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The Japanese automobile industry has developed since 1950 and in 1960, it produced approximately half million vehicles. On the other hand, the American automobile industry built eight million vehicles in the same year (Kawahara, 1997, p.ix). No one could predict that the Japanese automobile industry will produce more than eleven million vehicles, three million more than American industry manufactured just twenty years later, and become the world’s largest automobile producer in the next ten years.
　The purpose of this paper is to demonstrate the relationship between the excursion of the Japanese automobile industry and the economic theories and to correlate Japanese automobile industry with international affairs, and discussion of barriers to free trade, the structure of international trade and multinational corporations.
　According to the Japan External Trade Organization, the number of cars produced in Japan in 2004 is more than ten million, and the number of overseas car production increases at an annual rate of one million units after 2002.

●Recovery period (1945~1960)
　After World War II, Japan started to be risen from the ashes under the leadership of the United States. First, the General Headquarters of the Allied Forces (GHQ) allowed Japan to manufacture auto tracks, and then, allowed Japan to produce compact cars. Around 1950, GHQ removed the production limitations on Japanese automobiles industry. In that time period, the Korean War broke out and the American government placed an order for auto tracks, dump trucks, and jeeps with Japanese automobile companies. Because of the military procurement, Japanese automobile companies increased their sales. After that, Japanese automobile companies started to cooperate with overseas companies.
　The important event at this time to remember is that Japan acceded to the General Agreement on Tariffs and Trade (GATT) in 1955 which set up various trade rules such as the reduction of the automobile importing tariff rate, the most-favored-nation status, and the equal national treatment. GATT was the center of the organization of state monopolistic capitalism which backed up the post-war world economy. Thus, war-battered Japan restored the economic power and joined international economy (吉信,1998,p.175).
　On the other hand, the Japanese automobile industry was unable to disregard its balance-of-payment problems during this time. The shortage of foreign exchange became an issue. It reflected a great surplus on America’s balance-of-payment. (Coggins,2005, p.45).
　In the recovery period, the number of domestic car production was 3,611 in 1951, 4,837 in 1952, and 8,789 in 1953 (Kawahara, 1997, p.8). Less than five percent of domestic car production was exported around 1960 (Tulder, 2004, p.206).

●Motorization and building of export infrastructure (1960~1985)
　Before referring to the situation of the Japanese automobile industry, I would like to show the specific world affairs which affect Japan in this period.
1. OECD
　In 1964, Japan joined the Organization for Economic Cooperation and Development (OECD). The purpose of this is to contribute to economic growth, deregulation of trade, and assistance to developing nations.
2. Kennedy Round (1962~1967)
　Kennedy Round was one of the most important negotiations which GATT had in terms of the negotiation system, the number of participants, the number of concessionary items, and their imports amount. The central issue in this round was import tariff reductions. In response to the formation of the European Economic Community (EEC) in 1958 and the economic recovery of Japan, America cared about the closed development, and established the trade expansion act in 1962 to achieve the deregulation of trade. In addition, Japan lost the exceptional authority, which was set on article twelve, and undertook the obligation of principle liberalization (吉信, 1998, p.178).
3. Dollar shock
　Dollar shock means that America no longer allowed people to exchange gold for dollars in 1971 for fear of running out of the gold based on trade deficit. Because of it, the yen was cut out from ￥360 exchange one US dollar to ￥308 exchange one US dollar, and the monetary system of the world was changed from a gold standard to a flat system. At first, Japan was thrown into a panic because of the advance in rates contra-US dollar, but the convertible currency reserve which was based on the dollar was increased. Many companies started the investment abroad, and started to move overseas.
4. Oil shock
　In 1973, oil producing countries in Arab states trimmed down the oil production, and the price doubled. The background of this is that America introduced import curbs for Middle East oil for national security reasons. Afterward, oil producing countries in the Middle East built the Organization of Petroleum Exporting Countries (OPEC), and they raised the declared value of oil. Herewith, Japan was thrown into a panic and the runaway inflation was aroused. In 1974, the Declaration on the Establishment of a New International Economic Order was adopted in the United Nations, and nationalism over resources was intensified all the more.
5. Second oil shock
　The demand and supply of oil were strained in Japan which bought oil from Iran, because Iran shut down the oil production under the influence of the Iranian Revolution in 1978. Although the scale of it was the same as the first oil shock, Japan was less influenced by this second oil shock than the first.
6. Tokyo Round (1973 ~1979)
　Against the Kennedy Round whose negotiation focused on tariff, the Tokyo Round focused on the Non Tariff Barriers (NTBs), and developing countries. Agricultural negotiation that decided import liberalization and the expansion of Japan’s import quota, and agreement on subsidy and setoff practice were also made up (吉信, 1998, p.183).

　Under the circumstances, Japan made the transition to open economy. Based on the deregulation of trade, the structure of the domestic industry was reorganized in 1960s. This change reflected on Japanese trade. Japanese export value was increased from 4.1 billion to 19.3 billion between 1960s and 1970s ( 吉信, 1998, p.276). The main export products were also changed from textile to heavy industry and chemical industry and Japanese automobile industry was no exception.
　In 1965, the import of finished cars was deregulated. Partnerships and business combinations with foreign company were flourished into Japan. In addition, the Japan-U.S. auto pact reached a settlement in 1968, and the import of auto parts was deregulated in 1971. In the meantime, the number of Japanese automobile production continued to increase and it became the second production in the world in 1967 (Sinclair, 1983, p.25). Because of the two shocks (dollar shock and oil shock), the number of Japanese automobile production was decreased a little, but they enlarged the automobile export in conjunction with the global demand for compact cars, and the automobile export of Japan became the world's best in 1974. In 1978, the tariff on automobile import was abolished. In 1980, Japanese automobile companies produced about eleven million cars for the year, which was the largest production in the world (Kawahara, 1998, p.ix).
On the contrary, the big three of American automobile companies (GM, Ford, and Chrysler) experienced the devastation under the influence of oil shock and recession in America. American citizens liked the compact cars which made by Japanese automobile companies because they have excellent gas mileage. Therefore, the cars of the big three were thrown off the market (Rader, 1980, p.9).
　The above facts were the start of the Japan-U.S. trade friction. America was encouraging free trade, so it could not formalize import curbs unilaterally. It was the Non Tariff Barriers (NTBs) that solved the friction. Voluntary export restrains (VERs) is one of the NTBs, and the Japanese government decided to voluntarily limit exports to the United States. VER is an arrangement to limit the amounts of goods by the exporting country.
　The effect of the VER is shown in the figure above (See figure 2). The domestic consumption is Q1, the domestic production is Q0, and the difference between Dd and Sd is the amount of imports (Q0Q1) under free trade. However, if the VER is adopted, imports will be reduced to Q3Q2. The VER raises the price of the domestic market to Pv. As a result, VER has the same effect on domestic producers and consumers as a tariff. Under the VER, the foreign suppliers and the domestic suppliers receive a higher price in the domestic markets. Because of the higher price, the domestic sales by the domestic producers increase from Q0 to Q3, and the domestic producers get the extra revenue. On the other hand, consumption will be reduced from Q1 to Q2 (Coggins, 2005, p32-35).
The Japanese government decided to limit the automobile export to America to 1.68 million per year (Tulder, 2004, p.215). This restraint contributed to restructure the framework of the big three. The big three became stronger and increased their sales. Therefore, the VER protected jobs, encouraged the automobile industry, and protected the American automobile industry from the Japanese automobile industry.
　On the other hand, the Japanese automobile industry had a problem with allocating the amount of export to each automobile company. However, the VER brought the benefits to Japan and because the demand for Japanese automobiles was high, the VER brought on a cartel effect. As a result, the Japanese automobile industry achieved gains from the VER. This export restriction limited the increase of the export to America, which is the largest market for Japanese export companies, and brought about accelerating multinationalization of Japanese companies.

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