Selig Celebrates U.S.-Japan Cooperative Leadership

Under Secretary of Commerce Stefan Selig
Keynote Speech at Keidanren in Tokyo

(As prepared)

Good morning. Konnichiwa. I would like to start by sincerely thanking Keidanren for the invitation and opportunity to speak with all of you today. And I would like to especially thank Vice Chair Ishihara for the work he did to put this event together. The Secretary and I were very pleased to host a large and distinguished delegation led by the Chairman during Keidanren’s Mission to the United States in June, so I am especially delighted to be with you again today.

It is a particular honor to be here as you celebrate the 70th anniversary year of Keidanren’s founding. In many respects, Keidanren has been advancing the very same rules-based order in Japan that the United States has championed throughout the world over that same period of time. So being here at this moment is particularly apropos. With that, thank you to Keidanren. Congratulations on 70 years, and here’s to another 70 more.

I would like to start my remarks with a couple of lines from a toast delivered by an American president on the U.S.-Japan relationship: “We believe in this country that the Pacific Ocean does not separate Japan and the United States. Rather, it unites us.”

The president went on to say about Japan: “Their influence in Asia, their influence in the Pacific, their friendship for us – all these things are basic to the security and prosperity of the people of this country.”

Now you might think that this language comes directly from President Obama discussing either current U.S.-Japan relations or the U.S. “Rebalance” to Asia. But in fact, these words were delivered just shy of 55 years ago, during the first year of the presidency of John F. Kennedy. President Kennedy delivered this toast on the occasion of Prime Minister Ikeda’s visit to the White House in 1961.

And while this represented the meeting between the first American president born in the 20th century and the last Japanese Prime Minister born in the 19th century, the vision President Kennedy laid out then perfectly reflects our shared agenda in the 21st century. It’s an agenda where our two nations advance the international rules-based order, act as drivers of mutual prosperity, collaborate to tackle complex transnational challenges, and secure both regional and global stability.

In preparing my remarks, I searched for a way to describe the U.S.-Japan bilateral partnership, and how we have utilized that partnership on the global stage since the end of World War II. I ultimately came upon a phrase in the title of a book published more than 20 years ago by the Atlantic Council: “Cooperative Leadership.” The book’s full title is “The United States and Japan: Cooperative Leadership for Peace and Global Prosperity.”

This phrase – Cooperative Leadership – is particularly fitting because it acknowledges a historical fact that is often overlooked, that U.S.-Japan cooperative leadership has indeed been a driver of global prosperity.

If you analyze the arch of the past 70-plus years, and in particular the global trade architecture that has been the bulwark for the international economic order, the critical importance of U.S.-Japan cooperative leadership cannot be overstated.

Said simply, we are not only beneficiaries of the global trading order. Together, we have been architects of that very order. More to the point, the reason we were able to help build this order is twofold: Because we have been catalysts for each other’s mutual economic growth and prosperity; and because collectively we chose to leverage the leadership that evolved from this prosperity to advance the global economic system.

I see the arch of this cooperative leadership in three distinct phases.

Phase I

The first phase begins after World War II. Our two countries began this period operating from opposite ends of the economic spectrum. But Japan would engineer a historic economic rebirth, a rebirth that would see the Japanese economy grow at an average rate of 16% between 1949 and 1960. Japan’s nominal GNP would grow from 424 billion yen to 15 trillion yen within those 15 years.

It was also a rebirth that was supported by a U.S.-led Allied effort to rehabilitate the Japanese state, motivated by the Cold War interest of preventing the expansion of communism into Japan.

The sheer enormity of this growth translated into global economic leadership on par with Western powers, including the European Economic Community, the UK, and indeed the U.S. That leadership would be reflected in what would be the two most consequential trade negotiations of the time. This group of four, known then as the Bridge Club, became the lead negotiators of the Kennedy round of GATT negotiations, which concluded in 1967.

The Kennedy Round represented at that point the broadest expansion of tariff reductions in world history, which impacted 70% of dutiable imports of industrialized nations with an average tariff reduction across the board of roughly 35%. More importantly, it was nothing short of the deepest opening of global markets the world had ever seen.

Several years later Japan was among the lead negotiators again when it hosted the Tokyo Round of GATT negotiations, which was equally historic in its importance because of its emphasis on non-tariff barriers.

But perhaps even more importantly, the Tokyo Round is credited with mitigating economic tensions at a time when protectionism was a continuing threat, particularly given the 1970s energy crisis, the deep recession in 1973, and of course the two oil shocks during that decade.

Phase II

This dovetails into Phase II, taking place between the late 1970s and today. It is a period where both our commercial ties and our cooperative leadership reached ever higher levels. In the 1980s, our two economies transitioned from a period of relatively parallel economic growth, to one of intertwining economic growth, where by the 1980s Japan would become the U.S.’s largest source of foreign direct investment, and Japan would achieve a peak in terms of import penetration into the U.S. of 20%.

As for the U.S., Japan was our second-largest export market throughout the decade. U.S. FDI in Japan would increase five-fold between 1984 and 1994, and by 1994, Japan was the only top-5 host country of U.S. FDI that was not from the West.

The strength of those ties catapulted the U.S. and Japan to become the two leading economies of the time, a leadership position that would spark yet another opportunity to design the global international economic order.

By the 1990s, it became clear that the GATT membership had not kept up with an international trading community that had rapidly expanded as a result of globalization. And the world was in need of a new international framework for economic cooperation that was no longer rooted in Cold War geopolitics.

Now, if that sounds familiar to this audience, it is because it comes from a policy paper published by Keidanren more than 20 years ago. Keidanren recognized the capacity and opportunity for Japan to take a leading role in the effort to create this framework, and how it would serve to advance Japan’s global leadership in the post-Cold War era.

More importantly, it also recognized that in a post-Cold War era, a global economic order could be just as important in providing security guarantees as military force or humanitarian intervention.

Roughly a year after this paper was published, the World Trade Organization would come into existence. And as with the Kennedy and Tokyo rounds, the U.S. and Japan would play leading roles as part of the quad group of countries that included the EU and Canada.

And for the past 20 years the WTO has provided the global institutional and legal foundation to support the international trading system, a foundation where trade agreements can be negotiated and implemented, and a foundation that provided the anchor for the pro-growth policies that are critical for developing economies. It helped many of those countries resist the siren calls of protectionism that confront all governments.

It is also worth noting that over these 20 years the WTO’s membership would reach 161 countries, encompassing 98% of global trade. Leading global powers would be brought into the WTO institutional order, notably China and Russia. Global merchandise trade among developing countries jumped from 27% to 43%. And the proliferation of global trade and increasingly market-oriented economies that the WTO enabled was a crucial reason why 1 billion people have been lifted from extreme poverty over that period.

So history makes clear that there would have been no path to these incredible gains that did not include U.S.-Japanese cooperative leadership.

Competition versus Cooperation

Now of course that does not mean there have not been challenges in the context of our commercial partnership over the past 70-plus years. We can look back to the various periods of economic friction in the 1970s and 1980s. My 30-year career as an investment banker began in the 1980s, and I witnessed first-hand these tense moments when we all heard the frenzied talk of zero-sum gains.

But I would point out that during this challenging period, many of the connective strands of our commercial ties were being woven. That includes Japanese auto plants opening on U.S. soil, including Kawasaki beginning manufacturing in the U.S. in 1974, Honda in 1979, and Toyota in 1984.

It was during this period of time that our two business communities developed the supply chains that have made Japan one of our largest contributors of U.S. value added imports. And because of the foundation that was laid then, Japan’s 10 largest corporations today now all have operations in the United States.

So while any bilateral relationship involving two countries comprising this level of economic power, complexity, and shared history will naturally experience challenges, these examples of our deeply intertwined ties speak to a profound point. The difficult periods of our commercial partnership tend to be more obvious, more visible, and often more visceral, but they have also become more distant, more rooted in the past, and less reflective of the commercial cooperation that endures to this day.

Phase III

This leads to the third phase of our cooperative leadership, the one encompassing the present and more importantly the future. As with the previous two phases, our two countries continue to be catalysts for each other’s mutual growth and prosperity.

From the U.S. standpoint, U.S. exports to Japan support 640,000 U.S. jobs. As the second-largest investor in the United States, Japanese firms employ over 800,000 American workers today, making Japan the second-largest foreign employer in the United States.

Some $70 billion in U.S. goods exports are shipped annually from Japanese-owned firms, and Japanese firms contribute more than $7 billion a year to U.S. research and development.

And while I would leave it to my Japanese counterparts to offer their take on our commercial partnership, I will say this: Japan has been able to – and can continue to – rely on the full commercial power of the U.S. economy to help drive growth and prosperity.

U.S. consumers continue to be strong sources of demand for Japanese goods. U.S. businesses are the top foreign investors in Japan, where companies like Boeing, Sandisk and 3M now have state-of-the-art manufacturing facilities, and where Apple is building a major research center.

And U.S. capital continues to be a significant driver of economic growth. This critical role that the U.S economy plays in supporting the Japanese economy takes on even greater importance given the current environment where weaker growth and demand from emerging markets and developing economies is exerting downward pressure on Japanese export growth. This is a headwind that is expected to last through 2017, according to the IMF.

But our strong commercial relationship means more than just being a source of demand, investment, and capital. It also means having the sort of partnership where we can speak openly about the approaches each of us take to promote economic growth.

In this spirit, I would like to mention a few additional actions that Japan can undertake that are consistent with the Prime Minister’s ambitious structural reform effort, and which this organization can also support.

These actions include supporting the rise of dynamic SMEs that will allow them to compete effectively with large incumbent firms, and improving corporate governance by strengthening the oversight power of independent directors

It also includes cultivating what Prime Minister Abe has described as “internationally competent human resources,” creating a more flexible labor market that encourages rather than discourages firms from growing and hiring more employees, as well as policies promoting the hiring of the best talent with the global outlook needed to compete in today’s international marketplace. Or in Prime Minister Abe’s terms, “global jinzai.”

I should also note that the private sector has a role to play here too. I understand the Japanese business community is already partnering with the government to create new scholarships for Japanese students, and I want to commend Keidanren for its vocal support of study abroad.

But I also want to encourage you to build on this endorsement. Specifically, by offering internships and practical training opportunities, which will help these students gain the experience they need to succeed in the 21st century economy.

Taking these actions will not only translate into growth for Japan’s domestic economy. It will reinforce our cooperative leadership during this critical time.

As with the previous two phases, our cooperative leadership will once again be required to advance the global economic order, which is at the core of our efforts to conclude the Trans-Pacific Partnership (TPP). Like the Kennedy and Tokyo Rounds of GATT and the Uruguay Round leading to the WTO, we have led and will continue to lead an unprecedented effort to secure the rules-based order that has maintained international stability and prosperity for more than 70 years.

But there are fundamental differences between the 20th century environment as it related to GATT and the WTO, and the 21st century environment as it relates to TPP. And these differences precisely underscore the criticality of our cooperative leadership.

One relates to geography. In the 20th century, the geostrategic center of gravity was largely located in the West. Today, much of the geostrategic future in the world will unfold right here in the Asia-Pacific.

And as economic, diplomatic, and strategic leaders in the Pacific, our stewardship today is that much more consequential than it has ever been before. That is why we have made clear that TPP is more than just a trade agreement. It is a central pillar of the President’s Rebalance. And it is a reflection of the profound changes in the global marketplace.

The second relates to the distinct challenges that the U.S. and Japan are looking to address through the enactment and application of TPP. With GATT and the WTO, the overwhelming challenge was securing greater expansion of global trade and investment. And while TPP is designed to maximize trade and investment flows among economies representing 40% of global GDP, it is also a platform that will address challenges that are fundamentally trans-national in nature and which require some of the most innovative solutions that the modern economy can produce.

The innovation economy will be indispensable to solving challenges relating to global health, environmental sustainability, and energy security among others. That is why TPP will be a critical driver of innovation by committing partner markets to maintain high standards of IP protection similar to what Japan and the U.S. already provide. This includes criminalizing the theft of trade secrets, including in cyberspace and ensuring data protection for pharmaceutical products, including effective market protection for biologics in a manner that supports affordable access to medicine.

Today, the digital economy represents the best possible tool for the democratization of growth and entrepreneurship, and the continuing reduction of global poverty. That is why TPP prohibits localization policies that will restrict the cross-border data flows that have become indispensable to the trade of digitally deliverable services, e-commerce, and the connection of innovator communities.

At the same time, TPP not only explicitly recognizes the right of countries to pursue legitimate domestic policy objectives such as protecting citizens’ privacy, but it actually requires partners to adopt policies that protect people’s information. Provisions to regulate state-owned enterprises will not only ensure a level playing field for our businesses, they will also enhance the long-term efficiency and productivity of partner markets to all of our benefit.

The final difference between U.S.-Japan Cooperative Leadership in the 20th and 21st centuries relates to the importance of openness. And my use of the term openness is not an accident. As you all know, openness is a word that Prime Minister Abe has used in the context of his structural reform effort.

To quote the Prime Minister, “We cannot escape from international mega-competition. If that is the case, then the only way to approach this is to venture forth. This is openness.”

This acknowledgment clearly demonstrates that our two countries agree on what has become a fundamental rule of global commerce: that openness is essential to long-term competitiveness.

While openness among markets was always vital in the context of the 20th century, now more than ever openness is not a choice – it is an absolute necessity.

Openness of markets is fundamental to sustaining and expanding demand in order to stave off secular stagnation.

Openness of information, data flows, and supply chains is central to achieving 1st stage innovation, optimal e-commerce, and the maximum gains of advanced manufacturing.

Openness of trade and investment is a necessity to safeguard the broadest sweep of economic inclusion and the continuing trajectory of poverty reduction.

That is why we worked together to secure key provisions in TPP that would ensure precisely this level of economic openness.

In other words, it was our cooperative leadership that helped create a platform appropriate for our shared agenda in the 21st century.

The Importance of Freedom

But if there is one similarity between our cooperative leadership in the 20th and 21st centuries, it is in our joint pursuit of freedom. Our cooperation to advance the global order was partly rooted in ensuring freedom by staving off communism during the Cold War, when our goal was to expand the landscape of prosperity to advance the cause of freedom. Today, our goal is to expand the landscape of freedom to advance the cause of prosperity.

Prosperity for our workers and businesses – and growth for our economies – requires:

  • The freedom to access global markets
  • The freedom to compete fairly
  • The freedom to access digital information and data flows
  • The freedom to connect with global consumers and to collaborate to advance the next wave of innovation.

In either case, it should be clear that we have not only helped advance the cause of the global trading order, we have also played a significant role in advancing the cause of human freedom.

To close, I want to mention one more moment involving a Japanese Prime Minister and President Kennedy, which occurred last year during Prime Minister Abe’s State Visit to the U.S. Quoting President Kennedy’s inauguration address, Prime Minister Abe said: “My fellow citizens of the world, ask not what America will do for you, but what together we can do for the freedom of mankind.”

The Prime Minister added: “Now, Japan wants to be a country that can respond to such calls.”

We look forward to joining together to answer more of those calls through our cooperative leadership, which over the past 70 years has proven to advance the commercial interests of our two great markets, the strategic and diplomatic interests of our two great countries, and ultimately the global interests of the international community.

And with the participation of my Japanese counterparts, including Keidanren, I look forward to responding to that same call. Thanks for listening.