Japan to Reagan administration: be 'patient' on defense, trade issues

As the incoming Reagan administration begins evolving its policy toward Japan , a top Foreign Ministry official here offers these thoughts on the key issues: * Defense. "No one argues about the need for more dedense spending. We want to [spend more. Despite US disappointment] the fiscal 1981 budget will make a big dent. We understand American concerns and have no quarrel with them. . . . But [the US] must be patient."

* Trade and economic friction. "There is bound to be such friction, because, although we are political allies, in the trade and economic sectors we are competitors. What we have to do is avoid these frictions becoming political footballs."

Newspaper headlines to the contrary, US-Japan relations overall were good in 1980 and will continue to be so in 1981, argues Deputy Foreign Minister Kiyoaki Kikuchi.

The career diplomat, who spent some years in Washington, specializes in the economic aspects of Japan's policy. (Another deputy foreign minister deals with purely political questions, although, obviously, these days there is considerable overlap.)

In a wide-ranging interview with this correspondent, Mr. Kikuchi spoke of Japan's growing international role, arising from the self-confidence generated by its undisputed economic power, and the new awareness of the Japanese people on the need for self-defense.

"Our position is that the United States is no longer the supreme power in the Western world. Moreover, it has new responsibilities, for example, in the Middle East.

"So, in view of its economic strength, Japan at least can save the US from allocating forces to protect this country [as it is obligated to do under a mutual defense treaty] which can be diverted to other areas."

He acknowledged US disappointment that the government's projected 1981 budget calls for a 7.6 percent increase in defense spending, rather than the 9.7 percent increase favored by Washington.

Mr. Kikuchi explained that there are, in fact, two budgets. The main one is funds for immediate disbursement. But in reserve, there are substantial funds the government is obligated to borrow when necessary -- in this case, to pay for a new generation of surface-to-air missiles.

"If you take hardware alone, our actual spending will increase 17 percent."

The biggest problem, says tge Foreign Ministry official, is that over 50 percent of the military budget goes on personnel costs, since Japan is reported to have the world's highest- paid soldiers.

"If an increased budget merely goes on personnel salaries, there is no real improvement. No prime minister has objected to extra money to improve hardware. . . . [The 1981 budget] has made a dent in this.

"But it is a long-term thing. So if the Americans don't understand this, I think they are asking too much."

Mr. Kikuchi also stressed domestic considerations. The Suzuki government is committed to restoring fiscal integrity -- ending a system whereby, in recent years, up to 45 percent of the budget has been funded by government bonds.

The prime minister's first budget calls for an approximate $7 billion increase in tax revenue.

Mr. Suzuki, as the country's new leader, could not politically defend the massive tax increase if he boosted defense spending too fast at the expense of social welfare, it is being argued.

Chief Cabinet Secretary Kiichi Miyazawa has claimed that to do so would have destroyed the fragile national consensus, painfully built up in recent years, on the need for greater self-defense efforts.

"[The prime minister] cannot pursue two rabbits at the same time," argues Mr. Kikuchi. "This time he could get the tax increase approved, which will create a bigger budget next time.

"We want to increase defense spending. Mr. Suzuki wants to double our foreign aid in the next five years as part of his per idea for comprehensive security, transcending mere military power.

The Japanese diplomat was unhappy at the way that trade and economic friction between the two countries had become entwined in the 1980 US presidential election.

"Although we are allies, there is no doubt that in the trade and economic fields we are competitiors. So if the United States asks us to moderate our exports to the American or third-country markets, because Americans are less competitive, then we simply say no.

"They cannot ask us to moderate our competitive edge just because we are political allies. Last year was unfortunate because the economic and trade issues became involved in the presidential election, where they had no place. There is no call for us to, say, restrain exports simply to improve the chances of a candidate to stay in office. So, last year we didn't do anything. A few small things, but we made no agreements to restrain exports, because we are sure we are not doing anything wrong."

Commenting on the worrisome issue of mounting US presure to curb imports of Japanese cars, the deputy foreign minister said that historically such campaigns had always had the reverse effect of what was intended.

"It's silly to raise such a cry. The moment you do, Japanese companies tend to rush to make shipments to beat an expected deadline. It's an invitation to more and more exports."

The diplomat sees a certain illogic in some of the charges being leveled against Japan.For instance, the image of a government-business combine typified by "Japan Inc.," which has so bothered Americans, is no longer true here, he says. On the contrary, the United States seems more and more to be "US Inc." Japanese government subsidies to private companies for research and development are dropping rapidly, while in the US government subsidies are increasing.

And though they criticize the concept of "Japan Inc.," Americans want it to operate for them, when, for example, they desire the Tokyo government to restrain exports.

In fact, argues Mr. Kikuchi, the famous "adiministrative guidance" operated by the Ministry of International Trade and Industry is virtually ignored these days, because the government no longer has much leverage. (For example, major car companies no longer need loans from government- backed banks as they once did.)

The official urged Americans to look at the overall performance of the Suzuki government. The prime minister's forte, he says, is domestic affairs, and he is trying to do domestically what previous Japanese leaders have been unable to do: tackling the massive deficits being run up by government entities such as the food agency (massive rice subsidies to farmers) and the ailing Japanese National Railways.

If he achieves his domestic goals, this will, it is argued, strengthen him politically to the point where he can take important steps internationally that will pl ease the United States and other major allies of Japan.