Japan, U.S. Braced for Tough Talks on Trade : Surplus: Japan says it will resist efforts to measure results. Impending elections make a breakthrough unlikely.

As American negotiators head into trade talks this weekend focusing on the Clinton Administration’s new emphasis on tangible results, they face daunting odds: a lame-duck prime minister here, political turmoil and adamant refusal by Japanese bureaucrats to accept what they consider “managed trade.”

In talks set to begin Sunday, both sides hope to agree on a new method for resolving the perennial problems of Japan’s massive trade surplus and its perceived closed markets before the summit meeting of the seven richest industrial nations opens here July 7.

The Administration has urged that Japan halve its surplus and increase its imports by one-third over the next three years. U.S. officials also want negotiations on specific ways to open markets in five areas--with progress measured by numerical results.

But judging by the blunt talk and deep disagreements on both sides--and the distraction of elections set for July 18 after Prime Minister Kiichi Miyazawa lost a vote of confidence in Parliament last week--the possibility of a breakthrough seems bleak.

In a speech Friday before Japan’s business elite, senior U.S. Treasury official Lawrence Summers said the nation’s chronic trade surplus--now running at $126 billion--is dragging down world growth. He argued that trimming it back from more than 3% of gross national product to its historical average of 1.5% would create more than $60 billion in additional exports to the rest of the world and up to 2 million jobs.

But Japanese officials quickly shot down that claim.

“The economy is not that simple,” said Noboru Hatakeyama, the outgoing vice minister for international affairs at the Ministry of International Trade and Industry. Cutting back Japanese auto exports could decrease American auto part imports, he said, or holding down computer exports could reduce sales of U.S. microprocessors.

U.S. officials argue that because past approaches to balancing trade and ensuring open markets have consistently failed, it’s time to measure progress by results. To evaluate how open or closed a market is, “benchmarks” would be used--for instance, calculating the percentage of contracts open to bidding by foreign firms, the number of foreigners who sit on rule-setting bodies or the amount of foreign investment in a particular industry.

But Japanese officials reject that idea. “Anything to measure our economy might lead to the risk of managed trade,” Hatakeyama said.

And forget actual quotas. Although officials here reluctantly agreed to hold 20% of Japan’s semiconductor market for foreigners, they vow never to accept numerical targets again. They reiterated that view Friday.

“Do you think it’s reasonable for the government to ask people to purchase what they don’t want? I don’t think so,” Hatakeyama said.

For his part, Summers argued in his speech that the United States is aiming to “un-manage trade” rather than manage it, by cracking open government monopolies in such areas as telecommunications and industry cartels in construction. He also disagreed with Japanese fears that stimulating consumer demand might drain national funds needed for its aging population or reinflate the “bubble economy” of the 1980s.

All of which has led both sides to scale back expectations--and begin casting about for something to agree on before the summit. “If they stick to numerical targets, it’s going to be hard” to reach substantive agreement, said Sozaburo Okamatsu, the Ministry of International Trade and Industry’s new vice minister for international affairs. “If we can’t reach agreement on this point, we should just find what should be done to start the framework talks.”