U.S. and Japan Agree on Trade Balancing Plan

The United States and Japan announced Thursday that they have reached agreement, after a yearlong struggle, on a series of social and economic reforms aimed at reducing the huge U.S. bilateral trade deficit and changing the way the two countries do business.

The reforms, embodied in a final report on measures to remove structural impediments to trade, specify among other things that the United States will reduce its federal budget deficit and that Japan will sharply increase spending on public works and tighten antitrust laws.

President Bush, who made the negotiations the centerpiece of his economic policy toward Japan--and a key weapon in his battle against protectionist moves in Congress--said the reforms will be “beneficial for the entire world.”

Negotiators representing six U.S. government agencies called the agreement a “historic document.”

Prime Minister Toshiki Kaifu described it as in the interest of Japanese consumers. He said it will “greatly contribute to improving the Japanese standard of living” and to “making the Japanese economy more harmonious with the world economy.”

But just beneath the surface was a sense that the marathon negotiations--the final session of which included 50 hours of talks over the past four days--signaled a new assertiveness by Japan.

The Japanese promised reforms that could be far-reaching, such as giving new authority to their Fair Trade Commission, but they refused to go the customary halfway in meeting the key U.S. demand.

The Americans had insisted that Japan increase its level of public works spending to 500 trillion yen ($3.3 trillion) during the next 10 years, but Japan agreed to raise it to only 430 trillion yen ($2.77 trillion). The money will go for roads, parks, harbors, sewerage and other amenities.

Economic theory has it that spending for public works projects increases domestic demand and brings in more imports, a key U.S. concern.

On the crucial question of monitoring whether the promised reforms are carried out, Japan refused to allow the introduction of new categories of trade complaints as the United States had wanted. But the two sides promised to meet three times in the next year and then twice a year after that to review implementation of the reforms agreed to Thursday.

S. Linn Williams, the deputy U.S. trade representative, said a larger commitment to public works spending would have guaranteed a larger reduction in Japan’s current accounts surplus. Current accounts is a measure of the amount of money realized through trade plus such non-trade transactions as insurance, freight and tourism.

In Washington, Torie Clark, a spokeswoman for Trade Representative Carla Anderson Hills, said: “Overall, it’s a good package. It’s not as much as we had hoped for but is headed in the right direction.”

Williams, Hills’ deputy, said the description of the agreement as “historic” is justified because it shows that “these two large sovereign nations have discussed in large government groups issues that most nations treat as nobody else’s business but their own.”

He added, “I know of no other two nations which have entered into this kind of discussion.”

J. Michael Farren, undersecretary of commerce, noted that Bush and Kaifu “got directly involved in trade as we’ve never seen our two heads of government do before.”

Kaifu, in a statement, warned that “implementation . . . may encounter difficulties and the process may be painful.”

But he said the agreement is a promise of “major reform of the Japanese economy in favor of consumers’ interests” and “a prerequisite . . . to the promotion of a global partnership of Japan and the United States.”

Williams said the negotiations have already made “the trade atmosphere in Washington certainly better than it was a year ago.” He said the agreement “ought to reduce the causes of trade friction” and provide “an alternate way to address structural frictions that didn’t exist before.”

Topping the U.S. reform list was the promise to reduce the federal budget deficit, but it set no deadline. It also promised to reform antitrust law to reduce uncertainty about the treatment of joint production ventures that enhance competition.

The United States further promised to lower the cost of capital to facilitate long-term investment and to urge Congress to enact a measure to create family savings accounts.

It also promised to support a Commerce Department recommendation for “a partial relaxation” of a ban on exports of California oil.

Japan promised to continue working to reduce its current accounts surplus, which amounted to $55 billion in fiscal 1989. Williams said this effectively nipped in the bud the Japanese Finance Ministry’s argument that a certain level of surplus ought to be retained in order to finance aid programs and loans to foreign countries.

Mitoji Yabunaka, head of the Foreign Ministry section in charge of economic relations with North America, agreed. The theory of “useful surpluses” is dead, he said.

The six U.S. negotiators acknowledged to reporters that they could not say when or to what extent the reforms will start having an effect on the U.S. trade deficit with Japan.

But John B. Taylor, a member of the President’s Council of Economic Advisers, said trade imbalances can change sharply. He noted that the U.S. deficit in trade with Japan was $49 billion last year but that in the first four months of this year it had shrunk to an annual rate of $36 billion.

Williams praised the Japanese for promising to start bringing criminal charges against violators of Japan’s anti-monopoly law and to impose more severe fines.

And he singled out as “something we particularly care about” a new promise by the Fair Trade Commission to make it easier for private citizens to initiate suits and to start acting as “a friend of the plaintiff” in complaints against big business.

“One of our efforts was to increase the importance of the Fair Trade Commission in the Japanese government,” Williams said. But he acknowledged that there is some concern as to whether the Fair Trade Commission will use its new power.

Robert C. Fauver, deputy assistant secretary of state, said the Fair Trade Commission promised to reverse its traditional position and permit newspaper advertisers to include coupons in connection with the promotion of new products.

A promise to eliminate bid-rigging on Japanese government projects was also hailed as significant.

Japan also agreed to:

Allow bank-affiliated credit card companies to offer revolving credit, instead of requiring full payment for purchases at the end of each month.

Amend land taxes by the end of fiscal 1990 and remove restrictions on building heights and floor space to drive down land prices and provide more land for housing.

Reduce over a period of five years the average time required to process applications for patents, from the present 37 months to 24 months.

Clear imports within 24 hours, instead of the present three days.

End the government’s power to restrict foreign investment and imports of technology.