JAPAN'S EXAMPLE WELL-FOLLOWED

Exports from Asia entering the United States have been dominated for so long by Japanese industry that Americans have come to think of the trade as a one- nation show. Yet early this month Japan's highly trusted Nomura Research Institute forecast that the Asian newly industrialized countries - specifically South Korea, Taiwan, Hong Kong and Singapore - are rapidly catching up, largely due to the sharp appreciation (60 percent since September 1985) of the yen against the U.S. dollar.

Other Japanese research organizations agree. This is particularly true in the fields of steel, petrochemicals, textiles, shipbuilding and repair, and electronics, all sectors that directly threaten Japan's well-known dependence upon exports.The hard-working Asian newly industrialized countries are expected to make significant progress in displacing Japanese exports at an exchange rate of 150 yen to the dollar, a factor that will substantially erode Japan's price competitiveness in the U.S. and other Western markets.

Gaps in production costs between Japanese producers and manufacturers within the newly industrialized countries also are widening, making Japanese goods from 20 percent to 40 percent more expensive in many sectors at an exchange rate of 150 yen to the dollar.

Anticipating this, Japanese manufacturers, already badly bruised by the stronger yen, are moving to establish global networks of factories to reduce the damage from the exchange situation. Although this has been under way for some time, obviously it can't be accomplished overnight.

"There's no question," grumbles a high-level official of Japan's Ministry of International Trade and Industry, "the drastic appreciation of the yen was jammed down our throats by the G-5 ministers and we more or less accepted it because we were assured that the strengthening of our currency would be gradual. We needed time for our industries to make the necessary adjustments."

Ministry authorities are pressing the Nakasone administration to waste no time in urging the United States to hold the feet of the newly industrialized countries to the same exchange rate fire that prompted the yen's painful appreciation. They particularly resent the fact that the dollar-pegged currencies of South Korea and Taiwan have hardly moved against the U.S. monetary unit over the past two years, while dropping sharply against the yen.

Ironically, many of the very things that the Asian Newly industrialized countries have long coveted in the West - scientific methods, modern

machinery, advanced technology and easily available financing - are being supplied by Japan. These same newly industrialized countries obviously have the prime objective of building national strength through modernization - and massive exports: Japan's highly successful postwar formula.

As might have been expected, the Asian newly industrialized countries are cutting heavily into Japan's export and domestic markets at the same time, becoming a major factor in Tokyo's deepening recession. Along with such obvious items as much lower labor costs (one-sixth to one-tenth of those in Japan), in many cases these countries enjoy valuable competitive advantages in industrial materials, energy, pollution controls and taxes.

This is beginning to place tremendous strains on Japan's economy and, like they say, it will get worse. Japanese industry has been warned by the country's economic analysts to "tough it out" by shifting to more sophisticated, higher value-added products. But such operations seldom require labor intensity; the result could be a loss of 4,000,000 manufacturing jobs for Japan to the newly industrialized countries between now and the turn of this century.

Alarmed by the naked display of rising industrial power of the Asian newly industrialized countries, Japanese business leaders are stressing the need to count more on telecommunications, advanced computers, software, biotechnology and other high-tech growth areas where the nation can continue to enjoy competitive advantages.

Some Japanese economic analysts, acknowledging that their country will have to adopt totally new industrial policies, are pleading that now is the time to get on with it. Comments one highly respected analyst: "The Asian newly industrialized countries will very soon be a major force; it would be very foolish to ignore them much longer."

Much to the chagrin of the Japanese, production workers of these countries, like their island cousins, are willing to work long hours and to sacrifice, postponing the good life for the sake of their companies and their nations.

Although today's Japanese production line worker earns (including twice yearly bonuses and other benefits) close to the hourly income of that of his counterpart in U.S. industry, the average pay for employees in the Asian newly industrialized countries ranges from $1.40 to$1.80 an hour.

The Japanese complain, with justification, of course, that wages are half Japan's level in Singapore, one-third in Taiwan and Hong Kong and a quarter in South Korea. However, it is obvious that this cheap labor and the weak currencies of the Asian newly industrialized countries are the major incentives for steadily rising Japanese investments in their economies.

Junko Kawaguchi, director of the international business affairs division of the Industrial Policy Bureau of the Ministry of International Trade and Industry, predicts that direct investments by Japanese manufacturing corporations in these countries will continue to expand because of the yen's appreciation. She says she can't see anything ahead that would change this.

In contrast, however, not all these yen exchange-rate developments have worked in favor of the four "little tigers" of Asia due to the fact that most of the high-tech machinery and components imported by these newly industrialized countries come from Japan. Appreciation of the yen naturally has made these imports considerably more expensive.

Nonetheless, it is apparent that these countries, thanks to rising exports (largely at Japan's expense), will enjoy a comparatively vigorous economic growth this year, according to the Japanese semigovernmental Institute of Developing Economies. The organization predicts that Singapore's economy will expand by an estimated 1.4 percent after allowing for inflation, South Korea's economy by 7.2 percent, Taiwan's by 7.9 percent and Hong Kong's by 3.4 percent or more.

Still, only a few weeks ago Masao Fujioka, Asian Development Bank president, expressed the view that the region's newly industrialized countries are not likely to maintain sustained high levels of economic growth throughout the next decade. His pessimistic view of the future appears to be based upon the belief that the newly industrialized countries ultimately will fail to mobilize sufficient domestic resources through savings - rather than by increasing external financial burdens.

These countries will need much more capital flow, especially from the private sector, and more private initiatives, Mr. Fujioka points out. But he gives these countries high marks so far for their performances. His critical remarks, it would seem, also stem from the feeling that sooner or later the United States will succeed in forcing substantial appreciation of the currencies of these newly industrialized countries.

This rationale is logical enough. The question is whether the conservative Reagan administration and the fractious Democratic leadership in Congress will cotton to this brand of reasoning, given the strong political support in some Washington circles for both Taiwan and South Korea.

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