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NO. 7 — February 20, 1998

 

Feature Article

TRANSPACIFIC AVIATION PACT YIELDS EXTENSIVE OPPORTUNITIES by Arthur J. Alexander

Summary

At the end of January, the United States and Japan concluded a far-reaching agreement that could transform the aviation business not only between the two nations but also with Japan's Asian neighbors. The pact removes all restrictions on transpacific flights by two passenger airlines and one all-cargo airline from each country. It also grants liberal or unrestricted rights for the same carriers to fly beyond the other country to regional markets. As many as four other U.S. airlines can fly up to 90 new weekly passenger frequencies to Japan. Two new entrants providing passenger service will be allowed from each side, one immediately and another in two years.

The agreement came after almost two years of arduous negotiations. Each country at first pursued its own objectives. The U.S. priority was to resolve several disputed routes beyond Japan, especially those planned by Federal Express Corp. At a broader level, the United States wanted deregulated, international "open skies." The Japanese side sought equality of opportunity and liberalization — although not nearly as much of the latter as the United States wanted. Japan refused to discuss proposals that incorporated open skies or changes affecting only cargo traffic.

A deal looked possible late last May when Tokyo's negotiating team sweetened its offer by increasing the number of flights available to nonincumbent airlines (those authorized to fly transpacific routes after the 1952 agreement governing U.S.-Japan aviation relations was signed), granting greater flexibility to incumbent carriers, suggesting liberalization of "beyond rights," and accepting bilateral and third-party code-sharing. The potential benefits from this more liberal stance caused American negotiators to change their estimates of the relative gains that might be achieved from an outcome that fell short of full open skies.

In September, Washington decided to drop its open-skies demand and go for an agreement with substantial benefits for all parties. Once the Clinton administration scaled back its objectives, it took only a relatively short four months to achieve a deal. Although Japan's negotiating tactics proved effective, the major strategic gains from the arrangement accrue to U.S. carriers and to all passengers and shippers to the United States, Japan and beyond.

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Weekly Review

Japan Urges Timely Resolution Of Iraq Crisis by Barbara Wanner

In a show of support for its most important ally, Japan indicated February 13 that it shares the view of the United States that Iraq's continued, adamant refusal to allow full and proper inspection by United Nations authorities of suspected weapons-producing facilities is "totally unacceptable." Foreign Minister Keizo Obuchi added that "time is running short" for a diplomatic solution. He remained ambiguous, however, about whether Japan would support U.S.-led military strikes to end the standoff, saying only that both countries "will exert every effort toward a diplomatic solution, [but that Japan] understands that the United States has yet to make a decision on the use of force." A joint statement issued by Mr. Obuchi and U.S. Ambassador to the United Nations Bill Richardson following an hour-long meeting in Tokyo further underscored the contention that U.N. inspectors should be allowed "complete and unfettered access to all sites in Iraq" and, absent Baghdad's cooperation, "all options remain on the table."

 

Japan's Current Account Surplus Soared In 1997 by Douglas Ostrom

The surplus in Japan's broadest measure of trade — the current account — climbed 59.8 percent in 1997 to ¥11.4 trillion ($95.3 billion at ¥120=$1.00), according to Bank of Japan data (see Table 1). Although the increase, the first in four years, was huge, the surge still left the current account surplus well below its all-time-high 1993 level or the near-record 1992 figure. This fact suggests that the numbers would be of little interest abroad. In reality, however, the data are likely to be viewed harshly overseas, given the economic crises confronting several of Japan's Asian neighbors. The question is certain to come up again as to whether Japan is doing enough to help resolve the problems in its backyard. The answer, however, is complex.

 

Report Cites Strength Of U.S. Economy, Downplays Impact Of Asian Crisis
--- by Eric Altbach

In its annual Economic Report of the President, released February 10, the Council of Economic Advisers praised the performance of the U.S. economy in 1997 and predicted that the currency and financial crisis hobbling much of developing Asia would not have significant negative effects on this country. On the international front, the economic experts called on Congress to support U.S. engagement in the global economy to prevent protectionism in troubled emerging economies. They also gave a mixed review of the outcome of recent U.S.-Japan trade negotiations.

 

Japan's Personal Computer Market In Flux by Jon Choy

After enjoying several years of heady growth, the Japanese personal computer market hit a pothole in 1997 when unit shipments declined slightly, according to the Japan Electronic Industry Development Association. The sales decline was not unexpected. The association and other market watchers had been revising their sales forecasts downward since the middle of the year in response to economic developments at home and abroad. The drop in demand also is a characteristic of a maturing marketplace. Buyers have become both more sophisticated and wary of the product claims made by computer makers and retailers. Although significant pools of unsatisfied demand for PCs remain in both the home and the business market, it is unlikely that sales will grow as quickly as in the recent past.

 

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