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United States. Congress. House. Committee on Ways.

United States-Japan trade, commercial, and economic relations : hearing before the Subcommittee on Trade of the Committee on Ways and Means, House of Representatives, One Hundred Third Congress, first session, July 13, 1993 online

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Online LibraryUnited States. Congress. House. Committee on WaysUnited States-Japan trade, commercial, and economic relations : hearing before the Subcommittee on Trade of the Committee on Ways and Means, House of Representatives, One Hundred Third Congress, first session, July 13, 1993 → online text (page 10 of 21)
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in Japan (as compared to other advanced industrialized nations).

- This position is reasonable, given the decades of US toleration (inspired
by the Cold War) of overt restrictions on trade and investment in Japan.
The US has given Japan fair access to its economy while at the same
time protecting Japan's strategic interests regionally and internationally.

- The Japanese government has already initiated a number of programs to
facilitate direct investment and trade. Nonetheless, its efforts remain
insignificant when compared to those which American states like
Kentucky and Tennessee on their own have offered to facilitate Japanese
investment.

- The goal should not be to guarantee "success" for companies investing
in Japan, but to give those that can compete with the Japanese the
chance to do so on Japan's home turf. This way the market, not some
government industrial or trade policy maker, would ultimately decide who
wins and loses.

- In addition, a number of non-tariff barriers remain in place in scattered
sectors and sub-sectors of the Japanese economy. These range from
discriminatory regulations aimed at foreign telecommunications products,
to a general unwillingness by the Japanese to accept American
Environment Protection Agency (EPA) and the Food and Drug
Administration (FDA) data in applications for new-product licensing.
Although we believe that the problems associated with these barriers
have much less of an overall impact than those associated with cost
protectionism, we agree with such organizations as the ACCJ that these
fragments of Japan's overt protectionist fabric should be eliminated.



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MICRO-LEVEL PROPOSALS:

Increase the trade promotion, advisory, and problem-solving infrastructure
available to US companies in Japan by constructing a US-Japan Trade
Development Center. The facility would embody a new government-business
partnership toward increasing US corporate penetration of the Japanese
market. It would house the export promotion offices of industry associations,
state governments, and the Foreign Commercial Service - all of which are
under-represented in Japan.

Increase the Commerce Department's APEC-lndustry Cooperator
Program funding to underwrite partially the establishment of many more
US Industry Association offices in Japan. (All of which could be housed
eventually in the Trade Development Center).

Create a new Deputy US Trade Representative for Jap'an. This individual
would be based in Tokyo (perhaps within the US-Japan Trade
Development Center) and would be empowered to address sector-
specific disputes on a constant basis, and, when necessary, to set
priorities for action under US trade law.

• Establish a number of design-in "incubator" facilities in major industrial
producing areas in Japan to spur on the integration of more small- and
medium-sized American manufacturers into Japanese corporate supply
networks. The incubator would provide low-cost office space to
companies for an initial year to two year period as well as extensive
matchmaking, education, and advice services.

Call on the Department of the Treasury to study the renegotiation of existing tax
treaty clauses in order to lessen the excessive tax burden on American
companies and their executives in Japan.

Create financial incentives to encourage trade-facilitating direct investment in
Japan.

• Launch a government-industry joint initiative to educate companies and their
executives about the Japanese economic environment and Japanese language
and culture (as the EC has done with great success).

Facilitate greater study of Japanese language in the US at the
intermediate and advanced levels, by increasing the number of so-called
FALCON (Full-Year, Asian Language Concentration) Programs. In
addition, to further enhance Americans' understanding of Japan, new



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programs could be established to increase corporate awareness of how
the Japanese economy operates.

Partially restructure the mission of the United States Information Agency
in Japan to include educating American businessmen about the
Japanese business culture as a major objective.

Authorize the State Department to begin negotiations with the Japanese
government to settle certain copyright infringement issues. This has
prevented the US government from distributing to business the
tremendous volume of Japanese-language science and technology
(S&T) and business-related material that the Foreign Broadcast
Information Service translates daily.



CONCLUSION

Constructive Engagemerrt and the US-Japan Business Relationship

In conclusion, despite all of the negative rhetoric it inspires, Japan is the home of over
120 million well-off and highly-educated consumers and a large number of the world's
leading companies. The costs of not taking on the Japanese on their home turf are
becoming prohibitively high for American industry. Failing to become integrated into
the Japanese corporate network undermines the competitiveness of American
companies internationally versus their Japanese counterparts. US companies must be
willing and able to penetrate the heart of the Japanese economy. They must no
longer be content to reside at the periphery or to cling to the belief that no matter how
hard they try they cannot succeed as they do in other markets.

However, the American and Japanese govemments must realize that the low level of
US corporate participation in the Japanese economy is not simply the result of
management's unwillingness to adapt to the Japanese way of doing business.
Whatever the costs of continuing to avoid Japan may be to American global
competitiveness, if companies cannot afford the expense of doing business in Japan,
they will not do business in Japan.

The time has come to take a hard look at where the United States is going and where
it should go. With the Cold War over, the focus of the US-Japan relationship has
shifted away from external political threats to internal problems of economics and
business competitiveness. In America, turning inward has led in the past to the
adoption of self-centered protectionist policies. Yet today the power of the government
to constrain trade is limited. Due to the increasing reliance of American manufacturers
on Japanese suppliers and the affinity c American consumers for competitively-



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priced, high-quality Japanese goods, it would be very difficult to shut Japan effectively
out of the US market.

At the same time, however, a deepening trade relationship between the US and Japan
is a good thing only to the extent that it benefits both parties equally. Structural
dependence of American manufacturers on Japan must be distinguished from
structural interdependence between American and Japanese companies.
Interdependence will foster political harmony between our nations, while dependence
fosters only mistrust and fear. This is especially the case when the exclusion of
foreign business from Japanese markets is generally caused by Japanese
government policies rather than by the strength of Japanese producers.

The Japanese have a saying: "the nail that sticks up gets hammered down." The
Japanese government and people must realize that due to their pattern of unbalanced
trade and investment, Japan today appears internationally like a protruding nail. The
impotence in Japan of othenwise internationally-competitive A'merican companies,
compounded by the inability of the American government to effect solutions to trade
imbalances, threatens to dissolve the bonds of trust which have united America and
Japan throughout the Cold War era. Unless more American companies become as
indispensable a part of the Japanese economic system as many Japanese firms have
become in the US, Japan will be seen as taking from, but not giving to the US. In
spite of our dependence upon trade with Japan and Japan's dependence upon open
US markets, popular enmity will certainly rise.

The US-Japan relationship will not simply disappear, but it may well become
increasingly weak. If our perceived sense of commonality and fair play is undermined
by reality, we will have fewer reasons to work together. Coming at a time when close
US-Japan cooperation is extremely important for the maintenance of international
peace and economic stability, such a scenario could well be disastrous.

Professor Ernest May, of Harvard University, is fond of telling his students that "history
does not repeat itself, it just rhymes." The current rumblings of past resentments
between America and Japan testify, perhaps, to the grain of truth in Professor May's
dictum. However, in the end, the future need not rhyme with the past. Today, a new
course for US-Japan relations can and must be set. Systemic differences and
lingering barriers cannot be wished away. On the contrary, they must be confronted
and constructively engaged. We must strive to create real political and economic
interdependence, and cease fostering, intentionally or unintentionally, unilateral
economic or political dependency. Government and business on both sides of the
Pacific must realize that although the cost of action may be high, the cost of inaction is
certainly much higher. At stake is not simply the economic and political relationship
between two great nations, but the future well-being of the entire world.



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Endnotes

1 . Richard Samuels, Japanese Political Studies and the Myth of the Independent Intellectual, in
Samuels and Weiner, Eds., The Political Culture of Foreign Area and International Studies .
Washington, DC: Brasseys, Inc., 1992, p.106.

2. Chalmers Johnson, MfTI and the Japanese Miracle , Stanford: Stanford University Press, 1982.

3. These comments are based on a wide ranging conversation on revisionist thinking with Ron
Morse, then Vice President of the Economic Strategy Institute, Washington, DC, February 28,
1991 (Morse, it should be noted, is not a subscriber to the "containing Japan" thesis).

4. Conversation with fornier USTR, Director for Japan - and noted opponent of the Sll process -
Glenn Fukushima, Tokyo, Japan, February 24, 1992. (Fukushima is now Director of Japan
Market Strategy at AT&T in Tokyo.)

5. This comment was made to a group of reporters during lacocca's visit to Japan
accompanying then-President George Bush in January, 1992 (reported on Asahi- Japanese
television, January 8, 1992).

6. lacocca Talks on What Ails Detroit, Time , February 12, 1990, p.68. In lacocca's words,
'Chrysler went from zero to selling 50,000 cars in Europe last year, from zero to 5,700 cars in
Taiwan, and zero to just zero in Japan. Now sometxjdy should investigate that. There's a
crook there someplace.. ..How can they continue to shut us out year in and year out without a
backlash. I'm not suggesting a real shooting war, but I'm suggesting a great wave of
protectionism If they really level us."

7. For durable manufactures in 1990, the figure was 45%. See Tsushou Hakusho (Mm White
Paper on Trade) TsuSan-sho: 1991, p.216.

8. From GaJshi-Kei Kigyou Koudou Chousa, Houjin Kigyou Toukei, MITi, 1991 and Survey of
Current Business, US Department of Commerce, 1989.

9. Edward J. Lincoln. Japan's Unequal Trade . Washington: The Brookings Institution, 1990, p.40.

1 0. For a full discussion of how relationships effect business in Japan, again see our forthcoming
companion piece - Insider Capitalism.



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1 1 . The important role of external relations {shougai katsudou) in the world of Japanese business
Is thoroughly documented In Tokyo-based business consultant Keith Henry's study: Shougai
Katsudou and the Foreign Firm, Sophia University, Institute of Comparative Culture, Tokyo,

iggz



1 2. See country by country trade performance tables In The World Competitiveness Report,
Lausanne, Switzerland: IMD, 1992.



1 3. See World Competitiveness Report, p.29.



1 4. For a convincing argument that the capital costs of internationally competitive American firms
are on par with most of their Japanese counterparts, see: W. Cart Kester and Timothy A.
Luehman, The Myth of Japan's Low-Cost Capital,' Harvard Business Review, May-June 1992,
pp. 130-1 38.

1 5. "Strategic investment* used in this context might tje defined as that which contributes to -
rather than detracts from - product exports from home operations to subsidiaries and
facilitates the maintenance at home of a corporations' international export competitive
advantage . Han/ard Business School Professor Dennis Encamation uses this term in his
extremely fine study of the effect of the US-Japan direct investment imbalance on the broader
bi-lateral trade relationship. See Dennis Encamation. Rivals Beyond Trade: America Versus
Japan in Global Competition. Ithaca, New York: Cornell University Press, 1 992. Mark Mason, a
Professor at Yale University, has also made a significant contribution to our understanding of
the foreign investment situation in Japan and its ramifications for US corporate
competitiveness there. See Mark Mason. American Multinationals in Japan: The Political
Economy of Capital Controls. Cambridge: Harvard Council on East Asian Studies, 1992.
MITTs anatysis of the positive relationship tietween investment and trade can t>e found in a
number of documents. For example, Tai-Nichi Toushi to Boekl ni tsuite* (Regarding Direct
Investment and Trade In Japan), TsuTsanShou, Kokusai Kigyou-Ka (MITl- International
Business Section), Septemt)er 1991. The Keidanren findings are detailed in the report
Improvement of the Investment Climate and Promotion of Foreign Direct Investment, October
27, 1992.

The Wednesday Group would like to sincerely thank Mr. Takato Ojimi, former Director of
International Business at Mm, for his assistance In gathering data on the Investment and trade
activities of foreign businesses in Japan.

1 6. For descriptions of why maintaining subsidiary control is Important, in addition to books by
Mason and Encamation op.cit, see Nonman Gllckman and Douglas Woodward, The New
Competitors: How Foreign Investors are Changing the U.S. Economv . New York: Basic Books,
1989, chapter on 'Intangible Advantages and Direct Investment," pp.82-84.

17. Comment made to author during a meeting at Du Font-Japan headquarters, December 17,
1992.



34



1 8. Encamation, op.cit. p.29.



1 9. See 'Measures for Promoting Foreign Direct Investment in Japan, * MITI- International Business
Section, January 1992, p. 18.

20. In fact the Foreign Exchange and Foreign Trade Control Law was actually drafted by Jan V.
Mladek of the Intemtaional Monetary Fund at the invitation of the SCAP (Supreme Command
for the Allied Occupation of Japan). See John Haley. 'Administrative Guidance versus Formal
Regulation," in Saxonhouse and Yamamura, Eds. Law and Trade Issues of the Japanese
Economy , Tokyo: University of Tokyo Press, 1986, p.116.

21 . Hashimoto Juro, "Sen Kyuu Hyaku Go-jyuu nen' (1955) in Yasuba Yasukichi and Inokl
Takenori. Koudou Seichou. (High Speed Growth), Vol. 8 in the Nihon Keizai-ShI series, pp.88-
89.

22 Hashimoto Juro, "Sen Kyuu Kyaku Go-jyuu nen" (1955) pp. 88-89.

23. Mason, op. cit., p. 155.

24. Hashimoto Juro, 'Sen Kyuu Hyaku Go-jyuu nen' (1955), pp.88-89.

25. This view is very much in the mainstream today among Japan specialists. For example, see
Murakami Yasusuke's article, "The Japanese Model of Political Economy," in the 'bible* of
contemporary Japanese political economic study: The Political Economy of Japanese
Relations . Stanford: Stanford University Press, 1987, p.49.

26. This remarkable explanation was provided to the author over dinner and drinks, Tokyo.
January 19, 1993.

27. See Mason, op. cit. Chapter Four, The Screen Door, 1950-70 for a complete description of
GOJ investment restrictions and foreign responses. Also, see Encamation, op.cit., p.32.

28. Mason, op.cit., p.157.



29. It should be noted that Chrysler also stmggled to set up operations In Japan in the 19608,
although it was not there before the war.

30. The 'rationale' for kicking foreign companies out of Japan following the Occupation and
keeping them out through most of the first thirty-five years aftenward was kindly explained to
Wednesday Group staff by the Minister for Economic Affairs at the Japanese Embassy,
Washington, DC, September 14, 199Z



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31 . Quoted in Mason, op.cit, p.232. It should be noted that IBM had been already 'allowed*

back in Japan - in exchange for accepting the right of Japanese government and industry to
•supervise" its activities in the free market* and for giving up control of its basic computer
patents. In hindsight, in order to get access, it virtually was forced to create its major
competition in the future.



32. Mason, op.cit, pp.232-233. Ironically, the same justification was given to defend Japan's 26%
tariff against right-hand-drive foreign car imports all the way until 1 989. Japan today still has
10 domestic auto producers and no major foreign rivals in its home market.

33. Mason, op.cit.. pp. 236-237.

34. Interview conducted at GM-Japan headquarters, Tokyo, December 9, 1992.



35. From Mark Mason's American Multinationals and Japan: The Potitical Economy of Japanese
Capital Controls 1899-1990 , Cambridge: Council on East Asian Studies, Harvard University,
1 992, p. 12. Reprinted here with the publisher's permission.

36. See Odaka Konousuke, 'Seicho no Kiseki- 2' (The Remnants of Growrth- 2) pp. 154-208:
particularly section called 'Katei Gomi* ("Household Trash'), pp.1 88-1 98 in op.cit. Koudou
Seichou.



37. See Robert Cutts, "Power from the Ground Up: Japan's Land Bubble, " Harvard Busmess
Review, May-June, 1990, pp. 164 and 167.

38. The 'never-ending cycle' was rooted ultimately in the faith of Japan's major
trading partners that the 'paper money' the Japanese money machine created
at an astounding rate was actually worth something. Cutts wrote in 1 990 that:

Some years ago, Peter Drucker said prophetically that the business future belongs to
those enterprises with the best access to capital. Japan is proving him correct. What
neither he nor anyone else in America could foresee is that the Japanese would create
their capital advantage by realizing a theory that every capitalist nation knows but no
others have yet dared to act on for open advantage: money is only paper, with no
intrinsic value other than what buyer and seller agree on.. ..The real Japanese
innovation came, as usual, in linking something old and familiar with something new
and opportune: manipulation of the domestic land market and the global deregulation
of capital markets. By claiming that their land is worth anything the buyers and sellers
of credit claim it is, and by realizing that amount through the wide-open, cheap-money
lending policies of the Ministry of Finance (and the securities markets where billions of
dollars is pooled) Japanese corporations are making the theory work for them. (Cutts,
op.cit., p. 172.)

39. Interview with Japanese bank official, February 22, 1 993. This gentleman reports that his bank
alone made over 1 ,500 such loans in the late 1 980s.



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40. See Trade and Investment in Japan: The Current Environment, prepared for the American
Chamber of Commerce in Japan by AT. Kearney and Co. International, 1991, p.56 (see
answer to survey question 37).



41 . This comment was made to the author at an American Embassy-Tokyo reception in March,
1992.



42. For a fairly complete overview of foreign investment in Japan and that of Japan abroad see
Gaistii Kei Kigyou no Nihon Shijou De no Katsudou Joukyou. (The Activities of Foreign Capital
Corporations in the Japanese Market). TsuTsanShou (MITI), Kokusai Kigyou Ka (International
Business Section), April, 1992.

43. In addition to the many works cited below in regard to land policy which also deal with the
irrationality of the cost structure of the Japanese economy, see, for example, Shimada Haruo.
Nihon Keizai Mujun to Saisei. (The Japanese Economy: Contradictions and Revivat). Tokyo:
Chikuma Shobou, 1991 especially "yutakasa o kangaeru:kinrousya seikatsu no kokusai
hikaku and josetsu' (Thinking of our wealth: a wage eamers life-an international comparison
and introductory remarks'), pp. 49-81 and the third section of the book, entitled "Nihon
Seikou no Alronii" (The Irony of Japan's Success"), pp. 171-232. Indicative enough, a keyword
that is used frequently books on Japan's cost structure like Shimada's is "waikyoku" or
distortion (or sometimes the verb from which the "wai" part of it is derived: "hizumu"- to
become crooked or bent out of shape). Also, see a fine study by Christopher Wood (The
Economist's Far East Financial Editor) The Bubble Economv New York: The Atlantic Monthly
Press, 1992.



44. Yukio Noguchi, Tochi no Keizaiqaku (The Economics of the Japanese Land Problem) , Nihon
Keizai Shimbun-Sha, 1989. In addition, research on Japan's land problem {tochi mondai) is
voluminous. Stand-out works include: Yukio Noguchi's insighitful reflection on the 'bubble
economy" and its ramifications for Japan, Baburu no Keizaiqaku: Nihon Keizai ni Nani qa
Okotta ka , (The Economics of the Bubble: What Happened to the Japanese Economy?) .
Nihon Keizai Shimbun-Sha, 1992; Tokunosuke Hasegawa's Tochi Kaikaku no Shiten
(Viewpoints on Land Reform) , Tokyo: Toyo Keizai Shinposha, 1990 provides important analysis
of the central role of land tax policy on the misallocation and undemtilization of precious land
resources; also see, Shimada Haruo, Nihon Keizai Mujun to Saisei , especially the section
entitled tochi to kinyuu ga nihon o hizumeru {Land and finance have distorted Japan), pp. 3-46.
In English, a real tour de force effort is the group effort of a number of top Japan scholars,
John Haley and Kozo Yamamura, Eds., Land Policy in Japan: A Policy Failure? Seattle:
Society for Japanese Studies, 1992. The numerous fine reports on the state of land and stock
speculation in the Japanese economy produced by the prescient UBS-Phillips Drew analyst,
Christopher Rathke, also deserve mention as does the sealon plainly entitled Land In Wood,
op. cit.

45. Noguchi, Land Problems and Policies, In Haley and Yamamura Eds. op.cit., p.30.



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46. See 'Sengo Saidai no Biru Busoku: Deguchi ga Mieru no wa hayukute 10 nen-go' (The
Biggest Shortage of [new] Building in the Post War Period: At the fastest it will be ten years
before the exit appears"), Shukan Toyo Keizai . January 23, 1993, pp. 6-20.

47. See Improvement of the Investment Climate and Promotion of Foreign Direct Investment Into
Japan, issued by Keidanren, Octotjer 27, 1992, p. 16.

48 Sakakibara Eisuke, Shihonchuai o Koeta Nihon (The Japan that has Surpassed Capitalisrri) .
Tokyo, Toyo Keizai Shimbunsna, 1990. As Sakakibara, Deputy Director General in the
International Finance Division of Japan's Ministry of Finance, puts it in this provocative book.

What differentiates the Japanese model from others is the non-existence of capitalists in
the system. Although the relative power of capitalists has been substantially eroded both
in Europe and the United States since the Great Depression, Japan has gone to the
extreme of eradicating the capitalist class as a whole...

49. Peter Drucker - whose term this is - also proposes that the US government adopt a new
trade policy toward Japan emphasizing 'reciprocity' (a major part of our suggested
constructive engagement approach. See Drucker, The New Realities . New York: Harper and
Row, 1989, pp. 129-1 32.



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About the Wednesday Group

The House Wednesday Group is a Republican organization founded in 1963 in the US
House of Representatives. It provides a forum through which its Members discuss
politics and policy, develop legislative proposals, and advance their knowledge on issues
of shared concern.

The thirty-seven Wednesday Group Members, chosen by invitation and representing a
diverse range of geographical and ideological backgrounds, meet every week to discuss
their ideas. The Group, whose Chairman is Jim Kolbe of Arizona, is supported by a
professional staff that arranges seminars with leaders in the policy community, conducts
research for reports on major issues, and works with the Members to develop legislation.

Other ongoing Wednesday Group work includes welfare and health care reform projects.
In October. 1991 the Group released a paper entitled Moving Ahead: Initiatives for
Expanding Opportunity in America which identifies and discusses a number of social
policy initiatives. In March, 1992 the Group released a paper entitled Bridging the Gap:
l-lealth Care Coverage for Low-Income Families which furthers the health care reform


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