[Introduction by Tom Mathes and Louis Leclerc] This is the text from a facinating documentary episode of the PBS program FRONTLINE. It is both enlightening and infuriating. Details on how to get the video are at the end of this file. This program talks about an electronics cartel which conspired to and ultimately successfully took over the American flat panel display market, as well as the uncoordinated and inept U.S. response to this attack, both by our companies and our government. As a result, today the USA has a 0% market share (all of it is Japanese) in the commercial flat panel market industry. This is more ironic considering the technology was in fact invented in the USA by small high tech upstarts. This program also talks about a number of great Japanese companies, including Honda, and Nintendo and some of the reasons (besides making good products) that they were able to dominate their respective industries in the U.S. The first part of the text is slow going, but it gets very interesting about 1/3 of the way through. SCRIPT BEGINS: ------------------------------------------------------------------ [ANNOUNCER] Tonight on FRONTLINE, a critical essay on the Japanese challenge to American business. [Professor CHALMERS JOHNSON, University of California, San Diego] If you're an American business in a high-tech industry competing with the Japanese, you are in the business of going out of business. [ANNOUNCER] Some critics say Japanese companies are practicing predatory capitalism. Others argue they're only beating us at our own game. [AL PACE] We need a Desert Storm from American industry. [ANNOUNCER] Tonight on FRONTLINE, "Losing the War With Japan ." [ROBERT KRULWICH] Good evening. I'm Robert Krulwich. Earlier this month President Bush cancelled a trip to Japan and the Far East to concentrate his attention on what's happening here at home. Ironically, one of the purposes of that trip was to discuss trade policy with the Japanese, a trade policy that some believe is causing many of the problems we Americans face at home. According to the people that you will meet in tonight's report, Japan is mounting a carefully orchestrated attack on American industry, driving many American companies out of business and driving many Americans out of good jobs. It's an attack, say these experts, that few Americans understand, but they warn the ramifications for all of us are profound. Later, I will be joined by three guests who offer some contrasting points of view. But first, tonight's film is called "Losing the War With Japan." It is produced and reported by Martin Koughan. [MARTIN KOUGHAN] Fourth of July in the year of Desert Storm, the celebration America had been waiting for since Vietnam. The loudest applause this day was for the heroes of the Gulf war, the men and women who proved what everyone knew in their hearts, that Americans and American technology can't be beat, that America is still number one. But the victory in the Gulf helped disguise a disturbing fact about American power. The United States has been fighting another war, a war it wasn't ready for, a war that it is losing. [Professor CHALMERS JOHNSON, University of California, San Diego] The Gulf war was showing off our smart bombs in order to disguise our dumb VCR's. [Mr. KOUGHAN] Professor Chalmers Johnson from the University of California, San Diego, studies Japanese business. [Prof. JOHNSON] We've been fighting against Karl Marx since the late 1940's. We got Karl Marx. He's dead. But some guys that weren't playing that game have blind-sided both of us. You know, the Cold War is over and Japan won. [Mr. KOUGHAN] Japan's success had made the Japanese, America's wealthiest foreign visitors. They spend seven times more than the average tourist, but what do they buy? This is the Capitol Boutique, a store just two blocks from the White House. Luke Sakaguchi opened it a year ago. The clientele is almost entirely Japanese tourists. [LUKE SAKAGUCHI] This is a Japanese custom. Whoever go abroad, we must buy souvenirs. Not the cheap ones, nice ones. Unfortunately, the people have only half an hour. It's a panic. It's a war. [Mr. KOUGHAN] The buying frenzy at the Capitol Boutique suggests one reason for the growing tension over the trade deficit with Japan. Japanese may visit America, but they don't buy American. [INTERVIEWER] I see all these are imported goods, huh? [Mr. SAKAGUCHI] We have also the American goods, as well. [INTERVIEWER] You do? [Mr. SAKAGUCHI] But unfortunately we don't see many Americans- jeans, you make nice jeans. We have beautiful T-shirts from America. [Mr. KOUGHAN] To most Japanese, "Made in America" simply means "cheap." [Mr. SAKAGUCHI] If you make a better one, we like to buy, yes. Yes. But we just cannot find. Yes. [Mr. KOUGHAN] If Japanese don't want to buy American, Americans are not reluctant to buy Japanese. One out of every three cars sold in America is Japanese and that, along with the recession, spells big trouble for U.S. auto makers. Chrysler Corporation has already lost more than a billion dollars this year and the trouble is likely to get much worse. [LEE IACOCCA] We believe in open markets. We believe in free trade. [Mr. KOUGHAN] Lee Iacocca is the chairman of Chrysler. [Mr. IACOCCA] But the world has changed. There are a lot of guys that aren't playing by those rules and we're getting our head handed to us. We're getting clobbered. [Mr. KOUGHAN] When auto makers have trouble, so do the suppliers of steel, textiles, plastics, rubber, every basic industry in America. As the American car industry shrinks, auto parts makers must sell to other auto makers. The most important are the Japanese. [Mr. IACOCCA] We build fantastic parts that we sell all over the world. The U.S. sells $15 billion in auto parts to Germany, sophisticated countries, France, Italy. We can't sell any in Japan. They say- [INTERVIEWER] Why? [Mr. IACOCCA] Well, they claim our quality and costs aren't good enough. Well, if they're good enough for Mercedes, why in the hell aren't they good enough for Toyota? [Mr. KOUGHAN] Early this year Iacocca, along with the chairmen of G.M. and Ford, went to the White House to ask for help against what they call "unfair Japanese competition." Roger Porter is assistant to the President for economic and domestic policy. [ROGER PORTER, White House Economic Advisor] The administration has no plans to assist a particular firm in any industry, whether it's Chrysler or anyone else. [Mr. KOUGHAN] In Washington, the guiding principle that shapes national economic policy is the separation of business and government. At the White House, it is close to a state religion. The administration believes that American business can fight foreign competition alone. [Mr. PORTER] We have a history in this country of dynamic American entrepreneurs. It is something that I hope we never lose in this country. America is and has been and I hope will always remain a frontier of opportunity. [Mr. KOUGHAN] There was a time when American cars were the envy of the world, but today the reputation for quality and reliability in the world market belongs to Japanese cars. The change represents the triumph of Japan's national industrial policy which mandates that business and government work together for national objectives. For an American businessman facing Japanese competition, the results can be devastating. Al Pace found out the hard way. [AL PACE] They're working to a script we're not. We're an event and they're a blueprint. That's the difference between the two. [INTERVIEWER] We're an event and they're a blueprint? [Mr. PACE] Certainly. [Mr. KOUGHAN] Al Pace was the president and owner of Variety Stamping, a supplier of auto parts to General Motors for 50 years. It WAS very much a family business. Wife Betty handled the books. Daughter Diane was the computer operator. Son Mark supervised production. They worked together every day until two years ago when everything fell apart. [BETTY PACE] It's something I don't enjoy reliving. It.. it just went from bad to worse. He had the hardest time. He had the hardest time. I mean, I think it all hit him, he just lost a part of himself. We all did, but more so Al because that was his.. his American Dream. [Mr. PACE] I was born in Cleveland, educated in Cleveland, invested my money and my energy in Cleveland, and the proudest thing I did was that I employed Cleveland people. We had a reputation as a trouble-free source. We were the kind of people that you went to and if we said it would be there, it was there. [Mr. KOUGHAN] Al Pace built Variety Stamping into a $25 million company with over 200 jobs, but there was a problem. General Motors business was starting to shrink. If Variety was to keep growing, it would have to make parts for the only expanding market, the Japanese auto makers who were building new plants across the Midwest. Al Pace went on the offensive. He even made a video in Japanese. It seemed to work. Honda Motor Company was under pressure to buy American parts for its new factory in Marysville, Ohio. Variety was offered a big contract from Honda with one catch: They would share the project with a Japanese partner, Kikuchi. [Mr. PACE] We were awarded the programs and we had quoted the tools, but we weren't given the opportunity of building the tools. The statement was that they just didn't feel that American suppliers would be capable of delivering the tools on a timely basis. So the tooling was awarded to Kikuchi, my partner from Japan. [INTERVIEWER] So you bought the tools from your partner? [Mr. PACE] That's correct. [JIM GALE] I truly believe that we were being set up, that there was no intention ever to make Al their partner and that there was no intention of having a long-term relationship with Variety. [Mr. KOUGHAN] Jim Gale supervised the Honda contract at Variety. He says the tools supplied by Kikuchi were defective. The result: production delays and bad parts. Gale believes Kikuchi had good reason not to try. [Mr. GALE] Kikuchi actually could be construed as a competitor of ours. In Japan, they were making the same parts that we were making here. When I found out that we were also paying them a royalty for technical assistance, I was really stunned. Absolutely couldn't believe it. [Mr. KOUGHAN] Kikuchi was not just any competitor, but part of Honda's corporate family or keiretsu. Like other Japanese industrial giants, Honda is actually a complex web of companies that hold shares in one another. Like cartels, keiretsu set prices and control profits to ensure the health of their members. Buying from keiretsu partner ultimately means lower cost, since Honda gets to share in Kikuchi's profits. [Prof. JOHNSON] I think that it is expected that Variety Stamping would fail under these circumstances. That is, the kinds of incentives, the kinds of institutional requirements that Variety Stamping faces compared with the Japanese requirements means that they are going to rail. [Mr. KOUGHAN] When the tools supplied by Kikuchi broke down, engineers were sent from Japan to repair them. They did not speak English. Production slowed and costs soared. [Mr. PACE] Our partner supplied us the weld systems, which did not make acceptable welds. We had components supplied to us by Japan that when put together, did not create an acceptable product. Mr. [KOUGHAN] Even when Honda inspectors approved parts at Variety, other inspectors would often reject them when they arrived in Marysville. In a matter of months, Variety Stamping collapsed. [Mr. GALE] I think that they wanted their own company producing these parts. I think they wanted to go through the motions of saying that, "Yes, we tried an American supplier and they could not give us the quality that we needed." [INTERVIEWER] So they were building a case against Variety? [Mr. GALE] I believe that's exactly what they were doing. [Mr. KOUGHAN] FRONTLINE repeatedly offered Honda an opportunity to respond. Honda refused. There is growing evidence Honda's claim that its cars produced in Ohio are American-made is not true. All of the most expensive of value-added parts are imported from Japan. In fact, when the Customs Department inspected a Marysville Honda engine, it found only 1 percent of the parts were made by American suppliers. [Mr. GALE] The more value-added parts would come from Japan. We would at that point be the assemblers. We would take the low-end no-brainer part of it, if you will, and do that. [INTERVIEWER] Just piece the parts together? [Mr. GALE] Piece the parts together, sell our labor. [INTERVIEWER] And that became an American part. [Mr. GALE] And that then is.. in.. yeah.., to Honda, an American part. Sure. [Mr. KOUGHAN] Auto parts are now the fastest-growing Japanese import. Critics charge Honda and other Japanese transplants have made only token efforts to use American suppliers. Al Pace believes Honda deliberately misled him.. and he says this is the proof: a brand new assembly plant for Kikuchi by Honda near Marysville. Pace was told Variety would be a partner in this joint venture. But the only partners were Japanese. Al Pace learned the news from a trade magazine. [Mr. PACE] A $60 million facility! Finding out from the back page of Automotive News rather than your partner does lead you to suspect that perhaps the relationship wasn't as open and above board as it could have been. [Mr. GALE] Al took it upon himself to try and fix everything and try and make it right for his partner Honda. [INTERVIEWER] Al Pace took them on their word? [Mr. GALE] Al Pace took them on their word. [INTERVIEWER] And what happened? [Mr. GALE] Al Pace is out of business today. [Mr. KOUGHAN] American auto parts makers are going out of business at a rate of one every 16 hours. One reason, say critics, is that Japanese auto makers practice predatory capitalism. The objective is not just to win, but to drive your competition out of business. [MICHAEL SEKORA, former Pentagon Analyst] We have not found one company yet, one Fortune 500 company, that wasn't under attack in some shape or form. [INTERVIEWER] By the Japanese? [Mr. SEKORA] By the Japanese. [Mr. KOUGHAN] Michael Sekora was once a senior analyst at the Pentagon. He was the head of Project Socrates, a classified program in the Defense Intelligence Agency. The objective of Project Socrates was to identify and protect technologies critical to national security. Sekora's research revealed that the Japanese practiced capitalism with military discipline. [Mr. SEKORA] If you look at some of the strategies, the way they're written up by the Japanese, they don't talk about, "We're going to go over and get a bigger market." They talk about "frontal attacks," "flanking attacks." They talk about "total envelopment" strategies, which means you take the customer and you totally surround them with interlocking technologies such that whatever direction he turns, he's got to use one of their technologies in order to satisfy his needs. [INTERVIEWER] Sounds like war almost. [Mr. SEKORA] It is war. [Mr. KOUGHAN] Project Socrates was designed to ensure that America's most advanced weapons systems did not depend on foreign-made components, but when the Bush administration took office, Project Socrates was shut down. The President's advisers dismissed it as "industrial policy," a violation of free market ideology. [INTERVIEWER] Did anyone from the administration ask you why your program was important? [Mr. SEKORA] No. We had no discussions with the administration. [INTERVIEWER] So why was it ended without discussion? [Mr. SEKORA] I don't know. [Mr. KOUGHAN] Advanced electronics helped win the Gulf war, everything from navigation systems to smart bombs, but it was not just American technology. Many of the most critical components were made in Japan. If Washington does not have an industrial policy, Findlay, Ohio, does. In Japan, it's known as "friendly Findlay." [Mayor KEITH ROMICK, Findlay, Ohio] Mr. Suzuki, how are you, my friend? [Mr. KOUGHAN] Even the word "Ohio" means "good morning' in Japanese and the state is working hard to live up to its name. Ohio and other industrial states are actively courting Japanese investment and the Japanese companies prefer rural towns like Findlay, predominantly white communities without unions. GSW Manufacturing came to Findlay from Japan two years ago. The company assembles electrical wiring for automobiles. GSW is a subsidiary of Shinsei Harness Company, a Toyota supplier. The factory is in a foreign trade zone set up by the state, so parts and materials can be imported dutyfree. To Findlay's mayor Keith Romick, the arrival of the Japanese is good news. [Mayor ROMICK] ...and the positive attitudes you have towards the city of Findlay. I think it's great. I think you're great salespeople for this city. [Mr. KOUGHAN] But leaving industrial policy to the mayors of towns like Findlay has been bad news for the American auto industry nationwide. [Mr. PACE] The Japanese automotive industry trumpets the fact that they have created 98,000 new jobs at transplant facilities and related facilities in the United States. It's marvellous. The only difficulty is, for the same period of time, the American auto industry lost a half million jobs. So there has been no net gain in automotive employment. There has been a 400,000 job decline in that industry. [1st UNEMPLOYED WORKER] My name is Larry Crosby. I worked at Dana Corporation for 28 years. [2nd UNEMPLOYED WORKER] City Auto Stamping for three years. [3rd UNEMPLOYED WORKER] Dura Corporation for seven years. [4th UNEMPLOYED WORKER] Champion Spark Plug for 20 and a half years. [5th UNEMPLOYED WORKER] Dura Corporation, eight years. [Mr. KOUGHAN] For every auto worker who gets laid off, two auto parts workers lose their jobs. [6th UNEMPLOYED WORKER] For Dura for seven and a half years. [Mr. KOUGHAN] Job prospects are poor for these auto parts workers in Toledo, Ohio. Their traditional customers, the Big Three, are cutting back and there's little chance they'll get jobs with the Japanese transplants. Seven Japanese auto makers built plants in the Mid- west. They were quickly followed by their Japanese supplier. Six years ago there were only 24 Japanese auto parts suppliers in America. By next year there will be nearly 300. It is no accident. The migration was encouraged by the industrial policy of the Japanese government. [Prof. JOHNSON] We claim to not have industrial policy, but every state in the union has an industrial policy and it is to screw other states. [INTERVIEWER] And what's the implications of that? [Prof. JOHNSON] Well, it seems to me that it's- this gives the Japanese a tremendous opportunity to play one state off against the other. [Mr. IACOCCA] They go over and they say, "Look, I got tax money. I can give you $200 million. Come locate because I've got to worry in my state about jobs." Why do these individual states compete with each other to get jobs, but the U.S. in total doesn't worry about jobs? See, Michigan has an industrial policy. These states have an industrial policy, but the U.S. says, "Oh, no, no. That gets in the way of our ideology." [Mr. KOUGHAN] To convince Honda to locate in Ohio, the state gave Honda incentives worth over $60 million to build its Marysville complex. As part of the deal, Honda won't have to pay property taxes for 15 years. The Marysville plant led the boom in Honda's U.S. sales that has permanently changed the shape of the industry. Today, in American passenger car sales, the Big Three are G.M., Ford and Honda. [Mr. IACOCCA] They go into a cornfield. They don't go in there in the ghettos. They don't want any of the problems, OK? And what do they do? They have young people, farm boys, they bring in. They're healthy. They don't use health care. They won't have a pension problem for 20 to 25 years because they're so young. You take those two loads, you say, "Well, why don't you do that? Why don't you wipe out all your plants and start over again?" Now, wait a minute. I got a workforce in downtown Detroit, I'm putting a billion dollars in that. Japanese would never do that. But at some point you got to weigh what your obligations are to the- to your company, to your cities, states, to society. Japanese come in clean and say, "No, no. We're not going to buy your problems. We're going over here." [Mr. KOUGHAN] Chrysler's problems are real and their implications ominous. The company is saddled with old factories in inner cities. 'he average age of its workers is over 40. And at a time when losses are mounting, Chrysler owes its workers' pension fun(l over $3 billion. [Mr. IACOCCA] If all the jobs go, the tax base erodes. Forget making a buck and eating and sleeping well. Who's going to take care of the roads and the environment? Who pays for all this stuff if there's nothing left to tax? That's why any country that doesn't protect its industrial base is crazy. [1st UNEMPLOYED WORKER] I know, most of you have been looking for a job, right? I mean, there's not enough jobs for everybody laid off in the city of Toledo. [2nd UNEMPLOYED WORKER] I have a house note, car payments, insurance. At this moment, no health benefits. If I get sick, good-bye. That's it. [Mr. KOUGHAN] The loss in tax revenue multiplies. Unemployed workers pay few taxes. They require social services and the Japanese transplants export most of their profits and taxes to Japan. [1st UNEMPLOYED WORKER] If we need all these stereos and VCR's and cars and motorcycles and snowmobiles and everything else that we're buying that's made in other countries, if it was made right here we'd all be working and we'd all be getting a dignified income. [CAR SALESMAN] All your hatch releases are here for your back. This is for you- for your headlight covers. Power mirror's in the door. You elect the side, right or left. This is for your fog lights. The next circle down behind you is the temperature control. Blue is cold, red is hot. [Mr. KOUGHAN] Christina Schindeldecker is buying a new car. She was unhappy with her old one, a Plymouth from Chrysler. [CHRISTINA SCHINDELDECKER] My dad told me a lot about Japanese cars. He said that they're made very well. [Mr. KOUGHAN] She's decided to buy a Mitsubishi Eclipse. [SALESMAN] How'd you like that? [Ms. SCHINDELDECKER] Oh, it's great! [SALESMAN] Isn't that a nice car? [Ms. SCHINDELDECKER] It's very nice. Very nice. [Mr. KOUGHAN] But sometimes the difference between Japanese and American cars is less than consumers think. In fact, the Mitsubishi Eclipse is identical to this car, the Plymouth Laser. They're both manufactured in the same factory in Illinois, yet in America the Mitsubishi Eclipse outsells the Plymouth Laser two to one. Consumer demand for Japanese cars, built in modern factories subsidized by state tax incentives, is accelerating the decline of the U.S. auto industry and the jobs that depend on it. [CLYDE PRESTOWITZ, former Commerce Department Official] The states are unfortunately engaging in self-destructive competition. [Mr. KOUGHAN] Clyde Prestowitz is a former Commerce Department official and an expert on Japanese business. [Mr. PRESTOWITZ] They are being played off, one against the other, and they are in a sense subsidizing the destruction of a large part of the U.S. auto and auto parts industry. [INTERVIEWER] Do the Japanese think we're fools? [Mr. PRESTOWITZ] Yes. The short answer is yes. I can't tell you how many times Japanese from the government, Japanese from academia, Japanese from industry, say to me, "Prestowitz-san, don't you Americans know what's happening to you?" And it's not just Japanese. I've had the same comment from Koreans, from Singaporeans, from Hong Kong Chinese, from Taiwanese, from Frenchmen, from Germans. The rest of the world thinks we are absolutely nuts. [COMMERCE DEPARTMENT OFFICIAL] Let me underscore that this is a public informal hearing which is not- [Mr. KOUGHAN] The world find U.S. trade policy a bit crazy because it gives American business few weapons to fight the trade war with Japan. [PAUL ROSENTHAL, Flat Panel Industry Attorney] Without fair pricing in the marketplace, the industry will not fulfill its potential. Indeed, it may not survive its infancy. [Mr. KOUGHAN] The petitioners at this Commerce Department hearing know how tough a fight it can be. They claim Japanese "dumping," or selling below cost, destroyed their industry. They represent the last remaining U.S. manufacturers of flat panel display screens, which are most commonly used in laptop computers. But the future possibilities are vast. [Mr. PRESTOWITZ] There are many areas into which this technology will go. It's not just computers. We're going to have flat panel displays for our television sets. We're going to have flat panel displays in our automobiles. Radar screens in control towers and in aircraft are going to be flat panel displays. Medical imaging is going to be flat panel display. It's going to be a pervasive technology. Dominance of that flat panel display technology is going to be a big step towards achieving dominance in laptop computers, television sets, radar displays, automobile displays, medical displays and so forth. [INTERVIEWER] So this is a critical component we're talking about. [Mr. PRESTOWITZ] It's a very important component. [COMMERCE DEPARTMENT OFFICIAL] This is a very difficult case in a very critical industry. [Mr. KOUGHAN] The flat panel case is in its 11th month of hearings, economic studies and legal briefs. It is a slow process. [Mr. ROSENTHAL] On page F-3 under the listing "Property and Equipment, Net," that- [Mr. KOUGHAN] The business of dumping is highly technical. Few understand the mechanics and even those who do often have trouble defining the terms. [1st WITNESS] See, you accept the concept of- of partial B.I.A. or- [Mr. KOUGHAN] Proof is often difficult to obtain and every point is subject to endless interpretation. [2nd WITNESS] In order to go into a yield calculation, the material has to go through the end of the process. [Mr. KOUGHAN] While the hearings and appeals drag on, the dumping and the damage continue. The technology was invented by American companies 30 years ago, but it was Japanese companies, with the support of their government, that spent the billions necessary to create the industry. The Japanese now control 90 percent of the market. They are charged with selling their screens for as little as one third what it cost to make them, and they have spared no expense defending against the charges. [Mr. ROSENTHAL] We estimate that the Japanese spent more at one hearing than we have budgeted for our entire case. [INTERVIEWER] For the whole case? [Mr. ROSENTHAL] For the entire case. I would say we're probably going to be outspent about 100 to 1. [KAREL VAN WOLFEREN] If there is a pool effort and this, of course, we have seen in the camera industry. We have seen it in the home electronics industry. We've seen it in the car industry. If there is a concerted effort for international market share, Japanese large corporations are virtually unbeatable. [Mr. KOUGHAN] Karel Van Wolferen is a Dutch business journalist who lives in Japan. [Mr. VAN WOLFEREN] Since large Japanese corporations do not go bankrupt, it means they can always in their campaigns for market share outcompete everybody else. They'll always win. It means that American or European companies cannot really compete. [Mr. KOUGHAN] Jim Hurd is a classic American success story. Eight years ago, he saw the opportunity to create a new product. He founded Planar Systems of Beaverton, Oregon, now the nation's largest maker of flat panel displays. Hurd wants to compete for the booming laptop computer market, yet despite Planar's success, he can't find investors. [JIM HURD] If you're an entrepreneur trying to raise money for a company that is going to take on the Japanese or compete .with the Japanese in one of their targeted markets, you won't raise money. [INTERVIEWER] What you're saying is that the capital markets believe that if you're going against Japanese competition, you don't have a prayer. [Mr. HURD] Absolutely. [Mr. KOUGHAN] Planar manufactures highly specialized screens for the Department of Defense. To enter the consumer market, Planar would have to invest $100 million in new facilities, but the numbers just don't add up. [PLANAR MANAGER] (to staff meeting) Can we sell this particular display at the prices that we had laid out? And so- [Mr. KOUGHAN] At the current market price, Planar would lose money on every screen, a disaster for an American company, but not for a Japanese company in a target industry. [Prof. JOHNSON] When Americans ask, "Is Hitachi making a profit on semiconductors?" you always want to say to them, "Even if we had the information, you've asked the wrong question." Hitachi doesn't care. They're carrying semiconductors because it's the industry of the future. It's an industry they know they have to be in and they're going to be in it. [Mr. HURD] (to staff meeting) The greatest pressure on them is format change versus performance enhancement. [Mr. KOUGHAN] To Jim Hurd, Japan's low price strategy has a single objective: to ensure that no one can make a competing product and stay in business. [Mr. HURD] The Japanese, contrary to popular opinion, don't have any interest in losing money, so what they want to do- the strategy is very clear. You want to go into these markets. You want to drive competition out. You want to come down the cost curve as fast as possible, but as soon as the competition is gone and the users of the displays have no choice, the price goes up. [Prof. JOHNSON] As it stands right now, if you're an American business in a high-tech industry competing with the Japanese, you are in the business of going out of business. [Mr. KOUGHAN] The Department of Commerce found the Japanese guilty of dumping flat panel displays, but for Jim Hurd the fight is not over. He must now go to another federal agency and prove the dumping actually hurt his business. [INTERNATIONAL TRADE COMMISSION CHAIRMAN] I welcome you to this hearing on behalf of the U.S. International Trade Commision. The hearing is on investigation number 731, T.A. 469, final, involving high information content flat panel displays and sub-assemblies thereof from Japan. [Mr. KOUGHAN] The final chapter of the flat panel case. It has taken one year. [INTERNATIONAL TRADE COMMISSION CHAIRMAN] The purpose of the investigation is to determine whether an industry in the United States is materially injured or is threatened with material injury or- [Mr. KOUGHAN] Jim Hurd and his fellow entrepreneurs are facing new opposition, only this time the opponents are not Japanese. [PAUL LOW, Vice President, IBM] If you don't have the right technology, you're not going to make my cut and if you don't have the ability to produce that in volume so I can make some money out of it, then you won't make that cut. [Mr. KOUGHAN] American computer companies buy their flat panels from Japan. They claim the Americans don't make the products they need. [RANDY BATTAT, Vice President, Apple Computer] Our experience in sourcing flat panels from the U.S. has been a series of dead ends. [Mr. KOUGHAN] But Jim Hurd claims companies like IBM, Apple and Compaq had a chance to buy American. [Mr. HURD] No company, Japanese or American, had those displays readily available- available at all. They were all new developmental items that had to be developed for those applications. U.S. companies were every bit as capable of developing those products as Japanese companies. [Mr. KOUGHAN] The motive, says Hurd, was profit. The Japanese promised to supply huge quantities of laptop screens to American computer companies at half what it cost to make them. [Prof. JOHNSON] Indeed, if you're an American consumer, it is a good buy in the short term. [INTERVIEWER] In the long term? [Prof. JOHNSON] In the long term it's probably a disaster. [Mr. PRESTOWITZ] The same Japanese companies that make these flat panel displays also make computers, so the U.S. computer companies have become dependent on some of their major competitors for key components of their own products. [Mr. SEKORA] It can get to the point where the American company is dependent upon the Japanese technology and therefore the Japanese can dictate terms to the Americans on what they will and will not do. [INTERVIEWER] They can cut off their supply. [Mr. SEKORA] That's right, cut off their supply. And if they- the United States, does not have the technology, then they can't make the products. [Mr. HURD] The companies that we once thought were great manufacturing companies- the IBMs, Compaqs, Apples- are really very much hollowed-out compared to what they were. They are now really re-packagers or assemblers. (at hearing) Seeking short-term profits from dumped components, the U.S portable computer manufacturers have all ended up buying components from the same Japanese suppliers. Look on the back of Compaq's flagship model LTE 386. It proudly proclaims, "Assembled in the U.S.A." [Mr. KOUGHAN] When Jim Hurd made his case to the International Trade Commission, the room was filled with over 30 top Washington trade attorneys. Nearly half once held senior positions in the U.S. government. All were working for the Japanese. [PAT CHOATE, Author, "Agents of Influence"] The Japanese call it "putting an American face on Japan's position." The Japan lobby is literally able to dominate politically virtually any issue that it chooses to take on. [Mr. KOUGHAN] Pat Choate is an author who has written extensively about the Japan lobby. [Mr. CHOATE] Since 1972, one half of our trade negotiators have become foreign agents after they left office. What we find today is that most of these officials are literally planning on becoming foreign agents when they go into the position. Their public position is a way for them to develop a client list. [Mr. KOUGHAN] To defend their position at this hearing, the Japanese hired former officials of the U.S. trade representative's office, the Department of Justice, the Department of Commerce and the International Trade Commission itself, the ITC. [BILL ALBERGER, Compaq Computer] Certainly you could look at like product and come out differently than Commerce did. [Mr. KOUGHAN] Bill Alberger represents Compaq. His treatment at this hearing is uncommonly polite. [ITC OFFICIAL] Hope you enjoyed your lunch. [Mr. ALBERGER] Very pleasant, thank you. [Mr. KOUGHAN] One reason is that Alberger is on familiar turf. He was once chairman of the ITC. [ITC OFFICIAL] Commissioner Alberger, with you, on the question that Commissioner Rohr was asking- [Mr. KOUGHAN] Japan's case against the American entrepreneurs is based entirely on the economic analysis of this woman, Paula Stern. Her opinion carries weight here, too. She also chaired the ITC. [INTERVIEWER] How do you respond to critics who feel that it's inappropriate for a former ITC chairman like yourself to lobby for foreign firms? [PAULA STERN] I'm not lobbying. This is a quasijudicial agency of the U.S. government. I am an expert witness, combining my economic and my legal and my capabilities and background. In fact, there are others here too who have appeared before me, who have been lawyers. I am not a lawyer, but I have administered this law for nine years and I have the economic skills and the background in analyzing industries. This is not lobbying. [Mr. CHOATE] If a former Japanese government official went through the revolving door as American officials do, that official would become a social leper in Japan. Their family would be ostracized in Japan. And several generations from now, their greatgrandchildren would be left to explain why their predecessors did that. It's just enormous social pressure and it's not done. [Mr. HURD] We are here to compete. We can only compete worldwide if the U.S. government enforces fair trade laws. Thank you. [Mr. KOUGHAN] Jim Hurd and his fellow entrepreneurs proved Japanese dumping hurt their business. The ITC agreed to impose stiff duties on the Japanese flat panel industry. But the victory may prove meaningless. To avoid the high duties, American computer makers plan to move assembly of laptop computers off shore. The result: fewer American jobs. The Japanese now exercise nearly total control over the most advanced display technology, a technology that was invented in the U.S., a technology the American computer industry depends on. [Mr. SEKORA] A technology which is the center of their ability to actually produce the product is being pulled out right through the back door by their adversaries and that's what they will use to attack them, to push them out of business. [INTERVIEWER] Does all this scare you? [Mr. SEKORA] It scares the hell out of me. [INTERVIEWER] Why? [Mr. SEKORA] Because I see that the whole pace of this whole attack, this whole thing, is getting faster and faster. They will continue to get more and more control in the United States. They can call the shots on exactly what the consumer gets, what companies are making the products, and they will have financial control. [Mr. KOUGHAN] If the dangers of monopoly control seem farfetched, consider the case of video games. [SALES EXECUTIVE] We're continuing to maintain our retail sales plan at the $4 billion level. Four and a half million units in hardware, 45 million units in software. The SNES continues to have a unit sales projection through December of two million units with six million units of software projected. [Mr. KOUGHAN] The men sitting in this room control the American video game industry. Nintendo- the most successful Japanese company in America by at least one measure- Nintendo controls 85 percent of the U.S. video game market. [SALES EXECUTIVE] We can't underestimate the value of 60 million players. [Mr. KOUGHAN] And Toys "R" Us, the world's largest toy retailer. They're meeting to plan for the all-important Christmas season at the annual consumer electronics show in Chicago, the most important trade show in the industry. Even in a business known for flash and glitz, the Nintendo exhibit is something special, a $6 million display of pure market power. [PROMOTIONAL VIDEO] A Nintendo entertainment system is the frosting on the cake! [Mr. KOUGHAN] To marketing vice president Peter Main, selling Nintendo is easy. [PETER MAIN] They come, they try, they like and they buy. And it's a fun business. [Mr. KOUGHAN] Especially fun if there's no competition. Companies that try to compete with Nintendo have an uphill fight. [DAN VAN ELDEREN] (demonstrating game) When you're the batter, these control moving yourself forward and backward. [Mr. KOUGHAN] Dan Van Elderen is the president of Tengen, one of Nintendo's few competitors. Tengen can't get major retailers like Toys "R" Us to even carry its products. Van Elderen says Nintendo is the reason. [Mr. VAN ELDEREN] In a matter of three or four months, they were able to one by one contact all major retailers and convince them or intimidate them or induce them not to handle Tengen product. [Mr. KOUGHAN] Richard Frick is also trying to take on Nintendo. These factory workers in San Jose, California, are manufacturing video games for his company, American Video Entertainment. [RICHARD FRICK] We can't match them dollar for dollar, but we can match them game for game. [INTERVIEWER] How many of the top 20 retail toy stores are your products in right now? [Mr. FRICK] None of the top 20 retail toy stores. None at all. [Mr. KOUGHAN] Richard Frick says you can't buy his games in stores because retailers fear retaliation from Nintendo. [Mr. FRICK] The fear they have of not receiving future products into their stores, which they very much count on for their profits. [INTERVIEWER] Fear that Nintendo will cut them off? [Mr. FRICK] Would cut them off or not ship them or undership them the products that they need, the new hit products. [INTERVIEWER] What's the response you get from Toys "R" Us? [Mr. FRICK] Well, they try to be very careful about what they say. They don't want to do anything to get themselves in trouble. And more than anything else, they just say that we're not a vendor that they can deal with at this point in time. [Mr. KOUGHAN] Toys "R" Us refused FRONTLINE's request for an interview. It's no surprise Toys "R" Us tries not to offend Nintendo. Competitors claim Nintendo games represent 15 percent of Toys "R" Us revenues, but 25 percent of its profits. [CUSTOMER] The tape's kind of expensive, but you know, kids want it so you've got to get it for them. [Mr. KOUGHAN] Parents may wonder why there's almost never a Nintendo sale. [Mr. FRICK] In six years, the price hasn't gone down at all, not at all. Not at all. [INTERVIEWER] But every consumer product I can think of-, VCR's, CD's- the price always goes down. [Mr. FRICK] Oh, I believe that the manufacturing cost of these products have gone down significantly for Nintendo. They've just kept all that money instead of passing it on to the consumer. There's no reason for them to. There's no competition for them. [Mr. KOUGHAN] Richard Frick says he can sell his games for less than $20 and still make a big profit. The Federal Trade Commission recently discovered how Nintendo keeps its prices high. [KEVIN ARQUIT, Federal Trade Commission] Nintendo fixed prices with their dealers, wouldn't allow dealers to discount, and as a result, consumers that tried to comparison shop were just wasting their time. [Mr. KOUGHAN] The FTC found Nintendo guilty of price fixing. As part of the settlement, the company agreed to refund up to $25 million to consumers. It will pay the fine by offering $ discounts for the purchase of future Nintendo products. [ANNOUNCER] (Nintendo Commercial) Introducing the next generation from Nintendo. It's a bit more exciting, a bit more challenging, a bit more graphic, a bit more colorful, a bit more realistic, a bit more levels, a bit more secrets, a bit more enemies, a bit more friends- [Mr. KOUGHAN] And a lot more expensive. The new, improved Nintendo system was introduced to the press this summer. It costs twice as much as the old Nintendo. [ANNOUNCER] (Nintendo Commercial) Nintendo. Now you're playing with power, superpower. [REPORTER] (at press conference) Do you see that price coming down in the future, where these games will not be that expensive? [Mr. MAIN] I'm not certain. There may be some prices below that. There well could be prices above that. [Mr. KOUGHAN] Nintendo of America denied FRONTLINE's request to interview its president, Minoru Arakawa. [HOWARD LINCOLN] I think his English is fine, but I think he's a little bit shy and I think he would rather have some of his other people conduct the interviews. [Mr. KOUGHAN] Howard Lincoln is senior vice president. [Mr. LINCOLN] We decided if we could make a video game system with quality games that we would be successful. We took that gamble and now I think it's appropriate for us to reap the rewards of that gamble. That is capitalism. [Mr. FRICK] Everything that's on the shelf is made by Nintendo. There's absolutely no competition to make the prices cheaper and that is one of the reasons why Nintendo's afraid of us, is we have an alternative source of product that's completely legal, that plays well. And they don't want to have any competition at all. That's what a monopoly is all about. [Mr. LINCOLN] Nintendo doesn't have anything to do with the choice that retailers make as to what products they're going to carry and there is absolutely no evidence that I'm aware of that Nintendo has kept any of these other companies out of the marketplace. [Mr. KOUGHAN] While Nintendo insists they have done nothing wrong, FRONTLINE has learned of several active federal and state investigation examining evidence that Nintendo has monopolized the video game industry. [Mr. FRICK] The message that's being sent is that if you want to play in the Nintendo world, you need to play by Nintendo's rules. And if you don't want to play by Nintendo's rules, it's going to be a very, very hard struggle. [Mr. KOUGHAN] Nintendo has captured the imagination of America's children, but critics claim its near total control of the market gives it the power to decide what products reach consumers and at what price. [Mr. FRICK] It's a matter of the American public having a choice as to what they can and can't do. Suppose Sony decided to take and make all of the Columbia Picture movies compatible only with Sony videotape players. There would be a situation very similar to what Nintendo's trying to do with us [Mr. VAN ELDEREN] When you start applying that to movies or books, magazines or TV shows, I think it's very clear how that can be really significant. [Prof. JOHNSON] It begins to affect what's seen, what's done, what's shown. And we know who's boss. That is to say, if you don't think ownership matters, you're not playing capitalism any longer. And the Japanese would be the owners of these companies. [INTERVIEWER] But you seem to be suggesting that somehow this Japanese ownership could abridge free speech in this country. [Prof. JOHNSON] Oh, I think no question about it. No question about it. I mean, that is to say, money does talk. [Mr. KOUGHAN] Control of the video game market has given Nintendo the opportunity for immense profit. Its cash reserves alone exceed a billion and a half dollars. But money is not the only measure. [Prof. JOHNSON] The reason to be in high-tech industries these days is not to make a profit. The reason to be in high-tech industries is those are good jobs for your people. [Mr. KOUGHAN] At Nintendo of America headquarters in Redmond, Washington, most jobs aren't exactly high-tech. There are no manufacturing jobs. All Nintendo games are made in Japan. The only work here involves loading and unloading trucks. [Mr. PRESTOWITZ] A nation that doesn't make anything is a nation that has a pretty poor spirit. The United States is increasingly a nation that doesn't make things. And if we are going to pass on to our children the heritage that we received, if we're going to pass on something that's rich and full and growing, the opportunities, the ability to be the nation that we have been for most of our history, we're going to have to produce something. [Mr. KOUGHAN] Nintendo of America doesn't produce games, but it does have a research and development group. This is an R&D team at work, only they don't really develop games. They play them. Most of the R&D is done in Japan. [1st GAME COUNSELOR] Nintendo game play. This is Sean. How can I help you? [Mr. KOUGHAN] The largest number of workers are game counselors. They log 150,000 calls a week. [2nd GAME COUNSELOR] Continue to the right until you get to this real big drop-off. That's when you want to use the umbrella. [3rd GAME COUNSELOR] Looks like a- sort of like a balloon with a plus sign on it. [4th GAME COUNSELOR] You want to try to shoot for the head. [5th GAME COUNSELOR] Well, then you have to go and fight Astos. [1st GAME COUNSELOR] If you go down to the bottom righthand corner, you can walk through the wall. You want to freeze him by hitting him in the head. [CALLER] Oh, OK. [1st GAME COUNSELOR] Ok? But then you want to spear him kind of midway through his body. [CALLER] All right. [1st GAME COUNSELOR] So it kind of cuts him in half, basically. [CALLER] All right. [1st GAME COUNSELOR] Ok? [CALLER] All right. That's cool. [1st GAME COUNSELOR] Is there anything else I can help you with? [CALLER] No, that'll be all. Thanks a lot. [1st GAME COUNSELOR] Did you get all that then? [CALLER] Yeah. [1st GAME COUNSELOR] OK. [CALLER] All right. Bye. [1st GAME COUNSELOR] Thanks for calling. [Mr. KOUGHAN] (shift to scene of a U.S. elementary classroom) These inner city students in Washington, D.C., are learning about Japan. The program, funded partly by a Japanese foundation, is one of thousands of such grass roots educational efforts paid for by the Japanese government and Japanese corporations. The objective is to help shape how young Americans view Japan. [JAPANESE TEACHER] They have a factory in the U.S.A. and many Americans work for that factory, so they are very happy. [Mr. CHOATE] The Japanese are investing, at this point, tens of millions of dollars in elementary, secondary and higher education to make sure that the next generation of Americans think the way about Japan that the Japanese want them to think about Japan. [Mr. KOUGHAN] Japanese philanthropy is seen by most as a gesture of good will, but some see it as part of a deliberate campaign to blunt criticism of Japan. [Mr. CHOATE] We cannot have an honest discussion about U.S.Japan relations or our own future because too many people that are participating in the debate are either afraid to be candid or they have a money interest in advocating the Japanese point of view, or at least not offending them. [Mr. KOUGHAN] Pat Choate is one of those critics labeled a "Japanbasher." Clyde Prestowitz is another. He and his family have lived and worked in Japan. [Mr. PRESTOWITZ] The term "Japan-basher" is an all-purpose smear word which is used as a McCarthyist tactic to cut off debate and I detest the word and I detest its usage. [INTERVIEWER] What do they accomplish by using that label? What's the purpose behind it? [Mr. PRESTOWITZ] It cuts off debate. If you can pin the term "Japan-basher" on someone, then you have painted him as illegitimate. It means that no one should listen to this person. You don't have to respond to his arguments because obviously he's illintentioned. [TEACHER] So what we're going to do now is to dress some of you in one of these Yukata here. [Mr. CHOATE] Today we're seeing the largest unilateral transfer of wealth that the world has ever experienced, from the United States to Japan. [INTERVIEWER] What's the significance of that? [Mr. CHOATE] It means that we're going to be a much poorer nation. It means that in the late 1990's and the first part of the 21st century, we're going to have fewer choices. It means a declining standard of living for our children, if not for ourselves. [Mr. KOUGHAN] While critics worry the U.S. is losing the trade war with Japan, the White House remains confident of America's strategy. [Mr. PORTER] If you believe that Americans have the kind of ingenuity and know-how that will allow us to compete with anyone around the world, then you're not fearful of competition and you are convinced that the American worker and American management and American companies can compete with literally anyone in the world and that we are going to do it. [TEACHER] Keep your eyes down. Sayonara. [STUDENTS] Sayonara. [TEACHER] One more time, Sayonara. [STUDENTS] Sayonara. [Mr. KOUGHAN] Fourth of July in the year of Desert Storm. Celebrations of American supremacy make the economic challenge seem far away. If critics of U.S. trade policy are right, America is in for some very hard times. "Free enterprise" means something different in Japan. Al Pace learned that the openness and individualism that are the strengths of American free enterprise can become weaknesses. [Mr. PACE] No Japanese business is an individual. It's a team. When you talk to a Japanese businessman, you might as well be talking to their government, to their finance ministers in banking, to their trade representatives, to their industry representatives. You're dealing with a plan, a blueprint. [Mr. KOUGHAN] The war for global markets is about more than just jobs. It's about the kind of choices and opportunities there will be for America's children. America won the war in the Gulf. The question is, will America win the economic war that will shape its future? [Mr. PACE] The American public, the American government is capable of enormous response. Desert Storm was an example of that. We need a Desert Storm from American industry. ---------------------------------------------------------------- THE END PBS Frontline: Losing the War with Japan WGBH Boston To order the Video: 1-800-328-PBS1 or write: PBS Video 1320 Braddock Place Alexandria, VA 22314 (Please support PBS, they are there to serve you) ------------------------------------------------------------------ If what you read disturbed you, please tell your friends, or put this article in places or on computers where people will read it. Also of interest are the following files at Internet FTP site: monu6.cc.monash.edu.au in directory: pub/nihongo (login:anonymous password:yourname) (also available at public access bbs: 516-473-6351) JAPANYES: A fascinating overview of the Japanese industrial machine at work. How Japan practices 'business is war' strategies to destroy U.S. industries. This is a very moving piece filled with many examples which will disturb you and possibly even frighten you as it with regard to the future of the United States of America. A smash hit, this piece has circulated extensively on the computer networks of many of America's biggest corporations. JAPANNO: An unauthorized translation of a best selling book in Japan "A Japan that can say no (to America)!" about why Japan is now number one and should take the place of the US as world leader. By Shintaro Ishihara (Japanese Parliament Member "Americans are lazy, ignorant and stupid") and Akio Morita (SONY CEO). This is actually a good analysis of many of America's problems. Note the version of this book sold in stores is a phony. 1/2 of the original version is missing (Akio Morita removed his part fearing it would hurt SONY's sales in the U.S.) and there is a new appendix specifically written for American consumption, much of which seems to be false). MATSUSHITA.PBS: Transcript of a shocking PBS Frontline special about how a Japanese cartel wiped out the US TV industry and went on to take over the rest of world consumer electronics. --- Available on Internet FTP Site: slopoke.mlb.semi.harris.com in directory: pub/doc/misc (login: anonymous password: yourname) (also available at public access bbs: 516-473-6351) AGNTLIST: The now famous list of 'foreign agents' (with figures): high level U.S. government public officials who later used their inside government contacts to work as agents for foreign interests in order to make quick money while betraying America. Many of them made over a million dollars doing this.