Following is a transcript of the press conference:

PRESS CONFERENCE BY U.S. TRADE REPRESENTATIVE ROBERT B. ZOELLICK
1:15 P.M., APRIL 11, 2002
U.S. EMBASSY, TOKYO, JAPAN

AMBASSADOR ZOELLICK: Thank you. Just one slight correction -- it's not my first visit to Japan. I've been to Japan many, many times, but it's my first visit to Japan in this post, which is probably what you meant.

First, I want to thank the people who I had a chance to meet with today because given the fact that the Diet was in session it was very generous of them to make the time. I had a chance this morning to have breakfast with Fukada-san and Takenaka-san and then I had a meeting with Minister Hironuma. I had a meeting with Mr. Miyauchi of ORIX. And then I just came from a meeting with Minister Kawaguchi who I was delighted to have a chance to meet for the first time in her new portfolio. We actually met when she used to work in Washington. There were four points that I was trying to make during this brief visit. First, as all of you probably know I just came back from a trip throughout Southeast Asia and China, and I was relaying the fact that there is much attention throughout the region to Japan's economic difficulties. Japan is a strong ally of the United States. It' s a big nation. It's very important and we need it to be a leader in economic topics and that was certainly the message that I heard, whether in Thailand, Singapore, Indonesia or China.

Second, I wanted to try to share with my colleagues some of the views that I gained about the Asia-Pacific from the stops on that visit. We've had a long, constructive relationship working with Japan, with ASEAN. Obviously, China is an important country to both of us and so that's an area because of the briefness of the visit I hope to have some follow-up conversations with my colleagues.

Third, I wanted to discuss some of our interests in moving ahead the new WTO round. Obviously, I worked with Hironuma-san on this before, but it was my first opportunity to talk to Minister Kawaguchi about this because she just took office and it's very important, in my view, that we keep ministers involved in this WTO process if we're going to succeed.

And fourth, we obviously reviewed a series of bilateral issues. You'll be shocked to know that steel came up. In addition, I relayed our deep concern for Japan's policies on whaling. We talked about the regulatory reform initiative, in particular the focus on information technology and telecommunications. I also relayed our concern with the Japanese inhibitions or restrictions on our apple exports, which we are in the process of bringing to a WTO case. And similarly, we continue to have problems with access to the Japanese poultry market where we believe there are violations of the rules for scientific basis for inspections. So those were the subjects that we covered, and I'd be pleased to take your questions. Yes.

QUESTION: My name is Brendan Pearson from The Australian Financial Review. I was interested in the Asian part of your tour, now that you've concluded the Asian tour. Ten years ago when you were with Secretary Baker there was concern in America about an exclusionary East-Asian zone, East-Asian economic caucus. I wonder how the U.S. regards the evolution of ASEAN plus 3 plus other versions of an East Asian community which have been proposed -- including by Japan -- and whether there's any concerns in the U.S. that this may evolve in an exclusionary way.

AMBASSADOR ZOELLICK: It's a good historical question. We are really not concerned about exclusion. The prime message that we're receiving is a strong interest for inclusion. As you probably know, one of the reasons that I met with my ASEAN ministerial colleagues -- and I might add that it was the first time we had a formal meeting in ten years -- was that I wanted to emphasize how important we saw ASEAN as a region, how we wanted to encourage the ASEAN free trade agreement to try to draw those five hundred million people together and part of it was to increase the appeal of ASEAN for investment. As I reviewed with them and with others, if you look at the investment statistics in recent years, there's been a sharp drop-off in the ASEAN region after the financial crisis. The numbers have very much gone in the direction of China. That is positive for China and the U.S. relationship with China and the relations with others with China so I don't want to in any way to suggest that that is a troublesome development.

But we also want investment to go to the ASEAN countries and indeed your question gives me the opportunity to make crystal clear a point that I made in Thailand, but I've seen in some articles has been inaccurately reported. We think that the free trade agreement that China's discussed with the ASEAN countries is a good thing and we think the ASEAN free trade agreement is a good thing. We're not mercantalists. We welcome deeper integration. The United States accounts for 20-25% of the world's GDP. We are going to operate in all markets and, frankly, one of the things that I was emphasizing to my Japanese hosts is: As you see the United States growing again and you see the United States as a relatively open economy with over a trillion dollars of imports and a $437 billion trade deficit in goods, we need others to play a role of growth. And frankly, part of my message today, as well, was that I hope Japan will resume growth in a serious long-term way so it also can play a role throughout Southeast Asia and with China. We need to have an integration, an effective economic integration -- not a series of sort of bipolar interconnections. So obviously one of the big changes over the past ten years was, I think, there was a lot of talk in the region about the United States' economic difficulties. I argued then and I argue now that the United States is a relatively open society and it's capacity to regenerate itself is a strength, not a weakness, that's often misunderstood out here because they hear all the criticism and I think the productivity statistics over the course of the 90s bear that out. I do believe the developments in China have been extremely impressive, as I said yesterday, from the point of view of having a strong alliance with Japan, we frankly hope that Japan deals with some of the underlying structural changes so that it can get back on the growth path as well.

QUESTION: Aritake, BNA. You mentioned that you talked about Japan's difficulties with the ASEAN leaders. In your opinion, what does this contribute to rev up its economy back onto a healthy track? That's my first question. Now, the second one is steel. Something you cannot avoid. My question is, I assume from what I heard from METI people, there was no progress whatsoever in discussions regarding the planned U.S. sanctions -- 30 percent tariffs -- in today's talks with Mr. Hiruma. And in that case, why you are here in Japan? Is this just to let the Japanese know you are here and, you know, the next step is that the U.S. will actually do it?

AMBASSADOR ZOELLICK: OK, well, on the first one, and interesting enough, your two questions in my view are slightly related. On the first one, Japan has had an extraordinarily successful economy in the 20th century and the talents and ingenuity and capabilities of its people and its manufacturing sector are extraordinary. On the other hand, there's been a rigidity to this economy and I personally believe the fundamental problem is that the structures that were created in the 20th century have made it harder to reallocate capital from old and less productive industries to leading edge sectors and the answer to the question from The Australian Financial Review -- if I recall -- is that the part of what I was suggesting drove the United States productivity was the reallocation of capital. There's a lot of capital still allocated in Japan to industries that are not going to be in the forefront of their future, but they have various connections. And one of the things that I think, if you look at this in an interconnected sense, is that number one, as Chairman Hubbard of the CEA have said and others have said, is that Japan will need to deal with the bad loan problem so that it can get those assets off the books, so that it can reduce the huge discount and valuation of assets related to the uncertainty of them, and get those assets in the hands of some who might actually use them in a more productive fashion and free up some of the capital that's been tied up in the financial system that way.

Second, it needs to deregulate and make structural reforms. That's part of the agenda that we were talking about, so that capital can flow to other sectors of higher productivity. And the longer Japan waits in this, the more it will find itself having difficulty keeping up with things like information technology, and e-commerce and the whole revolution in business models that you've seen in the course of the late 90s.

And, third, obviously part of it is not to have a deflationary monetary policy, which again goes to the cost of capital. So I fundamentally see this as a question of allocation of capital. Having said that, Japan has political constraints like we all do. I know this prime minister has stated an intention to move towards reform more seriously than ministers have in the past. I had a chance to, for example, Minister Takenaka is obviously making a strong effort in this regard and part of my goal was to try to get a better sense of what's occurring in that context and to link it back to Southeast Asia. Everyone wants Japan to be successful and no one wants Japan to slip and I can't emphasize this enough is that Japan is a vitally important partner for the United States: politically, economically, and security terms. And we want it to come to grips with these problems. Obviously, Japanese will come to this in their own way, but if you ask me, those are the suggestions that I would make.

Second, on steel. It's related in that some ways the Japanese policy towards steel reflects some of the old thinking about the industrial economy and, frankly, I think, time might be better spent focusing on some of the new productive sectors. And I think one point that I've tried to engage throughout my visits here -- and I should say this was not really a topic much in ASEAN because most of them were excluded, it was a modest topic in China, but I knew it would be important here -- is that the actions that the United States took on safeguards, and I'll explain those a little bit more, I think have drawn attention to the fact that there's a deeper underlying problem in the international steel market. And as my Japanese colleagues noted, the EU has moved to safeguards because once the United States is no longer the market of first and last resort, no one else wants to do the job we've done. The Canadians have talked about the same thing. And I think the benefit of this is it might get us as a world economy to face up to the true problems in the international steel industry.

Now, in Japan's case, its record on steel has been deeply disappointing. If you look at the basic strategy of Japanese steel, it's been to shelter the domestic market through anti-competitive practices and then to try to sell low cost steel in external markets through exports. That's been the strategy Japan has relied on and I think part of my message is that's not going to be a successful 21st century strategy. Now, let me back this up with some neutral facts. In 1999, the OECD did a report on the openness of major economies

for steel. The United States had a steel penetration capacity of 30%, the EU had 16%, and Japan was 9%. And Japan, in over the past years, stays in the range of 7-9% and never even gets above 10%. Now then you ask, well, what about my assertion that the market was closed internally? Between 1970 and 1998, the five major Japanese steel producers did not change their market share by 1% in any one year. That's 28 years. And obviously, there were distribution restraints and product certification requirements. I've been in the private sector. I've never seen a market where the percentage of the market share doesn't change, particularly over the course of 28 years.

Now, let's look at the Bank of Japan's steel price index. When steel prices were collapsing around the world in the late 90s, the Bank of Japan's own steel price index barely budged. The Japanese steel in the United States was discounted 10-30%. Another source, so these aren't mine, MITI's study concluded in 1999 that Japan had about 15-33% net million tons of excess capacity and the analysts estimate were that it was about 20%. And this is not just an issue Japan faces with the United States because if you look around the world, the anti-dumping orders that Japan faces are with Argentina, Brazil, Canada, Mexico, Venezuela. So this is a deeper problem and it's what led President Bush to propose last year that we try and get at this with international negotiations to go at the global overcapacity and these unfair practices. Now, if you're a country like Japan, you like to keep the system as it is, just like you like to keep the domestic system as it is. And part of our message is "That won't work anymore."

Now, what we did is to use safeguards that are in accordance with WTO rules to give the United States a breathing space. And so, you use the word "progress." This may depend over time. I think progress partly goes for an explanation and because Japan is a good economic partner, I'll give you a couple of the highlights of the explanation.

We are committed to following the WTO rules and procedures. That means that these safeguards are temporary, they will phase down, we expect our industry to use this period to restructure and become more competitive. And I might note, that we're not the only country in the world that uses safeguards. There's some 20 in place, including illustrious countries over the past three years like Japan, Argentina, Brazil, India, Korea. Now, another statistic that has been thrown around is people just blithely say, "Well, yes, but the United States steel imports haven't increased." Well, if you look at the period from 1996-2000, U.S. steel imports increased in absolute terms in all ten product lines where we found injury and took action. And there's been a WTO ruling that says that time period is an acceptable period to look at. In addition, of the ten products, seven had their highest absolute level of imports in the year 2000. And for the other three, it was the second highest level. So part of what I was here to explain is how we see these steel market issues.

Second, when you actually look at the numbers of the safeguards, our safeguards cover only about 53% of the steel that Japan exports. So you start out with some 600 million dollars of Japanese steel imports that are not even affected by this.

Third, under the WTO rules, we are taking part in consultations with Japan and other countries. One of the aspects that we have focused on is the ability to develop certain exclusions for products because there are certain products that are not made in the United States or there's not a good competitive availability, so -- as many of you know -- there were recent decisions related to this rather large amounts for Korea and Australia. And in the case of Japan, a little reported fact is that when we first announced the exclusions, there were 16 granted to Japanese companies in March and this month -- in fact in the past week -- there was another five granted. So the 21 exclusions for Japanese companies, frankly, are larger than any other country has granted/gotten in exclusions. In addition, and this a point that I said, is that we have established a process over the course of the coming months to review the possibility of other further exclusions.

Now, the fourth and final point is that we respect the right of any country to challenge our interpretation in the WTO. I'm in the process of challenging Japan in some actions starting with apples and if there's others, we'll challenge in other categories. What we are quite adamant about is that it is not the place of any country to make a unilateral WTO interpretation. It is not the place of any country to avoid having a neutral panel resolve a disagreement and then come up with their own retaliation amount. And I cautioned that if countries go in that direction, it is a dangerous prospect for the WTO. And frankly, as a country that right now has a trade deficit with Japan of some 69 billion dollars, I'm not sure that would be a productive process to go. But I want to come back to the bigger picture here.

We're trying to both use the safeguards in a WTO consistent fashion for the United States. But we're trying to get at the underlying problem. In a way, your question crystallizes this. I really did not find a huge amount of interest in steel throughout Asia, despite all the questions that you gentlemen and ladies asked about it. In fact, in the ASEAN economic ministers' meeting, it didn't even come up. Now, what I have found is a question about sources of global growth. And here, again, part of the message that I was trying to relay through my visit is the United States economy is recovering again. The dollar is staying relatively strong. I expect that our imports will increase and, indeed, as our economy recovers, steel imports may even increase. But the bigger picture/issue is that I hope Japan does not, once again, simply rely on export growth try to come out of its difficulties because ultimately that will be a mistaken strategy for East Asia, which will have to deal with whatever the currency policies of Japan. It will be difficult with the United States and ultimately it will be difficult for Japan because Japan has to come to grips with these fundamental structural problems.

QUESTION: Hi, Mr. Zoellick. Jim Brooke of The New York Times. Your prior stop to China has somewhat eclipsed Japan, I think, in the minds of many Americans. The Chinese trade surplus with us, as you know, is enormous and a couple of years ago surpassed that of Japan's trade surplus with us. JETRO has gone back to its original mission of promoting exports this year for the first time. How do you evaluate the openness of the Japanese economy now for American trade and investment?

AMBASSADOR ZOELLICK: As I said, in some very good meetings I had in China with everything from Deputy Premier Wen to the MOFTEC officials to some rather interesting meetings with some of the younger business people in China that are developing a whole new private sector: I have great regard for what China has accomplished over the past twenty years. I first visited China when I lived in Hong Kong in 1980, so I've seen what a difference 22 years has made. And I think China has to be complimented for having built openness into its development strategy. And if you compare it with some other developing countries, it's a striking difference. Now, having said that, there's a long way to go. But one of the reasons that, frankly, I was very pleased with one of our accomplishments last year is that the President put a high priority on getting China and Taiwan into the WTO and that was not foreordained, as anybody who's watched this whole process go forward. It was clear to us that China wanted to use WTO accession to develop its own rule of law, it's competition, it's transparency to break down barriers within China.

So part of my visit there was to focus on how we can work with the Chinese to take advantage of this and help them help themselves. Now, having said that, there are areas where the Chinese have not yet fulfilled their WTO obligations and in the speech that I gave I emphasized that our preference is to try to work with them in that process. We do have a huge bilateral trade deficit, about $80 billion with China -- so we import about $103-104 billion, exported a little bit over $20 billion. And I emphasized to them that, given the economic conditions I just mentioned here too, where we're going to be growing again and we're going to be bringing in imports, it's very important that I be able to point out that they are moving ahead in their implementation pattern. But I don't see that that has to be done adversarial. And again, I come back to the message here. I mean, you know, we're a big country. We'll accept if people want to take us to WTO dispute resolution processes, but one of the things I suggested to the Chinese is "One doesn't have to rush off to these" and we don't have to rush off to them -- if we create an environment where we work with these. You know, I've been in office about a little bit less than a year and a half or so, and -- you know -- and I did not rush to bring a bunch of WTO actions. I mean, our friends in Europe have clearly -- as they have acknowledged to me been in violation of biotech approvals. I didn't rush to bring an action to them. So all these issues are ones where part of what we're trying to do is get the momentum for trade liberalization. We realize this safeguards issue is a sensitive issue and, to come back to this gentleman's question, I think it helps to discuss these and explain the logic and ultimately we will accept WTO determinations.

QUESTION: Anthony Rowley, Business Times. Could you offer your views on the possibility of a U.S.-Japan free trade area? In particular, the suggestion that was made recently by the head of the Japan External Trade Organization in a speech in New York, I think, that there should perhaps be a free trade area, which concentrates purely on services between the U.S. and Japan. And also, could you say something about the possibility of other U.S. free trade areas with other Asian countries, including Singapore?

AMBASSADOR ZOELLICK: Was it Hatakeyama-san from JETRO? My former colleague, who I have great respect for. I think the problem, you know, in some ways... If we could use a free trade agreement to help Japan with its reform, it would be a very useful thing. But the reality is Japan has a pretty restrictive agriculture market, to be polite. And we, unlike the Europeans, have only tried to move forward with comprehensive free trade agreements because that's really what the WTO rules require. And so, I'm afraid that unless there was a rather large shift in thinking here about agriculture, I think that's not likely to be a course that we can follow. But, to be honest, to come back to one of the points I mentioned in my opening, we do want to work with Japan on the deregulation and regulatory reform initiatives. In fact, the reason I tried meet to the CEO of ORIX is that he's led the effort in Japan and we're trying to pick up on those ideas and bring in the business sector. So there's a lot we could do in deregulation that I hope will help on the investment side and help open up the economy and help growth and help us have an economically strong ally. Because the potential to me -- the education level, the technology level -- it's all here. It's just the system isn't working right.

Now, throughout Asia, when President Bush took office, he emphasized our interest in trying to move ahead globally, regionally, and bilaterally. So globally, we obviously put a lot of effort in working with the EU and Japan and others to launch the Doha negotiations and that's part of my focus here. Second, we wanted to bring China and Taiwan in, which we succeeded in doing. My third on that agenda is to try to get Russia in over the near future if they continue to make reforms. Regionally, we've obviously emphasized the free trade area of the Americas and, depending on your notion of regions, we're also talking with -- for example -- the South African Customs Union countries to see whether they might have a possible free trade agreement.

Bilaterally, we completed our Jordan free trade agreement and we got congressional action on a basic trade agreement with Vietnam. This year, I expect we'll complete our free trade agreements with Chile and Singapore. And, as you saw or probably saw -- I visited Batam and Bintan in Indonesia in part to show that this free trade agreement with Singapore could be an interconnection with openness in development in other countries. And we came up with an innovative, integrated source initiative.

When I get back, I hope that Congress will finish passage on trade promotional authorities so that the momentum that we've gained can move forward with the Congress and the Executive together. And then, frankly, we'll move to a series of bilateral free trade agreements after this. The President has already talked about a free trade agreement with Central America and that is to help those five democracies struggling with economic reforms. The Congress has encouraged us to look at South Africa, but when I was there the thought was that we would try to look at the South African Customs Union so that's South Africa, Botswana, Namibia, Lesotho, and Swaziland. We found it very constructive to move ahead with a free trade agreement with Jordan, as a Muslim-Arab country. We're looking at other possibilities in that nature and, frankly, we've long wanted to do a free trade agreement with Australia if we can clear out some of the problems we've had on the agriculture side. And so we've set up an SPS, which is sanitary and phytosanitary, committee process so in a bilateral fashion we can remove some of those. Frankly, given that I only have 200 people, that will probably be enough to move forward, but we're trying to use the same idea to leverage reform elsewhere. So we talked about a new trade and investment facilitation agreement in Thailand. I hope to be able to have further discussions with the Philippines. So the key point is that... I know that some people are always worried "Well, does this create -- you know -- preferential agreements with one and not with others?" Frankly, we're a little behind in the game. The European Union already has 27 free trade and customs union agreements, although they've done them in a very skewed fashion where they've left out agriculture and others. And our whole strategy is to combine comprehensive free trade agreements at different levels: bilaterally, regionally, and all within the WTO system. So there you've got it in a thumbnail.

QUESTION: Takashi Koyama with The Japan Industrial Journal. You mentioned that China's FTA with Southeast Asia is a very good thing, but do you think this is possible -- is it doable? And also since China is going to have an FTA with Southeast Asia, does your country find a need to have an FTA with that area?

AMBASSADOR ZOELLICK: You really will need to talk to the countries involved about how practical it is. I saw it as a sense of direction. This is the free trade agreement between China and the ASEAN countries. I think it's going to take a while, just knowing the countries and the adjustment process. But I frankly see it as a sign by China that it wants to have a cooperative economic relationship with Southeast Asia. And this again goes to the bigger picture point: These countries all see the dynamism of China and they want to have a good working relationship. They frankly would like to try to do it as a group. And all of them are also hoping Japan will come back because they'd like to have Japan as a participant in this -- as well as in the United States, as well as in Europe. As for your second part -- was whether we're concerned about it? Whether interested? My view has always been that if the free trade agreements follow the rules -- and so they are comprehensive and they're not trade diverting -- then they move the system in the right direction. And frankly, as I've said at home, we should have made more movement on this as a country in the 90s. We didn't. And if we fall behind, it's not anybody else's fault. It's our fault. Mexico went ahead. I remember working with Mexico when it wasn't even a GATT member. It came into GATT in 1986 and I was very involved with the NAFTA process. After the NAFTA agreement, the Mexicans went on to negotiate some 9 free trade agreements with some 29 countries. Bless them. I mean, we should have been doing the same. And now we are. And so I don't object to China and Southeast Asia.

And on our part, frankly, I'm trying to strengthen our trade and investment ties with the region -- again, in a non-exclusive fashion. And I encourage the same for Japan and others -- and that goes to the bigger picture point here. In some ways, if you look at steel as a percentage of the trade numbers for this. And you know, the steel exports from China affected by this were two-tenths of one percent. I mean, it's an instinct for the capillaries, given the bigger picture here. Now, we understand the sensitivity and that's why I've talked to people about the issue and we'll follow the WTO rules and consultations, we'll use the exclusion process to try to make sure our economy isn't hurt, and try to deal with some of the sensitivities of others. But, to be honest, part of my trip was to try to focus on some of these bigger picture areas and I picked up a fair amount on that. It was good for me.