Friend Or Foe?

By John Greenwald

American television manufacturers were the first to fall. Then Japanese firms rolled through markets ranging from autos to semiconductors. Now many Washington politicians fear that U.S. plans to develop the FSX fighter jet with Japan could give Tokyo a vital jump start in the aerospace industry, one of the few high-technology fields in which American companies still dominate. The growing outcry has transformed the proposed jet, an advanced version of the F-16, into a powerful symbol of the rising tensions between two countries that are close military and diplomatic allies but also archrivals for the economic leadership of the world. "What we're seeing is the emergence of an entirely new concept of national security," says Wisconsin Democrat Les Aspin, chairman of the House Armed Services Committee. "It embraces economics and competitive, commercial relations."

Any Japanese inroads in aerospace would be a serious blow to U.S. industrial might. American manufacturers exported $26.9 billion worth of passenger planes and military aircraft and missiles in 1988, which gave the U.S. a $17.9 billion surplus in aerospace trade. These were precious exports, considering that the U.S. ran an overall trade deficit of $119.8 billion last year; the gap with Japan alone was $52.1 billion. U.S. trade woes were underscored last week when the Government reported that the deficit during February widened to $10.5 billion, up 21% from the previous month. The major cause: a fresh flood of imports from Japan.

Mindful of polls showing that many Americans are more fearful of Japan's economy than of the Soviet Union's military strength, President Bush has made the FSX an example of U.S. willingness to get tough with Japan by reopening an agreement that the Reagan Administration had considered closed. For the second time since he took office, the President last week demanded that Tokyo clarify terms of the FSX deal.

Under the original agreement reached last November, Japan's Mitsubishi Heavy Industries would design the fighter (top speed: 1,300 m.p.h.) in cooperation with St. Louis-based General Dynamics. The deal guaranteed U.S. contractors 40% of the $1.2 billion development budget and allowed access to the secrets of advanced Japanese radar gear and composite materials. But Bush wants further assurances that American firms will receive 40% of the $5 billion to $10 billion in production contracts for as many as 170 fighters, which are to be deployed in the late 1990s.

The Administration's hard line has settled a feud between the Defense Department, which has championed the FSX deal as a strategic and technological boon for the U.S., and the Commerce Department, which challenged it as a giveaway of fighter technology to Japan. Both agencies now support the White House position. Says Defense Secretary Richard Cheney: "My hope is that we'll be able to get that clarification and resolve our differences with the Japanese."

Yet some congressional leaders insist that the agreement is nearly beyond repair. Says California Democrat Mel Levine, a member of the House Foreign Affairs Committee: "I just don't think we should help Japan build its own jet fighter when the U.S. already builds the best-quality, best-priced jet fighters in the world. Japan should buy the product from us." FSX opponents contend that if Japan wants to retain access to American markets, it should be willing to buy goods that the U.S. produces at competitive quality and prices. They claim that Congress will reject the jet agreement when Bush finally submits it for review, unless the deal contains major Japanese concessions. Yet the opponents would almost certainly lack the votes to override a presidential veto of any blocking legislation.

The congressional outcry reflects frustration over the U.S. trade deficit, as well as the feeling among many legislators that Japan has refused to throw its markets wide open to American goods. Time and again the U.S. has negotiated trade agreements with Tokyo only to find Japanese buyers still reluctant to pull out their checkbooks as often as U.S. politicians would like. In 1986, for example, Tokyo agreed to help U.S. companies win a 20% share of the Japanese semiconductor market by 1991. While American microchip sales in Japan rose sharply last year, thanks to an expanding market, U.S. companies have increased their share of the total to only 10.5%.

Congress paved the way for sharp U.S. retaliation by passing landmark trade legislation last year that may cause further friction between the two countries. The law has a provision dubbed Super 301 that requires the U.S. Trade Representative to identify by May 30 those countries that systematically restrict U.S. access to their markets. The Super 301 offenders must then agree % to lift their barriers or face U.S. import restrictions on their goods. Says Missouri Republican John Danforth, a member of the Senate Finance Committee: "I would really be startled, and very disturbed, if Japan were not on the list."

Ironically, the latest round of Japan bashing comes at a time when Tokyo believes it has been doing its best to improve U.S. trade ties. Last year Japan dropped quotas on beef and citrus imports and began to open its construction market to U.S. firms. "Through hard joint effort we put a lot of thorny issues behind us," says Peter Y. Sato, director general of the economic affairs bureau of the Ministry of Foreign Affairs. "Yet Americans are not satisfied with the speed." Other leaders see the FSX wrangle as a dramatic symptom of unreasonable U.S. demands.

At one point in the mid-1980s, Japan intended to build its own jet to patrol Pacific sea-lanes and provide air support for its defense forces. Washington offered instead to sell Japan planes that could be modified by adding new technologies, but Tokyo complained that the jets did not meet its military requirements. After the U.S. pressed the issue, Tokyo and Washington agreed last year to design the FSX (for Fighter Support Experimental), an advanced aircraft that would add new electronics and wings to the F-16 fuselage.

But the Reagan Administration's agreement ran into turbulence during two of Bush's National Security Council sessions in mid-March. Outspoken opponents included White House chief of staff John Sununu, a former engineering professor, who argued that the U.S. risked losing the technological edge represented by the plane's so-called source codes, which coordinate its electronic features. The doubters were joined by Secretary of Commerce Robert Mosbacher, who says he wanted to ensure that "this aviation technology, which has taken so many years of blood, sweat, tears and money to develop, did not instantly allow our biggest competitor to catch right up." After hearing the objections, Bush decided to reopen the agreement and press Japan for safeguards, including a clearer understanding of what the U.S. would gain from the project and the technological secrets it could withhold from the Japanese.

For its part, the U.S. Defense Department, based on its history of cooperation with the Japanese Defense Agency, sees few dangers in the FSX. Pentagon planners say the Japanese will learn little from the aging F-16 airframe. At the same time, the Pentagon covets Japan's miniaturized phased- $ array radar technology, which will use thousands of tiny, independent sensors to sweep large sections of the sky. The new radar will provide sharper resolution and greater range than traditional back-and-forth scanners. In addition, the Japanese will pay for the development of a larger, stronger and lighter wing for the F-16.

Proponents of the deal believe the bulk of technology flow will be from Japan to the U.S. Edward Bursk, chairman of the Aerospace Industries Association of America's International Council, told Congress last month he thought the agreement was fair. Said Bursk: "The U.S. technology involved in FSX is at a reasonable level and under U.S. Government control," adding that Japan could build a comparable plane by itself.

To those who argue that the FSX will help Japan become a major power in civil aviation, the deal's supporters reply that Tokyo already has entered the field with willing help from U.S. aerospace firms. Japan is developing an advanced jet engine with U.S., British, Italian and West German companies and is building a rocket that may launch a two-ton satellite into orbit by 1992.

The Bush Administration, in asking for safeguards in the deal, is not trying to crush Japan's aerospace ambitions or force Tokyo to buy wholly U.S.-made planes off the shelf. Rather the struggle over the FSX appears to mark the start of a new get-tough era in U.S. relations with its trading partners. Armed with the Super 301 weapon provided by Congress, the White House in coming months could bring actions against Japan if the U.S. determines that Tokyo has failed to open its markets for everything from weather satellites to financial services. Moreover, the Administration now considers U.S. industrial competitiveness to be as essential as tanks or missiles to American security. "Trade is defense," says Clyde Prestowitz, a former U.S. trade negotiator. "We must recognize the nature of the game." George Bush, for one, seems determined to play harder.

With reporting by Gisela Bolte and Dan Goodgame/Washington