Politics and Japanese tax law will make it extremely difficult for Japan to meet demands voiced by President Reagan this weekend for reforms in its market for cigarettes and leather, Japanese officials said today.
But the officials suggested that Reagan's call might turn out to be positive news if it helps reduce pressure in Congress for far-reaching legislation to cut Japan's mounting trade surplus by hindering its exports to the United States.
On Saturday, Reagan announced he had decided to implement "countermeasures" against Japan, the European Community, South Korea and Brazil if they did not stop "unfair trade practices" in a variety of product lines.
Japanese officials expressed surprise at the categories Reagan specified in Japan's case: cigarettes, leather and leather shoes. They have been the subject of negotiations between Washington and Tokyo for years.
In the Japanese view, the market for cigarettes was almost totally liberalized on April 1, when distribution and promotion of cigarettes was thrown open to competition after decades of control by a government monopoly.
However, foreign cigarette companies, which now account for only about 2.3 percent of Japan's $10 billion-a-year market for cigarettes, contend that significant impediments remain. They argue that, in a truly free market, they could build up to about one-quarter of the sales.
In particular, they point to Japan's practice of taxing foreign cigarettes based on the sum of their cost plus the average 20 percent tariff paid upon entering Japan. This constitutes a "tax on a tax," they say, and makes their products too expensive.
They complain that the former monopoly agency, now recast as a private company, retains sole rights to produce cigarettes in Japan and contend that it still has a de facto monopoly on distribution.
Japanese officials respond that the tax-on-a-tax system is deeply rooted in the Japanese legal and financial system. "It was not created as a trade impediment," a Foreign Ministry official said. "We need the revenue."
Any shift in tobacco policy comes slowly in Japan, in part because of the influence of Japan's 75,000 tobacco farmers within the ruling Liberal Democratic Party. Tobacco is Japan's second-largest cash crop, after rice.
Officials here concede, however, that leather is a highly protected market. Strict import quotas are in place. Last year, officials of the General Agreement on Tariffs and Trade ruled that quotas on leather were illegal.
Japan pledged to remove them. However, the United States has protested Japanese suggestions that the new system will be a dual-tariff schedule in which anything imported after a certain target level had been reached would be assessed tariffs at a higher rate. "It would be at least as effective a restriction," said one U.S. official here.
The Japanese argue that the leather industry, like much of the agricultural sector, qualifies for protection because it is composed of large numbers of small, inefficient businesses that never could compete with U.S. and other foreign producers.