Japanese barriers must be broken down

by Henson Moore

VIEWPOINT

The USA is the largest producer of wood and paper products in the world. Our industry accounts for 8% of US manufacturing output and we employ 1.6 million Americans. Export sales are critical to the future growth and, ultimately, the survival of our industry. Access to the Japanese market is a critical part of this equation.
After the USA, Japan ranks as the second largest market for paper products and the number one export destination for solid wood products. Japan is a high cost producer of both wood and paper products. The competitive price and high quality of US forest products should command US companies a strong position in the Japanese market. But this is not the case.
The primary hurdle that excludes paper products from the $50 billion Japanese market is a pervasive web of anti-competitive business practices which ensure that the bulk of Japanese sales go to domestic suppliers. Anti-competitive behavior at all levels of the production and distribution chain have kept imports from all sources to just 4.2% of Japanese paper consumption - the lowest import penetration ratio in the world.
From 1992 to 1997, the USA and Japan had an agreement to improve US access to the Japanese paper market. This agreement failed. US market share actually declined from 1.9% in 1992 to 1.8% in 1997, when Japan unilaterally decided it would not be renewed. The results are now in for 1997, the first year without an agreement. Japanese paper production is up by 3.3%, imports from all sources have declined by 15% and exports have increased by 35%.

Japan's role
The recent financial crisis in Asia lends new urgency to our effort to open the Japanese market. The threat that continuing Japanese protectionism may drag the region deeper into recession, means that tolerance of further stalling may be costly to our own economy as well as those Asian countries already deeply involved.
On 20 June, G-7 deputy finance ministers and their regional counterparts held an emergency meeting in Tokyo. There they stated, "It is of vital importance to Japan, to the recovery of Asia...and to the entire world economy, that Japan restores its banking system to health, achieves domestic demand-led growth and opens and deregulates its markets." These three elements also made up Prime Minister Hashimoto's pledge to President Clinton in the wake of US intervention to support the yen. So far, Japan has not taken credible action on any of those.
The immediate vehicle for Japan to take on an appropriate and responsible role in boosting Asian economic recovery is the trade liberalization initiative being negotiated in the Asia-Pacific Economic Corporation forum (APEC). The APEC initiative is critical to fully opening Japan and other Asian markets to US forest products. It represents our best, and perhaps only, opportunity in the foreseeable future to establish the kind of level playing field which will enable us to compete in Japan and other Asian markets once the current financial crisis is over.
Removing tariff and non-tariff barriers to trade will give an immediate boost to the Japanese economy by reducing costs to Japanese consumers. At the same time, the elimination of Japanese tariffs on forest products, in particular, would have the effect of increasing the export earnings potential of regional suppliers, such as Indonesia, Malaysia, Thailand and South Korea, which have been hardest hit by the crisis.
Without Japanese participation, the long-term economic benefit of APEC trade liberalization is sharply diminished and the credibility of the regional liberalization process as a whole is undermined. At the 22-23 June APEC Ministerial in Kuching, Malaysia, APEC trade ministers resoundingly endorsed trade liberalization. Faced with the region's deepening economic turmoil, all countries, except Japan, agreed that the crisis was not an excuse to stall further trade liberalization, but a compelling reason to move forward. Japan is seeking to exclude six of the nine proposed sectors from its market opening commitment - with forest products (and fish) at the top of the list.
The irony of this position is clear and potentially tragic. By continuing to protect non-competitive industries, Japan is refusing the IMF prescription being taken by weaker economies in the region. Continued adherence to the old protectionist Japanese model will certainly extend the longevity of its current recession, and virtually ensure that its economy will not be capable of acting as a regional locomotive any time soon.
The urgency of the situation in Asia will not allow us to wait until the Liberal Democratic Party (LDP) chooses a successor to Prime Minister Ryutaro Hashimoto, who resigned from office in mid-July. If the past is any guide, we can expect Hashimoto's successor to argue that, in his party's weakened political state, they cannot challenge the powerful economic interests arguing for continued protection.
There is no reason to concede this point, and very good reasons to press even harder for an immediate and firm commitment by Japan to open its market. Committing Japan to eliminate its tariffs on all sectors covered by the APEC initiative would be the surest, clearest signal that the new leadership has both the vision and the fortitude to lead Japan and the region out of its current difficulties.

Henson Moore is president and CEO of the American Forest & Paper Association. This article is based on a speech given on 14 July to the US Senate Committee on Finance Hearings on Japan's Role in the International Trading System: Prospects for Market Reform