Japan Warned on Eve of Trade Talks

In a blunt ideological challenge issued on the eve of important trade talks with Tokyo, a senior U.S. official warned Tuesday that Japan must quickly throw open its protected industries--especially telecommunications--or become an also-ran in the global Internet economy.

“A Japanese company today pays more for everything it needs to run its business--from telephone calls and Internet access to energy bills, office rent, construction materials and beyond--than its foreign competitors,” said U.S. Deputy Trade Representative Richard Fisher.

Citing concerns that the ruling Liberal Democratic Party is backsliding on promised deregulation, Fisher called on the Japanese leadership to reject “this corruption of economic progress.”

“Persistence in the old ways threatens to transform Japan into a fading giant,” Fisher told foreign reporters.

The U.S. demand for Japan to level its playing field isn’t new. And the deregulation talks that are scheduled to begin today were initiated in 1997 by President Clinton and then-Prime Minister Ryutaro Hashimoto.

But Fisher’s rhetoric ranks among the toughest talk heard from Washington since U.S. financial officials demanded in 1997 that Japan clean up its teetering banking system before it dragged the American economy down into the Asian economic vortex.

Japan has since enacted major banking reforms and liberalized its financial sector--opening the way for a surge in direct foreign investment.

But in the last quarter of 1999, the Japanese economy, the world’s second-largest, had slipped back into recession. The government insists the economy has turned the corner, but the pace of recovery is slow.

At some point, the American economy will falter and require “a strong Japan to pick up the pace and make it possible for the rest of the world to prosper,” Fisher said. “Unless we can create conditions for that to be done, we can’t sleep easily at night.”

Telecommunications are the biggest irritant to the two countries’ economic relations, which are arguably the coziest they’ve been in decades. The U.S. insists that Japanese regulators stop coddling what it sees as a destructively inefficient monopoly, the phone giant Nippon Telephone & Telegraph, or NTT.

To many in the West, NTT is Japanese protectionism incarnate; it is blamed for telephone rates that are three times U.S. levels and Internet access fees that are eight to 10 times higher. Only a sixth of Japanese households use the Internet, compared with half of American homes.

In addition to a chance to offer cheaper telecommunications to the Japanese, U.S. firms want unfettered access to Japan’s markets for wood products, electricity generation, flat glass and pharmaceuticals.

Fisher noted that leading Japanese executives--including the heads of Sony, Fujitsu and the powerful industry group Keidanren--have complained that the high cost of telecommunications is a competitive barrier for Japanese firms.

“We know from our experience only 12 years ago--having been written off as a loser, we were becoming a second-rate power--that we were able to overcome this by deregulating,” Fisher said.

Some analysts remain skeptical that the Japanese establishment will be moved to anything more than lip service by such rhetoric when it is weighed against the perceived merits of the entrenched current system.