U.S.-Japan Pact on Trade Called Only First Step
The United States and Japan formally unveiled their new landmark trade accord Thursday, but Bush Administration officials--and many lawmakers--warned that it is only a first step toward the eventual full-fledged opening of the Japanese market.
While welcoming the accord as “substantial,” U.S. Trade Representative Carla A. Hills cautioned that the steps Japan has pledged to take would probably have “very little” immediate impact in reducing the $49-billion U.S. trade deficit with Japan.
Sen. Lloyd Bentsen (D-Tex.), chairman of the Senate Finance Committee, was openly skeptical of the accord. No matter what Tokyo has pledged, he said, “Japan simply has to put an end to its longstanding protectionist practices. Put me down as a skeptic,” Bentsen asserted.
The pact, announced simultaneously in both capitals after its approval by the Japanese Cabinet, contains significant concessions by Japan in a variety of key areas, from reducing exclusionary business practices to making it easier for Americans to sell goods.
U.S. officials cautioned that the 54-page accord is intended only as an “interim report” following nine months of intense negotiations. The two sides are expected to come up with additional proposals in a final agreement scheduled to be completed by mid-July.
But analysts say that, more important, the measures reflect the start of serious efforts by Tokyo to begin opening the Japanese market to more imports and foreign businesses--spurred for the first time by domestic pressures as well as prodding from abroad.
The talks, known formally as the Structural Impediments Initiative, were proposed by Washington last spring as a way to reduce immediate U.S.-Japanese trade frictions in hopes of stemming rising resentment in both countries and dampening the threat of a trade war.
Such an exercise--in which negotiations involved changes that each country should make in its economic and business policies--is all but unprecedented. Most countries--even close allies--traditionally have avoided becoming involved in other governments’ domestic policies.
Some U.S. officials said that if the final version of the accord is as complete as expected, the Administration may not cite Japan in the annual round of unfair-trade-practices proceedings mandated for April 30 under the 1988 Trade Act. However, Hills dismissed the idea as “premature.”
Last year, the White House was politically unable to avoid targeting Japan, for fear that it would spark a backlash in Congress, which had drafted the new, more aggressive trade legislation largely with Japan in mind.
Last April, the Administration listed three narrower trade disputes for negotiation and possible retaliation. So far, Japan has agreed to open its markets in two of those areas--satellites and supercomputers. A third, involving wood products, is being discussed.
The new market-opening measures that Tokyo announced were largely as had been expected. The proposals included:
Significant deregulation of Japan’s complex goods-distribution system, to make it easier for foreigners to sell products in Japan--including liberalizing and eventually “reviewing” Japan’s current restrictions on establishing large-scale retail stores.
Stepped-up enforcement of antitrust laws and tougher fines--including criminal penalties--to discourage collusive practices by corporations, which prevent foreigners from competing effectively. Japan also will restrict some interlocking stock arrangements, and speed up patent grants.
Liberalization of foreign investment regulations to make it easier for foreigners to build new plants or take over existing firms--by curbing the government’s power to block investments on economic grounds and by ending requirements for advance notice of takeover bids.
Comprehensive review of Japan’s system of land taxation with an eye to paring back tax preferences for landholders, spurring construction of more housing and forcing more efficient use of land. High land prices in Japan make it too costly for foreigners to operate there.
A “major commitment” to “substantially” increase government spending for public works projects over the next 10 years, particularly in areas such as building warehouses, harbors and airport facilities.
An acknowledgement that Japan’s import-discouraging business practices are keeping consumer prices far higher than in other industrialized countries--and a pledge to try to narrow that disparity as rapidly as possible.
U.S. officials conceded that Washington did not get everything it wanted on all the Japanese concessions. For example, the United States wanted Japan to boost spending on public works to 10% of its total output, but Tokyo balked at setting a specific target.
Nevertheless, Hills termed the accord a “substantial” agreement. “If we follow through on this and achieve all our goals,” she said, “it will certainly be a quadruple-win situation.”
Along with the concessions by Japan, the accord also cited a spate of new measures that the Bush Administration intends to propose for the United States, from reducing the budget deficit further to cutting capital gains taxes and increasing spending for education and training.
However, virtually all of the U.S. “concessions” were proposals that Bush already had unveiled in his annual State of the Union address last January--many of which were not accompanied by funding proposals and are not likely to win approval by Congress.
Among these are a pledge to strengthen the Gramm-Rudman budget deficit-reduction law; a plan to allow the President to make a “line-item veto” of specific appropriations that he does not like, and a plan for new tax-free Family Savings Accounts.
(Southland Edition) WHAT THE TRADE CONCESSIONS WOULD DO:
Significantly deregulate Japan’s complex goods-distribution system. Under current law, for example, entrepreneurs who want to open a large retail store must spend between two and 10 years “consulting” with mom-and-pop competitors. Critics say the rule keeps out larger stores, which are more likely to carry imports. The concession shortens the waiting time first to 18 months, then to 12 months. Stores may enlarge by up to 1,000 square feet without consultations if the expansion is designed to carry more imports.
End long, costly delay by customs agents who will now clear all imports within 24 hours after their arrival.
Step up enforcement of antitrust laws and toughen penalties to discourage bid-rigging and collusive practices that prevent foreigners from competing effectively.
Reduce the length of time it takes for foreign firms to obtain patents on their technology and inventions.
Liberalize regulations to make it easier for foreign firms to build new plants or take over existing businesses.
Review Japan’s system of land taxation with an eye toward paring back tax preferences for landholders. Critics say current tax preferences exacerbate the land shortage and artificially push up land prices and business costs.
Make a “major commitment”--though apparently without a specific target figure--for sharply increased government spending for public works projects. The move is expected to help stimulate domestic demand and spur purchases of foreign goods.
Acknowledge that Japan’s business practices are keeping consumer prices too high. A comparison of the cost of a product in Japan and in other industrialized nations will be used as a barometer on whether the new reforms are working.
Source: U.S. State Department
KAIFU URGES PATIENCE--Prime minister asks for understanding in Japan. A14
