TNAG-1876-FCO40-2667-Relations-between-Hong-Kong-and-Japan-1989 — Page 64

2 CONFIDENTIAL

Mr. Kaifu said there was great respect in Japan for the ime Minister's strong leadership. At the time of the miners' strike, there had been worries in Japan about what would happen to the United Kingdom, but the Prime Minister's strength and determination had prevailed. In a small way, he had been through a similar experience as Deputy Cabinet Secretary with a rail strike in Japan, and knew what it was like.

Anglo-Japanese relations

Mr. Kaifu said that Japan had consciously tried to emulate the United States and Britain, both in its democracy and in its free market economy. The results which had been accomplished were gratifying. He would like to see even closer co-operation in the future, in particular a pooling of efforts to deal with global issues such as the environment and aid for development.

The Prime Minister said that Japan was to be congratulated on its tremendous economic success. An immensely strong economy had been developed and Japan had demonstrated a unique capacity for developing new products. One of the main secrets of Japan's success had been her ability to turn scientific and technological advances to profitable commercial purposes. In addition, Japan's industrial management was quite outstanding and our experience of it in Britain had been wholly positive. We very much welcomed Japan's inward investment.

Mr. Kaifu said that he was gratified to hear the Prime Minister's high opinion of Japan. His country had benefited from the warm and thoughtful attitudes of more established members of the international community. His personal view was that one of the most important elements in Japan's success was its commitment to training engineers and technicians. Japan turned out more engineering graduates each year than the United States. Against this, not enough had been done to promote basic science and research. He was familiar with the success story of Japan's investment in Britain. The first investors had been very doubtful whether Japan's management would work in the United Kingdom, but their doubts had been wholly assuaged in practice. This was due to the British Government's policies of deregulation and incentives to enterprise.

Trade Relations

The Prime Minister said it might be as well to get straight down to some of the difficult trade issues. Once these were dealt with, it would be smiles all round. She believed that Japan and Britain had many of the same objectives. They both wanted to maintain an open world trading system. The pressures to protect particular industries or service sectors were growing. You could see the trend towards protectionism in the US Congress. You could see it in the European Community with the Common Agricultural Policy and the attempt to introduce strict reciprocity for banking and financial services. And you could see it in Japan in a number of the ways which she had mentioned in her speech earlier in the day to the Economic Organisations. But these pressures had to be resisted. She was convinced Britain had one of the most open markets in the world, and she would like to see Japan take further steps to open its market.

CONFIDENTIAL