NEWS ANALYSIS : U.S.-Japan Pact on Trade Irons Out Few Wrinkles

Agreement on a framework for a trade accord between the United States and Japan just hours before President Clinton left for South Korea on Saturday could provide a badly needed, short-term boost for the American leader and for Japanese Prime Minister Kiichi Miyazawa, both of whom face problems at home.

But in the long run, the framework, which sets the stage for more detailed future trade talks, actually may only yield more conflict between the economic giants on either side of the Pacific. Almost immediately after the agreement was signed, both sides had different interpretations of its meaning. And in America, the President’s detractors asserted that he had settled for too little while Japan had achieved too much.

The greatest potential for misunderstanding is over precisely what Japan has committed itself to with respect to reducing its trade surplus.

In what is probably the most significant part of the agreement, Japan promised to boost domestic demand and improve access to its markets to achieve “over the medium term a highly significant decrease in its current account surplus.”

Such language is vague, to say the least, and both sides appear to be interpreting it to serve their own political needs.

In the Japanese-language version of the trade agreement, “highly significant” is translated using a much weaker term that literally means “quite meaningful.” The Japanese reader looking at the document might think Japan has promised to make a meaningful, but not necessarily large, cut in its trade surplus.

By contrast, U.S. Treasury Undersecretary Lawrence H. Summers told reporters Saturday that to meet America’s interpretation of the commitment, Japan would have to cut its surplus by more than half, to below 2% of its gross domestic product, within four or five years.

The gap between the two views will become increasingly evident.

The agreement calls for further deals to boost Japanese imports in specific sectors to undetermined levels. Japan has promised, for example, to revise its government procurement practices to increase purchases of foreign computers, supercomputers, satellites, medical technology and telecommunications equipment.

Japan has also promised to help remove some barriers to its markets and to encourage imports of foreign auto parts.

But economists agree that more will be required if Japan is to get anywhere close to Summers’ interpretation of what it has promised.

Japan’s trade surplus with the world is expected to reach $150 billion, or 4% of its gross domestic product this year, as Japan continues to export substantially more than it imports of such high-priced products as autos, electronics and machinery.

With Japan’s economy now growing at a 1% annual rate, exports continue to rise faster than imports and trade surpluses keep accumulating. Although the surpluses will begin to fall at the end of the year as the Japanese economy recovers, progress will be slow, and few expect Japan’s trade surplus to fall below $100 billion within the period America would like.

Some progress could be made if Japan substantially increased its growth rate. But Japanese officials insist they have no intention of taking steps to speed the economy’s growth beyond efforts the government made early this year when it announced a large spending package.

Some Japanese analysts concede, however, that despite the vague language in the new agreement, the pressure is on the Japanese to increase imports.

“With the agreement so focused on results, it puts a heavy burden on us to reduce our trade imbalance,” a Foreign Ministry official told Japanese reporters. Japanese officials know that failure to produce results could result in sanctions from the United States. America’s refusal to rule out the use of sanctions has made that clear.

Clinton’s announcement of the trade deal with Japan clearly gave the President something to bring home from a summit that was otherwise short on news or concrete accomplishments. And it boosted his credibility as a leader at a time when his image at home is badly tarnished.

“I think this is a plus for the President,” said Rep. Robert T. Matsui (D-Sacramento), a key member of the House Ways and Means Committee, which handles trade issues. “He comes away as someone who can play on the world stage. And, while this agreement doesn’t achieve everything we wanted, it is a step forward.”

But Republicans moved quickly Saturday to dismiss the agreement’s significance.

Wisconsin Gov. Tommy G. Thompson, who offered the Republican response to President Clinton’s radio address Saturday, stressed that the agreement with Japan offers little new to U.S. workers and consumers.

“Although touted as a breakthrough, the agreement only establishes a framework for future talks,” Thompson said. “The Japanese have not yet agreed to allow a single additional U.S. product into their market.”

Even Democrats like Matsui acknowledge that this weekend’s agreement does not commit the Japanese to buying any more U.S. goods or to selling any fewer of their products in the United States.

“I don’t think this will lead to an agreement like the semiconductor agreement,” said Matsui.

Clinton Administration officials have long pushed for a broader agreement modeled after the semiconductor pact, which set a goal of 20% for foreign share of the Japanese market.

But Japan continues to resist such detailed targeting. Instead, the framework agreement reached this weekend apparently only commits the Japanese to more detailed negotiations.

For Miyazawa, battling to help his ruling Liberal Democratic Party survive parliamentary elections July 18, the agreement doubtless provides some domestic political help.

He is already getting credit at home for crafting the compromise that helped stave off even tougher U.S. trade demands for numerical targets on Japanese imports.

Miyazawa had to move despite strong opposition from Japan’s powerful bureaucrats to the accord.

But freezing out the key bureaucrats could cause problems, since they must implement the terms of the agreement.