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Speech for the UK-Japan Business Seminar 2002-2003 at the University of Sheffield East Asian Research Centre
24 January 2003

Vice-Chancellor, Mr Tomlinson, Distinguished Guests, Ladies and Gentlemen,

1 I am delighted to have the opportunity to join you for this UK-Japan Business Seminar here at the University of Sheffield East Asian Research Centre, whose 40th anniversary we are celebrating this year. This university is one of the main centres of Japanese studies in the United Kingdom, and we at the Embassy certainly recognise its valuable contribution to UK-Japan exchange and to mutual understanding between our two peoples.

Sheffield strikes a chord with me because, about 80 years ago, my father-in-law purchased a set of Sheffield cutlery, which was handed down to my generation as our family treasure. For many generations to come, this set will serve as a constant reminder of the importance of Sheffield to the Orita Family. And now, I am glad to know that Sheffield's links with Japan are thriving in a number of ways. I will do my best to promote the links between Japan and Sheffield, which is important not only officially but also for my family. In this connection, I do hope that the city's second trade mission, which will go to Japan in March, is a big success.

2 This city's links with Japan go back, more than 130 years, to the Iwakura Mission, which came here in October 1872. After Japan opened up to the outside world in 1860s, Japan tried very hard to absorb new ideas and technology from the Western World. The Iwakura mission was sent to European countries. The mission comprised 107 people, including Tomomi Iwakura and other influential political leaders as well as the cream of Japan's talented young people, who were later to found universities and become leaders in government, business and other fields. They learned a lot about advanced technology, western social structures and various other matters and applied the knowledge gained to the task of modernising Japan. They visited Sheffield. During their brief stay here of just three days, the visitors were able to see a dynamic industrial city whose prosperity was based upon the steel industry. They also enjoyed the beautiful surrounding countryside. One of the participants of the Mission, Kunitake Kume, kept a detailed record of their activities and their incredibly sharp and vivid observations. Mr Graham Healey and others of this university made tremendous efforts to translate this record into English. I would like to pay tribute to these efforts. It is clear from this record that Kume was amazed by the scale of the steel production facilities they saw. He was also enchanted by their visit to Chatsworth House, set in such an exquisite location. On the last day of their visit, the Mission's members attended the annual 'Cutlers' Feast' and found it an unforgettable experience. Now, more than 130 years later, I can look forward to following in the footsteps of the Iwakura Mission when we dine in Cutlers' Hall.

3 Before that, of course, we have some serious work to do! Here at the JETRO UK-Japan Business Seminar I am going to talk about the current state of Japan-UK relations and how I see them developing in the future. While my remarks will focus mainly on the economic aspect of our ties, I will touch on education and the political sphere as well. In essence, my message to you today is that (1) it is a mistake to view the Japanese economy in an overly gloomy light. Put it simply," Japanese economy is not as bad as many people tend to think) and that (2) Japan-UK economic ties are extremely sound, with plenty of potential for further growth. Japan-UK relations in general are in good shape, are providing real benefits not only to both sides but also to the causes of the international community. In this regard, let me just say a few words about the global aspect of our relations at present.

4 Each of us is an important country with responsibilities of global scale, and to help solve the issues which the international community finds most pressing we need to engage in a close exchange of ideas and raise our co-operation to the highest level. In the present world, with all its uncertainties, the Japan-UK relationship is an important factor for calm and stability. A recent significant element of our relations is the advance in our co-operation in the concrete terms. Let me cite, one example. In the struggle against international terrorism, Japanese Self Defence Forces vessels have been refuelling British ships in operation in the Indian Ocean, and at the end of October last year our two countries co-hosted an Afghanistan Seminar aimed at assisting in consolidating the peace and promoting the reconstruction of that country. This year a second seminar on this subject will take place in Japan.

5 At the moment, there are a host of issues that concern international community such as Iraq and North Korea, each of which involves challenging circumstances whose outcome is difficult to predict. In each case close consultations among countries with strong interest are indispensable and Japan and UK are in constant dialogue. The suspicion that Iraq possesses and has developed weapons of mass destruction amounts to a severe threat not only to Britain and the US but to the entire international community, including Japan. Next Monday (the 27th), UNMOVIC/IAEA will present their report to the UN Security Council. Prime Minister Blair will visit Washington shortly afterwards. In such circumstances, it is all the more important that Japan and UK, both closest allies of the US, further deepens our dialogue and co-operation.

The subject of North Korea is a particularly critical one for Japan. We find Pyongyang's decision to withdraw form the Nuclear Non-Proliferation Treaty (NPT) extremely regrettable. The outcome of this situation is hard to gauge, but Japan believes that we must do our best to persuade Pyongyang to reverse its decision to withdraw from the NPT, and to seek a way of a peaceful solution to this problem. We will naturally work in close co-ordination with the US and South Korea, but cooperation with the UK and other relevant members of the international community is also important.

In the face of situations regarding Iraq and North Korea, it is essential that the international community send a clear and unified message. We at the Embassy are continuing to make every effort to ensure that Japan and the United Kingdom are always in good understanding of the position of each other, and that we work closely together to tackle important international issues.

6 It is against this backdrop of cooperation on a global scale between our two countries that I would like to make some observations on Japan-UK economic relations and the situation surrounding the Japanese economy.

Our economic and business links are strong and well-established, and are likely to remain so in the years ahead. In the past, there was a time when discussions between our two governments concerned import and export quotas and Japan's voluntary restrictions on the export of its goods to the British market, but now the time of government constraints on trade is behind us. We are in an era where both sides, public and private sectors included, are doing their best to encourage mutually-beneficial investment and trade.

The United Kingdom is the top European destination for Japanese direct investment, and is significant in this respect even in global terms. Because of the large-scale investment in the mobile telecommunications sector, in fiscal 2000 the UK received more investment from Japan than did the United States or anywhere else. Altogether more than 1,000 Japanese companies are operating in the UK, and in the manufacturing sector have led to the creation of over 80,000 jobs. The British economy has, of course, benefited in other ways as well, such as through the increased productivity of the car industry as a result of the influence of the three major Japanese car manufacturers with operations here.

7 Technological exchange is proceeding apace in many fields, and around 160 Japanese companies have established research & development bases here. In the telecoms sector, there has been significant movement in both directions, with Vodafone entering the Japanese market and NTT DoCoMo establishing a presence here. In the field of biotechnology, the White Rose consortium, which includes the University of Sheffield, is seeking opportunities to collaborate with Japanese companies.

8 As for British companies investing in Japan, overall the number of firms doing so and the amounts committed remain quite low. However, in view of the effects of deflation and the fact that yen interest rates are close to zero as well as the rapid process of deregulation under way, surely Japan is now a "buy" for overseas investors. On the Japanese side, obviously we are very keen to see a rise in the number of British companies investing there, and we would naturally welcome the participation of Sheffield-based firms in this regard. Our bilateral trade is currently stable at around \1.5 trillion a year, and for the UK Japan is second only to the US as a market outside the EU. Our economic relations are deepening due to the efforts of companies on both sides. There is also plenty of activity on the part of public or quasi-public bodies to foster an environment hospitable to investment. For instance, the British Industry Centre in Yokohama has done a great deal to complement the activities of JETRO over here.

9 It stands to reason that the development of Japan-UK economic relations is greatly influenced by trends in our respective countries, and in this respect I would like to make a few remarks about the state of the Japanese economy. Recent reports about Japan have been unremittingly gloomy. It is true that the Japanese economy has been going through a long period of sluggish growth. Unemployment has been rising - although it is worth pointing out that the jobless rate in Japan, while high in Japanese historical terms, is still quite modest when compared with a number of other advanced countries. Meanwhile, Japan has been suffering from falling asset prices and is struggling to come up with measures to facilitate the disposal of the banks' bad debts and to deal with the problem of deflation. These are issues which seem to call for mutually-contradictory policies that are not easy to reconcile. At the same time, Japan has to deal with the restructuring measures with certain issues which are very serious in both social and economic terms. For instance, there is the demographic problem of our low birth rate and the ageing of society as well as the effect of the so-called 'hollowing out' of industry. There is the pressing issue of the protection of the environment as well.

10 Notwithstanding all these challenges, I feel it is too short-sighted to adopt an entirely pessimistic stance about the Japanese economy. Despite the admittedly tough situation Japan faces now, I think there will be change for the better as the effect of certain fundamental strengths becomes apparent. If you become too pessimistic, you tend to lose sight of your strengths.

What do I mean by fundamental strengths? I can immediately point to the Japanese people's abundant purchasing power, our skill at creating high value-added products and Japan's plentiful capital. Our GDP amounts to around $4.8 trillion, second only to that of the US. To put this figure into perspective, it amounts to around 60 per cent of the GDP of the whole of Asia, about three times that of the United Kingdom and four times that of China. We are also seeing an acceleration of the 'Louis Vuitton and Hundred Yen(Half a pound) Shop' trend, whereby markets for luxury brands as well as low-priced bargain goods coexist, and companies which can respond to the emergence of such niche markets are enjoying healthy growth. Japan still has plenty of companies which are competitive globally based on their high technology, and one can easily think of numerous products featuring advanced Japanese technology, such as mobile phones offering an internet service - a field pioneered by Japan - and hybrid cars. Moreover, the fact that Japan accounts for around 20 per cent of global research & development expenditure suggests that it will maintain its technological prowess. It is also noteworthy that the number of international patents Japan has applied for rose from 1,934 in 1993 to 11,688 in 2001. Even the awarding of a Nobel Prize to the unknown private sector researcher Koichi Tanaka has been seen as a symbol of the innate character of Japanese companies and the high level of Japanese technology, and has been greatly encouraging for Japanese salarymen, dispirited by the struggles of the last few years.

Japan can take heart when we consider finance, too. With foreign reserves of around $400 billion, personal savings of approximately \1,400 trillion, net assets overseas worth \180 trillion and a current account surplus of \10 trillion, Japan scarcely resembles a country in danger of bankruptcies. Moreover, many overseas visitors to Japan seem to have been impressed by the high quality public service, like public transportation such as Shinkansen, train and metro services, high quality school facilities, high quality construction of highways, roads, bridges and tunnels.

11 It is worth noting that Japan has in fact achieved a certain amount of growth during its so-called "lost decade", a period when it has not only maintained its fundamental strengths but changed direction dramatically and for the better. Against a backdrop of large-scale deregulation across the economy, the role of government has been undergoing drastic change from that of the management of the economy to that of helping to create an environment in which the private sector can take strong initiatives. A fundamental transformation of corporate governance is under way, including such features as the rapid unwinding of cross-shareholdings and the appointment of foreigners in the most senior positions. For instance, in the car industry we have seen Carlos Ghosn at Nissan, Rolf Eckrodt at Mitsubishi Motors and James Miller at Mazda - something that would have been unimaginable only quite recently. One can also point to great changes in employment practices, as lifetime employment has given way to a situation in which it is normal for people to change jobs, while promotion based on merit has been taking over from advancement in accordance with seniority. As a result, in accordance with Schumpeter's "Creation and Destruction" theory, there are companies which are failing but a situation is emerging in which new small and medium-sized enterprises, venture capital firms and the like are rising up to take their place.

12 Japan operates a free-market economy which is of huge scale and has reached an advanced stage of development, so one cannot expect the whole country to rally round a slogan as we once did and as some other countries do now, or to apply a rough cure to the economy which, if it fails, will have alarming repercussions for the whole world. We should not be complacent and it is over-optimistic to expect the Japanese economy to stage a dramatic recovery this year. However, Japan is in the midst of wide-ranging reform in both the public and private sectors. Thus I think one ought to view the Japanese economy with cautious optimism.

13 Of course, it is people that produce economic activity and underpin the ties between our two countries, and education plays an important part in our relations. Sheffield and other British universities that have Japanese research facilities are a vital factor in Japan-UK exchange. In fact, wide-ranging exchange and co-operation is already taking place in the educational field. From now on I think it is important to direct our efforts at broadening the base and increasing the depth of this collaboration.

To broaden the base, it is most important to maintain and consolidate Japanese language education at the beginning and intermediate levels. Although there are already more than 2,000 schools which offer Japanese language courses, the Embassy of Japan and the Japan Foundation Language Centre are also endeavouring to make an impact in this regard. At the Embassy we make our own contribution through various means, including Club Taishikan, whereby schoolchildren of all levels with an interest in Japan are invited to the Embassy or are visited at their schools by Embassy staff. Meanwhile, the JET Programme continues to flourish, enabling young British graduates to strengthen their ties with Japan and Japanese students to increase their understanding of and familiarity with the UK. Around 6,000 young Britons have already taken part in the Programme, and even after returning home and entering mainstream British society once again they have a profound impact on the ties between our two countries.

14 Clearly, education is by no means irrelevant to the comprehensive process of reform that Japan is currently experiencing. Japanese universities are also riding a wave of reform, reflecting such factors as ever fiercer competition and the effects of the low birth rate, more intense international competition, greater autonomy for universities and collaboration between industry and academia. In this connection, there is rising awareness among Japanese universities that they have much to learn from the British experience of university administration. As for university evaluation and how the awarding of degrees is organised in Japan, we have learned much from the British university evaluation system. I am glad to hear that there are high-level seminars where views are exchanged on university administration, in which the Vice-Chancellor participates.

Moreover, learning from Britain does not only involve advanced educational institutions. For example, when the decision was announced by Japanese business leaders to set up a new intermediate level institution as existing schools were unsatisfactory, they said at the news conference: "We want to build a school like Eton." Since Japan and the UK have deficiencies in different areas, illustrated by calls in Japan for a break from standardised schools as well as Britain's wish to achieve an increase in overall performance, I think Japan and Britain can teach each other a great deal in the field of education. When one looks at the row over 'A' Level examinations last year, the significance of competition in examinations in the British educational system seems to be on the rise. There is probably something useful we can contribute in terms of our wisdom and experience in this regard.

15 It is fairly evident that Japan and the United Kingdom have similar views on a number of pressing social and economic issues. Accordingly, there is enormous scope for co-operation between us. For example, Japan can take pride in the huge increase in longevity achieved in the last 50 years (27 years for men and 30 years in the case of women), making Japan the No. 1 country in the world in this respect. At the same time, though, a host of demographic problems to do with pensions, care for the elderly, medical services and the ageing of society are rapidly becoming more and more pressing. The United Kingdom is also facing the problem of the ageing of society. It is incumbent upon our two countries, at the vanguard of international efforts to deal with what is a relatively new problem, to find a solution. This is not something to be achieved in isolation, as joint efforts will be far more effective.

16 Our two countries need to compare experiences and share our wisdom. This is of course true at the governmental level, and in this spirit our prime ministers' policy advisers have begun regular consultations. However, it is more important that such deliberations should include as broad a cross-section of opinion as possible. As for the wide-ranging basis for exchange such as we can see in the case of our two countries, an important task for our Embassy is to lay the foundations for exchange and co-operation with the British side that goes beyond what we have achieved so far.

17 One practical forum for such exchange and co-operation that I would like to mention here is Aichi Expo, which will take place in 2005 in Aichi. With its theme 'Nature's wisdom', it aims to focus attention on the issues that humankind will face in the 21st century, such as how to improve the environment by the application of technology, how to build a society which conserves energy or how to create better conditions for the aging society and to provide a forum for people from all over the world to think deeply about them. Although the British government has not yet decided whether to participate, I cannot help feeling that this venture has much to commend it to the British business community. It should also be very attractive from an academic viewpoint. I would very much appreciate your strong support of British participation in Aichi Expo.

18 May I close by paying tribute to the extremely valuable exchange activities taking place between Japan and the UK in Sheffield? I know that everyone here today will play a part in ensuring that the very positive and forward-looking relations that our two countries enjoy today become even closer and more solid in the months and years ahead. Thank you.

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