Opening Auto Parts Market Would Show Japan's Goodwill
AFTER a furious ninth inning, talks between the United States and Japan about trade in automobiles and auto parts have entered extra innings in a contest that threatens to break the record for futility.
Opening the Japanese vehicle and parts market is essential for reducing bilateral tensions, but Tokyo insists that the most intractable part of the trade deficit is beyond its government influence. Some critics of US policy concur, adding that Washington has no business asking Japan's bureaucrats to interfere with the private sector, especially given Japan's recent pro-reform conversion.
Rather than retaliate against all Japanese auto and parts makers, an action warranted by the web of egregious trade barriers in each sector, the administration astutely chose to provide the Japanese government with a chance to enhance its reformist credentials.
By citing the Japanese auto parts aftermarket for investigation under Section 301, Washington has lobbed a fat one down the middle. If Japan's politicians and bureaucrats are really serious about deregulating their economy, they should not hesitate to take a big cut at the regulations of the Ministry of Transportation (MOT) that block sales of imports.
Japan's MOT-controlled auto inspection system, or shaken, requires car owners to submit their vehicles for inspection three years after purchase and then every other year thereafter. Therefore, shaken encourages repair followed by inspection, not inspection and then repair.
In practice, shaken ensures that Japanese companies will dominate the domestic market for replacement parts. In the US, mechanics select from a variety of domestic and foreign-produced parts. But in Japan, mechanics can only use parts from an approved ``critical parts'' list.
Unlisted parts cannot be installed, period. Worse, the list is not publicly available, nor are the requirements for getting foreign parts on the list. Hence, foreign parts do not have much of a chance; as a result, their market share in Japan is only 2.6 percent, as compared with nearly 22 percent in the European Union.
Shaken reinforces the market power of Japanese manufacturers in other ways as well. In a captive market, Japanese producers can gouge Japanese consumers and use the excess profits to subsidize sales in other parts of the world. Because approved foreign parts are so rare, Japanese distributors have no incentive to buck the system and procure foreign-made parts. This makes them even more reliant on their suppliers.
Independent distributors and retailers, who would be more willing to put price over company loyalty, find it very hard to get MOT certification to perform shaken inspections. Many Japanese consumers will not frequent businesses that lack certification. After all, would you have an unlicensed mechanic work on your car?
Japan uses safety to justify shaken. After the recent talks, Japanese Prime Minister Tomiichi Murayama told reporters that US negotiators had demanded that Japan relax its inspection system but ``as we cannot relax safety, we were not able to yield.'' @bodytextdrop =
The Japanese government has frequently played the safety card to protect Japanese industries. The length of Japanese intestines, the consistency of Japanese snow, and the composition of Japanese baseballs are just a few of the questionable excuses used in the past to bar imports. The current argument for maintaining the ``critical parts'' list is no less specious.
Despite this, pressure to liberalize shaken is building within Japan as well. Many Japanese consumers believe that shaken is a rip-off. The system not only protects the huge profit margins of Japanese partsmakers, it also prevents Japanese consumers from taking advantage of the yen's current strength. Voices from Japanese industry are also calling for limited reform. Masaru Hayami, head of Keizai Doyukai, Japan's second-largest business federation, and Tatsuro Toyoda, president of Toyota, have acknowledged that the system could be fixed.
The Section 301 action should move the reform process along, but more needs to be done. US negotiators should ask the Japanese government to publish the parts list and to clarify procedures for approving replacement parts. At the same time, US partsmakers should mount a public-relations campaign alerting Japanese consumers to price disparities - $600 to change a set of front shock absorbers in Japan versus $250 in the US - and encourage them to promote change from below.
The administration should consider these and other creative tools. If all else fails, the US can either apply sanctions under Section 301, file a case with the World Trade Organization, or both. By claiming it lacks control over autos and parts trade, Tokyo set itself up for a Section 301 filing in an area where such a move can clearly make a difference. But for any government serious about deregulation, the parts after-market is the equivalent of a hanging curve. The Japanese government should swing for the fences. The Opinion/Essay Page welcomes manuscripts. Authors of articles we accept will be notified by telephone. Authors of articles not accepted will be notified by postcard. Send manuscripts by mail to Opinions/Essays, One Norway Street, Boston, MA 02115, by fax to 617 -450-2317, or by Internet E-mail to OPED@RACHEL.CSPS.COM.