COMMENT: Both sides must give ground on sanctions

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The Independent Online
The clock is ticking away on the US threat to impose punitive trade sanctions on the Japanese. By the end of June, $6bn worth of extra tariffs will be imposed on luxury car imports if Japan fails to roll over and open up its car market to US demands.

As with all such conflicts, there is right and wrong on both sides. Few would deny that the Japanese are past masters in the subtle art of blocking imports through invisible barriers. Reforms of such regulations are proceeding at a snail's pace. The US share of the Japanese market is unnaturally low.

On the other hand, imports are now surging in Japan - small wonder, given the rise in the yen. The Japanese can point to the fact that European car makers have been able to build up the beginnings of a presence in their market without resorting to crowbar diplomacy. Bilateral numerical targets are the antithesis of multilateral trade.

For the moment, we are still in the phoney war stage, with both sides firing off negotiating salvoes as they try to rustle up international support. But if agreement cannot be found soon, the consequences could be grave indeed.

Up until now, attention has focused on the disastrous way in which the Americans are choosing to inaugurate the first year of the World Trade Organisation. The US has said that it will abide by a ruling of the WTO, but by acting unilaterally it has chosen a curious way to show its respect for the fledgling international institution. No doubt it is calculating that it will have successfully bludgeoned the Japanese into submission by the time the WTO has got round to pronouncing on the matter.

But just as important is the impact of American hardball tactics on US relations with Japan. Both sides contend that trade hostilities can in some way be isolated from other aspects of their relationship. This is wishful thinking, as any account of the inter-war years attests. The trade war between the US and Japan then was the breeding ground for the Pacific War.

Another dimension to the brewing conflict is the extreme weakness of the Japanese economy. Last week, the OECD downgraded its forecast for economic growth in the developed world in 1995, principally because it halved its prediction for Japanese gross domestic product. A Japanese economy that had barely started to recover from its worst postwar recession is now reeling under the impact of a 20 per cent increase in the yen against the dollar.

Already the threat of trade sanctions is hitting Nissan and Toyota, which are cutting deliveries to the US. If they become real, they are likely to have a profound impact on business and consumer confidence. A flagging Japanese economy will have knock-on effects on the world economy - bad news for everyone, not just the Americans.

One surprise - to the Americans at least - has been the support the Japanese have been able to muster from the Europeans. The Americans found themselves under unexpected pressure at the OECD meeting in Paris and had to spend hours blocking an attempt by the Japanese to get the proposed sanctions condemned.

The US has openly described the Europeans' criticism as hypocritical since they too will benefit if the Japanese market is opened up. The Americans have a good point when they say that the European Union can hardly show the cleanest of hands when it comes to opening its car market to the Japanese.

None of this, however, should stop the Europeans - and the British - from intensifying their attempts to forestall the sanctions. The US is doing its best to try to avoid discussion of the trade sanctions at the Group of Seven summit in Nova Scotia in mid June. This should not be permitted. The issues should be properly and fully thrashed out, with both sides being forced to give ground. The consequences otherwise may be dire.

Right or wrong, Brown must go

What is to become of British Gas post what even seasoned observers describe as the most hostile shareholders' meeting in recent corporate history? If Cedric Brown really believes, as he appears to, that this week's meeting has "lanced the boil", that it was a cathartic experience that will allow the company to put the past behind it and meet the challenges ahead with renewed vigour, he is being naive. For the catharsis to take place properly, Mr Brown, and probably also his chairman, Richard Giordano, are going to have to be cleansed from the board as well. It may be unfair, it may even be wrong, but it is also the way of the world.

Rightly or wrongly, Mr Brown has become at best a figure of fun and at worst an object of hate. As a result his position is now untenable. No chief executive can continue for long without the respect and loyalty of his employees and shareholders; regardless of this week's vote by institutional shareholders, Mr Brown appears to command the support of neither. Nor is it possible for Mr Giordano to make Mr Brown the scapegoat for what has occurred. It is part of the chairman's responsibility, particularly for one as well paid as Mr Giordano, to act as the figurehead and public front of a company. In allowing his chief executive to get himself into this hole, Mr Giordano has failed lamentably in one of the key aspects of the job.

This crisis is not going to go away while the pair of them are still there. It will return to haunt whenever British Gas is in the public eye. And every year, Sid will wheel out Cedric the Pig to show the world what shareholder democracy is really all about. For that reason, if no other, institutional shareholders would be wise not to give the Giordano/Brown regime a second chance. In time-honoured fashion, behind the scenes, institutions should be working to make key management changes that will truly allow this organisation to sweep the past behind it and make it the world class company it pretends to be. The irony is, ofcourse, that to get the right outsiders for the job, British Gas is going to have to offer Cedric Brown- type salaries. There is, however, another solution - an agreed takeover bid by a real world class company like BP. That perhaps would be too much even for Michael (clearall) Heseltine to stomach - but then again, national champions and all that.

Beware the long-term incentive scheme

Like Marks & Spencer, Boots is one of Britain's high street Steady Eddies, a paternal company that is a stranger to controversy. Not so yesterday, when Sir James Blythe, chief executive, disclosed a thumping great salary increase courtesy of a fancy sounding long-term incentive bonus scheme. In justification, Boots is making much of its five-year record of return to shareholders, which among retailers ranks second only to M & S. On a five-year view, however, even poor old Kingfisher shows up relatively well. It will be recalled that Kingfisher too introduced a long-term incentive plan in 1991, the same year as Boots, which became payable just as the company nosedived into the abyss. The payment was so embarrassing that Sir Geoff Mulcahy decided it was advisable to waive it. It seems unlikely that history is about to repeat itself with Boots; such payments do none the less have a nasty habit of proving quite reliable lead indicators.