11/10/1998
The Asian Wall Street Journal

By Greg Rushford

When U.S. Trade Representative Charlene Barshefsky closed a high profile deal to open the Japanese insurance market to American companies in December 1996, she instantly became a heroine among insurers back home. "There were high fives all around" recalls David Pringle, an executive with the American Family Life Assurance Co. Aflac and other U.S. insurance companies had much to celebrate. Japan pledged to open its $400 billion life insurance market -- the world's largest, dominated by a domestic cartel that has largely excluded foreigners.

The tightly written 1996 U.S.-Japan Insurance Agreement was praised as a testament to negotiator Barshefsky's tenacity. She proudly pointed out that this was one deal that had none of the usual loopholes that the Japanese are famous for using to wriggle out of market-opening agreements.Ms. Barshefsky didn't say anything, however, about secret loopholes agreed to by the American side. Aflac's Mr. Pringle now says that had he known about the side deal that Ms. Barshefsky subsequently tacked on to the accord, "we would have burned the Capitol down.

"Indeed, that's about what Aflac and another angered U.S. insurance power, the American International Group, are doing since they learned about an undated, unsigned four paragraph amendment to the 1996 agreement. Aflac and AIG protest that the ambiguous document seems designed to take away some of their existing business opportunities in Japan, and give them to a Japanese partner of America's Cigna Corp. Now, the U.S. Congress -- where key lawmakers have felt they, too, haven't gotten straight answers from Ms. Barshefsky -- has launched the first serious oversight of the Office of the U.S. Trade Representative in that agency's history.

Never before has a U.S. Trade Representative been accused of cutting a secret political deal designed to help one American company decrease its active involvement in Japanese markets, at the expense of other U.S. firms that want to expand theirs. Yet that's what Ms. Barshefsky -- a woman with a reputation for personal integrity who vehemently insists she is falsely accused -- is suspected of.

As usual in trade spats, the fight is about money. The Philadelphia-based Cigna Corp. wants to sell a majority interest in its Japanese insurance subsidiary, INA Life Insurance Co., to a major Japanese insurer, Yasuda Fire & Marine Insurance Co. Exactly what rights Yasuda (which bought a 10% stake in INA five years ago) would have as INA's majority owner are not clearly spelled out in the controversial secret memo. But Barshefsky and Cigna/Yasuda are acting as if the document authorizes Yasuda agents to compete with Aflac and AIG in selling medical and cancer insurance -- entering a lucrative niche market that the overall 1996 bilateral insurance accord preserved for American firms until 2001.

Obviously, if Yasuda can use INA to compete vigorously with Aflac and AIG in selling cancer insurance, the value of the subsidiary to Cigna is enhanced. While some 95% of Japan's life insurance market (the so-called "primary sector") has been closed to foreigners, the remaining 5% medical niche (the "third sector") has been an American playground. Aflac holds some 60% of the third sector; AIG has about 8%; while Cigna's INA subsidiary has had only about 1% (this doubled after the 1996 accord).

The 1996 bilateral deal stipulates that Japanese insurance companies will only be allowed to expand into the third sector when Japan delivers on its promise to liberalize its life insurance market. This was Washington's major carrot. But immediately after the agreement was signed, Yasuda transferred some 10,000 agents to INA, where they began aggressively competing with Aflac and AIG to sell medical policies.

Aflac's Mr. Pringle says that his company registered no objection to Cigna's sale to Yasuda, reasoning that the Japanese insurer would merely be taking over INA's life insurance operations. Yet when Yasuda began trying to grab market share in the prohibited cancer area, Ms. Barshefsky defended the Japanese insurer's activities.Aflac officials complain they got the old runaround when they protested to Ms. Barshefsky's office. It wasn't until October, 1997, some 10 months later, that U.S. officials finally produced the secret document to bring Yasuda/Cigna/INA into the 1996 accord -- a document the officials had previously claimed did not exist.

Republican lawmakers say they got the runaround, too. U.S. Congressman Bill Archer, the chairman of the Ways and Means Committee, complains that it took him two and one-half months to persuade Barshefsky to find the time to talk to him about the issue. Upset when they felt they didn't get straight answers, Representatives Archer and Philip Crane have asked Congress's General Accounting Office's watchdogs to try to get to the bottom of the matter.The normally affable Congressman Sonny Callahan, a powerful appropriations subcommittee chairman, became so upset with the stonewalling that he threatened to cut the U.S. trade office's $25 million budget somewhere between 5% and 25%. (Even a 5% cut, says USTR spokesman Jay Ziegler, would have been enough to decimate the little agency's entire operations for Japan, China and Africa).

Now, Congressman Thomas Bliley, who chairs the Commerce Committee, has obtained boxes of documents from Ms. Barshefsky upon the threat of subpoena. Committee investigators expect to begin interviewing officials in the next few weeks.
Ms. Barshefsky declined to be interviewed, but authorized a USTR official to share correspondence between her office and lawmakers and to be quoted without attribution by name. The official says that since the Cigna sale to Yasuda has not been finalized, whatever the INA subsidiary is doing in the third sector is being done by an American-owned firm and is hence strictly legal.

"We took into account all the facts that were being alleged by Aflac," the USTR official says. "At the end of the day, none of the things that the entity was doing were anything any American company wouldn't be permitted to do."Cigna spokesman Paul Gallanda claims that the Cigna/Yasuda deal was "grandfathered" by both governments in the 1996 deal: "Frankly, we're disappointed by the attempt of our U.S. competitors in Japan to use the power of the government to undermine Cigna's legitimate business activities in the Japanese market."

Legalistic dodges that smell like a political deal, the critics retort. Government and industry officials who ask not to be named allege that Cigna's home-state senator, Arlen Specter, brought intense pressure upon Ms. Barshefsky -- whose nomination as U.S. trade representative was then pending in the U.S. Senate -- to cut a deal for Cigna. Cigna officials don't deny they sought Senator Specter's intervention, but refer the question of exactly what he did to the lawmaker, who declines comment. Cigna also won't say why it hired presidential pal Vernon Jordan to lobby on Japanese insurance issues. Presumably, the famous lawyer knows more about how to work the political side of the Clinton White House than the intricacies of Japan's insurance market. The White House has backed Ms. Barshefsky -- on the merits, officials insist. Mr. Jordan's not talking, either.

Whatever the political outcome, the fuss has stalled the implementation of one of the most important trade deals the U.S. has ever negotiated with Japan. In Tokyo, Ministry of Finance officials now have an easy excuse not to talk to Ms. Barshefsky about the big picture issues. First get your own act, and your own industry, together, MoF officials say.

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