Japan and US reach last-minute car deal

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New York

Japan and the United States reached a pact over sales of cars and car parts at the eleventh hour yesterday, averting US sanctions that could in turn have triggered a damaging trade war between the two countries.

News of the deal, negotiated in Geneva between the US trade representative, Mickey Kantor, and the Japanese foreign trade minister, Ryutaro Hashimoto, was instantly hailed by the big three US car companies as a breakthrough.

However, the deal fell some way short of original US demands. Though it contains some Japanese concessions, it offers none of the numerical targets that the US had been seeking. Nor is it a legally binding contract.

However, its instant effect was to forestall the US sanctions that had been scheduled to come into effect at midnight last night. Worth $6bn, they would have enacted 100 per cent tariffs against 13 models of luxury Japanese cars sold in the US by Toyota, Nissan, Honda and Mitsubishi. There had been fears that Tokyo might have retaliated by barring imports of US beef. Welcoming the deal, President Bill Clinton in Washington described it as "specific" and "measurable" and a "major breakthrough toward free trade throughout the world".

He added, however: "This agreement will not solve every problem in our relationship, but for today we have proved that hard bargaining and good faith can overcome apparently insurmountable conflict."

The agreement was constructed from a combination of promises from the Japanese government to open access to foreign cars and car parts as well as voluntary agreements from the Japanese companies to assist in US sales.

Among the promises of the package are that Japanese car companies will increase purchases of new US car parts by 50 per cent, worth $9bn, over three years; that new laws will allow the creation of up to 8,000 new repair shops in Japan that will be free to import US spare parts; and that as many as 200 new dealerships selling foreign cars will be allowed to open by the end of next year and as many as 1,000 by the end of the decade.

Simultaneously, the Japanese companies have undertaken to expand production of their vehicles within the US and to raise their local content levels in those cars to slightly above 60 per cent. Toyota said it would boost US production from 734,000 vehicles in 1994 to 900,000 by 1996.

Mr Hashimoto, who noted that the undertakings made applied to all of Japan's trading partners, emphasised that he had beaten off US efforts to establish numerical targets in the deal. "We have been able to maintain the principle of free trade," he declared.

Anticipating complaints that the arrangement amounts to little more than a gentlemen's agreement, Mr Kantor insisted that "concrete criteria" had been set whereby progress in honouring the deal could be measured. "This is a significant step to fundamental change, it is solid, it is meaningful and it is concrete," Mr Kantor told journalists.

However, sceptics will surely point to Japan's poor history of honouring agreements with the US over more than two decades of wrangling over access to its markets.