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Market Focus : The Practical Side of Japan Wins Out : In matters of negotiating--from trade issues to business deals--Tokyo always favors pragmatism over principle.


TOKYO — When Britain set out to win for its stock brokers the right to hold seats on the Tokyo Stock Exchange, London officials initiated negotiations on the principle of equal access for all qualified firms.

The Japanese asked, "How many seats do you want?"

"Any company that meets the standards should be allowed to enter the market," the British replied.

"How many seats do you want?" the Japanese asked again.

And so, frustratingly, the exchange continued until finally the British said they wanted two seats. The Japanese agreed.

That story, related by author and noted Japan-watcher James Fallows, underscores a vital characteristic of Japan that businessmen and others trying to deal with the country fail to recognize at their own peril. Here, whatever principles may exist--in the form of constitutional provisions, laws, administrative rulings and political policies--are never applied with abstract, "let-the-chips-fall" neutrality.

Westerners are interested in process, but Japanese pay attention to the outcome, Fallows writes. "In Japan, the result itself is more important than the rules that led to it," he adds.

Kunio Maeda, a former construction company executive who is now a lecturer at Hitotsubashi University's commerce school, concurs. Japan's "way of doing business is to make exceptions to its principles," he wrote in an Asahi newspaper essay.

Indeed, Japanese pragmatism prevails over principle in the courts, diplomacy, economics, trade negotiations and everyday ways of thinking. The most recent prominent example was legislation enacted June 15 to permit the dispatch of noncombat troops overseas for the first time since the end of World War II--despite a constitutional requirement that "land, sea, and air forces, as well as other war potential, will never be maintained."

The Bush Administration welcomed the pragmatism of the troops-dispatch legislation. But frustrated U.S. trade officials who are forced to negotiate one narrow issue after another--rather than a single principle that applies to all issues--are often driven up the wall by this pragmatism.

"You have a different regulatory system than we do," Ambassador Michael H. Armacost complained at an annual convention of the Japan Chamber of Commerce last spring. "That is why we want the rules to be spelled out clearly. It is very important that the rules be transparent."

Precise rules, however, are precisely what Japanese wish most to avoid.

"We give more priority to day-to-day decisions rather than to rules," Takakazu Kuriyama said before assuming his post last March as ambassador to Washington.

Pressed by the United States to open its rice market as part of the Uruguay Round of GATT (General Agreement on Tariffs and Trade) negotiations, Japan's initial response was, "How about 3% of the market?" When that offer was rejected, the Japanese responded, "How about 5%?"

Now, talks are focused on a proposed process of market-opening under which a ban on imports would be replaced over time by a decreasing schedule of tariffs.

The Japanese reason that opening up their market--rather than setting a specific quota--would increase American rice sales to Japan by, at the most, $500 million. That's a minuscule portion of last year's bilateral trade imbalance of $42.3 billion. Meanwhile, they fear, imports from other countries such as Thailand could substantially hurt Japanese rice farmers.

The Americans argue principle. "We've got to have free trade. No exception can be made for rice," they say. But with one eye on bigger potential importers, the practical Japanese have so far refused to budge.

Japanese banks are among the latest to make exceptions more important than principles.

Under rules of the Bank for International Settlements (B.I.S.), major Japanese banks have pledged to build up capital reserves, including a portion of their stock holdings, to the equivalent of 8% of their loans by March, 1993. But with the value of stocks plummeting on the Tokyo Stock Exchange, banks have been forced to curtail lending.

The dilemma pits practical fears of creating what Kazuaki Harada, managing director of the Sanwa Research Institute, called "severe stagnation" in the economy against the principle of maintaining a healthy financial system. Rather than risk a recession, Japanese banks "have started advocating an easing of the B.I.S. standard" that would permit greater lending, Harada said.

America, however, has reaffirmed its stand on the side of principle.

"I am not one of those who believe you should change standards just because you get too much wind in the sails at a particular point in time," Treasury Secretary Nicholas F. Brady told a recent international bankers meeting in Toronto.

The Japanese approach has deep roots in the country's culture.

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