Hosokawa warns U.S. on trade

February 13, 1994|By New York Times News Service

WASHINGTON -- Prime Minister Morihiro Hosokawa warned the United States yesterday against imposing trade sanctions on Japan after their failed negotiations.

His top aides said such action would cause Tokyo to retaliate with sanctions on American products.

"I very much hope the U.S. will refrain from such action," Mr. Hosokawa told reporters before leaving Washington, a day after the eight-month-long trade negotiations between the United States and Japan collapsed.

With U.S. officials already vowing to impose some sort of punitive measure on Japan, now that Japan has refused to accept U.S. demands for more open markets, the world's two biggest economies appeared to be poised on the edge of a trade war.

Then, too, there is undoubtedly a lot of posturing going on with the respective warnings, as both sides try to look tough for their domestic audiences, and it is possible that cooler heads will prevail as they approach the brink.

Mr. Hosokawa sounded a polite but very firm warning to his hosts at his news conference yesterday after a breakfast at the White House with President Clinton.

He said that under no conditions would his government drop its resistance to "numerical targets" for opening Japanese markets, the issue that has been the key stumbling block in the negotiations.

The United States insists that Japan agree to certain numerical indicators that will prove whether it is opening its markets in automobiles, telecommunications, insurance and medical equipment.

The Japanese refuse to accept such indicators, saying that that would constitute "managed trade," and that is why the talks collapsed.

"We will not modify our position in that regard," Mr. Hosokawa bluntly told reporters.

Asked about reports that the United States was considering unilateral trade sanctions on Japan to pry open closed markets, the prime minister not only said he hoped that the United States would refrain from such a move but also pointed out that "that would be a contravention of GATT," the General Agreement on Tariffs and Trade.

He left the clear indication, amplified by some of his aides, that Japan would respond to any attempt by the United States to slap tariffs on Japanese imports by taking the United States to a GATT tribunal, or by imposing its own unilateral sanctions.

Japan has threatened to take the United States to a GATT tribunal for some 20 years each time the United States threatened or took unilateral trade action. But Japan has never followed through, out of fear of triggering a broader trade confrontation.

Under GATT rules, a country that believes its exports are being restricted in violation of the agreement's free-trade rules may request that a panel of three experts from countries not involved in the dispute be convened in Geneva.

The panel reviews legal arguments by both sides, a process that may take many months, before issuing a ruling. The ruling gives moral authority to the complaining country to impose trade sanctions.

Attempt to embarrass

The United States, however, has not always complied with GATT panel rulings against it, and the Japanese threat does not instill real fear in U.S. negotiators. They see it more as Japanese attempt to embarrass them.

Mr. Hosokawa, who presented his visit to Washington as a success from the Japanese point of view, expressed his willingness to return to the bargaining table after "a cooling-off period," but made clear that any concessions on numerical indicators had to come from the American side.

The prime minister seemed quite relaxed and confident. Although American officials described him and his aides as "shocked" by Mr. Clinton's decision to put trade talks on indefinite hold, he and his team evinced the confidence of a younger brother who had finally stood up to an older brother/

American officials say there is no chance that they will compromise on the issue of numerical indicators. They contend that because the 31 previous trade agreements with Japan relied upon Japanese promises instead of quantitative and qualitative measures, the agreements have not made a dent in the Japanese trade surplus with the United States, which now stands at $60 billion.

"We just have to examine what our next step should be," Mr. Clinton said.

One step he is almost certain to take is to issue an executive order reinstating his authority to use the Super 301 trade law, which authorizes the president to identify countries, like Japan, that systematically discriminate against U.S. goods.

This designation then starts a clock for imposing sanctions if Japan does not respond by lowering trade barriers.

Value of yen

Another possibility is for the United States to drive up the value of the Japanese yen and therefore make Japanese exports more expensive and U.S. imports to Japan cheaper.

After the failed summit meeting Friday, the yen closed in New York at 107.13 to the dollar, sharply stronger than the 108.25 yen late Thursday.

Driving up the yen is the preferred weapon of U.S. auto manufacturers. Some 60 percent of Japan's $60 billion trade surplus with the United States is in Japanese auto sales in the United States, and there is a direct correlation between the rise in the yen and the drop in Japanese auto sales in the United States.

The problem is that it is not at all clear in the world money markets that the United States has the resources to manipulate the level of the yen for very long.

More important, pushing the dollar down against the yen raises the cost of living in the United States by making a range of imports more expensive.

It also encourages the Japanese to withdraw their funds from the U.S. stock market and Treasury Bill markets, which could dampen both and push up interest rates.

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