Governor Heads for Japan With Message: Let’s Be Fair Now

Gov. George Deukmejian will leave for Tokyo today on a weeklong trip to deliver two firm messages: his opposition to trade protectionism should not be taken for granted, and Japanese companies no longer have a valid excuse for not investing in California.

Basically, Deukmejian will tell Japanese leaders--including Prime Minister Yasuhiro Nakasone--that his longtime support of free trade cannot be counted on forever unless Japan opens more markets to California products.

And he will remind Japan’s corporate leaders that the unitary tax system they tenaciously fought for so many years in California--arguing that it discouraged foreign investment--now has been greatly revised.

Deukmejian’s admonitions and cajolings will be delivered in a manner befitting his personality, of course: calmly, politely, slowly and with a grin.

“We’re going to be on our best behavior,” said a top Deukmejian adviser who asked not to be identified, “but the governor feels very strongly that on trade there should be give on both sides, and so far there hasn’t been. And for the Japanese who complained about unitary, now we want them to put their money where their mouth is.”

Under the old unitary system, California levied taxes on foreign firms based on their worldwide profits, rather than on profits generated only within the state. The Legislature and the governor substantially changed that last year.

This will be Deukmejian’s first trip overseas since he served with the U.S. Army in West Germany during the early 1950s. He did not even have a passport until recently. Asked whether the governor was excited about the trip, another adviser laughed and said: “I don’t think he ever gets excited about anything, but I’m excited about his visit. He has a personality that’s just right for the Japanese.”

Deukmejian’s trip is being built around the formal opening by the state of California of an Asian Trade and Investment Office in Tokyo. A similar office will be opened in London in April as part of a $9-million program to promote foreign trade with California.

Thirty other states already have trade offices in Tokyo, but California has had none abroad since 1968, when then-Gov. Ronald Reagan closed down offices in Tokyo, Mexico City and Frankfurt in a budget-cutting frenzy.

Also on Deukmejian’s itinerary are a speech to Japan’s most influential business group, the Keidanren; a $60,000 cocktail party for Japanese business leaders, hosted by the California Chamber of Commerce; several meetings with government and business leaders, some tours of manufacturing plants and interviews with Japanese news media. He also will visit Osaka and Kyoto--major centers for industry and tourism, respectively--before returning home next Saturday.

In 1985, the last year for which complete figures are available, California exported to Japan $7.5 billion worth of goods. But it imported Japanese goods worth $27.8 billion--an imbalance of almost 4 to 1.

These figures, however, may be somewhat deceiving; no one knows for sure. They are indicative of the overall U.S.-Japan trade imbalance, which in 1985 was a staggering $50 billion. But they are based only on the total value of goods passing through California ports of entry. Therefore, it is not clear how many of the exports originated in other states, or how many of the imports kept on going to other parts of the nation.

Still, Californians know from the numbers that they are getting the short end of the trade stick--and unfairly, most think.

Take nectarines, for example. Japan does not allow imports of the California fruit, contending that it carries a pest called the codling moth.

“We cut open 35,000 nectarine culls--most of them picked up off the ground, where the moths would be--and you know how many moths we found? One,” said state agriculture director Clare Berryhill. “They said we didn’t cut enough varieties of nectarines. A nectarine’s a nectarine!”

Japan also does not permit imports of California rice. “We could deliver rice to the Japanese people for one-tenth of what they’re now paying for it,” Berryhill said.

One Japanese government official, who agreed to be interviewed on condition that he not be identified, said of rice: “It is politically sensitive and emotional. The Japanese do remember wartime starvation. Self-sufficiency in rice is the emotional core that allows us to be dependent on the world for the rest of our food supply.”

But they are not dependent enough on California, in the view of this state’s agriculture industry, even though Japan did buy one-third of California’s farm produce--over $1-billion worth--in 1985. “There are things that just irritate us and we’ll be discussing them,” Berryhill said.

California also exported $5.1-billion worth of manufactured goods to Japan, particularly high-technology products. But, according to Gregory Mignano, executive director of the California State World Trade Commission, there is a “buddy system” in Japan that often freezes out U.S. goods and services through discriminatory trade barriers, amounting to plain old harassment in the view of American entrepreneurs.

Only Washington can negotiate with a foreign power, but a governor--particularly one from the nation’s largest state--can apply pressure, and that is how Deukmejian views his role.

The governor summed it up in his annual State of the State address last week: “I plan to remind all these (Japanese and other foreign) leaders that California believes in free trade, but that we insist on fair trade.

‘Showing of Good Faith’

“I will point out that we recently addressed a barrier to investment in our state, which many of them had requested us to do, the unitary method of taxation. And I will ask them now to respond to our showing of good faith by lowering their own trade barriers and increasing their investment in our state.

“With many officials in Washington, D.C., and other states openly advocating protectionist legislation, California represents one of the strongest defenders of free trade. . . . Yet, our trading partners must know that this consensus could soon be lost unless they show rapid progress in opening their markets to California products.”

At a subsequent press conference on Wednesday, Deukmejian said specifically of Japan: “We would hope and expect that they would provide open access, the same kind of open access to their markets as we provide to the products and services that come from Japan. . . . I know that they are taking some steps, but unfortunately they are not moving rapidly enough.”

Political Leverage

Several gubernatorial advisers and California business representatives said in interviews that one of the biggest political levers Deukmejian wields is his potential for shaping public opinion in the nation’s most populous state and influencing the largest delegation to Congress, where new protectionist trade legislation is starting to be considered.

The anonymous Japanese official agreed, and saw Deukmejian’s trip to Japan as a golden opportunity for his government to influence someone who is important in America’s national debate over trade policy.

“I really expect him to go more as a national leader than as a governor of California,” the official said. “The Japanese attitude is, grab this guy and make sure he understands.” THE TRADE BETWEEN CALIFORNIA AND JAPAN

Gov. George Deukmejian is traveling to Tokyo to promote trade between California and Japan. Here is a summary look at a relationship that already is substantial: CALIFORNIA’S WORLD TRADE

Japan increasingly is California’s top foreign trade partner. These are percentages of how much of all foreign trade by California is with Japan. 1983: 32.5% ($21.9 billion) 1984: 34.4% ($28.1 billion) 1985: 37.5% ($35.2 billion) JAPAN’S TRADE IN THE U.S.

California increasingly is Japan’s top U.S. customer. Of all trade in the United States, these represent how much has been in California as compared with other states. 1983: 34.7% ($21.9 billion) 1984: 34.8% ($28.1 billion) 1985: 38.7% ($35.2 billion) COMPARING JAPAN-CALIFORNIA TRADE

1985 figures show that California is Japan’s top trade partner after the U.S. itself and that the business with the state is more than that with most nations. JAPANESE IMPORTS (excluding petroleum, $89 billion)

United States (including Calif.) 28.1% Australia 8.0% California 7.9% Canada 5.4%

JAPANESE EXPORTS ($175.6 billion)

United States (including Calif.) 37.2% California 15.8% People’s Republic of China 7.1% South Korea 4.0%

TOTAL ($264.6 billion)

United States (including Calif.) 34.4% California 13.3% People’s Republic of China 6.1% Australia 4.9%

CALIFORNIA’S EXPORTS TO JAPAN AGRICULTURE ($1.39 billion)

1985 figures show Japan is California’s biggest agricultural customer. Of all exports, here is how much goes to Japan.

Product Quantity % of Exports Cotton 428 Million Lbs. 31% Oranges (fresh) 234 Million Lbs. 39% Lemons (fresh) 242 Million Lbs. 87% Seedless Raisins 22,300 Short Tons 31% Almonds 18,800 Short Tons 11% Prunes 9,700 Short Tons 19% Canned Peaches 2,900 Short Tons 26% Alfalfa Cubes 326,000 Short Tons 99%

MANUFACTURED GOODS ($5.07 billion)

These 1985 figures reflect major manufactured exports to Japan. Values are in millions of dollars.

Office Machinery, Data Processing Machines $922 Electronic Tubes, Transistors, Circuitry 506 Aircraft, Spacecraft Parts (Non-Military) 454 Motor Vehicles and Parts 241 Measuring, Testing, Instruments 239 Boilers, Non-Electric Motors, Engines 235 Drugs and Related Products 221 Chemical Elements, Inorganic and Organic 167 Medical, Surgical, X-Ray Apparatus 127