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Japanese import barriers, and more and more from domestic, American structural problems of competitiveness and quality. There are clearly lessons to be learned from Japan. Only by addressing these underlying problems can we break the cycle of irritating and destructive trade disputes between the two allies. The attached report gives much more attention to these issues than our previous reports. These issues include quality control, tax policy, the level of research and development, and a national consensus to ensure the modernization and competitiveness of American products.

We note that a major effort is underway to better appreciate the causes of long-range trade problems. The so-called "Wise Men's Group” (U.S.-Japan Economic Relations Group) created after Prime Minister Ohira's spring, 1979 visit to Washington, is working on a major report (due at the end of this year) to the two governments. We hope this report will shed additional insights on long-term solutions. In discussions with Diet Members, it was noted that the Japanese section of the “Wise Men's Group” has had access to the Prime Minister and strong staff support. In the United States, on the other hand, the group is not well known. The Subcommittee is meeting with the U.S. "Wise Men” in order to raise the visibility of the American section and to support its efforts to find long-range solutions to United States-Japan trade problems.

In addition to commenting on the need for internal changes in American productivity and quality, this report discusses some of the very legitimate reasons for Japan's export-consciousness and insecurities regarding sources of supply. We believe that in the very long-term, Japan's export aggressiveness could be tempered by "treaties” offering minimum, guaranteed levels of access to agricultural products and coal, and by redoubled, joint efforts to develop non-petroleum sources of energy (coal and fusion) and renewable energy supplies (solar, wind, and ocean energy). As the two most technologically advanced nations of the world, together we can break the yoke of OPEC and lead the world into the post-petroleum age.

We want to thank the Subcommittee staff, and in particular Mr. William Vaughan who assisted us in Japan and in furnishing some of the data for this report.

We hope this report raises ideas which can lead to more stable economic and political relations between our two nations. The issues raised in this report will be discussed at future Subcommittee hearings. In the meantime, we welcome comments from Members and the public.

Sincerely yours,
JAMES R. JONES, CHARLES A. VANIK,

BILL FRENZEL, Chairman, Task Force. Chairman, Subcommittee. Rankiny Minority

Member, Task
Force.

CONTENTS

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Letter of transmittal...

Chapter 1: Introduction..

Factors to be considered when examining United States-Japan trade

problems.

Chapter II: United States-Japan trade, economic, and exchange rate data.

The yen/dollar rollercoaster: Contributor to trade tensions.--

Chapter III: Status of bilateral trade problems: Some progress/some

failures/some more to do.---

In general.--

Trade Study Group--

Trade Facilitation Committee.

Investment.

Chapter IV: Examples of current, specific industrial-product problems.-

The auto situation..

Government procurement.

Nippon Telephone and Telegraph

Government procurement code..

Progress in banking--

Standards

Japanese Customs Service-

Distribution system.-.

Cartels --

Cultural barriers to imports

Chapter V: Long-term future industrial problems and the need for a U.S.

response---

Semiconductors and computers.

Robots----

Machine tools.

Aircraft.n'.

Reasons for successful Japanese industrial challenge-

U.S. response to Japanese challenge in high-technology industries of

the future.-

Tax policy -

Research and development trends-

Export promotion..

An industrial policy for the United States -

Quality----

Options for dealing with unacceptable trade imbalances -

Chapter VI: Current agricultural sector trade problems.

Bilateral agricultural trade problems..

High price of Japanese food.

Beef and citrus-

Tobacco products--

Fishery products-

Hides and leather-

Rice policy--

Grains...

Forest products-

Processed foods -

Chapter VII: Long-term agricultural trade solutions..

Chapter VIII: Energy independence: The most fundamental answer to

trade frictions.--.

History of Japanese energy use.

Japan's response to "oil crisis”

The role of coal..

Alternative energy sources.

International cooperation.

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Chapter I: Introduction

This report provides current information on United States-Japan trade problems and observations from our study mission to Japan of April 2–4, 1980. It also updates a number of issues discussed in previous United States-Japan Trade Task Force reports and raises a number of new issues, particularly steps the United States should take internally to become more competitive with Japan and to end the cycle of bilateral trade disputes. Appendix B lists the previous recommendations of the Task Force---many of these recommendations are still appropriate and timely.

This chapter includes some observations on how United StatesJapan trade friction should be analyzed and solved. This is followed by a chapter on trade statistics, comparative economic figures, and data on problems created by extraordinary yen/dollar exchange fluctuations. In other chapters the report discusses a number of specific industrial and agricultural trade tensions and suggests solutions. In this report, more so than in the past, we seek to differentiate between short-term, current problems versus long-term, underlying problems. We are particularly interested in indicating long-term problems in the hope that the two nations will begin, now, to address and solve them. In many cases, the problem lies within the United States and must be addressed by changes in domestic production, law, and attitude.

FACTORS TO BE CONSIDERED WHEN EXAMINING UNITED STATES-JAPAN

TRADE PROBLEMS

1. Japan today is generally an open trading nation, although some very tough, residual attitudes of protectionism remain. Are current complaints about Japan's closed markets accurate, or are they based on examples and perceptions from the recent past when Japan was indeed largely closed to imports?

2. Is a specific trade problem due to Japanese trade barriers, or is it due to declining competitiveness of a U.S. product, relative to third countries and/or Japanese manufacturers? In a wide range of products, the United States has been losing market share in Japan isee p. 6). The following example on the recent controversy over autos illustrates these two points:

Originally, Japan was extraordinarily protectionist in autos, encouraging her industry to build up to world-class status without serious foreign competition. Once she had developed a highly-competitive, quality product, she rapidly reduced her trade barriers. Today, selling autos into Japan is like carrying coals to Newcastle-Japan can afford to have almost totally free trade in autos. Yet the perception, reflected in letters and calls to the Subcommittee, is that Japan has high tariffs on autos, discriminating against our cars so that a $6,000 vehicle in the U.S. is sold for $20,000 in Japan. In reality, Japan has a zero tariff on autos compared to our 2.9 percent. A $6,600 U.S. auto will retail for about $12,100 in Japan, reflecting safety and retailing burdens which also apply to Japanese autos. Seldom asked is how the United States can expect to sell many autos in Japan, when we do not make any autos with steering wheels on the right side of the car, and whether U.S. autos can compare with Eruopean autos in mileage and quality. Between 1958 and 1979, the U.S. share of the small Japanese imported auto market fell from 83.4 percent to 20.6 percent.

1 “U.S.-Japan Trade: Issues and Problems”, GAO, Sept. 21, 1979.

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