Take That! and That!

By Richard Lacayo

If posturing and tough talk were all it took to remedy the U.S.-Japan trade gap, everything would be fine by now. The grumpy Feb. 11 encounter in Washington between Bill Clinton and Japanese Prime Minister Morihiro Hosokawa has produced a surplus of bluster. "We will not modify our position," Hosokawa warned afterward. "It's just not acceptable for the United States to continue on the same path," Clinton warned back last week. But as both sides grumbled, they tried to keep the brinkmanship within bounds. "The intent and fact are to be measured and calm about this," insisted a White House official, even as others waved fists at Japan.

Scarcely had Hosokawa settled back in Tokyo than the White House struck. It announced that Japan had failed to comply with previous trade agreements by denying Motorola fair access to Japan's cellular-phone market. "This is a clear-cut and serious case of a failure by Japan to live up to its commitments," said U.S. Trade Representative Mickey Kantor. He promised that within a month his office would publish a list of Japanese companies that would be punished -- probably through tariffs -- if the situation is not remedied. One day later, Washington's case was bolstered by new Commerce Department figures showing that the trade deficit with Japan rose nearly 24% last year, to a record $59.3 billion.

The Japanese made their own threat to fight any sanctions by accusing the U.S. of a "betrayal of trust"in multinational negotiations to reduce tariffs. But even as the Japanese were applauding Hosokawa's refusal to cave in to Clinton, his government was calculating how to avoid a fight. Early in the week Tokyo was unnerved when the yen rose about 6% against the dollar while Washington stood by with arms folded. The upward pressure came from speculators counting on the U.S. to encourage a stronger yen to make American products cheaper in Japan. Because that would also cut into the profits of beleaguered Japanese companies that sell abroad, a 5% drop in the Japanese stock market quickly followed.

Tokyo scrambled to propose conciliatory measures to promote imports, speed deregulation, break down monopolies and open up government purchasing to outsiders -- a standard litany that Washington wasn't buying. And the Japanese gave no sign of willingness to compromise on the core U.S. demand that their progress in opening markets should be measured by "objective criteria" -- in effect, guaranteeing that competitive products get a share of the market.

The cellular-phone problem illustrates how even the most competitive American products -- Motorola claims 40% of the global cellular market -- can be tripped up in Japan. In 1987, when it privatized the national phone company, Nippon Telegraph & Telephone, Japan's government divided the country into two cellular-phone regions, with NTT operating in both and one fully private competitor in each. Though it has flourished elsewhere in Japan, Motorola maintains that it has been handicapped in the Tokyo-Nagoya corridor, the more profitable of the two areas, where its phones are incompatible with the NTT transmitting system.

As part of an agreement to give Motorola "comparable market access" -- reached in 1989 after Washington threatened reprisals -- the Japanese government provided the company a slice of the cellular-phone bandwidth in the Tokyo-Nagoya region. There was a catch: Motorola's new transmitting equipment would have to be installed by IDO, the wholly private cellular operator in that area. Called upon to build facilities for a competitor, IDO dragged its feet. In 1992, at Motorola's request, Washington sought and gained a follow-up agreement to speed construction.

Last summer Motorola again protested the slow pace, leading the White House back to bargaining with Japan. The U.S. wants guarantees that the new system will be up two years earlier than IDO's projected completion date in March 1997. In the view of IDO president Takeo Tsukada, that would lead his still unprofitable company to "certain bankruptcy." Motorola says anything less would keep it out of the cellular boom expected to start in April, when new regulations permit Japanese consumers to own phones instead of just renting them. Tokyo, meanwhile, insists that the remaining tangles are just a business dispute between private companies. "Washington is asking us to guarantee Motorola's business," complains a Japanese official.

Cellular phones are just one of 31 areas covered by trade agreements that the U.S. could use as gauges of Japanese intransigence and then retaliate. "It's not our desire to be provocative," says a White House official. "But the status quo cannot continue." Neither can the present standoff, without the danger of a more serious confrontation that nobody wants. Now, does anybody here know how to just dabble in a trade war?

With reporting by James Carney/Washington and Edward W. Desmond/Tokyo