Market transformation, bilateral disputes, and two competing trade regimes: An analysis of the impact of Japanese industrial policy on United States-Japan passenger air transport services between 1985 and 1994

In 1985-1986, Japan's Ministry of Transport (MOT) made changes to civil aviation policy. This dissertation provides an analysis of the key elements of MOT's new international civil aviation policy, composed of bilateral framework and domestic regulatory policies, and evaluates achievement of its policy goals concerning U.S.-Japan passenger air transport services in the Japanese market between 1985 and 1994. The research strategy is based on a case study approach.; MOT's four new policy goals were found as the combination of three liberalization goals (increasing market access, increasing consumer benefits, and developing competitive Japanese carriers), and a rephrased traditional goal (maintaining "industry order" and fulfilling "public responsibility"). MOT's approaches for achievement of the goals were found to be dependent upon efforts to replace the 1952 U.S.-Japan treaty. The analysis of bilateral negotiations revealed significant differences between the two governments on liberalization. The dissertation identified the subsequent formation of a two-tier framework that defined U.S.-Japan passenger services. It summarized MOT's approaches as a piecemeal and incremental attempt to pursue gradual introduction of competition. MOT also continued extensive domestic regulations.; The study identified market transformation, which was different from MOT's vision. There was a major increase in supply after 1985. Airfares were decreasing. Competition became intensified after 1985, leading to the decreased market share by Japanese carriers and their poor financial results. Examination of market indices led to the conclusion that MOT failed to achieve the goals of developing competitive Japanese carriers, and maintaining "industry order" and fulfilling "public responsibility," while it achieved the goals of increasing market access and increasing consumer benefits.; The research findings implied that MOT's approach did not have a decisive role in the development of competitive Japanese carriers. They supported the understanding that deregulation, rather than intervention, may help industry development in air transport services. The findings challenged traditional arguments of the uniqueness of the Japanese economy, such as pervasive existence of informal trade barriers and irrational consumer behaviors. The importance of such external factors as aggressive behavior of U.S. carriers and turbulent changes in Japan's macroeconomic conditions was also highlighted.