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U.S., Japanese Officials Tackling Whole New Set of Trade Issues

August 20, 1986|ANDREW HORVAT | Times Staff Writer

TOKYO — Cigarettes, machine tools and a multibillion-dollar airport project have replaced computer chips as the main flash points in U.S.-Japan trade friction this month.

In the wake of the U.S.-Japan settlement on July 31 of a longstanding trade dispute over semiconductors, officials of the two countries are negotiating on all of these subjects here this week as well as on car parts and telecommunications equipment.

U.S. officials are bent on using the talks to reduce Japan's ever-growing trade surplus with the United States, which one official estimated will surpass $60 billion this year. In 1985, the figure was just under $50 billion.

In particular, American and Japanese officials appear to be headed for a showdown on Japan's tobacco imports, which the Americans accuse the Japanese of keeping unreasonably low.

"We have made absolutely no progress," a U.S. official said Tuesday of the tobacco talks. He added that the deadline for an agreement on the issue is fast approaching and hinted that President Reagan may take retaliatory action unless Japanese officials agree by Sept. 15 to eliminate what one U.S. official described as a "web of barriers" against foreign tobacco products.

Reagan started an investigation of Japanese tobacco policy last Sept. 15 under the 1974 Trade Act, which empowers the President to take wide-ranging action against the exports of any country found to discriminate against U.S. products.

"We are coming very close . . . (to) the wall," a U.S. official said. The talks, which broke down last week in Hawaii, are scheduled to resume here Friday. The official, who asked not to be identified, estimated that U.S. exports of cigarettes could increase fivefold to "about a billion dollars" per year under conditions of free competition. At present, annual sales are about $180 million.

American officials maintain that the roughly 3% share of the Japanese market that U.S. cigarettes have is too low and is the result of Japanese "structural discrimination" against foreign tobacco products.

American officials accuse the Japanese government of using a combination of high tariffs, excise taxes, a ban against cigarette manufacture by foreign companies in Japan and a "set of problems concerning distribution and pricing" for relegating American cigarettes to the high-priced, luxury end of the market.

In Hong Kong, where there are no restrictions on the imports of cigarettes, U.S. brands account for 55% of cigarette sales. In Western European countries, where American makers have been able to avoid high customs and excise levies by manufacturing locally, their products enjoy between 25% and 40% of the markets.

A Japanese official, however, argued that Japan is no different from Italy or France in having a tobacco monopoly. Noting that the rising value of the yen has allowed foreign firms to increase their market share to more than 3% from just under that ratio last year, the official refused to comment further, saying that "negotiations are still in progress."

On other trade-related issues, U.S. Under Secretary of Commerce Bruce Smart told reporters that Japanese companies have placed orders for "significantly more than $1 billion" of telecommunications equipment from the United States. He said U.S. space satellites accounted for the lion's share of the orders.

Baldrige Encouraged

Smart would not comment on the $6.45-billion Kansai airport project, which American negotiators have been trying to open up to U.S. contractors, except to say that "we are in the middle of sensitive issues."

Commerce Secretary Malcolm Baldrige said here July 29 that he was "heartened" by assurances he had received that U.S. firms would be permitted to bid for some of the contracts involved in the airport project. However, Japanese contractors, some government officials and executives of the government-financed company in charge of the new airport have attempted to keep foreign companies from taking part in building the airport, to be situated on an artificial island in the sea near Osaka.

Talking to reporters Monday after meeting with officials of the airport corporation, Smart stressed that Japanese construction firms did $1.8 billion worth of business in the United States last year while "U.S. firms did no business in Japan."

Smart also plans to ask the Japanese to reduce their exports of highly competitive machine tools, which now hold 75% of the American market. The U.S. goal is to decrease national dependence on machine tools, which are strategically important, to 50%.

Smart is also expected to take part in negotiations aimed at increasing use of U.S.-made auto parts by Japanese auto makers.

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