Japan: U.S. Trade Report FAX: Jan. 1999

In This Issue

U.S. Sets Preliminary Plan for Addressing Concerns Over Japanese Steel Imports

GOJ-EU Alliance Developing Regarding WTO Year 2000 Framework

Other Trade News In Brief


Under heavy domestic pressure, the Clinton Administration last week issued a Congressionally mandated "Steel Plan" detailing its efforts to help the U.S. steel industry. The "Steel Plan" did not call for any new sanctions against steel-exporting countries, but rather provided tax relief to U.S. steel companies and indirectly called for Voluntary Export Restraints ("VERs") from Japan.

We find several aspects of the "Steel Plan" to be of interest. First, it primarily targets Japan as the key culprit in the influx of steel imports into the United States. Specifically, the plan's key feature -- its indirect request for VERs -- was only made vis-à-vis Japan. No similar demands were made against Russia, South Korea or Brazil. We believe that the U.S. focus on Japan is likely a result of general U.S. displeasure with Japan's trade policy, including Japan's recent action with regard to tariffs on rice imports.

Second, aside from the demand for VERs from Japan, the other features of the plan are generally considered to be weak. However, the Clinton Administration under this plan has left itself significant room to maneuver and pursue stronger remedies if the current level of steel imports continues or rises. In particular, the monthly monitoring provisions for steel imports -- again, solely focused on Japan -- will provide the Administration a benchmark from which it can initiate more aggressive trade remedies such as a government initiated dumping action or action under Section 201.

On a related note, U.S. officials continue to express their opposition to the GOJ's announced tariff on rice imports. U.S. officials are investigating the possibility of bringing a complaint before the WTO on this matter. WTO rules provide that a party has 90 days from the announcement of a tariff during which it can file a complaint. The United States will confer with Japan on this issue within this period before pursuing a complaint.

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The alliance between Japan and the EU regarding the framework for the WTO Year 2000 round of negotiations appears to have further solidified. Following talks between these parties in early December, during which they agreed to promote a "comprehensive" approach to the negotiations, additional talks were held last week between senior officials that further distanced the joint EU-GOJ position from the U.S. preference for sectoral negotiations.

GOJ Trade and Industry Minister Kaoru Yosano and EU External Relations Commissioner Leon Brittan reaffirmed their countries' agreement that negotiations should be comprehensive and about three years in duration. By presenting a united front, the EU and Japan may be seeking to prevail over the United States, which as recently as this week continued to advocate an "ambitious trade agenda," according to Jay Ziegler (spokesman for the USTR), that would feature a shortened period of negotiations. Zeigler also commented -- prior to the Yosano-Brittan announcement -- that "Japan wants a [comprehensive] round because it means they can put off opening their markets for seven years."

Zeigler's statement appears to reflect continued U.S. frustration with Japan over trade issues. In particular, his "seven years" allegation is likely a response to Japan's failure to agree to make liberalization commitments for fisheries and forestry at last year's APEC Summit.

Generally, U.S. officials (as evident from Zeigler's comments discussed above) are growing increasingly frustrated with what they view as Japanese attempts to slow trade liberalization. Indeed, Washington insiders are expressing disapproval toward Japanese trade policies. During 1999, if the U.S. economy slows and Japanese exports increase as predicted, the common wisdom is that trade friction also will increase.

U.S. Ambassador to Japan, Thomas Foley adopted this view in his statements to the Japan National Press Club last month, during which he stated that the growing trade imbalance is lending support to trade action against Japan in industries like steel, insurance, forestry and glass.

Japanese officials recognize this also, as evident from Ambassador Saito's comment that "if the U.S. economy loses steam, all blame would be put on Japan." MITI Vice Minister Osamu Watanabe also noted that complaints from Congress are likely to increase as the trade imbalance grows.

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Obuchi, in Europe, Announces Intent to Reshuffle Cabinet this Week, Calls for Increased International Use of Yen

While in Europe last week, Prime Minister Obuchi announced his intention to reshuffle his cabinet upon his return to Japan. The Prime Minister hopes to form a coalition government with the Liberal Party (Jiyuto) in time for a week-end convention of his Liberal Democratic Party (LDP).

Obuchi was in Europe to promote international use of the yen after the debut of the new Euro currency. While in France, Obuchi called for an end to the dollar-domination of international finance and pledged to increase the international utility of the yen.

U.S. Calls for Changes in New "Notice and Comment" Rulemaking Procedures

The U.S. Embassy in Tokyo has strongly urged the GOJ to modify its proposed rulemaking procedures. The "notice and comment" rulemaking procedures are part of broad deregulatory reforms and in response to years of international criticism. The United States included "notice and comment" procedures in its deregulatory proposal directed at Japan last October. The 270-item proposal was offered under the auspices of the Enhanced Initiative on Deregulation and Competition Policy.

The U.S. objects to the non-comprehensive nature of the proposed "notice and comment" procedures, and the likelihood that some groups will ignore them. The United States advocates that the procedures should "apply to all administrative agencies, including local governments, when they develop or modify regulations."

Foreign Share of Japanese Semiconductor Market Increases as Sales Decline

The USTR reported in late December that the foreign share of the domestic Japanese semiconductor market reached its second-highest level ever. While pleased that the United States and other foreign suppliers were competitive in the industry, USTR Barshefsky remarked that the Japanese government needed to spur economic growth at home.

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