PERSPECTIVE ON U.S.-JAPAN RELATIONS : Open a Freeway for Pacific Trade : With the current global agreements endangered, the two economic powers should craft a neighborly partnership.

That serious economic problems divide the United States and Japan cannot be disputed. But these problems are better resolved in ways that appeal to the best in both countries, not the worst. Markets are more effectively opened by cooperation, not by the crowbar of retaliation.

If our two governments are to build an economic relationship that is both durable and politically viable, two things must be done. The first and most important is to make the final push for the establishment of a new General Agreement on Tariffs and Trade by finishing up and ratifying the so-called Uruguay Round. The second--a supplement to the Uruguay Round if it is successful and a substitute if it is not--is to explore moving toward a free-trade arrangement encompassing all of Asia and the Pacific, beginning with negotiations on a U.S.-Japan open economic association or free-trade arrangement.

Should the Uruguay Round fail, the viability of the GATT system will be severely damaged. The existing rules are far from congruent with the dynamic changes that have occurred in the international economy during the past decade, providing insufficient protection for intellectual property and trade in services. In addition, continuing the current regime would not forestall pent-up protectionist pressures within major trading countries and a beggar-thy-neighbor rivalry between them.

Whether or not the Uruguay Round is successfully concluded, we believe that the United States and Japan will continue to have a responsibility to further consolidate an open trading system.

Whichever way GATT goes, the United States and Japan should begin discussions on creating an open economic association or free-trade association that would include all other countries and territories of Asia and the Pacific Rim for consultation and participation. By the sheer size of the two economies and their joint share of world trade, others would have powerful incentives to abjure protectionism and participate.

Looking only at its implications for the United States and Japan, such an arrangement would help reduce the tensions that currently trouble our bilateral relationship. By establishing a level playing field on which the economies would compete, it would take away the argument heard in America that the rules of the economic game are biased in favor of Japan.

Yet it should be emphasized that the intent of such a U.S.-Japan free-trade arrangement would be neither to exclude nor to discriminate against other countries or territories. This would not be an economic superbloc to challenge Europe or check Southeast Asia. Rather, it would complement the workings of the GATT system and welcome new partners who would recognize that their economic interests continue to be served by the expansion of world trade and not by its contraction.

Such an association could also be melded to the free-trade areas now being created in the Western Hemisphere or combined with the various efforts being made in Asia and the Pacific for expanded regional economic cooperation. Despite the barriers, no community of nations is more committed to an open trading system than the one that girdles the Pacific Ocean.

Some Americans might quarrel with such a proposal on the grounds that Japanese and American access to one another’s economy is already skewed in favor of Japan. Yet considerable progress has been made by Japan in lowering tariffs and reducing or eliminating quotas on foreign goods, American included. Only some agricultural products are subject to outright restriction, and we are hopeful that this will soon be resolved.

Moreover, it should be remembered that the United States is not guilt-free when it comes to barriers at the border. In textiles, automobiles and steel, Japanese goods face serious restraints that would have to be addressed in the design of the new association or arrangement. The agreement would constitute, in effect, not only a ratification of the progress achieved, but also a means of achieving more.

More complex are the macroeconomic and structural factors that contribute to the U.S.-Japan trade imbalance. Here, the two countries have undertaken the Structural Impediments Initiative, which has been and will continue to be a useful instrument for mutually beneficial reforms. Under SII, Japan is supposed to move toward increased public investment, the adjustment of land prices and the strengthening of the anti-monopoly law. The United States is expected to reduce budget deficits, relax strict export controls and promote research and development.

The reforms sought in SII will be politically sustainable in each country not because the other government demands them but because public opinion determines that their achievement is essential to the nation’s well-being. The creation of a Japan-U.S. free-trade association would help facilitate popular support for these structural reform efforts.

Such steps are more likely to resolve the problems in U.S.-Japan economic relations than a continuing stream of harsh rhetoric and a new round of protectionism.