Deukmejian Talks Tough to Japanese : Warns of Trade War if Barriers Are Not Removed

Gov. George Deukmejian, talking tough to Japan’s business elite, warned today that “nothing less than the swift elimination” of “unfair” Japanese trade policies can head off “retaliation” by the U.S. government.

The choice is between fair competition and a bitter trade war, the governor declared. “Time is short” for choosing which it is to be, he added.

Deukmejian’s strong words lamenting the U.S.-Japan trade imbalance--an estimated $57-billion Japanese surplus for 1986--dominated a luncheon speech to the Keidanren, this country’s most influential business organization.

Polite smiles on the faces of many of the 140 executives in attendance disappeared and turned to frowns as Deukmejian repeatedly criticized Japan’s trade policies. The governor received only a brief, subdued applause at the end.

‘Very Much Impressed’

After the speech, Sony Corp. Chairman Akio Morita, who had introduced Deukmejian, told the governor he was “very much impressed by your candor,” but contended that the Keidanren “has been working very hard for continued trade liberalization.”

Also, Morita noted, Japanese exports to the United States have “suffered” because of the recent strengthening of the yen against the dollar, and he urged Deukmejian to encourage California firms to “take advantage” of improved pricing opportunities for U.S. goods in Japan.

Japan’s corporate leaders received the same message publicly today that Deukmejian delivered privately on Monday to two key government officials: Finance Minister Kiichi Miyazawa, one of the leading candidates to replace Prime Minister Yasuhiro Nakasone when he steps down, and Hajime Tamura, a former sumo wrestler who is minister of international trade and industry.

“The governor has been low key and respectful but forceful and determined,” said an adviser, who sat in on the sessions and described them to reporters on condition that he not be identified.

The low-key but unmistakably critical approach was used by Deukmejian Monday night in remarks to 500 Japanese business executives invited to a lavish cocktail reception marking the opening of a new California Trade and Investment Office. The reception, hosted by the California Chamber of Commerce, cost an estimated $75,000 to $100,000.

Deukmejian noted that California last year substantially revised its unitary tax system, under which the state had levied taxes on foreign firms based on their worldwide profits.

“Many of our Japanese friends said it was about time,” the governor noted. “When I announced my plan to open an office here in Tokyo, they said again it was about time.

“Now it’s time for some significant trade barrier reductions from Japan and other Pacific Rim nations.”

Deukmejian’s firm message, however, seemed to lose some of its punch through the words of a female Japanese translator. At least, little reaction was visible on faces of the Japanese guests, most of whom continued to pick away at shrimp, oysters, duck, salmon, sushi and other delicacies as the governor spoke.

By contrast, members of the Keidanren today sat attentively listening to Deukmejian’s every word, as relayed by an interpreter.

In his introduction, Sony Chairman Morita lauded Deukmejian for helping to extract “a thorn” in the Japan-California relationship, namely the unitary tax system. After the governor’s critical speech, Morita noted it had taken 10 years for California to revise the unitary tax. “We exercised patience,” he said, “now we ask Americans to exercise patience and perseverence in entering the Japanese market.”

To the Keidanren, which translated into English means Japan Federation of Economic Organizations--Deukmejian complained at length about Japan’s “broad array of restrictive trade practices.”

He said that Japan’s so-called “trade liberalization packages” had not stimulated Japanese demand for U.S. products, as promised.

“Nor have they put an end to the predatory pricing schemes that threaten to undercut California’s semiconductor industry,” he added.

Pave the Way

This was a reference to a Japanese agreement last year not to “dump”--sell below cost--semiconductors in the United States, something U.S. producers had accused them of doing. At the same time, the Japanese agreed to pave the way for Americans to gain 20% of the semiconductor market here, double what it had been. Deukmejian’s message was that California does not believe Japan is living up to its agreement, aides said.

Shielded From Competition

Regarding agriculture, Deukmejian said that “unacceptable quotas, unreasonable quarantine requirements and unfair standards shield domestic (Japanese) farmers from worldwide competition.”

In other fields, he said, “procurement procedures continue to discriminate against foreign trade firms.” An example cited by Deukmejian advisers is an $8-billion international airport being developed in Osaka Bay. California firms say they are being frozen out of the bidding process.

Referring to escalating demands in the Democratic-controlled Congress for legislation to protect U.S. industries from Japanese imports, Deukmejian pointed out that California--”the world’s seventh largest economy”--long has been a steadfast friend of free trade and an active opponent of protectionism.

But he admonished, “We must bring greater balance to our trading relationship. California buys from Japan three times more than we sell.

“Between California and Japan is an ocean of opportunity,” he continued. “Your nation can work with us to forge a Pacific partnership--one in which competition and cooperation go hand in hand--or we can both struggle on opposite sides of a bitter trade dispute. . . .

“Time is short. Nothing less than the swift elimination of Japanese barriers will defuse the trend toward retaliation in Washington, D.C. . . . We believe in free trade, but we must insist on fair trade. . . . I know Californians will resist protectionism as long as we see progress toward open markets.”

Not only are “restrictive trade policies” of the Japanese “placing their access to the U.S. market in jeopardy,” Deukmejian said, but they “are also depriving your own consumers of quality and selection at reasonable prices.”

The governor, for example, pointed out to the two ministers he met with on Monday that the Japanese people pay 10 times more for domestically grown rice than they would for California rice. Food prices are extraordinarily high here, by U.S. standards. A melon such as a casaba, for instance, costs $20 to $30 at the grocery store.

Good News

Deukmejian received one bit of good news, in the view of aides, when trade minister Tamura told him Monday that a Japanese organization created to promote imports of Pacific Rim products had selected California outdoor recreational equipment to feature this year. There is believed to be a $700-million annual market here for such goods.