Why It's Time For A Showdown With JapanDouglas Harbrecht
It's high noon in trade town, and another showdown looms between the U.S. and Japan over access to Tokyo's markets. Only this one is critical. Really.
Come Sept. 30, if Japan doesn't agree to open up to American medical equipment, telecommunications, and insurance services, U.S. Trade Representative (USTR) Mickey Kantor will apply the maximum pressure: He will cite Japan under the so-called "Super 301" law. Even if a modest deal is cut, Kantor may still name Japan for barring U.S. autos, auto parts, and glass products. Kantor secured Clinton's go-ahead for the move on Sept. 20.
SERIOUS THREATS. It's a powerful tool. And the time is ripe for the U.S. to call Japan's bluff, just as President Bush did in 1989 by using Super 301 to force open Japanese markets to U.S. satellites, plywood, and supercomputers after negotiations stalled. American officials insist they're not spoiling for a brawl. "Our approach will be fairly surgical," says one top Clinton trade adviser. "We'd rather leave hope for steady, ongoing progress."
Clintonites are aware that they can't afford to rile world financial markets, still edgy from the collapse of the U.S.-Japan "framework" talks last February. Despite the concerns, however, the 14 months of fruitless "framework" talks between the U.S. and Japan underscore the best reason for invoking Super 301: Where all else has failed to move Tokyo, the threat of sanctions has proved effective. Faced with previous Super 301 threats, Tokyo responded by opening its market to an annual $1 billion in U.S. exports.
Unfortunately, Super 301 has taken on an aura in Japan and around the world of being the ultimate symbol of superpower bullying. But in reality, it's not a bludgeon. No immediate retaliation is being contemplated. If Japan is cited, that would trigger a year-long investigation. At its close, the USTR would determine if there are any "unreasonable" practices that "discriminate against and unduly burden" U.S. commerce in Japan. The President would then have wide discretion to take action--ranging from doing nothing to levying sanctions. "All it's really designed to do is to provide more compelling reasons to reach agreements," says Erin Endean, former director of the USTR'S Japan desk.
Still, beginning the Super 301 process now is a gamble for Clinton. He likely won't get support from even the most free-trading Republicans, who increasingly see him as a weakened opposition leader beatable in 1996. What's more, if Kantor uses Super 301 against Japan now, President Clinton will go to the annual Asian-Pacific Economic Cooperation (APEC) meeting in Indonesia in mid-November to face trade ministers petrified that they'll be next.
Among those arguing against taking such strong action is C. Fred Bergsten, the U.S. representative in charge of getting the organization's 16 members to agree to a framework for a Pacific free-trade pact. He contends that Super 301 threats "have managed to move almost every one of our natural allies to Japan's side."
Bergsten's observation is correct. Instead of joining the U.S. in a concerted effort to reform Japanese mercantilist trade practices, Asian nations may be distracted by fears that the U.S. will cite them next for cartel-like business practices and for trademark piracy.
Still, two recent reports show why the U.S. must not flinch. New figures reveal that foreign share of the Japanese semiconductor market--almost exclusively American--has grown from 8.6% in 1986, to 21.9%, in the second quarter of 1994. That's attributable to years of U.S. pressure and actual sanctions levied during the Reagan Administration. No wonder Japan's bureaucrats despise the 1986 semiconductor trade accord agreement and vow never again to accept similar "numerical indicators of progress," which the Clintonites are pushing.
CRITICAL DEFICIT. On the other hand, the Sept. 20 Commerce Dept. report on the U.S. trade deficit demonstrates an overall U.S. failure. It shows that the gap hit a one-month record of $11 billion in July. Japan accounts for half of the imbalance and will run up a record $60 billion surplus with the U.S. this year. Japanese negotiators are right to point out that the U.S. must do more to reduce its budget deficit and increase savings.
But the Clintonites, who acknowledge the criticism, must also make it clear that a chronic, growing trade imbalance between the world's two largest economies is unacceptable. Super 301 may not be the best tool, but it is a proven attention-getter.
So go ahead, Mickey, haul out Super 301 if Japan continues to balk. It's high time to show that the U.S. means business.