U.S., Japan Reach Trade Pact on Cars : Commerce: Tokyo agrees to steps making it easier for American auto makers to compete but avoids locking into sales figures. Stiff tariffs on Japanese vehicles averted.

By JAMES GERSTENZANG

June 29, 1995 12 AM PT

TIMES STAFF WRITER

GENEVA —

The United States and Japan, capping a marathon negotiation that began nearly two years ago, agreed on a complex set of measures Wednesday that U.S. officials trumpeted as a momentous opening of Japan’s automotive markets.

Confronted with a deadline today for the imposition of a record $5.9 billion in U.S. trade penalties, Japan agreed to a series of steps by the government and its auto industry intended to make it far easier for U.S. competitors to offer their products to Japanese consumers.

Significantly, the agreement does not include commitments to specific sales figures or market shares--elements Japan adamantly refused to accept--and relies instead on hoped-for sales levels. Some Japanese auto executives noted Wednesday that their government doesn’t speak for them.

Nevertheless, President Clinton told reporters at the White House: “This agreement is specific, it is measurable. It will achieve real, concrete results.”

Asserting it will produce “thousands of new jobs for American workers,” Clinton said: “We finally have an agreement that will move cars and parts both ways between the United States and Japan. This breakthrough is a major step toward free trade throughout the world.”

The agreement will probably mean billions of dollars in new sales for U.S. companies and make a dent in the United States’ seemingly intractable trade deficit with Japan, which last year hit $66 billion--60% of it attributed to auto trade.

Perhaps even more important, in the view of U.S. officials, it holds the promise of beginning to break down the traditional methods by which Japanese government and industry locked arms to keep foreign competitors from gaining significant inroads in Japan. But the apparent lack of commitment by Japanese auto firms means that such an outcome is far from assured.

U.S. Trade Representative Mickey Kantor, who began nearly nonstop negotiations Tuesday morning with Japan’s minister of international trade and industry, Ryutaro Hashimoto, said the agreement is “a significant step to fundamental change.”

Hashimoto said the two sides had reached a “happy moment” and that “both countries can work together to achieve negotiated agreements.” He made no mention of the sanctions threat that hung over the negotiations.

Market Impact

The trade agreement sent the dollar rocketing higher. It closed in New York at 85.68 yen, up 1.8% from 84.18 yen on Tuesday. But the Big Three auto stocks showed no reaction: Ford, Chrysler and General Motors shares all closed unchanged for the day.

Japanese stocks reacted favorably to the agreement at the opening of trading today, but by midday the Nikkei-225 index was off 50.64 points to 14,567.43.

The White House had vowed to slap 100% tariffs on 13 models of Japanese luxury cars unless an agreement was reached by Wednesday. The threat--which would have far outstripped in dollar value any previous trade sanction against Japan--drew widespread international criticism because it was made outside the confines of international trade rules.

The agreement thus avoids the risk of a serious rupture in the critical U.S.-Japanese economic relationship, a possibility that had made other key players in the global economy increasingly nervous.

The agreement drew quick praise from U.S. auto industry groups that had been closely involved in the talks. The American Automobile Manufacturers Assn. said the Big Three will be able “to reach several hundred thousand new Japanese consumers annually in the next five years.”

The settlement was also a huge relief to hundreds of U.S. dealers of Japanese luxury cars who had operated under the sanction threat since it was first announced May 19.

“It’s like 60 days ago somebody told you that you had a terminal illness and today the doctor said it was all a mistake,” said A.J. D’Amato, general manager of Tustin Lexus. “It’s a big load off my back.”

Satisfaction in Tokyo

In Japan, Chief Cabinet Secretary Kozo Igarashi, Japan’s top government spokesman, expressed satisfaction today that the auto talks “reached a successful conclusion without setting so-called numerical targets.” He said Japan “is convinced that this achievement will have a positive influence on the world economy as a whole.”

But the imprecise targets raised questions about how readily the pact can be enforced. It may require the automotive trade equivalent of a Talmudic scholar to determine whether the multiple elements of the agreement are being met in coming years.

“There’s a lot of ambiguity here,” one U.S. official acknowledged, although another senior official said that methods to evaluate its progress are built into the agreement. He added: “We are going to be doing that [evaluation] with extreme regularity.”

Moreover, Japanese auto companies were at pains Wednesday to note that they haven’t agreed to anything. Plans announced by several to expand U.S. production and parts purchases were in the works before the trade agreement, a result of economic forces--especially the strong yen--that make such steps more advantageous.

“Our announcement today doesn’t directly state how many parts are going to be purchased,” said Taizo Yokoyama, a managing director at Mitsubishi Motors. “Therefore we understand the figures the American side has announced today are calculated upon the estimates they made. I don’t think they will be taken as ones Japanese manufacturers have agreed to.”

At its heart, the agreement depends on an interlocking web of business estimates and hedged commitments by Japanese industry and the Japanese government to hit the targets, which are expressed as likely levels that the participants “expect” and “envision” will be met.

The Americans reason that if the Japanese government keeps its commitment to lift regulations, increased foreign sales of competitively priced products will naturally follow.

Beyond the goal of opening the Japanese market, U.S. officials were aiming to clear away the bureaucratic regulations that channel repair work to garages linked to Japanese parts manufacturers; make it easier for Ford, General Motors and Chrysler to sell their cars in well-placed Japanese dealerships, and break down the interlocking relationships between manufacturers, suppliers, distributors and financial institutions, known as keiretsu , that has kept foreign companies from sizable sales of parts for new cars.

“This agreement will not solve every problem,” Kantor said, but he argued it amounts to “a very big step” in breaking up the keiretsu arrangement.

What the Deal Says

Highlights of the agreement:

* The Japanese government will remove regulations that limit foreign parts companies’ sales of struts, shock absorbers, power steering components and trailer hitches. It will also review other regulations--reputedly used to keep out foreign products--to determine whether they are “central to health and safety concerns,” with an eye to eliminating them.

* Japanese regulations that discouraged competition among repair shops will be reduced in a move expected to open the market for U.S. replacement parts.

* The Ministry of International Trade and Industry will inform Japanese auto dealers that they are free to sell foreign vehicles and that any pressure by Japanese auto companies discouraging them from carrying imports may raise antitrust concerns.

* Japan’s five major auto makers--Toyota, Honda, Nissan, Mazda and Mitsubishi--will prepare “business plans” that the United States said will lead to greater production in their U.S. plants and increased purchases of U.S.-made parts.

Overall, the Clinton Administration said, the Japanese companies will boost their production of vehicles in the United States from 2.1 million vehicles to 2.65 million annually within three years and purchase $6 billion in foreign parts by 1998 for use in auto plants in Japan.

In addition, the Administration predicted, Japanese companies will increase from $17 billion to $23.75 billion the amount they spend for U.S.-made parts delivered to their American plants.

But firm commitments were lacking in the multiple joint announcements on dealerships and parts that documented the agreement.

The statement on dealerships, for example, says the U.S. government “envisions” that agreements to be reached by American car makers and Japanese dealers “will result in approximately 200 new sales outlets by the end of 1996 and increasing to a total of approximately 1,000 new sales outlets by the end of 2000.”

However, the document said the Japanese government “has had no involvement in this forecast because it is beyond the scope and responsibility of the government [and that] these forecasts are solely those of the government of the U.S.”

While the talks focused on the nuts and bolts, almost literally, of the auto business, perhaps the largest industry ever tackled in trade talks, the negotiations were nevertheless about much more.

As portrayed by Clinton in recent days, and by Kantor over the nearly two years of on-again, off-again negotiations, the talks went to the heart of opening world trade--in this case by making an example of what the Administration says is Japan’s longstanding practice of protecting domestic industries by erecting often-invisible barriers to foreign competitors.

By focusing on automobiles, the Administration tackled what has been described as the most intractable element in the long-running U.S.-Japanese trade dispute as well as an industry that plays a central role in the lives of both nations.

To anticipated criticism, one senior Administration official in Geneva said: “Those who say it’s not dramatic enough are thinking in one stroke you’ll make up for 25 years of imbalance in the U.S.-Japanese auto trade.”

Negotiators attributed the shift in the position adopted by the Japanese to their eventual recognition that Clinton was not bluffing with his threat to levy 100% tariffs on expensive models made by Lexus, Infiniti, Acura, Mazda and Mitsubishi.

“I think we’ve crossed the Rubicon,” one U.S. negotiator said. “We were 100% prepared to impose the sanctions as of 3 o’clock this afternoon. I think the Japanese realized that. I don’t think they realized that two weeks ago. That is a sea change in our attitude.”

U.S., Japan Reach Trade Pact on Cars : Commerce: Tokyo agrees to steps making it easier for American auto makers to compete but avoids locking into sales figures. Stiff tariffs on Japanese vehicles averted.

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