American Enterprise Institute

October 2, 2008

[Edited transcript from audio tapes]

9:15 a.m.	Registration
9:30	Keynote Speaker:	Wendy Cutler, Office of the United States Trade Representative
10:30	Panelists:	Claude Barfield, AEI
		Matthew Goodman, Stonebridge International
		Kenji Goto, Embassy of Japan
	Moderator:	Michael Auslin, AEI
12:00 p.m.	Adjournment

Proceedings:

Michael Auslin:  We have a wonderful program for this morning, a two-part program really, beginning with a keynote and then a panel.  So let me just very briefly talk about that.  I am Michael Auslin, a resident scholar here at AEI in Japanese and Asian affairs and very pleased to welcome you here to talk about U.S.-Japan trade in a period of global crisis.  When we started thinking about this event and started talking with Wendy and her office, it was a few months ago so we had no idea that it would be perhaps even more appropriate to try to address what the global context, the financial context, and the economic context is of U.S.-Japan trade.  I actually thought about it a lot as a political question, looking at what’s going on in Japan and what the affect that that was having, long term, on U.S.-Japan trade.  But clearly, what’s transpired in the U.S. and around the world in the past week, week and a half, I think makes it even more appropriate to take a look at what is happening to the world’s two largest economies and two of the largest trading economies in the world.

Let me start though, before I forget, with a brief blurb for another event we’re having coming up that’s tangentially related to this, and that is, on October 22nd, we will be having an event on the flipside, what is happening in Japanese domestic politics.  As you all know, of course, we have a third Prime Minister in Japan in the past two years.  There is the likelihood of a general election coming very soon that may transform the political landscape.  So we’re going to have another panel here at AEI on the 22nd on Japan with a professor from Tokyo University, a former Diet member currently here in the U.S., and the head of Japan research at the Congressional Research Service.  So we will be sending out announcements for that, but I wanted to let you know that right off the bat.

So this morning, we are absolutely thrilled to have Wendy Cutler come and give us a keynote on U.S.-Japan trade in the current global crisis.  And then we will move into an equally distinguished panel, getting different views on this, and I will introduce the panel at the time that we start, but let me very briefly introduce Wendy, who is certainly known to all of you.  Wendy is the Assistant U.S. Trade Representative for Japan, Korea, and APEC at the Office of the U.S. Trade Representative.  She was the chief negotiator for the Korea-U.S. Free Trade Agreement, KORUS, which was signed in June of last year, June of 2007.  Since 1988, a short career, Wendy has had numerous positions in USTR, including Assistant Trade Representative for North Asian Affairs, as well as for Services Investment and Intellectual Property and has negotiated a host of bilateral agreements.  Previously to USTR, Wendy worked at the Commerce Department from 1983 to 1988.  So it is a great pleasure to welcome Wendy to AEI to talk about U.S.-Japan trade.  Please join me in welcoming her.  [Applause]

Wendy Cutler:  Well, thank you, Michael, for the kind introduction.  I kind of feel like it’s homecoming here, with so many old friends in the audience.  I know that people still ask, “Does Japan really matter?”  And I think, by the audience today and the size and not only the quantity but the quality of people here as well, I’m sure we’re going to have a great discussion.  And I think it underscores how important our economic and, just overall, relationship with Japan is.

Clearly, the discussion today is quite timely, as we look at our large and important economic and trade relationship with Japan, and particularly, as we look ahead and see how it might unfold in the coming months and years.  We have a number of political developments underway.  Japan has recently elected a new Prime Minister, the third Prime Minister within a very short period of time.  I think the only shorter period of time was when I worked for Ira and Ambassador Barshefsky and Ambassador Kantor at USTR, and I think we had about five Prime Ministers within a year, but who’s counting?

And we’re poised, in Japan, for a Lower House election.  I know there’s a lot of speculation on whether this might happen in a matter of weeks or maybe a little longer, but we’ll have to see.  But indeed, that’s a very pivotal event in Japan.  And of course, on our side of the Pacific, the Bush Administration is coming to its end and our political process is in full gear to select a successor for President Bush.  Let me just caveat my remarks today.  I am, what they call, a career civil servant.  I have served at USTR, now, if you did the math, that’s 20 years.  That started when I was very young, but I’ve worked for both Democrat and Republican administrations, and so if some of you think you’re going to ask me questions on what I think about -- I’m looking at Chris Nelson there.  I’m going to defer those questions for the panel.  I didn’t last 20 years in the government by taking those types of risks.

As those of you who are familiar with the Washington trade scene, you know that changes in U.S. administrations typically entail a detailed review and reassessment of our economic relationships with key trading partners as they consider ways on how to improve or update those relationships.  And in this regard, I expect that our relationship with Japan, our fourth largest trading partner, will also be reviewed and scrutinized in a similar fashion once the new team is in place.  I, personally, was involved in the reassessment when President Clinton came in, of our relationship with Japan, as well as when President Bush came in, and let me just say, there were lots of meetings, a lot of high level attention.  I think this time around, and we can go into that more in the Q&A, well, I think there will be a lot of discussion and reassessment, I think for a lot of reasons, that people will look at our relationship with Japan in a different way this time around.

Even with these key political developments, we are all reminded, in recent weeks, that new external developments, such as those seen in the financial markets, can bring new challenges that ultimately themselves can have a profound effect on these decisions.  And with this in mind, I’d like to take the opportunity this morning to offer some observations of what indeed we have accomplished with Japan over the past eight years, and discuss where our trade and economic relationship stands today, and outline some of the key questions and issues that I believe the next administration will need to grapple with as they reassess where they want to go with Japan on the economic front.

So where we’ve come today, many of you around this room are familiar with the alphabet soup of U.S.-Japan trade relations.  Don’t ask me what MOS stands for.  I could probably tell you what SII stands for.  And of course, we had the Results-Oriented Framework Agreement.  Under the Bush Administration, we launched what we call the Economic Partnership for Growth, and that really became the framework for economic engagement with Japan.  Looking at this framework, I think it worked for a number of reasons.  It was a very flexible framework.  It really contemplated engagement in all different levels of the government and among all different ministries, so it had a financial component, a trade component, a macroeconomic component, et cetera.  And I think it also really succeeded in kind of lowering the temperature in our relationship with Japan.  The approach adopted under the partnership set out a comprehensive framework for engagement and we also have found ways to include the private sector in our work.  What we’ve seen over time is that this framework has allowed us to manage and resolve many issues in a low key manner while at the same time it provided sufficient flexibility to take on new issues.

What’s interesting, in preparing for the remarks today, we looked at some of the trade statistics, where we were in 2001 with Japan and where we are now, and it’s interesting that our two-way merchandise trade relationship is basically had been flat, about $200 billion two-way trade, with the real growth occurring in the services sector, where growth in trade has increased from $50 billion to $65 billion, and I don’t think any surprise there, but that’s interesting.  And also, even though the trade deficit you can’t use as a measurement of our economic relationship that also has been quite steady at about $82 billion.  When I first started at USTR, if you had told me and if I was working for an administration that said our trade deficit was $82 billion, we probably would have been frantic.  And now, we can calmly say it’s $82 billion and I think there are a lot of reasons for that that we can go into later.

So I think we have a stable and mature economic relationship.  Relative stability though does not imply that all major irritants in our economic relationship have somehow disappeared.  And here, this is my segue, just to quickly mention the beef issue, I need to get that in, so I’ll do it here.  Beef continues to be a major irritant in our relationship with Japan.  Japan now is restricting imports of beef to meat from cattle 20 months and under.  There is no scientific justification for this and we continue to urge Japan, as well as our other Asian trading partners, to fully open the beef market, consistent with international standards and science.

But in most areas, we have seen a real progress and concrete progress for that matter.  In the regulatory reform area, for example, we have seen Japan expedite and improve its regulatory practices to shorten the approval period for new medicines and new medical equipment.  We have seen the streamlining and expedited customs procedures, which have allowed our goods to clear quicker into the Japanese market, and we’ve made a number of major breakthroughs in the telecommunications area, which was a longstanding sector of trade friction in the past.

And as we have been tending to these bilateral issues, we have also been able to broaden our work and to tackle mutual concerns in the Asia-Pacific region and globally.  Clearly, the emergence of China as a strong economic force in the Asia-Pacific region has given us a greater cause to work together to ensure that China is a responsible partner in the world trading system.  We have worked together closely on intellectual property.  We’ve worked together very well in some areas of the Doha Development Agenda in one area and probably not as well as we should be working together.

So whether in terms of our engagement on the bilateral or regional and global issues, the overall result has been, I think, a more stable, more mature, and more diverse economic relationship today than at the turn of this century.  And as a result, I believe that we really have a strong foundation from which to take our relationship to the next stage if, indeed, we are ready for that.

So what is this next stage?  Even as today, we are in a better position to look ahead.  There are other key factors that also bode well for setting a new stage in our economic relationship.  The sizes of our economies remain enormous.  Our two economies together still account for one-third of global GDP, and so what we can do together can have a tremendous global impact.  We continue to share strong values of democracy and the rule of law, not to mention a strong alliance, and we share a number of the same concerns with respect to some of the common external challenges that we are both facing.

While this state of affairs improves the likelihood that we will continue to build on this important relationship, it does not guarantee that indeed, we can tap unrealized potential because at the same time, we also face new uncertainties that may well affect the decisions and choices we make.  For example, there are new economic challenges, and here, I don’t need to talk about the financial situation, but also just think the areas of energy and the environment, food and food prices and the like, these are new issues, for the most part, on our economic horizon.  Two, there is an evolving trade environment.  The trade landscape is changing.  Even as U.S. exports boom, the benefits of free trade have, nonetheless, come under greater scrutiny and growing skepticism in the United States.  And in this environment, this administration’s commitment to conclude an ambitious Doha Development Agenda and try and get Congressional approval for the three pending FTA’s do remain a top priority over the coming months.

And while Japan continues to negotiate and include its own, what it calls, EPA’s, strong opponents of free trade in Japan, particularly in the agriculture sector, also seem to have become increasingly vocal.  The degree to which Japan can move past its long held previous positions on agriculture and other areas remains to be seen.

As we look ahead, I want to just highlight four key issues and questions that I think the new administrations, in both governments, will need to look at as they try and chart an economic relationship going forward.  And this is not an exhaustive list, but I think I’ll list four important areas which, I think, at least some of them, hopefully our panel will probably have important insights on these issues as well.

First is the question of what is the fate of regulatory reform in Japan?  And let me just explain to you for a minute why this is so important.  And there are two basic reasons: one, regulatory reform in Japan has really helped spur economic growth in Japan through the years.  And while at the same time, it has provided new market access opportunities.  Putting aside the agriculture sector, tariff barriers and traditional non-tariff border barriers in Japan are minimal, so most impediments to access that our companies now experience in Japan are largely regulatory in nature.  And so we have put a real emphasis, over the past seven years, to tackle these barriers, whether in the telecommunications sector, the medical sector, the housing sector, and others, and we’ve made a lot of concrete progress, and as a result of that, we have been able to really establish an overall more positive tone in our work.

What concerns us now is that Japan’s reform agenda now appears to be languishing.  And frankly, there are questions on whether it will be put on hold as Japan enters in its political season.  We, therefore, have taken great interest and we have scrutinized Prime Minister Aso’s comments that he made to the Diet the other day and we did find a kernel of hope.  In there, he said that he would pursue growth-oriented reform.  So the word “reform” did appear in his speech and we’re hopeful that that, indeed, will continue, but I have to say, we are concerned with the signs and what we’re hearing and how regulatory reform work has been going in the past few months.

Second, I think a second question we really need to look out and we need to grapple with is are there new areas on which we can work together and push the envelope further in our relationship?  And here, I would just point to the issue of intellectual property protection as an area where, over the past few years, for our own reasons and our own interests, we both concluded that strong intellectual property regimes, both in our individual countries, but more importantly, in the region and globally were of great mutual interest, and therefore, we should work together and be leaders in this area and really forge the path and set the model for others in the region.  And I think we have been very successful in the intellectual property area working together, both bilaterally improving our own regimes which are setting models for others, but also with respect to our approach in China IPR, also with respect to our leadership in other IPR negotiations, and frankly, our joint work in APEC on IPR, where the two of us, along with Korea, have taken the lead.

And the question I would ask and pose: are there other areas akin to intellectual property that could really lend themselves to Japan and the United States really taking the lead, setting the model, getting -- really addressing cutting edge issues, and showing leadership for the region and the world?  And if we could do that and there were other areas, one could argue that by having solid foundations in individual issue areas, and this will get me to my third question, is the question of an FTA or an EPA, and that is, are we ready for an FTA?  I know that the Korea FTA was a real wake-up call for Japan. 

Right after conclusion of the Korea FTA, I received a lot of visits from my Japanese colleagues.  A lot of them were just kind of scratching their heads and asking me, “How did you do it?  We were so sure you would fail, that there was no way you could do this.”  And others were just wondering what did it mean for them and how we could go ahead and, as our first North Asian FTA partner, we worked so closely and successfully with Korea and why it wasn’t Japan.  And I think that has led to important thought in Japan and I know a number of groups, including business groups from both sides, frankly have looked at this and have concluded that maybe an FTA between the United States and Japan is something we should pursue.

Let me just say that I think this is an area we need to look at.  My personal view is I don’t see this as something that can happen in the near term, and frankly, for a number of reasons.  But I think, instead of going into the reasons, let me just pose the questions, or at least the issues we would have to grapple with.  I think there is no doubt in anyone’s mind that if the two largest economies are going to embark on FTA negotiations, the world spotlight would be on us and the pressure to be successful and the idea that failure could not be an option would be huge.  The stakes would be extremely high.  And so this is an FTA we would need to go into with a lot of preparatory work, a lot of confidence, and a lot of groundwork laid, like the work we’ve done on IPR.

Second, the obvious question that comes to everyone’s mind is the question of agriculture.  I think Japan was the most surprised by Korea’s bold decision to open up its agriculture market.  Granted, they got longer transition periods with respect to sensitive products, but that’s what an FTA, that’s a tool we have in the FTA to deal with sensitivities.  But I think it’s safe to say that that debate or that conclusion in Japan just hasn’t taken place.  There are signs that Japan is looking at agriculture.  There are a lot of these reformers in Japan who recognize that agriculture is holding them back, not only with respect to a U.S.-Japan FTA, but with respect to their negotiations with Australia and their position in the DDA.  So I think the question of agriculture is important.

But I would also put forward, and this was really, I think, based on my years of working with Japan, but also my experience in the Korea FTA, that we can’t underestimate the importance of addressing non-tariff measures in the Japanese economy if were ever to do an FTA.  And the non-tariff measures we faced in Japan are very unique and very sophisticated, frankly, and different than non-tariff measures we have addressed in other FTA’s.  And so I would just put forward the idea that that’s something we’ll have to look at very, very carefully. 

One example, I’m always asked, “Well, what do you mean here?”  And let me just throw out one issue, and that’s the whole issue of these advisory groups in Japan.  And we kind of sometimes feel we’re in a Catch-22.  The ministries, and this is very simplistic so just go with me here, but ministries, they appoint advisory groups to advise them on policy.  Typically, no foreigners are allowed in the advisory groups.  And when we go and we ask, “Can we be a member?” they say, “Don’t worry.  They’re just making a recommendation.  You’ll have your time for input once it goes to the government.”  And then, once the decision goes to the government, we are told, “Frankly, it’s too late for input.  The advisory committee has made their recommendation and now, we’re drafting regulations to put that recommendation into effect.”  And in our view, that’s not a transparent, nondiscriminatory type of system, and I would argue it’s a type of issue we would really need to address in an FTA.  And there are a lot more along those lines and I can tell you that those types of issues are not addressed in other FTA’s we have done and have certainly not been addressed by Japan in their EPA’s.

And let me then just conclude kind of with the fourth kind of item, I think, on the agenda that the new teams are going to need to look at, and I think this is a very positive one and that is the issue of APEC and the whole issue of regional economic architecture.  There’s a real opportunity for Japan and the United States to work together very closely in the coming months and years.  Japan will be hosting APEC in 2010 and the United States will be hosting APEC in 2011.  And so I think as the United States puts more and more emphasis on APEC as really the regional economic organization where we’re part of, Latin American countries are part of and should be the vehicle for moving forward, with respect to regional economic architecture.  I think the fact that we’re both hosting, which means we’ll have a great stake and successful years and we’ll have a lot of high level interest, which, I think, in Japan is going to be particularly important as the Prime Minister’s Office focuses on APEC 2010 in Japan.  I think that really will provide some opportunities for close cooperation. 

We decided about a year ago that we would host APEC in the earliest year that was available.  Countries put in their bids for hosting years in advance, so we put it in for 2011, and so I really look forward to explaining to the new team how this commitment was made since I’m probably one of the few people who was around when the commitment was made and when they asked what APEC is and what are doing and where are we doing it.  But I think, once again, this is going to be a tremendous opportunity and I think the new teams in both countries are going to have to focus on that earlier rather than later, and it really provides an enormous opportunity.

So let me conclude and say we’ve certainly come a long way in our economic relationship with Japan, and having worked with Japan now for, and I hate to admit it, for close to two decades, on the trade front, I can say the differences, with respect to where we were 15 or so years ago, 20 years ago versus now are really striking and frankly, a great improvement.  We will inevitably continue to have trade frictions, but that’s normal when you have an economic relationship of $200 billion of two-way trade every year.  You’re going to have trade frictions. 

And so the key will be, can we work through them in a mature and sophisticated way?  But I think it is safe to say that our relationship 20 years ago, 15 years ago that was characterized by trade tension now more and more is really characterized by cooperation.  And I think the relationship that we have today is better suited to really face the kind of challenges that are on the horizon that are going to face both of us as the largest economies.  And at the same time, I think it’s important to ask ourselves can we go further in our relationship because frankly, there has been some disappointment that we haven’t been able to really move forward in certain areas.  It is so clear that our relationship has a great deal of potential and the key will be can we really tap that potential in the months and years ahead, either and jointly through regulatory reform, working on issues like IPR, thinking about an FTA, and working on APEC.

So let me stop there.  I’ve thrown a lot out and I’d be glad to take some questions and do my best to respond.  And if not, I will defer to our panel of experts who are going to follow me. [Applause]

Michael Auslin:  Wendy, thank you very much.  We do have a microphone.  We’re going to move into Q&A and we ask -- Wendy will field the questions.  Please wait for the microphone to come.  Please do identify yourself and briefly ask a question.  Chris, if possible, for everyone else, for Chris, just let it go how it goes.

Male Voice:  [inaudible]

Michael Auslin:  Coherence is important   So Wendy, you want to field and Jenni will be bringing the microphones to you.  Thank you.

Wendy Cutler:  Chris.

Chris Nelson:  Okay.  The pressure is on me now.  Thanks very much.  Chris Nelson, I guess old straight hand from the tone of this, although compared to Misha, we’re all right.  Some of what you’re saying about how to think about and approach this FTA, or whatever we’re going to call it, with Japan, reminds me of what you used to say about Korea, and that is, yes, we’re interested in doing it, but we’re not going to do it until really we hear back from them that they are really going to do it.  Just having meetings and beating our gums and beating our head against the wall isn’t going to do it.  I get a sense that that’s really what I’m hearing from you today about moving on this next step with Japan.  Because if we didn’t have that concern, I think many of us would argue that we’ll never get to the next step if we don’t start the next step.  And let’s say this is what we’re doing and this is why we’re doing it.  So am I mishearing you in a sense that we need to hear and see more from the Japan side before we could really get going on this?  Thanks.

Wendy Cutler:  Absolutely, and one of the key reasons why the Korea FTA worked wasn’t because we were pressuring Korea to enter into an FTA with us.  It was because Korea, for its own reasons, concluded that an FTA with the United States was in its own national economic interest.  And frankly, I don’t think Japan is there right now and I don’t think it’s a question of gaiatsu because this is so beyond that.  This would be, once gain, a huge undertaking, and I think it’s something, as I said during my remarks, it will require a lot of soul searching, a lot of preparatory work, and a real discussion and debate in Japan in terms of whether they’re really ready for something like this.

And let me just say, I think some in Japan are ready for this.  But what you need is it’s really an emerging national consensus with strong political leadership that this is something they want to do and they know what wanting to do means with respect to making tough decisions.

Tenki Kyotomo [Phonetic]:  Tenki Kyotomo of Bank of Tokyo-Mitsubishi.  You touched up on the APEC-wide FTA.  And I think there was a report, an article on the Nikkei newspaper about U.S. is talking with New Zealand, Brunei, Chile, I think Chile or -- and Singapore about going on the framework for the APEC-wide FTA.  And I just wonder if Japan is not really included in this framework, I mean, talks, whether the United States say, “Go ahead,” not really consulting with Japan to pursue the APEC-wide FTA?

Wendy Cutler:  Okay, well, just to clarify, there are two different issues here.  One is an APEC-wide FTA, what we call the sort trade word is FTAAP, Free Trade Area of the Asia Pacific.  And that’s something that, in APEC, we’re looking at as really a long-term goal.  Just last week however, the United States announced that we are going to join the negotiations of an agreement that was called the P4.  Now we’re calling the Trans-Pacific Group and that’s with Singapore, Chile, Brunei, the United States, and others -- And let me just say that that’s something we are going to start in the near term, those negotiations, and when we looked into this, both the United States and other of the P4 countries consulted with other countries, and they also consulted with Japan.  Japan basically told us that it wasn’t ready to join, but it’s going to continue to look at this, as a potential, something maybe they could join in the future.  And so I think that this group will be evolving and I think it could be one vehicle to the FTAAP, the APEC-wide FTA.

Ernie Preeg: Ernie Preeg, Manufacturers Alliance.  My question is about India and how it fits in.  It’s part of Asia and South Asia, but very recently, they have FTA’s with ASEAN, and building out of Singapore and with Australia and New Zealand.  They’re underway, presumably assumed, with South Korea.  And so my question is should India now not be part of the APEC objective a little broader?  And also, shouldn’t we too be considering an FTA between us?

Wendy Cutler:  India is not my area of expertise so I have a lot to say.  No, I’m kidding.  So let me be brief.  With respect to APEC, there have been, let’s say, years where we have agreed to include other members.  And currently, there is what we call a membership moratorium on additional members to APEC, and that was agreed to about a year ago, which will be in place for a couple more years, I believe.  Clearly, if APEC were to expand through additional members, I think you’re right.  You have an excellent question that will India be a logical addition?  And I think that’s something we’ll look at in the future. 

I would also just say is that having 21 member economies in an organization and trying to come up with robust agreements and think about an FTA, it gets harder to really achieve solid accomplishments with more members.  And so that’s something that the APEC economies are also going to have to take into consideration.

With respect to India and FTA’s, I’ll put aside what the U.S. plans are.  We have a number of bilateral mechanisms where we engage with India.  And obviously, we have discussions with them on the context of the DDA and other mechanisms.  But you’re correct.  A number of other Asian trading partners are pursuing FTA’s with India.

Amy Searight:  Thanks.  Amy Searight, GW.  I wonder, there is some support in Japan and here for rather than moving towards a comprehensive FTA with Japan, kind of peeling off some issues, investment issues, perhaps services, perhaps some other sectors, and doing a less than comprehensive agreement first as a building block to an FTA.  And I wonder if you think that would be helpful.  And in a parallel question, moving in that direction in APEC having perhaps a services agreement or bundling some other sectoral issues, do you think that’s a good approach or do you think that the downside of that approach of making a comprehensive trade agreement on the bilateral or regional level or a global level at the WTO would counter against that?

Wendy Cutler:  That’s an excellent question.  When I talked about the things we can do, short of an FTA, and I mentioned IPR, I think investment, for example, is an area where I know Japan is very interested in and I always wonder could we be doing more with Japan bilaterally on investment?  There has also been some discussion, I know Senator Baucus recently raised the idea of a Japan-U.S. Services FTA, and I think that’s something we can, it merits consideration.  Services is obviously a robust and growing part of our economic relationship with Japan, and if the WTO contemplates that you can do or it allows for services only FTA’s.  It’s allowed for in the WTO so you wouldn’t have a problem with WTO inconsistency.

I would just say, as a negotiator, and here, maybe I’m getting in the weeds a little too much, but I think that would be a very difficult negotiation, particularly given that a lot of our services regulations in the United States are implemented by states and there are a number of other issues, what we call the Mode 4 issues, which have been very difficult for us to deal with in trade negotiations.  And so while I think it’s something we need to look at, I would also urge that we look at it very carefully because while some might think this could be an easy area and it can be a real confidence building step, I think there are a lot of landmines there, and as someone who has negotiated with Japan in the services area and whether it be telecommunications services or insurance services or whatever, those negotiations have been traditionally quite contentious.  Lou?

Male Voice:  Thanks, Wendy.  I really appreciated your remarks.  You and I came into USTR about the same time.  I lasted about three years.  My hat’s off.  I wanted to ask you to elaborate a little bit more on the problem of these advisory groups.  I can think of a couple of examples during the ’90s where American business was successful.  I’m thinking of a particular company in terms of the distribution sector and participating in these advisory groups.

Wendy Cutler:  I think I know which company you’re talking about.

Male Voice:  Yes, and I can also think of one in the food safety area.  And in those circumstances, there was sort of good give and take between the companies and the bureaucracy.  Doors opened to these advisory groups.  Lobbying, in effect, became possible, even appearances at shikais that the government would organize to discuss draft regulations.  And I’m wondering whether or not that has, the opportunity for that kind of thing has disappeared in recent years or there really is still a possibility that, if approached in the right way, things could begin to happen.

Wendy Cutler:  Yes, and I agree with you.  We have had some successes there, but the problem is it's uneven and it’s not ministry-wide.  And in some of the sectors, whether it’d be in the health sector or transportation sector, we have found that we have been cut out.  So what we’re -- it’s just something ministry-wide that we would need to look at because if you think about it in FTA, you’re kind of writing rules which would last in perpetuity.  What we do in the regulatory reform initiative, we go year by year, and we look at this barrier then that barrier then the next barrier.  And so in an FTA, you would really need to try and get at the core problem by a trade rule that would actually work and discipline the area economy-wide.  And I think that would be a challenge.  Paul?  I’m looking at Ira.

Male Voice:  Thanks, Wendy.  Related to the question about sectoral agreements and the issue of pursuing new ones, what about the existing agreements?  And I’m thinking particularly about the MED Forum MOS Agreement, which is now 22 years old and is beginning to get pretty badly outdated and maybe not reflective of the technologies and the issues that we face today.  What’s the stomach, the will within the administration and maybe inside Japan too for renegotiating and updating those existing agreements, if any?

Wendy Cutler:  As someone who spent a lot of sleepless nights negotiating all of them, let me offer a few thoughts and then Goto-san from the embassy is here too and I’m sure he would have some views as well.  But my sense is that that approach, the bilateral sectoral approach with Japan, we’ve kind of taken it as far as we can, and that our approach of trying to address those type of issues in the regulatory reform context really yields the most benefits and really becomes more of a win-win type of scenario.  That said, there may be certain sectors where bilateral agreements may be useful, but frankly, we’ve really been moving away from that. 

One can also look at a regulatory reform initiative and one could argue it really is just mini-sectoral agreements within an overall context of regulatory reform.  But my sense is the stomach, on both sides of the Pacific, for more of these kind of bilateral sectoral agreements which aren’t win-win and which one country really doesn’t want to be part of, it’s hard for me to see that that’s an approach that could go forward, but I don’t rule it out.

Paige Cottingham-Streater:  Hi, Paige Cottingham-Streater from the Mansfield Foundation.  Thanks for your remarks.  I’d like to ask a question on another issue.  You mentioned opportunities for new cooperation using the IPR as an example, and I’m wondering if you can elaborate.  Do you have any specific issue areas in mind that may be fruitful with the two countries?  Thank you.

Wendy Cutler:  I knew I’d be asked that question.  I think investment is one area that I know is of particular interest and importance to Japan, and I’m not talking about a traditional bid or something, but is there something we can do with respect to improving the investment climate that could serve as the model for other countries.  I think the issue of secure trade -- we’re doing work there already between the relevant ministries -- but my view is I think that’s an area where, since we’re such close allies and we share a lot of the same security concerns but we’re also, we’d like to get our goods moving quickly, and so how to strike that balance, I think, is something that I think Japan and the United States, I think there is potential there for us to really do some groundbreaking work.  So those are a couple of areas, but I bet others in the room who have been working in this area for a long period of time probably have other ideas, and I think it’s something that I think there’s a lot of potential for moving ahead in some of these areas.

Jim Berger:  Thanks.  Jim Berger from Washington Trade Daily.  Given the financial difficulties in this country that seems to be taking hold and also this sluggish economy in Japan that has taken over for several years, and also, you pointed to the growing protectionist sentiment that maybe also taking hold of this country, do you think the Japanese, and also, I think I read, sometimes I read things too quickly, but Japan had a trade deficit recently, a monthly global trade deficit.  Are those factors, do you think, will spur the Japanese public opinion to really look in an FTA, seriously, with the U.S. on your terms spelled out here or is it just going to be more of the same?

Wendy Cutler:  I think that’s a question I would ask Goto-san during the panel, but I take your point.  But I would also point out, and this is where Ambassador Schwab has been so articulate, that trade is really the bright spot in our economy right now, as well as in the Japanese economy.  And so export growth has really helped contribute to our recent GDP growth and actually is a large part of our GDP growth.  So I would argue that trade is a bright spot and it’s kind of our responsibility to see what more we can do on that front.  But with respect to where -- whether these current developments dampen Japan’s eagerness to work with us and more ambitiously, I would save those for my good friend Kenji.

Paul Eckhart:  I’m Paul Eckhart of Reuters Agency.  You speak of the Korea-U.S. FTA in the past tense as if it’s a done deal and it is, I guess, from your agency’s point of view, but it's still languishing in the legislatures in both countries.  [Cross-talking]

Wendy Cutler:  Noted.

Paul Eckhart:  And any risks of this carrying forward?  It seems almost likely that even with a lame duck session that it might not get taken up.

Wendy Cutler:  Well, I mean, the agreement is signed.  The agreement is concluded.  It’s awaiting legislative approval in both countries.  Korea has indicated that it’s going to look at moving the FTA in its current national assembly session and we, the administration, we’re continuing to try and work with Congress to get the FTA passed by the end of the year, and we’ll just have to see.  A lot would depend on whether there is a lame duck session and if there is, will there be an opportunity for the Korea FTA as well as the Columbia and Panama FTA’s to come up for consideration?  We’re going to look for that window of opportunity.  We’re ready if the window of opportunity presents itself.  We believe that these agreements are just too important to not to go through and not to be approved.  And I, personally, from looking at the Korea FTA, my view is just based on the meetings I have had up in Congress and with stakeholders, that I think there is widespread support in the United States for the Korea FTA and it’s really a question of when it will be approved by Congress, not whether it will be approved.  Okay, thank you.  One more?  Okay.

Ira Shapiro:  Having lasted at USTR only a little longer than Louis, I think all of us are grateful for having such a wonderful public servant and diplomat and negotiator as Wendy for as many years as we’ve had.  So, the business community and everyone in the United States has benefited from her work. 

The question I have, and it comes out of a number of other questions that have been asked, and I’m asking it with a rising sense of panic since I’m supposed to speak about this next week in Tokyo.  It's kind of an attitudinal question more than anything else, which is it’s customary for us to say, all of us to think that Japan needs to show it’s serious or it’s ready to go to the next step.  And I would simply ask if Japan were to look at the United States -- and Jim touched on this a little -- whether anyone in Japan would think that the United States was serious or ready to go to any kind of next step in the economic relationship?  But I would go one step beyond it to sort of ask the question of sort of whether there needs to be more reciprocity of attitude and also reciprocity of sort of who’s going to benefit and who isn’t? 

We always think about well, Japan needs to be ready and Japan will gain from this and they just need to understand it.  But the truth is anyone looking at our overall situation would think that for the future of our position in Asia, the United States needs a deeper relationship with Japan.  So I guess I’m curious as to whether there’s a reciprocity question in terms of attitude and approach that’s needed?  And you touched on, as soon as anyone talks about, well, state regulation of insurance may not be the best thing in the world nor by the way with federal regulation.  But what is our attitude going forward in the next few years toward these kinds of questions?

Wendy Cutler:  As always, Ira, I think you’ve really made an insightful comment and it’s true.  I think a lot of times, we get so carried away about ourselves that sometimes, it’s hard for us to put ourselves in the shoes of our trading partners.  But I will say with Japan, over the past few years, we have really improved our relationship and we’ve gone to Japan with a number of issues to work where we think we had suggested that we could work closely on and have basically been rebuffed a bit.  I think part of it also -- and I thought you were going to get into this too -- there is still a lingering mindset in U.S.-Japan trade relations that a lot of the personnel, who are now in the vice-ministerial positions, are ones that were the ones who were up all night with us negotiating these agreements.  And so I think there still is this kind of lingering kind of trade warrior mentality and can we trust each other and can we really change that relationship and change the dynamic?  And I think that has been happening gradually, but I think it’s something that we both need to work on and I think we need to do a better job of, once again, finding kind of these win-win issues. 

Let me just conclude by saying, and Ira, you know better than anyone from your days on the Hill, if anyone had told you on those days that someone from USTR would be up at a podium touting the accomplishments and the partnership we have on IPR issues with Japan, you would have said, “It will never happen in a million years.”  But frankly, we both had our own reasons and as a result, we kind of shared a similar vision going forward so we found it to be a good issue to work on, and I guess that’s one of the thoughts I just want to leave with people, that I think there are other issues like that where we can work together or where we can kind of put some of that acrimonious side or not this notion we’re forcing Japan to do this or Japan is forcing us to do that.  So I would hope that we can continue kind of to build on our relationship by finding areas like that where we can work cooperatively.  Thank you so much.  [Applause]

Michael Auslin:  Wendy, thank you for what was truly a thoughtful presentation of the issues that we faced and that we face going forward.  We’re glad that it has been a bit of a reunion morning for everyone to get together and talk about old times but look ahead as well.  And so please join me once more in thanking Wendy.

Michael Auslin:  We are now going to move into the second part of our morning, which is a moderated panel on these issues.  I would take about just a two-minute break for folks to refresh themselves or get some of our drinks in the back, and then we will move forward.

[Break]

Michael Auslin:  Okay, if everyone could please be seated, we’ll get going on the second part of our panel.  Okay, thank you.  Obviously, Wendy set a great tone for this discussion and one that I know, if you’re dealing with Japan, broadly, the issue of economics is very important.  But if you’re looking at the overall Asian equation, and most of us spend a lot of time going to those events, certainly, Japan has fallen a little bit off the radar screen in a host of different areas that once were naturals for us to take a look at what was going on in Tokyo and what that meant. 

So I’m very happy that today, we’re coming back to that a little bit and pointing out, of course, the fact that when you have two of the world’s largest economies and trading partnerships and a $200 billion bilateral trade relationship alone that requires I think sustained analysis and engagement on the part of both of our countries but one that can often get lost in the depressive events, except for offices like USTR.  So what we wanted to do now was actually broaden out the discussion a little bit and put together an equally distinguished panel that I will introduce as we’re getting our crack technology sector up to par here. 

We’ve brought together a variety of viewpoints and experiences to amplify and interpret what Wendy began us with and we will talk broadly again about where we stand with U.S.-Japan trade and where we’re going.  And we will begin, I believe, if the computer comes up, we will begin with Kenji Goto, again, who most of you know is the current Minister of Economy Trade and Industry and Energy at the Japanese Embassy here in Washington.  Kenji joined Japan’s MITI, back when it was MITI, Ministry of International Trade and Industry back in 1983, and has stayed with MITI until its incarnation now as METI, and he served as well as a director of the Industrial Organization Division and a director of the International Division of the Agency for Natural Resources and Energy.  From 2002 to 2004, he served as the executive director of the Structured and Trade Finance Insurance Department of Nippon Export and Investment Insurance before coming back into government.

Next to Kenji, we’re very thrilled to welcome Matt Goodman here to AEI.  Matt is a managing director of Stonebridge International, which is a global business advisory firm.  Prior to that, Matt served as director for Asian Economic Affairs in the White House’s National Security Council.  From 1997 to 2002, he worked at Goldman Sachs, heading the government affairs operations in Tokyo as well as London.  Matt has had extensive government experience working at the U.S. Treasury Department, serving as the Financial Attaché and Treasury Representative at the embassy in Tokyo, as well as an international economist dealing with several Asian nations, including China and Korea.  He is a director of the U.S. Foundation for the United World College of the Atlantic, a trustee of the Japan-America Society of Washington and a member of the Council on Foreign Relations and is currently serving as an outside adviser to the Obama Campaign on Japan as well as economic issues.

And then last, but by no means least, my colleague, Claude Barfield.  Many of you who come to AEI are familiar with Claude and his work, spanning a wide range of works on trade and science policy, works on China and the World Trade Organization, Free Trade, Sovereignty, and Democracy, and a forthcoming book entitled The Eagle and the Dragon:  The United States, China, and the Rise of the Asian Regionalism.  Claude, as well, has served in the government, working back in the Ford Administration on the staff of the Senate Governmental Affairs Committee and co-staff director of the President’s Commission for a National Agenda for the Eighties.

So we’re actually going to see if we can get the tech up, and Matt has graciously agreed to step up into the lead-off hitter position, and we’ll turn it over to you.

Matthew Goodman:  Okay, well, thank you Misha, for that introduction, and thank you everyone for staying after Wendy.  Actually, she covered most of the ground that I think I was going to cover so it’s hard to say anything new in these things after somebody has presented such a good overview, so I will just try to say it differently, or maybe I’ll just say the same thing. 

Actually, I was going to start by sort of questioning the premise of this on some level because I think the advertisement for this event talks about a trade tsunami and whether U.S.-Japan trade is going to stay afloat, sort of, suggesting there is some pending crisis in our trade relationship, which I don’t really see there, but, maybe, the fact that there are so many people are in this room suggests that I am missing something.  Maybe you’re worried about something.  But I think that, clearly, our trade relationship is large and complex, but I don’t see an imminent threat.  So let me just talk about, sort of, three areas briefly and I’ll just make some random points and others can zero in on more interesting points, perhaps.

First of all, the implications of the financial crisis on our relationship, I think that obviously, this highlights our economic and financial interdependence.  Japan has, plus or minus, something like a trillion dollars of official holdings of our debt, whether in treasuries or another agency bonds and so forth.  Private flows are absolutely robust and as seen from the announcement of the Bank of Tokyo-Mitsubishi’s investment in Morgan Stanley, something that is a very much an important central part of our financial relationship. 

Also though, the financial crisis highlights the risks involved in our economic relationship and then the imbalances in our economic relationship.  The underlying problem of the U.S. consuming more than it produces and Japan producing more than it consumes has led to sustained structural imbalances in our trade and respective current accounts.  It’s not clear yet whether this crisis is going to force a permanent change in those imbalances to force the U.S. to save more, Japan to save less.  But the crisis does suggest that that change would be desirable and may even suggest that it is inevitable.  In fact, it is inevitable that there will be those changes, although we’ve been saying for years that the imbalances were unsustainable and they have been sustained all this time, so I always hesitate to say they will not remain sustained.  But in a minimum, it would seem that it would be desirable to not have these imbalances in our trade relationship.  But I guess, in conclusion about risks, I would say some people think that the imbalances have actually been helpful in the short term with this crisis because Japan’s excess savings is something that’s available to us, to help bail us out, but I think that’s really the wrong way to look at this.  It’s really more of a reminder of the risks that underlie these imbalances and the importance of government policy to encourage changes in the fundamental macroeconomic forces that create those imbalances before the chickens come home to roost, as it were.  So that’s just, sort of, touching on the financial crisis.  I have a lot more to say about that, but maybe we can talk about that more in the question and answer.

The second topic is trade policy itself and where do we go from here, and I think Wendy has really laid that out in a pretty compelling fashion.  Obviously, the arguments for deeper economic integration between the U.S. and Japan are compelling, increases economic welfare in both countries, helps to underpin our alliance, helps to lock us more deeply into Asia, and it can become a beacon for other countries if we were to deepen our economic relationship in the right way.

Now obviously, and again, Wendy has talked about this, the idea of a Free Trade Agreement or an Economic Partnership Agreement is the sort of Holy Grail.  Like the Holy Grail, we may never find it or get there, but it is out there as something that’s appealing and worth pursuing.  I think, in a word, I think the politics, I’ll say it more directly; Wendy didn’t say it; I think the politics are very, very difficult, if not, impossible, in the short term, for both of us.  Maybe as a medium-term objective, it is something that can be laid out, but I think for now, it would be very difficult, partly because of the frayed consensus on trade here in the United States, although I wouldn’t go so far as to all that protectionism.  I think that term gets thrown around a lot, but certainly, there’s not as much of a consensus on trade on the Hill in particular so it’s difficult, and obviously, we’re distracted by many other things in the region and in the world globally. 

And on the Japanese side, it’s, again, very difficult for them to take political initiative, including taking on the Ag lobby, but even more generally, taking the kind of political or developing the political will to move forward with an agreement like this, so I don’t think it’s something that we’re going to be moving on to in the short term.  As was discussed when Wendy spoke and in the questions, there are lots of other ideas for moving forward on deeper economic integration.  Whether the building block approach or services agreements or investment agreements, I think all of those are very interesting and should be explored. 

I personally like the idea of expanding the work that we already do on trying to make the standards of economic activity or regulation between us converge; promoting convergence of our standards, whether in financial regulation, in drug approvals, in the investment climate rules, because the U.S. and Japan are not that far apart on many of these things, certainly not far apart in terms of the objectives, somewhat different approaches in some cases, but we’re not that far apart.  And if we were able to agree on the, kind of, gold standard for regulation of economic activity in these areas, it would be, obviously, a good thing intrinsically, but it would also be a message, again, a beacon to the rest of the region, the rest of the world against other superficially appealing models, whether the Chinese model which is somewhat looser, softer, or arguably, the EU model which is somewhat harder and involves a heavier hand of government intervention in the market.  And I still think the U.S. and Japan are closer to what is something like a gold standard for regulation and we should be able to agree between us, and if the two largest economies in the world agreed, I think it would be a very strong message.  So again, I’m happy to talk more about that in the questions.

Finally, and this is sort of on a slightly different tack, but I think it’s kind of interesting in this context, which is just to talk a little bit about some of the institutional questions surrounding U.S.-Japan economic cooperation.  Obviously, most of the discussion we’ve heard today, and I think that most people’s mindset is on the bilateral aspects of our economic dialogue, and that’s obviously very important in trade.  It’s important in finance and it’s happening, probably as we speak, between the Treasury Department and the Finance Ministry in the current environment, energy, technology, many other areas where we talk to each other bilaterally is very important and useful and should be continued and expanded where appropriate.

On the other extreme, multilateral engagement with Japan, between the U.S. and Japan, is obviously very important, whether in the WTO or in APEC, as was discussed, and I think those are areas where we have done very cooperative things with Japan and we should continue to do that.  Personally though, I kind of like the “plurilateral” approach.  That’s not a real word.  I learned that by typing it into my program and it has a little squiggly red line under it.  But I think if you understand what I mean, it is groupings of countries that get together to talk about specific issues and agree on specific approaches. 

I think within the APEC context, Wendy alluded to it, the notion of there’s a broad concept of a free trade agreement in APEC, but that maybe, again, a Holy Grail, at least for the time being, looking at sort of sub-regional agreements, whether it’s the trade transpacific partnership that doesn’t trip off anyone’s tongue yet, the old P4, which, I guess, we just joined last week.  But also, more informal groupings within APEC, that has happened in other contexts where countries have gotten together and agreed on approaches, whether specific approaches to an economic regulatory matter of some kind or kind of strategizing over how to manage the APEC process.  And when I was at the White House working on APEC, that was a tactic that we used of getting together with sort of like-minded members of APEC to decide on how we are going to move forward on, in this case, the higher level sort of discussion at the leader’s level.  And I think that was a very productive approach and so I kind of like the smaller grouping approach. 

Similarly, in the G8 context where the U.S. and Japan have obviously worked together now for 30 years cooperatively, with a small group of other countries, there’s a lot of discussion now about what to do about the G8, whether to throw out Russia or add the five major emerging economies.  My guess is it would be difficult to throw out Russia.  It’s more likely they will add four or five new members, maybe create a G13, and I think that’s not a bad thing.  It helps to have groupings like that to talk about big global issues, whether global warming or political issues like Darfur, Zimbabwe, or issues that a grouping like that can constructively talk about.  But I, as a former Treasury guy, I also think that those groupings are not particularly effective for dealing with some of the really important, kind of, shorter term economic challenges that we face, so I think there is still going to be a place for the G7, which is the old grouping of essentially Treasury and Finance Ministry-focused countries. 

And I think that there is scope for looking at new smaller groupings and caucuses of countries that have shared interests or approaches.  So one could envision a G4 that involve the major currencies of the world, the U.S., EU, or the Euro area, I should say, Japan, and China, or I like to think of a G6, where you’d add to that grouping of four the U.K. because of the reality of London’s place in the international financial system and the GCC, the Arab countries because of the reality of their holdings now.  Those are not like-minded countries, in many cases, but there is still a place for that and I think those areas are ones that are interesting to explore, enhance U.S.-Japan cooperation as like-minded members of those groupings. 

The trick in all of this is going to be, and I’ll sort of stop here, the trick in all of this is going to be how to get the best out of both the U.S. and Japan in all of these bilateral, multilateral, plurilateral forums, given the distractions that we face and given the distractions that Japan faces, the political uncertainty there.  But I think, again, these are all areas that we should be working creatively to try to expand cooperation between the two countries.  So I’ll stop there and go back to Goto-san.

Michael Auslin:  Thank you, Matt.  Yes, Goto-san, if you’re ready.

Kenji Goto:  Okay, I think I’m ready.  And first of all, it is my honor to be here as one of the panelists today here in AEI.  And I should have added my one point to the bio, which I sent to Misha the other day, and this is my second time to work here in Washington since the early 1990’s, so Washington is a very familiar place to me, except for the traffic jam within the beltway, just like this morning.  Today, I will like to use this PowerPoint and start with a little history, facts, and figures about the U.S.-Japan trade and economy.

When there were heated trade disputes between the U.S. and Japan in the 1980’s through the early 1990’s, the portion of the U.S. trade deficit with Japan sometimes reached more than 50 percent.  And that was a time when Wendy was a junior director of the USTR and I was then second secretary of the Japanese embassy, and both of us calculated the share of the U.S. semi-conductors in the Japanese market.  And after that, the number declined, and when you look at the lower right hand side of this page, China’s share surpassed that of Japan in 2000, as you can see here. 

In 2006, as Wendy mentioned, Japan accounted for about 10.8 percent, while share of China was now 28.4 percent here.  And right now, the trade relationship between Japan and the United States is mutually complementary and having now matured.  For example, for the United States in 2007, Japan is the second largest export partner outside of NAFTA.  And for Japan, the United States is the largest export market and the second largest import source after China, as we can see on here.  And these are the contents of U.S. exports to Japan.  These are the contents of the Japanese exports to the United States.  And this is not clear but for example, the jet engine from the United States, which includes the GE and aircraft, of course, includes the Boeing, the medical equipment from the United States to Japan, which includes electronics.  And from Japanese to the United States, this portion is automobiles.  Of course, this includes Toyota, Honda, and Nissan, and here, machinery, the bulldozer, which would include the Komatsu, for example, and digital camera, which includes Canon and Matsushita.  This is the current situation.  And I would like to highlight that the combined gross domestic product of the United States and Japan is around 1/3 of the world total, as Wendy also mentioned, and in addition, I would also like to add that both the United States and Japan are among the largest innovators in the world.

Having explained those facts and figures, I want to go into a couple of areas related to the trade agenda for both governments throughout 2009 and beyond.  And after that, I will touch upon, a little bit, about the impact of the recent U.S. financial situation on Japan’s economy and trade.  And first, about the trade agenda, as the second Armitage-Nye Report, which was issued in the early part of 2007, pointed out, the U.S.-Japan relations should be a key to achieve Asian and world economic and political stability. 

So considering economic and trade agendas towards 2009 and beyond, we think the three-layer approach, global, regional, and bilateral, will be the key concept underlying the U.S.-Japan trade and economic relationships.  But first, I would like to mention about the global agenda.  So although the progress of the WTO Doha negotiation has stalled the other day, both governments should do their utmost efforts towards a completion of this round.  This is the first part of the global.  The second part is that the U.S. and Japan should lead in the cooperation to tackle global international economic issues, such as energy security, the climate change, and intellectual property rights, of course. 

And next is the regional.  First of all, towards 2009 and beyond, the United States and Japan must cooperate and facilitate the constructive dialogue for trade and investment liberalization at APEC’s leaders’ meetings as well as trade ministers’ meetings, and in particular, this is, again, in 2010 and 2011, when Japan and the United States chair the meetings consecutively.  And the Asian-Pacific region is, right now, the center of the world economic growth and this region is a home to the 60 percent of the world GDP and 50 percent of world trade.  And it is a fact that the network of the free trade agreements and economic partnership agreements is growing rapidly in the area, both in the form of the agreements between the individual countries, as well as between the ASEAN and individual countries around ASEAN. 

And Japan seeks comprehensive and high quality economic partnership agreements or EPA’s and is now proposing the comprehensive economic partnership in East Asia, which is called CEPIA.  This is a multilateral EPA covering the ASEAN plus six countries.  The six countries mean Japan, China, Korea, Australia, New Zealand, and India.  In addition, related to this, we call that area Economic Research Institute for ASEAN and East Asia was formally established this last June.  And at the same time, the United States aims to comprehensive as well high quality free trade agreements and has gradually developed the FTA network in this region. 

And as Wendy again mentioned, the recent announcement by the USTR to fully participate in the P4 negotiations is an example along this line, and in addition, the United States is proposing the FTAAP, the multilateral FTA covering the APEC economies.  When I was asked, and I am often asked, that I always respond that those kinds of various movements in Asia and including ASEAN plus six, ASEAN plus three, and APEC, and so forth, these movements are based on the actual business needs and that those movements do not intend to restrict the flows of goods and services across the Pacific in either direction.  So that is a point I want to make right now.  And concerning the P4 and the United States, Japan’s side is that Japan would like to seriously examine how it could engage itself in this initiative.

I would like to go into the bilateral.  What about the free trade agreement or the economic partnership agreement between the United States and Japan?  This is, for us, a challenging but a critical agenda beyond 2009.  First, we should intensively discuss this matter within the context of the Asia-Pacific economic growth, not just about the U.S.-Japan bilateral agenda.  And second, for the time being, it is practical to continue exchanging information on the third country FTA-EPA activities between our two administrations.  So I’m, right now, encouraged to know that the business sectors of both countries are interested in and call for the joint research on the U.S.-Japan FTA’s and EPA’s. 

In addition, we should not forget about the secure trade and efficient trade.  As we are fully aware, after the 9/11, the U.S. began developing various antiterrorism programs and some of them affect the building of a smooth supply chain.  The United States and Japan need to construct an efficient and harmonized security system for the entire supply chains.  So far, the United States and Japan have successfully cooperated towards a secure and efficient trade by, for example, establishing an Authorized Economic Operator Mutual Recognition, and the Container Security Initiative, and the so-called Megaport Initiative.  And the Japanese side needs to properly respond to other U.S. unilateral measures, including the 100 percent scanning and submission of information in advance and so-called 10+2 Rules.

To summarize, I would like to reiterate that the U.S. and Japanese new administrations should first, promote a freer trade and second, improve investment rules, and three, tackle the global issues, such as the energy, climate change, and intellectual property rights.  And finally, sorry about this, this is vacant.  I cannot fill due to time constraint, but I would like to touch up on the recent financial situation and how it affects the trade. 

Overall, the Japanese financial sectors have, so far, suffered less because many Japanese financial institutions were cautious about the subprime loans.  On the other hand, the stability in the United States’ financial sector does matter to the Japanese economy and trade.  The reason is as follows: if the Congress or the House does not act swiftly to pass the bailout plan tomorrow, people will lose confidence in the U.S. financial sector.  This financial turmoil would certainly lower stock prices and that will have an adverse effect on individual corporate finance.  And in addition, the financial turmoil would eventually lead to less investment and less consumption in this country and this economic downturn, combined with the probable dollar depreciation and relative appreciation of the yen, would result in the Japanese exports to the United States and to other countries.  And I might add that the yen appreciation would lower inflation in Japan through the lower level of the energy cost and the food cost.  And at the same time, the dollar depreciation would encourage more of the U.S. exports.  So, any way, we need to carefully watch this kind of situation.  Thank you very much for your attention.

Claude Barfield:  Thank you very much.  It's a pleasure to be here.  I should say that I spent the last week in Europe, and while I was away, not being able to read all the newspapers or listen to MSNBC or CBS, I couldn’t follow, the world turned upside down and it was very difficult over there to get a real sense of what was going on.  But one thing, when I was in Brussels, getting very loud and clear, and this will come back to the U.S.-Japan relations, it’s something that Ira Shapiro said, and that is that I always heard again and again, starting with I think the German Finance Minister that the United States was going to an inevitable decline; the era of cowboy capitalism was over; that we ought to rethink deregulation and privatization and all the other things that are symbolized by the United States.  I think that will ultimately have an impact on future U.S.-Japanese relations. 

I actually think that the turmoil in the financial sector and financial regulation can be separated from regulatory issues of deregulation and other sectors.  And while I think the United States has been, if not weak, at least derelict on the financial side, the kinds of things that Wendy talked about that we have been pushing on, not just the United States, not just Japan, but the rest of the world in terms of due process and regulation of noticing comment in terms of transparency are still things that I would, are still issues and policies that I think the United States can defend.  But the problem is certainly going to be that in the near term or in the medium term, it’s going to be hard to separate that and people are going to say, “Who are you to be coming to us?”  And I think eight years ago, George Bush talked about a humble foreign policy.  Unfortunately, he didn’t follow that when he was President, but I think we will certainly have to have the United States, as it negotiates with other countries, and look for a humbler attitude about how one goes forward in terms of regulation.

The other thing that happened, I think, and it hasn’t been, and there may be disagreement with this, but I think actually that the last round on negotiations in the Doha, the last go around the Doha Round about the agricultural negotiations and NAMA and the failure, at some point, will somebody tell Sue and Lamy and others to stop making fools of themselves to say that this can go on?  Some time, we ought to stop this.  So in my mind, the Doha Round is finished.  They will go on and somebody may patch something that they call the Doha Round and we ought to think about that as in terms of where we are now as the change of administration is coming up and with potential change in trade policy. 

And I would say the other thing to keep in mind with this discussion this morning and in some ways, it fits with what Goto said about the future of APEC, and that is, no matter which candidate wins in November, I think trade policy in the United States will be suspended for at least a year.  If McCain wins, particularly after what has happened in the last couple of weeks when it looks as if everything was going the other way, the Democrats would be shellshocked and embittered that they will be unwilling, I think, to talk about policy in almost any place and certainly not in trade.  So McCain, who may have a very good proposal, is going to be facing a Democratic Congress and he is going to be, I think we will have a deadlock.  On the Obama side, I think there’s still a lot to be, we’ve got, as I said, we’ve got Ira here and Matt, as I think was said, he was an adviser to Obama on trade so I will defer a bit to them, but it seems to me that the Democrats will have a lot to work out among themselves before going forward with the trade agenda.  And secondly, it’s a new administration.  It’s like it could very well be that it would be the middle of year or the end of the summer before we get a trade representative.

The one thing that I would have said before last week that might happen, and I think it would make political sense as well as substantive sense for the Democrats, would be if you had some carryover of the Doha Round, it would make a lot of sense for Obama to do something special in terms of an appointment of an official to get that forward, to get away from the arguments that the Democrats have turned protectionist or isolationist.  It would be a very sensible thing to do, but I don’t think that’s going to happen.

Now, with that as a background and coming directly then to the United States and Japan and where we are, I think, and let me go also and I’m just going to be hop skipping as to last week or hop skipping and jumping along the things that have been said by the other speakers, particularly Wendy, but also Matt and Mr. Goto.  Looking now and starting at the multilateral level then coming to the regional and then bilateral, if one assumes, as I do, that the Doha Round is finished and that you’re going to have, over a period of the next couple of years, I think an inevitable rethinking about the World Trade Organization, what its agenda substantively would be, how it should be organized.  I think, let’s be clear, there a number of issues that the United States and Japan are not going to agree.  If you look at the Doha Round, we’re going to be at odds, obviously, on any dumping, be at odds on some other issues, but it seems to me that with services or investment, there certainly, in the substantive side, the opportunity to pick up at some point in that area. 

I think more importantly though, it seems to me, if I’m correct, that a good place that the United States and Japan could begin thinking ahead and thinking together, maybe not just bilaterally but with others, is the structure and the organization of the WTO.  If I am correct, I think it is bankrupt and we, the two leading trading nations, ought to be thinking about how do we hold together the multilateral system?  And I’m not making any specific suggestions, but the things that have been talked about, about moving away from consensus, about coalitions of the willing, I’ll come back to that in terms of APEC, or other means less than a majority, moving away on the agenda from the issues that go deep into the domestic polities [sounds like] and domestic societies. 

There are all kinds of things, I think, that will come up over the next, a new administration will have to deal with, and as the two leading trading nations, still, I think it would be important, and as the two leading democracies, it would be important for the two, the next administration and whoever happens to be the Japanese Premier at the time, to be thinking about that.  There is continuity in the bureaucracy so no matter who is the Japanese Premier, it’s kind of like the Italians and the Japanese, you never really know who the Premier is.  It usually doesn’t make too much difference anyway.  But there is a continuity in the bureaucracy and we ought to be thinking about it.

Let me move from there then to the regional questions.  And here, I think there are really some, and in some of these I’ll be repeating other things, but let me emphasize and disagree on some of the things that have been said.  Let me start from the Japanese side, and I’m going to be blunt here, Japan has shown little or no leadership, I think, in terms of WTO negotiations.  That is carried over surprisingly because it’s closer home to them.  It seems that the Japanese government policy, from the late 1990’s on and including after a long time, has been befuddled in terms of what will be the future and the shape of the regional economic structure in East Asia.  And in my mind, I’m going to be brief here, we can talk about this more in the discussion, Japan’s wandering out to support, first an ASEAN plus three, I mean, in the first place, Japan was back footed by the coup that the Chinese put together in 2001 with the bold stroke of a proposal for an ASEAN FTA.

Clearly, the Japanese government had not seen that coming.  And ever since then, they had been trying and scrambling to get up to catch up, and the scramble, it has been more scramble than any well thought out theory of a strategic vision.  As I say, the ASEAN plus three and then this crazy thing about an ASEAN plus six, and if you talk to the Japanese officials, they would say, “Well, you know, it all fits together in APEC.  We will go maybe to the ASEAN plus three but we understand that we don’t want the Chinese to dominate that, so we’ll go with the ASEAN plus six.  We’ll work on that first and then get to APEC.”  It seems to me that that really is a distraction. 

And to come back to something Mr. Goto said, there are key opportunities, assuming an Obama Administration or a McCain Administration, by 2010, can get its act together in trade and we work some things out here.  The 2010-2011 U.S. and then Japan, or I guess, it’s Japan first and then the U.S. leadership, this is something that we ought to all point to very clearly about how you will move forward with APEC.  And there, it seems to me, that I think Bush’s vision of, again, on our side, which seems like a scramble to me, of a free trade at the Asia Pacific was a mistake, tactically, because what it has allowed is other countries to say, “Oh yes, we can go in that direction”, but they know that it’s a way down the road so we don’t do anything in the interim, and that’s a danger for the United States. 

So I think one thing that a new administration and the Japanese government can do is to be thinking about, as I say, this future of APEC.  How will you put together something that is less than the FTAAP but more than what we’ve got now?  And it seems to me, again, here, is where you might begin to think, this has already been brooded in some circles, in policy circle and in paper, pool together the nations that are ready to go forward.  Obviously, as I think Wendy talked about, it’s really difficult that we have 21 nations, and the Russians aren’t even a member of WTO yet and they very well may not be in 2010. 

So to be thinking of some way that you can build an economic structure with those nations that are willing to go along with that, it is important also, and I’m not going to go into this, but APEC is important and it’s the center for the United States and for Japan because I don’t think that, McCain’s hopes aside, we’re going to go for a league of democracies in Asia or any place else.  But with APEC, you at least have a place that you can build around a core democracy and then add, I mean, the Chinese are there, the others are there, but at least, you have something that you can build on in the interim.  And the other thing that APEC solves is that both Taiwan and China are already in.  We will not have that fight in the United States as you will have down the road, it seems to me, if you proceed in a bilateral means.

Now, just a couple of other sort of sub-points in terms of region and in terms of U.S.-Japan and then Japan’s own tactics, it seems to me one of the things that Japan ought to push forward with, and this causes heartburn obviously, from my thinking as an economist, is a Japan-EU FTA.  And I say that because I think actually, let me then back up even further and say if the EU and Korea conclude an FTA at the end of this year or next year, I think that will reshuffle the deck. 

Finally, our foolish automobile companies who are opposing the U.S.-Korea FTA will see that the Europeans have gotten the exact kind of discrimination that the Koreans are going to give us.  And maybe the Ford Motor Company and Chrysler will come to their senses.  I know that’s very hopeful and maybe too optimistic, but it’s that kind of triggering that I think would be important. 

Similarly, I think that Japan and the EU might have a better chance, for reasons that I may not like but for geo-strategic reasons, make sense, to do an FTA because both of them are going to take as much of agriculture off the table as possible.  That, in turn, would then put pressure on the United States.  In other words, there are a number of, it seems to me, combinations in East Asia that both the United States and the Japanese ought to be thinking about.

Let me just close with, I’ve got some other things, but I’ll just close with this: I have mixed feelings about the -- not so much the negotiation between the United States and Japan on a sectoral but about moving forward with sectoral agreements.  And I think, by the way, and I defer to those who are closer to Democratic politicians than I am, I think, it seems to me, that some of the recent writings of people involved in trade on the Democratic Party side, there is a thinking that, it seems to me, somewhat romantic, that you could go back to the Telecommunications Sectoral Agreement of 1998 or 1997 or the Financial Services, that that’s the way to go.  When that was put forward by the Clinton Administration, it was making the best of a bad situation because Clinton didn’t have any fast track authority and there was nothing else they could do.  And I remember ten years ago Democratic trade officials defending this. 

I think the problem -- there are a couple of problems.  The telecommunications and the financial services negotiations were really a wrap-up of the Uruguay Round.  They were not [indiscernible]  And the thought that, I think, in some minds that the United States and maybe some of its allies could pick out services sectors that we would say as priority and then foist that on the rest of the world, I think, is unreal.  I also think if you’re worried about FTA’s, that is free trade agreements, as fractionalizing the world, just think of what happens if you get this whole series of sectoral agreements, where some people have it and some don’t. 

And so, I really do think, in the end, that that will be difficult to do and there’s one final reason it’s difficult to do that Wendy danced around, and here, again, I can go back to Europe.  We have had an ongoing, beginning with Clinton, it may have began with Bush, but I think it began with Clinton and continued on to Bush, these sectoral negotiations, regulatory negotiations.  And the United States, I think, and the EU are as close as any two sets of economies as you could have in terms of approaches to regulatory policy.  Now, there are some big differences, I understand that.  But even with the closeness that you have between those two sets of economies in Europe and our economy, I don’t think those negotiations are going very far, and this is not that there has not been a goodwill on both sides. 

So I think, for reasons that Wendy talked about and she’s right, that there are some specific problems that you have with the Japanese regulatory structure, but I think beyond just the Japanese regulatory structure, I think trying to get an agreement on just mutual recognition, it seems to me, on a number of sectors is going to be difficult.  So that, I think, may be something that you might start in good faith but would go on for, it seems to me, you might find the same problems, as I say we’ve had with Europe.

So I’m not totally pessimistic.  I do think that there are chances for the United States and Japan, as leading members of the WTO, to look ahead, and is also leading the two nations that should lead, I think, for both security as well as economic reasons, for new set of structures in East Asia, that those are the places to go.  But there are some areas that I think are just dead ends.  Thank you very much.

[Applause]

Michael Auslin:  Claude, thank you very much and to all of our panelists.  I’m sure that everything has been sugarcoated and there is really nothing anybody really wants to delve into, but just in case there is, we have time for questions, and I’d like to, again, ask you to wait for our mic, introduce yourself, and ask the question.  It can be to any or all of our panelists.  So we actually have a question all the way in the back.

Leah Lou [phonetic]:  Leah Lou from Voice of America.  I think in Wendy’s remarks, she mentioned that the rise of China poses a challenge for the U.S.-Japan relationship.  I’m just wondering if the panelists, can you elaborate on that as to how China will pose a challenge.  I think her implication seems to be that it poses a threat.  But it seems to be, I think the view seems to be that it’s a zero sum game.  I think it should be maybe more looked at as an opportunity rather than as a challenge or a threat.  Thank you.

Kenji Goto:  My brief comment is that China is an opportunity.  China is a challenge, as well, in terms of the trade area because as I explained, the trade between the United States and China is growing and in addition, the trade between China and Japan is growing as well.  And this means that both the United States and Japan are able to cooperate in discussing Chinese law authority in the area of the [inaudible] trade liberalization and harmonization of the regulation, for example, and the safety issues, and the like.

Matthew Goodman:  Let me just add one thought.  First of all, I didn’t hear Wendy say that the rise of China was a threat to the U.S.-Japan relation, so I think that might be an overstatement of what she was trying to say and I’m not going to try to interpret what she said, but I’ll say what I think, which is that like Goto-san, I think it is, on balance, it’s an opportunity.  The rise of China is good in economic terms, provided that the trade and investment is open and based on the fundamental kind of principles of an open trading system, and I think that’s good for both of us.  But it also produces challenges, and I alluded to that, and I think maybe we all did in our own way, about the difficulty of China’s offering an approach to trade with, say, ASEAN partners that involves a sort of looser set of disciplines than I think the U.S. and Japan would be comfortable with.  And that could, in some cases, make -- it could create some trade diversion in economic terms but more sort of, I think on a broader scale, or on a broader level, could make it more difficult for us to establish the sort of standards for trade and other economic activity that we would like to see, to promote the greatest economic efficiency and benefit to everybody involved.  I think that’s a challenge we have to deal with and I think the way to do that is for the U.S. and Japan to talk bilaterally and trilaterally with China about what we consider to be the gold standard of rules of economic behavior.  But I don’t want to overstate that as a threat.  I think it’s a challenge that we need to deal with creatively.

Claude Barfield:  What I would say is that I think, for the foreseeable future, I can’t speak, I won’t defer to Mr. Goto on Japan, but certainly, I think it would be difficult for Japan.  Certainly, it would be impossible for the United States to have a one-on-one bilateral or even a trilateral, a bilateral trade agreement with China or even a trilateral with Japan.  The only hope, and I do think, I start with the assumption that we need to continue to integrate China within a rules-based system, both the WTO but also given the promises the WTO now in some regional system, the only hope is to have it as a part of an existing system.  And there, as I say, the United States, under a Democratic administration, continuing on a Republic administration, has accepted APEC and accepted China as a part of APEC. 

Now, one thing I didn’t say, as it’s going to be a real challenge, if we go forward, is I was suggesting, we’re going to have to step up to the mat, which we haven’t done and we being the major nations of APEC, and make a shift or make APEC a regular reciprocity-based agreement.  You cannot go along with -- the failure of the mode of operation of APEC as has been clear since the late ’90s.  And you’re not going to be able to go along with this bold -- about concerted unilateralism where everybody proceeds at his own pace.  And whether the United States or Japan or others are ready to do that, but that’s implicit in what I’m talking about.  We do it with other agreements and so sooner or later, we’re going to have to get there, it seems to me, with APEC.

Michael Auslin:  Other questions?  Yes, behind just right there.

Rob Colorina:  Thank you.  Rob Colorina, Asian Advisory Board of Hamilton, Virginia.  Could you comment a little bit as to whether Japan, their thoughts about the speed at which the U.S., with regard to the bailout or with regard to the discretion of some firms emerged, some firms don’t get help, some firms get more help?

Matthew Goodman:  So you’re asking about Japan’s perspective on that?  Well, I don’t know what Japan’s perspective is on that.  I’m sure they’re aware, from their own experience and their own interest in the current situation, that this is all moving very fast and is very scary, frankly.  And I think they are recognized, if you’re talking about the Japanese government, the authorities generally, including the Central Bank, recognize that Japan has to play a supportive role in all of this.  They may have some issues, privately, with specific handling of specific cases, but I don’t think, overall, that they, I mean, I think they understand what the U.S. authorities are going through and would only want to be supportive of those approaches.  I don’t know if that was exactly what you were getting at, but --

Kenji Goto:  I think that I can get your point.  And if not, please let me know.  So right now, the Japanese government and Japanese business side are watching very carefully how the situation is going on here in the United States.  And in the government side, we’re trying, particularly the financial side of the government, tries to cooperate.  That is the current situation.  I hope that this is an answer to your question.

Michael Auslin:  Jenni, why don’t we send you all the way over to David back there?

David Olive:  Thank you, Michael.  This would be a question for the entire panel.  In the business area that I’m in, I’m David Olive from Fujitsu, we have to deal with ever changing environments, and our business models have to change, to quickly adapt to that.  My concern has been the presentations of this morning and throughout the day have talked about basically models that seem to be solving past challenges rather than trying to open up new trade and investment opportunities.  And to that extent, the outdated models of the WTO, with the sense that have been deadlocked by this comprehensive approach, the focus on FTA’s bilaterally also have been kind of deadlocked with this comprehensive approach. 

So while I was encouraged to hear Claude and Matt talk about the need to look to new models, unless there are further challenges to do this, the business people are going to be less and less inclined to be supportive of such activities because it doesn’t seem to be addressing what they have to do in changing business models.  So I would like to hear comments on that.

Matthew Goodman:  Well, I mean, again, I was trying to imply that we do need to look at new models and approaches and be pragmatic about what the real challenges are and what the best mechanisms are for solving that, and maybe I didn’t say sufficiently explicitly, but it was certainly, it’s in my sort of thinking about this, that the private sector has to be party to this sort of thinking and ultimately, to whatever mechanisms are set up.  And I think that’s critical.  That already exists in many forms, but I think there is a lot of scope for more creative involvement of the private sector.  In fact, I think there is a lot of scope for more creative ways of involving the private sector because some of the ways that have been tried in the past have not been particularly productive, for one reason or another.  I mean, ultimately, frankly, one problem is U.S. executives lose interest if there isn’t some immediate payoff and how do you sustain their interest for a long time? 

But I think that you’re right, that we should be focusing on the real challenges that really affect the ultimate business environment that you’re operating in and that make a difference.  And that may mean we need to bring new players to the table, technology players or from government and from business who are looking at this from a very different lens than trade negotiators typically would look at.  So I don’t have all the answers in detail because I haven’t sort of mapped all this out, but in principle, I think you’re right.  We need to look at new mechanisms.  We need to involve the private sector more creatively and maybe new players from the public sector.

Kenji Goto:  I would just like to add that of course, we will support any creative ideas about the future trade and investment atmosphere.  And having said that, I would just like to mention that, talking about the WTO, there still is a dispute settlement mechanism under the World Trade Organization.  Of course, I think this still is a very important part of the activities of the WTO.

Matthew Goodman:  And sorry, just very quickly to add, I should have said that as well, that I think we shouldn’t throw away all the old mechanisms because they do provide, there’s no one answer to any of this.  It’s going to be multi-tiered, multilevel.  But WTO still has a role to play, APEC has a role to play, other existing bilateral and regional and multilateral forums do.  But we always need to challenge that and find new ways to deal with the practical issues.

Claude Barfield:  I think the problem that you face, to be very careful about what the WTO or APEC could and cannot do, we have moved outside of the legal system, the existing rules, or the potential for new rules to the new business model you’re talking about, and let me just take Asia as an example and why it's important for the United States and Japan, which are leaders out there still, with the Chinese as an important part now.  It used to be, and I’m oversimplifying here, it used to be that competition between nations was competition between end products.  Today, the production sharing means that you’ve got, you’ve seen these pictures of the parts of a computer which are produced all over Asia and with the head being in Japan or in the United States and then pieces everywhere else.  And so, that has worked. 

And what happened in Asia in the late ’80s and through the ’90s was unilateral liberalization based upon very practical needs; if you were in Malaysia or you were in Thailand or somewhere else, you were part of a cycle, and if you couldn’t get your part ready, you’re going to lose out.  And so there was pressure on the governments.  And a lot of this happened unilaterally and it has worked.  It also, just as a footnote to something I will end by saying, which may cut against what I’m going to say, it worked during the worst financial crisis or economic crisis that Asia faced since 1945 in the 1997-1998 crisis, where you did not have nations, did not, as one would have expected, it was like the ’30s, to throw up barriers.  They did not.  They kept the barriers low. 

But the problem in going forward is that a lot of this is based on not on rules or regulations or on commitments, either on a regional level or a multilateral level, but on just business practices.  And it could, sooner or later, sort of come back and bite you in the ass if somebody doesn’t react, as the nations did in 1998.  And we’ll have to see.  I don’t think, so far, that I don’t think the financial turmoil that we’re having now has, so far, spilled over into the real sector, into the real economy, the so-called real economy, manufacturing.  But as a businessman, you are vulnerable to the fact that it’s all done on practice and by contract and it has no public commitment, necessarily.  In some cases, it does, but in many cases, it doesn’t.

Kenji Goto:  I would just like to add that Claude is right, that there are so many supply chains within Asia and between the Asia-Pacific and there is a big flow of the trade and goods and services among the Asian countries as well as across Asia-Pacific.  So I think the business sectors will, under these kinds of lateral arrangements, as I said, is a reflection of the reality of the business.  So we think that and we can develop further agreements for the new system, not only across Asia-Pacific and for the world.

Michael Auslin:  Okay, we’ve got about 15 minutes left and a number of hands over here.  Let me start with Mr. Yamakoshi, who has been waiting patiently back there, and we’ll move forward.

Atsushi Yamakoshi:  Hi, my name is Atsushi Yamakoshi.  I am from Keidanren-U.S.A.  Thank you very much for the good presentations.  And I think now, our relationship with the United States is more and more characterized by investment rather than by trade.  And if you go to such meetings like Japan-Midwest state meeting held in Milwaukee, and this month, we’ll have the meeting of Southeast States-Japan meeting, it’s a different world.  The [inaudible] governance get together over there to welcome and to invite more and more Japanese investment and we share the same concern about the Japanese economy as well as the U.S. economy and that we are in the same boat at that meeting.  So I think this is a very different world from the world in a beltway, inside the beltway. 

So my question is, two questions on that point, whether this kind of win-win trend really is sustainable and whether this trend really further strengthen or more simply speaking, can you see more and more investment from Japan into the United States?  That’s the first point.  The second point is: is there any possibility that the U.S. economy may damage to such trend?  I mean, if the U.S. economy is getting a little bit worse and worse, that kind of win-win relation may be deteriorated or damaged?  So that is a second point.  The third question is on the contrary, I think U.S. investment into Japan is now growing, maybe gradually, but growing.  I think that may change Japanese business circumstance and activities and systems maybe.  So I would like to know what is the in