A New Washington Awaits Hosokawa

WASHINGTON — When Japanese Prime Minister Morihiro Hosokawa arrives here for Friday’s summit with President Clinton, he is likely to find that the red carpet welcoming him has a very different hue than the one rolled out for his predecessors during the good old days of the Cold War.

The pomp and protocol will not be all that different, but the diplomatic overtones will. Hosokawa and his entourage of handlers from Japan’s powerful economic bureaucracies will find that the rules of engagement have changed in the long simmering dispute over U.S.-Japan trade relations.

Strategic allies or not, Americans are obsessed with their own “economic security” now, and they are redefining the linkage between trade and geopolitical security.

The shift in priorities is subtle and still largely beneath the surface of open policy pronouncements. But early warning signs portend a new mode of confrontation with powerful ramifications for the way the world will look in a decade or so, during the so-called Pacific Century.

No longer, in the post-Cold War era, does the threat of Soviet expansionism--or even North Korea’s nuclear brinkmanship--demand that America paper over its nettlesome trade disputes with Japan, the old bulwark against communist domino-tumbling in East Asia.

“The United States is no longer faced with the absolute need to trade off economic interests for security interests,” said W. Bowman Cutter, deputy director of the president’s National Economic Council and a key White House strategist on Asian affairs. “We have more discretion now.”

At stake is not just tension in ties with Tokyo. The old China card, long held up America’s sleeve in the showdown with Moscow, is all but forgotten now in an escalating clash between Beijing and Washington over trade and human rights.

Gone, too, is a benign tolerance for developing Asian nations’ tendency to emulate Japan’s brand of capitalism.

That model of mercantilist state guidance, many critics contend, has allowed booming Asian economies to prosper on exports while protecting home marketsand to take advantage of an open U.S. market while enjoying the benefits of an unconditional security umbrella.

Clinton articulated the evolving attitude on trade and security linkage when he complained about market barriers in a speech to the Asia Pacific Economic Cooperation (APEC) forum in Seattle in November:

“We do not intend to bear the cost of our military presence in Asia and the burdens of regional leadership only to be shut out of the benefits of growth that stability brings,” the President said.

It is open to interpretation whether his remark was intended as a veiled threat of military withdrawal--a kind of reverse saber rattling--or a simple plea for voluntary economic reciprocity.

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But the President’s message was perhaps intentionally vague.

No one has forgotten the blunder Jimmy Carter made in the late 1970s, when he threatened to withdraw U.S. troops from South Korea to push his human rights agenda. Carter’s gesture emboldened the volatile Communist regime in North Korea, which the CIA believes now has a nuclear warhead or two in its arsenal.

“We really are out there to defend American interests,” said a Pentagon official knowledgeable about Asia. “I don’t see us saying that if we don’t resolve trade barriers we’re pulling out. That’s shooting ourselves in the foot.”

Still, the U.S.-Japan security alliance--for more than four decades the cornerstone of America’s estimated $9 billion-a-year engagement in Asia--may come under mounting pressure if the public perception of economic unfairness grows, analysts warn.

“The problem is that bad economic relations with Japan are souring the rest of our relationship,” said Joan Spero, the State Department’s undersecretary for economic affairs. “We can’t continue to justify to the American people that we maintain these costly commitments without benefiting from the economic peace.”

It remains unclear whether Hosokawa can bring to Washington a significant package of results-oriented trade concessions, as the Americans demand. More likely, analysts predict, he will ask Clinton to take the heat off and help him keep his fragile, change-minded coalition in power.

But if tough-talking trade officials in the Administration prevail, the summit could become a benchmark in an unforgiving U.S. trade policy--never mind the political consequences for the reformist Prime Minister.

Ironically, the heat is rising in trade with Japan very soon after the Administration’s triumphal “triple play” in global trade initiatives late last year.

In November, Clinton pushed the North American Free Trade Agreement through Congress. Then he hosted the much ballyhooed summit of Asian leaders in Seattle, setting a tentative course for regional economic cooperation.

In December, cliffhanger negotiations gave a new lease on life to the global framework for free-market trade--the General Agreement on Tariffs and Trade.

But the new GATT agreement does not offer remedies for the most vexing problems of market access to Japan and other Asian economies, from South Korea to Indonesia, U.S. officials and trade analysts contend. Rather than erecting high tariff walls and quotas, these economies protect themselves with informal barriers.

That, supposedly, is why Japan--despite its ascendance as the world’s largest creditor nation--is surprisingly insular when it comes to foreign participation in its domestic economy.

Foreigners own less than 1% of all corporate assets in Japan and account for only slightly more than 1% of total sales there. In contrast, Japanese interests alone control nearly 5% of corporate America and account for nearly 17% of all U.S. sales, according to a recent study by David L. Asher, an analyst with the House Wednesday Group, a congressional forum.

Asher’s study, based on Japanese government statistics, finds that foreign penetration of the Japanese market is actually somewhat smaller today than it was 30 years ago, when Tokyo joined the Organization for Economic Cooperation and Development--where it remains an anomaly in terms of the scant foreign presence in its home markets.

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Seiichiro Noboru, economic minister at the Japanese Embassy, decries the proliferation in official Washington of this type of negative analysis of Japan, which he dismisses as “revisionism.”

Noboru, who will become consul general in Los Angeles later this month, recalled with chagrin an incident that illustrated the new American audacity during trade talks in Tokyo late last year.

A high-level U.S. negotiator, apparently frustrated by the lack of progress in the talks, denounced Japan as an “outlier” among advanced industrial nations. Noboru and his colleagues saw the remark as an insult, labeling Japan an international pariah, akin to Iraq.

“We understood the idea was that Japan is so different from other countries that if you don’t target it with sanctions, it won’t move an inch,” Noboru said. “That idea hurts the (Japanese) people.”

Indeed, the Clinton Administration appears to have been influenced widely by so-called revisionist critics of the Tokyo government who assert Japan is hardly the champion of free-market economics it professes to be--and therefore must be treated differently than, say, Britain or Italy.

Treasury Secretary Lloyd Bentsen echoed this view as he ended his visit to Tokyo last month, branding Japan as “out of step.”

“It’s an untenable situation,” said Robert E. Rubin, head of the National Economic Council and the Administration’s principal coordinator for domestic and international economic policies. “In the long run, you are not going to solve U.S. trade deficit problems unless you have access to these markets.”

The fundamental problem is Japan’s “broadly held mercantilist perspective,” Rubin added. “For whatever the reason, they have deeply embedded ways of doing things.”

The major bone of contention is Japan’s trade surplus with the United States, which has risen inexorably from $17 billion in 1982 to $50 billion in 1992.

The trade gap is expected to hit a record $59 billion , when last year’s figures are compiled--despite a jump in the value of the yen that theoretically should make Japan’s products more expensive and less competitive abroad.

Automobiles and auto parts alone account for some three-quarters of the bilateral imbalance, which is why U.S. negotiators are seeking to pry open markets for foreign automotive products.

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But if there is a focus in the current round of U.S.-Japan “framework” negotiations, it is the question of “objective criteria.” The issue: How can both sides agree to measure improved market access and monitor progress in bringing down Japan’s stubborn trade surplus?

From this point, the framework talks take on the ethereal quality of a theological debate.

The U.S. side is asking Tokyo’s influential bureaucrats to use their powers of informal “administrative guidance” to coerce the private sector into importing more American goods. Japanese officials say that is impossible, arguing they no longer have the “government reach” to manipulate imports in the same way they planned and guided Japan’s export machine in years past.

The Japanese side takes the moral high groundat least in the eyes of its own publicby rejecting American demands for market access as “managed trade” that violates the spirit of GATT.

Ultimately, this abstract exchange comes down to earth with the bogyman of economic sanctionsand the question of whether the Clinton Administration is posturing or really intends to strike out to enforce its point of view.

Japanese negotiators have categorically rejected the use of “unilateral actions”--a euphemism for sanctions--and vowed to suspend talks if things come to blows. The U.S. has refused to assuage Japanese nerves by ruling out the use of sanctions if the talks fail, or if trade promises are not kept.

“We’re not going to disarm,” said Spero, the State Department official. “I think the Japanese are very concerned about that.”

Yet the idea of imposing sanctions under existing trade lawsnamely Section 301, a provision that empowers the President to assign punitive tariffsis a subject of great controversy.

It is debatable whether such a bludgeon would effectively break down the entrenched mind-set that obstructs market access to Japan--or merely reinforce it.

Moreover, sanctions could hurt American business interests at home, where Japanese companies are tied deeply into the economy. (Japan held $96.7 billion in cumulative U.S. direct investment--from auto plants to office towers to bank portfolios--at the end of 1992, putting it ahead of Britain as the largest investor nation.)

“Five years ago, it was easy to retaliate. But today, because of economic integration and strategic business alliances, a lot of U.S. interests are going to be hurt,” said William T. Archey, senior vice president at the U.S. Chamber of Commerce. “And they’ll be in the front of the line to complain.”

Beyond tariff sanctions, few forms of leverage are available. Pundits discuss downgrading airline landing rights, denying privileges to bid on federal public works projects or prosecuting Japanese multinationals under tax and antitrust laws. But such tit-for-tat retribution smacks of protectionism, and risks igniting a trade war.

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In the final analysis, is the new breed of trade warriors in the Clinton Administration merely bluffing--pretending to play hardball, but without a real bat?

Not so, said Rubin, the White House economic field marshal.

This time things are really different, he said. There will be no backing away to protect a friendly prime minister in a jam, no soft peddling because the Japanese economy is in a slump.

“This trade situation has gone on for well over a decade,” Rubin said. “Each time we try to deal with it, there’s another reason not to deal with it. We need to be sensitive to their political problems, but we also need to get things done.”

The Clinton-Hosokawa Summit

Japanese Prime Minister Morihiro Hosokawa arrives in Washington on Friday for a summit meeting with President Clinton. Here are the agendas that each leader is expected to bring to the negotiating table:

What Clinton will be telling Hosokawa:

* There must be objective criteria to measure improvements in market access for a variety of foreign products and services, especially in the automotive sector.

* Quantitative targets are necessary to assure the reduction of Japan’s massive bilateral and global trade surpluses.

* A significant package of income tax cuts and public works spending is needed to boost Japan’s domestic economy and promote imports.

What Hosokawa will be telling Clinton:

* The Japanese government does not have the “administrative reach” to force the private sector to import more foreign products.

* Quantitative targets are tantamount to “managed trade,” which violates the spirit of the General Agreement on Tariffs and Trade and makes Japan vulnerable to punitive sanctions.

* Japan, doing its “utmost” in an unstable political environment, is still considering a $130-billion domestic stimulation package, even after Hosokawa’s $49-billion proposal had to be abandoned.