U.S. Strikes Deal With Japan to Open Markets : Trade: Breakthroughs in four key areas are hailed as a genuine milestone. But Tokyo’s failure to agree on auto-related exports could still lead to sanctions.

In a dramatic end to a tense round of trade diplomacy, the United States and Japan reached a series of agreements Saturday that Clinton Administration officials said would crack open the lucrative Japanese market for four major U.S. industries and generate billions of dollars in new exports.

Twenty hours of overnight negotiations, concluded only minutes before senior Japanese officials were about to return to Tokyo, produced surprising breakthroughs in every area under discussion with one significant exception: The two sides could not come to terms over autos and auto parts. These exports account for two-thirds of America’s $60-billion annual trade deficit with Japan.

With no progress achieved on automotive issues--a senior trade official said the Japanese “weren’t ready to be serious”--U.S. Trade Representative Mickey Kantor said he would take steps that could lead to the imposition of sanctions on Japan. The penalties, if imposed, would be intended to force Japan to increase its limited purchases of replacement parts made in the United States.

Prime Minister Tomiichi Murayama, speaking to reporters in Tokyo, said “it is extremely regrettable” that the United States decided to take steps toward sanctions over the auto parts issue.

“They were insisting that we relax our auto inspections,” Murayama said. “But as we cannot relax safety (standards), we were not able to yield.”

However, the auto parts impasse was overshadowed by the progress made on other fronts, as government officials and business executives cheered the sudden turnabout in an angry relationship that had been sliding toward the brink of a trade war.

The agreements will make it easier for insurance companies to do business in Japan, for manufacturers of medical and telecommunications equipment to sell their products to the Japanese government, and for makers of flat glass, used in automobiles and construction, to enter a lucrative market that had been virtually closed to them.

“This is a good deal for the United States and a good deal for Japan,” observed Kantor, a view he said was shared by President Clinton.

In the view of U.S. officials and outside trade experts, Saturday’s breakthroughs represent a genuine milestone. After nearly 15 months of bickering, the two countries, whose trade relations produce ripple effects that span the globe, have agreed on a system to measure the success of foreign firms in gaining access to the Japanese market.

Japan has long been considered one of the most difficult markets to enter. Despite its government’s assurances to the contrary, U.S. trade officials say, the door is barricaded by a combination of bureaucratic regulations, unofficial standards and other, often invisible, barriers.

Despite what U.S. officials have characterized as a history of backsliding by Japan on previous trade agreements, a buoyant Kantor said he is confident the new accords will stick.

“These agreements will not only work, they’re results-oriented, they’re tangible, they’re concrete,” said Kantor, who presided over nonstop negotiations that began at 3 p.m. EDT Friday and concluded at 11:05 a.m. Saturday. “They’ll be effective.”

Clyde Prestowitz, a former trade official and frequent critic of Japanese trade practices, said the agreements “put U.S.-Japanese relations on a new plane. It’s a win-win proposition.”

Prestowitz said the agreements should halt the dramatic rise in the value of the yen against the dollar, a phenomenon that has made Japanese products increasingly expensive in the United States. The Japanese currency began climbing to new highs against the dollar when a U.S.-Japanese summit fell apart amid bitter recriminations last February.

In addition, he said, Japan “gets credit internationally for being forward-looking and flexible.”

Another prominent critic of Japanese trade practices, House Majority Leader Richard A. Gephardt (D-Mo.), said “another wedge was driven into the Japanese market” as a result of the new accords.

“It’s clear when the U.S. really stands up, Japan opens up,” Gephardt said. Even so, he added, the agreements “still only address a small percentage of our trade problems.”

The senior members of the Japanese delegation, Trade Minister Ryutaro Hashimoto and Foreign Minister Yohei Kono, headed home immediately after the talks.

In a brief meeting with Japanese reporters, Hashimoto said the agreements would help smooth often-difficult U.S.-Japanese relations across the board. The goodwill should spill beyond trade to encompass political and diplomatic issues, he said.

Japanese officials emphasized that the agreements avoid setting specific “numerical targets,” an initial U.S. objective that Tokyo had vowed for months to block.

But U.S. officials said the accords will make it possible to gauge the openness of Japanese markets. “The Japanese government for the first time is committed to use objective, quantitative and qualitative criteria to evaluate the progress made under these agreements,” Kantor said.

The impasse over measuring progress has been the biggest hurdle during the 15 months since Clinton visited Tokyo in July, 1993, and launched the current round of negotiations.

In the final hours of their talks Saturday, the two sides agreed there must be “progress in the value and share” of foreign goods and services in the Japanese market, with a goal of achieving “over the medium term, a significant increase in access and sales.”

“There is no difference of opinion as to what that means,” Kantor said. “The idea of ‘progress in value and share’ cannot be misinterpreted.”

Kantor said the agreements will work as follows:

* Japan will open to foreign manufacturers the process by which it purchases telecommunications equipment, an $11-billion market in which Japanese companies get 95% of the business.

* In government purchases of medical equipment, Japan will allow fair bidding and provide a complaint mechanism for foreign firms that feel they have been treated unfairly. The medical equipment sector is dominated by the United States, which accounts for 52% of global sales of such products but only 23% of the Japanese market. Increasing that share to 40% would generate an $440 million more a year in sales, U.S. officials said.

* Japan will reform its insurance regulatory system, introduce unspecified liberalizing measures and strengthen its antitrust policies. The changes are designed to open the world’s second-largest insurance market in which foreign companies account for only 3% of all policies sold.

* Japan will open its $4.5-billion flat-glass business to foreign producers. Over the past 20 years, U.S. officials said, three Japanese companies have maintained exactly the same market shares--50%, 30% and 20%. Japan also agreed to promote greater use of insulated glass and safety glass, products in which U.S. companies are considered leaders.

Only the rough parameters of the agreement have been worked out so far, and “there is a lot of negotiating that will need to be done” over the next month, a senior trade official said. But even an agreement in principle represents progress, industry officials said.

“The principles are excellent. It should have a significant impact on U.S. sales in Japan,” said Ralph Gerson, executive vice president of Guardian Industries Corp., a large glass manufacturer in Michigan.

Although no agreement was reached in the automotive arena, there have been limited signs of progress in market penetration. Ford announced last week that its sales in August were 152% higher than a year earlier. Still, U.S. auto sales in Japan remain minuscule.

Kantor said that regulatory barriers to foreign replacement parts make it “nearly impossible for competitive foreign auto parts producers to break into the Japanese market.” Japan buys 2.6% of its replacement, or “after-market,” auto parts from foreign companies; in the United States, 47% of these parts are imported.

Any decision to impose sanctions over the auto impasse would proceed under Section 301 of U.S. trade laws. The first step, which could take up to a year, would be an investigation of the problem and additional negotiations with Japan. Kantor, citing Japan’s cooperation in other sectors, refrained from using the “Super 301” provision, in which Japan would have been given the stigma of an “unfair trader.”

Andrew H. Card Jr., president of the American Automobile Manufacturers Assn., said he is “marginally encouraged” by the action. But, he added, “the Japan-U.S. trade problem will not be solved without opening Japan’s automotive market, for both vehicles and parts.”

Tatsuro Toyoda, chairman of the Japan Automobile Manufacturers Assn., called the Section 301 trade action “unfortunate.”

Midori Tani, director of international communications for the Ministry of International Trade and Industry, said “the fact that the United States and Japan could reach an agreement . . . has a great value.”

Times staff writer David Holley in Tokyo contributed to this story.