U.S.-JAPAN TRADE ACCORD : Q & A : What Was Everybody So Worked Up About, Anyway?

The accord on U.S.-Japan auto trade reached Wednesday in Geneva was hailed by both countries as a meaningful agreement that averted a potentially devastating economic brawl. Questions and answers on the deal:

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Q: What is this agreement all about?

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A: The United States has been pressuring Japan for many years to open its domestic auto market to foreign cars and car parts so American auto makers can increase sales there. In Japan, only 7% of car dealers sell American cars. In the United States, 80% of dealers sell foreign cars, mainly Japanese. The Americans call this a lopsided relationship that accounts for 60% of the U.S. trade deficit with Japan.

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Q: What did Japan agree to?

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A: The Japanese promised to take measurable steps that will increase the number of dealers selling non-Japanese cars, by 200 in 1996 and by 1,000 over the next five years. The government also promised to dismantle the complex maze of regulations that discourage sales of non-Japanese cars and components. In addition, over the next three years, Japanese car makers promised to expand production in the United States by 25% and increase purchases of U.S. car parts by $9 billion.

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Q: Did the United States compromise on its demands?

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A: The Clinton Administration originally insisted on Japanese promises of specific numerical targets for increased purchases of U.S. automotive products. But it dropped that demand and accepted “voluntary” commitments by Japan’s individual car makers instead.

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Q: What would have happened if negotiators hadn’t reached a deal?

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A: The Americans threatened to impose 100% tariffs on 13 Japanese luxury car models retroactive to May 20. That would have made cars such as the Lexus and Acura so expensive in this country that very few people would have bought them. Some models, such as the Lexus LS 400 sedan, would have risen in price to $80,000 or more.

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Q: Most Americans can’t afford Japanese luxury cars anyway. What’s the big deal about that kind of threat?

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A: The loss of Japanese car sales in this country would not have been widely felt. But it could easily have led to a wider brawl with Japan, which had the power to retaliate in a number of damaging ways.

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Q: Such as what?

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A: Japan is an important buyer of U.S. products ranging from food to computer chips. It could have gone elsewhere for them, hurting American companies and workers who had nothing to do with the auto business. Japanese investors are important buyers of U.S. Treasury bonds, which are critical to financing the government’s operations and the smooth functioning of the economy. The investors could have sold them, jolting the bond market and unnerving Wall Street.

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Q: How will this trade agreement be enforced?

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A: That’s unclear. President Clinton called it a specific, measurable accord “that will achieve real, concrete results.” But it could take years to determine whether the Japanese are abiding by it.

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Q: Who wins from this?

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A: American auto makers welcomed the agreement as a significant advance that could eventually help them penetrate Japan’s market. The increased sales of U.S. cars and components could create more American jobs. Japanese consumers could also benefit from the increased competition in their domestic market, which might reduce car prices.

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Q: There’s always a loser. Who’s the loser?

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A: Clinton himself said both Japanese and American consumers won. But over time, Japanese car makers could find their domestic dominance eroded if the pact succeeds. If it fails or is judged to be unenforceable, as some skeptics contend, Clinton himself may be judged the loser.