Pounding on Tokyo's Door

By John S. DeMott

Getting tough with the Japanese over trade is something U.S. officials do in fits and starts, usually without much success. Last year Japanese manufacturers sold $60.4 billion worth of goods in U.S. markets and American companies sold $23.6 billion worth in Japan. As the gap keeps widening, tempers in Washington are growing short. Deeply frustrated by failures to pry open the Japanese market, American policymakers are launching an all-out drive to overcome what they view as Tokyo's intractable resistance to American goods. Says Missouri Republican John Danforth, chairman of the Senate Commerce Committee: "I honestly believe that Japan has no interest whatsoever in doing anything other than shipping everything it can into our market, or anybody else's which will have it, and importing absolutely nothing."

Emotions continued to rise on both sides of the Pacific last week. Pennsylvania Senator John Heinz was strident. Said he: "We need to retaliate against Japan. They deserve it." One step suggested by a growing number of politicians: a surcharge on Japanese imports that could raise prices of everything from Toyota cars to Toshiba calculators by up to 20%.

Such harshness has startled the Japanese and clearly left them shaken. Said one Tokyo banker: "There's a hurricane of anti-Japanese sentiment blowing that's reminiscent of the days when William Randolph Hearst played up the yellow peril." The Japanese insist that they are doing more than ever to encourage American firms to do business in their country. Last week the Japan External Trade Organization was host to a four-day fair for products of 250 small and medium-size U.S. exhibitors. Among them: Montana Log Homes of Kalispell, Mont., and AmLab International, a New Jersey maker of pharmaceuticals.

The new U.S. militancy has its roots in a January meeting in Los Angeles between President Reagan and Japanese Prime Minister Yasuhiro Nakasone. They agreed on the need to open the Japanese market to American-made electronics, pharmaceuticals and medical supplies, along with forest products and telecommunications goods and services. This sector--or industry-wide--approach was a sharp shift from the previous goal of trying to gain entry on a product- by-product basis, a narrowly focused tactic that was getting nowhere. Says one official: "As soon as we knock down one clay pigeon, another pops up. We have got to knock them all down."

So far, though, the effort is not going well. For seven intensive weeks, American and Japanese negotiators have been wrangling over how to increase American access to Japan's telecommunications market. The talks are in preparation for the landmark April 1 conversion of Japan's national telephone system from a state-run monopoly into a privately owned company. This will create a vast opening for makers of such sophisticated telecommunications gear as satellites and digital switches, together with services like electronic cash transfers. American companies hanker for the business and feel they can keep their prices competitive even with the strong dollar driving up the cost of their goods abroad.

But from what U.S. officials have seen so far, Japan's new rules still stifle competition under layers of inspections and licensing procedures. The Japanese Ministry of Posts and Telecommunications, for example, could force American companies to disclose business plans, sales projections and even customer names be- fore marketing sophisticated telecommunications services in Japan.

The telecommunications talks mark a "watershed in our relationship" in trading with Japan, says Lionel Olmer, the Commerce Department Under Secretary who co-chairs the American delegation. He is hardly sanguine about the outcome. "We are not off to a good start," Olmer told a Senate trade subcommittee this month. Japanese recalcitrance, he said, "lends fuel to a growing international perception that, despite political statements to the contrary, Japan remains committed to keeping its market protected from foreign competition."

Last week the frequently frustrating talks reached an inconclusive end in Tokyo. Members of the U.S. delegation remained guarded. Said Allen Wallis, Under Secretary of State for Economic Affairs: "They have reacted to a number of our suggestions and are considering others. We don't know for sure ourselves which ones they will adopt."

Though the Reagan Administration has since 1981 coaxed the Japanese into five packages of trade liberalizations covering hundreds of products from golf balls to nuclear reactors, American sales in Japan are still as stunted as bonsai plants: $21.8 billion in 1981, only $1.8 billion more last year. In contrast, Japanese sales in the U.S. have streaked upward: $39.9 billion in 1981, a healthy $20.5 billion more in 1984.

Even when the Japanese seem to give in to American wishes, they still manage to come out winners. On March 31, the so-called voluntary-restraint agreement on shipments of Japanese automobiles to the U.S. will be lifted. The arrangement was begun by the Japanese four years ago to head off stringent measures by Congress to protect Detroit's then bleeding auto industry. Helped by the protection and by their own new efficiencies, Detroit's automakers have revived, earning profits of $9.8 billion in 1984. One sign of prosperity: Ford Motor Co. last week distributed $360 million of its $2.9 billion of 1984 profits to 170,000 hourly and salaried workers at the company's U.S. operations, an average of $2,000 for each.

But the Japanese gained even more. Since the restraints made Japanese autos scarcer, the manufacturers were able to raise the prices of their cars an average of $1,300. Japan's Big Three--Toyota, Nissan and Honda--drove away from the U.S. with trunkfuls of dollars as they con- centrated sales on , their more expensive models, where the big profits are made. One Government study showed that the import restraints cost U.S. consumers more than $1 billion annually, with about 90% of it going to Japanese manufacturers and distributors.

The Japanese insist rather lamely that U.S. products fare poorly not because of Tokyo's restrictions but because Americans have not taken the trouble to learn how to sell in the Japanese market. One oft-cited example: U.S. carmakers do not make a vehicle with the steering wheel on the right for Japanese highways. Detroit, scoffs a Tokyo official, seems to be convinced that "Japanese traffic moves the American way." U.S. carmakers call that a red herring. Detroit would happily switch the steering wheel if the Japanese would lower their tariffs and eliminate the mind-boggling inspection procedures that severely restrict imports of American cars.

Most U.S. businessmen are convinced that the Japanese stack the trade deck outrageously against them. Chicago-based FMC sells soda ash, used in glassmaking and other processes, for $70 to $75 a ton in the U.S.; the product sells for $240 to $250 a ton in Japan. But FMC and other U.S. makers are allowed to supply only 200,000 of Japan's annual requirement of 1.4 million tons. Says FMC Chairman Robert H. Malott: "Soda ash is soda ash is soda ash. If that market were truly open, we would have 40% to 50% of it by now."

R.J. Reynolds, the second-largest U.S. cigarette maker, is another frustrat- ed American manufacturer. Japanese policies leave just a minuscule 2% of the country's $11.5 billion tobacco market to foreigners. Says Peter Hoult, Reynolds' vice president of marketing: "Some of the government controls are like a land mine. You never know where they'll show up." Not only do the Japanese slap taxes on imported cigarettes to boost some of their prices 40% above Japanese brands, but they have also laid down a phalanx of other barriers. It was not until 1981, for example, that Japan increased the number of outlets that could sell the smokes from a mere 20,000 to all 260,000 of the places where cigarettes are sold. Until last year, moreover, television commercials for U.S. brands could only be in English.

Faced with such resistance, some U.S. corporations have tried to crack the Japanese market, stumbled and pulled out. Says the president of a Massachusetts high-technology company that continues to export to Japan: "In areas where the Japanese feel they are strong, they set up a reasonably level ! playing field. But where they are at a disadvantage, they change the rules."

Still, some U.S. firms have succeeded. IBM, Polaroid, NCR, Ralston Purina and Motorola have flourishing Japanese operations. McDonald's of Japan is the country's largest food-service company, with 457 shops. 7-Eleven has 2,299 stores in Japan, 308 of which opened during the past year. IBM has been operating in Japan since 1937, and earns more than $350 million a year there. Among the reasons: the vast majority of its 15,000 employees in Japan are locals, and the company works with several Japanese partners, including Mitsubishi and Kanematsu-Gosho.

Other winners include Schick, which lags 3-to-1 behind Gillette in the U.S. razor-blade market but leads its archrival 7-to-1 in Japan. Schick introduced a twin-blade cartridge in 1972, one year before Gillette, and has an edge over even Feather, the biggest Japanese company in the field.

Will Washington's drive to get more U.S. goods into Japan create new American success stories? The answer must remain a resounding maybe. Although Prime Minister Nakasone appears to be eager to open his country's markets, he must deal with the Japanese bureaucracy, which is difficult to budge. If it stands fast, the Japanese will face an increasingly hostile Congress that could pass laws aimed at protecting American jobs and sales by stifling imports. That would invite retaliation and be costly to American consumers. Warns U.S. Trade Representative William Brock: "You don't hurt somebody by shooting yourself in the foot."

Reagan and Nakasone will meet again at the Bonn economic summit in May to review their countries' trade progress. U.S. business executives are hoping that those discussions, unlike the ones in January, will result in more than talk.

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With reporting by Gisela Bolte/Washington and S. Chang/Tokyo, with other bureaus