After 15 months of broadsides that thoroughly roiled the world's financial markets, American and Japanese trade negotiators have come up with a "partial agreement" that scarcely justifies the whole tumultuous exercise. The accord hinged on obscurantic wordage that both sides immediately began to reinterpret for domestic political advantage. Japanese newspapers described the pact as tama-mushi-iro, the name of an insect that changes colors according to the angle from which it is viewed.
Part of the problem is that the Clinton administration has taken a mildly protectionist stance toward Japan in order to offset its overall free-trade policy in pursuing a North American Free Trade Agreement and the pending deal to liberalize the 123-nation General Agreement on Tariffs and Trade. If GATT is to survive the latest protectionist assault in Congress, U.S. and Japanese negotiators had to signal some progress. It was also helpful to the shaky Tokyo government.
In sectoral terms, the Americans apparently achieved greater access to Japanese markets for insurance, telecommunications, medical equipment and flat glass, but past experience would suggest not popping the champagne until the results are in. To gain these concessions, the U.S. side once again had to postpone its efforts to sell more vehicles and auto parts into the tightly controlled Japanese market. It was not a terrible defeat. U.S. automobile companies are going flat out just to meet domestic demand, and their efforts to export replacement parts have been feeble at best.
It was in the area of trade policy -- philosophy if you will -- that this latest U.S.-Japanese skirmish perhaps produced results. The Americans abandoned most of their attempts to set quantitative goals for exporting to Japan, a stance that Tokyo rightly described as a form of "managed trade." Instead, U.S. trade representative Mickey Kantor settled for satisfactory "trend" lines. The U.S. also moved away from attempts at bilateral accommodations that could injure other countries, supporting instead a multilateral approach in keeping with the spirit of NAFTA and GATT.
As for financial markets, there was wide relief that a trade war between the world's two largest economies had been averted. Had the talks failed, as they did last February, observers feared the yen would go up and the dollar down, thus exacerbating an inflation threat in this country and hindering Japan's incipient recovery. In the end, what really matters is whether the world economy continues its expected improvement while restraints on trade are lowered on a global basis.