U.S. Threatens to Break Off Talks With Japan : Trade: The Clinton Administration’s demands for progress in open market negotiations cast a cloud over Hosokawa’s visit this week.

Senior Clinton Administration officials on Sunday issued a blunt warning that they are willing to abandon faltering U.S.-Japanese trade talks if last-ditch negotiations this week fail to produce specific commitments by Japan to open its lucrative markets to American products.

On the eve of a final round of talks leading up to a White House visit by Japanese Prime Minister Morihiro Hosokawa on Friday, senior officials said the Administration would not back away from its demand that Japan accept numerical targets in four specific trade arenas--autos and auto parts, financial services, telecommunications and medical equipment.

Their language--the harshest yet in the ongoing dispute--made clear the predicament facing the negotiators who will conduct the talks and underscores the slim odds that they will be able to avert a serious breakdown in the relationship between the two trading partners.

“They’re on a collision course,” said C. Fred Bergsten, director of the Institute for International Economics.

“Everyone is firm in the belief that if there isn’t some results-oriented agreement by the end of the week, we have to look at what our options are,” said a senior White House official who requested anonymity.

“This is not just an attempt to be tough. There is a genuine agreement (that) we are willing to walk away from this,” he said, adding that he hoped the Japanese “understand the seriousness of the situation.”

Treasury Secretary Lloyd Bentsen even hinted at the possibility of retaliatory actions, which could include the imposition of sanctions against Japan.

“We have all sorts of things that are built into the law where actions can be taken to try to open up markets,” Bentsen said.

Bentsen, who met with Hosokawa in Tokyo two weeks ago, has said that the White House will not tolerate any attempt to “paper over” the differences and continue the talks without clear progress. But others continue to hold out hope that in the closing moments of the meetings this week, enough room for agreement will be found--as has occurred in the past--to avoid drastic action.

Adding to the pressure is talk on the part of House Majority Leader Richard A. Gephardt (D-Mo.) of introducing legislation to toughen the capability of the United States to strike back at what it considers unfair trade practices if the talks this week fail.

“If we don’t deal with this issue we are consigned to a chronic, large, never-ending trade deficit with Japan. It will never change,” Gephardt said last week at a luncheon with a small group of reporters.

As for the Japanese resistance to U.S. pressure to set specific targets for foreign sales in Japan--Tokyo brands such an approach “managed” trade that stands in the way of the nearly universally accepted ideal of “free” trade--the House Democratic leader said:

“You’ve got to reach for definable goals. What we have been willing to put up with with Japan are fancy press releases, and you turn around two years later and nothing has changed.”

One approach, suggested by Bergsten, the author of a 1993 study of the U.S.-Japanese economic conflict, would be to push into the future any agreement on specific trade goals, while Clinton and Hosokawa make progress on less difficult, broader areas. These areas could involve exchange rates--a stronger yen makes U.S. goods cheaper in Japan--and stimulation of the Japanese economy to make more money available for consumer purchases.

At the heart of the dispute is an agreement Clinton hammered out last July with Hosokawa’s predecessor, Kiichi Miyazawa, to set overall goals that would provide greater opportunities for U.S. companies to increase their sales and operations in Japan.

Manufacturers, auto makers, contractors, medical technology firms, telecommunications companies and such providers of financial services as banks and insurance companies have long complained that government regulations and the closed nature of Japanese society have blocked their sales efforts in Japan.

In the agreement, Tokyo promised to boost domestic economic demand--to bring about purchases of more foreign-made goods--and achieve “a highly significant decrease” in its trade surplus. The imbalance with the United States was roughly $55 billion in 1993--nearly half of Japan’s overall global trade surplus of $120 billion.

Japan also promised to redraw the rules for government buying, to increase its purchases of foreign computers, supercomputers, satellites, medical technology and telecommunications equipment. And it promised to remove some barriers to its markets and encourage the import of foreign automobiles and auto parts.

But after embarking on intensive talks, negotiators have reported virtually no progress.

“We’re nowhere near any agreement in any of these areas,” the senior White House official said Sunday, two days after U.S. Trade Representative Mickey Kantor and Bowman Cutter, a senior Clinton economics adviser, returned from one more round of talks in Tokyo.

U.S. officials in recent weeks have begun losing patience with suggestions that the political turmoil in Japan was hindering Hosokawa’s ability to make concessions on the trade front.

“We’ve laid off for eight months to let them get their political house in order,” the senior official said. “But the time is now.”

He said that in the past, Japanese negotiators have probed for divisions within U.S. administrations and are now trying to avoid dealing with Kantor, who has taken a particularly tough line. But, said the White House aide, “they’ll find Mickey Kantor is speaking for the President.”