Japan Approves Economic Plan, Seeks U.S. Talks

After weeks of escalating trade tensions with the United States, the Japanese Cabinet early today approved a long-awaited package of economic stimulus and market opening measures.

But the proposals appeared to fall short of meeting U.S. demands and are expected to lead to more U.S. pressure on Japan to take stronger action to open its markets or face possible trade sanctions.

The plan’s measures fall into three broad categories: public works spending and income tax cuts to stimulate domestic demand; deregulation aimed at increasing competition and enlivening the economy, and efforts to boost foreign access in several areas, including trade in automobiles and auto parts.

The package is weak on many specifics, however.

In particular, the package does not offer the kind of numerical goals that U.S. negotiators had sought during acrimonious trade talks that preceded a February meeting between President Clinton and Japanese Prime Minister Morihiro Hosokawa.

Also, no figure is given for the boost in public works spending, and the envisioned income tax cuts would come only as part of broader tax reform. The portions on deregulation set out goals and processes, but few detailed changes. Steps taken in the priority areas of insurance, government procurement and auto trade are basically the measures proposed by Japan in February but rejected by the United States as insufficient.

In Washington, the Clinton Administration had no immediate comment, although Hosokawa briefed Clinton on the plan in a 15-minute telephone call early this morning. “The President thanked the prime minister for making the call and said he would very carefully review the plan,” White House spokesman Jeff Eller told reporters.

A spokesman for U.S. Trade Representative Mickey Kantor said Kantor was out of town and had not had a chance to examine the proposal in detail. A formal U.S. response is expected later today.

Analysts in Washington who reviewed the plan said they did not expect the White House to endorse proposals that contain little more than what was on the table when the so-called “framework” trade talks broke down in February.

But U.S. officials are unlikely to be surprised by the limitations of the Japanese proposals, analysts said.

“The Japanese bureaucrats have been working overtime . . . and the bureaucrats in Washington have been monitoring what Japan is doing. I think expectations are for gradual progress rather than a magic bullet,” said Jesper Koll, an analyst at S. G. Warburg Securities in Tokyo.

Japanese officials expressed hope that the package will at least prove sufficient to restart the stalled trade talks and head off a U.S. threat to impose retaliatory trade sanctions.

Hosokawa issued a statement describing the package as showing his administration’s resolve to reform Japan’s economic structure and bring it more into harmony with the international community.

The relatively small scale of the package had been hinted at for weeks, with Japanese officials saying that further measures would be announced before Hosokawa meets Clinton again in Naples, Italy, at the July summit of the Group of Seven major industrialized countries.

In the most sensitive area of the package, addressing market opening issues, Tokyo promises to take action in three industry sectors that had been identified as “priority areas” in the stalled trade talks.

Among the industries specified:

* Insurance. The package calls for deregulation of the Japanese insurance market to facilitate market entry by new suppliers, domestic or foreign. This would include greater clarity in the criteria for obtaining licenses and product approval.

* Automobiles and auto parts. The government will facilitate local procurement of auto parts by Japanese-affiliated plants overseas and expansion of imports of foreign automobiles and auto parts to Japan.

* Government procurement. Procedures will be established to provide information on large-scale purchases at least 90 days before public notification for bids.

Another set of measures in today’s government package calls for deregulation in a broad range of areas, including real estate, information and telecommunications, wholesale and retail distribution, licenses and standards, finances and securities.

The third broad area of the package is macroeconomic policy. Here too, most promises are rather vague. The package calls for more public works funding and for implementation of tax reform.

Japanese officials have cited the practical problems of rewriting complex regulations in a short time as one key reason the package does not offer more specifics. But Tokyo also appears to be betting that Washington will eventually prove unwilling or unable to press its demands that numerical goals be incorporated in a trade agreement.

Times staff writer Art Pine in Washington contributed to this story.