Is Japan’s Auto Market Protectionist, Or Are U.S. Automakers Playing Politics?

Jason Lancaster | Dec 18, 2009 | Comments 23

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Stephen Biegun, Ford Motor Company’s V.P. of international governmental affairs (and, interestingly enough, former executive secretary of the National Security Counsel during the G.W. Bush administration), has made the national news by accusing the Japanese government of protectionism.

Is Japan's Cash For Clunkers program protectionist?

In a nut shell, Biegun and the American Automotive Policy Council (a lobbying group funded by GM, Chrysler, and Ford) are accusing the Japanese government of unfair trade practices because cars built in America don’t qualify for a rebate under Japan’s “Cash for Clunkers” program. Unfortunately, this is an oversimplification.

Japan’s Cash For Clunkers Program Excludes Most Imports

Here are the details of Japan’s Cash For Clunkers program:

Japanese consumers will receive up to 250,000 Yen [about $2800] if they scrap a vehicle that’s 13 years or older while purchasing a new vehicle that meets a specific set of emissions requirements¹.

Japan’s Clunkers program emphasizes a very strict set of emissions requirements because the Japanese government is trying to emphasize fuel economy and the environment. Unfortunately, not one U.S. made vehicle is eligible for government cash under Japan’s Clunkers program.

The trouble is, the American C.A.R.S. program was practically a gift for Toyota and Honda. GM, Chrysler, and Ford collected only half of the “Cash For Clunkers” dollars. It would seem then that since the U.S. government was willing to allow Japanese automakers to participate in the C.A.R.S. program, the Japanese government should follow suit.

While the U.S. auto industry hammers away at this seeming unfairness, Japanese government officials point out their policy isn’t intended to discriminate against any particular automaker². Rather, Japanese government officials state their Cash For Clunkers program is designed to improve the environment and reduce CO2.

This official explanation makes sense considering that one-half of the vehicles available for sale in Japan do not qualify for this program³ (whether they are made in Japan or otherwise). Based on this fact alone, it would seem that Japan’s government isn’t trying to hurt U.S. automakers or “protect” their auto market.

Japan’s Preferential Handing Protocol

The main reason that we should disregard these claims of protectionism is that U.S. automakers are exporting vehicles to Japan without participating in the normal Japanese government inspection process. U.S. automakers, in an effort to save money, are allowed to sell cars in Japan without undergoing the formal government vehicle inspection process, which includes emissions testing³. This is called the “preferential handling protocol,” and U.S. automakers have been taking advantage of it since the 1990’s⁴.

To be clear, U.S. automakers have the opportunity to test and certify their vehicles, but they chose not to. Instead, they take advantage of a special exemption and bypass a complicated and expensive inspection process, saving millions of dollars in the process.

This point can’t be emphasized enough – U.S. automakers are selling vehicles in Japan without emissions certification. As a result, buying one of these non-emission certified cars doesn’t entitle the buyer to a cash voucher in Japan’s Cash For Clunkers emissions reducing program. This seems obviously fair.

U.S. Automakers Playing A Public Relations Game

U.S. automakers have a history of complaining about unfair business practices in Japan. In years past, the American Automotive Policy Council railed against an unfair exchange rate (in 2003 and in 2007, for example). Now that the U.S. – Yen exchange rate is actually in America’s favor – and hurting Japanese automakers (see how exchange rates effect the auto industry) – lobbyists have shifted their focus to protectionism.

Bottom Line: Considering that corporate lobbyists and a Washington insider are the driving force behind these allegations of protectionism, they deserve a high degree of skepticism. Japan’s Cash for Clunkers program is designed to reduce emissions, and because U.S. automakers bypass Japan’s emissions inspection process, they’re ineligible to participate.

References:

1. “Japan Jumps on the Cash For Clunkers Bandwagon,” Hemmings Auto Blog

2. “Japan’s Auto Barriers Need to End, Ford Exec Says,” Automotive News

3. “US Protests at Japans Clunkers Scheme,” The Financial Times

4. “Interview – Japan Auto Barriers Need To End – Ford Executive,” Forbes

Filed Under: Auto News