"Black Ships" and Balance Sheets: The Japanese Market and U.S.-Japan Relations
Kenneth W. Abbott 0 1
Conrad D. Totman 0 1
0 This Article is brought to you for free and open access by Northwestern University School of Law Scholarly Commons. It has been accepted for inclusion in Northwestern Journal of International Law & Business by an authorized administrator of Northwestern University School of Law Scholarly Commons
1 Kenneth W. Abbott, Conrad D. Totman, "Black Ships" and Balance Sheets: The Japanese Market and U.S.-Japan Relations , 3 Nw. J. Int'l L. & Bus. 103, 1981
Part of the Comparative and Foreign Law Commons; and the International Trade Commons
"Black Ships" and Balance Sheets:
The Japanese Market and
In thisArticle, ProfessorsAbbott and Totman addressthe widespread
Western belie/thatthe Japaneseeconomy is unfairly closedtoforeign trade
andinvestment. The authorsidentifyseverallevels ofbarrerstopenetration
oftheJapanesemarket Theyfd thatconsiderableprogresshasbeen made
in reducingdirect officialrestraintsandofficial non-tarffbarriers.Further
progress in resolving the closed market issue, the authorspredict, will be
more dfffcult. Some ofthe remainingproblemsarerootedin
Japanesesociet and culture; others in Western attitudes towardJapan. All reflect the
historicalpatternof Japan'srelations with the West. The authorsconclude
with recommendationsforJapaneseandAmericanpolicy aimedat resolving
the closedmarket issue while maintainingamicable relations.
Recurrent conflict, primarily over economic issues, has been the
most visible feature of relations between Japan and the United States
for more than a decade.' Although the two nations have in general
Associate Professor, Northwestern University School of Law.
** Professor of History, Northwestern University. The authors would like to thank John F.
Hertz and Jeffrey H. Nicholas, both members of the Northwestern University School of Law Class
of 1981 and former editors of this journal, for assistance beyond the call of duty in preparing this
article for publication. Carl J. Green, Theodore F. Welch, Karl de Schweinitz and Shuji Ogawa
made helpful comments. Full responsibility, of course, lies with the authors.
1 See Destler & Sato, PoliticalCoift in U.S.-Japan Economic Relations: Where It Comes
From,"What to Do About It, in APPENDIX TO THE REPORT OF THE JAPAN-UNITED STATES
EcONOMIC RELATIONS GROUP 331-32 (1981). Major trade disputes have involved Japanese exports to
the United States, including textiles, steel, color televisions and consumer electronics as well as
automobiles and trucks, id at 331-34; restrictions on American exports to Japan, including
agricultural products and high technology items, i at 344-45; and overall trade and economic policy,
id at 353-59.
maintained cordial, even warm relations,2 their economic disputes have
tended to become more highly politicized and bitter than the disputes
of either party with its other trading partners.3 The most recent
controversy, sparked by efforts in the United States to limit exports of
Japanese automobiles and trucks to the American market, illustrates the
point. The American automotive industry and its supporters brought
to the fray an impressive panoply of legal and political weapons,
including strong public statements, 4 congressional hearings, 5 restrictive
tariff measures,6 an escape clause action,7 and proposed quota
legislation.8 The controversy rose to the highest levels of government, even
infra, hearings on protection from auto imports were held before the Subcommittee on Trade of
the House Ways and Means Committee. SeeAutomobile SituationAutumn 1980: HearingBefore
the Sub-Comm on Tradeofthe House Comm. on Ways andMeans, 96th Cong., 2d Sess. (1980).
Hearings on the problems of the automobile industry in general, including trade issues, were held
in January and March, 1981 by the Subcommittee on International Trade of the Senate Finance
Committee. See Issues Relating to the Domestic Automobile Industry: HearingsBefore the
Subcomm. on InternationalTrade ofthe Senate Comm on Finance, 97th Cong., 1st Sess. (1981).
6 Effective August 21, 1980, the U.S. Customs Service began to classify imported lightweight
cab chassis for tariff purposes as "automobile trucks," dutiable at 25% ad valorem, after
determining that its prior practice of classifying cab chassis as "bodies (including cabs) and chassis,"
dutiable at 4% ad valorem, was "clearly wrong." 45 Fed. Reg. 35,057 (1980). Whether political
considerations influenced this decision, and if so whether the decision should be invalidated, are
questions before the U.S. Court of International Trade in a suit brought by the importer of Toyota
light trucks. Toyota Motor Sales, U.S.A., Inc. v. U.S., Case No. 81-1-00048 (pending). See 
90 INT'L TRADE REP.U.S. IMPORT WEEKLY (BNA) at A-9-1 1.
7 Certain Motor Vehicles and Certain Chassis and Bodies Therefor, 45 Fed. Reg. 45,731
Trade Comm'n, 1980)
. The ITC determined that trucks, automobiles and truck chassis were not
being imported into the U.S. in such increased quantities as to be a substantial cause of serious
injury or the threat thereof to the competing domestic industries. Id The "escape clause" refers
to a procedure under §§ 201-03 of the Trade Act of 1974, (codified at 19 U.S.C. §§ 2251-2253
(1976, Supp. III 1980)) whereby increased tariffs, quotas or other remedies can be temporarily
imposed to protect an American industry injured or threatened with injury from imports of
competing products. See generalo J. JACKSON, LEGAL PROBLEMS OF INTERNATIONAL ECONOMIC
RELATIONS 615-64 (1977).
8 Senator John Danforth (R-Mo.) and Senator Lloyd Bentsen (D-Tex.) introduced S.396, to
establish auto import quotas, on Feb. 5, 1981. See  64 INT'L TRADE REP. U.S. IMPORT
WEEKLY (BNA) at A-2-5. An identical bill, H.R. 1823, was introduced the next day by Reps.
Robert Traxler (D-Mich.) and William Brodhead (D-Mich.). Id at M-1. Other quota bills were
threatening to disrupt an impending summit conference.9 As in similar
episodes in the past,10 the American tactics succeeded in extracting
from the Japanese government a last-minute pledge of "voluntary
export restraint."" This concession, subsequently imposed on the
reluctant Japanese auto manufacturers, 12 resolved the immediate crisis. If
the pattern of periodic conflict continues, however, another crisis in
trade relations can be expected to follow all too soon. 3
introduced later. See  66 INT'L TRADE REP. U.S. IMPORT WEEKLY (BNA) at A-2-5; 
67 INT'L TRADE REP. U.S. IMPORT WEEKLY (BNA) at A-i.
9 See Brock to Visit Japanfor Auto Talks, N.Y. Times, April 27, 1981, at Dl, col. 3; Free
Traders'Defeat on Cars, N.Y. Times, May 6, 1981, at D2, col. 1.
10 Striking parallels to the auto import controversy can be seen in the 1969-71 crisis over
Japanese textile exports. See DESTLER, SATO, CLAPP & FuKxu, supra note 2, at 35-45.
11 See Conte & Lehner, CarImport Limit Eases U.S.-Japan Trade Rit, Wall St. J., May 4,
1981, at 3, col. 1;  76 INT'L TRADE REP. U.S. IMPORT WEEKLY (BNA) at A-i, N-I. The U.S.
has negotiated "voluntary" export restraint agreements, more recently referred to as "orderly
marketing agreements," since the 1930s, but the technique became particularly popular in the 1960s
and 1970s. For discussion of voluntary restraint agreements, see J. JACKSON, supra note 5, at
66878; A. LOWENFELD, PUBLIC CONTROLS ON INTERNATIONAL TRADE 197-253 (1979); Fulda,
Textiles and Voluntary Restraints on Steek Protecting U.S. Industriesfrom Foreign Competition, 13
VA. J. IN'L L. 516 (1973); Smith, Voluntary Export Quotas and U.S. Trade Polic -A New
NontarffBarrier,5 LAW & POL. IN INT'L Bus. 10 (1973). "The 'voluntary' restraint upon exports
is in reality a misnomer-it is an action of restraint by an exporting country taken because of its
concern that unilateral quotas would otherwise be imposed against it by an importing country
.... " Metzger, Injury and Market Disruptionfrom Imports, in COMM. ON INT'L TRADE AND
INVESTMENT POLICY, US INTERNATIONAL ECONOMIC POLICY IN AN INTERDEPENDENT WORLD
In the 1980-81 auto import controversy, the Japanese government agreed to monitor
passenger car exports to the United States for three years by means of reports to be filed by all Japanese
manufacturers. During the first year of the program (April 1981 through March 1982), the
Ministry of International Trade and Industry will limit passenger car exports to the United States to
1,680,000 units by issuing an individual directive to each manufacturer. The directives will be
replaced by a formal export licensing system if necessary to achieve compliance. During the
second year, the same measures will be used to limit exports to the same base figure plus 16.5 percent
of the increase in total automobile sales in the U.S. market. The measures to be applied during
the third year (other than reporting and monitoring, which will continue) will be negotiated later.
See Announcement by the JapaneseMinister ofInternationalTradeand Industryon 4uto Export
RestraintMeasures,  76 INT'L TRADE REP. U.S. EXPORT WEEKLY (BNA) at N-1
(provisional and unofficial translation).
12 See note I1 supra, for the legal arrangements by which the Japanese manufacturers were
required to comply with the terms of the agreement. In the opinion of U.S. Attorney General
Smith, these measures insulated the Japanese firms from liability under the American antitrust
laws by virtue of the doctrine of sovereign compulsion. See correspondence between William
French Smith, U.S. Atty Gen., and Yoshio Okawara, Ambassador of Japan to the United States
(May 1981), reprintedin 77 INT'L TRADE REP. U.S. IMPORT WEEKLY (BNA) at M-l, 2. The
auto manufacturers strongly resisted the settlement. See N.Y. Times, May 2, 1981, at I, col. 3.
13 Disputes over non-economic matters also arise in the U.S.-Japan relationship. Instead of
the period of relative calm that should have followed settlement of the auto dispute, for example,
there ensued a period of conflict over Japanese defense spending, American nuclear weapons in
Japanese waters, and related security matters. See, eg., JapaneseForeignMinisterResigns in
Dispute Over Existenceof"alliance" with UnitedStates, N.Y. Times, May 16, 1981, at 3, col. 4; Former
In the heat of confrontations such as the one over auto imports,
participants and observers alike tend to lose perspective on the issues at
hand. Among the often shrill voices raised at the time of the dispute
over auto imports, however, one group of commentators succeeded in
maintaining an unusual degree 'of perspective on the troublesome
issues of bilateral economic relations. This was the Japan-United States
Economic Relations Group, commonly known (sometimes to the
dismay of its members) as the "Wise Men."' 4 The Group was established
in 1979 by former President Carter and then-Prime Minister Ohira.' 5
Eight leading figures in business and economics, four from each
country, were named to the Group, with two former government officials
appointed as Co-Chairmen.' 6 The mandate of the Wise Men was to
recommend ways of improving the bilateral economic relationship over
the long term.' 7 The Group's report (the "Report")"8 was issued in
January 1981.19 Like most developments in U.S.-Japan relations, the
AmbassadorEdwin ReischauerStatesthatAmerican Vesselsin Japanese Waters May CarryNuclear
Weapons underConfidentialAgreement,N.Y. Times, May 19, 1981, at 5, col. I; Demonstrationson
Arrival in Japan ofAmerican Aircraft CarrierMidway, N.Y. Times, June 5, 1981, at I, coL3.
14 See, e.g., Letter of Transmittal from James R. Jones, Charles A. Vanik, and Bill Frenzel to
Al Ullman, Chairman, House Comm. on Ways and Means (Sept. 5, 1980), reprintedin SUBCOMM.
ON TRADE OF THE HOUSE COMM. ON WAYS AND MEANS, 96TH CONG., 2D SESS., UNITED
STATESJAPAN TRADE REPORT III (Comm. Print 1980) [hereinafter cited as U.S.-JAPAN TRADE REPORT].
15 In a Joint Communique of May 2, 1979, President Carter and Prime Minister Ohira stated
the need for joint actions to "remove contentious bilateral issues from the forefront of
[U.S.Japan] relations" and agreed to form a small group of distinguished persons from private life to
recommend measures to maintain a healthy bilateral economic relationship. Reprinted in REPORT
BY THE COMPTROLLER GENERAL OF THE UNITED STATES, UNITED STATES-JAPAN TRADE: ISSUES
AND PROBLEMS 197 (1979). The President and the Prime Minister requested Robert S. Ingersoll
and Nobuhiko Ushiba to serve as Joint Chairmen and form such a group. See note 16 infra. See
generally Memorandum of Understanding-October 26, 1979, reprintedin U.S.-JAPAN TRADE
REPORT, supra note 14, at 91-92.
The Group's official existence ended on September 30, 1981, when federal appropriations for
staff and other expenses of the American side expired. The Supplemental Report of the
JapanUnited States Economic Relations Group was published in October 1981. It discusses American
and Japanese responses to the original report of the Group, analyzes additional issues in the
bilateral economic relationship, and makes further recommendations. Copies of both reports are
available from the following sources: United States; Japan Desk, U.S. Department of State, EA/J
Room 4210, Washington, D.C. 20520. Japan: Japan Center for International Exchange, 9-17,
4chome, Minami-Azabu, Minato-ku, Tokyo 106.
16 Joint Chairman Ingersoll was a former U.S. Ambassador to Japan and Deputy Secretary of
State. Joint Chairman Ushiba was a former State Minister of External Economic Affairs. The
other members were: Akio Morita, Chairman, Sony Corporation; Shuzo Muramoto, President,
Dai-Ichi Kangyo Bank, Ltd.; Kiichi Saeki, Chairman, Nomura Research Institute; A.W. Clausen,
President, Bank of America; Hugh T. Patrick, Professor of Economics, Yale University; and
Edson W. Spencer, Chairman, Honeywell, Inc. WISE MEN'S REPORT, supra note 3, at 1.
17 Id at i.
19 Although the Report was issued as the auto import drama was nearing its climax, the
Report has been much more widely discussed in Japan than in the
U.S. 2" In most respects, however, the Report is so sane and balanced in
its approach to international economic issues, as well as in its
conclusions and recommendations, that it is worthy of note for readers of this
journal, even though it deals only briefly with strictly legal matters.
One purpose of this Article, then, is simply to draw to the Report the
attention it deserves.
The second purpose of this Article is to consider in greater depth
than was allowed by the format of the Report one of the specific issues
discussed by the Wise Men, the degree to which the Japanese economy
can properly be characterized as closed to foreign trade and
investment. The closed market issue is of great importance to U.S.-Japan
relations. It was the basis for one of the most bitter disputes between
the two countries in recent years.2 ' As this is written, furthermore, both
the Reagan Administration and some members of Congress seem
intent on forcing another confrontation over access to the Japanese
The Report concisely states the closed market issue and its effect
on other bilateral disputes, such as those over Japanese exports:
There is a pervasive perception in the United States that Japan's market is
more closed than those of other advanced countries, and particularly the
American market. This perception contributes to a strongly negative
image of Japan as a country which does not play the international trade
game fairly, and it provides ammunition for those in the United States
Group held to its instructions to consider long-term issues and refused to comment on the auto
import situation in spite of pressure from the American government. Interview with Robert S.
Ingersoll, American Co-Chairman, in Chicago, IMI(June 24, 1981).
20 In particular, press coverage of the WIsE MEN'S REPORT, supra note 3, and of the activities
of the Wise Men generally, was substantially more extensive and prominent in Japan. Further,
the entire Group was asked to meet with Japanese Prime Minister Suzuki, while as of June 1981
the Group had not met as a body with any American cabinet officer. In both countries, however,
the Group has met with representatives of the government departments that would be affected by
its recommendations and other government contacts have been made by individual members.
Interview with Robert S. Ingersoll, supra note 15.
21 See text accompanying notes 75-76 infra.
22 Commerce Secretary Malcolm Baldridge, in testimony before the Joint Economic
Committee in June 1981, stated that it will be a major Administration goal to reduce the American trade
deficit with Japan by renewed efforts to increase access to the Japanese market. See  363
INT'L TRADE REP. U.S. EXPORT WEEKLY (BNA) at C-1. William Brock, the U.S. Trade
Representative, in subsequent testimony, added that "equivalent openness" will be the central objective
of the Administration's policy toward Japan.  365 INT'L TRADE REP. U.S. EXPORT WEEKLY
(BNA) at C-11. Statements by members of the Committee demonstrate a similar interest in
forcing the closed market issue. See, e.g.,  363 INT'L TRADE REP. U.S. EXPORT WEEKLY (BNA)
at C-i (reporting remarks of Rep. Fred W. Richmond (D-N.Y.) urging immediate U.S. adoption
of strategy to "unlock Japan's doors to U.S. traders and investors.").
who advocate restrictive trade measures against Japan. 23
Without doubt, the Japanese economy was tightly closed during
the period immediately following World War II and even into the
1960s, with imports and foreign capital largely barred by an extensive
system of tariffs, quotas and other direct controls on trade, investment
and foreign exchange transactions.2 4 Japan's postwar economic
situation, particularly its serious lack of foreign exchange, virtually required
such a restrictive policy; indeed, the major problem for Japan at the
time was how to export enough in the short run to be able to pay for the
imported energy, food and other basic items necessary for
reconstruction, if not for survival.2 5 Most objective observers agree, however, that
Japan kept its rigid official barriers to foreign economic activity in
place considerably longer than was justified by the postwar balance of
payments emergency.2 6
The late 1960s and 1970s saw significant changes in this system of
restraints. For one thing, Japan and the United States began to engage
in extensive discussions and negotiations over the closed market issue.
These negotiations, furthermore, were often unusually one-sided, with
America pressing Japan to modify its restrictive practices and Japan
gradually giving ground. Largely as a result of this kind of pressure,
the Japanese economy has opened dramatically, especially in terms of
such direct official restraints as tariffs, quotas and investment controls.
Japanese import and foreign direct investment statistics confirm this
opening, and demonstrate that many foreign sellers and investors have
been able to take advantage of the new opportunities.2 7 As foreign
businesses have begun to expand their activities in Japan, however,
they have encountered other Japanese rules and practices that impede
further penetration. Some of the newly identified impediments seem to
be merely more subtle manifestations of the same official policies
previously implemented through direct restraints. Others, however, seem
not to reflect official policy at all, or to do so only in part, but to derive
primarily from the characteristics of Japanese society and culture.
Businessmen and government officials in the United States and other
countries have increasingly turned their attention to these two less familiar,
and very different, types of impediments to foreign economic activity,
while continuing to press for removal of the remaining direct official
restraints. As a result, the closed market issue has taken on a much
more complex character than it had even ten to fifteen years ago.
The current complexity of the issue, however, has not been
reflected in most public debate within the United States.28 This suggests
that American trade policy has yet to adjust fully to the new realities.
Until it does adjust, negotiations over the closed market issue risk
unnecessary confrontation between Japan and the United States and
unnecessary damage to bilateral relations. The Report of the Wise Men,
while recognizing the continued existence of significant restrictions in
the Japanese market, makes a major effort to speed the needed
adjustment in American attitudes. Since our views of the changes necessary
closely parallel those of the Wise Men, the two purposes of this Article
go hand in hand.
The first section of this Article will examine the form and content
of several recent negotiations over the closed market issue, noting
particularly their lack of mutuality. The second section will trace the
lowering of direct official barriers to trade and investment in Japan and the
growing significance of the newly-identified impediments to foreign
ec27 American exports to Japan in 1970 amounted to some $4.6 billion. KEY ECONOMIC
STATISTICS IN THE U.S.-JAPAN RELATIONSHIP, in APPENDIX TO THE REPORT OF THE JAPAN-UNITED
STATEs ECONOMIC RELATIONS GROUP, supra note 1, at 377, 387-88. By 1979, exports had
increased to over $17 billion. Id American direct investment in Japan increased from $1.4 billion
in 1970 to over $5.7 billion in 1979. Id at 397-98.
28 See note 23 supra. An example is the "singular and simplistic focus in the United States on
the bilateral merchandise trade imbalance.' WISE MEN's REPORT, supranote 3, at 16. The House
U.S.-Japan Trade Task Force admits that in economic terms the bilateral trade imbalance should
not be of overriding concern, but argues that this "economic truth... is a political falsity." U.S.
JAPAN TRADE REPORT, supra note 14, at 3. Accordingly, rather than attempting to direct public
attention to more appropriate concerns, the Task Force has continued to press for increased
Japanese imports to reduce the "unacceptable trade imbalances." Id. at 11.
onomic activity. The third section will suggest at least a partial
explanation for two phenomena we believe are related: first, the extent and
persistence of restraints on foreign participation in the Japanese
economy, and second, the perception among Westerners that certain
characteristics of Japanese society and culture constitute barriers to foreign
economic activity. The fourth section will offer several
recommendations for dealing with the complexities of the closed market issue in the
future. The final section considers some implications of our analysis
for Western lawyers.
I. THE CHARACTER OF NEGOTIATIONS ON THE
CLOSED MARKET ISSUE
Over the past decade, the numerous economic issues arising
between Japan and the United States, including the closed market issue,
have been extensively discussed and negotiated in many fora, both
public and private. As this section will demonstrate, all of the
customary bilateral and multilateral forms of international economic
diplomacy-and some innovative forms unique to the U.S.-Japan
relationship-have been utilized. More striking than the mere extent
of the negotiations, however, is the lack of mutuality evident in much
of the economic diplomacy between Japan and the United States,
particularly in negotiations dealing with perceived restraints on access to
the Japanese market. Such imbalance is quite atypical of international
trade negotiations. In most such proceedings, scrupulous adherence to
the principle of reciprocity is the norm.2 9 In negotiations with Japan,
however, the United States has frequently succeeded in limiting the
agenda to a single issue, the need for action on the part of Japan to
reduce barriers to foreign trade and investment.30 Japan-which has
consistently come to the table with the weaker bargaining position
because of its dependence on its trade and security relationships with the
U.S.-has acquiesced in this definition of the issue. As a result, many
negotiations have been remarkably one-sided, not only in terms of the
subjects discussed, but also in terms of the actions agreed upon, with
Japan often making concessions with little or no American quid pro
The most comprehensive trade negotiation of the decade was the
Tokyo Round of multilateral trade negotiations (MTN).31 Although
29 See, e.g., A. LOWENFELD, supra note 11, at 120.
30 The agenda has been similarly limited in negotiations concerning Japanese exports, as in
the recent automobile crisis, see text accompanying notes 4-11 supra.
31 The literature on the Tokyo Round is already extensive. The most convenient summary is
the principle of reciprocity was in general observed during the MTN,3 2
some imbalance could be noted even there. First, Japan lowered its
tariff rates unilaterally prior to the conclusion of the negotiations as a
concession to the United States. 33 It also agreed in the course of the
MTN to disproportionately high reductions in tariffs on industrial
products of special interest to the United States.3 4 Since the end of the
Tokyo Round, moreover, Japan has implemented additional unilateral
tariff reductions. 5
Imbalance is more noticeable in the numerous bilateral
negotiations of the last several years. The best example is the Strauss-Ushiba
Joint Statement of January 13, 1978.36 Rough reciprocity was
maintained in many of the more general sections of the Joint Statement.
Both sides, for example, agreed to promote "non-inflationary economic
growth," though Japan alone enunciated a specific target growth rate.37
Under the heading "Trade Objectives," however, Japan stated its
intention to take "all reasonable steps" to increase its imports of
manufactured goods, not simply to reduce trade barriers. Under the heading
"Trade Measures" it also agreed to fourteen specific actions toward
that objective: reduction of tariffs, removal and expansion of quotas,
simplification of inspection requirements for imports, expansion of
credit for imports, securing of substantially increased opportunities for
foreign bidders under Japanese government procurement systems, and
relaxation of restrictions on foreign exchange transactions, among
others.38 There were no reciprocal United States undertakings for any
of these concessions. Other bilateral agreements, though less sweeping
and less markedly imbalanced than the Joint Statement, have
addressed current trade issues in similar fashion.3 9
Even the institutional structure of negotiations between Japan and
the United States sometimes reflects a lack of mutuality. The best
example is the U.S.-Japan Trade Facilitation Committee (TFC).40 The
TFC is an intergovernmental body created in 1977 by agreement
between the U.S. Department of Commerce and the Japanese Ministry of
International Trade and Industry (MITI). It was established solely to
identify Japanese practices which impede the penetration of American
exports -normally through the complaints of American business
interests-and to work for their removal.4' Under the TFC procedure,
American firms aggrieved by what they considered Japanese trade
barriers would file complaints with the TFC staff in the U.S. Commerce
Department; complaints that the staff found to have merit were
forwarded to the American Embassy in Tokyo. After further
investigation, the Embassy would present the complaints it considered
wellfounded to MITI with a request for action.4 z The TFC obtained action
resolving several specific complaints, 43 and focused considerable
attention on various restrictive Japanese practices.' After an initial flurry
of complaints, however, American business virtually ceased resorting to
39 See, e.g., Joint Statement of Ambassador Strauss and Minister Ushiba, June 2, 1979, supra
note 36, at 84 (addressing government procurement, standards, and barriers to sale of tobacco
Even observers critical of Japanese market restrictions have acknowledged that Japan has
"generally been careful in living up to its specific trade commitments." SUBCOMM. ON TRADE OF
HOUSE COMM. ON WAYS AND MEANS, TASK FORCE REPORT ON U.S.-JAPAN TRADE, 95TH CONG.,
2D SESS. 17 (Comm. Print 1979) [hereinafter cited as TASK FORCE REPORT]; TASK FORCE ON
U.S.-JAPAN TRADE RELATIONS, SUMMARY OF FIRST INTERIM REPORT, reprintedin id. at 59.
40 See generally Weil & Glick, Japan-Isthe Market Open? A View of the Japanese Market
DrawnFrom U.S. CorporateExperience, 11 LAW & POL. INT'L BUS. 845 (1979) [hereinafter cited
as Weil & Glick]. Frank A. Wel was Assistant Secretary of Commerce for Industry and Trade
from 1977 through 1979. Norman D. Glick was Staff Director of the TFC in the Department of
Commerce in 1979. The article is based on TFC files and the experiences of the authors with the
41 See Hollerman, The PoliticsofEconomic RelationsBetween the U.S. andJapan, in JAPAN
AND THE U.S.: ECONOMIC AND POLITICAL ADVERSARIES 213-23, 218
(L. Hollerman, ed. 1980)
("no provision for reciprocal complaints by Japanese exporters against restrictive U.S. trade
42 Well & Glick, supra note 40, at 859-61.
43 By mid-1980, some 15 "cases" had been resolved to the satisfaction of the U.S. side.
U.S.JAPAN TRADE REPORT, supra note 14, at 15. The Japanese side has been criticized, however, for
not responding more favorably to requests for action from the TFC. TASK FORCE REPORT, supra
note 39, at 24; FIRST INTERIM REPORT, reprintedin id at 59; SECOND INTERIM REPORT, reprinted
in id, at 60.
44 Data gathered by the TFC, particularly as set forth in Weil & Glick, supra note 40, have
frequently been relied on in influential Congressional reports and hearings. See, e.g., U.S.-JAPAN
TRADE REPORT, supra note 14 at 15-19; TASK FORCE REPORT, supranote 39, at 19-25; JAPAN-U.S.
the TFC,45 and the organization became relatively moribund, its
activities limited to participating in consultations on broader issues in
cooperation with the U.S. Trade Representative.46 Various explanations for
the abandonment of the TFC by American business have been
advanced, including the theory that firms fear reprisals by Japanese
officials if they lodge complaints, as well as the theory that so much
progress has been made in reducing the kinds of trade barriers within
the TFC's mandate that its services are now less important than
anticipated.47 Many of the possible explanations lead to one of two
conclusions: that the TFC format is inappropriate (if trade barriers have in
fact been greatly reduced, for example, continuation of the TFC may
be insulting to Japan) or that the format is unworkable (if reprisals are
in fact likely, more subtle methods of dealing with Japanese trade
barriers would be more effective).48 In spite of the doubts this analysis
raises, however, the Reagan Administration has recently announced
steps to reactivate the TFC.49
The U.S.-Japan Trade Study Group (TSG), also formed in 1977, is
another institution with an agenda limited to the reduction of Japanese
trade barriers.5 0 The TSG includes Japanese and American members
from both business and government, representing such organizations as
the American Chamber of Commerce in Japan, the Japanese
Federation of Economic Organizations (Keidanren), the American Embassy,
and MITI. It operates more informally than the TFC, conducting
reTRADE, H.R. REP. NO. 96-1345, 96th Cong., 2d Sess. 3-5 (1980); Impact ofNon-TarlffBarriers,
supra note 23, at 7 (statement of Abraham Katz), 331-89 (reprint of Weil & Glick article).
45 U.S.-JApAN TRADE REPORT, supra note 14, at 19
(17 cases submitted from January 1979
47 Id Other explanations hypothesized by the U.S.-Japan Trade Task Force of the House
Ways and Means Committee include lack of awareness of the TFC, disappointment at TFC
effectiveness and lack of interest in exporting to Japan. Id
48 The U.S. Co-Chairman of the Wise Men is of the opinion that those American firms most
knowledgeable about Japan at the outset determined to use more subtle methods; less
sophisticated firms initially resorted to the TFC, leading to the high rate at which claims were rejected before
being presented to the Japanese side. Interview with Robert S. Ingersoll, supra note 15.
49 See HearingsBeforethe JointEconomicSubcomm. on InternationalTrade,Finance&
Security Economics, 97th Cong., 1st Sess. (1981) (testimony of Commerce Secretary Malcolm Baldrige)
reportedin  363 INT'L TRADE REP. U.S. EXPORT WEEKLY (BNA) at C-l;  367 INT'L
TRADE REP. U.S. EXPORT WEEKLY (BNA), at C-I (reporting formation of TFC "executive
council," consisting of the U.S. Undersecretary of Commerce for International Trade and the Japanese
Vice Minister for International Affairs of MITI, to deal with general problems of U.S. penetration
of the Japanese market).
50 The TSG is described in TASK FORCE REPORT, supra note 39, at 19-24; U.S.-JAPAN TRADE
REPORT, supranote 14, at 14-15; Weil & Glick, supra note 40, at 860 n.94; AMERICAN CHAMBER
oF COMMERCE IN JAPAN, U.S.-JAPAN TRADE: WVrrE PAPER 26-27 (1979).
search into alleged restrictions on the sale of particular American
products and recommending changes in Japanese government regulations
and practices that it identifies as restrictive. Some of its findings have
been taken up in a more formal way by the TFC. Even acting on its
own, however, the TSG, with its influential Japanese membership, has
brought about change in several areas of regulation, primarily those
under the influence of MITI.5
The work of the Wise Men stands in sharp contrast to the
onesided negotiations and institutions just described. The Group's
approach, like its composition, was carefully balanced. Its Report
accordingly addresses a wide spectrum of long-term economic and political
issues.52 Some of these are matters of joint concern, such as the
adequacy and security of the industrial world's energy supplies. Others
relate to American policy, such as the allegation that American trade
laws are overly protective. Still others relate to Japanese policy,
including the closed market issue. Overall, the work of the Wise Men
demonstrates that representatives of Japan and the United States are capable
of a truly bilateral enterprise, producing balanced conclusions and
recommendations that transcend mere generalities. The work of the
Group also demonstrates the value of a long-term approach to
economic issues, a refreshing change from the usual atmosphere of crisis.
With the existence of the Wise Men at an end,53 the American
government has asked the Advisory Council on Japan-U.S. Economic
Relations to take the lead in implementing the Wise Men's
recommendations for strengthening the American economy and to act as the
principal private sector forum for the discussion of bilateral economic
problems.54 Despite the similarity in names, the Council is a much
different organization from the Japan-U.S. Economic Relations Group.
Formed in 1971 to advise the United States government on economic
problems involving Japan,5 5 the Council consists of sixty top executives
of major American corporations doing business in Japan. It meets
annually with its Japanese counterpart, the Japan-U.S. Economic
Council, as the Japan-U.S. Businessmen's Conference. For most of its life,
the organization has concentrated on business promotion rather than
matters of policy. As an organization of businessmen, the Council may
be well suited to its assignment of promoting increased American
competitiveness. In its present form, however, one may question whether it
will be able to maintain the balanced approach to the resolution of
long-term economic issues that distinguished the work of the Wise
The high-level contacts described thus far are only the tip of the
iceberg of discussions on the economic issues that confront the United
States and Japan. In Chicago, for example, rarely does a week pass
without an opportunity to hear remarks on such issues or to discuss
them with concerned Americans and Japanese. Local business groups
are active in arranging such opportunities. Speeches and seminars by
Japanese and American government officials, business representatives,
academics and other experts are also regularly sponsored by non-profit
organizations, such as the Chicago Council on Foreign Relations and
the Japan America Society of Chicago, and by academic institutions.
The local representatives of Japan--the Consulate General in
particular-regularly provide opportunities to discuss troublesome issues.
Members of the Chicago Association of Commerce and Industry
(CACI), the principal organization of businessmen in the Chicago
region, exchange annual visits with their counterparts in Tokyo and
Osaka and discuss current economic issues both informally and in
highly formal settings. In general, these discussions are more balanced
than the formal exchanges we have been describing. Even here,
however, discussions often follow an American agenda, with the closed
market issue a prominent item.56
It may be, ironically, that the very extent and imbalance of the
discussions and negotiations described in this section have contributed
significantly to the negative American perceptions of Japan identified
by the Wise Men.57 For one thing, many years of negotiations
structured around American pressure and Japanese concessions may simply
have created momentum behind the belief that Japan is acting
improperly, forestalling recognition of the many changes made. The Wise
Men suggest, further, 1hat some Americans have interpreted the
char56 One of the authors accompanied a visit to Japan by the Chicago Association of Commerce
and Industry in 1978, at the height of the crisis over exports of citrus and beef to Japan. Much of
the discussion concerned the Japanese restrictions on those and other products, and the American
position on access to the Japanese market was advanced with remarkable directness.
57 See text accompanying note 23 supra.
acteristic Japanese reticence in arguing their case during bilateral
negotiations as an admission of "guilt". 58 It may also be that the repeated
undertakings by Japan have raised unrealistic expectations of greatly
increased exports or investment among American businessmen;5 9 as
these expectations have been less than completely fulfilled, Japan has
acquired a reputation as a dissembler.60
Whatever the case, one-sided negotiations, perhaps justified in the
days of extensive official barriers to trade and investment in Japan,
have become increasingly inappropriate as those rigid barriers have
begun to fall and more complex problems have come to the fore.
THE CHANGING NATURE OF THE CLOSED MARKET ISSUE
There have been drastic, even "revolutionary" 6 1 changes in the
trade barriers that in earlier days protected the Japanese economy from
foreign penetration. The Wise Men, 62 and most other informed
observers,63 now agree that the tightly closed market of the 1950s and
1960s no longer exists.
Direct Official Barriers
The first barriers to be significantly reduced were the traditional,
positive restraints on imports-tariffs and quotas. By the start of the
Tokyo Round in 1975, Japanese tariffs had on the whole been reduced
to a level comparable to that of the U.S., although a few high ad
58 WISE MEN'S REPORT, supra note 3, at 102.
JAPAN TRADE REPORT, supra note 14, at 1; ARTHUR D. LITTLE, INC., supra note 59, at V-12-13.
valorem rates effectively excluded some products, such as tobacco.'
Since 1975, multilateral and bilateral negotiations have led to further
reductions. On more than one occasion, Japan has unilaterally lowered
its tariffs in response to American pressure. 5 During the MTN, Japan
agreed to tariff reductions averaging 46 percent on 2600 categories of
products; as mentioned above, the average reduction on products of
particular interest to the U.S. was even higher. 66 When the tariff
reductions agreed on during the Tokyo Round are fully effective,6 7 Japan's
average industrial tariff rate will be only 3.2 percent, slightly lower than
that of the U.S. 68 Since the end of the Tokyo Round, moreover, the
high tobacco tariffs have been moderated, 69 agreed semiconductor tariff
reductions have been accelerated, 70 and tariffs on auto parts have been
eliminated altogether.7 1
Postwar Japan relied heavily on quotas to restrict imports. 72 By
1978, however, only twenty-seven quotas remained, and almost all of
them protected politically influential groups engaged in farming and
fishing.73 As regards manufactured goods, Japan has.become the target
of many more quantitative restraints than it maintains, at least if one
considers "voluntary" Japanese export rest7r4aints like those on autos,
most of which are simply disguised quotas.
agreed rate reductions should be effected in eight equal annual installments, beginning January 1,
1980 (although some flexibility as to the date of the first reduction was allowed) and ending
January 1, 1987. Any party can implement its agreed reductions more quickly. The Contracting
Parties to the General Agreement on Tariffs and Trade, Geneva (1979) Protocol to the General
Agreement on Tariffs and Trade, para. 2(a), GATT Doc. L/4875 (1979), reprintedin GENERAL
AGREEMENT ON TARIFFS AND TRADE, BAsic INSTRUMENTS AND SELECTED DOCUMENTS, 26th
Supp. at 3 (1980).
68 PERCEPTION GAP, supra note 33, at 3-4; WISE MEN'S REPORT, supra note 3, at 57.
69 Wall St. J., Nov. 24, 1980, at 34, coL 1;  334 INT'L TRADE REP. U.S. EXPORT WEEKLY
(BNA) at C-5-6.
70 Wall St. J., May 12, 1981, at 48, col. 4. It appears that the tariff reduction may have been
part of an overall settlement of the auto import crisis. See  76 INT'L TRADE REP. U.S.
IMPORT WEEKLY (BNA) at I.
71  308 INT'L TRADE REP. U.S. EXPORT WEEKLY (BNA) at C-6.
72 Krause & Sekiguchi, supra note 24, at 413.
73 TASK FORCE REPORT, supra note 39, at 36 n. II (table of quotas as of April 1978); WISE
MEN'S REPORT, supra note 3, at 57, 82; Weil & Glick, supra note 40, at 856.
74 WISE MEN'S REPORT, supra note 3, at 57.
Although few of the remaining quotas restrict trade in
commodities of great interest to American exporters, two of those that do were
the cause of "serious economic friction" between Japan and the United
States in 1977-78. During those years, an emotional dispute over the
Japanese quotas on high-quality beef and citrus fruits escalated to crisis
proportions.7 5 Intense pressure by the United States led Japan to
enlarge the relevant quotas several times. 76 Since 1978, quotas have also
been raised on certain fish products77 and on leather goods78 -- the
latter a particularly sensitive product traditionally processed in Japan by a
disadvantaged minority group known as the Dowa.7 9
One can question the judgment of American trade authorities in
pressing so hard for increases in the beef and citrus quotas. Most
observers agree that if these quotas were removed completely, only
relatively small increases in American exports could be expected. While
these would undoubtedly be important to particular exporters, at the
national level the potential gains do not seem commensurate with the
extraordinary efforts poured into the negotiations on beef and citrus or
with the damage to U.S.-Japan relations that the controversy caused. 0
Further, most advanced nations, including the United States, afford
their producers of primary products forms and levels of protection
similar to those provided by Japan, though the Wise Men conclude that
the degree of protection Japan maintains may be somewhat higher than
the norm."' In spite of these factors, the dispute over beef and citrus
seems to have taken on a life of its own as a symbol of the closed
market issue, and threatens to erupt again at any time.82
Like direct restrictions on imports, formal barriers to foreign
investment in Japan have been significantly reduced. Controls on foreign
direct investment were for years maintained under the Law Concerning
Foreign Investment,8 3 enacted in 1950, and the regulations adopted
thereunder.8 4 Originally, foreign businesses and individuals could
make virtually no direct investment in Japan without the prior
approval of the competent ministry.8" When Japan joined the OECD in
1963 its restrictions on foreign capital were among the most severe of
any member.8 6 Pressure from the members of the OECD, however,
particularly the United States, led Japan to begin liberalizing its
investment regulations.8 7 A four-year capital liberalization program was
announced in 1967, and there followed several "rounds" of
important restrictions on international trade in temperate agricultural commodities are
nontariff barriers, and a large proportion of these are maintained in blatant violation of the
K. DAM. THE GATT: LAW AND INTERNATIONAL ECONOMIC ORGANIZATION 257 (1970). See
generally J. JACKSON, supra note 7, at 979-94.
82 Interview with William Brock, supra note 23;  363 INT'L TRADE REP. U.S. EXPORT
WEEKLY (BNA) AT C-1 (remarks of Sec. of Commerce Malcolm Baldrige);  365 INT'L
TRADE REP. U.S. EXPORT WEEKLY (BNA) at C-1 1-12 (testimony of U.S. Trade Representative
Disputes over Japanese agriculture may involve Japanese exports as well as restraints on
imports. For example, protectionist policies, along with declining demand, have produced
Japanese surpluses in rice, and Japan has begun to export rice. WISE MEN'S REPORT, supranote 3, at
85. This has led to conflict with other rice exporting nations, including the United States Id See
also  280 INT'L TRADE REP. U.S. EXPORT WEEKLY (BNA) at C-3. A complaint by
American rice millers under Section 301 of the Trade Act of 1974 led to bilateral negotiations, and Japan
has agreed to "voluntary" restraints on its rice exports to world markets, with specific limits for
Asian markets of special interest to the United States. See U.S.-JAPAN TRADE REPORT, supra
note 14, at 60-61.
Japan is dependent on imports for several important foodstuffs. WISE MEN'S REPORT, supra
note 3, at 86; SANDERSON, JAPAN'S FOOD PROSPECTS AND POLICIES 1-2 (1978). Recent
indications are that Japan will continue its efforts to increase the nation's self-sufficiency in food. 
350 INT'L TRADE REP. U.S. EXPORT WEEKLY (BNA) at C-10. If this policy leads to additional
protective measures and increased subsidies, it may spark even further conflict over agricultural
83 Mimpo (Civil Code), Law No. 163 of 1950.
84 See Pearl, LiberalizationofCapitalin Japan(Part1), 13 HARv. INT'L L.J. 59-64 (1972); D.
HENDERSON, FOREIGN ENTERPRISE IN JAPAN: LAWS AND POLICIES 217-36 (1973).
85 Hartman, JapaneseForeignInvestment Regulatiox SemanticsandReality, 18 N.Y.L. FOR.
355, 358-61 (1972). According to Professor Henderson, as of 1973, "Together, the FIL [Law
Concerning Foreign Investment] and FECL [Foreign Exchange and Foreign Trade Control Law,
discussed below] subject almost every imaginable transaction with a foreign contact to a licensing
requirement; almost everything is prohibited, unless one first obtains approval." D. HENDERSON,
supra note 84, at 217.
86 Pearl, supra note 84, at 60.
87 Pearl, Liberalizationof Capitalin Japan (PartI1), 13 HARy. INT'L. L.J 245, 247-53 (1972).
Northwestern Journal of
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liberalization.8 1 In the first round, lines of business drawn from
Japan's standard industrial classification were divided into three
categories:8 9 one in which 100 percent foreign ownership would be permitted
without prior approval, if stated conditions were met;90 one in which up
to (but not more than) 50 percent foreign ownership would be so
permitted; and one in which all foreign investments continued to require
prior review and approval. In later rounds, business lines were moved
from the third category to one of the other two. 9'
This program was perceived in the U.S. as "a highly controlled
liberalization, partial and incomplete .. *"92 Although by the end
of the original program in 1971 only some 7 percent of the lines of
business affected by the liberalization still required prior approval for
all foreign investments, well over half of those lines required approval
for investments above 50 percent.93 The industries requiring approval
for all investments, furthermore, included "the most attractive
investment opportunities for foreigners. . . ."9 Finally, liberalization was
"accompanied at every instance by 'countermeasures' designed to limit
the ability of foreign investors to make serious inroads into the control
of Japanese industry."9 5 For example, instead of relying on its former
power to review proposed investments under the Law Concerning
Foreign Investment, the government was often able to achieve the same
ends by requiring the screening of contracts for the transfer of
technology, often associated with direct investments by foreign firms under the
foreign investment law and other statutes. 96 Over the course of the
1970s, the remaining formal restrictions were gradually lifted, to the
point where 100 percent foreign ownership was permitted in all but a
few lines of business (including agriculture, petroleum and
leatherworking).9 7 As described below, however, restraints on foreign
investment still remain.
The Foreign Exchange and Foreign Trade Control Law,98 adopted
in 1949 at the height of the postwar balance of payments crisis, was for
years used in tandem with the Law Concerning Foreign Investment to
restrict foreign participation in the Japanese economy.99 Under this
Law, international capital transactions, including foreign direct
investment, required prior government approval, and the exception
procedures were complex and burdensome. l0 0 In the Strauss-Ushiba Joint
Statement, however, Japan agreed to make a "sweeping review" of its
entire foreign exchange control system.101 A few specific measures
were announced soon after,102 and in 1980 a substantially amended
Foreign Exchange and Foreign Trade Control Law became effective.10 3
The new statute incorporates and repeals the Law Concerning Foreign
Investment, and adopts what Japanese sources refer to as a "free in
principle" approach: most capital transactions, including foreign direct
investment, may go forward without approval (though in many cases
only upon prior notification) except during balance of payments
emergencies and in other specified circumstances. 4 Some of the
excep98 Mimpo (Civil Code), Law No. 228 of 1949.
99 The Foreign Exchange and Foreign Trade Control Law (FEL) and the Law Concerning
Foreign Investment (FIL) were closely interrelated, sharing many definitions. The FEL was
considered a "general law" and the FIL a "special law;," thus the FIL governed the specific
transactions falling within its terms and the FEL governed all other economic transactions with
foreigners. The FEL, for example, governed the establishment of branches and certain contracts
for the transfer of technology to subsidiaries. The FEL also governed transnational payments in
situations where the FIL had applied to the original establishment of a foreign business. D.
HENDEmSON, supra note 84, at 217-21.
An official history of MITI describes the FEL as "MITIs main tool," for "industrial
rationalization, industrial protection, and the promotion of exports .... as well as for its original
purpose of rationing foreign exchange. Johnson, MITI andJapaneseInternationalEconomic Policy,
in THE FOREIGN POLICY OF MODERN JAPAN 227, 248 (R. Scalapino ed. 1977).
100 See Ichikawa, The Liberalizationof.Japan'sForeignTrade andForeignExchange
73ransactions, in Appendix to the Report of the Japan-United States Economic Relations Group, supra
note 1, at 165, 181-83; WISE MEN'S REPORT, supra note 3, at 57-58. See also The
ForeignExchange andForeignControlLaw: "ProhibitionPlinc~vie"Amendedto Be Free, LooK JAPAN, Jan.
10, 1980, at 12-13.
101 Joint Statement by Minister Ushiba and Ambassador Strauss, supranote 36, at 83, para. 8.
102 TASK FORCE REPORT, supra note 39, at 18.
103 WISE MEN'S REPORT, supra note 3, at 58. The statute was enacted late in 1979, but was not
made effective until December 1, 1980. See Law Concerning Partial Amendment of the Foreign
Exchange and Foreign Trade Law, Mimpo (Civil Code), Law No. 65 of 1979, amendhngthe
Foreign Exchange and Foreign Trade Law, Mimpo (Civil Code), Law No. 228 of 1949. A section by
section summary in English issued by the Japanese Ministry of Finance appears in  330
Ilf'L TRADE Rm. U.S. EXPORT WEEKLY (BNA) at 0-I.
104 Ichikawa, supranote 100, at 187-92; WisE MEN'S REPORT, supranote 3, at 58; LoOK JAPAn,
supranote 100, at 12-13. See also Sei,MajorPointsin the Revision oftheForeignExchangeand
ForeignTrade ControlLaw, 1 JAPAN Bus. LJ. 8, 10, 15-17 (1980).
system itself nor the governmental programs affecting it have had a
discriminatory purpose; the system is often as frustrating to Japanese as
to Americans.' 7 6 Still, in the case of complex phenomena like the
Japanese distribution system, the mixture of extensive official
involvement-which might be a proper subject for international
negotiationwith social and economic177 factors - many of which are generally not
appropriate targets for external pressure-makes for unusual
difficulties of analysis and policy formulation.
Certain other attitudes experienced by Westerners differ from the
core cultural phenomena in other ways. Both the ADL report and the
U.S.-Japan Trade Task Force report, for example, find a "buy
Japanese" preference at work in some sectors of the economy. 178 This
attitude is not an obstacle to the sale of consumer goods; the cachet of
foreign products may actually give them an advantage in Japan's
consumer markets.1 79 The preference seems rather to operate in the
purchase of capital goods and basic materials.'8 0 Such discrimination
can be explained in part by economic considerations, 181 but it appears
to be supported by a more fundamental aversion to long-term supply
relationships with foreign firms.' 8 2 While "buy domestic" attitudes are
not uncommon either in the United States or in other countries, the
preference for domestic sources of supply in at least some parts of
Japanese society is perceived as being unusually strong. A similar attitude
on the part of individuals may contribute to the difficulty of attracting
local managers and employees to foreign-owned business ventures,
although considerations of personal economic security appear to be the
primary source of this problem. 183 To the extent such attitudes actually
in the system resulting from "the emergence of the mass consumer market and the rapidly rising
consumer expectations," see id at 129-72.
176 See WISE MEN'S REPORT, supra note 3, at 64 (system "discriminates against new market
entrants both foreign and domestic").
177 Many Japanese manufacturers have established vertically integrated distribution systems
for their products, most often by creating networks of affiliated dealers, that serve to exclude
foreign products from those channels of distribution. See M. YOSHINO, supra note 158, at 109-24.
178 See note 159 and accompanying text supra. Secretary of Commerce Malcolm Baldridge
has recently stated that the TFC, see notes 40-49 and accompanying text, supra,will in the future
focus on "informal" trade barriers as well as "official" ones, and hopes to enlist the aid of MITI in
changing widespread hostile Japanese attitudes toward certain imports.  363 INr'L TRADE
REP. U.S. EXPORT WEEKLY (BNA) at C-I.
179 See ARTHUR D. LITrLE, INC., supra note 59, at IV-43.
180 Id; Sf. U.S.-JA'AN TRADE REPORT, supra note 14, at 35 (Japanese imports of Korean steel
lower than American on per capita basis).
181 See ARTHUR D. LrrrLE, INC., supra note 59, at IV-44-48.
182 Id at IV-44.
183 Cf id at IV-38-39 (employment by foreign firm accorded 'low status" because of
shortterm management perspective and perception that foreign business may not be successful).
Northwestern Journal of
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influence Japanese business decisions, they pose much greater obstacles
to foreign firms than do such core cultural phenomena as language and
styles of communication. The latter can be learned or adapted to, by
the use of interpreters and advisers, for example. The former, however,
cannot be overcome in the short run by the unilateral efforts of foreign
firms. If such attitudes actually pervade Japanese society-a matter we
will explore in the next section-they may constitute a "fourth level"
barrier to foreign economic penetration, more difficult to overcome
than any so far discussed.
III. THE CULTURAL AND HISTORICAL ROOTS OF
AMERICAN ECONOMIC RELATIONS
There has been real and substantial progress in dismantling many
official barriers to trade and investment in Japan, both "first level"
restrictions such as tariffs, quotas and investment controls and "second
level" NTBs. This progress, however, has been slow and frustrating, at
least from the American point of view, and has only been achieved
with the expenditure of "a great deal of political capital."'8 4
Furthermore, for all of the progress made, foreign business still confronts a
variety of restraints that are in whole or in part officially maintained. It
may also face, at least in some sectors of the economy, an attitude on
the part of private firms and individuals that favors business relations
with domestic companies over relationships with foreigners. Finally,
foreign business has come to identify many Japanese social structures
and cultural characteristics as impediments to penetration of Japan's
economy. All of these diverse phenomena must now be considered
when discussing the closed market issue.
Our concluding sections will offer some recommendations for
dealing with the various components of this vexing problem. To do so,
however, we must first seek to understand more clearly the roots of the
problem and the reasons for its persistence.
Many of the official impediments to foreign penetration of the
Japanese economy can be explained as products of relatively
straightforward political and economic calculation. We have already noted, for
example, that most of the remaining Japanese quotas protect politically
influential agricultural interests. A variety of other powerful domestic
interests, agricultural, industrial and commercial, have inhibited
successive Japanese governments from reducing similar protective
barrieasily find work elsewhere can be employed.
ers. 8 5 As an example, the government is thought by many to have
preserved the traditional distribution system, characterized by multiple
layers of wholesalers and many small retailers, as part of the nation's
"social welfare system," a sector where many persons who might not
Economic calculation is apparent in the Japanese government's
moves to protect favored industries from import competition while they
develop the size and strength needed to compete in international
markets. Japan has consciously "grown" a basic heavy industries sector,
then a still-evolving group of low-pollution, knowledge-intensive
industries, that together have accounted for much of Japan's stunning
economic success.' 7 Demonstrating a different sort of economic
calculation, Japan has long been predisposed to limit unnecessary imports
whenever possible, since available foreign exchange must first be
devoted to importing basic materials, food and fuel in huge quantities.
This basic economic truth has made some protective measures seem
eminently reasonable to the Japanese.'8 8
But does such political and economic calculation by the Japanese
government adequately explain the range of problems that now makes
up the closed market issue? We submit that it does not. First, and
most clearly, it does not explain the Western perception of "third level"
social and cultural barriers to foreign activity-such as unfamiliar
styles of communication and decision-making-that derive, by and
185 See, eg., Abegglen & Hout, supra note 24, at 156-57 (discussing "political wards," sectors
which receive protection for political reasons); Weil & Glick, supra note 40, at 870 (domestic
manufacturers benefit from restrictive standards system).
186 See ARTHUR D. LITTLE, INC., supra note 59, at IV-49-51.
187 See U.S.-JAPAN TRADE: ISSUES AND PROBLEMS, supra note 15, at 176-86; U.S.-JAPAN
TRADE REPORT, supra note 14, at 39-46; Caves and Uekusa, IndustrialOrganization,in AsIA's
NEw GIANT. How THE JAPANESE ECONOMY WORKS, supra note 25, at 459, 486-89. The
appropriateness of these Japanese policies is a matter of fierce dispute, and lies at the heart of much of
the discord between Japan and the U.S. over economic matters.
188 Through the early 1970's, "The Japanese government stimulated exports, restricted
manufactured imports, and assisted large scale raw material imports," "classical behavior for an island
economy poor in natural resources and prone to experience trade deficits ... ." MAGAZINER &
HouT, JAPANESE INDUSTRIAL POLICY 42-43 (1980). See also Krause & Sekiguchi, supra note 24,
at 386-88; Abegglen & Hout, supra note 24, at 151; D. HENDERSON, supranote 84, at 68-69 (Japan
has qualitatively greatest dependence on imports of any major nation, though quantitatively
imports are not high proportion of GNP). The need to limit nonessential imports and promote
exports was particularly acute during the postwar balance ofpayments crisis. See notes 24-25 and
accompanying text supra.
Growing dependence on imported foodstuffs has led to concern over security of food
supplies. See WIsE MEN'S REPORT, supra note 3, at 81, 86; SANDERSON, supra note 82, at 60-62,
suggests that Japan's concerns over inadequate world grain supplies, high world grain prices, and
food embargoes have proven to be unfounded.
Northwestern Journal of
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large, from spontaneous private attitudes and conduct. Those
phenomena are only "barriers" from the point of view of the foreign
businessman who finds them difficult to master. What needs explanation is not
the existence of the phenomena but the fact that foreign businessmen
have been so unsuccessful in adapting to them. Second, and almost as
clearly, official economic and political calculation does not
satisfactorily explain the apparent reluctance among public, quasi-public and,
especially, private institutions and individuals in Japan to deal with
foreign economic interests. Third, the types of political and economic
considerations mentioned above seem best able to explain official
restraints on trade; they seem to us to inadequately explain Japan's
marked resistance to foreign direct investment, which may affect a
nation's balance of payments, employment and other economic
conditions much differently than imports. We have earlier suggested that an
explanation of this resistance should take into account that direct
investment is a more intrusive form of economic activity than trade.
Finally, for us, cold economic and political calculation alone does not
satisfactorily explain the tenacity with which Japan has clung to the
notion of restricting foreign activity through changing economic
conditions and in the face of strong pressure from abroad. We seek an
explanation that accounts for the emotional intensity of the Japanese
To understand more fully these dimensions of the closed market
issue, it is necessary to look at the problem as a manifestation of a
larger historical pattern of interaction between Japan and the West.
This has been an unbalanced pattern, in which economic and other
relations have been carried out for the most part in English and
according to Western norms, with the result that Westerners have generally
failed to reach an intimate understanding of Japanese society.
Americans first encountered Japan during the out-thrust of
nineteenth-century Western imperialism. 89 As Europeans extended their
presence around the globe during the sixteenth to nineteenth centuries,
they developed a set of methods-largely adopted by the
Americansfor dealing with the "natives" in the societies they encountered.
Confident that theirs was the only civilized society and the only true religion,
and reassured in that confidence by the superiority of their firearms
and other technology, they saw no need to gain more than a superficial
189 The patterns of nineteenth-century imperialism are examined in a vast array of books. F.C.
JONES, EXTRATERRITORIALITY IN JAPAN AND THE DIPLOMATIC RELATIONS RESULTING IN ITS
ABOLITION, 1853-99 (1931), describes the pattern in Japan. For a wider-ranging study, see G.
SANSOM, THE WESTERN WORLD AND JAPAN (1951).
knowledge of native society. They communicated through their home
language, be it English, French, Dutch, or some other European
tongue. They worked out relationships according to advantageous
precedents developed in the course of prior expansion, living in their
own enclaves, according to their own customs, and without regard for
local law and practice. When commercial and political links were
established, they too were based on imperialist precedents, with minimal
reference to indigenous traditions.19 0
From the time Japanese first dealt with Americans and other
Westerners, they too were forced to do so almost entirely in Western
languages, according to Western norms, and at least in a social sense on
the periphery of Japan. Even if the Japanese had wanted to deal with
foreigners in their own tongue, according to their own ways, and within
the web of Japanese society, they could not have done so. Thus was
born the unbalanced pattern of Japanese-Western intercourse and the
failure of Westerners to deal with the cultural phenomena inherent in
This does not explain, of course, why the Japanese accepted this
pattern nor why they have been able to work so well within it, even
though it has made great demands upon them. 9 ' We believe that the
Japanese have been willing and able to function in foreign terms
because doing so enables them to satisfy a preference for modes of
intercourse that maintain distance between themselves and others. 192
To elaborate this proposition, one may say that the Japanese draw
sharper distinctions between "us" and "them" than do people in many
other societies, including the United States. This is a pervasive social
tendency affecting all group situations: "my family," "my group," "my
company," "my village," "my school," and "my graduating class" are
all distinguished from "yours." At the national level, this tendency
leads Japanese to draw a sharp distinction between themselves and
190 The most famous example of imperialist arrangements-and the one that the Japanese
observed most clearly and instructively-was China, where during the mid-nineteenth century the
English obtained the long-term concession of Hong Kong, acquired enclaves in a number of
Chinese cities, secured partial control of the Chinese tariff, which was reorganized and administered
along English lines, and forced the Chinese to reorganize their diplomatic procedures to
accommodate Western preferences. J. FAIRBANK, TRADE AND DIPLOMACY ON THE CHINA COAST. THE
OPENING OF THE TREATY PoRTs, 1842-1854 (1953).
191 To attempt to analyze a complex society in a few lines risks extreme oversimplification and
the appearance of condescension. We assume those risks in the belief that the Japanese attitudes
we describe here--and the American attitudes we discuss above-exist and contribute importantly
to trade disputes between the two nations.
192 Studies ofJapanese social psychology are legion. Two recent andilluminating works are T.
LEBRA, JAPANESE PATrERNS OF BEHAVIOR (1976), and C. NAKANA, JAPANESE SociETY (1970).
non-Japanese, generically labelled gai/in, it being assumed that
foreigners can best be understood and dealt with in the clear-cut dualistic
terms of "us" and "them."1'9 3 Dealing with foreigners in ways that
keep them at a distance enables the Japanese to preserve a clarity of
social place and an integrity of self that seem threatened when others,
particularly outsiders, become too intimate. The need to maintain a
clear sense of self is particularly powerful at the national level, where it
is reinforced by an unusually strong feeling of vulnerability vis-a-vis
foreigners. 194 This feeling is manifested in the constant readiness of
Japanese to speak of their island country as "small," "crowded,"
"weak," "isolated" or "poor," and recently even to envisage it sinking
out of sight.' 5 In short, because Japanese feel that "we" are so weak
compared to "them," it becomes doubly necessary to keep "them" at
arm's length, so that "they" cannot harm "us."
It is this desire to protect what is seen as a vulnerable self from
alien encroachment that has, we believe, been the sustaining emotional
force behind Japan's reluctance to allow foreigners easy access to home
markets and that underlies private Japanese attitudes of reluctance to
deal with foreigners. We have already suggested that, in economic
terms, Japan's feelings of vulnerability are in no way misplaced. 9 6
193 Americans also label non-Americans generically as "foreigners," but the terms galVin and
"foreigner" function differently. In popular Japanese parlance the term gaifin, which generally
refers to non-Asians and is applied quite openly to people who are visibly different, is a
nonpejorative term of identification with certain implicit explanatory connotations. It signifies, in
particular, that the person identified is unfamiliar with Japan and does not speak the language. In
popular American parlance the term "foreigner" is applied more indiscriminately, most
commonly on the basis of language, less commonly on the basis of appearance or manners. More than
gafln, the term is often used covertly and in a pejorative sense.
194 For a recent journalistic comment on Japan's feelings of vulnerability, see Wall St. J., Sept.
14, 1981, at 1, col. 5 ("tendency of the Japanese to downplay or even deny their prosperity"). It is
also true that the basic Japanese disposition to see social situations in terms of "us" and "them,"
reinforced at the national level by a sense of cultural uniqueness, can give rise to an arrogant sense
of ethnic superiority. It has led to bold assertions of Japan's unique moral worth, historic destiny,
superior social capability or global mission. Especially during the 1930s, Japanese chauvinists
celebrated the unique virtues and mission of their nation. See, e.g., SouRcES OF THE JAPANESE
TRADITION (R. Tsunoda, comp. 1958). But whereas some societies' comparable notions of
cultural superiority, "manifest destiny," civilizing mission, world leadership, or racial supremacy
have been uncomplicated by countervailing sensibilities, the Japanese have been persistently
tormented by their unusually strong feeling of vulnerability vis-a-vis foreigners.
Recently the notion of Japanese uniqueness has been evidenced in a psychological hypothesis
that Japanese brains work differently from the brains of other people, with the right hemisphere
doing what the left hemisphere does in the brains of gaifn. See Sibatani, The Japanese Brain,
SCIENCE 80 (Dec. 1980).
195 The sense of vulnerability was recently evident in the popularity of the book Nihon
chinbotsu (The Sinking of Japan) by Komatsu Sakyo (Tokyo 1973).
196 See text accompanying notes 25 & 188 supra. Japan's vulnerability is not based solely on
the need to import and export. Japan is not a favored customer of many of the nations that supply
The attitudes of which we speak, however, ran far deeper than modem
economic considerations such as dependence on foreign oil. They were
evident in the Japanese historical experience long before such
ations became operative.
The self-image of Japan as a small, vulnerable, and isolated
country was well established by the mid-nineteenth century.1 98 By that time
too, the Japanese practice of dealing with foreigners at a distance had
solid historical grounding. In earlier centuries, Japan had conducted
many of its international economic, political and cultural contacts
abroad; from the seventeenth century onward, it had restricted those
contacts to a few closely controlled points on the edge of southwestern
Japan. In the course of these dealings the Japanese had become
accustomed to working in foreign languages and according to foreign
customs. When the Westerners arrived in the 1850s, their insistence on
using their own languages and customs corresponded rather well to the
behavior that observant Japanese had come to expect of foreigners.
What the Japanese found alarming in the arrival of the Western
imperialists was the magnitude of their proposed intrusion into Japan,
which seemed to constitute an intolerable assault on the concept of a
safe and proper distance between "us" and "them." In response, the
Japanese undertook vigorous and persistent attempts to protect
themselves from the escalating foreign encroachment.1 99
it with raw materials, some of which resent Japanese purchases of their nonrenewable resources,
particularly at early stages of processing, or resent their own dependence on Japanese buyers.
Krause & Sekiguchi, supra note 24, at 388. Further, Japan is located far from major industrial
markets in Europe and North America. The nearest large states are the Soviet Union and the
People's Republic of China, both of which cause Japan concern as reliable customers and
suppliers. See Pempel, JapaneseForeignEconomic Policy: The Domestic Basesfor
InternationalBehavior, 31 INT'L ORG. 723, 726-29 (1977). Japan even has reason to be suspicious of the reliability of
the United States, its largest trading partner. See notes 235-37 and accompanying text infra.
197 For examples of older Japanese views of their island's vulnerability, see D. KEENE, THE
JAPANESE DISCOVERY OF EUROPE (1969) and some of the translated documents in SELECTED
DoCUMENTS ON JAPANESE FOREIGN POLICY 1853-1868 (W.G. Beasley, ed., 1955).
198 Originally Japan's sense of smallness sprang from persistent comparison with China, the
foreign culture that most influenced its development during the millennium before the late 18th
century. From the 1780s, however, Japanese began to receive reports of European activities in the
surrounding seas, and commentators began to emphasize the size and power of such western
states as Russia and England. The Opium War of 1839-1842 led to heightened rhetoric about
Japan's weakness, and since then the comparative frame of reference for national self-assessment
has remained the West, for many years mainly England and Russia, but by the mid-twentieth
century, the U.S. See sources cited in note 197 supra. See also G. LENSEN, THE RUSSIAN PUSH
TowARD JAPAN: RusSO-JAPANESE RELATIONS 1697-1875 (1959). The sense of national
vulnerability as it existed in the 1840s is evident in comments of the political leaders of the time. See
Totman, PoliticalReconciliationin the Tokugawa Bakuf: Abe Masahiro andTokugawa Nariaki,
1844-1852, in A. CRAIG & 0. SmvELY, PERSONALITY IN JAPANESE HISTORY 180-208 (1970).
199 Many studies, both specialized and general, examine the history of Japanese foreign policy.
During the 1850s and 1860s foreign armadas, such as the "Black
Ships" led by the American Commodore Matthew Perry, forced the
Japanese government--the Tokugawa shogunate 2°0 -to agree to
treaties of trade and diplomatic recognition, complete with the unequal
clauses characteristic of the age of Western imperialism. Tokugawa
leaders and advisors struggled to find ways of dealing with the intrusive
foreigners. They sent Japanese traders abroad, hoping that their
activities would satisfy the foreigners, as in the past, while leaving the
domestic order essentially unchanged. When that did not suffice, they
maneuvered to minimize the extent of foreign penetration. They
attempted to restrict foreigners to a few trading ports and resisted
Christian proselytizing. They introduced a variety of programs to train
people in foreign languages and ways and sent them abroad to learn
the secrets of Western power, in the hope of using those secrets to fend
off the foreign incursion. They directed their greatest effort toward
keeping foreigners away from the Emperor and his court in Kyoto,
which were regarded as the very heart of "us."20 1
In 1868 insurgents overthrew the Tokugawa regime and
established a new government nominally controlled by the young Meiji
Emperor. z20 During the next three decades the Meiji regime devoted itself
to increasingly complex efforts at developing national strength.0 3
For general surveys, see the old, but detailed, textbook, C. YANAGA, JAPAN SINCE PERRY (1949)
and the newer, more concise W.G. BEASLEY, MODERN HISTORY OF JAPAN (1963). A valuable
recent reference work is JAPAN'S FOREIGN POLICY, 1868-1941: A RESEARCH GUIDE (J. Morley,
ed., 1974). Its bibliography will guide readers to other sources, in both English and Japanese. For
a recent study of the history of U.S.-Japanese relations, see C. NEU, THE TROUBLED ENCOUNTER:
THE UNITED STATES AND JAPAN (1975). See also A. IYE, ACROSS THE PACIFIC: AN INNER
HISTORY OF AMERICAN-EAST ASIAN RELATIONS (1967).
200 From 1603 until 1867 Japan was dominated by a government headed by a hereditary line of
rulers named Tokugawa and holding the title shogun. The shogun resided in Tokyo (then called
Edo) and ruled through some 250 daimye, or feudal lords, who governed their own fiefs in line
with regulations issued by the shogunate. The emperor, who nominally appointed the shogun,
lived in Kyoto as a powerless symbol of national authority.
201 Foreign affairs in the final years of the Tokugawa shogunate are covered in W.G. Beasley,
ed., note 197 supra. See also Totman, From sakoku to kaikoku: The TransformationofForeign
PolicyAttitudes, 1853-1868, 35 MONUMENTA NIPPONICA 1 (1980). A sound general study of those
years in Japanese history, including a good bibliography, is W.G. BEASLEY, THE MEUl
202 In 1868 the forces of some insurgent daimy6, see note 200 supra, overthrew the Tokugawa
shogunate, claiming that they were restoring to the emperor authority that had been usurped by
the founder of the Tokugawa line, Tokugawa Ieyasu. The insurgents established their
headquarters in Tokyo, "the eastern capital"-as Edo was renamed-and over the next three decades
developed a parliamentary government with a cabinet subject to the Emperor, who was made the
locus of sovereignty. See generally G. AKITA, FOUNDATIONS OF CONSTITUTIONAL GOVERNMENT
IN MODERN JAPAN, 1868-1900 (1967).
203 The policies of the Meiji regime have been studied extensively. On foreign relations, in
These efforts were part of a multifaceted strategy to preserve Japan's
national autonomy by keeping foreigners at arm's length, thus
maintaining the social distance between "us" and "them" that the Japanese
considered essential to a well-ordered world. The task required
massive political and military reorganization and the conscious promotion
of industrial development, supplemented by a series of more specific
steps designed to minimize foreign penetration. Attempts were
repeatedly made to negotiate an end to the unequal treaties that so impugned
Japanese honor and gave foreigners such advantages in Japan. The
foreign treaty ports were prevented from expanding (as similar
enclaves were expanding in China) by vigorous development of
indigenous commercial and coastal shipping institutions. As rapidly as
possible overseas trading organizations were established to carry on
trade abroad, thereby reducing foreigners' demands within Japan.
Aware that they could not deal successfully with the Westerners if
they did not understand the sources of their strength,2°4 the Meiji
leaders sent more students and officials abroad to study. They hired foreign
advisors, paid them lavishly, picked their brains, and dismissed them.
Western ways were studied and discussed with an intensity that
evidenced the widespread fear of foreign cultural domination.2 °5 Whereas
emigration was expedited, immigration was actively discouraged on the
grounds that Japan was too small, too poor, and too overcrowded to
addition to sources cited in note 199 upra,see F.C. JONES, note 189 supra. For a standard
reference on economic development, see W. LOCKWOOD, THE ECONOMIC DEVELOPMENT OF JAPAN:
GROWTH AND STRUCTURAL CHANGE, 1868-1938 (1954). For a discussion of Japanese concern
about foreign cultural domination during the Meiji era, see K. PYLE, THE NEW GENERATION IN
MEIJI JAPAN; PROBLEMS IN CULTURAL IDENTITY, 1885-1895 (1969).
204 "Knowing the enemy" was a classical Confucian dictum, employed over and over again. In
early 1846, for example, the great daimy5 Tokugawa Nariaki thundered at the shogunal leader,
"knowing one's enemy and oneself, in a hundred battles there will be no danger." See Totman,
supra note 198, at 187.
205 As an example of this movement, John Henry Wigmore, former Dean of the Northwestern
University School of Law and preeminent American scholar of evidence, was brought to Japan as
a young man to teach Anglo-American law. See J. ROLFE, JOHN HENRY WIGMORE: SCHOLAR,
AND REFORmER 21-31 (1977). The interest in Western law was part of the general interest in
things Western, but was also based on a desire to obtain the agreement of the Western powers to
abrogation of the treaties granting them extraterritorial rights in Japan.
To help neutralize the allu ideologies being intensively studied, great effort was devoted to
formulating and propagating domestic dogmas and theories of state and society. This effort drew
heavily on Tokugawa-era writings about the Japanese imperial legacy (kokugaku), and vigorous
programs of nationalist indoctrination were undertaken in the newly-formed armed forces and
public school system. On this Tokugawa intellectual legacy, see S. MATSUMOTO, MOTOORi
NORINAGA, 1730-1801 (1970); D. EARL, EMPEROR AND NATION IN JAPAN: POLITICAL THINKERS
OF THE TOKUoAWA PERIOD (1964); H.D. HAROOTUNiAN, TOWARD RESTORATION: THE GROWTH
OF POLITICAL CONSCIOUSNESS IN TOKUGAWA JAPAN (1970). On Meiji-era political
consciousness, see K. PYLE, supra note 203.
accept more people and that foreigners could not really adapt to life in
Japan anyway.2 °6
By 1900, this curious congruence of foreign and Japanese attitudes
had produced a settled pattern of interaction. Westerners tended to
deal with Japanese on basically Western terms and in Western
languages, without significant penetration of Japanese society. Out of
both choice and necessity, Japanese tended to deal with foreigners in
foreign tongues and according to foreign ways, abroad if possible, or at
the shoreline. It was an unequal relationship characteristic of Western
imperialism, but it survived into the 20th century despite the decline of
Western imperialism in Asia. On the Japanese side, it survived not
only because it met the strong need for autonomy and ethnic certitude
we have described, but also because it produced significant economic
benefits. Not only could Japan retain control of its own domestic
market, it could also follow and exploit foreign learning, while most
foreigners were unable to monitor technological and other advances made
in Japan. On the American side, it survived because all the political,
economic and technical evidence for decades supported the gratifying
belief that others, such as the Japanese, could learn much from the
United States while Americans could learn nothing of consequence
from them, and therefore had no need to gain a closer understanding of
Historically, the pattern of dealing we have described was firmly
enough established to survive the general decline of Western prestige in
Asia during World War 1.207 It was temporarily shored up by the
Mandate system of the League of Nations, which enabled the victors to
inherit the colonies of the vanquished, and by the Washington
Conference system, which helped stabilize the Western presence in
East Asia despite the turmoil in China, thereby perpetuating the notion
that the old order was intact and the attitudes that informed it still
206 One of the most dramatic dissimilarities between any two societies is the sharp contrast
between the belief shared by many Japanese that Japan is unique and that foreigners can never
really become Japanese or understand Japan, and the quasi-universalistic American belief that
Americans are "just folks" like everyone else and that anyone, if he tries hard enough, can become
an American. For thoughtful examination of Japanese attitudes toward foreigners, see E.
REIsCHAUER, THE JAPANESE (1977).
207 During World War I European merchants were displaced in Asia by Japanese; the
involvement of the Europeans in their own fratricidal venture caused them to cease supplying their
colonies. Even though the Europeans temporarily regained their market role after 1918, they never
restored their prestige in Asia. It had been destroyed by the evidence that the Europeans, far from
being the wave of humanity's future, were not even able to keep their own house in order. The
result was the rapid growth of nationalist movements throughout Asia during the 1920s and
During the 1930s and 1940s, Japan attempted to drive the
Westerners out of East and Southeast Asia, replacing them with a
Japaneseled "Greater East Asia Co-Prosperity Sphere," and destroyed the
remnants of European power in the area despite brief Dutch, French and
British efforts in the late 1940s to reassert themselves in Indonesia,
Indo-China, and India. Japan's success, however, had the entirely
unintended result of bringing the United States into a preponderant role
in the western Pacific.209
As the triumphant Americans poured into Japan in late 1945, it
appeared that Japanese and Americans would at last be forced to
develop a new way of dealing with one another. The Americans, the
occupying power, would establish themselves in Japan and come to
understand the country. The Japanese, the defeated power, would be
forced to accept the incursion of foreigners into their domestic life. In
reality, however, matters worked out differently. The
Americans-supported as never before by evidence of their superiority-undertook a
massive program of social engineering designed to convert Japan into a
peace-loving democratic society on Western models, 10 meanwhile
continuing to use their own language, adhering to their own customs, and
consciously limiting contact with Japanese society. The Japanese,
crushed by the magnitude of their defeat, accommodated the
conquerors' demands, but relied upon the language barrier and their own sense
of propriety to preserve some approximation of the proper distance
between "us" and "them."
Japan survived the American occupation of 1945 to 1952 and
learned a great deal that was useful, whereas the Americans,
considering the richness of the opportunity, learned remarkably little in return.
They were scarcely more prepared to do business in Japan in 1950 than
they had been in 1930 or even 1910.
208 The best study of 1920s East Asian diplomatic affairs is A. IRIYE, AFTR IMPERIALISM: THE
SEARCH FOR A NEW ORDER IN THE FAR EAST, 1921-1931 (1965).
209 Works on the Pacific War are numerous. See, eg., J. MORLEY, supra note 199. On the
Japanese empire, see F.C. JONES, JAPAN'S NEW ORDER IN EAST AsIA, ITS RISE AND FALL,
19371945 (1954). For the orthodox view of the origins of the war, see H. FFas, THE ROAD TO PEARL
HARBOR (1950). For a recent and original interpretation, see A. IanY., POWER AND CULTURE,
THE JAPANESE-AMERiCAN WAR, 1941-1945 (1981).
210 On the American occupation, see the generally favorable assessment in K. KAWA!, JAPAN'S
AMEIcAN INTERLUDE (1960) and the critical journalistic account in H.E. WILDE, TYPHOON IN
TOKYO (1954). On the dominant Japanese political figure during the occupation, a recent study is
J.W. DowER, EMPIRE AD AFTERMATH: YOSHIDA SHIGERU AND THE JAPANESE EXPERIENCE,
1878-1954 (1980). A critical study of the war crimes trials in Tokyo is R.H. MINEAR, VICTORS'
JUSTICE: THE TOKYO WAR CRIMEs TRIAL (1971).
In subsequent decades Japanese and Americans have continued to
deal with one another in the established way.21 1 On the American side,
at least until the 1960s, the global pre-eminence of the United States
permitted government and business officials to continue taking for
granted that the relationship should be conducted as in the past. On
the Japanese side, as rapidly as the end of the occupation and post-war
recovery permitted, the government pursued a number of policies
designed to restore the proper distance between Japan and the outside
world. Japan continued to discourage immigration and facilitate
emigration. It restricted foreign investment, pursued a policy of planned
industrial development, and instituted agricultural policies intended to
assure a sufficient supply of basic foodstuffs. It trained people to
handle foreigners in the established manner and supported vigorous
programs of study abroad in order to obtain access to the most modem
learning. It developed elaborate institutions to promote trade and
acquire state-of-the-art technology, notably JETRO, the Japan External
Trade Organization. When diplomatically feasible it tried to minimize
imports inconsistent with its economic goals. Much of its international
economic activity was conducted abroad by Japanese firms, often
trading companies that acted as intermediaries, effectively screening
Japanese and foreign producers and consumers from one another.2 12
Only in light of this historical pattern of relations, shaped by the
meshing of very different Japanese and American attitudes, can one
understand the closed market issue in its current complexity.
Recommendations for dealing with the issue must take full account of the
pattern and the attitudes on both sides that created and sustained it.
IV. SOME GENERAL RECOMMENDATIONS
Our analysis of the closed market issue leads to recommendations
addressed both to Japan and to the United States.
As to the former, we are reluctant to join the chorus of foreigners,
sympathetic and otherwise, that bombards Japan with suggestions,
recommendations and demands for changes in its public policies.213 We
211 An introduction to Japanese history with a good survey of postwar Japanese developments
and an up-to-date bibliography is E.O. REISCHAUER, JAPAN, THE STORY OF A NATION (3d ed.,
212 For a thorough analysis of the operation of the Japanese general trading companies, see A.
YOUNG, THE SOGO SnOSHA: JAPAN'S MULTINATIONAL TRADING COMPANIES (1979). See alro
Coie, EstablishingAmerican TradingCompanies, 2 Nw. J. INT'L L. & Bus. 277 (1980).
213 Our reluctance to tell a foreign nation what its national interest requires was shared by the
Wise Men. To avoid having either side dictate to the other, chapters of the Report addressed
primarily to one nation-such as the chapter on the Japanese market-were drafted first by the
will, however, indicate the sorts of Japanese policies on foreign access
which our analysis suggests are appropriate.
Several considerations point to the conclusion that the Japanese
government should continue its notable progress in reducing first and
second level restraints on foreign trade and investment: continuing to
expand and ultimately eliminating as many import quotas as possible;
liberally implementing the new Foreign Exchange and Foreign Trade
Control Law; and continuing to modify the operation of its product
standards, customs, state trading, government procurement and similar
systems to minimize their restrictive and discriminatory effects. 14
Although the details of particular obligations and exceptions are beyond
the scope of this Article, Japan has legal, or at least moral obligations
to liberalize its official restraints under the General Agreement on
Tariffs and Trade (GATT), the GATT Codes agreed on during the Tokyo
Round, the OECD Treaty, the U.S.-Japan Treaty of Friendship,
Commerce and Navigation, and other bilateral and multilateral
agreements.215 As a matter of policy as well as law, Japan's economic
success, particularly in exporting, vests it with responsibility to share
representatives of that nation, then reviewed and discussed by the remaining members. Interview
with Robert S. Ingersoll, note 15 supra.
214 Cf. WISE MEN'S REPORT, supra note 3, at 57-63.
215 Article XI of the GATT prohibits, subject to numerous exceptions in that and other articles,
the use of quotas to restrict imports from GATT contracting parties. It is the U.S. position that at
least some Japanese quotas are prohibited by GATT. See  363 INT'L TRADE REP. U.S.,
EXPORT WEEKLY (BNA) at C-1 (reporting testimony of See'y of Commerce Malcolm Baldridge).
Among the GATT codes on non-tariff measures negotiated during the MTN and signed by
both the United States and Japan are agreements aimed at reducing the protective effect of
standards systems, see notes 137-148 and accompanying text supra;government procurement systems,
see notes 115-136 and accompanying text supra; and customs valuation, see Agreement on
Implementation of Article VII of the General Agreement on Tariffs and Trade, reprintedin GENERAL
AGREEMEN'S ON TARIFFS AND TRADE, BASIC INSTRUMENTS AND SELECTED DOCUMENTS, 26th
Supp. at 116 (1980).
On joining the OECD in 1963, Japan stated its intention to adhere to the Code of
Liberalization of Current Invisible Operations and the Code of Liberalization of Capital Movements. It did
so only with many reservations, see text accompanying note 86 supra, one of which categorically
excluded foreign direct investment. While these reservations enabled Japan to avoid breaching
any legally binding obligation, "Japan has clearly committed herself to liberalize ... and her
performance since has been largely considered as a violation of the spirit, though not the letter, of
those commitments." See D. HENDERSON, supra note 84, at 283-86; Pearl, supra note 84, at
Article VII of the Treaty of Friendship, Commerce and Navigation between Japan and the
United States, 4 U.S.T. 2003, T.I.A.S. No. 2863, requires each party to grant nationals and
companies of the other party 'national treatment" with respect to all types of business activities. The
Treaty, and certain Protocols thereto, provide several exceptions, notably one for the balance of
payments problems. The United States has for years alleged that Japan was in violation of its
national treatment obligation because of its restrictions on foreign investment. See D.
HENDERSON, supranote 84, at 232-83; Pearl, supra note 84, at 248-53.
Northwestern Journal of
International Law & Business
with other trading nations the risks of managing a national economy in
an interdependent world. The Japanese have come too far as an
economic power to remain officially sheltered from the world economy in
any substantial way. Indeed, as a nation unusually dependent on
imports and therefore on the exports needed to pay for them, Japan's
logical role in the international economic community is not as a grudging
observer of international rules but as one of the primary defenders of
open national markets and the postwar liberal trading system.2 16 The
Japanese commitment to the liberal trading system as a matter of
principle has always been weak,217 largely because Japan had no hand in
shaping the system and was partially excluded from it for many
years.21 8 Today, however, the open trading system is of paramount
importance to Japan, and the Japanese may be forced to take the lead in
supporting and strengthening the system, out of simple self-interest if
not from any emotional attachment.219 Japan must decide for itself if
the affirmative diplomacy this role would require seems consistent with
its national interest, 220 but it cannot hope to play the role without first
removing official restraints on access to its own economy as fully as any
other major trading nation.221 Despite the progress made to date, it has
not yet reached that goal.
Further market liberalization will undoubtedly be difficult for the
Japanese government, politically, economically and---given the
attitudes and historical experience we have described--emotionally. One
useful approach to reconciling at least its domestic economic and
political needs with further market liberalization is suggested by a
recommendation in the Wise Men's Report. The Report urges Japan, in
pursuing the goal of secure food supplies, to consider establishing a
216 WisE MEN'S REPORT, supra note 3, at 6-8, 55-56.
217 Japanese quotas predominantly affect the agricultural sector. The Wise Men's Report
includes several suggestions for the rationalization of Japanese agriculture to obviate the need for
some of the current quotas and other devices of agricultural protectionism Id.at 81-87.
218 Japan did not accede to the GATT until 1955. When Japan joined, 15 contracting parties
refused to apply GATT rules in their trade with Japan, as permitted by GATT Art. XXXV,
"greatly reducing the value of GATT membership to it." J. JACKSON, WORLD TRADE AND THE
LAW OF GATT 100-02 (1969). See generally Article XXXV: Application to Japan, GATT Doc.
L/1545, reprintedin GENERAL AGREEMENTS ON TARIFFS AND TRADE, BAsIc INSTRUMENTS AND
SELECTED DOCUMENTS 69 (10th Supp. 1962).
219 See Japan'sTrade Role, Wall St. J., May 4, 1981, at 24, col. 1.
220 The Wise Men find that Japan's present international role is not commensurate with its
economic size or with the global reach of its interests, and believe that "Japan's own national
interests require it to take up a larger burden in maintaining a liberal international economic
order and international stability." WISE MEN'S REPORT, supra note 3, at 6-7. Other observers
regularly comment on Japan's lack of an affirmative foreign policy. See, e.g., N.Y. Times, Aug.
27, 1981 at A-22, col. 1.
221 Japan'sTrade Role, note 219 supra.
contingency grain reserve, rather than relying exclusively on quotas
and other instruments of agricultural protectionism.2 2 2 This specific
recommendation suggests a more general approach: when the
Japanese government is faced with a bona fide economic problem, such as
dependence on imported food, or an internal political problem, such as
demands for income stability by producers of agricultural commodities,
and the solution could have international repercussions, it might as a
general policy adopt whatever solution appears to be the least distortive
of international trade and capital movements. Japan could gain
valuable international goodwill by adhering to such a policy and even urging
its adoption by other nations; trade friction would be substantially
reduced if this approach were followed throughout the international
As to "third lever' barriers, we believe that the Japanese have no
obligation to change their customs and practices, their manner of doing
business or their language to make it easier for foreigners to do
business in Japan.' The Japanese government and some private Japanese
firms have begun to address the problem of cultural barriers where it
really lies-abroad-by financing programs of study in Japanese
language, society, law and business at foreign universities and cultural
institutions. 2 4 This long-range approach should in time bear fruit.
222 WISE MEN'S REPORT, supra note 3, at 86-87. The Report includes several other
recommendations for rationalizing Japanese agriculture and for dealing with the problem of dependence on
imported food, including the conclusion of purchase-supply agreements with the U.S. Id at
8287. Cf F. SANDERSON, supranote 82, at 84-93 (several proposed solutions to problem of security
of food supplies).
223 Since such cultural factors undoubtedly contribute to the damaging foreign perception of
Japan as an unfairly closed society, however, cf. text accompanying note 163 supra, it might be in
Japan's interest for its government, as a tactical matter, to take such real and symbolic actions as it
can toward increasing the accessibility of Japanese society. Action might be aimed, for a start, at
making the process by which the government itself makes decisions important to foreign business
more open and understandable. WISE MEN'S REPORT, supra note 3, at 66.
The Wise Men suggest an innovative institution that the Japanese government might create
in this spirit: a trade ombudsman. The ombudsman might be assigned such responsibilities as
working to enlarge the international awareness of government agencies that have historically had
exclusively domestic concerns, helping to resolve interagency disputes over trade measures,
assessing the potential effect of proposed regulations on foreign trade and investment, and considering
broad international economic policy issues as well as specific foreign complaints. In considering
foreign complaints, the ombudsman would act much like the Japanese side of the Trade
Facilitation Committee, see notes 40.49 supra, but unlike the TFC, its jurisdiction would extend beyond
MITI, already one of the most internationally-minded ministries. See WisE MEN'S REPORT,
supranote 3, at 67-68. So far, the Japanese government has not embraced the ombudsman
proposal. Interview with Robert S. Ingersoll, supra note 15.
224 Numerous American institutions have received program grants from public or private
Japanese sources. Among the American universities receiving support for programs in law and
business are Harvard, Columbia, the University of Michigan and the University of Washington.
Beyond that effort, the most important approach to the difficult
problems emerging from the cultural collision between Japan and the
United States will for the foreseeable future be a joint approach: an
effort at sustained bilateral dialogue, involving many levels of
government and society, aimed at building mutual understanding and
confidence, and at preparing citizens of each country to function effectively
in the society of the other. Such an effort is a major prescription of the
Wise Men: they refer to it as "internationalizing" American and
Japanese society.2 25 Their Report suggests numerous ways to establish
regular contact and consultation among representatives of the executive
and legislative branches of government, to increase communication
among business leaders, and to promote joint research and other
programs among private educational and cultural institutions. 226 As we
have already indicated, the Report itself is also an example of how well
such a prescription can work. Enhancing and expanding the activities
of bodies like the Economic Relations Group and other channels of
two-way governmental and private contact, building on the
commitment to discussion that already exists, may be the key to harmonious
economic and cultural intercourse in the future.2 27
Most of our recommendations to the American side follow
logically from those we have just addressed to Japan. We see no reason
why the United States and other trading nations should not continue to
urge Japan to do away with its remaining first and second level
restraints on foreign economic activity-quotas, exchange controls,
officially sanctioned NTB's and the like--although we will place
important qualifications on that statement below. As to third level
phenomena, however, we believe that it would be a major error for
American policy to take on the task of convincing the Japanese not to be
Japanese, with the misguided aim of making it "truly as easy [for
Americans] to sell in Japan as in the United States."2'28 The social and
cultural characteristics of Japan, as difficult for foreigners to deal with
as they may be, are not appropriate targets for external demands for
change, certainly not for the kinds of negotiating tactics employed in
Telephone interview with Francis B. Tenney, Executive Director, Japan-United States Friendship
Commission, Washington, D.C., October 23, 1981. For a discussion of the importance of such
programs, see WISE MEN's REPORT, supra note 3, at 11.
225 Id at 9.
226 Id at 8, 9-11, 74-75, 87-88, 98-100.
227 Id at 67-68, 99-100.
228 G.W.Miller, The United States, Japan and International Economic Uncertainties, Speech
to the Japan Society, Oct. 16, 1980, reprintedin 28 JAPAN SoCIETY NEWsLETrER, No. 4 (1980) at
2-5. G. William Miller was then Secretary of the Treasury.
the past against explicit Japanese trade barriers. The burden of dealing
with "third lever' social and cultural problems and with whatever
"fourth lever' resistance to foreign penetration inheres in Japanese
society falls squarely on American shoulders.
To carry this burden, the United States will have to pursue a
strategy that has only a long-term relationship to trade policy: providing
adequate training for those who will be dealing with Japan. The
U.S.Japan relationship, both economic and political, is too complex and too
important to be managed by generalists. 29 Just as Japanese
government officials and businessmen learn English and prepare expressly for
dealing with Americans, so American government and business people
who are to deal with the Japanese must develop the professional skills
specifically required for such dealings: the ability to work easily in a
Japanese context, functional use of the language and familiarity with
Japanese customs and values. Knowledge about international trade or
political relations in the abstract and experience in trading or dealing
with other countries may be useful, but neither constitutes sufficient
preparation for dealing with Japan.
This strategy is not simply a matter of providing additional courses
in Japanese language and culture: some shedding of ethnocentric
assumptions may be required. Americans cannot expect the
Japaneseor anyone else, for that matter-to struggle to learn the English
language and American mores in order to do business in the United
States, and then to welcome into their community Americans unwilling
to make comparable efforts. The American desire to penetrate Japan's
economy cannot be satisfied within the unbalanced pattern of past
relations. Fortunately, substantial numbers of young Americans familiar
with Japanese language and customs are beginning to enter careers in
law, business, and government, and increasing numbers of educational
institutions are becoming capable of conveying such
familiaritymany, ironically, funded from Japanese sources. Efforts within the
United States to further these trends, though initially costly, will pay
handsome rewards. 230
Increased willingness to master the language and culture of
foreign nations will pay dividends in relations with trading partners other
than Japan. Although the United States has not yet developed trade
relations with any other non-Western country on the scale of its
rela229 Cf. D. HENDERSON, supra note 84, at 39.
230 The WISE MEN'S REPORT, supra note 3, contains a number of recommendations for
training specialists in both countries and for increasing each country's general knowledge and
awareness of the other. Id at 9-11, 98-99.
Northwestern Journal of
International Law & Business
tions with Japan, non-Western trade is already of great significance to
the United States, and its importance is increasing. As the United
States expands its economic activities in the nations of Asia and other
parts of the world whose societies differ markedly from the familiar
cultures of Europe, social and cultural barriers to trade and
investment-perhaps different from those in Japan, but equally
unfamiliarwill increasingly be encountered. One can predict, for example, that
this will be the experience of the United States as its economic contacts
with the People's Republic of China continue to grow. 23 ' In such other
non-Western societies, as in Japan, it will be crucial for Americans to
abandon their historic prejudices and be prepared to learn about and
adapt to local cultures if they wish to do business successfully.
This discussion of "third level" barriers has considerable relevance
to American policy toward Japan's first and second level restrictions on
trade and investment. Although we believe the United States is
justified in urging Japan to continue the removal of these restraints, we are
concerned lest amicable U.S.-Japan relations be sacrificed in a drive for
further liberalization. Two developments give rise to this concern.
First, because of the progress already made in dismantling purely
protectionist Japanese trade barriers, American trade policy must now
address some of the official rules, practices and institutions that reflect
private social structures and cultural attitudes as well as official
calculations of economic or political advantage. The Japanese distribution
system is the example used above; other phenomena may display a
similarly mixed official and private character. To follow the
recommendations of this Article, American trade officials will have to separate the
protectionist and discriminatory elements of public policy supporting
an institution like the distribution system from its social and cultural
elements, foregoing demands for change in the latter. Sophistication
and restraint will be required, and occasional overreaching is bound to
The second development may lead to problems even in
negotiations over such straightforward official restrictions as import quotas.
As noted at the beginning of this Article, many trade disputes between
the United States and Japan have become unusually politicized and
bitter. Among the reasons for this are the sheer magnitude of the
economic relationship and the importance to both sides of the transactions
231 For a discussion of certain historical and cultural influences on current attitudes toward law
and business in the People's Republic of China, see, Alford & Birenbaum, Venturesin the China
Trade: An Analysis of China'sEmerging LegalFrameworkFor the Regulation ofForeign
Investment, 3 Nw. J. INT'L L. & Bus. 56 (1981).
involved in the disputes-Japanese auto exports and American
agricultural exports, for example.23 2 Japan's attitudes may have contributed
to the situation, as we have indicated. American high pressure tactics,
however, exemplified by the one-sided institutions and negotiations
described in Part I, have made a major contribution to the bitterness of
trade disputes by leading many Japanese to think of the United States
as arrogant and presumptuous. 2 3 American demands are seen as
"bullying" and, naturally, provoke Japanese resistance. This resistance
feeds an American stereotype of the Japanese as "stubborn" and leads
to even stronger American pressure, in a true vicious circle.23 4
Continuation of the same tactics is likely to produce even greater resentment
and resistance in the future, as younger Japanese, less accustomed than
past generations to acceding to American demands, assume positions of
leadership. Resistance will increase even further to the extent that
Japanese social and cultural phenomena are implicated in trade
To deal with these developments, American trade policy toward
Japan must exhibit at least four qualities in greater measure than it has
Sensitivity. The United States must recognize the real and
substantial progress that has been made in opening a traditionally
selfcontained society, at a pace that has caused "future shock" for many
Japanese; the very real economic concerns that support Japanese
feelings of vulnerability and desires for self-sufficiency; the historical basis
for Japanese resistance to foreign penetration; and the social and
cultural underpinnings of many of the remaining barriers to foreign
business in Japan.
Patience. The United States must recognize that further progress
in removing impediments to trade will probably be slower than that
already achieved, partly because so much has already been done, but
primarily because further progress depends to a large extent upon basic
changes in the way Japanese and Americans perceive and deal with
Reassurance. To counter the Japanese sense of vulnerability, the
United States must clearly demonstrate that it will be a reliable
supplier and business partner. 5 For example, it cannot cut off sales of a
major food staple without notice, as it did some years ago with
Northwestern Journal of
International Law & Business
beans,236 then ask Japan to reduce protection for important agricultural
sectors. More generally, the United States must show greater
willingness to consult with Japan as a partner and ally on major economic
(and political) issues.237
Reciprocity. The United States must submit to the same risks of
economic interdependence that it asks Japan to assume. It cannot, for
example, demand greater access for American products while at the
same time threatening quotas and demanding "voluntary" restraints on
Japanese products. Protectionism in the United States undermines
efforts on both sides to further Japanese liberalization.23 Reciprocity
must also figure increasingly in the form and content of economic
diplomacy between the United States and Japan. The one-sided
relationship pictured in Part I, based largely on American demands and
Japanese acquiescence, will become increasingly inappropriate,
increasingly costly, and increasingly unsuccessful.2 39
The change in attitude we call for is summed up in one of the Wise
Men's most perceptive and far-reaching recommendations for the
American side: ". . . the need is not to abandon efforts to influence
Japanese policies, but to resist invitations to escalate, to be firm and
persistent about United States aims without presuming to dominate
Japanese behavior . "..."240
SOME RECOMMENDATIONS FOR LAWYERS
This Article has reviewed the substantial progress made over the
last several years in reducing official barriers to foreign trade and
investment in Japan. The greater openness of the Japanese market has
already attracted new foreign economic activity, and it will continue to
do so. The result will be more legal work. In acting for their clients,
however, foreign lawyers will increasingly have to deal with second
and third level barriers to foreign economic activity in Japan.2"' Many
of the recommendations we have just addressed to American trade
officials apply, mutads mutandis, to these private lawyers. We believe the
Bar will best serve its Western clients-at least in the long run, and
236 Id at 86; UNITED STATES-JAPAN TRADE: ISSUES AND PROBLEMS, suipra note 15, at 145-146.
237 WISE MEN'S REPORT, .rupra note 3, at 8-9, 27, 74, 87-88.
238 Id at 69.
239 Id at 102-103.
240 Id at 101.
241 Lawyers have also begun to confront barriers to their own activities in Japan. See Kosugi,
Regulationof Practiceby Foreign Lawyers, 27 AM. J. COMP. L. 678, 689-703 (1979) (analysis of
regulation of foreign lawyers in Japan, prompted by then-current dispute over branch offices of
U.S. and Hong Kong law firms opened in Tokyo).
probably in the short as well-by proceeding as we have advised here:
overcoming social and cultural barriers by learning about Japan, and
approaching dealings in Japan with sensitivity and patience.
One example of what we mean lies in the frequent complaint that
the methods by which Japanese government and business make
decisions are impenetrable to Westerners. Lawyers, whose training centers
so strongly on the procedures for making and influencing public and
private decisions, should be preparing themselves to help their clients
understand and even take advantage of Japanese methods.242 This
approach will be far more rewarding than pressing Japan to change the
manner in which its society reaches decisions. Another example lies in
the complaint that Japanese negotiate, prepare contracts and other
documents, and handle business disputes differently than Americans. Such
differences should not be surprising. Lawyers, who are trained and
experienced in negotiating and memorializing business transactions and
in handling disputes, should be in the vanguard of learning that these
are culturally-based phenomena and that there are different, equally
valid ways of accomplishing such tasks. Lawyers should again be
preparing themselves to utilize unfamiliar processes for the benefit of their
clients. The need to do so will only increase in the future, as American
business penetrates the People's Republic of China and other
For those concerned with the legal system governing international
economic relations, developments in Japan indicate that the system
may be approaching another turning point in its history. The early
rounds of GATT negotiations, for example, concentrated on tariffs, and
the GATT process has all but eliminated them as a major trade
barrier.243 The last two rounds of negotiations also dealt with NTBs, and
the Tokyo Round made significant progress on several NTB issues.244
Many years of implementing and monitoring the commitments made
during the Tokyo Round lie ahead, and much more can be done to
reduce NTBs by expanding and refining the multilateral and bilateral
procedures developed in Geneva, by enlarging the coverage of the
Government Procurement Code, for instance. Our analysis suggests,
242 c ARTHUR D. LITTLE, INC., .supra note 59, at V-3-7.
243 An early and incomplete official estimate of the results of the Tokyo Round in the field of
tariffs was that the weighted average tariff rate on manufactured goods at all stages of processing
had been reduced to less than five percent, although the weighted average on finished
manufactures remained somewhat higher. GENERAL AGREEMENT ON TARIFFS AND TRADE, THE TOKYO
ROUND OF MULTILATERAL TRADE NEGOTATIONS: REPORT BY THE DIRECToR-GENERAL OF
GATT 120 (1979).
244 See note 113 supra.
however, that much more difficult problems, based in culture and
history and generally unsuited to traditional international negotiations,
will be coming to the fore in the international trading system as Japan,
the "new Japans" and other nations from the developing world assume
a larger economic role. Multilaterally, as well as bilaterally, new rules
and institutions to address these issues will have to be found, and as in
the past, lawyers will play a central role in the quest.
51 Id; U.S. -JAPAN TRADE STUDY GROUP, A SPECIAL PROGRESS REPORT ( 1980 ), reprintedin Impact ofNon-TarffBarriers on the 4bility ofSmall Business to Exportto Japan , supra note 23 , at 267-326.
52 See generally WISE MEN'S REPORT, supra note 3.
53 See note 15 supra.
54 See Nakamura , U.S.-Japan Businessmen's Conference Heldin New York, JAPAN INSIGHT, June 26, 1981 , at 4 (newsletter of Japan Economic Institute); Interview with Robert S . Ingersoll, note 15 supra.
55 Secretariat functions are performed for the Council by staff of the Chamber of Commerce of the U.S., but the Council is formally independent in matters of policy . See ADVISORY COUNCIL ON JAPAN-U.S. ECONOMIC RELATIONS , MEMBERSHIP DIRECTORY ( 1981 ) 1 - 2 .
59 In some cases tangible economic results have not resulted from seemingly successful negotiations because of the internal problems of instituting important policy changes in a consensusbased governmental system like that ofJapan. See ARTHUR D. LITTLE INC., THE JAPANESE NONTARIFF TRADE BARRIER ISSUE: AMERICAN VIEWS AND THE IMPLICATIONS FOR JAPAN-U.S. TRADE RELATIONS V- 20 - 22 ( 1979 ) [hereinafter cited as ARTHUR D. LITTLE , INC.]; DESTLER, SATO , CLAPP & FUKUI, . upra note 2 , at 101- 08 ( 1976 ). Cf. P. DRUCKER, MANAGEMENT: TASKS, RESPONSIBILITIES , PRACTICES 257 - 58 , 465 - 70 ( 1974 ) (Japanese consensual decision-making appears slow to Westerners because delay occurs in different parts of the decision-making process).
In other cases, the rapid economic results that American negotiators tend to demand would not be forthcoming even with a more effective Japanese response. Knowledgeable observers have pointed out that in many product areas, American producers are simply not competitive with Japanese or lower-cost third country producers . Abegglen & Hout, supra note 24 , at 152- 59 . In such product sectors, American exporters have been losing market share to other suppliers even as Japan liberalizes . Id at 148-50 . American businessmen experienced in Japan state that the total elimination of Japanese non-tariff barriers would not have a dramatic effect on U.S. trade, at least in the short run . U.S.-JAPAN TRADE STUDY GROUP, supra note 51 , at 3.
60 ARTHUR D. LITTLE , INC., supra note 59 , at V - 22 .
61 WISE MEN'S REPORT , supra note 3, at 63.
62 Id at 56.
63 Abegglen & Hout, supra note 24, at 147; TASK FORCE REPORT, supra note 39 , at 17; U.S.-
64 PERCEPTION GAP, supranote 33, at 4 , 5. See also Krause & Sekiguchi, supra note 24, at 428 ( table showing effective tariffrates after Kennedy Round) . According to one recent set of calculations, in 1976 the weighted average Japanese tariff rate on manufactured goods was already lower than that of the United States . Olechowski & Sampson, CurrentTradeRestrictionsin the EEC ., the U.S. andJapan, 14 J. WORLD TRADE L. 220 , 225 ( 1980 ).
65 See text accompanying notes 33-35 supra.
66 See sources cited in note 34 supra.
67 The Protocol on tariffreductions agreed upon at the end of the Tokyo Round provides that
75 Id at 81-82.
76 See U.S.- JAPAN TRADE REPORT, supra note 14 , at 55-56.
77  316 INT'L TRADE REP. U.S. EXPORT WEEKLY (BNA) at C- 4 .
78 U.S.- JAPAN TRADE REPORT, supra note 14 , at 59; PERCEPTION GAP , supra note 33, at 7-8. As of 1980, American leather exports were not sufficient to fill the relatively small U.S. quotas . Id. at 59.
79 PERCEPTION GAP, supra note 33, at 7-8; TASK FORCE REPORT, supra note 39 , at 41. For a recent analysis of Japanese government efforts to improve the lot of the Dowa, see Upham, Ten Years of Affrmative Actionfor JapaneseBurakumin: A PreliminaryReport on the Law on Special Measuresfor Dowa Projects, 13 LAW IN JAPAN 39 ( 1980 ). The U.S. -Japan Trade Task Force of the House Ways and Means Committee's Subcommittee on Trade has argued that the role of the Dowa should not retard liberalization for leather products, since a relatively small proportion of Dowa workers are actually employed in the tanning industry . TASK FORCE REPORT, supra note 39 , at 41.
80 WISE MEN'S REPORT , supranote 3, at 85; TASK FORCE REPORT, supra note 39 , at 37; PERCEPTION GAP , supra note 33 at 6-7. Cf.ARTHUR D. LITTLE , INC., supra note 59 , at V - 20 ( American effort expended in negotiations over citrus products incomprehensible to Japanese .)
81 WISE MEN'S REPORT , supra note 3, at 57. Trade in agricultural commodities is generally much less liberal, and much less responsive to liberalization, than trade in manufactured goods .