No C 328/30 Official Journal of the European Communities 22. 12. 86
Opinion on relations between the European Community, Japan and the United States of
America
(86/C 328/12)
The Economic and Social Committee decided on 18 December 1985, under the fourth
paragraph of Article 20 of its Rules of Procedure, to draw up an opinion on relations between
the European Community, Japan and the United States.
The Section for External Relations, which was responsible for preparing the Committee's
work on the subject, adopted its opinion on 9 September 1986 in the light of the report by
Mr Curlis and Mr Staratzke.
At its 239th plenary session (meeting of 18 September 1986) the Economic and Social
Committee adopted the following opinion unanimously:
EEC - Japan - USA relations
1. The European Community, the USA and Japan
are the world's most important trading partners. As
such they have a very great responsibility for the world
economy as a whole — a responsibility that is made
even greater by the close economic and political interde-
pendence that exists between them and the countries
of Europe, Africa, Asia and America which are very
important in terms of population, resources and econ-
omic development potential. The present opinion deals
in particular with the economic problems arising in this
sphere.
2. Together accounting for some 55% of world,
trade, the three partners have a common interest in (a)
creating the right conditions for the expansion of world
trade, and (b) helping to ensure a more balanced devel-
opment of the world economy.
3. As far as trade in industrial products and services
is concerned, the EEC, the USA and Japan must of
course continue to play their part in pursuing the goal
of trade liberalization within the multilateral frame-
work of GATT. In this context the Committee would
refer to its opinion of 22 May 1986 on future GATT
negotiations and the renewal of the Multifibre Arrange-
ment (!). Japan's increasing trade surpluses with the
USA and the European Community over recent years
are seriously threatening to upset the balance of world
trade.
4. As far as the agricultural sector is concerned, the
three partners need to show greater solidarity to resolve
the difficulties arising from the supply of farm produce
outstripping effective demand. Surplus production in
the USA and the EEC has not only led to trading
difficulties between them but has contributed materially
to lower world prices for an important range of com-
modities. This in turn has reduced the purchasing power
of primary producing countries. Japan is far from self-
sufficient in its food and feed requirements but is
(!) OJ No C 207, 18. 8. 1986.
planning significant increases in domestic production
which, given the country's importance as an importer,
will further weaken world prices. The Committee feels
that the three partners ought to do everything in their
power to make better use of the complementarity in
their production and to strive for common solutions
through coordination of their different agricultural
policies. With greater medium and long-term coordi-
nation between themselves as well as with third
countries the way should be open for more rational
organization of production, which should lead to a
progressive reduction in the cost of implementing agri-
cultural support policies. The USA, the European Com-
munity and Japan should coordinate their farm policies
through consultation within the framework of a new
agricultural system under GATT. During the forth-
coming round, production targets, subsidies and other
aid measures should be dealt with, account being taken
of the need for an international division of labour.
5. In the monetary field, the Committee notes with
satisfaction the more realistic trends in the exchange
rates between the yen and the dollar, and between the
Community currencies and the dollar. Even so, the
liberalization of capital movements in Japan would
result in exchange rates reflecting real differences in
purchasing power more accurately, with the yen rising
accordingly. There is a similar more realistic trend
in interest rates, which is making it possible for the
European economy to pick up again as a result of the
lower cost of money. These trends are also easing
developing countries' debt burdens (debt servicing) and
reducing the cost of their energy imports (lower value
of the dollar).
6. The Consultation machinery agreed recently in
Tokyo to prevent excessive fluctuations in exchange
rates will be able to play all the more positive a role in
this context if major domestic economic measures are
coordinated as far as possible. It is becoming more and
more necessary to hold regular consultations before
decisions are taken on major economic issues so that
22. 12. 86 Official Journal of the European Communities No C 328/31
national measures can take account of any reper-
cussions on external relations and on partners. This is
all the more important as imports from newly industri-
alizing countries are playing an increasing role in the
US and European Community economies.
EEC-Japan relations
7. The Committee notes that after centuries of iso-
lation Japan has over the last 40 years or so made great
efforts to open up to the outside world. For some years
now a certain internationalization of Japanese society
has been in.progress and there has been a more pro-
nounced interest in the western way of life, thereby
creating challenges and opportunities for the Com-
munity's economic operators.
8. Certain specific features of Japanese culture as
reflected, for example, in the capacity of the Japanese
for extremely hard work, their perfectionism and their
constant striving to improve the quality of their prod-
ucts, play an important part in the Japanese economy.
In addition, Japan has for decades been organizing
its productive apparatus on the basis of a strategic
evaluation and penetration of the international market,
and combining this with a concentration of its export
effort on specific products and technologies. Japan also
traditionally has a very low level of consumption and
a very high savings ratio.
9. This interest in the international market has not,
however, fundamentally changed the behaviour of
Japanese consumers, who continue to prefer Japanese
products. Moreover, the extremely high degree of verti-
cal integration in Japanese production and distribution
and the very close links between large companies, banks
and government make the Japanese market almost
impenetrable for foreign manufactures. The still inad-
equate presence of European entrepreneurs on the
Japanese market—which is only partly due to linguistic
problems—is another reason for the excessive Japanese
trade surplus—a disquieting phenomenon. There are of
course other factors which play a role here, not least
of which is the undervalued yen.
10. In short, the cultural and economic factors
described above, together with the fact that Japanese
exports are centrally 'managed' through a complex,
rather opaque but well-organized administrative system
(industrial targetting, laser beaming) give rise to the
justifiable conviction in the European Community that
GATT rules do not operate as far as Japan is concerned.
11. In the policy Japan pursues in procuring supplies
there are numerous examples of trading practices (two-
tier price systems for non-ferrous metals, restrictions
on imports of food products, discriminatory taxes on
wine and spirits) which, while seeming to comply with
the letter of GATT, actually go against its spirit by
severely affecting the economies of Japan's trading
partners.
12. The Committee urges that these questions be
tackled in the next GATT round.
13. In the meantime, to restore balance to the present
situation and to prevent the Community having to
take protective measures, the Committee considers that
Japan should back up its undertakings to open up its
markets—admittedly well-intentioned and undoubt-
edly effective in the long term—with quantitative
import commitments so as to reduce the disproportion
between imports and exports. If Japan does not increase
its imports from the European Community, the latter
will be obliged to take the necessary measures to curb
Japanese exports, including the introduction of a special
tariff or other appropriate trade sanctions.
14. Furthermore, Japan has now reached a stage
of technological, economic and financial development
where it must assume more responsibilities in the inter-
national monetary system and vis-a-vis developing
countries.
15. The Committee considers that Japan must take
all necessary steps to bring about a more extensive
opening-up of its markets to manufactures, services and
investments, within the shortest possible time; to do
this it must eliminate all existing obstacles, notably in
the fields of public procurement and the establishment
of firms (European investments in Japan). The Commit-
tee also calls for further progress towards more stable,
realistic exchange rates between the yen and European
currencies and urges a systematic liberalization of
Japan's financial system (banks, insurance). Japan
should also immediately remove the restrictions on
imports of certain sensitive consumer products. For
its part the Community should tighten its procedures
regarding the application of safeguard clauses and
should ensure that Japanese investments in EEC Mem-
ber States are subject to conditions comparable with
those imposed by the Japanese on Community invest-
ments in Japan. In short, the Committee endorses the
recommendations made by the European Parliament.
EEC-USA relations
16. The European Community and the USA must
always be aware of their mutual responsibilities when
taking domestic or foreign policy decisions. As far as
the USA is concerned, it is only in recent years that this
country has become more integrated into the world
economy. Although foreign trade exerts an increasingly
powerful influence on the US economy as a whole, the
USA has not yet fully recognized the need to take
into account the effects of its own domestic economic
No C 328/32 Official Journal of the European Communities 22. 12. 86
measures on the economies of other countries. As far as
relations between the EEC and the USA are concerned,
many tensions stem from the fact that the USA disre-
gards the international context when framing its dom-
estic economic policy. The cause and effect chain of
'budget deficit-capital imports-dollar exchange rate-
reduction in US competitiveness' has been ignored for
a long time.
17. The USA is currently trying to solve its trade
problems by pursuing a policy of dollar depreciation.
Growing competition on the US market from both
industrialized and newly industrializing countries has
led to a wave of protectionism in the United States.
The US Administration has so far largely managed to
resist the protectionist pressures emanating from the
hundreds of bills submitted in Congress and from the
large number of applications for protection against
imports submitted by firms and trade organizations
under existing trade laws. The US Administration has
thus stood by its trade policy principle of opposing
import restrictions, encouraging the opening-up of
foreign markets to American exports, and taking retali-
atory action only when the governments of trading
partners show bad faith.
18. In accordance with this principle, the USA sub-
mitted at the end of 1985 a list of trade restrictions
which it felt significantly hampered American exports.
The list covers 33 individual countries (with Japan the
most important), whilst the Community is treated as a
single entity. The EEC has in turn submitted its own
list of complaints about unfair US trade practices. The
Committee feels that the problems are now easier to
identify and that there is a basis for finding solutions
for each individual case.
19. In view of the shrinking world market in agricul-
tural products, the growing production surpluses in the
EEC and the USA, coming on top of higher production
in developing countries, are becoming an increasingly
disruptive factor in international trade, and the danger
of a trade war between the USA and the EEC over
domestic and third-country markets is looming larger.
20. Closely connected with this problem is the dis-
pute that has arisen as a result of the entry of Spain
and Portugal into the European Community. The
Americans must have known that the accession of Spain
and Portugal was going to affect agricultural import
regimes in the countries concerned. At the same time,
the reduction of Spanish duties to the levels of the
Community's Common Customs Tariff (CCT) facili-
tates US exports of industrial goods. The recent pro-
visional agreement between the Commission and the
US Administration should pave the way for a mutually
acceptable, definitive solution to this problem. The
Committee considers, however, that the basic problem,
namely the need to deal with the repercussions of the
enlargement of a customs union within the framework
of GATT, has still not been tackled.
21. Restrictions on the transfer of technology are
another basic problem area in EEC-USA relations. An
increasing proportion of new technologies in areas such
as micro-electronics, data-processing, automation,
biotechnology, aerospace and telecommunications can
be put to both civil and military uses. Because of this,
the USA believes that control over military technology
can only be secured by extending control over civil
technologies. In practice European Community exports
to Eastern-bloc countries are particularly hard hit by
American efforts to impose an embargo. The US rules
in question represent an unjustified claim to extraterri-
torial application of US laws. And since all components
and technologies originating in the USA fall under these
laws, Europeans can very easily lose lucrative business
deals with the Eastern bloc. The Committee therefore
believes that the USA must revise the provisions in
question.
22. With regard to imports of certain industrial prod-
ucts (machine tools being a recent example), the US
Administration justifies its call for voluntary restraint
by claiming that national security would be threatened
should the USA become dependent on such imports.
The Committee expressly warns against using the argu-
ment of a 'threat to national security' as a pretext for
trade restrictions.
23. The 'Omnibus Trade Bill" adopted by the House
of Representatives in May 1986 could be a very danger-
ous development from the point of view of world trade.
If it came into force, the Bill would give US industry
an instrument affording protection against virtually all
imports. The Reagan Administration has come out
strongly against the Bill, but should it get through the
Senate, even in a diluted form, then the Committee
believes the European Community should condemn it
with the utmost vigour and take steps to protect its
own trade interests.
24. Many members of the US Congress have reser-
vations about GATT. They regard it as an ineffective
instrument from the point of view of defending the
'legitimate claims' of the USA and take the view that
the new multilateral trade negotiations must make a
concrete contribution to helping the USA solve its trade-
deficit problem. The Committee would point out, how-
ever, that as far as the opening-up of markets is con-
cerned, world trade is based on the principle of recipro-
city. Greater liberalization must not be aimed at solving
the trade problems of just one partner.
25. There is a danger that relations between the
European Community and the USA will deteriorate
22. 12. 86 Official Journal of the European Communities No C 328/33
because of an accumulation of sectoral problems. Agri-
culture is a particular problem area, as are iron and
steel, high-technology products, machine tools, etc. The
US Congress often interprets international trade rules
in the light of short-term national interests, although it
would be to the USA's advantage to solve problems
jointly with the EEC. If this is not possible through
direct dialogue, then the problems should be referred
to a neutral body. GATT has the appropriate machin-
ery for this. Both partners should nevertheless make
efforts to improve the efficiency of the dispute settle-
ment procedure.
26. Given the unstable world economic climate, their
interdependent economies and their common interests,
the USA and the European Community have no alterna-
tive but to engage—on a basis of trust—in dialogue and
cooperation on trade and on economic and monetary
policy.
Conclusions
27. Given the growing trade imbalance which is a
feature of EEC-Japan and US-Japan relations, Japan
should (a) assume greater responsibility for the world
economy and world trade in general, and (b) take the
domestic economic and monetary measures needed to
correct this imbalance, thereby obviating retaliatory
measures by Japan's trading partners. The Japanese
economy should be integrated more fully into the world
economy as regards not only imports of manufactures,
services (the inclusion of services in the GATT nego-
tiations should put Japan under increasing pressure to
open up its markets in, for example, the banking and
insurance sector) and certain raw materials, but also
transfers of technology and capital movements.
28. Each country must take into account the effects
its domestic economic policy decisions have on its exter-
nal economic relations. This applies particularly to
agricultural policy but it also holds good for budget,
regional, credit and industrial policy. The USA, Japan
and the European Community must together face up
Done at Brussels, 18 September 1986.
to the fact that because of their economic strength
they have a responsibility for the operation of the
international monetary and trading system, for employ-
ment, and for the growth of the world economy. The
Committee considers that results in these areas have so
far been rather disappointing.
29. All members of the world's trading community
have an interest in maintaining and strengthening the
legal framework of GATT, in preventing the creation
of new trade barriers and in avoiding recourse to unilat-
eral or bilateral solutions. In this context the agreements
concluded between the USA and Japan on trade liberal-
ization or restraint in specific areas (semi-conductors,
telecommunications, medical equipment, pharmaceu-
ticals and electronic products) must not be allowed to
work to the disadvantage of the Community. Bilateral
trade agreements of any kind have a tendency to distort
trade flows to the detriment of third countries not party
to the agreement in question.
30. Bilateralism and the sectoral approach to world
trade undermine multilateralism and the most-favour-
ed-nation principle, the twin pillars of a world trade
system designed to promote prosperity. Although bilat-
eralism and the sectoral approach have not so far been
regulated by international agreements (grey areas), they
are at variance with an efficient international division
of labour on the basis of the most favourable locations
for production.
31. The Committee considers that the Community
must implement the common trade policy provided for
in the EEC Treaty as rapidly as possible.
32. Together with its partners, the Community
should take initiatives aimed at bringing about a more
functional, more effective international monetary
system.
33. The Committee would reiterate its conviction
that consultation procedures should be set up between
the European Community, the USA and Japan at all
levels, including the socio-economic organizations. The
Committee should itself take the necessary initiatives
in this connection. Such consultations should of course
take into account not just the true interests of the
European Community, the USA and Japan but also the
interests of other trading partners and the developing
countries, particularly the Mediterranean and ACP
countries, for which the Community has a special
responsibility.
The Chairman
of the Economic and Social Committee
Gerd MUHR
Full & Egal Universal Law Academy