US-Japan Trade War Averted, but Auto Dispute Still Looms

THE high drama surrounding trade talks between the US and Japan ended Saturday, with all of the key players claiming marked progress after 15 months of negotiations.

Japan, trying to shed its image as a recalcitrant trading partner, credits itself with taking steps to liberalize its markets and avert an all-out commercial war that could have sent global financial markets into a tailspin. The United States contends that its tough stand produced hard-won concessions amounting to billions of dollars in future American exports.

The negotiators scrambled to reach an accord before the Sept. 30 deadline when dreaded US sanctions were to take effect. Last week's flurry of meetings - within days Japanese policymakers made two trips to Washington and back - reflected the intensity.

Mr. Kantor, poised to impose trade sanctions against Tokyo, instead announced bilateral accords to broaden US access to some of the most robust markets in Japan: insurance and government procurement of telecommunications and medical equipment.

An agreement in principle was also reached to lower barriers to foreign sales of flat glass, a $4.5 billion market in Japan. But there was no deal on autos and auto parts, which represent 60 percent of the $60 billion trade deficit with Japan. On Saturday, the US issued a new threat of punitive action if Japan does not permit the sale of US replacement auto parts, starting a new 12- to 18-month round of negotiations.

Most trade watchers were surprised by the progress. The new deal ``demonstrates that you can be firm with Japan without dealing a blow'' to the already skittish financial markets, says Clyde Prestowitz, president of the Economic Strategy Institute.

``Maybe we're reaching a more mature relationship with the Japanese,'' says Mr. Prestowitz, who counseled Kantor to take a ``results-oriented'' approach.

But Andrew Card, president of the American Automobile Manufacturers Association criticized the deal.

``We are disappointed because the auto sector - autos and auto parts - represent the majority of the trade deficit problem.'' Kantor's threat of sanctions if Japan fails to make measureable progress in opening to ``after-market'' auto replacement parts shows he is serious about seeking ``quantifiable measures of success,'' Mr. Card says. But after-market sales represent just 1 to 2 percent of the overall US trade deficit with Japan, he warns.

Prestowitz cautions against looking at the problem this way. More important, he says, is to affect change in the way Japan consumes.

Today, he adds, the after-market parts sector ``is totally government controlled with huge subsidies to automoile manufacturers. After market parts are 50 percent to 300 percent more expensive in Japan than anywhere in the world.''

Card, who has blasted Japan for stalling discussions over market access and backsliding on previous commitments to the US, is nonetheless buoyed by progress in other sectors ``that shows the Japanese government is finally acknowledging quantitative measures'' to open markets. ``The only way to measure success is how the Japanese consumer is allowed [by its government] to make purchases.''

Economist Jeffrey Frankel, a senior fellow at the Institute for International Economics, stresses that while sector-by-sector gains are desirable, they do little to alter the bigger picture. The trade deficit, expected to reach $61 billion by the year's end, ``is a macro-economic phenomenon,'' Mr. Frankel says.

Three elements will probably act simultaneously to reduce it:

*Japan's continued economic recovery and its stronger import power.

* The effects of appreciation of the yen (which makes Japanese exports more costly).

* Rising commodity prices boosting Japan's import bill.

Looking ahead to 1995, Prestowitz projects that the US trade imbalance with Japan won't budge. But the past week's recent developments will keep the deficit from growing, he says.