US gives Japan a month to open market

The US yesterday formally announced it would impose trade sanctions to try and force Japan to open up its domestic car and car component market to American products, and said it would take its complaints about Japanese protectionism to the new World Trade Organisation in Geneva.

What bids to be the most bruising trade conflict in recent years between the two countries finally came into focus as Mickey Kantor, the US Trade Representative, said a detailed list of goods liable to extra tariffs would be issued in the next few days and - barring a settlement in the meantime - take effect some 30 days later.

Mr Kantor himself gave no details, but the measures are expected to be aimed especially at luxury cars, of which Japan exported 200,000 to the US last year. Press reports say these would be hit by tariffs of up to 20 per cent. American distributors for the Japanese companies said the models would be driven out of the US market if such sanctions were applied.

But if Mr Kantor's uncompromising language yesterday is any yardstick, they will be. Japan, whose trade surplus with the US tops $60bn (£35bn) a year, $37bn of that accounted for by the car sector alone, "continues to thwart open and equitable trade" with what he called "unreasonable and discriminatory" practices.

US officials were unwilling to quantify the sanctions last night. But given the $35,000 and upward price definition of a luxury car, they seem bound to affect Japanese imports worth several billion dollars. Even so Mr Kantor resisted the label of a "trade war" - "That's giving hyperbole a bad name," he said.

Whatever the economic risks, the trade showdown is eminently sound politics for President Clinton as the race for the White House in 1996 starts to heat up.

The sanctions will please not only domestic carmakers but other domestic industrial sectors which have similar grievances against Japan. More important, they will delight the US labour movement, a naturally Democrat but also a strongly protectionist constituency, whose loyalties were strained by the Nafta free trade agreement with Mexico.

Japan was standing firm yesterday in its resolve not to accede to the US demand for "voluntary" quotas on car parts, and officials reiterated the government's intention of bringing any sanctions before the World Trade Organisation. The Japanese government cannot afford to be seen to compromise with the US over the auto parts issue.

Japanese exporters in all industries have been badly shaken by the yen's rapid rise against the dollar, which is widely believed to have slowed the fragile recovery of the Japanese economy after half a decade of recession. Beset by complaints from its own companies, Tokyo is in no mood to accelerate the decline of its already beleaguered manufacturers. Month-on-month figures released this month revealed that the Japanese trade deficit was down on last year.

Japanese business leaders are publicly backing officials' tough stance. But they are also urging the government to take action to cut the nation's massive trade surplus and loosen the regulatory stranglehold on the economy. "The US demands are indeed unreasonable and should not be accepted," said Takeshi Nagano, chairman of the Japan Federation of Employers' Associations. "But there is also a problem on the side of Japan, which does not promote market opening and deregulation."

Domestic problems, including the Kobe earthquake and the recent spate of terrorist attacks, have sapped political morale and rendered uncertain the future of the Prime Minister, Tomiichi Murayama, and his unpopular coalition government.

The Finance Minister, Ryutaro Hashimoto, who put up an unusually tough front in trade talks in Vancouver last week, has long been tipped as a future prime minister. His uncompromising stance will have done no harm to his political reputation and prospects in Japan.

Not to be underestimated is the genuine feeling within Japan that America is barking up the wrong tree in its insistence that American cars are given an unfair deal. Other foreign car manufacturers such as BMW have spent years researching and adapting to the Japanese market, and have been rewarded by a burgeoning share of the market.