Japan-U.S. trade, defence at issue

Press, 19 July 1983, Page 20

Japan-U.S. trade, defence at issue

From BRUCE ROSCOE, in Tokyo

Tokyo and Washington appear set on a collision course over trade and defence issues that threaten to mar President Reagan’s visit to Japan in early November. Mr Reagan’s visit, the third to be made officially by a United States’ President, was announced in Tokyo late last month while ballots were still being counted in the Upper House election which gave the Prime Minister, Yasuhiro Nakasone, an absolute majority of seats held by his Liberal-Demo-cratic Party. While the victory gives Mr Nakasone a stronger grip on the legislature, however, there are early warning signs that he may not be able to use this to advantage in settling pending bilateral trade issues before Mr Reagan arrives.

For one, the Japanese Minister for Agriculture, Forestry and Fisheries, Mr Iwazo Kaneko, emerged from a Cabinet meeting on the same day President Reagan’s visit was announced to tell a press conference that: “I don’t see there

is any current need to expand import quotas (for farm produce). I still believe that we will import only when demand outstrips domestic supply.” The Minister’s resoluteness on the farm produce import wrangle indicates that the Japanese farm lobby has been doing a good job. It also shows that the calls Mr Nakasone made for “free trade” earlier last month at Williamsburg may have been, at least in part, a gesture. The New Zealand Government has had a set of agricultural trade requests before the Japanese Government for more months than New Zealand officials in Tokyo care to count. The extent to which the North Americans break Japanese trade barriers will serve as a direct indicator of how much access to Japan’s farm market New Zealand stands to gain. Japanese trade officials expect that the Reagan Administration will feel compelled to make pressing demands for the liberalisation of several touchy farm products,

such as oranges and beef, before November. The Reagan visit comes, the officials note, on the eve of next year’s presidential election, and the President is expected to use it to beef up his image at home as a protector of United States’ farm interests. This would also have the effect of taking the wind from the sails of Democratic presidential hopefuls who have sharply attacked the protectionist policies of major trading partners, in particular Japan. Considering, however, the relative buoyancy of the Japanese economy and high current account surpluses, Mr Reagan’s visit is well timed. Japan will find it difficult to ignore arguments for genuinely free trade in view of the SUSB.S billion trade surplus is has chalked up with the United States in the first five months of this year.

Moreover, according to the Finance Ministry, the possibility is growing that the current account surplus this fiscal year, which began in April, will exceed an official projection of SUS 9 billion. Some business interests have forecast that the surplus could even top SUS2O billion.

A dominant reason for this surplus is that Japan’s global imports have been consistently declining. In May, imports fell 12.7 per cent to SUSB.77 billion, the sixteenth consecutive monthly drop since February, last year. This resulted in a trade surplus of ?U52.708 billion for the month, which compares to a surplus of ?U52.755 billion for April. Japan, therefore, ought. to be well positioned economically, though perhaps not politically (because of the farm lobby’s pull with the Liberal-Democratic Party), to acquiesce to demands of the Reagan Administration that it lift import restrictions on at least 22 farm items which, in any case, are relatively low-value imports. Japanese Government sources indicated that Mr Nakasone’s Administration would, in fact, assemble a further package of marketopening steps, which would be hammered out after bilateral working-level trade consultations to be held in Washington this month.

Though it is likely, on the evidence of the previous series of such packages, that the measures will seek to skirt the products that concern Washington most, while offering deals on others that mean less, trade analysts predict that, one way or the other, Mr Nakasone may be forced to take a political decision on import expan-

sion favourable to the United States for the sake of a harmonious visit. The other key issue, defence, offers less promising prospects. The chief of the Defence Agency, Mr Kazuo Tanikawa, already reportedly has said that Japan will make “no commitment” at the regular consultations between both nations’ defence officials in Washington, also this month. The talks are expected to canvass Japan’s supply of arms technology to the United States, as well as efforts to provide more for its own defence, a large part of which is still the responsibility of the United States under the bilateral security treaty.

The presidential visit is set just before the Finance Ministry sits down to compile the fiscal 1984 budget. Mr Nakasone has vowed to continue the policy of pinning the defence budget down to less than one per cent of gross national product. The Ministry has set a ceiling on defence expenditure in 1984 of 7 per cent, or about ?USBO2 million, more than this year’s outlay of about $U511.62 billion.

While the Defence Agency already has committed itself to spending SUSB43 million more than its expected appropriation next year, it may not be able to keep the commitment in view of the Government’s pledge to slash public spending amid an expected over-all budget deficit of about 1U521.09 billion. Hence, on the surface, there is no good reason to believe that Mr Nakasone, despite his openly personal hawkish leanings, will be able to accommodate Washington’s wish for more military spending. Japan is undertaking a fiveyear, ?U567.51 billion defence build-up that intends to provide for its own defence of sea lanes out to 1000 nautical miles from its coasts and is to be completed in 1987. For Mr Nakasone to go beyound that programme would put him at grave risk of falling out of step with national consensus on the need to proceed cautiously on defence and, more important, to keep military might within the bounds of the peace constitution that denies Japan the right to belligerency.