Behind the Trade of Smiles : U.S.-Japan Summit Cannot Ignore Disputes

When President Clinton and Prime Minister Ryutaro Hashimoto meet here next week, they aim to showcase successes and reaffirm security ties. But trade disputes over semiconductors, film and insurance may cast a pall on the talks.

“My understanding is that we do not want trade to dominate this” summit, said a U.S. official. “But we have to be engaged. Some of the statements they [the Japanese] make disturb some people. They say, ‘We’re not going to deal with film.’ Well, obviously they have to deal with film. The same with semiconductors.”

Hashimoto, however, wrote Clinton last week advising him that concessions to U.S. demands on film, semiconductors and insurance would not be possible by the summit, reported Nikkei Shimbun, Japan’s leading economic newspaper.

The current trade tensions come against the backdrop of a growing determination among Japanese trade officials that the United States and Japan should move away from resolving trade disputes bilaterally and instead use multilateral procedures in the World Trade Organization (WTO).

Trade Vice Minister Yoshihiro Sakamoto sent shock waves through U.S. business and government circles when he boldly declared in a March speech that “the era of bilateralism is over.” Sakamoto later stressed in an interview that he “never said bilateral talks are over.”

“I’m listening to what the U.S. would like to say,” Sakamoto said. “But the era of unilateral 301 sanctions [under U.S. trade law] to resolve bilateral trade disputes is over.” Section 301 of U.S. trade law provides for retaliatory sanctions against nations deemed to have unfair market barriers to U.S. products.

Noboru Hatakeyama, a former trade minister who now heads the Japan External Trade Organization, just published a book taking the same line, sparking speculation that this may emerge as the official position of the Ministry of International Trade and Industry.

MITI’s views are not shared by all ministries. One Japanese bureaucrat criticized the agency for “overconfidence and arrogance” and said its officials feel “smug” over the outcome of auto talks last year, when Japan threatened to take the United States to the WTO. Now, he says, MITI sees the world trade body as its “goddess of justice” who will protect it from the Americans.

With other ministries generally taking a somewhat softer line than MITI and Hashimoto concerned with maintaining good relations with Washington, it is clear that the era of bilateral negotiations has not ended, whatever the wishes of some trade officials may be. Despite tough talk, negotiations are moving forward on some issues.

Officials cleared up one feud in late March, when the two countries reached a new agreement on air cargo transport, expanding U.S. and Japanese carriers’ rights. And U.S. and Japanese negotiators jetted off to a last-minute meeting in Los Angeles last weekend to tackle the insurance issue.

But other wrangling is unlikely to be resolved by the summit. U.S. officials are pushing for a renewal of a semiconductor agreement due to expire in July. The accord, hailed in the United States as a huge success, pried the Japanese market open and helped U.S. producers overshoot a 20% market-share target to hit 29.6% in the final quarter of 1995.

The Japanese are adamant in their refusal to renew the agreement in any form. The Clinton administration and U.S. businesses say renewed targets are unnecessary but some agreement involving cooperation between firms of the two countries and measurement of market shares must be reached to ensure a continued strong U.S. presence in the market.

The Japanese counter that U.S. firms have regained their competitiveness and gone far beyond the 20% market-share target.

MITI is refusing to discuss with U.S. trade officials Eastman Kodak’s claim that it was unfairly shut out of the Japanese film market. MITI argues that Kodak should take its case to Japan’s Fair Trade Commission, which some foreigners criticize as toothless and ineffective.

“If the Japanese Trade Ministry is allowed to get away with ignoring this, then no one has a chance in the Japanese market,” asserted Ira Wolf, a Tokyo-based Kodak vice-president. “This has an importance far beyond film.” If the film dispute is not resolved by July, the U.S. could decide to impose “301 sanctions.”

Tokyo and Washington are also squabbling over how to interpret a 1994 bilateral pact on access to Japan’s highly lucrative $407-billion insurance market.

About 95% of the insurance industry is in the highly regulated “primary” sectors, “life” and “nonlife.” Innovative foreigners created a niche in the “third market,” areas like cancer and accident insurance, which are less appealing to Japanese insurance companies.

To avoid radical change, the 1994 pact said that deregulation in one sector would not proceed without substantial deregulation in the others. Washington accuses Japan of proposing to deregulate the “third sector” without reciprocal moves in the primary sectors; Japan says the U.S. is reinterpreting the agreement.

“If Japanese insurance companies are allowed into the ‘third sector’--with 100,000 agents knocking on doors, a huge capital base, and marketing know-how--that is pretty much the end of foreigners,” said the U.S. official.

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