Japanese Firms Hit Snags When They Open Plants in Europe : EC’s Anti-Dumping Policy Is Creating New Problems

One justification frequently cited by European officials for their stringent anti-dumping policy is the pressure it has brought to bear on Japanese manufacturing industry to step up its job-creating investment in Europe.

Not only has the imposition of dumping duties compelled Japanese companies to set up their own manufacturing facilities inside the European Community, but this process has also been accelerated by the decision to charge duties even on products assembled in Europe from parts brought in from Japan.

The result has been a surge in inward investment which jumped 90% to $6.6 billion in the year to the end of March, 1988. A further strong increase is expected in the current fiscal year.

Yet the conditions under which such investment is taking place have created strains of their own, as a conference in Glasgow, Scotland, demonstrated at the end of last year.

Japanese speakers complained about the EC’s tendency to impose unilateral local content requirements on products made by Japanese companies outside their home territory. They also said the extra cost of dumping duties was slowing establishment of local research and development facilities in Europe and causing strains in relationships with component suppliers.

The problem of local content has already surfaced through the dispute between France and Britain over whether Nissan cars manufactured in Britain should count as European and thus lie outside the French import quotas for Japanese cars.

Object to Situation

According to Muneoki Date, Japanese Ambassador to the EC, there is a more general underlying concern that has added local content requirements and rules of origin to the already lengthy list of Japanese grievances against the EC.

“We object to the EC’s unilateral development and application of these rules,” he told the conference, organized by the Scottish Development Agency and the Anglo-Japanese Economic Institute.

Date believes that EC local content requirements and rules of origin are likely to lead to growing trade frictions. Though the U.S. authorities have been largely silent about the EC application of its own rules of origin to Ricoh copiers manufactured in California, he believes that they will not remain so where other products, such as semiconductors or Honda vehicles made in Ohio, are concerned.

Current international convention has it that local content requirements and rules of origin are a matter for the host or importing country, but Date said there was an urgent need for new rules to be developed within the General Agreement on Tariffs and Trade to preempt what he expects to be likely major trade conflicts.

The present European approach takes into account only the short-term interests of certain industrial sectors and could prejudice long-term cooperation, he said.

Yet, for the time being, there is no sign that these rules pose any threat to the dynamic flow of Japanese investment into Europe. After Nissan, Britain has now set its sights on securing a Toyota plant. With 1992 looming, more Japanese companies are expanding their European presence to take advantage of the European single market.

From a European perspective, one of the problems associated with this is the uneven spread of investment. Britain, with its well-developed financial services and language advantage and (in the past) its attractive regional grants, has attracted a disproportionate share of this, provoking jealousy among some of its EC partners.

One consequence could well be a trend toward greater EC restrictions on state subsidies to inward investment. Already, grants to the automotive sector have become notifiable to the Commission in Brussels, which must approve them.

This means that Toyota’s European plant decision, for example, will not be the subject of a subsidies bidding war by EC member states.

Yet for Japanese industrialists, the problem of finding component suppliers offering the right quality, price and delivery schedules remains paramount. Speakers at the conference said they wanted to source components in Europe, because this was part of the Japanese concept of “local globalization” of its industry. Related to this is the desire to develop research and development capabilities inside Europe.

“Screwdrivering (local assembly of products from imported parts) in perspective is an interim thing in the development of a global industry,” said Don Pinchbeck, general manager of Epson (U.K.). European anti-dumping rules had forced companies such as his to develop local content at an unnatural pace.

Epson had experienced difficulty in finding plastics moldings for its computer printers. It also had problems with pressed steel needed for the chassis of its printers. “We cannot get steel of the quality we need in Europe,” he said. Epson had to buy in such steel, even though it did not want to.

Anti-dumping duties had thus increased Epson’s costs by “millions of pounds,” forcing it to run down its British research unit and intended to support the development of products for Scandinavia, the Middle East and Africa as well as Europe.

Investing Abroad

Most speakers agreed that local R&D; was an important part of Japanese efforts to integrate their companies with the European economy.

Shoichi Shaba, the former chairman of Toshiba who is now adviser to the company and a vice chairman of the Keidanren industrial federation, said there was “a natural tendency” for Japanese companies to invest more in R&D; abroad, though he admitted that there was a potential problem in communicating with R&D; units at head office.

Yoshio Noguchi, managing director of Mitsubishi Electric (U.K.), which has been manufacturing TV sets in Scotland for 10 years, said local R&D; was linked to the components problem because if it was all carried out in Japan, Japanese companies would continue to prefer Japanese-made components.

“I personally think this is a most important issue if we want to be a responsible community member of Europe,” he said.

Yet the struggle to develop local sourcing in Europe could pay off in the long run. Shaba said it was possible that European component suppliers would eventually reach the standard where they could themselves export to Japan.

That, however, presupposes an ability to keep up with the race in which the newly industrializing economies of Asia seem to be making most of the running.