Cultures clash as U.S. urges Japans telecom deregulation

July 1, 1996

Cultures clash as U.S. urges Japan`s telecom deregulation


There is no doubt about it: Japan and the U.S. still speak different languages when the topics are telecommunications and deregulation. The World Trade Organization ended its most recent round of trade negotiations on April 30, with the United States and the European Union insisting that Japan open its telecommunications market to competition--a policy that would likely cause the breakup of Nippon Telegraph & Telephone (NTT).

Unlike the American experience with the divestiture of AT&T in 1984, Japan`s deregulation is supposed to open the door not only to domestic competitors but also to foreign competitors. This is the unspoken goal of the U.S. Trade Representative (USTR), the federal agency that negotiates trade agreements between the U.S. and other countries. The agency`s most recent publication, "1996 National Trade Estimate Report on Foreign Trade Barriers," makes pointed comments about NTT, saying: "Several U.S. firms are preparing to enter the local telephone service market in conjunction with offering cable-TV services [in Japan]. These companies face a major obstacle in obtaining fair interconnection to NTT`s local network. ...NTT has little incentive to negotiate competitive interconnection rates..." That comment alone is enough to suggest that the U.S. government and the American private sector would not object to the demise of NTT. Any doubt is removed by the USTR`s blunt comment: "NTT [is] the single, largest purchaser in Japan`s public and private telecommunications markets. U.S. industry continues to report anticompetitive preferences shown to traditional NTT suppliers [and] continued reliance on Japan-specific and NTT-specific standards as opposed to international standards. ...The relatively low level of U.S. firms` sales to NTT, considering U.S. firms` global competitiveness and approximately 25% of the world market, is indicative of these problems."

American business interests have privately pushed Japan`s government to dismember NTT. Despite recent support by the U.S. government, these efforts have not yet succeeded. Last March, Japan`s government issued a report on deregulating various sectors of the economy but did not mention a breakup of NTT (see Lightwave, May 1996, page 21). Japan`s Ministry of Posts and Telecommunications supposedly recommended such action, but the proposal was "shelved by politicians for at least another year," according to The Wall Street Journal.

Unfair trade policy

From an American perspective, Japan`s policy has all the earmarks of being an unfair trade policy. This is what fuels the fire for Pat Buchanan and others who say that the United States lets itself get taken advantage of in world trade. The perceived unfairness also lets President Clinton play to the American public by displaying his toughness with Japan. However, it is fair to say that America`s current trade policy, like other governmental policies, is shaped to assist the President`s reelection. Last October, White House Deputy Chief of Staff Harold Ickes sent a memo to Donna Shalala, Secretary of Health and Human Services, saying that "all federal departments are being urged to make sure that announcement of grants and other programs refer to the President." The USTR got the message. Its trade report on Japan begins with thinly veiled praise that could have been written by an election-campaign manager: "Determined to crack the unique structural obstacles to market access in Japan, President Clinton and the then Japanese Prime Minister Miyazawa signed a trade agreement [in 1993]. ...gifxports have grown by more than 80% since President Clinton took office."

The current stalemate over telecommunications policy cannot be laid solely at Japan`s door. The United States` insistence on competitive telecommunications markets reflects our own society and culture, and economic activity and culture are inseparable, according to the U.S. Supreme Court and District Court. In the decision that led to the AT&T divestiture of 1984, Judge Harold Greene wrote: "The need to safeguard free competition is a direct result of our economic system that the `unrestrained interaction of competitive forces will yield the best allocation of our economic resources, the lowest prices, the highest quality and the greatest material progress, while at the same time providing an environment conducive to our democratic political and social institutions.` " Most of that statement was quoted from U.S. Supreme Court Justice Hugo Black, who used that language in a 1956 decision where the government sued Northern Pacific Railway Co. for monopoly practices.

No American has ever challenged the accuracy of the thoughts expressed by Justice Black and Judge Greene. Their writing is routinely quoted by telephone companies seeking deregulation as a means to competition. If competition is conducive to our democratic political and social institutions, then by imposing competition on Japan`s telecommunications market, we also impose a bit of our culture, too. According to sociologist Ronald Dore, the Japanese believe that "you cannot get a decent, moral society, not even an efficient society, simply out of the mechanisms of a market powered by the motivational fuel of self interest." Japan`s policies are motivated more by a desire for social cohesion than by what Western culture calls self-interest. The two nations apparently do not recognize the distinction between self-interest and social cohesion when they negotiate with each other. The crux of America`s problem with Japan has a cultural source.

For example, in 1995, Japan`s government responded to outside criticism of its private sector`s trading practices by directing the Japan Fair Trade Commission to draft so-called antimonopoly rules to control the activities of Japanese trade associations, often referred to as keiretsus. Governments in Europe and the United States consider the keiretsus to be the main source of organizing and en forcing discriminatory practices. Japan invited the American government to comment on the rules. Section 8-4, "Exception for Social ly Beneficial Purposes," drew these comments from the U.S. Department of Justice: "[This rule] appears to permit trade associations to establish guidelines operations (other than discriminatory or mandatory criteria) so long as the guidelines achieve a socially beneficial purpose. However, the Draft Guidelines provide no guidance as to what a `socially beneficial purpose` might be, or who will determine if the purpose is indeed `socially bene ficial.`...This language might be read to permit a trade association to adopt some competition-restricting guidelines for the purpose of ensuring that the member firms not operate at a loss, or that `needless` competition not take place. We do not believe [in] allow[ing] anticompetitive arrangements..."

A failure to communicate

In light of Dore`s observation about Japanese culture, the Fair Trade Commission`s proposal to allow certain "socially beneficial activities" by keiretsus makes sense. Japan`s leaders clearly believe that economic activity and social institutions are inseparable, which was also articulated by Justice Black and Judge Greene. Thus, the question must be asked: If American leadership regards this principle as legitimate, why do American negotiators regard it as illegitimate in Japan and as a ruse to prevent competition?

The clash of American and Japanese interests over telecommunications is as much cultural as it is economic, more like the clash of an irresistible force and an immovable object. The recent mergers of Nynex and Bell Atlantic and Southwestern Bell and Pacific Telesis, the acquisition of Continental Cable company by US West, the cooperative arrangements between BellSouth and MCI, and the pending merger of Time Warner and Turner Inc. make it less likely that Japan would break up its only telecommunications giant, NTT. Indeed, without such a large company, Japan would have even more difficulty competing with American interests in the fast-growing telecommunications markets of the Pacific Rim and Southeast Asia. In fact, President Clinton recently gave another boost to American industry by giving it more commercial access to military satellite systems. In March, he signed an executive order allowing U.S. airlines, automakers and other commercial enterprises to use the defense department`s sophisticated 24 satellite-navigation system. The political motivation was made clear by a Wall Street Journal story quoting Marvin White, general manager of Etak, a unit of News Corp., the communications and media conglomerate owned by the powerful Rupert Murdoch. White said the President`s actions were "long overdue...we would be delighted" with a phaseout of military restrictions.

The executive order is nothing less than the federal government tacitly subsidizing America`s private sector. This policy, combined with the rapid rate of consolidation in the U.S. telecommunications industry, undercuts any moral edge the American government may have had. Moreover, the USTR demonstrates a remarkably poor negotiating strategy by urging Japan to divest NTT while the American industry becomes more centralized. It is as if the United States is saying, "Don`t do as I do; do as I say." This ensures that there will be no quick resolution of the telecommunications dispute. Besides, Japan is setting its own path, one that is not a copy or a derivative of American policy, according to Stephen J. Anderson, Associate Professor at the International University of Japan. He says, "Japanese observers believe themselves behind in telecommunications and information technologies. ...Japanese officials expressed relief that the consolidation of American industries and competitiveness under a new policy framework did not occur," referring to September 1994, when proposed telecommunications reform legislation in the U.S. was quashed by then Sen. Bob Dole. Since then, Japan "has moved to create a vision of its own," says Anderson.

Like other societies, Japan assesses technology according to how it serves the prevailing social institutions. For now, the best thing that each side can do is to pursue negotiation while learning to live with the differences between them. The words of Shumpei Kumon, who wrote "A Japanese Perspective on the Information Revolution," are apt: "If a social order is to be built in this region with its far greater sociocultural diversity than in the West, what should its contents be? My own thinking is that...what is important is that we strive to understand each other`s cultures." q

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