Japanese multinationals and the stability of the GATT system

Abstract

The Kreinin hypothesis argues that the viability of an open, GATT-oriented global trading system could be threatened by the failure of Japan, a major player, to open its domestic markets and to source intermediate goods from foreign firms on a nondiscriminatory basis. Newly available data on intrafirm trade by Japanese multinationals suggest that the tendency to trade heavily with (Japanese) supplier firms with established relationships is not a conspiracy to promote a trade surplus, but rather an outcome of standard Japanese practices that closely resemble hierarchical vertical integration. But a breakdown of the GATT system is still a very real possibility because the Japanese chronic current-account surplus contributes to even further gains in the international competitiveness of major Japanese industries, and this may prove intolerable to the other major players.