It gives me great pleasure to speak at this distinguished gathering of the J-Global Forum this morning. Before I begin my remarks, let me remind you of the very pleasant reception last night, where I enjoyed drinking excellent wine. I was surprised to learn that wine has become highly popular in Korea over the past few years, and even more surprised to learn that it was a Japanese comic book "Kami no Shizuku," or "Drops of God," which played a big role in setting forth this recent boom. According to Korean press, the comic book is supposed to be a "Must for all CEOs," so I believe all of you have a series of the comic books in your private bookshelves. My only concern is that if the comic becomes too popular in other countries, like China, the surge in demand might make it more difficult for us to afford a quality glass of wine on the weekends. Setting aside the rising wine prices, I think this is an excellent example of the era of a "New Asia." An excellent example of how close and interdependent the Asian economies have become over the past decade, and how immensely the consequences of globalization impact our daily lives. On this note, I would like to share with you this morning my thoughts on how the U.S., Korea, Japan and China can collaborate in order to maintain and promote economic and social integration among our nations for the overall stability and prosperity of the region.

1. New Challenges facing Globalization

Having said this, however, we see in many parts of the world at the moment, signs of resistance and backlash over globalization. Symbolic was the collapse of the Geneva WTO trade negotiations in July 2008. Although we were so close to constructing a new package of dynamic benefits through more open markets, the devastating results of the seven year negotiations would, I am afraid, cast a huge "body blow" to future free trade efforts, highlighting the emerging resistant voice of new economic powers such as India and China. Some candidates in the US Presidential primaries have accused free-trade agreements, such as NAFTA and the pending US-South Korea FTA, of the cause for the loss of millions of jobs among domestic labor forces. The deepening scars of the subprime loan-triggered economic slowdown stand as a high hurdle for the new US administration to devote the same level of attention and commitment to global affairs in the coming years. President Lee Myong-bak, a strong advocate of economic reform and free-trade policies continues to struggle implementing his core policies in the face of hostile chauvinistic protests triggered by his BSE talks with the US. The Chinese central government adopted policies of addressing social disparity, but is not yet clear about its policy priorities after the end of the long awaited Beijing Olympics.

In Japan, political stagnation continues as the constitutional deadlock between the LDP-Komeito controlled Lower house and the opposition controlled Upper House blocks any dynamic policy initiative ahead of the upcoming general election. The Fukuda administration struggles to set its political agenda for the general election, but the administration's policy priorities remain unclear while reformist cabinet members, such as Yoshimi Watanabe and Hiroko Ota, have been replaced in the recent cabinet reshuffle. These former ministers were initially appointed by the previous Abe administrations to push reform agenda through.

An acceleration of reform for global competition seems to have become increasingly unpopular in Japan, due to discontent spreading among voters in stagnant rural economies. For example, in the town meetings I regularly hold in Matsuyama, the capital city of Ehime Prefecture, which is my election district, many of my closest supporters constantly express their gravest concerns towards increasing imports from China, stagnant wages and the perceived economic disparity between Tokyo and the local economies, accusing the government for not doing anything to resolve these issues. Today Japanese politicians are pressured to pay more attention to income disparity and industrial protection against take-over by foreigners than to emphasize the benefits of global competition.

We must bear in mind, however, that if we allowed these backlashes to grow, the basis of global economic prosperity could easily be lost. When we look back in history, after the Black Thursday in 1929, protectionism rose in many countries, and global economic prosperity came to an end, which eventually led to World War II.


2. Growing Interdependence in East Asia

Therefore, it is crucial that political leaders in Asia and the US collaborate in a joint effort to push back such a backlash, since Asia knows that it has benefited most from global trades and investments. Asia, including Japan, Korea, China, and India, increased its share of world GDP by over 10 percent during the past three decades, while the others, except for Europe, have reduced their proportions. Globalization has benefited Asia and its economic prosperity promoted democracy with a rise of the middle-class in the society. The mechanism deserves to be termed "Asian miracle."

As we all know, the key to the Asian economic success has lied in the model of "export-driven growth", in other words, Asian economies have engaged themselves with the rest of the world by exporting goods and services. A unique characteristic of the Asian success is to keep their windows open to the world on the basis of international division of labor and the world trading system.

In fact, even amidst the Asian Currency Crisis of 1997, many Asian countries took advantages of foreign capital inflows to achieve economic recovery. In Japan, the Koizumi administration focused on privatization, deregulation policy, and introduction of foreign direct investment to strengthen banks' capital in the early 2000s. The Abe administration further pushed the Japanese economy to open towards global competition in main industrial fields such as financial services, advanced education and airline services. Thus, Japan managed to move out of a severe deflationary condition after the long period of the so-called lost decade of procrastination.

During the past ten years, the increase of intra-Asian trade has outperformed that of world trade by a wide margin, demonstrating the depth and importance of economic integration among Asian countries. Therefore, it is essential that we, as leaders of our nations, work together to meet the challenges against globalization.


3. Three Principles for East Asia

In view of these rising challenges, I offer my thoughts on three principles which I consider to be most important for the future of East Asia. The principles consist of three "NOs".

a. No Protectionism
The first no is protectionism. As mentioned earlier, a short-sighted protectionist approach to trade of goods and services would seriously hurt long-term prosperity in Asia, as well as in the U.S. Thus, let us continue to work together in our joint efforts to restart the WTO Doha round trade negotiations as soon as possible. At the same time, I believe it is important that we push forward on our bilateral discussions for further economic integration.

The US-Korea Free Trade Agreement signed more than a year ago, still waits ratification by a concerned U.S. The agreement, once celebrated as the second largest trade agreement ever for the U.S., and expected to push up Korea's GDP by 0.6% for the next ten years, now faces strong resistance from protectionist lobby groups. We are extremely interested in the discussions of this issue in the US presidential election

Japan and Korea started negotiations on their Economic Partnership Agreement in 2003, while actual negotiations unfortunately came to a standstill in 2004. I would imagine today's participants all agree upon the positive effect of an EPA, and the necessity of the reform in domestic markets in our two countries. Resuming the EPA discussions is essential for both of our countries, not only for the benefits arising from opening up of markets, but since it could serve as a driving force to accelerate domestic structural reform in both countries, even in times of tough political resistance. Further, the EPA would serve as a platform for Japan and Korea to actively collaborate in addressing other global issues, such as the climate change, energy security and development aid. One field of particular importance in which Japan-Korea collaboration would be effective is how to improve the energy efficiency of emerging mega economies such as China and India, which we now all recognize as one of the most important causes of rising energy and resource prices.

b. No Weak Dollar
The second no is a weak dollar. In Asia, the dollar dominates payment flows in intra-regional trade, to say nothing of investment flows. In the Chinese foreign exchange market, the US dollar captures more than 95% of the transactions. Also, most of Japanese multinationals use dollar payments for their supply chain management in Asia. In other words, the US dollar functions as a linchpin of trade and financial activities in Asia.

If the dollar value weakens, it would destabilize these activities in the short run. Further, a weak dollar is highly suspected as one of the major causes for price surge in oil and natural resources. Even worse in the longer run, the dollar might lose its vehicle currency role, entailing tremendous losses for the U. S. in terms of seigniorage, financial services profits, and intelligence capabilities associated with the dollar payment system.

Unexpected disturbances, such as the Afghanistan invasion by the Soviets in the 1970s, occurred in history in times of a weak US economy associated with the weak dollar. Adversaries tend to take advantage of economic and financial dislocations of the US power based upon alliance. It is ever more important for the U.S. to recognize the importance of strengthening its economic and political bonds with its East Asian allies in order to fend off any potential crises at this time of uncertainty.

c. No Isolationism
This point leads us from the discussion of economics to politics. The third and final no is isolationism, especially with respect to the US presence in East Asia. Although North Korea has finally destroyed a part of its Yongbyon power plant in June, we all know that we are still miles away from destroying North Korea's underlying nuclear ambitions. We must make sure that no sense of relief be signaled to North Korea at this time, and that we continue to keep pressures on them until all present and future nuclear threats are unconditionally and irrevocably removed. Also important is the fact that Japan and Korea citizens share serious concerns regarding North Korea's ambiguous response to the abduction issue which has devastated so many lives of those innocent victims. It should be added that security in the region will not be achievable if the next president of the United States turns his back towards its global responsibilities by taking a hands-off policy towards East Asia.

Another dimension I would add to this regional security concern is the recent Russian aggression in Georgia. This quick army mobilization, together with air coverage and naval assistance, attests to Russia's careful preparation of this operation in advance. The preparedness of Russian forces has awakened us to revisit the role of U.S. and its allies in North East Asia, or the North West Pacific from a US perspective. Unlike East Europe and Southern CIS countries, there has been no Russian vassal state in this area. This is due to the undisputable US commitment to this area through our US-Japan and US-South Korea alliances. We all now understand even starkly the importance of not only BMD, but also our intelligence capabilities to detect any incipient hostility in North East Asia through a strong and visible US presence in this region.

Therefore, in light of the background of Asia's diverse and fluid nature, the military presence of the U.S. and its active involvement in the region is an indispensable element for regional stability which ensures economic prosperity in Asia. Senator Biden, an expert in foreign policy especially in East Asian relationships, was recently appointed as running mate for Mr. Obama, and I hope to see an increased level of awareness of US commitment to East Asia in the course of the presidential campaign.


4. Holding Firm to our Principles

What can we do to realize these three principles? We have always urged the U.S. to keep its interest to Asia assuming that it is only natural for the U.S., to listen to Asian democracies. However, we must always bear in mind that the Asian democracies must also succeed in convincing the U.S., especially the US public that US interests cannot be secured without a stable and predictable Asia. What should Asian democracies do? We should have strong ties across all sectors which will enable us to work together in addressing threat to our prosperity, be it political or economic. Japan will continue to be committed to meeting any challenges that our region faces, and look forward to working closely together, in particular with Korea as democratic partners. Without such efforts on our part, it will not be convincing to simply call upon the U.S. to remain engaged with Asia. Building a more stable Asia based on democracy is our ultimate goal, while keeping in mind that transformation to democracy will not happen overnight and appropriate care be given to differences among Asian countries.

As my concluding remarks, I would like to stress once again the importance of the leaders of our nations to work closely in collaboration in our joint endeavor to rise to the challenges against globalization. This is not an easy task. It is so tempting for us politicians, to go down the easy road of chauvinism and protectionism, especially in times of upcoming large elections and economic difficulties. It is in this circumstance that we are tested by history whether we trade off long-term prosperity in exchange for short-term comfort, and sacrifice our principles in the face of immediate popularity. I know that politicians do sometimes have to compromise, but we cannot compromise where there is no principle. I will be happy if you join me in supporting the principles I outlined this morning.

Thank you.