1. Archive

Auto trade accord won't open up Japan overnight

Published Oct. 4, 2005

Just about everyone has known for years that Japan's economy was rigged to keep out competitive foreign goods.

The Japanese didn't do it with anything so crude and official as tariffs or quotas. That would be an outright violation of free trade agreements and have everybody down on them in a second.

No, they were a lot smarter than that. Over the past 40 years or so, Japan's business leaders quietly set up what amounts to unofficial wholesale, retail and supply cartels that kept the foreigners out just as surely as any tariffs or duties _ and without all the screaming and hollering those more visible methods would have triggered.

Much of this, it turns out, was accomplished with the full knowledge or collusion of the government's Ministry of International Trade and Industry, or MITI.

These cartels _ the Japanese like to call them keiretsu, or associations _ are the reason you can still buy Japanese cameras and electronic equipment for much less in the United States than in the country where they're made.

The cartels are also why the price on American-made Hondas gets marked up only 10 percent or so when they're shipped back to Japan while American-made Jeeps and Fords get marked up 30-40 percent.

Foreign governments and businesses could protest this state of affairs all they wanted but there was little they could do about it. There were no outright treaty violations. Nothing was, strictly speaking, illegal.

The French once tried give Tokyo a taste of its own medicine by using trumped-up safety inspections as an excuse to impound Japanese VCRs. They had to cave in almost immediately because besides the Dutch brand, Philips, there were almost no other VCRs you could buy other than the Japanese models.

Successive U.S. governments have put up with this unbalanced trade situation over the years, mainly because our Cold War strategists believed a strong and prosperous Japan was the key to countering Soviet and Chinese designs in the Far East. The idea was that Japan could have a more or less free rein in economics as long as we could station 50,000 or so American soldiers there and remain a power to be reckoned with in Asia.

Even in the late 1980s, when Japan began accounting for more than half of our worldwide trade deficit, Washington policymakers figured it was wiser not to lean too hard on Tokyo.

Those times _ and that kind of thinking _ are finished, at least in theory. The trade deal Tokyo cut with the Clinton administration on Wednesday is a tacit acknowledgement of that.

With the Cold War over and global economics moving to the fore ahead of geopolitics, President Clinton and his advisers felt it was high time to have a serious go at Tokyo. The fact that Japan is running a record $66-billion trade surplus against us made the hard-line strategy all but mandatory.

The odd thing is that Clinton and his people chose to take their stand on the issue of automobiles. If there's any sector in which American producers haven't made a serious try at selling in quantity in Japan, it's automobiles.

Even today, after years of bellyaching about their lousy sales figures, American carmakers still produce only two models for the Japanese market with the steering wheel on the right-hand side _ the way it should be over there. How many cars do you think the Japanese would sell here if they ignored American driving habits and shipped all their cars with the steering wheel on the wrong side?

Not only that, none of America's big-three automakers bothered to set up their own independent dealer and service networks in Japan. Chrysler took the first step this week by buying into an already existing network, but the move comes years after its former chairman, Lee Iacocca, started complaining about how unfair the Japanese were.

But all that having been said, this doesn't mean the Japanese are getting a bum rap. European automakers produce loads of right-hand drive cars and went to the expense of setting up their own Japanese dealerships, but still don't sell much better there than we do.

Even when you have a good product and sell it hard, there's still the Japanese cartel system to contend with. Kodak is a good example of what I mean.

It's generally agreed that Kodak film for the amateur consumer market is as good as any made in Japan. On top of that, Kodak says it can sell its film there for considerably less than the biggest Japanese producer, Fuji.

So how come Kodak can manage only 8 percent of the Japanese amateur film market while it usually gets about 40 percent in countries where it competes head-on?

The reason is simple enough. Most Japanese photo stores don't carry foreign-made film because they've agreed with Japanese film producers and distributors not to. And it's not only Kodak complaining about this. The Germans, who make pretty good film too, are also hollering.

Even in areas where American producers clearly outclass their Japanese rivals, the Japanese somehow manage to come out on top. I'm thinking here of computers, especially the kind people buy for their homes.

American computer-makers are so far ahead of the Japanese in quality, features and price there's little reason to consider any other brands. Yet in Japan, as nowhere else, the top-selling models are made by Fujitsu and NEC. American brands like Compaq and Apple are making serious inroads in the market but the fact that it's a contest at all tells you what they're up against.

Will the trade accord Clinton announced on Wednesday change all this?

Probably not.

The president may call the deal "a major step toward free trade throughout the world," but the reality is that it's going to take a lot more than a last-ditch, facing-saving accord in Geneva to change the way the Japanese do business.