A corporate structure hostile to outsiders

AS JAPAN'S Prime Minister Morihiro Hosokawa was returning from Washington last weekend after his failed trade talks with President Bill Clinton, his media 'spin merchants' were giving surprisingly upbeat briefings to reporters.

The fact that Japan had not caved in to US pressure showed that the US-Japan relationship had become mature and that Japan could command more respect in the world at large. The editorial of the Yomiuri newspaper on Sunday proudly celebrated 'The Japan that said No'.

The view of the markets, however, was very different. The next day the Tokyo stock market crashed and the yen soared. The official view changed abruptly. Walking tall was all very well, but damaging the economy - that was far more serious. The editorial of the Asahi newspaper on Tuesday morning proclaimed more soberly: 'Just saying No doesn't make the trade surplus disappear.'

In some ways, however, the events of the past two weeks have shown that the US-Japan relationship has indeed matured - on both sides. The US is determined to reduce the dollars 60bn ( pounds 41bn) trade deficit it has with Japan, but there has been no sledge-hammering of Japanese computers or cars in front of television cameras. And while Japan has said it will not accept numerical targets for increasing imports, there is a broad consensus among politicians, businessmen and some - if not all - parts of the bureaucracy that something needs to be done about the country's trade surplus.

Domestic public opinion in Japan - and the careful use the US side has made of it - has been instrumental in forming this more realistic approach. For years, Japanese consumers have passively accepted the arguments of their government and companies that Japanese goods are superior in quality to imports, and that higher prices are therefore justified. For example, many people believed industry propaganda, that they would get physically sick if they ate foreign meat when the beef market was liberalised to allow in imports.

But as the recession in Japan deepened over the past two years, Japanese consumers began to watch their yen more closely. They discovered that US or Australian steaks - half the price of domestic Kobe beef - did not immediately induce stomach cramps. And a new phenomenon of parallel importing and discount shops sprang up, offering shoppers none of the kid-glove services of plush department stores, but plenty of savings on everyday household goods.

President Clinton has been quick to spot this sea change in Japan. When arguing for more access to the Japanese market, he no longer lists the old reasons of 'fairness, reciprocity, level playing fields'. Instead, when he visited Tokyo and walked down a crowded shopping street last summer, he made a point of saying how much ordinary Japanese consumers would benefit from liberalised import markets, which would give them a choice of cheaper goods. This at least made sense to the man in the street.

This does not mean the old arguments were invalid - on the contrary. Japan announced a trade surplus for 1993 of dollars 141bn, the highest in history. And few Japanese even try to argue today that their markets are not more closed to imports than any other developed country.

The problem, however, is how to reverse an export-oriented economic model that has been honed and polished for the past 40 years, and a corporate structure that is by its nature collusive and hostile to outsiders.

The mobile phone controversy, the first target chosen by the US administration for possible sanctions, is a case in point. The US stole an early lead in mobile phone technology, and the biggest firm, Motorola, was quick to establish itself in key markets around the world. Except Japan.

Cellular phones did not take off in Japan until 1988, when the Ministry of Posts and Telecommunications (MPT) allowed competitors to take on the lazy giant, Nippon Telegraph and Telephone (NTT). From a mere 97,000 users in 1987, the number of mobile phones has increased to 1.8 million today.

But the MPT was loath to deregulate the market completely, so it devised a system under which most of Japan would operate under the TACS cellular system, which is compatible with the Motorola products, but kept the Tokyo- Nagoya corridor working under a system devised by NTT called HCMS, which shuts out Motorola.

About 60 million people - half Japan's population - live in this corridor, and Motorola was outraged. It appealed to the US government, which appealed to the Japanese government, which finally agreed in 1989 that a Japanese firm, IDO, would install relay stations for the TACS cellular system for Motorola. But IDO was already offering the NTT-compatible system, and - as a private company with developed industry links - had little incentive to serve a foreign company landed on it by government fiat.

So five years later, Motorola has a mere 12,600 users in the Tokyo-Nagoya area, compared with the 310,000 who use the NTT-compatible system. Not because Motorola products are inferior - in other parts of the country where the TACS is installed, Motorola has won as much as 50 per cent of the market. The problem in Tokyo-Nagoya is that insufficient relay stations have been installed by IDO, so Motorola phones only work in 60 per cent of the land area.

The mobile phone controversy shows how, at government level, both the US and Japan agreed that a foreign firm was suffering from discrimination, and how the Japanese Government even agreed to a deal to help the foreign firm penetrate the market it had been excluded from. Yet the problem remained. So it is no wonder that when Mr Hosokawa turns to bureaucrats to help find ways of reducing the country's trade surplus, the US is highly sceptical of any real progress. As the mobile phone controversy shows, the bureaucrats are at the root of the problem.

(Photograph omitted)

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