Japanese trade barriers built on age-old practices

THE BALTIMORE SUN

WASHINGTON -- Any U.S. business pondering whether to take a crack at the bountiful market of Japan might first consider the pile of debt burying New Jersey inventor Sal Monte.

A dozen years ago, Mr. Monte's small company, Kenrich Petrochemicals, set out to conquer Japan armed with 15 patented chemical additives that did such things as juice up the performance of audio recording tapes.

One by one, the Japanese knocked his products off the market, citing environmental regulations and other fine print -- although those rules never affected the Japanese-made products that sprung up in their place.

Now, after complaining loudly to Congress of alleged mistreatment and patent violations by the Japanese, Mr. Monte's credit has been cut off by his bank, Fidelcor, which was bought last February by a Japanese-controlled company. The resulting debts left Kenrich in financial limbo while Mr. Monte scrambled to line up $4 million in loan guarantees.

Virtually everyone agrees Japanese trade barriers aren't as imposing as they were a decade ago -- witness the shrinkage of the U.S. trade deficit. Still, Mr. Monte's woes illustrate a common problem for U.S. businesses seeking a safe landing on the shores of Japanese commerce. For these companies, the country can still seem as forbiddingly xenophobic as it did in 1853, when it took a fleet of U.S. gunboats led by Commodore Matthew Perry to open Tokyo's port to U.S. goods.

President Bush, set to arrive in Tokyo Tuesday, also hopes to widen opportunities for U.S. trade. But he is fortified only by 21 American executives, a lineup weighted toward the industries that have been clamoring the loudest for help: makers of autos and auto parts, producers of paper products, rice growers and computer companies wishing to bid on Japanese government contracts.

Experts in U.S.-Japan relations disagree about the Bush administration's approach toward the Japanese. They also don't agree on whether trade barriers are still the chief culprit of the U.S.-Japan trade imbalance.

Nor is it even that easy to identify a trade barrier anymore. Many obstacles are built into Japan's age-old ways of doing business, a system relying heavily on long-term personal loyalties and the pervasive, intertwining relationships of the mega-business "keiretsu" -- conglomerates that touch all realms of finance and manufacturing and have dominated Japanese industry since World War II.

"If you look at the classical trade barriers, such as tariffs or quotas, Japan doesn't have very many," said Clyde V. Prestowitz Jr., president of the Economic Strategy Institute and former counselor on Japanese affairs for the Reagan Administration's Department of Commerce.

One exception: the barrier to rice. Japan accepts none. That, too, is on the Bush agenda.

Far more common, though also on the wane, are the use of rules and standards, such as those used to squeeze Mr. Monte's company out of the market.

His company joined a list of victims that included such celebrated cases as aluminum baseball bats (the Japanese designed a safety standard specifically tailored to bar American models) and snow skis (once denied the required "safety seal" after Japan concluded its snow was different and suited only to Japanese skis).

But the biggest remaining barriers are the most transparent. The Japanese allow your product into the country, but all the distribution networks and licensing agreements are controlled by your Japanese competitors.

This is the way of keiretsu -- companies layered upon companies, with overlapping boards of directors and criss-crossing lines of communication.

This insular system reflects Japanese society. "Anyone can become an American; anyone cannot become Japanese," Mr. Prestowitz said.

As tough as it is for U.S. businesses to buck this system, it's even tougher for the Bush administration. "The problem is trying to figure out what kind of government policy can overcome it," said Edward J. Lincoln, a Brookings Institution analyst and author of the 1990 book, "Japan's Unequal Trade."

The administration's answer has been to apply steady pressure on Japan to change itself from within.

Pat Wait, who has studied U.S.-Japan trade issues for 10 years as top aide to Representative Helen Delich Bentley, R-2nd, calls that strategy a meddlesome insult to the Japanese people, even though she and her boss have long been harsh critics of Tokyo's trade practices.

Mr. Prestowitz agrees, calling the policy "ridiculous, stupid and counterproductive. It breeds resentment and gets no results other than a few token things." One result, announced recently with great fanfare, was the opening of a Toys "R" Us store in Japan.

A better strategy, Mr. Prestowitz said, is to "negotiate over two concrete things, amount of sales and market share." For example, instead of pressuring the Japanese to open their system, Mr. Bush could "go over and say, 'I want to sell you $10 billion worth of auto parts.' And they could say, '$7 billion,' and then you're negotiating."

If all barriers, concrete and societal, were removed, would U.S. trade be boosted much? Plenty, Mr. Prestowitz said. He estimates an $80 billion annual increase in Japanese imports, with the U.S. grabbing a $30 billion share. That's three quarters of the 1990 trade imbalance with Japan.

But, he added, "When you say, 'If there were no barriers,' what you're really saying is, 'If Japan were like the United States,' and that is never going to happen."

Not everyone thinks the barriers have such an impact. "We could solve all of the trade [barrier] problems with Japan and we would still have a trade imbalance," Mr. Lincoln said.

"It might be somewhat smaller, but the impact would not be great."

Often, he said, U.S. industry has only itself to blame, for not measuring up to the competition. He cited the U.S. steel industry, which cried foul when the Japanese began dumping their low-price steel on the U.S. market.

"Sure, the Japanese were dumping. But they also did just happen to have the most efficient steel industry in the world," Mr. Lincoln said.

And even when barriers are removed, U.S. companies aren't always prepared to move in.

Take the example of the aluminum bats. When American-made bats were introduced into Japanese sporting goods stores, they were poorly received.

Japanese buyers are fanatical about bat weights, down to fractions of ounces. But U.S. bats were available only in full-ounce increments.

Then there was the sound the bats made when they hit balls. Americans prefer something closer to the crack of a wooden bat. The Japanese like the ringing tone of a bell.

But Mr. Prestowitz said U.S. companies usually aren't to blame. "It's not just the Americans that have problems," he said.

"Nobody will ever accuse the Koreans of not being aggressive, ** and they can't seem to crack the Japanese market either," he said. The Germans do worse.

But, given the current tact of U.S. policies, he doesn't expect much good to come out of this week's meetings. "The conventional scenario is that Bush goes over, pounds the table and says, 'You've got to be more open,' and that will produce little," he said.

"That's the old story. Then what he's telling them is that it's really a political problem."

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