Chapter 3:Increased Trade in a Changing International Setting, 1985-1989

During the latter half of the 1980s, Communist bloc countries moved toward economic renovation, no longer able to function under the weight of command economies. On a macro level, Soviet Premier Gorbachev's policies of glasnost and perestroika softened the Soviet threat in the eyes of the West. Economic reforms were sweeping through the Asian Communist powers as well. When Deng Xiaoping shifted the Chinese Communist Party (CCP) priorities toward modernization before revolutionary ideology, China began an earnest move toward a close relationship with the West. Similarly, Vietnam's leaders began the Doi Moi (economic renovation) reforms in December of 1986, which emphasized modernizing the economy and improving Vietnam's markets. These sweeping attitudinal changes among Asian powers, coupled with increased bilateral Japan-Vietnam trade, paved the way for the eventual restoration of economic assistance from Tokyo and unrestricted economic relations between Japan and Vietnam.

This chapter first looks at the international factors surrounding Japan's position in the region and Japan's attitude toward Vietnam, including Tokyo's position concerning policies between regional powers. It then investigates the domestic political and economic pressures that set up Japan and Vietnam for closer relations. The shift from security concerns to economic priorities occurred throughout the region and within Vietnam and Japan as well. This changing international setting placed Tokyo in a position of power in the region as the Japanese maximized the effect of their foreign aid and extended the advantages of Japan's centrist diplomatic style.

This chapter will address the issue of how the changing international climate affected Japan's "middle" position. As ASEAN and Indochinese countries looked to develop their economies, Japan's influence in Southeast Asia via development aid increased. Conversely, Vietnam felt the increasing burden of its incursion into Cambodia as valuable developmental aid from Japan, France, the International Monetary Fund (IMF) and the World Bank continued to elude Hanoi. When Vietnam announced the withdrawal of troops from Cambodia in 1989, regional powers were in a quandary on how soon and in what manner to handle resumption of normal economic assistance to Indochina. Japan, which had acted somewhat as Vietnam's advocate to the United States and ASEAN, shifted its emphasis to economic enticements for the entire region if a comprehensive political solution could be found to the Cambodian question.

Domestically, factors such as oil and raw material imports from Vietnam came to play the dominant role in the Japan-Vietnam association. Political posturing on whether or not to extend aid to Hanoi had ended, and bureaucrats from the Foreign Ministry quietly kept ties with Vietnam on a reduced level. The Foreign Ministry looked toward filling a leadership role in solving the Cambodian crisis among ASEAN and Western powers concerned with the region, and it pushed the Japanese government into an active role in providing aid for the region. Because Hanoi's international debt problems showed promise of resolution, the Ministry of Finance looked to service Vietnam's debt to further economic stability and trade with Japan.

This chapter covers the period from 1985 to 1989, a period of political stalemate in Indochina but dynamic economic evolution throughout Southeast Asia, including Vietnam. The changes in the region dramatically increased Tokyo's leadership in terms of foreign aid and highlighted Hanoi's need for economic rejuvenation. The shift in priorities for ASEAN, China, and Vietnam allowed Japan to slowly increase contact with Vietnam, eventually setting the stage for resuming aid in 1992.

International Developments

The International Monetary Fund

International monetary organizations such as the International Monetary Fund (IMF) and the Asian Development Bank (ADB) dealt a harsh blow to Hanoi in 1985. The purpose of such lending institutions is to facilitate economic reform, infrastructural development, and the stabilization of currency via loans and grants-- exactly what Hanoi needed to solidify its postwar economy. However, the leadership of the IMF looked at Vietnam's stagnant growth rates and spiraling inflation rates and saw no hope for Vietnam to repay the debts already incurred to the IMF. Subsequently, the IMF suspended aid in 1985, when Vietnam defaulted on overdue loans. Economists agreed that Vietnam would have to settle its IMF debts before it could attract Western investment. According to the State Bank of Vietnam, these debts stood at about $130 million. The IMF also told Vietnam that it must introduce a "comprehensive economic adjustment programme" to stabilize the country's economy. In 1987, the IMF agreed to help Vietnam arrange foreign loans to cover two-thirds of the country's arrears, if Hanoi first paid the remaining third from its own resources, but this payment never materialized. By 1989, Vietnam began to make token payments on the interest due to the IMF under the "intense collaborative approach" while the IMF and the World Bank gave Hanoi nineteen recommendations for stabilizing its economy in order to maintain interest payments.

The ADB had yet to extend loans to Vietnam, and would not do so until 1992. Even though ADB regulations forbid discriminating against countries because of their political and social issues, Vietnam's international debt problems prevented the ADB from extending credit to Hanoi. In 1989, ADB programs director Ronald Skeats expressed optimism:

We would like to resume lending [to Vietnam], and the
portents are rather positive as soon as this perception is shared
among all ADB member countries.[italics added]

The conditional statement "among all" is in reference to Japan and the United States, two leading shareholders in the ADB that had taken a hard-line position against Hanoi and refused Vietnam access to funds. Washington needed to pressure Hanoi on the POW/MIA issue, and Tokyo needed to maintain its close relationship with Washington. Optimism aside, Vietnam needed help from donor countries such as Japan and France to underwrite the outstanding debts. It would be well into 1992 when Vietnam and the ADB came to terms.

These international bodies hoped for change as Vietnam embarked on economic reorganization efforts in 1986. Vietnam's economy improved greatly under the Doi Moi reforms. Officials in Japan's Foreign Ministry received Hanoi's change of direction with some reserve. At the time, Tokyo predicted Vietnam's reforms would follow a strict Soviet model, with tighter social controls to maintain the primacy of the party within an economic restructuring. Despite a change of leadership in Hanoi and Vietnam's pledges for better relations, Japan's Foreign Ministry did not expect any progress in relations with China, Japan, or the United States.

Vietnam's export-led growth centered around its wealth of raw materials, most notably the crude oil exports that began in 1985. By 1989, officials at the IMF and World Bank considered "an exemplary Vietnamese effort at economic stabilization and structural adjustment" and contemplated Vietnam's reentry into the multilateral financial institutions. However, Washington and Tokyo insisted that Vietnam must not only withdraw its troops from Cambodia but also contribute to a long-term political settlement of the Cambodian crisis. The U.S. and Japan were calling for a comprehensive solution, that included an internationally controlled supervision team to verify the withdrawal. IMF officials, wary of attaching political conditions to its aid policies, stressed Vietnam's economic progress in their report, but US and Japanese objections could not be overcome. One IMF official declared:

[The IMF] should not be held hostage . . . The US and
Japan can do what they want with their bilateral aid, but they
should not bring in their poorly disguised political agenda into
multilateral institutions dedicated to solving economic problems.
The fund and the bank must lead the way into Vietnam because
all the bilateral aid relationships are waiting for the signal from
us.

Though most officials at the IMF approved of Vietnam's progress, the United States and Japan held enough strength within the multilateral lending body to halt funds for Vietnam. Washington and Tokyo demanded a more comprehensive solution to the Cambodian issue, because both countries were anxious to prevent the return of the Khmer Rouge but could not state this openly because of diplomatic ties to Beijing.

By 1989, Do Muoi (not to be confused with Doi Moi), the Vietnamese Premier, courted Japan directly by stating that IMF funds were forthcoming as soon as Hanoi paid the first third of its debts. Muoi accused Western countries of taking the Cambodian occupation as a pretext to continue their "politically hostile policies and impose economic sanctions against Vietnam." Reassuring Tokyo that the scheduled pullout of troops would continue despite the lack of an international control mechanism to inspect the withdrawal, Muoi pressed Japan to resume aid because the pretext would no longer exist, but to no avail. Support from the IMF and ADB, along with Japanese economic assistance, wouldn't resume until 1992.

Given Tokyo's desire to claim the middle ground and Japan's willingness to provide aid to international bodies, a quick analysis would predict that Japan should support IMF and ADB liberalization toward Vietnam. But Tokyo's solidarity with Washington in demanding a comprehensive peace reveals two developments: (1) Japan's unity with the United States in foreign policy toward Asia continued through this period, and (2) Tokyo's increased influence via foreign aid (or withholding aid) was accompanied by a new assertiveness toward bringing peace to Indochina [see the section Foreign Ministry below].

The United States v. Honda Motor Company

The United States continued to pressure Japan to increase its regional leadership during the second half of the 1980s. Washington welcomed increasing levels of Japanese Overseas Development Aid (ODA) to crucial "front-line" countries such as the Philippines and Malaysia. At the same time, the United States continued to aid Democratic Kampuchean forces as well as pressure Hanoi with economic sanctions. However, some allies weren't "playing with the team" in the eyes of some senators. Japan, in particular, with increasing levels of trade in crude oil, lumber, fish, and machinery, looked as though it were compromising Washington's tough stance against Hanoi. In September 1987, the U.S. Senate passed a resolution stating:

The Congress hereby strongly urges Japan to (A) prevent
its private business sector from engaging in developmental trade
with the Socialist Republic of Vietnam and (B) discontinue
specific Japanese trading practices with Vietnam which provide
long-term credits and developmental equipment, including
equipment for oil and gas development, forestry and fishery
production, development of commodities for light industries, and
the upgrading of production capacities for export purposes.

Senator Katsen (WI), who proposed the resolution to the Senate floor, lambasted the Japanese government for its apparent indifference to Western efforts to isolate Vietnam. The Senator singled out Honda Motor Company, which had plans to build a motorcycle factory in Vietnam but cancelled its plans after learning of the threat of losing the U.S. market under the Trading with the Enemy Act. Senator McCain (AZ), a Vietnam War POW, commended the resolution and added vivid stories of Vietnam's atrocities in Cambodia. Finally, Senator Jesse Helms (NC) harped on Japanese business practices in general, calling Japanese businessmen "the scavengers of the world," and cited several examples where Japan had crossed the embargo lines against Nicaragua as further proof of his accusation.

The next day, Honda Motor Company abandoned its plans for a motorcycle plant in Vietnam as well as plans for economic relations in Cambodia and Laos. The Senate criticism came on the heels of a Toshiba delivery of computer equipment to the Soviet Union, after which Toshiba lost its American market because of a Senate resolution. The pressure was felt in official channels as well. A "Japanese diplomatic source" announced that Japanese companies would slow down investment in Vietnam:

The question of private trade between Tokyo and Hanoi
was brought up [in a visit to Hanoi by Kineo Fujita of the
Foreign Ministry] and we do not think it is a good time to
increase Japanese investment in this country.

Hanoi, as could be expected, rebutted the resolution in a fiery commentary against the "perfidious schemes" and "obstinate furtherance of their hostile policy against Vietnam." Vietnam had the right, it claimed, to conduct business with countries outside the Socialist realm just as EEC members traded with Eastern European countries or the U.S. traded with the Soviet Union. Beijing, however, ran an editorial in Renmin Ribao, citing Japan's trade with South Africa despite an international embargo, and calling on the Japanese to "think twice when faced with a choice between 'profits' and 'morality.'"

The Senate resolution and ensuing retreat of official Japanese channels shows that Washington still held sway in Japan's foreign policy. The delicate balance of Japan-U.S. relations depended on U.S. security issues in Asia as well as Japanese corporations' access to the American market. Toshiba's violation of the COMECON trade restrictions against Communist bloc countries and the Senate's response to that violation proved to be a lesson for businesses dealing with Vietnam.

Several points can be divined from Japan's reaction to what probably amounted to domestic posturing by U.S. Senators (1987 saw a slight recession in the U.S. and recessions always breed Japan-bashers). Tokyo could have reined in Honda for several reasons: (1) open defiance of U.S. Congressional resolutions only invites more resolutions, which would bring all Japanese operations in third-world countries under criticism; (2) placing manufacturing plants within Vietnam could upset ASEAN and China because they would have lost an offshore production contract, and (3) as with the Toshiba case, Honda's production could aid Vietnam's efforts in Kampuchea, and would therefore run counter to Tokyo's foreign policy goals, though this last point sounds like a good cover for what probably amounted to simple kowtowing for the sake of Japanese-U.S. relations.

While it was diplomatically advantageous for Tokyo to take the center between Washington and Hanoi, the diplomatic costs for moving ahead of the United States outweighed any economic advantages gained by increasing investment in Vietnam. For the United States, censuring Japan via the Honda case seemed sufficient because the U.S. State Department had more pressing issues in the POW/MIA problem-- the United States could not exactly serve out indictments with clean hands.

China's diplomatic efforts

Sino-Japanese relations progressed rapidly after the signing of the Peace and Friendship Treaty in 1978. Beijing sought Japanese investment to shore up its modernization efforts; Japan sought access to China's vast resources and huge consumer market. A main priority of the Chinese dignitaries visiting Tokyo, it seems, was to stress the need for official and commodity loans by the Japanese government, much the same pitch Trinh had made to Tokyo in 1978. The difference was that China presented no immediate security risks to ASEAN and the West, while Vietnam's behavior in Indochina was unpredictable.

In Indochina, Beijing remained stalemated with the Soviets over what to do about Cambodia. From the Chinese stance, Vietnam was acting as Moscow's puppet in order for Russia to surround China, a perception further bolstered by the continuing Soviet occupation of Afghanistan. Tokyo, while valuing its good relations with Beijing, was leery of aligning too closely in an "anti-Soviet" pact, and did its best to steer clear of Sino-Vietnamese problems, stressing economic development instead.

In January 1989, Beijing and Hanoi agreed that Vietnamese troops would withdraw from Cambodia by September 1989, and China would stop its military aid to anti-Vietnamese resistance forces, thereby effectively ending external involvement in the protracted conflict. A war-weary and capital-starved Vietnam appeared ready to deal with China, which was looking to improve its international and regional power in light of a collapsing Soviet presence in East Asia. Beijing's solution for improving Sino-Vietnamese relations complemented Japan's agenda for the region. China demanded that Vietnam must withdraw from Cambodia and Laos under some sort of international supervision, end the Soviet presence in Cam Ranh Bay, and accept Chinese sovereignty over the Spratly Islands.

Except for the Spratly Islands issue, these demands were compatible with Tokyo's stated positions. With Vietnamese troops out of Cambodia, Tokyo's Ministry of Finance and MITI could reactivate their plans to send aid and loans to Vietnam. Tokyo had demanded Soviet withdrawal from Cam Ranh Bay in 1979 when Japan was still toying with the idea of sending economic assistance. Furthermore, Beijing's concession of ending support for the anti-government factions in Cambodia (specifically the troublesome Khmer Rouge) certainly sat well with ASEAN (and therefore Japan), which was wary of increased Chinese hegemony in the region. Hanoi was also ready to solicit ASEAN investment and the huge pool of loans that would come from the IMF and World Bank if a solution to the Cambodian issue could be found.

Perhaps the most crucial influence on Japan-Vietnam relations coming from Beijing was the Sino-Soviet summit in the spring of 1989. By the time of the summit, the Cambodian question had become how to fill the vacuum left by withdrawing Vietnamese troops. Chinese officials reported to their Japanese counterparts that China had proposed a coalition government with the Heng Samrin (the Vietnamese puppet regime) and the three opposition factions-- an idea rejected by the Heng Samrin and Vietnam. Vietnam had preempted China by announcing that a troop withdrawal would be completed by September. At the summit, China and the Soviet Union issued a nine-point communique that outlined the superpowers' positions on Cambodia. In what appeared to be a competition over who would take credit for resolving the issue, China pushed the Soviets to help reach a political solution before the scheduled September withdrawal in order to give Beijing the prize of "solving Cambodia." Li Peng met Prince Sihanouk just hours before the conference with the USSR and expressed China's support for the former Cambodian head of state. Points in the communique included (1) the need for an "effective control mechanism" to supervise a Vietnamese troop withdrawal, (2) an end to military aid to the various factions, (3) the holding of free elections, (4) the convening of an international conference on Cambodia "when conditions are ripe," (5) no foreign troops or military bases in Cambodia after Vietnam's withdrawal, and (6) that the UN will play its "appropriate role as conditions gradually present themselves."

Though Japan's Foreign Ministry issued no immediate statement about the communique, points outlining international participation, the banning of foreign troops, and the promise of an international conference on Cambodia forwarded Tokyo's goals for the region. Japanese foreign policy held the United Nations in high regard, and subsequent offers by Foreign Minister Kurinari that pledged Japan's participation through the UN on a solution in Cambodia give evidence of Japan's support of the communique. Tokyo's nonresponse may be seen as an attempt to avoid the appearance of Sino-Japanese collusion in Southeast Asia. Japan's aid and trade with China was developing rapidly, as were Japan's financial ties to ASEAN. Tokyo did not need to show a comment or act on China's efforts in resolving Cambodia: Japan's goals were being met regardless of Tokyo's approval of Beijing's moves, and Japan only risked confusing the issue (compromising its middle ground) by commenting on Sino-Vietnamese relations.

ASEAN's shift from security to economic development

In 1979, When Tokyo suspended economic aid to Vietnam, the realpolitik of Soviet containment and China-courting played the dominant roles in determining Western governments' policies in Southeast Asia. At the time, ASEAN was little more than a regional grouping of underdeveloped, free-market economies. Communiques issued collectively by the foreign ministers of ASEAN concerning security issues and calls for action from the superpowers came only after Vietnam posed a real threat in Indochina by invading Cambodia.

Apart from the common security stance against Vietnam, ASEAN's power grew rapidly in economic terms during the 1980s-- in no small part because of the massive amounts of trade and aid from Japan. As Tokyo placed top priority status on Southeast Asia, alongside its relations with the United States and China, ASEAN's clout in Tokyo grew. Indeed, as Japanese corporations sought fertile investment opportunities for offshore production, trade with ASEAN countries blossomed.

At the 1987 ASEAN Ministers' Conference, Foreign Minister Kurinari outlined a plan for a "new fund" to provide low-interest financing for joint ventures and debt relief. Japan needed to recycle its trade surplus with ASEAN countries, as well as move beyond the vertical integration inherent in the Fukuda Doctrine. According to Kurinari, Japan would place emphasis on horizontal integration within the region and on bringing relations between Japan and ASEAN to account for factors in the entire Asia-Pacific region, not just within ASEAN.

Certainly Tokyo was well aware of the economic drag that Vietnam and the festering Cambodian issue were placing on development in Southeast Asia. Reports in the Japan Economic Journal looked forward to the economic possibilities coming from emerging communist countries:

Moreover, China and the Soviet Union have set out on a
new Asia-Pacific policy which emphasizes the economy.  This
new economic rationalism appears to be spreading to Vietnam as
well, and may soon provide new opportunities in reaching a
political resolution to the Kampuchean conflict.

As ASEAN increased in economic power, its voice on the difficulties in Cambodia grew stronger. Replacements for the cold war containment models used in the 1970s, Japan's policies that centered on foreign aid seemed to be giving adding more credence to ASEAN's developmental outlook in the region.

The ASEAN countries had always been the most vociferous of regional the players in their opposition to giving any kind of economic advantage to Hanoi. However, the danger of such zealotry is that it allows others to "cheat": knowing that ASEAN would take the polar position against Vietnam gave Tokyo room to move toward the middle ground between ASEAN and Hanoi. Because of ASEAN's tough stance, Japan could allow trade to increase without taking the political heat for "compromising" the economic limits placed against Vietnam, since Japan merely had to vocalize its support for ASEAN's position without taking hard action.

For example, by the mid-1980s, Hanoi began to court Japanese trading houses with its wealth of natural resources. Vietsovpetro began pumping oil in 1985. Shrimp, rice, and lumber production all did well under the Doi Moi reforms in Vietnam. As Nissho- Iwai and other large Japanese trading houses began to do business with Vietnam in crude oil, agricultural projects, marine products, and lumber, ASEAN was caught in a trap: continuing a hard-line stance against trade with Vietnam could upset probusiness MITI and the Ministry of Finance in Japan. An upset which could endanger aid and trade relations with ASEAN's primary trade partner, but compromising on the Japan-Vietnam trade issue might undermine the pressure on Hanoi to withdraw from Cambodia.

This dilemma broke in Tokyo's favor in May 1987, when Singapore Foreign Minister Suppiah Dhanabalan declared that ASEAN no longer objected to Japanese trading firms' plans to do business in Vietnam. However, Dhanabalan placed limitations on ASEAN's allowances: Nissho-Iwai could do business in Vietnam, "providing it is purely commercial, and provided that the company did not extend export credit to Vietnam. This allowance did not apply to government-controlled economic policies. ASEAN would object if the Japanese government or governmental bodies extended export credit or aid of any other kind to Hanoi. The Singapore foreign minister reiterated that ASEAN's economic policies toward Vietnam did not include trade embargoes or economic boycotts but did oppose any noncommercial quasi-government assistance to increase trade or economic aid. The Foreign Ministry responded:

Last Friday, the Foreign Ministry requested that some
Japanese companies be more careful in doing business with
Vietnam so that foreign nations do not misunderstand Japan's
stance against Vietnam's invasion of Cambodia.

The Foreign Ministry acknowledged Dhanabalan's concerns, but gave no definitive policy regarding trade with Vietnam. In fact, the Japanese government had come to the defense of Nissho-Iwai against accusations by ASEAN officials:

The government told ASEAN last week that its
investigations showed Nissho Iwai's activities in Vietnam to be
of a strictly business nature, and that businesses have been
warned not to engage in activities that may arouse the suspicions
of the noncommunist nations of Southeast Asia.

Dhanabalan retreated by saying that ASEAN would object if the Japanese government gave export credit or aid to Hanoi, but ASEAN did not believe that it would stop Japanese firms selling their products to Vietnam for money it [Vietnam] already had or had received from the Soviet Union. "ASEAN's concern is to deny Vietnam aid, not to have a trade embargo."

The similarities to the U.S. Congressional protest against Honda in September of that same year cannot be ignored. In both cases, foreign officials complained to Tokyo about a Japanese firm's dealings in Vietnam. In both cases, the Foreign Ministry publicly censured the "offending" company, stating that the risk of "upsetting the international situation" (or in other words, jeopardizing Japan's position in the middle) dictated caution. However, in response to ASEAN's complaint, Japan's Foreign Ministry released subsequent statements that defended Japan's commercial interest, while in response to the United States, Japan did not justify its business when Congress complained against Honda. This difference demonstrates the hierarchy in Japan's foreign relations: U.S. complaints are heard and adjusted to, whereas ASEAN's complaints are merely heard.

By 1989, ASEAN member Thailand began to move toward closer relations with its Indochina Peninsula neighbors Cambodia, Laos, and Vietnam. The Thai government hoped for new joint ventures in fishing and agriculture and instructed Thailand's National Security Council to study ideas to increase trade with Vietnam. The private sector in Thailand had traded with Vietnam throughout the Cambodian crisis, but now the Thai government was hinting at official trade programs with Vietnam and Cambodia. Prime Minister Chatichai Choonhavan even remarked that Thailand should concentrate on changing Indochina from a battlefield to a marketplace.

As economic development became more important to ASEAN and Indochina, Japan stepped up its economic enticement for a solution to the Indochina quagmire. At the ASEAN plenary session of foreign ministers in June 1987, Japanese Foreign Minister Tadashi Kuranari called for the pursuit of a peaceful resolution to the Kampuchean problem and pledged financial and other forms of assistance by Tokyo for the economic reconstruction of Indochina. Kuranari called the Cambodian issue "a source of instability in Southeast Asia" with "global implications." In evolution from the carrot Japan had held in front of Vietnam since 1979, Tokyo now offered aid to the entire region, the offer conditional upon resolution of the Cambodian issue. The offer was aimed directly at ASEAN (delivered at the ASEAN conference), whose member countries were starting to see the potential for foreign direct investment through opening markets in Indochina if only the Cambodia-Vietnam conflict could be resolved.

Japan, which had originally used ASEAN's security worries as a diplomatic cover for the suspension of economic aid in 1979, now held an increasing economic interest in a resolution of the Indochina problem. Japan sought to participate in conferences and negotiations sponsored by ASEAN. By 1989, the Cambodian factions began to realize the need for serious negotiations. Informal talks were held in Bangor, Indonesia, in late January 1989. ASEAN ministers showed great diplomatic finesse in getting the Cambodian factions to agree to the negotiations. Parties within Indochina and the region as a whole started to recognize ASEAN's prime position in resolving the Cambodian issue-- Vietnam, China, the USSR, Japan, and the United States saw that economic dynamism was replacing military hegemony in the international relations of Southeast Asia.

The countries of ASEAN began to warm up to Vietnam, and in 1989 Hanoi began to consider becoming a member of ASEAN. Indonesia hinted that it could take the diplomatic lead in rapprochement with Vietnam, because relations between Jakarta and Hanoi had remained warm despite the Cambodian crisis, based on a shared distrust of China and a shared history of anticolonial struggles. Hanoi made several diplomatic overtures to Indonesian and Thai officials, hinting that Vietnam desired to join ASEAN. Thai officials commented that Vietnam's political ideology should pose no serious threat to membership so long as Vietnam accepted ASEAN's basic principles: the Bali Treaty, the creation of a Southeast Asian zone of peace, freedom, and neutrality, and the avoidance of the use of force to resolve conflict. Philippines Foreign Secretary Raul Manglapus visited Hanoi in 1988 and suggested that Hanoi sign the Bali treaty as a "significant step" toward ASEAN membership. However, Malaysia and Singapore diplomats remained reserved on Vietnam's potential membership. All member states agreed that a solution to the Cambodian question would predate any serious action toward admitting Vietnam. For Singapore, this hesitation could have been economically based, because Singapore enjoyed significant trade (ten times the level of Thailand) with Vietnam. Closer relations with others might mean Vietnam would shift its trade routes through Thailand or Indonesia, away from the trade-centered city-state. Indeed, when Vietnam invaded Cambodia in 1978, the crisis provided a need for cohesion and coordination among ASEAN countries. As political hegemony shifted toward economic development in Indochina, rifts developed within ASEAN as competition for the virgin markets of Vietnam, Cambodia, and Laos increased.

The pattern is easy to recognize: as Japan began to spread its economic influence through offshore production and raw material "neocolonialism" throughout Southeast Asia, Thailand and Indonesia began to look to Burma and Indochina as targets for development by their own firms, following the Japanese model. Renewed pledges of increased aid and capital from Japan toward rebuilding Indochina whetted the appetites of Indonesia and Thailand, obvious conduits for aid toward reconstruction efforts. Marine products, timber, mineral resources and hydropower could be harvested from Indochina and sold in the needy, heavily populated Thai market in return for Thai manufactured goods. Korn Tapparangsee, a minister in the Thai cabinet, urged aid-providing Scandinavian countries to become Thailand's investment partners in Indochina and Burma, describing Indochinese countries Thailand's "inner ring" and the larger ASEAN market as Thailand's "outer ring."

Japan continued to act through ASEAN on the issue of renewing economic aid. Economic assistance remained dependent on a solution to the Cambodian question. Bangkok and Jakarta repeated the promise of economic aid following a settlement of the crisis, and Tokyo stood with them, a stance reflected by the comment of a Japanese diplomat in Bangkok:

We'd like to see some sort of an international conference
in which Japan can take part in the provision of financial and
economic assistance.

Japan's regional leadership role was increasing. Compared to 1978 and 1979, when Tokyo cut off aid to Vietnam and used ASEAN's concerns almost as an excuse, Japanese officials were becoming proactive in their approach, attempting to involve the ASEAN and Indochinese countries in finding a solution to the Cambodian problem.

But resolution of the Kampuchean issue continued to elude ASEAN ministers. In 1989, as Vietnamese troops began to trickle out of Cambodia and a solution to the region's troubles seemed imminent, factions continued to fight within Cambodia's borders instead of negotiating in Jakarta or other proposed sites for a political settlement. Indonesian Foreign Minister Ali Alatas came under criticism for his continued insistence on a comprehensive solution of the Cambodian conflict. Thai Prime Minister Chatichai Choonhavan's government had proposed a step-by-step process of resolution, which came to be known as the gradualist approach. Indonesia, eager to find a solution and increase trade with Vietnam, searched for a policy that would not mimic the gradualist arguments but would conform to the reality in Indochina. Vietnam, armed with the claim that its troops were indeed withdrawing from Cambodia, was growing weary of the protracted negotiations led by Alatas. Furthermore, factions within Cambodia stepped up their fighting in the vacuum left by departing Vietnamese troops.

On the whole, ASEAN saw its power increase within the region. Japan supported this increase, with initiatives for a "new fund" of developmental aid and statements from Japan's Foreign Ministry that promised to provide aid for the entire region if a solution to the Cambodian issue could be found. The overall shift from security-driven policies to developmental economic enticements served to enhance the Japan-ASEAN relationship as well as strengthen Japan's influence in the region in both ASEAN and Indochinese countries with the promise of aid if a comprehensive solution the Cambodian issue could be found.

Indochina's factions

As early as 1986, Vietnam foresaw an eventual withdrawal from Cambodia, possibly by 1990. Vietnam seemed certain it could withdraw troops by 1990, and could wait for economic aid until then, if necessary:

If we have to wait until 1990, we are prepared to wait. It's
bearable . . . [until] the so-called Kampuchean question no
longer exists.

However, talks between the Vietnamese-backed Heng Samrin regime and the Chinese-supported Khmer Rouge had yet to progress. Norodom Sihanouk and Son Sann, the other two parties fighting against Heng Samrin, could get little backing other than verbal support and aid from the West. Stalemate in Cambodia was a direct result of the lack of progress between China and Vietnam, and China and the Soviet Union. Against this backdrop, Japan once again played the role of Vietnam's "friend" and stressed the need to maintain open channels with Hanoi.

Of all the resistance leaders, Norodom Sihanouk enjoyed the most open support in Tokyo. The former prince had access to the highest officials whenever he visited Japan (usually in transit to the U.S.) and met with Prime Minister Takeshita in August 1988. Toru Yano, a professor of Political Science at Kyoto University, responded to Sihanouk's visit by outlining several points Japan should follow in order to solve the Kampuchean problem in the Japan Times: (1) treat all four factions with equality; (2) find a solution to reduce Pol Pot's (Heng Samrin's) forces; (3) acknowledge China's role in Southeast Asian peace, and (4) prepare for Sihanouk's comeback as a leader of Kampuchea. Though Tokyo seemed leery of officially recognizing Sihanouk as the leader of choice, out of deference to the Sino-Japanese relationship, Japan was migrating toward a position backing the former Cambodian head of state as leader of a new coalition authority.

Japan gave an unofficial nod to Sihanouk by granting him a meeting with Prime Minister Takeshita and Foreign Minister Uno, a privilege not granted to a Vietnamese leader since Trinh's visit in December 1978. Among Sihanouk's goals was the prevention of a resurgence of the Khmer Rouge after the withdrawal of Vietnamese forces. Takeshita endorsed this when he told Sihanouk that the Vietnamese withdrawal was an important precondition and that the resurgence of the inhumane regime must be checked. The prime minister further advised Sihanouk of his intent to exchange views with China concerning the Khmer Rouge when the prime minister visited Beijing later that month.

Sihanouk also hinted at Japan's position as a possible advocate when he remarked that he "[did] not have the leverage to make China change its support for the Khmer Rouge." He went on to urge Japan's participation in an international conference on Kampuchea under the UN umbrella, as well as participation in an international commission to supervise the withdrawal of Vietnamese forces and the holding of elections. Japan, wary of its wartime history in Southeast Asia, could act best under a UN mandate as part of a larger international effort. This action would provide Tokyo with diplomatic cover against cries of resurgent colonialism from Vietnam, China, and anyone else upset with Japan at the time.

Talks in Kampuchea between the Heng Samrin regime and the tripartite coalition (Sihanouk, the Khmer Rouge and Son Sann) had been ongoing since 1987, with little promise of resolution. However, conferences between China and the USSR in 1988, along with negotiations between China and Vietnam, opened the door for a solution in Cambodia. Sihanouk's increasing profile among international actors gave hope for his leadership after the withdrawal of Vietnamese forces. In November 1988, meetings were held in Paris with most of the parties concerned: Heng Samrin, Son Sann, Norodom Sihanouk, Vietnam, China, the USSR, the United States, Japan and France. At the conference, China agreed to approve a UN resolution that sought "the early withdrawal of Vietnamese troops" because the resolution also indirectly prohibited the Pol Pot regime from returning to power. Though the Pol Pot representatives were not in Paris, China's compromise short-changed the Khmer's long-term survivability. Vietnam also compromised by agreeing to move the withdrawal date forward to mid-1989. Vietnam began withdrawing forces from Cambodia in the spring of 1989. Only pressure from China and the USSR, combined with enticements from ASEAN and Japan, seemed able to move Hanoi and the factions toward a political solution.

As proof of what Japan was capable of doing in Indochina, Foreign Ministry officials pointed to Laos--a Soviet state now abandoned in terms of aid from the Soviet Union and Vietnam. Laos embarked on economic reform in 1986 (simultaneously with Vietnam's Doi Moi reforms), and aid from Japan had increased significantly. Japanese officials had expressed no qualms about the desired effect of Japan-Laos relations: closer ties with Laos could demonstrate to the rest of Indochina what effect economic aid could have on such poor countries-- a sort of carrot-by-proxy approach. Japanese officials also mentioned plans to develop a triangular relationship with Indochina and ASEAN. The message was clear: Japan had enough ODA money for everyone if a workable, long-term solution to Indochina's troubles could be found.

The Soviet Union and glasnost

The most obvious element of change in the Soviet Union's policies toward Asia in the second half of the 1980s was a shift from military priorities to economic development. Relations between Japan and the USSR remained cold throughout the 1970s and early 1980s. Disagreements on the Kurile Islands continued with little hope of resolution. However, with the rise of Mikail Gorbachev and economic reforms, perestroika, and glasnost in the Soviet Union, Tokyo renewed pressure to improve relations. Japan repeated its invitation for the Soviet premier to visit, an invitation that had been standing unfulfilled for over a decade. The shift in Soviet policy was welcome in Tokyo. Japan sought to take advantage of the improving relations between China and the Soviet Union, as stated by one government official:

In addition, we hope that this move of bettering ties
between Socialist nations and the Western camp will also have
the effect of lessening the Soviet influence in the region.

ASEAN officials' reception of the Soviets' new initiatives concurred with Japan's. The ASEAN nations reacted cautiously to Soviet overtures, but resolving the Kampuchean issue remained the key to unlocking the wealth of foreign investment from the West. Anything that the Soviet Union could do to pressure Vietnam would be welcome.

For Moscow, its strategic alliance with Vietnam was no longer reaping the benefits of containing China or spreading Soviet influence among the third-world countries of Southeast Asia. Aid and the trade imbalances that favored Vietnam were no longer possible in the constraints of a floundering Soviet economy. Conversely (or complementarily, depending on the point of view), Japan was standing by, ready to increase its aid and trade with the communist states in Indochina.

Unfortunately, as much as the Soviet Union wanted to increase its ties with Japan's booming economy, the territorial issue stood in the way of any significant progress between Moscow and Tokyo. Thus, Japan-Soviet relations improved slightly with Gorbachev's policies, but no direct help or agreements could be reached in replacing Soviet aid with Japanese aid in Vietnam. For Tokyo, it was merely a matter of waiting: decreased Soviet aid and trade would leave the Vietnamese more desperate for help from Japan and the West. The carrot for withdrawing from Cambodia looked closer and bigger than ever, and it was becoming Vietnam's only recourse.

Shifts at the international level

The latter half of the 1980s saw no dramatic shift in the political alignments in Southeast Asia, but change did occur. The economies of ASEAN began to turn toward economic priorities, and those countries looked to Indochina both as a political hindrance to further growth as well as a potential market for exports. The Soviet Union began a strategic retreat from the region as worsening economic problems at home forced Gorbachev to reverse the Brezhnev expansionist policies. China saw its poor relations with Vietnam and Indochina as an economic drag as well. All these elements served to further isolate Hanoi and compound the pressure to withdraw from Cambodia. Japan stood fast in its demands of a troop withdrawal and a comprehensive peace in Cambodia before reinstatement of economic assistance. Tokyo managed to gain the middle ground between Hanoi and other regional hegemons during this period as well. Though the Japan-Vietnam relationship remained somewhat static, Hanoi was slowly moving toward a resolution that would reinstate full government aid relations with Tokyo.

The most apparent shift in external factors for Japan's policy toward Vietnam was the move from security worries to economic development. Though China's punishment war in 1979 raised fears of a wider regional conflict for both Japanese and ASEAN officials, the fighting soon subsided. However, Vietnamese troops remained entrenched in Cambodia. For the first seven years of Vietnam's occupation, Tokyo seemed content to isolate Vietnam economically. But by 1985, Southeast Asian economies began to see double-digit growth while China, the Soviet Union, Vietnam, and other smaller communist states began to dismantle expansionist rhetoric and replace it with economic prioritization. Vietnam's economy showed signs of real growth when exports in crude oil began in 1985 (see Graph 3.4). The economic opportunities throughout Southeast Asia accelerated to the point where all parties involved saw the urgency of resolving the Cambodian conflict.

Within this context, Tokyo's policies shifted relevant to its regional leadership role. While the dynamics of East Asian economies moved the priorities for those countries' governments toward economic development, Japan's economic- and aid-based influence grew. Subsequently, Tokyo officials began to offer aid to the entire region if a solution to the Cambodian issue could be found as part of a larger, more active foreign policy. Thus, the evolution of Japan's policy toward Vietnam came from four major factors: (1) Vietnam's economic development, which heightened the necessity for foreign assistance from Japan; (2) economic development within ASEAN, which depended on a greatly increased trade relationship with Japan; (3) China's shift to economic development and need for Japanese and Western investment; and (4) the retreat of Soviet power, which isolated Vietnam and allowed greater regional leadership in light of a reduced East-West confrontation.

The balance of power began to shift in Japan's favor. With greater regional influence came greater regional responsibility for finding peace in Southeast Asia. Tokyo's offer to supply developmental aid to the entire region seemed to fulfill this responsibility. However, Japan's bilateral relations with Vietnam continued to be hindered by the troop situation and by pressure from Tokyo's closest ally: the United States. Washington's continued pressure for economic isolation, demonstrated by the 1987 Honda case, counterbalanced any progress with China or the Soviet Union in easing tensions in Indochina. The net effect of these influences on Japan's policy toward Vietnam was optimistic caution. Tokyo renewed its promises for restoration of economic assistance after a comprehensive solution could be found in Cambodia.

Domestic Factors

As in chapter 2, it is important to investigate factors at the bureaucratic level to determine any domestic influences on Japan's foreign policy toward Vietnam. The ever increasing trade relationship with Vietnam and its virgin market began to enter the debate over when and how to reinstate economic assistance, but regional considerations and the U.S.- Japan relationship still dictated prudence from the perspective of the controlling bureaucracy (the Foreign Ministry). As stated above, international relations in Southeast Asia increasingly became subject to economic factors and were less affected by political or security concerns. Japan's import of raw materials from Vietnam increased greatly through Vietsovpetro's crude oil shipments that began in 1985 and the Doi Moi reforms that began in 1986. Although we would expect to see MITI and the Ministry of Finance taking a stronger voice in calling for leniency in policy decisions toward Vietnam, the Japanese government maintained its course: no economic assistance until Vietnam made significant progress on withdrawing from Cambodia. For the time being, given ASEAN's strong objections to governmental or semigovernmental economic cooperation with Hanoi, and the U.S. pressure to curtail overt economic activity within Vietnam, MITI and the Ministry of Finance could only wait for resolution of the Cambodian issue.

However, the lack of government-sponsored aid programs did not deter the private sector from forging ties with the Vietnamese. Starting in 1987, Nissho-Iwai, Mitsubishi, Marubeni, and other conglomerates opened trade offices and prepared for branch offices for banks and other financial institutions. Though the official aid vacuum limited the volume of trade, Japanese corporations began to lay the foundations for a long-term trade relationship.

Ministry of Finance

The Ministry of Finance solidified Tokyo's wariness concerning Vietnam when it issued a report of twenty-seven risky countries in 1984. The report, a reflection of MITI's assessment of sovereign risk, included suspension of export-insurance and was considered a bell-weather indicator for Japanese industries. Along with debt ridden countries such as Mexico, Brazil, Peru, the Philippines, Zambia, and Madagascar, the Ministry of Finance suspended export insurance to North Korea, Lebanon, Afghanistan, Vietnam, and Cambodia. The latter five countries were listed in a separate category, and while not titled as such, it may be assumed the "risk" in these countries came from political concerns.

By 1987, however, the Ministry of Finance was willing to give Vietnam a break. In a new program aimed at easing debt relief to Vietnam (which had one of the worst payment records), the ministry approved a plan that would permit Japanese banks' nontaxable redemption of loans to countries with cumulative debts and formulated standards to approve loans based on the economic situation, interest payment condition, and debt repayment period of the country accepting the loan. This was certainly welcome news to Hanoi, which had committed to the Doi Moi reforms a year earlier and had begun to make headway toward economic stability.

Japan's Institute of Developing Economies, associated with the Ministry of Finance, sent a semigovernmental mission to Vietnam to assess suitable aid projects in the spring of 1989; at the same time, negotiations in Cambodia were progressing after years of impasse. Japan recognized the need for $500 million in aid to stabilize inflation (estimated at 600 percent) on imports of salt, soap, and paper. In addition, the Institute's officials looked to begin restructuring Vietnam's infrastructure of roads, ports, and irrigation. Though no promises of aid had been made, the mission signalled to Hanoi and contractors in Japan that ODA monies might soon be forthcoming.

Unfortunately for Vietnam, Japan balked under U.S. pressure to hold out on restoring economic assistance until Vietnamese troops were withdrawn from Cambodia in the end of the summer of 1989. Japan and the United States, through the IMF, withheld restoring loan programs to Hanoi because (1) the withdrawal of troops had not been verified internationally and (2) a comprehensive plan for political stability in Cambodia had not been reached. According to Susumu Awanohara of the Far Eastern Economic Review,

Some officials said it was "surprising and sad" that Japan
had followed the US lead, particularly given that Ministry of
Finance officials were earlier known to be positive about
Vietnam's reforms and privately disagreed with their pro-US
Foreign Ministry counterparts on whether economic aid to
Vietnam had to wait for a political settlement of the Cambodian
problem.

Though the Ministry of Finance seemed prepared to go ahead with better official economic relations with Hanoi, pressure from the United States, as well as the primacy of the Ministry of Foreign Affairs, could not be ignored.

Ministry of Foreign Affairs

The Ministry of Foreign Affairs clearly led in determining policy toward Vietnam throughout the decade. Concrete breakthroughs on Cambodia eluded the region until 1989, and Japan's stated policy remained the same: no economic assistance to Vietnam until troops were withdrawn from Cambodia and a viable political solution could be found. However, as affirmed earlier, when the situation is viewed in context of ASEAN, China, the U.S. and the Soviet Union, the Ministry of Foreign affairs steered a careful course in order to keep Japan close (relatively) to Vietnam. Japan's foreign ministers and other diplomats accepted Vietnamese "guests" on an unofficial basis, while retired diplomats and LDP party officials visited Vietnam on unofficial tours in an effort to "create an environment conducive to a political solution of the Kampuchean problem.

The primacy of the Ministry of Foreign Affairs in determining policy is evident in the dispute over Nissho-Iwai's commercial trades in Vietnam-- suspected trades that upset ASEAN officials. When Minister Dhanabalan from Malaysia came to Tokyo to file a complaint in the name of ASEAN, the ministry defended Nissho-Iwai. A spokesman for the Foreign Ministry stated that the department did not intend to interfere with Nissho-Iwai's activities-- a statement which showed that the Ministry of Foreign Affairs clearly had veto power on what commercial activities transpired between Japan and Vietnam (a veto not exercised against Nissho-Iwai).

By 1987, with Vietnam well into its economic reforms, Japan's policy shifted emphasis to the carrot approach in order to resolve the Cambodian question. Foreign Minister Kuranari proposed Japan's solution: first, he proposed a dialogue among the parties concerned and urged Vietnam to "come to the negotiating table without attaching preconditions" to such basic principles as withdrawal of Vietnamese forces. Second, he proposed a peace plan that "must provide in clear terms for ways of maintaining peace during the Vietnamese withdrawal and for ensuring just and free elections for self-determination" by the Kampuchean people. This plan highlighted two major components of Japanese policy toward Indochina: (1) Japan was willing to treat all parties equally at the negotiating table (by no longer vilifying the Heng Samrin nor the Khmer Rouge), and (2) Japan was now demanding the establishment of a viable government in Kampuchea before full economic relations could be restored. The codicil to this second point was that Japan was now offering money not only to Vietnam, but to Kampuchea and Laos as well. Kuranari added that economic reconstruction in Indochina would be good for other areas also, an allusion to ASEAN neighbors Thailand and Indonesia, which would become conduits for Japanese ODA money and reconstruction efforts in Indochina. Kuranari reaffirmed Japan's intention "to play a role in connection with each of these steps by extending assistance and cooperation commensurate with its resources." Here again, is evidenced by Kuranari's statements about which country would receive aid and when highlight the primary position of the Ministry of Foreign Affairs.

The Foreign Ministry refined its policy in 1989, when withdrawal of Vietnamese troops seemed imminent following talks between Vietnam and China. Once again, Tokyo searched for the middle ground between two polarized positions. Japan moved closer to Vietnam by retracting its demand that the troop withdrawal be supervised by an international peacekeeping force, a demand of Western powers that had been rejected by Vietnam. Japan defined its desired scenario in Kampuchea by pushing for internationally supervised elections, to be held after the provisional government of the four factions took power. Tokyo also decided to link aid to Kampuchea with the withdrawal of Vietnamese forces. However, the announcement made no mention of aid to Hanoi, a signal that Vietnam still had a way to go before it could incur Japan's favor.

Political parties

Debate between political parties on whether or not to send economic assistance to Vietnam had long since ended after the concrete condition of a troop withdrawal had been clearly stated by the Foreign Ministry. Throughout the 1980s, the opposition parties, JCP and JSP, hosted dignitaries from Vietnam or sent representatives to communist-related anniversary celebrations of "the Revolution" in Hanoi. Though the JCP continued to claim ideological unity with Hanoi, it could do little toward changing the bilateral relationship because it held so few seats in the Diet.

Leaders of the Liberal Democratic Party, in the strong majority and the de facto power brokers since 1955, enjoyed meetings with foreign dignitaries as though they were cabinet- level ministers. However, the LDP was careful not to give the appearance of close relations with Vietnam. Any parliamentarian visits to Hanoi were "unofficial," and Vietnamese delegates rarely gained audience with party leaders when in Tokyo. Other Indochinese leaders, such as Norodom Sihanouk or Lao Vice Premier Phoune Sipaseuth, met with LDP leaders when in Tokyo, an obvious snub to Hanoi. This diplomatic isolation incurred little costs to the ruling party. The probusiness LDP had no serious qualms about Vietnam, because trade with Vietnam continued to grow despite the isolation in terms of government- sponsored programs.

The private sector

Although international lending institutions like the World Bank and IMF discontinued loans to Hanoi in 1985, trade between Japan and Vietnam flourished. Japan imported coal, frozen shrimp, and, beginning in 1985, crude oil. Simultaneously, Japan exported machinery, building materials, refined oil, chemicals, and manufacturing goods to Vietnam. (See Charts 3.1 and 3.2) Despite the Ministry of Finance's decision to end export insurance coverage for deals with Vietnam, Japan's private banks signed a debt-rescheduling agreement in 1984 and continued to lend, without batting an eyelid, at low rates to companies exporting to Vietnam. A report to the AFP in Hong Kong summarizes the situation in 1985:

Japan is Vietnam's second largest trading partner, trailing
the Soviet Union but in front of other Eastern Bloc countries. 
Japanese exports amounted to $227 million-- 10 times more than
France, Vietnam's biggest trading partner in the West.  In 1985,
sales of Japanese motorcycles were six times higher than the
previous year.  Sales of televisions rose by four while building
material sales were three times higher.

The most significant development for Japan-Vietnam trade was the beginning of oil shipments from Vietsovpetro, a joint Vietnamese-Soviet Union corporation that drilled for oil in the South China Sea, east of Vietnam. Anxious to gain hard currency to correct their trade imbalances with Japan [see Graph 3-3], Vietsovpetro initially made an offer to a business delegation, organized by Nissho-Iwai, that visited Vietnam in April 1985. Kaiyo Oil, 46 percent of which is owned by the governmental Japan National Corporation, found oil in the area in cooperation with Mobil Corporation of the United States in 1974. The company went ahead with the deal after an unsuccessful attempt to gain financial assistance from the Japanese government, which usually supplies 80 percent of funds for oil field development.

The private Japanese trade delegation that accepted the offer from Vietsovpetro in 1985 was the first business mission from Japan since 1978. The business leaders met with several Vietnamese leaders on how to correct the trade imbalance. Japan was looking to increase imports of raw materials (coal, lumber, crude oil) and foodstuffs (coffee, sesame, fruit, cuttlefish) in order to cycle its trade surplus with Vietnam. Because Hanoi held limited amounts of hard currency, the surplus could eventually "dry up" Hanoi's reserves and curtail trade. The trade imbalance switched to Vietnam's favor, beginning in 1986, with increased raw materials and other exports: crude oil, timber, seafood, and tin (see charts 3.2 and 3.3).

The private sector began to take hold in Vietnam. Nissho-Iwai Corporation, a front- runner in trade with Vietnam at ・ to 6 billion, announced it would open a trade office in Hanoi by September 1986, the first since reunification ten years earlier. Meiwa Industry Company, the leader at ・0 billion, lost the privilege of opening the first office in Vietnam to Nissho-Iwai because the latter provided valuable shrimp-culture technology to the state-owned Vietnam National Sea Product Export Company.

The Vietnamese government liberalized travel restrictions for Japanese investors looking for new business. Starting in 1985, Japanese businessmen were no longer required to apply for new entry visas when the maximum three-month stay had expired. The length of stay was extended and visitors could now use the same entry visa repeatedly. An official with the Vietnam Ministry of Foreign Trade noted the influx of visitors: "Two out of three businessmen are Japanese."

Vietnam was desperate to export raw materials to Japan. Because of the sharp rise of the yen following the Plaza Accords in 1985, yen-dominated payments skyrocketed for Vietnam while Japanese bankers gained an added bonus. Cash-strapped Hanoi usually paid in dollars and therefore pushed crude oil and other raw material exports in order to increase hard currency supplies in Vietnam. Japan's increased trade with Vietnam creates two questions: (1) How could the U.S. and ASEAN allow such trade levels, and (2) to what degree did this increased trade affect policy?

The answer to the first question is that neither the United States nor ASEAN took Japan's trade actions lying down. The resolution by the U.S. Congress against Honda and the complaint lodged by ASEAN officials against Japanese trade houses proves this point. However, Tokyo's stated position since 1979 was that official governmental assistance programs and aid would be halted, but that Japan would not enforce a full trade embargo. Thus, perhaps neither the U.S. nor ASEAN had the political will to risk damaging its relationship with Japan in order to push Tokyo to further tighten its stance against Vietnam. Besides, by the late 1980s, solutions to resolve the Cambodian issue began to materialize, and a tightened policy would probably only hurt that process.

Japan's policy seemed little affected by the increasing levels of trade. Japanese firms made no significant lobbying efforts or public statements criticizing Tokyo's position. In fact, the increasing levels of trade probably served to subtract the private sector as a factor affecting policy: if trade is increasing as fast as Vietnam's market will allow, then why complain to the government for action and risk international scorn?

Shifts at the domestic level

Though the trade relationship between Japan and Vietnam continued to grow, MITI and the Ministry of Finance continued to follow the lead of the Ministry of Foreign Affairs when dealing with Hanoi. Continued international economic isolation by the IMF and World Bank virtually constrained the Ministry of Finance from making any new initiatives and thus eliminated that ministry from seriously affecting policy toward Vietnam. For MITI and the private sector, trade levels were increasing despite the suspension of official programs. Official visits by MITI bureaucrats were restricted, which explains the increase of "private" delegations of businessmen to Vietnam as trade increased. Private sector trade with Vietnam seemed to be moving ahead despite the economic assistance isolation, thus subtracting pressure from domestic industry as a factor for changing Tokyo's policy.

The Ministry of Foreign Affairs' policy toward Vietnam shifted from the isolation of the early 1980s to an engagement plan for peace that involved the entire region. As progress on the international level gave new hope for peace in Cambodia, Japanese officials tried to use Tokyo's centrist position and huge amounts of aid monies as tools to coax the region toward a comprehensive solution. The Ministry of Foreign Affairs continued to control policy toward Vietnam in light of the international factors surrounding the bilateral relationship.

Conclusions

International factors continued to outweigh domestic concerns in continuing Tokyo's suspension of aid to Vietnam. The ASEAN countries looked to the untapped markets of Indochina to accelerate their newfound economic development. Japanese policymakers looked for an evolution of the Fukuda Doctrine into a triangular relationship involving Japan, ASEAN, and Indochina. Subsequently, the need for a solution to the Cambodian issue became much more urgent. China and Vietnam realized the economic costs incurred by the continued squabbling over Cambodia, and the Soviet Union began to withdraw worldwide, heightening Vietnam's isolation and its need for reconciliation with Japan and the West. Taken together, these events set the stage for an increased regional leadership role from Tokyo, because Japan could supply necessary developmental funds. Japan acted on these cues with new initiatives to supply aid for the entire region, initiatives conditional upon a solution in Cambodia. However, pressure from the United States held Japan back from making any further overtures to lure Hanoi toward peace. Cautious of prematurely rewarding Hanoi, Tokyo began to insist on a comprehensive peace plan for Indochina.

Japan maintained its middle position by taking a more proactive approach to solving the Cambodian issue while acknowledging U.S. concerns about prematurely rewarding Hanoi. Tokyo ensured itself a controlling position between ASEAN and Vietnam by offering aid to the entire region, thus greatly increasing Tokyo's influence with both sides. Similar increases in aid to China placed Japan in a strong position (as strong as possible for anyone outside China) as Beijing and Hanoi came to terms over resolving the problems in Cambodia. Japan's advantages from its middle-ground diplomacy were only amplified as the region's dynamics shifted from security to economic issues.

Domestically, little pressure came from the private sector or MITI to insist on restoring economic assistance programs with Vietnam. Oil imports grew as fast as Vietnam's production capability, and Japanese business leaders began preliminary work on setting up branch offices in Vietnam despite the government restrictions on official delegations. The Ministry of Finance could do little to accelerate loan programs with Vietnam, because international bodies could neither endorse or recommend such plans and because the funds already allocated since 1978 were still held in limbo by the Ministry of Foreign Affairs. Thus, officially Japan's policy toward Vietnam had not changed. But the sea change throughout the region from security concerns to economic development was setting the stage for Tokyo's regional leadership role as well as the eventual restoration of aid to Vietnam. Unofficially, trade with Vietnam progressed in such a way that domestic economic concerns did not affect Tokyo's official stance toward Hanoi.