10:07 PM Apr 26, 1996

USTR HAS JUST RELEASED THE "1996 NATIONAL TRADE ESTIMATE REPORT

As expected, East and Southeast Asian countries were high on the list of countries targeted for harsh criticism. The report is required by the US Congress as a part of the process of determining which country to target under the 301 clause of the US Trade Act, which mandates the US executive to take retaliatory action against those branded as unfair traders.

Publication of the report was accompanied by a great deal of concern among many governments, including the US' partners in APEC. Despite earlier promises that Washington would seek to resolve trade disputes via multilateral mechanisms like the World Trade Organization (WTO), it will in fact, continue to rely on the threat of unilateral trade retaliation to get other countries to submit trade pacts committing them to change their trading practices.

Indeed, on the occasion of the report's release US Trade Representative Mickey Kantor boasted that "under President Clinton's leadership, the Administration has negotiated nearly 200 agreements to open foreign markets, which has helped fuel record growth and the creation of one million jobs." Other officials promised the continuation of the same policy of "achieving practical, market-based, results-oriented agreements" carried out with stated or unstated threat of invoking Super 301.

A prime target of the report was Japan, to which it devoted over 40 pages. While it admitted that Japan "had reduced its formal tariff rates on imports to very low levels, invisible, non-tariff barriers...maintain a business environment protective of domestic companies and restrictive of the free flow of competitive foreign goods into the Japanese domestic market."

Among other things, the USTR report attacked Japanese quarantine and fumigation requirements for fresh agricultural products as too strict, and its high standards on the presence of food additives and pesticide residues as out of line with "internationally recognized tolerance level."

Protection of intellectual property by the Japanese government is said to be inadequate owing to Japanese courts' "narrow patent interpretation practices," in which only "literal infringements of patents" are penalized. Acting as trade barrier, according to the report, is the distribution system that is built on "exclusive relationships among retailers, wholesalers, and producers" and "protects small retailers."

While it acknowledged that "most direct legal restrictions on foreign direct investment have been eliminated," the USTR claimed that Japan's "lack of receptivity to foreign investment is a major trade barrier." The level of foreign investment in Japan - $4.2 billion in 1994, compared to Japan's foreign investment abroad of $41 billion - was said to be due to "long-standing exclusionary business practices, extraordinarily high market entry costs, [and] discriminatory use of bureaucratic discretion."

The broadside on Japan presages many observers warn, an intensified US effort to use 301-type threats to liberalize Japanese trade and investment practices in 1996. The report, in fact, warns Japan that the USTR will have to make a determination by July 2 on a petition filed by the US firm Eastman Kodak regarding the sale of photographic film and paper, which alleges that Japanese distribution practices are "unreasonable, unjustifiable, or discriminatory."

Also, the USTR has told Japan that it wants a renewal of the 1991 US-Japan Semiconductor Arrangement that commits the Japanese government to raise the market share of foreign producers in the computer chip market to 20%. Since 1995, the foreign market share had actually gone beyond this target to reach 25.4%. The Japanese have countered that the agreement has fulfilled its goal and refused--so far--to renew the agreement. What will it take to satisfy Washington? The answer might be indicated by the report's comparative note that in the United States, the market share of Japanese and other foreign chip producers came to 39% in 1995.