98. Memorandum From the President’s Assistant for National Security
Affairs (Kissinger)
to President Nixon1
Washington, August 29, 1972.
[Omitted here are Section I on Purpose, Section II.A, Background, and
subsections II.A.1, II.A.2, and II.A.3 on Reaffirmation of the Alliance,
Japan’s Normalization of Relations with the PRC, and US China Policy,
respectively.]
4. US-Japan Bilateral Economic Relations. Although
Japanese leaders now recognize Japan’s major responsibility for reducing
the massive trade deficit, they are reluctant to commit themselves to
the kind of decisive, short-term ameliorative action we want. They fall
back rather on projections that Japan’s new economic recovery
supplemented by Japanese government fiscal policy and other economic
trends now underway will resolve the problem in about two years.
The problem at Honolulu will depend on the progress made in our current
economic negotiations following up on Eberle’s meetings in Hakone and Ingersoll’s discussions
preparatory to Honolulu. In these the Japanese are moving to develop a
concrete package to meet the Tanaka Government commitment to reduce to below $3
billion the trade deficit by the end of this Japanese Fiscal Year (next
March 31). There is greater reluctance to commit Japan to another
billion reduction by the end of the following JFY.
We understand that the Tanaka
Government’s inability to agree at Hakone, and subsequently, on
additional measures to reduce the trade
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gap further has probably been due to the
unexpectedly strong resistance of mid-level bureaucrats in the economic
ministries. These officials are loyal to Japanese business and industry
interests. Nevertheless, past experience has indicated that we can be
most effective by pressing the Japanese Government quietly but firmly to
specific commitments that are politically feasible for it domestically.
Indeed, US pressure is one of the most effective levers available to a
Japanese Prime Minister and the Foreign Office to use with recalcitrant
economic bureaucrats. Tanaka, with
his currently strong political position (he is supported by over 70% of
the people in opinion polls) is by virtue of this and his decisive
temperament in a position to use such leverage.
[Omitted here are sections on Participants, Press Plans, and the
Schedule.]
Tab C2
Economic Issues
The Problem
For the U.S. to: (a) allay protectionist pressure which could be
troublesome next year, (b) successfully conclude monetary reform
negotiations, and (c) obtain Congressional support for trade
negotiation legislation, we must substantially improve our balance
of payments position. Realistically, a major part of the improvement
must come vis-à-vis Japan. However, our bilateral trade deficit,
which was $3.2 billion in 1971 is projected by us to be about $3.8
billion in 1972. (The Japanese are now predicting $3.6 billion.)
Japanese Foreign Exchange Reserves rose by over $10 billion in 1971
and today are above $16 billion.
Japan, for its part, recognizes in principle the necessity of
reducing its trade and payments surplus which has made it the target
of protectionist pressure in Europe and the U.S. However, the
Government and the business community are extremely reluctant to
translate this principle into concrete actions which are harmful to
specific interests in Japan.
Japan’s Position
Prime Minister Tanaka has
stated that his target is reduction of the trade deficit to below $3
billion by the end of the current Japanese fiscal
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year (March 31, 1973). [This was the
target agreed on in the Tanaka/Kissinger meeting.]3
Tanaka has put substantial
pressure on his bureaucracy to come up with an acceptable package.
His objective was to have this ready prior to the Summit so that
detailed economic issues would not have to be discussed, and in
order to avoid the appearance that Japan had made concessions at
Hawaii under pressure from the U.S. Tanaka also did not wish to bring with him his
Minister of International Trade and Industry, Nakasone.
In the package put together as the result of Ambassador Eberle’s meetings with the Japanese
at Hakone and Ambassador Ingersoll’s follow-up the Japanese have
agreed to purchase $320 million in uranium enrichment services, $320
million worth of civil aviation equipment including wide-bodied
aircraft, $20 million worth of helicopters and aviation related
facilities, and $26 million worth of special agricultural purchases.
Total value: $686 million. In addition Japan projects an estimated
increase in agricultural purchases, over last year’s level, of $270
million and in purchases of fishery and forestry products of $120
million, plus $24 million in additional purchases of U.S. feed grain
resulting from a reduction in sales from Japan’s stockpile of feed
rice. Total value: $414 million.
Japan has also agreed to allow 100% foreign-owned investment in
retail operations totaling up to 11 stores and in limited
import-processing activities such as film and cosmetics; also, to
permit an increase in the U.S. share of the Japanese computer
market. The AEC and the Japanese have agreed to use their best
efforts to set up a working group to examine feasibility of a
joint-venture uranium enrichment facility to be built in the
U.S.
Japan wants to make the announcement of these specifics in a separate
press release.4
The Japanese allege that—aside from the above and some minor steps to
liberalize imports—the Japanese political situation presently
precludes a) removal of quotas (34 GATT illegal quotas are still retained) although there
is some possibility that the quota levels on oranges, juices, beef,
and feeder cattle will be reduced, or b) special budget increases
for procurement from the U.S. They argue that last December’s yen
revaluation, projected Japanese economic growth with an attendant
increase in import demand, and orderly exporting practices
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will with time move us
closer to equilibrium. They might argue that beyond present
commitments, it will be difficult at this time to make any formal
commitment on specifics or targets for the next Japanese fiscal
year.
U.S. Position
This package—containing the purchase of U.S. goods and services of
over $1 billion—while helpful in reducing our trade and payments
imbalance, contains some items—uranium enrichment, wide—bodied
aircraft, helicopters—which are being prepaid. These represent real
sales for now and the future but except for agricultural purchases
these do not help our trade balance this year. The package is an
indicator of our mutual effort to turn around the growing imbalance
in U.S.-Japanese trade. But its significance in this regard is
diminished without a Japanese commitment to reductions in the trade
imbalance. Accordingly, it is important that we receive in the joint
statement a commitment that Japan intends to reduce by March 31 its
trade surplus with the U.S. to below $3 billion, or by an amount of
roughly $1 billion from the present projected surplus of $3.8 to $4
billion. Further, we want to receive an additional commitment to
continue to work for additional concrete measures to reduce the
imbalance and, on a longer-term balance of trade objective, that
Japan will exert its best effort to reduce the trade deficit by at
least an additional $1 billion in the next Japanese fiscal year
beginning on April 1, 1973.5
We also want to:
- —Stress the importance we attach to cooperation with Japan
in multilateral trade negotiations and monetary
reform.
- —Reach agreement with Japan to hold future meetings at a
high level to review evolving economic relationships.
- —Agree to hold a meeting of the Ministerial-level
Committee on Trade and Economic Affairs (ECONCOM) in the first half
of CY 1973.6
[If Tanaka does not agree to
commit himself to reduce the deficit by an additional $1 billion
during the next fiscal year, you may wish to get a commitment that
we will work to develop concrete measures to further reduce our
trade imbalance and that we will review progress toward this end at
ECONCOM and other high level
meetings to be held next year.]7
Should the Japanese raise the issue of the Smithsonian Agreement in
such a way as to seek our agreement that the rates are unalterable
or
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to get our support to
help defend the present yen rate to prevent another yen revaluation
(which Tanaka and Japanese
businessmen wish to avoid because it would cut into Japanese
competitiveness), our position is that the Smithsonian Agreement was
a propitious beginning and we should now work to achieve fundamental
reform. We should avoid a commitment to any specific yen-dollar rate
in the future. [George
Shultz’ attached memorandum explains this position in
detail.]8
