Japan Showdown Holds Key to U.S.-Asian Trade

Change the subject from American cars to Thai rice and Sarasin Viraphol sounds a lot like Mickey Kantor.

Sarasin is a senior official in Thailand’s Ministry of Foreign Affairs. And like Kantor, the U.S. trade representative, he understands the frustrations of trying to export to Japan.

For Thailand, the problem is rice. For years, Japan simply banned all imports of foreign rice. In late 1993, Japan lifted the ban during the last throes of negotiations on the world trade treaty known as GATT.

But Japan only cracked open the door: Rice imports are initially limited to just 4% of the market. And even with the legal sanction, Thai rice has had trouble getting off the shelves.

Much as Japanese officials once claimed that Japanese stomachs couldn’t digest American beef (or, for that matter, that foreign skis wouldn’t work on Japanese snow), Thai rice has been surrounded by vague “allegations and rumors” that it is unfit for human consumption, Sarasin says. “We think this is a deliberate plot against Thai rice by the Japanese officials.”

So Sarasin nods his head knowingly when Kantor indicts Japan’s economy as tilted against foreign products. “We totally agree and support his analysis,” says Sarasin, an amiable Harvard graduate who now serves as the Thai Foreign Ministry’s director general for American and South Pacific affairs.

But Sarasin won’t publicly support the U.S. drive to open Japan for American cars and auto parts with the threat of crippling 100% tariffs against Japanese luxury cars like Lexus and Acura. Neither would any of the other Asian government, business and academic leaders attending a conference on U.S.-Asian relations here late last month.

Their reticence stems less from Asian indirection or diplomatic caution than from hard-eyed calculations of self-interest. South Korea, Thailand, Malaysia, Taiwan, Singapore and the Philippines all run trade deficits with Japan--but all run trade surpluses with the United States. For those countries--like Indonesia and China, which enjoy surpluses with both countries--the attraction of opening Japan pales beside the risk of being compelled to open their own markets more widely to America. In 1994, the other 16 nations in the Asia Pacific Economic Cooperation organization amassed a trade surplus with the United States fully equal to Japan’s $65-billion advantage.

“Privately, we’re saying the U.S. is taking the right approach because the Japanese have to be hit over the head,” Sarasin says. “But publicly we have to say we are concerned about the use of sanctions . . . because we worry that we are liable to face the same treatment.”

That pragmatic assessment frames the U.S. showdown with Japan. What’s really at stake is U.S. access not only to Japan but to all the prospering Asian nations broadly following the Japanese model of protected home markets and export-led growth.

One answer the Clinton Administration has proposed for opening Asia is the Grand Bargain: the negotiation of a vast free-trade zone across the Pacific. Last November, under American pressure, APEC--which includes all the region’s major economies--announced its commitment to reach “free and open trade and investment [across the] Asia Pacific no later than the year 2020.”

Just a few months later, however, even that distant goal looks like a mirage. APEC is supposed to produce a “blueprint” for lowering trade barriers at its next meeting this November in Osaka, Japan. But negotiations are nearly moribund; one U.S. official here publicly complained of “trade fatigue” and “bureaucratic inertia.”

The breakdown reflects fundamentally different perceptions about APEC’s mission. American officials portray the APEC discussions as an Asian analogue to the North American Free Trade Agreement--a negotiation intended to produce a legal harmonization in trade laws. But the Asian nations generally see APEC encouraging, at most, gradual and voluntary trade liberalization by the participating members. Anything more formal “creates a suspicion of dominance by the U.S.,” says Edward Chen, director of the Center of Asian Studies at the University of Hong Kong.

The structural problem with APEC is that the Asian nations see no reason to simply bargain away their profitable barriers to foreign products. In theory, the United States has two levers against that thinking. Lever one is that Asian nations want the United States to maintain its military presence in the region, not only as insurance against China but also to preempt Japanese rearmament.

As if reciting a ceremonial greeting, Asian leaders routinely announce in public forums that they believe the price of keeping U.S. destroyers and aircraft carriers is accepting more American cars and computers. Winston Lord, the assistant secretary of state for East Asian and Pacific affairs, unsubtly played on those sentiments when he said here that “over time, if the U.S. domestic perception is that the U.S. was being shut out of Asian markets, they might well begin to question the maintenance of forces in the region.”

The problem with this argument is that no one really believes it. Not the Asians, who expect the U.S. military presence to inexorably decline with the Cold War’s end but aren’t convinced the 7th Fleet will summarily pack up if General Motors can’t solve Japan. And not the Americans, who know that the United States maintains its military presence in the region not out of charity but “because it is in our interest,” as one senior Clinton Administration official put it.

That leaves just a single card in the U.S. hand: the threat of reduced access to the American market. It’s true that increased local trade is reducing Asian reliance on the United States: East Asian countries now send about one-fourth of their exports to America, down from about a third in the mid-1980s. But the very intensity of their recoil from the U.S. threat of sanctions against Japan underscores the importance these nations still place on unfettered access to their single most important market: American consumers.

More than unequal access, of course, explains the U.S. trade imbalance with Asia. Structural economic factors, like the low American savings rate, contribute--as does the failure of American firms to more effectively invest in these growing markets.

Total American investment in Asia has been running about equal to Japan’s, calculates C. Michael Aho, the chief international economist for Prudential Securities in New York. But, he says, more than half of all American investment in Asia is sunk into oil--while Japanese firms are building the manufacturing and distribution facilities that allow them to mainline consumer goods into these expanding markets. The rising yen, which both compels and beckons Japanese investment in low-cost Asian countries, promises to widen the imbalance.

If U.S. firms don’t increase their investment and marketing in Asia, Kantor’s most aggressive efforts won’t reverse America’s gaping trade deficits across the region. But those numbers won’t turn around without a reduction in trade barriers too.

Japan is the key to that lock. The United States won’t open other Asian markets until it shows it can open the region’s most powerful economy--to the advantage of both American producers and Japanese consumers. As Kantor accurately observes: “The rest of Asia watches Japan. Why would others in Asia open their market, level the playing field . . . if Japan is going to maintain a closed market?”

The America-watchers who assembled here widely expect that security calculations and domestic grumbling over the import tariffs will prompt the Clinton Administration to accept a face-saving compromise with Japan that doesn’t do much for auto sales. Unless the Administration proves them wrong in the negotiations that will resume later this month, the United States may face frustration for years to come--not only with Japan, but with the economies rising in its formidable shadow.