North American Talks Concern Japan : Commerce: A pact between Canada, the United States and Mexico would have wide-ranging repercussions for Tokyo.

MEXICO CITY —  When the United States, Canada and Mexico sit down to negotiate a free-trade agreement this year, there will be another party to the talks--one conspicuous by its absence.

Japan is the second-largest trading partner of each of the North American nations. And it could be deeply affected by a free-trade agreement among the three.

Already, the Mitsui Research Institute, a Tokyo think tank, is exploring ways that U.S.-Japanese trade deals could complement a North American free-trade agreement, perhaps eventually resulting in a four-nation Pacific economic coalition.

That, of course, assumes that Japan can first overcome its raging trade conflicts with the United States, noted Victor Kerber, a researcher specializing in Japan-Mexico relations at El Colegio de Mexico, a research university here.

“A wide-ranging trade agreement between the United States and Japan would be needed to provide a basis” for four-way talks, he said.

Today’s meeting between President Bush and Japanese Prime Minister Toshiki Kaifu in Newport Beach could begin laying the groundwork, some economists say. If the Bush-Kaifu talks go well, Japan could figure in the agenda when Bush meets Sunday with Mexican President Carlos Salinas de Gortari to talk about the pending North American free-trade negotiations.

“The main worry of the Japanese is that they do not want to be excluded,” Kerber said. “The Japanese believe this is the beginning of a common market, and they do not want to be left out as they were in Europe.”

That possibility is especially worrisome for Japanese business people in Mexico City. They have stayed through one of the most wrenching decades in modern Mexican history, hoping to reap the fruits of an eventual recovery.

“Japanese executives, especially those in plants located in central Mexico, take pride in the support they and their government have given to economic reform in Mexico,” said Gabriel Szekely, editor of a recently published book about relations among Japan, the United States and Mexico. “From 1985 to 1990, Japanese lending to Mexico was $5 billion, at a time when U.S. lending was zero.”

Certainly, Japanese businesses here are watching trade developments closely. The 120-member Japanese Chamber of Commerce and Industry of Mexico is in close contact with the Mexican officials who will be negotiating the North American agreement; the proposed pact was the main focus of a Japanese trade and investment mission that visited Mexico in November.

“In general, we look very favorably on the idea,” said Ryuhei Kato, general manager of the Japanese chamber. “But there are some concerns.”

The primary questions are:

* What level of Mexican content must a product have to be considered domestically made?

* What will happen to maquiladoras, the primarily foreign-owned factories--concentrated along the U.S. border--that assemble imported components into finished products for export to the United States?

* Will all three nations keep their markets open to countries that are not part of the agreement?

Japanese officials emphasize that satisfying many of their preferences would also be in Mexico’s interest.

“There will be significant investment in Mexico if Japanese companies can export from here to the United States and Canada--if Mexico can be an export window for Japanese products in the North American market,” said Hitoshiro Ishida, commercial counselor at the Japanese Embassy here.

From the Japanese perspective, however, being able to export means being able to use a liberal amount of imported components.

“Products with a high degree of local (Mexican) content are not internationally competitive,” the export director for one Japanese manufacturer said. Either the quality of local parts is inconsistent, the price is too high or both, he said.