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Last-Ditch Attempt To Avoid Trade War

US goal: Change Japan's economy

THE gathering clouds of trade tension between the United States and Japan obscure what is really going on between the two countries: Washington is trying to change the structure of the Japanese economy.

This goal irks Japanese officials. Having turned a small country with a smashed industrial base into the world's second-largest economy in less than five decades, they figure they should be spared unwanted advice.

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But postwar realities seem to weigh heavily in Washington these days. The US government was vitally important to Japan's reconstruction - it opened US markets to Japan's exports, protected the country militarily, and tolerated an unbalanced trading relationship. The last few US presidents have grown increasingly resolute in arguing that the Japanese should reform their economy in order to make it fairer to outsiders.

President Clinton and his advisers, perhaps more than any other administration, seem ready to risk a trade war in order to persuade the Japanese to change.

Many Japanese, particularly those outside the government, sympathize with what the US wants to do, but even they resist the heavy-handedness of Washington's current tactics.

The two sides are sitting down in Geneva today and tomorrow to try to resolve their dispute over automotive trade before Washington initiates what could be a nasty and costly confrontation. The US has announced that on June 28 it will begin charging 100 percent tariffs on 13 models of Japanese-made luxury cars.

If the Japanese automakers pass the added charges directly on to US consumers, prices of the targeted Lexuses, Infinitis, and other cars would double, effectively pricing them out of the market. The high-priced cars are a key source of profit for the companies, which have already been straining under Japan's four-year-old recession. The rising value of the yen, which makes Japanese-made goods more expensive overseas, has also hurt the automakers.

Japan is challenging the legality of the sanctions before the newly constituted World Trade Organization, where the US has filed a countersuit alleging unfair Japanese business practices.

The two countries are also fighting over a 1952 aviation treaty and, in recent days, have threatened to impose sanctions on each other over that issue as well. Japan says the treaty is discriminatory; the US says Tokyo is not honoring the agreement.

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For almost two years, the US and Japan have been negotiating over the latter's market for automobiles and auto parts. The US says Japan's market is closed because traditions, regulations, and informal business relationships make it difficult for foreign companies to sell cars here.

The market for replacement auto parts is similarly restricted, the US says, because of an inspection system that coerces automobile owners into buying high-priced, Japanese-made parts from official garages that inspect and repair vehicles.

The US is asking for changes in these two areas that would make it easier, in Washington's view, for foreigners to compete in Japan. The US also wants Japan's major automakers to announce expanded "voluntary plans" for their purchase of auto parts they use in assembling vehicles here and in the US.

In all three areas, the Japanese strenuously object. The foreign-car market is open, says Tokyo, pointing to some relatively higher sales figures for European automobiles and insisting that nothing bars US companies from selling vehicles here except their own lack of initiative. Similarly, no regulations bar Japanese garages from installing US-made parts, if the US companies made better efforts to sell their products here.

The Japanese reject the "voluntary plans" because they say the US treated a 1992 set of such pledges as binding agreements. This is the most contentious issue, since the plans, in Tokyo's view, amount to a set of fixed goals that the Japanese could be punished for not meeting.

Lurking beneath this discussion is the real ambition of the US negotiators. "What we are trying to tell the Japanese and forcing them to do is to change the system of regulation that we think creates problems for the rest of the world and particularly denies opportunities to American companies," says Charles Morrison, a US-Japan specialist at Honolulu's East-West Center, a congressionally funded think tank.

For decades, the US overlooked these problems in the interest of cold-war solidarity. Since the early 1970s, the trade imbalance between the US and Japan ballooned - last year there was a $66 billion surplus favoring the Japanese. But in a post-cold-war world where 27 percent of the US gross domestic product is linked to imports and exports, Mr. Clinton and his advisers have apparently decided that they will risk confrontation in order to reverse the trend.

As Jeffrey Garten, the US undersecretary of Commerce, put it more than a year ago: "There are very deep structural changes that are required if Japan is to assume its proper role in the world economy."

The problem is that some Japanese, above all the bureaucrats, like this system. The changes sought are fundamental: Bureaucratic control of the economy would be curtailed so that companies could operate more freely and consumers would have a wider, cheaper range of products to choose from. But the bureaucrats argue that unemployment would rise, safety standards would decline, and companies would fail more frequently.

FOREIGN pressure has often led to reform here - which many Japanese applaud - but there is still tremendous resistance to reform on a fixed, numerically defined schedule enforced by the threat of sanctions from foreign governments.

"I want to stress that Japanese markets are still generally closed," says Atsushi Kusano, a political scientist at Tokyo's Keio University, "and that bilateral trade negotiations in the past have helped Japan to open its markets greatly." But agreeing to the voluntary plans in 1992, he adds, "was a gross blunder." Even more objectionable, he argues, is Washington's use of unilateral trade sanctions.

There is an ironic twist amid all this talk of changing economic structures. In recent decades, the US has learned much from the Japanese economy and even from its government. US corporations have adopted management and product-development techniques that the Japanese perfected. "The Japanese have taught General Motors, Ford, and Chrysler very, very well, and it was a painful lesson," says Andrew Card, president of the American Automobile Manufacturers Association.

In some respects, even current US trade policy - which increasingly seeks to protect and promote US corporate interests abroad - is evocative of the close coordination between Japanese government and business during the boom years of this country's export-driven economy. In 1992, President Bush personally led a delegation of US auto executives on a trip to Japan in search of greater access to this market.

"What we've learned with a vengeance," says Professor Morrison, "is an aggressive kind of export policy on behalf of our companies."

But the stridency of the current dispute suggests that the US has decided to stop competing with Japan on Japanese terms and begin making the Japanese market conform to US standards. As Mr. Card advises: "Let's open the Japanese market to all competitors the same way the US market is open to all competitors." US negotiators argue that these standards are internationally agreed-upon norms, but many countries have objected to Washington's imposition of unilateral sanctions in this dispute.

Morrison argues that it is legitimate for Washington to insert itself into the workings of the Japanese economy in order to push reform: "In an interdependent world, we all have a stake in each others' systems."

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