Swamped By Japan

By William R. Doerner.

The anger and frustration had been growing apace with the trade deficit with Japan: $22 billion in 1983, $37 billion last year, more than $40 billion expected this year. As Congress looked on with dismay, U.S. negotiators reported little headway in prying open Japanese markets. Then Japan delivered the coup de grace, announcing a stunning 24% increase in auto exports to the U.S. this year, after the Reagan Administration had removed "voluntary" quotas. That ill-advised move prompted both houses of Congress last week to threaten trade retaliation against America's largest overseas commercial partner.

The House, following the lead of the Senate the week before, voted 394 to 19 for a nonbinding resolution that called on President Reagan to take steps against Japan for failing to lower import barriers. Said Michigan Democrat John Dingell, chairman of the House Energy and Commerce Committee: "The time for tabletalk negotiations has ended. The President must tell our Japanese trading partner that this nation can no longer sit idly by while Japan's unfair and discriminatory trade practices build and expand Japanese industry at the expense of American firms and workers." In the Senate, the Finance Committee reported out legislation that would require Reagan to take action offsetting the increase in Japanese auto imports. "This bill takes the position that unfair trade practices are not going to be removed if all the U.S. does is complain," said Missouri Republican John Danforth, sponsor of the Senate measure. The U.S., he added, must find ways of "inflicting at least some economic pain on the Japanese."

House Speaker Tip O'Neill asked Mike Mansfield, the former Senate majority leader now serving as U.S. Ambassador to Tokyo, to deliver a blunt message to the Japanese: "They better make some concessions or they're in trouble." Some legislators grew positively bellicose. "We are in a war," declared Democratic Congressman Beryl Anthony of Arkansas. "After this passes we're going to have to load the gun and put some real bullets in it." Editorialized the New York Times: "The Japan-bashers are on the march."

In reality, the U.S. and Japan were still a long way from an outright trade war, which would involve a series of trade reprisals by both sides. "Like real wars," says I.M. Destler, a senior fellow at the Institute for International Economics in Washington, "trade wars tend to leave everybody worse off." Two years after Washington passed the virulently protectionist Smoot-Hawley bill in 1930, the wave of trade and currency reprisals that it provoked slashed U.S. exports by 60%, helping deepen the Great Depression. Japan's obsession with maintaining supplies of raw materials for its export industries was largely responsible for the Pacific adventurism that led it into World War II.

Concerned that the splenetic outpouring from Congress was getting out of control, the Reagan Administration sought to minimize talk of retaliation. Following a Cabinet meeting devoted to trade matters, State Department officials issued a statement declaring that the U.S. wanted "the same access to Japan's markets that Japanese companies have to ours." Reagan emphasized that Japanese Prime Minister Yasuhiro Nakasone, who met with two special presidential trade envoys over the weekend, "assured (us) that he is going to continue doing his utmost to bring about some changes" in Japan's bargaining stance. Added Reagan: "We'll just have to wait and see what he can accomplish."

Tokyo reacted with unusual speed and anger to the congressional measures, especially the potentially binding one passed in the Senate. That, said the Japanese Foreign Ministry, "is not only a discriminatory bill singling out ! Japan, but also a threat to the entire free-trade system." Its passage, the ministry warned, would have repercussions not only in trade but in overall U.S.-Japanese relations. Clearly shocked at the depth of congressional feeling, Nakasone quickly dispatched a top-level troubleshooter, Deputy Foreign Minister Reishi Teshima, to explain Tokyo's side of the dispute in Washington and to get a firsthand sampling of Washington's complaints. Teshima met with Deputy Secretary of State Kenneth Dam and several other officials on Friday.

Amid the charge and countercharge, Reagan took time out to appoint a new U.S. trade representative, the point man in major negotiations dealing with international commerce. He is Clayton Yeutter (pronounced Yite-er), president of the Chicago Mercantile Exchange, the nation's leading center for futures trading in agricultural commodities and other investments. Yeutter replaces William Brock, the former Tennessee Senator who was nominated as Secretary of Labor last month. An attorney with a doctorate in agricultural economics, Yeutter owns a 2,500-acre farm and cattle ranch in Nebraska. In the Nixon and Ford Administrations, he served as Assistant Agriculture Secretary, specializing in overseas food sales when they were rapidly becoming a major plus factor in the U.S. balance of trade. Despite an affable exterior, Yeutter is known as a skilled negotiator who can hang tough when necessary. He says he favors "a free and open trading system, but with recognition that it has to be fair."

Yeutter will need all of his practical skills, and maybe a miracle or two as well, when he enters the minefield of U.S.-Japanese trade relations. In the four decades since World War II, Japan has waged one of the most successful campaigns in the history of commerce, making its consumer products household names throughout the developed world. But American and European salesmen of everything from meat to microchips have complained for years that Japanese markets have been closed to them, even when they offered products superior to those produced locally. That was an annoyance when Japan was struggling to recover economically in the early postwar years. Today, when Japan is on the verge of surpassing the Soviet Union as the world's second-largest economy, its protectionist tendencies seem inappropriate. "Japan is a mature, developed country," says an Administration trade official. "But it still acts like a developing country." The U.S. is not alone in its frustration: < for the past decade, the European Community has been battering at the Japanese government almost as hard as Washington has, with equally scarce results.

Actually, the Japanese have dismantled many of the tariffs and quotas that once kept their markets off limits to foreign competition. But the removal has made little difference to foreign businessmen. Instead they find themselves up against an array of cultural and technical trade barriers, including a closed and cumbersome bureaucracy, an old-boy system of business contacts that is nearly impervious to outsiders, and a buy-Japan-first attitude in the marketplace. Says Robert G. Gressens, president of GTE International Inc., a manufacturer of telecommunications equipment: "We don't face any specific laws and regulations that we point to and say, 'Hey, we take issue with this.' It's more nearly an attitudinal thing, a cultural thing."

Gressens has reason to know. Telecommunications is one of four industrial sectors targeted last January by Reagan and Nakasone for intense trade review (the other three: electronics, forest products, and pharmaceuticals and medical equipment). Though the presidential envoys may have convinced Nakasone that further movement is necessary, so far U.S. negotiators have made only limited progress in penetrating the thicket of rules and regulations that have effectively denied U.S. manufacturers access to the Japanese telecommunications market. Tokyo reduced the number of technical standards that telephone equipment must meet from 53 to 30, for example, but these still include many features, like the quality of voice transmission, that the U.S. leaves to market taste.

Even if imported products meet Japanese standards, businessmen complain, the cost and effort required to substantiate that claim are virtually Sisyphean. A new pharmaceutical product, for example, must be tested on more than 150 Japanese patients at five or more medical facilities, even if it has been approved by the U.S. Food and Drug Administration or another national drug- testing agency. The application data demanded for each new product run from 5,000 to 20,000 pages, and they are reviewed behind closed doors. Says Klaus Kran, president of Searle Yakuhin K.K., the Osaka-based affiliate of the U.S. drug firm G.D. Searle: "There is no public hearing. There is no possibility for our specialists to go in and tell them anything."

To be sure, cultural barriers are not the only explanation for the imbalance in U.S.-Japanese trade. An important reason is the overvaluation of the U.S. dollar against other major currencies, including the Japanese yen; made-in- America is a luxury buy in Japan these days. The demand for dollars in turn is fueled largely by attractive U.S. interest rates, which are kept high by the huge federal borrowings needed to finance the budget deficit. Indeed, a major part of those borrowed funds is supplied by Japanese investors. Says Edward Yardeni, chief economist of the Wall Street investment banking firm of Prudential-Bache: "The Japanese are doing a tremendous amount of saving, and we are doing a tremendous amount of spending. You cannot fault a nation for its frugality."

Beyond that, the Japanese point out, the U.S. is not entirely free of protectionist reflexes. Besides negotiating the "voluntary" restraint on cars, the Reagan Administration has imposed a 25% import duty on Japanese small trucks. As for the allegedly aggressive takeover of U.S. consumer markets, Yardeni admits succinctly, "Part of the problem is that the Japanese make awfully good products." Also, U.S. businessmen bring a few cultural barriers of their own to the bargaining, starting with their reluctance to become fluent in the language of their prospective clients. Jokes an official of the Foreign Ministry in Tokyo: "If you say all barriers must be eliminated, the Japanese would have to stop speaking Japanese."

Tokyo officials were expected to issue a conciliatory market-opening package early this week, the sixth in a series of unilateral trade-liberalizing measures that began in 1981. The advance word in the Tokyo press was that it would include a few modest steps aimed at mollifying U.S. critics, including the lowering of tariffs on U.S. semiconductors and plywood.

The U.S. trade dialogue with Japan will resume this week, when Foreign Minister Shintaro Abe is to meet with Secretary of State George Shultz in Washington. Talks will also continue at the technical level. But the next top- level trade event will be the seven-nation economic summit in Bonn beginning May 2, when Reagan will confer with the leaders of the major industrial democracies, including Nakasone. The President plans to make trade the main item on the agenda, calling for a new round of negotiations under the auspices of the General Agreement on Tariffs and Trade. Several lawmakers voted in favor of last week's House and Senate measures with the hope that Reagan, even though he did not support them, will be able to confront Nakasone with the dire prospect of U.S. retaliation if Japan fails to become a fairer trading partner. "A shotgun behind the door" was the way House Majority Leader Jim Wright of Texas described the Senate bill. Even if Reagan does not pull the trigger, he will surely have Nakasone's undivided attention.

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With reporting by Gisela Bolte/Washington and Yukinori Ishikawa/Tokyo, with other bureaus