CIAO DATE: 1/99

Lessons Learned From US/Japan Trade Negotiations

Summary

Trade negotiations with Japan cannot succeed unless there is a consensus in Washington that access to the Japanese market and deregulation are vital U.S. interests.

A series of negotiating processes like Market-Oriented Sector-Selective (MOSS), Structured Impediments Initiative (SII), and the Framework Agreement is not the same as developing new and creative approaches to negotiating with Japan. They are political exercises based on a lowest common-denominator consensus. Many lessons have already been learned about how to succeed in trade negotiations with Japan. Those lessons have not been acted upon. I agree with Ed Lincoln's conclusion that American expectations concerning the pace of possible progress in opening Japanese markets should be lowered; problems remain and removing them will prove to be slow and difficult. If anything, Ed is too optimistic. There is still no consensus within the U.S. government that market access, market opening, deregulation, and a competitive environment in Japan are important to America's national interest. Without such a consensus, the focus, the attention, and the willingness to take actions that are all necessary for successful negotiations with Japan will not be present. Fragmentation in the U.S. government is Japan's most powerful ally. It can result in one segment of the U.S. government undercutting another. It can also mean that, even before negotiations actually begin, U.S. goals have already been watered down dramatically.

MOSS, SII, and the Framework negotiations were all vehicles to devise a least-common denominator consensus among federal agencies. The central goal in each case was political3/4to demonstrate to the Congress, interested industry, the media, and the public that Japan's trade issues and the Japanese bilateral trade deficit were priorities of whatever administration was in power at the time.

In all three cases, much more time was spent negotiating among agencies in Washington than was spent in negotiating with the Japanese. None of these three processes represented unique or special techniques or insights into negotiating with the Japanese government. Although there were some benefits in each set of negotiations, there was little in the way of meaningful and lasting change. The resources expended were out of proportion to the results.

It is unrealistic to expect that, without a consensus within government (that is, both the executive branch and the Congress) and industry, some new process will lead to better results than in the past. It is also unlikely that such a consensus can be created today. In fact, given the current economic problems in Japan, Asia, and the world, and the protest by many that we should not be kicking Japan when it is down, the conventional wisdom pushes us further and further away from any chance that such a consensus can be developed.

Let me note here that I reject this conventional wisdom. The U.S. efforts to open Japan's market and deregulate occurred over three decades, both when Japan was strong economically as well as during periods of slow economic growth. Furthermore, the U.S. market opening pressure on Japan has helped make Japan a better place to live, promoted economic growth there, and has contributed to a Japan that is more open to the world's goods and services than in the past.

In Hashimoto's first speech as prime minister, he said that his agenda was, first, to repair the economy and, second, to deregulate it, but that he could not get started on the latter task until he had completed the former. I have been told many times by Japanese negotiators that the United States had to be patient with its demands because the time was not right. However, never has a Japanese government official come to me to say "the time is now right." Deregulation, trade liberalization, opening markets, and competition3/4for some people and some interests, the time will never be right. On the contrary, I believe that the time is always right. If we believe that market forces are good then we should act accordingly.

I do not believe that the United States will develop a consensus that market access and deregulation in Japan is a vital national interest. However, let's assume such a consensus develops. What lessons have we learned from three decades of negotiating with Japan that would help us? I write this from the perspective of a trade negotiator, a diplomat in Japan, and a businessman who has worked in Japan and dealt with the government in both a regulated industry (telecommunications) and a theoretically unregulated industry (consumer photographic film).

Gaiatsu works. Gaiatsu works best, however, when there are domestic forces in Japan pushing toward the same result, even if the motivations of those forces are different than ours. If there is no crack in the door, i.e., no domestic forces at work, external pressure would just squander scarce resources. Although it may seem preferable that the United States work directly and closely with those forces that are at work, this is not a necessary condition to induce change. In fact, gaiatsu has worked in the past while in ignorance of what those domestic forces are actually doing.

Although it may be true, as Marcus Noland and Sherman Robinson wrote, that the outside world has little influence on the resolution of the key policy issues in Japan, the outside world can have enormous influence on less earth-shaking, but still important, issues.

Change is most likely to occur in Japan in time of crisis. So, either use a current crisis to force change or perhaps help magnify a developing crisis. The crisis can be huge (80-90 yen to the dollar), or small3/4General Agreement on Trade and Tariffs (GATT) finding against orange growers.

If the World Trade Organization (WTO) does not, or cannot, solve a particular trade problem, aggressive unilateralism is an appropriate alternative. As with so many other issues and countries, the United States may have to serve as the "front man" for the world in improving access to the Japanese market. If we don't do it, no one else will.

We must expand communication efforts to develop domestic support in Japan, taking advantage of the fact that many Japanese support U.S. trade goals for increased competition and deregulation. The problem has been the historical inability of U.S. government and U.S. business to communicate with the Japanese people and elite in order to explain U.S. trade policy and provide a clear and logical rationale for our actions. The same idea holds true for developing foreign government allies, especially in Asia and the European Union (EU).

Develop clear negotiating objectives early, ensure the maximum industry consensus and support, and then do not negotiate internally with ourselves to reduce these objectives.

Spell out terms clearly in the negotiations and in the agreement. Avoid ambiguity. Use objective measurement criteria. Ensure that the English and Japanese language versions of an agreement are identical, even if the latter is only an "unofficial" translation.

Implementation is key. There must be clear provisions in the agreement providing for follow up. To the Japanese, the real negotiation begins once an agreement is signed. The American Chamber of Commerce in Japan prepared a useful report on the issue of implementation in 1996.

In the worst case, be prepared to invoke trade sanctions or take other unilateral actions to ensure conclusion of a market-opening agreement or the full implementation of an agreement. Any U.S. government action should be presented as a consequence of Japanese inaction. Never discuss consequences unless there is a commitment to see them through to the end.

Be creative in developing sanctions or other actions. All conceivable U.S. government tools should be considered. To recapitulate, these lessons learned do not serve much purpose unless there is a government consensus that market access and deregulation efforts toward Japan are of critical importance to the United States. A "new approach" to Japanese trade negotiations serves little purpose and will achieve minimal results without that consensus in place.