China
and the legacy of the Plaza
Accord By Hisane Masaki
TOKYO - When the Plaza Accord was reached
on September 22, 1985, Japan was dead in the water
amid a raging tide of trade protectionism in the
United States, its biggest export market across
the Pacific Ocean. Twenty years later, China is in
the same boat.
As Japan did in the
mid-1980s, China is now facing a plethora of
sanctions bills in the US Congress, amid a growing
chorus of cries for help from American industries
battered by a flood of Chinese imports. China is
also struggling to weather ever-intensifying
pressure from the US administration for export
restrictions and a revaluation of what is widely
deemed to be its overly undervalued currency to
correct a gargantuan trade imbalance in its favor.
The long list of striking similarities
between Japan of the mid-1980s and today's China
does not end here. There are alarm bells blaring
against China's recent aggressive investment in
the US
and a growing perception among
the American people of China as a main economic
adversary - and even a new threat to their
country.
From the end of the 1970s to the
early 1990s, some people predicted Japan would
replace the US as the biggest economy some time in
the 21st century, with Ezra Vogel's 1979 book
titled Japan as Number One: Lessons for
America becoming a best seller. When the Plaza
Accord was clinched in 1985 (with G-5 nations
France, West Germany, Japan, the US and the UK
agreeing to devalue the US dollar in relation to
the Japanese yen and German Deutsche Mark), Japan
posted a trade surplus of more than $50 billion
with the US and became the world's largest
creditor nation, while the US slipped into the
world's biggest debtor nation.
Now China
is rapidly ascending as a new economic power. It
is already the world's seventh largest economy in
terms of gross domestic product, or GDP, and also
the third-biggest trading nation after Germany and
the US. China's foreign reserves are now nearly
$700 billion, the second-largest amount after
Japan's $847 billion. China also superseded the US
as the world's biggest recipient of foreign direct
investment in 2004, accepting more than $60
billion worth of such investment. The world's most
populous nation of some 1.3 billion people is
projected by many to even surpass the US in GDP
and grab the status of number one economy by about
2050, at the latest.
The G-5 governments,
the acknowledged Group of Five economic powers,
shared grave concerns about protectionism
engulfing the US Congress at the time. The
administration of president Ronald Reagan, a
self-proclaimed free trader, hoped to thwart
highly protectionist bills there with the currency
(Plaza) accord.
Looking back on the
currency arrangement, Tomomitsu Oba, a former
Japanese deputy finance minister for international
affairs directly involved in the accord, said in a
recent interview with the business daily Nihon
Keizai Shimbun, "As things turned out, [G-5
nations] succeeded in heading off protectionism
[in the US]."
Two decades later, with the
global imbalances expanding amid the resurging
twin deficits in the US budget and current
account, some people even advocate a second Plaza
Accord involving China and some other Asian
currencies, although many experts dismiss the idea
as unrealistic, or at least quite difficult
practically in the foreseeable future.
US
President George W Bush and Chinese President Hu
Jintao met at a New York hotel on September 13 on
the eve of a UN summit they attended. Hu made an
unusually bold commitment to take "effective
measures" to increase China's imports from the US
to ''gradually'' reduce its trade surplus with the
US. Bush urged China to move further toward a
"flexible market-oriented" currency exchange rate,
while welcoming Beijing's reform in its exchange
regime in July to a more flexible system as a
"good first move", a senior US official told
reporters after the meeting.
The yuan,
along with stubbornly high oil prices, will again
top the agenda for the meeting of finance chiefs
and central bank governors from the Group of Seven
(G-7) major economies in Washington on September
23, as it did at the previous G-7 gatherings in
the past couple of years.
How have
Japan-US economic relations changed since the 1985
Plaza Accord? Will economic relations between the
US and China follow the same path over the next
two decades as those between the US and Japan did
in the past two decades? And how will Japan deal
with the rising economic power of its Asian
neighbor?
After the Plaza Accord The G-5 finance ministers hunkered down at the
Plaza Hotel in New York on September 22 and
decided to intervene cooperatively in the foreign
exchange markets to guide the excessively high
value of the US dollar lower as a means of
enhancing the US's export competitiveness and trim
its enormous trade deficits. As a result, the
Japanese yen's value vis-a-vis the dollar doubled
in only about two years, from 240 to 120 a dollar.
The sharply higher yen prompted Japanese
manufacturers to rush to shift production abroad,
especially to Southeast Asia, to take advantage of
cheaper labor there. Japanese automakers, which
were particularly on the hot seat at the time amid
raging trade protectionism in the US, also
accelerated production in that country, not only
to weather the stronger yen but to ease trade
friction. In the early 1990s, the number of
vehicles they assembled in the US exceeded that of
their US-bound exports.
To help cushion
the impact of the stronger yen on its economy in
the wake of the Plaza Accord, Japan kept its
monetary policy loose to stimulate domestic
demand, but did so longer than necessary,
resulting in the "bubble economy" of the late
1980s characterized by inflated prices for assets
such as stocks and land.
Japanese exports
to the US did not decline despite the Plaza
Accord, however. And trade friction lingered and
"revisionism" gained strength in the US, prompting
the country to take a new tack on bilateral trade
issues.
After years of putting pressure on
Japan to exert export restraints, the US
administrations turned its policy focus to prying
open what they viewed as the heavily protected and
closed Japanese markets to foreign competition, to
forcing Japan to overhaul its macroeconomic policy
and economic structure, including savings and
investment balance and exclusionary business
practices, and even to making Japan set numerical
targets for imports of American goods.
Specifically, the administration of
Republican Reagan conducted market-oriented,
sector-selective, or MOSS, talks with Japan. The
administration of George H W Bush senior, also a
Republican, launched the Structural Impediments
Initiative, or SII, talks with Japan.
Democratic president Bill Clinton, who
took office on a campaign pledge to make a
recovery of the US economic power as its top
priority in the post-Cold War era, stepped up his
offensive on Japan over trade issues in the
framework talks. His summit with then Japanese
premier Morihiro Hosokawa in early 1994 collapsed
after Tokyo rejected Washington's demand for
numerical targets to measure Japanese progress in
opening its markets. Hosokawa boasted at the time,
"Japan-US relations have become relations between
grown-ups."
The tenacious US demand - and
Japan's rejection - for Tokyo to set numerical
targets for imports of American auto parts also
brought the two countries to the brink of an
unprecedented tit-for-tat trade war the following
year. The US decided to slap a prohibitively high
tariff of 100% on imported Japanese luxury
vehicles under Section 301 of the Trade Act of
1974, and Japan filed a complaint with the World
Trade Organization (WTO) against the US measure.
WTO is the Geneva-based watchdog on global
commerce that succeeded the General Agreement on
Tariffs and Trade (GATT) in January 1995. It was
the first time that Japan had taken a trade
dispute with the US to either the GATT or the WTO.
Unilateral trade measures such as the ones under
Section 301 were declared illegal by the WTO
later.
In the mid-1990s, Japan began to
clearly say no to what it deemed unjust US demands
that contravened international trade rules, and
also began to refer the US to the WTO over
WTO-incompatible laws and trade measures. This
marked a significant departure from the post-war
Japanese trade policy.
Previously, Japan
had made one concession after another in the face
of the threat of US sanctions. Although the
Ministry of International Trade and Industry
(MITI) - now renamed the Ministry of Economy,
Trade and Industry (METI) - had often insisted on
referring the US to the WTO, the demands were
rebutted by the Foreign Ministry, which was
concerned about a possible erosion of the overall
Japan-US relationship, including political and
security ones.
Japan and the US saw
tensions in bilateral trade relations rise to
their highest point between the 1980s and the
mid-1990s. But now fierce Japan-US trade friction
is a thing of the past. So, what happened in the
past decade or so?
Japan's annual trade
surplus with the US remains inexorably huge, at
about $75 billion in 2004. And some relatively
minor individual issues pop up from time to time,
like the current fracas over Japan's imports of
American beef, which have been suspended since the
first case of mad cow disease in the US was
discovered in December 2003.
But Japan is
no longer a main target on - if not completely off
- the US radar screen. The US's annual trade
deficit with Japan is now eclipsed by that with
China, which totaled a whopping $160 billion, or
about one-fourth of the $610 billion overall US
trade deficit, in 2004. American shops are full of
Chinese clothes, shoes and toys. The trade gap is
expected to reach $200 billion this year. The
percentage of a deficit with Japan in the overall
US trade deficit sharply plummeted to about 12% in
2004 from 65% in 1991.
Furthermore, unlike
in the 1980s and early 1990s, Japan is no longer
perceived by the US as a main threat. Japan is
still the world's second-largest economy, after
the US. But after the 1990 burst of the bubble
economy, Japan had been mired in a prolonged
economic slump. Its economic power and presence on
the internal stage has significantly declined.
"Japan bashing" by the US has been replaced by
"Japan passing" and then by "Japan nothing". In
recent years, the too weak Japanese economy has
been seen by the US even as a "Japan problem".
When the Cold War was declared over at the
Malta summit between US president Bush senior and
Soviet president Mikhail Gorbachev in December
1989, the American people's perception of Japan as
the biggest threat to their country grew. This
perception was further reinforced by the demise in
December 1991 of the Soviet Union.
China's
military suppression of the pro-democracy
demonstrators at Beijing's Tiananmen Square in
June, 1989 sparked an international outcry. The
Group of Seven major industrialized countries
imposed sanctions on China. But only a few months
after the Tiananmen incident, Bush senior sent his
national security advisor Brent Scowcroft to
Beijing secretly on an apparent fence-mending
mission. The visit was interpreted by some experts
as reflecting US concerns about Japan as the
number one threat in the post-Cold War era.
After moving production facilities to the
US to cope with the stronger yen and trade
friction, Japanese manufacturers now employ many
people locally. Toyota Motor Corp, for example,
boasts more than 200,000 people on its payrolls in
the US, including workers employed by parts
suppliers. The increased number of workers locally
hired by Japanese companies has also contributed
to easing of trade tensions between the two
countries.
When they met for the first time
at Camp David in June 2001, President George W
Bush and Japanese Prime Minister Junichiro Koizumi
inaugurated the "US-Japan Economic Partnership for
Growth" talks to replace the framework talks held
during the Clinton era. Various levels of
contacts, not only between government officials
but also between business leaders, have been held
under the new framework for talks.
Reflecting the sea-change in the bilateral
economic landscape, however, the new economic
talks are no longer a highly publicized place for
engaging in a war of words. They are a place for
calm discussions on cooperation in resolving
various bilateral and international issues through
constructive dialogue.
China in the US
crosshairs After World War II, the first
trade friction between Japan and the US erupted in
the mid-1950s over a flood of "one-dollar blouses"
shipped from Japan into the US market. With the
rapid ascendance of Japan's industrial power,
industries at the center of trade friction with
the US shifted from labor-intensive ones to more
high-technology ones - from textiles in the 1950s
and 1960s to steel and color televisions in the
1970s to autos and semiconductors in the 1980s and
1990s.
In terms of economic development,
China is now said by many experts to be where
Japan was in the 1960s. Japan enjoyed a
high-flying economy and saw national income more
than double during that decade. The summer
Olympics was held in Tokyo in 1964, providing the
country with a good opportunity to showcase its
miraculous recovery from ashes of the war and
rapid growth. It may not be a mere coincidence
that Beijing will host the summer Olympics in
2008.
Japan joined the GATT in 1955 with
strong US backing. But 14 countries, including
Britain and France, still had a bitter memory of
seeing their domestic industries hurt by a flood
of Japanese imports before World War II. They
invoked Article 35 of the GATT rules and retained
discriminatory trade measures against Japan.
Getting those discriminatory trade measures lifted
became one of Japan's biggest foreign-policy tasks
throughout the 1960s.
When China joined
the WTO, the GATT's successor, at the end of 2001,
it also accepted tougher terms than other new
entrants, such as the right of other WTO members
to single out China and impose "special safeguard"
emergency import restrictions. Unlike ordinary
"safeguard" import restrictions, which must be
applied to all WTO members, "special safeguard"
restrictions can be applied only to China. The
"special safeguard" for China will remain in place
for 12 years after its WTO entry, until the end of
2013.
The textile trade is now the main
source of trade friction between China and the US,
as it was between Japan and the US in the 1960s.
In China's textile trade row with the US,
Washington is in negotiations with Beijing on
restricting some Chinese exports following a flood
of Chinese imports into the US after the global
quotas expired in January this year. China has
already reached an export-restraint agreement with
the 25-nation European Union.
The US has
also accused China of failing to fully comply with
its commitments made when it joined the WTO,
including the protection of intellectual property
rights. Textile is probably the first in a series
of trade disputes that are expected to break out
between the two countries for many years to come,
as it was between Japan and the US.
The
battle between the US and China over trade has
spread to the currency front. There are strong
complaints in the US that China has kept its
currency - the yuan - artificially low to fuel its
aggressive export drive and rack up a huge surplus
in bilateral trade at the expense of American
jobs. Some members of the US Congress claim that
the yuan is undervalued by at least 30% to 40%.
US Federal Reserve chairman Alan Greenspan
and many other economists argue that exchange rate
changes alone would not lead to a tangible
shrinkage in the trade gap between the US and
China because import-thirsty American people would
buy more products imported from other low-cost
trading partners.
Furthermore, more than
half of exports from China, a country now often
referred to as the "world's production center",
are actually made by foreign-funded factories.
According to one estimate, of the overall US
imports from China, as much as 25% are products
made locally by US subsidiaries or affiliates. But
economics is different from politics.
International pressure, particularly from the US,
on China shows no sign of abating.
In a
decision widely seen as a concession to the US
ahead of Hu's trip there this month, China
scrapped its dollar-pegged exchange system on July
21 and adopted a managed floating system linked to
a basket of foreign currencies, resulting in a
2.1% revaluation of the yuan against the US
dollar. Although the US administration welcomed
the Chinese decision as a significant first step
in the right direction, it wants China to let the
yuan rise much further, by at least more than 10%.
After a recent two-day meeting of finance
ministers from the member economies of the
Asia-Pacific Economic Cooperation forum on the
South Korean resort island of Jeju, Chinese
Finance Minister Jin Renqing said that a stable
yuan would be in the interests of China's economy,
as well as of Asia's economy and the world
economy, and reiterated China's position that it
would carry out yuan reform in a gradual and
controllable manner.
Trade protectionism
is flaring up again in the US Congress. In the
1980s, a litany of sanctions bills targeting Japan
were introduced to Capitol Hill, including the
so-called Gephardt clause sponsored by Democrat
Richard Gephardt, which called for a 20% surcharge
on Japanese products imported into the US. The
so-called Gephardt clause led to the enactment in
1988 of "Super 301" clause, the much-toughened
version of 301 Section of the Trade Act of 1974.
In recent months, a spate of similar bills
targeting China has been submitted. Among these,
anti-China bills are the ones introduced in the
spring by Senator Charles E Schumer and other
lawmakers, which calls for a 27.5% surcharge on
all imported Chinese goods unless China revalues
its currency drastically. This bill prompted US
Treasury Secretary John Snow to declare that his
department would judge within six months - by
October - if China was a country that was engaged
in manipulation of exchange rates to take an
advantage in trade with the US. If judged as such,
China could face punishment.
There is a
similarity between Japan of the 1980s and today's
China on the investment front as well. During the
Japanese bubble economy of the late 1980s,
money-glut Japanese companies, backed by the
stronger yen, went on a buying spree in the US,
making many high-profile acquisitions, including
one of the Rockefeller Center by Mitsubishi Estate
Co. This aggressive Japanese buying of American
assets stirred a repugnant reaction from many
American people.
Recently, state-run China
National Offshore Oil Co Ltd's (CNOOC's) bid for
Unocal met opposition from many in the US
Congress, who cited security concerns. CNOOC
eventually abandoned its politically charged $18.5
billion bid for Unocal, paving the way for the
acquisition of the ninth-largest US oil producer
by another American oil producer, ChevronTexaco.
In December last year, China's Renovo Group Ltd
purchased IBM Corp's personal-computer operation.
Some Congressional members also voiced security
concerns about that deal.
To be sure,
China is now in a situation similar to the one in
which Japan was in the mid-1980s. But there are a
lot of differences as well.
First of all,
Japan and the US have been staunch allies based on
the bilateral security treaty since the end of
World War II. They share common values. Reagan,
who was in office in most of the 1980s, is widely
credited with bringing a Cold War victory to the
US-led Western camp. Reagan and then Japanese
prime minister Yasuhiro Nakasone forged close
personal ties called the "Ron-Yasu relationship".
Nakasone significantly beefed up Japan's security
cooperation with the US.
Meanwhile, the US
and Communist Party-ruled China often clash over
human rights, democracy and Taiwan, as well as
over trade. Furthermore, apparently keeping the US
in mind, Chinese leaders often express objections
to having the world dominated by a single
superpower and stress the need to promote the
multipolarization of the world.
When the
administration of Bush was inaugurated in early
2001, it referred to China as a "strategic
competitor" instead of a "strategic partner", as
the Clinton administration did. In the wake of the
September 11 terrorist attacks in the US later
that year, the Bush administration began to soften
its rhetoric and call bilateral ties a
"relationship of constructive cooperation" in
hopes of extracting cooperation from Beijing in
its global fight against terrorism and also in
resolving the standoff over the nuclear programs
of North Korea, for which China is one of a few
remaining allies.
But the US-China
relationship of constructive cooperation began to
show its seams after the US launched a war in Iraq
in the spring of 2003 to oust Saddam Hussein. The
Iraq war also caused deep schisms between the US
and some of its Cold War allies, like France and
Germany, as well as Russia.
The Pentagon
released its annual report on China's military
power in July. It said, among other things, that
annual Chinese military spending is estimated to
be up to $90 billion, three times the amount
publicized by Beijing and the third-largest such
spending after that of the US and Russia. It
warned that the sharply rising Chinese military
spending, coupled with the ongoing modernization
of the military, could pose a clear threat to
Asian neighbors and American military forces
deployed in the region in the long term.
Meanwhile, China is increasingly alarmed
by the ongoing global "transformation" of the US
military and also by the realignment of American
forces stationed in Japan now under negotiation
between Washington and Tokyo as part of a US
review of its military posture worldwide.
The Bush administration insists that the
transformation of the US military is aimed at
ensuring stability in the "arc of instability"
stretching from the Middle East to North Asia via
South Asia and Southeast Asia. There are
suspicions in China, however, that although the
real motive for the transformation might be what
some people call the "soft containment" of China.
The ongoing move toward a stronger
security alliance between the US and Japan has
also highly alarmed China, especially since the
two countries agreed in February this year to make
a peaceful resolution to tensions on the Taiwan
Strait one of their common strategic goals to be
pursued under the new bilateral security
arrangement. Leaders in Beijing still regard
Taiwan as a renegade province that must be
reunified with the mainland, by force if
necessary.
In other recent developments
that raised the eyebrows of many in the US, China
issued a joint statement with Russia and four
Central Asian countries at a summit of the
Shanghai Cooperation Organization in July calling
for an early withdrawal of US forces from Central
Asia. In August, China also conducted its first,
high-profile joint military exercise with Russia.
Both the statement and military exercise were
widely seen as countering the US domination of
world affairs.
In addition, China's recent
building-up of ties with such anti-US, oil-rich
countries like Iran and Venezuela has unnerved the
US. China has also strengthened ties with Myanmar
in recent years, in defiance of US and European
sanctions against the military-ruled Southeast
Asian country.
To be sure, all these
things may sound purely political. But politics
and economics cannot be simply separated in the
real world.
Economically, a quick look at
the trade data of Japan and China shows
differences in the two countries' trade
structures. Although both run up huge trade
surpluses with the US, China's overall trade
surplus with the rest of the world has been
hovering between $20 billion and $30 billion
annually in recent years, compared with Japan's
well over $100 billion.
China has become a
major exporter of machinery and electric products
as well as such low-tech goods as textiles and
footwear, and has racked up huge trade surpluses
with the US and Europe. But at the same time,
China has run up a big trade deficit with Asian
neighbors. As many economists note, China has so
far been largely an assembly base of multilateral
companies, especially from Asian neighbors, for
products to be exported to the US and Europe. In
fact, more than half of Chinese exports are made
locally at foreign-funded factories. China imports
high-tech parts and components, especially from
Japan and other Asian neighbors, for assembly of
its products, and little value is added to
products in local production.
Trade
friction between the US and China is still
basically over low-tech products such as textiles,
although the more progress China makes in catching
up with the US, as widely expected, the more
high-tech products will be the focus of friction.
Unlike once-mighty Japanese banks, which swept
through global capital markets, including those in
the US, in the 1980s, Chinese banks are almost
invisible abroad.
In the late 1980s, the
administration of Bush senior pushed for reform of
Japan's economic structure through the SII talks.
The US may feel tempted to take a similar approach
to its trade gap with China in the future. But the
US will remember quickly that despite its WTO
entry, China is still a "socialist market economy"
under the control of the Communist Party, and
quite different from Japan.
China:
Threat or partner for Japan? These days,
Sino-Japanese relations are often said to be "cold
in politics and hot in economics". Bilateral
political ties remain strained by a host of
issues, ranging from Koizumi's repeated visits to
Yasukuni Shrine, a reignited territorial dispute
and other issues stemming from the past Japanese
aggression on mainland China. In stark contrast
with the stalled political ties, however, economic
ties are on the fast track, with two-way trade
booming and Japanese China-bound investment
charging ahead.
For many years after World
War II, Japan was so heavily dependent on the US
for trade that many people said if the US economy
caught cold, the Japanese economy would suffer
pneumonia. But the Japanese external trade
landscape is changing.
China became
Japan's biggest trading partner for the first time
in 2004, replacing the US. Sino-Japanese trade
totaled about $213 billion, compared with the
about $196 billion trade between Japan and the US.
China accounted for 20.1% of Japan's
overall trade in 2004. The percentage of China
trade in the overall Japanese trade began to rise
sharply after China's WTO admission, as Japanese
manufacturers stepped up the transfer of
production facilities to China, resulting in
increased Japanese exports of key parts and
components for local assembly and more Japanese
re-imports of locally made goods. The percentage
of US trade in the overall Japanese trade declined
below the 20% level for the first time in 2004,
standing at 18.6%.
Japan's investment in
China began to rise sharply around China's 2001
WTO entry, totaling 355 billion yen - or roughly
$3 billion - in fiscal 2003, which ended in March
2004. The fiscal 2003 figure represented 8.7% of
overall Japanese foreign direct investment made
that year, versus a paltry 1.1% share for fiscal
1999.
But the devil is in the details.
Sino-Japanese trade rose 25.7% in 2004, but the
pace of increase was much slower than China's
overall trade with the rest of the world, which
grew a more robust 35.7%. This is a trend that has
been seen since the late 1990s. As a result, Japan
slipped from China's biggest trading partner to
its third, after the 25-nation European Union and
the US.
China is becoming an increasingly
important trading partner for Japan, but Japan is
gradually becoming a less important trading
partner for China. This asymmetrical phenomenon
reflects the booming Chinese economy and slumping
Japanese economy. Some people say that
Sino-Japanese economic relations may look "hot"
for many Japanese but only "lukewarm" for many
Chinese. The current China fever among many
Japanese on the economic front may end up in an
"unrequited, one-sided love", they say.
Expanding trade sows the seeds of
friction. Japan and China were engaged in a
tit-for-tat trade war in 2001. Japan imposed
import curbs on three Chinese farm products,
including stone leeks, amid strong protectionist
pressure from domestic growers and their backing
politicians. China wasted no time to retaliate by
slapping 100% import duties on some Japanese
industrial goods, including automobiles and mobile
phones.
When he attended the Boao Forum
for Asia in China in April 2002, Koizumi said he
thought an economically stronger China created
opportunities for the Japanese economy, rather
than posed a threat to it. He may have been right.
Booming exports to China, as well as to the US,
have driven an economic recovery in Japan in
recent years. The perception of China as an
economic threat among many Japanese people has
been replaced by that as a blessing.
Some
economists predict, however, that as Sino-Japanese
trade continues to expand at a torrential pace,
the focus of trade friction between Japan and
trading partners will gradually shift away from
Japan and the US to Japan and China, especially
the political sensitive agriculture and high-tech
sectors in the long run.
The ever-growing
importance of China for Japan in trade and
declining importance of Japan for China in trade
could put China at an advantage in future
negotiations on trade issues. In addition, Japan
will lose its most powerful diplomatic card in
ties with China soon.
Japan has already
decided to stop offering fresh low-interest yen
loans to China before the 2008 Beijing Olympics.
The yen loans account for the bulk of Japanese
official development assistance, or ODA, to China.
Japanese ODA money began to flow into China in the
late 1970s, when China embarked on a policy of
reform and openness at the behest of the late
paramount leader Deng Xiaoping. Well over 3
trillion yen in Japanese ODA has since been
provided to China. As a result of a policy review
by the Japanese government struggling with the
worst level of public deficits among major
economies, the amount of China-bound yen loans had
already been significantly dented in recent years.
The loan amount dropped to 96 billion yen in
fiscal 2003, more than half the peak of 214
billion yen in fiscal 2000.
When the WTO
succeeded the GATT in January 1995, the global
trade referee's dispute-settlement function was
significantly strengthened. In what some experts
dub "aggressive legalism", Japan has filed
complaints with the WTO over one trade dispute
after another with the US in recent years.
Earlier this month, Japan went so far as
to levy WTO-sanctioned retaliatory import tariffs
on some American goods after the US failed to
comply with a WTO ruling ordering the US to
abolish the so-called Byrd Amendment. It was the
first time that Japan had actually imposed trade
sanctions against the US.
Japan's recent
trade sanctions against the US have not caused any
tensions in bilateral relations. But that will not
be the case for Sino-Japanese relations, which
have long been uneasy for historical and political
reasons and are still far from mature, unlike
Japan-US relations. It will be difficult for Japan
to pursue WTO-first, aggressive legalism in trade
disputes with China in the foreseeable future.
Japan and China inaugurated the Economic
Partnership talks in 2002, a comprehensive forum
for dialogue on promoting cooperation in a wide
range of areas attended by deputy
ministerial-level officials. The biggest purpose
of the forum is to nip in the bud potential trade
and other frictions before they are politicized
too much, keeping in mind the 2001 tit-for-tat
trade war as a lesson.
A senior Japanese
government official who pushed for the
inauguration of the dialogue forum said at the
time, "Now that China is admitted to the WTO,
Japan will be able to try to resolve any future
bilateral trade disputes with China under the
WTO's dispute-settlement procedures. But that will
be the last resort."
Hisane
Masaki is a Tokyo-based journalist,
commentator and scholar on international politics
and economy. Masaki's e-mail address is
yiu45535@nifty.com
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