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Speeches and Papers

Japan and the International Economic Institutions

by Marcus Noland, Peterson Institute for International Economics

Paper prepared for the Centre for Japanese Economic Studies Fifth Biennial Conference
"Can the Japanese Change? Economic Reform in Japan"
Macquarie University
Sydney, Australia
July 6-7, 2000

© Peterson Institute for International Economics

Hye Kyung Lee provided helpful research assistance, and Fred Bergsten and Jeff Schott offered useful comments on an earlier draft of this paper.



Japan has arguably been the prime beneficiary of the liberal international economic order. In the area of trade, the General Agreement on Tariffs and Trade (GATT), and later, its successor, the World Trade Organization (WTO), have facilitated the reduction in barriers to international trade worldwide and thereby enabled Japan's exploitation of its comparative advantage and contributed to income growth and rising living standards in postwar Japan. The World Bank, along with its Bretton Woods twin, the International Monetary Fund (IMF), contributed even more directly to postwar Japanese economic development, by financing such infrastructural projects as the construction of the Shinkansen ('bullet train') railway system. As the post-war economic reconstruction proceeded, these institutions continued to serve Japan well, as its economic interests broadened from trade and finance, narrowly defined, to encompass a wide range of issues relevant to the expansion of Japanese firms around the world.

Nevertheless, the consensus among both Japanese and non-Japanese observers is that Japan 'punches below its weight.' Despite the efforts of the government of Japan to increase its influence on the multilateral institutions, its influence on the global economic policy architecture remains smaller than one would expect for the world's second largest economy. This paper examines recent Japanese policy initiatives with respect to international institutions in the areas of international trade, finance, and development. To the extent that these initiatives have any rationale beyond pure self-interest, they reflect longstanding intellectual tendencies which, compared to the values embodied in the existing order, place a greater emphasis on the state relative to the market in economic life.

Japan's attempts to project greater influence on the international institutions are limited by three factors: dominance of the United States and Japan's unwillingness to risk a rupture with the world's sole superpower; the historical legacy of suspicion and distrust of Japan in Asia; and Japan's own parochial politics. However, growing disenchantment with the status quo, especially in Asia, may create more propitious conditions for future Japanese initiatives.


Trade Policy

Japan's history of problematic trade relations with the rest of the world goes back at least as far as to its forced opening to trade by the United States in 1854. The fifty years, which followed the Meiji Restoration in 1868, were a remarkable period of modernization in which Japan adapted a myriad of foreign social and technological innovations to its own ends.1 The Japanese leadership of the late 19th century was driven by the exigency of preserving national sovereignty, and indeed, Japan was one of the few non-Western nations to escape colonization. Economic liberalism, which would become the dominant ideology of the world system, never really took hold in Japan. Rather, Japan conformed to the practices and procedures embodied in the international system when it was compelled to do so, and deviated when it had the opportunity.2 The densely-populated country with a relatively high level of education and social capacity quickly developed a comparative advantage in labor-intensive manufactures.

In the first instance of a recurrent pattern, Japanese exports were met by discriminatory trade restrictions imposed by trade partners fearing 'import surges.' Japan began raising its tariffs significantly during the worldwide slump, which followed the conclusion of the First World War. In the wake of the 1923 Great Kanto Earthquake, Japan raised tariffs to 100 percent on a number of 'luxury' items. Instead of reducing tariffs back to their earlier levels after the immediate crisis was surmounted, Japan continued to raise its tariffs through the 1920s, and, like others, played the 'beggar-thy-neighbor' game once the Great Depression began in the late 1920s.

Japan moved decisively away from economic liberalism with the installation of the Inukai Tsuyoshi cabinet in 1931. Under finance minister Takahashi Korekiyo, it began a policy of 'regulated reflation,' similar to that undertaken contemporaneously in Germany by Hitler's economics minister, Hjalmar H.G. Schacht.3 As the international economic system literally disintegrated, Japan launched the Pacific War with the aim of creating a Greater East Asian Co-Prosperity Sphere.

The war ended in ruin, defeat, and occupation by US military forces. US occupation authorities installed a set of institutions modeled on the New Deal experience in the United States, but sided with Japanese conservatives in Japanese economic affairs as the Cold War with the Soviet Union deepened. Again, Japan focused on catch-up, and again, economic liberalism failed to establish itself as the dominant intellectual tendency.4

After the occupation ended in 1952, Japan applied to join the GATT. This trade organization initially had developed out of US Secretary of State Cordell Hull's attempt to reconstruct the liberal international order during the Roosevelt Administration, and became the fallback option when the Republican-controlled US Congress rejected the International Trade Organization, which had been envisioned as the third leg of the Bretton Woods triad. The Japanese GATT application was initially opposed by a number of countries, but the United States strongly supported the application, and Japan was granted provisional membership in 1953 and full membership in the GATT in 1955.5

Once in the GATT, Japan participated in successive rounds of multilateral negotiations (including the 'Tokyo Round' of the 1970s). Japan was relatively passive however in its use of the GATT's admittedly-weak dispute settlement mechanism. In the cases ruled against Japan (for example, the case of some agricultural quotas), the country had a good track record of complying with GATT panel decisions (though in some cases removal of trade restrictions was accompanied by the introduction of more direct forms of support). Adverse panel rulings were arguably a constructive form of gaiatsu (foreign pressure) from a multilateral organization, which Japan had voluntarily joined and supported.

However, due to the GATT's dysfunctional dispute settlement procedure, many trade conflicts continued to be resolved bilaterally, often in a discriminatory fashion. In addition to GATT-consistent forms of protection such as antidumping measures, Japanese exports were subject to grey area measures such as the orderly marketing arrangements (OMAs) invented by Japan and the United States in the 1950s and applied to textile trade, the forerunner of the so-called voluntary restraint agreements (VRAs) or voluntary export restraints (VERs), which the United States and EU applied with gusto to Japanese steel and automobile exports in the 1980s.6 In the 1990s, Japan and the United States would pioneer the use of voluntary import expansions (VIEs).


The 1 January 1995 establishment of the WTO and its new and improved dispute settlement mechanism marked an important turning point in Japan's trade relations with the rest of the world, greatly strengthening Japan's ability to oppose discriminatory trade protection by its trade partners. This was demonstrated dramatically that year when Japan called the United States bluff in the automobile dispute, refused to acquiesce to US market-opening demands, and threatened to duke it out in the WTO. The United States decided to settle out of court (see table 1). Since then, Japan has brought cases to the WTO at a rate of slightly more than one per year. Around half the cases involve the United States and around half involve the automobile industry in some way. WTO panels have yet to rule against Japan in any of its complaints.

At the same time, Japan's partners have taken it to the WTO at a rate of about two cases per year (see table 2). As is often the case in the WTO, many of these disputes are settled bilaterally without going through the complete adjudication process. In the cases that have gone through the dispute settlement process, Japan has lost two (the complaint about discriminatory taxation on alcoholic beverages brought by the EU, the United States, and Canada, and an agricultural quarantine case brought by the United States) and has won one, the famous 'Kodak-Fuji' case on photographic film.

Japan has also availed its third party rights in 24 cases, mostly with regard to cases involving the United States and/or the EU (see table 3). From an Asian regional standpoint, Japan has brought one case against another Asian country (Indonesian autos), and entered two more (South Korean government procurement and Thai antidumping) as a third party. No Asian country has made use of the WTO dispute settlement procedure to challenge Japanese trade practices.

Although the new dispute settlement system represents a noteworthy advance over the old GATT system, the WTO faces a number of challenges. The most immediate are what to do in the aftermath of the debacle in Seattle, and how to integrate China into the organization. In the longer-run, issues of personnel and substantive agenda issues will re-emerge.

The 1999 attempt to launch a new round of multilateral trade negotiations in Seattle was driven by a political compromise left over from the Uruguay Round, rather than any global groundswell for trade liberalization.7 To secure a conclusion to the last round of negotiations, the US accepted less than complete reform of agricultural trade practices on the part of the EU in return for a commitment to revisit the issue in 1999. This is the origin of the so-called built-in agenda of talks on agriculture and services motivating the new round. A certain sense of urgency was attached to the negotiations over agriculture inasmuch as the 'peace clause,' which prohibits WTO cases against certain practices (principally undertaken by the EU and the United States), and is due to expire at the end of 2003.

This built-in agenda shaped participants' negotiating strategies for the Seattle ministerial. Japan argued that a successful round would have to have three characteristics: it would have to strengthen 'rules and disciplines' as well as market access, be a single undertaking, and be 'comprehensive.' The notion of a 'comprehensive round' was motivated by the recognition that Japan needed to broaden the agenda to hide its inevitable concessions in agriculture, and use gains in other areas to make an agreement emerging from the new negotiations politically palatable at home. Specifically, Japan made tightening of the antidumping provisions a high priority (i.e. strengthening 'rules and disciplines'), and in the weeks leading up to the meeting, had stitched together a broad international coalition which clearly had the United States on the defensive. On agriculture, Japan found an eager ally in the EU, which jumped onto the Japanese 'multifunctionality' bandwagon to distract attention from its increasingly indefensible export subsidies.

In the run-up to the meeting, the United States showed little flexibility, largely trying to limit the agenda to agriculture and services where it would not be expected to make major concessions, while simultaneously trying to force onto the agenda relatively new and controversial issues such as the relationship between trade and labor standards, and environmental concerns.8 As Japan's Ministry of International Trade and Industry (MITI) correctly observed, such an approach jeopardized progress on even the built-in agenda, as it left most participants with no incentive to move forward (MITI, 1999). Once in Seattle, officialdom was caught off guard by the degree of public mobilization against the talks by a wild melange of protest groups whose motivations and aspirations appeared at times only tenuously connected to the issue at hand. And despite police intelligence, the authorities in Seattle appeared unwilling or unable to comprehend the violent tendencies of some of these groups.9

Yet in the end, it was the traditional US-EU dispute over agriculture — the same dispute that nearly scuttled the launch of the prior round of negotiations and nearly torpedoed those negotiations half a dozen times — not the shenanigans of the Raging Grannies or the Ruckus Society that sank the Seattle negotiations. Japan appeared content to hold the EU's coat on agriculture, and its sin was one of omission — passively allowing an opportunity to slip away — rather than one of commission.

In the aftermath of Seattle, principally the EU, and to a lesser extent, Japan, have moved to right the organization, restarting the agricultural and services negotiations (though the EU did block the consensus on selecting the chair of the agriculture talks) and undertaking a series of 'confidence-building' measures, including possible extensions of the 31 December 1999 deadline for developing countries to implement WTO agreements on intellectual property, investment measures, and customs valuation. This effort has garnered a greater sense of urgency with the prospective accession of China to membership following the successful conclusion of the EU-China bilateral talks, with Pascal Lamy, the EU Commissioner for Trade publicly admitting that it would be easier to conclude the next round of WTO negotiations if China were not a full participant. The United States has pursued the quixotic agenda of relaunching the round before the Okinawa summit. Some within the US government regard a Japanese proposal to set up a distinguished persons group to assess the most propitious path for future progress as a delaying tactic.

In the longer run, the organization will have to deal with both personnel and substantive issues. With regard to the former, Japan actively backed Thailand's Supachai Panitchpakdi over New Zealand's Mike Moore in a protracted dispute over who would succeed Italy's Renato Ruggiero as the WTO Director-General. An eventual compromise was reached in which Moore and Supachai would split the term. This haggling did nothing to promote the institutional development of the organization. Another such brawl can be expected in 2005 when the Moore-Supachai term ends. The search for Supachai's successor could get entangled with personnel decisions made in other international organizations, as will be discussed further below.

Beyond personnel issues, the WTO has a series of intellectually- and politically-challenging issues that it must confront. Most immediate will be the built-in agenda of agriculture and services. In agriculture, Japan typically sides with the EU against the United States and the Cairns Group.10 It prosaically has observed that current tariff levels 'reflect particular domestic situations' and has expressed an interest in strengthening disciplines on the use of export restrictions, reflecting its concerns about food security.

On services, developed countries typically demand liberalization of financial and professional services on the part of developing countries. Developing countries have countered by demanding increased possibility for movement of people, so that, for example, a developing country service firm could bring its workers into a developed country on a temporary basis to work on a project (in construction or maintenance, for example), though in reality they are more interested in reform of antidumping and a stretch-out of their Uruguay Round obligations than the services negotiations. Similarly, Japan is relatively uncompetitive in much of the services sector, and has not pushed as hard as the United States or EU for liberalization in this area.

Beyond the built-in agenda, trade in industrial products is dominated by traditional tariff-cutting on the one hand, and the need to better integrate antidumping and competition policy rules on the other. The tariff-cutting exercise is a well-understood process, amenable to traditional WTO tariff offer negotiations, and it is simply a matter of reaching international consensus on an acceptable formula — not a trivial task, but not one fraught with the conceptual problems of the other agenda items.

Reform of antidumping rules and the creation of a more coherent international competition policy regime present greater challenges. Japan has led the international coalition demanding reform of antidumping procedures, which it regards, with significant justification, simply as process protectionism. Its major opponent has been the United States. Within the United States, there is little intellectual consensus as to what the goals of a desirable international competition policy might be beyond prohibiting horizontal collusive practices such as cartels. Politically, the issue has been captured by import-competing firms, which regard competition policy as prospectively a much less protection-friendly alternative to the existing, and WTO-consistent, antidumping laws. Within the US government, the bureaucracy is split: the Antitrust Division of the Justice Department fears that any multilateral accord would amount to a dumbing down of US law, weakening US antitrust practices, while the United States Trade Representative (USTR), stung by its defeat in the WTO in the Kodak-Fuji case, opposes narrowing antidumping laws in the interests of its import-competing clients. Unless there is a significant shift in domestic politics, it is hard to envision much constructive activity on this issue emanating from the United States in the foreseeable future.

The antidumping-competition policy issue is an inside-the-beltway matter compared to the hot-button issues of the social clause. The US agenda on labor and environmental issues of recent years has found little support in Japan, which has not experienced the degree of public and NGO mobilization on these issues as does the United States and EU, and has been on the defensive in a number of international disputes involving endangered species. However, these issues tend to be relatively partisan in nature in the United States, and one could imagine significant ratcheting up or down in emphasis, depending on the outcome of the November 2000 elections.

Taken together, these observations suggest that the WTO may face some difficult times ahead. Although the system has served Japan well, it typically displays a lack of leadership, and on a series of issues on the horizon, its positions conflict with those of the United States, the organization's dominant member.

Regional Initiatives

Japan stands alone as the only major WTO member who does not participate in preferential regional trade arrangements. However, dissatisfaction with the WTO could encourage Japan and other countries in Asia to go their own way, creating regional preference arrangements similar to those that exist in Europe, North America, and Oceania.

The sole major existing regional initiative, the Asia-Pacific Economic Cooperation (APEC) forum, includes countries from outside of Asia, most notably the United States. Indeed, APEC was originally an Australian initiative; some Asians wanted US involvement to counterbalance Japan, which had a similar proposal, and APEC's first meeting was held in Canberra in 1989. The next big step was in 1993 when, at the first APEC 'leaders' meeting,' the United States hosted history's first pan-Asian summit held, ironically, outside Asia. APEC's membership accounts for more than 2 billion people (40 percent of world population), and more than half of world output. An officially-appointed Eminent Persons Group issued a report calling for free trade and investment in the region by 2020 (2010 for rich members, 2020 for poorer ones), a goal that the governmental leaders adopted in their Bogor Declaration of 1994.

Due to great political-economic diversity among membership, no one anticipates 'deep integration' along the lines of the EU. Rather, much activity has been in terms of 'business facilitation' — streamlining procedures etc. Progress on trade and investment implementation has been uneven. Agriculture is a highly-sensitive issue, and Japan attempted to carve out agriculture from the accelerated liberalization commitments at the Bogor (1994) and Osaka (1995) leaders' meetings. Later, in November 1998, Japan torpedoed the 'early voluntary sectoral liberalization' (EVSL) initiative, which would have required it to eliminate over a 10-year period its relatively-low tariffs on forest and fishery products. Japan is not unique in this regard: South Korea and others have been willing to let Japan take the lead in opposing agricultural trade liberalization within APEC, much the same way that Japan stands behind the EU in WTO. For its part, the Clinton administration lacks the statutory authority to implement early tariff cuts in several of the EVSL sectors (though it has residual authority from the Uruguay Round negotiations for others).

The growth of regionalism outside of Asia and the failure of the WTO meeting in Seattle have encouraged Asian countries to take a second look at regional economic integration schemes. The old East Asian Economic Caucus idea has been revived as the ASEAN+3 (Japan, China, and South Korea) initiative.11 In Japan, the MITI is actively studying the possibility of free trade areas (FTAs) involving Japan, Singapore, South Korea, Mexico, China, and possibly others.12 Article 24 of the GATT agreement and Article 5 of the General Agreement on Trade in Services (GATS) specifies the conditions under which preferential trade arrangements are consistent with signatories' WTO obligations. The WTO must be notified of the intent to form a FTA; it must not raise barriers to other parties; tariffs within the FTA must be reduced to zero within 'a reasonable time period,' which was codified in the Uruguay Round agreement as 10 years; trade restrictions must be abolished in 'substantially all sectors;' and liberalization should target the services sector per the GATS. For Japan and its potential partners, the problem is the 'substantially all sectors' requirement. Because of its inefficiency in agriculture, Japan is constrained to look to partners which either do not have an agricultural sector (Singapore), have similarly inefficient agricultural sectors (South Korea), or run the risk of a WTO challenge if it attempts to exclude agriculture from an agreement (Mexico).13 Japan's search for regional alternatives to the multilateral system is hamstrung by its own agricultural policy.

Of the FTAs that Japan is considering, one with Singapore, a city-state that pursues virtually free trade today, would be the easiest to complete, and perhaps unsurprisingly, convey the smallest benefits to Japan. More interesting is the possibility of a FTA with South Korea, and the two governments have commissioned studies of this possibility (Cheong, 1999; Yamazawa, 2000.)14

Both studies use static computable general equilibrium (CGE) models to evaluate a prospective Japan-South Korea FTA. These models have significant limitations, notably their inability to capture dynamic economic effects and the absence of any reaction functions on the part of other trading nations.15 Nevertheless, they are the obvious starting points for any serious analysis of a prospective FTA.

Yamazawa's conventional model generates the result that when Japan and South Korea enter into a FTA, Japan's bilateral surplus with South Korea increases. The United States is adversely affected by trade diversion (unfortunately no separate results are reported for Australia). As would be expected the impact on the smaller economy is bigger than the impact on Japan: South Korean real GDP increases 0.3-0.4 percent, while the effect on Japan is 'marginal.' The implicit message is that a FTA would have little impact on either economy and could well create problems with the United States.

In search of bigger numbers, Yamazawa then presents another variant in which he assumes that large sectorally non-uniform productivity increases accompany the formation of the FTA. In this variant, he obtains qualitatively-similar results (e.g. Japan's bilateral surplus increases and the United States is adversely affected by trade diversion), but both Japan and South Korea experience large real national income increases (on the order of 10 percent), but the latter result appears to be driven by the assumed productivity gains rather than anything intrinsic to the FTA.

Cheong's results are, if anything, even less supportive of the desirability of a Japan - South Korea FTA. In his model, not only does Japan's bilateral surplus with South Korea increase, South Korean welfare actually declines, though as in the case of Yamazawa's original model, these effects are quite small. Cheong then sets out to reverse the latter result, and comes up with two possibilities: unspecified 'preferential rules of origin' and the inclusion of China into the FTA.

Ultimately, these models may badly misspecify the workings of a Japan-South Korea FTA. They do, however, point to something that could be problematic politically. Levels of protection are generally higher in South Korea than in Japan. Moreover, South Korea pursued a policy of actively discouraging imports from Japan through its 'import diversification program' until this policy was terminated in June 1999 as part of the IMF conditionality for the December 1997 standby package. When the policy ended, imports from Japan surged in a number of sectors causing public protest in South Korea. Any FTA with Japan will be a hardsell politically in South Korea. Japan is similarly disunited on this issue: while MITI supports the FTA with South Korea, it is reputedly opposed by the Ministry of Foreign Affairs, which champions the WTO, and the Keidanren, the big business association, whose members fear South Korean penetration of the steel sector.


International Financial Policy

The other important area in which Japan interacts with international economic institutions is in the finance and development area. (These two have to be discussed together if for no other reason than the IMF, the most prominent international financial institution, has evolved into an institution relevant mainly to developing countries. The debate over bilateral foreign assistance programs is beyond the scope of this paper, however.) In the finance and development sphere, a similar set of themes — disagreement over substantive and key leadership issues, and a possible Japanese and Asian desire to go their own ways — reoccurs. The focal points have been Japanese and Asian dissatisfaction over the performance of the US government and the IMF during the Asian financial crisis, subsequent debates over reform of what has come to be known as the international financial architecture, and proposals for regional initiatives that could run counter to policy emanating from Washington.16

Asian Regionalism

On the first point, Tokyo and Washington clearly reacted differently to the Asian crisis, reflecting differences in ideology, national interests, and perhaps understanding of the crisis. The US government initially underestimated the severity of the crisis, with President Clinton describing it as 'a glitch in the road' at the APEC summit in November 1997.17 Furthermore, relative to Japan, the United States was unsympathetic to the capital channeling and cronyism that had contributed to the crisis, and again, relative to Japan, US banks and financial institutions had less at stake in the region. Crudely put, the US government initially regarded the crisis as a modest regional affair, largely of the Asians' own making. Thailand was stunned by the initial US refusal to come to its financial assistance at the onset of the crisis and its refusal to participate in the 'second line of defense' associated with the initial IMF program.18 It was only after the crisis spread to South Korea and threatened to spread to Brazil and Russia that the United States was shaken out of its complacency.

Asian disappointment in US taciturnity was compounded by what are widely regarded as fundamental mistakes in the IMF programs, which actually exacerbated the crisis.19 These perceptions — that the United States was an unreliable ally, and that the economic prescriptions being written by Washington — at best incompetent and at worst malevolent, created an opportunity for Japanese leadership on regional financial issues, despite the fact that the yen depreciation of 1995-97 and the weakness of the Japanese banking sector contributed to the crisis in the first place.20 Japan proposed an Asian Monetary Fund (AMF), but the proposal was blocked by United States, IMF, and China, with Washington fearing that an AMF would degrade the global financial system by undercutting the IMF, while China opposed it out of geopolitical rivalry.21 (It did have the effect of spurring the US Treasury to redouble its efforts to secure an IMF quota increase, as discussed below.) Japan then came back with the 'New Miyazawa Initiative,' named for Finance Minister Kiichi Miyazawa, a $30-billion financial assistance plan for the region, consisting largely of sovereign debt guarantees, trade credits, and low-interest loans.22 Cynics claimed that this was simply a backdoor means of providing public funds to Japanese banks and corporations through their Asian subsidiaries and there is probably some truth to this. But whatever the motivation, Japan extended more official assistance to strapped economies in Asia than did the United States. At the same time, it should be noted that during 1998-99 exports from the most heavily affected Asian economies to the United States rose, while those to Japan fell. In essence, the United States enabled trade while Japan provided aid.23

After two years of dormancy, Japan's Ministry of Finance (MOF) resuscitated the AMF proposal in the spring of 2000 (Kuroda, 2000). The Japan-dominated Asian Development Bank (ADB) floated a report stressing the need to 'seriously consider' an AMF — a position from which it subsequently backed away.24 The problem was in some ways similar to the one that confronts Japan with respect to FTAs: it did not want to be perceived as originating the policy proposal, but rather as responding to the entreaties of others. In the case of the AMF, Japanese officials invariably described the AMF as an ASEAN and Japan proposal.25 ASEAN finance ministers did indeed consider the proposal in their meeting in Brunei in March 2000, but shelved it in favor of a less ambitious regional currency swap arrangement involving Japan, China, and South Korea, while agreeing to conduct 'a study on the modalities and mechanisms for a regional financing arrangement to supplement the existing international facilities.26

The countries of East Asia possess enormous foreign exchange reserves (on the order of $600 billion) and financing such an organization would be not be a problem, especially if Japan were willing to commit a significant amount of funding. Rather than resources, the real constraint in Japan may be political. Japan is a major source of saving for the region, and some in Japan would like it to play a greater role as an international center of financial intermediation. Yet despite the highly-touted 'Big Bang' financial market deregulation plan, the government has displayed ambivalence about undertaking the actions necessary to promote the internationalization of the yen. Even regionally, it is unclear whether Tokyo could ever play the roles that Hong Kong and Singapore play today and Shanghai may play some day in the distant future. Politically Japan remains fundamentally inwardly-oriented toward its domestic parochial political interests and financial markets and institutions, not toward global markets. As a consequence, it appears unwilling or unable to act in ways that would reassure non-Japanese institutions that it would play a responsible role as an efficient and unbiased regulator.

The Global System

Parallel to this discussion of greater regional cooperation in Asia has been a more general discussion about what should be done to reform the financial architecture in general, and the IMF, in particular. Again, it has been the United States that has led the international debate (though the United States, Japan, and EU did cooperate in the formation of the Group of 20 (G-20), a group of systemically significant economies convened to consider international financial architectural reform). As mentioned earlier, in the spring of 1998, the specter of an AMF spooked the US Treasury into pushing the US Congress to increase the US quota commitment to the IMF. It was argued that while the existing set of institutions might be sub-optimal, it was unwise to reorganize the fire department in the midst of a fire.27 The political quid pro quo for Congressional approval of the quota increase was the establishment of a panel of outside experts, the International Financial Institutions Advisory Commission, charged with assessing the public sector international financial institutions. This commission, chaired by longtime IMF foe Professor Allan Meltzer, was time-bound to issue its report in March 2000.

Anticipating that the Meltzer Commission, as it came to be known, would issue a strongly 'market-oriented' critique of the international financial institutions, the US Treasury attempted to pre-empt the commission by issuing its own reform recommendations. The US government proposal, contained in Summers (1999), calls for the IMF to phase out long-term lending, and take on a more narrow crisis-prevention mission than its current activities encompass. In particular, it calls for the IMF to play a quasi-lender of last resort function, lending significant amounts at 'prices to encourage rapid repayment' (p.6). At the same time it seems to support the same kind of intrusive conditionality that proved so controversial in the Asian crisis, arguing that issues of social cohesion and inclusion...should be addressed as a condition for IMF support' (Ibid.). These two thrusts would appear to be contradictory: if the IMF is offering short-term finance at penalty rates, then there is a reduced need for policy conditionality, much less the kind of deep conditionality embodied in the Asian crisis packages.28

When the Meltzer Commission report was released in March (IFIAC, 2000), as expected the majority report reflected a near obsession with the notion of moral hazard and called for greatly restricting IMF lending activities, a wholesale downsizing and reorganization of the system of multilateral development banks, and the abolition of such institutions as the Multilateral Investment Guarantee Agency (traditionally headed by a Japanese national) and the multilateral development banks' private sector arms such as the World Bank's International Finance Corporation (IFC).

Japanese government reaction, as might be expected, has been sympathetic to neither the 'less money with more conditions' thrust of the Summers proposal nor the 'moral hazard über alles' stance of the Meltzer Commission. In his address to the March 2000 meeting of the Manila Framework group, MOF vice minister Hirohiko Kuroda called for the IMF to limit the inclusion of structural reform conditionality in its assistance packages, despite the fact that Japan benefited from the abolition of South Korea's 'import diversification program' as part of the South Korea's December 1997 standby agreement (Dow Jones, 21 March 2000). This stand would be consistent with previous Japanese attempts substantively to influence the international financial institutions in the direction of greater sympathy to state intervention in economic life than that embodied in the 'Washington Consensus.29

Japan is more supportive of a second aspect of US policy, however. The Summers proposal recommends a recalculation of member quotas (the basis for weighted voting within the organization and in principle, determining the amount of resources that a country can call upon in a crisis).30 This could have important implications for Asia, inasmuch as Asian countries would appear to be greatly underweighted (and European countries similarly overweighted), and in this respect, the United States and Japan appear to be on the same side.31 Nevertheless, it proved difficult diplomatically to allocate the Japanese the second largest national quota within the Fund. Other Asian countries such as South Korea and Singapore are even further underweight, arguably constraining their access to the Fund resources, and limiting their influence in the IMF Executive Board.

This issue came to a head in the struggle over who would succeed Michel Camdessus as managing director of the IMF. Traditionally this job has gone to a European, while the Presidency of the World Bank has gone to an American. A Japanese has traditionally led the Asian Development Bank (ADB). After protracted internal negotiations, the EU nominated a lightly regarded German, Caio Koch-Weser, for the post. In the meantime, while the Europeans were negotiating, in a break from previous practice, Japan put forward its own candidate, former MOF vice minister and promoter of the Asian Monetary Fund, Eisuke Sakakibara. Some other Asian countries (though notably not China) were convinced to give token public support to his candidacy.32 A disparate coalition of developing countries would eventually nominate a third candidate, the acting managing director, Stanley Fischer. After no consensus was achieved in the IMF Executive Board, in a second iteration of the process, the EU nominated another German, Horst Köhler; the United States indicated his acceptability, and he received the endorsement of the Executive Board.

It is a bit hard to know what to make of the Japanese action. Under the circumstances, Sakakibara was surely unacceptable to the United States (and many others), and of the names of potential candidates to succeed Camdessus bandied about in the press, Sakakibara was the least temperamentally suited to run the IMF.33 It appears that the nomination was not meant to be taken at face value, but instead signal Japan's unwillingness to accept the continued European stranglehold on the Managing Director job.34 Indeed, if a Japanese national did secure the managing director's position, Japan would come under pressure to release its hold on the ADB presidency - to another Asian country, i.e. not to the United States or EU.36

This fiasco, coming on the heels of the Moore-Supachai debacle at the WTO, vividly illustrated the fundamental bankruptcy of the national 'reservation' system in selecting senior leadership posts in the international institutions. In this sense, the Japanese action should be regarded as a success, even if it did not yield short-run benefits.



Japan may well be the prime beneficiary of the liberal postwar economic order. Yet its ability to influence that order has been constrained by US dominance, lingering suspicion of Japan in the rest of Asia, and Japan's own internal politics. However, Asia has been shaken by its experience during the financial crisis. Among other things, this has led to a reappraisal of its relationship with the US government and the Washington-based multilateral economic institutions. There is a sense of disappointment in both the aspects of Washington, and this, together with US initiatives that are likely to encounter opposition in Asia, has created an unprecedented opportunity for Japanese diplomacy. This opening could be widened by an economic slowdown and an accompanying rise in protectionism in the United States.36

In such an environment, it would be understandable if Asians intensified efforts at regional cooperation as an alternative, either as a complement to, or a substitute for, multilateral cooperation. Yet Japan's ability to lead such an effort is uncertain. Ironically, one of the reasons that the United States is so influential in setting the agenda in Asia is that collectively, the Asian economies remain dependent on the US market as the ultimate destination of a significant part of their output, even if this dependence could be expected to lessen over time (Noland, 1994). If Japan wants to wield more influence in the region, it will have to learn to import more, and establish better political and economic relations throughout the region, most importantly with China, the region's second largest economy.37

Such an effort, in turn, is impeded by lingering distrust of Japan in the region, especially in China. For its part, Japan remains understandably wary of China, particularly in light of its authoritarian political system. The kind of political exigencies that fueled the rapprochement between France and Germany after the Second World War appear to be missing in Asia, and will continue to hamper regional cooperation, at least in the medium run.

Surmounting these obstacles is a hard task. From a Japanese perspective, remaining under the US security umbrella, continuing to export to the United States, and maintaining a focus on the WTO-centered global trade system is a path of less resistance. There is no guarantee that Japan will continue along in this manner, but it would take major domestic and international political and military changes to move Japan onto a significantly different trajectory.


Table 1: Cases brought by Japan under the WTO


Case Number/Date


United States – Imposition of Import Duties on Automobiles from Japan Under Section 301 and 304 of the Trade Act of 1974

July 19, 1995

Settled bilaterally.

Brazil – Certain Automotive Investment Measures

July 30, 1996

Pending consultation.

Indonesia – Certain Measures Affecting the Automobile Industry

WT/DS55 & 64
October 4, 1996

Panel ruled in favor of Japan.

United States – Measures Affecting Government Procurement

July 18, 1997

Panel suspended at the request of the complainants.

Canada – Certain Measures Affecting the Automotive Industry

July 3, 1998

Panel ruled in favor of Japan; under appeal.

United States – Anti-Dumping Act of 1916

February 10, 1999

Under panel consideration.

United States – Anti-Dumping Measures on Certain Hot-Rolled Steel Products from Japan

November 18, 1999

Under panel consideration.

Sources: Ministry of International Trade and Industry, Japan; World Trade Organization


Table 2. Cases brought against Japan under the WTO




Tax on Alcoholic Beverages

EU(WT/DS8), US(WT/DS11), Canada(WT/DS10)
September 27, 1995

Appellate panel ruled against Japan; Japanese modalities for implementation of the panel report were accepted by the complainants. Arbitrator determined reasonable time of implementation.

Measures Affecting the Purchase of Telecommunications Equipment

August 18, 1995

Settled bilaterally.

Measures Concerning Sound Recordings

Measures Concerning Sound Recordings

February 9, 1996

May 24, 1996

Settled bilaterally.

Settled bilaterally.

Measures Affecting Consumer Photographic Film and Paper

June 13, 1996

Panel ruled in favor of Japan.

Measures Affecting Distribution Services

June 13, 1996

Pending consultation.

Measures Affecting Imports of Pork

January 15, 1997

Pending consultation.

Procurement of a Navigation Satellite

March 26, 1997

Settled bilaterally.

Measures Affecting Agricultural Products

April 7, 1997

Appellate panel ruled against Japan; Japanese modalities for implementation under consultation.

Tariff Quotas and Subsidies Affecting Leather

October 8, 1998

Pending consultation.

Sources: Ministry of International Trade and Industry, Japan; World Trade Organization


Table 3. Cases in which Japan participates as a third party




Canada – Measures Affecting the Importation of Milk and the exportation of Dairy Products

October 8, 1997

Panel ruled in favor of complainant; modalities for implementation accepted by the complainant.

EU – Measures Affecting the Exportation of Processed Cheese

October 8, 1997

Pending consultation.

EU, United Kingdom and Ireland – Customs Classification of Certain Computer Equipment

US(WT/DS62, 67, 68)
February 11, 1997

Appellate panel ruled against the complainants.

Brazil – Measures Affecting Payment Terms for Imports

January 9, 1998

Pending consultation.

United States – Harbour Maintenance Tax

February 6, 1998

Pending consultation.

Turkey – Restrictions on Imports of Textile and Clothing Products

March 21, 1996

Appellate panel ruled in favor of the complainants; modalities of implementation under consultation.

United States – Tax Treatment for "Foreign Sales Corporations"

November 18, 1997

Panel ruled in favor of complainant; modalities of implementation under consultation.

India – Measures Affecting the Automotive Sector

October 6, 1998

Pending consultation.

India – Import Restrictions

October 29, 1998

Pending consultation.

India – Measures Affecting Customs Measures

EU (WT/DS150/1)
October 30, 1998

Pending consultation.

United States – Measures Affecting Textiles and Apparel Products

EU (WT/DS151/1)
November 19, 1998

Pending consultation.

Canada – Patent Protection of Pharmaceutical Products

December 19, 1997

Panel ruled in favor of complainant; modalities of implementation under consultation.

United States – Anti-Dumping Act of 1916

June 9, 1998

Panel ruled in favor of the complainant.

United States – Sections 301-310 of the Trade Act of 1974

November 25, 1998

Panel ruled against the complainant.

United States – Section 110(5) of the US Copyright Act

January 26, 1999

Under panel consideration.

United States – Import Measures on Certain Products from the European Communities

March 4, 1999

Under panel consideration.

Korea – Measures Affecting Government Procurement

February 16, 1999

Under panel consideration.

EU – Anti-Dumping Duties on Imports of Cotton-Type Bed-Linen from India

August 3, 1998

Under panel consideration.

United States – Safeguard Measure on Imports of Lamb Meat from Australia

July 23, 1999

Under panel consideration.

Thailand –Anti-Dumping Duties on Angles, Shapes and Sections of Iron or Non-Alloy Steel; H-Beams from Poland

April 6, 1998

Under panel consideration.

United States – Anti-Dumping Measures on Stainless Steel Plate in Coils and Stainless Steel Sheet and Strip from Korea

Korea (WT/DS179)
July 30, 1999

Under panel consideration.

United States – Import Prohibition of Certain Shrimp and Shrimp Products

India, Malaysia, Pakistan and Thailand(WT/DS58)
October 8, 1996

Appellate panel ruled in favor of the complainants; modalities of implementation under consultation.

United States – Measure Affecting Government Procurement

June 20, 1997

Panel suspended at the request of the complainant.

Hungary – Export Subsidies in Respect of Agricultural Products

Argentina, Australia, Canada, New Zealand, Thailand and the United States(WT/DS35)
March 27, 1996

Settled, pending grant of waiver.

Sources: Ministry of International Trade and Industry, Japan; World Trade Organization.



Allen, G.C., (1946), A Short History of Modern Japan, 1867-1937, London: Allen & Unwin.

Asian Development Bank, (2000), ADB Clarifies Position on Recent Report, News Release No. 26/00. Manila: Asian Development Bank. 21 March.

Bergsten, C. Fred, (2000), The New Asian Challenge, Working Paper 00-4, Washington: Institute for International Economics. March.

Cheong, Inkyo, (1999), Economic Integration in Northeast Asia: Searching for a Feasible Approach, Working Paper 99-25, Seoul: Korea Institute for International Economic Policy. December.

Hunsberger, Warren S., (1964), Japan and the United States in World Trade, New York: Council on Foreign Relations.

Ikenberry, G. John, (2000), 'The Political Economy of Asia-Pacific Regionalism', East Asian Economic Perspectives, Vol. 11 (March), 35-61.

International Financial Institution Advisory Commission, (2000), Report of the International Financial Institution Advisory Commission, March.

JETRO, (2000), Report on Closer Economic Relations Between Japan and Mexico, April,

Kelly, Paul, (2000), 'The Mega-Tiger is Now Our Main Game', The Australian, 8 March.

Kuroda, Haruhiko, (2000), 'Speech', Canberra: Australian National University, 17 February.

Lee, Kyung Tae, (2000), 'Economic Effects of and Policy Directions for a Korea-Japan FTA' paper presented at Toward a Korea-Japan FTA: Assessments and Prospects, Seoul, Korea, 24 May.

Lockwood, William W., (1954), The Economic Development of Japan, Princeton: Princeton University Press.

Ministry of International Trade and Industry, (1999), Is the Comprehensive Approach a Road to Success in Seattle?, November,

Morishima, Michio, (1982), Why Has Japan Succeeded? Western Technology and the Japanese Ethos, Cambridge: Cambridge University Press.

Noland, Marcus, (1994), The Implications of Asian Growth, Working Paper Series 95-5, Washington: Institute for International Economics.

Noland, Marcus, (1998), 'Statement', House International Relations Committee Hearings on The Financial Crisis in Asia, 4 February,

Noland, Marcus, (2000a), Avoiding the Apocalypse: The Future of the Two Koreas, Washington: Institute for International Economics.

Noland, Marcus, (2000b), Economic Interests, Values, and Policies, paper presented to the National Intelligence Council - Federal Research Division, Library of Congress conference on East Asia and the United States: Current Status and 5-Year Outlook, Washington, 17 February,

Stiglitz, Joseph E., (1998), 'More Instruments and Broader Goals: Moving Toward a Post-Washington Consensus', WIDER Annual Lectures 2, WIDER: Helsinki.

Stiglitz, Joseph E., (1999), The Korean Miracle: Growth, Crisis, and Recovery, paper presented to the International Conference on Economic Crisis and Restructuring in Korea, Seoul, Korea, 3 December.

World Bank, (1993), The Asian Miracle, Washington: The World Bank.

Yamazawa, Ippei, (2000), 'Toward Closer Japan-Korea Economic Relations in the 21st Century' paper presented at Toward a Korea-Japan FTA: Assessments and Prospects, Seoul, Korea, 24 May.



1. See Allen (1946), Lockwood (1954), Hunsberger (1964), and Morishima (1982) for informative economic histories.

2. Ironically, the 'unequal treaties' which until 1899 severely limited the Japanese government's ability to impose import tariffs may have actually fostered Japan's development by forcing the country to specialize along the lines of its comparative advantage. The limitation on tariffs also encouraged the use of other policy tools such as low-interest loans and government procurement preferences for 'strategic' industries, establishing a precedent which would continue for a century.

3. Takahashi's policy was similar to the one later advocated by John Maynard Keynes in his 1936 treatise The General Theory on Employment, Interest and Income, though by the time the Keynes' book was published, Takahashi was dead, murdered by a group of rebellious young officers.

4. This was for several reasons. After the war, left-wing ideologies flourished in reaction to the nationalist ideology promoted by the military regime. Moreover, as a 'big country' and one without a lot of resources for study abroad, Japanese intellectuals adopted English to a lesser extent than those in smaller countries and had relatively few opportunities for education abroad and direct exposure to foreign intellectual trends. As a consequence, some peculiar strains of Marxism developed in Japan, including in the economics profession. The highly bureaucratic nature of the Japanese university system has generated enormous inertia in staffing, and many university economics departments remain heavily Marxist. For these and other reasons, there has been relatively little interaction between professionally trained economists and those actually making economic policy in Japan.

5. A number of countries invoked Article 35, permitting them to withhold some membership privileges, typically in order to apply discriminatory quantitative protection. Australia was among these countries, and did not stop invoking Article 35 until 1964.

6. Welcome to the wild and wacky world of trade policy in which everything has a three letter acronym. For those who think that there is anything new under the sun, see Hunsberger (1964) Table 7-10 which lists Japanese goods subject to GATT-inconsistent price and/or quantity restrictions in a number of markets in 1960, including in the US and Australia.

7. Just the opposite: The developing countries believed that they had been taken to the cleaners during the Uruguay Round, the previous round of negotiations, and were skeptical about taking on further trade liberalization commitments, and far better prepared to defend their interests in these negotiations. Similarly, Asia was still recovering from its financial crisis, and policymakers there believed they already had enough issues with which to grapple. Japan showed its lack of interest in further trade liberalization by blocking the Early Voluntary Sectoral Liberalization (EVSL) effort in the Asia Pacific Economic Cooperation forum (APEC) by opposing forestry and fisheries liberalization. And in the US, President Clinton has been unable to secure 'fast track' trade negotiating authority from the US Congress.

8. The US also pushed for a number of "immediate deliverables" such as a second information technology agreement, government procurement transparency, and an e-commerce tariff moratorium.

9. The Clinton Administration's behavior in Seattle was perplexing. It sought to promote the labor and environmental issues. But President Clinton's statement in Seattle that he would like to see economic sanctions used against countries not meeting labor standards, took his cabinet members in Seattle by surprise, and destroyed any possibility of making progress on the issue. Indeed, conversations with a number of developing country negotiators indicated that the President's remark, together with the behavior of the demonstrators strengthened their resolve to resist US demands, with some regarding the demonstrators as an officially sanctioned attempt to physically intimidate foreign negotiators.

10. The de facto Australian-led Cairns Group is an international coalition of self-identified non-subsidizing agricultural exporters. When China enters the WTO, it could be expected to side with Japan and the EU against agricultural trade liberalization. Potential future supporters of agricultural liberalization could include Russia and the Ukraine.

11. See Kelly (2000) for an Australian interpretation of the renewed Asian regionalism.

12. Discussion of these possibilities preceded the fiasco in Seattle. Japan has maintained that it was approached by all of its potential partners, though in the South Korean case there is some disagreement on this point.

13. See JETRO (2000) for a discussion of a possible Japanese FTA with Mexico.

14. Lee (2000) contains a wide-ranging discussion from the Korean perspective, while Cheong (1999) summarizes the underlying technical model.

15. Yamazawa's model is a conventional Walrasian CGE embodying the assumption of constant returns to scale in production, with two alternative macro 'closures.' It has eleven sectors and seven regions. The underlying data is taken from the Purdue University GTAP project. This means that quantitative restrictions such as those existing in the agriculture or textile and apparel sectors have been converted to tariff-equivalents. Cheong provides even fewer details about his model.

16. Many in Asia regard the IMF as a front for the US government and do not distinguish between the actions and positions of the two entities. In part this reflects ignorance, but in part it is an understandable response to the predominate influence the US wields in the Fund, and the fact that in the case of South Korea, the Fund program conditionality included items of direct mercantilist interest to the US and Japan of questionable relevance to the financial crisis.

17. Like many of us, the President later changed his tune, in a 14 September 1998 speech to the Council on Foreign Relations describing the Asian crisis as "the biggest financial challenge facing the world in a half century."

18. The US participated in the 'second line of defense' associated with the second IMF program in Thailand. However, even this participation was purely symbolic inasmuch as the US Treasury fought the actual use of 'second line' funds and has never disbursed a dime.

19. Joseph E. Stiglitz, at the time the chief economist of the World Bank, contemporaneously put forward serious criticisms of the IMF programs (Stiglitz 1998, 1999). See Noland (2000a) Chapter 6 for a detailed analysis of the Fund program in South Korea.

20. In the interests of brevity these statements blur distinctions among Asian countries. In Indonesia, in particular, some segments of the society actually welcomed the IMF, which was regarded as less cozy with the Suharto regime than the World Bank. In possibly the other extreme, there was a widespread view in South Korea that the IMF program was a deliberate attempt to subvert the South Korean economy which was believed to pose a threat to the US in sectors such as automobiles.

21. Apart from emergency lending by the Asian Development Bank, pre-existing regional institutions did not play major proactive roles in the crisis. Currency swap and repurchase ('repo') agreements among the central banks were swamped by the crisis. APEC not ASEAN were largely developed by their members' foreign ministries; their finance ministries (in particular the US Treasury in the case of APEC) have remained unenthusiastic, and neither organization has a highly developed financial component. Rhetorically, at least, both organizations have continued to support liberalization, however, and they may have served to constrain backsliding.

22. The 'old' Miyazawa Initiative was a 1980s plan to promote domestic demand. The government of Japan subsequently announced that beyond the 'New Miyazawa Initiative' an additional -2 trillion would be made available for sovereign loan guarantees. This money, if disbursed, would offset the roughly $30 billion of net lending that Japanese banks withdrew from the region in 1998.

23. Japan followed this up in 2000 with proposals for debt relief for the world's poorest countries.

24. See Asian Development Bank (2000). ADB President Tadao Chino later tried to clarify, stating that there may be a role for an AMF but that the IMF should remain the lead agency in handling future crises (IMF, Morning News, 12 April 2000).

25. Not surprisingly Thailand has emerged as Japan's most reliable ally in this regard. See, for example, the reported remarks of Deputy Finance Minister Pisit Leeahtham at the ADB's annual meeting (Dow Jones, 5 May 2000).

26. Prior to the Asian crisis, a number of central banks had established currency swap and repurchase ('repo') agreements, but these were easily swamped by the crisis. Agreements among the members of the organization of East Asian and Pacific Central Banks and the organization of Southeast Asian Central Banks were deepened and expanded in January 2000 and once again in May 2000.

27. See, for example, Noland (1998).

28. Frankly, the Treasury position is unclear on this point. Some have interpreted this ambiguity as reflecting a desire by the Clinton Administration in general, and the Treasury, in particular, to pre-empt the Meltzer Commission report while at the same time preserving support from Congressional members concerned about labor, human rights etc. On this point, the Meltzer Commission report's majority statement would abolish policy conditionality 'the IMF would not be authorized to negotiate policy reform' while the minority dissent defends this practice, without specifying the policies on which it is appropriate to condition IMF lending.

29. Japan has a history of trying to push the international financial institutions toward more interventionist policies. In the late 1980s and early 1990s, MOF co-sponsored seminars with the IMF in which Japanese representatives pushed the virtues of capital channeling to developing country policymakers. At the same time, MOF underwrote World Bank research activities which yielded the controversial 'Asian Miracle' study (World Bank, 1993), and financed a second World Bank project along these same lines in the wake of the Asian crisis. Contemporaneously, MOF underwrote the establishment in Tokyo, not Manila, of the Asian Development Bank Institute, a think tank charged with developing an alternative development paradigm.

30. The quota constraint on borrowing was bent for Mexico in 1994 under US pressure, and was broken dramatically during the Asian crisis, when South Korea was permitted to borrow nearly 20 times its quota.

31. In his speech to Manila Framework group, Kuroda argued that 'a reassessment of the quota distribution to reflect the changes in the global economy is urgently needed' (Financial Times, 22 March 2000), a position reportedly reaffirmed by Minister of Finance Kiichi Miyazawa and Bank of Japan Governor Masaru Hayashi in the IMF's International Finance and Monetary Committee the following month (Dow Jones, 16 April 2000).

The real problem appears to be overweighting of Europe. Japan's economy is half as large as that of the US or EU, but its quota is one third of America's and only 20 percent of Europe's (Bergsten, 2000). The problem with quota reallocation would not be giving Asia a greater share, it would be how to reduce the European share while preserving the historical prerogatives of individual countries. Simply treating the EU (or, alternatively, the ECB members) as a single member could result in the European quota exceeding that of the US. This would not only be unacceptable to the US on diplomatic grounds, in theory it would require moving the IMF and World Bank headquarters to Brussels (which no one wants) since the charter states that the organizations' headquarters must be located in the capital of the largest member.

32. In the end only Thailand voted for Sakakibara, while China supported Koch-Weser, and the others, following the US example, abstained.

33. To cite a mild example, while in the midst of 'campaigning' for the job, Sakakibara publicly blasted Bank of Japan Governor Hayami as 'incompetent' and called for Hayami's resignation. Sakakibara would presumably need the Bank of Japan's support to get the Managing Director position. Some have speculated that Sakakibara's ultimate goal is Hayami's job — not Camdessus'.

34. Sakakibara said as much himself, describing his candidacy as 'symbolic' (Reuters, 10 March 2000) and stating that Japanese authorities had launched his candidacy despite knowing 'that the chance of my getting the position was very low' (Financial Times, 24 March 2000). The fact that Japan promoted such a controversial figure could be interpreted as an indication of just how weak the Japanese pool of potential candidates for important international positions actually is.

35. The problem for Japan is that given the quota weighted voting system, there is not another Asian country (with the possible exception of China) which could provide major support for a Japanese candidacy at the IMF in exchange for Japanese support in the ADB.

36. On this point, see Noland (2000b).

37. Ikenberry (2000) contains a useful discussion of these issues.


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