High hopes and hurdles in selling to Japan

Tracey Samuelson Aug 14, 2015
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High hopes and hurdles in selling to Japan

Tracey Samuelson Aug 14, 2015
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While negotiators working on the Transpacific Partnership met earlier this month on the Hawaiian island of Maui to try to finalize the rules that will govern about a third of global trade, John Holman opened a Power Point presentation in a small conference room on a nearby island.  

“Why should you export?” he asked the roughly dozen attendees. 

Holman works for U.S. Commercial Service. It’s part of his job to get companies interested in exporting and help them navigate the process.

New exporters often come to him to ask about selling to Japan or China. His message? Look for the path of least resistance.

“What markets can you get into as an exporter, in the shortest amount of time, the least amount of cost, and generate the greatest return?” he says, pulling up a slide of the World Bank’s global rankings for ease of doing business. Singapore is first on the list of 189 countries; Japan is number 29. “Then reinvest that revenue and experience into new markets.”

As the world’s third-largest economy — and one with a wealthy consumer class — Japan is a tempting target for foreign companies. If the dozen countries in Transpacific Partnership finalize the trade agreement they’ve been working on for the last five years, it would be the first free trade agreement between the U.S. and Japan.

But there are high hopes and hurdles when it comes to selling to Japan.

On the one hand, Japan has many benefits, such as good transportation networks and low corruption, says Peter Petri, a professor at Brandeis University. Additionally, its tariffs on many goods are very low, except for a few heavily protected industries. For example, rice imports above a certain quota face tariffs over 700 percent.

“There are also other kinds of unique regulations that make it very hard to do business in Japan, much harder than in other advanced economies,” Petri says.

He lists four main areas where foreign firms face challenges: agriculture, medicine, foreign investment and services, like insurance or internet providers.

“In these areas where there is a great deal of regulatory intervention, Japan is really pretty far behind,” he says. “One way to see that is that the amount of investment going into Japan is, in our estimates, maybe a third as much as we would predict for Japan.”

The Maui Gold Pineapple Company's 1,200-acre hilltop farm.

The Maui Gold Pineapple Company’s 1,200-acre hilltop farm. 

U.S. automakers also complain they face unfair regulations and exchange rates when trying to sell to Japan. Therefore, Petri says, the TPP’s biggest economic impact won’t come from lowering tariffs, but from addressing these other rules and regulations, and making them more uniform across the various countries.

That could be welcome news for lots of exporters, but some are still skeptical. 

Hawaii used to be a major player in the global pineapple market, but its production contracted with the rise of cheaper labor and lower prices elsewhere — a common story in global trade. 

“You try to aim your markets where you can get the best pricing,” says Rodrigo Balala, vice president of Maui Gold Pineapple Company, as he drives up the dusty, rutted roads of the 1,200-acre hilltop farm.         

He sells most of his pineapples locally, sends some to California — and he’s also started exporting to Japan.

“Japan pays for quality. If you can put a quality product out there, they’re willing to buy it,” he says, noting the low acidity of the pineapples he grows, a trait he says Japanese consumers prefer.

Sure, selling into Japan that first time was tricky.

Pineapples grown by the Maui Gold Pineapple Company

Pineapples grown by the Maui Gold Pineapple Company 

“There was a lot of stuff we needed to learn,” he says. “We thought we knew all we need to know, but there’s a list of paperwork you’ve got to do.”

Now he says it’s not a problem, especially because he works with a local importer who handles much of the work and covers the roughly 20 percent tariff Japan levies on his products.

However, even while Balala might benefit from lower tariffs and a smoother exporting process, he looks at past trade deals and is unsure about the TPP, worried about the impact of increased competition from abroad.

“It’s the same thing with NAFTA and CAFTA,” he says. “It hurts, especially if they can come in cheap. Everyone knows the costs of producing stuff in the U.S. is expensive. Hopefully, it doesn’t hurt us that way.”

He sees both risks and rewards in expanding trade. 

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