Julius Karr-Bertoli

KXXXXXXXX

8 München 90, den 23.11.

Schlotthauerstraße 1
Tel. 65 79 03

Mr. Henry Kissinger
White House
WASHINGTON

Sehr geehrter Herr Kissinger,

mit größtem Interesse verfolge ich seit vielen Jahren die Entwicklung der amerikanischen Politik. Es sind besonders die ehrlichen Bemühungen von Herrn Präsidenten Richard NIXON um Entspannung und Frieden in der Welt, die unsere herzliche Zustimmung haben. Dabei ehrt es uns Bayern, daß Sie, verehrter Herr Kissinger, Herrn Präsidenten Nixon beratend zur Seite stehen und Sie dürfen sicher sein, daß die guten Wünsche aller guten Bayern Ihnen zufliegen.

Ihre Heimatstadt ist Fürth i.B. Für diese Stadt hat vor vielen Jahren mein Urgroßvater BÜRKLEIN (der Baumeister von König Maximilian II.) den Bahnhof gebaut, den Sie vermutlich noch in Erinnerung haben. Ich selbst bin gebürtiger Münchner und schon mein Großvater wirkte hier als beliebter Volksschauspieler (Beilage).

Wie es sich aber für einen Münchner Künstler geziemt, bin ich meistens im Ausland tätig. Leider ist es mir bisher aber nicht gelungen, als Gastdirigent nach USA eingeladen zu werden. Ich bedauere dies umsomehr, als USA jetzt zweifellos das bedeutendste Musikland der Erde geworden ist und meine künstlerische Tätigkeit dort den entsprechenden Anklang finden, aber auch reichte Anregung empfangen könnte.

Sollten die beiliegenden Unterlagen Sie davon überzeugen können, daß mein Auftreten in USA einen Gewinn für Ihr Land brächte, wäre ich Ihnen für eine persönliche Empfehlung herzlichst verbunden. Unabhängig davon darf ich Ihnen aber die von mir dirigierte Schallplatte von PERGOLESI übersenden und ich wäre glücklich, wenn diese herrliche Musik in einer ruhigen Stunde Ihr Ohr fände. Da ich doch sehr damit rechne, im Laufe der nächsten Jahre auch einmal nach Washington zu kommen, würde es mich freuen, wenn Ihnen dann der Name des bayerischen Dirigenten nicht mehr unbekannt wäre.

Mit den besten Wünschen für Ihre
Arbeit und Ihr Land grüße ich
Sie verbindlichst,

Ihr
M. KAN-FR.

PRESS

STAFFORD

Type of Request & Date

(Last name and pending date)

GENERAL

KISSINGER, HENRY A.

Name: Susan Stafford, KOST Radio

KISSINGER, HENRY A./S

Request: would like to do KNX a 30 minute taped, radio interview for a synidcated show throughout the U.S., Canada, and Mexico. She usually interviews entertainment and sports people but with HAK's being in Calif. so often, would like to do him. They would interview for 40 minutes and you could cut accordingly, down to 30 mins. Program is owned by the McLendon Corp. of Dallas. Would like to do it the next time on the coast.

213/937-1035 - KOST radio; 213/986-7745 - service exchange; Liz Curfree, secy.

CSH's Recommendation:

HAK's Answer: No. 1/4

Date and Time:

Party Contacted: 1/5

Additional Information:

Resolution:

SRI-INTERNATIONAL, NO. 13 • 1969

JAPAN-CALIFORNIA
ASSOCIATION REPORT

SRI INTERNATIONAL is a series of publications on international topics, issued by Stanford Research Institute at irregular intervals for limited distribution. This issue includes papers given at the meeting of the Japan-California Association in San Francisco on May 13, 1969, and a summary of the discussions of the meeting of the Professional Committee (General Members) of the Japan-California Association, June 26-28, 1969, at the headquarters of Stanford Research Institute.

The Japan-California Association Report is
*SRI International* No. 13, published August
1969. Price: $5.00.

Editorial Director:
H. E. ROBISON, vice-president, SRI International

Managing Editor:
C. A. SCARLOTT

Distribution:
FRANCES BOHLEY, manager,
International Secretariat,
Stanford Research Institute,
Menlo Park, California 94025

© 1969, Stanford Research Institute

Stanford Research Institute is an independent, nonprofit organization affiliated with Stanford University. It provides specialized research services to business, industry, government, individuals, and foundations. Included within its scope are research activities in physical and life sciences, engineering, industrial and development economics, management sciences, and combinations of disciplines within these fields. The Institute's professional and technical staff includes engineers, physicists, chemists, metallurgists, economists, market analysts, psychologists, and many others with technical skills.

Within the Institute, *SRI International* is a management entity established to plan, develop, and manage through established program groups all of the Institute's operations in the international field. The publication, *SRI International*, is issued under its aegis.

Business Diplomacy

In the early autumn of 1964, a Japanese trade mission led by Yoshizane Iwasa of The Fuji Bank visited the United States. Iwasa proposed to Rudolph Peterson of the Bank of America that a group of senior business executives from Japan and the United States be formed to discuss economic and trade problems between the two countries.

Iwasa's suggestion was soon accepted, and in due course the Japan-California Association came into existence. It follows a pattern established earlier by the Japanese business community with Australia. The plan has since been adopted by Japan with Mexico, England, France, and several other countries.

The JCA group of senior executives has met five times since 1965. These meetings have provided many opportunities for a free and fruitful exchange of views among the participants. They have created closer relationships between the business communities of the two countries, thus, in some respects, the JCA activity is a form of business diplomacy between Japan and the United States.

The Institute, which has been handling the Association's affairs since 1966, welcomes this opportunity to assist in strengthening the business and economic ties between the two nations—the ultimate purpose of the Association. The development of world commerce is also one of the Institute's principal objectives.

This issue of SRI International, reporting the 1969 activities of the Association, is made available as a public service under JCA sponsorship.

—WELDON B. GIBSON
executive vice president, SRI, and
president, SRI International

The Japan-California Association was established in 1965 as an informal
affiliation of business executives from Japan and California who are especially
interested in developing closer business and trade relationships between Japan
and the United States. Executives of a few American companies headquartered
elsewhere in the western part of the United States are also members of JCA.

The Association has no articles or bylaws, nor does it exist as a legal entity.
There are no official memberships in the organization, and no dues of any kind
are involved. The Association has no officers or employees.

The JCA is comprised of two principal bodies. The Senior Executive Group includes chairmen and presidents of the participating companies. The General Members (Professional Committee) include other executives of these companies as may be designated from time to time by the respective chairmen and presidents. Special Committees are created on occasion by both groups to study and submit reports on particular topics.

Activities of the Japan-California Association center on annual meetings of the Senior Executive Group and of the General Members. These events alternate between Japan and the United States. They are devoted to informal discussions on economic and trade relationships between the two countries, with particular emphasis on ties between Japan and the western part of the United States. About twenty-five persons from each country are invited to attend.

Affairs of the JCA are handled jointly by The Fuji Bank and SRI, under policy guidance by an Executive Committee in each country. Costs are defrayed on a pro rata basis by participants in the several JCA events.

1

2

OBJECTIVES OF THE JAPAN-CALIFORNIA ASSOCIATION

At the third meeting of the Japan-California Association in October 1967, at Shima, Japan, the Senior Executive Members adopted five short-term and long-term objectives of the Association. These are as follows:

* To develop business and trade relationships between Japan and the United States (especially the western region). The aim thereby is to contribute to economic progress in the two nations, to a greater understanding and cooperation between Japan and the United States, to development of private enterprise in the two countries, and to advancement of peace and prosperity in the Pacific Basin.

* To create a greater understanding and appreciation of basic political, economic, and security problems involved in bilateral relationships between Japan and the United States.

* To exchange views on economic, political, and related matters concerning relationships between Japan and the United States on the one hand, and other nations within and around the Pacific Basin on the other hand.

* To examine the ways in which Japanese and American companies and other economic insti-

tutions in the two countries can cooperate in the pursuit of economic development and social progress (including agricultural improvements) in the lesser developed regions of the Pacific Basin and particularly in Southeast Asia.

* To facilitate the development of close personal relationships and understanding among senior executives in the two national groups, thus creating the basis for business endeavors in the interests of private enterprise as a whole and of Japanese and American companies in particular.

The Shima participants also agreed that these purposes should be pursued on a policy level through annual meetings of senior executives affiliated with the Japan-California Association and through joint studies and task forces sponsored by the two national groups between the annual meetings.

With regard to the purpose and future activities of the Association, participants in the Shima meeting reaffirmed that some cooperative endeavors should be undertaken in connection with economic development of other countries, especially in the Pacific and Southeast Asian areas. △

JAPANESE VIEW OF
JAPAN-UNITED STATES
BUSINESS RELATIONS

THE JAPAN-CALIFORNIA ASSOCIATION REPORT

3

The Nixon Administration has had only a brief period in office. Yet it is gratifying to us businessmen in Japan to observe that the new administration is taking positive and realistic steps to solve or alleviate numerous internal and external major problems of the United States. These are to slow domestic inflation, to improve the balance of international payments, and to stabilize the international monetary situation in a restrained manner. The Japanese are profoundly interested in all these measures and developments, recognizing that they are bound to have a significant bearing on future Japan-U.S. relations.

We are well aware—as expressed in recent meetings of this Association—of rising concern with Japanese foreign economic policies. We in Japan recognize that some of these policies bear reexamination. Since the beginning of this year an unprecedented number of groups of leading American businessmen and scholars have visited Japan, to discuss current problems and issues concerning Japan-U.S. trade and business relations. The principal areas of mounting concern can be summarized as follows:

* Although the Japanese economy continues to expand, with a foreign-exchange reserve of now over three billion dollars, Japan still has not taken any tangible steps toward liberalization of capital transactions or in abolishing import restrictions. Especially in the area of capital liberalization, Japan has indicated its intent to reach a degree of liberalization comparable to that of other advanced countries by 1972. However, three years is too long a period to wait. What matters is specific action today.

* While capital and trade liberalization of Japan is lagging,

Japan's exports to the United States have been increasing sharply, giving rise to strong resentment among such U.S. industries as steel, automobile, and textile, about Japan's restrictive measures. Legislation is pending in the United States Congress designed to restrict importation of textiles and many other products. The situation at present is so critical that, unless Japan voluntarily restricts its exports on some of these items, unilateral import-restrictive legislation seems inevitable. Many businessmen, such as those who organized the Emergency Committee for American Trade to fight for free trade, are trying to block protectionist legislation, sometimes even suffering losses of business of their individual firms. There is no adequate realization in Japan of the gravity of the situation.

* Japan's present economic prosperity has been made possible because the United States has carried the cost of Japanese defense. Because the United States must reduce its military commitment in Asia, so as to improve its balance of payments and to rectify the situation of overcommitment in Asia, Japan should become more responsible for its own defense. If the return of Okinawa is to be sought, Japan should assume the role now played by the military bases in Okinawa for the defense of its peripheral region.

* As Japan's economic strength expands, Japan should utilize more of its resources for economic assistance and stabilization of the Asian region. It should thus relieve the United States of some of the burden it has been carrying.

We realize the intensity and clarity of American expectations of Japan, in both government and business circles. As to how, then, we respond to these expressions, not all of us in Japan are in agreement. Various factors and circumstances affect individual attitudes, as there certainly must be in the United States. I am convinced, however, that it is we in the Japan-California Association, among the leaders of the two business communities, who are best aware of

Major portions of a paper presented by YOSHIZANE IWASA, chairman of the board and president, The Fuji Bank, Limited, at the San Francisco meeting of the Japan-California Association, May 13, 1969.

4

> As Japan's economic strength expands, Japan should utilize more of its resources for economic assistance and stabilization of the Asian region. It should thus relieve the United States of some of the burden it has been carrying.

> —YOSHIZANE IWASA,
> chairman of the board and president,
> The Fuji Bank, Limited

the need for international cooperation and of the merits and profits of free trade and capital liberalization, and are, in fact, exerting strong efforts in this direction. True, in Japan, some executives of particular business sectors are apprehensive about immediate competition with U.S. enterprises and products. But all of us fully understand the need for, and the benefits derived from, the principle of economic internationalization.

It must be admitted, however, that this kind of awareness is minimal among farmers and small businessmen who account for the bulk of our population. They are excessively—perhaps unduly—fearful of this foreign inroad. The Government, which receives the bulk of its support from these two groups, must necessarily be highly sensitive to the attitude and reaction of these people. In the United States the two political parties are essentially conservative. In contradistinction, in Japan all minority parties are strongly opposed to the policies of the present government and their combined strength now approaches that of the conservative majority. Hence, any abrupt move to liberalize trade or capital transactions would not be expedient.

In addition to the economic problems, the Japanese Government must deal next year with two challenging political problems of major magnitude: (1) negotiations with the U.S. government for reversion of Okinawa; and (2) renewal of the United States-Japan Security Treaty in 1970.

The majority of the Japanese people desire the return of administrative control over Okinawa to Japan, with the status of its military bases to be the same as in mainland Japan (i.e., without nuclear arsenal).

As to the renewal of revision of the Security Treaty in 1970, the majority party seeks its extension in the present form. The Socialist and Communist Parties plan to rally a national movement to discard it.

The anti-establishment movements by university students, including the siege of campuses, are intensifying, taking advantage of the Okinawa and Security Treaty controversies. In the light of these domestic social circumstances, the Japanese Government can be expected to negotiate with the United States Government in a most cautious and patient manner.

The Japanese Government intends to carry out, with strong support of private businessmen, efforts toward winning U.S. understanding, such as to step up Japan's own autonomous defense endeavor and to accelerate economic assistance for stabilization of Asian countries. These should be premises for the reversion of Okinawa.

However, if we are to seek a smooth and amicable conclusion of political negotiations between Japan and the United States without impairing the basic tone of mutual confidence and close economic interdependence that we have toiled to build during the last two decades, we must justifiably avoid any measure that might even have the slightest possibility of incurring an unnecessary anti-American emotion among the Japanese.

Having said that, we cannot sensibly ignore the present economic tension between the two countries. Anything and everything that can be done between the business communities in the two countries should be undertaken without delay. We should be prompt and courageous in acting upon our respective government's and public opinions, if necessary.

ASPECTS OF JAPAN'S
FOREIGN ECONOMIC POLICY

5

The Japanese economy achieved a high growth rate during the past decade, resulting in a rapid increase in exports and imports. Aiding this remarkable growth was, of course, the key role played by the United States in the postwar period.

Until 1964, the U.S.-Japan trade balance was consistently favorable to the United States. But since 1965 the situation changed with the escalation of the Vietnam war. Japan's exports to the United States have exceeded imports by $200 million annually (estimated at $400 million according to U.S. statistics). In 1968, Japanese exports to the United States amounted to $4 billion, while imports increased to $3.5 billion. Japan's trade with the United States, including both exports and imports, accounts for about 30 percent of the nation's export and import trade, respectively.

During the course of Japan's rapid economic growth, imports of petroleum, steel-making raw materials, copper ore, and other basic raw materials have risen dramatically. The majority of these imports was purchased from overseas assets owned by U.S. enterprises. Thus, at least 50 percent of Japan's total imports directly or indirectly involved the United States.

In the future, liberalization measures by Japan in the import and capital fields are expected to progress gradually despite various resistance factors arising from domestic political and economic considerations. Therefore, an increasing role of America in Japan's trade and industry is assured.

United States-Japan relations are not confined to economic exchanges between our two countries. The

Vietnam war led to an unexpected increase of Japanese exports. Problems about the significance and effects of the Vietnam war are manifest. A force critical of United States actions is appearing in Japan. The revision of Okinawa takes its root in a simple sentiment of the Japanese people, but it now seems that the United States and Japan may not see eye to eye on the problem. We are perplexed by the development of this "awkward" situation, and hope that a wise solution will be found quickly, with the U.S.-Japan Security Treaty revision coming up in 1970.

At the same time, there is also an "awkward" movement in the United States toward isolationism. It is hoped that this trend will not lead to any drastic change in America's world policy.

## Residual Import Restrictions

The United States and Japan both abide by the principle of free trade in the international field. However, the forces that strive for protection of domestic industries cannot be overlooked in any country. There is a tendency for government administrative energy to be directed to protection of weak industries, and to preserve the static and traditional structure.

For example, in the case of Japan, the proportion of people engaged in primary industries decreased from 40 percent to 20 percent of the entire industrial population between 1956 and 1968. However, in the field of agriculture itself, progress in policies toward structural reforms has lagged.

On the other hand, dynamic rehabilitation measures were carried out for the over five million workers of large enterprises. Employment in these large enterprises totals about 12 percent of all industries, and not

Principal portions of a paper by CHUJIRO FUJINO, president, Mitsubishi Shoji Kaisha, Ltd., presented at a meeting of the Japan-California Association, San Francisco, May 13, 1969.

6

more than a fourth of all manufacturing industries. The remaining employment is spread among various medium- and small-scale industries as well as industries relating to distribution. These small industries have been barely maintained through protective measures taken by the Government.

Operating under these circumstances, Japan has strived for import liberalization, and reached the 93 percent level. However, the Government must be prepared for considerable difficulty from the domestic political and economic aspects in liberalizing the remaining seven percent, which consists of over 100 items, many of which are of especial importance to U.S. businessmen.

The Japanese Cabinet decided at the close of 1968 to liberalize imports in a "substantial field." Based on this decision, the United States and Japan have held frequent negotiations on trade liberalization. The principal difficulty involved in this negotiation is that Japan is unable to provide a satisfactory reply to the United States' request for liberalization of items of major interest to it, especially agricultural items. The reason is that the Government is presently submitting to the Diet a general agricultural policy bill centering on conversion of rice farming. Therefore, from the domestic standpoint, the Government does not wish to carry out liberalization of agricultural products that are to be encouraged by the conversion program. Another reason from the external policy position is that Japan believes it is not in its interest to unilaterally advance non-discriminatory liberalization as long as various advanced countries do not eliminate discrimination against Japan.

Because of these circumstances, a compromise policy is to expand the import quotas of items yet to be

liberalized. Japan presented a list of items under this policy in March, now being studied by the United States. The target items currently are leather goods, grapefruit, lemon juice, and other products. It is believed that broadening the import-quota framework will also contribute toward Japan's consumer price-stabilization measures.

At present the Japanese Government is conducting talks with various European countries on trade liberalization. It can be assumed that restrictions will gradually decrease. It will be possible to reduce the number of the restricted items to two digits in another three years. However, strong determination will be necessary to cut the list in half or to eliminate the whole list.

## Voluntary Restrictions

Japan has carried out corresponding measures as much as possible to avert the impact of the rising trend in the United States toward protectionism. The major steps of the so-called voluntary controls toward the United States have been applied to 73 items (defined in terms of the four-digit BTN). In addition to voluntary controls reached through talks between governments and private circles, some controls have been adopted by the Japanese as preventive measures so as to avoid import restrictions. In some cases controls are being adhered to even though circumstances requiring controls have disappeared.

However, the outstanding problem at present is the question of voluntary controls of textile products. The four main grounds for Japanese opposition on this issue are these:

* Expansion of free trade is indispensable for expansion of the world economy and prosperity. Import restrictions run

SRI INTERNATIONAL, NO. 13 THE JAPAN-CALIFORNIA ASSOCIATION REPORT

counter to this spirit. Especially in the case of textiles, restrictions violate the provisions of Article I of the Long-Term Arrangements Regarding International Trade in Cotton Textiles.

* The American textile industry is now enjoying a profitable business condition. Evidence of market disruption due to imports is lacking.

* Voluntary controls are tantamount to the unilateral quota system.

* Recent import increases in the United States are caused largely by domestic inflation. Import restrictions will tend to increase inflation and, in the end, obstruct the supply of low-priced goods to people with low incomes.

No matter what the basic cause of the problem may be, it is necessary for the United States to prove to the remainder of the world the rationality of its demand. Else the opposition in Japan will not subside. We sincerely hope that the United States will conduct a full investigation of actual conditions, and arrive at a just conclusion.

## Capital Liberalization

In March of this year, Japan carried out its second capital liberalization step as a follow-up to the 1967 measures. Of about 500 industries comprising the target of capital liberalization, approximately 200 were liberalized, which puts the liberalization achievement rate at about 40 percent. Admittedly, the types of industries liberalized to date have been comparatively unattractive to foreign investors.

The third step of the capital liberalization program is expected to be carried out in a year or two, probably around the fall of 1970. Major capital liberalization measures centering on the machinery industries and the distribution sector are expected then. To prepare for liberalization, various Ministries concerned

are working together with business circles to reorganize enterprises and expedite promotion of investments for modernization and expansion.

At the same time, they are planning to expand on long-term and low-interest monetary policies to cope with liberalization. We anticipate that a liberalization timetable for the automobile industry, which is the center of attention, will take a concrete form in 1970. We realize that no matter what form of liberalization is carried out, it will not satisfy the United States unless automobile liberalization is carried out. Recently, Ford and Borg-Warner have taken steps to participate in 50-50 joint ventures, respectively, with Japanese firms for the manufacture of automatic-transmission equipment. These moves are gradually expected to change the environment surrounding the liberalization of the automobile industry.

Some argue that capital liberalization should be concentrated on expanding the number of industries open for 100 percent equity ownership. However, substantial frictions and confusion would occur if policies not complying with actual conditions are implemented. There are fears that this, then, will obstruct progress of liberalization as a whole. In principle, therefore, investments of foreign and domestic capital will continue to be permitted on a 50-50 basis under the premise of reciprocal equality, leaving the question of which side will have the management control to be decided on a case-by-case basis. Access to 100 percent equity control will be granted on the merit of the business "behavior" of the individual enterprises.

## Economic Cooperation with Southeast Asia

The future development of the world economy will depend a great deal on the growth of developing coun-

7

10

# Summary of Professional Committee Meeting

Discussions at the Menlo Park Meeting, attended by eighteen Japanese and eighteen American participants, covered a broad range of topics in Japan-U.S. economic, trade and political relationships.

Although no formal actions were taken at the Meeting, general agreement emerged on the following points:

1. Purpose—This new activity of the JCA can serve a useful purpose. The two main objectives should be (a) to discuss in depth various economic and trade problems in the Japan-U.S. relationship, and (b) to contribute in various ways to the agenda and programs for the senior JCA Meetings.

2. Meetings—Plans for the overall JCA program probably should include annual meetings of the Professional Committee. These meetings should alternate between Japan and the USA and be held sufficiently in advance of the senior Meetings to contribute most effectively to programs for the latter events. A Meeting of the Professional Committee should be held in Tokyo in mid-May, 1970.

3. Agenda—Programs for the JCA Professional Committee Meetings should include a mixture of discussions in depth on specific topics (with considerable advance preparation) and an unstructured exchange of views on board topics involved in the Japan-U.S. relationship. Future programs should include one or more small-group discussions on selected industries or types of business.

4. Long-Range Study—A special study should be undertaken on long-range possibilities and probabilities in economic and business relationships between Japan and the western part of the United States. This study will be carried out by the Japan group with assistance from SRI. The report will be available to both the Professional Committee and the senior JCA group.

5. Participation—Although emphasis should be given to maintaining majority participation from JCA companies, invitations for future Professional Committee Meetings should be extended to a few non-member companies (particularly in the USA) in order to assure specialized representation on principal agenda items.

6. Task Forces—During the periods between Meetings of the Professional Committee one or more special task forces or sub-committees should undertake studies on particular topics for consideration at subsequent Committee Meetings and at the senior JCA events.

7. Government—On occasion, the Professional Committee Meetings should include one or more representatives of Government, the purpose being to hear their views on particular topics and to acquaint them with the views of business circles in the two countries. Such Government participants (for example, from MITI) might be included in only parts of a given Meeting.

8. Reports—A report should be prepared on each Professional Committee and senior JCA Meeting so that a widening group of JCA participants can benefit from the bilateral discussions on economic, trade and business matters.

9. Interim Papers—As circumstances warrant, special interim papers on topics of high current interest should be prepared and exchanged by the two groups of JCA participants. An example would be papers on specific steps the two countries might be able to take to encourage further reduction of obstacles in current trade and economic relationships.

10. Special Meetings—Opportunities should be sought between the annual JCA events to arrange special meetings when small groups of JCA members from one country are visiting the other. This might include informal meetings with high government officials.

11. Company Reports—As part of the preparation for Professional Committee Meetings, JCA member companies

Eighty-seven percent of total Japanese Government aid to foreign countries goes to Asian nations. Of that amount 49 percent goes to Southeast Asia.

—TADAYOSHI YAMADA,
special executive adviser,
Yawata Iron & Steel Co., Ltd.

should be encouraged to prepare brief written reports on special problems they encounter in the Japan-U.S. relationships. These reports could then be combined in a single document without reference to company or particular circumstances.

**12. Company Assistance**—Members of the JCA in the two countries (and particularly the organizing group in each country) should make a special effort to assist companies interested in doing business in Japan or the USA but having no experience in the process.

**13. Management Practices**—In response to Japanese interest in current management practices in the USA (particularly with respect to top organization, long-range planning and organization of international operations), a special presentation

on the subject to the Japanese group would be most appropriate. Such a presentation is being arranged by SRI.

**14. Joint Ventures**—A special task force or sub-committee should be organized to explore possibilities for additional joint ventures in Japan involving U.S. and Japanese companies—and also the potentials and feasibility of Japan-U.S. joint ventures in Indonesia and perhaps one or more additional countries in Southeast Asia. The study should include discussions in Djakarta with both government officials and members of the private sector. This task force assignment, including the Indonesian visit, should be carried out early in 1970. It will be organized by SRI and the Fuji Bank and will be open for participation by representatives of a few JCA companies in both Japan and the USA.

## A Suggested Code for International Business

The activities of an international enterprise are quite helpful for a receiving country in which its capital is invested. It increases production output and provides more employment opportunities. In addition, in most cases an international enterprise brings advanced technical as well as managerial knowhow. On these points we agree.

However, because of lack of knowledge about the social traditions and economic practices of the receiving countries, such an international enterprise sometimes misuses

and over-uses its competitive power. As a result, some of its activities conflict with the national interests of the receiving country. As a consequence, the idea of "protection from foreign-capital invasion" is brought forth and supported widely in that country.

For the benefit of both parties, therefore, I believe we should adopt a sensible code of fundamental principles for the conduct of world enterprises. This code might include:

* We agree to respect social tradition and economic practices of the receiving country.

* We agree not to misuse or over-use our competitive power.

* We agree not to monopolize the market.

* We agree to respect the governmental policy of the receiving country.

Prepared by SOHEI NAKAYAMA, chairman, The Industrial Bank of Japan, Limited, and read to the Professional Committee of the Japan-California Association, June 27, 1969.

11

JAPAN-U.S. PARTNERSHIP

13

In the field of Japanese-United States trade relations, the problems currently of greatest moment to the Japanese appear to be the following:

* Increasing evidence from the Japanese viewpoint that the United States is fostering and applying too many restrictions—voluntary and non-voluntary—against imports from Japan.

* Growing concern within Japan about U.S. anti-dumping legislation, restrictions on log imports from this country, U.S. customs valuation procedures (such as American selling price), various “Buy American” statutes and regulations, and other non-tariff trade barriers.

* A rising political view within Japan that meaningful steps should be taken soon by the United States on the Okinawa reversion problem.

* A pervading question in Japanese public opinion concerning the future of the Japan-U.S. security pact as the renewal date in 1970 comes ever closer in time.

We wish to do everything within our power of influence and persuasion in a search for mutually satisfactory solutions to these problems. We know full well the importance the Japanese attach to the American export market, and we are well aware of strong feelings in Japan about “pressure” from the United States for additional restraints on its exports.

In the reverse direction, considerable concern exists in the United States on four main topics. They may be summarized as follows:

* A growing fear that the volume of Japanese exports to the USA will continue to far exceed our exports to you—thus further complicating our balance-of-payments problem.

* A rising feeling that even with recent Japanese moves on capital liberalization, too many restrictions still hamper or prevent American participation in the Japanese economy.

* Continuing questions about the number and extent of Japanese import restrictions applied inconsistently with the provisions of GATT and not covered by waivers.

* A widening attitude that, even with current Japanese aid programs for developing nations, more can and should be done in this direction.

## Trade Balance

A basic fact in the Japan-U.S. partnership is that our two countries are each the largest overseas trading partner of the other. However, the balance of trade between us has shifted progressively and dramatically in Japan's favor. We had a trade surplus with Japan through the post-war period until 1965 when we first experienced a deficit. Our two-way trade has now grown to about $7 billion (80 percent above 1965)

### Japan-U.S. Trade Balance

Principal portions of a presentation by WELDON B. GIBSON, executive vice president, SRI, and president, SRI International, at a meeting of the Japan-California Association, San Francisco, May 13, 1969.

14

with a deficit to our account of approximately $1.1 billion in 1968. Under present arrangements we fully expect that this deficit situation will continue for the foreseeable future.

The reasons for this trade reversal are related basically to Japanese investment in key export industries, rapidly rising Japanese industrial productivity, and its concentration on the United States as the major export market. Almost one-third of Japan's exports now go to the United States. At the same time, a sustained high rate of economic growth in our country has stimulated imports while inflation has contributed to declining ability of the United States to compete in world markets.

We recognize that after taking invisibles and capital investments into consideration our overall payments deficits with Japan during recent years have been much lower than the trade deficits. However, for 1968 the total payments deficit of slightly in excess of $1.0 billion was about the same as the trade-deficit portion. We should note, of course, that American military spending in Japan amounted to about $600 million last year.

The American public has demonstrated a great appetite for Japanese-made goods. However, the concern heightens in business, political and government circles that the pendulum of trade may have shifted too far in Japan's favor. Thus, success for Japan in this case breeds a problem; the view prevails in many American circles that a full "quid pro quo" does not really exist in the Japan-U.S. economic relationship.

## Capital Liberalization

The American business community applauds the movement within Japan to remove restrictions on foreign-capital investment. We recognize that more than 200 Japanese industries are now liberalized—about 40 for 100-percent foreign ownership and 160 more at the 50-percent point. As we understand the situation, this liberalization applies only to new investments and furthermore is limited to joint ventures between firms in the same industry.

In spite of these recent decontrol actions, criticisms within the United States—both in the Congress and in business—on capital restrictions in Japan are still strong. They are intensified by the growing trade deficit. We recognize that Japanese restrictions stem in part from historic concerns over foreign economic competition and influence. We recognize also that foreign discrimination against Japanese products, especially in Europe, is a factor in current Japanese policy.

We are well aware that Japanese business circles— and perhaps the Government—believes that greater capital liberalization is necessary. Nevertheless, the view is widely held in the United States that Japan is still not moving fast enough.

The Japanese liberalization program is scheduled for completion by mid-1972. The general attitude in the United States is that those industries liberalized to date are of limited interest and that a number of industries particularly attractive to American business may not be fully liberalized or included in the final stages. This may or may not be the case, but the view prevails in the United States.

## Import Restrictions

Restrictions on imports to Japan are symbolized in the American view by quantitative controls applied outside GATT agreements. These quotas are more numerous than those of any other major country. Although the quotas affect only a small portion of American exports, their existence hampers our foreign trade to some extent. Furthermore, they are an iritant on the American political scene.

Of the approximately 120 quota restrictions in Japan, only about 25 involve products of primary interest to U.S. trade—and these account for only about four percent of total American exports to Japan. Thus, a feeling exists in the United States that the restrictions could be removed without harming the Japanese position. Whether or not this is a feasible line of action for Japan we cannot say. We hope, however, that some action can and will be taken.

Japan also maintains an extensive system of informal controls over trade, which often acts to the detriment of American exports. Removing or easing these controls relating mainly to import licensing could have a favorable impact on our exports and most certainly would be helpful from a political viewpoint in easing pressures for legislative action aimed at restricting imports from Japan.

## Aid Programs

A feeling in the United States is growing that the vigorous and rapidly expanding Japanese economy can and should provide more aid to the developing countries—particularly those in Southeast Asia. This situation adds to our political problem as legislators consider a huge trade deficit with Japan.

The facts indicate that Japan is indeed doing much to encourage economic progress in the developing countries. Japan's official aid runs to about one-third of one percent of GNP while that in the United States is closer to one-half of one percent. But when private aid is included, the two figures come close together at around three quarters of one percent of GNP.

It appears, however, that Japanese aid arrangements are more restrictive than are those for the United States and the OECD countries. Japanese grants as a percentage of total aid are considerably lower, and on loans maturity and grace periods are much shorter while interest rates are higher.

We wish to emphasize that the United States appreciates fully what Japan is doing in the economic-aid field. There is, however, a general feeling that the Japanese Government is not doing all it could reasonably be expected to do under the circumstances. A further broad statement of intent in this field would be most welcome in the United States.

## Export Restraints

We certainly do not overlook the fact that Japan now restrains exports to the United States on more than 70 items, of which 38 are covered by the cotton textiles agreement. Eighteen restraints arise from

legislation authorizing export controls in the interest of orderly marketing. These include, for example, voluntary controls on woolen fabrics, bearings, batteries, bicycles, and sporting goods. Japan also restrains exports to the United States on 17 iron and steel items.

We know full well that Japan views these voluntary restraints as being equivalent to more formal U.S. import restrictions. However, Japan's restraints have been effective in offsetting demands in the United States for protectionist legislation on specific products. In our view, these decisions and actions on export restraints have been wisely taken. They certainly helped last year in setting aside proposals for a U.S. border tax.

## Looking to the Future

It appears that concern about Japan-U.S. trade and investment relationships is higher in the two countries than at any time since World War II. Thus, we believe that in our mutual interests we should strive to dampen the situation and seek broad paths leading to a gradual lessening of the problems as viewed from both countries. We certainly should not merely assume that the natural course of events will bring adequate resolutions. What is needed in our view is a series of steps designed to improve the overall "economic climate" within which our respective companies can operate more effectively with each other.

The Japan-U.S. partnership takes on even greater significance when viewed in the long term. It appears that within fifteen years or so the Japanese economy will surpass in size that of Germany and Italy combined. Also, it may well be that before the end of this century Japan and the United States will be the two economic super-powers. Thus, it is important that we work out our relationships so that in time Japan can export to the United States without undue restriction while American companies can invest in Japan without undue limitation. This goal most certainly is worthy of our best collective efforts in this and succeeding meetings of the Japan-California Association. ■

15

JOINT VENTURES

SRI-INTERNATIONAL, NO. 13 THE JAPAN-CALIFORNIA ASSOCIATION REPORT

The main body of experience on Japanese-American joint ventures, at least from the standpoint of useful observations for the future, has been accumulated during the last decade. During the first ten years following World War II, the emphasis in Japanese-American business relationships (aside from export sales to each other) involved licenses and other forms of technical agreements. Japanese companies were striving to introduce new technology in their operations, and to this end hundreds of licensing agreements were signed with American companies.

The initiative during this period most often was taken by the Japanese. The agreements in many cases covered fifteen-year terms with royalty rates in some instances of up to 10 percent on sales volume. Since 1957, however, the joint-venture trend has moved upward at a rapid rate. Meanwhile, royalty and licensing arrangements have come under increasing pressure. Licensing periods have shortened; royalty rates have moved downward. These trends result, at least in part, from Japan's increasing technological capabilities and the general strength of her economy as well as her rapid growth.

Another stimulating factor on joint venture from the Japanese side is the increasing requirement for capital to support the nation's industrial growth. Simultaneously, more and more American companies have

adopted basic concepts of producing abroad, of joining with foreign companies in various ways, particularly on major development projects, and of seeking greater market penetration abroad for the long term. Thus, one finds a rising number of Japanese-American joint ventures, and a mixed situation with respect to initiative. Companies in both countries are energetically seeking partners for various enterprises in Japan. Part of this movement, of course, reflects an increasing internationalization of both Japanese and American companies.

Although American investments in Japan are relatively small in relation to total American foreign investments, the U.S. portion of foreign-capital investments in Japan is high. American participation characteristically ranges from 60 to 70 percent of total authorized capital inflow from private sources. Thus, the problems concerning restrictions on foreign ownership and investment in Japan, particularly on joint ventures, have been and still are of special concern to American companies.

In assessing American experience in the rising tide of joint ventures with Japanese companies, one can easily find examples of highly satisfactory results and at the same time illustrations of failures, at least from a financial viewpoint. This, of course, is to be expected in any broad area of business activity, particularly when the companies involved range from those with long-standing relationships with each other to those whose affiliations are relatively new.

We must recognize that the basic concept of joint ventures, irrespective of the countries involved, gives rise to many problems that do not exist in an enterprise wholly owned or wholly controlled by one company. However, the joint-venture approach is supposed to make feasible or possible what cannot be accomplished (or cannot be pursued as well) by single ownership or operation.

This is the principal portion of a report on Joint Ventures made by WELDON B. GIBSON to the Japan-California Association at Shima, Japan, October 6, 1967. Although two years have elapsed, the basic conclusions are considered still valid. In giving the background for his report, Gibson made the following statement: "This report is based on experiences of more than fifty American companies accounting for over 85 percent of American investments in Japanese joint ventures during the last fifteen years. Although no attempt has been made to quantify all of the evidence, the resulting observations are believed to be valid in a fundamental sense. They take into account the work of others together with personal discussions involving about twenty-five companies and written comments presented by another thirty-five. The range of products and types of business activity are fully representative of Japanese-American joint-venture experience during recent years."

17