3:20 PM Jun 29, 1995
US-JAPAN SETTLE DISPUTE, DAMAGE WTO CREDIBILITY
Geneva 29 June (Chakravarthi Raghavan) -- The United States and Japan clawed back from the precipice of an unpredictable trade war Wednesday, just hours before the deadline for US-imposed deadline for unilateral trade sanctions against Japan to go into effect, and settled their auto-trade dispute, with both sides claiming victory. The agreement was reached at about four in the afternoon, and announced at a joint press conference by US Trade Representative Mickey Kantor and Japan's Minister of International Trade and Industry, Ryutomo Hashimoto and, in parallel at Tokyo, by Japanese auto-manufacturers who made public their medium-term 'globalization' plans for setting up plants and sourcing auto-parts. The US announced that it would not put into effect its 100% tariffs on imports of Japanese luxury cars, officially set to go into effect midnight Washington time of 28/29 June -- but provisionally in fact in effect since 20 May. And Japan announced it would not proceed with its complaint at the WTO over the US trade sanctions issue. But when the dust settles down, and the grains of the accords can be separated from the chaff of propaganda of both sides, it may prove to be an accord that has just postponed the fight between two major trading nations (on this or some other issue), whetted US appetite to gain 'trade benefits' for its enterprises from other countries through the 'unilateral sanctions road', and thus increased the trade insecurity of the WTO members. Japanese officials privately hope the US has learnt something from this fight: that it would realise its unilateral trade sanctions approach through its S.301 trade law would be challenged by its trading partners in the WTO where it would meet with near universal condemnation and that such an approach is also divisive domestically in that it was meeting with considerable opposition from its own public, economists and trading interests. However, the press conference statements of Kantor here, of President Clinton in Washington, and the views of US trade officials in background briefing suggest that such hopes of Japanese officials may prove illusory. The end of the dispute, and six days of intense bilateral negotiations at Geneva, spewed forth many hyperboles from the two antagonists, their industries, and the lobbyists. But these could not equal that which emanated, in a press statement from the WTO head, about the WTO role in promoting and delivering trade peace! Throughout this dispute, and ever since mid-May when the US announced its sanctions, combining it with a notification of its intention to file a complaint before the trade body, the WTO's executive head, Italian Renato Ruggiero, has been keeping a low profile, but with some ambivalent statements praising the US for abiding by WTO obligations in wanting to bring its dispute before it. Some reports, including a reportage this week in the German economic daily Handelsblatt (after his recent German visit to address business groups there) suggested that privately Ruggiero is suggesting 'modesty as the principle of survival for the WTO', that the dispute was too big for the WTO to handle, and such issues, as also ones like social clause, environment, competition policy etc should be taken up by the majors in the OECD. But within minutes of the press conference announcement of the agreement, the WTO head issued a statement: ".. Most importantly, I believe we can be encouraged by today's settlement because the multilateral trading system has demonstrated that it can help deliver trade peace. The WTO's dispute settlement system has done its job as a deterrent against conflict and a promoter of agreement. The knowledge that both sides were prepared to use the system played a crucial role in pressing them towards a deal. When required to do so, the system will provide a legal adjudication -- more often, as in this case, it will serve as a catalyst for resolution. That is exactly what it was designed to do and is exactly what it has succeeded in doing today." Many trade diplomats and trade observers, however felt that in fact the six-month old fledgling WTO has been dealt a serious blow to its credibility and claims as an international institution, with a rule-based system, for a world trade order, assuring trade security through its effective dispute settlement mechanism, to ensure the rights of the strong as the weak, are proving to be empty of content when the powerful decide to disobey rules. Some observers worry that in pursuing national neo-mercantalist trade objectives and seeking gains for its enterprises, the US is likely to be a source of economic insecurity for others, just as Germany was to political security and territorial integrity of European countries in the 1930s that ended in a war. All the other members of the WTO, and large sections of US academics and trade experts have expressed themselves forthrightly that the US use of the S.301 -- the unilateral determination by the US of "nullification and impairment" of its WTO rights, and the imposition of sanctions (100% tariffs) over imports of some varieties of Japanese cars, 'goods' covered by the WTO-GATT 1994 agreement -- were a violation of the WTO, irrespective of whether or not the Japanese practices complained about were covered by the WTO accords. But this has not made the slightest impression on the US administration or its Congress either. Some Japanese sources, close to the powerful MITI, privately admitted to some pluses, but also some minuses. On the plus side, the sources put the avoidance of a costly trade war, in a dispute affecting one of the major sectors of the Japanese economy, the automobile sector, without the Japanese government giving up on its refusal to agree to "numerical targets" or commitments involving actions of its private sector. However, the Japanese government, the source said had applied privately considerable pressure on the Japanese automobile manufacturers, particularly the Toyota company, before the medium term plans were announced -- but with global targets, and not specifics about US cars and parts as in the 1192 industry-wide voluntary plans to increase procurement of foreign parts. On the negative side, the source said, had to be put the fact that the US may now feel emboldened to come back with similar S.301 actions and threats in other areas and involving other US interests. They noted in this connection the pending complaint of the US Kodak film company against Fujitsu and its control of the Japanese domestic market preventing imports and distribution of US-made films. There are also other pending issues, and encourage other US sectors to initiate similar S.301 complaints. Even more, on a system wide basis, the US is now likely to use the same instruments against other weaker trading partners, and this will embolden other trading partners too to similar tactics. Ultimately, some one has to draw a line on the sand and stand up, before there can be trade order and security. But the major trading nations seem unlikely to do so. One Japanese trade official, speaking unattributively, privately conceded this possibility, but said that it would have been impossible for Japan to get the United States to agree to give up its domestic law, S. 301. But the US, the official said, ought to be now aware that if it used this instrument, the other trading partner would come up to the WTO and challenge it. Also, the US was aware that very large sections of its own domestic opinion had come out clearly against the US and its illegality. "May be the United States would have learnt something from this," he suggested. But trade officials of other countries, and trade experts and observers elsewhere, were less sanguine than the Japanese official or the WTO head. Several of them doubted the ability of their capitals to stand up to the United States and their enterprises to undergo trade damage for a year or more in the hope that the WTO would rule against the United States. Even then, one trade diplomat said, if the US shrugs its shoulders and declines to implement the ruling, "we will have no other remedy than to retaliate against the United States" - a remedy worse than the disease. Until the entire WTO membership find a way to short-circuit the nearly a year long dispute settlement process, perhaps by a consensus that excludes the complainant and the accused, to judge immediately against any unilateral sanctions, and apply collective sanctions, this type of bullying can't be ended. At one stage in the Uruguay Round, the EC representative, Tran Van-Thinh suggested such a possibility, but this was never pursued, and would not have been accepted by the majors. But while Ruggiero can be faulted for hyperboles, any blame for the failings of the system, must lie squarely with its membership -- those who negotiated the WTO and sold it to their parliaments in such hyperboles. Even when the US administration and the Congress made clear the unilateral trade sanctions approach was not being abandoned, these negotiators and their governments were suggesting that it was all part of domestic politics and rhetoric that should be ignored by the rest of the world.