Japan Appears Poised to Open Up Its Markets : Trade: The pressure is on from the Bush Administration and Japanese consumers, who are paying more for goods because of the restrictive practices. A breakthrough could come at this week’s talks.

The Bush Administration may be on the verge of pulling off the grand slam of the week in U.S. trade policy: persuading Japan to begin moving seriously to open its market to more foreign goods and businesses.

Although it is too early to tell for sure, the new government of Prime Minister Toshiki Kaifu clearly is scurrying to meet a spate of U.S. demands on key trade and economic issues. And this time, the proposals that it has been considering are not the sort of token gestures that U.S. negotiators have seen--and disparaged--before.

The first confirmation of any breakthrough could come early this week, when negotiators from both sides are scheduled to hold a final meeting before unveiling a long-awaited interim report on the Structural Impediments Initiative--talks on fundamental policy changes that each nation could make to reduce the $49-billion U.S. trade deficit with Japan.

Tokyo has signaled that it plans to go along with at least some of the major U.S. demands.

Kaifu is expected to boost spending for public works, which would stimulate the Japanese economy and create more demand for imports.

He is likely to begin enforcing antitrust laws, which would reduce the kind of bid-rigging that has kept U.S. construction firms from obtaining contracts in Japan.

And he is expected to make it easier for foreigners to open large retail stores in Japan, a potential key to cracking open the country’s restrictive goods-distribution system.

Japan has just begun to resolve a dispute with Toys R Us, the U.S. toy-marketing chain, which has been unable to enter the Japanese market because of current law. Present rules require a newcomer to wait 10 years--and obtain permission from surrounding shopkeepers--before opening a large retail store. U.S. officials say only large chains can break the stranglehold that Japan’s wholesale distributors have in keeping foreign products out.

At the same time, Japan is moving to resolve three narrower trade disputes involving supercomputers, satellites and forest products. After virtually refusing to discuss the issues for almost a year, Tokyo has proposed genuine solutions to the complaints on supercomputers and satellites. And a settlement on the forest products issue could come sometime next week.

“For the first time, I’m genuinely optimistic” that Japan will move sufficiently to satisfy U.S. demands on the trade and economic front, asserted Tomoharu Washio, a former Japanese trade official who now is a senior researcher with the Tokyo-based (and Japanese government-financed) International Institute for Global Peace.

To be sure, not everyone is confident that this week’s meeting on the SII will prove as forthcoming as some U.S. officials now hope--and expect. One veteran U.S. negotiator warns that despite all the flurry, Tokyo still is likely to proffer the minimum that it believes the United States will accept.

And analysts both in and outside government warn that no matter how committed Kaifu may be personally, he still must avoid angering special-interest groups in Japan, which would lose their protection if such reforms were put in place. Even if they are, it could be years before the moves had any real impact. The effect on the U.S. trade deficit will be minor at best.

Just the same, even the pessimists concede that the package that Tokyo is preparing involves serious and fundamental reforms that could accelerate--perhaps irreversibly--the opening of markets that Tokyo quietly initiated in 1987 after Congress began threatening retaliation then.

“These may not be earth-shattering per se, but they are significant changes for Japan, and there may be more content to them than was the case in previous packages,” said Ed Lincoln, a Brookings Institution Japan-watcher.

Even more remarkable, the shift is coming as the plunge in the Tokyo stock market--and the sharp depreciation of the yen in recent weeks--are making many Japanese apprehensive about the country’s economic future.

The new, kinder, more responsive Tokyo reflects a combination of factors, from rapidly changing domestic attitudes in Japan to growing fears by Tokyo that fast-rising political resentment in America might soon spawn a serious backlash against Japanese investment. A fresh approach by the Bush Administration seems to have had a significant impact as well.

Kent Calder, a Princeton University Japan specialist who has close ties to the Japanese business community, noted that many of Japan’s large corporations have come around to the view that because of increasing internationalization, it is in their own best interest--as well as that of the United States--to begin opening Japan’s markets now.

In a reversal of its previous stand, the keidanren , the Japanese counterpart of America’s National Assn. of Manufacturers, has begun pressuring the government to overhaul Japan’s traditional mercantilist business practices, even if it upsets Japanese industry.

The organization’s main concern is a fear that failure to open the Japanese market now will place their own businesses at risk later in America and Western Europe. And with the wave of Japanese investment here in the past few years--particularly by Japanese auto makers--”their overseas stakes are far higher than they used to be,” Calder said.

Ordinary Japanese are also beginning to demand a more open market. The Bush Administration struck home last autumn with a survey showing that because of Japan’s closed-market practices, Japanese consumers are paying about 40% more for the same goods than Americans and Europeans--a result that is being confirmed firsthand by thousands of Japanese tourists.

Not surprisingly, a fresh opinion poll by Nihon Keizai Shimbun, Japan’s leading business newspaper, shows that more than 80% of the 10,000 Japanese surveyed agreed wholly or in part with U.S. assertions that Japan should open its market--indicating that the U.S. position no longer is as difficult to accommodate as some government bureaucrats have been contending.

Perhaps as a result, the Japanese government too has been changing its position as well. Analysts say Kaifu’s own weakness at home--though he won a hefty victory in numerical terms, he is not a power in the ruling Liberal Democratic Party--has caused him to look for an issue that he can use to widen his political base. Healing trade frictions with America is one way.

At the same time, Japan-watchers say the country’s real ruling powers, such as former Prime Minister Noboru Takeshita, have become convinced that the rising American resentment of Japanese business practices could pose a serious threat to Japan as the 1990 congressional elections--and even the 1992 presidential campaign--come into view.

Whether by design or accident, the Bush Administration appears to have been able to help crystallize these trends. On March 2 and 3, Bush invited Kaifu to the Rancho Mirage estate of publishing magnate Walter H. Annenberg and told him bluntly that if Japan continued to refuse to open its markets, he might not be able to control the backlash in Congress.

The performance was a deft one. Appealing to Japan’s longtime push to win a wider say in managing world affairs, the President put the case positively: The Administration wanted to help Tokyo become a major diplomatic player, but would be hamstrung as long as trade frictions got in the way. Kaifu got the underlying message--loudly and clearly.

Bush and Secretary of State James A. Baker III were even more direct during a visit by Takeshita a few weeks later.

The impact was almost immediate. Barely a week after the Palm Springs summit, Kaifu called an unusual emergency meeting of his top economic policy-makers to draft a new plan for the talks the two countries have been holding on how to eliminate “structural impediments.”

A few days later, Japan settled a U.S. complaint involving trade in supercomputers. U.S. negotiators were startled at the speed of the turnabout. The talks had been stalled for months, but this time the Japanese negotiators arrived stating their position in English--a sure sign that a deal was at hand. Moreover, the terms were good, to boot.

Brookings’ Lincoln noted that the Bush Administration’s offensive came just as domestic attitudes had begun to change. “What we (the United States) may have done is applied pressure at a time when it might have more impact,” he said. “It did shake them up; that much is clear.”

Admittedly, this week’s Japanese response too could prove disappointing. Just how tough Kaifu’s job will be was underscored by a list of comparable suggestions for policy changes that Japan wants to see the United States adopt. The list includes eliminating the tax deduction for mortgage interest and imposing a new value-added tax--considered politically impossible in Washington.

“I’d like to be encouraged, but I’ve been burned before,” says Clyde V. Prestowitz, a former Commerce Department trade negotiator who now is president of the Economic Strategy Institute, a Washington think tank. “There may be some movement on some of these things that will qualify as a step forward in the context of the negotiation. But whether it will change materially the nature of U.S.-Japan trade patterns is a big question.”