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Any Retaliation by Japan Likely to Target U.S. Agriculture

June 27, 1995

TOKYO (AP) _ If U.S.-Japan auto talks fail this week and Washington goes ahead with threatened sanctions, Japanese consumers may soon be returning to a more traditional diet _ one without American beef.

Japanese trade officials say Tokyo would likely target American farm products if a trade war were triggered by the Clinton administration’s plan to impose 100 percent tariffs on Japanese-made luxury cars.

The sanctions, estimated at $5.9 billion, go into effect at 11:59 p.m. EDT Wednesday unless the two countries reach agreement on American demands to increase the sales of U.S. cars and auto parts in Japan.

Officially, Japan says it would rely on the newly formed World Trade Organization to resolve the U.S. sanctions threat.

But that could take more than a year, and Japanese trade officials say pressure at home could make Japanese retaliatory sanctions unavoidable.

One trade official, speaking on condition of anonymity, said the threatened auto sanctions would hurt Japan so badly that the government would have no choice but to retaliate.

Agriculture is a natural target because Japan is the largest foreign market for American food products. Last year, it consumed $9.3 billion of food from the United States, including meat, grain, vegetables, pet food, beer and snacks.

Meat accounted for $2.68 billion of the total, making Japan the biggest foreign consumer of American livestock.

``This fight over autos is unwise,″ said Nobu Nakagawa, marketing specialist at the U.S. Meat Exporters’ Federation office in Tokyo. ``Japan is the biggest buyer of U.S. agricultural products, so I’m just hoping the flames don’t spread.″

Japan is also warning Washington that the threatened auto sanctions would hurt the United States as well as Japan. The sanctions, it notes, would force Japanese car makers to cut production, and import $240 million less in foreign auto parts.

Dealers in the United States say the sanctions also could translate into widespread layoffs at the dealerships that handle the cars.

Ironically, some analysts say, Washington may be more eager to reach an agreement than Tokyo.

Clinton would gain little politically from a failure, while chancing ``irreparable damage to U.S. auto dealers, killing the World Trade Organization stone-dead before it’s fully born, and endangering future trade relations with Japan,″ said Andrew Blair-Smith, an auto analyst in Tokyo for Barclays de Zoete Wedd securities.

Japan, in contrast, is convinced it would win a WTO case and is eager to have the trade body rule that the ``Super 301″ clause of U.S. trade law violates the WTO’s multilateral approach.

Super 301 requires the U.S. government to retaliate unilaterally against countries that are deemed unfair traders.

And by giving in, Japan would set a precedent for future trade negotiations that would make the United States likely to demand numerical trade targets in other sectors.

``If Japan gives in (to numerical targets) this time, what’s next?″ asked Isao Fukutome, host of ``The Broadcaster,″ a popular Japanese TV news program.

Still, some analysts expect a last-minute settlement _ and question whether Japan would actually retaliate if it doesn’t come and the sanctions go ahead.

``Because of its large trade surplus with the United States, Japan won’t want to risk America escalating the dispute even further,″ said Blair-Smith.

In an effort to spur a compromise, Japan’s five largest car makers plan to boost overseas production by more than 1.8 million vehicles by 2000, a 48 percent increase over last year, the newspaper Mainichi reported Monday.

Production in North America, currently at 2.05 million vehicles per year, will rise by 500,000 a year, and output in the rest of the world would jump from 1.89 million to 3.28 million.

More overseas production would result in greater purchases of local auto parts.

But U.S. trade officials insist such ``voluntary″ plans be put in writing so the United States has a way of pressuring the companies to implement them.

Japan has refused, saying that would constitute government interference in business and free markets.

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