Japan: emerging focus of regional trade crisis. `Just about everyone is screaming about it'

Japan's East Asian trading partners watched intently as the seven leading industrial democracies held their annual economic summit in Tokyo this week. No region is more aware of the need for an overhaul of Japan's protectionist trade practices. Yet nowhere, it seems, is there more pessimism about the potential for swift or substantial change.

``The trade crisis is becoming acute around the region, and Japan is increasingly the focus,'' says one prominent economist in Malaysia. ``Just about everyone is screaming about it.''

In some respects, the issues for East Asia are the same as they are for Tokyo's Western allies. Japan's trade surpluses with many of its neighbors are chronic, and many products from the region are unable to compete in the Japanese market. Deficits were reduced only modestly last year, while some continued to climb.

Just as important, less-developed Asian nations are becoming sharply critical of Japan's refusal to share its technology with them. Neither trade nor investment from Japan, these nations say, carries with it the long-term benefits needed to develop their own economies.

A sense of alarm is now apparent. China's $6 billion deficit with Japan last year -- almost five times the previous year's level -- recently prompted widespread domestic protests and criticism of Peking's economic reforms. In South Korea, officials said last week that they expect their deficit with Japan to grow by a third this year, reaching $4 billion.

Both of these nations -- and many others in the region -- are now trying to find new suppliers for their imports. Last week, for instance, a British firm was given a multi-million-dollar contract to modernize a South Korean steel plant originally built with Japanese technology. The contract was announced by British Prime Minister Margaret Thatcher, who visited Seoul en route to the Tokyo summit.

Other nations have reacted more severely to the deficit problem. Taiwan maintains a blanket ban on the import of Japanese cars. Without warning several years ago, the island-nation issued a list of more than 1,500 consumer products that Japan would no longer be permitted to market there.

Taiwan is one of the few Asian nations to gain some degree of control over its trade deficit with Japan. But Taiwanese officials still cite Japan when explaining their reluctance to relax their own import barriers.

The region's dependence on Japanese goods reflects, in part, Japan's traditionally aggressive marketing practices and the heavy emphasis Tokyo places on aid donations in the region.

More immediately, Japanese products are better engineered for the Asian environment. ``We want to diversify away from Japanese technology,'' says a South Korean executive. ``But the hard fact is that it's better for us. At home and on the factory floor, Japanese products are preferred.''

The issue also has an emotional dimension -- as the recent unrest in China demonstrated. Throughout the region, there are vivid memories of Japan's economic and political expansion before and during World War II. The aim was to secure markets for Japanese products and sources for raw materials. Charging Tokyo with ``economic colonialism,'' many nations assert that Japan's goals are much the same today.

Even nations with surpluses in their trade with Japan complain that most of their exports to the Japanese market are commodities such as timber, rubber, oil, and gas -- not manufactured goods. For both Indonesia and Malaysia, for instance, petroleum accounts for almost their entire trade surpluses with the Japanese.

Japanese officials explain this problem by citing their nation's high-quality standards and the Japanese consumer's taste for either domestic or European products. In one form or another these same arguments have been used against US manufacturers.

But, say analysts, there is an irony in Japan's management of its economic relations with its neighbors. Critical of the US and Europe when imports of Japanese products are restrained, it imposes similar restraints on the same products made by its Asian competitors.

Two years ago, for example, Japan fought hard before accepting voluntary quotas on its steel exports to the US. But it had already launched an unofficial effort to limit its imports of South Korean steel, according to diplomatic sources in Japan.

Many analysts say Japan's long-term concern in its relations with other Asian nations is the threat of future competition. It fears that technology transferred to its neighbors will help create industries that will eventually rival its own. Reflecting such worries, Japanese industries generally sell only less-advanced technologies to countries such as South Korea and Taiwan.

Alternatively, the licensing agreements which allow for technology transfers often include clauses prohibiting exports for several years after a contract is signed.

Ironically, trade pressure exerted on Japan at the Tokyo summit this week is not likely to benefit most Asian nations. If Japan is forced to accommodate exports from its advanced allies -- as well as China -- the Japanese market may become even more tightly closed to nations with less political clout.

More fundamentally, economists say that as the Japanese economy grows in sophistication, it requires fewer imports of the raw commodities its Asian trading partners have to offer. Japan is already renegotiating contracts for natural gas supplies that were signed several years ago, for instance, because it simply does not consume as much as it once did.

In the short term, some government officials in Asia say the increasing strength of the Japanese yen may encourage more Japanese purchases from the region. But unless Japan's neighbors control their purchases of Japanese goods, the yen's rise may worsen already stubborn trade deficits.