Protectionism Is King Of The Road

Don't expect to spot many Japanese cars on the streets of Rome or Paris. Both Italy and France maintain quotas on Japan's auto imports, a big reason why Japanese auto makers have captured only 10% of Europe's market. These quotas are supposed to be abolished after 1992, with the opening of a single European market. But determined to keep the Japanese at bay, the French and Italians have been pressing for new restrictions after 1992.

Now, after a long and bitter battle with free-trade advocates in the European Community, the protectionists are claiming victory. At an Apr. 30 meeting, the European Economic Commission obtained majority agreement for a course of action that is tough on the Japanese. Although the Commission would not reveal details of the plan, sources say it calls for a six- or seven-year transition period after 1992. During that time, Japanese sales would be allowed to increase gradually, from 1.2 million vehicles last year to about 2.5 million in 1998 or 1999, when they would account for about 16% of the enlarged European market.

NO BLITZING. Although that looks like a healthy increase, the proposal would force Japan to shift into a lower gear. Aside from the overall limits, the plan calls for Japanese companies to avoid blitzing countries where they have small market shares, such as Italy, France, and Spain. And if the European market slows, the Japanese would be expected to moderate their growth. More significantly, almost the entire sales increase would come from Japanese "transplant" cars, made at newly built European factories, mostly in Britain. "They're talking about an absolute freeze on imported car sales," says John K. Lawson, auto analyst at Nomura Research Institute in London. "Protectionism has won the day."

One sign that the EC has taken a hard line: The French government is pleased with the plan. A top adviser to French Prime Minister Michel Rocard says most of his country's concerns have been met, and he believes the Europeans are acting decisively to head off the Japanese auto tide. "The U. S. waited too long to act," says the French official. "Europe has learned from American mistakes."

As expected, the initial reaction from Tokyo was frosty: "If the EC Commission brings a proposal like that, we'll have fairly difficult negotiations," says Norihiro Kono, a top auto official at Japan's Ministry of International Trade & Industry. The Japanese want a maximum five-year transition period. They also object to the inclusion of transplants in any quota.

The Japanese are spending billions to build auto plants in Europe. Nissan Motor Co., which already has the capacity to assemble 200,000 cars at its British factory near Newcastle, is planning to double that. Both Toyota and Honda are also putting up plants in Britain, while Mitsubishi may build cars in a joint venture with Volvo. By 1999, Japanese plants could be producing 1.2 million cars a year in Europe.

As the Japanese see it, transplants should be viewed as European-produced cars, and given unrestricted access. "They'll have to come up with something better if they want to discriminate against us," says Toshiaki Yasuda, a general manager at Nissan in Tokyo.

The EC will have to address these concerns when it makes its formal offer to Japan. That could come as early as mid-May, when EC President Jacques Delors visits Tokyo. But the Commission isn't likely to improve its offer very much. The most free-market oriented of all EC bodies, the Commission can argue that it dropped two key points pushed by France and others: more access for EC exports to Japan, and a minimum local-content rule for Japanese transplants. "The Japanese have to realize there's a lot of protectionist sentiment" in Europe, says Stephen Reitman, analyst at UBS Phillips & Drew Ltd. in London. "To be realistic, they should accept this."

After 1999, the EC plan calls for restrictions on Japanese cars to be lifted. "By the end of the transition period, European cars will equal the Japanese in price, quality, and reliability," says a French official. They had better. In such markets as Denmark, Greece, and Ireland, which have no quotas, Japanese cars already have more than 35% of the market. Unless Europe's auto industry proves adept at competing with the Japanese, Europe's transition period could last well into the next millennium.

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