Tough Trade Dispute, US Recession Put Japan on Spot

THE task of prying open Japan's markets for foreign business - from rice to lawyers - entered a new political stage last week. In their first major trade talks in 1991, Japanese and United States negotiators argued in Tokyo over critical details of their latest economic disputes with little success. But it was Japan's passive role in both the Gulf war and the failed Uruguay Round of the General Agreement on Tariffs and Trade (GATT) that set the tone for the talks, and the start of a busy year in bilateral conflicts.

In addition, Japan may be put on the spot this year by the effects of a US recession, the slow progress in reducing the US-Japan trade imbalance, and plans by the Bush administration to toughen US trade policy.

On top of that, there are fears that American public opinion might shift against Japan this fall as the 50th anniversary of the attack on Pearl Harbor is observed.

``1991 will be a difficult year for trade matters [with Japan],'' says Deputy US Trade Representative Linn Williams.

Last week's talks focused on US complaints over Japan's slowness in complying with an agreement made last June to restructure its economy along American lines, or what US trade officials call ``integrating our two economies.''

The agreement, which is the centerpiece of US-Japan ties at the moment, is known as the Structural Impediments Initiative (SII). Largely lopsided against Japan, it calls for both countries to alter their business and government practices in a number of areas.

THE US side was not satisfied with Japan's efforts to remove barriers against foreign investment, such as price-fixing cartels, secret government ``guidance to industry,'' and exclusionary ties between companies.

The sharpest dispute was over Japan's suggested increase in the fine charged against companies that illegally fix prices. The US wants a surcharge of over 10 percent of illegal sales, but Japan opted only to triple its present rate to 6 percent. That level of punishment is roughly enough to get back illegal gains from cartels, says Kenichiro Sasae, a Foreign Ministry official.

Unhappy with that rate, US Assistant Attorney General and antitrust enforcer James Rill warns that Japan's efforts against monopolies leave it ``far short of the other major economic nations in the world.'' He adds that ``the clock is running'' on Japan's dealing with the issue.

Mr. Rill says he will seriously take up a Justice Department study on whether US anti-monopoly laws should be applied to the worldwide practices of foreign companies that also operate in the US.

A first-year report card on SII is due in May, with the most critical recipient being the US Congress, which is expecting concrete results from the agreement.

``Congress's expectation will be high, and we have some way to go to meet those expectations,'' says Deputy US Trade Representative Williams.

The US panel said Japan must show a ``credible prospect'' of carrying out SII promises if it wants to prevent ``significant voices in the US'' from winning an argument that the US should conduct ``managed trade'' with Japan.

One example of the threat of managed trade is a bill pending in Congress that would limit a country's financial institutions in the US if it discriminates against US institutions in its market.

Recent moves by the Bush administration suggest that it may too be moving toward managed trade. US officials say the administration might support the Fair Trade in Financial Services Act.

And in a surprise move, the Justice Department announced last month that it would file suit to stop an attempt by Nippon Sanso KK of Japan to take over Semi-Gas Systems, a semiconductor equipment company, on the grounds that the takeover would reduce US competitiveness.

Also, officials in the US Trade Representative office suggest that they might soon start retaliatory action against Japan for alleged barriers to US construction firms and rice growers. Japan's refusal to open its rice market is cited by the US as one reason for the collapse of the Uruguay Round of GATT talks last month.

After their Tokyo talks, US officials tried to be optimistic about some steps Japan has taken so far, hoping to prevent a negative assessment by Congress.

``What we saw was steady incremental progress across the board in the areas of interest to us,'' says Richard McCormack, US undersecretary of state for economic and agricultural affairs.

US officials note that Japan has loosened rules which have hindered the opening of large stores and made a strong first step by setting out a 10-year, $3.2 trillion public works program, with spending due to rise 6 percent starting in April. The Finance Ministry also required companies to reveal the names of shareholders who own more than 5 percent of a company's stock.

US officials see SII as helping Japanese consumers and hope that continuing talks on SII will eventually spark the Japanese to pressure their government for such changes and reduce the need for foreign pressure.

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