We discuss type I-heterotic duality in four-dimensional models obtaine
d as a Coulomb phase of the six-dimensional U(16) orientifold model co
mpactified on T-2 with arbitrary SCT(16) Wilson lines, We show that Ka
hler potentials, gauge threshold corrections and the infinite tower of
higher derivative F-terms agree in the limit that corresponds to weak
coupling, large T-2 heterotic compactifications. On the type I side,
all these quantities are completely determined by the spectrum of N =
2 BPS states that originate from D = 6 massless superstring modes. (C)
1997 Elsevier Science B.V.