EC Spokesman Says Japan's Trade Practices Threaten Liberal System

FOLLOWING in the footsteps of President Bush, the leading free-trade advocate of the European Community has traveled to Tokyo to issue a stern warning that Japan's economic ways are hurting the world trading system.

The unusually blunt message by European commissioner Sir Leon Brittan comes as some Japanese business leaders themselves are questioning whether Japan should adopt more of the rules of competition followed in the West, especially as trade friction escalates with the United States.

Sir Leon, speaking to top Japanese executives yesterday, said that Japan's skyrocketing trade surplus and its anticompetitive practices threaten to promote moves toward protective regional trading blocs.

"My immediate concern is to emphasize the very perception that Japan's economic system gives it an unfair advantage in world trade that is destroying the confidence of open trading relations.

"The simple fact is that Japan retains a business culture and elements of economic regulation which have the effect - whether by accident or design - of discouraging imports, except in certain niche markets," he stated.

In addition, Sir Leon said, the phenomenal strength of the Japanese economy "has been part of the cause of the present questioning of economic liberalism both in Europe and the United States. There has arisen a perception that the Japanese economy is not so much a friendly locomotive of world trade, but a hostile steamroller."

Japan looks to Brittan, as it does to his home country of Britain, to help ensure that the 12-nation EC does not become a protectionist "Fortress Europe" after integration starts in 1993.

Sir Leon serves as the EC commissioner for competition. Britain attracts some 40 percent of Japan's estimated $60 billion direct investment in Europe.

He follows a string of European officials who have visited Japan in the past year to forge a post-1992 relationship between Tokyo and Brussels.

Many have criticized Japan's willingness to strike bilateral trade deals with the US, such as the January agreement reached during Mr. Bush's trade mission in which Japanese car companies pledged to increase purchases of US auto parts to $19 billion by 1994.

"Above all, we must stem the worrying drift to managed trade," Sir Leon said in criticizing the pact. But he said the EC will watch closely to see if it can benefit in US-Japan deals.

"Japan must exercise caution toward the EC market" because of its trade friction with the US, says Masaya Miyoshi, director general of Japan's leading business group, the Federation of Business Organizations. He notes that the EC market surpasses that of both the US and Japan, and that Tokyo and Brussels still need to find some "coexistence."

An EC poll published last year showed that 2 out of 3 Japanese business leaders say that a unified EC market will hurt relations with Japan. In a speech in Europe and in a recent article, Sony Corporation President Akio Morita questioned Japanese business practices such as long working hours, low dividends for stockholders, and management practices that provoke repeated trade conflicts.

The EC cut its own deal with Japan last year in automobiles. The pact, which remains a target of French automakers, puts a "voluntary" cap on exports of Japanese autos to Europe until 1999.

Most Japanese think of European goods as luxury items, such as Armani clothes, Mercedes cars, or Louis Vuitton bags.

"Europe is not just a purveyor of luxury goods to those who can afford them," Sir Leon pointed out, saying that Europe can sell high-tech goods to Japan.

Japan's trade gap with the EC has recently expanded faster than that with the US, rising 34.5 percent in January alone from a year ago.

Last year, EC Commission President Jacques Delors warned that if the EC-Japan trade imbalance reaches $30 billion, "this will reinforce in Europe the camp of those who wish ... to restrict the possibilities of Japanese exports and investments of Japanese firms in Europe."

In the first 11 months of 1991, Japan's trade surplus with the EC reached $25 billion, compared with $18.5 billion in 1990.

Sir Leon highlighted Japanese direct investment in Europe, saying that it is about 17 times greater than European investments in Japan. He said there might be a need for some "positive discrimination" by Japan to correct this difference.

"It's virtually impossible for foreign companies to merge with, or acquire Japanese ones," he said. "Ask yourself: How many times has it happened?"

While pointing out Japan's recent progress to prevent cartels, price-fixing, and other anticompetitive acts, Sir Leon listed a series of barriers in retail, legal services, rice, and other areas.

But he most emphasized problems with keiretsu, the unique vertical relationships within large Japanese business groups.

The keiretsu "have come to symbolize the whole group orientation of Japanese society, sustaining a culture which has historically been protectionist and which is adapting only slowly to the new reality of Japan's powerful economic position."

Former Japanese trade negotiator Makoto Kuroda responded to Sir Leon that Japan's problem is that companies are too competitive. But Sir Leon said that such competition was designed to make Japan primarily an exporter to the detriment of better lifestyles for the Japanese.

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