Pointless to bash Japan

PRESIDENT Clinton's first trip to Europe has failed to dispel the largely correct notion that the US has 'rebalanced' its foreign policy priorities in Asia's direction. Even as Mr Clinton was unveiling his cautious, almost tentative European programme, State Department officials were meeting in Washington to formulate an over-arching Asia-Pacific strategy.

The meetings coincided with preparations for the official visit of Japan's Prime Minister Hosakawa on 11 February. This will be one of the first 'reality checks' as to whether the ambitious Asia-Pacific goals of the US will supercede its bilateral constraints.

The emphasis on Asia is guided by a simple syllogism: economics is now the centre of US foreign policy; Asia is the world's most important economic region; thus, Asia should be the centre of US foreign policy, and economics lies at the centre of US Asian policy.

The State Department meetings were designed to find ways to use US security leverage to promote these economic goals. This being said, the Clinton administration faces a policy dilemma as it comes under renewed Congressional pressure to 'get tough' with its major Asian partners for political and moral reasons. Japan-bashing is again in vogue, prompting officials who accompanied Mr Clinton to Europe to ask for help in prying open Japan's markets. The US and China are locked into another conflict over human rights and trade, and bilateral relations with Indonesia are suffering over its treatment of labour unions. These are hardly the pillars on which to build a new Asian strategy.

The bilateral problems with Japan are particularly severe. A trade conflict between the world's two largest economies looms on several fronts on the eve of Hosakawa's visit. There have been 'emergency' talks over the failure of the semi-conductor agreement (one of the few 'managed trade' initiatives that Congress has pointed to with pride), and this is seen as further proof that Japan will not honour agreements to open its markets.

In addition, recent estimates suggest that the US trade deficit, which improved in 1993, will again reach a record level this year of more than dollars 160bn (pounds 109bn) due in large part to the big rise in the trade-weighted value of the dollar against the yen and other currencies.

Japanese officials have warned quietly that the US should not expect any dramatic moves to result from Mr Hosakawa's visit. This, despite the widely perceived failure of the US-Japan Framework Agreement of mid-1993 which was designed to open markets and reduce Japan's huge trade advantage. Congress is thus again threatening to reinstate the infamous Super 301 legislation that requires the US to retaliate against nations with closed markets.

Despite all of the above, the Clinton team would be wise to avoid the usual sabre rattling deemed necessary for Congressional consumption. It is not a good idea in the present environment. So much has happened over the past year. On the trade front, there have been historic breakthroughs: the completion of a North American Free Trade Agreement, the Asian Pacific Economic Co-operation and the 11th hour salvaging of the seven-year Uruguay Round of trade liberalisation talks under the General Agreement on Tariffs and Trade.

This triple crown series will require big concessions by individual nations, including Japan. Why elevate bilateral disputes to the international crisis level before these fragile agreements have even had a chance to work?

Furthermore, Japan is much weaker economically than has been generally thought.

Mr Hosakawa's coalition government struggles to enact political and social reforms even as domestic concern and criticism grow over the no-growth economy.

External Japan-bashing under these circumstances can only be counter-productive, as Hosakawa has warned in resisting US-imposed market-opening measures such as 'quantitative indicators'.

A year ago, Tadashi Nakamae, the respected Japanese forecaster, was prescient in his warnings that the new US administration should not overestimate Japan's real growth potential and should recognise the vulnerability of its financial system. Today Japanese analysts are only just beginning to warn of non-performing bank loans of systemic proportions, perhaps equaling the US savings and loan crisis of the 1980s.

Additionally, respected economists have begun to point out that, contrary to popular opinion, Japan may already have hit the peak of its spectacular post-war growth rates and is on the way down. Gary Saxonhouse of the University of Michigan says the 'trend acceleration' or long-term growth potential that produced Japanese rates of growth which rose from 6 per cent annually in the late 1950s to 9 per cent in the mid-1960s to 12 per cent in the 1970s has been followed in the past 20 years 'by an equally relentless trend deceleration'. According to his calculations, Japan may have trouble achieving growth rates of as litte as 3.5 per cent by the turn of the century.

Without big structural domestic reforms and other innovations, Japan may be doomed to long-term decline that could have very negative international ramifications.

Instead of bashing Japan, the West, and most particularly the US, should seize an historic opportunity to foster institutional change and reform measures on which Japan has tentatively embarked. This is the time to help shape Japan's new consumer-oriented, post-industrial society, not to bash proponents of an old system that must inevitably change.