U.S. Rejects Japanese Plan to Cut Trade Surplus : Negotiations: Tokyo had offered to spend $2.7 trillion on public works over 10 years. The U.S. remains unsatisfied.
U.S. negotiators said Monday that a Japanese proposal to spend the equivalent of $2.7 trillion on public works over the next 10 years is not sufficient to reduce Japan’s trade surplus.
But the negotiators, trying to conclude a yearlong series of trade talks, softened an accusation by U.S. Trade Representative Carla Anderson Hills that the Japanese are dragging their feet on trade matters. They expressed confidence that they can reach an agreement by the end of the week on the so-called Structural Impediments Initiative.
After 10 hours of negotiations Monday, a U.S. official who asked not to be identified described Hills’ comment as “inappropriate.” Hills had told the Japan Society in New York a week ago that “Japan’s foot-dragging since the announcement of our interim SII report must end.”
The official said: “We have made progress from the interim report on a number of areas, but no single issue is resolved of six basic problem areas. But I would not say we are far apart. It is the expectation of both sides that we will complete a final report while we are here in Tokyo.”
He called Monday’s talks, the first of two sessions scheduled this week, “friendly and cooperative.”
The U.S. official and Japanese spokesmen, who briefed reporters separately, refused to predict that the talks would end on schedule.
President Bush, who has made the SII talks the centerpiece of his economic policy toward Japan, praised the interim report, which was issued April 15. But U.S. officials, including Hills, criticized Japan for refusing to offer reforms going beyond those in the interim report.
Monday’s discussions, devoted to U.S. complaints about trade barriers in Japan, ended at 8 p.m. but continued informally over dinner. The subject of reforming Japan’s pricing mechanisms was held over until today, when Japanese proposals for U.S. reforms were scheduled to be heard.
Two hours Monday were devoted to the issue of Japanese spending on public works. The U.S. official said the Americans were prepared to drop their insistence that Japan spell out as a percentage of gross national product the amount it will spend annually on public works. He also conceded that additional Japanese spending on public works might take longer and produce different consequences than in the United States.
“But if the gap between savings and investment is reduced, you will see a reduction in the current accounts surplus in any nation,” he insisted.
He added, however, that while a decline in Japan’s global trade surplus would inevitably occur, what would happen to the surplus with the United States--$49 billion last year--would be more difficult to predict.
The official did not mention the specific figure that Japan proposed for public works spending, but Prime Minister Toshiki Kaifu said at a news conference Saturday that Japan would offer $2.7 trillion. The American said “a larger number is needed to ensure the continued improvement in the current accounts surplus”--which takes in trade and non-trade transactions, such as insurance, freight and tourism.
Between fiscal 1981 and 1990, Japan spent 274 trillion yen ($1.8 trillion at Monday’s exchange rate) on public works. The $2.7 trillion that Japan has offered would represent an average annual increase of 5.7%, about the same amount that the domestic portion of Japan’s gross national product has been growing in recent years.
But the figure would give no assurance that public works spending would be larger in relation to GNP than the 25.6 trillion yen ($169 billion, or 6.4% of expected GNP) budgeted for public works this year.
At a meeting in San Francisco on June 15, Secretary of State James A. Baker III pressed Foreign Minister Taro Nakayama to make a commitment to public works spending as a percentage of GNP. Baker reportedly mentioned 9% as a desirable goal between now and 1995 and 10% between 1995 and 2000.
On Sunday, U.S. Deputy Trade Representative S. Linn Williams urged Japan to increase the 10-year commitment to around 500 trillion yen ($3.2 trillion). But Finance Ministry officials said higher public works spending could precipitate inflation.
Other parts of the negotiations focused on U.S. demands for stiffer penalties against violators of Japan’s Anti-Monopoly Law and the kind of follow-up mechanism to be established to monitor reforms promised in the final report.
