Mr. VANIK. I would like to say this with respect to Mr. Schulze's comment with respect to the resolution. I think this committee has not taken the political course. I regret that that statement was made. I think the resolution is an effort to clear up the position of Congress and do the doable.

For example, I think that we are setting forth our displeasure and offering to a trading partner a notice, by this Congress, that we simply will not tolerate and cannot exist with and cannot preserve our customary trading relationship with a trade imbalance that persists in this manner.

One of the objectives is the notice that it gives to our trading partner. The second advantage is that it does not dictate to our trading partner how it is to bring about a satisfactory result. It leaves that as a matter of flexibility.

It would be very difficult for us in this committee and in this Congress to criticize automobile imports or steel imports or electronic imports or imports of any kind if our accounts were in better balance. I think that the important advantage of this resolution is that it leaves it to the discretion of our trading partner to come up with a solution.

I believe that our trading partners have been as concerned about the feelings in Congress as they are with the feelings in the executive branch of the Government. They realize and must realize that the Congress can retaliate with legislative solutions, which I do not think are the best solutions, which may express emotion or passion. They realize that that stands there as a possibility if they fail to do something about this imbalance in trade.

So, I think from the standpoint of constructive trade legislation this procedure by which we advise a trading partner about the unacceptability or inadvisability or the folly of pressing us with these tremendous imbalances of trade is a warning to our trading partner that they should respond constructively.

It gives Japan the flexibility to determine the manner in which it may decide to be a better trading partner by making a constructive effort to reach the problem of an imbalance which I do not believe would be acceptable in this country.

Now that is what I wanted to say about the resolution. I do not think it has any motivation to give anybody any political comfort. I think it is an important economic signal by the Congress to our trading partners. That is the spirit in which I have introduced the resolution and the spirit in which I support it.

Are there any further questions of Mr. Pease? Mr. Frenzel.

Mr. FRENZEL. Mr. Chairman, I want to thank our colleague, Mr. Pease, for his excellent testimony and to suggest, as I would have had you not made your statement, that that is about the thrust of his testimony. Our colleague from Pennsylvania suggests that it is unimportant and yet I believe, as our chairman believes, that it is an important statement, an important warning, an important communication, and that was the thrust that I got from your testimony. Is that correct?

Mr. PEASE. Yes, Mr. Frenzel, exactly so. As I said before, it seems to me that you can go with restrictions legislatively but first of all it is worthwhile to tell the Japanese in no uncertain terms and other trading partners how serious we view the problem.

I believe that this resolution is an important step in putting Congress officially on record doing that and as such I think it will have an important impact.

Mr. FRENZEL. This committee has gone really out of its way in attempting to communicate to our trading partner, who is our friend and important ally whom we want to treat with respect and by whom we want to be treated with respect, that there is a real problem out there that they are not addressing adequately.

We have made a number of trips to Japan, we have published a number of documents on the subject but I think it is important that we make a formal statement that says things are out of whack and you have to address the problem as much as we do.

I think the timing of it is excellent because it follows the Treasury change in definition of the truck industry which was of course ratified by the President since he did not stop it, and I would hope that that double expression, one from the Executive and one from the legislative, will have an important impact in Japan.

The members of this committee do understand that these are important allies and important trading partners and we want to work with them. It is a lot better to settle a lawsuit than it is to go to suit. That is what we are trying to do.

Mr. VANIK. Mr. Frenzel, I would like to comment in another respect. That is that this committee has taken a most vigorous effort to deal with the imbalance of trade problems and with the problems we have had with imports in a very constructive way. I want to point out the GAO report, which was the basis of the Treasury's redefinition of cab chassis, was a request made by this committee. It was this committee's interest in that subject which stimulated development of the cab chassis report by the General Accounting Office and which resulted in what I thought was a very necessary change in classification by Treasury.

We have been carefully monitoring this issue. I think it is traceable directly to our initiative here. I feel that Congress has a need to express itself separately, on its own basis, to trading partners with whom we have specific difficulties.

Mr. FRENZEL. Thank you, Mr. Chairman. I would like to conclude by saying again I thank my colleague. I think his suggestion or rather his conclusion in his testimony on the CRS, on 6492, is important to us. If we move on an emotional basis or move too quickly we will get a solution which is not a solution or one which creates additional problems.

Again I thank you for taking the time here. I yield back the balance of my time.

Mr. SCHULZE. Mr. Chairman, if I may have 30 seconds I would like Don to know anything I said was not meant personally toward you. Yes, it is the committee in all candor. I think in the private meetings that we have had and members of this committee have had, we have expressed this to our trading partners.

I think we have had opportunities in the past to take a firmer stance which if we had done that we might not be in this position today. I also think the full committee bears a great deal of responsibility for the situation in which we find ourselves today. We have not allowed sufficient retention of capital for expansion and mod

ernization.

So that as we cast about looking for somebody to blame, members of this committee and on the full Ways and Means Committee should look inward and find that we bear a large responsibility for the situation in which we find ourselves today. Thank you, Mr. Chairman.

Mr. VANIK. Thank you, Don, we very much appreciate your very fine testimony.

Mr. PEASE. Thank you, Mr. Chairman.

Mr. VANIK. Your entire statement will be included in the record as submitted.

Next we have a panel of the administration, Robert Hormats, Deputy U.S. Trade Representative; David Biltchik, Deputy Assistant Secretary for International Economic Policy, Department of Commerce; Anthony C. Albrecht, Deputy Assistant Secretary for East Asian and Pacific Affairs, Department of State; and James H. Starkey, Deputy Under Secretary for International Affairs, Department of Agriculture.

We will be happy to have your testimony. Your entire statements will be included in the record as submitted. You may read from them or excerpt from them, whatever you choose.

The first witness will be Ambassador Hormats. We are happy to have your testimony.

STATEMENT OF AMBASSADOR ROBERT D. HORMATS, DEPUTY U.S. TRADE REPRESENTATIVE

Mr. HORMATS. Thank you very much, Mr. Chairman.

I am pleased to be here to testify in favor of your resolution. I do so for a number of reasons. One, it calls attention and conveys the sense of the Congress, the concern of the Congress, on an issue which is extremely important to the United States and, two, it sends a message that there are still a number of specific unresolved problems in our trade relationship with Japan which demand attention from the executive branch of this Government and from the Government of Japan.

We have made progress over the last several years, and I believe that in the last several years the Government of Japan has liberalized trade in a number of ways. There has been progress in the auto sector, for instance, in eliminating tariffs on autos, in making commitments to eliminate tariffs on most of the auto part imports, and in dealing with a number of standards.

However, there is a long way to go; let us face it. Our ability to export autos into Japan is still restricted by a number of practices by the Government of Japan. Some of these are the result of tax policy and others are a result of what I might call socioeconomic constraints, distribution problems.

I have on several occasions indicated the necessity of the Government of Japan and Japanese firms making what I call affirmative action efforts to enable American firms to be able to better compete in the Japanese market.

In addition, with respect to autos there are two missions which will visit the United States this fall. One is to purchase auto parts, and the other is to investigate the possibility of investment in the production of parts for incorporation in Japanese cars.

Let me just discuss the first one at this time. We have had a series of consultations with American parts producers and unions which are involved in the production of parts. We have also had discussions with the Government of Japan.

It is our judgment that there is a very real possibility of the United States exporting more auto parts to Japan. We feel extremely strongly that the Japanese firms which come here as part of this mission in September should be in a position to make substantial commitments and provide substantial benefits to American parts producers and American labor.

We believe there is no reason why the United States cannot export on a significant level parts into Japan.

Let me touch briefly on the question of the negotiations on the Government procurement code. We have had several rounds of discussions with Japan focusing on the question of the inclusion of Nippon Telegraph & Telephone procurement under the Government procurement code.

It is our judgment that the obligations of the code should apply to overall procurement by NTT. We have been pressing this position, and we shall continue to do so. We believe that American manufacturers of telecommunications equipment can be, and indeed will be, competitive in the Japanese market if given an opportunity.

We have insisted on opening this area because it is one in which we do have a major competitive advantage.

There are a number of other areas on which in your resolution you have touched on, Mr. Chairman. These are beef, citrus, leather, tobacco and other items. We can go into those in detail later if the committee wishes.

Let me just conclude by making a couple of points in general about the overall trade relationship with Japan.

Negotiations with the Japanese are never easy. They tend to be protracted, they tend to be rather difficult. I think it is also fair to say that the Government of Japan, while being constructive and helpful, frequently does not fully understand the implications of its actions on the domestic situation in the United States and on the world trading system.

Its actions particularly in sensitive sectors have a major impact on the world. Too frequently, the Government of Japan and, more importantly, the industries in some cases do not fully realize the significance of their impact. They tend to move very slowly in responding to the sorts of concerns which this committee has evidenced and which indeed other committees over the last several years have indicated.

We are continuing to work with the Government of Japan. It is not an easy problem. We have had some success. I think it is fair to say that the Government of Japan has developed over the last several years a much greater awareness of the need to be sensitive to the concerns of other countries in the trading area.

We have a distance to go. We are pressing on a number of fronts, perhaps in some cases not as hard as this committee or this Congress has wanted, but we have done what we have considered to be a responsible and a tough negotiating job.

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We are remaining very firm and very tough on the issues that we believe are of major importance to our exporters. I think it is fair to say that we have made progress with this approach and we will continue to do so.

We do not tend to look at the relationship with Japan solely in terms of a bilateral balance. Let me explain why.

We have a large bilateral deficit in the area of trade with Japan. With respect to some countries, and particularly the European community, we have a large and, indeed, growing surplus. The international trading system is based on multilateralism.

With some countries we have deficits, and with some we have surpluses. If we focus too much on the deficits with some countries we will give a great deal of ammunition to those countries or groups of countries, such as the European community, with which we have large surpluses, and they may very well use the same tactics against us in areas where we would not want them to use it. While the resolution justifiably calls attention to the major problems we have with Japan, it is important to focus on them and not deal too long on the overall aggregate deficit with Japan. Our hope is that if we deal with the specific problems we open up opportunities for our people, our industries and our farmers to export to Japan.

Through that method over a period of time, we will hopefully see a single reduction in the overall deficit between the United States and Japan. This is the focus of our approach.

I can assure you that armed with the support of this committee and this resolution we will redouble our efforts in this direction. Thank you, Mr. Chairman.

[The prepared statement follows:]

STATEMENT OF Ambassador ROBERT D. HORMATS, DEPUTY U.S. TRADE

REPRESENTATIVE

Mr. Chairman, I appreciate this opportunity to comment on House Concurrent Resolution 376 concerning the bilateral trade deficit between the United States and Japan. The magnitude of the United States' trade deficit with Japan is a matter of concern to the Administration, as it is to the Congress. It is an issue we have raised frequently with the Government of Japan. Expansion of our exports underlies most of the specific trade negotiations and consultations we have had with Japan.

Our efforts to induce Japan to liberalize various import barriers should over time improve export opportunities for American industry and agriculture and thus contribute to a reduction of the deficit. Many of these barriers are quotas or tariffs. These can be addressed through traditional trade negotiations. Increasingly, however, we are finding that our market access problems are the result of fundamental differences between our two societies.

The Government, financial, and business sectors in Japan relate to each other in ways which differ from those same sectors in the United States. In many instances these different Japanese practices do not violate obligations under the General Agreement on Tariffs and Trade or the unfair trade practice statutes of the United States. Sometimes these practices do, however, provide a competitive advantage to Japanese firms or serve to restrict Japanese imports of American products. Addressing these socioeconomic differences successfully requires a continuing and persistent effort. Decisions to change these practices are not made quickly, nor are the adjustments themselves.

The magnitude of the U.S. trade deficit with Japan serves to focus attention on the remaining problems of access to the Japanese market. You have mentioned in your resolution a number of these problem areas including beef, citrus, leather, manufactured tobacco products, telecommunications equipment, and computer information sharing.

In some of these problem areas, such as beef and citrus, Japan has begun the process of liberalization. We expect further progress. Other problem areas, such as