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Doing Business : Japan Changes Rules of Engagement for Mideast Trade : After nearly 20 years of virtual compliance with the Arab boycott, Japanese firms are doing business with Israel

January 29, 1991|KARL SCHOENBERGER | Times Sraff Writer

"We have a strong sense of confidence from our ability to withstand the Middle East crises of the 1970s, and this is not a complete fantasy," Shimizu said. "The real fear among Japanese economists isn't of direct harm to Japan, but of a decline in the U.S. economy, which could hurt exports or put increased pressure on bilateral trade disputes. The indirect impact through America is the big concern at this point."

Indeed, Japan's posture in the Mideast is alternatively a subset of its oil policy, and a subset of its strategic partnership with the United States.

Shimizu observes that when U.S.-Japan trade friction heats up, Tokyo has a tendency to drift from its pro-Arab orientation toward more sympathetic leanings to Israel, presumably to curry favor with America.

In the wake of the first oil shock, after the 1973 Yom Kippur War, Japan staked out an independent position that earned it quick exemption from the Arab oil embargo. Japan demanded Israel withdraw from all occupied territories, recognize the Palestinians' right to self-determination, and threatened the possibility of breaking relations with Israel, "depending on future developments."

At the time, 85 percent of Japan's oil came from the Middle East. That level of dependency was reduced to 78 percent by the time of the second oil shock in 1979, and to about 70 percent in the early 1980s. Meanwhile, a policy of diversifying energy sources to coal and nuclear fuel, backed by nearly five months worth of stockpiled oil, has relaxed the urgency surrounding supply. Also, the rapid appreciation of the yen from 1985 made imported oil deceptively cheap.

"Until the middle of the 1980s, we used to be told by Japan that there'd be no progress in bilateral relations until the confrontation ends in the Middle East," said Eitan Margalit, minister for political affairs at the Israeli Embassy in Tokyo. "We don't hear that anymore."

Margalit sees "an increasing self-confidence" in Japanese officials and a "recognition that they should start to establish a better relationship with us if they hope to play a more significant role in the Middle East."

In 1988 and 1989, the two countries for the first time exchanged official visits by their foreign ministers, and last year they began annual working-level political talks. "We're not deceiving ourselves. We still see Arab oil interests as a very important factor in Japan's policy," Margalit said. "Although bilateral relations are developing nicely, it's still not enough. We'd like to see much more free trade, and even now, many Japanese companies are still following the Arab boycott."

More than a decade ago, the Ministry of International Trade and Industry (MITI) began an unofficial policy of "administrative guidance" to discourage Japanese companies from trading with Israel, government and industry sources say.

"We don't trade with Israel because the government tells us not to," said Tsuneo Tanaka, group executive for international operations at Hitachi Ltd.

MITI now denies this, but not very convincingly.

"The government is opposed to the Arab boycott, but we can't order the private sector to do anything," said Mitsuyoshi Saito, an official in MITI's Middle East and Africa Division. "Since there's a threat of being blacklisted, none of the companies has ties with both sides. It's a question of choice, whether they want to trade with Israel or the Arab countries. Japan has got to have good relations with both sides, or we can't survive. Our top priority is oil supply."

The United States and many European countries have laws prohibiting companies from cooperating with the boycott and impose sanctions against those who do. In 1989, the U.S. Commerce Department imposed civil penalties ranging from $13,500 to $170,000 on the U.S. subsidiaries of three Japanese trading firms--Mitsubishi Corp., Mitsui & Co. and Daiichi Jitsugyo Co.--for cooperating with the Arab boycott.

Japan's support of the boycott was raised last October by leaders of the American Jewish community, who questioned Matsushita Electric Industrial Co.'s track record. Matsushita was then in the midst of delicate negotiations leading toward its takeover of MCA Communications. Regulations set by the League of Arab States, among other things, ban movies featuring actors with "Zionist tendencies."

Matsushita was cited as violating the Arab boycott in 1977 for selling televisions to Israel, but it is not clear how or when it was removed from the blacklist. The boycott forbids Arab League members to conduct business with companies that trade with or invest in Israel.

Matsushita both denies that it violated the Arab boycott, and that it restricts trade to Israel.

"There's no truth in the allegation that we ever ignored the Arab boycott and exported directly to Israel," said Matsushita spokesman Akira Nagano. "We've never exported directly to Israel. But we also have a clear policy of following U.S. law, and we supply our products to all countries, including Israel."

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