Japan Threatens to Suspend Car Trade Talks With U.S. : Trade: The tension level between the two nations increases as the White House considers retaliatory sanctions.

Japanese negotiators threatened Tuesday to walk out of stalled talks aimed at opening Japan’s auto markets to foreign manufacturers if the United States announces that it will impose retaliatory trade sanctions.

The threatened suspension of the negotiations raised the level of tension surrounding the talks, which have taken place intermittently for the past 18 months. A senior Clinton Administration official said the threat is “evidence of the fact the Japanese are taking the negotiations very seriously.”

Last week, the White House leaked word that it is prepared to impose trade sanctions on unspecified Japanese products, making them sharply more expensive in this country, at some approaching date if an agreement is not reached soon. In turn, the Japanese made it clear that they would fight such a course in the newly established World Trade Organization, seeking to have it ruled out of order under the regulations that govern world trade.

But Tuesday, the Japanese delegation went a significant step further, saying in a position paper made public as the second of two days of talks concluded at the Commerce Department: “If the U.S. government should announce retaliation against Japan in an effort to create negotiating leverage, we may be forced to suspend negotiations and proceed immediately to the WTO.”

Yoshihiro Sakamoto, vice minister of the Japanese Ministry of Trade and Industry and a senior Japanese negotiator, told reporters that under the framework for the talks, the imposition of sanctions would be cause for breaking them off “and we would need to have a referee,” a reference to the WTO.

At a separate news conference, Undersecretary of Commerce Jeffrey E. Garten, one of the two senior U.S. negotiators, said that over the 18 months of talks, “we’ve made very little progress.”

“There were no breakthroughs” in the two days of meetings Monday and Tuesday, he said. “We have a long way to go. Wide gaps remain in each area of the negotiations.”

President Clinton, at a news conference Tuesday evening, said he will continue to place his faith in the negotiations. “We have strong differences,” he said. “We have worked hard to resolve our trade differences with Japan. We have made some significant progress in other areas and I’m going to let (U.S. Trade Representative Mickey Kantor) continue to pursue this one in the way that we have agreed upon.”

The talks are being conducted under the increasingly dark cloud of the rising value of the yen and the falling dollar--a currency course that neither country claims to favor. It has made U.S. products less expensive in Japan and Japanese products more costly in the United States.

That should reduce the $65.7-billion U.S. trade deficit with Japan, but, by decreasing foreign demand for Japanese exports, threatens to send the Japanese economy back into the recession from which it only recently emerged.

Early today in Tokyo, the dollar sank as low as 79.75 yen, a post-World War II low and down about 20% since the beginning of the year.

U.S. negotiators said they have concentrated specifically on finding ways to get U.S. automobiles on display in Japanese showrooms and on improving the market for U.S.-made parts--new components for sale to auto makers and replacement parts for cars already on the road.

The dealership issue hinges on what U.S. officials and the American Automobile Manufacturers Assn. say is the reluctance among Japanese auto dealers to risk the retaliation of Japanese companies if they display American vehicles in their showrooms alongside Japanese cars and trucks.

The parts question hinges on an extensive set of regulations that Japan imposes on repair work involving the installation of new parts. Such work often requires government-certified inspection, leading car owners to authorized repair shops with close ties to Japanese parts manufacturers.

The result, U.S. officials say, is a set of regulations, masquerading as safety rules, that are actually trade barriers keeping out foreign companies.

In the past, talks involving U.S. and Japanese officials over contentious trade issues have been conducted against specific deadlines. But the current negotiations have an uncertain deadline. If the Administration has a specific deadline in mind, it has not disclosed it.

A senior official, speaking on condition of anonymity, suggested that a meeting of Kantor and the trade ministers of Japan, the European Union and Canada, scheduled for May 4-5 in Whistler, Canada, is looming as “a very important event.”

“It’s reasonable to expect these issues will have reached increased intensity by then,” he said when asked whether the United States will announce sanctions if a resolution is not achieved by then.