Japan, in Political Limbo at Home, Faces Criticism Over Trade at G-7

AMID current political turmoil, Japan is bracing for criticism at the summit of the top seven industrialized nations in Tokyo next month.

Clinton officials have blamed Japan for slowing down world economic growth with its record-high trade surplus. France has accused it of being the lead violator of international trade rules. Such finger-pointing is unusual just before the yearly summit of G-7 nations, which includes Britain, Canada, France, Germany, Italy, Japan, and the United States.

Criticism may be kept to a minimum since Prime Minister Kiichi Miyazawa became a lame-duck leader last Friday. The ruling Liberal Democratic Party lost a no-confidence vote in the lower house, ending its 38-year majority rule. About 15 percent of the LDP members defected, and an election is set for July 18.

The political limbo has pushed down the value of the yen by about 4 percent, and the Tokyo Stock Exchange's Nikkei Index by about 3 percent. But by the time of the summit, the yen may have resumed its climb in value that began earlier this year under US pressure to reduce the bilateral trade imbalance.

"The adverse effect on the Japanese economy of political uncertainties should be minimal," says Salomon Brothers' economist Robert Feldman in Tokyo. The economy, after a two-year recession, grew an annualized 2.3 percent in the first quarter, he notes.

"It is vitally important that Japan exert leadership to ensure that the Tokyo summit does not generate into another shouting match," stated an editorial in the Japanese business daily, Nikkei. But persistently high unemployment in Europe and the US has begun to wear down the cohesion of the G-7. Among the world's top 24 industrialized nations, average real growth in 1993 will likely be a mere 1.3 percent, estimates the Paris-based Organization for Economic Cooperation and Development. Such domestic press ures make it harder for the G-7 nations to harmonize economic policies and tackle global problems, such as aid to Russia.

Japan, which has relatively low joblessness despite its current recession, is seen by US leaders as peculiar in its economic approach. "While we both have market economies, we pursue somewhat different forms of capitalism," says US Ambassador Michael Armacost. At a meeting last month of finance ministers from industrialized nations, US Treasury Secretary Lloyd Bentsen took Japan to task for not opening its markets more to foreign goods and services. "These [trade] surpluses are a global problem," Mr. Be ntsen said. "They are hurting world growth."

Japan's trade surplus stood at $136 billion in the year ending March 31, and is expected to rise. Last year, Japan's surplus with the US was about $50 billion. Since February, the Clinton administration has helped push up the value of the yen to reduce the trade imbalance. Japan has refuted criticism that its trade surplus is a problem, saying it cannot do much more to reduce it. The US has pressed Tokyo into more government spending to boost domestic demand, but Japanese finance officials say that such spending has reached the limit of available tax revenues.

The US also has put pressure on Japan to devise a new agenda for their bilateral trade disputes by the time of the summit from July 7 to 9. In talks so far, the two sides have shown little agreement on an agenda, especially over a Clinton proposal that Japan limit its trade surplus to less than 2 percent of its gross national product. In separate talks, the US has set a deadline of June 30 for Japan to change the bidding system for its public works or face possible economic sanctions.

The last time Japan came under attack at a G-7 summit was 1986, when the US proposed a system to monitor each nation's trade surplus. At that time, Germany also ran a surplus. Now Japan stands alone. The G-7 leaders are expected to set a new deadline for the conclusion of the Uruguay Round of trade talks. The US has criticized Japan for not making enough compromises.

As a sign of the world economic slowdown, there will be less pomp and paperwork at the summit than in the past. To lower costs, the number of ceremonies and documents will be reduced and spouses of the world leaders will not be invited.

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