Sept. 8-12, 1980-Equipment for the chemical industry exhibition, USTC, Tokyo, Japan. FISCAL YEAR 1981 Oct. 27-31, 1980-Lasers and electro-optics equipment exhibition, USTC, Tokyo, Japan. November 1980-Telecommunications equipment trade mission (Japan/Korea/ Hong Kong). November 1980-Franchising trade mission (Japan). Feb. 16-20, 1981-Biomedical equipment locally-procured multifirm BSP (Japan). March 1981-"Boatique America" (consumer goods) specialized mission (Japan). April 6-11, 1981-Process control equipment locally-procured exhibition USTC, Tokyo, Japan. May 18-22, 1981-Laboratory instruments exhibition, USTC, Tokyo, Japan. June 15-19, 1981-Electronic industries production and test equipment (EIPT); locally-procured exhibition USTC, Tokyo, Japan. June 1981-"Boatique America" (consumer goods) specialized mission (Japan). September 1981-"Boatique America" (consumer goods) specialized mission (Japan). Sept. 28-Oct. 2, 1981-Building materials and equipment locally-procured offsite fair (Japan). FISCAL YEAR 1982 OVERSEAS EVENT PROGRAM (JAPAN) October 1981-Jemima, measuring instruments offsite trade fair, Tokyo. November 1981-Packaging equipment video-catalog show, Tokyo, Osaka, Sapporo (Hong Kong, Korea). November 1981-Printing and graphic arts Tokyo TC exhibition. December 1981-Health care equipment trade mission, Fukuoka, Sapporo (Hong Kong, Seoul). December 1981-Offshore development equipment trade mission, Tokyo and two more stops if it can be arranged. January 1982-Design engineering catalog show, Tokyo, Osaka (Seoul). January 1982-Paints and coatings trade mission, Tokyo, Osaka, Fukuoka, Sapporo. January 1982-Energy: Alternate sources, conservation equipment, recycling, Tokyo TC exhibition. February 1982-Office automation, Tokyo TC exhibition. March 1982-Hotel and restaurant equipment trade mission, Tokyo (Hong Kong, one more stop). March 1982-Professional TV, broadcasting and audio equipment catalog show, Tokyo (Hong Kong). March 1982-Beds and bath linens trade mission, Tokyo, Osaka, Fukuoka, Sap poro. April 1982-Plastics production equipment video-catalog show, Tokyo, Osaka (Hong Kong, Korea). April 1982-Petrochemical equipment trade mission, Tokyo (Korea two stops). April 1982-Telecommunications equipment, Tokyo TC exhibition. May 1982-Analytical instruments Tokyo TC exhibition. May 1982 Do-it-yourself catalog show, Tokyo, Osaka, Fukuoka, Sapporo. June 1982-Electronic components Tokyo TC exhibition! June 1982-Textiles trade mission, Tokyo, Osaka (Hong Kong). July 1982-Remote sensing and photogrammetry trade mission, Japan two stops, one more needed. September 1982-Toys catalog show, Tokyo, Osaka, Fukuoka, Sapporo. September 1982-Food processing video-catalog show, Tokyo, Osaka, Fukuoka, Sapporo. The above-listed tentative events have been reviewed by the RMM, Japan/Korea/ Hong Kong and found to be acceptable. No additional events have been suggested. JOINT U.S.-JAPAN TRADE FACILITATION COMMITTEE CURRENT STATUS, SEPTEMBER 1980 TFC ACCOMPLISHMENTS The Joint U.S.-Japan Trade Facilitation Committee, established in 1977 by thenSecretary of Commerce Kreps and her Japanese counterpart in the Ministry of International Trade and Industry (MITI), is designed to provide a special forum in which American exporters can seek resolution of problems they encounter with Japanese trade practices and procedures. To date, the TFC has favorably resolved 15 formally-presented cases-and is near resolution of several others-opening access to the Japanese market for such diverse products as shock absorbers, fertilizer, modified food starches, and other products in demand in Japan. A number of other cases have been informally resolved without requiring formal submission to the Japanese side of the TFC. The TFC also has been the catalyst for the resolution or highlighting of a signficiant number of additional market access problems under TFC auspices: The Buy-Japan policy of Nippon Telegraph and Telephone Public Corporation (NTT) was spotlighted in the TFC and became the subject of intensive negotiations aiming at the inclusion of NTT's purchases under the multilateral Government Procurement Code. The restrictions of the Japan Tobacco and Salt Public Corporation (JTS) on the importation of tobacco products were raised in the TFC and were later challenged in the GATT. In addition, both the USG and the U.S. tobacco industry are continuing to consult with the GOJ and JTS in an effort to reach a negotiated solution to these problems. Japanese requirements for testing and approving U.S. electrical applicances and pleasure boats were made considerably less burdensome as a result of bilateral consultants held under TFC auspices. Many problems associated with Japan's complex and time consuming inspection and registration procedures for imported passenger cars and trucks were resolved. Followup negotiations on the several remaining unresolved problems are continuing. Negotiations on standards-related problems in the areas of agriculture chemicals, processed foods, and cosmetics were held in Tokyo in late July 1980. Identification of problems in these sectors resulted from TFC work in these areas. Agreement was reached on the major issues involved in the agricultural chemicals talks, while working groups are being set up to continue negotiations in the other two areas. The Trade Study Group (TSG), an informal Tokyo-based group of U.S. and Japanese Government and business people acting under the aegis of the TFC, is currently identifying and investigating problems in a number of industry sectors, such as pharmaceuticals and medical equipment, which may become the topic for government-to-government talks at some future point. So far this year there has been a fall-off in the number of market access complaints by U.S. firms. However, the American Embassy in Tokyo has reported that some American companies having difficulty in resolving problems raised with Japanese officials have effectively used the potential of raising the issue in the TFC to overcome bureaucratic delays. These problems thus are being resolved as a result of the TFC presence without actually having to be brought to the TFC. In addition, a number of large-scale generic cases covering the problems of an entire industry sector have been developed from past individual TFC cases. Consequently, the problems of individual companies are sometimes subsumed under the framwork of these generic cases. Finally, the TFC continues to render assistance to a number of companies who approach the Committee with problems or questions not necessarily involving specific market access complaints. This may include such things as clarification of Japanese import regulations and procedures. Such assistance by the TFC is not reflected in its scoreboard of case activity. FUTURE ROLE The Commerce TFC Staff hopes to devote greater attention to broader issues affecting U.S. exports to Japan which are necessarily the result of explicit Japanese restrictions or regulations. Such issues might include buyer/supplier relationships, customs clearance difficulties, and Japan's distribution system. The TFC will continue its case work on market access impediments not covered by the MTN Codes. We plan to seek agreement that the TFC be used to assist in investigating and documenting potential violations of the MTN codes prior to resorting, if necessary, to the formal dispute settlement procedures of the Codes. The Department of Commerce plans also to enchance the TFC's trade develop ment function. Steps are being taken to have the TFC provide the institutional framework for bilateral monitoring of the Japanese auto parts missions to the United States. New Projects for bringing American sellers into contact with Japanese buyers will be considered for TFC sponsorship. Mr. VANIK. Mr. Albrecht. STATEMENT OF ANTHONY C. ALBRECHT, DEPUTY ASSISTANT Mr. ALBRECHT. I support Mr. Hormats' statement. STATEMENT OF JAMES H. STARKEY, DEPUTY UNDER SECRE- Mr. STARKEY. Mr. Chairman, I also will support Ambassador Hormats' statement. As you may be aware, Japan is our No. 1 market for agricultural commodities. In 1979 they took $5.3 billion worth of commodities from the United States. Ninety percent of our trade goes in relatively unfettered. With the other 10 percent there are some well-known problems. We made good progress in the multilateral trade negotiations in obtaining concessions in areas such as citrus, beef, and wines. Although that trade is expanding we intend to continue to press the Japanese for further liberalization. I certainly am optimistic that through future negotiations with the support of this committee's resolution, we will be successful in expanding our agricultural exports to Japan and I thank you, Mr. Chairman. Mr. VANIK. We can proceed now to some questions. I would like to ask this question relating to the estimate or the calculation of the trade deficit. What is it predicted to be for 1980? Mr. HORMATS. We have put together a number of figures based on an annualization of the first 6 months. On the basis of these, and, as you know, economists are not infallible on projections, we anticipate that our deficit with Japan in 1980 will be something on the order of $9.6 billion. Mr. VANIK. $9.6 billion? Mr. HORMATS. Yes. Let me put it in some context. In 1977 it was $8 billion, and in 1978, $11.6 billion. In 1979, it was $8.7 billion. In 1980, we are projecting roughly $9.6 billion. Mr. GIBBONS. Mr. Chairman, will you yield for a point of clarification? Mr. VANIK. Yes, I will be happy to yield. Mr. GIBBONS. Is that just merchandise deficit? Mr. HORMATS. This is trade deficit. Mr. GIBBONS. This is a merchandise trade deficit? Mr. HORMATS. Yes. It is also important to point out that the current account deficit that we are projecting is somewhat less. In 1977, we had a $10.9 billion surplus on current account with Japan. In 1978, it was $16.5 billion. În 1979, it was minus $7.5 billion. Mr. GIBBONS. That includes services? Mr. HORMATS. Yes, and also remittances of earnings from American corporations, banks, and insurance companies. Mr. FRENZEL. It also includes investments from Japan? Mr. HORMATS. Yes. Mr. VANIK. Could we have for the record what is repatriated earnings on investment and what portion of that is investment in the United States? Mr. HORMATS. Yes. [The information follows:] INCOME JAPANESE AND UNITED STATES FIRMS EARNED FROM DIRECT INVESTMENT IN THE 2 Source: United States Trade Representative. Mr. VANIK. Does the prediction you make include the impact of the exceptional depreciation of the Japanese yen when it went down to 264 yen to the dollar? Mr. HORMATS. It has strengthened since then. Mr. VANIK. How much of the estimated deficit reduction results from the depreciation of the yen since April? Mr. HORMATS. Since we are measuring in dollars, there is obviously a money illusion. You get a J-curve effect, and you get money illusion. In other words, the difference in real goods is not as large in some cases as the difference in dollar terms. I cannot give you that breakdown, but we can certainly do that for you. We can certainly supply that to the committee. I do not have the precise breakdown as to how much of the reduction is the result of exchange rate movement and how much is the result of changes in volume. [See p. 229 for response subsequently received.] Mr. VANIK. What was the change in the yen in the period we are talking about? What percentage change was that? I think it went up from 180 in late 1978 to 264 this spring. Mr. HORMATS. That is right. Mr. VANIK. It looks like a lot of what you are talking about as the change in the trade balance is money talk rather than real trade. Mr. HORMATS. When there is a depreciation of a particular exchange rate, the quantity of goods traded does not change very much initially; however, as the result of depreciation you get over a period of time some offsetting competitive loss on the part of the depreciating country. Mr. VANIK. The yen seems to be continuing in a depreciating trend in the last several weeks. What do you attribute to that? Mr. HORMATS. In depreciating vis-a-vis the dollar? Mr. VANIK. Yes. Mr. HORMATS. Any number of things. There are three sets of factors that come into play here. First, there is the variable rate of inflation. The fact that the United States rate of inflation is going, at least has been going down somewhat, normally strengthens th dollar vis-a-vis the yen. Second, the level of Japanese oil import has an effect on the yen vis-a-vis the dollar. Third is the competi tiveness of Japanese exports in the face of a possibly overvalue yen. Mr. VANIK. Can you suggest any steps our two nations and the world community can take to moderate the trade distorting swing of the yen-dollar relationship? Mr. HORMATS. Mr. Chairman, that is an age-old problem that we have never fully controlled, in part, because movements in ex change rate follow market trends. We learned a long time ago tha an effort to impose a great degree of fixity in exchange rates or to overdo the stability aspect of such rates means intervening with tremendous amounts of government money. Obviously, we have the capacity to do a great amount of inter vention. One problem is that we do not know what the right market rate is. Second, if you guess wrong, you lose a lot of money guessing wrong. Third, through intervention, the exchange rate is not allowed to play its proper role in the adjustment process. The yen was, as you correctly pointed out, for a period of time probably undervalued vis-a-vis the dollar. That gave the Japanese a major competitive advantage vis-a-vis the United States. The market has tended to realize this, over the last several months, the yen has strengthened vis-a-vis the dollar. If we had stabilized the yen at the abnormally low rate, we would have wasted a lot of foreign exchange and have given the Japanese a more sustained competitive posture than they would have had as the result of a strengthened yen. First, we do not have adequate information to fix rates; we are not very good at it. Second, we tend to waste resources through interventions. Third, you tend to lock in a country's competitive ness. Mr. VANIK. As the number of Japanese automobiles on the road grows every day, the replacement and repair parts business will become much more significant. Some in the Commerce Department estimated several months ago that within the next 4 or 5 years the replacement parts business will be $8 billion a year in addition to what will probably be $8 or $10 billion in new car sales. Do you see any possibility of slowing the growth in this repair and replacement business import trade, either through licensing or through co-production or through Japanese investment in the United States? Mr. HORMATS. Yes. This is one of the major objectives we have been working for, and you, Mr. Chairman, have made efforts with the Government of Japan in the same direction. Our judgment is that there will be a very substantial replacement parts market. I think the order of magnitude you talk about is about right. It is our judgment that one major opportunity for increasing jobs and production in this country and reducing our deficit with Japan is to encourage the Japanese companies to go into joint ventures on their parts production with American firms or license such production by American firms. This would help some of the American |