Sanctions Loom as U.S.-Japan Trade Talks Stall

American trade negotiators broke off talks with Japan on Friday over greater access to the Japanese auto markets, raising the prospect of stiff U.S. trade sanctions on Japanese imports that could be announced as early as today.

“After 20 months of talks, it has become apparent that Japan will not take the steps necessary to bring genuine market access,” U.S. Trade Representative Mickey Kantor said after the talks in British Columbia.

Kantor and his Japanese counterpart, International Trade and Industry Minister Ryutaro Hashimoto, insisted that the dispute will not damage broader political and strategic relations between the two countries.

Even so, the impasse could have broad economic implications.

Some economists have predicted that a failed agreement could further worsen the dollar’s 20% drop against the yen this year by fostering international pessimism that the United States will find a way to shrink its $66-billion trade deficit with Japan. Auto trade accounts for two-thirds of that deficit.

Kantor refused to be pinned down on what steps the Clinton Administration would take, but he said the White House was prepared to move rapidly. Administration officials have warned that they might announce punitive tariffs on $1 billion of Japanese imports as early as today, when the National Economic Council meets in Washington.

Such sanctions, which usually take effect after 30 days, would be the largest ever imposed by the United States against a trading partner. Clinton was poised to take identical action against China earlier this year in a technology piracy dispute, but an agreement headed that off.

The United States has imposed lesser tariff sanctions in the past on Japanese electronics equipment in an effort to enforce a semiconductor agreement with Japan.

Hashimoto said any sanctions by the United States would “fly in the face” of international law, and he reiterated that Japan would immediately take its complaint to the World Trade Organization, the Geneva-based successor to the General Agreement on Tariffs and Trade.

Hashimoto and Kantor met for three hours Friday afternoon in a final effort to come to an agreement after a weeklong U.S. effort to wring concessions from a Japanese negotiating team that was unyielding and, in the view of Japan’s negotiators, reluctant to follow past Japanese practices of giving in to U.S. demands.

The talks have foundered on the United States’ insistence that Japanese auto companies raise their “voluntary” targets for buying U.S. auto parts. Japanese auto makers pledged in 1992 to sharply increase their purchases of U.S. parts over three years, and U.S. officials now want new, higher goals.

Japanese officials say tough economic conditions at home make it difficult for auto makers to significantly boost their purchases of U.S. parts.

Moreover, the Ministry of International Trade and Industry, which helped coordinate past “voluntary” purchasing plans in both the semiconductor and auto industries, now says those agreements were mistakes and insists that it will no longer be party to deals that require it to interfere with the private sector.

While the auto trade issues are not new, the United States and Japan have chosen the auto arena to take a stand. Kantor has made it a point of pride to insist on a major breakthrough in the talks, while the Japanese have insisted that they will no longer give in to what they consider U.S. bullying, especially when it comes to interference in the marketplace.

The auto negotiations have overshadowed a meeting of trade ministers from Japan, the United States, the European Union and Canada taking place here in this mountain resort. On Friday, the two trade ministers battled for the sympathy of the European and Canadian ministers.

Japan, which initially sought to show that it has widespread support for its position, found itself isolated when ministers from both the European Union and Canada backed the U.S. position that the Japanese market remains closed.

When Hashimoto argued, for example, that the United States’ failure to sell in Japan was from lack of effort and pointed to European companies as success stories, European Union Trade Minister Leon Britton retorted that European success was at great cost and that barriers remained in Japan.

Kantor pointed out that for all Europe’s success, it has only 2.6% of the Japanese market. The United States has an even smaller 1.5% of the Japanese market. By contrast, Japan has a 24% share of the U.S. market.