Japan Needs to Play Fair on Trade

According to many observers, the United States, under the leadership of the Clinton administration, has replaced Japan as the enemy of free trade in the world. In their view, the administration destroyed the World Trade Organization talks in Seattle by refusing to discuss amending its anti-dumping laws, which aim to counter unfairly priced imports, and has slapped innocent Japanese steel imports with prohibitive duties. (Dumping is the practice of foreign producers selling products here below their costs.) It is true that the Clinton administration has been outmaneuvered in the public relations campaign, but in reality it is still Japan that threatens the cause of free trade and distorts the world steel market.

Although Japan has made progress in liberalizing its economy in recent years, the agricultural, forestry and fishery sectors are still quite protected. Tariffs on manufactured forest products and fishery products continue to protect industries that are not competitive. On behalf of these domestic interests, none of which are likely to contribute much to Japan’s economic future, Tokyo worked to block much of the liberalization agenda in Seattle.

Japan also orchestrated a high-profile campaign against U.S. trade laws aimed at stirring developing-country interest in winning limits on anti-dumping laws, which aim to stop unfair pricing. Free-traders will likely see this as a more appropriate cause for Japan, but this cause seems much shakier upon closer examination. First, new rules on anti-dumping were just rewritten in the last round of multilateral trade negotiations; the new agreement made literally dozens of changes in anti-dumping procedures, most aimed at benefiting companies accused of dumping. These changes still are not fully implemented in many countries. What sense does it make to begin a major new negotiation on the same topic before the current rules have even been tested?

Second, anti-dumping laws are not a major problem for developing countries. Less than 1% of developing-country exports to the United States are covered by anti-dumping orders. It is impossible to make a credible case that anti-dumping duties are a major problem for the developing world.

The real motivation for the Japanese interest lies much closer to home: the recent U.S. anti-dumping actions against Japanese steel producers, who are hardly a shining example of free trade. By most objective measures, the Japanese steel market is entirely noncompetitive; imports have remained low for decades and the domestic market is controlled by a cartel of Japan’s major steel producers. All manner of price shocks, supply disruptions and market changes have rocked the world steel market but, thanks to the cartel, none of these global changes have more than a glancing impact on the Japanese steel market.

The actions of the Japanese steel cartel also have an impact outside Japan through export dumping. Price data drawn from respected industry pricing services repeatedly show Japanese companies selling steel to Japanese consumers at much higher prices than the same steel is sold for export; in short, dumping--and chiefly in the U.S. market.

During the global steel crisis, Japanese steel companies dramatically increased the volume of dumped exports to the U.S. market. Exports of some varieties of steel increased 100%. In effect, Japanese companies avoided shutdowns and layoffs that would logically result from the collapse of their Asian markets by exporting the problem to the United States. Under these conditions, the U.S. anti-dumping actions seem entirely predictable and justifiable.

Some U.S. observers have accused Japan of pursuing a Machiavellian strategy. According to this view, Japan’s main objective was avoiding further agricultural liberalization. Realistic thinkers within the Japanese government knew well that the effort to whip up international efforts to reopen anti-dumping laws would fail. Still, the calculation was that pressing the issue at this juncture could force the United States to abandon the entire effort through the WTO.

Even if the critics are wrong in accusing Japan of engineering the collapse of WTO talks, it is hard to argue that Japan has taken any responsibility for moving the talks forward. There is blame to go around for the collapse in Seattle, but Japan unquestionably deserves a large measure. The country that has benefited so much from the liberal trading system should shoulder more of the burden of supporting it, both by liberalizing its own economy and working to actively advance multilateral efforts.