NEWS ANALYSIS : Japan Catching Backlash of Trade Fairness Issue : Business: While some bashing goes on, domestic fears and politics also are important factors.
The Los Angeles County Transportation Commission’s decision to cancel Sumitomo Corp.’s contract on the Metro Green Line has prompted charges of base politics and Japan-bashing. But where absolute values of fairness are concerned, Japan Inc. appears to be getting a taste of its own medicine.
An American contractor almost certainly would not have had the opportunity to bid as a main contractor on a public works project of this magnitude in Japan--at least not without lengthy negotiations and heavy diplomatic pressure from U.S. trade officials to crack the closed Japanese construction and transportation markets. Even then, chances of success would be extremely small, knowledgeable observers say.
In a broader context, the fallout from the commission’s decision may have as much to do with the principles of economic reciprocity as with anti-Japan sentiment, or the questionable scheme to have rail cars built under the auspices of Los Angeles County officials. Could the Metro Green Line dispute be the first salvo fired, intentionally or not, in a presidential election year trade war?
After the disappointment of the “jobs, jobs, jobs” mission to Japan by President Bush and the Detroit auto chiefs, the release of discouraging trade statistics and the insulting remarks by a leading Japanese politician denigrating the quality of U.S. labor, American public opinion appears to be reaching the boiling point that Japanese officials have long feared.
“This is really about two things,” said a skeptical U.S. official. “It’s about jobs, and it’s about hysteria.”
To dismiss it as totally irrational scapegoating, however, may divert attention from an important point. While America considers it fair to be wide open, Japan maintains an economic system that still, to a large degree, protects politically powerful domestic interests and conserves thousands of jobs by constraining significant foreign competition.
Consider the case of Pittsburgh-based AEG Westinghouse Transportation Systems, which followed the lead of the U.S. Commerce Department and bid on a driverless “people mover” contract at Kansai International Airport, an $8-billion project under construction in Osaka Bay. (A people mover is a light-rail system that connects terminals.)
Much the same as with Sumitomo’s $122-million bid in Los Angeles, AEG Westinghouse had superior technology and a proven track record after building several people movers at other major airports. But the Americans lost the contract, which was awarded in 1990 to two Japanese firms that had no proven technology and no experience with airport people mover systems.
The winner at Kansai was a joint venture between a regional contractor, Niigata Engineering Co., and none other than Sumitomo Corp., which actually is a trading company, not a manufacturer. (In Los Angeles, Sumitomo was a main contractor that planned to have work done by subcontractors, in particular Nippon Sharyo Ltd. of Toyokawa, Japan.)
“We spent a lot of money and a lot of time where we thought we had an opportunity to compete,” said Peter M. Stelter, vice president for mass transit systems marketing for AEG, which is 81% German-owned but has its entire work force in Pennsylvania. “But in the end it turned out we never did have that opportunity.”
U.S. officials had spent years negotiating with the Japanese government to open the bidding at Kansai and at a dozen or more other major public works projects to allow foreign construction and design firms a chance to compete. American business is slowly expanding in the public works industry, but with few exceptions only those firms that entered into subcontracting arrangements with Japanese companies have gotten a piece of the action.
“If the situation had been reversed (and the Green Line was being built in Japan), there would have been close coordination at various levels of government in a system that is really set up to give contracts to Japanese companies,” said Keven Kearns, a former State Department official who is a senior fellow at the Economic Strategy Institute in Washington.
To go from the particular to the whole, however, and assume that Los Angeles County officials had in mind the abstract Japan-U.S. trade relationship, or the golden rule of reciprocity, would be wrong.
Mas Fukai, aide to Supervisor Kenneth Hahn, said he voted (in Hahn’s absence) to take the contract away from Sumitomo only to create more jobs in Southern California, not to penalize Sumitomo for being a Japanese firm.
A Japanese-American, Fukai said he has been disturbed recently by racist anti-Japanese remarks made to him in connection with the Green Line debate.
“I got phone calls where people told me I was a ‘Jap,’ so I’d probably support the ‘Jap company,’ ” Fukai said. “This brings back memories of 50 years ago when my father and my mother and I, all of us citizens, were uprooted and sent to camp.
“The same tone, the same hysteria and the same panic is happening now,” he said. “A lot of people are making Sumitomo a scapegoat for their own failings, and taking the pressure away from themselves.”
Edward J. Lincoln, a senior fellow at the Brookings Institution in Washington and author of the book “Japan’s Unequal Trade,” warned that the decision by Los Angeles County could send the wrong message to Japan.
“This never should have happened the way it did--I’d be much more comfortable if Sumitomo had been denied the contract in the first place,” Lincoln said. “But we can’t have it both ways. We can’t argue in Japan that our companies should get public works contracts when they have better technology and know-how, and then do differently at home. It undermines our moral stance in pushing for a more open Japan.”
Schoenberger has studied and worked in Japan for 10 years.
