WASHINGTON AND TOKYO are famous for their 11th hour trade deals, and Wednesday's auto feud was a typical cliffhanger. The agreement, announced by President Clinton just 12 hours before scheduled sanctions, should open Japan to more foreign cars and car parts. That is all to the good. But the real winner here is the wider world: Any deal that averts a trade war between two economic superpowers must be counted a success.
During more than two years of negotiations, U.S. Trade Representative Mickey Kantor sought three things from the Japanese: substantial deregulation of the market for automobile replacement parts, which is valued at $100 billion annually and is now tightly tied to Japanese producers; more Japanese dealers who are willing to sell U.S. cars alongside Japanese models; and an agreement by Japan's auto companies to buy more auto parts for their own production plants.The United States, at least on the surface, made gains in all three areas. Japan, for example, has agreed to increase the number of dealers selling U.S. models by 200 next year and by 1,000 in five years. Today, only 7 percent of Japanese auto dealers also carry foreign cars. Mr. Kantor's deal, then, should help U.S. companies establish the kind of distribution networks they will need to become important players in the Japanese market.
Yet Chrysler Corp. earlier this week proved there are other ways of building a dealer operation in Japan. Chrysler, in fact, did it the old- fashioned way: It bought 118 retail auto outlets for $100 million. The new trade agreement, however, should make it easier for Chrysler to add to that total and meet its longer term goal of operating 500 dealerships by the end of the decade.
There is, of course, an irony in forcing Japanese dealers to carry more U.S. models - an irony Mr. Clinton didn't mention. In Europe, U.S. auto companies largely forbid their own dealers from selling other brands alongside U.S. models. U.S. auto companies, in effect, impose on their European operations precisely the kind of restrictions they have sought to tear down in Japan.
The United States also won pledges from Japanese firms to expand auto production in this country and to buy more U.S. parts. Japan's "transplant" auto factories already are major producers in this country, and they have agreed to boost auto production in the United States by 500,000 through 1998, a 25 percent increase.
Yet, Mr. Kantor may have gained little here. Toyota was already considering building a fourth auto plant in North America; the company also has announced
plans to boost production at its two plants in the United States. Honda, likewise, has said it may add capacity. Indeed, the strong yen makes it economically essential for Japanese companies to build more vehicles outside of Japan.
The same holds for acquiring the parts that go into those vehicles. Under the trade deal, Japanese auto companies will increases parts purchases by $9 billion over three years, a 50 percent increase over current levels. Yet Japanese companies would have needed more foreign parts in any case to keep their cars price competitive internationally.
Beyond the details, what matters most is that Washington and Tokyo avoided, if not a trade war, at least a major deterioration in their trading relations. Billions of dollars in U.S. auto sanctions might have made it harder for all companies to have sold their products, especially if the Japanese had retaliated against U.S. exports. Stock markets and the dollar both likely would have fallen had sanctions taken effect. Indeed, the dollar rose on news of the deal. Bargaining, then, always beats sanctions.
What's disturbing here is that America was so eager to bypass the World Trade Organization and force a deal on Japan without regard to the rules. A sound international trading system should be based on laws, not power. Washington would do better next time to live by the WTO rules it worked so hard to create.
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