Hosokawa's resignation may frustrate trade efforts

Hosokawa's resignation may frustrate trade efforts

By Keiji Urakami

TOKYO (Kyodo): Japanese Prime Minister Morihiro Hosokawa's surprise resignation announcement is feared likely to put a damper on Tokyo's ongoing efforts to mend soured economic ties with the United States.

The immediate impact of his resignation decision, announced last Friday afternoon amid a barrage of criticism over alleged personal financial misdeeds, will center around the planned meeting between Foreign Minister Tsutomu Hata and U.S. Trade Representative Mickey Kantor in Marrakech, Morocco, on April 15.

But the probable effects on Japan's pledged formulation of a market-opening package by the end of June risk a further damaging of the already strained economic relations between Tokyo and Washington, trade ministry sources said.

"Japan urgently needs to create a new political framework in order to prevent further delay in its trade `framework' talks with the U.S.," International Trade and Industry Minister Hiroshi Kumagai said in an emergency press conference following Hosokawa's resignation announcement.

"The situation surrounding the Japan-U.S. economic ties requires urgent action by Japan," Kumagai said. "There isn't much time left before July."

Hosokawa's announcement that he will step down came at a time when the government is forging a market-opening package with an eye to the July summit in Naples of the seven major industrialized countries.

The package is intended to give concrete shape to a set of deregulations, macroeconomic steps and other market-opening measures unveiled at the end of March, which was, to the disappointment of Hosokawa, branded by Washington as falling short of what is necessary to buoy up Japan's domestic demand and help reduce its huge global trade surplus.

Tokyo wants the planned market-opening package to serve as a lever to open the way for restarting the framework talks, which have been suspended since the Japan-U.S. summit broke down in February when Hosokawa nixed Washington's demand for numerical targets to gauge American penetration of Japan's markets.

The June package is expected to contain Japan's pledge to introduce a multiyear tax reduction instead of the already planned tax cut for the current year that has been rejected by the U.S. as insufficient to stimulate personal spending.

The coalition government of Hosokawa, a patchwork of seven parties that, at the time of its inauguration last summer, were united around the common goal of political reforms but not on a particular economic policy, promised to iron out its stance on tax matters, particularly on ways to finance permanent tax cuts, within June.

The March market-opening package failed to include a multiyear tax cut, apparently out of respect for the stance of the Social Democratic Party, the largest force among the seven coalition parties, which was adamantly against raising the three percent consumption tax as a means to cover tax cuts.

"The latest political development surrounding Hosokawa is a setback for an early coalition consensus on the tax issue," the trade ministry sources said. "The resignation was unveiled at a time when the socialists were softening their stance on consumption tax hikes."

Under the current political situation, it is uncertain whether or not the coalition will continue to exist under a prime minister other than Hosokawa.

MITI minister Kumagai said it is almost impossible at this moment to "imagine" the possible framework of the next government. "The political situation is now back to the point it was at last August when the Liberal Democratic Party's 38-year grip on power ended."

Any prime minister replacing Hosokawa should have "a stronger power base" in order to get the framework talks moving again.

Although chances have become slim for an early breakthrough in the Japan-U.S. trade talks, some are optimistic about maintaining the fundamentals of the existing framework.

"The philosophy of the accord reached between the previous Japanese administration of Kiichi Miyazawa and U.S. President Bill Clinton last July to establish a new trade framework are still valid," said a senior MITI official, who declined to be identified.

Hosokawa inherited Miyazawa's policy of opposing the use of numerical targets as a tool to measure foreign access to Japan's markets, and the next prime minister will likely also respect the policy, the official said.

-30-