The U.S. has turned up the trade heat on Japan at a time when Prime Minister Morihiro Hosokawa’s grip on power is looking more and more tenuous.
How Hosokawa responds to the laundry list of foreign and domestic challenges he will face over the next month-each with a late-January deadline-will go a long way toward determining whether the reform wave of 1993 will turn out to have been a major turning point in postwar Japanese history or merely a footnote in the long chapter of indecisive Japanese politics.
High U.S. officials recently renewed demands that Japan conclude a new “framework” agreement for bilateral trade between the world’s two largest economies before Hosokawa visits Washington in mid-February. The U.S. is seeking measurable progress in reducing Japan’s trade surplus.
Jeffrey Garten, U.S. undersecretary of commerce, called the new trade accord the top U.S. trade priority for 1994, while Secretary of State Warren Christopher dismissed the notion that Japan’s internal political situation was an excuse for not reaching a new pact.
But, excuse or not, Japan’s domestic politics will take center stage for Hosokawa and the seven-party coalition cabinet after the long New Year holiday. He faces a Jan. 29 deadline, when parliament recesses, for passing critical domestic reforms, which range from changing Japan’s scandal-plagued politics to providing a boost to its depressed economy.
Thus preoccupied, the politicians will have little time to devote to the trade talks. That will leave the field to the hard-nosed bureaucrats at the Ministry of International Trade and Industry, known as MITI, and the Foreign Ministry, who remain adamantly opposed to key proposals put forth by the U.S. side.
U.S. negotiators are fond of pointing out that many of their demands for opening up Japan’s economy would actually help Hosokawa achieve his long-term vision of deregulating the economy, creating new business opportunities and making Japan more consumer-friendly. And many top coalition politicians seem to agree.
“Rather than see this as being pushed by the U.S., we should impress on the people of Japan that their standards of living will improve and the trade surplus will decrease through the process,” said Foreign Minister Tsutomu Hata, who left the Liberal Democratic Party to form the Japan Renewal Party, the second-largest party in the coalition, last June.
But that thinking isn’t making much headway among the bureaucrats, whose careers are intertwined with the corporate special interests they successfully promoted throughout Japan’s high-growth era. Many of the U.S. demands attack the picket fence of regulations erected around those corporations over the years.
Most outside economists and key intellectual leaders of the Hosokawa reform coalition agree that those regulations, which were designed to keep out foreign competition and promote domestic manufacturing, made sense when Japan was trying to catch up with the West. But now they only frustrate the creation of new domestic industries and Japan’s transition to an information-age economy.
On the other hand, many bureaucrats, the protected industries and a hefty portion of the Japanese public don’t see the wisdom of dismantling the regulations. They fear it would only lead to economic dislocation and unemployment-not something they wish to see imported into Japan.
The struggle between the politicians and the bureaucrats has erupted into open warfare. A well-publicized effort two weeks ago by the Hosokawa-appointed MITI minister to fire a high-ranking trade negotiator provoked the threat of a mass resignation within the ministry. The flareup suggested the politicians have a ways to go before they gain the advantage over the bureaucrats.
Meanwhile, internal contradictions within the reform coalition are making domestic political changes as problematic for the prime minister as the trade talks and deregulation are. His political skills will be tested severely until the end of January.
Political observers in Japan are giving Hosokawa a 50-50 chance of following through on his pledge to restructure Japan’s scandal-plagued electoral system. He has said he will resign and call new elections if electoral reform fails.
The chief roadblocks to political reform appear to be within his own coalition, which has splintered over the issue after Japan was forced to open its rice market in early December to satisfy the conditions for a new General Agreement on Tariffs and Trade. Most members of the opposition Liberal Democratic Party, always dependent on the disproportionate power given to farm voters under the existing system, remain opposed to reform.
But the Social Democratic Party of Japan, which has the largest bloc of votes in the Hosokawa coalition, also is skeptical of reform, and for the same reason. Many socialists come from non-urban areas and win their seats in parliament with the votes of hard-core supporters in rural, multiseat districts that would be abolished by political reform.
On the issue of a new economic stimulus package, the Liberal Democratic Party, which ruled Japan for 38 years, is finally starting to find its voice in its new role as opposition party. Playing on the economic fears that have gripped Japan, party President Yohei Kono this week vowed to bring down the government if Hosokawa failed to come up with a large enough tax cut.
Here again, Hosokawa is being hamstrung by the bureaucracy. He wants to cut income taxes, a measure that is being encouraged by the U.S. But the powerful Ministry of Finance bureaucrats insist that it be accompanied by increases down the road in the national sales tax. That would alienate the more liberal members of the reform coalition.
New trade demands were the last thing Hosokawa needed thrown into the bubbling cauldron. Yet when the U.S. Commerce Department reported this week that the U.S. share of the Japanese semiconductor market slumped to 18.1 percent, trade officials demanded a new round of talks on the issue.
A trade accord signed in 1986 called for the U.S. to gain 20 percent of the Japanese semiconductor market by the end of 1992, and for one quarter in 1993 it actually topped that mark. This “benchmark” approach for measuring progress is seen by the U.S. side as a model for the framework talks, in which autos and auto parts, insurance, medical equipment and government procurement, especially of computers and telecommunications gear, have been thrown on the table.
The last thing the U.S. side wants to see is slippage in the one area in which benchmarks were achieved. “The rate of progress has not been what we had hoped for,” Christopher said. “There are perhaps a number of internal reasons in Japan relating to their political situation, but that does not in any way diminish the need . . . for us to see solid progress” in reducing the U.S. trade deficit.
Japan’s trade negotiators in the bureaucracy reacted to the new U.S. demands with unusual truculence. They asserted that a 20 percent target for 1993 was not included in the semiconductor accord and said that U.S. insistence on rigid adherence to formulas would heighten their resolve to avoid signing a similar agreement in the future.
