On the night of April 15, members of President Reagan's Cabinet, weary after 2 1/2 hours of often fractious debate over a trade problem that had wide ramifications for relations with Japan, left the White House pledged to keep secret the details of their meeting.
But within minutes, a Japanese Embassy trade specialist, Kazuhiko Otsuka, had cut through the secrecy to learn that the Cabinet members were unable to resolve their differences, and was told that the issue would be thrown into Reagan's lap a week later on April 22. Otsuka immediately flashed the news to his superiors in Tokyo.
In a controversy involving the future of the American machine tool industry, Otsuka's early warning triggered an intensive, high-level Japanese lobbying effort that involved two personal messages from Prime Minister Yashuiro Nakasone. Those messages eventually persuaded Reagan to side with the Japanese without hearing the debate of his Cabinet.
"I was told that at the April 22 meeting President Reagan made it clear the request from Nakasone was first and foremost on his mind," said Richard Copaken, the Covington & Burling attorney who pressed the case alleging unfair trading practices by Japan in the machine tool industry on behalf of his client, Houdaille Industries Inc. of Fort Lauderdale.
"The president succumbed to lobbying pressure from Japan," added Houdaille's president, Phillip A. O'Reilly.
At the meeting, a surprised Commerce Secretary Malcolm Baldrige, who had supported the Houdaille complaint, reportedly told Reagan, "Mr. President, you are being naive" in placing so much weight on the Nakasone messages, according to a high administration official.
The Cabinet discussion that Reagan never heard involved a set of laboriously hammered-out "agreed facts" concluding that Japan had protected, nurtured and subsidized its machine tool industry in a way that gave it a trade advantage over U.S. companies and allowed it to capture more than half of the United States machine tool market.
Furthermore, the Cabinet officials had agreed that the facts justified Reagan's authorizing of unfair-trade charges against the Japanese, although there was a group of self-described "white-hat" pure free-traders who, on ideological grounds, vehemently opposed taking action.
The trade case was watched closely at the time for signs that the White House was shaping a unified policy with Japan.
The U.S. position had been confusing as the administration tried to pare the $20 billion U.S. trade deficit with Japan while sticking with its professed free-trade ideological bias. The massive trade deficit was drawing criticism, with leading industrialists and Democratic presidential candidates calling for strong measures to protect American industries, and with critics from both parties complaining that the administration's trade policies were in disarray.
The Japanese lobbying effort was personally headed by Nakasone, who sent the same message through two channels to Reagan. The essence of the Nakasone message, administration and private sources agreed, was that Tokyo would consider a finding of unfair trade practices as akin to branding Japan, which is America's foremost Pacific ally, as an enemy.
Nakasone also was reported to have stressed the importance of upcoming parliamentary elections to his party's program of increased support for the U.S. defense strategy in the Pacific.
The prime minister sent the messages via the Japanese ambassador in Washington, Yoshio Okawara, who reportedly hand-carried one to Secretary of State George P. Shultz and telephoned the other to Edwin L. Harper, then a top presidential adviser.
The Houdaille officials' admittedly one-sided view of the presidential action was confirmed during interviews with more than a half dozen high-ranking Reagan administration trade officials who took part in the 11 months of intense and often acrimonius debate that preceded the April 22 decision.
The Houdaille case remains important today, nearly four months after the White House decision, because it shows most vividly the confused and inconsistent nature of administration trade policy.
Overseas trading partners and U.S. businessmen frequently compare the White House decision against granting trade relief to Houdaille--part of a depressed industry critical both to national security and economic strength--with the ruling made just two weeks earlier to slap heavy duties on imports of Japanese motorcycles to save the ailing Harley-Davidson Co.
There is growing sentiment among many lawyers, congressmen of both parties and others involved in trade that the administration is willing to go all-out to help a small company, essentially meaningless in the larger economic context, while allowing the key machine tool industry to fall prey to subsidized foreign competition.
The Houdaille case also illuminates the sharp differences within the administration between ideological free-traders and a more pragmatic group that espouses free-trade principles but believes that since few, if any, other nations practice it, the best the United States can hope for is "freer trade" or "fair trade."
It was this split that kept the Houdaille case on the White House burner for 11 months, with, according to participants, hundreds of meetings at the sub-Cabinet level and dozens of sessions involving Cabinet members. These included at least a half dozen meetings of the Trade Policy Committee headed by U.S. Trade Representative William E. Brock and more than three meetings of the Cabinet Council on Commerce and Trade headed by Baldrige.
"At most of those meetings it was Brock and Baldrige against the world," one high administration official said.
They were strongest on the side of Houdaille against the "white hats" of the Office of Management and Budget, the Council of Economic Advisers and Deputy Treasury Secretary R.T. (Tim) McNamar. The State Department generally favored Japan, arguing the larger foreign policy issues, while the Defense Department and National Security Council leaned toward Houdaille because of the need for machine tools in defense production.
Houdaille had filed its complaint on May 3, 1982. Then the administration infighting began. According to numerous officials present at Cabinet and sub-Cabinet level meetings, the heated sessions were marked with "vituperous" language and shouting.
It was clear in early February that the administration's trade decision-making apparatus was stymied by the Houdaille petition.
On Feb. 3, presidential counselor Edwin Meese III asked a few participants of previous discussions to meet in his office. Among those invited were Brock, Baldrige, then-presidential assistant Harper, White House chief of staff James A. Baker III and Allen Wallis, under secretary of state for economic affairs.
Conspicuous by his absence was McNamar, who represented Treasury Secretary Donald T. Regan on Houdaille matters and who had become the most outspoken opponent of giving the U.S. machine tool company any trade relief.
That ad hoc committee, according to administration sources, quickly concluded that some corrective action was needed to protect the U.S. machine tool industry, but it reached no decision on what the relief should be.
Brock, on his way to Tokyo on other trade issues, was told by Meese to inform officials of Japan's Ministry of International Trade and Industry (MITI) that a consensus had been reached at the highest White House level that Japan had committed unfair trade practices in the machine tool industry. The only decision left for the Reagan administration, Brock told the MITI officials, was determining what sanctions to apply to the Japanese.
Meese, contacted through a spokesman Saturday, said he could add nothing on the Houdaille case and declined further comment.
The Japanese reportedly were shocked by the decision, for it struck at the heart of the government's policy of helping domestic industries. While Japan maintained that its policy is a legitimate function for any government, critics have charged that the Japanese use it to target specific industries for government help in an effort to allow them to prosper and conquer overseas markets.
McNamar learned of the Brock mission in mid-February, when the trade representative reported on it to his Cabinet colleagues. The treasury official, according to administration sources, complained that he had not been allowed to present an opposing view during the Meese meeting. He was joined in his complaint by representatives of the OMB and the CEA, and their combined force managed to derail the earlier decision.
It was back to the drawing board in the Houdaille case, as far as the White House was concerned, and the Japanese soon learned that Brock's declaration of early February had been overtaken by events in Washington.
Realizing that the Cabinet-level battle lines were firmly drawn, Baldrige suggested that a sub-Cabinet group try once again to reach some consensus that could be given to Reagan for a decision. The unhappy job of heading that group was handed to a White House aide named Wendell Wilkie Gunn who began by stripping the trade complaint down to its essence.
Within two weeks, he was able to gain the unanimous concurrence from previously warring factions to a set of "agreed facts": a three-page document that supported much of the Houdaille legal complaint.
At a five-hour meeting, these sub-Cabinet officials representing all sides even were able to agree that the facts justified the president taking action against Japan under international trade laws, administration officials present at that meeting said.
Those decisions were sent to the Cabinet-level meeting on April 15, where during the first 15 minutes of a 2 1/2-hour debate all sides agreed to the statement of facts. But the sharp ideological splits remained and finally the administration's top policy advisers felt they had no choice but to send the dispute to Reagan for decision. The meeting was set for the following Friday, April 22.
The issue was considered so sensitive that participants in the meeting were told to hold as extremely confidential the decision to place the Houdaille question before Reagan. Only one copy was made of an option paper for the president. It was hand-carried by Eric I. Garfinkel, a White House aide charged with following trade issues, to Cabinet members involved for their approval. Even Cabinet members were not allowed to keep copies.
When Brock returned to his office after the meeting, there was an unexpected visitor awaiting him: Otsuka, the Japanese Embassy trade official.
Otsuka, one of his country's most affable diplomats and extremely well-informed on trade issues, learned of the Cabinet decision by staking himself out in the anteroom of Brock's office, across 17th Street from the White House-Executive Office Building complex.
An administration official deeply involved in the Houdaille deliberations and private trade sources quoted Otsuka--who has been reassigned to Tokyo--as saying that Brock was the source of the leak, inadvertently blurting out what the Cabinet had done. Brock said he recalls Otsuka waiting outside his office after a White House meeting but said he isn't sure it was after the key April 15 session.
"Otsuka knew before most government officials concerned with Houdaille found out what happened," said one sub-Cabinet administration aide. There are even reports that some Japan specialists on Brock's staff heard about the Cabinet meeting through telephone calls from Otsuka.
Since it was close to 10 a.m. Saturday in Tokyo, Otsuka was able to catch key MITI and Foreign Ministry officials, who regularly work part of the weekend. That gave the Japanese until mid-week to unleash their heaviest lobbying guns, the messages from Nakasone to Reagan.
Shortly before the Friday, April 22, meeting in which Reagan was to hear all the arguments, Brock was told that the president already had made up his mind, based on the Nakasone messages.
Coincidentally, Baldrige, who is considered closer to the president than Brock, received no advance word of the decision. He told aides later that he could not understand why Brock was so subdued and failed to join him in pressing the lost-cause argument in favor of Houdaille.