NOVEM
970
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shared by the advanced countries.
2) Since it would not do to let any one of the LDC take over a lion's share of the market, another limit is imposed by the stipulation that when a favored commo- dity from a less-developed country exceeds 50 per cent of the total quantity of that item since the start of the year, preference will cease beyond that point.
The original Japanese proposal had the 10-per-cent addition at 5 per cent, while there was a "competitive- ness" clause stipulating withdrawal of preference for any item which in the preceding year exceeded 50 per cent of its ceiling level.
3) Whereas preferences as proposed by the other advanced nations is no duty-free basis as a general rule, Japan, while accepting in principle the duty-free appro- ach, will retain tariffs at 50 per cent of normal for 57 items (textiles, sundries, non-ferrous metals, agricultural produce, and some leather products). Currently, there are altogether 840 dutiable items. Furthermore, seven items- hides and leather, apparel, raw silk, silk fabrics, rubber and plastic footwear and parts thereof, gelatine, animal glue, and plywood-have been excluded altogether from preferential treatment.
The United States, Great Britain and the Scandinavian countries propose an "escape clause" formula for protec- tion of home industry in the event of a sharp upsurge of imports of certain items.
Repressive Effects of LDC Imports Slight
What then will be the effect on Japan's industry of the proposed preferences? Two setbacks are foreseeable: 1) repression of home industrial activity due to direct influx of LDC goods; and 2) displacement by competitive goods from the LDC of Japan's export products in third-nation markets, particularly the United States.
Let us first see how direct influx may affect our industrial activity. Although currently more than 40 per cent of Japan's imports come from the LDC, the greater bulk consists of industrial raw materials, and such problem items as textiles and durable consumer goods amount to no more than two or three per cent (customs clearances statistics of 1969). Moreover, the items in which Japan is least competitive will be excluded from preference, while for such products as textile goods and sundries the concession will be by only half the regular tariff. Consequently, no unduly severe effect can be expected.
For textile products, the Japanese manufacturers at first sought outright exclusion, so while it may appear as though a major concession is being made, there is little cause for worry since, for one thing, the ceiling level will not be high with 1968, when imports of tortile gumule were but a Suuli blokje, used as the muse juur, viale sint/ will continue to be levied albeit at half the normal rate. Some quarters, such as the synthetics manufacturers who
export yam and staple to the Southeast Asia countries for fabrication into cloth, actually welcome the preference arrangement as advantageous.
Exclusion of Hong Kong
In the area of sundry goods, the Japanese manufac turers are hard pressed by the competition from South Korca, Taiwan, Hong Kong, and others. Whether Hong Kong can be considered underdeveloped is a controversial point. There is no clear definition of the term "less- developed country," and in connection with preferences agreement is lacking among the advanced countries as to what nations deserve to be so described.
For Japan, Hong Kong was something of a problem, But in the end, Hong Kong was excluded from its LDC list which was compiled to include, out of the 135 UNCTAD nations, 72 Afro-Asian and 24 Latin American countries.
The exclusion of Hong Kong caused sighs of relief among the sundry goods manufacturers. Our toy makers consider Hong Kong as the hostile stronghold. For the Hong Kong operators have built up their industry to the extent that it is one of the major export industries of the Crown Colony, accounting for as much as $200 million- worth of shipments a year, leading Japan by a slight edge. There has been no appreciable direct effect on our toy industry since the ¥600 million to ¥700 million-worth of toys imported from Hong Kong come to but a small fraction of the ¥120,000 million-worth exported out of Japan, and moreover the Hong Kong products are mainly small, low-price items. But since the import duty on toys is now 20 per cent, a reduction to zero would have created a major threat.
Plywood, for which preferences had appeared unavoi- dable, was excluded in the final stage of the negotiations, much to the relief of the Japanese processors. Recently, the hot pursuit by South Korea and Taiwan has intensi- fied, while imports, at 2.5 per cent of local production (first six months of 1970), have risen sharply from the insignificant 0.3 per cent of 1968. The tariff rate is 20 per cent. So proference, if granted, would come as a sharp blow.
For Correction of Lopsided Trade
While, all in all, the direct effects are unlikely to be serious, the long-range view offers little comfort. The non-reciprocal preferences are scheduled to last for ten years. But in recent years the industrialization of South Korea, Taiwan and Hong Kong, aided by capital invest- ments and technology from the United States and Japan, has progressed rapidly with exports becoming highly competitive and diversified.
Condemently, Inpinnan Bading firms and big retail
supply, although currently the bulk of the buying is in apparel, mainly shirts, sweaters, baby,wear, slacks, and
THE ORIENTAL ECONOMIST