Trade deal won't heal US-Japan relations

Back from the brink - but who blinked first? As details of the agreement on access for cars and car parts into the Japanese market emerged yesterday, it became clear that the US had given most ground. As well it might, since the US was fighting on indefensible territory with its gun-toting threat of unilateral sanctions in defiance of the multilateral principles of the World Trade Organisation.

The Americans have achieved some concessions. The Japanese have committed themselves to dealing with the regulatory barrier of repair garages. Foreign access to dealerships will be increased - but through a private rather than governmental initiative.

But the main bone of contention was the American demand for numerical targets for US sales of car components into the Japanese market. Here there is no doubt who prevailed: the Japanese stood firm on their refusal to commit the government to hard numbers. The US had to use projections of purchases from the Japanese car companies to stand up their claim of "victory".

As for the estimated increase in Japanese car production in North America envisaged in the joint announcement, this is a change the car companies would almost certainly have been compelled to make in any case. With the yen at its present stratospheric level, they have to move production out of Japan.

So much for the details, but this was a dispute that signalled a wider discord between the US and Japan. The Americans have served notice on the 50-year-long relationship in which security and broader international interests were paramount. They believe the Japanese have abused this by taking advantage of open US markets while keeping theirs closed.

The Japanese, for their part, have approached the negotiations with an unexpected readiness to engage in confrontation. Despite the political paralysis that prevails in Japan, there is an active debate now taking place about whether the country should tilt its strategic and economic policies towards an Asia-first policy.

Seen in this light, the resolution of the trade dispute, though welcome, seems unlikely to inaugurate a serious improvement in the relationship between the world's two largest economies. The trade imbalances that have so soured relations will eventually succumb to the extraordinary appreciation of the yen. But the wrenching change this is causing in Japan may make the Japanese even less compliant in future.

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