U.S. and Japan end trade talks with little agreement Despite divisions, accord predicted


TOKYO -- Two weeks of trade negotiations between the United States and Japan ended yesterday with sanctions being threatened in one area and sharp divisions evident in others.

"Japan's market does not operate like the markets of other industrialized nations," said Deputy U.S. Trade Representative Charlene Barshefsky. "We must see a fundamental shift."

A senior official with Japan's powerful Ministry of International Trade and Industry (MITI) countered, "The U.S. argument is fundamentally flawed and twisted."

Negotiators tempered their comments by predicting that accords will be reached by early next year, when President Clinton and Prime Minister Morihiro Hosokawa are scheduled to meet. But the two sides, trying to create a new framework for economic relations, appear to be separated by a vast gulf.

Japan, mired in a deep economic slump, is reluctant to cut exports or sacrifice domestic markets by broadening competition. Unemployment also has emerged as a threat, as an extended surge in the yen's value has prompted many manufacturers to shift production to cheaper labor markets.

Meanwhile, the yen's rise has boosted Japan's trade surplus, now running at a record $70 billion annual rate. With the U.S. economy barely expanding, and defense- and deficit-reduction efforts cutting federal expenditures, international trade has become a critical area for growth.

As trade talks remain deadlocked, related negotiations concerning Japan's construction market -- which were to be completed by Nov. 1 -- are most at risk. Access by foreign firms "has been and remains minimal," Ms. Barshefsky said, warning that sanctions would be instituted within weeks if Japan did not put forward a credible plan.

Tight relationships between Japanese municipalities and Japanese construction companies have sparked numerous bid-rigging and bribery indictments recently. Foreign companies are typically permitted to bid only on specified projects, and U.S. executives have complained that selection criteria often are unclear on those projects.

Yesterday, however, Prime Minister Hosokawa gave Cabinet members proposals to make the bidding process on government projects more open.

Negotiations during the past two weeks have covered autos and auto parts, insurance, telecommunications and insurance.

As part of the negotiations, the United States analyzed the market share that foreign companies hold in Japan and in other )) major industrialized countries.

Market penetration in Japan is not "remotely in the same range" in any sector, Ms. Barshefsky said. In Japan, the market share of foreign companies rarely exceeds 5 percent in these categories; in other industrialized nations, it's more than 20 percent.

Ms. Barshefsky also said agreements had been reached over the past eight years on other products, like glass, paper and super computers -- only to have the share of foreign products decline.

But negotiators from MITI called the U.S. market share data "simplistic." They argued that such data ignore vital supply-and-demand issues, including the strength of domestic suppliers and the effectiveness of foreign competitors.

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