of its domestic markets to contribute to the efficient
and fair allocation of world resources. DFAT submitted:
...aid is a poor substitute for trade, and Japan should not expect
its generous financial assistance to the region to shield it from criticism
that its domestic difficulties are compounding East Asia’s problems and
threatening to delay its recovery.[31]
Professor David Reid told the Committee that
Japan ‘has failed to lead Asia out of its peril and it has actually been part
of the problem’.[32]
8.33
Japan’s leadership in economic reform would not
only provide markets for other Asian economies but stand as a model of economic
restructuring that other countries in the region could follow. Dr Wendy Smith
emphasised that Japan’s influence in the region extends beyond management
systems, production systems and work ethics and that ‘the socio-cultural impact
of Japan’s very high level of direct foreign investment in South-East Asian
countries has been striking...’[33]
Clearly, Japan is well placed to encourage countries in the region to undertake
economic restructuring. Keidanren insisted that Japan must serve as a standard
bearer for structural reform. It stated:
...whether it is in the area of adjusting national legal and
taxation systems to globally practiced standards, developing a strategic
industrial-technology policy for the future or overhauling the social security
system. All this is to build the necessary underpinnings of renewed economic
vibrancy. Simultaneously, we in Japan must strive to increase imports by
expanding domestic demand with the government steadily applying measures to
keep up the level of economic activity.[34]
8.34
In the current situation, Japan should be at the
vanguard in driving Asian economic recovery by offering a healthy, open market
to its neighbour’s exporters. But for some it has been ‘a millstone around the
neck of the world economy’.[35]
The United States, in particular, would like to see Japan exert more leadership
in pursuit of increased openness in the world trading system. Put succinctly,
‘Insular thinking in an economic powerhouse such as Japan can have negative
effects worldwide’.[36]
Implications for Australia
8.35
Australia’s economy has also been affected
indirectly by economic developments in Japan through Japan’s trade and
investment linkages in third markets, particularly in the East Asian region.[37] Australia’s exports to the
rest of East Asia which accounted for 37% of its exports in 1997 have fallen
sharply. According to DFAT:
To the extent that the weaker Yen weakened regional currencies
and threatened to delay recovery in the region, it weakened Australia’s medium
to longer term export growth prospects. Thus, Australia has supported US and
Japanese efforts to stabilise the value of the Yen.[38]
8.36
DFAT told the Committee that over the past year,
Australia had been working very closely with Japan on the Asian economic
crisis, with extensive exchanges on how best to assist some of the countries
most seriously affected. It noted that Australia and Japan are the only two
countries to have contributed to all three IMF packages to affected countries.[39]
8.37
For many years, Japan and Australia have worked
together to develop a framework that would promote economic cooperation
throughout the Asia Pacific region. In 1976, that Prime Ministers of both
countries signed a basic treaty of friendship which recognised that:
...co-operation between the two countries should have in view not
only their own mutual benefit but also their common interest in the prosperity
and welfare of other countries, including those in the Asian and Pacific
region, of which we are a part.[40]
8.38
Their persistence in seeking ways to develop
greater regional cooperation was rewarded in 1989 with the inauguration of
APEC, a forum of 12 Asia-Pacific economies, now grown to 21 members, with the
stated goal of promoting a more open trading system. At that time, Australia
recognised that a strong and open multilateral trading system was fundamental
to the economic growth and prosperity of economies in the Asia-Pacific region.
It still believes that this is the case and looks to Japan’s continued support
to promote free and open trade in the region.
8.39
More recently, Japan, as an advocate for trade
and investment liberalisation, has been reluctant to assume a leadership role
in fora such as APEC and WTO.[41]
Some countries feel a mounting disappointment with Japan’s reticence to step
forward. The rice tariff decision, the overall slow pace of regulatory reform
and a general sense that Japan has pulled back from its commitment to free and
open trade feeds that sense of dismay. Australia fears that an erosion of commitment
by the larger economies, such as Japan and the United States, toward the global
trading system would jeopardise progress toward greater trade and investment
liberalisation.
8.40
A major worry is that Japan, troubled by its own
economic problems, will turn increasingly inwards. A number of witnesses before
the Committee noted that many Japanese feel threatened by globalisation and the
increasing presence of foreign companies in their marketplace. They believe
that it is destabilising and undermining their traditional social forms.[42] Professor Morris-Suzuki
pointed out that these misgivings fuel a growing public sense of nationalism.
She told the Committee that there is widespread anxiety and concern in Japan
about its future role in the world and growing criticism of neoclassical
economics in Japan—of conventional economics which is seen by many people as
being the cause of the contemporary crisis.
8.41
In summary, she suggested that ‘there is a
feeling, certainly amongst some sections of the media and public, that Japan is
losing control over its own financial system and over its own economy to some
extent particularly to US based multinational enterprises’.[43] She saw this apprehension
expressed at a public level rather than a national level for example reflected
in an increasingly anti-American tone in the media.[44]
8.42
Professor Drysdale also believed that the
disquiet being generated in Japan by economic uncertainty has led to some
contrariness in policy thinking. He submitted:
...the malaise in Japan and the East Asian crisis have, deep down,
shaken policy psychology in Japan. Japan’s own economic fragility and
incomplete structural reform provide fertile ground for contrarian thinking in
the period immediately ahead...[45]
8.43
He stressed that this type of thinking could
influence foreign economic policy choices on regional and international
arrangements and that Australia must work to ensure that Japan does not move
toward policies contrary to Australia’s interest.[46] Japan’s retreat from its
commitment to trade and investment liberalisation is of significant concern to
Australia.
8.44
As noted in Chapter 6, Japan is sending
confusing signals about its approach to trade and investment liberalisation. On
the one hand it forthrightly defends a free and open global trading system but
on the other holds back from further opening its markets. Professor Drysdale
told the Committee:
I think the bottom line is that this fluidity in policy thinking
in Japan presents a strong case for close and active engagement by Australia in
dialogue with Japan on how these changes will effect our interests in Japan and
in the Asia–Pacific region, and an even closer dialogue then we presently have,
which is very close indeed.[47]
8.45
Australia is also particularly concerned about
being left out in the economic cold should the Asian countries form a trading
bloc. Again, Australia hopes that Japan would oppose such a situation
developing. So far, Japan has refused to endorse the proposed East Asia
Economic Caucus (EAEC), a consultative body of East Asian countries seeking to
enhance economic cooperation in the region. At the moment, this group has
indicated no wish to include Australia in its circle.
8.46
Japan, however, has participated in the ASEAN +
3 forum. This gathering of Leaders of the ASEAN countries and of China, Japan
and the Republic of Korea is an important step in developing dialogue and
cooperation in the region. The leaders of China, Japan and Korea met as a group
with those of ASEAN at the ASEAN summits in 1997 in Kuala Lumpur and in 1998 in
Hanoi. Economic cooperation figures prominently in their talks.
8.47
At their gathering in Hanoi, the leaders, in a
move to formalise the ASEAN + 3 as a regional forum, agreed on the
importance of holding regular meetings to enhance the dialogue process and
strengthen cooperation.[48]
They met again in 1999 where the emphasis was on ‘cooperation and collaboration
with each other, thereby strengthening the elements essential for the promotion
of peace, stability and prosperity in the region’. Some, however, regard the
ASEAN + 3 as a revived or recasted EAEC and harbour apprehensions of Australia
being shut out of an important Asian trading group. [49] It would be expected that
Japan would resist any move by this group to form a preferential trading bloc.[50]
8.48
Japan has also given support for Australia to
be accepted as a member of the Asia-Europe Meeting (ASEM).[51] Japan is proving itself a
vital partner and valuable friend to Australia in Asia.
8.49
The Committee appreciates that Japan is going
through a difficult economic transition that may lead some Japanese to question
its commitment to promoting free and open trade in the region.
Recommendation
The Committee recommends that the Australian Government,
through its numerous institutional arrangements with Japan and its network of
political, official and business contacts, encourage Japan to step forward as a
regional leader to guide and assist its neighbours to establish a more open
trading system in the region.
The Japan–United States trade
relationship
8.50
The Japan–United States relationship—a
relationship between the two most powerful economies in the world—is the
mainstay of the global economy and any tremors from a clash between these two
economic giants would register around the world.
8.51
Japan’s relationship with the United States, its
largest trading partner, forms the cornerstone of Japan’s foreign policy.[52] The relationship, however, is
complicated and not without friction. At times, underlying tensions build and
then subside for a while. According to Mr Peter Hartcher, the Japan–United States
trading relationship appears in good shape, but ‘if you scratch the surface and
talk to senior people in Japan, there is tremendous accumulation of resentment,
of hostility’.[53]
Over recent years, as the trade surplus with Japan has widened, the relationship
has become strained.[54]
8.52
The United States trade deficit with Japan,
which had been shrinking from 1995, underwent a reversal in 1997 and ballooned
in 1998. The statistics for 1998 show that Japan’s trading surplus with the
United States increased by 14% and stood at $US64,094 million. This increase
contributed to a worrying overall trend in the United States trade deficit,
which in 1998, amounted to $US168,587 million, 53% above the 1997 figure. This
sharp increase in the United States’ trade deficit creates an environment
likely to foment resurgent protectionist tendencies in the United States.[55]
8.53
In part, the United States trade deficit was
driven by a significant fall in exports to countries with slow or negative
economic growth such as Japan. Indeed, in 1998, reduced exports to Japan from
the United States was the major factor behind Japan’s trade surplus with the
United States.[56]
To redress this imbalance, the United States urged countries such as Japan ‘to
move forward to restore growth to their economies to help promote economic
stability and growth in emerging economies’.[57]
8.54
As the economic crisis in Asia deepened and
Japan showed no signs of pulling itself out of its economic mire, the United
States became increasing impatient with Japan’s lack of aggression in tackling
its domestic problems. In July 1998, Mr Richard Fisher, Deputy United States
Trade Representative, noted:
In the past year, Japan has at times reminded me of an All-Star
baseball player who, with the game on the line in the ninth inning and all the
world watching, simply sits down and refuses to get into the batter’s box. We
expect more of our key ally in the Pacific and our largest Asian trading
partner.[58]
8.55
This frustration with Japan spilled over to
public quarrelling when Japanese steel imports flooded the United States market
in 1998.[59]
The Japanese steel industry was hit hard by the economic downturn in both
domestic and overseas markets and industrial production fell by some 7% in
1998. With demand in the Asian region collapsing and the currencies in most of
the steel-producing countries in the region depreciating, Japan looked to other
markets to absorb its excess in steel production. The Northern Hemisphere
markets were swamped with what were cheap steel imports. In 1998, Japanese exports
of steel to the United States soared to 6.1 million metric tons representing a
163.4% increase on the previous year.[60]
According to Hamersley Iron:
The natural response of the steel industries in the Northern
Hemisphere was to say to their governments, ‘Let’s put in place some
antidumping actions or protectionist actions’, and you can see in the United
States already the United States government has imposed constraints on hot coil
exports and they are looking at other actions on other areas like carbon steel.[61]
8.56
Indeed, the United States took decisive action
in enforcing its antidumping and countervailing duty laws against Japan. It
issued a strong warning informing the Japanese Government that the American
Government expected steel imports to revert to pre-crisis levels. It told
Japan:
...if such a roll-back does not occur in short order, the
Administration would self-initiate trade action to ensure a reduction of
imports and to prevent further injury to U.S. steel producers and workers.
Thus, the roll-back will be enforced, if necessary, through Administration
trade action. Our intent is to act forcefully if normal trade patterns are not
promptly restored.[62]
8.57
Although the acrimony generated by the dispute
over Japanese steel imports has eased, the United States is still annoyed at
Japan’s seeming half-hearted commitment to promoting free trade. In May 1999,
Ambassador Charlene Barshefsky noted:
For eight years, Japanese families, businesses and consumers
have endured sluggish growth and stagnation; in the past two years, slowdown
has become recession. This has complicated the efforts of Japan’s neighbors to
recover from the crisis, as Japanese imports dropped significantly last year.
It has also increased the potential for trade tensions as U.S. exports to Japan
have dropped and the trade imbalance has grown.[63]
Put succinctly she stated, ‘Last year’s import surge has
raised immense frustration in Congress and industry. It is hard to overstate
the tension in the U.S. surrounding this issue’.[64]
8.58
The United States did not hold back from further
chiding Japan and in July 1999 warned:
Frankly, the growth of the trade imbalance since 1997 is
reminiscent of past strategies to get well by intensifying efforts to export to
the US. But I can assure you that the long-term effects—both political and
economic—will be unfortunate for our relationship.[65]
8.59
In early 2000, the United States told the
Japanese that more needed to be done to open its markets. It cited in
particular the public construction market. The United States Under Secretary of
Commerce for International Trade pointed out that in 1999 American companies
were only awarded $50 million (0.02%) worth of contracts in Japan’s $250
billion public works market.[66]
8.60
This trade dispute between the United States and
Japan has implications for the global economic system and for Australia. At a
time when the international economic system is looking for direction to take it
further along the path to trade and investment liberalisation, the major
economies, such as Japan and the United States, are not providing guidance,
indeed they have got caught up in their own trade squabbles. Already both APEC
and the WTO have stepped back from a determined effort to see a further opening
of trade, particularly in the area of agriculture, a sector of most concern to
Australia.
8.61
The lack of leadership by the United States,
Japan and the European Union helped to undermine progress at the WTO meeting in
Seattle. Mr Robert G. Lees, Secretary General of the Pacific Basin Economic
Council, noted:
These nations should be setting the model for the WTO in trade
and investment liberalization. Instead, they seem to be all too frequently
mired in drawn out and acrimonious debates and disagreements over politically
charged trade issues. It is time for the leaders to lead, to finally put aside
petty bickering, and to implement free trade in practice as well as theory.[67]
8.62
The Committee reiterates its belief that
Australia must seek the assistance of other countries to collaborate in helping
to restore confidence in the WTO process.
8.63
Australia could also suffer through managed
trade negotiations between the United States and Japan. Japan has a number of
bilateral agreements or understandings with the United States on increasing
market access or reducing trade barriers which cover goods such as automobiles
and automobile parts, semiconductors, financial services and insurance.[68] Australia competes with the
United States on a number of levels for a share of Japan’s market, particularly
in the agricultural sector. It is possible that Australia’s trading interests
could be harmed by measures taken by Japan to redress the trade imbalance as
was the case in the early 1990s.
8.64
By the beginning of the 1990s, trade friction
between Japan and the United States was mounting as the United States became
increasingly concerned about its persistent trade deficit with Japan. As part
of bilateral trade framework talks to resolve this trade imbalance between the
United States and Japan, the United States was looking to facilitate the entry of
its manufactured and auto parts to the Japanese market. According to Mr Jamie
Anderson:
Australia feared that this bilateral managed trade policy could
be a disaster for Australian exports, not only in the auto parts sector, but in
other sectors as well. It was feared that if the US pushed hard enough for
access to the Japanese market for US industries, the Japanese would accommodate
their major trading partner partly by squeezing out the products of other, less
important trading partners such as Australia.[69]
8.65
Although the Australian Government took steps to
ensure that the United States–Japan auto and auto parts agreement was settled
on a most favoured nation (MFN) basis in a multilateral forum, a number of
Australian economists believe that the agreement resulted in a ‘Japanese import
regime that discriminates against Australian and other non-American exporters
of auto parts’. It would seem that private Japanese companies responded to
United States’ pressure by diverting trade from other countries such as Australia.[70]
8.66
In the present situation, with the United
States’ trade deficit with Japan again growing, the United States might apply
pressure on Japanese policy makers to accept more United States’ exports. Thus,
it is important for Australia to recognise that the growing tension between
Japan and the United States could damage its trading position and hence
Australia must ensure that it maintains its position in the Japanese market.
8.67
This commercial interconnectedness between the
United States, Japan and Australia is made more complicated because to a large
extent Australia’s trading dependence on Japan is a dependence through Japan
rather than on Japan. Mr Timothy Marney, Treasury Department of Western
Australia, pointed out that, in the main, Japan’s export performance determines
its industrial production, which in turn determines the demand for Australian
commodities. The United States, as Japan’s main market, is a key in this
trading link. Mr Marney told the Committee that in essence what Australia supplies
to Japan is transformed in a manufacturing process and then exported to other
markets, ‘so the performance of other markets is crucial’.[71]
Recommendation
The Committee recommends that the Australian Government
take careful note of the trade tensions that exist between the United States
and Japan and maintain and strengthen dialogue with both countries to ensure
that any attempt by the US to use political leverage to negotiate a managed
trade agreement or arrangement with Japan does not harm Australia’s interests.
The China–Japan trade
relationship
China’s growing economy
8.68
Mr C. Fred Bergsten pointed out that
political rivalries pose a daunting barrier to effective cooperation in the
Asia Pacific region. He argued that at the highest level of geopolitics, China,
trying to maintain an authoritarian regime while embracing market economics,
and Japan, an established democracy for over half a century, are clearly
competing for the leadership of Asia.[72]
Some witnesses can see a rocky phase ahead for the next decade in the
Japan-China relationship.[73]
8.69
Clearly, the emergence of China as an economic
force in the region creates problems for both the United States and Japan and
again has far reaching implications for Australia. Mr Pokarier observed:
Japan is increasingly over time going to have to figure out how
it is going to balance a more influential China in the region with its close
relationship with the United States. That will really fundamentally depend on
how the US strategises China.[74]
8.70
As economic interdependence among these three
countries intensifies, the United States and Japan will look to China as a
regional partner and leader. The United States and Japan recognise the
importance of engaging China in the region and the challenge before them is to
be part of the process that sees this nation incorporated into the region as a
‘peaceful, prosperous and constructive partner’.[75]
8.71
As noted by a number of economists:
How a fully developed and thus powerful China will choose to
play its role in the world economy is one of the biggest unknowns of the next
generation. But in all likelihood, China will learn about its new role by
sharing responsibilities with the US and Japan to safeguard growing common
interests of all three.[76]
8.72
Along similar lines, DFAT acknowledged that the
relationship between China and Japan has been uneasy through most of the past
100 years. Dr Richard Rigby, Assistant Secretary, North Asia Division, told the
Committee that both countries have ‘a very clear understanding that there is a
need for a strong and basically good relationship between the two of them’. In
summary, DFAT submitted that despite irritants in the relationship, Japan felt
confident that it could manage relations with China ‘in a way which is mutually
beneficial to both countries and which in turn is beneficial for the whole
Asian region’.[77]
8.73
The Committee once again draws attention to its
report on APEC where it highlighted the value of this organisation as a
regional forum whose influence has spread beyond the boundaries of trade. The
report noted that through dialogue and cooperation, APEC has built up a
reservoir of good will and understanding between members and established a
network of deepening diplomatic relations.[78]
APEC provides an ideal forum in which members such as the United States, Japan
and China can manage their relationship in a spirit of cooperation. According
to a group of parliamentarians, academics and media analysts attending a
workshop on the region, APEC is a forum uniquely suited to deal with the
complicated strategic interactions in the Asia Pacific. It found that:
Australia and Japan should act to keep other member economies,
particularly the US and China, actively engaged in the APEC process and to
recognise the powerful informal role that APEC plays in promoting peace and
security in the region.[79]
8.74
The Committee recognises that Australia’s role
in influencing the triangular relationship between Japan, the United States and
China is limited. It does see a role though for APEC in providing a forum that
can facilitate or promote a cooperative approach by the three countries not
only toward achieving the goal of free and open trade and investment in the
region but to assist China in its economic integration in the region.
Recommendation
The Committee recommends that the Australian Government
take an active part in persuading other APEC members, especially Japan, to
become more actively engaged in the APEC process with the aim of strengthening
regional cooperation and enhancing dialogue between member economies.
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