3:20 PM Jun 29, 1995
US-JAPAN - WHO BLINKED, WHO GAINED ?
Geneva 26 June (Chakravarthi Raghavan) -- As the United States and Japan faced each other this week eyeball to eyeball, and after six days of hard negotiations, settled their disputes with an agreement, it was difficult to be sure who blinked first and why and how. In any event it is a mug's game that would be chased by US media, and perhaps some current historians there. But the perceptions, that flowed from it soon after, would be something that would affect many nations. The agreement was reached about four in the afternoon of Geneva, though even a little later some of their officials were making some equivocal statements about difficulties and discords continuing. The details of the auto trade accords so far made public -- the agreements, at government-to-government levels, and the plans announced by Japanese auto-manufacturers, auto-dealers and US auto and auto-parts exporters -- were such that both sides in fact could claim victory to their domestic audiences. President Clinton, already on the campaign trail for next year's Presidential polls and wooing the trade unions and blue collar workers who feel betrayed over his Nafta and then Uruguay Round endorsements, lost little time to claim success for his policies to open up Japanese and foreign markets for US goods, services and investments exports. Whether in fact there were such additional gains cannot be known for some time, and even then it would difficult to separate the trade and GDP gains from general economic variables and those from US tactics of opening up foreign markets through S.301 or similar pressures and threats. But the outcome was such that the US view -- repeatedly pronounced privately and publicly by President Clinton, Kantor and other US officials, leading members of the US Congress -- that "sanctions" and threats to use them, work in forcing its trading partners to "open up" to the US goods and services exports and secure investment rights, and yield to US demands in areas of activity not directly covered by the WTO but which the US determines affects unfairly its trade and economic interests has been strengthened. Japan was forced to the negotiating table through the use of Section 301 of US Trade Law, and the announced sanctions under it, provisionally applied from 20 May but withdrawn just a few hours before its full effect. Kantor at his press conference with Hashimoto, repeated the US claim of its sovereign right to maintain its trade laws (S.301) and use them in circumstances where acts or policy and practices of other nations which affected those trade laws were not covered by the WTO. In background briefings to the media, a senior US official in explaining how an agreement became possible, said: "...we had a firm immovable deadline, with, unfortunately, the threat of sanctions. And we had an administration that was totally united. No possibility of postponing the sanctions. I think the Japanese side realized that we had tried everything we possibly could, everything we reasonably could, and we were out of alternatives, except for the sanctions, so when we got back down to the last 24 hours, there was no way to go except, if there was going to be progress, it had to be then." The actual economic gains and losses of the agreement for either side would take some time to be figured out, and at least in some cases may involve some 'trade diversion' than new trade. For e.g., the Japanese auto-manufacturer Nissai announced that it would relocate part of its engine production from Mexico to the United States, and as of 1997 would manufacture 200,000 engines in the US. The outlines of their agreement, after consultations under the US-Japan Frameworks consultations on their auto-trade disputes, were announced at a joint press conference Wednesday evening by the US Trade Representative Mickey Kantor and Japan's Minister for International Trade and Industry, Ryutaro Hashimoto. The talks, and the agreements and understandings relate to all the three areas of dispute -- the autodealership questions in Japan for sale of US-made cars, the purchase of foreign components for the automobile manufacturing plants in Japan and in Japanese transplants in the United States and the process of deregulation of the after-sales servicing and autoparts. The USTR made public some estimations of trade gains in terms of purchases of autoparts by Japanese manufacturers, for the Japanese market and in the United States, and about the number of dealerships that would be opened up in Japan offering both US and Japanese cars. But Hashimoto made clear, at his press conference with Kantor, that these were US estimations, and Japanese government was in no way involved nor bound by such numbers. Clinton claimed in Washington that the Japanese auto company plans would increase their purchases of US parts by $9 billion. Kantor in Geneva spoke of the additional jobs to be created in the US. But the plans announced by the Japanese automakers did not contain any such specific numerical targets or commitments, but specified the increased production of automobiles in the US and other locations -- some of them already made known in the beginning of the year -- and as motivated by the soaring value of the yen. The Japanese auto-manufacturers plans call for increased production in the United States, Europe and Asia. According to news reports from Tokyo, in terms of details: * the Toyoto company said it would increase its North American production to 1.1 million units by 1998 from its current 900,000 units; set up a fourth plant in North America with an initial production of 100,000 units; increase exports of vehicles from North America to 90,000 units in 1998 from 63,000 units in 1994; begin exports from Europe (to Middle East and North Africa) from 1996; raise Asian capacity to 600,000 units by 1998 from 396,000 in 1994, expanding the plants in the Philippines and Indonesia. * Nissan is to consider producing transmissions in Tennessee in the US in or after 1998; establish a new forklift engine plant in the US with an annual production of 20,000 units from 1996; produce truck transmissions at Nissan Mexicana with an output of 60,000 units from August this year; produce a new stationwagon model at its UK plant with a 20,000 unit output annually in or after 1998; and consider local procurement of diesel engines at its UK facility. * Honda Motor company is to organize a parts development division for the procurement of after-market parts. * Mazda Motor Company will expand vehicles supplied by Ford Motor Co (which owns 24.5% of Mazda) plants in the US, Europe and elsewhere. * Mitzubishi Motors will invest an additional $300 million in US production facilities; invest $450 million in joint venture with the Dutch government and Volvo AB of Sweden. Kantor, at his press conference in Geneva, said that while the original equipment parts issue was covered by the US-Japan Framework agreement and thus subject to the application of US trade laws, the voluntary agreement involved no government-to-government commitments. They were thus not subject to US trade laws and "of course can be affected by changing economic situations". But they carried with them some estimates of things like transplants, growths of transplant production of autos in the US or growth of purchases of transplant parts in Japan -- all based on the plans enunciated voluntarily by the Japanese auto companies. This left vague, but seemed to imply, that the US would not invoke S.301 remedies in relation to these voluntary plans of the Japanese manufacturers. If it is so, it would be a distinct gain for Japan. Kanter said that on the issue of 'dealerships' in Japan, and Japanese dealers being able to have in their show-rooms US and foreign cars, the agreement involves Hashimoto sending a letter to dealers across japan that the Japanese anti-monopoly law allows them to carry competitive foreign cars, and that there would be contact points on this at MITi and the manufacturers. "We have objective criteria," Kantor said, "and an overall goal in which a US estimate will lead to 200 new outlets of cars in the first year alone, and 1000 by the turn of the century". As for the aftermarket issues, Kantor said there was a voluntary plan and the US and objective criteria to verify progress. There would be a review in the first year by the Japanese government of its various regulations in this area and deregulation of the rules not involving health and safety requirements. The accord, Kantor claimed, would break open the Keiretsu (Japanese monopolistic practices and linkages among firms) parts distribution system and the regulations supporting it and the US had achieved some "genuine gains". The problems foreign suppliers faced in this market were garages linked to Japanese parts manufacturers and "our agreement breaks open the system by making it easier for non-Keiretsu garages to expand their presence in Japan, thus opening up channels for use of foreign parts." This, Kantor said, may open up as many as 7000-8000 new garages in Japan to compete with these Keiretsu-dominated garages. Hashimoto, who unlike Kantor, made a reference to the WTO and viewed the agreement as one of victory for the WTO and its members, said that the US-Japan agreement was applicable to all Japan's trading partners on an MFN basis. Japan, he said, had stuck by its stance that numerical targets were outside the scope of the government and this had been confirmed in the accord. Asked by an American correspondent whether he was worried about the Keiretsu surviving in Japan, Hashimoto said: "I am afraid now that there may be a creation of new Keiretsu between American parts manufacturers and Japanese auto manufacturers", adding that the magnitude and extent of imports would be able to open up the Japanese market to a vast extent. But the reality may prove to be near Hashimoto's teaser - a US-Japan private oligopoly in the world trade.