May 17, 1995 in Nation/World

U.S. Threatens Japan With Tariffs

Leo Rennert Mcclatchy News Service

Setting the stage for a high-noon showdown between the world’s two biggest economic powers, the White House has issued a virtual ultimatum to Japan to open its car market or face prohibitive tariffs on $5.9 billion worth of luxury auto sales in the United States.

The who-blinks-first encounter is set for midJune when President Clinton and Japanese Prime Minister Tomiichi Murayama meet in Halifax, Canada, at a summit of the world’s seven biggest industrial democracies.

The Clinton administration triggered the confrontation Tuesday by setting a June 28 deadline for imposition of 100 percent tariffs on 13 Japanese luxury models, ranging in price from $25,000 to more than $50,000, if Tokyo refuses to ease entry for U.S. autos and auto parts.

The tariffs would double sticker prices on five Toyota Lexus models, three Nissan Infiniti models, the Acura Legend and the 3.2 TL, Mazda’s 929 and Millenia and the Mitsubishi Diamante.

The U.S. move caps 20 months of fruitless negotiations on the most divisive U.S.Japanese trade disagreement. The automotive sector accounts for 60 percent of a $66 billion U.S. trade deficit with Japan.

The White House warned that, without a satisfactory solution, postwar political and security relationships with Japan - the linchpin for stability in East Asia - eventually could be harmed.

Clinton said he still hopes sanctions won’t be necessary. But he also insisted the time has come to press Japan to dismantle barriers against automotive imports.

“We can’t anymore deny this or sweep it under the rug; we’ve got to go forward, and we’re going to do that,” Clinton declared.

U.S. Trade Representative Mickey Kantor said sanctions would have minimal impact on U.S. workers and consumers. None of the targeted models is made in the United States or has a significant content of U.S.-made parts.

In addition, Kantor said, out of 48,625 dealerships in the United States, only 617 carry these cars and many sell other lines that could keep them in business. He also noted that U.S. carmakers have pledged not to take advantage of anti-Japanese sanctions by boosting their sticker prices.

“Very, very few (American) people will be hurt,” Kantor declared. “The very small pain that will be felt in what we’re doing today is far out-weighed by the benefits to the great bulk of American workers and business.

“Our market is open to Japanese products. Their market should be open to our products. It is a fundamental question of fairness. The gap between one automotive market that is open, and one automotive market that is closed has existed for 35 years. This must end.”

Japanese officials called for quick resumption of trade talks to stave off sanctions. They said they will appeal the U.S. move to the new World Trade Organization as a violation of international trade rules and also may consider counter-sanctions of their own.

Kantor said the Clinton administration plans to file its own complaint with the WTO, charging that Japan systematically seeks to exclude foreign imports.

The White House timed the final showdown to allow Clinton and Murayama an opportunity to reach a compromise at the Group of Seven economic summit in Halifax two weeks before the effective date for the punitive tariffs. The administration’s action represents the largest sanctions threat the United States has waved in its often tense dealings with Tokyo over exports and imports.

U.S. importers of affected models said Kantor underestimated the adverse impact on their operations.

The actual number of affected dealerships is more than 2,000 - more than three times Kantor’s estimate - and tens of thousands of jobs would be at risk, said Philip A. Hutchinson, Jr., president of the Association of International Automobile Manufacturers.

The National Automobile Dealers Association said many franchises would be wiped out. “Punitive tariffs would be devastating, resulting in immediate employee layoffs and widespread dealership closings,” said Frank McCarthy, NADA executive vice president.

Kantor countered that the U.S. auto industry employs 2.5 million Americans who are adversely affected by Japan’s trade restrictions and their interests are paramount.

Specifically, the administration wants Tokyo to extend “voluntary” agreements by Japanese automakers to buy more U.S. parts, to increase Japanese dealerships that offer U.S.made cars, and to stop using safety rules that block use of American parts by Japanese repair shops.

Japanese officials insist their market is open to foreign cars and vow that they will not bow to Washington demands to set what they consider “numerical quotas” for imports of U.S. autos or auto parts. Japanese auto manufacturers and dealers also contend that Detroit has been slow to adapt its models to the needs and tastes of Japanese motorists.

Kantor said such arguments might have had some validity in the past, but the U.S. auto industry has invested more than $100 billion in the last five years to gain a greater competitive edge and now has available many right-hand drive models tailored to the Japanese market.

The auto dispute could pose the first important test of the WTO, which was given enhanced arbitration authority under a new global trade treaty that Clinton successfully pushed through Congress last year.

The Japanese government predicted that it will win its case. Kantor countered that Washington is on solid legal ground because the new global treaty does not infringe on U.S. trade law when it comes to trade practices or policies not covered by the WTO.

The U.S. strategy of acting unilaterally while petitioning the WTO to rule against Japan uses complementary - not contradictory - tactics, Kantor insisted.

While Tokyo pressed for a new round of negotiations, the White House said the time for talking is past. “The ball is in their court,” said Kantor.

Asked what he has to say to U.S. buyers of Lexus, Infiniti and other Japanese luxury cars that may be priced out of the market, Kantor replied: “Go take a look at some very good American cars.”

Some industry analysts predicted Tokyo will blink and offer sufficient market-opening concessions or promises to forestall sanctions. Analysts said the administration adroitly picked targets for punitive tariffs with high profit margins for Japanese manufacturers, while keeping the fallout on U.S. dealers and consumers to a minimum.

xxxx Two sidebars appeared with the story: 1. Targeted for tariffs The 13 Japanese luxury autos, whose U.S. imports were valued at $5.9 billion last year, that the Clinton administration proposed targeting for punitive tariffs: Honda Acura Legend Honda Acura 3.2 TL Toyota Lexus LS400 Toyota Lexus SC400 Toyota Lexus SC300 Toyota Lexus GS300 Toyota Lexus ES300 Nissan Infiniti Q45 Nissan Infiniti J30 Nissan Infiniti I30 Mazda 929 Mazda Millenia Mitsubishi Diamante (four door sedan)

2. Hearings The administration scheduled hearings for June 8-9 to allow public comment on the planned sanctions. Written comments can be submitted by interested parties until June 21.

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