LAW & POLICY IN INTERNATIONAL BUSINESS industries through subsidies and "buy Japan" policies, and protected them from imports through high tariffs,67 import quotas, licensing requirements, foreign investment controls, 68 and credit controls. The Japanese government also sought to lessen what was seen as excessive competition among domestic firms through mergers and cartel arrangements.69 The pattern of trade outlined above demonstrates that Japan, although dependent on foreign trade to maintain its high level of productivity, uses this dependency to its best advantage. But there is no reason why reciprocal benefits cannot be achieved by the United States and other Western nations without damaging Japan's economy. As demonstrated below, Japan made significant progress in recent years in reducing barriers to foreign market penetration. The extent to which the Japanese market can be liberalized further is a function not of the ability of the Japanese economy to absorb more imports, but of the willingness of the Japanese government and industry to allow them. LIBERALIZATION OF TRADE WITH JAPAN The Japanese government has taken some steps in recent years to dismantle the protectionist wall that enabled that nation to recover from the near total economic destruction of World War II and to achieve the second largest industrial economy among noncommunist nations.70 Its tariffs have been reduced to a level comparable to those of other industrial nations;"1 import quotas remain on only 27 products, primarily agricultural;72 and equity investments have been liberalized to allow for wholly-owned foreign investments in all but a few key industrial sectors such as transportation, agriculture and fisheries. 67 See id. at 539-42. See, e.g., Foreign Exchange and Foreign Trade Control Law, Law No. 220 of 1949, as amended by Law No. 99 of 1968; Law Concerning Foreign Investment, Law No. 163 of 1950, as amended by Law No. 33 of 1964. Law No. 83 of 1966. Law No. 99 of 1968, and Law No. 23 of 1974. "See Caves & Uekusa, supra note 48, at 490-91. 70 See F. GIBNEY, JAPAN: THE FRAGILE SUPERPOWER 19 (6th printing 1977). 11 See Krause & Sekiguchi, supra note 7, at 427-28. 72 These include livestock products, marine products, fruits and vegetables, starch and sugar varieties, cereals, other localized agricultural crops, mineral products, and leather and other leather products. Task Force Report, supra note 1, at 36 n.11. 13 See INTERNATIONAL FINANce Bureau, Japan Ministry of Finance, Manual of ForeiGN INVESTMENT IN Japan 7 (1971) (hereinafter cited as Japan Foreign Investment Manual}. 856 [Vol. 11:845 JAPAN MARKET ACCESS During the 1960s, as domestic industries became more competitive in world markets, and in response to representations made by other industrial nations that Japan's trade restrictions were inconsistent with its growing economic strength, Japan gradually began to relax its protectionist policy.74 For example, Japan was admitted to the OECD in 1964.75 At that time, the government agreed to accept the responsibilities required by article 8 of the International Monetary Fund (IMF)76 and article 11 of the General Agreement on Tariffs and Trade (GATT),” which prohibited the use of quantitative restrictions on trade and payment, and indicated an intent to admit freely virtually all foreign goods. Nevertheless, progress toward liberalizing imports was slow. While there were only 174 items under quota restriction in 1964 as compared to 490 in 1962, Japan still applied import quotas to 133 items as of September 1970.79 As of April 1978, 27 items, primarily agricultural products, remained subject to import restrictions.80 The reduction in tariff rates resulting from the Kennedy Round of negotiations under GATT in 1968 further contributed to opening the market to imports.81 Beginning in 1967, the Japanese government also initiated a series of capital liberalization programs affecting direct equity investments. Foreign investors were permitted to own up to 50 percent of the equity in new companies and 25 percent in existing companies (15 percent in certain restricted industries).82 Another 74 W. HUNSBERGER, supra note 61, at 135-141. 75 Id. at 387. Id.; see Articles of Agreement of the International Monetary Fund, done July 22, 1944. art. VIII(a), 60 Stat. 1401, T.I.A.S. No. 1501, 2 U.N.T.S. 39, as amended, 20 U.S.T. 2775, T.I.A.S. No. 6748, 726 U.N.T.S. 268, U.S.T, T.I.A.S. No. 8937, U.N.T.S___. 77 W. HUNSBERGER, supra note 61, at 387; see General Agreement on Tariffs and Trade, opened for signature Oct. 30, 1947, art. XI, 61 Stat. A3, T.I.A.S. No. 1501, 55 U.N.T.S. 187 [hereinafter cited as GATT). 78 W. HUNSBERGER, supra note 61, at 387. 79 Krause & Sekiguchi, supra note 7, at 426. 80 TASK FORCE REPORT, supra note 1, at 36 n.11. $1 See Krause & Sekiguchi, supra note 7, at 128. See also R. Osaki, The Control oF IMPORTS AND Foreign Capital in Japan 106–07 (1972). Import quotas remain an important bilateral trade issue, particularly restrictions on the importation of beef, citrus juice, hides and leather products. TASK FORCE REPORT, supra note 1, at 37-42. In the interest of brevity, this article focuses on the more subtle market access impediments involving manufactured products. $2 Measures regarding such investment were introduced on July 1, 1967, Mar. 1. 1969, Sept. 1, 1970 and on Apr. 1 and Aug. 4, 1971. See JAPAN FOREIgn Investment Manual. supra note 73, at 6-7. 1979] 857 LAW & POLICY IN INTERNATIONAL BUSINESS major shift in policy toward investments took place in 1973 when Japan announced plans, which have been implemented on schedule, to allow (with certain exceptions) 100 percent foreign investment in both new and existing firms over a three-year period.93 The restricted sectors are agriculture, fishing, forestry, petroleum and petroleum products, leather and leather products, and mining. The takeover of an existing company, however, requires the consent of its board of directors.85 Very recently, in keeping with the joint statement signed by Ambassador Robert S. Strauss and Minister Nobuhiko Ushiba on January 13, 1978,86 the Japanese made the following additional concessions, among others: advance tariff cuts were made on $2 billion worth of imports; quotas were removed on 12 products; quota levels were raised on imports of high quality beef, oranges and orange juice; increased levels of Japanese government procurement of U.S. goods were promised; import inspection requirements were simplified; import credits were expanded (primarily, however, for products not competitive with Japanese production); and the rules for advance payments on imports and for deferred payments on capital and consumer goods were relaxed."7 Because of the significant liberalization of their import regime, the Japanese contend that their market is as open to imports as any other industrial nation, including the United States. 88 The problem, they say, arises instead from the unwillingness of U.S. firms to 83 Krause & Sekiguchi, supra note 7, at 445. ** Id. at 445 n.74. Investment in an additional 17 industries will be liberalized according to specific schedules. Id. * United States Embassy (Tokyo), Foreign Investment Study Act of 1974, at 7 (June 26, 1975) (Department of State Airgram No. A-304). In cases where consent is lacking, stock acquisition applications, including takeovers, will be considered by the Japanese government on a case-by-case basis. In controlled industries where foreign investment is restricted, all investments are screened by the government in the same way, regardless of the views of the board of directors. Id. * See Joint Statement by Japanese Minister Ushiba and Ambassador Strauss, reprinted in TASK FORCE REPORT, supra note 1, at 70 app. D (hereinafter cited as Strauss-Ushiba Statement). Minister Ushiba is the Japanese Minister of State for External Affairs, id.; Ambassador Strauss was the U.S. Special Representative for Trade Negotiations. 87 Id. at 71, para. 8. Japanese officials and businessmen . ... see Japan as open a market as the United States or any in Western Europe, given the "voluntary" export restraint arrangements negotiated by American officials with foreign suppliers of textiles, specialty steel, and a number of other manufactures-the most recent of which are the orderly marketing agreements (OMAS) on color television sets and shoes and the trigger price mechanism governing U.S. steel imports. Many European countries maintain even tighter controls on imports of a number of Japanese products. E. KAPLAN, supra note 3, at 2. 858 [Vol. 11:845 JAPAN MARKET ACCESS make a serious commitment to enter the Japanese market, i.e., to invest the resources necessary to gain a sufficient market share or to develop product lines and marketing strategies suited to the Japanese environment. 89 Undoubtedly, this statement is true in a number of cases. Many American company executives disagree, claiming that they have given up on the Japanese market because Japanese government procedures and practices severely limit market access.90 Furthermore, it is their position that even when a foreign firm does get established in Japan, particularly if it appears to threaten a Japanese industry's ability to compete, the Japanese government will potentially take action to limit that firm's market growth.91 This argument seems to be supported by the balance of payments figures cited earlier. Since foreign exchange controls, import quotas, tariffs and investment controls are no longer the major impediments to imports they once were, 92 the trade gap can, in large part, be explained by other Japanese government regulations, practices, and procedures that, intentional or not, limit imports. Drawing from experiences of American firms that are selling or have attempted to sell in Japan, this article will identify some of these market access impediments. These examples are taken from the cases of the Joint U.S.-Japan Trade Facilitation Committee. Creation of the Joint U.S.-Japan Trade Facilitation Committee In September 1977, because of the rapidly growing U.S. trade deficit with Japan, the Commerce Department concluded that a 9 Id. at 2, 20. 90 This statement summarizes the views expressed to Norman Glick by various corporate executives. See also Abeggien & Hunt, Facing Up to the Trade Gap with Japan, Foreign Aff., Fall 1978, at 146, 146–30; E. KapLAN, supra note 3, at 1-2. Even as stated by the Japanesefunded U.S.-Japan Trade Council, the U.S. position is persuasive: Id. U.S. trade policy officials argue that the relatively small share of manufactures in total Japanese imports (26.8 percent in 1978) compared with that of comparable resource-poor industrialized nations in Western Europe (54.3 percent for the United Kingdom and 55.4 percent for West Germany, both in 1976) reinforces perceptions of American businessmển that substantial sectors of the Japanese mar ket are closed to them. " Informal government action was taken, for example, to limit the market growth of foreign firms dealing in ski boots and fertilizer compounds. For further details on these actions, see notes 281, 289–95 infra and accompanying text. See also Ackley & Ishi, Fiscal, Monetary and Related Policies, in ASIA'S NEW GIANT, supra note 7, at 234-39. 92 See text accompanying notes 71-73 & 86-87 supra. The United States is, however, still continuing to seek the elimination of certain quotas, and the further liberalization of foreign exchange controls. TASK FORCE REPORT, supra note 1, at 3-5. 1979] 859 LAW & POLICY IN INTERNATIONAL BUSINESS separate bilateral entity was needed to ease the entry of U.S. exports into Japan. 93 Consequently, a bilateral sub-cabinet talk in early 1977 proposed the establishment of the Joint U.S.-Japan Trade Facilitation Committee (TFC).94 The Committee was formally established in September 1977 by Secretary of Commerce Juanita M. Kreps and the Japanese Minister of International Trade and Industry (MITI).95 TFC cases† have involved a wide variety of products, including medical equipment, fish products, race horses, data communications equipment, flashlight batteries, petroleum 93 See TASK FORCE Report, supra note 1, at 19; Commerce America, Jan. 30, 1978, at inside front cover (Message by Secretary of Commerce Juanita M. Kreps to the American business community). "While the TFC is a government-to-government forum, its efforts and activities involve both the government and private sectors. The TFC is organized into three main constituent bodies: (1) the Senior Review Committee, co-chaired by the Assistant Secretary of Commerce and the Director General of the Trade Administration Bureau of MITI, provides overall direction for the TFC, periodically reviews its programs and discusses specific market access cases; (2) a Tokyo Group, co-chaired by the Economic/Commercial Minister in the U. S. Embassy in Tokyo and an official of equivalent rank in MITI, is the focal point for TFC activities in Tokyo which involve primarily the consideration of market access problems submitted by U.S. exporters; and (3) the Washington Support Group, co-chaired by the Deputy Assistant Secretary of Commerce for International Economic Policy and Research and the Commerce Minister of the Japanese Embassy, is the Washington forum for discussions relating to TFC issues and activities. The TFC staff in the Department of Commerce is the prime point of contact for U.S. businessmen with market access problems. In addition to the TFC, the Trade Study Group (TSG), organized in August 1977, is a joint advisory committee composed of representatives from both the private sector and the U.S. and Japanese governments. Included in the TSG are representatives from the American Chamber of Commerce in Japan, the Japan Federation of Economic Organizations (Keidanren), the Japan-U.S. Economic Council, the Japan Chamber of Commerce and Industry, the Foreign Trade Council of Japan, the Japan External Trade Organization (JETRO), the U.S. Embassy in Tokyo and MITI. American Chamber of Commerce in Japan, UniTED STATES-JAPAN Trade: White Paper 26–27 (1979) (hereinafter cited as ACCJ WHITE Paper). Under TFC auspices, the TSG serves as a forum for an informal exchange of views on the problems faced by American firms marketing in Japan and for seeking possible solutions. In addition, the TSG selects and studies specific product sectors in which there exists the potential for increased exports to Japan. Data developed within the TSG may be taken up by the TFC in cases where governmental action is deemed appropriate. Task Force RepORT, supra note 1, at 20. 95 43 Fed. Reg. 23627 (1978). † TFC cases, often referred to herein as "case files," are not cases in the sense of the U.S. court system. Rather, a case is a process that begins when information concerning a problem of a U.S. company is brought to the attention of the U.S. half of the TFC, which then begins a file. This file includes all relevant documents and information on the problem and its progress. Such material may include correspondence, TFC staff summaries of the "case." and cables between the U.S. Embassy in Tokyo and various Commerce officials in Washington. TFC "cases" may also be categorized as “potential cases" or actual cases. “Potential cases" are those matters on which a U.S. TFC file has been started but which have not yet been formally brought to the attention of the Japanese half of the TFC. 860 [Vol. 11:845 |