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JPRS-JAR-88-002

25 MAY 1988

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JPRS-JAR-88-002 CONTENTS 26 May 1988

ECONOMIC

Keidanren's View on Revision of Antimonopoly Law 1

Journal Describes Okinawa Free Trade Zone 3

FOREIGN RELATIONS, TRADE

True Objectives of U.S. Japan Bashing in Election Year 5
JPRS-JAR-88-002

26 May 1988 ECONOMIC

Keidanren's View on Revision of Antimonopoly

Law

41060060 Tokyo KEIDANREN GEPPO in Japanese

Feb 88 pp 42-45

[By Reiichi Yukimura, chairman of the Antimonopoly

Law Subcommittee of Keidanren's Industrial Problem

Committee and vice president of Asahi Chemical Industry Co., Ltd.: "Changes in the Economic Environment

and the Proper Nature of Policy on Competition"]

[Text]

Introduction

In 1983 Keidanren studied in a comprehensive manner

problem points of the current antimonopoly law, which

was revised and strengthened in 1977, and collected the

studies as "Views Regarding Antimonopoly Law

Problems," but subsequent changes in the environment

which surrounds enterprises have been great, and have

also become harsher. Therefore, beginning in March

1987, this subcommittee held hearings for concerned

persons regarding such things as problem points in the

current antimonopoly law and problem points which

each industry is facing.

The result was that, although it remains a fact that the

current Antimonopoly Law contains many provisions

with problems which were pointed out by the Keidanren

view of 1983, when we considered the actual situation of

application ofthe Antimonopoly Law, the majority view

held that we should search for substantive policies to

solve immediate problems, rather than pressing in a

doctrinaire manner for revision of the law or improvement in its application.

Therefore, rather than quickly putting together opinions

on revision, the Antimonopoly Law Subcommittee inaugurated a working group in June 1987 to put in more

study in a specialized and objective manner on the

problems we are facing and to put the arguments in

order. Then, among the changes in the environment that

surrounds enterprises we noticed in particular the fact

that economic friction with foreign countries has risen to

an all time high level and the fact that under the rapid

and drastic strengthening of the yen it has become

necessary for enterprises, too, to execute strategies which

respond to changes in the environment, so we conducted

an examination with the focus narrowed down to two

points: (1) discussions on an industry-base for the purpose ofsolving economic friction with foreign countries

and (2) problem points concerning the Antimonopoly

Law in terms of furthering enterprise strategies which

respond to changes in the environment. Furthermore, as

one link, in November 1987 we also conducted an

on-the-spot survey in America for about 2 weeks, and we

recently put together the results of our examination as a

study group. In this article I would like to report on a

summary of the results of the working group's examination.

Discussions on an Industry-Base for the Purpose of

Solving Economic Friction With Foreign Countries

(1) Present State and Problems ofIndustry-Base Discussions

For Japan, solution of economic friction with foreign

countries, which is centered on trade imbalance, is also a

pressing important task in political terms, to say nothing

of economic terms. It is conceivable that discussion

among members of Japanese industries, or with opposite-number industries overseas, is one effective means

of solving this. But, even if it were for the purpose of

solving a trade imbalance, for an industry to agree

independently upon quantitative quotas or price

increases would violate Japanese and U.S. antimonopoly

laws as an action which limits competition. Therefore,

although free trade is a fixed line of Japanese national

policy, Japan responds to the problem of trade friction

with foreign countries by self-imposed controls on

exports as emergency-evacuation type measures, and is

implementing them based on administrative guidance

and legislation of exemption from application ofthe law.

However, with U.S. and EC [European Community]

antimonopoly laws, so-called extra-territorial application is carried out in which the laws are taken to apply

even to acts performed outside those countries if such

acts exert an influence on the markets in those countries;

so, unless it is something based on clear national compulsion, there is danger that even self-imposed controls

on exports for the sake of avoiding or easing economic

friction with foreign countries will be contrary to American and EC antimonopoly laws. Moreover, in America,

even with self-imposed controls carried out at the

request ofthe U.S. side, there is danger of being sued by

a private individual for damages of three times the

amount. In the case of the current self-imposed export

controls, there are some cases in which Japan has

received letters from U.S. antitrust authorities saying

that they believe there is no problem in terms of U.S.

antitrust law; but even so, the danger of a private lawsuit

has still not been resolved.

(2) The U.S. Side's Reaction Regarding Industry-Base

Discussions

At present discussions among the members of an industry are being conducted to a certain extent by devising

topics and methods of discussion so that they will not

become problems in terms of antimonopoly law, but it is

difficult to pursue a result which is immediately effective

from the point of resolution of friction. In any case, this

is a problem which involves the antimonopoly law ofthe

nation with which one is dealing, so, in order to explore

the actual situation, in America we conducted an on-thespot investigation based on an exchange of views with

persons connected with antitrust policy. According to

the result of that investigation, although the U.S. side

said that discussions extending to quantities or price are

questions that touch upon the basis of the antitrust law,
JPRS-JAR-88-002

26 May 1988 ECONOMIC

so in the final analysis they can absolutely not be

allowed, it showed a reaction to the effect that there is a

possibility if the discussion includes such things as

exchanging general information regarding markets, and

that the possibility is stronger still if it is combined

within an official framework.

(3) Toward Realization of Industry-Based Discussions

Today, when intergovernment negotiations involving

trade and economic problems have become an everyday

occurrence, it is conceivable that the significance of

discussion by and among industries, which have a full

knowledge of the actual situation, will become ever

greater in the future, at least in the sense ofsupplementing negotiations between governments. Judging from

current domestic and foreign antimonopoly-law systems,

there are very difficult aspects in allowing approval of

industry-based discussions. But industry-based discussion that involves economic friction with foreign countries is not simply a problem of competition policy; it is

a task which involves trade policy and diplomatic policy

as well, so it is necessary to appeal to the Japanese

Goverment to grasp it as a task for the entire government

and to consult and negotiate with the governments of

opposite-number countries in such a way as to make it

possible from a broader perspective. Along with that, it is

probably vital to go on educating people at the privatesector level too, by arguing this necessity widely within

the international economic community at every opportunity.

When, at a meeting with the U.S. Federal Trade Commission, we said "it is a contradiction for the antitrust

authorities to value free trade on the one hand, and the

U.S. Trade Representative and Congress to exert pressure on Japan for such things as self-imposed export

controls which hinder competition" the responsible

department chief, while stating that it was his personal

view, responded by saying "since the antitrust law exists,

it is impossible to change the present policy, but I fully

understand Japan's position, and sympathize with it."

This statement has no meaning in and of itself, but the

Japanese side needs to foster this kind of atmosphere in

the future.

Diverse Enterprise Strategies for Responding to

Changes in the Economic Environment

(1) The Advangages of Holding Companies in Enterprise

Management

Our examination emphasized those provisions of antitrust law which become problems in terms of furthering

enterprise strategies to respond to such major changes in

the economic environment as the rapid internationalization of Japan's economy, intensification of economic

friction with foreign countries, sudden strengthening of

the yen and the advance of the technological revolution

and the change to the information age, especially the

provision prohibiting holding companies.

In Japan's Antimonopoly Law, pure holding companies

are prohibited across the board in Section Nine, but in

Europe and America they are recognized in principle,

and are widely used. According to such things as our

survey on our visit to America, the following kinds of

advantages of holding companies are conceivable.

(a) Since horizontal integration of enterprises which

preserves independence in the aspects of organization,

personnel and assets becomes possible, it becomes possible to manage each business field based on perspectives

and ideas which are unhampered by it being a main

business or a business that has been in the family for

generations, and it becomes easy to make judgments

from a long-term perspective and a strategic perspective

without being fettered by ordinary day to day business.

(b) Enterprise restructuring becomes simple, so it can be

used as a means of enterprise expansion and survival.

Particularly in penetration of a new industrial field, it is

possible to use a holding company to carry out mergers

and acquisitions, and make good use of the know how

and specialized knowledge of the enterprise one has

bought up.

In America, mergers and acquisitions are thought to

promote efficient enterprise management by permitting

the replacement of incompetent managers by competent

managers. Furthermore, since mergers and acquisitions

are an effective method when penetrating a new field,

they are highly valued in terms of furthering enterprise

restructuring, so U.S. enterprises considered it natural to

make use of holding companies, which are effective and

easy to use in terms of carrying out mergers and acquisitions.

(c) Holding companies are ideal for promoting the development of Japanese enterprises into multinationals and

their overseas development (overseas division of labor,

etc.). For example, such development as doing research

and development and administration at the Japanese

headquarters, and doing production and sales at a Southeast Asian subsidiary becomes possible.

(2) The U.S. Side's View of Holding Companies

We solicited the views of the U.S. antitrust authorities,

U.S. enterprises, lawyers and university professors concerning problems regarding holding companies, and they

were in general agreement on the following points.

(a) Holding companies as such are neutral in terms ofthe

Antitrust Law, so to prohibit them across the board is

foolish, and is an out-of-date regulation. There is no

problem unless the holding company limits competition

in a substantive manner.

(b) In addition to being able to use holding companies as

an effective means of enterprise restructuring, one can

also make good use of their advantages in terms of tax
JPRS-JAR-88-002

26 May 1988 ECONOMIC

laws, and such advantages as utilization of the management systems or specialized knowledge of enterprises

bought up through the use of holding companies.

Whether to use a holding company or a divisional system

when restructuring an enterprise is purely a question of

management judgment, it is not a question of antitrust

law.

(c) The fact that holding companies are not recognized

under Section Nine of the Antimonopoly Law may

become unfair in the future when U.S. enterprises make

inroads into Japan, but under present conditions it is not

yet a problem.

The above are the advantages of holding companies and

the view ofthe U.S. side; when these are considered, the

alternative of controlling only those holding companies

that are harmful in terms of of hindering competition is

more in agreement with the original philosophy of antimonopoly law, and when one considers the internationalization of Japan's economy, it is a problem for Japan

alone to be prohibited from having holding companies.

It is probably necessary to immediately promote readying of the Antimonopoly Law, the Trade Act and other

related laws and regulations to accompany the introduction of holding companies. That, too, should be investigated by Japan, independently and with an open mind,

not grappled with because Japan receives outside pressure from such countries as America.

However, the opinion is also heard that ifJapan were to

revise or abolish Section Nine ofthe Antimonopoly Law

there would be danger of producing in America the

misunderstanding that Japan was establishing a new

non-tariff barrier in order to make penetration ofJapan

by U.S. enterprises difficult, so it would probably be

necessary to take sufficient care not to cause misunderstanding on this point.

(3) Concerning Regulation ofthe Total Amount of Stock

Held and Regulation of Mergers

Concerning regulation of the total amount of stock held

(Section Nine, Part Two of the Antimonopoly Law),

companies that come into question at present are probably extremely exceptional, but since it is unclear

whether the general concentration of economic power

hinders competition, there is scant reason why the total

amount of stock held must be uniformly limited in

addition to prohibiting, in Section 10 of the Antimonopoly Law, stock-holding which restricts competition.

Moreover, in regard to regulation ofmergers and transfer

of business, it is a problem to apply the reporting and

collection provisions relating to the criteria for priority

screening of mergers and raising of prices in concertjust

as if they were prohibiting provisions, without considering fully the actual situation of the items covered; in

addition to which it is probably necessary to expand the

items covered by the simple mode of reporting mergers.

Trends in Antitrust Policy in America

In addition, we conducted an international comparison

of antimonopoly-law systems, with such things as our

survey in America for our reference. In America such

things as the system of antitrust law and the implementing agencies are pluralistic and complicated, but since

1981, although rigorous regulation is being carried out

against cartels, such things as easing of regulation concerning enterprise mergers and holding companies has

been promoted under the influence of the so-called

Chicago School, which emphasizes economic analysis. In

the survey on our trip to America, too, U.S. enterprises

were evaluating the present flexible operation of the

antitrust law in a favorable manner. We were told that at

present there are five bills for revision of the antitrust

law before Congress, and that among them there is hope

for passage of the "1987 Law on Holding of Concurrent

Posts by Directors," which increases the scale of enterprises for which concurrent service of directors is prohibited, but that there is little hope for the others.

Moreover, it was anticipated that the trend of present

antitrust policy would probably not change radically

even if the administration changes, and even if such

things as regulation of mergers were to become stricter.

Conclusion

The foregoing is a summary of the results of the investigation by the working group ofthe Antimonopoly Law

Subcommittee. The subcommittee would like to listen

more fully to the opinions of each industry and go on

investigating still more deeply, with the results of this

working party's investigation as the point of departure

for discussion. In this process we plan to strive also to

promote understanding concerning the views ofindustry

circles on the current antimonopoly Law through an

exchange of the opinions of all concerned persons. The

environment which surrounds enterprises has changed

further, and we feel that problems which should be

studied in terms of their relation to competion policy

will cover a various and diverse range in the future as

well, so we would like to ask each of you for your

cooperation and support.

12373

Journal Describes Okinawa Free Trade Zone

41060057 Tokyo FINANCE in Japanese Jan 88 p 75

[Finance Department of the Okinawa General Bureau]

[Text] Introduction

The director general of the Okinawa Development

Agency, in accord with the Okinawa Promotion and

Development Special Measures Act passed last December, designated a "Free Trade Zone," as had been

requested by Okinawa Prefecture as an important

project in the latter phase of the Second Okinawa Promotion and Development Plan (FY82 to FY91).
JPRS-JAR-88-002

26 May 1988 ECONOMIC

The "Free Trade Zone" is a system legislated under the

Okinawa Promotion and Development Special Measures

Act. In order to promote trade as well as industrial

location in Okinawa, the director general ofthe Okinawa

Development Agency is to designate a free trade zone

based upon the request of the governor of Okinawa

Prefecture, with the recommendation of the Okinawa

Promotion and Development Council, and with consultations with the heads of the concerned administrative

agencies.

This "Free Trade Zone" is a system which consists of a

bonded area system as stipulated by the Tariff Law, and

preferential tax measures for businesses located there.

This is a system allowed only by the Okinawa Promotion

and Development Special Measures Act, and only in

Okinawa.

As background, before the reversion of Okinawa to

Japan, a free trade zone was established in 1958 based on

Ryukyu Islands' U.S. Civil Government High Commissioner's Ordinance No 12: "Foreign Trade in the Ryukyu

Islands."

The proposed area for the "Free Trade Zone" is approximately 2.7 hectares of government owned land under

the control ofthe Ministry of Finance, in Naha City, and

is currently provided to the American Forces in Japan.

So, there were consultations by the Naha Regional

Defense Facilities Administration Bureau with the

Regional Finance Department which controls the property in question, concerning whether or not temporary

use (joint use with the American Forces) would be

allowed. Then, approval was granted after consultation

with the Okinawa Regional Council on Government

Property. After the required procedures were completed,

the area was designated as a free trade zone.

In addition, in the FY87 Supplementary Budget, the

government (the Okinawa Development Agency) has

appropriated a subsidy of 1.35 billion yen toward the

expenses required for land development and facilities

improvement projects for the "Free Trade Zone" (of a

total cost of approximately 1 billion yen). Operations are

to begin in FY88.

The Definition of a Free Trade Zone

The term "Free Trade Zone" means various things.

Broadly, it means "a free port city, which allows goods

from foreign countries to be freely stored, consumed,

processed or manufactured, and the freedom of entry

and departure of foreign trading vessels, and where

customs controls and procedures are eliminated just as if

it were foreign territory." Narrowly, it means a "free port

district," in which "the whole or a portion of an area

fronting on the harbor is simply set aside, and this is

placed beyond customs boundaries."

Of the two definitions given, the latter may be said to

apply to the "Free Trade Zone" to be established at this

time.

The Okinawa Free Trade Zone

In the "Free Trade Zone" which is presently set to be

established, raw materials and semifinished materials

are to be brought in from foreign countries and manufactured or processed, as well as modified or sorted. It is

intended as a "Free Trade Zone" where such distribution and intermediate stage processing will take place.

Noteworthy features of preferential measures for industrial location include simplified export and import procedures, tax exemptions for foreign goods, and provision

of basic buildings by Okinawa Prefecture which will

operate the free trade zone. In addition, there will be

some preferential tax treatment—exemptions from landholdings taxes, special depreciation, and the inclusion in

losses of investment loss reserve funds. Also, in the

monetary area, it will be possible to make use of the

"Okinawa Free Trade Zone Promotion Fund," newly set

up by the Okinawa Development Finance Corporation.

It is expected that, in Okinawa Prefecture, in terms of

making use of geographical conditions, being close to

Southeast Asia, and taking advantage of historical conditions as well, there will be a great contribution made to

the economic stimulation of the prefecture through the

establishment of the "Free Trade Zone."

Apart from the aspects of promotion and development

measures for Okinawa, with our country at present

having a giant trade surplus, the "Free Trade Zone" is

considered a first step toward the creation of an international division of labor, or more open markets. The free

trade zone is expected to be of very great significance to

not only Okinawa but also Japan in contributing to the

advancement of the conversion of our country's economy to an international cooperative type of economic

structure.

/06662
JPRS-JAR-88-002

26 May 1988 FOREIGN RELATIONS, TRADE

True Objectives of U.S. Japan Bashing in Election

Year

41060076 Tokyo NOGYO KYODO KUMIAI

in Japanese Mar 88 pp 17-29

[Article by Commentator Hideo Akimoto: "The Real

Circumstances of Japan Bashing"]

[Text] The Objective of the Recent Visit to America by

the Prime Minister; Three Tasks at the Washington

Press Club

The young media people are saying enthusiastically that

Prime Minister Takeshita's visit to America was a success, but I think that is strange. The visit to America this

time was not for the purpose of solving individual

problems, so to characterize it as having succeeded or

not succeeded does not fit. The media were arbitrarily

saying something like Takeshita is bad at diplomacy, or

diplomacy is his weak point, were they not? The question

ofhow to manage items which another country is dealing

is a matter for diplomacy and is an important domestic

political problem for the receiving side. This is especially

true in Japanese-U.S. relations. For example, the

demand that Japan deregulate importation of agricultural products is being put forth by America as a matter

for diplomacy, but the question of what to do about it is

an important domestic political problem for Japan.

Therefore, it is not a problem of whether one has

linguistic ability or whether one has experience in diplomacy; a politician who can neatly and responsibly

arrange domestic political problems can become a leader

of international summit diplomacy in the future.

If we proceed from that point, it cannot be said positively that Takeshita is bad or weak at diplomacy; rather,

it may be possible to say that he is the person among the

three candidates for prime minister who understood that

the foundation of diplomacy is to manage domestic

politics. I think it probable that since the media had

arbitrarily called him to task and played it up that his

first hurdle was the visit to America, it had to say "he

succeeded" or something or it would cease to make

sense.

As to Takeshita's recent visit to America, the test of to

what extent Japan will be forced to cooperate with the

party in power, the Republican Party, at the time of the

presidential election on 8 November can be judged by

Takeshita's visit to America.

Reagan and Takeshita have known each other by sight

for a long time. Takeshita could have sent a telegram to

Reagan, saying that after having met him for a long time

as minister of finance, he had now become prime minister, but this year that would not do. It was necessary for

Japan's prime minister to go to Washington as one ofthe

ceremonies ofthe U.S. presidential election. Prime Minister Takeshita, too, lost no time in going to get

acquainted, because the U.S. side said it wanted a

meeting, and because in the future he would be meeting

with Reagan in other circumstances.

Therefore, it had been agreed upon between the officials

on both sides that individual problems between the two

countries would not be taken up this time, but also it

would not be fitting for Takeshita to come back having

done nothing but chat about the weather. When the

Japanese side made inquiries before the visit to America,

asking what the individual problems were between the

two countries, what problems the U.S. side would like to

have solved, the response was that there were three

problems at the moment.

"One is the problem of deregulation of agricultural

products. As to the disposition of 10 or 12 items, while

you in Japan also have conditions, it appears likely that

you will accept the GATT recommendations, so that will

probably be fine. As for those problems which are

guideposts of deregulation of agricultural products, beef

and oranges are more important. Next, the problem of

entry of U.S. construction companies into Japanese

public works projects is also an important problem. After

that another one is stability ofthe yen and dollar." These

three were cited by the U.S. side as the most important

current individual problems. But the way we Japanese

consider it, the important matters between Japan and

America at present are not things like that. There is a

greater variety. There are also many problems which the

Japanese side must bring up. It is conceivable that, as

one might expect, the fact that the U.S. side ventured to

cite these three in spite of it seeming likely that, aside

from the yen-dollar question, there would be many more

important problems, is tangled up in the presidential

election.

The Background to Economic Friction

Unreasonableness Which Piles Up Because of the

Presidential Election

Though related to economic friction, usually it is diplomatic problems and international problems which

become the important issues for the Democratic and

Republican parties in presidential election campaigns.

But in the current case, the Democratic Party is, regrettably, helpless concerning diplomatic problems. Reagan

came dangerously close to becoming a lame duck over

the problems of Iran and Nicaragua, but he turned the

general situation completely around by the agreement to

completely abolish intermediate-range nuclear missiles.

Even though the difficult problem of Senate ratification

remains, the fact of having opened the path toward total

abolition of nuclear weapons is probably a diplomatic

achievement that will go down in history.

In addition, an agreement to reduce long-range strategic

nuclear weapons by one-half is being sought in negotiations between spring and early summer. Both Reagan

and Gorbachev would be troubled if it were taken up
JPRS-JAR-88-002

26 May 1988 FOREIGN RELATIONS, TRADE

carelessly, so they are saying that difficult problems still

remain, but in the negotiations at Geneva agreement has

virtually been reached. This, too, will probably become a

diplomatic victory for the Republican Party in the form

of a Reagan visit to the Soviet Union by early summer.

Therefore, the Democratic Party is helpless in regard to

diplomatic problems. Such being the case, what will

become the election issue? Economic problems.

As to domestic business conditions, to tell the truth, at

present the real state of America's economy is growing

worse each day. The deficit in the balance ofgovernment

income and expenditure keeps growing. In regard to the

balance of trade as well, recently America has finally

increased exports by its own efforts, and signs are visible

that it has begun to acquire international competitiveness, but the deficit is still large in overall terms. That

situation has not been improved at all. It is because of

the desire to improve it that the weakness ofthe dollar is

continuing. But America has a presidential election, so

the Republicans have to some how or other gloss over the

fact that the real state of the economy is growing worse,

and show that ostensibly economic expansion is continuing. They also have to create conditions in which unemployment too will go on decreasing. The present U.S.

economy is piling unreasonableness on unreasonableness. When one looks at it outwardly, the Democratic

Party, too, does not have anything on which to base an

attack concerning domestic business conditions.

Why has the real state of the U.S. economy ended up

worsening? The answer to this is clear. It is the failure of

Reaganomics. It was fine up to the big tax reduction.

According to Reagan's intention, the money which people gained through the big reduction in taxes would go

into savings. When that happened, the liquidity offinancial institutions would rise, so it would become easier to

lend money to industry. Industry would be activated by

that money. Against the background of a weak dollar,

export competitiveness would rise, so America would go

on reducing its trade deficit. Enterprises would make a

profit, payment of corporation tax would increase, and

the budget deficit would go on decreasing. The aim of

Reaganomics was to rebuild a strong U.S. economy in

this way. It was fine up to the big tax reduction. It all

went into consumption, not savings. Since it was the first

tax reduction in a long time, people wanted to buy a

third car or a color television set. If buying a third car,

one which economizes on fuel is good, and if buying a

color television set, a Japanese-made one with vivid

color is good. Imports increased rapidly, so the trade

deficit increased rapidly. Enterprises did not activate, so

tax revenue did not increase.

In spite of this situation, outwardly the appearance of

good business conditions continued, so the dollar kept

dropping, but stocks were high. But around September of

last year, America suddenly raised the rate of interest

charged to banks. This greatly shocked financial circles.

The fact that the real state of the U.S. economy was

actually quite bad, that import prices would rise, and

would be reflected in domestic prices, and the danger of

inflation had begun to emerge, spread through financial

circles, and ended up causing the stock market crash.

Since then, financial circles have used the honest method

of interpretation that each time the dollar falls the

economy worsens to that extent, so there is a correlation

that stocks drop, leading to a drop in the dollar, leading

to a drop in stocks, leading to a drop in the dollar. This

frightened the Reagan administration. In Japan most

stock transactions are done by institutional investors;

banks, insurance companies or some such are buying

stock eagerly with excess funds, but in America over 30

percent of stock transactions are done by individuals.

Therefore, if stocks crashed it would directly influence

the public's wallets. It would end up becoming a recession. If that happened it would be a big minus for the

Republican Party in the election. What the Republican

Party fears most now, before the election, is that stocks

will fall. It seems very much as though a trend has

emerged in which stocks fall if the dollar falls, so,

although up to now Americans have not had that much

interest in the exchange rate, the Republican Party

thought it would be terrible ifstocks fell, so at the end of

last year America began for the first time to intervene in

the foreign currency market. The Republican Party fears

a fall in stock prices more than it fears a fall in the dollar.

Therefore, ifother factors operated, and a situation came

into being in which stocks did not fall, America would

leave things alone even if the dollar fell.

The Democratic Party's Target

In such a situation, where will the Democratic Party

attack the Reagan administration, which now wishes

only to keep up, by some means or other, the outward

appearance of good business conditions until the election? Almost one-half ofthe U.S. trade deficit is a deficit

vis-a-vis Japan. For almost one-half of a nation's trade

deficit to be generated by trade with one specific country

is unheard ofin world history. The cause ofthis is found

in America. Therefore, America will tighten up government spending as soon as possible. What is referred to as

"treasury reconstruction" by the Japanese. It will end up

cutting back on everything, public works, etc. Then it

must turn to restricting imports. In order to face restricting imports, it must adopt a policy of tightening up

across the board. However, if the Republicans did that,

the prospect would become gloomy and business conditions would worsen, so they could not do that until after

the election is over if their very lives depended on it.

They do not do that, they come to Japan and West

Germany and say "You lower your interest rates. Build

up business activity." But at this point West Germany

has begun to distance itself markedly from America,

saying "If we went beyond this in lowering interest rates

or improving business activity for your sake, we would

end up with inflation." That is because no one dislikes

inflation more than the Germans. They detest the draining away of value in money they hold in the same way

they detest crime. When governments fall in Germany, it
JPRS-JAR-88-002

26 May 1988 FOREIGN RELATIONS, TRADE

is tangled up with prices. It is probable that prices began

to heat up because West Germany had cooperated with

America, so Chancellor Kohl said "I quit," and turned

his back on America.

Then for about the first-half ofthis year America will be

engrossed in the battle over nomination of presidential

candidates, but around 19 June when the summit begins

in Toronto, when Reagan and Takeshita meet for the

second time, things will more or less come into focus, so

the policy debate ofthe two parties will begin then aimed

at the November voting. Then economic policy toward

Japan will begin to become a big issue. The Democratic

Party will probably hound the Republicans, saying "You

are being too easy on Japan. You are not firm on things

that should be firm; you have become complacent. That

is why things have gotten into this shape." Therefore,

this time Reagan said to Takeshita: "New Year's is cold,

and Congress is not in session, so the timing is bad, but

come for a short visit," wanting to quickly strengthen

their personal relationship anew. Then, agricultural

products and public works were Reagan's concerns when

he said, "Please clear up all the individual problems by

the time we meet for the second time in Toronto. That is,

deregulate in advance what should be deregulated. It is a

question of form." For instance, Reagan's head was so

filled with the idea, that when the conference began he

ended up inadvertantly blurting out the words "beef and

oranges," in spite of the fact that it had been mutually

agreed on beforehand that individual problems would

not be put forth at the summit conference.

Even taking the problem of oranges, the U.S. side says

that it will not negotiate unless deregulation is the

premise, but what does an executive of Sunkist, which is

exporting California oranges on its own, say? He says "If

you will state that you will purchase a certain amount of

oranges in 1 year, as a minimum in the form of a

Japanese-U.S. trade agreement, as is done now, without

deregulating, that amount will be guaranteed, so it will

be sufficient in terms of volume. It would be nice if you

enlarged the framework, but please do not deregulate,

whatever you do." He is worried that if the market is

deregulated Japan would probably buy inexpensive

oranges produced in the Mediterranean countries and

not buy California and Florida oranges. He says that if

Japan restricts imports of oranges properly while harmonizing it with Japanese domestic citrus fruits, and properly enlarges the framework, America would have no

complaints. When I said "Then why does Washington

tell Japan to deregulate?" he said "Washington D.C. is a

different place. This is because there is a presidential

election." They want to create the appearance that they

were not too easy on Japan, but properly insisted on

deregulation.

In that case, what about beef? To be honest, the domestic

supply of beef is probably insufficient. Therefore, like it

or not, we will probably have to raise the import ceiling

by a considerable amount. It is to be expected that

Japanese-U.S. negotiations will be concluded satisfactorily because of the raising of the ceiling. To begin with,

the U.S. livestock industry is not all that eager to sell beef

to Japan. They say that they dislike selling to Japan

because it takes a lot of work. Japanese trading companies use a method by which they buy so many dozen tons

of shoulder, so many dozen tons of round and so many

dozen tons of flank, but that sort ofthing is not done in

America. A Chicago entrepreneur said that in the past he

exported large quantities to Japan, but in the end he

could hardly tell how much profit he had made. America

says that there is no use negotiating unless Japan promises to deregulate, but actually, U.S. entrepreneurs

request that we not deregulate beef either. That is

because if beef were deregulated that amount would end

up coming in from Australia. America itself restricts

imports, does it not, because Australian meat is inexpensive. If one wonders who, then, is making such a fuss

about deregulation, it is the meat packers. In addition,

politicians want the banner of deregulation.

Demands as Election Measures

Presidential elections attract all the attention; a president's term of office is 4 years. Furthermore, the term of

office for a member ofthe Lower House is 2 years. That

for the Senate is 6 years, but one-third are elected every

2 years. Therefore, it is an arrangement by which elections for all members ofthe Lower House and one-third

ofthe members ofthe Upper House are held at the same

time as the presidential election. To members of Congress the presidential election is also important, but their

own elections are important too, so they do their best.

In the midst of such an election campaign, on the one

hand, congressmen with urban constituencies in particular are beginning to say "government finances have

gotten too messed up for Congress too, so let us cut down

on subsidies. Among subsidies, are not those for rice and

cotton a bit unreasonable?" America's subsidies for rice

and cotton are huge, are they not? So far as exports go,

America is completely beaten by Thailand, so, naturally,

surplus rice goes on piling up. In America old rice, and

still older rice, go on increasing. It comes to the point of

people saying "Can we give a subsidy for that? We will

cut it." Now congressmen from rice-producing states will

lose the election if subsidies are cut, so they want by

some means or other to eliminate the surplus rice and,

want to increase the crop area for rice in order to get

more subsidy. Therefore, they think "Is there not some

place that eats a lot of rice? There is Japan, isn't there?

America does all kinds ofthings for Japan, so we will sell

the rice to them." That is, they want to sell rice to Japan

as a countermeasure for U.S. subsidies. Then even

congressmen from such places as New York, Los

Angeles, San Francisco and Chicago, industrial states [as

published] which have nothing to do with rice, say "Yes,

yes," and receive political contributions from rice-state

congressmen.
JPRS-JAR-88-002

26 May 1988

As to why this is so, in America the "homeless people,"

about whom you have heard, are increasing rapidly, and

they gather in the vicinity of large cities, so rice-state

congressmen make political contributions to industrialstate congressmen, telling them "please use this as

though you had donated it to the cost of facilities for

housing the homeless." They are forming a united-front

setup, saying "in return, please work with me on promoting deregulation of rice." Thus they create an

appearance just as if it were the opinion of the entire

U.S. Congress, and are putting pressure on Japan, are

they not? This, too, will only last until the presidential

election.

This is a state of affairs which is not publicized, as one

would expect, so when I returned from America and met

one of the highest leaders of the Liberal Democratic

Party and told him about the problem, saying "You will

have to persevere a bit longer regarding rice, so please do

not compromise in an unwise manner. After all, circumstances will change as soon as next winter has passed," he

was astonished.

Thus, presidential elections exist, so, though they are not

the Olympics, Japanese-U.S. economic relations will get

tense once every 4 years. This year economic policy

toward Japan will become a big issue, so tension will rise

much more than in the average presidential election.

This, truly, is the kind of background in which agricultural products exist.

The Mastermind on Entrance Into Public Works Is

Bechtel

This has no direct relation to agricultural products, but

there are demands to let leading U.S. Companys into

Japanese public works. They have come with the argument that even Japan's Ohbayashi-Gumi, Ltd. recently

received an order for subway construction in New York.

But it even took Ohbayashi 10 years before it obtained a

construction contract. It was not until it had gone on

steadily piling up results in Japan that its qualifications

to also enter public works in America emerged; it is

unreasonable to come out without any warning and say

"let us do it!"

Then why does America talk about public works at this

point? Is it that it first made Japan create opportunities

for work by telling it to waken domestic demand, and

then climbed on board? If we look a little deeper, it is

telling us to let in Bechtel, a construction company

headquartered in America's San Francisco. It would not

do to put forward only a specific company, so it talks as

though it is a demand of the entire industry.

What is this Bechtel? It is the world's largest construction

company; it can, for example, rebuild Beirut, which is in

a state ofruin, exactly as it was before, that is completely

building the capital of Lebanon by one company, so it is

quite a company; but who are the executives of this

FOREIGN RELATIONS, TRADE

company? Before the formation of the Reagan administration Secretary of State Shultz and Secretary of

Defense Weinberger were both upper level executives.

Then, since their California friend Reagan became president from, they participated in the administration. But

the Reagan administration will soon be over. When that

happens they will have to go back to Bechtel. Therefore,

they have to take back with them a souvenir from

Washington. Weinberger hastily resigned before Shultz,

saying "I will return a bit before you and make preparations, so everything will be fine." Then he said to Shultz

"I will arrange things so that you can return too, so, in

exchange establish an inroad by which we can participate

in Japanese public works." This is the basis ofthe public

works problem.

Thus, when truly nasty Japanese-U.S. relations have

surfaced along with the election, there is the background

that today's Japan must be bashed.

What Is the Lesson of Semiconductors?

The cause ofthe semiconductor problem lies with Japan

too. It made an agreement, knowing that it could not

carry it out. That is not good. It went ahead and

promised, saying "Yes, yes. It is fine," with the easygoing idea thatthe atmosphere would probably change in

another year, that it would probably be alright ifit made

an agreement to gain time. No one keeps the promise.

Even if a year passes, the situation will not change. Such

being the case, it is, unfortunately, not unreasonable for

America to become angry.

But one more thing that America is very nervous about

in regard to semiconductors is that they are the root of

the defense industry. Let us suppose, for example, that

the president pushes the button controlling nuclear warfare. If an important part ofthat button were a Japanese

semiconductor product, it would become "a security

problem" in the view of U.S. defense authorities. Semiconductors cannot be compared directly with agricultural products, and the like. For one thing, they make

good material for the U.S. side to catch Japan on the

question of defense.

Will the Strong Yen Continue?

As stated earlier, America is not in a mood to seriously

treat its own illness until after the presidential election.

Everything is in a posture of waiting until after the

election, so the strong yen will continue for some time.

One must look at it that way.

The problem is that since America is pretending to be

dead until the presidential election, there is the matter of

how high the yen will go by that time. In regard to this I,

too, recently went to America and asked the opinion of

finance economists, and most ofthem said that it should

probably be viewed as approaching 100 yen to the dollar.

It is probable that when the presidential election is over

America will finally come to its senses, make up its mind
JPRS-JAR-88-002

26 May 1988 FOREIGN RELATIONS, TRADE

to go through the hardship of recession, and reach the

point of earnestly attempting to rebuild its economy.

How far will the dollar be redeemed when that happens?

That will probably be the stabilizing point for the next

yen-dollar exchange rate, and most economists viewed it

as probably settling down between barely 120 yen to the

dollar and 115 yen to the dollar.

There are in America about 10 persons, very strict in

their view of currency exchange, who are called

"America's exchange extremists," and these people estimate that the rate will probably become 95 to 96 yen to

the dollar before the presidential election, and will be

lucky to get to 100 yen to the dollar even if the dollar is

redeemed. This time I met an expert who said "Do you

know the exchange rate which was stable for the longest

time before World War II? It was 2 yen to the dollar."

Now it is 126 yen to the dollar. If one redesignates the

denominations to 1/100th it is 1 yen 26 sen. If it was 2

yen to the dollar before the war, 126 yen now is a weak

yen, so it would be permissable to go below 1 yen.

Therefore, there are even people who say that it would

not be the least bit odd to go below 100 yen to the dollar.

Since there are even people who have that view of

exchange rates, it will not swing to a weak yen all that

easily.

The Important Point in Future Japanese-U.S.

Negotiations

Even looking at the problem of agricultural products, it

is clear that there are very many parts of the U.S. side

which are unreasonable demands, and if we look at

agricultural products in global terms it is in a state of

oversupply. Therefore, at this point we must also consider trade in agricultural products in a fundamental

manner. With one dispute after another, now an international viewpoint regarding agriculture has finally

emerged. Even at summit conferences, agricultural problems finally emerged for the first time last year at the

12th Venice summit. One current idea is probably that:

"The surplus supply will not be remedied unless those

items included in agricultural protection policies, which

each country adopts, are dropped in order to somehow

balance the state of surplus supply in agricultural products; let us all consult together; it is very difficult to solve

agricultural problems by internal pressure alone. Let us

mutually improve with skill the structure of agriculture

by a model which uses outside pressure."

However, Japan is not a nation which exports agricultural products, so it is to be expected that Japan should

be beyond the bounds of those who make comments

because of surplus supply, but Japan too must turn its

eyes to the problem of structural improvement. However, it is not a problem which should be settled between

two countries. The matter of how to proceed should be

debated mutually at a venue among many countries; for

Japan and America to act unilaterally appears in international terms to resemble black market trading. If

existing institutions are insufficient, create something

like an international agricultural conference, and there,

since even America has many strange things concerning

agricultural policy—strong protectionist policies and

import restrictions—go on debating the necessity for

structural improvement in Japan's agriculture too, while

also taking up these matters for discussion.

I think this is the orthodox way of doing things, but this

year America has the special matter of the presidential

election, so even if it understands it to be orthodox, it

cannot say so, and tells Japan to do as she is told.

Speaking from the Japanese-U.S. power relationship,

Japan cannot totally reject America's demands, saying

"No, you cannot have it that way," but it is a matter of

just waiting until the presidential election is over while

giving judicious answers. I, too, recently went to the

Washington liaison office of the Central Union of Agricultural Cooperatives, and told them "What are you

making a fuss about. It is a few months more. If you grit

your teeth and wait, time will pass. It is better not to

make a clumsy compromise."

Japan is too lacking in policy concerning the agriculture

problem. Since it did nothing, in the end the problem

was taken as far as GATT. In this case Japan was sure to

lose. When it is taken to GATT it is considered by a

panel which does not include the concerned parties and

whose members are ignorant of the true situation of

Japanese agriculture, right? It turns out that the one

lodging the complaint is America, and the one against

which the complaint is being lodged is Japan, the richest

nation in the world, so the answer emerged accordingly.

If the most dominant figure lodges a complaint against

the richest upstart, it ends up being a matter of contempt

for rich upstarts.

Since everything would be lost ifit were taken to GATT,

our thinking was to avoid this, but to somehow or other

buy time by negotiations between the two countries, and

wait for a change in the situation. But since we had no

policy, we did nothing. Therefore, we were quickly

caught. Even rice will go poorly for us if it is taken to

GATT in this manner. As usual, the vice chairman ofthe

RMA (Rice Millers of America) says something like he

will take it to GATT, but if it is taken to GATT our

position will be weak as the country with a trade surplus.

Moreover, Japan will be in a weak position if it is taken

to GATT with the explanation that "We know that rice

growing is the mainstay of Japanese agriculture. Therefore, we are not telling Japan to deregulate rice. We are

saying that it is funny not to buy even one grain ofrice."

If it is taken to GATT, there is danger that it will

escalate, with people saying "No, it should be deregulated." Therefore, this year we must turn our eyes to the

rice question.

Be that as it may, in America a debate on deregulation of

rice has begun because of subsidies, so, as might be

expected, we must go on doing our best until the presidential election, which is the big watershed.
JPRS-JAR-88-002

26 May 1988 10 FOREIGN RELATIONS, TRADE

The Background to Domestic Pressure for Deregulation

of Agricultural Products

When we turn our eyes inward, the perception is held

that Japanese agriculture is extremely over protected. At

any rate, it is felt, in the manner of a religious faith, that

if they but grow rice, the livelihood and production of

farmers are guaranteed, and they are given very preferential treatment in terms of the tax system. The result is

the interpretation thatthings which are very expensive in

international terms are being forced upon consumers.

This view is beginning to crumble, but in overall terms

there are still many quarters in which this image is very

difficult to eradicate. And people do not try to learn

about agriculture. For instance, they say unreasonable

things such as "it is natural that America is angry, saying,

'It is outrageous that Japan restricts imports of as many

as 22 agricultural products,' since they restrict imports,

such things as food processing also become expensive,"

or "the selfishness of such farmers leads to import

restrictions on Japanese industrial products." About

how much would America's annual exports to Japan

grow if Japan were to deregulate all 22 agricultural

products as America tells it to? Whether calculated by

American officials or Japanese officials, it is the same.

No matter how hard America tries, it would not increase

more than about a mere $700 million or $800 million.

Would it influence U.S. imports of industrial products

just because exports to Japan increased by $700 million

or $800 million? People think that the amount of agricultural products being restricted is a huge amount. They

completely lack such knowledge, and do not make any

effort to find out. And then they say that import restrictions are outrageous. Everyone knows about beef and

oranges, but it would probably be useless to ask them to

cite even one other thing they know from among the

remaining 20 items.

Therefore, what I have also been saying to the Central

Union of Agricultural Cooperatives for some time is

"there has already been enough publicity directed inside

agricultural, please direct publicity outside agriculture."

Unless we do that, misunderstandings will never be

resolved, no matter how much time passes. For example,

since such countries as France and Germany are traditionally agricultural countries, they have a very wide

understanding of agriculture, so they have been protecting agricultural products and restricting imports for a

long period of time. Therefore, even though America

proposed talks on trade in agricultural products, they did

not even give an answer for 20 years. That is because

when one writes it out, protection of agricultural products and restricting imports is an economic problem, but

each item is a political problem. It is not at all possible to

tell people to do such things as put political problems on

the table of economic problems and chop them up by the

tricks of trade negotiations, so they have been continuously rejecting the idea, saying that they had no wish to

hold negotiations on agricultural products with America.

Until about 10 years ago, even America had no thought

of negotiating with Japan on agricultural products. It

knew that Japan was restricting imports to some extent,

but Japan was America's best customer for agricultural

products, so it thought that if it were to negotiate on

agricultural products with Japan, it would be after negoitations with Europe had been completed. But Europe,

which was the vital one, did not answer, so if America

called Japan, which would come promptly if called, and

said "You are buying a lot, but buy more!" Japan would

probably do as it was told, and, using that as a stepping

stone America, would say to the EC's Agricultural Committee "Even Japan, which is buying so much, is striving

to buy more, is it not? How can you act like you are in

spite of this?" Mr Straus of the Democratic Party once

called Japan's representative in order to use it as this

kind of material. Thereupon, he clashed in a heated

battle with such persons as then Minister of Agriculture,

Forestry and Fisheries Nakagawa. This is effective. Such

things gradually began to be effective, so last year agricultural trade emerged for the first time as a big task at a

summit conference. Until then, Europe had declined to

deal with America at all on the subject. Europe waged

such a thorough resistance against America because of

the understanding which every class of European citizenry had toward agriculture. They devoted all their

energies, believing it to be not only a problem offarmers,

but the kind of problem requiring joining with consumers, considering agriculture, and saving what is to be

saved. That was the difference between Europe and

Japan. From now on we must publicize our opinion

more to those outside agriculture; we must clear up

misunderstanding. They will understand if we inform

them.

Look at the International Current of Structural

Improvement

Among the leaders in financial circles there is a person

who originated in Gunma Prefecture. He lived in

Gunma through middle school under the old system, and

has been in Tokyo continuously from his days in an

old-system high school, through college and his work in a

company. We had a conversation that went like this: "I

suppose that up through your middle school days you

watched people growing devil's-tongue." "Yes. I

watched them. After all, I was able to go to college

because we had devil's-tongue." "Are you aware that

importation ofdevil's-tongue is prohibited?" "No. Imagine that. It is prohibited to import devil's-tongue. Why is

that?"

In other words, the problem is misunderstanding and

lack of information regarding agriculture. We have big

meetings at martial arts halls, tying towels around our

heads and shouting "raise the price of rice." This looks

very antiurban. Our taxes are low. This too looks antiurban. And we restrict imports; that boomerangs on

industrial products. Thus people end up thinking of

things in a short-circuited manner. If we tell them that it

is not so, and ask them how much it would come to if all

items whose imports are restricted were deregulated,

they will understand, and say "Imagine that. Is that all?

In that case it is different."
JPRS-JAR-88-002

26 May 1988 11 FOREIGN RELATIONS, TRADE

We should have appealed for understanding to people

outside of agriculture. It is not too late to start even now,

so I think we should do it. We must build something to

counter the Keidanren's public relations center. It will be

just right if we fight on better than even ground. While

anticipating that America will return to its senses soon,

and begin a full-fledged rebuilding of its economy, the

Japanese side must go on firmly defending what should

be defended as its national interest. But in the midst of

the defense, Japan probably must keep an eye on international trends, on the international current ofstructural

improvement. Because, even in environmental terms, it

has become very difficult for a unique Japanese agriculture to be accepted as valid.

12373
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