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No. 24 — June 25, 1999

Feature Article

THE COMPETITIVENESS DEBATE COMES TO JAPAN by Douglas Ostrom

Summary

In the midst of the gloom of the 1980s, U.S. policymakers and opinion leaders engaged in a lengthy debate concerning the nature of this country's economic ailment. Not a few analysts insisted that the problem was America's lack of competitiveness vis-a-vis its trading partners, particularly Japan, which were seen as having taken a more hands-on approach to their economies. Echoes of that debate continue to this day, although the boom of the 1990s has silenced most of the advocates of a more activist U.S. economic policy.

Today, the shoe is on the other foot. Japan suffers from an economic stagnation that is similar in some important respects to what America endured more than a decade ago. Yellowing treatises on competitiveness by U.S. experts have been dusted off and searched for insights. As their U.S. counterparts did in the 1980s, however, policymakers and industrial leaders in Japan disagree sharply even about the meaning of "competitiveness," let alone the appropriate components of a competitiveness strategy. Nonetheless, under the leadership of Prime Minister Keizo Obuchi, Tokyo is likely to implement at least a handful of measures that officials hope will help Japanese firms vie successfully in global markets.

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Weekly Review

G-8 CALLS FOR EUROPEAN-LED KOSOVO AID;
CLINTON, OBUCHI SQUARE OFF ON TRADE
by Barbara Wanner

"Reconstruction" seemed to be the overriding theme of the June 18-20 summit in Cologne, Germany of the leaders of the Group of Seven industrial nations plus Russia — reconstruction of war-torn Kosovo, reconstruction of frayed ties between some participants and reconstruction of heavily indebted developing nations, mainly in Africa. The one-on-one meeting between President Clinton and Prime Minister Keizo Obuchi just before the summit also took on an urgent tone regarding trade, with the president warning his counterpart of growing protectionist sentiments in Congress in reaction to last year's surge in Japanese steel exports and continuing market access disputes. The differences in the tenor of Mr. Obuchi's meetings with the leaders of Canada, France, Germany, Great Britain, Italy and Russia and that with Mr. Clinton are indicative of the challenges that Japan will continue to face in managing relations with its most important ally at the same time that it strives to assume a higher profile in global diplomacy.

 

G-7 AGREES TO DEBT-RELIEF PLAN FOR POOREST NATIONS by Marc Castellano

Leaders of the Group of Seven industrialized countries endorsed a new debt-relief plan for the world's poorest countries during the first day of their June 18-20 summit in Cologne, Germany. The deal, a compromise built around American proposals, could eliminate up to $70 billion and perhaps more of the debt owed to creditor nations by 36 countries that the International Monetary Fund terms "heavily indebted poor countries." The agreement came after Japan and France — which together have extended nearly 70 percent (44 percent and 25 percent, respectively) of the roughly $20 billion worth of outstanding G-7 official development assistance loans to these HIPCs — were satisfied that their demands for sharing the burden of debt relief would be met by other G-7 members.

 

OFFICIALS, TRADERS REACT TO JAPAN'S CHANGED ECONOMIC LANDSCAPE by Douglas Ostrom

Normally, the release of economic data just adds detail to the existing snapshot of the state of a country's economy without changing the overall picture very much. Because any given piece of information either is anticipated or is relatively unimportant, the duration of its impact on markets typically can be measured in the minutes or the hours that it takes for traders to put the new fact in a perspective that diminishes its weight. In this context, the reaction to Japan's January-March gross domestic product statistics, released June 10, is remarkable. As the weeks pass, the data seem to be gaining in significance.

 

CABLE & WIRELESS WINS TAKEOVER BATTLE;
FURTHER TELECOMMUNICATIONS MERGERS LIKELY
by Jon Choy

Cable & Wireless Plc's successful bid for control of International Digital Communications, Inc. set two precedents. For the first time, a foreign business took over a major Japanese common carrier. Moreover, never before had an overseas firm succeeded in a hostile bid for a name Japanese company. While analysts do not expect C&W's victory to set off a flood of foreign takeovers, they do foresee additional mergers in the domestic telecommunications industry as part of the ongoing restructuring of the global communications market.

 

NOTES

Pro-whaling delegates to the May 24-28 annual meeting of the International Whaling Commission again failed to convince their peers that stocks of some whale species are robust enough to support limited commercial whaling. Despite language in the IWC charter calling for the scientific "conservation and utilization of whale resources" and findings by an IWC scientific panel that minke whale stocks have recovered, the voluntary, global regulatory body remains solidly opposed to whaling in any form.

With just six months left before it expires, a five-year arrangement intended to end or at least to curb pervasive, exclusionary anticompetitive business practices in Japan's big flat glass market is unlikely to shed its reputation as the most futile effort by the Clinton trade policy team to win greater sales opportunities for competitive American suppliers in the world's second-largest economy. If Guardian International Corp., PPG Industries, Inc. and other U.S. makers not owned by Japan's Big Three glass companies have made inroads beyond the 1.7 percent share of the market that they were estimated to have in 1994, the gain is in the tenths-of-a-percentage-point range. Ministry of International Trade and Industry officials have any number of reasons for the failure of American as well as unaffiliated European producers to expand their business, particularly in the market for glass used in residential and commercial construction. None of them include the tight control that Asahi Glass Co., Ltd., Nippon Sheet Glass Co., Ltd. and Central Glass Co., Ltd. exert over distribution channels or collusion within the industry — the two factors U.S. trade negotiators believe are responsible for continued blocked market access.

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