Foreign Relations of the United States, 1969-1976, Volume XIX, Part 2, Japan, 1969-1972

99. Paper Prepared by the Interdepartmental Group for East Asia¹

Washington, undated.

NSSM 122 Addendum III

US-Japan Relations in the Near Future

I. The Japanese Scene

A. Political

When the first drafts of NSSM 122² were prepared early this summer, most observers believed that US-Japan relations, while under some strains primarily in economic affairs, were basically sound, and that in Japan itself the relationship rested on a stable domestic political base. In fact, we said that political elements favoring a close and cooperative relationship with the US would in all likelihood remain in power for at least the next five years.

We could not make the same statements today. The relationship is currently going through its most difficult period since the end of World War II. The President’s intention to visit Peking and our new economic policies, both, however justifiably, announced without prior warning or consultations with the Japanese, have had a profoundly unsettling effect on the internal political situation in Japan. The current government and its supporters now find themselves wide open to attack on what have always been their fundamental political assets—the special relationship with the United States, public confidence in their ability to manage the economy, and their ability to deal profitably with both Peking and Taipei. Their most effective opponents come from within the ruling party’s own ranks, and the mainstream elements led by Prime Minister Sato are now in real danger of losing control of the government.

This issue may well be decided by the UN debate on the Chirep issue. The LDP could not reach a consensus on the question of co-sponsorship of the IQ and DR resolutions proposed by the US.³ After weeks of intra-party wrangling, the party polarized on this issue. Major factional leaders—Miki, Nakasone, and most critically, Ohira—declared their firm opposition to co-sponsorship. They and their factional adherents probably constituted a majority of the party. The responsibility for the decision, however, was handed to Sato. In a rare demonstration of decisiveness, Sato opted to co-sponsor. In his press interview he attempted to make it plain that this decision was based only on what he conceived as Japan’s best interest and carefully avoided any indication that pressure from the United States had been a factor.

For Sato the political risks are high whether the resolutions succeed or not. If they pass, Peking has grounds to accuse Sato of being the decisive factor and, given the intensity of the present pro-China mood now prevalent in Japan, Peking’s wrath could be very harmful. If the resolutions are defeated, Sato would be accused of having blindly followed US leadership and of permitting the US to use him as a scapegoat. Peking’s reaction will doubtless still be negative and the loss of face and confidence in his judgment would probably be politically fatal. But Sato was aware that if he decided not to co-sponsor and the resolutions were defeated, American opinion would put the blame on him. He clearly identified this as the greatest risk of all.

This fluid domestic political situation will be further roiled in the coming weeks. On October 15, a special Diet session convenes for a debate on the US-Japan relationship. The immediate occasion for this is the need to ratify the Okinawa Reversion Agreement. While there is little doubt that the Agreement itself will pass, the GOJ is already under severe attack for its willingness to permit the US to maintain its extensive base network on Okinawa. It is argued that the President’s forthcoming visit to Peking demonstrates that the risks from a hostile China are so diminished that the bases are no longer necessary and in fact constitute an obstacle to Japan’s own rapprochement with Peking. There are other potential areas of embarrassment in the Okinawa Agreement, including the financial settlement and the nuclear weapons question. The latter in particular has explosive political potential in Japan, and the Senate’s requests for information on some aspects of this question should be answered only in executive session.

Finally, the US Government has stated that it will impose quotas on imports of textiles on October 15 (the day the Diet convenes), unless Japan and other major exporting countries reach satisfactory government-to-government agreements with us. It is difficult to predict what the Japanese government’s response will be. Domestic opposition to an agreement is formidable and the unilateral imposition of quotas would also further consume a fair portion of what remains of the present government’s political capital.

It is clear then that Sato’s days are numbered and that problems associated with the United States are to be the proximate cause of his downfall. The problem for the United States is that the political fabric in Japan on which we must rely to obtain decisions and actions favorable to our interests has worn perilously thin. It can take only so much more weight. Sato’s passing does not concern us, and in any event it now seems inevitable. What does concern us is that his passing not be precipitated by an issue in US-Japan relations or in a highly-charged emotional atmosphere. It is very much in our interests that he be able to pass the Prime Ministership to a successor who will be disposed favorably to maintain a cooperative relationship with the US and to see that the atmosphere is such that this will be possible.

B. Economic

Japan has remerged as a major power via its economic strength. Gross National Product has been held as the summum bonum of domestic economic policy and there is little doubt that the policy has been successful. Real Japanese economic growth over the last decade has averaged near 10%. GNP at market prices has risen from $43 billion in 1960 to $196 billion in 1970.

This growth has been achieved through close cooperation between the Government of Japan, the business community and the financial community. The basic strategy for growth has been progressively to develop more technically advanced industrial sectors where labor productivity will be significantly increased. Given Japan’s static labor pool, the implementation of this policy has meant a steady re-distribution of the labor force out of less productive sectors and into new industrial sectors. Japan has made the policy choice to allow less productive industries to wither away while helping to alleviate the social problems associated with such a change. As in the United States, the shift in industrial production has resulted in significant domestic political problems. This is especially true due to the strong support given by the rural areas to the Liberal Democratic Party.

To carry out this program of economic development Japan has protected her technically advanced industrial sectors from foreign competition while applying similar protection to her declining industries to ease the socio-cultural and political problems associated with this industrial transition. (Japan’s restrictions against foreign investment are founded more on socio-cultural and institutional structures than on economic rationale, but this makes them less, rather than more, susceptible to amelioration.) Within this policy lies the essence of Japan’s present international trade problems. Japan has fostered a protective economic policy for its domestic economic development while needing a free trade world to support its economy and future economic growth.

Japan needs a free trade world because it is almost devoid of natural resources. Importing these resources is the key to any possibility of economic growth. To pay for these imports Japan must export to get foreign exchange. To export it must have access to world markets. A free trade world is therefore critical to Japan’s national interests.

Japan is presently going through a very difficult transition in economic policy. The protectionist domestic economic development policy that has been so successful in the past must be altered as a quid pro quo for continued free access to the United States and other major markets for Japanese products. This transition is causing and will continue to cause economic loss and business anxiety among politically prominent interest groups in Japan which are the foundation of the LDP. The present government is committed to such a change in policy but the tendency will be to implement this policy as slowly as possible to minimize the political repercussions.

II. US Objectives

Our fundamental objectives with respect to Japan, against which the relevance of our short-term goals must be judged, can be categorized as follows:

A. Political

Maintenance of a Japanese government that perceives a cooperative and interdependent relationship with the US as an important national interest, and contributes much more to the development and welfare of the less developed countries.

B. National Security

1. Continued use of American military bases on Japanese soil with a minimum of restrictions on their use.

2. A Japan militarily allied with the United States and capable of defense of its national territory against conventional military attack, but which eschews the acquisition of nuclear weapons.

C. Economic

1. A continued growth of the economic interdependence of the two nations that will facilitate a freer flow of goods, services, capital and technology between the two countries.

2. A reasonably well-balanced bilateral trade account between the two countries within the most effective multilateral free trade system possible.

In terms of all of these objectives our first priority remains as stated in NSDM 130: to reestablish in the minds of the Japanese the significance and closeness of the US-Japan relationship.⁴ Without this, the political base in Japan needed to achieve our pressing economic and military objectives will become progressively weaker and narrower, and the departure of Sato, a certainty within the time frame of this paper, would probably bring into power a government less cooperative with the United States, more vulnerable to Chinese pressure (for a while at least), and less stable domestically and less predictable in the conduct of its international affairs.

We should not ignore the fact that our movements on China, our economic measures, the textile issue, and the divisive debate on the Chirep issue have resulted, on the Japanese side at least, in a palpable crisis of confidence. The importance of maintaining good relations with Japan for security, economic and political purposes, if the United States is to retain any influence or interest in East Asia, is too obvious to require discussion here. What may not be so obvious, however, is that Japan is not a monolithic society, permanently ruled by a cabal of like-minded politicians, bureaucrats and businessmen who see Japan as tied to the US come what may. Japanese history demonstrates that the response of these emotional people to foreign pressure has often been a drastic and unpredictable change in national policy and outlook.

A crisis of confidence between nations is admittedly hard to dispel, especially when the policies which caused it in the first place must be pursued, as is the case with the China détente and the amelioration of our economic difficulties. We could do some things, however, in the political-psychological field which might improve the situation:

1. Consultation on China

Above all a mood of resentment and mistrust toward the U.S. in Japan could be dispelled by visible evidence that we are consulting with the Japanese leadership about our intentions and expectations with respect to the President’s Peking trip and its aftermath. Security is admittedly a problem here but personal talks by senior Americans with Fukuda and Sato under clearly identified ground rules could be maintained in security. The Japanese need not be informed of particularly sensitive aspects of the problem—the form and style of consultation is perhaps as important for them as the substance—but it is doubtful that the position of our friends in Japan could withstand further surprises on this issue of the magnitude of the July 15 announcement.

The Japanese sensitivity on this subject is heightened by their analysis of why the Chinese have agreed to permit the President to visit Peking. It is that Chinese objectives have less to do with Vietnam, the Soviet dispute or the establishment of a permanent peace in Asia, than with the destruction of the US-Japan relationship, the removal of the US presence from Asia, and the replacement of the present leadership with one more amenable to Peking’s bidding.

Our consultation with the Japanese might take the form of asking the Japanese to tell us what it is that they are afraid we might do in Peking which would cause difficulty for them, so that we could have this clearly in mind during the visit and be able more effectively to carry out our assurance that we will make no decisions with Peking which would be harmful to the interests of our old friends.

It may be felt that consultations with the Japanese will lead them to attempt unduly to influence the course of our move with respect to Peking. This has not been our experience with the Japanese to date. Moreover, were they to object to any particular action, it would probably be for a good cause and we would be in a position to determine whether or not the move we intended to make would in fact be more destructive of our relations with Japan than helpful with respect to China. If then we proceeded against Japan’s advice and/or the Japanese were to make our intentions public, the reaction in Peking would doubtless be more favorable than otherwise.

If it is considered impossible to consult in a meaningful way with the Japanese before the visit to Peking, it would be vitally necessary to inform them immediately thereafter of the results as they affect Japanese interests. A high official, best of all the Secretary of State, might return from Peking via Tokyo for this purpose.

2. EconCom Consultation

Consultation on economic matters is also a continuing need. Obviously, the Cabinet-level meetings should continue, augmented by the sub-Cabinet meetings agreed to at EconCom VIII to review progress toward our economic objectives. This is an excellent means of maintaining pressure on the Japanese Government. If these consultations do not prove adequate to the purpose, they might be the means to develop other types of surveillance actions—perhaps a joint US/Japan commercial complaints board or a joint statistical “early warning” committee to pinpoint adverse developments and trends before they become major problems.

3. Exchange of Visits

Where a problem is psychological with the Japanese, form and symbolism become as important as substance. The Japanese are deeply conscious of and uncomfortable in the knowledge that the President has announced his intention to visit Peking when there has never been a visit by either head of state between Japan and the United States. The President’s trip to Anchorage to greet the Emperor has helped to meet this lack, but it is no real substitute.⁵ Many Japanese friends of the US are urging that the President visit Japan en route to or from Peking. From the point of view of US/Japan interests it would be preferable to have a Presidential visit prior to the Peking trip. Next in preference would be a Presidential visit subsequent to but announced before the Peking trip takes place. Less effective, but still worthwhile, would be an Imperial visit to the United States before, or again less usefully, after but announced before, the visit to Peking.

4. Promotion of Exchanges

During EconCom VIII, Foreign Minister Fukuda mentioned his desire for a major expansion of personnel exchanges, an idea generated by his perception of the need for better communications between our two countries. The effects of such a program would be apparent only in the long term but we should take concrete steps to explore this idea further with Fukuda, to demonstrate our understanding of his intentions in suggesting this program and to encourage its realization.

5. Okinawa Reversion Treaty

A smooth passage of this major international agreement is of critical importance to the preservation of political stability in Japan. This suggests that the Administration should seek means of ensuring early passage and opportunities to publicize awareness of its importance. As the Senate debate nears, the President and high Administration officials might raise this issue with important Senators and make the Japanese press aware that this had been done. There is no point in attempting to avoid negative testimony by Senators who feel they must speak out on trade or other issues. What is essential is evidence that the Administration is urging passage of the Treaty and that it should pass, and pass soon. The Presidential message to the Senate, of course, has already laid the groundwork.

6. Handling of Textile Issue

The importance, both to us and to the Japanese, of a satisfactory settlement of our difference on this issue need not be elaborated here. The problem is being dealt with in another forum.

7. Support Japan’s Status as a Major Power

We should acknowledge Japan’s status as a major power by such measures as considering seriously and supporting by all means possible Japan’s desire for a permanent seat on the Security Council, by including a place for Japan in any great power conference, particularly one designed to bring about a settlement in Southeast Asia, by coordinating policies with Japan well in advance of any US policy decisions affecting Japanese interests and by supporting a more prominent Japanese role in certain multilateral organizations such as the OECD, the UN Secretariat and the specialized agencies.

8. Other Actions

Other actions in the political/psychological field are listed in NSDM 130. They include cooperation with a multilateral effort including Japan to develop gaseous diffusion plants for the refinement of uranium and closer scientific collaboration in efforts to solve common transportation and ecological problems.

On the economic side it is difficult for the GOJ to take steps to meet our requirements in the face of threats and strong pressure, and the longer the surcharge is maintained, the more deeply established the adjustment becomes on both sides and for the US the more difficult it becomes to remove it. In dealing with the Japanese on this subject we might consider the following:

1. Leave the Japanese in no doubt that the surcharge will not be removed until there has been established a realistic realignment of currencies adequate to reestablish equilibrium in world trade and payments system.

2. Encourage them, however, to believe that it will in fact be lifted when we are satisfied that our trade and payments problems have been solved and that Japan’s contribution to this is a firm offer to provide a mixture of actions of the nature of those set forth in part III of this paper adequate to bring our bilateral trade account into reasonable equilibrium. In dealing with the Japanese it would be useful to have them first announce a revaluation in the range acceptable to us and that they would not undertake other steps desired by us unless and until the surcharge is removed. Privately, they would agree to take these measures when the surcharge is lifted. An arrangement of this nature would achieve our objectives while permitting the Japanese government to preserve the all important element of face.

We should not, however, attempt to use the surcharge as leverage to obtain more than is possible. Revaluation and some improvement on trade and defense procurement are about all that can be expected. We do not expect a willingness by the Japanese to assume a share of the financing of US local military costs, although this subject is under continuing review within the US Government. Injecting the surcharge into this emotion packed area of Japanese policy would already endanger our security arrangements with the Japanese.

3. We should consider the possibility of improving anti-dumping procedures in view of the bargaining leverage that this might give us with the Japanese. If the US Treasury Department were in a position to inform the Japanese Ministry of International Trade and Industry when complaints against Japanese exports first start to come to the Treasury Department’s attention, the MITI could conceivably take corrective measures sooner and avoid continuation of an unfair practice.

4. We should inform the Japanese that we will support their efforts to eliminate the EEC discriminatory policies toward Japan. If successful, this would also lessen the pressure for Japanese exports to the US.

III. Japanese Actions to Reinforce the Cooperative Relationship

The major steps we want the Japanese to take are on the economic side. As part of our world-wide effort to reverse our adverse balance of payments position, we should continue to urge and seek to have Japan adopt mutually compatible economic goals and to pursue measures appropriate to the responsibilities of a major industrial country in chronic balance of payments surplus. This means in particular the realization of a better equilibrium in our bilateral trade. Cooperation from Japan in this field is in Japan’s own interest, and would go far toward dispelling the animus toward Japan which now pervades some US business and political circles.

Specifically, measures to be sought from Japan should include the following in a mixture appropriate to achieve our desired results:

1. Revaluation of the Yen

Negotiations toward this goal should and are being carried out multilaterally, which achieves the all important purpose of avoiding the appearance of discrimination against Japan. However, to prevent misunderstandings and to maintain pressure on the Japanese, private discussions in confidence as the situation requires may be warranted. Japan has already permitted the yen to float to a limited degree and there are indications that the Japanese are prepared for a revaluation of something in excess of 10 percent.

2. Stimulation of the Japanese economy, accompanied by heavier investment in the domestic infrastructure, less emphasis on exports, and greater emphasis on import promotion.

Next to revaluation of the yen, this type of stimulus to the Japanese economy could be the most effective means of all in terms of improving compatibility of the US and Japanese economies. Measures required would include deliberate efforts to promote imports from the US, the reduction of Japanese tariffs to the overall levels of the US and EC, the removal of non-tariff barriers, elimination of subsidies and tax incentives for exports, and heavy domestic investment in non-productive areas. We should also seek a change in Japanese policies and practices to permit US suppliers the same opportunities to compete for Japanese Government procurement as Japanese suppliers enjoy with respect to US Government procurement contracts.

Such a program would not be easy for the Japanese. For the past twenty years the national psychology has regarded growth in production and exports as the ultimate good. Change is, however, already underway. The GOJ is under heavy pressure to correct the vast gap between industrial growth and the quality of Japanese life. Japan has also explored the idea of a new round of tariff negotiations, has stated its willingness to make some unilateral tariff reductions, and to dismantle NTBs.

3. Elimination of remaining Japanese import quotas

Remaining quotas inhibit opportunities in the burgeoning Japanese market for some important US products (computers, aircraft, integrated circuits, agricultural products). Moreover, Japan’s inability to come to the negotiating table with clean hands on import quotas is clearly a major liability in terms of US Congressional and public attitudes.

The following steps by Japan would be of minor significance in terms of our immediate balance of payments problems, but would have a useful political/psychological impact in this country and could have significant long range economic benefits for the US.

1. Removal of restraints on foreign capital investment and adherence to investment obligations Japan has undertaken in the OECD and the US-Japan FCN Treaty.

In NSDM 130 the opening of Japan to foreign investments is stated as of lower priority than the foregoing. Nevertheless, it is an important long-term objective which faces formidable obstacles. We will have to try to make the Japanese realize how much these restrictions are resented by US business leaders. American business increasingly recognizes the depth of Japanese fear of foreign control over any major Japanese industry. While Americans feel this fear is unfounded, the Japanese argue that the high capital/equity ratio in Japan makes Japanese business vulnerable to foreign takeover at a relatively low cost. Americans nevertheless feel that the Japanese system confers non-reciprocal advantages on Japanese firms at their expense. We should, therefore, continue to remind the Japanese of their obligations under our Treaty of Friendship, Commerce and Navigation, and of the obligations which they have assumed to others as well as ourselves in the OECD. We should, of course, continue to give normal assistance to individual U.S. firms which have problems in this field.

For the short term, our interest would probably be best served by concentrating our efforts in investment and business activities by US firms in the field of sales and distribution which would offer the promise of increasing US exports to Japan.

2. A substantial increase in Japanese official development assistance to developing countries, both bilateral and multilateral.

Possible forms for this might be a greatly increased contribution to IDA, to the special funds of the Asian Development Bank and/or the development of a fund to assist in the rehabilitation of the Indochina states. Even more important than the amount of Japanese aid would be the softening of terms; e.g. less emphasis on export promotion and more on simple grant assistance. Pressure should be maintained to ensure Japan does take steps to bring the percentage of DAC-defined official development assistance up to one half of all DAC aid, as they assured us they would do during EconCom VIII.

3. Introduction of a Japanese system of orderly marketing in its export trade.

This concept is already included in the 8-point Japanese program and could avoid overly rapid expansion of exports with attendant serious adjustment and political problems. We should continue to probe to find out precisely what the Japanese intend to do to put this concept into operation.

4. Increased Japanese military procurement in the US as the Japanese defense budget rises.

The Japanese have already indicated that under the new five-year defense plan that will go into effect in 1972, purchases from the US are scheduled to rise from an average of about $100 million to $200 million annually, or a total of about $1 billion through 1976. There is, however, probably room to expand this figure and the Department of Defense should actively explore opportunities.

IV. Cooperative steps to reinforce the relationship

We might expect Japan to cooperate with us in all or some of the following:

1. Cooperate with us within the OECD High Level Group to prepare for a major attack on trade barriers. The Japanese and the Canadians have already expressed deep interest in a new round of tariff negotiations.

2. Cooperate with us to support the International Center for Settlement of Investment Disputes and the proposed International Insurance Agency, both in the World Bank group.

3. Cooperate with us in the development of investment opportunities in third countries. A threat of expropriation applies to us both and could be diluted if we, the Japanese, and perhaps other major countries were to combine efforts to develop joint ventures. These might be encouraged by special fiscal inducements.

4. Engage in a joint review of developmental assistance needs, particularly for South East Asia, both with regard to country programs and channels through which the assistance might be funneled.

V. The China Involvement

Peking is doubtless pleased by the strains that have been created in US-Japan relations in recent months. It has, indeed, through its propaganda and invitational diplomacy, sought to exploit these strains. Peking will doubtless be aware that, even as we seek to attain our economic objectives, we will be attempting to ameliorate the difficulties in our relations with Japan. It may in fact, for its own purposes, attempt to give the appearance of being particularly sensitive to steps we may take to accomplish this.

We should not, however, overreact to this possibility. Peking’s reaction to our efforts in the UN are a case in point. They have shown strident disapproval in public of what we have done to preserve the GRC seat; they have not however slammed shut the door to Peking. Nor has their reaction to the bombing of North Vietnam targets had this effect.

Obviously, a Presidential visit to Japan en route to or from Peking would, of all the actions discussed earlier in this paper, cause Peking the greatest amount of trouble. That is why we have suggested consideration of a Presidential visit separate from the Peking trip. For the rest, Peking will perhaps be most sensitive to steps we might take in the military/security field. Peking should know, however, that we intend to maintain our security treaty with Japan and our base structure on Okinawa. It also knows that we are a military ally of Japan, that we have sold and intend to sell military equipment to Japan, that we have conducted and intend to conduct military exercises with Japan. This is a period when Peking will be testing our will to maintain our Japanese relationship. It has already begun to do so (see Hong Kong 6837 for an analysis). It would therefore be wise to avoid any major new initiative with Japan in the military field that Peking could justifiably claim is directed at Peking such as providing Japan with an offensive capability. On the other hand, there is no reason why we should not continue to conduct the kind of military exercises we have conducted in the past with Japan, to sell equipment for the defense of Japan, and in other ways to behave as we normally would with an ally whose interests lie in defending its own territory. The PRC probably does not expect to effect any substantial short-range change in US-Japan relations and, although they might voice objections, the Chinese will not permit normal activity to stand in the way of their readiness to explore means of improving relations with us.

The most effective way to prevent our moves toward Peking from having adverse effects on our relations with Japan is to consult with the Japanese and to avoid presenting them with any startling and unpleasant surprises. Matters which might affect Japan’s relations with Taiwan are of high sensitivity in this regard, particularly so long as the present mainstream of the LDP remains in control of the Japanese government. Any developments with respect to diplomatic recognition between Washington and Peking or any exchange of any type of representative would also be of high sensitivity. The Japanese, who have extensive trade, travel and other non-official relations with Peking, would have little basis for objecting to any agreements we might reach with the Chinese in these areas, provided they knew about them in advance.

Much has been made in recent public analyses of the US-Japan-China situation of the fact that the Sino-Japanese relationship must develop apace with any Sino-US relationship if peace and stability in Asia is to be maintained. There is much truth in this, but the Chinese have made it very clear that they have no intention of dealing with a Sato (and presumably also a Fukuda) government. There is nothing we could do that would be better calculated to improve Japanese receptivity of our approach to Peking than to make it known that one of our primary objectives is specifically to make possible a similar rapprochement between Peking and the Government of Japan.

1. Source: Washington National Records Center, RG 330, OSD Files: FRC 330–76–197, Box 67, Japan, 092. Secret. During its August 27 meeting, SRG attendees had requested this paper, see Document 91. Brown sent this study to Kissinger on October 1. (National Archives, Nixon Presidential Materials, NSC Files, NSC Institutional Files (H-Files), Box H–182, National Security Study Memoranda, NSSM 122 [3 of 3]). Davis sent it to members of the review group on October 5, and noted: “It will be considered by the Senior Review Group at an early meeting.” (Washington National Records Center, RG 330, OSD Files: FRC 330–76–197, Box 67, Japan, 092) There is no indication that the Senior Review Group discussed this document.
2. Document 84.
3. During the debate concerning Chinese representation in the United Nations, the U.S. delegation introduced the IQ and DR resolutions: the first would have made any proposal to expel the Republic of China an “important question” requiring support from 2/3 of the United Nations member states; the second, “dual representation” resolution advocated that the People’s Republic of China be admitted to the United Nations but also affirmed that the Republic of China have continued right of representation.
4. Document 94.
5. Nixon met with Emperor Hirohito in Anchorage, Alaska, on the morning of September 26. See footnote 10, Document 90.