Cold (Trade) Wars with Japan

July 06, 1995

Having failed to crack Japan's keiretsu system of privatized, hTC government-approved protectionism in the much publicized auto trade case, the Clinton administration is now opening a second front in its effort to reduce unsustainable trade deficits.

Its new target is the Fuji photographic company's cozy arrangement with big distributors that has effectively limited Eastman Kodak to only 7 percent of the Japanese market. In addition, a showdown is brewing over Japan's denial of landing rights for Federal Express cargo airliners en route to and from its new hub in the Philippines.

As is usual in trade disputes, politics and economics are intertwined in what should be viewed as a long trade cold war between the U.S. and Japan. President Clinton is guarding his flanks against such super-protectionists as Ross Perot and Patrick Buchanan; the Japanese governing coalition is too weak "to say yes" to the Americans.

While both governments avoided a hot trade war involving sanctions and retaliation in the auto case, their conflicting interests are too deep-seated to permit nice, neat resolution. There will be no Japanese surrender aboard the U.S.S. Missouri, the 50th anniversary of which is but a month off.

Indeed, the Japanese are chortling over what they consider a "victory" in their latest test of blinksmanship with Washington. Despite a U.S. threat to double tariffs against imported Japanese luxury cars, the Japanese refused to agree to any numerical goals in the so-called agreement.

While U.S. trade representative Mickey Kantor rattled off predictions of a $9 billion increase in Japanese purchases of U.S. auto parts and 1,000 new Japanese dealerships for U.S. cars by the year 2000, his counterpart, Ryutaro Hashimoto, merely stood by lending his presence. Later, he declared: "The government of Japan has no involvement in this forecast because it is beyond the scope and responsibility of government."

Does that mean the Kantor agreement is just a scrap of paper? Not by any means. George M.C. Fisher, currently the Kodak CEO and previously chief architect of Motorola's successful invasion of the Japanese electronics market, welcomes the prospect of quarterly reports on the U.S.-Japanese auto trade situation. Even more, his company thinks it has a much stronger case than did Ford, General Motors and Chrysler in pushing for open markets -- so much stronger that the U.S. would willingly bring its complaints about photo industry discrimination before the new World Trade Organization rather than be hauled in as a defendant as was threatened in the auto case.

Too often in the past, the U.S. has put all its efforts into coercing Japan into agreements which are then mooted through Japanese business and government collusion. What is needed in all trade disputes is more vigorous monitoring of implementation and enforcement, combined with strict measurement of results. Only then can the effectiveness of U.S. trade policy be accurately gauged.

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