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International Relations and Trade

Questions and Answers on U.S.- Japan Trade Relations, and Japanese International Economic Policies.....

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U.S.-Japan Trade Council

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Eighty-one nations of GATT met in Tokyo last Fall to discuss reducing trade barriers and revising the World Monetary System, U.S. export controls on soybeans and other agricultural products has serious implications for free trade flow. The annual trade between Japan-U.S. was over billion in 1972. There are areas of misunderstanding. These Q and A's will help to dispel some notions and Pave the way to this new Pacific relationship.

Q. Why is trade so often a source of friction between the U.S. and Japan?

A. There are two major and contradictory reasons: U.S. deficit in bilateral trade with Japan. Japan has made great reductions in restrictions on our imports, and has reduced its exports to help us. U.S. has restricted some exports crucial to Japan—ie. soybeans.

Q. How will the recent U.S. export control Program on soybeans and other farm products affect Japan?

A. 90% of soybeans consumed in Japan are imported from U.S. Recent U.S. restriction's have shocked government of Japan. Our controls will strengthen agricultural protectionism in Japan and delay decontrol of other import quotas.

Q. How did the U.S.-Japan trade imbalance develop?

A. For 20 years U.S. shipped more to Japan each year than it purchased.. In 19-65 this relationship was reversed In the last five years the deficits have increased,

Q. Is it likely that this deficit will continue to rise?

A. No there will be a sharp reduction in the trade deficit for 1973, It is estimated at $1.5-2 billion due to soaring; commodity prices and the effects of two currency realignments.

Q. It is said that while Japanese exporters enjoy the benefit of open markets in the U.S., the Japanese place severe restrictions on imports into their own country. Is this so? A. Restrictions remain on 32 items 2/3 are agricultural. Japan's level of import compares favorably with that of other industrial nations.. They voluntarily restrict steel and textiles. The number of items from Japan that we restrict are more than 100% A widely and wrongly held concept is that the U.S. is the "world’s most open market". According to State Dept. data, 21% of industrial imports from all countries have scow restrictions in U.S. For Japan the figure is 8I s for EEC, 4,3%, For Canada it is 0.4%. Japan last year also put under "voluntary" control for one year cars, trucks, motorcycles, bikes, cameras, phonos tape recorders, and other items.

Q. If Japan abolished all its remaining import restrictions, would it make a significant difference in the U.S.-Japan trade balance?

A. No, Of the remaining 32 quota items, 24 are agricultural. It is estimated that removal of all quotas on agricultural products would increase total Japanese imports from the world by only $46o million a year, with most of the increase Coming from non-U,S. sources,

Q. Why have U, S. exports to Japan lagged. behind U.S. imports from Japan?

A. 1. lack of price competitiveness 2. lack of interest, 3. Japanese import restrictions, 4. U.S. producers are too busy in the American market, 5. Persistent U.S. inflation which has reduced some of the price competitiveness of U.S. products in Japan.

Q. A frequent complaint is that the Japanese distribution system is un complicated, and that imported goods must be channeled through a large number of wholesalers and distributors to reach the consumer or Is this so?

A. Distribution in Japan is complex. is ineffective and obsolescent. The government is trying to modernize the system, but it may take a generation. The U.S. must carefully study the system, the market potential, and alternative marketing strategies.

Q. How do Japan’s tariffs compare with U.S. tariffs?

A. The Kennedy Round tariff cuts wore completed :in Japan in. April 1971, After the completion of the multilaterally agreed upon cuts, Japan unilaterally reduced. tariff rates in April 1971 on 124 items, in April 1973 on 238 items, in November 1972 on 1,865 items, and April 1973 on 102 items. The Japanese Ministry of Finance estimates the current level of Japanese tariffs on manufactured goods at 8.4%, compared to 8.8% for U.S. and 8.2% for EEC.

Q. It is often stated that Japan maintains a number of non-tariff trade barriers (NTBs), in addition to import quotas, which restrict its imports and subsidize its exports, Is this true?

A All countries maintain a certain number of NTBs. Since 1969 Japan has removed or modified many of these claimed barriers. For example 1. the automatic import quota (AIQ) system was discontinued in Feb. 1972 2. preferential financing for exports was abolished in March 1972. 3., the commodity tax on large sized passenger cars was reduced from 30-40%, to 20'% in April 1972. The U.S. has not modified or removed any from the list,

Q. It is frequently argued that administrative guidance by the Japanese government raises formidable barriers for foreign exporters and investors. How much truth is there in this?

A. The business community and the various government depts. have been in close communication with each other since industrialization in Japans resulting in considerable initiative and independence, They consult each other often. American businessmen abject to such "administrative guidance". These complaints, however? have often proven to be more imagined than real.

Q. Is it true that Japan buys chiefly raw materials and agricultural goods from the U.S. with only a minimum of manufactured goods?

A. Japan imports a relatively high share of agricultural products and raw materials. These are in great demand by Japanese industry, whose domestic -sources of supply are meager, Japan's demand for manufactured goods from the U.S. is steadily increasing. There is also a growing and as yet underexploited market for American consumer goods in Japan.

Q. Aren't there substantial restrictions on foreign investment in Japan?

A. Controls on foreign investment in Japan have been progressively liberalized over the past six years. The latest such measure, effective May 1, 1973, all but eliminates such restrictions. There are only rite categories for which no date has yet been set for the elimination of controls--agriculture, forestry & fisheries, petroleum refining, leather? and mining.

Q. Is it true that by ignoring pollution control Japanese industry is able to export at cheaper prices?

A. The environmental problem in Japan is very serious. The government has adopted tough antipollution measures forcing companies to expend large sums for antipollution and compensation.

Q. Can Japan's exports to the U.S. continue to grow at the same pace as in the past decade?

A. Growing labor shortages and wage increases outstripping productivity increases are continuing to push up Japanese costs,. resulting in a slowdown of exports. Foreign pressures for voluntary or compulsory restrictions are not likely to diminish. The Trade Reform Act of 1973, if passed in its present form, will serve as a powerful potential weapon for export restraint.

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