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Hubert H. Humphrey Ted Stevens Robert S. Ingersol I Philip Caldwell

An AEI Round Table held on 17 December 1974 at the American Enterprise Institute for Public Policy Research Washington, D.C. THIS PAMPHLET CONTAINS THE PROCEEDINGS OF ONE OF A SERIES OF AEI ROUND TABLE DISCUSSIONS. THE ROUND TABLE OFFERS A MEDIUM FOR INFORMAL EXCHANGES OF IDEAS ON CURRENT POLICY PROBLEMS OF NATIONAL AND INTERNATIONAL IMPORT. AS PART OF AEI'S PROGRAM OF PROVIDING OPPORTUNITIES FOR THE PRESENTATION OF COMPETING VIEWS, IT SERVES TO ENHANCE THE PROSPECT THAT DECISIONS WITHIN OUR DEMOCRACY WILL BE BASED ON A MORE INFORMED PUBLIC OPINION. AEI ROUND TABLES ARE ALSO AVAILABLE ON AUDIO AND COLOR VIDEO CASSETTES.

@ 1976 BY AMERICAN ENTERPRISE INSTITUTE FOR PUBLIC POLICY RESEARCH, WASHINGTON, D.C. PERMISSION TO QUOTE FROM OR REPRODUCE MATERIALS IN THIS PUBLICATION IS GRANTED WHEN DUE ACKNOWLEDGMENT IS MADE.

ISBN 0-8447-2064-X LIBRARY OF CONGRESS CATALOG CARD NO. L.C. 76-13963

PRINTED IN UNITED STATES OF AMERICA ONALD C. HELLMANN, professor of political sci­ ence and Asian studies, University of Washington at Seattle, and Round Table moderator: The sub­ jectD of this American Enterprise Institute Round Table is the future of Japanese-American relations. Until recent years this subject was buried in the news of more exciting events in Asia and was seen as a model of American relations with another friendly industrial power. More recently the problems that have developed between our countries have taken on new importance for both nations·. The recent visit of President Ford to Japan, the first of any American president to that country, underlies this importance. We have, up to now, been able to iron out the minor frictions that have afflicted our relations, but the problems underJying the security, the economic and the political relations between the two countries remain and are in­ tegrally related to America's and Japan's position in a changing international situation. The United States is a global power and it is a Pacific power. The meaning for the United States of being a Pacific power depends to a very great extent on our relations with Japan. The participants in this Round Table will address themselves to this subject, raising issues not only about the contemporary problems as they emerge almost daily, but also about the fundamental and underlying issues be­ tween the two nations. Because the problem of Japanese­ American relations is more properly seen in its global perspective, the lead-off speaker will be Deputy Secretary

1 of State Ingersoll who has spent time in Tokyo as our ambassador.

ROBERT S. INGERSOLL, U.S. Department of State: I think to look at the future we first have to look at the past and see what our relationship has been with Japan since World War II, starting with the occupation, when we literally ran the government of Japan, to the period follow­ ing the occupation, when the United States set the pattern of foreign policy and security policy for Japan. Japan, some people said, kept its head down and worked very diligently on its economy. During that period Japan pretty much relied upon the United States to establish foreign-policy relationships throughout the world. It was a sort of "Big Brother-Little Brother" relationship. Then came the shock of the announcement of Presi­ dent Nixon's visit to Peking in February 1972, then the economic shock a month later, then the textile shock in October, and finally the vote in the United Nations for the People's Republic of China to displace Nationalist China. All of these shocks tended to shake Japan's position of following the United States in foreign policy, and since that time Japan has been developing its own. It might be in parallel with the United States, but certainly it is in the long run for the benefit of Japan and, I think, also for the United States. I believe that the future relationship between the two countries will be a much more mature one. The bilateral problems that beset us, some of those that I have men­ tioned in 1971 and the following trade imbalances of 1972 and 1973, have largely passed by. Now we look at the relationship more in a multilateral situation where we both are working very diligently to have freer world trade through the negotiations in GATT, and to develop a greater multilateral relationship in the energy field. I think this shows the maturity of our relationship and also shows that Japan has grown up in its foreign policy and in its association with the United States. I think it shows that there is now a proper basis for the association

2 between our two countries and we can continue developing a multilateral relationship that is more mature.

PROFESSOR HELLMANN: Thank you very much, Secre­ tary Ingersoll. Our next speaker will be Senator Stevens.

TED STEVENS, U.S. Senate (R.-Alaska): Alaskans have had a continuing relationship with Japan. Over the years Japan has come to our state and has developed resources. I am told that the largest single Japanese investment in the United States in the manufacturing area is our Alaska Lumber and Pulp Company in Sitka. The Japanese have rapidly moved to expand their investment in our natural resources. As a matter of fact the things that Japan seems to need most in the area of natural resources are found in abundance in our state­ timber, copper, coal, petroleum, uranium, aluminum. I believe that the sources they had for these materials were a lot less stable than ours, and for that reason they seem to be moving very aggressively. I would say that some 50 percent of our timber indus­ try in Alaska is owned by Japanese interests, and close to 80 to 90 percent of the total production of Alaska's forests go to Japan either through direct ownership or through long-term sales. They fairly well control our timber indus­ try today, I would say. There has also been a vast increase in Japanese on­ shore investment in fisheries, amounting to some half-a­ billion dollars. And we find that our trade with Japan is continually increasing, and I think this will be expanded even more in the future. But frankly, we are quite worried about our relation­ ship with Japan. We find that their policies at home do not reflect the antitrust concept that we recognize in this country. I think that their industries abroad, such as in our state, reflect their tradition rather than ours. Also, we have had extensive conflicts with their fleets off our shores. The Congress recently passed-at least the Senate has passed-the 200-mile-limit bill to extend our jurisdiction in order to impose conservation practices. Half

3 of the coastline in the United States is Alaskan, and I think that bill is primarily aimed at the Alaska problem. But the Japanese continue to be the world's greatest exploiters of salmon on the high seas. These irritants are probably the things that cause more tension in the continued good relationships that we have had with Japan. I think Alaskans and the people of the Northwest are particularly aware of these problems and want to see the development of a more meaningful reciprocal relationship in trade. For that reason I hope we can get into a discussion of some of the internal policies of Japan that have been an impediment to the development of a reciprocal investment policy. I believe we have a long, meaningful relationship ahead of us. But there are some very tough problems to solve if this is to be a reciprocal and mutually beneficial relationship.

PROFESSOR HELLMANN: Thank you very much, Sena­ tor. Senator Humphrey?

HUBERT H. HUMPHREY, U.S. Senate (D.-Minn.): Well, I find myself very much in agreement with what has been outlined here. There i·s an advantage in being the third participant because much has already been said and you can go through the routine of saying I agree. But first of all, Professor Hellmann, let me underscore what I think must be at the very heart of our relationship with Japan. We must treat Japan as an equal partner. From there on out there will be differences, to be sure, but there is where you have to start. And as Secretary In­ gersoll has said, in the early days immediately after the war, in the 1950s, even up into the early 1960s, we had a different relationship with Japan: at first one of occupa­ tion, then a kind of paternalism. In a way we managed things. Then we turned. For example, when we put the surtax on, it was a blow to the Japanese. Nevertheless they buckled down and they went to work and increased their exports and in­ creased their productivity.

4 So they have an amazing record of vitality. But like other countries today, they are suffering from the ravages of inflation. Even more than we are in the United States. It is good to mention this because while inflation is a prob­ lem for us at about a 12 percent annual rate, I believe that in Japan it runs around 25 percent, and that rate is now going into its second year. So we start out again, may I say, looking at Japan as a partner with equal standing. We need to keep that in mind in our relationship not only with Japan but also with Western Europe. We tend to bend; it is natural for us to bend to Europe. We are essentially from a European back­ ground. Our history is related in so many ways to Western Europe. But we have got to make a conscious effort to include the Japanese in our discussions and negotiations. In fact, it is to our advantage to do s·o as well as to theirs and to Europe's. This, of course, cuts across a number of issues of energy policy, food policy, indeed, the whole subject of trade policy. You can't talk trade without includ­ ing the Japanese, because they are such a tremendous force in the world international economic picture. I was pleased that you said, Professor Hellmann, that we are a Pacific power. I hope we remember that. We are not an Asian power. And we ought to remember that there is a difference. Japan is an Asian power in an economic sense. We are essentially a Pacific power with relationships with the continent of Asia. But not nearly as deep a rela­ tionship as the Japanese have. They have their problems stemming from the war years. Those wounds will take a long time to heal. But Japan has a unique role to play, particularly in foreign assistance, in agricultural development, and in labor-inten­ sive occupations. We have had diplomatic shocks and we have survived. The new prime minister of Japan, Mr. Miki, is, I think, an extremely able man. I have know him for years and I think he is friendly toward the United States. He has indi­ cated that the Japanese must recognize that they cannot solve their problems alone, that there is an interdepen­ dence. And might I say that we need to recognize that.

5 Now, what are our sources of common interest? First of all, trade policy. We have got to do something about the non-tariff barriers as well as the tariff barriers. And we have provided a mechanism now in our trade bill that will be able to give us a negotiating posture. What else do we need? Energy. Energy costs in Japan are very high. I understand that 70 percent of Japan's oil goes for industrial uses. Only 30 percent in the United States goes for this purpose. So to conserve on energy is a very difficult task for the Japanese. Therefore, in our com­ mon interest we ought to join them in whatever ways we can to explore and develop new sources of energy through research and development. Japan is a great customer of ours. I am from the Midwest and I know that without the Japanese market our Minnesota farmers would be in tough shape. We are one of the large exporters of soybeans and we need that market. When the Japanese businessman comes to the Middle West he is welcomed because he represents ·a mar­ ket for us. But it is also a fact that we are a market for the Japanese. Because of these two facts I think we need to clear up our investment policies. The Japanese have been very protective of their markets, particularly in the field of investment. As I see it, we need to have better rules and much more liberalized standards for American investment in Japan and for Japanese investment in the United States. I know this discussion is going to be broadcast in Japan, so I want to say something to the Japanese. We welcome your investment in the part of the United States that I represent. We are appealing for investment in the state of Minnesota. We have, for example, large deposits of iron ore. We would like steel plants. We welcome Japa­ nese investment and money in Minnesota. You will be treated as welcome guests. I think this is an attitude that we ought to have all over this country. We have been wrongly worried for a long time that somebody was going to take us over with their investments, but the fact is that we need foreign investment in this country.

6 Now, among the problem areas-and I will just quickly list them-is the fact that the Japanese have to have more markets. So do we. The high cost of oil has necessitated that they expand their exports. Now, one way you can get into trouble is scrambling over markets. People fight over money and they argue over money. And exports are money. They represent commercial development. There is also the problem of agricultural supply. The Japanese need our agricultural commodities, but they are currently in short supply. So we must be careful ,about our export management policies. We cannot afford to put on slam-bang embargoes, as we did on soybeans. But at the same time we must have a policy which will regulate ex­ ports if the commodities are in short supply, in order to avoid this sudden cutoff that disrupts the trade pattern. This doesn't only go for agriculture. It goes for coal. Finally, I must emphasize that we need to develop a common energy policy. Japan must be brought into con­ sumer energy-policy planning. If we are going to negotiate with the oil producers, we have to coordinate our efforts with Japan. We have to recognize that the Japanese are literally at the mercy of the oil producers. And that is why we must find a way to help in emergencies and .help in financing.

PROFESSOR HELLMANN: Thank you very much, Sena­ tor. Our next speaker is Mr. Caldwell, the Ford Motor Company's executive vice president for international auto­ motive operations.

PHILIP CALDWELL, Ford Motor Company: As a repre­ sentative of the business community, there are several important things that I believe are relevant to this conver­ sation. First, we are the largest customerof Japan. Second, Japan is the second largest customer of the United States. And these two facts certainly give us a basis for a common platform for whatever our problems are. There is no ques­ tion about it, we must find a way to accommodate each other. Now, this is not only a large situation but it is grow-

7 ing. As a businessman, I look at markets and-to take as an example the automobile industry from which I come­ if you consider the United States the largest market of the world and you consider Europe the second largest market of the world, certainly the third largest market of the world is Japan. And we must look to the Japanese for opportunity. There are many problems between us and success in their markets. And many people have dealt with this prob­ lem rather unsuccessfully, I might say. But there has been in the last year or two, in particu­ lar, much progress in the removal of the barriers of which Senator Humphrey spoke a moment ago. I think that it can best be illustrated again from the situation in the auto business. As recently as three years ago, Japanese tariffs were in the range of 40 percent on our larger vehicles. On the other hand, Japanese cars came into the United States at a tariffrate of about 81/2 percent. Today that has changed. The tariff coming into the United States has dropped to 3 percent. The tariff going into Japan has dropped to 61/2 percent. There are still imbalances, and we think these im­ balances must be adjudicated. The trade bill, presumably, and the GATT negotiations of the future, certainly, will give us an opportunity to do that. But beyond that I think we will have to look to invest­ ment in two ways. Reference has been made to investment of the Japanese in the United States. It is certainly im­ portant also for American business to invest in Japan. This has not been a possibility until rather recent times, and the situation is not completely clear even at this point. So these barriers still must be removed. But I would say that perhaps the largest problem facing the business community is learning how to do business with each other. That starts with an understand­ ing of the demands for products and the tailoring of the products to the market so that they are relevant. There is not a large market for very large cars in Japan. But

8 there is a very large market for smaller cars. And that is true in other types of products as well. So the challenge to the businessman is to adapt to the Japanese market, just as he has to adapt to the domes­ tic U.S. market and to any market in Europe. I must say that we share problems for the future. We share the problem of inflation, as has already been pointed out. We also share the immediate problem of recession, which is a very, very substantial problem in Japan as well as in the United States. We also share the problem of access to natural resources, because that, in the finalanalysis, will be the limiting factor. I would like to say one final thing. From the point of view of the United States, I think we need to find a way to be an exporter not only of our basic raw materials, whether they be food products or energy products, but also of our manufactured goods as well. This is not a large factor at present, for we certainly do not stack up with the Japanese in their shipments to us of manufactured goods. I think that is a problem that we must deal with in the future.

PROFESSOR HELLMANN: Thank you very much. I think what is striking about all of these remarks is the degree to which the emphasis has been given to economic affairs, not only between the two countries but within each of the countries. I would like to get the ball rolling, as it were, by twisting that around a little bit. It seems to me that while the stress here has been on the need for cooperation and the imperatives of sharing on energy policy and reciprocal concessions regarding trade, it is equally important to note that in one vital respect the United States has been moving in a direction somewhat different from Japan. That is, while the Japanese have been liberalizing their trade policies, we have something called the Burke-Hartke bill that is considered to be of some import. Now, whether the political prospects for that are bright or dim means a great deal to a number of Japanese. And even if the prospects for it are relatively remote, sym-

9 bolically it is, I think, more than just a little important. So I would wonder if we could get the reaction of the various specialists here regarding Burke-Hartke, not so much the bill itself but what it represents.

SENATOR STEVENS: I probably should yield to my senior colleague, but I think it represents the sentiment that is very prevalent in the country that we have been on the short end of trading policy, not only with Japan but with many other countries, with respect to the manufactured products that we trade abroad. This sentiment says that if we are going to have trade, let us have it, but it has got to be reciprocal, not in terms of dollars but in terms of total content. We should have more diversity in our trade relation­ ships, as Phil Caldwell said. And I say that if we do not change our trade policy, and if we do not have an under­ standing abroad of the necessity to change that trade policy and make it more diverse and to have more sales abroad of our manufactured goods, then the Burke-Hartke bill is a real possibility.

SENATOR HUMPHREY: I think Senator Stevens has put up a fair warning. I am what we call a liberal-trade­ policy man, despite the fact that my political support comes from people who are not always in agreement with that. But I do think that we ought to recognize, in light of one of the statements you made, that while the Japanese have liberalized their trade policy, they started from a very tough position. They started at a higher rate of tariff and more non-tariff barriers in many instances than we did. Now, I don't say in all instances, but in many instances. I think there is another point. We have never really given much attention to exports except those of certain types: high technology and agriculture. Now, we did a tremendous job in the fifties in pro­ moting agricultural markets. Under Public Law 480 we spent millions of dollars setting up huge subsidies to pro­ mote agricultural markets. And it paid off. But that is as far as it went. We have not tried to

10 really be exporters of manufactured goods in many areas. We have had a big domestic market, so why bother with exports? Many of our large manufacturing establishments had an export office as a sort of appendage, to which they did not pay much attention. Now, the Japanese knew that exports was the name of the game. The Japanese knew that if they were going to survive they had to be a workshop for vast areas of the world. We thought that to survive we had to be the workshop only for New York, California, and Illinois-even throw in Alaska and Minnesota. It was not necessary to go much further. Now we are going to have to train ourselves to be exporters. This is a whole new dimension of economic policy. It will reflect itself in law; it will reflect itself in banking practices; it will reflect itself in attitudes. I will never forget when a former Japanese prime minister came here, Mr. Tanaka. He talked with us and he said, "Look, we will buy your cars" -as you said here tonight, Mr. Caldwell-but, he said, "you have to tailor your cars to our market. We are a crowded country." These luxury tanks that America produces just do not fit those roads. I do not mean to be unkind. I like those cars; they are very nice. In fact I never enjoyed life so much as when I had that Lincoln when I was vice presi­ dent. But what the Japanese did, as I recollect, is to move into our market with their automobiles. And the govern­ ment of Japan for a long period of time helped the com­ panies to develop this market. And they developed a car which would sell in this market. And I have got to say now, unkindly, I suppose, that if we are going to compete with them and not put up tariff barriers, we are going to have to produce cars that get as good gas mileage and have as good a record and per­ formance as the Japanese cars. And we can do it. At the same time we will have to make it very clear that that car is not just for the United States market and that we want, as you said, Mr. Caldwell, entrance into the Japanese market. I think it would be good for the Japanese

11 to have a Pinto up against one of those Toyotas or what­ ever they have over there. Am I giving market commercials here? MR. CALDWELL: Not to dwell unduly on automobiles, but I think the magnitude of the problem is well illustrated by them. For example, last year-1973-there were only 14,000 U.S. cars sold in Japan, whereas there were 700,000 Japa­ nese cars sold in the United States. Now, in 1974, they are in a depression in the auto business, as are we, and they will sell only 500,000 cars here. But, if we put it on the basis of a share of the market, in both years that is about 6 percent of our huge market, which is the world's largest, compared to about six-tenths of a percent of their market. Now, part of that is simply because we did not tailor our products. But to a great extent, this has been due, in the postwar period, to a lack of incentive to do precisely that. And I think our industry, hurt though it might be, has always been for free trade. As long as the barriers come down I think you will hear no complaints from our indus­ try. It will be up to us to find the right products to compete properly, but on an equal basis. SECRETARY INGERSOLL: I want to emphasize what you said, Senator Humphrey. When I was ambassador to Japan, I spent a good part of my time encouraging the Japanese to reduce trade barriers, although many had come down by the time I arrived there. But I also spent considerable time back here in the United States encouraging our businessmen to look at the Japanese market. Many of them had tried to move into Japan in the early days when there were restrictions. And they really could not break in. I feel that we ought to emphasize the areas where we can best compete-like in high technology, for example, in computers. We can compete in agriculture, in processed foods. And we can compete in a certain number of elec­ tronics fields. And we ought to emphasize it.

12 PROFESSOR HELLMANN: I take it that one of the thrusts of the remarks around here is that we should be more like the Japanese. I must submit that that is wise advice in one sense and creates a dilemmain another. I think that Mr. Caldwell and Senator Stevens both noted that there are practices in Japan that mark the Japanese as being very different from us, and that, in the past, this has caused difficulties. I also find that our State Department seems to speak sometimes as if Japan could be somehow towed around' the Horn, as it were, and parked off the coast of Europe. Then you would not have to have the new Atlantic Charter plus Japan. Now, I think that this is more than just an amusing interest. It points to a very important fact: the Japanese are different; they are located in Asia; and not only their business practices but their political and security problems are different. Now, would some of you like to comment on this? This seems to be a dilemma which is often buried, if I may say so, in the policies and comments.

SENATOR HUMPHREY: Well, I will put it into the sim­ plest terms that I know. If you want to win votes, you have got to know about the people that you are going to talk to. If you want to do business, you had better know about their culture; you had better know about their history. We Americans have spent most of our lifetime learn­ ing about our forebears: in Western Europe. We know English history. We can tell you practicallyevery king that got in trouble, the ones that we got rid of, ,and so on. We know about those things. But we know very little about.Japan, except for super­ ficial knowledge. I have often felt that we were a world power with half-world knowledge. And we tended to equate power with knowledge, rather than knowledge with power. Do you know what I mean? If you know enough you have got power. We thought if you had enough power that meant you knew enough. And it seems to me that we need to have a much better understanding. Can I just bring up another point? I think Japan has

13 troubles ahead. We have got plenty of them here and they surely could lecture us. But the Japanese wage earner is demanding much more today. Japan has had to sacrifice a great deal of the social comforts for the tremendous upsurge in its economy, even though they are, like us, in a recession. But their housing needs are fantastic. And I believe that in the days ahead the political situation in Japan will necessitate that they plow back more of their resources into taking care of their basic human needs at home-and not into exports. The Japanese worker is well organized, and the political situation, from what little we know, tells us that there is a need for this. I think we need to know much more about it, however.

SENATOR STEVENS: Hubert mentioned the problems of housing and other social needs. I think we ought to also put on the balance sheet though, Hubert, the fact that our defense expenditures are benefiting Japan. This is one of the things that I think is troubling more and more of the younger members of the Congress. We have got this 5-to-6-percent constant expenditure for defense, and our trading partners do not. And this auto­ matically taxes our system. Somehow or other I think that we are going to work toward the Pacific community as we did toward the NATO community. And we must ask for recognition of this ex­ penditure if we are going to continue at the hig.h level we have had. So far as the Pacific community is concerned, there seems to be a feeling that we are really there. We have not had a "let us withdraw" or "let us shrink down our troops" as we have had in Europe. We have had a very stable presence in the Pacific since World War II. So I think that the Japanese ought to consider this problem of ours. SENATOR HUMPHREY: That does not mean, however, that we are not interested in the joint defense arrange­ ment that we have.

14 SENATOR STEVENS: No, of course not.

SENATOR HUMPHREY: I agree. And I think this does give us an extra problem, an extra burden to carry.

SECRET ARY INGERSOLL: I do not want to necessarily be an apologist for Japan, but I think the facts will bear out that Japan has been sharing a considerable burden through the bases that they provide us in Japan. Their costs have been, in recent years, relatively equal to our own. Most people do not recognize that.

SENATOR HUMPHREY: Because we do not hear it. When you read the American newspapers, what do you get-the latest crime report, the latest sensationalism. Listen, I had a study made by the Library of Congress of the amount of foreign news in the American press as compared to that appearing in the press of Japan and Western Europe. I think the journalists of America and the publishers ought to look at it. It is disgraceful. You would think that we were a little parochial county sepa· rated from the rest of the world and that everything re· valved around us. It is sort of the way prehi:storic man used to look at the world-that earth was it and every· thing revolved around it. Now, this is a fact. I see my journalist friends out here in the audience. But I am a professor as well as a politician, and I think one of the great needs in Ame1ica is a better reporting of what goes on in this world. If some· body gets shot, or if there is some guerrilla warfare, or if there are some terrorists, we learn about them. But what we know about the rest of the world from the daily press in America is very, very little. You have got to go to Har· vard, boys and girls, to get this information. And by the way, very little in the way of Asian studies is taught in our colleges and universities. In 1940-imagine this-there were only ten universities in the United States that had a course in Asian studies.

MR. CALDWELL: Let me make the same point, but in a

15 different context. In Nairobi one time, I was told by a Kenyan that she knew more about the state of Ohio than the average American knew about the whole continent of Africa.

PROFESSOR HELLMANN: As a conclusion to this I might say that you can pick up in the Japanese press, in the Japanese-language press, more information about Ameri­ can national politics than you can pick up in any local American newspaper. We will now turn to questions from our audience.

ROFESSOR THEODORE McNALLY, University of P Maryland: I wonder if the panelists have some ideas as to what might be the most promising ap­ proaches to strengthening the sense of community between the Japanese and American peoples, so that the various kinds of diplomatic or economic shocks that have occurred would not dangerously undermine the friendship between the two countries.

SENATOR STEVENS: I think that one of the greatest things you can do is increase tourism. I think we have a greater understanding now of some of the problems in Japan with more and more tourists coming from Japan. I think we now have a greater ability to get to know some of these things that Senator Humphrey talks about, and to have more of a man-to-man exchange. In the past it has all been the other way; we have had more tourists going there. We ought to have more reciprocity as far as tourism is concerned.

SECRET ARY INGERSOLL: I can tell you that that has already happened. There are more tourists coming here than there are Americans going to Japan; at least in my last year in Japan, 1973, that was true.

16 SENATOR HUMPHREY: We have the Japanese Friendship Act, just passed by the Congress, which provides funds, as you know, for scholars, cultural exchanges, and so forth. I know this is often looked upon as a soft way of approach­ ing a tough problem, but it is the best way. It really is the way to get to know people in the academic institutions, in the professional associations, in the scientific commu­ nity, and in the industrial and labor community. It is a part of tourism, but it is more than just a sight-seeing tour. I think we really need to emphasize this in a joint opera­ tion. Now, we do have, for example, the American-Japa­ nese Parliamentary Conference, which I think has been helpful. Recently, we had a number of Japanese local officials come to the United States. You know, we tend to equate every kind of a conference with getting some congressman or senator or cabinet officer to run on over to Japan or vice versa. But really, we national politicians are second­ ary. What you need to get are the mayors and the legis­ lators and the county commissioners. You need not neces­ sarily the president of the largest college in the United States, but people from the state colleges and so forth.

PROFESSOR HELLMANN: If I may say so, this smacks of what came to be called people-to-people diplomacy in, I suppose, the 1950s and 1960s, and I wonder if the im­ peratives of the current problems in the world allow us the time to do this. Professor McNally's question, I think, poses a challenge-without disparaging at all what has been said here-to the government to come up with something a little harder, to use Senator Humphrey's way of putting it. Do you have any suggestions on that, Mr. Secretary?

SECRETARY INGERSOLL: Well, some things have already been done. When the prime minister of Japan came here a year ago last summer, he announced contributions of $1 million each to ten American universities for the establish­ ment of or the expansion of Japanese studies programs. Our president responded that he was going to recommend the use of funds for a similar type of project in Japan.

17 I would say there are many of these projects already going on, but if you are going to bridge the cultural and language gap that exists between our two countries, a much more massive effort has to be made for understand­ ing, because you can travel as a tourist and see the coun­ tryside, but you don't really get to understand the people or the culture. Therefore, you have to have a much deeper study. You may say this is too long-term, but I don't think there is any shortcut to doing it. You have to spend the time and effort to understand each other. By the way, a cultural conference is held each year between Japan and the United States to try to develop communications to a higher degree than we have now.

SENATOR HUMPHREY: It would be interesting if we could get some statistical information on the exchange of persons. I am sure that is available. I am just not aware of the facts. But I am thinking again, as I am sure that Senator Stevens here is, of American farmers, American fishermen, American workers, and Japanese farmers, Japanese fisher­ men, Japanese workers. One should get to the levels, may I say, where you really start touching the heartland. It is important, of course, to have the top people, very, very important. I remember when I was in Japan with the late Senator William Benton, publisher of the Encyclopaedia Brittanica, he put up $10 million just for English-language training in Japan. My gracious, we need to learn. If we can't learn the Japanese language, at least we need to learn Japanese history and culture. Still, I think we surely need to have more Japanese-language training. We have emphasized Russian language. And, quite frankly, trade with Russia as compared to trade with Japan is like running a peanut stand as compared to Ford Motors. [Laughter.]

ALTON FRYE, Council on Foreign Relations: Much of the

18 discussion this evening has reminded me of the old dictum that the business of America and Japan is business. I wonder, though, if we could pause for a moment to talk a bit about another dimension, since the relationship in modern times is rooted in the security concerns following World War II. Now that the security relationship has begun to change, with the reversion of Okinawa, the disengagement of the United States from Vietnam, and the end of staging activities which occurred in Japan and adjacent islands, I wonder if Secretary Ingersoll in particular could sketch the future of the security relationship. Specifically, would you look toward a gradual reduction in the emphasis on the Japanese-American tie as the basis for Pacific security, and perhaps a growth in a regional emphasis, which would link Japan with Indonesia, Australia, and perhaps other countries in the region?

SECRETARY INGERSOLL: Well, first you are, I believe, aware that as a result of World War II, Japan has re­ nounced military operations outside of its own islands. Therefore, I do not see Japan participating in any kind of regional security plan. Japan has been very forthcoming in expanding its foreign aid efforts, which contribute to the economic sta­ bility of the countries of Asia, and, for that reason, possibly to the political stability of those countries. With respect to the U.S.-Japan ,security relationship, I think President Ford reaffirmed that relationship when he was there last month. He pointed out, as I recall, that both sides felt that there was no need for a change in that security relationship, except that, as the Japanese have always said, they would prefer that the impingement of our bases upon their countryside be less than it has been. And there has been a trend of reduction of the area of our bases and some reduction in personnel. I think there is a minimum below which we cannot go and still present a real deterrent to any attack that might be made in the area. So I think you are not going to see any significant reductions in numbers of American

19 personnel, but perhaps a further consolidation of facilities, which has been going on for some years.

SENATOR HUMPHREY: I tend to agree with the overall assessment of the past history between Japan and the U.S., but I think it is important that in security arrange­ ments that are made in the Pacific area Japan be fully consulted, even though it is not going to become what it says is a military power. I think it is well at this point to bring up the inevit­ able trend of Japan toward better relations with the People's Republic of China and the Soviet Union. Japan's geo­ graphical proximity, plus its peculiar economic and re­ source needs, I believe, bend it in many ways toward those two great mainland populations. Now, I am not opposed to this as long as it is a healthy bilateral arrangement, but I do think that it emphasizes the importance of the United States having good strong relationships with Japan. Japan is a very important power center, power in terms of its economy, and power in terms of its culture in the Asian area. For us to let the relationship become abrasive would, I think, be very, very unfortunate, be­ cause it would compel the Japanese to turn more and more toward their immediate neighbors, the Soviet Union and the People's Republic of China. Lest I be misunderstood, I think it is important that the Japanese develop relationships with China and the Soviet Union. It is important for Japan's livelihood and it is important, indeed, for the whole world trade and political system, but let's not have it at the expense of the well­ developed relationship between our two countries, which we have enjoyed for at least two decades.

PROFESSOR HELLMANN : There is one dilemma, I think, about Japanese defense that I would like to call attention to, and that concerns the security treaty which was nego­ tiated in 1951 and has remained intact with only slight modifications. Now, over the lifetime of this treaty a great deal has happened in terms of the strategic assumptions underlying our place in the world and our commitments

20 there. As yet, the treaty has remained intact. Now, at the very least, I would say that there is a need for constant review on a day-to-day basis, because a treaty that was negotiated in 1951, almost by definition, bears little real relevance to the world in which we exist today.

SECRETARY INGERSOLL: Well, I think our Constitution was written quite a long time ago and yet it has relevance today. The treaty that was written, as you say, in 1951 and updated in 1960 is a very flexible treaty. It was a treaty of cooperation and security. It covered economic as well as military affairs, and it is a very general treaty. It has been reviewed-at least while I was in Japan-and I'm sure it is continuing to be reviewed very frequently. There are meetings at local levels almost weekly. There are meet­ ings at the ministerial level at least once a year, and sometimes two or three times a year, so that I can assure you that the treaty as it was written was quite flexible and is being operated that way as the years go by.

SENATOR HUMPHREY: Secretary Ingersoll, I don't think enough emphasis has been put on President Ford's visit to Japan. When President Nixon went to China it was a dramatic experience for all of us because, after all, our relationships had been closed off for those many years. But the first American President to visit Japan was Presi­ dent Ford. I think this is symbolically important, and I hope the Japanese know this. We always are going to Great Britain, or Germany, or Italy-all of which are very important-but this sense of equality of partnership has to include the high-level diplomacy which this symbolizes.

ED PRINA, Copley News Service: Secretary Ingersoll spoke of the Japanese renunciation of military operations or use of military force overseas as though that was some­ thing in concrete that couldn't be changed except by divine action. I wonder whether he feels that the Japanese can possibly carry their burden in the Far East if we continue to regard that as a sacrosanct area and allow them to fall back on that as a reason for not building adequate forces

21 even for their own protection. As everybody knows, they get 90 percent of their oil from the Persian Gulf. Is the United States Navy supposed to protect that lifeline?

SECRETARY INGERSOLL: If there were a determined effort to break that lifeline, even the United States couldn't protect it. If you know the number of ships that are tran­ siting from the Persian Gulf to Japan, you know there isn't any naval force that could really protect it. I think that there are forces in Asia which would deeply resent a remilitarization of Japan, and there would be all kinds of diplomatic and other efforts to prevent that from happening. So I'm not sure that it would be in the interest of the United States or of the world to have Japan remilitarized. And I think the Japanese recognize that as well.

MR. PRINA: Mr. Secretary, didn't we have that same trouble with Germany? Would you call West Germany remilitarized?

SECRETARY INGERSOLL: Well, Japan has its own self­ defense force right now-and a very substantial budget for it. They have, for a defense force, 200-and-some thousand men under arms. They have modern aircraft, modern naval vessels, and modern army equipment. But they are not designed to move off the islands.

JOHN SHARKEY, Washington Post: Mr. Caldwell, do you foresee an emerging rivalry between the United States and Japan for the markets, for the resources, and for the in­ vestment opportunities in other parts of Asia-Indonesia, Malaysia, Thailand?

MR. CALDWELL: I wouldn't use the term quite that way. In the business community we speak of competition, and competition is really the lifeblood of the free-enterprise system. Within that context, there is now great competi­ tion between the Japanese producers and the American producers in almost any industry that you can think of.

22 I see no reason to think that that will diminish. But I don't fear it as long as we have equality in our approach to it. The only time we come "unglued" is when there's an unequal opportunity. It's like trying to run the race with your arms tied behind your back and the other fellow isn't so handicapped. That's the concern. Now, with respect to resources, clearly Japan, a country of over a hundred million people that must have resources imported for everything it does-it has very few resources of its own-must have access to those resources. And they also must have access to markets. If we deny them either one, I think we will have a ·security problem of the type we have been through once before. I see no reason why we should take any exception to that. In my opinion, the American system clearly is able to compete with the Japanese system. We are able to com­ pete on technology; we certainly are able to compete on managerial experience. And I think the Japanese com­ munity would agree that we still have leadership in the latter, in every sense. We certainly have the financial capability. I think the key question will be: do we have the will to follow through?

MR. SHARKEY: Don't you think that some of these de­ cisions, which will be made by third governments, will not be solely made on business terms? They will probably be deeply covered by political issues. And in that sense, we may have a distinct advantage, being able to supply arms and security. Don't you think we will have a distinct ad­ vantage over the Japanese?

MR. CALDWELL: Well, I see no indication that our gov­ ernment has been trying to take advantage of being able to supply arms in a specific area where the Japanese, perhaps, are not. I think they will have other advantages that we do not have. They have certain economic ad­ vantages today. They certainly have the advantage of proximity to markets in the Asian basin, to countries like Indonesia, and so on. They are very strongly entrenched there now. They are more strongly entrenched in most

23 product lines that I'm familiar with throughout Asia today than we are, and they have every incentive to remain there. We, perhaps, will have some advantages. I think they will have some advantages. On balance, I think we have to take our chances, and I'm perfectly willing to do so.

JOSEPH SLEVIN, Philadelphia Inquirer: I was struck dur­ ing the opening discussion by the criticism, implicit and overt, of Japanese trading policies vis-a-vis the United States and the rest of the world. Yet it seems to me, as a newspaperman, that in recent years the whole Japanese movement has been toward freer trade. And Secretary Ingersoll, in fact, went out of his way to say the Japanese, in effect, are showing maturity by joining with the United States in moving toward freer trade throughout the world. Yet, the United States in its relations with Japan has, apparently, been going in the other direction. We've put pressure on the Japanese to curb textile exports to the United States, pressure to curb man-made fiber exports to the United States, and pressure to curb steel exports to the United States. I wonder whether we're living up to our part of this partnership, Secretary Ingersoll?

SECRETARY INGERSOLL: Well, I think we are. You're referring to so-called voluntary agreements that were made at a time when the Japanese yen was undervalued. When our currencies were floated, first in December 1971 and then again in February 1973, it made an entirely different relationship in cost. And, as Mr. Caldwell says, we can compete when we have an equal chance, but if there are restrictions on our competition-as there were in those days-then we would have difficulty. The trade imbalance between Japan and the United States was $3.2 billion in 1971, $4.1 billion in 1972, and then was reduced to $1.2 billion in 1973. And in 1974 it will be somewhere under $2 billion. On a free market basis, with a floating of our currencies, I don't worry about our ability to compete with Japan. And I'm sure that Mr. Caldwell doesn't.

24 SENATOR HUMPHREY: Well, isn't it important also to note that those were agreements; they were not unilateral actions. I was involved in two of those agreements, the voluntary steel agreement and the textile agreement. I see nothing wrong with agreements. What I worry about in trade policy is when there is unilateral action which dis­ rupts what appears to be an established pattern or a flow of trade.

MR. SLEVIN: But Senator Humphrey, weren't these really unilateral actions? There was no reciprocal quid pro quo on our part. There was just an agreement by the Japanese and other countries not to export to the United States-in response to pressure from the Nixon administration.

SENATOR HUMPHREY: Well, it was with the Johnson administration first. I want to get this correct, because we really put pressure on the Japanese on steel.

MR. SLEVIN: And the cotton-

SENATOR HUMPHREY: And the cotton, yes. Yes, I think that's true, but this was in recognition of solid economic facts, and every country must recognize the economic facts of its position. That balance of trade deficit that we were experienc­ ing with Japan was something that just could not go on. At the time, we were unable to penetrate some of their markets because of non-tariff barriers, because of invest­ ment policies that Japan had that denied us an opportunity to get in. Not being an expert, I'm giving you what I think is general knowledge, or lack of knowledge, about it. But I think it has only been in the last couple of years that we have really had much chance to penetrate, particularly on investment. And only in the last couple of years have we had a chance, for example, in Mr. Caldwell's automobile industry. So these were ad hoc arrangements. I tend to agree with you that Japan has been doing a better job of lowering trade barriers, but I go back to my

25 original position. Their barriers were very high. And as they lowered them, they made a sharp descent; ours made somewhat of an incline. But it was a kind of coming together.

VLADIMIR PETROV, George Washington University: I want to follow up on what you just said, Senator Humph­ rey. Those concessions were made by the Japanese at a time when the Japanese economic situation was much stronger than it is today. And today, as we know, the state of affairs in Japan is by no means as good. They are running low on their hard currencies. They are suffering from high energy costs. Unemployment is growing. Social unrest is visible in many places. And we still are talking about further lowering of tariffs, of carrying out measures which might increase unemployment in Japan and make the situation more difficult. In other words, we insist on a change in the national policy of Japan, in spite of the fact that Japan is in a worse condition today than it was, let's say, five or ten years ago.

SECRETARY INGERSOLL: No, I think I disagree with you because Japan and the United States and many of the other countries of the world who will be involved in the GAIT talks, will be negotiating. The talks will begin when the trade bill is completed next year, and they will be negotiations. They are not going to be something imposed on these countries. Japan is joining these negotiations voluntarily. It wants to. Japan is going to benefit more by liberal trade policies than any other country in the world.

PROFESSOR CHUN-TU HSUEH, University of Maryland: Are the Japanese convinced of that themselves?

SECRETARY INGERSOLL: At least they convinced me before I left Japan, and I don't think things have changed. I think they are more convinced of it now than they were before.

26 SENATOR STEVENS: I think the sentiment in the Con­ gress is that these liberal trade policies may not be in our best interest. I, for one, have got some reservations. My good friend here convinced me to hold them back for a year or so, but there are a lot of us who are going to look long and hard at this. Everything you say that's going on in Japan is going on here, but worse-except for one thing, the rate of inflation. Our unemployment is higher. The problem of the stability of the dollar is greater. I think that all of these problems are here. I wonder, do they under­ stand that we've got these problems?

PROFESSOR HELLMANN: I think one of the significant changes which lies implicit in what has been said here is the intrusion of politics into the functioning of the inter­ national economic system. That is the biggest-

SENATOR HUMPHREY: We can't just let economists run things, you know.

MR. CALDWELL: I would like to call attention to one fact that hasn't been pointed out in this discussion. We're concerned about the situation in Japan. But I would cite the fact that there are only two major industrial oil­ importing nations in the world who have been able to pay for oil at prices four times higher than a year ago and still have a favorable trade balance. The first one is West Germany and the second one is Japan. That's a perfectly fantastic accomplishment. We in the U.S. have not been able to do that.

PROFESSOR HELLMANN: On that note, I want to thank the audience and the panelists for being here. Good night.

27 Design: Pat Taylor ROUND TABLES The Economy and Phase IV ($2.00) John T. Dunlop, Charls E. Walker, Yale Brozen, and Gary L. Seevers

Foreign Trade Policy ($2.00) William R. Pearce, Al Ullman, Barber B. Conable, Jr., and Hendrik S. Houthakker

The Energy Crisis ($2.00) Part One: Clifford P. Hansen, Morris K. Udall, Mike Mc­ Cormack, and Charles E. Spahr. Part Two: Jennings Ran­ dolph, Mark 0. Hatfield, Dixy Lee Ray, and Philip H. Trezise. Part Three: J. William Fulbright, John N. Nas­ sikas, George W. Ball, and Charles J. DiBona

Watergate, Politics, and the Legal Process ($2.00) Part One: Charles S. Hyneman, Richard M. Scammon, Aaron Wildavsky, James Q. Wilson, and Ralph K. Winter, Jr. Part Two: Richard M. Scammon, Harry H. Wellington, James Q. Wilson, and Ralph K. Winter, Jr.

Indexing and Inflation ($2.00) Milton Friedman, Charls E. Walker, Robert J. Gordon, and William Fellner

Is the Energy Crisis Contrived? ($2.00) Walter F. Mondale, Charles H. Murphy, Jr., Stanley H. Ruttenberg, and James W. McKie

Japanese-American Relations ($1.00) Hubert H. Humphrey, Ted Stevens, Robert S. Ingersoll, and Philip Caldwell

Health Insurance: What Should Be the Federal Role? ($2.00) Bill Brock, James C. Corman, Al Ullman, and Caspar Weinberger

Round Tables are also available in audio cassettes ($3 each, ten for $20) and in video cassettes (rental-$45 each, purchase-$125). Japanese-American Relations is a broad-ranging discussion of relations between two of the world's great industrial nations. It is part of the program of an AEI project which is studying the future course of the U.S.-Japan relation­ ship, taking into account both Japanese and American perceptions of the association. Japan and the United States have long been major trading partners, and they are steadily becoming more mutually dependent for consumer and industrial goods. This provides the focus for the dis­ cussion, but the participants also deal with the political and national security issues currently important in Wash­ ington-Tokyo affairs. Looking to the future, the Round Table panel and questioners from the audience explore the prospects for growing trans-Pacific cooperation on matters ranging from "people-to-people diplomacy" through trade regulation to national defense. The Round Table moderator is Donald C. Hellmann, professor of political science and Asian studies, University of Washington at Seattle. The other participants are Senator Hubert H. Humphrey of Minnesota, Senator Ted Stevens of Alaska, Robert S. Ingersoll, deputy secretary of state and former U.S. ambassador to Japan, and Philip Caldwell, executive vice president for international automotive op­ erations, Ford Motor Company. $1.50

American Enterprise Institute for Public Policy Research 1150 Seventeenth Street, N.W., Washington, D.C. 20036