U.S. Deadlines to Put Pressure on Japan in Talks : Trade: The negotiations are not expected to produce much. That could intensify anti-Japanese sentiment.

The United States and Japan are heading for another round of serious trade frictions, this time amid a growing danger that the dispute could spill over and damage the broader foreign policy relationship between the two.

The immediate potential flash point is a spate of U.S.-mandated deadlines this spring on an array of thorny trade negotiations. So far, the Bush Administration has kept a low profile, lest it seem to be interfering with Japan’s hotly contested elections, which took place Sunday. Now the fireworks are ready to begin.

Starting in March, the Administration faces four months of reckoning. Talks are to be concluded on subjects as narrow as trade in forest products and as broad as the full scope of the U.S.-Japanese economic relationship. Also at stake is trade in satellites, supercomputers, construction and telecommunications

U.S. and Japanese officials concede that none of the talks are likely to produce very much. That, in turn, is almost certain to ignite tempers in Congress, which is primed to explode at any new sign of Japanese intransigence.

William E. Brock, who was U.S. trade representative during the early 1980s, worries that relations between the two countries are at their most emotional and potentially divisive since World War II.

“I think we’re on the verge of a train wreck with Japan” that could lead to a trade war and, ultimately, a diplomatic split, says Brock, now a Washington consultant. “I don’t think the Japanese realize that yet.”

The sparks from the competition with Japan will land on dry tinder. Polls show that Americans are becoming increasingly anxious about the recent surge of Japanese purchases of corporations and real estate here.

A recent Times Mirror survey suggests that Japan has replaced the Soviet Union in Americans’ minds as the nation that poses the biggest threat to this country’s well-being. If America’s trade deficit with Japan begins to widen again over the next few months--as many economists predict--the Japanophobia here could intensify.

At the same time, Japan’s own spectacular economic success has made the Japanese more self-confident--some say arrogant--and increasingly concerned that Americans are unwilling to put their own economic house in order.

Japanese politician Shintaro Ishihara, in a new book called “The Japan That Can Say No,” urges that Japan break free of its longtime dependence on the United States, build up its military and use its technological advantage to achieve more global economic and political power. Ishihara is a member of the Japanese Parliament.

Although Japanese officials insist that Ishihara’s views do not reflect the country’s majority, they say his nationalistic tone has clearly struck a sympathetic chord.

To U.S. and Japanese officials, this much seems certain: Last year’s battle in the United States over permitting joint production of the FSX fighter plane for Japan raised new concerns within the Japanese military about relying so heavily on the United States to supply its weapons. Pressure is mounting on Japanese officials to design and produce more of their firepower at home.

In this country, Congress is squabbling anew over how to divide the cost of maintaining U.S. military forces to defend East Asia. Liberals have dropped their traditional call for Japan to beef up its defense spending and are instead prodding Tokyo to shoulder more of the global burden for foreign aid.

‘On Collision Course’

At the same time, the two countries are embroiled in a quiet but intense battle to take the lead in resolving the Third World debt problem, which had been a U.S. preserve. Japan has been moving to offer Latin American countries billions of dollars in debt write-offs in exchange for increasing political influence in the region.

Kevin Kearnes, a Japan specialist at the State Department who is known as a hawk on the trade issue, warns that “the two nations are on a collision course, headed for a continuing series of confrontations on trade, foreign investment, technology transfer, foreign aid, industrial competition, defense and a number of other issues. Both countries want to avoid the impending battles, but neither seems to know how.”

It is easy enough to see how the U.S.-Japanese rivalry has developed. In just two decades, Japan has risen from a virtual ward of the United States to an economic and financial colossus, often at the expense of American corporations and jobs.

At the same time, the Japanese market has remained either closed or extraordinarily difficult for U.S. and other foreign firms to penetrate. While Japan has slashed tariffs and eliminated other government-imposed barriers, the economy’s structure--interlocking business relationships and a closed product-distribution system--still discriminates against outsiders.

“The phenomenal rise of Japan as an economic, financial and technological superpower presents an unprecedented challenge to the United States,” writes Kenneth J. Dillon, deputy director of the Center for the Study of Foreign Affairs, a State Department-sponsored think-tank.

Heightening Americans’ fears, Japan has recently engaged in a burst of highly visible investments that many Americans have found unsettling. In a widely publicized case last summer, Mitsubishi Estate Corp. purchased Rockefeller Center, a symbol of U.S. wealth.

Meanwhile, Sony Corp. bought Columbia Pictures and Nikon Co. made an unsuccessful stab at Perkin-Elmer, a leading U.S. semiconductor manufacturer. Japanese banks have invested heavily in U.S. securities and real estate. And Japanese companies have stepped up their financing of universities and think tanks here.

Many analysts believe that the competition is likely to intensify. Kenneth S. Courtis, international economic strategist for Deutsche Bank Group in Tokyo, warns that Japan is on the verge of unleashing a wave of new capital investment to reposition its entire economy so that it can become the center for the development of new products and manufacturing processes.

Courtis notes that about 60% of Japan’s new investment wave is being aimed at this goal, while the remaining 40% of the investment pot is going for expansion of existing capacity. The “central strategic issue” that confronts the United States, he argues, is: “Can America do the same?”

Reflecting these developments, the debate in the United States has taken a hostile turn. The prevailing U.S. view has been that Japan could be nudged gradually into a more open economy.

But the so-called revisionists, such as author James Fallows and former Commerce Department Japan specialist Clyde V. Prestowitz Jr., insist that Japan is unwilling to open its borders and thus must be treated differently. Fallows says the Japanese must be “contained,” just as the Soviets were after World War II.

The revisionists are pushing for “managed” or “results-oriented” trade, in which the United States would demand that Japan allocate specific shares of its market to American goods and services.

A blue-ribbon panel of business executives recently endorsed a similar proposal. Several lawmakers are preparing bills to achieve these goals, and some have urged restricting Japanese investment.

Many members of Congress say Japan has been so intransigent that it deserves U.S. retaliation. Sen. John Heinz (R-Pa.) says the Japanese have repeatedly reneged on promises to permit everything from American-owned business to American-made baseball bats. “We’re tired” of being misled, Heinz says.

The 1988 Omnibus Trade Act requires the Bush Administration to launch unfair-trading-practices proceedings against countries that refuse to allow U.S. goods or services to compete. It virtually mandates retaliation if negotiations fail to produce a solution within 13 months.

This year, Japan faces the possibility of U.S. retaliation at the end of negotiations on satellites, supercomputers and forest products. And the United States may launch yet another set of proceedings.

More than that, Congress may be enraged by halting progress in the so-called Structural Impediments Initiative, a set of broad-ranging talks that the White House launched last June. The negotiations, postponed because of Sunday’s election, resume this week.

The agenda appears balanced: Washington wants Tokyo to alter Japan’s closed-door product-distribution system, end bid rigging and other collusive practices, and overhaul its pricing practices; Japan is prodding the United States to reduce its budget deficit and shore up its financial system. The talks are slated to end in June.

Deficit Unchanged

U.S. officials concede that the negotiations have been disappointing, partly because Japan’s scandal-plagued ruling Liberal Democratic Party had not wanted to make any concessions before the elections. They admit that there is a better than even chance that the talks will produce little or nothing by June.

Recent trade and economic statistics have not helped Japan’s cause. Although Japan still ranks well beyond Britain and Holland in foreign direct investment in the United States, it is moving up fast. Despite the recent improvement in the overall U.S. trade balance, the deficit with Japan has remained virtually unchanged at about $50 billion a year.

A book scheduled to be published later this year by Pat Choate, a vice president of TRW Inc., the Cleveland-based high-technology firm, will offer a critical examination of Japanese “lobbying” and “influence peddling” in Washington.

Taken together, these factors will almost certainly feed pressures in Congress to retaliate against Japan by restricting some Japanese imports or curbing Japanese investment. “There clearly will be some legislation if the Administration can’t show anything for the current negotiations,” a congressional strategist said.

But a trade war could leave America worse off. Not only does the United States thrive on Japanese goods, but, despite Japan’s formal and informal barriers, it exports substantial amounts of farm products and industrial goods to Japan. And it depends heavily on Japanese investment to help finance the U.S. budget deficit.

At the same time, the United States is becoming less important to Japan, which is making inroads in lucrative Asian and European markets. As a result, U.S. pressure may no longer be very effective.

U.S. policy-makers are split over how to treat Japan. At one end of the spectrum, the Commerce Department wants a far more aggressive U.S. posture toward Japan. At the other end, the State Department’s top policy-makers seek to preserve diplomatic harmony even if it means pressing Japan more gently. In between are the Treasury Department, the Defense Department, the U.S. Trade Representative’s Office, the Office of Management and Budget, and the National Security Council.

The State Department’s Kearnes suggests that President Bush set up a semi-independent task force of government and private experts to “take a critical look at our relationship with Japan” and “develop an integrated game plan for dealing with the Japanese across the board.”

Worst-Case Scenario

Kearnes charged that Japanophiles in the U.S. government--known derisively as the “Chrysanthemum Club,” after Japan’s national flower--have held sway too long and have given away too much to the Japanese.

The split could become uncomfortable. The Foreign Policy Studies Center’s Dillon sketches a worst-case scenario in which continued Japanese economic penetration of the U.S. market, combined with failure to remove barriers of their own, intensifies tensions. Protectionism here increases, Japan retaliates and the two sides plunge into a trade war that injures both economies. The two former allies then retreat into local trading blocs in North America and Asia.

But Dillon concedes that a less volatile--and more likely--scenario “may be already emerging.” Faced with a widening global market, increasing investment in America and the need to expand its influence in the Third World, Japan loses its preoccupation with penetrating the U.S. market. Meanwhile, America also begins to think more about its commercial interests.

The result: The United States remains political and military leader of the West, but Western Europe and Japan have a larger role--”to the occasional chagrin, but ultimate benefit, perhaps, of the United States,” Dillon adds.

DAYS OF RECKONING: TRADE ISSUE DEADLINES

March 31: U.S. Trade Representative’s annual report of trade barriers being maintained by other countries. Japan again expected to be high on the list.

March 31: Annual Administration review of agreements with other countries on trade in telecommunications. Japan likely to be on the list of those criticized.

April 15: Bush Administration deadline for U.S. and Japanese negotiators to come up with an interim report on steps the two countries could take to eliminate “structural impediments” that restrict the flow of goods, services and investment--or exacerbate economic distortions-- in each country.

April 30: Administration target date for launching new unfair-trade-practices cases under the 1988 trade act. Japan likely to be on hit list for new cases.

May 21: Administration’s report on preliminary investigations in these cases.

June 16: White House decision on whether to retaliate against Japan on 1989 allegations of unfair trade practices by Japan involving trade in satellites, supercomputers, forest products and construction.

June 30: Completion of talks on “structural impediments.”

Source: Office of the U.S. Trade Representative