Environment : A Question of Pollution and Power : A tiny Malaysian village accuses a Japanese conglomerate of dumping nuclear waste and causing illness.

Cradling her deformed 9-year-old son in her arms like a baby, Lai Kwan shook her fist in impotent rage. “It’s all the fault of that factory,” she said. “They never told us of the dangers.”

For the past seven years, the people of this small Malaysian village have waged an epic battle against the giant Japanese conglomerate Mitsubishi, charging that it pollutes their town with radioactive waste.

In late October, Woo Chee Hoe, another 9-year-old boy, died of a rare pineal gland tumor, one of six people in the village who have so far succumbed to rare illnesses which their doctors attribute to radiation exposure. The victims included two children who died of leukemia--a figure far out of proportion to the occurrence of the disease in the rest of the country.

Doctors also have found a steep rise in lead poisoning, a decline in white blood counts and a rise in miscarriages and birth defects.

In July, a high court judge sided with the villagers and ordered the plant, called Asian Rare Earths Co., closed within 14 days. But the country’s Supreme Court quickly vacated the order and indicated that it would not be as sympathetic when it hears an appeal in the case later this year.

For Mitsubishi, which has denied charges of creating a safety hazard, the legal case represents a public relations nightmare. The controversy has stirred memories of the 1950s pollution scandal in the Japanese port city of Minimata, when a local industrial company dumped mercury into seawater, causing a rash of birth defects.

The case has also publicly embarrassed the Japanese government, which regularly claims to have done much to stop the despoliation of the Third World.

Legal scholars are looking closely at the case because it is the first time a community in the Third World has sued to stop a multinational firm from allegedly causing harmful pollution. The case is also expected to lead to a new definition of how much nuclear radiation is considered safe to a community.

Whether valid or not, the effort to close the factory is widely seen as a threat to Prime Minister Mahathir Mohammed’s cherished hopes of industrializing Malaysia by the year 2020.

There is concern in the government that if the village prevails, it could set a precedent for challenges to other industrial developments. Mahathir’s pet project is Southeast Asia’s first home-grown automobile, the Proton Saga, a joint venture between the Malaysian government and Mitsubishi.

The Asian Rare Earths factory here was established in 1982 as a joint venture between Mitsubishi Kasei, which owns a 35% stake, a Chinese-owned tin mine and a private fund that finances Muslims making the religious pilgrimage to Mecca.

ARE takes a byproduct of tin mining called monazite and processes it into a rare element called yttrium, which is used in the manufacture of color TV tubes. The production process releases radioactive radon gas during manufacturing and leaves a waste called thorium hydroxide, which is radioactive and considered more harmful to humans than uranium.

During the lengthy legal proceedings, town residents testified that in the first years of production, the company dumped the waste on a vacant lot behind the factory in plastic bags, later covering the dump with sand. Villagers were told that the waste makes good fertilizer, and some used it in their home vegetable plots.

Lai Kwan, 49, worked in the factory for two years as a laborer. She has 12 sons, but only her last son has any birth defects. “When I worked at the factory, waste was dumped on the floor everywhere,” she said. “There was a very bad smell.”

Bukit Merah was established in the 1950s by the British colonial authorities as a “protected village” to keep Communists from infiltrating the Chinese community. Now a sleepy suburb of Ipoh, a number of industrial sites such as ARE are separated from the town’s neat rows of wooden bungalows by only a small blacktop road.

“The processing of monazite is an abandoned industry in Japan,” said Hew Yoon Tat, who heads a residents’ committee that was formed in 1982 to fight the factory. “They moved to Malaysia because we don’t have the technology to know the damage it is causing.”

Trial testimony suggested the Japanese stopped refining monazite in 1972 because of concerns about pollution and the costs involved.

“Malaysia gets nothing from the factory, except they leave the waste behind. The social costs of the waste are staggering,” said Gurdial Singh Nijar, an attorney for the Bukit Merah residents.

Asked to comment on the question, officials of ARE declined to speak with a reporter. A spokesman for Mitsubishi Kasei in Japan, Kenzo Tamura, said, “We are confident with the results of our investigations. We are sure the plant is safe.”

But Dr. Rosalie Bertell, a Canadian expert on the long-term effects of nuclear radiation, argued that “there is an extraordinary excess in Bukit Merah. It was clearly a mistake to site the factory in a populated area. There is no way they can operate and keep it safe. You’re either going to expose the workers or the community. There is no way to keep in the dust and gas.”

Dr. Thambyappa Jayabalan, a doctor now based in Penang, became so involved with the Bukit Merah case that he gave up a practice in Kuala Lumpur to open an office in the village.

Among Jayabalan’s findings was that the waste contains lead sulfate as well as radioactive materials, so he used lead as a “marker” to determine if the waste was being absorbed. He tested 104 children and found 48 with toxic levels of lead.

“There is no doubt that these cases are from the plant,” he said.

Meenakshi Raman, a lawyer working with the Consumer Assn. of Penang, said a fundamental part of the Bukit Merah case is to challenge the belief that low-level doses of radiation are acceptable, as the nuclear industry has long maintained.

“Our case is that there is no such thing as a safe dose of radiation,” she said. “Given the close proximity of the people, the factory should not be there.”

The company has built a permanent waste disposal site about 10 miles from the plant, and about five years ago it carried out a cleanup of the old dump site in an effort to remove waste scattered around the village. Ironically, doctors believe that the cleanup contributed to a rash of illnesses because it stirred up wastes that had been buried.

Even with safer waste storage, however, the trial court held that the leakage of radon gases “inevitably” led to higher radiation in the village. “In my opinion, such radioactive radon gases are extremely dangerous to health and would cause very serious injuries in the long term,” the judge wrote.

The ARE factory has remained closed since the judge’s ruling, despite getting the Supreme Court’s permission to reopen. Kenzo Tamura, the Mitsubishi Kasei spokesman, said that after the high court rules, the three partners will meet to “decide how to handle ARE’s business.”