Japanese numbers game may end in trader tears

OVER the next six months Japan's soaring global surplus is likely to be one of the most contentious issues dividing members of the United States Congress. Activists led by Richard Gephardt, the House majority leader, are considering new legislation designed to produce specific, quantifiable results in opening Japan's closed markets.

Moderates and passionate free- traders are fighting these efforts, claiming that such ground-breaking US legislation will ignite a global 'managed trade' movement. Nations will bombard each other with bilateral quotas, import and export restraints and restrictive tariffs, all in the name of market opening. What began in the US-Japan context could quickly spread to Europe, other nations in Asia and the Third World.

President Clinton made it quite clear during the recent tense negotiations in Tokyo that he is impatient for market-opening results. In going over the heads of officials to speak directly to the Japanese people he also signalled that such results would be expected from whoever is elected, the business-as-usual Liberal Democratic Party or a new generation of reformers.

The deal he negotiated with the Japanese Prime Minister, Kiichi Miyazawa, which has since been recast and repudiated by bureaucrats in both governments, gives US negotiators wide latitude to achieve these aims. European officials also have targeted reduction of Japan's surplus as a policy priority. The trick will be in the doing.

That Japan's global current account surplus, projected at dollars 150bn ( pounds 100bn) for 1993, is a growing problem is not in question. The grim prospect of other nations being denied economic prosperity because of Japan's strength will not long be tolerated.

Such a surplus in a world of slow economic growth in effect exports unemployment to other countries, particularly when it results in large part, as is now the case, from the stagnation of domestic demand in Japan. In short, Japan's export juggernaut continues while imports have plummeted in response to weak consumer and business purchases.

It is easy to understand why other nations are losing patience in their trade negotiations with Japan. Each year the contrast grows sharper between Japan's extraordinary success in other markets and the inability of foreign producers to penetrate its markets. There is a very good case to be made that Japan is indeed 'different' - an exclusionary, highly interventionist economy that does not welcome outsiders.

However, this image obscures the fact that Japan has been changing rapidly and is likely to continue to move in the direction of the more traditional, market-based economies. It could be counterproductive now to target bilateral trade imbalances with Japan, or for governments to gang up against specific Japanese sectors by imposing restrictive quotas and other trade restraints, a model for which are the restraints on Japanese car imports in the US and Europe.

It would be far better to work at the macro-economic level to reduce the huge imbalances and to continue the current multilateral efforts to persuade Japan itself to do the right things. There should be continued international pressure on Japan to open its markets and to adopt expansionary fiscal measures at home that will reduce the surplus. Results are coming through, albeit slowly.

However, the US and other governments are moving in another philosophical direction. By stepping up what is in effect the management of trade, through demanding extra market share for their exports, they are claiming to avoid the more restrictive and traditional protectionist policies. Thus the pursuit of voluntary import expansion targets (VIEs), or outright quotas for foreign penetration, is on the rise. The semiconductor agreement between the US and Japan, which negotiated a 20 per cent market share for US firms, is a case in point. Many cite it as a successful blueprint that should be followed in other agreements.

But last week, one of its chief architects disagreed. Carla Hills, the US trade representative under George Bush, said in testimony to Congress that the numerical target actually tied her hands in seeking even greater market penetration. Why only 20 per cent when US producers might have been able to garner 30 per cent or more?

The point that Ms Hills was making is that market-opening measures are fine but that numerical targets are not, as they have the effect of actually restricting potential market share. She thus argued firmly against more semiconductor-like agreements.

History tells us that governments have a poor record of managing and targeting industries and market share. The practical problems are immense; bureaucrats tend to shoot either too high or too low in their targeting, with little ability to control either success or failure.

Political capture of such measures by powerful special interests is another big problem. For Congress to legislate such quantifiable measures is to step out on new and dangerous terrain. The administration has enough authority to achieve its goals. A strengthened yen has reduced and will reduce trade surpluses, suggesting that Plaza-like exchange rate accords are among the very best ways of tackling the Japanese problem.

News
The surrealist comedian at the Q Awards in 2010
people
News
Russell Brand arriving for the book launch in East London
peopleRussell Brand cancels his book launch debate due to concerns about the make-up of the panel
Sport
Christiano Ronaldo enjoys his opening goal
champions leagueLiverpool 0 Real Madrid 3: Ronaldo and Benzema run Reds ragged to avenge thrashing from their last visit to Anfield
Arts and Entertainment
Awesome foursome: Sam Smith shows off his awards
music22-year-old confirms he is 2014’s breakout British music success
PROMOTED VIDEO
Life and Style
Six of the 76 Goats' cheese samples contained a significant amount of sheep's cheese
food + drink
Arts and Entertainment
Contestants during this summer's Celebrity Big Brother grand finale
tvBroadcaster attempts to change its image following sale to American media group
Extras
indybest
Arts and Entertainment
Sir Nicholas Serota has been a feature in the Power 100 top ten since its 2002 launch
art
Arts and Entertainment
Sarah Dales attempts to sell British Breeze in the luxury scent task
tvReview: 'Apprentice' candidate on the verge of tears as they were ejected from the boardroom
News
Call me Superman: one of many unusual names chosen by Chinese students
newsChinese state TV offers advice for citizens picking a Western moniker
News
ebooksAn unforgettable anthology of contemporary reportage
News
Wilko Johnson is currently on his farewell tour
people
Voices
New look: Zellweger at Elle's Women in Hollywood awards on Monday
voicesRenée Zellweger's real crime has been to age in an industry that prizes women's youth over humanity, says Amanda Hess
News
Let’s pretend: KidZania in Tokyo
educationKidZania lets children try their hands at being a firefighter, doctor or factory worker for the day
Life and Style
CHARGE BOOSTER: Aeroplane mode doesn't sound very exciting, but it can be a (phone) hacker's friend. Turning on the option while charging your mobile will increase the speed at which your phone battery charges
techNew book reveals how to rid your inbox of spam, protect your passwords and amplify your iPhone
Arts and Entertainment
Julianne Moore and Ellen Page are starring together in civil rights drama Freeheld
film
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

IT Systems Business Analyst - Watford - £28k + bonus + benefits

£24000 - £28000 per annum + bonus & benefits: Ashdown Group: IT Business Syste...

Trainee Recruitment Consultant - Birmingham - Real Staffing

£18000 - £23000 per annum + Commission: SThree: The SThree group is a world le...

Trainee Recruitment Consultant Birmingham

£18000 - £23000 per annum + Comission: SThree: The SThree group is a world lea...

Trainee Recruitment Consultants

£20000 - £25000 per annum + OTE £Competitive: SThree: SThree Group and have be...

Day In a Page

How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?

A crime that reveals London's dark heart

How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?
Meet 'Porridge' and 'Vampire': Chinese state TV is offering advice for citizens picking a Western moniker

Lost in translation: Western monikers

Chinese state TV is offering advice for citizens picking a Western moniker. Simon Usborne, who met a 'Porridge' and a 'Vampire' while in China, can see the problem
Handy hacks that make life easier: New book reveals how to rid your inbox of spam, protect your passwords and amplify your iPhone

Handy hacks that make life easier

New book reveals how to rid your email inbox of spam, protect your passwords and amplify your iPhone with a loo-roll
KidZania lets children try their hands at being a firefighter, doctor or factory worker for the day

KidZania: It's a small world

The new 'educational entertainment experience' in London's Shepherd's Bush will allow children to try out the jobs that are usually undertaken by adults, including firefighter, doctor or factory worker
Renée Zellweger's real crime has been to age in an industry that prizes women's youth over humanity

'Renée Zellweger's real crime was to age'

The actress's altered appearance raised eyebrows at Elle's Women in Hollywood awards on Monday
From Cinderella to The Jungle Book, Disney plans live-action remakes of animated classics

Disney plans live-action remakes of animated classics

From Cinderella to The Jungle Book, Patrick Grafton-Green wonders if they can ever recapture the old magic
Thousands of teenagers to visit battlefields of the First World War in new Government scheme

Pupils to visit First World War battlefields

A new Government scheme aims to bring the the horrors of the conflict to life over the next five years
The 10 best smartphone accessories

Make the most of your mobile: 10 best smartphone accessories

Try these add-ons for everything from secret charging to making sure you never lose your keys again
Mario Balotelli substituted at half-time against Real Madrid: Was this shirt swapping the real reason?

Liverpool v Real Madrid

Mario Balotelli substituted at half-time. Was shirt swapping the real reason?
West Indies tour of India: Hurricane set to sweep Windies into the shadows

Hurricane set to sweep Windies into the shadows

Decision to pull out of India tour leaves the WICB fighting for its existence with an off-field storm building
Indiana serial killer? Man arrested for murdering teenage prostitute confesses to six other murders - and police fear there could be many more

A new American serial killer?

Police fear man arrested for murder of teen prostitute could be responsible for killing spree dating back 20 years
Sweetie, the fake 10-year-old girl designed to catch online predators, claims her first scalp

Sting to trap paedophiles may not carry weight in UK courts

Computer image of ‘Sweetie’ represented entrapment, experts say
Fukushima nuclear crisis: Evacuees still stuck in cramped emergency housing three years on - and may never return home

Return to Fukushima – a land they will never call home again

Evacuees still stuck in cramped emergency housing three years on from nuclear disaster
Wildlife Photographer of the Year: Intimate image of resting lions claims top prize

Wildlife Photographer of the Year

Intimate image of resting lions claims top prize
Online petitions: Sign here to change the world

Want to change the world? Just sign here

The proliferation of online petitions allows us to register our protests at the touch of a button. But do they change anything?