Press Briefing by Deputy Director of the National Economic Council Lael Brainard and Senior Director for Asian Affairs Ken Lieberthal

The Briefing Room

12:09 P.M. EDT

MR. SIEWERT: As you know, the President and Prime Minister Obuchi will be meeting on Monday. Here to brief you on that today are Lael Brainard, Deputy Assistant to the President and Deputy Director of the National Economic Council who will give you an overview of the economic piece of the agenda; and Ken Lieberthal, Special Assistant to the President and Senior Director for Asian Affairs, to provide an overview of the summit agenda more generally.

Lael.

MS. BRAINARD: Let me just talk briefly about the economic agenda and then turn to Ken to talk about the overall agenda and the actual meetings. The President is very anxious to engage Prime Minister Obuchi to talk about a wide range of economic issues, including policies for sustainable growth. As the world's two largest economies, the United States and Japan have an enormous stake in our respective contributions to global prosperity.

Strong Japanese growth is not only important for Japan, but is vital for the economies of East Asia and, in fact, for the world. We have said, we will continue to say, that the strongest and most effective way that Japan can support Asia's recovery is by restoring solid domestic, demand-led growth and maintaining an open market.

On the U.S. economy side, the prospects for continued healthy growth with low unemployment, solid gains in disposable income and low inflation remain strong. As you know, we received more good news on the economy today. We reported earlier that first quarter growth was robust at 4.5 percent, and the President will explain to Prime Minister Obuchi his continued commitment to the sound economic policies that have contributed to this growth.

On the Japanese side, Prime Minister Obuchi has set out actions to stimulate domestic demand-led growth and to promote financial stability, which are very commendable. While there have been some encouraging signs that Japan's economy is declining less sharply, most forecasters do not see a recovery this year or into next. Therefore, the President will want to engage with Prime Minister Obuchi on this important issue. Japan must continue to use all of the tools available to help restore solid growth, and I'm sure the President will stress the importance of maintaining the momentum and stimulus until solid economic growth is restored and sustained.

Japan has made some progress with bank restructuring, including in bank recapitalizations and in bad loan write-offs. We will continue to stress that the banking system must be more aggressive in disposing of bad assets and ensuring necessary restructuring. They will also want to engage on the long-term prospects for growth.

In a recent op-ed piece, Prime Minister Obuchi stressed that Japan's heavily regulated and managed economy has become what he termed "heavy shackles" on Japan's ability to grow in the dynamic 21st century economy. He argued very vigorously that Japan needed to adopt a more flexible economy and stated his commitment to do just that. The President will support the Prime Minister's efforts in this area and will want to engage with him.

As you know, we have a very strong interest in that. We've been pushing for changes for many years, not only because they will bring benefits to Japan, but because they hold out the promise for the first time of a level playing field for new entrance in industries where our companies have competitive advantages, but have been unable to exercise them.

The terms of the debate in Japan appear to be changing. There seems to be serious examination of opening the economy to foreign direct investment, of getting bureaucrats out of the business of managing industries. There seems to be a new seriousness about deregulation in services industries. We will be very interested to talk about specific actions in those areas.

The President's economic team has been working hard with its Japanese counterparts to make progress on market opening in areas including trade, deregulation, antitrust and investment. We will also of course want to press for progress on trade disputes. We have been, the President in particular, has been very clear that he will not tolerate unfair trade in the steel industry, and I'm sure he will want to raise that.

Let me turn over to Ken to talk about the broader agenda.

MR. LIEBERTHAL: Good morning. The Prime Minister's visit here will be the first official visit by a Japanese prime minister in 12 years. There has been a state visit by the Japanese Emperor, there have been official working visits by Prime Minister Obuchi's predecessors, but this will be the first official visit with that level of protocol in 12 years. The overall --

Q: What's the difference?

MR. LIEBERTHAL: There are differences in protocol of these things.

Q: He's not going to be welcomed on the South Lawn --

MR. LIEBERTHAL: He will be. I'll get into that in just a minute, okay?

Prime Minister Obuchi actually arrived in the United States yesterday in Los Angeles. He goes from Los Angeles to Chicago today, will be in Chicago through tomorrow, on Sunday comes to Washington, will be here in Washington for the official day of activities on Monday, and then returns to Tokyo on Tuesday the 4th.

During the course of his itinerary here, in addition to the official visit activities, he has some activities that are kind of nostalgic for him. He first came to the United States in the early 1960s on the Queen Mary, and so he is having lunch on the Queen Mary, which is now docked in Los Angeles. He is, while here, going to have some events for Japanese American groups, some events with American business people and at the University of Chicago will be meeting with American university students.

His Washington day, just to complete the kind of chronological overview, Washington day will begin with a welcoming ceremony on the South Lawn. He will then have a brief reception inside the White House, followed immediately by his bilateral discussions with President Clinton. After the bilateral discussions, he'll go to the State Department where Vice President Gore will host a lunch for him. He will then hold a joint press conference with President Clinton.

Q: What time?

MR. LIEBERTHAL: The press conference begins at 3:30 p.m. and goes to 4:20 p.m., I believe. Yes, 3:30 p.m. to 4:20 p.m. And I believe it's going to be at the Old EOB, right --

MR. HAMMER: Presidential Hall, Room 450.

MR. LIEBERTHAL: -- 450, I'm sorry -- at the Old EOB. And then an official dinner that evening.

This is almost certainly going to be the last official visit by the head of the United States and the head of Japan to each other's capitals during this century. And, therefore, they want to highlight during the course of the visit the extent of our ties and of our cooperative efforts bilaterally, regionally and globally. They will want to highlight the increasing depth of our commitments to common values in human rights, in democracy and human decency. And they will also address the array of economic problems that Lael just laid out for you.

Let me briefly review some of the major issues that they'll address on the security and foreign policy side because the list is fairly substantial there. First, there are a series of bilateral Alliance issues, such as implementation of the so-called SACO Agreement, which is an agreement that was reached that will change the footprint of American forces in Okinawa. And there are still a series of measures necessary to fully implement the objectives of that agreement.

The President will wish to express his pleasure at the lower house of the Diet's adoption of the defense guidelines on April 27th, hope that the upper house will move quickly to adopt the same legislation; and in other areas, they'll be fleshing out bilateral alliance issues.

In terms of regional issues, the United States and Japan are consulting very closely on complimentary approaches to dealing with North Korea. We also are consulting very closely with the Republic of Korea in that effort. We are pursuing complimentary efforts to try to assure free and fair elections in Indonesia this June. We will want to discuss our respective policies toward China. The Chinese Premier was just here last month -- I'm sorry, earlier this month, this is still April -- and Prime Minister Obuchi will be going to China in July of this year, so they'll want to have a discussion about that. They'll also want to discuss their respective policies toward Russia.

On global issues, the Japanese government just announced a few days ago its commitment to $200 million of humanitarian and reconstruction aid for Southeast Europe, focused on the areas impacted by developments in Kosovo. The President will want to provide a briefing on his views on what is going on in that area now, and commend the Japanese effort through reconstruction and also through general support for the NATO policies there.

Finally, we have a set of issues that we call "common agenda issues." These are issues such as climate change, disease control, promotion of democracy, counterterrorism and so forth. These are on a global scope. The U.S. and Japan cooperated quite widely on these. They will be discussed at the summit and the effort will be to increase the array of activities that we do under that broad group of common agenda.

Q: Is SACO pulling out the American troops from Okinawa?

MR. LIEBERTHAL: No. SACO does not involve pulling out the American troops, it involves relocating a number of their activities so that they have a smaller impact on the population of Okinawa.

With that, I've concluded my prepared remarks. Both Lael and I are available for any questions that you wish to raise.

Q: Are we getting our products on their shelves now?

MS. BRAINARD: There are, in terms of the trade issues that we will raise, one will be steel. We're likely to raise some of the other ongoing areas where we feel like market access has not been up to the standards of the agreements that we've negotiated. We have continued problems in flat glass, insurance and some of the procurement areas. I don't expect big outcomes there, but I do expect those to be on the agenda.

Q: Is Japan's economy as tied to the rest of Asia as it was two years ago, or are some of these countries that went through financial crises kind of moving independently of Japan now? And how much are they tied to Japan's recovery?

MS. BRAINARD: I think that, overall, Japan is a significant economic magnet or center of gravity in the region, and it is true that a variety of countries, through their own efforts, through support from the international financial community, have made great strides over the last year. But it will continue to be true that Japanese investment in trade is a vital component of the growth of these economies.

Just let me give you one statistic in particular that I think is important. The Japanese imports from the region last year in a year when several of the economies were in extreme crisis, actually went down by $19 billion, which is very significant. During that time period, our imports from the region went up by something like $12 billion; and, overall, we bought about twice as much from the region as Japan did. So that will just give you a sense of the kind of contribution to demand in the region that Japan could be making, and I think with a strong, vibrant Japanese economy, there could be a much larger contribution to growth in the region.

Q: I missed the very beginning, so I apologize if I miss some of your words, but where do you expect big outcomes? You say you don't expect big outcomes on some of these areas of related trade; where do you expect big outcomes, A; and also, on the steel issue, what's our level of satisfaction right now with the way they're handling their exports of steel to this country, and what do we need to tell them at this summit? What still needs to be addressed there?

MS. BRAINARD: Let me start with steel first. We have been very focused on Japan and very clear with the Japanese government from the start on the steel issue because Japan has contributed disproportionately to the surge in steel imports. That has been a country that we've had a particular focus on. As you know, they were found to be dumping by the Commerce Department in an independent investigation and there is now dumping orders against many of their hot-rolled steel imports.

The President's report in January was very clear that we expected to see a return of Japan's exports to pre-crisis levels, and that is really what we have been looking for. Japanese exports to the U.S. and steel overall are down -- I want to say 75 percent since the peak. But there is still concern and we want to see a sustained and additional decrease in Japanese imports.

In terms of the first question that you asked --

Q: Can I ask a follow up on that steel question?

MS. BRAINARD: Yes.

Q: How confident -- yesterday's anti-dumping ruling was the final margins -- but as you know, the ITC then has to make a final ruling for injury. How confident are you that they're going to find that there really was injury and that it was not as a result of the GM strike, which many of the Japanese deal makers --

MS. BRAINARD: I don't speculate on ITC determinations. It's an independent process, as you know. So I don't want to speculate one way or the other.

Q: -- they are not at the pre-crisis levels at this point?

MS. BRAINARD: At this juncture we are still looking for a sustained, and additional decrease in Japanese imports overall.

On the first question, we are working with the Japanese in a variety of areas and we're hopeful that we can make some progress in the areas of deregulation, investment, anti-trust and trade. But that remains to be seen.

Q: At the subcabinet level talks a couple of weeks ago, the officials had said that they making progress in deregulation and in investment and that they were hopeful that by the summit they would be able to reach agreement. Are you more hopeful today than you were back then that an agreement would be reached or are you still at the same --

MS. BRAINARD: I was hopeful at the time -- we had very good talks, by the way -- and I continue to be hopeful.

Q: How about on the anti-trust front?

MS. BRAINARD: On the anti-trust front we're also engaged in discussions and we're hopeful there, too.

Q: Can I just clarify? You, earlier, were talking about the steel cuts, and you want to see additional sustained cuts in the Japanese exports to the U.S. in steel. Does that also apply to the general trade balance of all Japanese exports to the U.S.?

MS. BRAINARD: On the overall trade balance the most important thing that Japan can do is to continue sustained momentum of stimulus actions and to continue moving to open its market. We have never stated explicit import and export goals. But the single most important thing that Japan's government can do is to maintain stimulus until there is, in fact, a sustained recovery, and to keep its markets open.

Q: By maintaining stimulus, do you mean maintaining the current programs or do you mean maintaining a rate or a pace of additional stimulus programs?

MS. BRAINARD: I think what we have been talking about -- and this is the similar message to the one that Secretary Rubin delivered in his G-7 meetings a week ago -- was that it was important for Japan to use all the tools available and to maintain the stimulus necessary to see a return to growth and a sustained period of growth.

Q: Well, this is a message we've been giving them for a very long time now. Why isn't there some -- is there some alteration of that? I mean, it basically hasn't worked. I remember hearing this at the White House a year and a half ago, that Japan has to stimulate its economy and so forth. What's the use of continuing to say that?

MS. BRAINARD: I think, in fact, Prime Minister Obuchi has implemented and set out a number of actions, including macroeconomic stimulus, including attention to recapitalization of banks that are very commendable, that are constructive, that move in the right direction.

Q: -- used up all the available tools in terms of fiscal policy --

MS. BRAINARD: I believe that there is continued room to maintain stimulus as they go forward, using all the available tools.

Q: What do you mean by room, there is room? What do you mean by room, specifically?

MS. BRAINARD: That they should continue to use the tools that are available to them in a way that maintains stimulus until such time as recovery is sustained.

Q: Do you see deregulation as one of those tools?

MS. BRAINARD: Yes, I think they're sort of separate -- not separate, but several tracks. One of them is macroeconomic stimulus. There is also the structural reform measures that Prime Minister Obuchi laid out in the op-ed the other day are very important, that we believe are very important and that these are absolutely essential, the structural reforms are absolutely essential to a long-term solution to Japan's economic challenges.

Q: Any new agreements going to be signed?

MS. BRAINARD: I think we don't know that at this juncture, but we are working to make progress in some areas -- deregulation, anti-trust investment.

Q: In terms of trade, you know, this has been going on for years and years and years. Is the picture better in terms of trade and the things that we wanted to happen? Have they happened at all since the last Japanese visit?

MS. BRAINARD: Where we have seen progress is on some of the macroeconomic actions and the banking actions, where the Prime Minister has taken constructive actions. We have also begun to see some changes in the Japanese economy, such as, for instance, an expanded role for foreign direct investment, which has been an important goal of our companies for a long period of time. We've seen deregulation, for instance, in their financial services sector, which our companies also are able to avail themselves of.

So, in some areas, we have seen hopeful signs. In other areas we continue to be frustrated.

Q: There's been a lot of talk about an additional stimulus package from Japan -- but Obuchi and Miyazawa have seemed to be against this. Is that a disappointing position for the United States?

MS. BRAINARD: I don't want to pronounce on any particular fiscal measures or programs that the Japanese government may or may not have under consideration. I think our message is a more general message about the need for continued stimulus in the economy.

Q: How concerned are you about a remark yesterday made by Mr. Sakaiya that although the retail sales are down something like 8 percent for department stores and supermarkets, he said not to worry because confidence is growing because sales in convenience stores are going up. I mean, does that seem realistic to you? Does that kind of remark --

MS. BRAINARD: I don't want to comment on one particular indicator over another particular indicator. As I said earlier, there is some encouraging sign that the rate of decline in the economy overall has moderated; however, most private forecasts continue with a projected decline this year. And that is why we are concerned that the government maintain an active stance.

Q: Ken, now that you've sat down -- (laughter) -- some exercise before the summit --

MR. LIEBERTHAL: Jake told me, if I wanted to get a question I should sit down, and that's -- (laughter).

Q: -- always very clever. I'm wondering, there's an article this morning in The Washington Post where a retiring general is quoted as saying that the current action in the Balkans has, to some extent, maybe potentially great extent, deteriorated our level of readiness. Does the President feel that he needs to reassure the Japanese or demonstrate in any way that we're prepared to meet our national security interests over in that theater?

MR. LIEBERTHAL: I don't think that question has been raised by the Japanese side. I think that our general posture in East Asia is one that clearly demonstrates our strong commitments to the area, and we will meet our security obligations out there.

Q: About the host nation support, I understand a special major agreement between Japan and the United States regarding the host nation support will expire spring of the year 2001. Is the United States going to make sure at the summit meeting that Japan maintain the level of the host nation support after the year 2001?

MR. LIEBERTHAL: Let me say, host nation support is important not only for keeping U.S. forces and commitment viable there, but also for general regional security that I think is provided through that force commitment. And so, certainly, we will look to see that that support is continued. I don't expect at this summit to ask for some firm commitment one way or another; as you indicated the issue is some time off. But, clearly, that's an issue that we will want to pay attention to over the course of the coming year.

Q: Will the President meet with Obuchi Sunday night on the eve of the formal summit meeting?

MR. LIEBERTHAL: There have been occasions when the President has met with someone before the official event --

Q: He did it with Zhu Rongji, so why not with Obuchi?

MR. LIEBERTHAL: Well, it's happened with a number of other people, but not with all. We have no specific, concrete plans for that to happen at this point.

Q: But you're not ruling it out?

MR. LIEBERTHAL: I'm not ruling it out. We have no specific concrete plans for it at this point.

Q: How many times have they met before?

MR. LIEBERTHAL: The President and Obuchi, once Mr. Obuchi became Prime Minister, have met bilaterally in New York last September at the UNGA; then in November when the President went to Tokyo for a summit meeting; and then this meeting will be the third bilateral meeting. They've obviously met also at various multilateral conferences, such as G-8 and so forth.

Q: Just one quick for Ms. Brainard. Do you expect there to be any discussion --

MS. BRAINARD: I didn't sit down, so I thought I wasn't taking any more questions. (Laughter.)

Q: I'm so impatient, I just can't wait for that. Do you expect any discussion of the foreign exchange rate? Is there any need to discuss the Japanese yen-dollar rate?

MS. BRAINARD: I don't expect them to discuss the foreign exchange rate.

Q: Is it fair to characterize the focus of the economic situation shift from macroeconomics to deregulation and bilateral trade?

MS. BRAINARD: No. I would say that there is continued and appropriate emphasis on macroeconomic stimulus at the same time as there must be attention to deregulation and opening the economy. It's only by making progress on both of these areas that we can actually achieve a sustained and long-term recovery in Japan. So we will continue to emphasize both the macroeconomic front and the structural reform deregulation/market-opening agendas, because we think they're mutually complimentary and both essential.

Q: One more question. Can you just explain the U.S.'s rationale not to go with the Super 301 case?

MS. BRAINARD: I'm sorry. You mean, not to go with --

Q: Not to name Japan in this --

MS. BRAINARD: There is no country that is actually identified as a Super 301 candidate in the report.

Q: But they're not even on the watch list.

MS. BRAINARD: However, there will actually be discussion of barriers that a number of countries have in different areas, and there will be discussions over Japanese barriers in the insurance area, for instance; the flat glass area, which are areas that I mentioned earlier we continue to have some concerns about.

There are also a variety of other reports that are being released today and, there, too, we will discuss Japanese market barriers in certain areas where we are working to make progress and where we continue to encounter problems entering the market and competing fairly.

Q: Can you just explain also about the dereg of reference pricing in pharmaceuticals and the U.S. position on that?

MS. BRAINARD: What specifically is the question?

Q: Are you encouraged by the Japanese decision to drop --

MS. BRAINARD: We're hopeful we'll make progress on the reference pricing issue for pharmaceuticals in the deregulation area. Thanks.

THE PRESS: Thank you.

END 1:35 P.M. EDT