``Our increased trade deficit -- which is reaching historic proportions now -- is the result not so much of a big influx of imports...what's happened is that our exports have gone down,'' Aaron noted. ``We want to see these countries take the right medicine, go through the reforms that are necessary and get themselves back on the path to growth as soon as possible,'' he added.

``But no matter what these countries do, it's not going to be enough unless Japan does its share,'' he said. ``It's 70 per cent of Asia's economy. If Japan doesn't take the right measures to accelerate its economy, clean up its banking mess, deregulate...then there'snothing that these other countries can do to make up for it,'' he said.

``Japan is absolutely key,'' he added. ``The rest of the world can't do it for them.''

Aaron was critical of China's seeming inaction in reducing its massive trade surplus with the US, Which he put at over US$1 billion a week.

``We had been pursuing the policy of trying to facilitate China's entry into the WTO (World Trade Organization) on the theory that their entry...would lead to market opening steps...'' Aaron said.

``That isn't happening. China has placed WTO entry...at too low a priority,'' he said. Asked if the US was prepared to set tariffs on Chinese imports, Aaron said, ``I don't want to say what our specific steps will be but it's not politically sustainable. You cannot have a billion dollar a week deficit with China.''

``There's no excuse for it. China can open up,'' he said. China has disputed the size of its trading surplus with the US. Earlier this year China said the gap was some US$17 billion. Aaron said thereason they had claimed this was ``because its inconvenient for them.'' ``The fact of the matter is, we measure trade with China the same way the rest of the world measures trade with China. We can't have a special yardstick just for the Chinese,'' he said.

Aaron, who is in Malaysia to attend an APEC meeting about small and medium-sized enterprises, said that Malaysia could lose out on foreign investment following its imposition of a strict exchange control regime last week.

``Malaysia really grew as a result of foreign investment. It was essential to its...success and its going to be essential for its future,'' he said.

``So the big question the Malaysians have to ask themselves is how will all of this impact the future course for foreign investment....and I must say a lot of other countries in this region are very competitive and they're looking for foreign investment too,'' he said.

APEC groups Australia, Brunei, Chile, China, Hong Kong, Indonesia, Japan, Malaysia, Mexico, New Zealand, Papua NewGuinea, the Philippines, Singapore, South Korea, Taiwan, Thailand and the United States.