          
          
          
                  THE STRUCTURAL IMPEDIMENTS INITIATIVE
          
          The Japanese economy is undergoing marked structural 
          change.  Fast-growing domestic demand, currently fueled by 
          both personal consumption and capital investment, 
          supplanted external demand as the engine of Japanese 
          economic growth in 1985-90.  This change has primarily been 
          a market-driven response to the fundamental exchange rate 
          realignment of the last five years. Another central factor 
          has been the focus on deregulation of the economy, 
          particularly the privatization of public telecommunications 
          and railway companies and the simplification of product 
          standards.  Despite progress in this area, Japan's economy 
          remains heavily regulated, reinforcing business practices 
          that restrict competition and thus keep prices high.  Price 
          controls remain on certain agricultural products, and 
          bureaucratic obstacles to the entry of new firms into 
          businesses such as trucking, retail sales, and 
          telecommunications also have slowed the economy's 
          structural adjustment.
          
          To accelerate structural adjustment, on July 14, 1989, 
          President Bush and Prime Minister Uno launched the 
          Structural Impediments Initiative (SII) to identify and 
          solve structural problems in both countries that stand as 
          impediments to the reduction of payments imbalances.  Under 
          this initiative, the U.S. side identified six areas of 
          concern in Japan's economy -- savings and investment, land 
          use, distribution system, pricing mechanism, exclusionary 
          business practices, and affiliated-company (keiretsu) 
          relationships.  The Japanese side in turn proposed study of 
          American policies in seven areas that bear on U.S. 
          competitiveness.
          
          In the SII Joint Report, issued June 28, 1990, both sides 
          agreed to carry out reforms in these areas. Japan committed 
          to spend 430 trillion yen from 1991-2000 to address social 
          infrastructure needs, which will help correct Japan's 
          chronic imbalance of savings over investment and foster 
          further domestic-led economic growth.  Vigorous 
          implementation by Japan of the competition-oriented 
          domestic economic reforms, such as toughening anti-trust 
          enforcement, easing of limits on large stores, land tax 
          reform, and more corporate disclosure, should help 
          translate Japan's growing productivity into higher living 
          standards and stimulate greater demand for imports.  
          Already, liberalized rules for large retail store openings 
          have led to many new store applications, including several 
          outlets planned by one major U.S. retailer.
          
          
