Commentary: The Japan That Gets Away With Saying No To America

As Japan's economy recovers, Tokyo's trade bureaucrats are getting more and more cocky. Despite U.S. demands for action on insurance, semiconductors, and film, the Japa-nese believe they are operating from a position of strength and that they have the Clinton Administration tied in knots. A crucial signal came in March, when Yoshihiro Sakamoto of the Ministry of International Trade & Industry proclaimed: "The era of bilateralism is over." His meaning is becoming clear: The Japanese perceive they no longer have to bend to American pressure.

One reason the Japa-nese can take this position is that President Clinton is claiming victory on the trade front as part of his reelection drive. There has undeniably been some progress, as retailers such as Gap Inc. and medical equipment suppliers make headway in Japan. But progress is much less than it appears. U.S. auto exports surged largely on the basis of reverse imports from Japanese transplant factories. Gains by the Big Three in Japan are decidedly modest. Overall, America's shrinking deficit owes more to currency shifts and the sharp increase in overseas manufacturing by Japanese companies than to opening markets.

CATCH-22. After November, it's possible that Bill Clinton or Bob Dole could choose to get tough again with Prime Minister Ryutaro Hashimoto's government. But the Japanese have an ace in the hole--the World Trade Organization. The WTO bars its members from taking unilateral actions such as the sanctions prescribed by Section 301 of U.S. trade law. But it doesn't cover the subtle barriers that often keep foreigners out of Japan: cozy governmentindustry ties, inaccessible distribution systems, and a "Buy Japanese" mentality.

No matter what spin the Administration decides to place on it, referring Eastman Kodak Co.'s complaint over access to the Japanese market to the WTO is highly unlikely to yield much satisfaction for Kodak. "The WTO does not protect the U.S. from Japanese trade violations but does protect Japan from any attempt by the U.S. to protect itself," says leading Japan critic Chalmers A. Johnson. Nor are the Americans likely to achieve their goals in renewing a semiconductor accord in talks scheduled for late June.

In retrospect, the 1995 automotive talks were a defining moment. After all, the U.S. threatened to impose sanctions on cars but then settled for a deal that encouraged the expansion of Japanese transplants more than it opened the Japanese market to Detroit. Laments a U.S. executive in Tokyo, "I don't see how we'll regain leverage now."

The U.S. certainly has leverage, if it's willing to use it. American membership in the WTO is important to Japan, and Washington could use a threat to withdraw that as negotiating leverage. There's also the U.S.-Japanese security arrangement, but the Americans refuse to attempt to play that card for trade gains. In April, Clinton came to Tokyo offering to close down Futenma Air Station to ease the opposition to the American military presence. That gift boosted Prime Minister Hashimoto's standing at home, but President Clinton got nothing in return. Now, certain U.S. negotiators are privately seething about what one of them calls Tokyo's "lack of gratitude."

But the Japanese response to weakness is to take advantage of it. That helps explain their recent backtracking in insurance. Foreign insurers have long been kept out of Japan's primary life and nonlife insurance markets, being allowed to compete only in the tiny personalinjury segment, less than 5% of the total market. In 1994, the two countries agreed that deregulation should proceed in the broader markets so that foreigners could get slices. But Japan's latest law does just the opposite, by opening the small sector to Japan's major life insurers. "The word `agreement' has lost its meaning," says former International Trade Commission chair Paula Stern.

Given the ebb and flow of trade disputes with Japan, some experts argue that the U.S. won't let Japan slide forever. "This is just a temporary lull," Stern says. Unfortunately, the current bumbling and inconsistency will weaken America's position in the long run. Any future Administration will have to expend huge energy and political capital to regain credibility with Japan's ministries. And it's not just Japan's mature and difficult market that's at stake. All of Asia is watching and learning, too.

    Before it's here, it's on the Bloomberg Terminal.