NEWS ANALYSIS : U.S.-Japan Trade Accords Mean Business for California
The milestone trade agreements reached between the United States and Japan on Saturday will open major opportunities for American companies, particularly those from California, industry officials and economists said Sunday. But it is not guaranteed that U.S. companies will ultimately gain significant market inroads, they added.
Foreign sales almost surely will rise considerably in the fields in which agreement was reached: insurance, flat glass and government procurement of telecommunications and medical equipment. That is because current foreign sales are so low and Japanese demand is so strong. Tokyo has promised foreign firms improved access to markets in these areas, markets that are worth a total of nearly $340 billion.
The trade deal is also expected to prove a boost for the California economy, which is more heavily dependent on foreign trade than many other states. California is home to many of the firms that could benefit directly, such as Beckman Instruments, a Fullerton maker of medical equipment.
“A lot of the high-tech stuff that is desired in Japan is made in California,” said Ed Rozynski, vice president for global strategy and analysis at the Health Industry Manufacturing Assn., an industry group based in Washington.
A wide range of cutting-edge California companies involved in such fields as information technology and multimedia would also gain as the Japanese become more familiar with U.S. telecommunications makers and their know-how.
“In the emerging markets of the telecommunications business, California is going to become a major player,” said Tahir Andrabi, professor of international economics at Pomona College in Claremont. “Any kind of move (to expand the telecommunications market) is definitely going to help.”
But through a determined refusal to agree to anything smacking of “numerical targets,” Japanese negotiators have ensured that much of the burden of breaking into the Japanese market will remain on foreign firms.
How Japan implements the agreed changes, how much effort American companies exert and how persistently the U.S. government monitors the market-opening measures will all have a major impact, according to U.S. business executives in Tokyo.
“From what I’ve seen so far, this is an agreement we can build on,” said William Farrell, executive director of the American Chamber of Commerce in Japan. “The industries have got to find out what opportunities are open to them and get cracking on it.”
Farrell noted that while the agreements were reached between Tokyo and Washington, their provisions apply to all foreign firms doing business in Japan. U.S. firms looking for new business thus must worry not only about Japanese but also European and other foreign competitors, he noted.
“We’re not expecting the dawn of a new era as of tomorrow morning,” Farrell said. “We’re going to have to work on this.”
Similar caution was voiced by others.
“Personally, I think there are some loopholes in all this,” said Robert Orr, director of government relations for Nippon Motorola Ltd., which earlier this year was at the center of a bitter dispute over access to Japan’s cellular telephone market. That argument was settled in March on terms pleasing to Motorola and Washington.
Orr said that while there is hope that Saturday’s agreements will open “substantial new opportunities” in Japan’s telecommunications market, this will depend on “vigorous U.S. government enforcement.”
These agreements, by themselves, are not likely to quickly reduce the U.S. trade deficit with Japan, which totaled $60 billion last year. This is because they cover fairly narrow fields and because sales growth will be incremental. Indeed, the dollar fell against the yen in early Asian trading today on the view that the agreements will not do much to reduce Japan’s massive trade surplus with the United States, although the greenback later recovered after Japan’s central bank bought the U.S. currency. But Washington chose its priority areas partly because of the long-term potential for growth.
The government procurement market in telecommunications and medical equipment “is set to explode in growth,” said a U.S. diplomat in Tokyo, who spoke on condition he not be identified by name. “We just want to make sure we’re part of it.”
By sector, key opportunities for foreign firms look like this:
* Telecommunications. The total annual telecommunications equipment market in Japan is about $18 billion and rapidly growing. The new agreements cover $2 billion in annual procurement by government agencies and $9 billion annually in purchases by Nippon Telegraph & Telephone, which is two-thirds government-owned.
Foreign firms will have a better chance to break into these markets by getting involved with potential buyers during the design stage, when technical specifications for bids are drawn up.
* Medical equipment. The overall size of the Japanese medical technology market was $13 billion in 1992. As Japan’s population ages, this figure is expected to rise rapidly. The government market, covered by a new agreement, is about $2.6 billion.
Foreign firms will now have access to lists of the top 10 medical technology products planned for purchase during the year by each government hospital. The agreement will especially benefit firms selling expensive, high-quality equipment that is competitive on an “overall greatest value” basis. Under previous bidding rules, such equipment routinely lost out to inferior but lower-priced Japanese products.
* Insurance. Japan has the world’s second-largest insurance market, with about $320 billion in annual premium income. The agreement in this sector primarily concerns deregulation, which should make it easier for U.S. companies to win market share by offering new products or reduced prices.
It will take a long time before foreign firms win a big share of this market, but even a small share is a lot of money. U.S. Trade Representative Mickey Kantor said Saturday that the U.S. industry predicts the agreement can lead to increased foreign premium earnings of “nearly $1 billion over the next several years.”
* Flat glass. This market for glass used in automobiles and construction is worth $4.5 billion annually. Saturday’s agreement covered only a set of principles to provide improved access for foreign firms. The two sides agreed to try to reach a final agreement based on those principles within 30 days. U.S. firms now hold about 1% of this market.
The agreements pleased U.S. companies, many of whom have failed to crack the Japanese market despite success in other nations. While U.S. medical equipment and technology firms claim 50% of worldwide sales, their share in Japan is only 22%, according to industry statistics.
The results were “better than our expectations,” said Rozynski at the Health Industry Manufacturing Assn. As a result, U.S. medical equipment sales will probably increase by $500 million over three years, and the 10,000 jobs tied to U.S. medical exports could grow substantially, he said.
Rozynski said that Japan’s health minister will not only ask the country’s national hospitals to purchase more foreign products--as U.S. manufacturers had suggested--but he will also make the same request of the university teaching hospitals. “The university hospitals are where the new doctors are trained and where they are introduced to medical technology,” he said.
The accord comes as Orange County’s Beckman Instruments, which primarily makes medical diagnostic equipment, expects Japanese demand for medical technology to increase as that nation seeks to become more efficient in delivering health care to an aging population.
“This should help boost our international sales,” said Beckman spokeswoman Jeanie Herbert, whose company relies on foreign markets for more than half of its total sales.
U.S. insurers are expected to do well because their experience in the rough-and-tumble domestic marketplace has given them a competitive edge over Japanese rivals accustomed to a more stable and highly profitable environment, said economist Sean Mooney at the Insurance Information Institute, a New York-based industry group.
“A more open Japanese insurance industry would not only benefit Japanese consumers, but it would also be a benefit to U.S. companies that have dealt in a competitive (domestic) market for years,” Mooney said. “If we were to get a 5% share, that is a significant” amount.
A key point of negotiating success for the United States, which had demanded a “results-oriented” deal, was that Japan agreed that these changes should lead to “progress in the value and share” of foreign goods and services in the Japanese market. This goes beyond what Japan was willing to agree to earlier this year.
But Japan, for its part, succeeded in avoiding any firm guarantees tied to specific figures for sales volume or market share. This keeps the pressure on U.S. firms to take a major share of the responsibility for bringing about increased sales.
Holley reported from Tokyo and Sanchez from Los Angeles.
* MARKET IMPACT: How the dollar and stocks reacted to the trade accord. D3
The Trade Deal
Key elements of the groundbreaking U.S.-Japan trade agreement reached Saturday:
* Telecommunications: Japan will open to foreign manufacturers the process by which its government purchases telecommunications equipment. Size of market: $11 billion.
* Medical equipment: Japan will allow fair bidding and provide a complaint mechanism for foreign firms that believe they have been treated unfairly in government purchases of medical equipment. Size of market: $2.6 billion.
* Insurance: Japan will reform its insurance regulatory system, introduce unspecified liberalizing measures and strengthen its antitrust policies. Size of market: $320 billion.
* Glass: Japan will open its flat-glass business to foreign producers. Japan also agreed to promote greater use of insulated glass and safety glass, products in which U.S. companies are considered leaders. Size of market: $4.5 billion.
