U.S. Holds Off Retaliating Against Japan Over Construction Barriers

The Reagan Administration has backed away from any immediate retaliation against Japan for failing to open its construction market to foreign companies, officials said Wednesday.

After a last-minute proposal from Japan, the Cabinet-level Economic Policy Council agreed to continue negotiations on the highly contentious issue for another two weeks.

A lower-level Administration panel had recommended that President Reagan launch a public investigation of Japan’s construction trade practices, ultimately leading to sanctions limiting Japanese construction projects in the United States.

Under the latest Japanese proposal, which Ambassador Nobuo Matsunaga presented to Commerce Secretary C. William Verity on Wednesday morning, Japanese trade officials are expected to fly to Washington this weekend to resume negotiations that reached an impasse last month over how to allow foreign contractors limited participation in Japan’s lucrative public works market.

Matsunaga’s proposal falls short of the original U.S. demand that Japan open a total of 14 public works projects to foreign firms, apparently sticking to Japan’s original position that foreign firms initially should be allowed to participate in six projects.

A one-page outline of the Japanese position, made available to The Times, states that: “No projects will be added to the list of projects agreed upon.”

The new offer said that Japan “is ready to reach an agreement with the maximum flexibility” and is preparing a new plan that would “give the widest possible business opportunities to U.S. companies.”

U.S. officials said the Administration is not prepared to go along with Japan’s position, but decided to continue talks under a strict timetable. “There are no preconditions on the negotiations,” a U.S. trade official said.

Japanese Prime Minister Noboru Takeshita, when he visited Washington in early January, promised Reagan that he would open the way for negotiations on the issue. But U.S. officials said they are still prepared to retaliate against Japan if the talks break down.

Commerce Secretary Verity told reporters Wednesday morning, before the EPC meeting, that he believed it was important to send a strong signal to Japan that the U.S. government would not tolerate further delay. “The time has come when we have to make a move,” Verity said.

The insular Japanese construction industry, which is deeply entwined with Japan’s ruling political party, has been a highly symbolic focus of U.S.-Japan trade friction for more than two years. The dispute began when Commerce Department officials complained about closed bidding procedures at the Kansai International Airport, which is now under construction near Osaka, Japan’s second-largest city.

Last December, Congress inserted a provision in this year’s budget bill that is aimed at barring Japanese construction companies from U.S. public works projects through the end of September.

Congressional critics, while contending that the Japanese proposal contains nothing new, said they were satisfied that the Administration has finally set a timetable for settling the dispute.

“Things are beginning to fall into place,” said Sen. Frank Murkowski (R-Alaska), who has been closely involved with the issue. “This is the first time we’ve set a firm time commitment.”

The Administration is seeking a foothold for U.S. firms in several major Japanese projects and has been advocating joint ventures between U.S. and Japanese firms on such projects as the $2.5-billion expansion of Narita Airport near Tokyo, the $11-billion expansion of the Port of Yokohama and inclusion in other projects expected to exceed $25 billion.