US and Japan agree pact to cut trade deficit: Behind the scenes at Tokyo summit, President Clinton achieves his first foreign policy breakthrough

TOKYO - The United States and Japan reached agreement early this morning on a trade pact designed to reduce the huge trade imbalance that favours Japan, US officials said.

The administration scheduled a briefing for later in the day with the four American officials who have been negotiating the pact. Two administration sources, declining to be named publicly, said the two sides had reached a deal after long hours of negotiation.

The officials refused to provide any immediate details of what was in the accord but did say that the US was pleased with the outcome of the talks. There was no immediate word on whether Japan had agreed to specific targets for cutting the trade deficit. US officials in the past have demanded such a commitment.

A consensus on a so-called framework agreement with Japan would give President Bill Clinton a significant victory for his first overseas trip, although officials have said all along that it is just the first step in an effort to reduce America's huge dollars 50bn ( pounds 33bn) trade deficit with Japan.

The pact would set the ground rules for future negotiations with Japan in specific sectors. In those talks, the US would be seeking to reduce Japanese trade barriers so that the US businesses could sell more products in the Japanese market.

The agreement came after intensive negotiations behind the scenes as President Clinton attended the annual economic summit of the world's seven largest industrial countries.

The deal also represented the second major trade breakthrough accomplished during the summit. On Tuesday, the US and the other summit countries reached agreement on a package of tariff cuts that they hope will re-energise global free trade talks and allow them to be completed at the end of this year.

Japanese television reported that the US had withdrawn a demand that Japan set specific numerical targets to cut its current account surplus. It also said the Japanese government offered to use an 'objective reference' to show past trends of Japanese trade. Tokyo also agreed to include cars and car components in bilateral trade negotiations.

The US-Japan agreement came after Mr Clinton and Kiichi Miyazawa, the Japanese Prime Minister, met for two hours over dinner last night at a sushi restaurant in the hotel where the President was staying. After the dinner, Mr Clinton told reporters, 'We had a great dinner' but refused to answer any question on whether there would be a trade agreement.

Trade negotiators from both sides worked into the night trying to resolve the remaining differences, officials said. Both Mr Clinton and Mr Miyazawa agreed in April that the two governments would try to achieve a broad negotiating framework in time for Mr Clinton's trip to Tokyo for the summit.

However, both sides staked out positions that were far apart. The United States wanted Japan to make commitments that it would slash its huge trade surplus in half over the next three years and boost imports of manufactured products by one-third.

To accomplish that, the US side insisted that the Japanese agree to set targets for sales of US and other foreign products in a number of areas. But the Japanese rejected that approach, branding it 'managed trade'. The impasse seemed impossible to bridge and talks had actually broken off until a week ago when Mr Miyazawa sent Mr Clinton a letter putting forward a compromise position.

Mr Clinton praised the Japanese leader on Tuesday for putting forward a constructive proposal and both sides ordered their negotiators into non-stop talks. Mr Miyazawa reportedly offered to use various types of measurement to determine the level of import penetration in the Japanese market but refused to go along with any proposal that would commit Japan to reaching certain target levels.

US officials insisted throughout the week that there should be ways to measure Japan's progress in lowering trade barriers. American negotiators repeatedly pointed to the success of a 1986 US-Japan agreement on computer chips, which set a goal for foreign manufacturers to obtain a 20 per cent share of the market by the end of 1992.

While that target was met, the Japanese have insisted they would not be pressured into accepting any more such agreements setting specific

targets.

Down from the summit, page 10