Trade pact reached by U.S., Japan


WASHINGTON -- The United States and Japan struck a last-minute trade deal on autos and auto parts yesterday, narrowly averting President Clinton's threatened 100 percent tariff on Japanese luxury cars -- and the messy trade war that might have followed.

"This breakthrough is a major step for free trade throughout the world," Mr. Clinton told reporters at the White House only hours before his tax on Toyota's Lexus, Honda's Acura and 11 other high-end Japanese models would have kicked in and caused immediate hardship for U.S. dealers that sell those cars.

The president outlined the mere basics of the deal, reached in Geneva by U.S. Trade Representative Mickey Kantor and his Japanese counterpart, Ryutaro Hashimoto:

* Japan agreed to lower barriers to American-made cars by adding 200 U.S. car dealerships next year and 1,000 over the next five years.

* Japan pledged to buy more U.S. auto parts, both in Japan and at its plants in the United States. Mr. Clinton estimated that those purchases would rise by $9 billion, or 50 percent, in three years. Only 2.6 percent of auto parts bought in Japan are imported, compared with 32.5 percent in the United States.

* Japan announced that its automakers would expand production of American-built Japanese vehicles by half a million more by 1998, an increase of 25 percent.

"For over 20 years, presidents have tried to fix this problem without success," said Mr. Clinton, who has made expansion of U.S. trade the centerpiece of his foreign policy. "This agreement is specific. It is mea-surable. It will achieve real, concrete results."

Neutral trade experts said that the final results won't be known for a while, but this much was clear: Both sides, especially the United States, had made key concessions.

For starters, yesterday's agreement lacks the binding, government-required "numerical targets" on trade that Mr. Kantor had argued were necessary to measure progress in opening Japan's home markets. The Japanese had denounced the United States for insisting on "quotas" and said such an approach would have constituted "managed trade."

Yesterday's agreement does include numbers, but they are voluntary. There do not appear to be legally binding requirements on Japan's government or auto industry.

In addition, although Mr. Clinton made much of it, Japan's big automakers had already decided to expand their North American production before this agreement was reached. They do not need Washington's approval to do so anyway.

For those reasons, the agreement was characterized in the Japanese media as a capitulation by the Clinton administration.

But the Japanese made concessions of their own. Two days ago, the Japanese negotiators drew two lines in the sand: They said that they would sign nothing that spelled out specific numbers of the new U.S. car dealerships coming to Japan.

They also insisted that the voluntary purchasing plans by Japanese automakers and repair shops for American auto parts would not be part of the written accord.

Both these condition are in the agreement.

"I think it's fair to say that both sides decided this agreement was better than sanctions," said Greg Mastel, senior fellow of the Economic Strategy Institute, a Washington-based trade think tank. "As a consequence, both sides had to give."

Democrats lauded the agreement; even Republican rivals of Mr. Clinton's expressed initial approval.

"On the face of it, it's a step in the right direction," said Senate Majority Leader Bob Dole of Kansas, the leading candidate for the Republican presidential nomination. "Having said that, I'd like to look at the details."

'Not a magic potion'

American automakers swiftly issued statements of praise for Mr. Clinton and his negotiating team, and expressed optimism that yesterday's accord will help them to crack the Japanese market. But they also pointed out there have been agreements with Japan before, and that the U.S.-Japan trade imbalance -- currently $66 billion a year -- somehow keeps rising steadily.

"Just like every trade agreement, the proof will be in the implementation phase," said Chrysler's Chairman Robert J. Eaton, who only the day before had announced a $100 million expansion in the company's automobile distribution system, an investment that Mr. Eaton said can now be put to good use.

Ford's chairman, Alex Trotman, added that he and his staff were particularly pleased by the requirement calling for more U.S. car dealerships in Japan. But he, too, cautioned against being overly optimistic.

"This agreement is not a magic potion," Mr. Trotman said. "And it must not be allowed to obscure the fundamental issue: Japan needs to move much faster than it has up to now in deregulating its economy and addressing its huge trade imbalances."

During the Bush administration, his negotiators reached a similar agreement on auto parts, though it wasn't as ambitious as the one negotiated by Mr. Kantor. That agreement sought a 10 percent increase in the amount of American auto parts purchased by Japan.

Although most economists believe the falling value of the dollar against the Japanese yen had more to do with it than pressure from Tokyo on Japanese automakers, that agreement was honored.

"It's almost impossible, when you see the words on paper, to know whether agreements like this are good ones," Mr. Mastel said. "What really matters is the commitment of the governments to enforce them and the commitment of private industry to exploit them."

But he and other Americans sounded optimistic yesterday, even if the Japanese government has not always been rigorous in living up to its trade agreements.

"The Japanese auto manufacturers probably have more of a stake in good U.S. relations than the Japanese government -- and certainly more than other sectors of the economy," Mr. Mastel said. "They've got big investments here, sell a lot of cars here and are a real presence here."

Dealers relieved

A significant part of that presence is the Japanese car dealers themselves. In the past two months, the luxury dealers paid for full-page newspaper ads beseeching the two sides to come to an agreement and tapped allies like Sen. Bill Bradley of New Jersey to plead their case. Most of all they just kept their fingers crossed hoping for an end to the impasse.

Yesterday, their prayers were answered.

"Everybody's obviously pleased," said a happy but harried Dennis Ledford, sales manager at Nationwide Infiniti in Timonium. "I'm sitting here right now with two salesmen, and we're trying to put a deal together. Business is good, and we're hoping to get a boost out of this."

Other luxury-car dealers were glad that a settlement had been reached, too.

"I think I'm a pretty competitive guy, but I don't think I would like to see other dealers unemployed," said Warren Waugh, a partner in a BMW dealership in Peabody, Mass. "It's not the way I want to compete. I want to compete fair and square."

Added Charles Fenwick Jr., president of Valley Motors Inc. in Cockeysville: "I think it's a bad way to go about doing business. I'm a free-trade guy, and I think that there but for the grace of God go I."

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