ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Tuesday, October 15, 1996 TAG: 9610150068
SECTION: EDITORIAL PAGE: A-5 EDITION: METRO
SOURCE: CARL H. TONG
THE UNITED States has had a merchandise trade deficit every year since 1976. Our 1995 merchandise trade deficit totaled $174 billion, up from $166 billion in 1994. The statistics from the Commerce Department in September 1996 indicate that our trade-deficit situation is getting worse.
Our prolonged merchandise trade deficit means that we, as a nation, have been getting and consuming more than we have been producing and contributing. If we desire to build and maintain a solid, healthy and prosperous U.S. economy and to improve our standard of living in today's global economy, we must find ways to reduce or eliminate this deficit.
The principal cause of our merchandise trade deficit has changed over time. In the 1970s, the price increase of imported oil was considered the biggest contributor. In the first half of the 1980s, the rising value of the U.S. dollar made U.S. goods unattractive to foreign buyers and thus depressed U.S. exports. Since the mid-1980s, with oil prices remaining relatively low and U.S. dollars dropping in value, foreign trade barriers have gradually emerged as a leading cause of our merchandise trade deficit.
The Office of the U.S. Trade Representative annually prepares a report on significant foreign trade barriers. This report is intended to facilitate international negotiations aimed at expanding global trade by reducing or eliminating unfair trade barriers.
Foreign trade barriers may take many forms, such as tariffs, quantitative restrictions, import licensing, slow import-clearance procedures, customs barriers, unnecessarily restrictive standards, closed bidding, export subsidies, lack of intellectual-property protection, limitations on foreign-equity participation and local-content requirements.
The trade relationship between the United States and each foreign country is unique and should be examined separately. The discussion below focuses on Japanese trade barriers for two important reasons. First, Japan is the country with which the United States had the largest annual merchandise-trade deficit in recent years. Second, there is a general perception in the United States that Japan is the most unfair in its trading practices of any nation on Earth.
Although the United States and Japan have reached many bilateral and multilateral trade agreements, American business people continue to find it unusually difficult to penetrate the Japanese market. In the spring of 1996, the Office of the U.S. Trade Representative reported: ``While Japan has reduced its formal tariff rates on imports to very low levels, invisible, nontariff barriers - such as nontransparency, discriminatory standards, and exclusionary business practices - maintain a business environment protective of domestic companies and restrictive of the free flow of competitive foreign goods into the Japanese domestic market.''
In recent years, Japan has cut tariffs on aluminum and copper, and agreed to ``zero for zero'' tariffs on agricultural equipment, construction equipment, medical equipment, paper, steel, pharmaceuticals, furniture and toys. Nevertheless, Japan's tariffs on agricultural and food products remain high. Numerous U.S. vegetables and fresh fruits, such as cabbage, eggplant, peppers, tomatoes, potatoes, plums, apples, cherries, pears and nectarines, are either banned or restricted in some ways by Japan. U.S. fishery exports, including cod, herring, mackerel, whiting and pollock surimi, are subject to Japanese import quotas.
American exporters and air-cargo companies encounter slow clearance procedures and high costs in processing imports into Japan. This makes it difficult, and sometimes impossible, for U.S. firms to become ``just in time'' suppliers to Japanese companies.
The protection of intellectual-property rights is a thorny issue between Japan and the United States. The fact that Japanese courts interpret patents very narrowly causes serious problems for U.S. companies. The invention of the integrated circuit serves as a vivid example. It took the Japanese Patent Office 29 years to issue a patent to Texas Instruments Inc. for its basic integrated-circuit design. Then, in 1994 (five years after Texas Instruments Inc. received its patent in Japan), the Tokyo District Court held that ``the patent covers only a laboratory prototype of the invention and is unenforceable against any past or present commercial product'' - making the patent, in effect, worthless.
American companies also face a serious ``patent-flooding'' problem in Japan. After a U.S. firm makes an application to obtain patent rights in Japan, Japanese companies frequently flood the Japanese Patent Office with applications that are very similar to the U.S. firm's invention. Understandably, this kind of behavior makes U.S. firms very frustrated.
The automotive industry plays a vitally important role in the economies of all the major industrialized countries - the United States, Japan, Germany, France, Britain, Italy and Canada. While the United States keeps its automotive trade door wide open, Japan manages its auto and auto-parts markets tightly. In 1995, 6.87 million units of motor vehicles were sold in Japan, and U.S. auto exports to Japan totaled only 143, 232 units. It is interesting, if not amusing, to note that in 1995 Japanese transplants exported more motor vehicles from the United States to Japan than did the Big Three in Detroit.
In Japan, government and business work closely together to achieve their goals and unite against foreigners. By establishing five-year economic goals, Japanese business and government have cooperatively and systematically entered and achieved substantial control of the auto, consumer electronics, 35-mm camera, copier and semiconductor markets. The Japanese are very nationalistic and the Japanese organizations use an ``us against them'' mentality to motivate. In the United States, this type of attitude is not popular and is usually considered politically incorrect. In a country of immigrants, we Americans tend to equate nationalism with discrimination and to stress the goodness and rightness of diversity.
Professors David B. Yoffie and Benjamin Gomes-Casseres, of Harvard University, have noted:
"A new body of international trade theory emeged in the 1980s. The foundations of this theory were that competition in markets was imperfect and that firms and governments could act strategically to affect trade flows and national welfare. ... Respectable academic economists began asking whether unconditional free trade was a country's best policy choice. ... Some new trade theorists concluded that governments would be wisest to follow a rule of ``conditional, cooperative'' trade initiatives. Unconditional cooperative strategies (such as 'the U.S. will always support free trade regardless of the behavior of other countries') invited foreign governments to take a 'free ride' at America's expense. Conditional strategies which offered the carrot of liberalized trade backed up by the stick of retaliation were considered the most likely to induce cooperation as the foreign response. Moreover, cooperative strategies avoided the potentially severe consequences of miscalculating the foreign response to a noncooperative move."
Today is the right time for us, as a nation, to officially replace our existing ``free trade'' policy with a ``free and fair trade'' policy. Free trade should remain our ideal, but we must recognize the realities in the complex world economy and adopt a down-to-earth approach to handling foreign trade barriers.
Carl H. Tong is a professor of marketing and international business at Radford University.
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