LETTER OF TRANSMITTAL Hon. AL ULLMAN, CONGRESS OF THE UNITED STATES, Chairman, Committee on Ways and Means, DEAR MR. CHAIRMAN: In this year and the last two years, our merchandise trade deficit with Japan has averaged about $10 billion annually. In the past, this has been our single largest bilateral deficit. Because of the recent imbalance of the yen/dollar relationship, it is expected that this bilateral deficit will increase next year. The size and duration of the deficit, the high visibility of Japanese goods in this country (such as autos), and the unique competitive challenges Japan offers in high technology and quality goods, cause United StatesJapan trade problems to persist as the principal bilateral trade issue before the Subcommittee on Trade. There is growing concern over United States-Japan trade problems in the Congress, as evidenced by two joint resolutions and three concurrent resolutions relating to Japan introduced in this Congress.1 In order to deal more effectively with the special problems and lessons of trade with Japan, in the 95th Congress, the Subcommittee established a Task Force on United States-Japan Trade. In the last Congress, the Task Force and Subcommittee issued three reports, conducted a study visit to Japan, and held an executive session hearing on Japan with Administration witnesses. Because of our persistent bilateral problems, the Task Force has continued in the 96th Congress as a Subcommittee focal point for information on United States-Japan issues. Thus far, there has been an April 2-4 study mission to Japan and a Subcommittee report on autos, which includes detailed discussion of the challenges created by Japan. There was an August 26 hearing on resolutions relating to Japan pending before the Subcommittee, and H. Con. Res. 376 was reported to the full committee. We are also engaged in a major study with the General Accounting Office on Japanese industrial management styles and the ability of Japanese firms operating in the United States with American workers to produce uniquely high quality goods. Finally, the Subcommittee and Task Force plan a hearing soon on all of these United States-Japan trade issues. Following, therefore, is a report on our April mission to Japan 2 and on the status of our bilateral trade relations. 1 House Joint Resolutions 361 and 380, and House Concurrent Resolutions 363, 376, and 380. Three resolutions deal solely with the automobile industry, one with the high technology and information fields, and one with closing the overall trade imbalance. 2 Appendix A contains the text of our joint statement to the Japanese press at the conclusion of our visit. (III) FINDINGS Short-term First, we believe that the size of the bilateral trade deficits could be smaller-by as much as one to two billion dollars annually-if certain trade barriers were eliminated. Yet Japan is resisting liberalization in these areas. For example, -On the issue of Nippon Telephone & Telegraph procurement practices and Japanese participation in the Government Procurement Code, there is no apparent sign of liberalization. We have made it very clear that Japan will not be included in the operation of the Code, unless a solution to NTT coverage is provided. -In agriculture, a number of old problems remain in beef, citrus, etc. We also expressed our concern about problems which could arise from the dumping of subsidized rice on world markets. -On tobacco product trade, discriminatory pricing and marketing policies remain an irritant of uncertain duration, and block the sale of hundreds of millions of dollars in U.S. products. Second, there has been a great deal of trade liberalization in Japan. In most sectors other than high technology and agriculture, Japan has made many encouraging moves toward opening up its markets. For example: -American businessmen in Japan seem less frustrated and more certain that if a company makes a long-term commitment to the Japanese market, by the fourth or fifth year, excellent profits can be achieved. -The Japan-United States Trade Study Group and the Trade Facilitation Committee have been able to resolve several trade barriers, particularly in the standards and testing areas. -On May 15, Japan announced a number of new steps to liberalize her market for imported autos, actions which may be important for U.S. exports in the future. While we hope that this liberalization will help increase our auto exports, the prospects for any substantial sale of autos into Japan is unlikely in the near future, and this liberalization will be negligible in reducing our trade deficits in the short term. Third, as in our previous report, we urge job-creating investment by Japan in the United States, particularly in the auto assembly and parts sectors. If certain major auto investment decisions had been made last year, much of this year's trade tension would have been avoided. We continue to urge that the Japanese invest in auto assembly and parts manufacturing operations in America. U.S. production for the replacement parts market (estimated to soon amount to $8 billion per year) would help simplify imported auto servicing while preventing major, future increases in the bilateral trade deficit. In addition, parts manufacture is likely to be much more labor intensive than final assembly operations. Long-term If, as we believe, Japan has substantially opened her markets, and remaining barriers block "only" several billion dollars of U.S. exports, why are our trade deficits with Japan so enormous? It has become increasingly clear to us, and to many businessmen dealing with Japan, that our trade problems result less and less from |