JAPAN TRADE: MEETING OF SENIOR AD HOC GROUP ON INTERNATIONAL ECONOMIC POLICY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP87M00539R000400510016-2
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 15
• Document Creation Date: December 27, 2016
• Document Release Date: December 7, 2010
• Sequence Number: 16
• Publication Date: March 11, 1985
• Content Type: MEMO

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~~cnzr
The Director of Central Intelligence
Washington, D.C. 20505
National Intelligence Council
NIC 01317-85
11 March 1985
MEMORANDUM FOR: Director of Central Intelligence
Deputy Director of Central Intelligence
Acting Intelligence Officer for Economics
SUBJECT: Japan Trade: Meeting of Senior Ad Hoc
Group on International Economic Policy
1. On Saturday morning, 9 March 1985, Secretary Baker convened a
restricted ad hoc group (i.e., less than the full SIG-IEP) to continue
discussions on strategy for the current trade negotiations with Japan.
The meeting was attended by Secretary Shultz, Secretary Baldridge,
National Security Advisor McFarlane, and others.
2. After lengthy discussion, the following general conclusions
emerged:
Historically, US trade negotiations and trade policy
have been based on the concept of "national treatment,"
which in this case would mean that US producers must be
treated as well in the Japanese market as the best-
treated Japanese firms. It was concluded that the
treatment of US firms in Japan is discriminatory.
However, we cannot alter our trade policy to insist on
the alternative concept of reciprocal treatment, i.e.,
that US firms must find it as easy to sell in Japan as
Japanese firms find it to sell into the US. .
It is important that progress be made in these negotia-
tions by April 1, in the case of telecommunications,
and by the May Bonn Summit in general. It is also
important to defuse the rising political pressure
DC
E)E !, )
~RE
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SECRET
SUBJECT: Japan Trade: Meeting of Senior Ad Hoc Group on International
Economic Policy
in the US on this issue. Accordingly, the US must
define specifically what we consider necessary to obtain
from Japan (our "bottom line") and convey this to Prime
Minster Nakasone promptly.
State (Wallace) was tasked to put into letter form the
US position for telecommunications and Treasury (Mul-
ford) was tasked to summarize the US position on the
other three sectors. Mulford was given the latter task
by default since so many of the primary players in USTR
and Commerce were on their way to Japan.
The telecommunications position is to be based upon the
letter dated 5 March 1985 from Lionel Olmer to Vice
Minister Koyama (copy attached).
The positions are to be formulated and reviewed during
Monday and Tuesday, March 11 and 12. It is then likely
that Gaston Sigur of the National Security Council Staff
will be asked to convey these positions to Prime Min-
ister Nakasone personally and privately.
Papers were submitted to the meeting on the NTT Agree-
ment and the US-Japan Civil Aviation Negotiations
(copies attached). The meeting did not focus on these
items in detail, but in general terms US policy will be
to take a tough line on these issues throughout March in
order to maintain pressure on the trade negotiations,
but without specifically linking these issues to the
sectoral negotiations.
3. USTR has thoroughly involved representatives of the affected US
industries, and it was recognized that one of the most important shortrun
measures of success in this area will be the perception of the affected
US industries that they can live with what is negotiated.
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SECRET
SECRET: Japan Trade: Meeting of Senior Ad Hoc Group on
International Economic Policy
4. Any interagency review of the sectoral position papers is likely
to be very selective and informal. Secretary Baker tentatively set 19
March as the date for another review of the status and progress of the
negotiations and US strategy.
Attachments:
A. Letter from Olmer to Koyama
B. NTT Agreement
C. U.S.-Japan Civil Aviation Negotiations
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SECRET
SUBJECT: Japan Trade: Meeting of Senior Ad Hoc Group on
International Economic Policy
NI0/AL 11 March 1985
Distri u on.
Original - Addressees
1 - DDCI
1 - DC/IA
xecutive Registry
- C/NIC
1 - VC/NIC
1 - NIO/EA
1 - A/NIO/Econ
1 -
1 OEA
1 - NIO/AL/DL
2 - NIO/AL/DL Files
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ATTACHMENT A
Tokyo, Japan
March 5, 1985
The Honorable Moriya Koyama
Vice Minister
Ministry of Posts and
Telecommunications
1-2, Kasumigaseki 2-chome
Chiyoda-ku, Tokyo 100
Dear Vice Minister Koyama:
I want to thank you for the time and the great effort that you
and your staff have given to our mutual efforts to discuss the
application of Japan's new telecommunications law which becomes
effective on April 1, 1985.
I believe that our efforts have resulted in some progress,
although I am sure that you agree we have much further to go to
resolve all problems.
I am sure that you. share my desire that Japan create a
telecommunications environment as free of unnecessary barriers
as is possible. It is in the interest of achieving -th'is
objective that I make these comments, for my own careful review
of our mutual efforts to date reveal that, if left untouched by
your personal intervention, a system will be put in place
beginning on April 1, 1985, which seriously disadvantages
foreign suppliers, does an injustice to Japanese consumers and
lends fuel to an international perception -- that, despite
political statements to the contrary, Japan remains committed
to keeping its market essentially protected from foreign
competition.
Our two governments have been discussing some of the
outstanding issues in the telecommunications sector for more
than a year. This is particularly true of the issues
concerning the notification and registration of Type. II
telecommunications enterprises. A year ago, the U.S.
Government pointed out, in the strongest possible terms, that
registration and notification procedures could become barriers
if they were to include a prior approval process.
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At that time, your Government provided assurances that such
procedures would be simple and automatic and that applications
would be rejected_ only in very unusual circumstances to be
established by law.
However, after examination of the actual law and discussions
with your Government concerning the pertinent Cabinet and
Ministerial ordinances, our original concerns have become
amplified. The proposed procedures require a great deal of
seemingly unnecessary information and, in instances,
business-confidential data; they also appear to contain an
obligation to obtain prior approval at various levels of the
Japanese Government.
Accordingly, I hope that, as a result of our discussions, you
will be able to simplify the procedures and to make then
automatic and, thus, eliminate the need for prior approval.
Also, to ensure transparency, I propose that you create an
appeal channel and periodically review established procedures.
I believe that you also are aware that we have been concerned
for some time with the distinction between "general" and
"special" Type II telecommunications enterprises --
specifically, the use of 500 lines and 1200 bits per second
(BPS) as one of the criteria to distinguish between the two
categories. we believe that the use of this criterion may
impede technological development within Japan's
telecommunications sector. For example, how will your
Government handle the classification issue when, in the very'
near term, the use of fiber optic systems increases'
dramatically in Japan?
Similarly, we are concerned with the definition of an
"unspecified" number of customers which also will serve as a
criterion to distinguish "general" from "special" Type II
enterprises. I hope that you will be able to define
"unspecified" more clearly and to confine such a criterion
predominantly to voice transmission. As with the 500
lines/12A0 BPS criterion, it would be preferable not to use an
arbitrary, numerical calculation to determine the meaning of
"unspecified."
In the area of standards and certification, you know that we
are concerned with the potential for trade barriers to arise in
the fufure. To avoid potential problems, I believe it is
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essential that only one independent approval agency be
responsible for certifying all "customer premise equipment" for
attachment to all telecommunications networks. This means that
NTT would not have the authority to certify equipment for
itself or for any other company.
I also believe that, in accord with the GATT Standards Code and
the Gotoda Commission Report of 1983, MPT should provide ample
opportunity for comment on the draft standards and rules for
approving equipment, which were made available, only last week.
Regarding the standards, they should be established solely to
prevent harm to the network.
Another issue of longstanding concern is the potential for
cross subsidization between communications services that will
be offered by NTT after April 1, 1985. I know that you also
are concerned about this problem. I trust that you will do
your best to prevent any such possibility through the
establishment of strict accounting and other procedures within
NTT. Safeguards against cross subsidization within NTT should
be guaranteed in order to ensure full competition in the new
telecommunications environment which you are creating. We have
provided your staff with a listing of specific measures to
guard against cross subsidization,-'based on our experience with
telecommunications development in America.
Finally, there remains the question of representation on
advisory councils. This difficult issue has been addressed in
other bilateral discussions. I understand that the members of
a council are chosen for their experience in and knowledge of a
particular sector. Accordingly, Japanese nationals working for
foreign-affiliated telecommunications companies.in Japan should
have an opportunity to bring their special knowledge to
advisory councils whi-ch consider telecommunications issues.
Therefore, I urge you to provide for membership for such
persons on all relevant advisory councils.
I would also like to point out that under the U.S.-Japan High
Technology Agreement of 1983, Japan agreed to make efforts to
.ensure that the representatives of such foreign-affiliated
companies serve on all committees which develop policy or draft
standards in the high-technology field. I trust that you will
ensure that this commitment is met in the telecommunications
sector.
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An objective within my government has been to write laws, and
the- regulations for their implementation, which limit to the
maximum extent possible the discretionary authority of
personnel in the agencies charged with their administration.
One reason for this objective is to provide the private citizen
falling under these laws with the maximum degree of certainty
and predictability and to reduce.his dependency on the whims of
bureaucrats who can often interpret laws to suit transient
interests. My feeling on the development of your implementing
directives is that they do not yet go far enough in the
direction of limiting discretionary authority. I believe
firmly that they must, if we are to achieve our objective of an
open telecommunications market.
I am looking forward to our working together to promote
competition and innovation in this most vital sector which
links our two countries. However, time is growing short and it
is obvious that the pressure on both of us to succeed is
intensifying.
Sincerely yours,
Lionel Olmer
Under Secretary of Commerce
--for International Trade
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b LIj K t. I ATTACHMENT B
The NTT Procurement Agreement has two elements: (1) Japan placed
NTT's non-telecommunications system purchases under the Government
Procurement Code, and -(2) Japan agreed to apply the Code on a
bilateral basis to the remainder of NTT's purchases. In return,
the United States agreed to apply the Government Procurement Code
to Japan. We insisted on the full opening of NTT as a quid pro
quo because it is the only way Japan undertakes obligations compar-
able to the benefits we provide by opening the USG procurement
market to Japan.
The original three-year Agreement ran from January 1980 through
December 1983. The Agreement was renegotiated with improvements
and signed by Ambassador Brock and Foreign Minister Abe in January
1984. The Agreement, which runs for three years, contains an
annual review provision. The first year review has been completed.
The Agreement will continue in force unless a decision is made to
terminate.
U.S. sales to NTT have been extremely disappointing. We have con-
tinued the Agreement for three reasons. First, U.S. firms remained
hopeful that their efforts to sell would eventually be successful.
Second, U.S. firms believe that termination of the Agreement, with-
out also closing our market, will not benefit them commercially and
could cost them possible sales to NTT. Third, while the volume of
sales was low, the rate of increase was encouraging, from $15 million
to $40 million to $140 million over the first three years.
NTT has informed us that procurement for the fourth year, which ends
March 31, will drop to about $130 million.
Option 1: Terminate
Under the terms of the NTT Agreement, the United States can terminate
the bilateral portion of the Agreement at any time following notice
and consultation. If we terminate the bilateral portion of the NTT
Agreement, however, the multilateral element of the Agreement will
continue under the Government Procurement Code. We will remain
bound to grant Japan the full benefits of the Code in the USG procure-
ment market. Nevertheless, if we terminate the bilateral portion of
the Agreement, we face a choice of either accepting an extremely
unbalanced deal with Japan under the Code or terminating application
of the Code to Japan, which will put us in violation of the Code.
As a practical matter there is little that the Japanese could do if
we ceased to apply the Code to them. If they decided to initiate a
formal dis,pute against us, the most they could achieve would be
authority to stop applying the Code to the United States.
As a matter of domestic law, the U.S. Trade Representative has the
authority to terminate U.S. application of the Code to Japan at any
time. Under the terms of the Trade Agreements Act, this would result
in Japan being barred from bidding on U.S. procurement that is covered
by the Code. 3.q.ts
CLASSIFIED BY
A111A Aid
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Stl;Kt
Optio'i 2: -Threaten Termination
The USG could notify the GOJ of its intention to terminate because
of NTT's unacceptable performance and request formal consultations
under the Agreement. We would seek to use this threat to obtain
significantly improved performance by NTT.
Option 3: Do Nothing
If the USG does nothing, the Agreement will continue. The GOJ and
NTT will likely interpret this to mean that they do not need to
continue increasing purchases in order to satisfy the United States
unless we make it clear that we will not accept another year of
lackluster performance.
SECRET"
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ATTACHMENT C
U.S.-Japan Civil Aviation Negotiations
Background
Currently, U.S. and Japanese airlines derive approximately the
same amount of gross revenues from service operating under the
U.S.-Japan Air Transport Agreement. The five U.S. carriers
serving Japan earned "a total of $1.15 billion in 1983. Japan Air
Lines (JAL) earned $1.04 billion (including revenues from
operations between the other countries in Asia and the United
States). Broken down by cargo and passenger operations, the
picture is as follows:
Cargo Operations In 1983, U.S. carrier revenues from cargo
moving between Japan and the United States totaled $285
million, versus $180 million for JAL. Overall, if cargo
carried between other Asian points and the United States via
Tokyo is included, U.S. carrier revenues substantially exceed
those of JAL. (Japan serves as a critical transshipment
point for U.S. carrier cargo services; 60 percent of all
cargo moving between Asia and the United States on U.S.
carriers moves through Japan.) Currently, Flying Tigers
operates 26 weekly flights eastbound from Japan to the United
States, NW operates 11 and JAL 24. Over 200 weekly
combination passenger-cargo flights provide additional cargo
capacity.
passenger Operations In 1983, U.S. carrier passenger
revenues totaled $824 million; JAL's passenger revenues
totaled $692 million. Four U.S. airlines carried 48 percent
of the market while JAL carried 43 percent. U.S. airlines
operate approximately 120 flights per week while JAL operates
approximately 75 flights per week.
Current Negotiations Although comprehensive bilateral
negotiations were underway, the Japanese desire to obtain entry
for Nippon Cargo Airlines (NCA)' on April 1 furnished an
opportunity to negotiate a provisional package prior to the
conclusion of the comprehensive talks. At negotiations which
ended in Tokyo March 2, the two countries' chairmen were
discussing, without commitments on either side, the following
package of benefits:
Limited entry of NCA up to six flights per week between Tokyo
and San Francisco/N.Y. with increases in NCA flights based
upon cargo market growth rate.
The elimination of frequencies and aircraft type restrictions
on services between Japan and Guam/Saipan with opportunities
for new airline operations in those markets.
Opportunity for a total of three new daily services for both
sides, phased in, between U.S. cities and Japan.
Provisions eliminating excessive Japanese regulation of U.S.
carrier operations.
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Factors for Consideration
Pros
o U.S. obtains new long-sought service opportunities which
would enable U.S. carriers with significant hubs to provide new
competitive services to Japan.
o Elimination of operating restrictions in Micronesian markets
which have been source of conflict between the United States and
Japan.
o Removes some historic regulatory constraints on U.S. carrier
operations.
o Furthers progress in U.S.-Japan aviation relations which have
gradually improved since 1982.
Cons
o other than protection of their Chicago gateway and some "doing
business" benefits, package contains nothing for U.S. cargo
carriers and is subject to criticism for trading their interests
for combination/passenger opportunities.
o All U.S. incumbents are critical of the package.
o Projected market growth resulting from new services will be
influenced by pricing flexibility available, a subject unaddressed
in this package.
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EXECUTIVE SECRETARIAT
ROUTING SUP
ACTION
INFO
DATE
INITIAL
1
DCI
2
DDCI
3
EXDIR
4
D/ICS
5
DDI
6
DDA
7
DDO
8
DDS&T
9
Chm/NIC
10
GC
11
IG
12
Compt
13
D/Pers
14
D/OLL
15
D/PAO
16
SA/IA
17
AO/DCI
18
C/IPD/OIS
19
(110w)
X
20
21
22
SUSPENSE
Papers for this meeting are
expected via LDX between 5-6 p.m.
tonight.
8 Mar h 1985
Date
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March 8, 1985
MEMORANDUM FOR THE SECRETARY OF STATE
THE SECRETARY OF COMMERCE
THE SECRETARY OF TRANSPORTATION
DIRECTOR OF CENTRAL INTELLIGENCE
UNITED STATES TRADE REPRESENTATIVE
ASSISTANT TO THE PRESIDENT FOR NATIONAL SECURITY AFFAIRS
ASSISTANT TO THE PRESIDENT FOR POLICY DEVELOPMENT
CHAIRMAN, COUNCIL OF ECONOMIC ADVISERS
DEPUTY SECRETARY OF THE TREASURY
SUBJECT: Senior Ad Hoc Group on International Economic Policy
A meeting to discuss U.S.-Japan trade negotiations is scheduled to be
held on Saturday, March 9, 8:00 - 8:45 a.m. in the White House
Situation Room. This meeting will continue the discussion from the
March 7 SIG-IEP meeting. Papers will be circulated later today.
4~K.GLO
James A. Baker, III
cc: Staff Secretary and Deputy Assistant to the President
Deputy Assistant to the President for Cabinet Affairs
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