IP: Sakamoto speech -- comments by Edward J. Lincoln Special

[Dave Farber <farber () central cis upenn edu>]

Date: Tue, 2 Apr 1996 02:46:15 -0500 (EST)
From: Ed Lincoln <elincoln () snap org>


I was away when Ira Wolf and others were discussing the recent 
speech by MITI Vice Minister for International Trade Yoshihiro 
Sakamoto concerning the brave new world of U.S.-Japan trade 
relations.  Having returned to the office, I would like to add a 
few comments, mainly to clarify some of the facts about bilateral
and multilateral negotiations.  I offer these comments as 
personal observations, and not as an official policy statement.  
As such, I ask the reporters who subscribe to DFS to respect the 
informal nature of the dialogue and treat these as background 
comments.  Should any journalists wish to use my comments, please
contact me or the press office at the Embassy.  With that caveat,
here we go:


     Sakamoto is preying upon public ignorance of the WTO when he
suggests that the "era of 'bilateralism' is over."  This notion 
that the United States will no longer be able to push Japan 
around bilaterally because the WTO will provide a neutral forum 
for dispute resolution has a warm fuzzy ring to it.  However 
there several fundamental problems with this notion:


1.     Many of the industries on which we have disputes with 
Japan are simply not covered by the WTO.   The old GATT and new 
WTO cover primarily manufacturing industries.  Our disputes of 
the past several years over access to Japanese markets for 
insurance, financial services, cellular telephones and other 
telecommunications services, or construction cannot be negotiated
within a WTO framework.  The Uruguay round of GATT negotiations 
began with the hope of extending the scope to various service 
industries, but this effort has not proceeded very far.  
Negotiations are currently underway to establish a WTO code for 
telecommunications services, but even this is not completed yet. 
Mr. Sakamoto is simply wrong when he states that "the WTO came 
into being with rules covering substantially wider fields, which 
can be regarded now as the constitution of world trade."  I wish 
this were true, but it is not.  In those areas of trade not 
specfically covered by the WTO, nations have no alternative to 
bilateral discussions.  If Mr. Sakamoto were suggesting that 
Japan will no longer consider bilateral discussions in such 
areas, that would be a very negative signal.


2.     Even when industries are part of GATT/WTO coverage, many 
of the practices which are being disputed are not covered.  The 
GATT was originally designed to deal with tariffs and quotas, and
some extensions have been added (such as a code concerning 
subsidies).  But the bulk of non-tariff, non-quota barriers to 
markets are not specifically covered by GATT/WTO rules.  Many of 
the problems of market access in Japan, though, are precisely in 
this area.  Regulations which differentially impact foreign 
firms, standards which are unusually unique and serve no valid 
health or safety concern, collusion within industry tolerated (or
even encouraged) by government, or government "administrative 
guidance" are central features of many recent trade disputes.  
There is no clear mechanism within the WTO for handling these 
kinds of issues.  On the automobile dispute, we were willing to 
experiment; the GATT/WTO has a provision (Article 23) for 
bringing disputes in which a nation alleges that its trading 
partner's actions--even though the specific actions are not part 
of its GATT commitments--have the effect of denying benefits 
which its GATT commitments should have conferred.  In the past 
this article has been rarely used, and then only in simple cases 
(accusations against governments which reduced an agricultural 
tariff and then promptly provided a subsidy to the affected 
farmers so that they could continue to compete in the market as 
though the tariff still existed).  Our experiment was truncated 
by the agreement reached last June, but if the WTO is to play a 
more effective role, wider interpretation of Article 23 will 
probably be necessary.


3.     Most of our trade disputes with Japan do not involve 
disagreements about past commitments; the formal WTO dispute 
resolution mechanism is competent only to deal with cases where 
one nation accuses another of violating its past commitments.  
Most of what we want is new commitments which cannot be handled 
as a dispute.  On these issues, the original GATT and now the WTO
assume that nations will engage in bilateral negotiations, with 
the stipulation that the agreement be applied on an MFN basis.  
There is no (repeat: no) stipulation that trade negotiations be 
done in large multilateral rounds of negotiations.  The rounds 
were an ad hoc procedure initiated by the U.S. back in the 1950s 
to accelerate the process of market opening because we were 
disappointed with the pace at which individual nations chose to 
negotiate market liberalization agreements with individual 
trading partners.  Even these rounds are to a large extent sets 
of simultaneous bilateral negotiations.  All U.S. negotiations 
and agreements reached bilaterally with Japan have been on an MFN
basis, and are, therefore, fully consistent with the WTO.  The 
proposition in Sakamoto's speech that a bilateral approach is 
sterile or that U.S.-Japan bilateral trade negotiations are in 
violation of the spirit of the WTO is utter nonsense.  If his 
comments imply that Japan will only offer concessions on those 
rather infrequent occasions of a large multilateral agreement 
(the Uruguay round was signed 15 years after the previous Tokyo 
round was completed, including 10 years of actual negotiation) it
would be a very discouraging signal from Japan.


     Sakamoto also emphasizes the need for cooperation on global 
issues (environmental issues, future global energy shortages, 
etc.).  The speech juxtaposes the need for cooperation on these 
issues (good) against a model of bilateral conflict on trade 
issues (bad).  This is extremely misleading:  the Framework 
Agreement signed by the two governments in July of 1993 includes 
a commitment to both resolution of trade problems and cooperation
on global issues.  The past three years provide strong evidence 
that we are capable of arguing over trade and cooperating on 
global issues at the same time.  The Common Global Agenda portion
of the Framework Agreement has gone very well, but has generated 
little news in the media.  Relations between Japan and the United
States are broad and complex; we will continue to cooperate in 
some areas while engaging in vigorous disagreement in others.  
The simplistic "either-or" model offered by Mr. Sakamoto is 
inconsistent with the reality of the relationship.  I believe 
strongly that improvement in the overall strength of the 
relationship requires frank discussion and resolution of trade 
issues; shoving aside for the sake of providing only a public 
show of cooperation would have a corrosive long term impact.


     Finally, the Sakamoto speech makes the usual complaints 
about Section 301 of the U.S. trade law.  In the context of 
discussion of the color film case he states that the U.S. 
government has "not tried to use either international rules or 
national competition laws, but seems determined to resort to the 
unilateral Section 301 of U.S. trade law."  The United States is 
a nation of laws.  The U.S. trade law specifies conditions under 
which domestic firms can complain to the government about the 
behavior of foreign competitors.  Section 301 of the law was 
originally included in 1974 (and most recently amended in 1994 as
part of the Uruguay round implementation legislation) and 
provides firms the right to request the government for assistance
in dealing with access barriers in foreign markets.  When the 
government agrees to look into the problems alleged by the 
petitioner, Section 301 also specifies the scope of action which 
the government can undertake should it agree with the petitioner 
that foreign firms/governments are engaged in behavior to unduly 
hinder market access.  These actions include: efforts to resolve 
the problem through negotiation, the filing of a WTO case against
the trading partner, and (in the absence of other remedies) 
retaliation against an equivalent amount of the trading partner's
exports to the United States.  The purpose of Section 301 is to 
make our procedures clear and open.  The objection of MITI is 
that the possible remedy of retaliation against Japanese exports 
to the United States is inconsistent with the WTO.  But such 
remedies are to be used only when other remedies (such as 
initiating a WTO case) are unavailable for the reasons I 
discussed above.  The United States is unlikely to eliminate its 
sovereign right to carry out such policies when there is no 
recourse to a broader forum.  If Japan truly disagrees, it has 
the right to challenge us through a WTO case (which it initiated 
in the auto dispute, but dropped as part of the eventual 
bilateral agreement).  However, I fear Sakamoto's objection to 
Section 301 demonstrates an intent to refuse bilateral efforts to
resolve problems, since Section 301 is the legal route through 
which American firms can bring such problems to the attention of 
the U.S. government.  If intended seriously, this is a very 
negative signal--not only to the United States but to all nations
which wish to press Japan on market access issues.


     Much of the Sakamoto speech deals with laying out the Japanese 
position on two specific disputes--extension of the Semiconductor
Agreement, and market access problems for color film.  I do not 
wish to get into details of either in this particular message, 
which is already overly long.  Let me end on a general point.  I 
have argued for the past two years that little has changed in 
Japanese government negotiating patterns.  Denial of problems, 
rigid resistance, strong rhetoric, vigorous PR efforts abroad, 
minimal concessions, weak implementation are all familiar 
patterns for the past 30 years (or even back to the prewar years,
as I recall from Michael Blaker's work).  The advent of a non-LDP
government in 1993 raised hopes among some journalists and others
that the pattern would change with the Japanese government 
embracing open markets more enthusiastically.  This speech by 
Sakamoto provides public testimony to the lack of change in a 
more open direction.  Indeed, the concepts expressed in the 
speech move Japan backward.  The underlying message is that not 
only will Japan resist change, it may even refuse to talk about 
moving toward more open markets.  His more specific messages on 
semiconductors and color film are equally harsh.


Japanese markets are more open today than five or ten years ago.
But many problems remain, and the tone and substance of this 
speech are not encouraging as we look forward to dealing with 
these issues.


Edward J. Lincoln
Special Economic Advisor
U.S. Embassy, Tokyo