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This article originally appeared in the The Washington Quarterly, 1992 Winter, Vol. 15, No. 1; Pg. 43

BYLINE: Jimmy Carter and Yasuhiro Nakasone

Jimmy Carter was president of the United States from 1977 to 1981 and Yasuhiro Nakasone was prime minister of Japan from 1982 to 1987.

HIGHLIGHT:
The debate about national purpose in a new global era is rapidly gathering steam and promises to engage the nation not just in an election year but well beyond. The tendency toward isolationism on both right and left is marked. What does the future hold for the United States? How should it begin to think about the challenges and opportunities of a less simple world?

With nearly 40 percent of the global gross national product (GNP) and linked by the most intensive transoceanic trade, technology transfer, and capital flows in history, the United States and Japan together hold the immense potential to shape the course of global affairs. Japan and the United States share not only the basic values of freedom and democracy but also vigorous democratic political systems and market economies.

The two countries, however, have different historical backgrounds and cultural traditions, and the respective components of national power also differ markedly. This diversity, if recognized and accommodated with good will, will enlarge the separate strengths of these two great nations in addressing the complexity of international affairs. Without understanding and accommodation these same differences will surely generate deeper misunderstandings and emotional reactions across the Pacific, with disastrous consequences not only for the two nations but also for all mankind.

The world of the 1990s is essentially in transition to new, as yet indiscernible, system configurations -- although some aspects of the Cold War may linger or reappear. Amidst the turbulent transition in the socialist world, deepening interdependence among industrial democracies and dynamic Asian economies, and widening economic gaps between North and South, the United States and Japan bear major responsibility and have extraordinary opportunity to configure that system. The nature, extent, and role of the U.S.-Japan partnership will be a central issue in global affairs throughout the rest of the century.

Our purpose here is to understand in a far-sighted but realistic way the potential inherent in the U.S.-Japan partnership and to suggest ways in which our respective peoples can build upon it for their common good as well as global benefit. After examining major challenges and key impending issues in U.S.-Japan relations from a global perspective, we propose policy options, together with institutional initiatives, that bear upon the future potential of the U.S.-Japan global partnership:

Uncertainties of the U.S.-Japan Relationship

Given Japan's economic vigor and the global role of the United States, the U.S.-Jpaan partnership is crucial in addressing world problems. Yet, the U.S.-Japan relationship itself is plagued by uncertainties and difficulties. These uncertainties may well frustrate the broader potential of trans-Pacific partnership and bring the two nations back to traditional international politics based on the balance of power. If this should be the case, the world will be much more unstable.

Four major factors, long term and deeply rooted, contribute to this uncertainty in the U.S.-Japan relationship:

* Asymmetries in bilateral trade and investment. The bilateral trade imbalance has been gradually narrowing, but it remains huge.
* Fragmentation and diversification of interests and decision-making processes in both societies. As interdependence deepens, the nature of trans-Pacific relations grows increasingly complex and difficult to comprehend in its entirety, particularly as domestic and international issues become ever more closely linked.
* Perceptions and attitudes. Many Americans and Japanese, especially in the aftermath of the Gulf War, have become frustrated with each other. In the United States, there is a strong feeling that Japan is reluctant to assume international responsibility and that Japan does not take action without strong gaiatsu (outside pressure) from Washington. On the other hand, not a few Japanese are frustrated by the unilateralist U.S. approach to Japan. There is a growing trend among those who hold critical views to overlook the common interests and stress the differences between the two countries.
* Techno-nationalism fueled by rising Japanese economic power and technological sophistication. This is one aspect of new problems stemming from the deepening interlinkage of economics and security.

Amidst these pervasive uncertainties, inadequate leadership and public understanding in either nation could portend the most serious consequences not only for the trans-Pacific partnership but for the entire world.

Multilateral and Global Issues

In an increasingly interdependent world the trans-Pacific partnership must reach beyond itself, as never before, to global answers to global challenges. The trade and financial welfare of both the United States and Japan, as well as their security, are bound up in broader frameworks whose vitality is fundamental to their own well-being. In a turbulent era when so much is changing around them, both nations must be conscious of the enduring values of multilateralism and globally sensitive bilateral policy coordination.

1. Coordination of Policy Toward the Soviet Union. As a result of the recently aborted coup in Moscow, we are witnessing a welcome change in the Leninist system with the Communist party collapsing and democratization making rapid progress. The situation, however, is fast drifting toward greater instabilities and uncertainties. The widespread demand for independence on the part of member republics, fueled by accelerating nationalism, makes it clear that a centralized Soviet Union is no longer possible. Precisely what is going to happen to the vast Soviet military machine, especially regarding nuclear weapon systems, is of grave concern to the world.

In the meantime, the economic reconstruction and transformation of the Soviet Union are yet to yield the first signs of hope and encouragement. When the current economic crisis deepens, as it surely will, and conflicts among the competing member republics take more serious turns, there still remains the danger of the rise of influence of hard-liners. Although the outside world can welcome the demise of the Soviet centralized state, it is not in the best interest of anyone that the former Soviet Union fall into chaos.

Despite the marked lessening of East-West tensions due to Gorbachev's reforms, "new thinking" diplomacy, and the political consequences of the recently aborted coup in Moscow, the Soviet Union's nuclear capability and, in Northeast Asia at least, its continually improved conventional forces will remain security concerns to both the United States and Japan. Accordingly, the alliance's military strength should be maintained, including forward-deployed U.S. forces in the region. The lessened dangers, however, provide limited room for reduction of U.S. forces in the region. There emerges room, too, for confidence-building and arms-control measures, although these should be approached cautiously and incrementally. Maintaining an overall favorable military balance in the region is essential for the West while political and economic initiatives are pursued to strengthen the forces of reform and moderation in the former Soviet Union and to foster a mutual sense of security.

Both the United States and Japan should, therefore, in cooperation with other nations, aid the former Soviet Union's republics during this perilous transition period.

Policy Proposals: Stabilizing the Current Soviet Union. It is of prime importance for world peace to keep the remnants of the Soviet Union and its (ex) member republics from collapsing into chaos and to assist their integration into the international community. It is also very important that the Soviet Union and its republics make continuing progress in democratization and "new thinking" diplomacy on a global scale. The United States and Japan, working jointly and in close cooperation with other Western allies, should take the following initiatives:

* Strengthen humanitarian and technical aid with a special emphasis on emergency food assistance and cooperation in energy resource development.
* Send missions to each republic to assess their emergency requirements and to initiate a dialogue on needed measures of economic reform and longer-term assistance.
* Provide large-scale financial aid corresponding to progress in democratization, economic reform, and global implementation of "new thinking" -- which includes further drastic reductions in military capabilities.
* Assist the Soviet government and the republics to devise measures to encourage private investment, such as legal code revisions, political risk insurance, and investment guarantees.
* Lead in the organization of a responsible control and oversight system of nuclear arms and promotion of conversion of arms industries into civilian industries.
* Promote confidence- and security-building measures (CSBMs), such as the release of military data, exchanges of military personnel, and an "open skies/open access" policy for satellite surveillance in the Northwest Pacific and the Soviet Far East. Deep arms reductions, on the basis of mutual security, should have priority.

2. Management of Regional Conflicts. The scope of U.S.-Japan security cooperation should not be limited to Soviet-related issues. Since the cold war era, U.S. forces in Japan and the U.S. Seventh Fleet have not been deployed merely as deterrents to potential Soviet threat. They have also played a role in maintaining peace and stability in the vast area from East Asia to the Persian Gulf. Regional conflicts will continue to occur in the post-cold war era. With U.S. and Japanese interests spread around the world, U.S.-Japan cooperation to deter potential threats and help settle regional conflicts will gain increased importance in the coming years. Support from other Western allies and friendly countries in the region will generally be indispensable in managing regional conflicts world-wide. Yet, the U.S.-Japan alliance can play a decisive role in maintaining the peace and stability of the region from East Asia to the Indian Ocean. In this region, while stressing the concerted use of all the instruments of dispute resolution, it will be essential for the United States and Japan to continue to maintain sufficient deterrent military forces.

In pursuing the division of labor in this regard, and in view of the asymmetrical power structures, the United States should play a major role in power projection, and Japan should be primarily responsible for logistical and other non-combat support as well as for the defense of its own islands. The United States is the only country widely considered as an "honest broker," whose military presence is generally welcomed in this region. The United States, therefore, should continue to maintain its military presence in this region for years to come. Japan has extended generous host nation support (HNS) for U.S. forces in Japan; it should strengthen that support as well as logistical and other non-combat support to U.S. forward-deployed forces for the maintenance of peace and security in the region. Especially in view of the declining utility of the U.S. bases in the Philippines, Japan's HNS and defense responsibility sharing will increase in strategic importance in this region.

The Gulf War has clearly demonstrated how dangerous the proliferation of weapons of mass destruction is for regional stability. Japan and the United States, therefore, should cooperate in establishing a regime to register and regulate the transfer of military technologies and arms exports, especially to dangerous third world countries.

Within the region, the Korean peninsula poses the gravest security threat. North Korea remains the most isolated and rigidly controlled Leninist state in the world, its welcome recent decision to join the United Nations notwithstanding. If the North acquires nuclear capability, it would be a grave threat not only to South Korea but also to the stability of the region as a whole. While remaining firm in their backing in Korean unification on the basis of political pluralism and a market economy, Japan and the United States can help move the unification process forward by coordinated efforts to end North Korea's political isolation and economic failure.

Unless serious economic stagnation occurs and political repression deepens, China will not pose a regional security threat in the 1990s as it focuses on internal matters and is reaching out to the West for economic assistance and technology transfer. Over the longer term, a stable, peaceful East Asia is inconceivable without a stable, peaceful China. It is, therefore, important that China's economic and political modernization be supported and its incorporation into the international economic system be promoted. Coordinated Japanese and U.S. efforts to support this evolution are crucial. In this process, China's behavior in its international relations should be taken into consideration.

The Cambodian conflict continues to be a major source of instability in Southeast Asia. It is important, therefore, that the peace process, hopefully now at the final stage, gain further momentum, with broad and concerted efforts toward that end by the United States, Japan, the countries of the Association of Southeast Asian Nations (ASEAN), and other P-5 (permanent members of the United Nations Security Council) countries. Although profound mutual distrust still exists among the Cambodian factions, Vietnam and China should be urged to exert maximum influence on the Heng Samrin and Pol Pot groups to reach a compromise. Japan and the United States should also make major diplomatic efforts toward the same end. Once a peace process is vigorously in motion on the right track, Japan and the United States should play leading roles in reconstructing the devastated economies in Indochina with an eventual goal of incorporating them in the broader Asia-Pacific economic dynamism.

In the Asia-Pacific region, as in Europe, the maintenance of regional stability in the post-cold war era will still require continued U.S. military presence, although political and economic elements are gaining relatively more weight. In order to enhance the peace and stability of this vast region, it is useful to pursue a subregional approach to handle the various sources of instability. This is a clearly different approach from the long-time Soviet overtures to apply a Conference on Security and Cooperation in Europe (CSCE) approach to the whole of the Asia-Pacific. In view of the diversity of the strategic environments of the region, it is more pragmatic to cope with each security-related issue, subregion by subregion. There is already a framework for the Cambodian conflict. One could well be built for the Korean peninsula in the near future. The post-ministerial conference (PMC) of ASEAN offers an excellent opportunity for political dialogue on the future of Southeast Asia. The recent Indonesian initiative calling for a meeting of the parties concerned on the Spratly Islands is a welcome movement in the same direction.

Policy Proposals: Encouraging Resolution of Regional Conflicts. The United States and Japan should cooperate in dealing with regional conflicts globally, specifically in strengthened conflict resolution measures, including cooperation with United Nations (UN) peacemaking and peacekeeping activities. An increasing number of conflicts are internal; strengthened and new mechanisms, public and private, for resolving these are urgently needed. While stressing diplomatic and other peaceful measures to resolve regional disputes in the East Asian region, the United States and Japan should retain adequate deterrent military forces.

Especially volatile parts of the East Asian region need special attention:

* Korean peninsula. Strengthen safeguards against nuclear proliferation. This should be a condition to any economic assistance to North Korea, together with the latter's manifest commitment to serious dialogue with South Korea and to easing tension on the Korean penisula.
* China. (a) Provide measured economic and technical assistance efforts to promote the stability of China, which is fundamental to Asian peace and security. (b) Use diplomatic and economic leverage to discourage China from exporting weapons of mass destruction, including missiles.
* Indochina. (a) Renew efforts to narrow the gap between the positions of the Cambodian factions through Vietnamese and Chinese leverage. Possible resumption of Japan's economic assistance to Vietnam should be considered to facilitate a peaceful settlement of the Cambodian issue. (b) Prepare for a post-Cambodian settlement reconstruction program with an eventual goal of incorporating all the Indochinese economies into the Asia-Pacific economic dynamism. Caution is required, however, not to give a wrong signal to Vietnam and the Heng Samrin regime while the peace efforts are at the final stage.

3. Revitalization of the World Economy. The growth potential of the world economy in the 1990s is by no means weak, but will be difficult to translate into actual sustained growth unless the following four destabilizing factors are managed appropriately. (1) As interdependence deepens, there is a tendency for frictions to occur with increasing frequency and severity, raising the danger of a slide toward protectionism. (2) There is a danger that economic reform in the former Eastern bloc will come to a standstill or reverse, exacerbating political and economic difficulties. (3) The North-South gap is widening. (4) Environmental problems are growing more serious.

Since World War II an open international economic system has underpined the sustained growth of the world economy. But in the post-cold war era the disappearance of the common threat raises the danger that Japan, the United States, and Europe will increasingly view economic issues from narrow national or regional perspectives. Thus today, the struggle against protectionism and the reordering of the international economic system are pressing issues.

To maintain and strengthen the free multilateral trade system, first priority must be given to ensuring the success of the Uruguay Round. To do this, the currently stalled agricultural negotiations must be moved forward. A path to success in the round will only be opened up if Japan, the United States, and the European Community (EC) share the pain of resolving outstanding problems.

Needs for capital to finance development and economic reconstruction are increasing globally, given added impetus by requirements stemming from economic ruin in the countries of the former Eastern bloc and from the destruction caused by the Gulf War. But the limited supply of funds is inadequate to meet this demand. In view of the resulting global capital shortage, a heavy responsibility rests on the United States and Japan, which have the world's first and second most powerful economies.

Policy Proposals: Revitalizing the World Economy. The following steps should be taken to address these problems.

* Bring the Uruguay Round to a successful conclusion, necessitating concessions by Japan and the United States and the EC as well. Japan should provide access to its rice market and the United States should reduce its remaining import restrictions on agricultural products.
* Initiate unilateral reduction of Japanese tariffs on all manufactured goods imports to zero.
* Alleviate the global capital shortage. (a) The United States should take steps to improve its saving-investment balance. (b) Japan's effort should include a major increase in Overseas Development Assistance (ODA).
* Provide debt guarantees by the International Monetary Fund (IMF) and the World Bank to open the path for flows of resources from the private sectors of industrialized nations.

4. The Pressing North-South Relationship. Over the past generation technological change and rising interdependence have stimulated growth across the industrialized world and the newly industrializing economies (NIEs). But many developing countries have been left sadly and dangerously behind, with the economic gap between these two groups widening. Furthermore, ruinous economic policies have forced many countries formerly in the Eastern bloc into a state similar to that of the developing countries. To ensure harmonious development of the entire world economy, it is essential that the United States and Japan work in cooperation with the EC countries and the NIEs that are graduating into the ranks of the industrialized nations to close this weak link in the circle of development.

Given a finite supply of aid resources, new claimants in Eastern Europe, the former Soviet Union, and the Middle East will be pitted against areas with less apparent geopolitical claim but intense need, such as Africa and the Indian subcontinent. A U.S.-Japan dialogue on global priorities is clearly needed. In addressing the dramatically increased range and scale of development problems today, Japan has a major role to play in the 1990s, both within Asia and beyond, that will call for efforts well beyond its present level of assistance. That role should include dealing with debt relief, global environmental problems, assistance to the poorest countries, and aiding countries undergoing transition to market economies. It will be important for Japan to take, with the full support of the United States, an enlarged leadership role in all these fields.

Three approaches are important for North-South issues. These are: alleviation of heavy external debt; stimulation of exports of developing countries; and increased ODA. Debt is a major constraint on the economic growth of the developing countries. A "New Debt Strategy" should be pursued toward heavily indebted medium income countries and official debt relief and new grants-in-aid should be considered for developing countries of very low income. Care must be taken to ensure that debt-relief measures are tailored to support the actual efforts being made by each relevant country to improve its economic structure, so as to ensure that self-help efforts on the part of the indebted countries themselves are not undermined. Export stimulation is needed to generate growth and earn the means for required imports. Japan and the United States should further encourage imports from the less developed countries (LDCs) -- Japan by ensuring the further opening of its markets and the United States by refraining from the implementation of protectionist measures.

Policy Proposals: Addressing the North-South Gap. Specific measures include:

* Enlarge the private-sector role in economic development. In this context, transparency in aid-related contract bidding and procurement is essential.
* Expand the export capacity of developing countries by encouraging direct investment in those countries' export industries, using measures such as ODA for improvements to infrastructure, the granting of investment insurance, and the conclusion of investment guarantee agreements.
* Enhance ODA in qualitative and quantitative terms. Coordinating the various forms of assistance (e.g., assistance by nongovernmental organizations and budgetary assistance) and drastically improving aid administration are of particular importance. Japan should increase the ratio of ODA to GNP from its current level of 0.32 percent to around 0.7 percent, while the United States should make further efforts in this area.
* Improve collaboration between Japan and the United States on aid policy. Joint aid projects melding Japanese and U.S. financial, technological, and human resources should be implemented.
* Stress multilateral aid approaches such as the Multilateral Aid Initiative for the Philippines, in which the donors press for structural adjustments in the economies of the recipient countries to enhance the effectiveness of the aid.

5. Meeting Global Environmental Challenges. As security issues become less pressing with the gradual waning of international tensions, the world's attention naturally turns toward such major long-term challenges as the world's changing ecological balance, including global warming, depletion of the global ozone layer, deforestation, and loss of agricultural productivity. These changes, which threaten the health and well-being of people throughout the world, are rooted in wasteful and injurious agricultural, manufacturing, and technological practices and pose a pressing requirement for reform. There is a crying need to build societies oriented toward environmental protection, energy conservation, and recycling of resources.

Environmental threats are particularly pressing in developing nations in the throes of industrialization. These nations generally lack the needed resources and expertise to deal with such threats. Problems are also pressing in Eastern Europe and the Soviet Union for similar reasons.

U.S.-Japan environmental cooperation has two basic dimensions: (a) bilateral policy coordination and information exchange to cope with a variety of threats; and (b) coordinated assistance to the nations of the Third World and Eastern Europe, drawing on the particular strengths of both nations to assure environmentally sensitive economic development. In view of the pressing importance of the global environmental threat, the U.S. fiscal crisis, and heavy U.S. responsibilities in international security and other areas, this is a sector in which Japanese leadership, U.S. cooperation, and a large and sustained commitment of resources and expertise are especially needed.

Policy Proposals: Meeting Environmental Challenges. Specific measures include:

* Intensify consultations between the responsible cabinet-level officials of the United States and Japan on new initiatives in the environmental area. Such consultations should be a priority task of a bilateral joint cabinet council.
* Design and implement, bilaterally, cooperative environmentally sustainable development assistance projects, working with selected third world nations. In the first instance, this could result in a joint U.S.-Japanese initiative -- perhaps in global reforestation -- in the UN Conference on Environment and Development in Brazil in 1992.
* Generate a U.S.-Japan initiative to strengthen measures against global warming and to transfer efficient Japanese and U.S. manufacturing technologies and advances technologies for protecting the environment to developing countries.
* Launch an initiative by Japan and the United States to develop new manufacturing systems that promote the recycling of resources, for example, easy dismantlement and easy segregation of components in mass-produced consumer durable goods such as automobiles and home appliances.
* Explore the joint development of a second generation of environmentally benign nuclear power systems, designed to provide inherent, meltdown-proof safety with improved economic performance. This would furnish an affordable and high-visibility initiative to which both the United States and Japan could contribute and from which both they and the world would gain.

6. Economic Cooperation in the Asia-Pacific Region. The Asia-Pacific economy has become a major engine of growth for the world economy. But there is no assurance that this fortunate trend will persist. Two contrasting scenarios can be painted for the future of the region. The first of these sees a greater degree of economic integration in the region, and the other sees a segmentation of the region into a North American economic zone and an East Asian economic zone. The realization of the latter scenario would place the prosperity of East Asia in jeopardy, which in turn would have a negative effect on the North American economic zone. In view of this, we believe that the first of these scenarios is the one that should be translated into reality. For this it is essential to create a "Pacific triangle for growth" within the broad scope of the Asia-Pacific region that will encompass all the countries in this area and will be based on the economic linkage of North America, Northeast Asia, and Southeast Asia. Existing frameworks for regionwide cooperation should be reinforced. Concerted efforts by Japan and the United States constitute the key to achieving this.

Policy Proposals: Strengthening Asia-Pacific Economic Cooperation. To strengthen economic cooperation in the region, policymakers should:

* Promulgate, jointly, for adoption by other nations of the region, a "Pacific Declaration" aimed at the foregoing.

This declaration should include the following commitments of Japan and the United States. The two nations will: promote economic cooperation throughout the Asia-Pacific region, with full respect for all countries in the region; support and strengthen the Asia Pacific Economic Cooperation (APEC) institutions; continue to develop and implement economic cooperation policies aimed at ensuring sustained growth in the region; and continue to be major sources of import demand so as to encourage expanded regional trade. Japan should play a specially active role in this regard, for the exports of all nations. The United States will not make the free trade agreement for North America (and the Western Hemisphere) exclusive in character.

Bilateral Issues: Structural Coordination and Harmonization Initiative

In order to solidify the U.S.-Japan global partnership, the economic frictions born of the two countries' close economic interdependence must be resolved before they ignite a firestorm of recriminations. There are two extreme schools of thought concerning economic problems between the United States and Japan. One is a pessimistic view that the socioeconomic structures of the two countries are so different that it is impossible to harmonize them. The other is an optimistic view that if the macroeconomic policies of the two countries were properly coordinated, the existing trade imbalances would be rectified by the "invisible hands" of market mechanisms. We reject both views. To enhance the mutual health of Japan and the United States and to preclude extreme economic imbalances, we believe that it is imperative to press for further efforts toward structural harmonization, beyond the Structural Impediments Initiative (SII). We propose a Structural Coordination and Harmonization Initiative (SCHI) that would involve not only the two governments but also the business sectors, parliamentarians, and research communities on both sides of the Pacific.

The issue is not one of moral superiority in either direction. Both nations have strengths and weaknesses, and both nations need to improve. The ideal should be mutual efforts to harmonize existing differences.

In such macroeconomic issues as trade and investment, rather than making an issue out of the figures describing the imbalances, differences in the economic structures and behavior of Japan and the United States should be explained to their publics, and ways of harmonizing these differences should be examined from a broader perspective.

Japan must more closely conform its economic structure and practices to international norms and make them more transparent in character in order more fully to open its markets to imports of goods and services and to create an environment that will facilitate an actual inflow of foreign capital. In addition, radical steps should be taken to make attitudes more open. This applies to Japanese universities and research institutes, corporate managements, and Japanese society as a whole, including openness to "intellectual ideas." Meanwhile, the United States also needs to reform those of its business practices that have shortcomings, such as far too much focus on short-term results.

Technological development capability is not only the engine for economic growth but also ultimately underpins a given country's economic and military strength. Fierce technological competition and close cooperation are simultaneously permeating the business communities of both the United States and Japan. Indeed, such competition and cooperation are the expected consequences of free economic activities as well as the ultimate promoters of economic viability. Partly as a result of Japan's rapid technological progress, however, there is growing and destructive techno-nationalism in both countries. At the roots of such technological frictions are structural differences: the United States excels in basic research and the development of military technology, much of it by public research institutions, while Japan is better equipped with development capability for applied commercial technology, primarily nurtured by private firms. As a result of these differences, Japanese technology is harder to access than that of the United States. In order to make the technology flow better balanced, some of this asymmetry must be rectified. Moreover, both countries should vigorously promote joint research activities on the governmental a well as the private-sector levels. In order to enhance military technology cooperation, they should place greater emphasis on projects involving substantial two-way technology flows.

Reform on both sides of the Pacific will open up a path to more fruitful competition and coexistence, which is essential for the maintenance of the alliance. The SII was a productive step toward this type of mutual reform, and it needs to be continued and extended.

Policy Proposals: A Structural Coordination and Harmonization Initiative (SCHI). To enhance economic prosperity through the combined strength of the two economies, we believe it important to give further momentum to the process of market-oriented structural adjustment. We propose a Structural Coordination and Harmonization Initiative (SCHI), involving private business and the research communities on both sides of the Pacific, as well as governments.

* Reform and increase transparency of Japan's business and administrative practices.

Japan must harmonize its business practices with international norms and open its economic structures to encourage free and fair competition and to increase opportunities for market participation for all firms. In particular, while discouraging and limiting the exercise of the voting rights of shares held through cross-holding, the ban on the holding of treasury stocks and the ban on the establishment of holding companies should be reexamined. In addition, administrative reforms and deregulation should be pursued to diminish Japan's traditional reliance on administrative guidance in order to make the Japanese economy more transparent.

* Reduce the twin deficit: a priority for the United States.

The United States must increase its savings rate and international competitiveness to reduce its twin deficits and strengthen its economy. An increase in the gasoline tax, as well as the rationalization of military spending and entitlement expenditures, should be pursued as means of cutting the budget deficit. The relevance of Japan's successful system of zero-ceiling budgetary requests (agencies must keep spending requests within the ceilings of the previous year's expenditures) to U.S. realities should also be explored.

* Reform of tax systems.

Both nations must explore changing their national tax systems in ways that move toward equalizing the conditions of competition. In the case of the United States, tax reform should also encourage increased savings and investment.

* Improve two-way technology transfer.

The structural differences in the Japanese and U.S. processes of technology creation and dissemination are profound, with major potential longterm implications for the destinies of both societies if not altered. We propose: an expanded Japanese commitment to basic research including joint U.S.-Japan funding of basic science efforts; joint feasibility studies on technical subjects of major long-term economic importance to both nations and to the world (such as commercialization of high-temperature superconductivity [HTS], the environment, alternate energy systems, long-distance, high-speed rail and air transport, space exploration, and innovations in the basic sciences such as the supercollider); and measures to accelerate two-way technology transfer through market forces, expanded fellowship and internship opportunities, and Japanese-language study for U.S. scientists in Japan.

Institutional Initiatives for Global Partnership

The global institutional framework for economic and security relations is a patchwork of enormous complexity. However desirable a universal framework may be, it does not easily meet the complexities of our turbulent transitional international environment. For various purposes, multilateral, regional, and bilateral institutions will continue to exist. The United States and Japan should enhance their partnership at all three levels.

1. Global Institutions. An important set of issues will be the future roles of the United States and Japan within the United Nations. There is strong public support in Japan for the United Nations. Japanese support potentially provides for a significantly expanded role for that organization and for a quantum leap in the resources devoted by Japan to international peace and security under the UN umbrella. The significance of the United Nations lies in its provision of the framework for building international consensus in view of the universality of its membership. We should not, however, overestimate the role the United Nations can play. This is a prime reason why it is so important to strengthen the Group of Seven (G-7) summit framework.

Due to the deepening of interdependence and the globalization of Japan's economic and security interests, we propose an expanded role for the G-7 as a framework for political dialogue and coordination. Within this framework, for instance, the Western countries could coordinate their policies to encourage Soviet reforms and help prevent further Soviet disorder.

Over time, it would also be useful for the Western countries to initiate security policy consultation and coordination in the G-7 framework. Such a proposal to add to the purview of the G-7 will obviously need more detailed study. In so doing, the following considerations should be taken into account: U.S. commitment and leadership; active responsibility sharing by allies, especially Japan and Germany; a UN linkage to acquire legitimacy; close consultation with the Soviet Union and China; and coordination with friendly countries in the conflict-prone region.

Nothing in this broadened framework for security policy consultation and coordination would be construed to undermine the existing bilateral U.S.-Japan security arrangement.

2. Regional Institutions. Economic regionalism has been gaining strength, as exemplified by the imminence of EC 1992 and the North America Free Trade Agreement initiative. Given the global importance of U.S.-Japan relations, it is crucial that this trend not lead Pacific nations to create a separate economic zone. Encouragement of cross-regional trade and investment, coupled with support for the APEC initiative, is important to that end.

It is too early to consider a CSCE-type framework in the Asia-Pacific region, whose security environment is completely different from that of Central Europe. In view of the diversity of the region, it is pragmatic to pursue a subregional approach in handling security matters in order to eliminate individual sources of instability such as tensions on the Korean peninsula and the Cambodian conflict.

3. Bilateral Frameworks. However ideal broader frameworks may be, the intensity of the U.S.-Japan relationship, its global significance, and the realities of domestic problems in both nations suggest strong attention to bilateral policy consultation and coordination. This has long been true in the security area. More effective mechanisms for economic policy coordination and forecasting are needed.

Policy Proposals: Institutional Initiatives for Global Partnership. Specific measures are divided into three categories: global, regional, and bilateral.

Global:

* Strengthen the G-7 summit regime by explicitly including political and security aspects as well as economic issues on the formal agenda. A more systematic process of policy consultation and coordination among the G-7 on political and security issues should be formalized, to include frequent regular working-level meetings. Emergency assistance to the former Soviet Union is a likely place to inaugurate this sort of closer coordination.
* Enhance cooperation by private and semi-private organizations of both nations in mediating and reducing the tragic human cost of civil conflicts throughout the world that the UN is unable to address.
* Cooperate, bilaterally, to strengthen UN peacemaking, peacekeeping, and peaceenforcement capabilities.
* Cooperate to strengthen the United Nations Development Programme (UNDP) and, where relevant, make the best use of regional development organizations such as the Asian Development Bank (ADB).
* Expand Japanese voting rights in the IMF, World Bank, and regional financial institutions in return for expanded Japanese financial commitments.
* Eliminate the outdated "enemy" clauses in the UN Charter.

Regional:

* The United States and Japan should contribute to the strengthening of regional cooperation, based on the spirit of the Pacific Declaration, as noted above. It is also important to proceed with a subregional approach for regional security by eliminating individual sources of instability. Introduction of a two plus four framework, composed of the United States, Japan, China, and the Soviet Union in addition to North and South Korea, should be considered in the future to promote the peace and stability of the Korean peninsula.

Bilateral:

The intensity and breadth of the dialogue between the United States and Japan concerning all aspects of a strengthened partnership can be substantially improved. The feasibility of new institutions on four levels of bilateral dialogue demands the most urgent consideration.

* Cabinet level: Joint Cabinet Councils should be seriously considered -- even if they meet only on an occasional basis -- to deal with emerging issues in U.S.-Japan relations in the 1990s. Global environmental issues should be taken up as an early subject in such a Council.
* Parliamentary level: Legislators from the two countries should also meet more frequently to discuss a broadened agenda of policy issues.
* Technical level: Bilateral panels of experts should be named to identify long-term structural issues and to assist in early detection and resolution of bilateral disputes.
* Private-sector level: Private-sector discussion of bilateral issues in forms parallel to the U.S.-Japan 21st Century Commission should be strongly encouraged.

In Conclusion: The Need For Strong Leadership

Due to differences in historical backgrounds, cultural traditions, and national power, there are and will remain clear differences in the policy approaches of the United States and Japan on a number of major issues. In this circumstance, potential stumbling blocks for sound development of U.S.-Japan relations include:

* on the U.S. side, the strong tradition of unilateralism, and the tendency to regard interdependence as unwelcome dependence on other nations;
* on the Japanese side, the lack of positive attitudes toward voluntary contributions to world peace and prosperity, and the closed nature of Japanese society.

Because these problems lie in the culture and tradition of each society, they will not be easy to overcome. We cannot, however, allow these bilateral differences to devour the U.S.-Japan relationship now that the two countries already form a fateful community, fused by economic interdependence and important shared values. Although the inevitable frictions that accompany their close relations are threatening, with strong leadership and informed publics in both countries a redefined alliance should continue to flourish into the next century.

This paper is the result of a year-long study chaired by the authors. The study was undertaken jointly by the International Institute of Global Studies in Tokyo and the Pacific Forum of the Center for Strategic and International Studies in Honolulu.