Summary
The members of the Japan Automobile Manufacturers Association (JAMA) have, for over a decade, clearly demonstrated their commitment to invest in America, to produce vehicles in America, to employ American workers, and to purchase U.S.-made auto parts. This commitment to America, and its local communities continues with the same dedication that it has in the past.

Positive business developments are possible only in a climate of mutual trust and cooperation within the structure of market mechanisms. In contrast to this basic principle, the Administration’s approach demands that the Japanese auto makers announce plans to purchase a quantity of U.S.-built auto parts that meets U. S. expectations. The JAMA members have consistently opposed such discriminatory pressure and continue to remain firm in their respective positions to reject such purchasing quotas or other non-market, managed approaches to trade.

• As the Administration prepares to set in motion retaliatory mechanisms to force this issue, JAMA would like again to set out the reasons for its members’ positions. These are as follows:
• The JAMA member companies have dramatically increased their purchases of U.S. auto parts. This progress has been achieved through a decade of constructive cooperation and business development on a private, company-to-company basis. The effort by the Administration to set out purchase levels in advance only serves to undermine these private-sector initiatives.
• The "Framework" discussions are supposed to be a mutual effort to create increased sales opportunities, not a one-sided demand for "results." The "threat of retaliation" under Section 301 of U.S. trade law is inconsistent with this effort and was specifically precluded by the Japanese government as a basis for such discussions.
• Voluntary plans must be in fact voluntary. Demanding more or unilaterally turning these plans into "pledges" is equivalent to establishing "purchasing quotas."
• Demands for what in effect are purchasing quotas violate both free-market principles and international trade agreements.
• The proposition that a U.S. trade deficit in and of itself represents an unfair trade barrier by a trading partner is simply wrong and not a basis for trade policy.

I. Vehicle Exports to Japan And Parts Purchases Are Increasing; Purchasing Quotas Undermine This Progress
Trade between the U.S. and Japan in automotive products is increasing at a geometric rate. This includes exports to Japan of U.S. vehicles produced both by Japanese-owned and Big Three factories in the U.S., as well as purchases of U.S.-built parts by Japanese vehicle manufacturers and their affiliates. Meanwhile, production of vehicles by Japanese-owned plants in the U.S. has been expanding and imports of Japanese vehicles have been declining.

Specifically:

• Import car sales in Japan increased by 50 percent in 1994, including a 77 percent increase for Big Three models shipped from the United States.
• Imports now take 28 percent of Japan’s large car segment, the only market segment in which the Big Three choose to sell vehicles in Japan.
• In 1994 the import share of the Japanese passenger car market reached 8.1 percent.
• In Japan fiscal year 1993, Japanese vehicle producers purchased $15.5 billion of U.S.-built auto parts, an increase of six-fold since 1986. In the first half of fiscal year 1994 purchases reached $9.5 billion.

Today Japan stands as the largest importer of U.S.-produced vehicles and parts outside the intra-company exchange of vehicles and parts between Big Three affiliates within the North American Free Trade Area (NAFTA) - - U.S., Canada, and Mexico.

All this has been accomplished by more than a decade of cooperation and interaction between Japanese vehicle manufacturers, their U.S. competitors and U.S. suppliers.

During those years, JAMA and its members have been the driving force in support of industry-to-industry cooperation as the basis for progress on automotive sector trade. These efforts to promote the purchases of U.S. auto parts include "One-on-One" conferences, seminars, advanced training programs for technical personnel and supplier support among other activities.

The results of this approach are already clear, and clearly impressive. It has led both to a dramatic increase in purchases and to the building of trust between Japanese manufacturers and U.S. suppliers. This trust between manufacturer and supplier is essential to achieving the ultimate objective of providing high-quality, reliable products to vehicle consumers. JAMA’s commitment to this approach is firm, and that commitment has been repeatedly expressed to the Governments of Japan and the United States.

The narrow "results-oriented" approach that has been pressed on Japan over the last two years seeks to set numerical targets and impose sanctions if these targets are not met. It stands in stark contrast to JAMA’s private-sector approach and its successful record of accomplishments. Trade confrontation over non-market approaches, as JAMA has pointed out repeatedly during the past two years, will inevitably place at risk the very substantial benefits that have resulted from this private- sector cooperation, without any justification in international law or policy.

II. The Framework is Supposed to Focus on Opportunities -- Not Numerical Targets or Threats
In July 1993 the Governments of Japan and the United States agreed to enter into discussions called the "Framework for a New Economic Partnership."

• The basic objectives of this "Framework" were stated as follows: "This new economic relationship must be balanced and mutually beneficial, and firmly rooted in the shared interest and responsibility of the United States and Japan to promote global growth, open markets, and a vital world trading system. These consultations will take place under the basic principle of a two-way dialogue."
• The objective of including autos in these discussions is stated as follows:"Efforts in this area....will have the objective, inter alia, of achieving significantly expanded sales opportunities (emphasis added) to result in a significant expansion of purchases of foreign parts by Japanese firms in Japan and through their transplants, as well as removing problems which affect market access, and encouraging imports of foreign autos and auto parts in Japan."

The key focus of these two paragraphs is clear. The discussions are founded on the recognition that there is a mutual responsibility on the part of both Japan and the U.S., not merely on the part of Japan. Secondly, increased sales come from identifying and building upon opportunities, not from dictating results.

The announcement of the resumption of the auto Framework talks in January of this year was accompanied on both the U.S. and Japanese sides by press releases stating that the two governments had agreed to reopen talks to achieve "increased sales opportunities" for U.S. auto parts. Yet Administration officials even now repeatedly drop this important reference to "opportunities," referring only to "increased sales." This is not a casual or unimportant characterization. Increased sales clearly requires both the opportunity and the pursuit of them. Sales in themselves cannot be guaranteed. The gulf between the position which was agreed to and the characterization of that position by Administration officials is enormous.

Moreover, conducting bilateral trade promotion discussions under the threat of retaliation, as is now being pursued by the Administration, was specifically and fundamentally rejected at the outset of the Framework discussions.

Despite this rejection, the Administration on October 1, 1994 invoked a provision of U.S. trade law known as Section 301. This action started the process towards retaliation against Japan on the grounds that the stringency of Japanese vehicle safety inspections hinder sales of U.S. replacement parts in Japan. Administration officials have repeatedly indicated that this inspection issue, regardless of its merits, cannot be resolved until the Japanese companies agree to negotiate "voluntary" parts purchasing plans. In short, the threat of retaliation is being used as a bargaining lever to force purchasing quotas.

The Framework was supposed to build on existing industry-to-industry  and company-to-company successes. It was not intended to be a mechanism to impose purchasing mandates on Japanese manufacturers or to subject them to retaliation if these quotas are not agreed to or not met. The Framework was certainly not intended to interfere with the efforts of vehicle manufacturers to freely seek the highest quality auto parts in order to provide consumers with the highest quality cars and trucks.

III. Voluntary Plans Are Voluntary
In January of 1992 each of the individual JAMA members voluntarily announced their business plans for purchasing U.S.-built auto parts for the fiscal year 1994, ending in March of 1995. The total of all these individual plans came to $19 billion, more than doubling the fiscal year 1990 level of $9 billion.

The significance of this announcement was clearly recognized by the then U.S. Under Secretary of Commerce speaking before the Senate Finance Committee after the announcement of voluntary plans in 1992:

• "These are voluntary objectives. I think it is dangerous to call any one of them a commitment."(Testimony before the Senate Finance Committee, January 23, 1992)

In March of 1994, several Japanese auto companies again voluntarily announced parts purchasing plans on a global basis. In the context of the poor economic conditions in the Japanese auto sector and in the economy in general, these announcements were significant. They were a further demonstration of the sincerity of the Japanese auto companies in their participation in the global auto industry.

These voluntary purchasing plans were announced in the spirit of cooperation and interaction with the U.S. and world auto parts industry. The numbers represented the significant work that had already been accomplished to seek out U.S. suppliers, to educate U.S. suppliers in Japanese production and supply requirements, and to develop long-term productive relationships. The numbers were based on product plans in place, assumed increases in production levels, as well as the willingness and ability of U.S. companies to meet purchasing standards at these levels of production. They were a real representation of what could be accomplished. They were not contrived purchasing quotas.

Yet, the current Administration rejected the 1994 announcements as "totally insufficient" and continued to press the demand that the JAMA member companies accept a "results-oriented" approach by announcing auto parts purchasing plans which contain unreachable "expectations." It is this climate of fundamentally conflicting approaches and interpretation that the auto Framework discussions are now taking place.

It is abundantly clear that the Administration has chosen to misinterpret these voluntary purchasing plans to be numerical "pledges" or purchasing quotas which if not met would be the subject of further political pressure and or retaliation.

IV. Demands for Purchasing Quotas Violate Principles of Free Markets and International Trade Agreements
As noted above, the Administration has made it clear that it is linking the threat of retaliation with respect to aftermarket issues to its demands for new "voluntary" parts purchasing plans. The demands for "results-oriented" options, be they called purchasing quotas, numerical targets or negotiated voluntary plans, violate not only free-market principles but also international trade agreements. Retaliating on the basis of a refusal to accept these demands would put the United States in violation of the World Trade Organization (WTO) agreement, would significantly compromise efforts at multilateralism, and would destabilize exchange rates.

For Example:

• Gatt Article III requires members to provide "national treatment" to imported products. This means that importers of all nations should be treated equally. U.S. pressure on Japanese companies either in Japan or in the U.S. would create a disincentive to buy either from Japanese or other foreign suppliers. This would result in less favorable treatment towards imports into Japan of non-U.S. parts and imports into the U.S. of all imported parts than that accorded U.S.-made parts.
• GATT Article XI prohibits members from imposing quantitative restrictions, such as quotas on imports or export conditions. Demands for purchasing quotas backed up by government pressure and sanctions would in effect establish a quota for the purchase of U.S.-made auto parts.
• GATT Article XIII prohibits quantitative restrictions to be administered in a discriminatory manner.

There is no question that the WTO would find that any retaliatory measures imposed on Japan as a result of refusal to agree to coercive measures to purchase U.S.-made products would be in flagrant violation of these principles.

As the WTO reviewed this issue, the world financial community would face considerable uncertainty as to the direction of U.S. trade policy and the implication for the multilateral trading system. The notion being put forth that there is no cost to the U.S. of violating international trade laws while the WTO deliberates is simply wrong. Beyond the obvious economic harm to the parties involved, such an approach if taken by all countries would obviously undermine if not destroy the WTO and the multilateral trading structure as we know it.

V. U.S. Trade Deficits Do Not Mean Japanese Trade Barriers
The U.S. Government, after more than two decades of close scrutiny, has been unable to demonstrate an unfair trade barrier in the marketing of autos in Japan or the sale of auto parts to JAMA member companies.

Japan has zero tariffs on automotive products. Intensive investigations under both the Market Oriented Sector Specific (MOSS) discussions of the late 1980s and an investigation by the Federal Trade Commission found no evidence that so-called "keiretsu practices" unfairly limit access of U.S. suppliers to Japanese manufacturers. The same conclusion was reached in a 1990 study entitled "Keiretsu" published by the Motor Equipment Manufacturers Association, a U.S. group that represents producers of auto parts.

A joint study sponsored by the U.S. Department of Commerce and Japan’s Ministry of International Trade and Industry, published in 1994, also found no evidence of unfair trade practices in the marketing of vehicles in Japan.

Despite this clear record, the Administration has seized upon the existence of a bilateral trade deficit in automotive products between Japan and the U.S. as evidence that unfair trade practices must exist. Virtually every time senior Administration officials speak on these issues they distribute charts pointing out that automotive products make up 60 percent of the trade deficit with Japan.

Trade deficits, either on a macroeconomic or sectoral basis, quite simply are not measures of unfair trade practices. They are not even an accurate measure of the volume of trade between countries since volume transactions can be distorted relative to changes in the value of the currency.

In 1994, for example, the volume of vehicle imports from Japan remained nearly constant and the volume of total U.S. vehicle exports to Japan increased by 72 percent. The unit deficit in vehicle trade declined by 2.3 percent. Yet the dollar deficit in vehicle trade actually increased by 8 percent. The answer obviously lies with the significant increase in the value of the yen against the dollar, not access to Japan’s vehicle market.

Of even lesser meaning are measures showing the percentage of the automotive trade deficit as part of the overall trade deficit. Given that an overall trade deficit consists of surpluses in some sectors and deficits in others, it is quite possible for a bilateral deficit in a particular sector to be 100 percent or more of an overall bilateral deficit, a figure of no real significance.