Japan, SII and the International Harmonization of Domestic Economic Practices

The Structural Impediments Initiative (“SII”) discussions, the first stage of which concluded with a report on June 28 of last year, have been heralded as a new departure in international economic relations. Instead of talking about the removal of barriers at national borders, the United States and Japan have been discussing the relationship between international trade, international payments balances and domestic economic institutions. Trade negotiators have been exploring whether the harmonization of domestic economic institutions can allow for more intimate as well as more balanced economic relations between the United States and Japan. Concern with the international harmonization of institutions often seems at odds with the theory of comparative advantage. This article suggests, however, that there are new developments in the theory of international trade which indicate that the harmonization of domestic institutions among trading partners may well enhance the welfare of all concerned. In practice, however, a number of the proposals being urged on the Japanese in the specific context of SII may have consequences quite the opposite of what is expected by their proponents.