Japanese Express Concern Over Free Trade Pact : NAFTA: Tokyo worries that the deal to open trade among the U.S., Canada and Mexico may create a North American ‘fortress.’

As the proposed North American Free Trade Agreement moves ever closer to creating a potentially powerful hemispheric trade zone, the government of Japan is voicing increasing anxiety that NAFTA could prove harmful to its vaunted export machine.

Prime Minister Kiichi Miyazawa recently warned a group of Canadian politicians about the dangers of creating a North American “fortress” against goods from abroad. And Bush Administration officials say in private conversations too that Japanese officials have made plain their unhappiness with the pact.

“They don’t like it,” said one senior Administration official who deals regularly with Japanese officials.

The NAFTA accord would lift all tariffs and other barriers to trade among the United States, Canada and Mexico over a 15-year period. President Bush signed the agreement Dec. 17, but it must still be approved by Congress. President-elect Bill Clinton gave a qualified endorsement to the NAFTA accord during his presidential campaign.

If politics makes strange bedfellows, trade issues make even stranger ones. Tokyo’s jitters about NAFTA put it--for a time at least--in the same camp as such old adversaries as the leadership of the AFL-CIO and Senate Majority Leader Richard Gephardt (D-Mo.), who have in the past sought to enact protection for American industries against Japanese competition.

The reasoning behind their current agreement to disagree differs, however. Organized labor and congressional supporters such as Gephardt worry that NAFTA would prompt U.S. companies to move manufacturing operations to Mexico, replacing American workers with Mexicans who get lower wages.

Japan, by contrast, worries that NAFTA will hasten the day when the world is divided up into trading blocs, in a way that could leave Japanese companies disadvantaged and isolated.

Japanese auto manufacturers are especially concerned about NAFTA rules stating that tariff-free cars must contain a high percentage of parts produced within the free-trade area. The provision would benefit U.S. companies that open plants in Mexico and work to the disadvantage of Japanese auto makers with Mexican production facilities.

Hiroshi Hirabayashi, deputy chief of mission at the Japanese Embassy in Washington, maintains that Japan is not opposed to the general idea of NAFTA. But, he added, “there are several clauses and understandings in the agreement that raise barriers to outside countries.”

Tokyo’s fears about NAFTA were heightened this fall when Bush Administration officials suggested that the North American trade agreement might someday be expanded to include a number of Asian countries--but not Japan.

During a campaign appearance in September, President Bush said other Asian countries might eventually be permitted to link up with NAFTA through separate free trade agreements with North America. Two weeks later, Deputy Assistant Commerce Secretary Franklin L. Lavin took this idea a step further in a speech at a Washington symposium and pointedly left Japan out of the equation.

“In the first tier of potential trading partners, one should put Australia, Hong Kong, New Zealand, Singapore and Taiwan,” Lavin said in his prepared remarks. “All of these economies have relatively open trading systems, are relatively affluent and have highly internationalized markets.”

Lavin emphasized at the time that he was speaking only for himself and was not reflecting official U.S. government policy.

But since then, other Bush Administration officials have voiced sympathy for the general logic of Lavin’s approach, suggesting that Japan’s markets are less open to American goods than are those of other Asian countries.

“We’d like to have a free trade agreement with Japan,” another senior Administration official said. “They don’t really have tariffs that are a problem for us. The problem is non-tariff barriers--closed markets, keiretsu- driven practices.” ( Keiretsu are close relationships linking Japanese companies with their longtime suppliers.)

“So how do you negotiate a free trade agreement covering that sort of thing? We don’t have any pattern for that. . . . It’s not that we are really hostile to Japan. They are just in a category that’s separate. It’s something we have to work on a little differently.”

Hirabayashi said that Japan “would be disturbed by this kind of thinking.” He said it “would be interpreted as an effort to drive a wedge between some countries in Asia and the Pacific and others.”

During this fall’s presidential campaign, Clinton said he supported the general outlines of the trade accord but added that he would not sign legislation implementing it until the United States negotiates supplemental agreements to address concerns about its impact on American workers and the environment.

He is likely to face an array of conflicting pressures over the trade agreement in the early months of his presidency. For example, Sen. Lloyd Bentsen (D-Tex.), Clinton’s nominee for Treasury secretary, has been a strong supporter of NAFTA.

But other Clinton aides have suggested that they are not happy with the accord. Last October, Derek Shearer, who represented the Democratic nominee in a campaign debate on trade issues, said he was worried that an agreement might pull the wages and working conditions of Americans toward the lower levels of Mexican workers.

“This is the first time that anyone has tried to achieve economic union between two countries of such different economic levels,” Shearer said.

As Clinton tackles this touchy issue, he will have to deal not only with domestic constituencies such as organized labor and environmental groups but Asian governments as well.

U.S. officials said Southeast Asian nations too have voiced concern about NAFTA because they fear that the accord would shift the flow of American investment away from their countries and into Mexico. Still, said one senior U.S. official, “they are more at ease about it than the Japanese.”

Some American trade specialists believe that Japan’s fears about the North American trade agreement are exaggerated.

“I just don’t see any economic downside to it for Japan,” said Mark Anderson, director of the AFL-CIO’s task force on trade. “In fact, Japan may come to look upon this as another avenue into the American market.” Anderson noted that with NAFTA, Japanese firms could produce goods in Mexico for export to the United States and have the goods listed in U.S. trade statistics as coming from Mexico, rather than Japan.

“We’re going to have a big trade deficit with Japan, NAFTA or no NAFTA,” said Clyde Prestowitz, a former Reagan Administration trade negotiator who now heads the Washington-based Economic Strategy Institute. “We’re running a deficit with Japan of nearly $60 billion a year. Maybe with NAFTA, 10 years from now, it will be down to $58 billion. I can’t imagine NAFTA is going to seriously impinge on Japan.”