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Office of the Press Secretary

For Immediate Release May 10, 1995
                             PRESS BRIEFING
                       AMBASSADOR MICKEY KANTOR,
                            DR. LAURA TYSON,

The Briefing Room

11:40 A.M. EDT

DR. TYSON: Good morning. As all of you know, opening foreign markets for competitive U.S. products has been a key component of the administration's economic agenda. The U.S. economy is increasingly dependent on trade. Twenty-seven percent of our GDP is tied to exports and imports. Exports do create high-paying jobs. We've noted that before.

We are extremely committed and have been committed continually to free trade. That's what lay at our efforts for getting through NAFTA, for getting through the Uruguay Round, and for taking leadership in APEC and Free Trade Agreement of the Americas.

We have concluded 81 trade agreements in the last 27 months, and with the help of those agreements and the very active efforts of the Department of Commerce, we have expanded export opportunities around the world, from airplanes to telecommunications, from Brazil to China.

Now, our marketing opening approach is also what lies at the heart of the U.S.-Japan Framework Agreement, which in July of 1993, as you remember, was signed, and calls for results-oriented agreements including objective criteria. The President, in February of 1994, stated that he preferred no agreements to bad agreements with Japan. And in October of 1994 we reached several good agreements. We reached good market-opening agreements in telecom, medical equipment and insurance. We have reached 14 agreements with Japan so far, to open its markets in everything from apples to rice, financial services to chemicals.

The one persistent sticking point over the past 20 months has been negotiations in the auto and auto parts sector. So today we are going to make an announcement about how we are going to proceed in the absence of a negotiated resolution to our disagreements.

Now, let me say before I turn over the floor to Ambassador Kantor one additional thing. We have believed all the time that a successful resolution of the issues in autos and auto parts will be beneficial both to Japan and to all of Japan's trading partners. We're asking Japan to open its markets. That will increase choice, quality, competition for Japanese consumers of autos and auto parts. It will reduce prices for Japanese consumers of auto and auto parts. These steps will obviously be helpful to Japan's trading partners who are trying to sell into those markets, and will obviously be helpful, we believe, to bring down the Japanese current accounts surplus which has been a persistent problem for the world economy.

Now let me turn the floor over to Ambassador Kantor.

AMBASSADOR KANTOR: Thank you, Laura, very much. I'd like to recognize first of all the very important work of the NEC under your leadership in terms of maintaining this absolutely unanimous view of this administration in our recommendations to the President. And thank you for your very good work there.

I want to recognize Secretary Brown. We have been partners in this venture, as we have been in many ventures. And Secretary Brown, Under Secretary Gardner, and your officials at the Commerce Department, along with Ambassador Barshefsky, Ambassador- Designate Shapiro and our officials at USTR worked well together. It has been a very good team, and I appreciate all that hard work and all the important work that has been done.

This morning I am announcing the President's decision on actions to respond to the continuing discrimination against U.S. and foreign competitive autos and auto parts in Japan. Today we have delivered a pre-filing notification to WTO Director General Ruggiero indicating our intent to invoke the dispute settlement mechanism of the World Trade Organization to challenge the continuing discrimination against United States products in the market for automobiles and automotive parts in Japan.

We believe the government of Japan has failed to carry out its obligations under the WTO and continues to thwart the open and equitable trade which is the objective of the WTO. Japanese government actions have nullified and impaired benefits accruing to the United States and other member countries under the WTO.

Second, pursuant to Sections 301 and 304 of the trade act, USTR has made a determination that certain acts, policies and practices of Japan restrict or deny U.S. auto parts suppliers access to the auto parts replacement and accessories market in Japan, and are unreasonable and discriminatory and burden or restrict U.S. commerce. In the next several days, USTR will publish a proposed retaliation list under Section 301B and will seek public comment.

In taking these steps, we're taking action on behalf of U.S. companies and U.S. workers in the automotive sector. They have put in extraordinary efforts over the past decade to establish themselves as world-class competitors. But I believe we're seeking objectives that are in the interests of Japan and Japanese consumers as well, who will benefit from open markets, greater choice and lower prices. And we are building support for the international trading system, because if inequities of the sort that exist in this sector are allowed to continue, the public will understandably come to doubt the fairness of the system and lose faith in it.

Japan is more than a major trading partner of the United States. It is a valued friend and ally and a bulwark of peace, stability and democracy. Our political and strategic relations are very strong. In the trade area, the United States and Japan have worked together successfully to help finish the Uruguay Round and to strengthen the Asia Pacific economic cooperation forum known as APEC. But there is no denying that we have difficult bilateral trade issues between our countries. This administration came to office and remains determined to right the basic inequities in our trading relations with Japan.

In the past 27 months, the United States and Japan have reached 14 trade agreements, as Ms. Tyson indicated, in important sectors ranging from medical technology and telecommunications to construction and apples. We have negotiated strong and fair agreements. We have made progress, and we're seeing markets beginning to open.

Last month, for the first time ever, U.S. exports to Japan exceeded $5 billion. Unfortunately, however, in the most critical sector for our economy, the automotive sector, despite thousands of hours of hard work doing efforts spanning 20 months, the United States and Japan have been unable to reach an agreement. Japan remains unwilling to take the steps necessary to bring genuine market access and concrete results in a sector in which Japan has a $37-billion trade surplus with the United States, accounting for nearly 60 percent of the overall bilateral trade imbalance, and nearly 25 percent of our entire global trade deficit.

You will note in the packet, one of the charts shows that from 1990 through 1994, that has hardly changed. That deficit remains the same; only the percentage changed. It's ranged from $31 to $37 billion.

Yesterday the United States Senate, with strong bipartisan leadership, voted overwhelmingly to support action regarding this problem. There is similar bipartisan support in the House. There are members of Congress who have been staunchly supporting action to end Japanese discrimination against U.S. autos and parts for at least 10 years. We all have joined together, Republicans and Democrats, liberals and conservatives, to meet this challenge.

Let me make just a couple of comments about the importance of the U.S. auto industry before I turn it over to Secretary Brown. The U.s. auto industry directly -- the Big Three employ 696,000 people. With dealers and with suppliers, that industry employs 2.5 million people. The payroll for the Big Three alone is $31 billion a year. The auto industry has averaged 4.4 percent of our gross domestic product for the last 10 years. In terms of steel, in terms of iron, in terms of aluminum, in terms of platinum, in terms of flat glass, synthetic rubber, natural rubber, semiconductors, the U.S. auto industry is one of the largest purchasers in our economy.

This industry also has made an enormous investment in their competitiveness and their productivity. In the last five and a half years they've invested $117 billion in plant equipment, training, research and development.

Let me note that available in Japan today, if we were allowed to participate fairly, the U.S. has 101 auto products available. Of that, 60 are right-hand drive products; 16 models, 10 models of right-hand drive. And let me also note that 51 of the 60 right-hand drive models are available in engines of 2,000 cc or less. Let me say why that's important. The Japanese have claimed we do not have the small cars with small engines to sell in their market. That just is not correct.

Let me indicate just two or three statistics about the obvious evidence of discrimination. In autos in the U.S. market, foreign competitive autos have a 34 percent share. In Japan, foreign competitive automobiles have a 4.6 percent share -- 3.1 percent a non-U.S.; 1.5 percent are U.S. In parts, the U.S. auto industry here in this country, foreign competitive auto parts have a 32.5 percent share. In Japan that share of foreign competitive parts is 2.6 percent. If it was not for Japan, the U.S. would have a worldwide trade surplus in auto parts of $5 billion.

What we're looking for is reciprocity, or a level playing field. This President has said over and again an open trade policy is in our interest and the interest of our trading partners. We will insist on fair rules, a level playing field. This is a major step in that direction.

SECRETARY BROWN: I think Ambassador Kantor has covered the important points. Let me just add one or two facts.

What I wanted to do today -- and I think what Laura Tyson and other of us on the economic team want to do -- is to demonstrate the absolute unanimity of this administration on the position the President has taken, that Ambassador Kantor has just announced. We have been consistent, we have been steadfast, we have been focused on this issue since day one in the administration. And I believe that steadfastness and that focus is going to produce results.

Ambassador Kantor is one of the most skilled negotiators in the world, and even with his best efforts, and the best efforts of other Commerce Department and USTR officials, we were unable to achieve an agreement on autos and auto parts with the Japanese. We are determined to achieve an agreement. And we believe that this action today is a giant step towards achieving that agreement.

I hope it is clear to the world that we are serious about pursuing open markets; that we are a free trade administration, we believe in the principles of free trade. The question is how do you get there. It seems to us that if our markets are open to the goods and products and services of other countries, that their markets ought to be open to our goods and products and services. In the area of autos and auto parts it is clear that the Japanese marketplace is not open to us.

This is just not an academic or esoteric exercise. This is about economic growth in the United States. This is about creating jobs and supporting jobs for American workers here at home. But it's also about giving Japanese consumers a break as well. The fact is that an alternator, Ford automobile that is manufactured in the United States sells for about $160. Virtually the same piece of equipment in Japan sells for about $600. That is because that marketplace is not open. There is not competition. There are not the levels of options for consumers, and therefore, there are fair costs to consumers.

We believe that the action we are taking today as announced by Ambassador Kantor is right for America and is right for the global marketplace. Thank you very much.

Q Ambassador Kantor, can you tell us about the timing of the retaliation list, when it will be published and at what point you would move to impose them?

AMBASSADOR KANTOR: First of all, in the next few days; that's number one. And number two, as you know, once that proposed list is published -- and it must be put in the Federal Register -- it has to remain there for 30 days. We will receive public comments and hold public hearings. After reviewing all the comments, at that point, we will make a decision on the final list. And of course, at that point, sanctions can be imposed.

Q Would you impose the sanctions unilaterally, or will you hold them for a WTO decision?

AMBASSADOR KANTOR: Frankly, we're operating on two levels here -- one is the WTO. They have their procedures and we will follow those. We've given them a pre-filing notification today, which is quite detailed and I think is in your packet. That was handed to Director Ruggiero by Ambassador Booth Gardner about an hour and a half ago. We'll follow those procedures. Those procedures are quite distinct from our procedures under our own trade laws under which we're operating. So, therefore, they're not connected in that regard.

Q Can you confirm that the luxury car market, that will be the prime target on the list?

AMBASSADOR KANTOR: I'm not going to confirm anything today, or deny anything today. What we're going to do is, over the next few days we'll make a final decision and we will publish the proposed retaliation.

Q Ambassador, is the failure to publish a list today a strategy to try to buy the Japanese more time in hopes the last- minute negotiations will avoid the sanctions?

AMBASSADOR KANTOR: The President directed the United States Trade Representative's Office, working with the Commerce Department and through the NEC, to make sure that we went through the list. We were careful and responsible as possible. And in the next few days we will publish that proposed list.

Q you've had months to work on it. Why isn't it published today?

AMBASSADOR KANTOR: Because the President directed us to go through it one more time and make sure we were as careful as possible. This is a very serious move on our part, and taking an extra two or three or whatever number of days will make good sense.

Q Ambassador Kantor, what assurances do you have that the Detroit automakers won't hike their, or jack up their auto prices in response to this move or as a result of this move?

AMBASSADOR KANTOR: I assume the American automobile industry will act responsibly and appropriately under these circumstances. They have worked closely with us. This action is taken on behalf not only of the U.S. economy, but American workers, but American industry as well, and we would hope and expect that the industry would act responsibly as well.

Q Have you had discussions with them, and have you received any formal assurance --

AMBASSADOR KANTOR: No, we've had no discussions with them on this subject.

Q better than anyone the WTO process requires a panel finding before a country can retaliate. Do you intend to wait for the finding of the panel before instituting trade retaliation? And if not, why not?

AMBASSADOR KANTOR: On one hand, we're working under 301. I am not going to prejudge what the list is going to look like, what the public comments will say, and what our final list will be. But after that, of course, we'll operate separately under our own trade law. As far as the WTO is concerned, of course, we have to wait for a ruling before we can even take trade action or expect compensation or expect, of course, that based on a final ruling of the World Trade Organization. These are two separate actions.

Q Ambassador, what size of a package are you looking at? If you can't say at this point exactly what's on the list because you're still reviewing it, what overall amount are you looking at?

AMBASSADOR KANTOR: The overall amount will be consistent with the problem that we're facing. As I said, the overall amount will be consistent with the problem that we're facing --

Q What is the problem --

AMBASSADOR KANTOR: -- which will be announced in a few days. Just be patient. You'll have no fun if we do it today. (Laughter.)

Q On the one hand, you seem to be saying that you're going to operate multilaterally. On the other hand, you're saying you're going to act unilaterally. In some ways this is a non- decision, it seems. What are you going to do -- to follow up on an earlier question, are you going to wait for the panel report from the WTO before you would impose sanctions?

AMBASSADOR KANTOR: I just said no. We'll operate bilaterally with our trade laws and we'll follow the dictates of 301. As you know, under Section 301, the Congress requires that if we find unfairness under that statute, but a multilateral dispute mechanism would cover that unfairness, we have to go to use that mechanism. That's what we're doing. So this is a complementary action. We will go in both directions.

Q Do you expect these sanctions to be in place prior to the Clinton-Murayama meeting in Halifax, or much later after the Clinton-Murayama bilateral in Halifax?

AMBASSADOR KANTOR: I have no idea. The fact is that we'll publish a list; we have to wait 30 days; we have to review the comments and then we'll have to publish a final list. And then, only then under our law can sanctions be imposed.

Q June 15th is Halifax. I mean, the odds would be after Halifax then?

AMBASSADOR KANTOR: I think you can count days better than I can. And so I will allow you to do that.

Q on anything you've heard recently from the Japanese -- I mean, either publicly or privately, comments? Have they been encouraging?

AMBASSADOR KANTOR: Overheard privately I wouldn't bring you up to speed. (Laughter.) And publicly, you're more aware than I am. The fact is I think there is some split of authority among Japanese officials as well as in the industry as to how to proceed. That's up to the Japanese. The ball is in their court. We'll wait to hear from them.

Q Did you brief Republican congressional leaders, and is there bipartisan support for these actions?

AMBASSADOR KANTOR: First of all, the Senate vote yesterday was 88-8. It had leadership of both parties; both Senator Dole and Senator Daschle leading that vote. In the House there's bipartisan leadership supporting our actions. It's very strong in both Houses.

Q Did you brief them this morning or --

AMBASSADOR KANTOR: I briefed about 25 members of the House this morning, and I can say, with no exceptions did anyone -- anyone -- oppose what we're doing.

Q Is today's announcement an attempt to make the Japanese blink and to drive them back to the negotiating table? Are you prepared to follow through, or is this more of a hope that they'll reconsider that position? (Laughter.)

AMBASSADOR KANTOR: Let me put it this way. I think the President has been very decisive and determined. I think it's absolutely clear where we're going. We are going to follow the 301 procedure, as well as procedures in the WTO. And we're going to resolve this matter and open Japanese markets in the automotive sector one way or the other. If the Japanese want to address the issues that we've asked them to address in a meaningful way, obviously, we'd listen. But we're going to proceed in this direction.

Q Would it surprise you if they decided to reopen negotiations after today's announcement?

AMBASSADOR KANTOR: Nothing in life surprises me.

Q going to take you some months to get a ruling from the WTO. You'd be able to move much faster under 301. Do you agree with those analysts who say that a unilateral U.S. action would damage the WTO, particularly since it's the first high-profile case?

AMBASSADOR KANTOR: First of all, the use of our trade laws in areas where an activity is either not covered by the WTO or the country is not a member of the WTO is legal, under the Uruguay Round trade agreements we've reached, signed in Marrakech on April 15, 1994, and then ratified by the United States Congress. So we're being perfectly faithful to that agreement. And so I don't agree with that.

The fact is that we're going to maintain our trade laws and we're going to enforce them in those areas where it's appropriate. And this is appropriate in this case.

Q What happens if Japan also brings a complaint against the U.S. to the WTO?

AMBASSADOR KANTOR: Well, that's up to Japan, and I assume they would pursue it. I would assume there would be some discussion about consolidating these matters because they cover the same subject. But that would be up to, of course, the WTO panels, and I shouldn't go any further in commenting on that.

Q Can you tell us what factors you're considering in trying to make up this list?

AMBASSADOR KANTOR: Well, the factors you always consider is the level of the damages, what is in the best interests of U.S. workers and our economy, how best we can react in a way that might rectify this situation, and also in what areas could you react in a way that doesn't hurt U.S. businesses here at home -- in other words, are there goods or services in other areas -- not in this area, of course -- that would be substitutable. All that has been taken into careful account. We continue to review it. We're being very cautious in response in this regard.

Q that this might set off a trade war?

AMBASSADOR KANTOR: We haven't had a trade war in the world since 1932. I don't expect there will be a trade war. That's giving hyperbole a bad name. I think we have an annoyance and an irritant. We have a serious situation. It's been going on now for 35 years. It's time that we open up the Japanese market in this critical sector.

I gave you the numbers of how important the U.S. automotive industry is to our economy. The automotive industry in Japan is important to their economy, too. Let me emphasize one thing that Laura Tyson said. Today prices in Japan are very high. You'll see some of that referred to in the charts that we handed out to you. Those high prices lower the standard of -- or keep the standard of living in Japan low, as opposed to a society which pays its workers the second-highest paid workers in the world. If you could have more competition in their society by opening up their markets you would lower prices, raise the standard of living, and, frankly, their companies would be more competitive and innovative. I think it would be good for both countries, frankly -- and, frankly, good for global growth.

Q I wonder if you could tell us why you're taking this on now, at a time when the U.S. economy is doing very well, anxiety about job security has eased a bit, there's not a lot of noise about this coming from Capitol Hill. Why pick a fight with the Japanese over trade at this particular moment?

AMBASSADOR KANTOR: For 20 months -- 20 months -- we have tried to open up the Japanese auto and auto parts market. It was a priority sector agreed to by both countries under the Framework Agreement and reiterated on May 23, 1994. It would not be, one, in keeping in good faith with the Framework Agreement; keeping in good faith between two countries who are allies and reached a serious agreement to open trade; or in the best interests of the American people if we didn't pursue this.

The fact is that the closed Japanese market in this area has been persisting since 1959 or 1960. We think 35 years is long enough.

Q Secretary Brown, could you comment on the Republican budget proposal to eliminate your department?

SECRETARY BROWN: I've commented about that already today. We're sticking to our Japanese bilateral situation.

DR. TYSON: There's going to be a budget briefing later this afternoon.

THE PRESS: Thank you.

END12:05 P.M. EDT