US-Japan talks put Clinton in dilemma

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CRIME control and healthcare aside, the Clinton administration faces an unusually heavy international agenda over the next four months that will set clearly the boundaries of its foreign policy objectives. Before the end of the year, President Bill Clinton will address the United Nations, engage in high-level summitry with Russia's Boris Yeltsin, unveil a new Asia policy at the November summit conference of the 18-member Asia Pacific Economic Co-operation (Apec) forum, and host the first Summit of the Americas in Miami in December. Not surprisingly, there are some internal conflicts over the message.

President Clinton began his term with a firm emphasis on 'economic security' as a top US priority in the post- Cold War era. However, these goals have been severely tested and even displaced by other concerns, most notably in Asia. The emphasis on human rights in the China talks, on labour rights in negotiations with Malaysia, on environmental and social protections that almost derailed negotiations over the North American Free Trade Agreement (Nafta) are good examples. Now, the administration faces perhaps its most critical test over the current trade talks with Japan.

Conducting foreign policy in an environment of election- year fever is never pleasant. So the Clinton administration is racing to complete the US-Japan talks before the November mid-term elections, in which the Democrats face big losses.

On the one hand, the administration's private polls reveal that its get-tough policy against Japan is one of its most popular initiatives. On the other, its entire Asia policy could collapse if the US and Japan engage in a nasty trade war, which would create turbulence in currency markets and send negative signals to other countries in the region with surpluses.

Self-imposed deadlines are one of the key problems. Frustrated after 15 months of fruitless market-opening talks between the US administration and four successive Japanese governments, Clinton officials set a 30 September deadline. If there is not satisfactory progress by then on 'quantifiable' marketing opening measures, President Clinton will impose punitive tariffs on a list of key Japanese imports under the US Super 301 and Title VII trade laws. The list - which includes Japanese cars, car parts and insurance - is drawn up, and the clock is now ticking away.

Last week, after yet another session in the marathon negotiations, both sides admitted they were still miles apart on the critical issues. Although there was progress on insurance and government procurement, the deadlock remained over cars and car parts, which account for two- thirds of Japan's dollars 60bn ( pounds 39bn) surplus with the US.

Terusuke Terada, the Foreign Ministry spokesman, said last week that it would take political will on both sides to achieve a breathrough but not to expect a solution for cars and car parts. 'This is beyond the government's reach.'

Without a solution before 30 September, President Clinton faces stark choices. If he does not impose sanctions, he will be seen by Congress and the electorate to be backing down on oft-repeated threats against Japan. Extending the deadline would further damage the administration's credibility as it fights to persuade Congress to ratify the threatened Uruguay Round of the General Agreement on Tariffs and Trade in October.

But the imposition of sanctions could scuttle the administration's Apec strategy, the centrepiece of its policy in fast-growing Asia.

At present, the White House has ambitious plans for the 15 November Apec meeting in Indonesia. President Clinton is scheduled to give three addresses outlining a US security policy for the region, a new US economic partnership with Asia and a vision of an Asia-Pacific free trade area. A key objective is to enhance US commercial opportunities in a region where Japanese companies reign supreme.

The Japanese government has given more than twice the foreign aid of the US to the region and has stressed public works and industrial projects that have built ties to commercial sectors. Meanwhile, Japanese direct investment in Asia has almost doubled since 1989, from 12 per cent to more than 20 per cent. US foreign direct investment, at 13 per cent, is concentrated in oil and gas projects whereas Japanese companies have focused on factories and distribution. The upshot is that Japan's exports to Asia far exceed US exports.

President Clinton hopes to reverse the tide but already Japanese and Asian officials are warning that a tough policy of sanctions against surplus countries will not result in fruitful US-Apec relations. Meanwhile, the Japanese government has let it be know that it will not cave in at the last minute as usual to some version of US demands. The message from Tokyo is that the imposition of sanctions will break off all talks and lead to a Japanese case against the US before a Gatt tribunal.