U.S. Sets 100% Tax on Japan Luxury Cars in Trade Dispute : Commerce: Tariff would price 13 models out of the domestic market. But White House sources predict settlement of the issue before sanctions take effect Saturday.
The White House, seeking to force Japan to yield in an angry trade dispute, said Tuesday it will impose a 100% tax on 13 luxury automobile models made in Japan and sold in the United States, effectively pricing them out of the American market.
“We’re moving forward. The ball’s in Japan’s court,” said U.S. Trade Representative Mickey Kantor. “We have no plan and no intent to in any way slow down. . . .”
Even as Kantor made his remarks, senior Clinton Administration officials privately predicted the sanctions--scheduled to begin as early as this weekend--will never go into effect because the imminent and now specific nature of the U.S. threat will provide the leverage needed to settle the dispute.
Indeed, within an hour of the White House announcement, Japan called for a meeting of U.S. and Japanese trade negotiators in Geneva. Japan also said it would file a complaint as early as today with the World Trade Organization, the new panel created to referee international trade disputes.
The Japanese minister of international trade and industry, Ryutaro Hashimoto, said disclosure of the sanctions “severely disrupts Japan’s trade with the United States,” and his ministry said the U.S. had violated global trade rules.
The sanctions would cover the top-line models made by Honda, Mazda and Mitsubishi, as well as virtually the entire lines of Toyota’s Lexus and Nissan’s Infiniti autos.
The announcement sent shock waves throughout the automotive industry and prompted a flood of calls from prospective buyers. “The phones are ringing off the hook from customers,” said Ken Kaiden, general manager of Cerritos Infiniti.
Under a complicated formula prepared by Kantor’s office, the tax would be imposed on each of the models entering the United States after 12:01 a.m. Saturday. But the fee would not be collected until after June 28, a delay imposed by the White House to allow for adjustments in the tariff or resolution of the dispute.
The delay in imposing the tariff threatened to wreak havoc in the upscale auto market because importers, the middlemen between manufacturers in Japan and dealers in the United States, will be uncertain whether the existing 2.5% import tax or the new 100% tax will be in place.
The uncertainty will make it virtually impossible to sell to dealers any cars arriving in the United States after the initial deadline on Saturday, in the view of the auto industry and U.S. trade officials, because no dealers will commit themselves to buying cars at a potentially punishing price.
The Administration’s action is intended to pressure Japan into accepting U.S. proposals to open its lucrative auto and auto parts markets to U.S. products. The United States set course toward the sanctions, which officials said were being imposed on imports valued at $5.9 billion last year, when negotiations broke down May 5 after 20 months of intermittent talks.
The auto dispute has become the largest stumbling block in negotiations over the last 18 months that have made progress in such disparate areas of international commerce as construction, sales of apples, telecommunications equipment and glass sales.
But the sale of U.S.-made autos is considered crucial to cracking open the Japanese market and restoring some balance to the lopsided trade relationship with Japan. The United States ran a $65.7-billion deficit last year, with nearly 60% of it attributed to Japan’s auto sales in this country.
The decision to focus on the auto industry carries more than just economic clout. The industry is symbolic of the American heartland and American industry, and a head-to-head diplomatic row over its future carries greater political resonance than a dispute over insurance sales, for example, could ever achieve.
The White House action had other political dimensions as well. The decision to limit the stiff tariffs to a handful of foreign-built luxury automobiles conveys the message of a tax against the rich. It also avoids an electoral backlash from mainstream car buyers, who might have been outraged at a heavy tax on such potential targets as minivans and sport utility vehicles.
Meanwhile, though the strong stand against the Japanese creates uncertainty about the broader U.S.-Japan alliance, it is in keeping with the Administration’s campaign promise on behalf of American jobs to “get tough” with a trading partner long seen by organized labor as unfair and devious.
The import tax Kantor announced is considered a prohibitive tariff because it would make it economically impossible for the Japanese automobile companies to sell their top-of-the-line models, now priced in the $25,000 to $50,000 range, in the United States.
If carried out, it would be imposed on the price that importers pay the auto manufacturer in Japan for each vehicle. It would nearly double the price of the luxury cars, the most profitable for manufacturers, adding as much as $30,000, or perhaps even more, to the cost of a car now selling for roughly $35,000.
The models targeted for sanctions are the Acura Legend and Acura 3.2TL, made by Honda; the Lexus LS400, SC400, SC300, GS300, and ES300; the Infiniti Q45, J30 and I30; the Mazda 929 and Millenia, and the Mitsubishi Diamante four-door sedan.
The structure of the sanctions is intended to pressure importers into refusing to accept the Japanese vehicles until the dispute is resolved, a U.S. trade official said.
“It puts pressure on the people doing business” with Japanese car makers, the official said. “This will be the crunch. It’s got to come somewhere.”
President Clinton, during a photo session with congressional leaders, said the sanctions would not go into effect if the dispute can be resolved.
“But if you look at the special problem of autos and auto parts and how long we have labored over them, and how reasonable the United States has been, for years, even for more than a decade, I believe that this is something we have to go forward on,” Clinton said. “We can’t anymore deny this or sweep it under the rug.”
Clinton is scheduled to meet with Japanese Prime Minister Tomiichi Murayama two weeks before the June 28 deadline at an economic summit conference in Halifax, Canada.
The United States maintains that for 35 years the Japanese government and auto makers have used a variety of barriers to keep foreign cars and parts out of Japan, now the world’s second-largest auto market after the United States.
“Our market is open to Japanese products. Their market should be open to our products. It is a fundamental question of fairness,” Kantor said at a crowded news conference. “This imbalance has benefited Japanese manufacturers at the expense of American workers and American companies. This must end.”
Kantor said that just 617 of the nation’s 48,625 dealerships carry models on the sanctions list. They employ a very small number of people compared to the 2.5 million Americans employed by Ford, General Motors and Chrysler, and by their suppliers and dealers, he said.
“The very small pain that will be felt in what we’re doing today is far outweighed by the benefits to the great bulk of American workers and American business,” Kantor said.
Asked what he would tell would-be purchasers of the heavily taxed imports, he replied: “Go take a look at some very good American cars.”
While the negotiators were said to be far apart in all areas under consideration, the Japanese objected most strenuously, in public, to pressure that they retain an agreement reached in 1992 under which Japanese companies “voluntarily” committed themselves to importing $19 billion worth of parts for Japanese-built autos and trucks.
Hashimoto said in a statement issued late Tuesday in Tokyo that the United States was “attempting to impose de facto numerical targets under the threat of unilateral action”--a course the Japanese consider inimical to the goal of free trade.
The threat of sanctions prompted a surge in interest in the upscale models. Kaiden, of Cerritos Infiniti, predicted that showrooms would use the possibility of a huge price increase to advertise “beat-the-sanctions” deals.
But, he said, if the tax is put into effect, “it’s going to take the wind out of our sales.”
“Put yourself in our position,” he said. “Are you going to buy cars at $70,000? No. They’ll sit at the port until it’s resolved.”
The White House announcement prompted an outcry, too, from Japanese auto executives in Tokyo.
“The U.S. government conducts its trade policy in a coercive manner completely beyond our comprehension,” said Masaharu Tanaka, executive vice president of the Toyota Motor Corp., manufacturer of the Lexus models on the sanctions list.
In Washington, William C. Duncan, general director of the Japan Automobile Manufacturers Assn., said in a statement, “The Administration’s attack on Japan’s auto imports is ill-conceived, ill-considered and illegal.”
Times staff writer David Holley in Tokyo contributed to this story.
* UNDER FIRE: Japanese auto makers defend their actions, assess future. D1
* CONSUMER IMPACT: What now for luxury car owners and buyers? D1
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Sticker Shock
The Clinton Administration proposed targeting these 13 Japanese models with a tariff beginning June 28. The 100% tariff would be based on cost to importers, not customers’ price. Here are manufacturers’ current suggested retail prices and what those prices would be with tariffs.
With Current tariffs Toyota Lexus LS400 $51,200 $86,048 Toyota Lexus SC400 $49,400 $83,022 Toyota Lexus SC300 $41,700 $70.427 Toyota Lexus GS300 $43,600 $73,636 Toyota Lexus ES300 $31,500 $53,201 Nissan Infiniti Q45 $51,400 $87,175 Nissan Infiniti J30 $38,550 $65,369 Nissan Infiniti I30 $32,000 $54,410 Mazda 929 $35,795 $61,361 Mazda Millenia $27,375 $47,350 Mitsubishi Diamante $35,250 $54,462 (four-door sedan) Honda Acura Legend $36,100 $61,817 Honda Acura 3.2 TL na na
na=not available
Current prices based on manufacturers’ suggested retail prices. Cost after tariff based on estimates. Actual markups would vary.
