U.S., Japan Reach Trade Deficit Pact : Accord Hailed as Step to Ease Economic Tension

Japanese and U.S. negotiators today reached an agreement to help trim the $49-billion U.S. trade deficit with Japan. They hailed the accord as an unprecedented step toward easing tensions between the two partners.

President Bush and Prime Minister Toshiki Kaifu both issued statements saying the pact will enhance their countries’ global partnership and also benefit other countries.

“I welcome and endorse this joint report,” Bush said in Washington, as talks concluded at the Foreign Ministry in Tokyo.

Kaifu said Japan may find it painful to implement the report. “However, these measures are intended to achieve a major reform of the Japanese economy in the consumer’s best interests,” he said.

Both leaders said that while Japan pledged in a 57-page report a raft of measures to improve foreign companies’ access to its market, Washington had to reduce its budget deficit and improve the competitiveness of U.S. industry.

Deputy U.S. trade representative Linn Williams said the trade talks were “an important influence” on Bush’s tax move, which is aimed at reducing the federal budget deficit. The deficit is regarded as a fundamental cause of the trade imbalance, because it fuels U.S. demand for consumption and imports from Japan. Raising U.S. tax revenues may thus reduce Japanese exports and cut the trade imbalance.

Bush’s announcement was followed by a Japanese compromise Wednesday to increase planned public works spending. That might help reduce the trade imbalance by increasing sales of U.S. products and construction services in Japan and soaking up some excess Japanese savings and investment funds.

The final draft shows Japan agreed to $2.77 trillion in public works spending over 10 years, up from $1.7 trillion in the 10 years to 1990.

Other measures on the Japanese side aimed at improving foreign companies’ access to the market include:

--Submitting legislation by March to release more land for housing and buildings and to curb high land prices.

--Attaining clearance within 24 hours of imports by 1991.

--Having the Fair Trade Commission take more formal action in anti-monopoly cases instead of quiet persuasion.

--Using deregulation to speed the process for approving large retail stores, widen liquor sales and open the distribution system.

--Abolishing a law giving the government power to restrict direct foreign investment if it could affect similar Japanese domestic businesses.

On the U.S. side, the federal budget deficit was the lead item, and the report included the statement Bush made Tuesday accepting “tax revenue increases”--a departure from his campaign promise of “read my lips”--as a way to cut the deficit.

Other American promises:

--Urging Congress to pass a bill to create family savings accounts and other measures to increase the low U.S. savings level.

--Increasing federal funding for research and development.

--Partially relaxing a ban on exports of California heavy crude oil.

--Creating more programs to promote exports.

--Enacting measures to reach goals of excellence in education and to improve the quality of the U.S. work force.