Japan Seeks to Stave Off Trade Curbs : Diplomacy: Hosokawa thinks breakdown of talks will not lead to immediate U.S. sanctions. He suggests measures would be illegal.

Japanese Prime Minister Morihiro Hosokawa on Saturday sought to stave off American retaliation against Japanese products following the breakdown in trade talks between the two countries.

“I don’t think he (President Clinton) will be thinking immediately about sanctions,” Hosokawa told a news conference here shortly before departing for Tokyo. “I don’t think the failure of an agreement will lead immediately to sanctions.”

His remarks reflected a last-ditch hope that the Clinton Administration, in its unhappiness with Japan’s trade policies, will confine itself to rhetoric and will not take concrete actions to restrict Japanese exports to the United States.

That possibility appears remote. After Clinton and Hosokawa failed to resolve their differences at a three-hour meeting at the White House on Friday, a senior Administration official told reporters, “The reality is, we’ll take some action.”

On Saturday, Hosokawa suggested that Japan might try to argue that new American trade sanctions would be illegal.

“I very much hope that the United States will refrain from resorting to unilateral actions that would be in contravention” of the General Agreement on Tariffs and Trade, the Japanese prime minister declared.

He was referring to international trade laws that prevent one country from acting on its own to limit goods from another nation. Under December’s GATT agreement, a new World Trade Organization will run what Japan hopes will be an effective panel for resolving disputes.

After the latest round of trade talks broke down, U.S. officials immediately began discussing the possible revival of a trade provision known as Super 301, which would permit U.S. retaliation against specific industries within a country if that nation is found to be violating existing trade agreements.

That section of American trade law was particularly disliked by Japan because it required an annual review of trade barriers abroad and mandated U.S. retaliation if the barriers were not lifted. The law expired in 1990, but Clinton could reimpose it on his own with an executive order, or he could support legislation proposed by Sen. John D. (Jay) Rockefeller IV (D-W.Va.) and House Majority Leader Richard A. Gephardt (D-Mo.) that would do the same thing.

The American position is that trade restrictions imposed under Super 301 do not violate GATT because they are in retaliation for another country’s limits on American products overseas.

In addition, the Clinton Administration argues that it reserved the right to impose these trade restrictions in Tokyo last summer when it adopted a broad “framework agreement” aimed at reducing the $60-billion-a-year trade imbalance between the two countries.

The dispute between the two major trading partners is over how to reduce Japan’s trade surplus in four economic sectors--autos and auto parts, medical equipment, telecommunications equipment and insurance.

Clinton and Hosokawa’s predecessor, Kiichi Miyazawa, agreed in Tokyo last July that they would establish a framework for setting “objective criteria” by which progress in reducing the trade surplus could be measured.

At the White House on Friday, the President and the Japanese prime minister told reporters that there needs to be a “cooling-off period” before the two countries try again to resolve their deep differences.

But at Saturday’s news conference, Hosokawa, whose public support in Japan has been plummeting, suggested he might like to try to negotiate again soon.

Still, he showed no flexibility on what Japanese officials insist is a fundamental disagreement between the two governments over how to judge progress in redressing the trade imbalance.

The Clinton Administration has pushed for objective standards in judging whether Japan’s markets are opened or closed. U.S. officials say they want to use hard data, like comparing the percentage of sales in Japan that go to imports with the comparable percentages in other industrialized countries.

Japan has responded by saying that this approach would amount to “numerical targets” and would be “managed trade,” in violation of free-market principles.

Clinton contended Friday that he is not seeking fixed numerical targets and is willing to temper the use of percentages by taking into account such factors as exchange rates and changes in domestic demand.

Hosokawa on Saturday rejected Clinton’s explanation. “Some of the objective criteria that the U.S. side sought--they used various words to express them--we feel were the same as numerical targets,” he said. “And we feel that this runs counter to the deregulation that we, the Hosokawa administration, have taken as its basic principles.”

Managed trade, he said, “is something that we must avoid at all costs. That is our basic position. Therefore, we will not modify our position.”

In Tokyo, Hosokawa’s actions won wide support.

“No matter what,” said Gaishi Hiraiwa, head of the Keidanren, the country’s leading business group, “Japan cannot accept America’s effort to bring about managed trade.”

Yohei Kono, leader of the opposition Liberal Democrats, also lent support to the prime minister. “For Hosokawa to reject the American proposal was simply common sense,” he said today.

At the news conference, Hosokawa also hinted that Japan may not be able to go along with proposals for economic sanctions against North Korea if these sanctions require Japan to impose strict limits on the money sent home by North Koreans living in Japan.

American officials have suggested that cutting off these “remittances” from Japan to North Korea could be one of the ways used to pressure Pyongyang to give up a nuclear weapons program. North Korea warned Saturday that any economic sanctions would amount to a declaration of war.

Hosokawa told Clinton that Japan will support sanctions against North Korea “to the extent permitted by Japanese law.”