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History Suggests Caution Warranted on Japanese Trade Promises

April 23, 1990

WASHINGTON (AP) _ The Bush administration is proclaiming victory with a new agreement to dismantle Japanese trade barriers. But skeptics warn: ″Remember Townsend Harris.″

Harris was the American consul general sent to Tokyo in 1856 to implement the first U.S.-Japan market opening agreement. That deal, struck by Commodore Matthew Perry, sought to end 300 years of Japanese isolation and open the country to trade.

But when Harris arrived, the Japanese at first wouldn’t even let him off his ship. In the end, all the issues that Perry thought had been resolved wound up being renegotiated or simply ignored by the Japanese.

Now 134 years later, a debate is raging in Washington over whether the latest market-opening pledge by the Japanese should be viewed any differently than the countless agreements that went before it.

Skeptics, including numerous members of Congress, argue that nothing fundamentally has changed and the new pact will do little to lower America’s huge $49 billion trade deficit with Japan.

Supporters of the agreement, including President Bush, contend that the new Structural Impediments Initiative does herald the dawn of a new era in Japan. They believe Prime Minister Toshiki Kaifu’s government is serious about harnessing consumer discontent to push through fundamental changes in the way Japan operates.

Whichever side is right, the SII talks, at least in their early stages, seem eerily reminiscent of past negotiating ″triumphs.″

Interminable discussions take place with the Japanese resisting what they term exhorbitant American demands. The Japanese finally make grudging concessions, but only at the 11th hour when faced with a threat of economic retaliation from an outraged Congress.

In past deals, the Japanese later disputed America’s interpretation of the commitments and the U.S.-Japanese deficit climbed ever higher.

The new deal seeks to attack broadbased structural barriers to trade. It proposes to expand opportunities for American and other foreign companies to do business in Japan by eliminating red tape and by breaking down the cozy relationships that exist between Japanese companies.

The administration believes the pact is historic in the number of commitments obtained from the Japanese. But veterans of past negotiations say many of the items were addressed in earlier market-opening efforts undertaken by the Reagan administration.

″These talks are a dangerous charade. They are always presented as a final solution to the problem when in reality they are about Act 25 in a long- running play,″ says Clyde Prestowitz, a top trade negotiator in the Reagan administration. ″We keep claiming victory, victory, victory and nothing much happens.″

Among the previous agreements cited by Prestowitz and others:

-Five ″market-access packages″ issued by the Japanese government from 1981 to 1984. They covered a wide range of products but produced few tangible results in increased U.S. sales. Often, the Japanese concessions repeated changes which had been promised in earlier packages but never implemented.

-The 1985 MOSS Talks, for Market-Oriented Sector Selective. They were designed to address broad-based barriers in four specific industries - forest products, medical equipment, pharmaceuticals and electronic products. Wags dubbed the discussions ″More of the Same Stuff″ because the Japanese repeated the pattern of offering lower trade barriers but failing to fully implement them. One of the areas, forest products, is currently the subject of intense bargaining as negotiators replow ground supposedly covered five years ago.

-The 1986 Maekawa Report, named for former Bank of Japan President Haruo Maekawa, called for broad structural change in Japan. The report was issued the same year that the Reagan administration was engaged in the Structural Dialogue discussions, attempting to reconcile the differences in economic systems between the United States and Japan. These talks, following the pattern of a 1983-84 series of discussions, degenerated into an examination of vague macroeconomic principles. Some trade experts see these talks as very similar to the current SII discussions.

And the result so far from all of this torrent of words? The U.S.-Japan trade deficit, which totaled what seemed an alarming $15.8 billion in 1981, stood at $49 billion in 1989, representing three-fourths of America’s non-oil trade deficit.

It is this outcome that has contributed to widespread cynicism on Capitol Hill over the new trade agreement.

Senate Finance Chairman Lloyd Bentsen, D-Texas, likened Japan’s negotiating efforts to a drugstore cowboy - ″all hat and no cattle.″ House Majority Leader Richard Gephardt, D-Mo., dismissed the SII agreement as an exchange of press releases.

The administration insists that things are different this time around, noting recent polls showing that Japanese consumers, who currently pay prices up to 70 percent higher than American consumers, want reforms to open up competition in their country.

″We think we have a very good blueprint for action and we got a good down payment,″ said U.S. Trade Representative Carla Hills.

However, some members of Kaifu’s Liberal Democratic Party have warned that if the Japanese leader pushes too far with the reforms it could topple his government.

Already, politically powerful groups representing Japan’s 2 million small retail stores have come out strongly against one key element of the agreement that would reduce the time it takes to open large retail stores from as much as 10 years down to 1.5 years.

Many members of Congress are urging the administration to keep the pressure on Japan by citing Tokyo for a second year as an unfair trader under a tough section of the 1988 trade act that provides for economic sanctions if barriers are not removed.

The administration, which has until April 30 to issue its new trade ″hit list,″ has refused to say whether Japan will be on it.

The structural barriers report issued on April 4 was only an interim agreement. The final report is due in July and many in the American business community believe that it must contain language spelling out how the commitments will be monitored and enforced if the talks are to produce a turning point in U.S.-Japan relations.

But at least some private economists are encouraged.

″You don’t change a society overnight, but it would be erroneous to say nothing has changed,″ said C. Fred Bergsten, head of the Institute for International Economics, a Washington-based research group.

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