US Plan Would Force Japan to Cut Trade Surplus by Half

LET Japan change Japan.

That's the message which officials in Tokyo are taking from a proposal by the Clinton White House that calls on Japan to reduce its global surplus by as much as 50 percent over the next three years - and to work out the details itself.

The plan, proposed by top Clinton aides, still awaits the president's approval, but it already has brought a rebuke from Tokyo as unworkable and a threat to Japan-United States ties. The plan, if accepted, would force Japan to alter deep-set cultural and business behavior that effectively block many imports and foreign services.

The Bush administration tried to work with Japan to change "structural" aspects of Japanese society, such as collusive business groups and a complex distribution system, but made little progress. Clinton officials, impatient to create American jobs through more exports, prefer to confront Tokyo with "results-oriented" demands for radical and quick change.

The plan, according to Japanese officials, would ask Tokyo to cut its current-account surplus (a wide measure of trade covering goods and services) to 1 to 2 percent of its gross domestic product (GDP) by the end of Clinton's term of office. Last year's surplus was 3.2 percent of GDP, and may exceed 4 percent this year.

In addition, the plan calls for Japan to raise its imports of manufactured goods to over 4 percent of GDP, up from about 3 percent at present.

Such a proposal to hold Japan accountable for specific targets in its trade imbalance has raised a flat "no" from Tokyo. "We don't think [in terms of] figures, only words and cooperation," says Sozaburo Okamatsu, director-general of international trade policy at the Ministry of International Trade and Industry (MITI). "We have certain negotiating principles: Discussion should be a two-way street. We certainly can't make any commitment beyond the government's reach."

The proposal comes as the two nations are due to open talks this week or next to set up a "framework" for negotiations for the July summit of the leaders of seven major industrial nations, or G-7. The proposal would be presented to all G-7 countries, but since Japan is the only one with a surplus, it is the obvious target of the US. If the two nations are still at loggerheads on trade come July, it could create a disharmonious summit.

Anticipating a tough approach by Clinton, Japanese officials say they will ask Washington to come up with its own steps to cut the trade imbalance.

Finance Minister Yoshiro Hayashi says the problem is common for countries such as the US which have large government deficits. "At least at present, Japan is not considering setting any concrete goals such as promising to curb the surplus," he says.

Japan may also try to shift the negotiations to problems that Japanese firms face in US markets. As an example, Tokyo officials say US agencies discriminate against purchases of foreign supercomputers.

To reduce its surplus would require an unacceptable amount of government involvement in private business, Japanese officials warn.

"We believe it is grossly over-simplistic to see trade imbalances as `evil' and caused solely by the existence of `closed' markets," stated an annual report on trade released by MITI last week.

Also last week, the US reported that its trade deficit rose to its highest monthly level in four years in March - $10.2 billion. Just over half of that was with Japan.

Officials in Tokyo have tried to explain away the trade imbalance as a temporary phenomenon that will decrease as the Japanese economy picks up by year's end and starts importing more.

US officials, however, say that American goods and services which are competitive worldwide still cannot find sizable markets in Japan, and that therefore the Japanese government must come up with solutions.