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. Last Updated: 07/27/2016

Trade Pact: Devil Is in The Details

TOKYO -- One of the oddest agreements in the rocky history of U.S.-Japan trade tensions has got off to a troubled start with sharply different interpretations of what has been pledged.


In Washington, an exultant President Bill Clinton said the auto pact would pry open Japan's market with specific commitments to buy more cars and car parts, creating thousands of American jobs.


But in Japan, officials celebrated a key last-minute concession by the United States: the dropping of a demand for government-set targets for purchases that had stymied negotiations for more than a year.


"Thanks for throwing me a ball that was easy to catch,'' chief Japanese negotiator Ryutaro Hashimoto told U.S. Trade Representative Mickey Kantor when the pact was announced late Wednesday in Geneva, hours before punitive U.S. sanctions were to take effect against Japanese luxury cars.


After an initial flurry of excitement, Japanese financial markets gave the pact a thumbs-down. Both stocks and the dollar dropped in Tokyo from their opening levels.


What was touted as the agreement's centerpiece was not even a formal part of it: Japan's five largest automakers released "voluntary'' business forecasts for the next five years that include plans to increase production in North America and buy more U.S.-made parts there and in Japan.


U.S. officials estimated that together the Japanese makers would boost their North American auto production by 25 percent to 2.65 million vehicles by 1998. That would result in an additional $6.75 billion in parts sales by factories in the United States in 1998, the officials said.


But most of those increases had already been announced by the companies as efforts to escape the high cost of manufacturing in Japan because of the high yen.


And although American car and parts makers could gain new business from the agreement, it has no specific enforcement mechanism.


The agreement "is rather unique,'' conceded Hisashi Hosokawa, director of the Japanese Trade Ministry's International Trade Policy Bureau.


U.S. trade officials hope that closer ties between American parts makers and Japanese carmakers in North America will carry over to the Japanese market, leading to greater parts sales there.


But analysts say the agreement could actually help Japanese automakers by making it easier for them to justify shutting down Japanese factories and moving production to cheaper overseas locations.


"The United States has done companies a favor by kicking them in the direction that makes economic sense,'' said Ed Brogan, an analyst for Jardine Fleming securities. "Ironically, it will make the Japanese carmakers stronger competitors, both in Japan and overseas.''


Many Japanese dealerships sell only one brand of car, and only about 7 percent now offer foreign cars. U.S. trade officials estimated in the agreement that 200 additional Japanese dealers will carry American autos by 1996 -- a number that Japan did not endorse.


American car companies, nevertheless, welcomed the pact.


"We're extremely delighted,'' said Jerry Hsu, director of Japan business for Chrysler International Corp. "We're going to be out there knocking on doors of all the dealerships in Japan ... We'll find out if the market is indeed open."