Care Advised in Seeking Trade Pact With Japan

Amid the hoopla of the closing months of the presidential election, the U.S. International Trade Commission quietly issued a report in Washington warning that “caution” should be the watchword in exploring a possible free-trade area agreement with Japan.

The report for the Senate Finance Committee was the first official, but very preliminary, look at the idea of a free-trade agreement, which in its purest form would allow the United States and Japan to phase out trade barriers over a certain period of time.

The United States has reached such agreements with Canada, most recently, and Israel.

The idea is that a free-trade agreement with Japan, or at least research into the concept, might provide a new framework for U.S.-Japan relations, strained by the current piecemeal approach to resolving trade disputes.

Disputes Create Strain

Few of the 122 U.S. government officials, academics, and business people interviewed for the report viewed the possibility of beginning talks, as a “totally negative” and unworthy, or “totally positive” and useful.

“Rather, the picture that was presented by most individuals was a mixture of optimism, pessimism, skepticism and hopefulness,” the ITC report said.

“The watchword was caution,” the ITC report said.

Outgoing U.S. Ambassador to Japan Mike Mansfield, a former Democrat senator from Montana, was the first to pitch the free-trade area idea in recent speeches and articles.

He believes that recent bilateral trade disputes have had a corrosive effect on U.S.-Japan relations, sapping the reservoir of good will between the two countries.

Mansfield has suggested, “The United States should switch from approaches which politicize trade issues, exacerbate friction, raise emotional stakes, erode public support . . . and risk undermining both countries’ commitment to the alliance.”

In January, Sen. Robert C. Byrd (D.-W.Va.) met with Japanese Prime Minister Noboru Takeshita and suggested that both countries begin independent studies on the advantages and disadvantages of initiating negotiations for a free-trade pact.

The ITC report, which was sent to the Senate Finance Committee in September, was the first to be completed.

So far, the report “is not something that has been raised to the level of common discussions of what’s going to happen with U.S.-Japan trade,” said Kim Skidmore Frankena, project director of the ITC report.

Meanwhile, Japan’s Ministry of Foreign Affairs, Ministry of International Trade and Industry and Economic Planning Agency have each begun studies on a free-trade agreement, according to Frankena.

Several Japanese government officials have been visiting the United States, gathering U.S. feedback on the idea of a free-trade agreement. A Japanese report is expected next March. “They are taking a very pragmatic view. They seem to be trying to think of options that are not fully FTA,” she explained.

In the ITC report, warning flags went up on the following points:

- A majority of participants cautioned against entering into negotiations on a free-trade agreement on grounds it would not provide significantly improved market access or substantial economic benefits for the United States because Japan’s tariffs on manufactured goods are among the lowest in the world.

- Many believe that the talks would focus on formal barriers to trade, instead of the less visible but more important and formidable non-tariff barriers such as Japan’s distribution system, industrial structure, business practices, legal system, language and social customs.

- Many expressed a concern that what Japan wants most is an escape clause from U.S. trade laws, particularly retaliatory actions under Section 301.

- Free-trade agreement talks between the United States and Japan, two leading proponents of the Uruguay Round of the General Agreement on Tariffs and Trade, could derail new multilateral trade talks and call into question their commitment.

Endless Frustration

Frankena said the interviews indicated a lot of agreement from both U.S. and Japanese officials that the two countries had managed to resolve a lot of problems over the past couple of years. The sense of success was surprising, according to Frankena, because the report was begun “based on the premise that something was wrong in the way we were handling trade negotiations or the way we’re doing it doesn’t work or no longer works.”

Still, she noted, “There was a sense of exhaustion, exasperation, a sense of endless frustration.

“On the U.S. side, there was a sense of suspicion that they are never able to turn their back without some new problem cropping up.

“On the Japan side, what was most surprising was the sense of resentment of being pushed around and having demands of them that are not reasonable and not being in position to be able to negotiate.”