Japan Stiffens Stance for Next Round of US Talks

JAPAN'S negotiators are emboldening themselves to say ``no'' to the United States in a decisive set of talks next week over economic and trade policy. Openly to oppose the US is not easy for many Japanese officials, and in fact, a common way to say ``no'' politely in Japan is simply to cross one's index fingers.

That gesture has lately become routine for Japanese officials when they are asked in private about the recent US ``requests'' to alter their economy for the sake of reducing the huge US trade deficit.

Finance Minister Ryutaro Hashimoto, an outspoken official who is seen as a neonationalist in Japan, was blunt enough, at least for a Japanese, to state, ``We will never surrender to US pressure.''

A key US demand - part of the talks in the Structural Impediments Initiative (SII) that will resume on June 25 in Tokyo - is for Japan to commit 9 to 10 percent of its gross national product (GNP) to spending on roads, parks, railroads, and other public projects during the next 10 years. Present spending is officially 6.3 percent of GNP, although some officials here say the figure may be closer to 7 percent.

The US-demanded increase would help bring Japan in line with its major trading partners on macroeconomic policy. But such a specific public-spending target is unacceptable to bureaucrats here, who want to retain ``flexibility'' in managing the economy.

Instead, they counter-propose that the government spend some $2.6 trillion over the next 10 years, but without specific percentage requirements. That aggregate amount, officials say, would nearly meet the US demand, although US officials disagree. And Yomiuri Shimbun, Japan's largest newspaper, reported Tuesday that the government plans to pad the total spending target with already planned projects, such as the new Osaka airport and the Tokyo Bay highway.

The US pressure for more public-works spending is aimed at an important audience in Japan, the politicians of the ruling Liberal Democratic Party (LDP), who rely on pork-barrel government projects to keep power.

By using the excuse of foreign pressure to spend more taxpayer's yen, many politicians are proposing big projects, such as new extensions for Japan's prestigious ``bullet train.''

An obvious neglect in government spending is the lack of sewers for many Japanese, as US officials often point out. The reputation for still having open sewers in many parts of the country, including even some areas of the capital, Tokyo, has embarrassed the government.

``Japan has not come up to the standard of the US or Europe in spending on social infrastructure,'' says Kazukiyo Higuchi, director of international trade research in the Ministry of International Trade and Industry.

The SII talks, which began last summer as an unusual way for each country to propose corrections in one other's economies, have helped the US to find allies among various groups of Japanese, from consumers who want the government to allow more big stores to young couples who want to reduce the cost of buying a home.

But the exercise has become a political confrontation, with politicians fearing adverse reaction abroad while fighting each other over how much to compromise with the US.

Prime Minister Toshiki Kaifu has tried to outflank some of his ministers. His latest move is a proposal to set up an ``import board'' in his office to deal with complaints by foreign business.

Both the US and Japan seek to conclude the talks with a mutually agreeable report by July 9, the start of the seven-nation summit of industrialized nations.

If the two sides fail to agree on major points, it could damage Japan's image as a friendly trading partner, and cast a pall over the multilateral trade talks of the General Agreement on Tariffs and Trade due to conclude by the end of the year. And with US congressional races heating up, Japan does not want to let the lack of a successful SII report become a campaign issue.

Japan already made broadly worded concessions on its economic policies and traditional business practices last April, just in time for an interim SII report.

But those promises were seen by many on the US side as an expedient step for Japan to beat an April 30 deadline set by the Super 301 provision of a 1988 US trade law. The US Trade Representative might have designated Japan as an ``unfair'' trading partner for a second year in a row and recommended trade retaliation.

Now that Japan has successfully avoided being tagged under Super 301, its leaders have mustered courage to tell US negotiators that they will not concede any more for the final SII report.

``We will not go beyond the interim report,'' says a Foreign Ministry official.

Anticipating such a move, top US economic officials have sent letters to their Japanese counterparts, urging them to break an impasse in the stalled talks. The last SII talks, held in late May in Hawaii, frustrated US officials, who accused the Japanese of stone walling.

But after Japanese Foreign Minister Taro Nakayama met with US Secretary of State James Baker last weekend in San Francisco, Japanese officials came away thinking the US might soften its demand on the infrastructure target.

Shintaro Abe, a top-ranking LDP politician, plans to meet with President Bush in Washington today. In the past, such high-level meetings have resulted in some breakthroughs.

Even if the issue of public spending is resolved, the US and Japan also differ over how to monitor Japanese compliance after the SII report is finished.