Special Report: Does Japan Play Fair?

By Edwin M. Reingold

The root of the problem may be a failure to communicate. Washington's message of rising frustration, and even anger, over Japan's trade practices is being received in Tokyo with chagrin and incredulity. The reason for the perplexed reaction is that the flurry of Japan bashing in the U.S. comes at a time when the Japanese feel they have made historic changes for the better in their restrictive and protectionist policies. Japanese politicians and business leaders insist that the old ways have been replaced by an expanding spirit of openness and global neighborliness. Kokusai-ka, the Japanese term for internationalization, has become a watchword at the Ministry of International Trade and Industry, which led Japan's industrialization and trade drives and once was instrumental in blocking foreign goods from Japan.

While most Americans believe Japan's trading manners are still dangerously one-sided, the Japanese offer some impressive evidence that they are trying to play fair. Japan has the lowest average tariffs of any developed country, will rank as the world's largest foreign-aid donor in fiscal 1989, and is host to hundreds of U.S. firms that have captured a profitable share of its market. In some businesses -- fast food, soft drinks, razors, cancer insurance and disposable diapers -- American companies control the largest shares in the Japanese marketplace. IBM, the biggest U.S. business in Japan, posted sales of $9.3 billion there last year, up 12% over fiscal 1987. Says Takeshi Isayama, director of the Americas division of MITI: "The U.S. Government tends to listen to those who fail in Japan rather than all those who succeed."

Japan has moved a long way from its closed-door past. For much of the postwar era, Japanese politicians built on their resource-poor nation's sense of vulnerability as a rationalization for outright protectionism and discrimination against foreign goods. When the economy was still a fragile blossom sprouting in a war-devastated landscape, that was tolerated by Western countries. At the same time, Japan developed a socioeconomic system that guaranteed full employment -- there was neither the money nor the will to finance a public dole -- by means that created a stable business climate but were foreign to Western free-market ideas. The Japanese way of doing things included subsidies for employers, a complicated system for distributing goods, and government-enforced product standards that foreigners found impossible to meet.

By the mid-1980s, however, that one-way trading mentality had fostered such huge financial imbalances with the U.S. and other countries that Washington pressured Tokyo into adopting a blueprint for economic change. The plan, under which Japan pledged to stimulate domestic spending so that exports would no longer lead the economy, has achieved dramatic results. During 1988, imports rose 33.4% over the previous year, to $187.4 billion. Japan increased imports of auto parts, electronic products, medical equipment and pharmaceuticals. Purchases of foreign-built cars last year rose 37.1% over 1987, to $3.1 billion. Toyota's domestic sales went up 13%, while its exports grew a mere 2.5%.

The Japanese are dismayed that politicians in Washington and many U.S. businessmen brand Japan as "protectionist" whenever some products fail to sell in Japan, even though the market is opening up. U.S. sales of telecommunications equipment in Japan, for example, reached $263.3 million last year, up from $106 million in 1985. Yet the U.S. is basing its current trade complaints at least partly on the problems Motorola has faced in getting frequency clearance in Tokyo for the cellular telephones it is selling in Japan; Tokyo considers the grievance too small to justify the hubbub surrounding it. Observes Peter Tasker, British author of The Japanese: "Japan is not alone in some of these disputes. Try selling telecommunications to the French."

Some pundits who believe Japan is failing to make quick enough progress suggest that the country will need far more pressure from the outside. James Fallows, author of More Like Us: Making America Great Again, contends that the Japanese economy is chronically biased in favor of corporate profits and investment abroad at the expense of the Japanese consumer's living standard. Example: the Japanese have only recently begun to do away with mandatory Saturday office hours. Dutch journalist Karel van Wolferen, in his recently published book The Enigma of Japanese Power, argues similarly that Japan is run by a near conspiracy of Big Business and bureaucracy, whose only concern is to expand global market share.

Tokyo lacks the leadership to launch the kind of overnight reforms that would convince U.S. politicians that they were being heard. A Japanese Prime Minister does not carry the clout of an American President or a British Prime Minister; the ability to decree change is limited. The Recruit bribery scandal has virtually paralyzed the lame-duck administration of Prime Minister Noboru Takeshita at a critical moment in U.S.-Japan relations. Says an official in the Foreign Ministry: "We have a first-rate economy, a second-rate standard of living and third-rate politicians." But the Japanese are beginning to look for stronger leadership. Cultural anthropologist Masao Kunihiro says that during a recent lecture tour he found voters "increasingly becoming aware of international affairs"; eventually, he suggests, "they will choose more genuinely international minded politicians."

For all their recent progress, the Japanese could do more to open their market and reduce the stubborn trade gap with the U.S. While the government has cleared the way for more imports of U.S. beef and citrus products, bans on purchases of American rice are being retained. Says a Japanese diplomat, in specific reference to a U.S. barrier: "We'll do rice when the U.S. does sugar."

The Japanese point out, with some justification, that the trade deficit is as much the fault of America's bad habits as the result of Japan's economic policies. Says former Foreign Minister Saburo Okita: "The Americans should take a second look at themselves. Obviously they cannot go on with runaway spending forever." The U.S. borrowing-and-spending binge, which involves both Government and consumers, has boosted the tide of imports to the U.S. The Japanese also complain that the U.S. has leadership problems of its own. Washington has been sending out conflicting signals because trade policy is shaped and shared by several Government departments -- including State, Defense and Commerce -- that are often at odds. The dispute about whether to scrap the agreement for joint U.S.-Japan production of the FSX jet fighter, in which the Defense and Commerce departments were squaring off before President Bush decided to go through with the deal, annoyed the Japanese because their trustworthiness was so openly debated.

A fundamental problem in U.S.-Japanese relations is that the two countries have different concepts of how an economy should work. Americans and Europeans continually tell Tokyo that they want "fair" trade, which at its simplest means equal access to the market. The notion carries moral overtones that do not necessarily jibe with the Japanese view of the world. Kyoto University history professor Yuji Aida recently wrote that "the American predisposition to view things in simplistic black-and-white terms is antithetical to our mind-set. Whereas the U.S. was founded by a people convinced of a single, revealed truth, Japan's long history has taught us that in the realm of human behavior there is no absolute right or wrong."

Then what is the correct path? Since the two economies have become closely interwoven through joint ventures, investment and trade, the health of the total relationship has become far more important than one-upmanship by either country. As Aida writes, "The leitmotiv of Japan is not saints and villains engaged in mortal combat, but morally complicated human beings living together, confronting and battling one another from time to time, but ultimately yielding, compromising and coexisting in harmony." If Japan can extend that philosophy to its economic partners, relationships will thrive. In fact, the talk of Japanese internationalism is more than sentimental optimism. Says author Tasker: "They may not create their own momentum for change. They have to be pushed, but when they move, they move." The U.S. ought to give Japan greater credit for movement, even as it keeps up the pressure for more.

With reporting by Barry Hillenbrand/Tokyo