An aggressive use of the new MTN codes will help in resolving a number of United States-Japan bilateral trade issues. Yet, as this report will make clear, we face a number of unique problems in trading with Japan, which the Tokyo Round MTN did not address. STRAUSS-USHIBA JOINT STATEMENT, JUNE 2, 1979 At the end of the MTN, a number of issues remained unresolved with Japan. Most critical was government procurement, largely as a result of Japan's unwillingness to allow her Nippon Telegraph & Telephone (NTT) Co. to be fully covered by the Agreement. Discussions resulted in the statement of June 2, 1979. The main points were a commitment to resolve the NTT issue by January 1, 1981, to facilitate access to Japan's telecommunications market, and to negotiate a mutually acceptable approach to testing and certification by January 1, 1980, under the Standards Code. See appendix D for the full text of the statement. STANDARDS AGREEMENT, DECEMBER 7, 1979 On December 7, 1979, the United States and Japan issued a Joint Statement on Standards, Testing, and Certification Activities, to help realize open and reciprocal trade relations between the two countries. This statement, when fully implemented, will result in the elimination of numerous aggravating and nitpicking trade problems. See appendix E for a copy of the statement. AUTO TRADE LIBERALIZATION ANNOUNCEMENT, MAY 15, 1980 On May 15, 1980, the Government of Japan announced a series of steps to liberalize further her auto market and reduce her $9 billion auto trade imbalance with the United States through purchasing and investment missions to America. See subcommittee report, Situation: 1980," for text of the statement. IN GENERAL Auto After decades of virulent protectionism, Japan is today a reasonably open market for many products, other than certain agricultural and high technology items. An excellent summary, with which we generally agree, is provided by Ira C. Magaziner and Thomas M. Hout in their paper, "Japanese Industrial Policy:" Through the early 1970s, the Japanese government stimulated exports, restricted manufactured imports, and assisted large scale raw material importsclassical behaviour for an island economy poor in natural resources and prone to experience trade deficits. The tax system, through special reserves and accelerated depreciation, effectively shielded significant portions of export revenue from taxation. The Bank of Japan discounted short-term export bills at less than market interest rates, and cheap long term credit for export-related investment was available from the Japan Development Bank and the Long Term Credit Bank of Japan. High duties and quotas blocked imported manufactures where Japan thought itself uncompetitive. Assistance was given to overseas projects in mining, forestry and the like with financial guarantees and government-togovernment assurances in order to strengthen supply security in basic materials. The story is quite different now. Broad export incentives are gone. The tax system retains incentives only for exports by small- and medium-size companies and for overseas investment. Export-related accelerated depreciation-worth 55 billion yen to the manufacturing sector in 1970-was eliminated in 1972. Export bills now carry only a quarter of one per cent discount off domestic bill rates, and this subsidy works primarily to bolster Japan's declining exporters of textiles, plywood, flatware, etc. Although MITI no longer directly assists exports, certain government policies and practices do aid selected knowledge intensive industries. Japan's ExportImport Bank aggressively finances and insures exports of plant systems-a rapidly growing part of trade. Large Third World development projects that Japan finances and supplies enjoy top priority and receive official economic aid. The country's utility monopolies in power generation and telecommunications protect and support designated key products and provide a large production volume on which to base an export effort. The Japanese home market for manufactures is now essentially open, and foreign producers' market penetration depends on marketing effort and the suitability of the product far more than government approved barriers. There are three major exceptions to this pattern. One is government operated monopolies such as telecommunications, railway, cigarettes, and some computers. Closed procurement is the tool. Ministries other than MITI typically oversee these barriers and are under considerable international pressure to liberalise them. The second relates to machinery imports where the structure of Japanese industry keeps imports to a minimum, heavy industry companies are often part of large Zaibatsu containing chemical, steel, electrical equipment and other companies which exercise closed buying. The other exception is Japan's political wards like agriculture, retailing, and unskilled labour intensive manufacturing, where large, competitively vulnerable constituencies command protection. This residual protection is similar to that in other advanced countries. By and large, however, the appreciation of the yen and the migration of labour intensive production to developing countries is opening the door to imports. A large number of Japanese industries-textiles, aluminium, chemicals, and metal working-are under increasing pressure as international product specialisation shapes trade patterns.1 [Emphasis added]. We know that this view that the Japanese market "is now essentially open" is contrary to popular perception, both in the Congress and throughout America. Following, however, is a quote from the first page of the "Special Progress Report," the 1980 study of the American-Japanese Trade Study Group. This report was written or approved by the people on the frontline of business competition with Japan the American businessmen living in Japan, attempting day-to-day sales there. When we met with them in November 1978, they seemed frustrated and discouraged in dealing with the Japanese market and government. In our visit this April, they seemed much more confident and optimistic. Their message to other U.S. businessmen is that after 3 or 4 years of tough selling, above-average profits can be made in the Japanese market. We should be guided by the evaluation of these businessmen who are currently operating, generally successfully, in Japan: We recognize that this trade imbalance has resulted more from the disparity between the efforts made by Japanese exporters to develop U.S. markets for their goods and the efforts made by U.S. companies to develop markets for their goods than from any remaining Japanese non-tariff barriers. The Japanese government's positive attitude towards the export efforts of Japanese firms has contributed to this disparity. Any long-term improvement in the bilateral trade imbalance will depend more on improved performance by both U.S. business and government in promoting exports than on the removal of remaining Japanese non-tariff barriers. We also believe, however, that remaining non-tariff barriers in Japan are a contributing factor to the bilateral trade imbalance and act as a major irritant in United States-Japan economic relations. 1 Magaziner and Hunt, "Japanese Industrial Policy." London: Policy Studies Institute, 1980, (pp. 42–43). TRADE STUDY GROUP As the above quote reveals, some serious problems remain. To help follow up on the various formal agreements listed above and to address remaining problems, there are two principal working groups. Their work tends to be concentrated on shorter term, specific problems. The United States-Japan Trade Study Group (TSG) in Tokyo, was organized in the fall of 1977 as a bilateral group of Japanese and American volunteers from the U.S. business community in Tokyo, the U.S. Embassy, the Ministry of International Trade and Industry (MITI), the Japan External Trade Organization (JETRO), the Federation of Economic Organizations (Keidanren), the JapanUnited States Economic Council, the Foreign Trade Council of Japan, the Japan Chamber of Commerce and Industry, and others from the Japanese business and government communities, all acting in an individual capacity. Membership has grown from 21 in 1977, to almost 100 participants in the four major committees and their respective task forces or subcommittees. This membership growth illustrates the hope which both the Japanese and Americans in Tokyo place on this effort to resolve problems before they become major confrontational issues. The TSG concentrates its efforts on the short-term goal of eliminating trade impediments in order to reduce the trade imbalance. As the TSG writes in the introduction to the "Special Progress Report" of April 1980: The actual work of the TSG has had two related points of emphasis. The first has been to identify, analyze and make recommendations with respect to laws, regulations, procedures or practices in Japan which inhibit increased sales in Japan of U.S. goods and services. The second has been to encourage efforts by U.S. companies to gain a position in the Japanese market through participation in specific trade promotion programs and to communicate directly or indirectly with U.S. businessmen about the nature of, and positive results from, our work. We recognize that even the total elimination of non-tariff barriers would not have a dramatic effect on U.S.-Japan trade, at least in the short run. There are more fundamental and difficult steps to be taken to reduce the trade imbalance, particularly on the side of the United States.2 Nevertheless, we feel that it would be to the benefit of both countries, and the relationships between them, to reduce impediments to trade wherever possible. We shall continue to work to that end. The TSG has slowly resolved a number of trade problems, particularly in the standards field, and is proving to be an influential organization. Its major areas of work can be seen from the following organization chart: 2 This paragraph reinforces our statements about the relative openness of the Japanese market. The Trade Facilitation Committee (TFC) was also formed in the fall of 1977 to deal with United States-Japan trade problems. The TFC, however, is a formal intergovernmental organization composed of only government officials. The principal activities of the TFC include the following: 1. Identification and elimination of impediments to U.S. exports to Japan resulting from Japanese trade practices and procedures; 2. Cooperation in export development activities; and 3. Analysis and identification of export opportunities for U.S. firms in the Japanese market. The TFC considers the following to be its accomplishments to date: 1. Filled gap during MTN in providing forum for addressing market access issues; 2. Countered Japan's contention of being an open market by documentation of various NTB's; 3. Resolved 15 specific trade cases, helping focus attention of policy level officials and Congress on broad market access issues, such as tobacco products, NTT, standards problems and computer timesharing services; 4. Provided a forum to overcome bureaucratic delays; and 5. Developed joint export activities which demonstrated cooperation in effort to increase Japanese imports. Many export development activities have been promoted by the TFC. Buying and investment missions between the two countries have involved both high-level government officials and business executives. One of the more unique export development activities in Japan by the Commerce Department (with the enormous help of the Government of Japan) was the tour of the trade fair ship Shin Sakura Maru or Boatique America in October 1979. Finally, a number of studies concerning exporting to Japan have been published by United States and Japanese sources. We continue to support these efforts, although we note it is very difficult to quantify their success. These trade missions and traveling shows consume an enormous quantity of our scarce trade promotion resources, and we hope that the Administration will insist that they not be "PR-shows," but have the honest possibility of making some long-range improvements in our trade balance. In addition, American businessmen must understand that selling in Japan requires time and patience: a one-time trip to Japan, either alone or as part of one of these official selling missions, is unlikely to be successful, unless there is followup. The Japanese market, more than most, must be nurtured; the results can be highly rewarding. A quick sales mission, on the other hand, is likely to be a failure in that it has no lasting impact on our bilateral balance of trade. The TFC has also been active in attempting to resolve cases concerning impediments to market access in Japan raised by U.S. companies and trade associations. As the following table shows, at least 15 cases have been resolved "favorably"; some are still in the pipeline, and some have been dropped. Joint United States-Japan Trade Facilitation Committee, Commerce TFC Steering Group: Status of TFC Cases, July 1-31, 1980 Dropped after transmittal to Tokyo... Embassy obtaining additional information__ Preliminary discussions held with appropriate GOJ agency. Forwarded to TFC___. 4 23 58 69 21 21 0 715 8 1 9 5 10 5 |