A Delicate Tug of War on Trade : Japan: Super 301 is a flexible weapon, but its procedures, once invoked, are not, and may hurt us in the end.

As Secretary of State Warren Christopher arrives in Tokyo for meetings following the failure of the summit between President Clinton and Prime Minister Morihiro Hosokawa, the United States is in uncharted territory in its relations with Japan.

Some Japan experts caution that the United States has gone too far in insisting on numerical targets as a way of assuring progress toward reduction of the trade deficit between the two countries. They worry about the effect of the no-pulled-punches trade negotiations, particularly at a time when the Pacific Rim is fixated on North Korea’s nuclear intentions.

Others say that the United States must stay the course in its hard line. They and their supporters on Capitol Hill argue that the time has come to make Japan pay for its unwillingness to reduce the trade deficit by invoking the newly revived Super 301 provision and imposing stiff sanctions.

Neither approach gives adequate weight to the central fact of the current predicament. While Hosokawa offers the best hope in decades for reform of Japan’s economy, reduction of Japan’s trade surplus with the United States is not one of his top priorities. First on his list is reform of the political system, which is only indirectly related to economic issues. But another top priority, his struggle to reduce the power of Japan’s bureaucrats, is of enormous significance to American businesses seeking to crack the Japanese market.

While there are many explanations for the fact that Japan has unusually low levels of manufactured imports and intra-industry trade for an economy of its size, one of the most important is the pervasive extent of government regulation in Japan. The notion that foreign skis were kept out on the basis that “Japanese snow is different” is incredible to non-Japanese, but reflects the almost untrammeled discretion and authority of the central government bureaucracy. Much of that authority is exercised through confidential and “informal” administrative guidance, which is no less binding for its informality.

One problem that Hosokawa faces in his push for deregulation is a dearth of practical advice on the issue. There is not yet a Japanese equivalent of an American Enterprise Institute or Brookings, where academics and former officials churn out hard-headed policy advice. Instead, Hosokawa must rely on the bureaucrats, most of whom would be disinclined to help the prime minister deregulate even if they knew how. This is an area in which the United States has plenty of experience. In due course, the Japanese will informally seek our advice. We cannot force it upon them. In the meantime, Hosokawa must find his own way.

His path won’t be easy. He has provoked the wrath not only of the bureaucrats, but of the other two groups that share the credit for much of Japan’s postwar economic success--politicians and business. His political reform proposals threatened the electoral prospects of many current members of the Diet, and he was forced to accept a severe compromise after his shaky coalition in the Diet failed to support him on the issue. Businesses that have prospered within the strictures of a highly regulated system also feel threatened by his reforms. A recent ill-considered proposal to increase Japan’s consumption tax hurt Hosokawa with the voters.

As a result, Hosokawa’s grip on power is tenuous at best. He cannot afford to appear to surrender to U.S. trade demands and give his enemies at home another stick with which to beat him.

Where, then, do we go from here? Must the United States back off and again settle for vague assurances of market reforms? Or should we keep swinging?

It would be counterproductive for the United States to abandon its insistence on verifiable measures of progress in the opening of Japan’s markets. In view of the dismal results of past trade talks, and domestic political pressures, Clinton needs Japan to go at least that far. But it would be self-defeating for the United States to provoke a no-win confrontation with Hosokawa that wounds him politically. While many Japanese want a prime minister who will stand up to the United States, most would judge harshly one who could not forestall a public rift in relations.

What is required on the U.S. side is a measured application of pressure for reform in Japan. U.S. pressure applied at the right time can strengthen Hosokawa’s hand in his dealings with his Cabinet and the bureaucracy, and allow him to play “good cop” to the U.S government’s “bad cop.” Pressure applied in a heavy-handed manner or at the wrong time can make it appear in Japan that Hosokawa is pursuing the U.S. agenda rather than his own, thereby crippling his efforts.

The intricate timing required in this exercise calls into question the wisdom of invoking Super 301 against Japan, as it forces negotiations to conform to its timetable. The threat of invoking Super 301 is a flexible weapon; its procedures, once invoked, are less so. In its timing and tone, U.S. pressure needs to reflect a close reading of Japanese politics.

We need a nuanced policy toward Japan, but it remains to be seen whether we have the patience and fortitude to formulate and implement one. Hosokawa represents a historic opportunity for the United States in its dealings with Japan. If we miss this chance, we are unlikely to have as good an opportunity for years to come.