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Settlement of Japan-China trade dispute vital

As if the ongoing trade war between Japan and China is not enough,the Japanese history textbook issue, former Taiwanese President Lee Tenghui's visit to Japan and Prime Minister Junichiro Koizumi's visit to Yasukuni Shrine are complicating matters between the two nations, whose relations are rapidly cooling.

The trade dispute this time started April 23, when the Japanese government imposed temporary import curbs, or safeguards, on leeks, fresh "shiitake" (mushrooms) and rush used to make "tatami''(mats) from China. After repeatedly objecting to the safeguards,by way of retaliation, the Chinese government decided June 22 to impose 100 percent tariffs on imports of Japanese automobiles,mobile phones and air conditioners.

The trade friction can be summarized as follows:

1)While Japanese safeguards are limited to Chinese agricultural products, China's retaliatory measures target leading Japanese industrial products.

2)The disputed items make up only a very small portion of Japan's total imports and exports in terms of value. According to 2000 statistics, Japan imported 4 billion yen worth of leeks, 10 billion yen worth of mushrooms and 10 billion yen worth of rush from China. The total value of the three imported items, 24 billion yen, accounts for only 0.05 percent of Japan's total imports of 40.938 trillion yen. Meanwhile, Japan exported 45.2 billion yen worth of automobiles, 11.1 billion yen worth of mobile phones and 5.6 billion yen worth of air conditioners to China for a total of 61.9 billion yen, accounting for 0.12 percent of Japan's total exports of 51.654 trillion yen. Incidentally, Japan's automobile exports to China make up only 0.65 percent of Japan's total automobile exports, worth 6.93 trillion yen.

3)Although the Japan-China trade dispute is likely to be settled in a short time, there is also a potential danger that it could be prolonged. To China, where approximately 900 million of its population of 1.3 billion rely on farming, restrictions on exports of farm produce have a greater impact on their livelihoods than the economy. Moreover, safeguards could expand to eels, "wakame''(seaweed) and lumber. Such light industry products as towels,neckties and socks could also be affected. Export restrictions of such products are particularly damaging to China, which is a developing nation.

At the same time, China must have carefully planned the imposition of heavy tariffs on such leading Japanese industrial products as automobiles, mobile phones and air conditioners. Although the amount of their exports to China is negligible compared with Japan's total exports, the impact it has on Japanese industries is immeasurable. In particular, restrictions on automobiles,a symbolic industrial product of Japan, sent shock waves across Japan. The situation is particularly frightening because it is unpredictable what Japanese industrial products China would target next for the imposition of heavy duties.

Why must the two countries develop a trade dispute? The reasons for Japan, I believe, are as follows: First, the ruling Liberal Democratic Party had to secure the vote of farmers, on which it heavily relies. Second, import curbs could spread to other Chinese agricultural products and eventually to light and heavy industry products. Third, I dare say, the government is trying to divert public attention from such domestic problems as structural reform and bad debts. If that is the case, the thinking is simplistic.

Since China is counting on Japan's official development assistance(ODA) and is set to join the World Trade Organization and host the Olympics, Japan probably thought optimistically that it would not resort to drastic measures.

While Japan insists that it invoked safeguards in accordance with WTO rules, the price it paid was dear. For one thing, as an advocate of free trade, Japan has traditionally resisted import curbs imposed by the United States. This time, though, Japan took the lead in limiting imports and its argument is unconvincing.Moreover, the temporary measures expire on Nov. 8, just before winter, when consumption of leeks and mushrooms soar.

Second, the safeguards have a negative impact on development imports by Japanese businesses. Promoting the advancement of Japanese companies in foreign markets and limiting development imports are contradictory. Moreover, safeguards do not necessarily help weak domestic industries that they are meant to protect get stronger and do not contribute to structural reform.

Third, although the decision to invoke import curbs might have been made in response to pressure by lawmakers representing the interests of farmers, it deprives general consumers of the opportunity to buy cheap Chinese agricultural products.

It appears that the Japan-China trade war is working in favor of China. China is set to join the WTO in November and won the bid to host the 2008 Olympics. China, which has succeeded in attaining high economic growth in the last 23 years, is expected to show a tougher stance toward Japan in trade negotiations from now on.

Of course, I don't think China wants its economic relations with Japan to deteriorate. Japan's capital, technology and ODA are indispensable to China's future economic development. Needless to say, an early amicable settlement of the trade dispute is very important for both countries.

Lim Hua Sing : Born in Malaysia, the author is a professor and deputy director of the Institute of Asia-Pacific Studies at Tokyo's Waseda University.

2001/8/31
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