Treating the symptoms (2): US efforts to improve its exporters' market access in Japan and the PRC

The second strategy a country facing a bilateral trade imbalance due to continued export expansion into its market can use to rebalance concessions is to expand its own exporters' access to the other country's market. The US has pursued this approach against Japan, and to a lesser extent more recently against the PRC, via a combination of formal trade disputes initiated under the multilateral auspices of the GATT (1955–1994) and WTO (1995 onward) dispute-settlement systems, as well as its unilateral Section 301 law (1974 onward). Under Section 301 of the 1974 US Trade Act, a US export industry can petition the US government to take up its concern that it has lost foreign market access because another country is not living up to a trade agreement it has signed with the US (Bhagwati and Patrick 1990; Bayard and Elliott 1994).¹⁷ Section 301 was strengthened and revitalized in 1988.

4.1 US Formal Market-opening Actions against Japan

When Japan joined the GATT in 1955, the country was still very poor. The post-World War II occupation by the US had only ended in 1952, and Japan's domestic market was not yet attractive to US exporters of manufactured goods. Japan had relied heavily on food imports from the US and other countries in the immediate postwar period, but as Japanese farmers recovered from the war, the demand for imported food waned. Traditional policies of selfsufficiency began to be restored, and in some cases US food exports were excluded. Thus, early market-opening efforts focused on agricultural products.

By the mid-1970s, the US had adopted a more formal and legalistic approach to improving its exporters' access to the Japanese market through the combined use of GATT dispute settlement and its Section 301 policy. Over the next twenty years, US officials pursued at least 23 different formal actions against Japan in attempts to open up its market to US exports. Figure 4 [ PDF 16.1KB | 1 page ] shows formal US market-opening initiatives against Japan and the bilateral US-Japan trade deficit by year from 1965 through 2000. Similar to the US use of AD against imports from Japan as shown in Figure 3a, there is a strong positive correlation between the size of the bilateral trade deficit and these formal US actions attempting to open up Japan's markets to US exports.

Table 5 [ PDF 13.7KB | 1 page ] presents detailed information on 23 formal Section 301, GATT, and WTO trade disputes that the US initiated to open up Japan's market. While the US had begun using the GATT dispute-settlement provisions in 1948, it did not file its first formal trade dispute against Japan until 1977.¹⁸ US use of GATT dispute settlement in the attempt to open up Japan's market to its firms was most frequent during the 1977–1988 period, when it filed a total of 11 formal disputes against Japan. Japan was clearly an important target for the US during this period, facing nearly a third of the 35 GATT trade disputes the US initiated. Beginning in 1989, partially out of frustration with the relatively toothless dispute-settlement provisions of the GATT and partially as a negotiating tactic to increase the pressure on the other GATT contracting parties to reform the dispute-settlement provisions, the US shifted away from using GATT dispute settlement and instead relied solely on its unilateral Section 301 policy tool to pursue cases against Japan. Whereas all but one of the Section 301 investigations against Japan during 1977–1988 resulted in the US bringing a formal GATT trade dispute, none of the next four Section 301 cases, initiated during 1989–1994, did so. The only Section 301 investigation of Japan during 1977–1988 that did not lead to a USinitiated GATT dispute was the semiconductor case initiated in 1985. In the WTO era that began in 1995, all US Section 301 investigations of Japan have been forwarded to WTO dispute settlement, along with two other disputes that were not initiated through the Section 301 channel.

As the products in Table 5 indicate, US use of these formal channels to seek additional Japanese market access for its exporters has spanned a considerable range of sectors and issues. In the 1970s, desired market access was primarily in agriculture-based products (tobacco and leather) and lower value-added manufacturing (silk, cigars, cigarettes, footwear, and bats). In the mid-1980s, while there were continued pressures to obtain Japanese market access for US agricultural products (dairy, legumes, starches, sugars, groundnuts, pineapple, tomato, fish, citrus, and beef) and also wood products, there were new issues of importance to U.S exporters as well. Some of this involved intellectualproperty- intensive export products where the US had a strong comparative advantage (semiconductors, supercomputers, satellites, auto parts), but also involved were issue-areas and disciplines where the GATT rules were only slowly becoming responsive (e.g., trade in services [construction, architectural, engineering], as well as three separate disputes over Japan's government-procurement procedures).

4.2 US Formal Market-opening Actions against the PRC

Moreover, the US and other WTO members demanded many more import market-access commitments than had previously been the case with new arrivals when they negotiated the terms of the PRC's accession to the WTO.¹⁹ When the PRC acceded to the WTO in 2001, it had cut tariffs significantly on a broad range of products, making its applied tariffs both relatively low and quite close to the bound rates. As Table 6 [ PDF 12.5KB | 1 page ] indicates, the PRC's applied and bound tariffs in 2007 were only slightly higher than those of the US and Japan overall and actually lower than Japan's in certain areas (e.g., agriculture). The PRC's tariffs were also much lower on average than those of other major emerging economies such as India and Brazil, countries that have been part of the GATT/WTO system for decades longer than the PRC.

However, as Figure 5 [ PDF 20KB | 1 page ] shows, the US bilateral trade deficit has nonetheless been expanding rapidly, with no sign of decline after the PRC's accession to the WTO in 2001.²⁰ Thus, beginning in 2004, the US began efforts similar to the formal actions taken against Japan beginning in the late 1970s to get the PRC to open up its market to US exports. Table 7 [ PDF 11KB | 1 page ] documents the formal trade disputes the US has initiated against the PRC through 2008, in which it alleges that the PRC has not sufficiently (quickly or in depth) lived up to its import market-access commitments. The domestic industries behind US initiation of formal disputes included both dominant export interests in areas of US comparative advantage (intellectual property-intensive goods and services like information technology, Hollywood movies, and other media, and financial information service providers) and traditional capital-intensive industries (auto parts). Like the WTO disputes involving the US and Japan discussed earlier, many of the issue-areas are relatively new and/or involve somewhat new disciplines, including the Agreement on Trade and Related Aspects of Intellectual Property Rights and the Agreement on Subsidies (TRIPS) and countervailing measures (SCM), where the PRC is particularly vulnerable given its history of state-owned enterprises and its still incomplete transition to a more market-oriented economy.²¹

In considering the formal WTO disputes that the US has chosen to initiate to address the bilateral imbalance with the PRC, it is worth noting a path that the US has not yet undertaken (i.e., resumption of the unilateral Section 301 actions that were criticized by US trading partners during the GATT era; see Bayard and Elliott 1994, 355-465 and appendix). The absence of unilateral actions is especially significant given that the US Trade Representative (USTR) has received a number of petitions to investigate the PRC under Section 301. In each year between 2004 and 2007, the USTR received at least one petition requesting the use of Section 301 to investigate the PRC's exchange rate or manufacturing labor rights, alleging that undervaluation of the PRC's currency constitutes a WTO-inconsistent subsidy or that its mistreatment of manufacturing workers affects US market access. In each instance, the USTR has declined to investigate the issue of the petition.

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