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.

Sport
footballLIVE City face Stoke, while Warnock returns to Palace dugout
Life and Style
3D printed bump keys can access almost any lock
gadgets + techSoftware needs photo of lock and not much more
News
Paul McCartney backs the
people
News
i100
PROMOTED VIDEO
Arts and Entertainment
Inside the gallery at Frederick Bremer School in Walthamstow
tvSimon Usborne goes behind the scenes to watch the latest series
Life and Style
Silvia says of her famous creation: 'I never stopped wearing it. Because I like to wear things when they are off the radar'
fashionThe fashion house celebrated fifteen years of the punchy pouch with a weighty tome
Arts and Entertainment
Gregg Wallace in Summer's Supermarket Secrets
tv All of this year's 15 contestants have now been named
News
i100Steve Carell selling chicken, Tina Fey selling saving accounts and Steve Colbert selling, um...
Life and Style
A picture taken on January 12, 2011 shows sex shops at the Paris district of Pigalle.
newsThe industry's trade body issued the moratorium on Friday
Arts and Entertainment
Could we see Iain back in the Bake Off tent next week?
tv Contestant teased Newsnight viewers on potential reappearance
News
ebooksAn evocation of the conflict through the eyes of those who lived through it
News
i100
News
The slice of Prince Charles and Princess Diana's wedding cake and the original box from 29 July 1981
newsPiece of Charles and Diana's wedding cake sold at auction in US
Voices
The Ukip leader has consistently refused to be drawn on where he would mount an attempt to secure a parliamentary seat
voicesNigel Farage: Those who predicted we would lose momentum heading into the 2015 election are going to have to think again
Arts and Entertainment
Cara Delevingne made her acting debut in Anna Karenina in 2012
film Cara Delevingne 'in talks' to star in Zoolander sequel
Sport
Mario Balotelli pictured in his Liverpool shirt for the first time
football
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

Network Engineer (CCNP, CCNA, Linux, OSPF, BGP, Multicast, WAN)

£35000 per annum: Harrington Starr: Network Engineer (CCNP, CCNA, Linux, OSPF,...

DevOps Engineer (Systems Administration, Linux, Shell, Bash)

£50000 per annum: Harrington Starr: DevOps Engineer (Systems Administration, L...

Data Scientist (SQL, PHP, RSPSS, CPLEX, SARS, AI) - London

£60000 - £70000 per annum: Harrington Starr: A prestigious leading professiona...

Financial Technical Consultant (C++, C#, Finance, MSc, PhD)

£50000 per annum: Harrington Starr: Financial Technical Consultant (C++, C#, F...

Day In a Page

Ukraine crisis: The phoney war is over as Russian troops and armour pour across the border

The phoney war is over

Russian troops and armour pour into Ukraine
Potatoes could be off the menu as crop pests threaten UK

Potatoes could be off the menu as crop pests threaten UK

The world’s entire food system is under attack - and Britain is most at risk, according to a new study
Gangnam smile: why the Chinese are flocking to South Korea to buy a new face

Gangnam smile: why the Chinese are flocking to South Korea to buy a new face

Seoul's plastic surgery industry is booming thanks to the popularity of the K-Pop look
From Mozart to Orson Welles: Creative geniuses who peaked too soon

Creative geniuses who peaked too soon

After the death of Sandy Wilson, 90, who wrote his only hit musical in his twenties, John Walsh wonders what it's like to peak too soon and go on to live a life more ordinary
Caught in the crossfire of a cyber Cold War

Caught in the crossfire of a cyber Cold War

Fears are mounting that Vladimir Putin has instructed hackers to target banks like JP Morgan
Salomé's feminine wiles have inspired writers, painters and musicians for 2,000 years

Salomé: A head for seduction

Salomé's feminine wiles have inspired writers, painters and musicians for 2,000 years. Now audiences can meet the Biblical femme fatale in two new stage and screen projects
From Bram Stoker to Stanley Kubrick, the British Library's latest exhibition celebrates all things Gothic

British Library celebrates all things Gothic

Forthcoming exhibition Terror and Wonder: The Gothic Imagination will be the UK's largest ever celebration of Gothic literature
The Hard Rock Café's owners are embroiled in a bitter legal dispute - but is the restaurant chain worth fighting for?

Is the Hard Rock Café worth fighting for?

The restaurant chain's owners are currently embroiled in a bitter legal dispute
Caribbean cuisine is becoming increasingly popular in the UK ... and there's more to it than jerk chicken at carnival

In search of Caribbean soul food

Caribbean cuisine is becoming increasingly popular in the UK ... and there's more to it than jerk chicken at carnival
11 best face powders

11 best face powders

Sweep away shiny skin with our pick of the best pressed and loose powder bases
England vs Norway: Roy Hodgson's hands tied by exploding top flight

Roy Hodgson's hands tied by exploding top flight

Lack of Englishmen at leading Premier League clubs leaves manager hamstrung
Angel Di Maria and Cristiano Ronaldo: A tale of two Manchester United No 7s

Di Maria and Ronaldo: A tale of two Manchester United No 7s

They both inherited the iconic shirt at Old Trafford, but the £59.7m new boy is joining a club in a very different state
Israel-Gaza conflict: No victory for Israel despite weeks of death and devastation

Robert Fisk: No victory for Israel despite weeks of devastation

Palestinians have won: they are still in Gaza, and Hamas is still there
Mary Beard writes character reference for Twitter troll who called her a 'slut'

Unlikely friends: Mary Beard and the troll who called her a ‘filthy old slut’

The Cambridge University classicist even wrote the student a character reference
America’s new apartheid: Prosperous white districts are choosing to break away from black cities and go it alone

America’s new apartheid

Prosperous white districts are choosing to break away from black cities and go it alone