Foreign Policy In Focus | Global Affairs Commentary

The recent U.S.-Japan summit between President George W. Bush and Prime Minister Junichiro Koizumi on June 30 began on an inauspicious note. In his first trip abroad since he became prime minister in late April, Koizumi arrived at Camp David on the heels of two pieces of bad news. First was the announcement that a U.S. Air Force sergeant was suspected of raping a Japanese woman in Okinawa—an incident reminiscent of the rape in 1995 of a 12-year-old Okinawa girl by U.S. military personnel, which sparked widespread protests. (The Okinawan police have now requested that he be turned over to them.) Second, recent economic news that deflation in Japan’s economy was at record levels and that official unemployment (widely recognized as an underestimate) has equaled the post-war record of 4.9%. This suggests that the end of Japan’s decade-long economic crisis is nowhere in sight.

The summit, which focused on the bilateral economic and security relationship, was important for a couple of reasons. Koizumi is facing upper house elections later this month and needed some signs of support from abroad for his economic reform program at home. For its part, the Bush administration, with its Asia policy apparently adrift, needed a sign that its relationship with its key ally in the region is based on a solid foundation. In addition to broad economic and security issues, missile defense, global warming, developments on the Korean peninsula, and the WTO were also on the agenda.

With regard to the Bush administration’s national missile defense plans, Koizumi merely reiterated Tokyo’s official position, namely that Japan understands the U.S. plan. Although Japan is conducting joint research with the U.S. on a theater missile defense system aimed at protecting U.S. troops and its allies, it has not fully supported Bush’s national missile defense program. On the environmental front, Koizumi tried to get Bush to reconsider his opposition to the Kyoto Protocol. Bush refused, however, limiting himself to the face-saving measure for his guest of establishing bilateral consultations to search for common ground. Bush and Koizumi agreed to ongoing consultations with South Korea in dealing with North Korea and supported the launch of a new round of trade talks under the World Trade Organization in November, even though the U.S. and Japan have different views of what issues should fall under such a new round.

A New Framework

The summit marks the institutionalization of a new U.S.-Japan relationship under the Bush administration. Since the end of the cold war, U.S.-Japan relations as a whole and economic relations in particular have been characterized by the absence of a strategic framework—a gap that the Bush administration is attempting to fill. The closest thing to a blueprint for the Bush administration’s policy approach to Japan can be found in the so-called Armitage Report. The report, published in late 2000 by the Institute for National Strategic Studies under the title “The United States and Japan: Advancing Toward a Mature Partnership,” was the product of a study group led by former Clinton administration official Joseph Nye and current Deputy Secretary of State Richard Armitage (available online at http://www.ndu.edu/ndu/sr_japan.html). In addition to Armitage, key Bush administration officials who participated in drafting the report include: Paul Wolfowitz, (Deputy Undersecretary of Defense), James Kelley, (Assistant Secretary of State for East Asia and the Pacific), and Torkel Patterson (Senior Director for Asian Affairs, National Security Council).

The Armitage Report places security at the center of the U.S.-Japan relationship, with economics in a subordinate position. It argues that “it is past time for the United States to drop the image of Japanese cooperation in foreign policy as checkbook diplomacy.”

This report discusses economic issues in the context of creating the conditions for a more militarily active and assertive Japan and increasing Japan’s role in insuring global economic stability. It advocates moving away from contentious bilateral sectoral trade debates that involve an arrogant effort by the U.S. to get involved in the microeconomics of Japanese capitalism. Instead, it advocates a more diffuse effort of promoting policy reforms that strengthen private sector actors in general. This is a kind of “reform by stealth,” whereby the U.S. would advance policies helping to create the political and social forces that will restructure the Japanese economy and become the prime movers behind economic reform efforts.

A New Partnership?

Reflecting the priority assigned to security issues, the U.S. and Japan had agreed to the establishment of a new subcabinet-level consultative framework to coordinate policy on regional and defense issues prior to the summit meeting. Deputy Vice Foreign Minister Ryozo Kato will lead the Japanese side and Deputy Secretary of State Richard Armitage will lead the U.S. team. Consultations will occur every two or three months and will include officials from the Pentagon and the Japanese Defense Agency. Issues on the agenda will include an assessment of the regional security environment, and areas such as force structure and posture, security strategies, bilateral roles, missions during contingencies, cooperation in peacekeeping, and the bases in Okinawa. At the summit Bush rejected Okinawa’s demand for a 15-year time limit on U.S. use of facilities to be built in the northern part of the island to take over the heliport functions of the U.S. Marine Corps’ Futenma Air Station in central Okinawa.

The more recent development was the establishment of a similar bilateral subcabinet dialogue on economic issues entitled the U.S. Japan Economic Partnership for Growth. The Partnership aims to promote economic growth in both countries as well as the world by addressing such issues as macroeconomic policies, structural and regulatory reform, financial and corporate restructuring, foreign direct investment, and open markets by providing a structure for cooperation and engagement on bilateral, regional, and global economic and trade issues. The partnership will be managed and directed by a vice-ministerial U.S.-Japan Subcabinet Economic Dialogue, co-chaired by the National Security Council/National Economic Council for the United States and the Ministry of Foreign Affairs (MOFA) for Japan.

Finally, the partnership will include an institutionalized mechanism for the private sector to provide input into the discussions of the various bilateral fora of the partnership through a Private Sector/Government Commission. This continues the tradition of an exclusionary policy process governing economic affairs between the two countries, limiting nongovernmental participation to representatives from the business sector.

The first gatherings of the panels are likely to be held in the fall, and the two leaders will evaluate progress at their next meeting set for Tokyo in October, either before or following Bush’s trip to China for the APEC summit and bilateral discussions with Chinese president Jiang Zemin.

The broad outlines of the Partnership for Growth reflect the ideas of Bush’s chief economic advisor Lawrence Lindsey. In exchange for Japanese commitments on deregulation, investment liberalization, and market access, the U.S. would allow a cushion to absorb the shock from drastic reform. This would take the form of U.S. acquiescence to a lower yen and willingness to absorb added imports from Japan as a means of promoting an economic recovery. In return, Washington expects Japanese reforms to include measures to further open the financial, energy, retail, and other sectors to foreign direct investment and mergers and acquisitions—in effect, a gradual Americanization of the Japanese economy. Increased investment from U.S. companies in formerly protected sectors of the economy would theoretically increase productivity and help lift Japan’s recovery.

Changes in Style and Tone

In addition to establishing an overall framework for U.S.-Japan relations dominated by security issues, the most noticeable changes in the approach to U.S.-Japan relations under the Bush administration will be in tone and style. Under Clinton, attention to U.S.-Japan issues was episodic at best, alternating between periods of neglect followed by flurries of activity prior to a summit meeting. The Clinton administration often maintained an arrogant tone and a penchant for lecturing Japanese officials on the failings of their economic policies and the weaknesses of Japanese capitalism. The more institutionalized dialogue represented by the Partnership for Growth is similar to those pursued while the first President Bush was in office. Japan and the U.S. shared a joint trade commission from 1981 until the election of former U.S. President Bill Clinton in 1992.

The Bush administration will also depart from the Clinton administration’s much-criticized practice of bypassing Japan when key officials visited the region—known as “Japan passing”—as Clinton did when he failed to visit Japan prior to his state visit to China in 1998. Secretary of State Powell is scheduled to visit Japan following the ASEAN Regional Forum’s Post-Ministerial Conference in Hanoi in late July, and President Bush is planning a visit to Japan either prior to or following his participation in the APEC leaders’ meeting in Shanghai in October.

Policy Currents in the Bush Administration

The recent summit and the new bilateral fora provide insight into the three competing policy currents struggling to shape Bush administration policy toward Japan. Ultimately, however, policy is likely to be a product of the interaction of all three, rather than the blueprint of any one.

Currently, the geopoliticians, represented by Armitage, Wolfowitz, and Powell whose views are reflected in the Armitage Report, are dominant in Washington. They prioritize the U.S.-Japan security relationship, and are reluctant to pursue economic issues that threaten that relationship. They would like Japan to take greater responsibility for security in Asia, reform its constitution to allow for more expansive military operations, and increase military expenditures. They would also like Japan to sustain its economic leadership role in East Asia. Economic issues are important as a means to an end, not an end in itself. The particular outlines of the Japanese economy are less important than whether or not Japan’s economy is growing. Economic growth will enable Japan to be the engine for growth in the region (easing political pressure on the Bush administration to maintain the U.S. as a market of last resort), enable Japan to increase military expenditures and foreign economic aid, and of course sustain their host nation support for U.S. troops based in Japan and Okinawa. Geopoliticians share the views of the geoeconomists (discussed below) that the emphasis in bilateral economic dialogue should be multilateral whenever possible and that bilateral discussions should focus upon broad structural reform issues aimed at jump starting growth.

The geoeconomists are composed of technocrats in the Treasury Department, Bush’s chief economic advisors (such as Lawrence Lindsey), and representatives from the financial services industry. They view Japan’s economic crisis as an issue in and of itself, because of the country’s position in the world economy. They advocate a multilevel engagement with Japan, placing most trade issues within the WTO and other multilateral fora while using bilateral negotiations as an arena for discussing structural reform and macroeconomic issues. Like the geopoliticians, they argue that sectoral trade negotiations are of declining utility as a vehicle for structural reform and will advocate for policies to increase the access of foreign direct investment into Japan and other structural reforms that strengthen the domestic social and political forces that appear to be remaking Japan’s economy into a structure more similar to that of Anglo-American capitalism. In the name of global economic stability and the need to get Japan’s economic engine restarted, they would be willing to tolerate higher inflation and a weakening of the yen (and a likely increase in the trade deficit with Japan), if it was linked to structural reform, especially in the area of financial sector restructuring and an increase in foreign direct investment.

In contrast, the trade warriors emphasize the traditional sectoral trade agenda. Composed of representatives from some industrial sectors in the Congress and the USTR’s office, they are willing to be more confrontational in tone and emphasize bilateral negotiations over multilateral negotiations. They share the same basic structural reform agenda as the other two policy currents but are very concerned about a weak yen and its impact on U.S. trade deficits. To date, most of their efforts have been rebuffed.

The overwhelming emphasis of the new U.S.-Japan Partnership, however, is on macroeconomics and growth, not on bilateral trade deficits. This was evident in the administration’s response to a bipartisan group of nine U.S. lawmakers who sent a letter to Bush prior to the recent summit urging him to press for a new U.S.-Japan automotive trade accord at the summit. The letter cited the worsening U.S. trade deficit with Japan in automobiles and auto parts. (Japan and the United States struck an auto and auto-parts agreement in 1995 for greater foreign access to the Japanese market. It expired at the end of 2000 and Japan rejected Washington’s demand for an extension.) This proposal was rebuffed by the administration.

Within the administration, broader macroeconomic issues of growth (and its presumed association with deregulation) will take precedence over specific sectoral issues. This will reflect the relative strength of the Treasury Department over the USTR. While the bilateral trade dialogue on sectoral issues like autos and flat glass will not disappear, the priority for the Bush administration will be to focus on two other areas: the policy environment for foreign direct investment and financial market reforms that shape how capital is raised and allocated.

This perspective is shaped by the view that the development of U.S.-style equity-based financial markets in Japan will ultimately affect the structure and performance of the rest of its economy and that increased foreign direct investment by American and other companies will be a powerful catalyst for change. Furthermore, since a country’s imports and its stock of foreign direct investment tend to be positively related, the continued growth of such investment by American firms is likely to increase Japan’s imports, helping to defuse trade tensions between the two nations to some extent. (Such an agenda was also outlined in a Council on Foreign Relations Task Force chaired by Laura Tyson entitled Future Directions for U.S. Economic Policy Toward Japan (NY: Council on Foreign Relations, 2000).

The Bush administration would prefer to take sectoral trade issues to the WTO if informal bilateral consultations are not productive. For example, the description of the bilateral Trade Forum explicitly notes that it will “not replicate ongoing multilateral negotiations and will avoid, to the utmost extent, the overlap of issues with other bilateral bodies, including other fora of the Partnership.” The recent shift to a Democratic Party-controlled Senate, however, may alter the administration’s room to maneuver. The recent mandate by the Bush administration to open a Section 201 investigation of steel imports, for example, was a preemptive effort to head off a congressional call for such an investigation.

(John Gershman <john@irc-online.org> is a senior analyst with the Interhemispheric Resource Center and the Asia/Pacific editor with Foreign Policy in Focus.)

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Summitry

A New Framework

A New Partnership?

Changes in Style and Tone

Policy Currents in the Bush Administration