No. 8 — March 1, 1996


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Chronology of U.S.-Japan Relations and Japanese Economic Developments in 1995



Federal and state banking regulators order Daiwa Bank to end most trading in financial instruments and currencies at its New York City office. They also impose other restrictions on the bank's U.S. operations because of the cover-up of $1.1 billion in losses by a rogue trader.


In a move hailed by American industry Mr. Clinton announces a plan to relax U.S. controls on foreign sales of computers. Administration officials readily acknowledge, however, that there is a possible catch to implementing the policy change since Japan has not signed off on the White House's proposed limit for decontrolled computer exports. Japan has a de facto veto right under an obscure 1984 transpacific agreement designed to ensure common U.S.-Japan regulatory treatment for exports of high-performance computers to all countries. Washington policymakers are quoted as saying that they are confident Tokyo will agree to revise upward the ceiling for unrestricted shipments in effect since December 1993. Trade and industry analysts are not so sure, given that Japan, for competitive reasons, thwarted an earlier effort to lift the cap on deregulated computer exports to the level that the United States again is proposing.


Foreign Ministry officials say that Washington and Tokyo have agreed in principle to release two documents affirming the importance of U.S.-Japan security arrangements and transpacific economic cooperation when Mr. Clinton meets with Mr. Murayama in Tokyo in mid-November after attending the annual meeting of leaders of the 18 members of the Asia Pacific Economic Cooperation forum in Osaka. The two governments see the Clinton-Murayama summit as an opportunity to highlight the significance of bilateral defense ties in the wake of the alleged abduction and rape of a Japanese schoolgirl on Okinawa by three U.S. servicemen stationed there in early September. News of that incident has provoked outrage across the country and added fuel to the long-simmering debate about the substantial American military presence in Japan.

Group of Seven finance ministers and central bankers say in a communique issued at the end of a regularly scheduled meeting in Washington that they welcome the "orderly reversal in the movements" of the yen and other currencies against the dollar over the past six months and would support "a continuation of these trends consistent with underlying economic fundamentals." At a subsequent press conference Finance Minister Takemura expresses satisfaction at the G-7 endorsement, which is exactly what Tokyo had hoped to obtain.


The news that the Finance Ministry knew about Daiwa Bank's $1.1 billion in trading losses at its New York City branch for more than a month before the big commercial bank notified the Fed and the New York State Superintendent of Banks September 18 provokes a rash of finger-pointing on both sides of the Pacific. At a news conference MOF's number-two official says that it was Daiwa Bank's responsibility to inform American banking authorities. While not disputing the fact that banks operating in the United States are required to report irregularities directly to regulators, U.S. officials are upset that MOF sat for long on the damaging information it had.


Mr. Takemura admits in a telephone call to Mr. Rubin that there were "some shortcomings" in his ministry's handling of the information it had about Daiwa Bank's trading losses.

USTR senior counsel Shapiro broaches the subject of the Section 301 investigation of Kodak's complaint about conditions of competition in Japan for consumer photographic film and paper during talks in Tokyo with Mr. Sakamoto, MITI vice minister for international affairs. The Japanese official repeats what MITI Minister Hashimoto had said earlier: the Kodak brief is not a candidate for government-to-government negotiations. In any case, Mr. Sakamoto adds, his ministry has no jurisdiction over the issues raised by Kodak. He goes on to suggest that the American company take its allegations to the JFTC since Kodak essentially is charging Fuji Photo Film with various violations of the nation's antitrust law. This course of action originally was advanced by the Japanese firm's lawyers but was embraced quickly by MITI policymakers. The two men also discuss the future of the semiconductor trade pact, which will expire in July 1996, during their wide-ranging talks. Mr. Shapiro indicates as well that the Clinton administration is preparing a new deregulation proposal that will be forwarded to Tokyo in November.

The U.S. government provides far less financial help for exporters than do the governments of most other industrialized nations, Japan included, according to a Department of Commerce report presented to Congress. The report is seen an attempt to garner support for American business advocacy efforts.

The American Automobile Manufacturers Association, Detroit's trade organization, publicly charges that Japan's vehicle makers have not complied with a key provision of the transpacific automotive agreement, an allegation dismissed by the Japan Automobile Manufacturers Association and its member companies. AAMA also complains that no new franchise agreements have been reached between Japanese dealers and the Big Three U.S. automotive producers since the pact was signed.


The economy remains at a standstill amidst continuing signs of weakness, EPA reports in its monthly economic survey. Analysts are struck by the omission for the second month in a row of any language suggestive of a recovery in the report's summary. A senior EPA official says after the report is released that the current pause in economic activity could last at least until yearend.

Briefing the press in Tokyo on his talks with Japanese officials from a number of ministries, Mr. Shapiro rejects the argument raised by MITI's Mr. Sakamoto that his ministry has no jurisdiction over the issues raised by Kodak in its Section 301 complaint. The USTR official also says that he "very strongly" repeated Washington's position that purchases of equipment and services by Nippon Telegraph and Telephone's PHS subsidiary must be brought under the disciplines of the latest NTT procurement pact.


With the Daiwa Bank scandal as backdrop, the House Banking and Financial Services Committee holds a long-scheduled hearing on the health of the Japanese banking system. The mostly American expert witnesses generally argue that Japanese banks face serious problems but not an immediate crisis. The real story to come out of the hearing centers around a comment made by the committee chairman that the Fed and BOJ concluded an agreement in July under which the U.S. central bank would supply directly or indirectly collateral-backed funds to the American offices of Japanese banks in the event of a liquidity crisis. This standby arrangement would be at most a modest departure from current Fed policy, but it raises concerns in some quarters that large amounts of U.S. funds could end up bailing out troubled banks in Japan or at least their American operations.


The upper house of the Diet approves the government's ¥5.3 trillion ($53.3 billion) second FY 1995 supplemental budget, five days after the extra spending plan clears the House of Representatives.

Hoping to influence the contents of the updated deregulation plan that Tokyo will release next March, the American Chamber of Commerce in Japan submits to the government a proposal for change in eight specific areas. It calls, for example, for an immediate end to the Large Retail Store Law.

Republicans in the House decide to eliminate from the FY 1996 budget reconciliation bill provisions that would renew the president's lapsed fast-track negotiating authority, which the White House considers essential for moving forward on a number of pending international trade agreements. The GOP move almost certainly derails for the near future a fast-track extension since the Senate has delayed action on this issue pending its resolution in the House. In any event the terms on which Republican lawmakers are willing to reinstate the president's fast-track authority are much narrower than what the Clinton administration is seeking. It wants legislation that duplicates the fast-track formula in use until late December 1993. Fast-track authority allows the White House to submit multilateral trade agreements to Congress for a simple yes-or-not vote without amendment.


The top trade officials of the United States, Japan, the European Community and Canada end their twice-yearly meeting, held this time in Ripley, England, by agreeing that more effort is needed to complete the unfinished business of the Uruguay Round — notably, telecommunications services, maritime transportation and financial services. Messrs. Kantor and Hashimoto take up a number of bilateral trade issues during talks on the fringes of the quad meeting. They agree in principle to allow other countries to sit in on the annual follow-up meeting on the transpacific automotive agreement, a right the EU has sought. They also touch briefly on the Section 301 investigation of Japan's consumer photographic market. Mr. Kantor insists that MITI must be involved in resolving the issues raised by Kodak; Mr. Hashimoto is equally insistent that the American company should take its complaints to the JFTC since the charges basically come down to questions about antitrust enforcement. They also split on the issue of a new semiconductor trade pact to replace the one set to expire in July 1996. The top U.S. trade official emphasizes Washington's desire for a continued arrangement, while his Japanese counterpart flatly says that there is no need to extend the agreement since its objectives already have been achieved.


In a prepared statement Mr. Kantor welcomes the announcement by the Transport Ministry that it has deregulated the replacement or the repair of shock absorbers, struts, power steering systems and trailer hitches. The U.S. trade official calls the move, required under the automotive agreement, a first step in opening the huge Japanese replacement parts market to American companies.


The heads of the Big Three U.S. automotive makers sit down in Tokyo with their Big Five Japanese counterparts, the first industry summit since May 1992. The meeting is awkward, given the events of the intervening period. Nonetheless, no fireworks occur, in large part because neither side comes to the session with a particular agenda in hand. The only discordant note is the American turndown of a Japanese proposal to resume regular meetings of industry leaders from the two countries. The Japan visit of the Big Three executives — timed to capitalize on the media buildup to the biennial Tokyo Motor Show — is designed to deliver the common message that Detroit not only is serious about the Japanese market but is taking the necessary steps to boost sales significantly over the next four years.


The Bank of Japan will take punitive action against scandal-tainted Daiwa Bank, the central bank's head says.


Tokyo activates its Uruguay Round-negotiated import safeguard mechanism for fresh, chilled and frozen pork. The change in the complicated pork duty system, effective November 1, will remain in place through March. Coming on top of an earlier move to curb the inflow of foreign beef, the attempt to slow arrivals of pork from abroad raises concerns among U.S. farm exporters and Clinton administration agricultural trade policymakers that a not-insignificant share of the huge volume of agricultural exports to Japan could be affected in coming years by safeguard measures as Tokyo implements its Uruguay Round agricultural concessions.

Reports continue to surface that U.S. banks are reducing the credit lines they routinely extend to Japanese banks for foreign exchange deals because of growing concerns over the soundness of Japan's financial system. The shrinking credit lines come on top of the premiums Japanese banks have to pay when they raise funds overseas, further crimping their international operations.


In a rarity in the 1995 congressional calendar the House International Relations Committee holds a Japan-related hearing, this one on the impact of domestic political change in Japan on that country's economic relations with the United States. The four business and academic panelists appear to agree broadly that Japan is in the midst of "momentous but incomplete change" that over the short term has resulted in confusion and a lack of leadership in Tokyo. Over the long term, the witnesses suggest, this change will result in a more open economy and a stronger political system. Five days earlier the same committee convened a hearing on the increasingly uncertain status of bilateral military and security ties.


Washington still cannot convince Tokyo that a NTT affiliate offering a new low-cost mobile telephone service based on the personal handyphone system should be subject to the disciples of the government-to-government NTT procurement agreement. During talks in the nation's capital midlevel officials from the Ministry of Posts and Telecommunications again tell their USTR counterparts that NTT Personal Communications Network is different from the three NTT subsidiaries that have in place the same nondiscriminatory procurement procedures as their parent.


Unemployment remained at its 3.2 percent peak for the fourth straight month in September, the Management and Coordination Agency reports.


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