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Commentary: Needed: A Whole New Way Of Confronting Japan


International Business: COMMENTARY

COMMENTARY: NEEDED: A WHOLE NEW WAY OF CONFRONTING JAPAN

With June 28 fast approaching, the U.S. and Japan appear headed for the worst trade collision in postwar history. On that date, the Clinton Administration has vowed to slap $5.9 billion in tariffs on Japanese luxury-car imports unless Japan throws open its doors to U.S. autos and auto parts. Unlike past standoffs, genuine compromise looks unlikely.

Fifty years after the end of World War II, ugly recriminations, if not an outright trade war, could ensue. "There won't be a deal largely because it has become such an emotional political issue on both sides," says Stephen Usher, director of research at Kleinwort Benson International Inc. in Tokyo.

What has brought these two allies to such an acrimonious impasse? Japan's intractable $60 billion trade surplus with the U.S., at least two-thirds auto-related, is the most proximate cause. But more important is a fundamental shift in how the two countries view each other. Younger generations of a more nationalistic bent are in charge in both Washington and Tokyo, and they are less inclined toward compromise than their elders.

REVISIONIST HISTORY. To understand the roots of this conflict, go back to August, 1989, when BUSINESS WEEK ran a cover story called "Rethinking Japan." In that story, this writer applied the term "revisionism" to a new Western analysis of Japan. I described the revisionists as deviating from orthodox thinking, which held that Japan was only marginally different from the West and would eventually "converge" toward an Anglo-Saxon model. The revisionists argued otherwise, saying that until the U.S. understood just how different Japan was, conventional trade negotiations would never work. Although critical of Japan, the revisionists weren't your typical bashers. They knew and cared a lot about the country.

Perhaps because it suddenly had a name, revisionism's influence spread quickly. Indeed, the joke in Washington is that revisionism now is orthodoxy. That's largely because of its embrace by the Clinton Administration. From former Council of Economic Advisers Chairman Laura D'Andrea Tyson on down, Clinton's economic team started with the premise that Japan manages its economy differently and espouses a different form of capitalism.

But the Clintonite tactics aren't in keeping with the original spirit of revisionism. Why? Because they appear driven by domestic political pressures rather than by any deep knowledge of Japan. If they understood the economics and politics of today's Japan, they would know that tariffs on luxury cars simply aren't going to achieve a dramatic opening of the Japanese market. Despite the undeniable pain Japanese carmakers will suffer, they can survive and adjust. "It will not be a death blow by any means," says Kleinwort's Usher. So in a sense, Washington has taken on the intellectual trappings of revisionism to threaten a one-shot trade action of a very conventional sort.

What some revisionists counsel instead of the tariff club is a subtler, broader approach: Deal with Japanese company officials in the U.S., selectively yank foreign trade-zone privileges, and push more promising trade cases such as Eastman Kodak Co.'s claim that Japan's film market is closed. The U.S. government must be more coordinated and more targeted. In short, the U.S. has to devise a long-term, systematic means of competing with Japan, rather than expecting the Japanese system to suddenly break. "Rather than negotiate, the U.S. should change the environment," says Chalmers Johnson, president of the Japan Policy Research Institute in California and so-called godfather of the revisionists.

Issuing ultimatums to Japan's imperious bureaucrats is a waste of time and even counterproductive. Indeed, several close observers of the auto talks say Japan's carmakers lean toward cutting a "voluntary" agreement with the U.S. to buy more American parts, but an increasingly militant Ministry of International Trade & Industry is vetoing any such deal.

It's this rise of a new breed of Japanese bureaucrat that's changing that nation's willingness to deal with the U.S. This is especially so at a time when Japanese politics is in disarray and bureaucrats call more of the shots. Senior bureaucratic posts are gradually being vacated by men who were cowed by America's World War II victory and beholden to its generous postwar treatment of Japan. Their posts are going to younger, outspoken nationalists, who

don't want to kowtow to the U.S.

Two impending promotions to key economic-relations posts have tongues wagging. Within the next few weeks, Kazuo Ogura, Japan's ambassador to Vietnam, will become deputy foreign minister for economic relations, and Eisuke Sakakibara, author of Beyond Capitalism, will move up to the position of director-general of the International Finance Bureau at the Ministry of Finance.

One senior U.S. official says Ogura's and Sakakibara's ascendance will result in a government that is "more contentious, more argumentative, less willing to look at Japan's own policies and own degree of market openness in a balanced way."

"BEGGING DIPLOMACY." Ogura, 57, and Sakakibara, 54, have unusual backgrounds as senior bureaucrats because they've written extensively and forthrightly under their own names. Ogura made waves with an article in 1991 that ridiculed America's demands for Japan's financial backing of the gulf war as "Begging Diplomacy." He went on to write: "As soon as it's said that Japan and the U.S. share common values, Americans expect Japanese are becoming American. They think Japanese will and must act like Americans. But Japanese don't see it that way."

Sakakibara's Beyond Capitalism in 1990 argued that special features of Japan's "noncapitalistic market economy" should be preserved. In this sense, Sakakibara acknowledges the revisionists' line that Japan's system is indeed different.

Uncharacteristic of Japanese officials, both men love debate. That may not be all bad for the U.S. "For the first time the Japanese will start talking turkey," says E. Barry Keehn, an expert on Japan's bureaucracy at Cambridge University. "They won't be shoving things under the carpet so much."

Ogura and Sakakibara echo this line. "I think it important that the decision-making process of diplomacy...should be as transparent as possible," Ogura tells BUSINESS WEEK. "It is regrettable if my reputation is partly due to my un-Japanese outspokenness." Adds Sakakibara, who earned a PhD in economics at the University of Michigan and later taught at Harvard: "I learned to become assertive and aggressive in the U.S." More Oguras and Sakakibaras are waiting in the wings.

These men take exception with outside observers who argue that Japan must "change" to more closely resemble other advanced economies. Those outsiders say Japan must do that because the world's economies are being drawn into closer contact. What's more, they look at pressures inside Japan. The Japanese people don't fully share in the nation's wealth, its financial system is on the ropes, and its political leadership is "pre-modern," in the words of one Japanese scholar. In these areas, Japan almost certainly will change, though slowly. "The Japanese change less quickly than just about anyone," says Frank Gibney, president of the Pacific Basin Institute in California.

DIFFERENT STROKES. But that doesn't mean Japan will completely converge with other systems. The Japanese have plenty to be proud of. Poverty barely exists. Income is more equally distributed than almost anywhere else in the world. The country still has huge pools of savings and massive trade surpluses. Many emerging economies are adopting Japan's developmental model. "We are different," says Yotaro Kobayashi, president of Fuji Xerox Co. "It's absolutely wrong to say we'll all eventually behave and think in the same way."

So until autos, the Kodak case, a mounting civil aviation dispute, and other issues get solved, the two new political forces in Washington and Tokyo mean relations could get even rockier. All of which suggests the need for an evolution of revisionism from mere analysis to the creation of new prescriptions to supplant tired, orthodox tactics.

What might those be? Making sure that U.S. Administrations include senior officials who understand Japan and its language, nurturing an institutional history of U.S.-Japan relations to avoid getting fooled, and becoming much smarter at selling the Japanese people on how they can benefit from U.S. demands. Commonsensical as these ideas may sound, no U.S. Administration has gotten serious about any of them. In so doing, revisionism could help set the stage for quiet, successful U.S. engagement with Japan, instead of pointless trade wars.

Neff is completing an 18-year career with BUSINESS WEEK and McGraw-Hill to become executive director of the American Chamber of Commerce of Japan.By Robert Neff


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