ENERGY CRISIS IN ASIA WEDNESDAY, FEBRUARY 6, 1974 HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON ASIAN AND PACIFIC AFFAIRS, Washington, D.C. The subcommittee met at 2 p.m. in room H-236, the Capitol, Hon. Robert N. C. Nix (chairman of the subcommittee) presiding. Mr. Nix. The subcommittee will come to order. Today we will again take up our investigation of the energy crisis. in Asia which involves not only Japan but those nations in Asia who depended on Japanese products which were within their purchasing power. The production of chemical fertilizers which Japan supplies to Asia depend on the availability of cheap oil. Sufficient food production in Asia depends on the availability of chemical fertilizers. The effects of the Arab embargo will be felt long in the future since the key question is the price of oil rather than the supply. Japan and other nations will have to continue a very intensive search for oil. There have been a series of recent oil discoveries in Indonesia and there will be more. Our present concern today, however, is the possibility of joint development of oil in Asiatic Siberia by the Japanese and the Soviet Union. We hope to learn something of the potential of Siberia in raw materials. Certainly if the potential exists, it will be used sometime in the near future. The potential for Siberian oil may only be second to that of the Middle East. There may be some connection between unrest in the Middle East and the crash development of Siberian oil. It would be a supreme irony if the arming of the Arab nations for a continuing struggle with the State of Israel would result in the development of a rival source of oil in Siberia. Siberia is the same size as the United States. Its vast potential is matched by monumental problems in weather and working conditions. Our first witness will be Prof. Franz Michael of the Sino-Soviet Institute, George Washington University, who has just returned from a 6-month stay in Japan. He may have something to tell us about the political climate in Japan in relation to the oil crisis and charges about the diversion of oil by the major oil companies from Japan. Mr. Robert Ebel is the leading specialist on Siberian oil potential in the U.S. Government. Our first witness is Dr. Michael. I want to welcome you, Dr. Michael, and express the appreciation of the subcommittee for your time today. (53) STATEMENT OF FRANZ H. MICHAEL, PROFESSOR OF INTERNATIONAL AFFAIRS AND FAR EASTERN HISTORY, THE INSTITUTE FOR SINO-SOVIET STUDIES, GEORGE WASHINGTON UNIVERSITY Mr. MICHAEL. Thank you very much, Mr. Chairman. It is a great honor indeed to be invited again to testify before your distinguished committee. As you said, I have just come back from a research journey of 6 months during which I visited mainly Japan but also Korea and Taiwan, and my views reflect impressions gained during this journey. I have written a statement on these impressions which is before you but since the hearings of your committee deal with the energy crisis and its impact on Asia which you have just so well described, my observations in this regard of the energy crisis are relevant to Japan mainly and I have confined my statement mainly to my experience in Japan. However, I am only too happy to discuss with you and your committee impressions obtained on Taiwan and Korea if your committee would like me to do so. I would like to read the statement to you if I may. Mr. MICHAEL. Inflation hits visitor and resident alike as the strongest immediate impression gained in Japan in the summer of 1973. Inflation had caused an increase in prices of about 20 percent over the last year. For the Japanese this inflation, together with the problem of pollution and the high prices for land and real estate were the crucial issues of domestic policy and the key issues in the attempts of the political opposition to challenge the Liberal Democratic Party (LDP) of Prime Minister Tanaka. As a result of these economic problems, and of the very length of its stay in office, the ruling party has over the last years lost some influence, and popularity has sunk below 50 percent in the public opinion polls. The popularity of Prime Minister Tanaka was much lower; around 20 percent in the polls. The situation is expected to become critical during the coming July. Elections to the House of Councillors are expected to forecast whether the Liberal Democratic Party can maintain its majority in the upper house. If not, the government, which depends on a majority in the House of Representatives rather than in the House of Councillors, will not fall but would find it much more difficult to obtain support in the Diet for key policies. In contrast to domestic issues which appeared to be of primary interest to the public, the media and the opposition parties in the political life of Japan at the time of my arrival, foreign policy seemed to rate less attention. Prime Minister Tanaka had hoped to gain public support for his government by his visit to Peking and the establishment of formal diplomatic relations with the People's Republic. This important move by the Prime Minister was made without previous consensus within the ruling Liberal Democratic Party, indeed, a large section of the party members had expressed opposition to such recognition of Peking at the expense of the National Government on Taiwan. Once the move was made, however, the Liberal Democratic Party majority accepted it. The hope that this diplomatic recognition would gain the party a new increase in popularity in the country was not filled, however. At tention remained directed toward domestic issues, not due to local shortages but rather to the very affluence so obvious to the visitor which in turn raised new demands and desires and caused grave concern over the problems caused by this rapid economic growth. The impact on Japan of the energy crisis which occurred suddenly in October without previous expectation or warning was therefore dramatic. Prime Minister Tanaka was daily flooded by telephone calls from businessmen concerned with the oil problem. The panic affecting the general public could be seen in such general symptoms as the hoarding of toilet paper and sugar without any apparent reason-of course since my return I have noted that the American public had had some similar reactions. The government was thus under very great pressure to show initiative and to restore confidence by new policy directives. The oil crisis as you indicated, Mr. Chairman, was real and not mere propaganda. Japan had only about 5 weeks' advance supply during the most critical time and the reduction in deliveries from the oil companies were very real indeed. Much earlier than in America, for instance, reduction of heat in offices was ordered and lights were cut on the Ginza and in facades of major hotels, demonstrating the fear of future shortages rather than of the present lack of energy. According to reports, Japan depended for close to 99 percent of its energy resources on imports from abroad and almost 80 percent of this came from the Middle East. How crucial the continuation of this supply was for Japan's survival was therefore quickly realized by everybody. One of the leading Japanese academic authorities and government consultant reminded me of the fact that it was the interdiction of Japan's access to the oil supply of the Dutch East Indies and of access to the Malacca Strait which was the pretext for Prime Minister Tojo's decision in 1941 to go to war against the United States. This reminder, made by a strongly pro-American academic leader, was only meant to point to the life and death aspects of the energy supply for Japan's survival. This was the background, I was told, for the Japanese decision to yield to Arab threats and to express a policy position in sympathy with Arab demands. It was explained that this move. had more propaganda than real value but it was combined with the promise of massive technological support to the Arab countries in exchange for treatment of Japan as a friendly country. In contrast to the panic in the business world and among the public there was a determined effort by the government to regain the initiative. The Liberal Democratic Party leadership obviously decided to close ranks. In November, after the sudden death of Finance Minister Aichi, the leader of the opposition faction within the Liberal Democratic Party, former Foreign Minister Fukuda, joined the cabinet as minister of finance. Thus the cleavage within the Liberal Democratic Party, existing since the election of Prime Minister Tanaka, ended at least temporarily and the Liberal Democratic Party emerged strengthened from this cabinet reorganization. Fukuda immediately took the initiative, changing the course of Japan's economic policy from Tanaka's ambitious great plan to remodel the Japanese economy through decentralization of industry and huge capital investments in an enlarged communication system to a policy of retrenchment and financial caution. This internal issue however was, I believe, clearly linked to a new emphasis in foreign policy towards closer cooperation with the United States with particular emphasis on energy matters. I was under the impression that in the establishment of party unity and the shift in course in domestic as well as foreign policy the primary role was played by former Prime Minister Sato who seems to have been very active in many unofficial negotiations. The assumption by Mr. Fukuda of a leading position in Tanaka's Cabinet therefore greatly strengthened the emphasis on the traditional conservative policy of the Liberal Democratic Party. It was believed by many that a determined conservative stand on the part of the Government would strengthen the Liberal Democratic Party's position in the coming elections. On the other hand, the policy of a united front between the opposition parties that is, the Communists, Socialists, Komeito, and possibly the Democratic Socialists-appeared greatly weakened. The difficulties the Socialist Party has experienced in maintaining cooperation with the Japanese Communist Party to reelect the Governor of Osaka demonstrated the many problems of long-range cooperation between these opposition parties even on a local level; on the national level it would be even more difficult to harmonize the divergent policies of the Communist and Socialist Parties. The Komeito also indicated alarm over any strengthening of the Communist Party, and unity among the opposition wavered when it came to the realities of the political power game. In the case of a loss of the majority in either House by the Liberal Democratic Party it seemed, therefore, to most of my informants much more likely that a government would then be formed by the defection of a substantial number of Socialist. Komeito, and Democratic Socialist Diet members in exchange for ministerial positions in a cabinet of the Liberal Democratic Party, A government formed by a left united front therefore appears to be most unlikely unless-and this was a caveat expressed by many-there should be an extreme situation in Japan caused either by an economic collapse in Japan or by an isolationist withdrawal of the United States from Asia, and this of course concerns the United States. Thus the energy crisis may well have shifted Japan's concern from domestic affairs to the international situation and the Japanese realization, often expressed, that their future security rests on the United States-Japanese Security Treaty. The energy crisis and the recent U.S.S.R. military posture in the Middle East have demonstrated to many Japanese that economic prosperity without security remains. unreliable and that this security depends on the nuclear balance between the United States and the U.S.S.R. and on America's willingness to play a leading role in Asia. Even the opposition parties have been severely shaken in their view regarding the feasibility of Japanese neutrality. When Prime Minister Chou En-lai told a Japanese delegation of Socialist Party Diet members in Peking that the security treaty with the United States was necessary for Japan until she herself was militarily strong enough to take on her own defense. Chou En-lai stepped simultaneously on two sacred cows of the Socialists: opposition to the security treaty and opposition to the Japanese Self-Defense Forces. On the other hand, in the words of one newspaperman in Kyoto, the security treaty has become almost generally acceptable in Japan since the peace negotiations carried out by Dr. Kissinger in Vietnam and the Middle East and the visits by President Nixon to Peking and Moscow demonstrated to the Japanese that the United States was basically concerned with maintaining and assuring peace in the world. I was told that a number of Socialist Party members who officially maintain their opposition to the security treaty in private conversation express the view that they personally disagree with the official party line and accept the necessity of the security treaty for Japan. The Japanese have therefore observed with growing concern the domestic whirlpool in Washington. Clearly, they find themselves unable to understand the turmoil surrounding the President and his position in the Watergate affair. Several Japanese informants, though unwilling to discuss U.S. domestic affairs, expressed their wish that the American people should forgive the President since strong leadership by the United States was essential for the survival of the free world. But there is concern over American international policy, and the issues particularly stressed in discussion were concerning our policy toward Korea and Taiwan. I may add to my statement that since I wrote this I thought of the comments elicited from several Japanese that they had been reassured by Dr. Kissinger's statements in these regards. Regarding Taiwan, there exists among conservative Japanese Diet members a feeling of embarrassment because the Japanese Government sacrificed Taiwan to obtain the establishment of diplomatic relations with Peking. The serious division in the Liberal Democratic Party which occurred at the time may now have been overcome by the participation of the Fukuda faction in the government. The aftermath, however, has been a heated discussion in Japan, still going on today, on the question of an agreement with Peking on establishing scheduled air flights by the Japan Air Lines. Peking's demand that Japan end recognition of the Chinese National Airlines-CAL-and transfer air connection between Japan and Taiwan to a private airline was strongly opposed within the Liberal Democratic Party, and Peking's demand that the Japanese Government recognize Taiwan as part of the People's Republic was regarded by some members of the Liberal Democratic Party as a serious legal issue which could presumably prepare the way for future military action by Peking against Taiwan. I would like to add that Japanese officials who watch political events on the mainland regard the situation in Peking as highly unstable, and while there is no concern over aggressive military policy as long as the Sino-Soviet conflict lasts, the continuity of that conflict is by no means taken for granted. Taiwan was therefore discussed as a security problem, and the point was made that the location of Taiwan, on the fringe of the continental shelf, as a potential submarine base for a hostile power, was taken quite seriously. One comment was made at the time on the importance of the Paracel Islands in a similar vein. It would therefore appear possible that the recent military seizure of these islands from South Vietnamese control would be taken quite seriously in Japan. The energy crisis may thus have brought a stronger realization in Japan of the problem of military security and cooperation with the |