A Perspective of Japanese/Canadian Economic Ties and Japan's Overseas Economic Policy

Introduction:

It is a special pleasure to welcome as our guest speaker Mr. Hajime Tamura, Minister of Trade and Industry for the Government of Japan. Canada and Japan. Two separate countries - each sharing the Pacific Ocean. You bow - we shake hands. We say "So Long" - you say "Sayonnara.' And yet names like Sony, Honda, Toyota, Yamaha, Sushi, Mitsubishi, Nomura and many others are second nature to us now.

Mr. Hajime Tamura was born in Matsuzaka, Mie Prefecture. He developed his tough physical constitution through Sumo training - so one doesn't fool around with Mr. Tamura. He is known for his strong voice and stronger arguments, which often win over his listeners. But he is not without his gentler side, shown in his love of animals and in his hobbies, gardening and photography. His strong performance has won him broad respect in Japan's political world not only in his own party but also in the opposition parties.

Mr. Tamura graduated from Kikui University's Faculty of Law in 1950. His first election to public office came in 1955 when, at the age of 30, he became the nation's youngest member of the House of Representatives. Since then he has won 12 consecutive terms winning the largest number of votes in his district, a clear measure of his constituency's support and an enviable record.

In 1972 Mr. Tamura was appointed Minister of Labour in the Tanaka cabinet. He was responsible for a succession of innovative policies, including plans to promote the five day work week and a higher mandatory retirement age. In 1976 Mr. Tamura took up a new post as Minister of Transport in the Fukuda cabinet.

Mr. Tamura's negotiating skills in trade matters have been displayed in his vigorous efforts to resolve global trade imbalances. The sharp appreciation of the yen and weakening of the dollar since 1985 had their origins in major massive trade imbalances. Mr. Tamura perceived that it was inappropriate to seek the correction of these imbalances through exchangerate adjustment alone, and that it was essential to conduct comprehensive policy co-ordination covering macro-economics, industrial, trade and other policies.

He resolved that in order to achieve this, Japan needed to take the initiative in formulating radical measures to stimulate domestic demand. At the same time the United States should be called upon to reduce its fiscal deficit and the Federal Republic of Germany, like Japan a major surplus nation, should be urged to stimulate domestic demand. (This is all, no doubt, very much on the minds of the G-7 meetings here at the Economic Summit.) In order to attain these goals, Mr. Tamura was quick to embark upon a program of activity both within Japan and overseas.

His basic stance on trade issues is very clear. He believes firmly in the need for nations to co-ordinate their policies in order to achieve a balanced expansion of world trade, and sees a strong free trade system as a prerequisite. For this reason Mr. Tamura stands solidly opposed to protectionist policies, wherever they may be introduced, yet listens to criticism that other countries have of Japan. He has a global perspective.

He is a family man, married to Iko, and like myself he has three daughters, Michiko, Norika and Kuniko. (What a beautiful language you have.) I think I know why he entered politics. I don't know which is the greater challenge, raising three girls or being Minister of Trade and Industry.

Sir, we are honoured to have you in Toronto, and we look forward to your important message. Ladies and gentlemen, Mr. Hajime Tamura.

Hajime Tamura:

I am delighted to have this opportunity to address you, the leaders of the Canadian business community, here in Toronto, the site of the 1988 Summit. I would like to extend my sincere thanks to our hosts, the Empire Club and the Canadian Club and all others involved.

To be sure, there are major differences between Canada and Japan: one nation having a vast land, and the other with very limited space; one sparsely populated, the other with a high population density; one rich in natural resources, the other with very few. But a unique point we do have in common, by an accident of history, is the time we embarked on the road to modernization. The Dominion of Canada came into being in July 1867, and just a few months later Japan put an end to feudalism. During the following year, the new Meiji government began the drive toward modernization. Three years later, when British Columbia acceded to the Dominion, Canada and Japan became neighbor countries joined by the Pacific ocean. With our simultaneous modernization and the Pacific as our common border, our two nations have pursued development and at the same time cemented an ever closer relationship.

Issues Facing The World Economy:

Today, the world economy continues to be confronted by a great number of serious problems, in particular, the external imbalances of the leading industrialized nations and the increasingly acute debt problems being experienced by a number of developing countries. Problems of this type run the danger of generating protectionist tendencies. But I hardly need to cite examples to say that protectionist approaches offer no solution. The whole history of the post-war period gives irrefutable evidence that the free-trade system provides the only answer to stable growth of the world economy. I believe that we should not hesitate to use international policy co-ordination among the advanced nations to spread the free-trade system to every corner of the world.

Today, there is no single country with the economic power to support the world economy and to assume the role formerly played by the United States in bringing about the Pax Americana and, I think, it will be difficult for any such country to emerge in the near future. Thus, the leading nations must jointly ensure that the world economy continues to develop soundly and avoid the kind of unfortunate events that occurred on Black Monday last year. The prime significance of meetings like the Summit is that they provide a forum to deal with international disparities and the variety of problems that afflict particular countries, and to set new rules and generate new vigor.

The Basis of Japan's External Policies:

The countries of the Free World have benefitted from the free-trade rules that have existed under the GATT-IMF structure in the post-war period. These countries have been able to sustain growth over a long period precisely because of this free trade, defying the predictions of Marx and Lenin. The Takeshita Cabinet, which took office in November 1987, has placed top priority of its external policies on Mr. Takeshita's initiative of "Japan Contributing To the World" under a freetrade system. I believe that it is our responsibility to harness Japan's economic affluence and vitality in the stable development of the world economy.

Since I assumed the post of Minister of International Trade and Industry two years ago, there has been great change both for the world economy and for Japan's economy. Confronted by imbalances of unprecedented size in the global economy, we first embarked upon a series of international currency adjustments. After identifying the effects and limitations of this policy, we progressed to international policy coordination.

During this time we have been increasingly on our guard against the rise of protectionism. We launched an ambitious round of multilateral negotiations aimed at drawing up new rules for free trade and strengthened our co-operative efforts to assist developing countries strapped by heavy indebtedness. Japan, which during this period built up enormous trade surpluses, took a vigorous part in these international arrangements. At the same time, we began shifting our economic structure away from our former dependence on external demand, and toward a pattern led by domestic demand in line with the goals of international policy co-ordination. As MITI Minister, I have the dual responsibility for international economic affairs and domestic industries. In this dual capacity I took bold steps to help shift Japan's industrial structure. In the international arena, I frequently took part in multilateral conferences such as the Quadrilateral Meetings of Trade Ministers, the OECD Ministerial meetings, GATT council meetings, and bilateral meetings as well. During my time as Minister I have made visits to every continent except Africa no fewer than 17 times, and for my pains have earned the nickname of The Flying Tamura. It seems that just when I have recovered from one bout of jet-lag, it's time for the next one to begin. This has given me the habit of using debates in the Diet as convenient interludes for having a snooze and although my constituents do not like seeing this on television, the opposition parties' members have only requested that I do not snore!

Yet again I have come to the Summit in Toronto resigned to another bout of jet-lag. There's just one complaint about Toronto, that there is no non-stop flight from Tokyo, so instead, many Japanese including myself tend to fly via the United States. To rectify this, as I recently agreed with Ms. Carney, formerly Minister for International Trade and currently President of the Treasury Board, non-stop flights should be introduced between Toronto and Tokyo. Knowing this does not come under my portfolio, for Toronto's sake, I would like to do my bit.

However, I am digressing and would rather discuss Japan's . policy switch to managing an economy led by domestic demand. In May 1987, the Japanese government decided on implementing measures aimed at expanding domestic demand. This involved a package of fiscal measures valued at more than $56 billion Canadian. Spending was stimulated by these emergency measures and was further buoyed by the beneficial effects of the appreciated yen, which lowered prices of imports of both raw materials and manufactured goods. The prime result has been to shift the domestic economy onto a path of high, domestic demand-led growth. Real growth in the 1987 fiscal year reached 4.9 per cent, of which domestic demand contributed six per cent while external demand contributed minus one per cent. The contribution of external demand was generally positive from 1974 onwards, but it was negative in both the 1986 and 1987 fiscal years.

Faced with a chronic continuation of fiscal deficits, our government imposed curbs on its spending under the banner of restoring health to public finances. But the measures we took last year were a sharp about-face to this position. With respect to this, a noteworthy episode took place at last year's OECD ministerial meeting. From the outset of the meeting there was a chorus of "Japan-bashing." Amid insistence that restoring health to government finances was incompatible with the expanding of domestic demand, I came under increasing pressure to decide which one Japan would emphasize. In fact, the biggest cause of Japan's domestic headaches is the massive size of its fiscal deficit. Outstanding public bonds currently total the equivalent of approximately $1.5 trillion Canadian, despite phased reductions in the fiscal deficit. It was still the equivalent of three per cent of GNP, or approximately $100 billion Canadian in the 1987 fiscal year. The only bright point is that this is better than having twin deficits.

At the OECD meeting, I said that we would not continue to hold the banner of restoration of health to public finances so high nor would we fly it at half mast, as if at a funeral. I said that we would keep it where it was, but for the time being, would wrap it around the pole. These remarks were greeted with laughter all around, and the previously caustic atmosphere was blown away.

Of course, I delivered on this. Soon after returning home I discussed this matter with Prime Minister Nakasone, Mr. Takeshita - who was then Secretary-General of the Liberal Democratic Party - and the Minister of Finance. The Japanese government recently resolved to take the plunge. It should also be noted that the announced medium-term economic plan calls for real domestic-demand-led economic growth of nearly four per cent over the next five years.

There have also been changes in the country's trading structure. Since last year, Japan's trade surplus has improved substantially with imports rising at a remarkable pace. Imports from Asia and the European Community were formerly showing the most outstanding growth, but, coming into this year, imports from Canada and the United States are growing most impressively.

Imports from Canada during the first quarter rose by 50 per cent over the previous first quarter, while U.S. imports were up by 44 per cent. What is so remarkable about this new trend is the startling growth in imported manufactured goods. In 1985, the ratio of imported manufactured goods was 31 per cent of total imports, whereas in the first quarter of 1988 this was increased to 47 per cent.

Japan will continue to encourage imports and focus on importing manufactured goods. On May 31st this year, for example, l called on the presidents and chairmen of 151 leading companies accounting for some 50 per cent of Japan's entire import volume to step up their imports.

Overseas investment is another area in which there has been a marked change. The strengthened yen is stimulating a strong upsurge in direct overseas investment by the manufacturing sector. This is reflected in a 62-per-cent increase in fiscal 1986 and 106 per cent in fiscal 1987. A noteworthy phenomenon is the increasing number of cases of reverse imports of products manufactured at production facilities set up overseas by Japanese companies, including everything from televisions and radios to automobiles.

These developments are giving rise to fears within Japan that they will lead to the deindustrialization, or "hollowing out" of the economy. Despite these fears, it would be unthinkable to turn back now. The promotion of direct overseas investment and the international division of labor is of great importance to improving our trade imbalances and also contributes to the economic development of the recipient countries.

Economic structural adjustment is another issue I would like to address today. Japan has been carrying it out notwithstanding the pain. General to the concept of economic structural adjustment is the phasing out of uncompetitive companies and the switching of those companies to other business areas, thus encouraging the inflow of competitive foreign-made products. This process has recently been taking place in the coal, aluminum smelting, steel and shipbuilding industries. With coal, for example, MITI wished to see the industry reduced from its former 20-million-ton capacity per year to its 10-million-ton capacity by 1991. As a result of this structural change, formerly prosperous and popular communities are not infrequently being reduced to ghost towns.

As you can imagine, making this kind of adjustment is also very tough on politicians. At this time the MITI building is besieged by interest groups waving protest banners and I am often grilled in the Diet, not just by opposition parties' members, but by my own colleagues as well. In spite of this, when I think of Japan's international position I am all the more committed to this course.

The Debt Problem of Developing Countries:

Japan is well aware of the acuteness of this problem, and the government is stepping up overseas aid, in particular our Official Development Assistance (ODA) program. Over the next five years we plan to spend the equivalent of more than $50 billion U.S. on ODA. This will account for approximately 20 per cent of aggregate spending on ODA by all the membercountries of the Development Assistance Committee of the

OECD. This will, of course, be supplemented by the steady implementation of measures such as the scheme to recycle $20 billion U.S. in three years announced in May of last year.

A related problem that has recently come into the spotlight is that of the Asian Newly Industrialized Countries. They are being criticized as a threat to the rest of the world just because their trade surpluses have been swelling at an astonishing speed. It seems that some perceive them as a threat. But the combined GNP of the NICs and the six countries of ASEAN equal the scale of Canada's economy. In my view, we should not nip the growth of burgeoning nations such as these in the bud. We should help these countries to build the power to act as a stabilizing force in the world economy.

Economic and Trading Relations Between Canada and Japan:

If I may now turn to issues affecting Canada and Japan, I would like to mention the mutually complementary trading relations between our two countries, that have seen trade follow a path of well balanced expansion. Generally, we buy primary products such as coal and lumber from Canada and, in return, we supply manufactured goods such as automobiles.

The trading relationship is at a turning point now with the imports of manufactured and particularly of consumer goods expanding very rapidly in the Japanese market. At the same; time, Canada has charted an export strategy bearing in mind this change in the Japanese market. In a meeting in April in Vancouver with John Crosbie, Minister for International Trade, he emphasized Canada's competitiveness in the hightechnology fields of microelectronics, fine ceramics, and biotechnology. His predecessor, Patricia Carney, also emphasized this point. This reinforces my belief that it is essential to carefully consider the supply and demand aspects of the market in each country, and to develop an enhanced horizontal division of labour in the manufacturing industry.

Canada is not the only country actively seeking to tap the purchasing power of the Japanese market. The U.K. Trade Secretary visited Japan in March to further Britain's "Opportunity Japan" campaign, which promotes exports to Japan. He stated the current situation in the Japanese market could allow for a doubling of exports to Japan within the next three years. The "Export Now" campaign in the U.S. is also said to be seeking to double its exports to Japan over the next three years. In view of this onrush into the Japanese market, I sincerely hope that, for its part, Canada will take more rapid and vigorous initiatives. I would like to point out that groups such as the Toronto Japan External Trade Organization provide programs and counsel aimed at promoting exports to Japan. I urge you to take advantage of these opportunities.

In the past, most Japanese direct investment in Canada was focused on natural resource development projects in the West. Now it has been extended to the manufacturing and processing sectors, such as the automotive and pulp and paper industries.

I am delighted to see a wider spread in the location and the types of industrial activity. Reflecting this progress, I understand that Japanese membership of the Toronto Japanese Association of Commerce and Industry has more than doubled from 70 companies in 1980 to 155 this year.

To increase the flow of investment between our countries still further, MITI is planning another Japanese investment mission to all parts of Canada next spring. Canada may well continue to take steps to make the investment environment more attractive, with a united North American market coming into existence.

Finally, I would like to say a word about Japan's attitude toward the much talked about trade pact between Canada and the United States.

This pact is arousing particularly strong interest in Japan, as it is being forged between two of our most important trading partners. We expect that the pact will bring about an increase in trade between Canada and the U.S. which will infuse both economies with added vigour and, in turn, bring greater stability to the world economy.

In Japan we have a saying that every occasion of extending hospitality to a guest should be made the most of, as if it would never recur. I am told that in English the expression "Ships that pass in the night" conveys a similar meaning. These phrases express the value and the mystery of encounters between people on the sea of life, and in this spirit I value the link with all of you that this gathering has created. I promise that Tamura's door will always be open to you in the future.

And what of Canada and Japan, straddling the Pacific? Let us not stay aboard our separate ships and pass each other in the night, but instead, do all that we can to remain on the same vessel and to keep our bearings toward the same destination.

Thank you.

The appreciation of the meeting was expressed by Gordon Riehl, Partner, Deloitte, Haskins and Sells, and President of the Canadian Club of Toronto.