Mr. Chairman, Your Excellencies, Gentlemen:
I am very glad to have this opportunity to address you because it enables me first of all to congratulate you, the businessmen of Japan, on your country's remarkable economic achievements, achievements which are the envy of many others: steady growth averaging 6 percent per annum since 1960; exports which have grown at an average of 11 percent per annum over the same period; a remarkable capacity for product design and development; and the ability to spot what customers will want to buy several years in the future; a mastery of high technology; and a world leader in cars and electronic goods. All this against a background of low inflation, high savings and prudent fiscal policies. In short, a model and an example to much of the rest of the world.
A great deal—a very great deal—of what you have achieved has been the result of your own efforts, your discipline and the social stability and cohesion which you have created. But—and there is always a but—you have been afforded some advantages too: the help, encouragement and protection of the United States, that most generous and warm-hearted of nations in the years after the Second World War which has enabled you to rebuild almost from [end p1] scratch and to achieve such outstanding economic success; and most of all—and there is no doubt in my mind about the crucial importance of this—the existence of an open world trade system which has allowed the goods you produce so efficiently to be sold freely in the markets of the other great industrial countries. In other words, Japan's economic miracle was made possible because the rest of us were ready to keep our markets open to you, but we cannot take the free trade system and open markets for granted. We have to preserve and extend what we have achieved and Japan, as a pre-eminent economic power, has a particular responsibility in this regard. It is because I admire many aspects of your past economic growth that later in this speech I am going to be frank in suggesting a few examples of what is still expected of Japan.
Mr. Chairman, over the last eight years, the annual Economic Summits have been a remarkably successful framework within which to bring about convergence of policies to sustain growth in all our economies. That was not always so. In the first cycle of these Summits, some countries were tempted to believe that you could buy growth with a little bit of inflation. That proved disastrously and predictably wrong. The 1970s was a decade of inflation, unemployment and massive oil price rises. We talked of short-term policies, fine-tuning and other follies. The countries which survived best were those, like Japan, who did not try to offset the [end p2] impact of the oil price increase by stimulating domestic demand, but during the second cycle of Summits, from 1982 to 1986, we implemented a change in approach to economic policy of historic proportions. We concentrated on dealing with fundamentals; policies to get inflation down; sound finance; increasing competition; structural reform—that is sound, sustainable economic policies. It needed the authority of the Summits to bring about these changes and the results were seen in steady growth, low inflation, higher investment and lower unemployment.
At the Summit in Paris in July this year, we signalled that sound policies should stay sound, in particular in three major areas:
First, we must have sound financial policies. That means budget deficits should be small enough to be financed without robbing the private sector of the capital it needs—and may I remind you that in Britain we are running a surplus. It also means that monetary growth should be constrained to a rate which can support the real growth in the economy which does not lead to inflation and on this I have to say that Japan does better than Britain. You will know that inflation in Britain has risen over the last year but as a result of the firm steps the Government has taken it is now falling again and we are absolutely determined it should fall further. We shall take whatever steps are necessary to achieve that. [end p3]
The second thing we agreed at the Economic Summit is that we must continue to free-up our economies by pressing on with deregulation, privatisation, removal of subsidies and other structural reforms—just the things you referred to, Mr. Chairman.
This is an area in which Britain has done particularly well during the last ten years of Conservative government. Tax rates have been reduced; state-owned industries have been sold off. Thus, we have taken Government out of trying to run business, which it should not have been doing anyway. Trade unions have been made answerable to their members. Overall, there is far more competition than ever before and we are the better and the stronger for it.
We are well ahead not only of Japan, but also of our other European neighbours, in the extent of the structural reforms which we have undertaken.
And the third requirement is to continue the policy of reducing—and where possible eliminating—remaining barriers to trade in goods and services. Here, the outlook is far from unclouded.
We all know what needs to be done. We need to keep our markets open if we are to continue to enjoy the great surge in prosperity of the last seven or eight years. Instead, we face a real risk that the world trading system will degenerate into a patchwork of unilateral restraints, bilateral threats and inward-looking regional trading arrangements. [end p4]
United States use of Super 301, ostensibly for the purpose of opening the markets of others, is a demonstrable act of frustration. The risk is that it will prove the spark which will ignite an explosion of tit-for-tat bilateral deals with their barriers and cosy preferences. If that happens, we shall all be losers. We shall be destroying the foundation of our—and in particular your—prosperity, namely the open multilateral trading system under GATT which has served us all so well.
We need to move in the opposite direction, the direction of bringing the Uruguay Round to a successful conclusion. This means strengthening the GATT system, extending GATT rules into new areas and finding solutions to the problems of agricultural protection, of which we are all guilty.
A characteristic of our age is the extent to which we are increasingly one world in which the significance of distance is very greatly reduced and in which we are more dependent than ever before on each other. No country can any longer, in a serious sense, go it alone. That applies with particular force to the environment. Major damage has already been done to the systems which support life on our planet and we need to correct it while there is still time, but before we can decide what to do we need a much better understanding of the changes which are taking place and for that, we must have a sound scientific base. [end p5]
Japan has the expertise and the resources to make a really major contribution to environmental research and I saw some that you are doing in the Tokyo University yesterday which will benefit not just your own people but the whole world. I hope you will rise to that challenge. That would match what you are doing to help the developing countries, reflected in your outstanding contribution to Nigeria's recovery programme, which was led by the United Kingdom.
But the impossibility of going it alone applies with just as much force to economic relations between the great industrialised nations. We must not pursue policies based on narrow national or sectoral interests. Rather, we all need to implement in full the economic strategies which we have identified at successive Economic Summits as the basis for future growth. For some of us, that means acting primarily on inflation; for others, acting to open markets and carry through structural reforms.
I know that Japan has some complaints against the European Community and your excellent ambassador in London is never slow to remind me of them, but I do believe that in Europe we are firmly set in the right direction. The concept of the Single Market in 1992 is based on reducing constraints, on removing regulations, on opening markets which were previously closed not just within Europe but to the outside world. Perhaps not every member of the Community is wholeheartedly dedicated to these objectives, but I can assure you that Britain is and it is our purpose to see that they prevail. [end p6]
But it is not just to sing Europe's praises that I have come. Rather, it is to tell you with the frankness I think you will expect how we in Britain see Japan's record on market access and what it is we would like you to do.
The basic point is simple: in Britain, we have pushed ahead with structural reforms and created what I believe is one of the freest markets anywhere in the world, yet while Japan has reduced its trade barriers against manufactured goods your service industries and agriculture are still protected by a large number of restrictions and subsidies. These make it hard—even impossible—for some imports to enter Japanese markets. Not surprisingly, this causes resentment, resentment that can threaten the open world trading system by encouraging those who call for protectionism and by adding to the pressures on those of us who believe in free trade.
It sometimes seems to the rest of us that the benefits of the open trading system have been too much one way. Yes, Japan has already done a great deal—the switch of emphasis from export to domestic demand-led growth has been important and beneficial and there has been much progress in tax reform and budget consolidation.
In Britain, we believe that the most important contribution Japan can make to maintaining the open world trading system is to remove the source of the complaints by carrying through structural reform more vigorously and removing all barriers to imports. The Government can also help by pointing out that imports are an investment in keeping world trade open for Japan as well as a contribution to the quality of Japan's life. [end p7]
Let me go further. Let me give you some specific examples of what we are looking and hoping for from Japan:
First, in the United Kingdom, many European countries and the United States, priority is given to the consumer. After all, the main point of production is to meet the needs of the consumer. In the United Kingdom, there is strong competition in all sectors on prices as well as on service. Our leading retailers, such as Marks and Spencer, Sainsburys, Tesco, have a worldwide reputation for efficiency, quality and value for money. The satisfaction they give to their customers is a direct result of the competition they face. More open and unrestricted competition in Japan would enable your consumers to enjoy high-quality services at lower prices. It would help you benefit more fully from your own hard work.
Second, the tied nature of a large number of distribution outlets in Japan restricts consumer choice and increases prices. When we in Britain wish to buy a television or a hair-dryer or other things, we can find in our our local shops a very wide range of makes, including many imported ones, selling at keenly competitive prices. I believe this kind of retailing should be encouraged. Similarly, the operation of the large-scale retail stores law is a restraint on competition and limits the growth of stores which traditionally carry imports. I know that some modification is intended, but we hope it could go much further in the interests of consumers. [end p8]
And third, the obvious example of agriculture where quotas and the highest producer subsidies in the world keep imports out and prices artificially high. I understand that rice, wheat, sugar and beef are sold in Japan at several times the world price and that no less than 75 percent of the income of your farmers comes from subsidies. I know the political problems inherent in reducing these subsidies. They are not unique to Japan and in the European Community we are tackling the problem by setting legally-binding ceilings for agricultural expenditure. The result is that the surpluses have been greatly reduced. It is a nettle we all have to grasp and it is easier to justify if we are all seen to do so. Both our countries have committed themselves to establishing a fair and market-oriented system of agricultural trade through the GATT Round and it is vital we succeed.
There is an obvious contradiction between selling manufactured goods overseas on the basis of the most efficient production while refusing to buy agricultural goods from the most efficient producers. We have a saying in Britain: “What is sauce for the goose is sauce for the gander!” It may not translate literally into Japanese, but I am sure the meaning is clear.
Fourth, changing attitudes is also important. In Britain, the “Opportunity Japan” campaign which aims to double our exports in three years is doing much to change British attitudes towards the Japanese markets. Encouraging more consumerism in Japan could help [end p9] change deeply-rooted prejudices about imports. Japanese consumers are, of course, perfectly justified in discriminating on the grounds of quality and value for money. Our hope is that they should judge goods in the shops—imported and home-produced alike—solely on the basis of value for money.
Fifth, air services are another area which needs to be freed-up. We should allow airlines far more flexibility to react quickly to market demands through more liberal arrangements on routes, capacity and fares. We want more travel between our countries and action on these lines would help tremendously to secure it.
And sixth, we should like to see your financial markets liberalised much more than hitherto. Even well-established foreign financial companies still find it difficult, despite determined efforts, to get more than a toe-hold in Japanese financial markets. I cannot remember how many years it is that I have been raising with your Government the question of additional seats for British firms on the Tokyo Stock Exchange, yet that modest goal has still not been achieved. This is in total contrast to the situation in London where large numbers of Japanese banks and financial institutions operate freely in one of the most open and efficient financial centres in the world. [end p10]
There is a tendency to dismiss all these matters rather helplessly as the result of cultural differences. I do not accept this. We are not seeking to change the essence of Japan or its culture. We are looking for change in attitudes and in ways of trading. A barrier is a barrier, whether you call it a cultural difference, a tradition or anything else, and those countries who benefit most from the open trading system and enjoy steady, indeed almost permanent, balance of payment surpluses have a particular obligation to get those barriers down—and Japan is not alone in that—because at worst, they will tempt others to conclude that in the absence of such action there is no alternative but to put up equally effective barriers ourselves.
Let me emphasise very strongly indeed it is not Britain's way to put up barriers. We have fought restrictions; we have fought what is politely called “reciprocity” from becoming a governing principle of international trade, but we must be able to demonstrate that our way—the way of free trade and open markets—produces the best results for all and not just for some.
Nothing demonstrates better what can be achieved than the remarkable success of Japanese companies in Britain. There are now more than one hundred Japanese manufacturing companies established in the United Kingdom. I have visited several of them myself and they are outstanding. They employ close to 30,000 people and manufacture a wide range of products, from consumer electronics and motor vehicles to semiconductors, opthalmic lenses and machine tools. [end p11]
Britain has received over 30 percent of all Japanese direct investment in the EEC, a sizeable share that we wish to maintain and indeed enlarge. Their presence and their success in selling both to Britain and to Europe proves how very competitive production in Britain can be.
The United Kingdom has many advantages as a place for Japanese firms to invest. We have a long history of welcoming inward investment; we know that it increases competition and raises the standards of our technology and management; it creates the new jobs that we want; and the products manufactured may displace imports and contribute to our own exports. Indeed, three Japanese companies in Britain have won the prestigious Queen's Award for Exports.
And it is not only the commercial considerations which matter. Your firms have become model members of their local communities. Your British work-forces have responded well to Japanese-style management and demonstrated their skill, adaptability and loyalty. As a result of all this, your great companies have become household names in our country. Japanese-owned firms in Britain are, as far as I am concerned, British too. After all, they pay the same taxes as British companies and they are thereby entitled to the same treatment. When Nissan experienced problem [end p12] recently in some European markets, I backed them to the hilt. I argued that their cars were truly British and therefore truly European and that they should be treated by other member states exactly like other cars made in Europe—and now they are. If necessary, I will defend any other Japanese companies investing in Britain in the same way. That is what a free market means.
While on the subject of investment, can I encourage you to continue and indeed increase Japanese investment in Hong Kong. There is no better example in the world of what free enterprise can achieve than Hong Kong's remarkable success story. It is in all our interests—China's, Britain's, Japan's—to see that success continue and Hong Kong remain a prosperous society. The legal basis is there in the joint Sino-British Declaration, which guarantees that Hong Kong will continue as a capitalist and democratic entity for at least fifty years after 1997. What Hong Kong needs above all following recent events in China, is the clearest possible demonstration that the rest of the world continues to have confidence in its future. The best way Japan can do that is to go on building up its stake in Hong Kong, particularly in the manufacturing sector.
Mr. Chairman, by concentrating as I have on economic and trade relations, I do not want to leave you with the impression that relations between Britain and Japan are one-dimensional. In the [end p13] last few years, they have grown far beyond that with much wider contacts in every field, particularly political and cultural, and I for one want to see the process continued. I am particularly pleased that many of your companies have generously provided financial support for “United Kingdom '90” , the British cultural festival to be held in Japan in the autumn of 1990 and for the Japan festival in Britain in 1991. Your enthusiasm to help broaden the links between our countries is most welcome but however broad our horizons, however good our intentions—and they are—the contrast between the openness of the United Kingdom economy and the restrictions that remain in Japan will continue to affect our relations until the problems I have mentioned have been dealt with. A solution must be—and I believe will be—found, not just for the make of Britain and Japan but because so much else, indeed the future prosperity of the Free World, depends upon it.
May I therefore conclude by re-echoing the words which your Chairman used in his introduction because they are exactly why I am here in Japan. He said: “The United Kingdom and Japan must stand together as they face and solve their own problems and as they cooperate in a new partnership and contribute to the creation of an open, dynamic, economic environment for the world.” I come here in that spirit, which I hope will imbue the 1990s and with a spirit of friendship between Britain and Japan.
May I thank you for your kindness and your hospitality (applause).