Economic Report of the President 1994 - The American Presidency ...

TABLE 6-6.—Intrafirm Trade as Share of Total U.S. Exports to andImports from Europe and Japan, 1992[Percent of total]U.S. importsRegion to fromregionEurope 32.4 46.3Japan 36.2 75.0World total 30.6 45.0Note.—Intrafirm trade is defined as merchandise trade between "related parties" (that is, between affiliates of the samefirm).Source: Department of Commerce, Bureau of the Census.of the economy. Domestic industrial support policies in Japan haveincluded subsidies to producers and to research and developmentconsortia, preferential tax treatment, preferential access to credit,government procurement preferences, establishment of producercartels, and lax antitrust enforcement. External policies have includedtrade protection, restrictions on inward foreign direct investment,and control over high-technology trade. These policies havebeen applied to both infant and senescent industries.With a few notable exceptions, including agriculture, Japanesetariffs and import quotas are not significant trade barriers. Yet Japan'smarket is regarded by many as effectively closed to importsof many foreign manufactures, especially those that directly competewith Japanese goods. Structural barriers alleged to deter importsinclude reliance on bureaucratic control to ensure productsafety; domestic cartels, discriminatory pr-ctices by the keiretsu,and weak enforcement of competition policies; inadequate intellectualproperty protection; government procurement procedures thatfavor domestic suppliers; imperfect capital markets that inhibit inwardforeign investment; and impediments in the distributionchannels for imported products—to name a few.Estimating the impact of the mostly overt barriers to trade inprimary products is relatively straightforward. One recent studyconcluded that complete elimination of all agricultural trade barriersin Japan might increase the incomes of U.S. producers by 28percent of the value of bilateral agricultural exports. This wouldoccur through a combination of higher export volumes to Japan andhigher prices on exports to all markets. Comparable figures for potentialgains in minerals and, importantly, services, are not available.What attracts the most attention, however, is the potential gainin manufactures. And here the story is far more controversial becausethe subtle nature of Japan's trade barriers poses difficultproblems for economists trying to assess their impact. In consequence,researchers have eschewed direct measurement of thesebarriers and focused instead on inferring their impact indirectly by218