Date: Tue, 20 Jun 95 14:14:30 JST X-Sender: farber@136.187.64.5 Mime-Version: 1.0 From: farber@cis.upenn.edu (Dave Farber) Subject: US negotiating position on autos Precedence: list To: interesting-people@eff.org (interesting-people mailing list) X-Proccessed-By: mail2list Status: Date: Mon, 19 Jun 1995 23:14:52 -0400 (EDT) From: Abigail Friedman Several people have asked me what, specifically, the US is asking for on the auto front. Thisquestion is understandable, given the level of rhetoric and the MITI disinformation campaign. Probalby the best, concise explanation is the one that Ron Bevaqua alluded to yesterday -- the piece that ran in the Japan Times and drafted by the US embassy econ team. (By the way, the piece was drafted by the Embassy, but the substance of what we are asking for is not an Embassy position but a US government position.) SO, here it goes: ENDING THE IMPASSE ON AUTOS Japanese government accounts of the U.S. negotiating position on autos are enough to frighten any Japanese businessman doing business in the U.S. and to anger any Japanese citizen who is concerned about "managed trade" and resents foreign pressure. The problem is, these accounts do not square with our real position. SHAKEN SYSTEM Take our position on the shaken system, for example. We are not asking for an elimination of the shaken system. But we do want to be sure that it operates in the interest of Japan's consumers and competitive foreign parts makers. Our proposal would make a clean break between the people who repair your car and the people who inspect it. As it is now, the Japanese consumer is periodically required to drop his car into a bureaucratic black hole. He has no idea in advance how much he will have to pay to get it out. The garage acts as judge and jury when it comes to which auto repairs are required. Our proposal is to give the consumer a choice about where repair work is to be done if the inspection uncovers a mechanical problem. That way the consumer can get estimates from a variety of garages, and then decide for himself who will do the repair. This would encourage the garages to be as cost efficient as possible, opening business opportunities for foreign companies that are competitive not only in terms of quality but also price. The Japanese negotiators tell us that such a change would seriously undermine safety in Japan. But would it really? The United States is a world leader in auto safety. In terms of vehicle miles traveled, American highways are safer than Japanese highways. If a problem is found in a car, it is promptly recalled and repaired. The U.S. Government decision to recall 8.4 million vehicles with seat belts which were found to have a problem underscores the lengths to which we are prepared to go to protect our citizens on the road. Moreover, most states have their own inspection requirements designed to keep unsafe vehicles off the road and protect the environment from excessive auto emissions. We would never ask the Government of Japan to make changes in its system which would jeopardize safety. Frankly, we fail to understand how our position on the shaken system could be construed to do that. The Japanese negotiators also tell us that separating maintenance from repair would undermine environmental quality. This is another misperception. Our proposal does not do away with inspections designed to protect the environment. It simply separates that inspection from the person who actually conducts the repair. DEALERSHIPS On the question of access to dealerships, we have offered a pragmatic, non-intrusive way of getting at the real problem. It is understandable that Japanese auto dealers feel constrained from carrying lines of cars other than the ones offered by their exclusive manufacturer. They are legally free to offer other makes, and each of the manufacturers has stated publicly that they may do so. But these concerns linger, and for valid reasons. We are asking that the JFTC become more vigilant in enforcement of the anti-monopoly law and that companies take positive steps to reassure their dealers that they are free to enter into franchise arrangements with foreign companies. VOLUNTARY PLANS Our request on voluntary plans has also been misconstrued. We are not asking for numerical targets: what we want is evidence that companies are taking steps to localize their operations abroad and internationalize their operations at home. In solving the auto problem, we believe that both the government and the private companies have a role to play. The voluntary plans represent for us a commitment by the companies to address the problem of keiretsu ties between the makers and their suppliers. These plans are voluntary and involve no commitment by the GOJ. Under the Framework agreement, both governments explicitly agreed to address sales of auto parts to the Japanese manufacturers and through their transplants. Therefore, there is no disagreement between our governments that this issue needs a solution. Voluntary plans have a long and successful history. Japanese auto companies have issued voluntary plans in 1990, 1992, and 1994. In fact, in 1992, it was MITI's idea to have the companies issue voluntary plans, an idea which we gladly agreed to. We still fail to understand why an idea which has worked and which MITI championed in 1992 is so roundly denounced by the same ministry just three short years later. However, if voluntary plans as done in the past cannot be extended or enhanced, we have said that there are other ways of reaching the same goal. For example, the goal of reducing keiretsu and other collusive business practices in the automobile sector could be based on principles such as increased automobile production in the U.S., increased reexport of U.S. built autos to Japan and other markets, increased purchases or production of key components such as engines and drive trains in the U.S., increased local content for automobiles produced in the U.S. and increased foreign content for automobiles produced in Japan. Based on these principles, we pulled together public statements by several Japanese auto companies which described their plans to further localize operations in the United States. When we showed them informally to GOJ officials as an example of an alternative approach, they flatly rejected them. There were largely restatements of what individual companies had already announced publicly regarding their future plans in the U.S. We find it a particularly puzzling position for the Government of Japan to be in: forbidding Japanese companies from issuing public statements which they had already made regarding their plans in the U.S. market. We understand that the Japanese companies and the Government of Japan share the fear that the U.S. Government will turn a voluntary undertaking into a firm commitment. Ambassador Kantor addressed this concern directly at Vancouver, where he proposed that the Governments of the United States and Japan issue a joint statement welcoming the company plans, while making it clear that they would not be treated as commitments but rather as business forecasts. By the way, the Japanese companies would not be the only ones called on to make voluntary plans. The Big three stood ready to make public statements regarding their future intentions for the Japanese market. BREAKING THE IMPASSE The dealerships issue is one which it appears within the power of the Government of Japan to meet our requirements. Regarding the voluntary plans, the companies would be able to settle the issue if the Government of Japan would step aside and let them. It is only in the area of regulation of the Shaken system in which it seems that the Government of Japan has real problems in making changes to the cozy relationships which clearly benefit domestic companies and offer a comfortable situation for the bureaucracy involved. Deregulation of the Shaken system appears to be the most difficult barrier for the Government of Japan to overcome to break the impasse on autos. We believe that our ideas on changing the shaken system, on creating greater access to dealerships, and our ideas about voluntary approaches are reasonable and moderate. Without all three elements, we do not see how we can reach an accord on autos and auto parts which achieves the Framework goal of substantially increasing access and sales of competitive foreign goods and services through market-opening measures. With them, we have the elements of an agreement which would be good for the United States and its companies, good for Japan and its companies, and good for a liberal, free world trading system.