Will the Rubber Grip the Road? an Analysis of the U.S.-Japan Automotive Agreement

Article excerpt

I haven't got anything against open competition. If they can build a better car and sell it for less money, let 'em do it. But what burns me up is that I can't go into Japan. We can't build, we can't sell, we can't service, we can't do a damn thing over there .... I think this country ought to have the guts to stand up to unfair competition.

Henry Ford II (1969)(1)

I. INTRODUCTION

In 1993 the U.S.-Japan merchandise trade deficit was almost $60 billion--of which about sixty percent was related to automobiles and automotive parts.(2) In that year the U.S. government began a twenty three month long marathon negotiation intended to address the issues that underlay this deficit: market access difficulties for U.S. vehicles and parts in Japan and the analogous difficulty of selling U.S. parts to Japanese companies manufacturing automobiles in the United States. These negotiations resulted in the U.S.-Japan Automotive Agreement (the Automotive Agreement)(3)--the most far reaching trade agreement ever signed between the United States and Japan, both in the volume of trade covered and the expected overall impact of its detailed provisions.

Part II of this Article reviews the little known history of U.S. automotive companies in the Japanese market, from the early 1900s through the 1950s. Parts III and IV report on the pre-1993 efforts by the U.S. government and private sector to address the automotive trade imbalance that developed after the 1950s. Part V describes the U.S.-Japan Framework Agreement generally and then gives a detailed chronology of the automotive sector negotiations that were a component of the Framework. Part VI analyzes the specific terms of the Automotive Agreement. For each of the three principal automotive areas--vehicles, original equipment parts, and aftermarket part--the Article assesses the problems faced by U.S. companies, describes the solutions provided by the Automotive Agreement, and reviews the criteria that will be used to measure success. Part VI also discusses implementation and monitoring issues, while Part VII reviews some of the lessons that may have been learned from the talks.

II. The Early Historical Background: Survival Was Job One

The assertion that U.S. automakers were late and lazy entrants to the Japanese market is a myth not supported by the historical record. Although Japanese inventors and entrepreneurs built some motor vehicles in the early years of the twentieth century, most of these initial efforts yielded experimental prototypes or models rather than massproduced vehicles intended for ongoing consumer sales.(4) But, by 1905, Ford had already exported its first car to Japan and, by 1909, had established its first agency to sell vehicles shipped from the United States to Japan.(5) General Motors followed several years later, while Dodge and Chrysler arrived in Japan in the 1920s.(6)

The Great Kanto Earthquake of 1923 devastated railroad and trolley transportation in the Tokyo area and destroyed many of Tokyo's incipient manufacturing industries, including the motor vehicle industry.(7) Probably motivated by national security and public transportation needs after the Earthquake, the Japanese government encouraged the importation of more motor vehicles (especially trucks) and even invited foreign vehicle manufacturers to set up assembly plants in Japan. Ford responded by establishing a plant in Yokohama in 1925. General Motors followed suit in Osaka in 1927, as did Chrysler in Yokohama in 1930.(8) It is estimated that by the early 1930s four-wheeled motor vehicles manufactured by U.S. companies (both in the United States end Japan) accounted for approximately ninety percent of the Japanese market.(9)

As the Japanese government began its various military forays in the 1930s, it became concerned that foreign control of the motor vehicle industry could negatively affect its national security.(l0) The most important early effort to restrict foreign vehicle manufacturers was the Automobile Manufacturing Law (in effect from 1936 to 1946) that limited production in foreign-owned plants and gave incentives to domestic producers. …