Remarks by William C. Duncan
General Director, Washington Office
Japan Automobile Manufacturers Association

Good Morning
I have been asked to say a few words this morning regarding opportunities and relationships in U.S.-Japan automotive trade. Given that the Governments of Japan and the United States have spent over three decades discussing this subject I am not sure I can do it justice in 10 to 15 minutes. However, I would like to make just a few brief points and expand as I have time:

First
The U.S. Government in the President’s April 12th report has recognized the efforts and achievements of the Japanese vehicle industry. The report indicates that "a solid foundation of growth has been put in place on which the U.S. auto parts industry can build a closer relationship with, and increasing sales to their Japanese customers."

Secondly
While the current level of activity clearly demonstrates that relationships between the automotive industries of the U.S. and Japan are strong and enduring, I would caution against judging these relationships in terms of simplistic numerical measurements and arbitrary expectations. It may be unrealistic to expect production and purchasing numbers to show the same steady geometric rates of increase as we have seen in the developmental years. Certainly, as these relationships mature production and purchasing will be more vulnerable to fluctuations in the business cycle, and other market factors.

Thirdly
It is important to keep in mind that these relationships with U.S. suppliers were not forged overnight or for that matter in the last six months. They have been a result of at least a decade and a half of patient and determined effort on the part of both Americans and Japanese at the industry, and even more important, at the company level. This has been and remains a market-oriented development driven by the pursuit of economic opportunity in which customer requirements are paramount be they those of the vehicle manufacturer or the vehicle consumer.

Fourthly
The Governments of both the U.S. and Japan have played a role in encouraging this industry-to-industry process through education as well as by identifying opportunities and encouraging both sides to take advantage of them. This also continues. And I trust we have moved well beyond the tensions of last June.

Finally
I would like to point out that the recently concluded Framework Agreement was not a negotiation over unfair trade barriers. None of the matters discussed in the Framework were violations of international trade law and in most, if not all cases, were reflective of practices in other countries. Rather the Japanese Government and industry entered the Framework with a solid history of identifying, creating, and pursuing opportunities with overseas suppliers. They viewed and continue to view the agreement as a Framework for opportunity to increase mutual relationships and business and not as a set of numerical measurements or specific expectations. Some have put expectations on the agreement but that is not what was agreed to. The criteria specifically excluded numerical targets. Where the process leads is not a matter of "results-oriented" expectations but rather will depend on economics and continued competition and cooperation within an increasingly global automotive market place. JAMA and its member companies are aggressively playing their part in this process. I would like to illustrate these points with a little history and a couple of charts.

First, the history
In 1980 the Japanese manufacturers sold 2.4 million cars and trucks in the U.S. market, all of them imported. Japan’s market share which had been about 11 percent in 1978 had jumped to 22 percent largely as a result of the huge demand for high quality small cars and trucks resulting from the oil crisis of 1979. The slogan directed at the Japanese at that time was simple and direct: "invest where your market is."

In response the Carter Administration in May of 1980 signed an agreement with Japan, named the Yasukawa-Askew, agreement that committed the Japanese government to encourage "economically viable" investment in the U.S. by Japan’s auto and auto parts companies.

Clearly the intent of this agreement has been fulfilled. Since then Japanese vehicle manufacturers have invested over 12 billion dollars in plant, equipment, R&D facilities and design centers. These facilities currently employ some 38,000 Americans. Japanese name brand vehicles still take about 22 percent of the U.S. vehicle market; yet, import share has fallen below the 1978 level. In 1995 import share of Japanese produced vehicles was 9.2 percent. Through April of this year import share of Japanese vehicles was only 7.2 percent. Import sales fell 17 percent last year and 20 percent so far this year.

The 1986/87 Moss Talks
As this process of localization began to take place in the mid 1980s and as the scale of production in the transplants increased, U.S. auto parts companies showed greater interest in selling to Japanese manufacturers. This led to the Market Oriented Sector Specific or (MOSS) Talks, which began in 1986 and ended in August of 1987. The focus here was on the ownership relationships between Japanese manufacturers and their suppliers or the so-called "Keiretsu" relationships. The MOSS report concluded that "there is no evidence given the severe competition among parts suppliers that "affiliated suppliers" are being accorded a special position over other suppliers by their parent automaker." This was later reaffirmed in a 1990 report published by the U.S. Motor & Equipment Manufacturers Association (MEMA). Subsequent investigations by both the International Trade Commission and the Federal Trade Commission into the so-called Keiretsu relationships found no practices that represented unfair trade barriers to U.S. auto parts sales or anti-trust practice.

Throughout this period JAMA had been working with APAA, MEMA, members of Congress, the Department of Commerce and others to promote relationships with U.S. suppliers. Shortly after the conclusion of the MOSS talks JAMA and MEMA, I might add at the initiative of Bill Raftery, began seeking ways to develop business between the Japanese manufacturers and U.S. suppliers at the industry level. This led to the JAMA/MEMA liaison committee and the "One-on-One Conference" among other activities. It was the success, not the failure, of these private sector initiatives that led the Bush Administration to reject trade action under section 301 of U.S. trade law and join with the Government of Japan in the Market Oriented Cooperation Plan in June 1990. The objective was to encourage and build on this industry-to-industry and company-to-company inter-action. It was on the basis of these accomplishments that the Japanese companies in January 1992 were able to individually and voluntarily estimate their 1994 fiscal year purchases. When totalled this came to the now famous 19 million dollar number.

Now for the charts.

First Chart

1. Across the bottom is the start up of production.
2. You can see correlating with that the increase in production and the decline in exports starting about 1986.
3. You can also see that domestic production was not affected by the 1991 recession. however, if you add both imports and domestic production you will see a decline of about 4 to 6 percent.

Second Chart

1. This chart is the purchasing of U.S. parts by Jama members during the same period. you will note the steady increase correlated with domestic production. note: 1966 moss talks/ 1987 beginning of Jama/mema relationship/ 1989 the mocp/ 1992 the announcement of 19 billion/ 1993 the beginning of the framework and 1995 the agreement.

It should be clear from this chart that steady gains were made in the relationship and business development between U.S. suppliers and Japanese vehicle manufacturers over the decade. During this period the number of U.S. suppliers to Japanese industry grew from under 300 to over 1200 today. This is indicative of the solid foundation I referred to earlier.

The important point here, however, is not the numbers but the process by which those relationships have developed, i.e., the open and honest exchange of information on corporate, industry practices, and market practices on both sides of the Pacific. We have built, as the President’s report has recognized, a strong foundation. Structural change has taken place within the industry which has required adjustment; it has also brought opportunities. It is up to both industries, now as they have in the past, to take advantage of those opportunities. Although come to think of it we are very rapidly getting to the point where we are not talking about the relationships between two industries, the Japanese and the American, but rather relationships within one global industry and between global manufacturers and global suppliers.

Thank you very much.