Banging heads against a bloody wall

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The Independent Online
When the Japanese government formally presented its five-year deregulation action programme last week, everyone was annoyed, but nobody was surprised. Weary, understated disappointment has become the stock response to announcements of this kind.

Gone are the days when Japanese trade friction was a sexy subject, capable of bringing Detroit car workers on to the street. For Japan and its trading partners, squabbles over protectionism, non-tariff barriers and the balance of payments have become a kind of economic Bosnia: the threats and delegations fly back and forth, but the fundamental differences remain and the ceasefires and treaties turn out to be nothing more than holding exercises.

Even by the standards of Japanese bureaucracy, Friday's programme is an exceptionally feeble and evasive document, a sampler of the techniques that Tokyo uses to avoid commitment to change while simultaneously heading off the threat of sanctions. The proposed programme is big, and migraine- inducingly fiddly - 1,091 individual items of deregulation, hedged in rhetorical bureaucratese, and rich in the kind of feel-good phrases ("individual self-responsibility") which, in Japan's ministries, pass for up-to-date economic grooviness.

Stripped of its rhetoric, little is new or significant. Two-thirds of the announced measures are already in force, or were scheduled to be implemented in any case, and the few original items are hardly ground-breaking. Load limits for freight will be moderately increased. The validity of passports will be extended from five years to 10.

But the important issues, and those that have attracted most pressure on the government, are missing or so hedged around with postponement and provisos as to be meaningless. The Large-Scale Retail Store Law, for instance, which protects small local shops at the expense of large, bulk-buying stores, is up for "review" - in 1999.

Beneath the moderate diplomatic complaints heard on Friday, there was another, duller noise: the gentle sound of heads being banged against an already bloody brick wall. But there is a danger here. In deploring the almost laughably obfuscatory tactics of the Japanese government, one risks losing sight of important questions. Why should Japan open its markets? What difference will it make if it does?

There are two answers. For domestic consumers, much is at stake. Japan's shoppers pay some of the highest prices in the world. Many stem from inefficiency. The Retail Store Law prevents department stores and national chains exploiting what should be their raison d'etre: discounts based on bulk buying.

Japan's distribution system, with its layers of unnecessary middle men, drives up prices in a way that looks insane to the West. But many Japanese value the stability that these anachronisms foster.

The cloistered homeliness of Japanese cities owes much to those little shops, selling groceries and stationery at prices to compete with supermarkets.

The drivers and deliverymen who expensively shunt deliveries from warehouse to warehouse are enjoying the benefit of a kind of unofficial social security system, which even in recession keeps unemployment below 3 per cent. Japan's infrastructure may look inefficient but in its social stability and cohesion, it has one of the most successful systems in the world.

The second answer concerns the foreign governments who have for years been harrying Japan to deregulate and liberalise. What America and the EU countries are concerned about is not free trade per se, but rather their trade deficits with Japan, which in the case of the US stands at $60bn.

In some areas, such as rules restricting foreign lawyers in Japan, discrimination is plainly at work, but in the realm of manufactured goods, there is more to the debate than meets the eye.

Japan's trade surplus is the consequence of decades of experienced marketing and selling abroad. It was only in the 1980s, when the surplus became impossible to ignore, that western companies began to devote the same degree of energy to their competitor's home markets. By that time, Japanese domination of hi-fi and electronics was entrenched, and if American and European homes were choosing to buy Japanese over the products of their own countries, it was hardly surprising if the Japanese chose to do the same.

The strong dollar promoted by the Reagan administration institutionalised this imbalance, and created a dangerous dependency: US manufacturers became hooked on cheap Far Eastern components; Japanese manufacturers relied on US consumers. Above all, many of the goods the West was so keen to flog in Japan were simply not wanted there.

Key foreign products have flourished in Japan, but they have catered to Japanese tastes - for compactness, economy, strong branding and designer labels. With meagre resources of energy, raw materials and agriculture, Japan has to sell more manufactured goods than it buys as the writer and analyst, Peter Tasker, notes.

"For the West to demand absolute rectification of bilateral imbalances is equivalent to instructing the Japanese to shut up shop".

The inadequacy of last week's package is intensely irritating, but it is a symptom, rather than just a cause, of deep-rooted cultural differences.