[House Hearing, 105 Congress]
[From the U.S. Government Publishing Office]



 
                 UNITED STATES - JAPAN TRADE RELATIONS

=======================================================================

                                HEARING

                               before the

                         SUBCOMMITTEE ON TRADE

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED FIFTH CONGRESS

                             SECOND SESSION

                               __________

                             JULY 15, 1998

                               __________

                           Serial No. 105-105

                               __________

         Printed for the use of the Committee on Ways and Means




                    U.S. GOVERNMENT PRINTING OFFICE
63-468                      WASHINGTON : 2000



                      COMMITTEE ON WAYS AND MEANS

                      BILL ARCHER, Texas, Chairman
PHILIP M. CRANE, Illinois            CHARLES B. RANGEL, New York
BILL THOMAS, California              FORTNEY PETE STARK, California
E. CLAY SHAW, Jr., Florida           ROBERT T. MATSUI, California
NANCY L. JOHNSON, Connecticut        BARBARA B. KENNELLY, Connecticut
JIM BUNNING, Kentucky                WILLIAM J. COYNE, Pennsylvania
AMO HOUGHTON, New York               SANDER M. LEVIN, Michigan
WALLY HERGER, California             BENJAMIN L. CARDIN, Maryland
JIM McCRERY, Louisiana               JIM McDERMOTT, Washington
DAVE CAMP, Michigan                  GERALD D. KLECZKA, Wisconsin
JIM RAMSTAD, Minnesota               JOHN LEWIS, Georgia
JIM NUSSLE, Iowa                     RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas                   MICHAEL R. McNULTY, New York
JENNIFER DUNN, Washington            WILLIAM J. JEFFERSON, Louisiana
MAC COLLINS, Georgia                 JOHN S. TANNER, Tennessee
ROB PORTMAN, Ohio                    XAVIER BECERRA, California
PHILIP S. ENGLISH, Pennsylvania      KAREN L. THURMAN, Florida
JOHN ENSIGN, Nevada
JON CHRISTENSEN, Nebraska
WES WATKINS, Oklahoma
J.D. HAYWORTH, Arizona
JERRY WELLER, Illinois
KENNY HULSHOF, Missouri
                     A.L. Singleton, Chief of Staff
                  Janice Mays, Minority Chief Counsel
                                 ------                                

                         Subcommittee on Trade

                  PHILIP M. CRANE, Illinois, Chairman
BILL THOMAS, California              ROBERT T. MATSUI, California
E. CLAY SHAW, Jr., Florida           CHARLES B. RANGEL, New York
AMO HOUGHTON, New York               RICHARD E. NEAL, Massachusetts
DAVE CAMP, Michigan                  JIM McDERMOTT, Washington
JIM RAMSTAD, Minnesota               MICHAEL R. McNULTY, New York
JENNIFER DUNN, Washington            WILLIAM J. JEFFERSON, Louisiana
WALLY HERGER, California
JIM NUSSLE, Iowa

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Ways and Means are also published 
in electronic form. The printed hearing record remains the official 
version. Because electronic submissions are used to prepare both 
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converting between various electronic formats may introduce 
unintentional errors or omissions. Such occurrences are inherent in the 
current publication process and should diminish as the process is 
further refined.



                            C O N T E N T S

                              ----------                              
                                                                   Page
Advisories announcing the hearing................................     2

                               WITNESSES

American Council of Life Insurance, Brad Smith...................    84
Asia Pacific Policy Center, Douglas H. Paal......................    41
Bereuter, Hon. Doug, a Representative in Congress from the State 
  of Nebraska....................................................    13
Economic Strategy Institute, Clyde V. Prestowitz, Jr.............    49
Goldman Sachs International, Robert D. Hormats...................    28
Graham, Hon. Lindsey, a Representative in Congress from the State 
  of South Carolina..............................................    18
Levin, Hon. Sander M., a Representative in Congress from the 
  State of Michigan..............................................     7
Lindsey, Brink, Cato Institute...................................    56
National Bureau of Asian Research, Kenneth B. Pyle...............    62
Pharmaceutical Research and Manufacturers of America, Shannon 
  S.S. Herzfeld..................................................    94
Westvaco Corporation, Wendell L. Wilkie II.......................   105

                       Submissions for the Record

Office of the U.S. Trade Representative, Hon. Richard Fisher, 
  Ambassador, statement..........................................   114

                                 ______

American Chamber of Commerce in Japan, statement.................   124
American Electronics Association, statement......................   127
Guardian Industries Corp., Auburn Hills, MI, Peter S. Walters, 
  statement......................................................   131


                  UNITED STATES-JAPAN TRADE RELATIONS

                              ----------                              


                        WEDNESDAY, JULY 15, 1998

                  House of Representatives,
                       Committee on Ways and Means,
                                     Subcommittee on Trade,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 2:30 p.m., in 
room 1100, Longworth House Office Building, Hon. Philip M. 
Crane (Chairman of the Subcommittee) presiding.
    [The advisories announcing the hearing follow:]
   

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    Chairman Crane. Please take seats. We're running just a 
little bit late, and we're going to be interrupted by votes 
over the course of the afternoon. And so, I would like to 
welcome you all to our hearing of the Ways and Means Trade 
Subcommittee to consider the U.S. trade agenda with Japan in 
the context of the broad range of measures that Japan must take 
to address the difficult and painful economic situation it 
faces.
    Sunday's stunning defeat of the ruling LDP Party, resulting 
in the resignation of Prime Minister Hashimoto, and the 
cancellation of next week's state visit has thrust Japan into a 
period of political transition. Japan must now focus on 
identifying new leadership capable of navigating a more 
credible record to economic recovery.
    Because Japan is our largest trading partner, and perhaps 
most important ally in Asia, accounting for over two-thirds of 
the region's GDP, the stakes are high not only for the Japanese 
people, but also for the United States and the rest of the 
world. At this time of uncertainty, it is critically important 
that the USTR's trade agenda with Japan, including broad 
structural reforms such as deregulation of its economy, 
fundamental reform of the banking system, improved 
transparency, and the opening of its distribution system to 
eliminate exclusionary business practices remain steady and 
undeterred.
    I firmly believe that successful implementation of these 
same measures will contribute substantially to moving Japan in 
the direction of economic health and long-term growth. The 
danger of inaction in terms of Japan's participation in multi-
lateral organizations such as the WTO and APEC and in Japan's 
implementation of existing trade agreements remains a real 
threat to the welfare of the Japanese people and to U.S. 
economic and security interests in the region.
    I want to warmly welcome our colleagues, Sandy Levin and 
Doug Bereuter, both long-time observers of Japan. Their 
comments should help us put the recent history of Japan's 
economic ups and downs, ranging from the booming 1980's to the 
stagnant recessionary lost decade of the 1990's into better 
perspective. And I also want to recognize, too, the testimony 
we will receive in this first panel from our distinguished 
colleague, Lindsey Graham, from South Carolina.
    I might mention that Members will want to turn their 
attention to Doug's resolution H. Res. 392, which has been 
sequentially referred to the Ways and Means Committee until 
July 17. Sandy and Amo also have a bill, I know, they will want 
to discuss. We will then hear from a strong panel of academics 
that will discuss the economy and bilateral relationship more 
generally and a panel of witnesses from the private sector.
    Earlier this afternoon, the subcommittee held an executive 
session with Deputy USTR, Richard Fisher, and we had a good 
discussion about the U.S. trade agenda with Japan.
    I now would like to yield to our distinguished ranking 
Minority Member, Mr. Matsui.
    Mr. Matsui. Thank you very much, Mr. Chairman. I'm going to 
submit my statement for the record. I appreciate your holding 
this hearing today.
    Thank you.
    [The opening statement was not available at the time of 
printing.]
    Chairman Crane. Thank you.
    And now if our witnesses will please sit down at the dais 
there. I think it's Sandy in the first one. Right. Okay, we've 
got Doug in his seat. And, Lindsey, you're at the far end here.
    And we'll proceed in order with--oh, wait. No, no. You guys 
got turned around. No, that's okay. He can change. I mean, we 
want to make sure everyone addresses you properly. Because the 
people here on the panel may not recognize you offhand.
    All kidding aside, let's get on to serious business, and 
we'll proceed first with Sandy Levin. And, guys, as I've 
mentioned before try and keep your oral testimony to 5 minutes 
or less. All written submissions will be made a part of the 
permanent record.
    Sandy.

STATEMENT OF HON. SANDER M. LEVIN, A REPRESENTATIVE IN CONGRESS 
                   FROM THE STATE OF MICHIGAN

    Mr. Levin. Thank you, Mr. Chairman.
    As you mentioned in your opening statement that I think 
very well describes the issue, much has changed since you 
originally scheduled this hearing. As you mentioned, Doug 
Bereuter and Mr. Houghton and I have presented resolutions that 
were an effort to keep the spotlight on the problem areas 
within trade matters with Japan. The election has occurred. 
Japan is in transition, and, as a result, I think, we need to 
be careful and perhaps brief about what we say.
    Let me just say a few words. At some point, it was clear, I 
think, that the Japanese policy seemed more than not a win-lose 
proposition--a win proposition for the Japanese, and a lose 
proposition for those who were excluded from their market. But 
in recent years, I think it's been increasingly clear that more 
than not their policies have been a lose-lose proposition, 
losing for them and losing for everybody else.
    Until now--and this subcommittee has been so much a part of 
this--there have been so many efforts by the United States to 
try to pry open the Japanese market to help them deregulate. 
And we've tried virtually everything: 301--changing it. Super 
301. All kinds of agreements.
    Now, with the election, the Japanese appear to be at 
another crossroads. And I just want to say, I think we should 
do everything that we can, though we have to realize the 
limitations to try to help Japan decide on its own the correct 
options. There was an article today in the Washington Post 
which talked about the presently prevailing parties split on 
whether they should fix their economy or ensure their 
reelection. I think it's important for the world that they fix 
their economy. And there are several legs to that: bank 
restructuring, the whole issue of the weakness of their 
currency, and trade deregulation. And we're here today, and our 
resolutions addressed it, to express the strong belief that 
trade deregulation has to be part of the reform of the Japanese 
economy. The argument may be that they're in a weakened 
position, but actually with the weakness of the yen, this is a 
more opportune time for the Japanese to deregulate over a 
reasonable time on a broad basis.
    Enough said. I'm not going to go, Mr. Chairman, members, 
into specific areas like automotive or flat glass or whatever 
it is. You have, as mentioned, two resolutions before you. I 
don't think it's clear when would be an opportune time to bring 
these up on the floor--whether they should be combined. There's 
no pride of authorship here. But I do think at an opportune and 
appropriate moment the Congress, the House should once again 
consider this whole issue of trade policy with Japan--the 
essential need for them to deregulate, to open up their 
markets, to terminate their exclusionary policies. It will be 
much better for the Japanese consumer, who can then participate 
in the renovation or the rejuvenation of the Japanese economy. 
And it will surely be better for the business people and the 
workers, as well as, in the end, the consumers of America.
    Thank you very much.
    [The prepared statement follows:]
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    Chairman Crane. Thank you, Sandy.
    Our next witness will be our colleague, Doug Bereuter.

 STATEMENT OF HON. DOUG BEREUTER, A REPRESENTATIVE IN CONGRESS 
                   FROM THE STATE OF NEBRASKA

    Mr. Bereuter. Thank you, Mr. Chairman, Mr. Matsui, members 
of the subcommittee, and Mr. Rangel. Thank you for permitting 
me to be here for the testimony today. I want to commend you 
for holding this timely hearing after the shocking elections in 
Japan, and Prime Minister Hashimoto's recent resignation.
    I've got a couple of paragraphs you can read for yourself 
about what a recent top political pundit in Japan, Mr. Neufer, 
had to say about the implications of that.
    Mr. Chairman, I think it's important to note that the 
people of Japan have spoken to their government officials about 
the need for economic reform. It's now more important than ever 
that the United States send a clear and unequivocal message, 
seconding that call for reform.
    As the chairman of the Asia Pacific Subcommittee, I've been 
concerned about the impact of the Asian financial crisis on the 
United States for some time. Approximately a year ago, 
Thailand's financial crisis was described by the President of 
the United States and many other experts as a ``small glitch in 
the road.'' Now, one year later, Japan and Hong Kong are in 
recession. Indonesia's 32-year ruler, Suharto, is gone. Russia 
stands in desperate need of moreinternational assistance. And 
the world is pleading with China not to devalue its currency. Despite 
Chairman Greenspan's intentional--I think intentional--downplaying of 
the crisis so as not to disrupt the markets, the Asia financial crisis 
threat is real, significant, and unfortunately not a short-term 
problem. Mr. Chairman, I felt compelled to testify before you today, 
not to extol, however, the dangers of the Asia financial crisis to the 
United States. Most members do have some appreciation for this problem.
    Instead, I'm here to discuss the important role that Japan 
can play in alleviating the effects of that crisis. They should 
be second engine of growth in the region. And they're not. 
They're a drag on the economy. They're cutting back on their 
imports dramatically from east and southeast Asian countries. 
They're headed for a negative GNP next year, according to all 
predictions. Only the Japanese have the resources to help 
themselves. And they do not have a record of having the 
necessary resolve to make those changes.
    Though the financial crisis presents a serious threat to 
our national interest, it also provides an opportunity for the 
U.S. Government to pursue a more consistent and balanced trade 
and foreign policy agenda with Japan. Even more important, the 
crisis provides an opportunity for Japan to act responsibly and 
bolster the perception within the American public that it's a 
partner as well as an economic competitor.
    Now, first, we do need to acknowledge that Japan has 
responded to the crisis by acting to protect its self-interests 
in the region in several meaningful ways. And I list those 
there. I'm not going to go over them because of time. But they 
are significant.
    But there's another troubling side to all Japan's effort 
and its traditional response to the crisis. The reality is that 
neither Japan nor any other country has actually dispersed 
second-line credits.
    Moreover, all of Japan's financial assistance--commitments, 
structural adjustment loans, and export-import credits--even 
taken altogether are still an inadequate alternative to a 
strong Japanese economy. Therefore, the primary question 
remains is the Japanese government prepared to make the 
fundamental economic, structural, and regulatory changes 
necessary to strengthen its economy.
    Now the resolution that I've offered, to which referred to 
International Relations Committee, a subsequent referral to 
Banking and to this committee, is broad as reflecting those 
jurisdictions. It is not strictly trade. It goes to a number of 
important issues.
    U.S. officials representing both Republic and Democratic 
administrations have long called for Japan, for example, to 
deregulate its economy and remove informal barriers to trade. 
More recently, U.S. Treasury and Federal Reserve officials have 
called upon Japan to take the tough steps necessary to reform 
the financial sectors of their economy. Those officials calls 
for deregulation are being belatedly and grudgingly heated. 
Under Prime Minister Hashimoto's leadership, the seemingly all-
powerful Minister of Finance bureaucrats finally proposed an 
ambitious but problematic financial sector big-bang and a 
bridge loan--a bridge bank to close bankrupt financial 
institutions. While these moves are in the right directions, 
knowledgeable observers have frankly been underwhelmed by the 
scale and scope of these and other proposed reforms. To 
paraphrase Secretary Rubin, ``it's time for Japan to move 
beyond virtual reforms to real reforms.'' And that certainly 
does involve a permanent tax cut for individual Japanese 
because they're not--they're not confident in their economy, 
and they're not investing. And they're not saving in financial 
institutions at least. Reportedly the biggest single consumer 
item in Japan is home safes. I invite your attention to the 
last section in my remarks related to House Resolution 392. I 
think it's the appropriate advice for the House to give to the 
Japanese, not to pile on, but to let them know how very 
important we think their partnership in dealing with the Asian 
financial crisis really is--for their sake, for east and 
southeast Asia, and also because of its implications on us. And 
the details are forthwritten in that section.
    Thank you, Mr. Chairman.
    [The prepared statement follows:]
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    Chairman Crane. Thank you, Doug.
    And our final witness: our distinguished colleague from 
South Carolina, Lindsey Graham.

STATEMENT OF HON. LINDSEY GRAHAM, A REPRESENTATIVE IN CONGRESS 
                FROM THE STATE OF SOUTH CAROLINA

    Mr. Graham. Thank you, Mr. Chairman.
    I come to the committee today with a little different 
approach to the problem. And I know the problem is real and I 
want to be part of the solution to maintain a good, strong 
relationship with Japan. And I hope Japan can make the 
corrections they need, with our assistance, to get economy in 
that part of the world going.
    But when you talk about U.S.-Japanese trade relations, 
people in the third congressional district of South Carolina 
take notice for a variety of reasons. But one of the dominant 
reasons is that in my district we employ 1,200 folks with Fuji 
Photofilm U.S.A., making a variety of products, including 
photographic film, paper, quicksnap cameras, and 
videocassettes.
    Fuji Film U.S.A., Mr. Chairman, has invested over a $1 
billion in my district. About every other week, we expand, and 
it has brought a quality of life and good paying jobs to my 
district that would be very hard to duplicate. And we're very 
much appreciative of what Fuji Film has done in South Carolina. 
Fuji Film and Kodak were in a dispute, I think some of our 
friends from New York will recall, about the idea of whether or 
not the film market was open and available in afair manner to 
Kodak film. Kodak and Fuji share about the same market share in each 
other's country--9 or 10 percent Fuji market share in the United 
States; about the same for Kodak in Japan. The dispute was brought to 
the attention of the U.S. Trade Representative, and the U.S. Trade 
Representative, at Fuji's request, picked an impartial arbitrator. And 
the U.S. Trade Representative chose to take the dispute between Kodak 
and Fuji and send it to the WTO. And, as you know, Mr. Chairman, the 
WTO ruled not very long ago that basically the concerns of Kodak were 
not founded in law or fact. And I've been to Japan myself to look at 
the availability of Kodak film. What I want this committee to 
understand is that what problems we have with Japan, they are real. But 
let's focus on the real problems. And one of those problems is not film 
access. The WTO has ruled. Let's take the film case and put it on the 
shelf, roll up our sleeves, and go to work on the real problems facing 
both countries. And I would just like to submit my comments for the 
record.
    And I appreciate you very much listening to how U.S.-
Japanese trade relations affect a small town in South Carolina.
    Thank you very much.
    [The prepared statement follows:]
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    Chairman Crane. Thank you, Lindsey. And I thank all of you.
    Are there any questions? Mr. Matsui.
    Mr. Matsui. Well, no, I would just like to thank all three 
of the witnesses. I might just point out that I'm on Mr. 
Bereuter's bill and the Houghton-Levin legislation as well. 
I've looked at the bills, as one might expect, and I don't see 
anything particularly inflammatory in them. They're very 
thoughtful resolutions, and they really deal with existing 
problems. And so, certainly it's something that we need to look 
at; that obviously the timing issue is one that is somewhat 
unfortunate. But this is something that I think we need to make 
some statement on.
    Thank you.
    Mr. Levin. Thank you. I think, Mr. Matsui, they're probably 
more salient today than they were when they were introduced. 
The timing we need to be sensitive to.
    Chairman Crane. I think Mr. Houghton wanted to make a 
statement.
    Mr. Houghton. Thank you very much, Mr. Chairman.
    Just a couple of comments.
    First of all, thanks very much for holding this hearing. 
Thank you, gentlemen, for being here.
    It's really a sad day because Japan is such a good friend 
of ours, and they're going through very difficult times. And we 
don't want to do anything to kick them when they're down. But 
at the same time, there are some things which we feel very 
deeply about; that mention was made of the WTO case as far as 
the film industry is concerned. However, in the resolution of 
that case, Japan claimed that the distribution system was open 
and that they encouraged imports and didn't tolerate restraints 
on competition, which certainly is not right.
    The bill, H. Con. Res. 233, which Mr. Levin and I have put 
in, really goes to film, but that spreads out to a more generic 
basis. I mean, I think that, you can't get away from the facts; 
that you can have an impression and philosophy and different 
changing policies, and listening to the words. But in the case 
of Kodak, you know, wherever they've gone in the world, they 
have either 40 or 70 percent or 80 percent of any market. And 
Japan, despite the protestations of the Japanese government, 
they've got about 10 percent and cannot move off the dime--
absolutely cannot do this. And Fuji is able to bring business 
and money into this country. They can buy up accounts, and they 
can do everything they want. But we can't do it there. So, 
clearly, there's an imbalance. I don't know how it's resolved. 
And whether we go ahead on these two bills individually, Mr. 
Chairman, or whether we combine the two, I don't know. But I 
think we're going after the same issue, and I think that as 
responsible citizens, the Japanese really ought to know how we 
feel, not just say, I know you're having a difficult time. We 
want to be your friend, which, of course, we do. But they ought 
to know what's happening here. And it just isn't right. And so, 
I think these bills put a sharp lens on that. And I think 
they're great. And I applaud Mr. Bereuter and Mr. Levin for 
their work.
    Thank you.
    Chairman Crane. Thank you.
    Mr. Camp.
    Mr. Camp. Thank you, Mr. Chairman. I would just ask 
unanimous consent to enter into the record an op-ed piece from 
the Asian Wallstreet Journal, and would like to call the 
members' attention to the testimony of Peter Walters, of 
Guardian Industries, whose testimony has been submitted for the 
record. And I think he very succinctly explains the problems 
that the U.S. glass manufacturers face with Japanese trade 
barriers, and it explains the failings of the 1995 U.S.-Japan 
flat glass agreement. I hope that we can continue to work 
constructively with the U.S. Trade Representative to ensure 
that the terms of this agreement are abided by all parties.
    Thank you, Mr. Chairman.
    [The information follows:]
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    Mr. Levin. Mr. Camp. Mr. Camp.
    Mr. Camp. Yes?
    Mr. Levin. I'll take 30 seconds. I think it's so, if I 
might say, appropriate that you raised it. Anybody who has any 
question about the comparable openness of the U.S. and Japanese 
distribution and regulatory systems needs only to look at flat 
glass, among many other examples, including photography. Our 
flat glass companies have been trying to get into the Japanese 
market with as good a product if not better and a lower price 
for years. And you--and the article you cite spells that out. 
And anybody who wants to deny the difference--look, we've got 
to help push Japan to open up, to deregulate. And if they 
don't, it's going to harm them and harm the rest of Asia, as 
Mr. Bereuter has said, and us eventually. It already has.
    Mr. Bereuter. Mr. Chairman, if I could----
    Mr. Camp. Well, I appreciate those. Yes, I'd be happy to 
yield.
    Mr. Bereuter. Mr. Chairman, if I could comment on your 
remarks. You brought up a particular industry and a company 
within it. And in my own testimony, you may have noticed there 
is an illustration. On March 28 of 1996, USTR Deputy Ira 
Shapiro came up here and testified that the U.S. flat glass 
exports to Japan had increased 93 percent due to USTR's 
efforts. What he failed to note is that the U.S. flat glass 
sales are in a notoriously closed construction industry. So the 
percentage that we have of the market has gone up a whopping 
one-half percent. They had one-half percent, but a 96 percent 
increase gives them a whole one percent of the Japanese market 
today, despite the fact that, as Mr. Levin said, they are 
extremely competitive and, in fact, should be a very dominant 
player in the field.
    Mr. Camp. Well, I----
    Mr. Bereuter. So those statistics can really be misleading.
    Mr. Camp. Yes, and I appreciate both of your comments on 
this area. And it is one that needs more attention, and I thank 
the chairman for the time.
    Chairman Crane. Ms. Dunn?
    Ms. Dunn. Mr. Chairman, I'd just like to ask unanimous 
consent to enter my statement into the record.
    Chairman Crane. Without exception, so ordered.
    [The opening statement of Ms. Dunn follows:]
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    And, Richie, do you have any questions of our panelists? 
Well, I express appreciation to all of our panelists----
    Mr. Graham. Mr. Chairman? Excuse me. Could I make one quick 
comment just for the record, and I know you're very busy. The 
problems that have been expressed in other areas of the economy 
I'm sure are very real, and I'm sure they're problems with the 
Japanese market. But I want to leave the committee with this 
thought and this fact: in the regards to film, the dispute 
between Kodak and Fuji, which resides in my district with a 
billion dollar investment, the WTO heard the case. The WTO was 
selected as the arbitrator by the USTR. And if it's 
appropriate, I would like to have their decision entered into 
the record. In the area of film, it's about competition. It's 
about investment. It's about who's working the hardest, and 
who's putting the most money into the marketplaces. It's not 
about these other issues.
    Thank you, Mr. Chairman.
    [The material is being retained in the committee files.]
    Chairman Crane. Does anyone else have questions for this 
panel? I yield to Mr. Houghton.
    Mr. Houghton. With all due deference to my colleague here, 
the World Trade Organization is about words, and the 
marketplace is about facts. And the facts are not particularly 
very good.
    Chairman Crane. Thank you, Mr. Corning. And with that, our 
panel will be adjourned. And our next panel consists of Robert 
D. Hormats, vice chairman of Goldman Sachs; Douglas Paal, 
president and founder, Asia Pacific Policy Center; Clyde 
Prestowitz, Jr., president, Economic Strategic Institute; Brink 
Lindsey, director, Center for Trade Policy Studies, Cato 
Institute; and Kenneth Pyle, professor of history and Asian 
studies, University of Washington, and president of the 
National Bureau of Asian Research in Seattle.
    And, gentlemen, as I indicated to colleagues earlier, if 
you could try and confine your oral testimony to roughly 5 
minutes. All printed statements will be made a part of the 
permanent record. And we'll proceed in the order in which I 
introduced you.
    Dr. Hormats, you will be first.

 STATEMENT OF ROBERT D. HORMATS, VICE CHAIRMAN, GOLDMAN SACHS, 
                       NEW YORK, NEW YORK

    Mr. Hormats. Thank you, Mr. Chairman, Mr. Matsui, Mr. 
Houghton, and other members. It's good to be back to testify 
before this committee.
    Let me be brief and make a few key points.
    First, in my judgement, the world economy today faces 
greater danger than at any time since the oil crisis of the 
1970's. There's an enormous threat to the global economy. As I 
say, the dangers are greater than at any time since the oil 
crisis. Let me identify the three major reasons why.
    First, recession, a weak yen, and serious banking problems 
in Japan. We'll discuss those in greater detail a little bit 
later.
    Second, faltering growth, recession, or depression in much 
of the rest of Asia. I've been to Asia very recently. 
Confidence is collapsing. Currencies are under pressure. A 
number of countries, Indonesia being the most difficult 
situation, are facing depression. Growth expectations are being 
steadily and dramatically downgraded. And for many countries, 
unemployment is going to skyrocket over the next several 
months.
    A third element of the problem is sharply lower energyand 
commodity prices. Now those, in a way, are of great tax benefit for the 
United States. It's like a big tax cut for Americans. But it also is 
very harmful for the countries that export oil and export raw 
materials. Many large countries, Russia is a good example, have been 
hit badly by the collapse in energy and raw material prices.
    So this is a very dangerous period for the world economy. 
And one has to feel pessimistic, particularly if you visit 
various countries of Asia.
    This is also a pivotal period for the world economy. Many 
of these crisis countries need to come up with measures to halt 
the deterioration. All over Asia, major reforms are being 
implemented or planned. The question is: Will they be adequate 
and will they be implemented quickly enough? Here's where 
Japan's reforms must play a central role. Japan has a short 
time, a very short time, in which to decide whether to take the 
additional steps needed to boost growth, strengthen its banking 
system, and thereby restore confidence in its markets and its 
currency and become an important part of the solution to the 
Asian problems, or to continue to put off tough decisions and 
thereby suffer further erosion of its own economy and pose a 
growing threat to the Asian region.
    I'd also make the point that the Asian crisis has not 
really had much of an effect on the U.S. Some would say it's 
beneficial, because it has helped to lower interest rates and 
lower prices, and thereby stave off an increase by the Fed. On 
the other hand, the crisis has adversely affected a large 
number of American companies that sell in Asia. And if the 
American economy were to turn down at a point in time when the 
Asian economies are still as weak as they currently are, that 
would have a devastating effect on the global economy. An 
interest rate increase by the Fed would also have a very 
adverse global effect.
    A few points on the impact of Japan on Asia. First, Asia 
and Japan are very closely interrelated. For most countries, 
Japan is the biggest market for their exports--for virtually 
every other Asian country. They export 20 to 25 percent of 
their goods to Japan. But more importantly, the collapse of the 
yen makes Japanese goods more competitive vis a vis its 
neighbors in bilateral trade. And, it makes Japanese exports 
more competitive in third countries like the United States. One 
example: Korea. Seventeen percent of Korean trade is directly 
with Japan, but about 30 percent of Korea's exports compete 
head to head with Japanese exports in third country markets. 
China sells Japan 20 percent of its exports directly and 
competes with Japanese exports in third markets with about 20 
percent of its exports. So, that's why the decline in the value 
of the yen has been so harmful in terms of its impact on these 
other countries--and why their currencies and their markets go 
down when the yen depreciates.
    Let me turn to a couple of points about reform. Japan has 
opened up in the financial services area to a very significant 
degree. The foreign exchange law of April 1 and the Big Bang. 
Both are pluses. There are concerns, however, that I do have 
about Japan's new securities investor protection fund, which is 
meant to help out the securities companies that have gotten 
into trouble. I think that puts a disproportionately large 
share of the costs on the large international firms that 
operate in the Japanese market. There are ways of improving 
that, which I can elaborate on.
    Two areas of assistance that I'll close on.
    One, it seems to me, that it is extremely important today 
for the United States to use the expertise it has in dealing 
with bank workouts. We developed a lot of expertise during the 
savings and loan crisis. There are a lot of experienced 
individuals--Bill Seidman is one. There are many others in the 
regulatory area and the banking area that have a lot of 
experience. The Japanese and, indeed, every economy in Asia 
needs to restructure its banking system, restructure its bad 
loans; and particularly to get real estate collateral now 
frozen off the books of the banks. The U.S. can provide 
enormous expertise. And it seems to me that is an extremely 
important thing.
    The second is provide some general advice on opening up 
their markets, and particularly ways of deregulating their 
economies so that they become more efficient. We've had a 
longstanding engagement on the trade front with the Japanese in 
this area. And it seems to me that a more open, efficient 
economy of the kind we've been urging them to do still ought to 
be very high on our agenda.
    Thank you, Mr. Chairman.
    [The prepared statement follows:]
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    Chairman Crane. Thank you, Dr. Hormats.
    Dr. Paal.

   STATEMENT OF DOUGLAS H. PAAL, PRESIDENT AND FOUNDER, ASIA 
                     PACIFIC POLICY CENTER

    Mr. Paal. Thank you, Mr. Chairman. It's a pleasure to be 
here.
    Having had the case made by previous witnesses that the 
situation is quite serious, I'd like to address the question of 
what do you do under these circumstances with respect to Japan.
    Japan is at an impasse. It's in a period of incomplete 
political reform and incomplete economic and financial services 
reform. And in this period of imperfection, they've been hit by 
a financial crisis for which the economic system and the 
political system appear inadequate to deal with the situation. 
Under these circumstances, we face a question of what do we do 
as a nation. Do we do nothing? After all, it's mostly Japan's 
problem to solve. Or do we do something? If we decide as, 
typically, Americans do, that we ought to do something, the 
question is do we do it in a negative fashion? Do we scold or 
levy sanctions to find some way to put pressure on Japan. Do we 
combine that with a more positive approach that we adopted--
generally positive approach? I think for the moment a generally 
positive approach toward the Japanese is the appropriate one.
    The range of required actions to address the crisis inJapan 
is broad and primarily requires self-help by the peoples of the 
countries concerned in the region. But they are literally finding the 
ground washing out from under them as Japan's crisis deepens. First, we 
should avoid the temptation to assess blame or take delight in Japan's 
problems, coming as they do after a period of 1980's Japanese 
triumphalism. An American display of triumphalism now over our own 
improved circumstances is equally out of place.
    We need publicly to avoid the finger-pointing of recent 
months, which has built a negative image in Japan among the 
Japanese public about American officials. Rather, we should 
treat the Japanese as the friends they truly are. We know our 
friends in our times of need, and so will they in their time of 
need.
    Second, the U.S. administration needs to pull its Japan 
policy together in a fashion worthy of the name. Lacking anyone 
of personal authority or expertise on Japan in its senior 
ranks, the administration's policy now is an adjunct of the 
Treasury Department's concerns. Treasury has many fine people 
trying to do the right thing, but they need the help of the 
rest of governmental establishments. The National Security 
Council, for example, lacks a senior director to manage overall 
Asian affairs right now. It's essential that whoever is chosen 
for this position have the capacity to pull together a coherent 
Japan policy as part of overall policy toward an Asia in 
crisis.
    Third, the President and Congress should work together to 
demonstrate to the Japanese people that we are on their side as 
they struggle to overcome the situation. I think that by 
creating a visible and high-ranking interagency team, 
consisting of the appropriate representatives from around the 
government, and naming a private bilateral advisory commission, 
which takes Bob Hormats' recommendation a slight step farther 
by making it more organized and official, and have them go to 
the Japan and offer advice and assistance where possible, we 
can redress some of the damage done by angry words and verbal 
shoving in recent months.
    Let me stress again that in the end, this is Japan's 
problem to solve. But as many veteran observers of the Japanese 
scene have noted, Tokyo is currently beset by a pattern of 
exceptionally weak political leadership, disconnected 
uncharacteristically from a discredited bureaucratic elite. 
It's very hard to see the mechanisms whereby policy will be 
formed and executed expeditiously. If our help can accelerate 
this political process, we should give it.
    Current technical advice to Japan can be supplemented by 
systematic visits to a broad range of the leadership. A 
bilateral commission, preferably led by former Federal Reserve 
and Resolution Trust Company officials, can create 
psychological pressure on the Japanese elites as they're 
televised going from office to office, offering ways out of 
their circumstances.
    And what should they tell the Japanese? My fourth 
recommendation is to urge that the Bank of Japan be pressed to 
increase the money supply. For example, by buying up Japanese 
government bonds, they can release yen into the economy, 
reversing the deflationary slide that has helped erode consumer 
confidence. I might note that just last night the central 
bankers meeting in Tokyo agreed on a new yen facility for the 
region which would do just that with foreign purchasers of the 
Japanese government bonds.
    Obviously, accelerated banking reform is necessary. Japan's 
proposed ``bridge bank,'' meant to function like our RTC, is a 
necessary ingredient and should be enabled to function as soon 
as possible. That may be in danger in the current circumstances 
in Japanese politics. Bad debts and failed banks need to be 
confronted and liquidated. Depositors should be protected with 
public funds as necessary.
    Taxes need to be reduced. High marginal income taxes should 
be reduced to G-7 levels, and capital gains taxes on real 
estate transfers lowered to the same sorts of levels.
    Financial services need deregulation. And the Japanese 
markets need to be open. Japanese past assistance in the post-
war era to its Asian neighbors is being wiped out, and its 
effect, as they linger in the patterns of the past, is being 
felt at home. It's time for change. But this should be done--
addressed--I think at the moment in a positive sense.
    Fifth, more concerted efforts are needed to deal with 
specific crises in the region. There is scope, for example, for 
a combined humanitarian and political relief initiative for 
Indonesia as outlined some weeks ago by former ambassador Paul 
Wolfowitz.
    Members of the committee, in closing I want to stress that 
the collapse of the Japanese economic bubble seems for the 
moment to have been more of benefit than harm to short-term 
U.S. interests. But we must not overlook the aspects of our own 
situation that look more like a bubble everyday. Our own 
financial institutions have been made more healthy after the 
S&L crisis. American firms are increasingly productive and so 
on. But American stock markets are dizzyingly high and real 
estate values are rising. In a very real sense, the choice 
before us today is to let the air out of our bubble slowly and 
relatively harmlessly or wait for a swing in market forces to 
scythe through our financial institutions. The sooner we can 
help the Japanese stabilize their situation by facing up to the 
extremely tough and painful choices they themselves face, the 
sooner asset flows will become more stable for ourselves and 
the friends in Asia we have worked so hard for generations to 
help grow and prosper.
    Thank you.
    [The prepared statement follows:]
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    Chairman Crane. Thank you, Dr. Paal.
    Mr. Prestowitz.

  STATEMENT OF CLYDE V. PRESTOWITZ, JR., PRESIDENT, ECONOMIC 
                       STRATEGY INSTITUTE

    Mr. Prestowitz. Thank you, Mr. Chairman. I'd like to 
reiterate the warning issued by some of the early commentators. 
At the moment, it seems to me that the situation in Asia is 
something that we haven't seen in the world since about 1930. 
Hundreds of millions of people are being pushed back into a 
poverty they only recently escaped.
    The bulk of Asia and perhaps much of the rest of the world 
is teetering on the brink of disaster, and the key to how that 
turns out--whether, in fact, we do have a disaster or whether 
we manage to snatch victory from the jaws of defeat--is Japan. 
It is virtually impossible to imagine that Asia can recover 
without a revitalization of the Japanese economy. And it may 
also be the case that the global trading system cannot stand 
the impact of continued contraction and decline of the Japanese 
economy.
    Over the last 25 or 30 years, the United States has had an 
almost unending series of trade frictions with Japan. And the 
United States is not alone. The European Union and, indeed, the 
countries of the rest of Asia have had similar kinds of 
disputes with Japan. And these have often been discussed in 
terms of market opening; in terms of possible sanctions or 
threats. There have been endless negotiations, and a number of 
agreements have been reached. Most of those agreements, 
according to a recent survey by the American Chamber of 
Commerce in Tokyo, are either not working at all or not working 
fully. And we could spend a lot of time talking about each one 
of them. Some of them have been raised already in testimony 
this afternoon. But I think the fact is that they are all, in 
fact, manifestations of a much bigger issue. And the much 
bigger issue is now evident from the systemic problems of the 
entire Japanese economy. The problem here is not a banking 
problem, although there is a financial crisis. It's not just a 
lack of stimulating in the Japanese economy, although there is 
a lack of stimulation. It's a systemic crisis. And I think that 
it has to be addressed in that manner, both by the Japanese and 
by those outside of Japan, including the United States, who 
care about this issue.
    Surely, Japan needs to carry through the banking reforms 
that have been described. Surely, Japan could use a tax cut. I 
would prefer an abolition of the consumption tax, as opposed to 
a cut in income taxes because most Japanese don't pay income 
taxes. But you can quibble about that. The point is yes, they 
need a tax cut; yes, they need to fix the banks. They need to 
take whatever it is, $500 billion, a trillion dollars, and pay 
off the bad loans. And yet, all of that will not fix the 
problem in Japan.
    It's a little bit like giving a blood transfusion to a 
patient who needs a heart transplant. He needs the blood 
transfusion to stay alive, but he needs the heart transplant to 
really get well. And the heart transplant in this case is a 
thorough restructuring and deregulation of the Japanese 
economy. It's land reform. It's creating a real market for real 
estate so that real estate actually trades at market values. 
It's getting rid of the main bank system and lifetime 
unemployment so that you create a real labor market. It's 
decartelizing the structure of much of the distribution system 
so that manufacturers cannot tie distributors to them. It's a 
whole range of issues, and perhaps most importantly is 
establishment of a true rule of law so that bureaucrats do not 
have the ability to administer administrative guidance.
    These are very far-reaching changes that imply very 
substantial social and political adjustments. They will not be 
easy. And it seems to me that the best thing the United States 
can do is to meet quickly with whoever the new Japanese 
leadership is to outline our own thoughts about the direction 
Japan might profitably go and perhaps to convene a--several 
meetings--an extraordinary meeting of APEC leaders to develop 
an Asia recovery plan on which Japan's recovery would be the 
central part; a meeting of the World Trade Organization to 
address the question of how to insulate the trading system from 
the impact of a continuing Japanese decline.
    Thank you very much.
    [The prepared statement follows:]
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    Chairman Crane. Thank you, Mr. Prestowitz.
    Mr. Lindsey. Dr. Lindsey, excuse me.

 STATEMENT OF BRINK LINDSEY, DIRECTOR, CENTER FOR TRADE POLICY 
                    STUDIES, CATO INSTITUTE

    Mr. Lindsey. Mr. Chairman, it's Mr. Lindsey.
    Chairman Crane. Oh, it is Mr. Lindsey.
    Mr. Lindsey. Mr. Chairman, Members of the Trade 
Subcommittee, I appreciate the opportunity to come before you 
today and discuss the situation in Japan and what, if anything, 
the United States can do about it.
    The other witnesses in their written and oral testimony 
have sketched a grim portrait of economic conditions in Japan. 
I generally concur with that assessment. Today, I'd like to 
spend a little bit of time, before talking about the proper 
U.S. response, I'd like to spend a little bit of time putting 
today's conditions in Japan in context. Because while Japan's 
serious problems are certainly cause for concern, they also 
ought to be some cause for embarrassment on the part of those 
Japan experts who not so long ago thought that the Japanese 
economy was a vastly superior economic model to our own.
    As we discussed in a paper, to be published shortly by the 
Cato Institute, the so-called revisionists, including Clyde 
Prestowitz, sitting beside me, believed that they had 
discovered in Japan a new and superior form of capitalism. 
Well, the revisionists turned out to be wrong. In particular, 
they completely misread the significance of Japan's distinctive 
system for allocating capital. They thought it was a source of 
Japan's strength. But, in fact, it turned out to be an 
Achilles' heel.
    The Japanese financial system systematically insulated 
decisions about allocating capital from market signals. With a 
heavy reliance on bank lending, an absence of transparency and 
full financial disclosure, and a suppression of equity markets 
through stable cross-share holding, the Japanese system 
allocated funds according to established relationships and 
government targeting of strategic industries rather than in 
pursuit of the highest market return. Revisionists praised this 
system for its long-term focus. In fact, the absence of market 
discipline and feedback produced the wild speculation of the 
bubble economy during the 1980's and the resulting bad debt 
mess of the 1990's. It has wasted the hard-earned savings of 
the Japanese people on a truly mind boggling scale.
    To regain economic health, Japan must address the bad debt 
crisis. Insolvent institutions must be allowed to fail. Weak 
institutions must be merged into stronger ones. Good assets 
must be separated from bad. Bad assets must be foreclosed on 
and written off. Without resolution of this central problem, 
the Japanese financial system will remain paralyzed, and many 
other beneficial reforms are, therefore, unlikely to do much 
good. After all, it's hard to have capitalism without capital.
    Well, is Japan going to do the right thing? On the positive 
side, the recently announced total plan does at least create a 
structure for dealing with the bad debt crisis that could work. 
But implementation is everything, and the political obstacles 
that stand in the way of effective follow-through are 
formidable. Those political obstacles may have been eased or 
may have worsened by the recent election results. It's too 
early to know. At this point, a healthy skepticism about 
expeditious reforms remains in order.
    Whatever happens, though, we must face the fact that the 
United States can do very little to affect this situation. This 
is not a trade dispute. I disagree with the suggestion that 
this matter be referred to the WTO. The WTO has neither the 
mandate nor the competence to address domestic economic policy 
issues such as those that are currently afflicting Japan. This 
is a matter of purely domestic economic policy, albeit with 
international ramifications. And it will be handled or not by 
the Japanese in accordance with domestic political realities. 
It's argued, of course, and truly that Japan's problems do 
affect the rest of the world. Japan's economic weakness is 
worsening the larger crisis in east Asia. And a full-scale 
Japanese meltdown could drag the rest of the world into 
recession.
    Well, while it's true that we live in an interdependent 
world, this is also a world of sovereign nations. As much as it 
pains us, we do not control the domestic economic policies of 
other countries. Western Europe, for example, has suffered for 
years now from chronic double-digit unemployment. This problem 
saps the vitality of that continent and may, over the long 
term, breed serious social pathologies.
    At the root of the problem are bad policies--rigid labor 
market regulations and dependency-generating social insurance 
programs. Although we as Americans and other people around the 
world would surely benefit from a more dynamic Europe, we 
realize that we have little standing or leverage to affect 
domestic policies there. We need to come to the same kind of 
humble realization with respect to Japan.
    If Japan does make necessary reforms, the process is going 
to be driven not by foreign political pressure, but rather by 
economic pressure. Japan announced its ``Big-Bang'' reforms not 
because of U.S. haggling, but because of the perception that 
Tokyo was becoming a financial backwater by comparison to the 
more competitive and dynamic markets of London and Tokyo.
    Likewise, the pressure of yen leaving the country in search 
of a decent return will do more to promote financial 
restructuring than any amount of U.S. table pounding. Over the 
long term, the most effective thing that we can do to encourage 
market-oriented reforms in Japan is to set a good example. If 
the United States keeps its own house in order, our superior 
economic performance will act as a spur to the Japanese and 
other countries around the world to follow our lead. Apart from 
a good example, we can provide expertise and advice, but we 
ought to have appropriately humble expectations regarding what 
they can accomplish. Because, in the end, we cannot force the 
Japanese to do what's good for them.
    Thank you very much for inviting me here today.
    [The prepared statement follows:]
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    Chairman Crane. Thank you, Mr. Lindsey.
    Dr. Pyle.

  STATEMENT OF KENNETH B. PYLE, PROFESSOR, HISTORY AND ASIAN 
  STUDIES, UNIVERSITY OF WASHINGTON, AND PRESIDENT, NATIONAL 
         BUREAU OF ASIAN RESEARCH, SEATTLE, WASHINGTON

    Mr. Pyle. Thank you, Mr. Chairman. As I understand, my 
assignment in this hearing it is to discuss the political 
background of our relations with Japan at this time. I will not 
attempt to discuss specific trade issues per se but rather the 
broader context of Japan-U.S. relations within our present--
within which our present trade negotiations are set. As a 
result of Sunday's election, the resignation of the Prime 
Minister, present gaping vacuum of political leadership have 
further exacerbated what I believe had already become the 
greatest political economic crisis Japan has faced since World 
War II.
    It is a systemic crisis. The problem is not only the 
prolonged economic slump, the unresolved banking crisis, and 
the uncertain progress of deregulation, but rather in a long 
succession of crises in this decade, since the end of the Cold 
War, Japan has shown a bewildering lack of purpose and 
direction, a pattern of paralysis and immobilism in its policy 
making, and a dismaying lack of leadership.
    In addition to the failures, to deal with the economic and 
financial crisis, there are many other examples of immobilism. 
At the beginning of the decade in the Gulf War, there was the 
utter failure of Japan to muster coherent support for the 
international coalition. And then, during our standoff with 
North Korea over its nuclear program in 1994, Japan was unable 
to decide whether it could provide backup assistance for U.S. 
forces should there be a conflict right next door on the 
peninsula.
    Japan has reluctantly agreed to our insistence on a 
revision of the Defense Cooperation Guidelines, but there is a 
mountain of legislation that will be required to make these 
guidelines operational. And the whole issue of whether Japan is 
willing to engage in collective self-defense remains 
unresolved.
    In the Kobe earthquake and the nerve gas attack in the 
Tokyo subways in 1995, and then in the 1996 Peruvian hostage 
crisis at the Japan ambassador's residence, Japan demonstrated 
an appalling lack of effective crisis management. Japanese 
leadership has also failed to reach consensus about 
responsibility for its militarist past, at great cost to 
Japan's international standing.
    In short, there is a broad pattern of systemic stalemate, a 
paralysis of institutions and policymaking that cast doubt on 
the likelihood of Japan's ability to contribute to solution of 
the Asian financial crisis, or to achieve any time soon the 
long promised opening of Japanese markets to trade and 
investment.
    The Japanese system, which worked so well during the high-
growth period and during the unique circumstances of the Cold 
War, and which only a decade ago was widely expected to offer 
world leadership, is floundering. The Japanese ship of state 
today is adrift, and there's presently no one at the helm.
    Five years ago, when the LDP was overthrown after 38 years 
of one-party rule, many observers in Japan and abroad thought 
the upheaval would lead to sweeping reforms and bring to power 
new faces, reformers with new ideas of openness and change and 
a new sense of national purpose.
    Since then, however, politics have been in a rudderless 
state. Parties have experienced a dizzying display of 
realignments. In less than five years, we've had four changes 
of government, six prime ministers, and the sharing of power by 
11 political parties. The opposition parties proved even less 
able than the LDP to provide decisive leadership.
    Today, the LDP again has a majority in the lower house, but 
has just lost its hope of controlling the upper house. The 
opposition parties are fragmented, the reformers in disarray, 
and the electorate so alienated that fully half of the voters 
support no party. Moreover, the LDP itself is internally 
divided over fundamental issues of reform and economic policy.
    The bureaucracy, which gave Japan strong purposeful 
leadership through the post-war decades, is today demoralized 
and disoriented by scandals, turf struggles, and a lack of 
clear direction. At the same time, it is holding fast to its 
power and influence.
    How are we to account for the paralysis of Japan's 
political leadership since the end of the Cold War? There are, 
of course, immediate causes, such as fundamental disagreement 
over whether tax cuts and stimulative spending would worsen 
already substantial government deficits and undermine the 
fiscal discipline required to deal with Japan's rapidly aging 
population. But if we look for deeper causes of this 
immobilism, they are to be found in the legacy of the policies 
and institutions that remain from the catch up period and the 
unique role that Japan played in the international system 
during the Cold War period. The century-long campaign to catch 
up with western industrial economies left many deeply 
entrenched interests and institutions, especially the iron 
triangles among bureaucracy, industry, and ruling party, which 
are resistant to reforms.
    Moreover, the post war exclusive concentration on economic 
growth left many political strategic institutions undeveloped, 
including the weak prime ministership.
    Another fundamental reason is the consensual decision 
making process of Japan. It is ponderous in times of 
uncertainty. And in Japan's post Cold War external environment, 
there are huge uncertainties, including the globalization of 
capital markets, the rise of China, the prospect of Korean 
unification, and so on.
    Historically, in such times of uncertainty in its external 
environment, Japan has typically held back, watched and waited 
for trends to clarify. Japan is not disposed to international 
leadership. It is typically adaptive to its environment, 
opportunistic and pragmatic, moved by national self interests. 
It has a powerful conservative tradition in its society and 
politics. Most Japanese policy makers are deeply resistant to 
American-style, market-led reforms, which they are believe are 
too unpredictable in their social consequences. Many policy 
makers, such as Mr. Sakakibara, the key MOF official in 
international trade matters, still have faith in a Japanese-
style capitalism.
    What all this adds up to in my judgement is a continuing 
and prolonged period of drift and instability in Japanese 
politics, making Japan a difficult and uncertain partner for 
the U.S. in world political economic affairs. Despite the fact 
that many of its fundamentals are good, there is little 
prospect that Japan will muster the leadership to quickly 
stimulate its economy, boldly reform its financial 
institutions, and thereby strengthening the yen and help lead 
Asia out of regional contagion.
    On the contrary, Japan appears to be cutting back in 
critical ways. Accordingly, this systemic fatigue and gridlock 
in the politics of our principal ally in the region enhances 
the imperative for American leadership. We will have no choice 
but to continue prodding and pressuring Japan, both bilaterally 
and, when possible, multilaterally to take steps its system is 
resisting. There is very deep resentment of American hectoring, 
and we need to be wise in how we do it.
    Fortunately, as a result of America's restored economic and 
political influence, Japan has a renewed appreciation of the 
indispensability of its alliance with us. And we possess very 
considerable leverage.
    Thank you.
    [The prepared statement follows:]
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    Chairman Crane. Thank you, Dr. Pyle.
    Dr. Hormats, the resignation of Prime Minister Hashimoto 
has created uncertainty about the future direction of economic 
policy in Japan, and it's clearly too soon to tell what will 
happen yet. But do you have any sense of the prospects for 
continuing reform and deregulation?
    Mr. Hormats. I think, Mr. Chairman, that we know a few 
things. I'm always hesitant to make judgements about other 
countries' politics. But there are a couple things we knew.
    One is that a large--far larger number of people voted in 
this election that had been anticipated. The general view was 
that maybe 35 percent or 40 percent of the electorate would 
vote. Fifty-nine percent actually voted.
    Chairman Crane. Ten percent more than we.
    Mr. Hormats. That's right.
    And in the urban areas, the LDP won virtually no seats--
none, if I'm correct. Or a very small number. So there was 
clearly two things happening: one, a lot of people went out of 
their way to express frustration and disappointment and 
annoyance with the LDP. And second, in the urban areas, as 
opposed to the rural areas, where there is strong LDP 
constituencies in the urban areas, the LDP was a disaster. So 
this must convey some signal to the LDP aboutfrustration.
    What it portends about future reforms is harder to 
determine, however. As the testimony that we've heard today, I 
think, would indicate one should not make the judgment that the 
frustration with the LDP means that the electorate supports the 
kind of bold reforms that most here would advocate, which is to 
say particularly a very dramatic adjustment--reform of the 
banking and the real estate sectors--or these systemic kinds of 
reforms that have been discussed here. On the contrary, there 
are probably a lot of Japanese who regard those as so wrenching 
and so disruptive of labor markets that they would not support 
them. So I don't think we can necessarily make the judgment 
that this election result means that they're going to proceed 
quickly down the road toward bold stimulus, reform of the 
banking system, or reform of the property markets. The stock 
market, I think, began to believe that the day afterwards--
certainly, the Japanese stock market did. Ours did as well. But 
I'm a lot more cautious and circumspect than that.
    Chairman Crane. Mr. Prestowitz, in your book, Trading 
Places, you advanced some arguments about the Japanese economic 
success in the 1980's that I didn't agree with you on, but I 
wonder if you still hold the same view that you expressed in 
Trading Places.
    Mr. Prestowitz. Thank you.
    Yes, basically, I do. And I think that--let me pose a 
question back to you. Mr. Lindsey here made the comment that I, 
as a revisionist, was wrong about Japan. And both he and you 
have proceeded on the assumption that I was praising the 
Japanese system as a superior system. I'm kind of baffled by 
this because I've been attacked in the press. I've been 
attacked by Mr. Lindsey's institute as a Japan basher. I mean, 
I'm one of the well-known Japan bashers. I can't figure out how 
I can be a Japan basher on the one hand, and an advocate of the 
Japanese system on the other hand. It's not logical.
    Chairman Crane. Oh, I didn't accuse you of it.
    Mr. Prestowitz. So let me try to explain this. I lived in 
Japan in the 1950's and the 1970's and worked in the government 
and negotiated with Japan in the 1980's. In those years, the 
Japanese system was doing very well and was displacing U.S. 
industry in a number of areas. And I described how the Japanese 
system worked and how it was doing that. Now, a very 
interesting point is that I said at that time that Japan's was 
a mercantilistic, crony capitalist system. And when I said 
that, I was attacked by Mr. Niskanen, who's the head of Mr. 
Lindsey's institute, and by other leading economists who said, 
``no, Japan is just like us.'' It's a good neoclassical 
economy. Well, now it turns out that, in fact, it was a 
mercantilistic, crony capitalist system, and we're now seeing 
that not only did it imply some damage to the U.S. in the 
1980's, but it now, the system now threatens not only the U.S. 
but itself and the rest of Asia.
    Chairman Crane. Are you arguing that nothing that you said 
in Trading Places was a recommendation that we might emulate 
Japan in some areas?
    Mr. Prestowitz. No, of course, not. I mean, look. I wasn't 
100 percent right. Even I make mistakes. And, you know, there 
were some things in Trading Places, if I had to write it over 
again, I'd write it differently. By the same token, the fact 
that Japan now has problems doesn't mean there's nothing we can 
learn from Japan. Japan's not all wrong. It has just got some 
significant structural issues.
    Chairman Crane. Okay, we've got to give Mr. Lindsey equal 
time.
    Mr. Lindsey. Well, it's good to see that Mr. Prestowitz 
remains a revisionist. Now he's revising what he used to say.
    The debate back in the 1980's was in the context of 
Japanese economic success, and the question was what's causing 
that success. The revisionists thought it was due to the hand 
in glove relationship between industry and government, 
occasional targeting of specific industries for support, and 
for the closed financial system that allocated capital on what 
was thought to be a patient and long-term view.
    Those of us on the other side, who were then called naive, 
free-market ideologues, said, ``no, Japan's economic success is 
due primarily to market factors''--to low taxes and low 
spending for many decades after the war--low government 
spending and also to the entrepreneurial ingenuity of Japanese 
corporations which devised new and superior manufacturing 
techniques, which did, indeed, in specific industries, though 
not across the board, knock American companies back on their 
heels for a number of years, until, American companies learned 
to mimic and adopt those practices on their own.
    So the issue was what caused Japan's success. The free 
market folks never denied that Japan had interventionist 
elements. We simply said that Japan was succeeding in spite of 
those elements and now it is sadly apparent that those 
interventionist aspects of the Japanese system, which won high 
praise from the revisionists, have now been Japan's undoing.
    Chairman Crane. Thank you.
    And Dr. Paal, you mentioned that the replacement of 
Hashimoto is not necessarily bad. How long do you think it will 
be before the newly chosen leaders can take serious steps to 
correct the problems in the Japanese economy and banking 
sector?
    Mr. Paal. Well, as I discussed earlier, Mr. Chairman, 
there's a difference between theory and reality here. In 
theory, they could begin very soon. They have a due date of 
getting a new cabinet together by the 26th of July and getting 
the bridge bank legislation through in a very hurried-up 
session at that time, and then addressing tax reductions later 
in the year.
    I think the chances of those things happening in lock step 
are rather small. As an observer of the Japanese scene for 
quite a long time, I think that the array of Japanese leaders 
ready to take the bit in the teeth and go with it is so narrow 
and waiting so long to be senior enough to take the top 
leadership posts that I would think we'd have to keep our 
expectations low. It's for that reason that I recommend we 
adopt as a nation a more activist policy.
    Japan has in its history had four occasions when its 
economy has gotten into real trouble and it has needed help. 
The first was the 1880's, and they had an internal strong man 
who led the charge to fix it, Count Matsugata. It happened 
again in the 1930's, and the Japanese turned their policy over 
to the military. The military marched on until they lost the 
war. It happened again in the 1940's when Horace Dodge from the 
United States was brought in to straighten out Japanese 
economics. And today, we're witnessing the fourth time.
    Given the peculiar circumstances of this versus the 
previous occasions, I think this is a time when we ought to 
take a proactive, constructive, all-embracing approach. It may 
fail. But the alternative of doing nothing is likely to lead to 
nothing.
    Chairman Crane. And one question that I'd like to put out 
to all of you folks, and it's a--from a written statement that 
we received from Richard Fisher, who's Deputy USTR. And it was 
at the recent APEC ministerial meeting in Malaysia. He stated 
that Japan, this is a quote, ``Japan pursued a course of action 
that could undermine the entire APEC initiative and cast doubt 
not only on Asia's recovery, but also on APEC's 
effectiveness.''
    And I'd like to throw that out to all of you. Do you 
basically agree with that assessment? I mean, is that your 
reading?
    Fire when ready, Gridley.
    Mr. Prestowitz. I'm not sure we understand. Would you 
repeat that?
    Chairman Crane. Yes, at the APEC ministerial meeting in 
Malaysia, he said, ``Japan pursued a course of action that 
could undermine the entire APEC initiative and cast doubt not 
only on Asia's recovery, but also on APEC's effectiveness.''
    Mr. Paal. Mr. Chairman, I know something about what I think 
is being referred to by Mr. Fisher's statement, and that is 
that at the APEC ministerial, the Japanese raised reservations 
about the voluntary sectoral trade liberalization measures that 
had been promised by the APEC leaders at their previous 
meeting. Japan, at the previous meeting, had introduced 
reservations in the areas of agriculture and fisheries, because 
that's always been a difficult and sensitive area in their 
ministry. And they raised them again this time in a context 
when other countries were coming forward with liberalizations 
that they had promised in the November meeting last year.
    In some ways, it should not have been a surprise to the 
international community that they did this, because it's always 
been a sensitive issue. It was the wrong note to sound at the 
wrong time, in an era when everyone is being stricken by 
closing markets and other kinds of economic difficulties. And 
that I think goes back to the point many of us were making 
earlier, which is that Japan today is not in a--its leadership 
appears not to be a position to be able to override this narrow 
sectoral interest, such as agriculture and fisheries posed 
inside Japan.
    Chairman Crane. Anyone else have a comment on that?
    Mr. Lindsey. Just assuming that that was, indeed, what was 
at issue, and I wasn't able to pick that up from that one 
comment--however unconstructive Japan has been with respect to 
voluntary sectoral liberalization within the APEC process, I 
think those kinds of sectoral issues must be put in context, 
and they pale in importance next to the huge central issues 
that face Asia today: Japan dealing with its bad debt crisis; 
and the rest of Asia dealing with their broken and 
dysfunctional financial systems. So I think putting too much 
emphasis and too much heat on Japan with respect to narrow 
sectoral issues is simply bad prioritization. We ought to keep 
our eyes on the ball, and the ball is getting the financial 
system back into operation.
    Chairman Crane. All right. Dr. Pyle, why does Japan 
continue to play such a reticent stand-on-the-sidelines role in 
the WTO and in APEC?
    Mr. Pyle. Well, Japan, as I said, is not disposed by its 
nature to be an international leader. Some people, for example, 
have said that Japan is leading from behind in organizations 
like APEC. Doug Paal is absolutely right in what he described 
here as Japan's failure to play a leadership role on this very 
important issue. It's still really governed by narrow private 
interests, and those private interests too often collide with 
the kind of free-trade leadership that is required in WTO and 
other such international efforts.
    Chairman Crane. Thank you. Mr. Matsui.
    Mr. Matsui. Thank you, Mr. Chairman.
    Clyde, I might just add with respect to your book and some 
of the writings I read over the 1980's, I don't--I frankly 
think you were right. I think what's happening in Japan right 
now bears out some of the things you were saying about the 
Japanese economy. You were mainly talking about how to open up 
the Japanese market because there was a certain amount of 
controls through the regulatory process and obviously the 
banking system. And I think, you know, from what happened 
recently, over the last few years, it bears out your concept of 
what the Japanese economy was actually like.
    I might just want to pose maybe to all of you, particularly 
Mr. Hormats, each one of you said something that was very 
important and very interesting. So I'm going to take parts of 
it. Dr. Pyle talked about the fact that the Japanese government 
drives the system as the bureaucracy and obviously it requires 
a consensus. And it's a very slow process. At the same time, I 
believe the other four of you, talked about the fact that the 
Japanese need to do something on both the financial 
institutions, which are in deep trouble at this time. And the 
fix that they made a few months ago is not sufficient. They 
need to stimulate its economy. And until there's a permanent 
tax cut or some direction, probably nothing substantive will, 
in fact, happen. And obviously, the whole issue of 
deregulation.
    And then, there's also an attitudinal problem in terms of 
permanent employment and things of that nature. The problem I 
see is that each one of these three or four requires 
dislocation and a great deal of turmoil in the Japanese 
economy, which they're really unwilling to face up to. And 
that's why, perhaps, the Prime Minister had to resign, and 
that's why there's some uncertainty and instability going on 
now--both the political system and in the economy.
    Given those elements and given the fact that you're not 
going to see them solved probably anytime soon, and then you 
all talked about, and I think it was almost unanimous, that 
we're seeing something that we hadn't seen since perhaps the 
1930's, at least prior to World War II, prior to the war, and 
during the time of the Depression. What are the prospects? I 
mean, what can we do? Amo, I wish Amo Houghton was here because 
when he spoke with Mr. Fisher, he suggested that we need to 
talk about macroeconomic policy and members of Congress will 
have to show a little discipline and not speak so much about 
our specific commodities and specific issues, which I'm sure 
the next panel is going to do, just as we would probably expect 
them to do. That's not what we really need to do right now.
    But that being the case, what should the United States do, 
given the limited amount of control? We can hector, as I 
believe Mr. Rubin is trying to do in a way that is very 
moderate and at the same time a lot of stability in our market. 
What can we do? What are the steps that we cantake? Obviously, 
we have to do something with the IMF--probably fully fund that. But 
beyond that, what can the U.S., in fact, do? Mr. Hormats, and then 
maybe each of you.
    Mr. Hormats. Okay, let me just try a couple of thoughts. 
One, I think funding IMF. I very much agree. I think the 
numbers are getting dangerously low. The Fund has to put money 
into Russia, and who knows what's coming down the road. And 
this is a something that really needs to be done, at least to 
help bolster confidence--not that the Fund is perfect, but that 
we don't have any substitute for it at this point.
    Second, I would make a point about the World Trade 
Organization. One of the very positive elements in this 
otherwise terrible carnage in east Asia today is that the 
countries have avoided wholesale retreat to protectionism, this 
is something that might not have been possible perhaps 10, 15 
years ago. Then you might have had a lot of countries reverting 
toward protectionist measures. The fact that there are World 
Trade Organization rules and penalties toward protectionism 
have helped to provide a counterweight to those in these 
countries who might have advocated that course. Also the IMF 
and the Treasury and the USTR have moved in that direction as 
well. So, keeping the World Trading Organization rules before 
these countries and avoiding protectionism abroad is important. 
The same is true here: avoiding a lot of restrictions against 
these countries. We're going to have a big trade imbalance with 
the rest of Asia for quite some time to come. And if we succumb 
to measures to protect our economy, as strong as it is, then 
these weaker economies are going to use that as a pretext. So 
that's a second thing.
    Third, the point I made in my written testimony, when I 
mentioned earlier--I think it's very critical now that we--urge 
Japan to move at a rapid rate to deregulate the real estate 
sector and improve the banks. I think they've got to determine 
how to do that, given their own political circumstances. I 
think they should do it more rapidly, but we don't know how 
quickly they feel they can tolerate it in terms of their own 
domestic politics.
    I think we can provide a lot of expertise to the Japanese 
regulators, to the Japanese banking system, to the people who 
are in charge of these bridge loans. There are a whole new 
series of institutions that have been set up or are going to be 
set up to address the bad bank problem, the bad loan problem, 
and the frozen real estate collateral problem. We have a great 
many people here--former RTC people, bank people, Fed people, 
regulatory experts--who can help them do that. That can 
expedite the process. It's not only true in Japan. It's true 
all over Asia. And it's not money. Japan doesn't need our 
money--but our expertise, our experience in this area, I think, 
could be of vital significance. And that's one of the things I 
would very much recommend.
    Mr. Matsui. Thanks very much.
    Dr. Paal?
    Mr. Paal. Mr. Matsui, the drift in Japan, the lack of focus 
is just hard to believe for someone who's a frequent visitor 
there. And that drift has become more conspicuous in recent 
months. In many ways, Japan is where Great Britain was at the 
turn of the 20th century. They have a choice. They can have 
their tea ceremonies and funny hats and live off their savings 
for the next 80 years, and hope to make it as a nation. Or they 
can really undertake reforms. I think the best thing we can do 
as an ally, friend, and sharing the economic universe with them 
is to let them make that as informed a choice as possible. We 
need to have this kind of conversation in Japan, where it's not 
frequently held as a conversation. And I think the teams of 
experts--and just getting in their face with this issue is the 
responsible thing to do at this time.
    Mr. Matsui. Thank you.
    Mr. Prestowitz. Could I just add two things? I second what 
Bob Hormats proposed, and I also agree with Doug Paal that one 
of the striking aspects of this is that in Japan the sense of 
urgency about this problem is much less than it is outside of 
Japan. I, therefore, think it's very important for the 
administration to convey in every way possible, and I think 
this means the President ought to go as soon as the new prime 
minister is named, go meet him. And say, ``hey, you know, 
things are really getting out of hand here.'' I also think the 
U.S. can orchestrate APEC and the G-7 and the WTO and the 
OECD--all of the international organizations--all to convey a 
sense of urgency to Japan so that in a way, you kind of push 
the Japanese leadership to rise to the occasion.
    The second thing I think is that I don't really think the 
Japanese know what to do. And here Bob's idea of sending 
experts is good. And I would just extend that and say I think 
it's important for the U.S., in conjunction with the Europeans 
and the other international organizations, to put together a 
pretty explicit road map. We gave a road map to the Chinese 
telling them what they had to do to get into the WTO. You know, 
a road map here that everybody, not just us, but everybody 
gives to the Japanese and says, ``Hey, you know, guys, this is 
how to do it.'' I think would be very useful.
    Mr. Lindsey. I think that technical advice could be useful, 
and we certainly have expertise in some of the areas that are 
of greatest challenge to Japan right now. But I think really 
the most important thing that the United States can do over the 
coming months and years is to avoid taking actions that will 
make matters worse. In particular, we need to avoid bilateral 
confrontations and showdowns, which could end up actually being 
very perversely self-defeating, triggering a market panic that 
ends up sending Japan over the edge. So we definitely want to 
stay away from that.
    Furthermore, though, on the more positive kind of 
engagement, I think there is a chance that that also can end up 
being self-defeating. I don't see any way that Japan is going 
to change until it absolutely has to. And when market forces 
give them no alternatives, governments make sweeping reforms 
that upset vested interests and important constituencies when 
there's no choice at all. And these days very surly and 
impatient markets are starting to box in Japanese policymakers. 
If we go in and launch some kind of bilateral initiative to 
sort out Japan and give it a road map for the future, it's 
going to be terribly tempting to declare success, even if the 
result is really just temporizing and papering over problems, 
which could end up delaying ultimate accountability of Japanese 
policymakers for the problems in that country. We need to avoid 
taking steps that take market pressure off the Japanese policy 
makers--in particular the reforms this April that all but 
eliminate foreign exchange restrictions and allow Japanese to 
move their money overseas or to move it into foreign-
managedhands. I think will be a marvelously positive lever of pressure 
because as that money starts escaping from the country, it's going to 
put downward pressure on the yen and put political pressure on the 
Japanese government to do something to make Japan be an attractive 
place to invest money.
    Mr. Matsui. Dr. Pyle, would you.
    Mr. Pyle. Congressman, I've just come back from Japan. I've 
been going there regularly for 35 or more years. I came back 
with several impressions. One was Japan today is feeling very 
isolated and self-absorbed, resentful of foreign hectoring, not 
really feeling deeply a sense of crisis yet. The kind of sense 
we have. At the same time, there's also something that struck 
me really strongly on this visit is a renewed respect for the 
United States and for the value of the alliance, which in the 
1980's was diminished and even in the early 1990's there was a 
lot of brave talk about Japan joining with Asia. That's pretty 
much gone now. Japan really has a great deal of renewed respect 
for this country's leadership. And I think, therefore, that we 
have considerable leverage. And that we should use it in the 
way that the other panelists have suggested.
    I was there when President Clinton was in China, and there 
was a great deal of sensitivity in Japan to the kind of things 
that the President and Jiang Zemin were saying and intimating 
about China's great stature in resisting devaluation. And the 
implication was that Japan was not showing this kind of 
stature. So I would agree with Clyde that we have an obligation 
to the leadership, and we can orchestrate through multilateral 
channels considerable pressure on Japan to face up to the 
responsibilities that it has.
    Mr. Matsui. I'd like to thank all five of you. I appreciate 
it. Thank you.
    Mr. Herger [presiding]. Anyone else wish to inquire?
    Mr. Neal.
    Mr. Neal. Thank you, Mr. Chairman.
    I was interested in Mr. Lindsey's comments, having been on 
the Banking Committee here ten years ago in the middle of the 
S&L crisis. I'm struck by the unreason that often prevails in 
this institution. When we spoke to the issue at that time of 
the S&L crisis, the S&L bailout was much larger than it turned 
out to be with a $500 billion price tag. There are even some 
bestsellers that were written about the banking situation that 
was going to occur after the presidential election. I think the 
suggestion was that all the big banks were going to go belly-up 
shortly after the election. Recall how popular that notion was?
    What was equally popular at the time was the time was the 
prevailing suggestion that if we could just restructure our 
economy along the lines of what the Japanese had done so 
skillfully. In fact, they lectured us a number of times, if you 
recall, about the things that we could do. They lectured us 
hard about the size of the Federal deficit, and I'd be 
interested if you would like to go on a bit more with your 
comments. I thought they were right on target.
    Mr. Lindsey. Sure, first on the S&L crisis in the United 
States. There are many parallels between that situation in the 
United States and the situation that currently afflicts Japan, 
although the Japanese problems do seem to be both substantially 
larger in magnitude and in national scope than those of the S&L 
crisis. But nonetheless, at the time, there was a lot of talk 
about not just the S&L crisis, but a general crisis in the 
banking industry and that we could face a kind of systemic 
financial meltdown. That makes me somewhat hopeful that some of 
the more apocalyptic talk that we're back at the verge of the 
1930's that we're hearing today with respect to the east Asian 
crisis may be similarly overdrawn; that it may be that some 
particular prudent reforms in the financial sector may be 
enough to stave off what could be a real catastrophe.
    As to the talk back in the late 1980's and early 1990's 
that our financial system ought to mimic the Japanese, there 
was very widespread--I don't mean to just single out Clyde 
Prestowitz--there was very widespread feeling at the time that 
the United States' main problem, its main competitiveness 
problem was a short-term focus; that we had impatient equity 
markets and we had to report to stockholders every quarter; and 
that, boy, wouldn't things be better if we had a system like 
the Japanese where all the money goes through banks and 
everybody knows everybody, and no one is pressing anyone to 
make short-term returns, and therefore, everyone can 
concentrate on strategic objectives and building market share 
and making investments in new technology and so forth.
    Well, as it turned out, our short-termism really now looks 
like accountability. And the long-term focus that we were 
praising or that some were praising in the Japanese system 
turned out to be a lack of accountability; that saying you have 
a long-term strategic vision is very convenient when you're not 
earning return. You can say, ``Well, just wait until the long-
term. Everything is going to work out okay.'' Well, the long-
term has arrived now in Japan, and it's very ugly.
    So, I think there's a lesson for many people that the 
market-oriented system of the United States in which banks are 
not the central intermediary for allocating capital, but rather 
we rely much more heavily on arms-length equity markets, I 
think that model--the western model--is going to be ultimately 
adopted by east Asia rather than the reverse which was 
predicted five, ten years ago.
    Mr. Neal. Anybody else wish to comment?
    Mr. Hormats. Let me just add one point because I think that 
point about equity is an interesting issue. One of the real 
problems all over Asia, except for one economy which I'll 
mention at the end it's gotten itself into trouble by relying 
too little on equity and too much on debt. Japan that's 
certainly true. It's really not an equity culture. It's not a 
risk-taking culture. The average Japanese puts a huge amount of 
their savings into super-secure assets like bank deposits, 
which are still secure, and short-term money market funds, but 
not equities. Now the opening of opportunities to invest 
through mutual funds and foreign companies is making them a 
little bit more equity-oriented. But all over Asia, enormous 
amount of leveraging took place--huge amounts of debts and 
that's why this problem is so difficult. It's true in Japan. 
It's true in Korea. It's true in most parts of Asia.
    It's very interesting to contrast Taiwan with Korea in the 
sense that Taiwan and Korea have the same kinds of industries 
generally. But Taiwan's industries were financed largely 
through equity--much less debt, much more equity than most 
other parts of that region. And I think that to the extent you 
can improve the efficiency of equity markets in the area, you 
can help to avoid these big buildups of debt, which were big 
problems. And equity, when you make an equityinvestment, as 
long as it's based on the kind of rules we understand, there's a lot of 
accountability based on it. You have to do quarterly reports and things 
like that. So, management is much more accountable in that kind of 
environment. So it brings with it not only less leverage, but also more 
accountability.
    Mr. Herger. Thanks. Would anyone else? Yes, Mr. Jefferson.
    Mr. Jefferson. I'm afraid there have been so many responses 
I can't recall who said what with respect to my question, but 
I'll ask it anyhow and maybe you can remember.
    I think two panelists said that we should avoid making 
matters worse. I know Mr. Lindsey said it over here on this 
side. And someone said that we should avoid making decisions 
that would limit access to our market for Japanese products and 
so on. Is that a recipe for our responding to the Japanese with 
regard to their importing to us as usual? Won't this result in 
higher deficits? And, if it does, when do you say that's a 
problem? How high is--I mean, how high should they go? Do we 
talk about deficits any more? Is it too ruinous?
    I know these are separate questions, but how we handle the 
trade issues and how we handle the issue of soundness of the 
Japanese economy, but they are, in the one sense, separate, 
another sense, when you get back to your issue of making 
matters worse, they're connected. So if you don't want to make 
matters worse, what do we do about the deficit issue? Do we 
talk about it? How do we handle that?
    Mr. Lindsey. Well, I'll take the first crack at this. You 
raise a number of different questions. First on the trade 
deficit, I don't think bilateral trade deficits are 
economically meaningful. The global trade deficit that we run 
with the rest of the world is also not a function of trade 
policy differences around the world, but rather a function of 
macroeconomics, the difference between domestic savings and 
domestic investment. My colleague Dan Grizwald wrote a very 
good paper recently on the trade deficit and going through 
those kinds of issues. I might recommend that.
    Right now, the combination of our strong economic 
performance and the weak economic performance in Japan is 
widening our trade deficit with Japan. That's reflected mostly 
by a decrease in Japanese imports from the U.S. rather than an 
increase in Japanese exports to the United States. The Japanese 
economy is stagnant, therefore imports are going down.
    I don't think that fact, in and of itself, should be a bone 
of contention. It simply reflects the fact that the Japanese 
economy is weak. Everyone recognizes that and we've been 
talking about the kinds of things Japan ought to do to fix that 
situation.
    As far as trade disputes are concerned, certainly Japan and 
other countries and the United States have policies that 
discriminate against goods and services of foreign origin. With 
respect to the Japanese policies that do so, I think we have 
the option of taking those kinds of disputes to the World Trade 
Organization. We did that, for example, with respect to a 
discriminatory tax system Japan had on spirits, alcoholic 
spirits. We took it to the WTO; we won. So if we have discrete 
commercial disputes regarding Japanese policies that 
discriminate against foreign goods and services, I think we 
have recourse and we have options. But in general, the trade 
deficit, I don't think, should be the focus of our concern.
    Mr. Jefferson. What do you mean when you say, And don't 
make matters worse by taking actions against the Japanese 
economic system?
    Mr. Lindsey. Well, if, for example, we said, Japan, you 
must reform your economy by date X or we're going to slap 100 
percent duties on products X, Y, and Z, first, that could very 
well precipitate a financial panic that would be the exact 
catalyst to push Japan over the cliff. That is a possible 
outcome and, therefore, it's playing with fire to engage in 
that kind of confrontation.
    At the very least, all it accomplishes is harming American 
businesses and consumers that use and benefit from Japanese 
products and harming the Japanese companies that earn revenues 
from selling abroad. So it doesn't do anything to make the 
situation better.
    Mr. Jefferson. Let me ask you one other thing, if I might. 
There's been some discussion about what the Japanese electorate 
doesn't support. Does anybody have a feel for what it does 
support with respect to reforming the system or changing the 
way the Japanese economy's performing? What does the electorate 
support? Does anyone know? The Japanese electorate, not ours.
    Mr. Pyle. Well, I think the Japanese electorate is desirous 
of changes in many aspects of its political economic system. 
The problem has been to find political leadership that will be 
responsive to this kind of generalized sentiment that the 
Japanese have, which is a recognition that they do have to make 
fundamental changes, that they do have to do more to respond to 
needs for international leadership.
    But the Japanese electorate--for example, there are now 
four or five major candidates to take Hashimoto's place. It's 
going to be decided in the back room. It's going to be decided 
in jockeying among factional leaders and there will be a new 
face there in a couple of weeks. But the likelihood that this 
will be a leader who has a reform agenda is very, very slim in 
my judgment. So the political system is not really responsive 
to a kind of generalized recognition on the part of the 
electorate that change and reform is necessary.
    Mr. Paal. Mr. Jefferson, I think it's fair to say too that, 
while the Japanese electorate has signaled a desire for change, 
they've repeatedly also signaled a desire to avoid pain and 
there's no change without pain in the current circumstances. 
And so politicians there are in a situation in which some of 
you in this Congress may recognize, which the voters want 
something at the lowest possible cost. When it comes to 
bankruptcies, for example, you have to declare winners and 
losers. If you call in bad loans and you put people out of 
business, you put people out of work and that's very hard to do 
in a Japanese context. That reinforces, I think, the view of 
most of the panelists here, if not all of them, that it's going 
to be very, very hard to get the Japanese to bring about this 
kind of change on their own; about the situation getting much 
worse.
    Mr. Lindsey. Let me just add that certainly that voter 
turnout and the results indicate a high degree of voter 
frustration with the ruling Liberal Democratic Party. But we 
don't know whether people are frustrated because the LDP has 
done too little or whether they're frustrated because they've 
done too much. Or whether they're simply frustrated because the 
LDP has been vacillating and inconsistent. I'm sure different 
parts of the electorate had different motivations. So, while I 
would like to be optimistic and read theseelection results as a 
mandate for change, and perhaps it is possible that they will used as 
such, it's not necessarily so.
    Also, even if frustration with one party is incoherent, in 
other systems it nonetheless does have clear policy 
ramifications because there's an opposition party that takes 
advantage. In the Japanese system, unfortunately, there isn't a 
strong, cohesive opposition party that will be able to take 
advantage of these particular election results.
    Mr. Herger. I thank you, Mr. Jefferson. I thank our 
panelists. We do have about three minutes left for this vote. 
Thank you very much for appearing and your very good and 
helpful testimony.
    We will recess now, subject to the call of the Chair. And 
when we return, we'll conclude with our third panel. Again, 
thank you very much.
    [Recess.]
    Mr. Herger. We will now reconvene the Ways and Means 
Subcommittee on Trade.
    And if we could have our last panel--it looks like it's 
gathering. Mr. Brad Smith, director of international relations, 
American Council of Life Insurance; Shannon S. Herzfeld, senior 
vice president, international affairs, Pharmaceutical Research 
and Manufacturers of America; and Mr. Wendell Willkie II, 
senior vice president, general counsel, of Westvaco 
Corporation, New York, New York.
    Mr. Smith.

  STATEMENT OF BRAD SMITH, DIRECTOR, INTERNATIONAL RELATIONS, 
               AMERICAN COUNCIL OF LIFE INSURANCE

    Mr. Smith. Thank you. Mr. Chairman and members of the 
subcommittee, we'd like to thank you on behalf of our 532 
member companies for the opportunity to raise this important 
issue. In addition to my written comments, with your 
permission, I'd also like to submit for the record a further 
explanation of the violations that we believe are currently 
underway with the 1994 and 1996 U.S.-Japan Bilateral Insurance 
Agreements, along with a concurrent document produced by our 
sister association, the American Chamber of Commerce in Japan 
Insurance Committee.
    Mr. Herger. Without objection.
    Mr. Smith. Thank you.
    At the beginning of 1998, our international committee 
authorized the creation of a new task force to review current 
and future insurance trade agreements with regard to compliance 
and implementation. Its first project was to answer a request 
from the United States Trade Representatives' office for 
industry input on the Japanese government's implementation of 
the 1994 and 1996 U.S.-Japan Insurance Agreements.
    The U.S. ensures the Japanese insurance market remains 
highly restrictive and extremely difficult to penetrate. At 
$407 billion a year in annual premium volume, it is the largest 
life insurance market in the world, yet the foreign share of 
Japan's market is a mere 3.9 percent. By contrast, the foreign 
market share of every other G-7 country is at least 10 percent 
and, in some cases, it exceeds 30 percent.
    In 1994 and 1996, our respective governments undertook two 
agreements designed to promote transparency and deregulation of 
the Japanese insurance market and to open it to meaningful 
foreign participation. However, the overall goals of these 
agreements are far from being achieved until such time as Japan 
fully implements the commitments it has made to substantially 
deregulate the primary sector areas of its insurance market in 
a transparent manner. It is obliged to maintain existing 
protections for foreign firms that have created significant 
market niches within the so-called third sector, which I'll 
explain in a moment.
    In terms of liberalizing the primary insurance sector, 
which represents 95 percent of the Japanese market, I have 
listed the many specific items of non-compliance in my written 
testimony, although I'll be pleased to answer any questions you 
might have. In sum, this not only means that the Japanese 
insurance market remains effectively closed to U.S. insurers, 
but that Japanese consumers continue to be denied the benefits 
of a competitive marketplace.
    Similarly, we are extremely concerned with the diminution 
of the third-sector safeguards caused by increased activity of 
Japanese insurance firms and subsidiaries in this segment of 
the market. The desire of Japanese business to participate here 
provides our negotiators with significant leverage to encourage 
liberalization of the first sector, which is life, and the 
second sector, which is property and casualty.
    Until the 1994 agreement, the government of Japan pledged 
to continue longstanding limitations on entry by Japanese large 
insurance companies into the life portion of the third sector, 
as well as specific restrictions on third-sector activities by 
Japanese life and non-life subsidiaries. These limitations must 
continue until primary sector liberalization has been achieved 
and a transition period of two-and-a-half years has expired. 
The purpose being to enable foreign firms to establish some 
toehold in the primary sectors which, as I said, represents 95 
percent of the market, before they are faced with onslaught in 
the third sector from large Japanese insurance companies. 
Without enforcement of this provision, the foreign market share 
in Japan's insurance market may actually fall.
    ACLI member companies report that the Ministry of Finance 
has failed to live up to this key provision in several critical 
ways. First, it has allowed the second-largest Japanese non-
life insurance company, Yasuda, to create, by agreement, a de 
facto subsidiary through its partial ownership of INA Himowary, 
thus creating radical change in the agreement, which is 
specifically prohibited. This circumvention has created 
pressure on the Ministry of Finance to also allow other 
Japanese companies into third sector, specifically by approving 
a cancer insurance rider product for Tokio-Anshin, which is 
owned by Japan's largest insurance company, Tokio Fire and 
Marine. Even as we speak, companies are reporting potential new 
problems in Japan's third sector. The specific concern is that 
protected products, like group personal accident and cancer 
insurance, are being marketed through new sales channels, 
creating radical change in the insurance sector which is a 
serious violation of the agreement.
    With all this in mind, we firmly agree with USTR's July 1 
conclusion that, as things stand today, the two-and-a-half-year 
countdown to the opening of the third sector should not begin. 
The countdown should not begin until, as the bilateral 
agreements require, there is substantial deregulation of the 
overall Japanese insurance market. The objective of the 
bilateral agreements was to increase American insurance 
companies' opportunities in the Japanese market by improving 
market access for foreign companies, improving market 
competitiveness, and promoting consumer choice. When Japan 
lives up to its commitments, the real beneficiaries will be 
Japanese consumers who, for the first time, will be able to buy 
innovative and competitively priced insurance products.
    I'd be pleased to answer any questions you might have.
    [The prepared statement and attachments follow. Attachments 
are being retained in the committee files.]
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    Mr. Herger. Thank you, Mr. Smith.
    Ms. Herzfeld.

  STATEMENT OF SHANNON S.S. HERZFELD, SENIOR VICE PRESIDENT, 
      INTERNATIONAL AFFAIRS, PHARMACEUTICAL RESEARCH AND 
                    MANUFACTURERS OF AMERICA

    Ms. Herzfeld. Thank you very much, Mr. Chairman. Thank you 
for the opportunity to present our industry's views.
    As you know, I represent PhRMA, the Pharmaceutical Research 
and Manufacturers of America. We are America's leading 
research-based pharmaceutical and biotechnology companies. Many 
of the members of this committee are quite familiar with 
PhRMA's members. Companies like Searle have their headquarters 
in Illinois. Pfizer and Bristol-Myers Squibb are headquartered 
in New York. Warner Lambert has a state-of-the-art research 
facility in Michigan. And, of course, California and 
Massachusetts have clusters of high-tech biotech companies such 
as Amgen and Genzyme, Genentech, and Biogen.
    The lifeblood of our industry is research, taking America's 
best ideas and turning them into innovative medicines. PhRMA 
companies alone will invest more than $20 billion in research 
and development in 1998. That is one-fifth of our total world 
sales. This ensures that the American pharmaceutical industry 
remains the leader in the development of innovative medicines 
and, indeed, half of all new medicines now are discovered here 
in the United States.
    This not an easy task. On average, it takes 12 to 15 years 
and approximately $500 million to go from the discovery of a 
new drug to your medicine cabinet. For every 15,000 compounds 
that are investigated, only 3 ever make it to your medicine 
cabinet and of those 3, only 1 will turn a profit. So that's 1 
profitable compound out of every 15,000. This is a risky and 
challenging business.
    The Japanese market is very, very important to our members. 
It is a $64 billion market and Japan is the second-largest 
pharmaceutical market in the world. American companies, 
however, have managed to capture only 15 percent of this 
market. In contrast, for example, we have about twice that 
market share in Europe. Since America is undeniably the leader 
in innovative medicines, this relatively small market share 
percentage is a disappointment.
    Professor Lacey Glenn Thomas of the Emory University 
Business School recently studied the Japanese pharmaceutical 
market. He found that, since 1991, for every 10 new medicines 
that were launched in the United States and Europe, only 3 have 
become available in Japan. That means that 7 out of 10 new 
medicines launched in this decade remain unavailable in Japan.
    For example, none of the three leading medicines available 
here to treat depression are available in Japan. Nor are major 
medicines for epilepsy, migraine headaches, prostate disease, 
or leukemia. We in America have begun to expect new medicines 
and new therapies to be available to us but, in contrast, the 
Japanese patient and their doctors wait as the gap increases 
between what is therapeutically possible and what is 
administratively available.
    Like everything in Japan, the underlying reasons are 
complicated, but the entrenched bureaucracy remains at the 
core. Foreign clinical data is still not generally accepted by 
Japanese regulators. In order to launch your drug in Japan, 
Phase III clinical trials--that's when you use thousands of 
volunteers--must be repeated on ethnic Japanese persons 
residing in Japan. This requirement, which we hope to see 
modified in the relatively near future, is time consuming, 
costly, and extremely redundant. And there is no analogous 
requirement here in the United States. When you finish your 
trials, it now takes approximately 40 months from the time you 
file your new drug application until its approval. In the 
United States, it takes 15 months and that time is dropping.
    And, finally, the Japanese bureaucracy sets a reimbursement 
price for drugs. Let me state this again: There is no free 
market price for our pharmaceuticals in Japan. The Japanese 
bureaucracy sets the reimbursement price. And they do so in an 
antiquated fashion that ends up propping up older, less-
effective medicines and holding down the priceavailable for new 
and innovative medicines. And this robs innovators of their economic 
incentive.
    Last May, President Clinton and Prime Minister Hashimoto 
agreed to deregulate pharmaceuticals within the context of the 
Enhanced Initiative on Deregulation and Competition Policy. 
This was very important. The Japanese finally recognized that 
innovative medicines need to be a part of a modern health care 
system and they agreed they needed more transparency in their 
health care reform. And, indeed, they agreed to allow the 
foreign pharmaceutical companies to finally participate in 
their reform discussions. We are optimistic and we realize we 
would not have even gotten very far--not this far--without 
steadfast support from this committee, from your colleagues in 
the Senate, and the Clinton administration, and the U.S. 
Embassy in Tokyo.
    We are cautiously optimistic, but we know far too well that 
agreements that look terrific on paper are sometimes a 
disappointment when implemented. Japan continues to experience 
difficult economic times and we are quite concerned that the 
entrenched bureaucracies will respond by circling the wagons, 
holding off reform, and postponing deregulation and this is 
precisely why we need your support in order to combat.
    We hope that we will continue to have your support in this 
endeavor as we look to see last May's agreement turn into a 
reality. We will be coming back for your continued support and 
I wish to thank you very much, Mr. Chairman, for your kindness 
and opportunity to appear today. Thank you.
    [The prepared statement follows:]
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    Mr. Herger. Thank you. Thank you very much, Ms. Herzfeld.
    Ms. Herzfeld. Thank you.
    Mr. Herger. Mr. Willkie.

 STATEMENT OF WENDELL L. WILLKIE II, SENIOR VICE PRESIDENT AND 
             GENERAL COUNSEL, WESTVACO CORPORATION

    Mr. Willkie. Yes, thank you, Mr. Chairman. We appreciate 
the opportunity to appear before you today. I appear on behalf 
of not only Westvaco corporation, but also the American Forest 
and Paper Association.
    Westvaco is a major manufacturer of paper packaging and 
specialty chemicals. During the last decade, our international 
sales have nearly tripled. International business is the 
fastest-growing segment of our company and last year our 
business outside of the United States accounted for 25 percent 
of our total sales.
    The American Forest and Paper Association represents an 
industry that accounts for 8 percent of U.S. manufacturing 
output. The U.S. is the largest producer of paper and wood 
products in the world and Japan is the second-largest market 
for paper products. Simply put, Mr. Chairman, export sales are 
critical to the future growth and well-being of our industry 
and access to the Japanese market is an essential part of this 
equation.
    Unfortunately, however, Japan's continuing refusal to open 
its markets adversely affects trade and economic growth in the 
Asia Pacific region and now threatens to stall an important 
trade liberalization initiative in the APEC forum, as Mr. 
Fisher's testimony before the committee earlier today 
indicated.
    In Vancouver last November, APEC leaders, including 
President Clinton and then-Prime Minister Hashimoto, endorsed a 
proposal to eliminate tariff and non-tariff barriers in nine 
priority sectors, including wood and paper products accounting 
for over $1.5 trillion in regional trade. With some of its 
members already deeply in crisis, the APEC leaders opted for a 
bold trade liberalization plan to stimulate regional trade and 
boost the confidence of world financial markets.
    The APEC initiative is of vital importance if we are to 
open Japan and other Asian markets to U.S. forest products. In 
1997, the Far East region attracted 40 percent of U.S. paper 
and wood product exports at a dollar value of about $8.5 
billion. Statistics from the first quarter of 1998, however, as 
compared to the first quarter of 1997, illustrate what our 
industry, Mr. Chairman, is now up against. For the first 
quarter of 1998, wood product exports are down 44 percent. 
Paper and paper board exports are off 77 percent. Newsprint 
exports are down 25 percent and printing and writing papers are 
down 36 percent. And in the same time frame, wood product 
imports have increased 18 percent; paper and paper board by 44 
percent; printing and writing imports have increased 138 
percent; and newsprint imports are up an alarming 700 percent.
    In other words, the Asian economic crisis is having a 
significant and very negative impact on the forest products 
industry. In this context, trade liberalization through the 
APEC initiative is urgently needed if we are to preserve 
American jobs in our industry and establish a level playing 
field which will enable us to compete in Japan and other Asian 
markets over the long term.
    Last month, APEC trade ministers met in Kuching, Malaysia. 
Country after country agreed that the crisis was not an excuse 
to stall further trade liberalization, but on the contrary, a 
compelling reason to move forward. These ministers agreed that 
eliminating trade barriers must be a part of any long term 
solution to the region's economic problems. All countries 
agreed, that is, except for Japan. Citing the fact that its 
industries cannot stand up to international competition, Japan 
is seeking to exclude as many as six of the nine sectors from 
its market opening commitment, with forest products topping the 
list.
    The irony in the Japanese position is striking. By 
continuing to protect non-competitive industries, Japan is 
refusing prescriptions being taken by weaker economies, smaller 
economies in the region. What message is Japan now sending by 
its actions to other important APEC countries? The CEOs of our 
industry, members of Congress, numerous governors, and the 
leaders of our unions have written to the President, urging him 
to hold Japan to its APEC commitment.
    If the past is any guide, we can expect Japan's leaders to 
argue that politicians cannot challenge the powerful economic 
interests arguing for continued protection, especially in the 
country's current turbulent political climate. But there is no 
reason for the United States to concede this and very large 
reasons to press even harder for an immediate and firm 
commitment by Japan to open its market, including a commitment 
to eliminate tariffs and reduce non-tariff barriers in all 
sectors being negotiated in APEC. Internal politics 
notwithstanding, Japan can no longer duck its obligations to 
its partners in the region and to the global trading community. 
As with other leaders throughout the region, it is hoped that 
Mr. Hashimoto's successor will make market reform the first 
order of business.
    Thank you, Mr. Chairman.
    [The prepared statement follows:]
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    Mr. Herger. Thank you very much, Mr. Willkie.
    Mr. Smith, the administration has emphasized the 
implementation of existing trade agreements. In your written 
statement, it shows that the 1992-1997 paper agreement--and, 
excuse me, I want to address this to Mr. Willkie----
    Mr. Willkie. Sure.
    Mr. Herger [continuing]. Paper agreement with Japan failed 
to increase the market access. Do you feel this was a problem 
with implementation?
    Mr. Willkie. Well, I think that the last administration's 
U.S. Trade Representative Ambassador Hills did a terrific job 
in negotiating that agreement. And I think that our industry, 
as with others, have also been well-represented. Our interests 
have been well-advocated by Ambassador Barshevsky and her 
predecessor, Ambassador Kantor.
    But the political intransigence and the resistance in Japan 
has simply, to date, precluded our making the progress that we 
think it's reasonable to anticipate. We have--foreign firms 
have a 4 percent market share in forest products in Japan and 
the U.S. industry has a 2 percent market share. In every other 
market in the world, we have a much more substantial market 
share than that. The agreement has not yielded the results we 
had anticipated and now we see that Japan is refusing to 
participate in this APEC trade liberalization process.
    So we think it's important that we keep up the pressure. 
This is the right way to go. It's the way the whole rest of the 
world is going and, Mr. Chairman, we appreciate the leadership 
that you and other members of Congress have taken in 
articulating the interests of our industry. We know you've been 
a good friend to our industry. And we just think we need to 
keep the pressure on.
    Mr. Herger. Thank you, Mr. Willkie. Ms. Herzfeld, you 
described the U.S.-Japan Enhanced Initiative on Deregulation 
and Competition as a constructive step in this area. As we have 
learned over the years, agreements are only as good as their 
implementation. What steps do you believe will lead to adequate 
implementation?
    Ms. Herzfeld. Thank you very much, Mr. Chairman. We think 
it was a breakthrough agreement in that it got the Japanese to 
recognize formally that there is a role for innovative 
medicines in health care reform. We, though, are very uneasy 
that during this time of economic difficulty, the bureaucracy, 
which is really responsible for the slow change in Japan, is 
going to entrench; is going to be obstructive.
    The bureaucracy needs to be led from the top. We are 
looking for continued pressure, like we have received from this 
committee, from your colleagues in the Senate, from the 
administration, at every step. Japan is going through a major 
health care reform, quite independently of their financial 
crisis. They have pledged to have a massive new health care 
system in place by April, 2000. And that will either be a 
health care system which is inward-looking and bureaucracy-
driven or a health care system which is modern.
    We will get to a modern health care system if we keep the 
pressure on, day-in and day-out, from the Embassy to the 
Department of Commerce to the U.S. Trade Representative, 
through members such as yourself and your committee and through 
the Senate. Without it, the progress will stop in its tracks.
    Mr. Herger. Thank you, Ms. Herzfeld. Now, Mr. Smith, does 
the extreme weakness of the yen affect your members' ability to 
sell insurance in Japan?
    Mr. Smith. No, not at all. The U.S. insurance companies, 
because of the very competitive nature of the United States 
market, have been very successful in markets around the world. 
The purpose of these agreements is to create the opportunity 
for U.S. companies to be able to compete in Japan on price. The 
historical regulation of the Japanese market is everybody has 
to sell the same product at exactly the same price. Actually, 
in times of economic difficulty, price competition would add to 
increased sales by U.S. companies, so this should actually be 
an advantage to us, if we're truly allowed to compete in the 
market, as the agreements are intended to achieve.
    Mr. Herger. Thank you very much. I do thank our panelists 
and your participation. These are concerns for not only your 
companies, but many other companies that are in our districts 
throughout our nation and I agree with you that we have to 
continue to keep the pressure on, to continue to work on this 
issue together. I believe only by doing so will we see the 
progress that we deserve and which has to come about.
    I thank you. With that, this Subcommittee will stand 
adjourned. Thank you.
    [Whereupon, at 5:05 p.m., the hearing was adjourned subject 
to the call of the Chair.]
    [Submissions for the record follow:]
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