U.S.-Japanese Trade Dispute

By Morillo, Juan P. | Law and Policy in International Business, Spring 1994 | Go to article overview

U.S.-Japanese Trade Dispute


Morillo, Juan P., Law and Policy in International Business


The Office of the U.S. Trade Representative scored two notable successes for the Clinton administration in 1993: the passage of the NAFTA and the completion of the Uruguary Round of the GATT. However, a stubborn trade dispute with Japan erupted again shortly thereafter. The dispute is sure to remain an issue in 1994 and beyond. This report surveys recent events and discusses possible courses of action for the USTR in 1994.

I. The 1993 Trade Agreement

In the summer of 1993, President Clinton and then-Prime Minister of Japan, Kiichi Miyazawa, signed a trade agreement that sought to decrease Japan's overall trade surplus of $131 billion, $60 billion of which is with the United States.(1) The agreement sought to reduce the trade imbalance by measuring progress through the use of "objective criteria, either qualitative or quantitative."(2) The current trade dispute arose from the different conceptions that the United States and Japan have with respect to what the concept "objective criteria" entails. To the United States, the term refers to numerical targets by which to measure the openness of Japanese markets. This approach is sometimes referred to as a "results-oriented" strategy.(3) The Japanese, on the other hand, believe such an interpretation will lead to managed trade because it would be tantamount to allowing the United States to set targets for import penetration of the Japanese market.(4) Japan maintains that the U.S. strategy of "managed trade" violates free trade principles.(5) The Japanese prefer a set of goals, rather than specific benchmarks. The inability of the two sides to explicitly define what was meant by |objective criteria' in the 1993 trade agreement led to the current stalemate.

The United States wants specific commitments from Japan concerning market penetration by U.S. companies. For instance, the United States wants Japan to increase the number of Japanese dealerships that sell U.S.-built cars.(6) The Japanese, on the other hand, interpret "objective criteria" as referring to a way of measuring progress already made. Accordingly, Japan views the number of Japanese dealerships selling U.S.-built cars as one indicator of whether other countries have penetrated the Japanese car market.(7) However, Japan refuses to agree in advance to a specific number of car dealerships that must sell U.S. cars to avoid violation of the trade agreement, which would subject Japan to trade sanctions.

The 1993 trade agreement called for a series of biannual summits to measure the progress made in opening the Japanese market. The first such summit took place in early February 1994, but ended in failure. Neither side was able to reach agreement in any of the four trade areas identified last July: automobiles and auto parts (which account for about half of the trade deficit with Japan), telecommunications equipment, medical equipment, and insurance.(8) As a result of the collapsed talks, the threat of an impending trade war triggered by the imposition of sanctions arose.

II. Political Dimension to the Trade Dispute

Politics and history are closely intertwined with the trade dispute. When the long-running hold on power by the Liberal Democratic Party in Japan came to an end and Morihiro Hosokawa became the new Prime Minister, the news was warmly received in the United States. Both U.S. and Japanese citizens widely believed that a new era in U.S.- Japanese trade relations had been ushered in - one characterized by cooperation rather than confrontation.

However, this atmosphere of cooperation quickly dissipated. President Clinton became absorbed in domestic problems. Similarly, Prime Minister Hosokawa's government concentrated on political reforms. In addition, the current trade disagreement provided both leaders with an opportunity to capitalize politically. Both President Clinton and Prime Minister Hosokawa enhanced their standing with their respective electorates by taking an intransigent stance in the negotiations. …

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