Japanese Report: U.S. Demands May Lead to Protectionism : Trade: Both governments are trying to get world opinion behind them as meeting of industrialized countries approaches.

TOKYO — As front-page newspaper reports here Friday warned that Washington will soon insist that Japan take Draconian measures to cut its trade surplus, this country released a new study of its own, saying that undue U.S. emphasis on trade balances could usher in a new era of protectionism.

“To save the world from protectionism, we have to say ‘no’ to (American demands for) managed trade,” said one official of the Ministry of International Trade and Industry who helped prepare the government white paper on trade.

A growing gap between the trade positions of the two economic superpowers foreshadows heightened tensions as they seek a common ground before July’s summit of the leaders of the world’s seven major industrial democracies.

Both governments want to get world opinion behind their trade positions. In recent weeks, Japanese officials traveling to Southeast Asia and Australia have sought and received support for their position, condemning American use of the sanctions threats to force trading partners to open their markets.

For its part, the Clinton Administration is expected to propose at a June meeting of the Organization of Economic Cooperation and Development that all members be required to reduce their trade surpluses with the United States to less than 2% of gross domestic product within three years. Japan is the only OECD member with such a surplus--$132 billion last year, representing more than 3% of its GDP.

Japanese industrialists expressed disbelief that Washington would demand such sharp cuts over such a short period. “Clinton wouldn’t do such an absurd thing,” said Shoichiro Toyoda, president of Toyota Motor Corp. “He values America’s relationship with Japan.”

Officials of the trade and industry ministry said they have received no official word of Washington’s intentions but would resolutely refuse to accept any target for cutting Japan’s trade surpluses.

Meanwhile, the ministry’s new report offers an elaborate defense of Japan’s trade position. The report denies that Japan’s markets are closed, insists that its surpluses will shrink over time and argues that there is nothing inherently wrong with surpluses.

The tone of the report reflects a sea change in Japan’s approach to trade negotiations. In the past, the ministry sought to temper U.S. demands by coming up with lists of “market-opening measures.” In a few areas, such as semiconductors, Japan even agreed to targets for import increases.

Japanese officials say such agreements served only to increase trade friction, since failure to reach targets would result in U.S. threats of sanctions. Japan’s offers to open its markets seemed to confirm to trading partners that its markets were closed, officials say.

This time, officials say they will resist taking the easy way out by trying to appease America with new agreements. Ever since Prime Minister Kiichi Miyazawa told President Clinton that Japan would not accept quantitative goals, the Japanese press has been praising the government for finally standing up to America.