Bush Council Urges Low-Key Trade Response

President Bush’s Economic Policy Council Thursday recommended that five foreign trade practices be cited as “unfair” under the 1988 trade act--including two by Japan--but urged a course of action that would not force U.S. retaliation if demands for change are not met.

The list, hammered out during a marathon two-day meeting of the Cabinet-level council, is designed to try to mollify Congress while at the same time averting major confrontations with U.S. trading partners that eventually could mushroom into major disputes.

The so-called five-part “core package” includes the refusal of the Japanese government to buy U.S.-made satellites and supercomputers; Japan’s stringent lumber standards, which keep U.S. forest products out; Brazilian rules relating to trade licensing, and India’s restrictions on both foreign investment and foreign-based insurance companies.

Taiwan, South Korea and the European Community--three other major U.S. trading partners that were on a preliminary list compiled by lower-level officials last week--would not be cited at all under the recommendation, Administration officials said. U.S. Trade Representative Carla Anderson Hills announced Thursday that Korea had agreed to modifications in a broad range of restrictions on everything from foreign investment to cosmetics.

U.S. officials said that the Economic Policy Council was split over whether to cite Japan more broadly for maintaining generally unfair trading practices, as has been asked by many in Congress. They said that Cabinet members on the council now are leaning against such a move but that they could change their minds later.

Will Meet With Bush

The council is expected to meet with President Bush next week before the Administration announces which countries it plans to cite. Although the trade law places the decision in the hands of Hills, Bush is expected to approve the final list. By law, the list must be compiled annually and made public by May 28.

The fact that the council recommended citing specific trade practices, rather than overall countries, is important. Under the provisions of the trade law, if the Administration cites a country, it must begin mandatory unfair-trade practices proceedings against every trade practice listed for that country. Negotiations with that nation then would be required.

The White House would also be under enormous pressure to retaliate against those countries--by imposing new quotas or punitive tariffs against their imports--if the negotiations fell through and the countries did not meet U.S. demands. Many countries contend that such action would be illegal under international trade rules.

Congressional Impatience

The requirements for mandatory action were written into the law by Congress after the lawmakers became impatient with what they perceived as refusal by the Ronald Reagan Administration to pursue the trade grievances of U.S. corporations vigorously. Indeed, the trade bill includes many requirements for lists and reports.

However, several top Administration officials--notably Secretary of State James A. Baker III and National Security Adviser Brent Scowcroft--have pointed out that such retaliation could spark major confrontations with U.S. allies that ultimately could run counter to U.S. security interests and even bring on a worldwide recession.

In Japan’s case, these other considerations are especially crucial. The United States already is looking to Japan as America’s No. 1 ally in Southeast Asia. And the Treasury is counting on Japanese investment to help finance the U.S. budget deficit and to provide needed investment capital so that U.S. industries can expand their production capacity.

Baker, Scowcroft, Treasury Secretary Nicholas F. Brady and Defense Secretary Dick Cheney all are members of the Economic Policy Council, along with Hills, Commerce Secretary Robert A. Mosbacher, and Michael J. Boskin, chairman of the President’s Council of Economic Advisers. Boskin recently warned publicly that too harsh a stance might start a trade war.

The Administration also wants to be sure that the enforcement actions it takes under the new trade law do not jeopardize progress in the 96-country Uruguay Round of trade-liberalization talks now going on in Geneva. Washington wants the Uruguay Round to reduce a broad array of trade barriers and extend world trade rules to new areas such as services.

The complaint involving Tokyo’s refusal to buy American-made satellites and supercomputers alleges that Japan is not living up to promises it made in negotiations with the United States to keep government procurement procedures open. And the United States is charging that Japanese lumber standards--requiring plywood to be free of knots--keep out foreign goods.

The charges involving the other trade practices are self-explanatory. India, for example, has stringent restrictions on foreign investment that keep most foreign firms out. New Delhi will also not allow foreign insurance writers to sell policies in India. Brazil’s requirements for licensing of foreign trade also discriminates against imports, U.S. officials say.

The agreements signed by Korea Thursday include a pledge to ease requirements on foreign investors and to simplify screening procedures, to open the Korean market to foreign advertising and travel agencies, to allow wholesalers of pharmaceuticals and cosmetics to sell more freely in Korea and to stop closing Korea’s borders to protect new industries at home.