No. 47 — December 20, 1996


Feature Article


Christopher B. Johnstone


The Asia Pacific Economic Cooperation forum has moved from grand statements to the detail-oriented, technical task of achieving regional free trade and investment by no later than the year 2020. The results of the first full year of work on concrete measures to reach this target are less than impressive, however. The initial liberalization offers submitted by the 18 member economies were disappointing on balance, often running toward the recycled. Although not headline-making, work did progress on business facilitation measures.

APEC continues to be plagued by a number of long-term problems. The region's oft-cited commitment to free trade seems to be weakening, particularly in a number of developing economies. Neither Washington nor Tokyo appears to have the will to provide the bold leadership necessary to put the forum back on track. Other issues, such as the bid by the People's Republic of China for membership in the World Trade Organization and divided interpretations of APEC's stated principle of open regionalism, threaten to undermine the forum as well. APEC may have to broaden its agenda — possibly to include political and security issues — if the organization is to play an active role in facilitating regional interaction.

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Weekly Review

--- by Jon Choy

The Ministry of Finance and the cabinet of Prime Minister Ryutaro Hashimoto are busy crunching government budget numbers in preparation for finalizing the general account budget and tax plan for the fiscal year starting next April 1. To shore up popular support for his minority government the premier hopes to produce a spending plan that both cuts the huge current budget deficit and addresses social and political needs. Fiscal reform is one of five areas where Mr. Hashimoto has pledged swift action, along with remaking the social security system, overhauling the government's organization, liberalizing financial markets and restructuring the economy. A wide range of interest groups has lined up to lobby decisionmakers, who are considering adjusting taxes on both corporations and individuals. With the future course of the economy at stake, the FY 1997 budget cycle could generate particularly intense debate.


--- by Douglas Ostrom

Close observers of the Federal Reserve Board had reason to be puzzled by the reactions of world equity markets to a pair of speeches delivered by Fed chairman Alan Greenspan over a three-week period spanning mid-November to early December. The first speech, presented November 18 to the Federation of Bankers Associations of Japan, painstakingly laid out changes in U.S. banking regulation and practice that Mr. Greenspan clearly was suggesting should be adopted in Japan. The second address, given to a Washington, D.C. audience December 5, made a single brief mention of past Japanese financial practices in the context of a historical overview of U.S. monetary policy. The first talk attracted little coverage, but the second one set off reactions on the Tokyo Stock Exchange and in the world's other stock markets that reverberated for more than a week.


--- by Christopher B. Johnstone

Over the last two years or so Tokyo repeatedly has cast Japan as a staunch defender of the multilateral trading system. Prominent government officials insist, for example, that the Asia Pacific Economic Cooperation forum adhere to the principle of "open regionalism" rather than head down the path of becoming an exclusive free trade area. Moreover, Yoshihiro Sakamoto, former vice minister for international affairs in the Ministry of International Trade and Industry and Japan's lead negotiator on automotive products and semiconductors, proclaimed earlier this year that "the era of bilateralism is over" in U.S.-Japan trade negotiations. He indicated that Tokyo, which had refused to discuss with Washington U.S. allegations of anticompetitive business practices in Japan's consumer photographic products market, henceforth would address the White House's market access complaints only through the channels of the World Trade Organization. In the context of these remarks and actions MITI Minister Shinji Sato's failure to attend the WTO's first ministerial meetings — a trip that all the top trade officials of the organization's 128 other member countries reportedly made — has flabbergasted domestic and international observers alike. His nonappearance undoubtedly will raise anew questions about Japan's capacity for global leadership. In this view the participation of Foreign Minister Yukihiko Ikeda in the first two days of the inaugural WTO ministerial conference was an inadequate substitute for representation by Japan's top trade official at these symbolically important trade meetings.


--- by Barbara Wanner

Scandal certainly is no stranger to Japanese politics. In the past seven years three prime ministers have lost control of the government or been forced to resign due to proven or suspected corrupt behavior either by themselves or by close associates. Prime Minister Ryutaro Hashimoto may be the fourth to go unless he can keep his administration on top of several scandals that have broken in recent weeks involving alleged business payoffs to a number of high-ranking career government officials and some members of the ruling Liberal Democratic Party. In an initial attempt at damage control Mr. Hashimoto used his November 29 policy speech opening a 20-day special Diet session to chastise central government bureaucrats for undermining public confidence in the integrity of the civil service (see JEI Report No. 46B, December 13, 1996). The prime minister followed up this tongue-lashing December 11 with a draft package of measures that would impose sanctions on bureaucrats who accept anything other than "coffee or Japanese tea" from business interests. Some political insiders suggest, however, that these initiatives may prove ineffectual in quelling the antigovernment outcry and safeguarding Mr. Hashimoto's hold on power if the money trail once again leads prosecutors to key offices in Nagata-cho (Japan's Capitol Hill).


by Susan MacKnight

Prime Minister Ryutaro Hashimoto's mid-November plan to unleash competitive forces across Japan's huge but internationally lagging financial services sector by the year 2001 (see JEI Report No. 44B, November 22, 1996) already has paid a big dividend. Although the controversy-laden task of drafting implementing legislation still is some time off, the proposal gave Tokyo the political cover to resolve a year-old dispute with Washington over how and on what timetable deregulation should proceed in the local insurance market, the world's second largest. The agreement, reached just hours ahead of what was said to be a firm December 15 deadline, squares with the Clinton administration's interpretation of the three fundamental deregulation requirements of the October 1994 framework pact on insurance.

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