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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 3 of 21)
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and other nations like that, but I want to continue to stress that
there are strong concerns about tariffs and tariff reductions and
would like to continue to work with you as you continue to nego-
tiate to ensure that the textile workers and the textile industry is
given every consideration because this is veiy critical to us and to
the future of our people. Thank you very much.

Mr. Kantor. Thank you, Mr. Payne. Let me just say that every-
thing we are trying to do in this administration in trade agree-
ments, whether it be in the specific sector of textiles and apparels
or in the Uruguay round of the Japanese framework has to do with
one thing, and that is jobs, and we understand that is our obliga-
tion and our responsibility is to not only preserve but to build jobs
here at home. We believe what we are able to do thus far in the
textile and apparel area not only preserves but builds an industry
and helps it progress, and we will continue to work with you obvi-
ously and the caucus as well as this committee, as well as with the



18

industry, as well as with the unions in attempting to reach a bal-
anced outcome that is in the best interests of U.S. workers.

Mr. Payne. And we will look forward to seeing the specifics as
they develop. Thank you very much.

Mr. Kantor. Thank you, Mr. Payne.

Chairman GffiBONS. Mr. Crane, and I understand that Mr. Coyne
has yielded to Mr. Thomas, so we will go to Mr. Thomas after Mr.
Crane.

Mr. Crane. OK, thank you, Mr. Chairman. Mr. Ambassador, in
your view, how much of the U.S. bilateral trade deficit with Japan
is caused by our large budget deficit?

Mr. Kantor. Let me say this — let's put it this way, it is very dif-
ficult to say out of the $50 billion deficit what percentage is due
to our deficit or our lack of competitiveness in the past. Let me say
American industry has never been more competitive than we are
today. Obviously, the President believes and I think you believe we
must address our deficit problem, which this administration is try-
ing to do. We must invest in our people again, we must create cap-
ital for private industry to be more competitive, to be able to en-
gage in effective trade around the world. We have got to get our
health care costs under control.

Now, that is one part of the problem, but the other part is cer-
tainly closed markets in Japan in vital areas. Let me just give you
one example of that. We imported about $97 billion of goods in
Japan in 1992. We exported about $47 billion. I think you cited
that in your statement, for a $50 billion trade deficit. Of the $97
billion, 65 percent were only in six areas — electronics and semi-
conductors, auto and auto parts, computers and supercomputers,
which is a fairly stunning figure. When you look at our situation
in Japan with regard to those six areas, they are six areas where
we are relatively locked out of even the Government procurement
market or the private market in some cases, and we are talking
about the second largest economy in the world. So to a great degree
and some have estimated it is as high as $19 to $20 billion in a
recent book of our net trade deficit with Japan is due to that closed
market, so you can, and I know you do, understand what would
happen if we opened that market up, and I think in fact Fred
Bergsten is here later and I think he would talk about that. If we
could open that market up not only in those six areas but others
which are part of these baskets, we could build a huge number of
jobs here, help American business, of course, and balance this
trade.

In our Japanese framework we talk about highly significant de-
creases in their trade surpluses with the world. What we really
want to happen, of course, is bring that down to zero. I would only
offer by example over the years we have had a balanced relation-
ship with the European Community. Sometimes they have a trade
surplus, sometimes we have a trade surplus. It is due to a number
of factors, including exchange rates and the relative strengths of
the economies and so on, but with Japan what has happened over
the years, the trade surplus continues to get bigger and bigger.
That is not just due to in the past some of the problems we had.
Not anymore. As I say, in American business, in America workers
have never been more competitive. It is due to basically closed mar-



19

kets and the closed procurement system which must be opened. We
believe the framework we have entered into only being a first dip,
only constituting the rules of the game is a good step, though, to-
wards having a results-oriented policy which will be good for Amer-
ican business and American workers.

Mr. Crane. One of those component parts of improving this rela-
tionship, as I understand it, is to adopt at least general guidelines
with respect to import quotas in various sectors, and if we do that,
how do we assure that those don't become limits on growth of our
exports in that market down the line?

Mr. Kantor. There are no quotas. We don't intend for them to
be quotas.

Mr. Crane. Maybe not precise quotas.

Mr. Kantor. They are really quantitative and qualitative targets
in which we try to measure success. What we hope to do is stimu-
late trade, not manage it. What we hope to do is open up these
markets, develop a critical mass, as frankly has been done under
the semiconductor agreement where then these measures of success
will be no longer necessary because we will become such a part of
the Japanese economy, our suppliers and the products made by our
workers that you will no longer have the need for these kinds of
agreements. We will have the kind of relationship that we have, for
instance, now with Canada where we have 200 billion dollars'
worth of trade a year, and as I said sometimes we have a surplus,
sometimes they have a surplus, but the fact is it is a balanced rela-
tionship.

Mr. Crane. Affirmative action, not quotas.

Mr. Kantor. I wouldn't touch either of those terms, Mr. Crane.

Mr. Crane. One final question, and this has to do with increas-
ing markets there and the participation of some of the people in
the Japanese bureaucracy who are in a position to dictate purchas-
ing decisions by Japanese companies. As I understand it, with this
change in the Government and the flux that is going on there right
now, what kinds of agreements do you think are negotiable at the
present time?

Mr. Kantor. Well, number one, we think the framework agree-
ment is a good solid one we just negotiated. Now, understand that
is the rules of the game and not an agreement. Their election will
be held July 18. There will be, under any set of circumstances a
new government. There will be new people in office. We all under-
stand the influence the Japanese bureaucracy has over decision-
making. That will substantially remain the same as the prediction
regardless of the outcome of the election. However, I think there
is a growing trend which the President noted and talked about in
Japan in terms of consumer interest.

You know, it is in the best interest not only of our country but
Japan to open up these markets. It should not escape anyone's at-
tention that prices in Japan are much higher because of lack of
competitive goods. Let me give you an example which was stunning
to me as we were in Tokvo. In most American groceries you can
walk in and get a jar of*^ pickles for about $1.83, $1.85; $10 in
Japan. A sparkplug in Japan, $14; less than $2, of course, here in
the United States. Just two, I think, fairly vivid examples of what



20

happens when you close the market, don't have competition and
who gets hurt?

In Japan it is the consumers who get hurt, and I believe there
is a commonality of interest between American workers and Japa-
nese consumers to open these markets and expand trade for the
good of not only these two countries but, frankly, for the good of
global growth.

Mr. Crane. Well, I thank you for your testimony, and appreciate
the work all three of you have been doing and just to reconfirm a
comment that Rufus made earlier, please don't forget bilateral
agreements, especially with our Pacific Rim neighbors. Thank you.

Chairman GffiBONS. All right, Mr. Thomas, courtesy of Mr.
Coyne.

Mr. Thomas. Thank you very much. I thank my collea^e for
yielding. I will be very brief. We started a Health Subcommittee at
the same time as this subcommittee and we are looking at the po-
tential global budgets question. Mr. Ambassador, I would like to
submit for the record a series of questions about alleged
phytosanitary concerns that are really, in my opinion, being used
for nontariff barriers and rather than take the time, I would hope
we could get a response back from you. Pickles and sparkplugs are
an interesting combination in terms of shopping, but I would like
to

Ambassador Kantor. It shows I am somewhat eclectic, Mr.
Thomas.

Mr. Thomas. I will try to find a link between the two.

Ambassador KA>rTOR. I hope you don't.

Mr. Thomas. I would like to just ask you to elaborate a little bit
on the final question by my colleague from Illinois in terms of the
politics. We are used in this country to transitions, either potential
or actual transitions, and while it is true to a certain extent our
bureaucracy remains the same below a certain level as well, I think
it is more than that with this election in Japan, and if I am wrong,
having been on the ground firsthand as the campaign was heating
up and in the last couple of weeks of it, is the question of the
consumer and the value of products part of the campaign, and if
the LDP beats back this challenge, which won't be the first one
that they have been able to, do you see obviously a change in the
leadership?

You can pick up feelings and intimations from those people that
you were working with which we were not able to pick up nor do
we get through the media. My question is, I guess, do you see a
change regardless of who wins and especially if there is a change
in the Government, and what prompts you to use the consumer
concern analysis and was it based upon your observations during
the election and could you give us just a bit more of a feel fi*om
your personal observations of dealing with people who may or may
not be in the same position the next time you meet.

Ambassador Kantor. If you would allow me to be somewhat cau-
tious in talking about someone else's internal political elections, I
think it would be unfortunate if I began to wax ineloquent about
Japanese politics. I have been there twice in the last 3 weeks, but
that does not make me anything near an expert nor, in my present
position, would it be productive for me to be too explicit. However,



21

I can report both in private conversations and frankly in the news-
papers in Japan there is a growing discussion and debate about
consumerism in Japan, the pHght of the consumer, prices, open
markets.

The challenge to the LDP in part, let me be careful, in part has
some of those qualities. Obviously the other concerns are oi a much
greater nature, and that includes reforming the Japanese Govern-
ment itself, political reform being at the top of the list in terms of
their discussions. I don't know what the outcome is going to be.
However, it is safe to say that there are a number of young Japa-
nese leaders coming to tne forefront whose attitudes toward trade
with the United States and the world may be somewhat different
than leaders in the past.

I would note with interest a report in one of our local newspapers
this morning from a conference in Cleveland where Japanese busi-
ness persons indicated that they should open their markets as well.
I think that is a welcome statement and one that certainly tracks
what we — this President has been trying to do and this Congress
has been advocating for quite a while, so with that I think there
is a direction that is positive. Whether or not it will be fully real-
ized is another question, and we will just have to wait until July
18 and see what the outcome is.

Mr. Thomas. Thank you.

[Answers to questions submitted by Mr. Thomas follow:]



22



ANSWERS TO QUESTIONS SUBMITTED BY CONG. BILL THOMAS
JULY 13, 1993

1. Which of the five principle areas of the new framework for
negotiations with Japan would allow the U.S. to seek resolution of
phytosanitary, labelling and health issues: regulatory reform,
economic harmonization or "other sectors"? What procedures will be
used to discuss and resolve disputes thin these areas?

Answer:

The Framework is not meant to be the exclusive focus of all trade
discussions with the Japanese. Many issues, such as apples for
example, have been and will continue to receive concerted attention
from the USG outside the Framework context. Several agricultural
issues will fall into this category. Others may well fall into the
regulatory or compliance basket discussions. The exact content of
these Framework baskets has not been determined.

The Trade Committee meetings with Japan in mid-September
traditionally offer an excellent opportunity to tackle difficult
agricultural issues with the Japanese.

2. H vil'' e.xi"?ting 'disputes, such as disagreement over whether
Japan j.;: scisntif li:ally justified in excluding U.S. apples because
of "fire blight", be handled under the new framework? If these
disputes are not to be settled under the new framework, will the
U.S. continie to +Ty resolving these issues on a case by case
basis?

Answer :

The Framework is not designed to include all existing or future
bilateral trade issues. To include all issues would unnecessarily
delay resolution of many issues such as apples. As you may know,
we have been unrelenting in our pressure on the Japanese to move
forward and resolve phytosanitary issues regarding apples. The
Framework is really designed to negotiate new agreements and to
assure compliance with regard to existing agreements.

Many trade issues will continue to be handled outside the
Framework. Moreover, continued high level meetings of senior
officials in the Framework context will offer many opportunities
for side meetings on a host of other issues.

3. How will the new framework address disparities in treatment of
pesticides residues, phytosanitary matters and labeling? For
example, Japan allow only 200 ppm of sorbate in wines (the U.S.
standard in 300 ppm) while allowing dried cuttlefish sold as food
to contain 2,000 ppm). Are there plans to include this issue in
the discussions under the framework and how will it be resolved?



Answer :

We expect that a number of issues such as these will be addressed
in the Trade Committee meetings to be held with the Japanese in
September .



23

Chairman Gibbons. Mr. Coyne.

Mr. Coyne. Thank you, Mr. Chairman. Welcome, Mr. Ambas-
sador and congratulations to you and your team for the work you
have done in Japan. How does this homework differ from previous
bilateral negotiations between the United States and Japan? We
had the market-oriented, sector specific talks, the MOSS talks, and
we had the structural impediments initiative. How is this going to
differ from those previous efforts?

Ambassador Kantor. Number one, it is results-oriented strictly;
number two, we have quantitative and qualitative measures; num-
ber three, what we have done in these baskets and sectors is to
intersect structural and sectorial concerns. In the past, as vou cor-
rectly noted, we had dealt with them separately, structural on one
hand, sectorial on the other, and in fact when you look at reality,
where they cross is where the problem occurs, and so we have tried
to do those three things. We have done one more thing that I think
is obviously important. We have put a time limit on these discus-
sions, whicn puts some pressure on both sides to reach agreements
which are in the best interests not only of United States-Japan eco-
nomic relationships, but global growth.

As you know, we are negotiating on an MFN basis, not just for
the United States, but to open Japanese markets to all foreign sup-
pliers. That is another unique nature of these negotiations, but let
me emphasize again, we nave got some hard bargaining to g'o.
These are only the rules of the game, and I would not sit here in
front of you today and tell you that we have been able to accom-
plish anything in any particular sector. We haven't. This is what
we have got to do in the next year, 6 months and 6 months, but
the idea that we have a timeframe, the idea we have crossed secto-
rial and structural concerns and put them in the same negotiation,
that we have qualitative and quantitative targets and we are re-
sults-oriented, are all different from what we have done in the
past, especially putting them all together in one package.

Mr. Coyne. Thank you very much.

Ambassador Kantor. Thank you, sir.

Chairman Gibbons. Mr. Matsui.

Mr. Matsui. Thank you, Mr. Chairman. I would like to commend
you. Ambassador Kantor, and your entire negotiating team, along
with the President and the aaministration for the success of the
Tokyo summit. I think expectations by most people in this country
and elsewhere were very low, but I think the GATT movement and
the framework agreement were significant achievements, given the
fact that many of the leaders have very fragile leadership roles in
their various countries. I want to ask a couple questions with re-
spect to the United States-Japan agreement.

The President gave a speech in Tokyo at a university regarding
encouraging the Japanese to look to the consumer side of the equa-
tion in tneir economy more. Was that well received and what was
the impact of that from your perspective? Could you state your
thoughts on that.

Ambassador Kantor. Number one, it was, I think it would be
safe to say the President made a very significant impact in Japan
as well as did the First Lady. His speech at Waseda University was
received unanimously by the Japanese commentary, being Japa-



24

nese newspapers, as being very helpful and forward looking that
connected to the successful outcome of these negotiations on the
framework, I think it has given everyone the confidence that we
can really strengthen this economic relationship.

I think it was somewhat both interesting and maybe eye opening
to Japanese politicians to see another political figure stand not only
and make a speech, but answer questions as the President did fi-om
students at Waseda University. That was striking and got as much
comment, frankly, as the speech itself. The openness of his com-
ments, the direct nature of what he was trying to say, the zeal with
which he said it, and then, of course, the ability of our negotiators
led by Bo Cutter at the White House and Larry Summers and
Roger Altman at Treasury, Joan Spiro at State and, of course. Am-
bassador Barshefsky, made this thing come to life, and so all that
being the case, I think it can be fair to say that the comment was
all positive from Japanese newspapers.

Now, of course, those running for office in Japan were quick to
put their own spin on this issue, and we expected that to happen,
but we are moving forward with this framework and these negotia-
tions.

Mr. Matsui. I appreciate those remarks because I think even
though the interpretation in terms of the phrase "objective criteria"
may differ between our two countries, I think once we go into the
discussions with the Japanese in negotiations, we will see further
movement in our direction. I appreciate the fact that there may be
some nuances that are different at this time. I think this is a major
step in the right direction and a step that is very timely.

What I also noticed, at least from the article that appeared in
one of the national newspapers yesterday, is that for the first time
there has been some dissension within the bureaucracy in Japan
in terms of what direction to take. I did notice that while there was
dissension among the Japanese negotiators, our negotiators were
very unified in terms of our direction, and that also is somewhat
of a first for us, getting all the different departments and the
White House to agree.

I have two thoughts in this area. First, I would like to know as
these negotiations actually transpire, what will be USTR's role in
the discussions with the Japanese and what role in terms of our
dominance does USTR play. Second, it would be my hope that if
the negotiations should break down or should not go as well as we
would anticipate, given the timetable that we set, then would we
consider leveraging our position with linkage with or support of, for
example, the Japanese entering the Security Council of the United
Nations. I think we have to begin to link some of these items over
a period of time because, frankly, this is our one shot. I think if
these are not successful discussions you will probably see a signifi-
cant protectionist sentiment come out of the House and the Senate
because there is anticipation at this time, and I don't know if the
Japanese truly understand that. A lame duck prime minister cut
a deal that we think is fair, but they are going to ^o into an elec-
tion. It would be my hope that we would consider Imkage on some
of these other areas that they truly want. They truly want to be
a member of the Security Council and we have supported that ef-
fort. If in fact we can't get relief in terms of some of the things that



25

we think are fair, perhaps these other areas should be up for dis-
cussion as well. But I would like to know, one, your primary role
in terms of the actual negotiations and, second, your thoughts on
linkage with other areas.

Amoassador Kantor. Number one, this Grovernment under this
President is unified in trade, and I think it never was more evident
than in these negotiations, both the Uruguay roimd, the frame-
work, and also the G-7 talks. You know, it has been a long time
since the USTR went with State and Treasury to a summit, and
I have got to say I am deeply grateful not only to the President,
but also to Secretary Christopner and Secretary Bentsen for ensur-
ing that that occurred and for being so cooperative. In terms of the
so-called baskets and procurement and compliance, USTR will take
the lead. In others it is more appropriate for other agencies to take
the lead, but frankly because of the great work of Bob Rubin and
the National Economic Council and the leadership of the President,
we all worked so closely together, it is very difficult to determine
who is taking the lead in these negotiations.

As we proceeded in Tokyo, I could say that in every meeting, in-
cluding with the President, all the negotiators are there, not only
Ambassador Barshefsky, but all the others that I mentioned, and
so there is no differentiation between agencies as we proceed in
trade in this administration, and I am deeply grateful to my col-
leagues in the Cabinet for their graciousness, frankly, in sort of al-
most historic openness to having USTR being at the table with
them, and I think it worked well and will continue to operate in
that fashion.

Mr. Matsui. In terms of the linkage with these other issues,
again you may not even be able to respond, because it is a policy
decision that the administration would have to make, but I would
hope that there would be consideration.

Ambassador Kantor. I think the one thing I would say without
getting directly into your question in trying to be fairly careful
here, our relationship rests, as I said, on three legs of this stool,
our political relationship, our security relationship, and, of course,
our economic relationship. Two of those legs are very strong. One,
of course, is not as strong, and that is our economic relationship
with Japan, Obviously a stool tips over if one of the legs is not as
strong as the other two, and the President has said that publicly.
We continued to talk about that to the Japanese GrOvernment, and
I think we all assume that unless we get our economic house in
order, then, of course, the relationship is not as strong as it should
be. This is the most important bilateral relationship this country
has. We ought to make sure it is as strong and enduring as it has
been in the past.

Mr. Matsui. I really appreciate that. I have to say that the Japa-
nese are lucky the agreement was negotiated because, as I indi-
cated, if these negotiations should break down or if we don't
achieve the goals that we want to achieve, it is my belief that we
would become very, very protectionist in 1994. I would put those
people you are going to be negotiating with on notice that there is
a sentiment out there that I think you successfully abated, at least


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