Frozen trade talks don't alarm Japan

September 30, 1994|By Thomas Easton | Thomas Easton,Tokyo Bureau of The Sun

TOKYO -- The United States enters the final phase of brutal trade talks with Japan today, holding what economists here believe to be a weak hand.

"What leverage does the United States have?" Ron Bevacqua of Merrill Lynch in Tokyo asked rhetorically. "About zero."

"Then why should the Japanese government take the talks seriously? They don't," he said.

Reflecting the lack of interest in the final discussions, Prime Minister Tomiichi Murayama has not become directly involved, as his predecessors typically have in the past.

Instead, the Japanese team has been headed by two Cabinet members, Ryutaro Hashimoto of the Ministry of International Trade and Industry and Yohei Kono of the Foreign Ministry. Both have been in Washington this week for the final rounds of negotiations, but still attended to business in Tokyo and at

the United Nations in New York.

The Clinton administration has warned repeatedly that it would apply sanctions if no agreement is reached by tonight, but there appears to be little concern in Japan.

Any truly decisive action is widely thought to carry as much risk to the United States as Japan. Broad sanctions could directly push up U.S. prices by limiting the supply of imported products or indirectly increase prices by further depressing the U.S. dollar. That, in turn, could raise inflation and interest rates in the United States, choking off the current economic expansion.

"The Japanese government realized the Clinton administration doesn't want to start that chain reaction," said Jeffrey Young, an economist in Tokyo with Salomon Brothers. "Once they [Japanese officials] got wind of that, they realized there is very little credibility to the threat."

Moreover, by taking aim at Japan, there is a possibility that the United States itself will be found guilty of trade violations because of its participation in GATT, the General Agreements of Tariffs and Trade, which requires consistency of treatment in bilateral trade relations.

"Japan's trade barriers, of which there are many, apply to everyone, so they are not against GATT," said Richard Koo, an economist at Nomura Securities here. "But if the United States says 'open your markets,' and then does exactly what Japan has been doing, it is against GATT because it is selective."

"It's a strange situation," he added. "It's not the United States' fault, it's the system, but it has made the U.S. position weak."

If the trade talks fail, the United States may move quickly to block government procurement of Japanese medical and telecommunications equipment. But, said Mr. Bevacqua, neither of these areas, nor any others that are immediately feasible, have much impact on trade.

Other sanctions would likely come under Section 301 of U.S. trade law. These first require investigations lasting as long as 18 months, making the today's deadline meaningless.

The current talks weren't supposed to come down to this. Numerous negotiations in the past had resulted in handshakes and promises but no sustainable change in the steady expansion of the U.S. deficit in merchandise trade with Japan.

This time, the Clinton administration wanted more concrete results. That seemed feasible after the president himself reached an agreement in the summer of 1993 with then Prime Minister Kiichi Miyazawa to replace vague promises with real commitments to increase the presence of imports in Japan.

The sense of a breakthrough was short-lived. In subsequent negotiations to provide an underlying structure to the broad agreement, Japanese officials have adamantly refused any definitive commitment to expand the presence of foreign products in Japan.

Grudgingly, U.S. negotiators have steadily softened their stand. An initial approach that linked success in multiple areas, and defined success as having Japan seek to emulate the import market shares of other nations, has been abandoned.

Now, rather than hard targets, the United States appears willing to accept any sign of a change in atmosphere. Both sides have indicated for a long time that they are close to an agreement on insurance. If an agreement can also be reached in government procurement, it would be an "important step," said U.S. Ambassador Walter Mondale. "It changes the whole tone."

Japan's public procurement policies, recently the source of wide-ranging domestic prosecutions, were the key obstacle in the unsuccessful efforts to wrap up the current talks earlier this year by President Clinton and then Prime Minister Morihiro Hosokawa. A major problem, however, is that it includes telecommunications, specifically NTT, Japan's huge domestic telephone monopoly that is two-thirds owned by the government. The company recently announced it will be

decreasing, not increasing, the purchase of U.S.-made products the near future.

Discussions on autos and auto parts, responsible for the largest single chunk of the trade deficit and a source of bitter contention, "are not quite ripe," Mr. Mondale said. Glass, an area that not been considered a priority in the current talks, has re-emerged, most likely because the U.S. government feels that market barriers are widely known and particularly egregious. An agreement could add to a broader face-saving accommodation that can break the extended stalemate.

"There is a good likelihood that the United States might be willing to declare victory and move onto other issues," said Salomon's Mr. Young.

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