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Clinton to Cite Japanese Violations of Telecom Pact

By James Gerstenzang
Los Angeles Times

With trade talks broken off, a White House official said yesterday the Clinton administration intends to declare Japan in violation of a telecommunications agreement -- a move that could pave the way for sanctions against the Japanese and escalate a trade dispute between the world's two largest economies.

With the declaration expected to be announced Tuesday, President Clinton warned Japan not to embark on a tit-for-tat trade war, saying, "I think they would have to think long and hard about it."

White House officials said the decision to cite Japan for interfering with an effort by Motorola Inc. to sell cellular telephone service in the Tokyo vicinity is not tied directly to the breakdown last Friday in U.S.-Japanese trade negotiations.

But the deadline for action Tuesday provided a convenient, if coincidental, opportunity to begin the sort of retaliatory and punitive measures that administration officials said last week were under consideration, and the souring state of Washington's trade relations with Tokyo give added weight to the Motorola decision.

Had the talks on Friday between Clinton and Japanese Prime Minister Morihiro Hosokawa gone well, there is little likelihood the administration would take such action Tuesday, regardless of the merits of Motorola's complaint.

"This is clearly a warning shot," said a congressional source familiar with the administration's plans. "It is a very low point from which to escalate."

With the declaration, specific punitive action against Japan can follow. Placing tariffs on Japanese communications products sold in this country is one measure that could be taken.

Meanwhile, the fallout of the trade dispute landed on the foreign currency markets yesterday. The dollar fell in value by roughly 3 percent compared with the yen -- making Japanese products more expensive in the United States and U.S. goods cheaper in Japan.

Officials said more dramatic steps than Tuesday's expected declaration are contemplated, perhaps as early as next week, in a campaign to put greater pressure on Japan. Senior officials are expected to meet on an almost daily basis to plot their strategy.

The administration is trying to persuade Tokyo to take specific steps in compliance with an agreement reached last July to devise objective criteria that could be used to measure progress in opening Japanese markets to foreign products. The agreement covers automobiles and auto parts, insurance, and government purchases of telecommunications and medical equipment.

The agreement is intended to begin reducing Japan's $132 billion global trade surplus, nearly $60 billion of it with the United States. In its annual economic report, the Clinton administration said, however, that removal of all of the barriers Japan erects to keep out foreign products would reduce the United States' trade deficit with Japan by $9 billion to $18 billion.

Hosokawa, whose call for continued talks was rejected by the United States on Friday, said after his meeting with Clinton that the two sides needed a cooling-off period. U.S. officials said they would remain open to new proposals from Japan, but that they must adhere to the July agreement -- and that, barring such progress, the United States felt free to take specific steps to put pressure on Japan.

Those measures include the likely reintroduction of a trade-code provision, known as Super 301, that could lead to the exclusion of certain Japanese products from the United States, imposing strict inspection standards on Japanese autos, scaling back on tax benefits given to Japanese automakers in the United States, and stepping up the use of U.S. laws prohibiting the "dumping" on U.S. markets of products sold at prices below their production costs to undercut U.S. manufacturers.

Seeking to portray the dispute not as one between the United States and Japan but as one between those who seeking more open markets worldwide, the president said:

"For those of you who worry about a trade war and other things, this is a battle that is raging not just in the United States and in Europe and in all other parts of the world that have been exposed to the mercantilist policies of Japan, this is a battle that is raging in Japan."

Clinton and others said it was "purely coincidental" that the Motorola decision was being made at the same time as the United States was looking for ways to retaliate against Japan.

"We have been engaged in these talks on cellular telephones for a very long time," he said. "But it is a good illustration of the problem we face in entering the Japanese market."

The Motorola case, which Laura D'Andrea Tyson, the chairman of Clinton's Council of Economic Advisers described as a classic example of Japan's efforts to keep foreign companies from gaining a foothold in its lucrative market, involves an effort by the communications company to sell cellular telephones in a 155-mile swath from Tokyo southwest to Nagoya.

"The Japanese claim that U.S. firms don't try hard enough, and that the quality of the U.S. products isn't there," a senior administration official said. "Here is a case that shows the reality of the closed Japanese markets and the competitiveness of U.S products."