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Kaifu Urges Top Priority For Reform To Fight Trade Deficit

March 6, 1990

TOKYO (AP) _ Prime Minister Toshiki Kaifu today told Parliament that land prices must be driven down and government spending increased if Japan is to reduce its huge trade surplus with the United States.

Low wages and expensive housing have kept Japanese from buying more imports, making it difficult to cut into the $49 billion surplus.

″Our corporations are wealthy and strong, but this wealth has come at the expense of long working hours and a low standard of living. It is time to redress this imbalance,″ he said.

″We intend realistic efforts to carry out structural reforms. That means we must carry out reforms of our land use policies and improve the standard of living,″ Kaifu said during questioning by opposition legislators in the upper house of Parliament.

Kaifu’s opponents, led by the Socialists, the No. 1 opposition party, dominate the upper house and are likely to obstruct action on a number of trade-related issues facing Parliament.

These include plans to provide more land for housing and cut inflated real estate prices; and to spend more on roads, parks and sewers to improve the general quality of life.

Washington says such changes are needed to eliminate ″structural″ trade barriers behind the chronic U.S. trade deficit with Japan.

A key barrier U.S. officials have targeted is a law that they say tends to prevent foreign firms from expanding their sales in Japan. Today, trade ministry officials said they were considering changing or abolishing that law.

Minister of International Trade and Industry Kabun Muto, reversing himself on the issue, told Japanese reporters bolder steps might have to be taken if the United States is not satisfied with plans to ease the law’s enforcement.

U.S. trade negotiators contend it hinders foreign retailers who are trying to open stories in Japan as well as discourages the opening of large Japanese stores that are more likely to sell foreign-made goods than traditional mom- and-pop shops.

Kaifu promised President Bush to do his best to carry out substantial reforms during a California summit last week. But he is fighting his government’s tendency to become bogged down in domestic disputes.

Japan’s Parliament was embroiled in battles over a bribery scandal and over a controversial sales tax and has accomplished few trade-related reforms during the past year.

Parliament must first deal with a revised version of the 3 percent sales tax and a national budget by the end of this month. A revision of the sales tax exempting food, school entrance fees and welfare in response to widespread criticism was scheduled to go before Parliament today.

Kaifu is urging Japan Socialist Party Chairwoman Takako Doi and other opposition leaders to abandon their attacks on the sales tax, given the comfortable majority his party won in Feb. 18 parliamentary elections.

Opposition parties unsuccessfully based their campaigns in last month’s lower house election on calls to abolish the sales tax, which along with a series of sex and money scandals eroded public support for the governing party and contributed to its loss of control of Parliament’s upper house in July elections.

While analysts are skeptical about Kaifu’s chances of following through on his promises to Bush, the reforms are widely supported by major business organizations and the media.

Joining other business groups, the Kansai Economic Federation in western Japan urged the government Monday to raise taxes on farmland in major cities to the same level as residential taxes to encourage development of suburban farmland.

It also called for measures to narrow the gap between prices in Japan and overseas.

Japanese officials, however, have expressed concern that Kaifu, who lacks clout in his own party, will have problems gathering support for reforms soon enough to satisfy the United States.

Tokyo is under pressure to show it will implement promised reforms before early April, when trade negotiators are to issue an interim report on the U.S.-Japanese talks. A final report is due in July.

Also today, a top Japanese defense official said Japan is ready to consider increasing funds for maintaining U.S. forces in Japan, if such a request is officially made by the United States.

″If the U.S. side makes a request in concrete terms, we will consider″ increasing expenses for U.S. troops in Japan, Yozo Ishikawa, director general of the Defense Agency, told a news conference.

But Ishikawa, who assumed the agency’s top post Feb. 28, said he has heard nothing ″official″ about the request yet.

Ishikawa was referring to a statement by U.S. Defense Secretary Dick Cheney during a television interview Sunday that he wants Japan to assume ″100 percent″ of the cost of maintaining U.S. military bases in Japan.

Japan is currently paying $2.4 billion of the $6 billion annual cost of maintaining U.S. forces in Japan, a defense agency official said. Such costs include the salaries of the 22,240 Japanese employees at U.S. miltary facilities across Japan.

About 50,000 U.S. military personnel are based in Japan and their salaries and other costs are not included in the maintainance equation.

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