12:01 PM Jun 22, 1995

US-JAPAN RENEW WTO CONSULTATIONS, BILATERAL TALKS

Geneva 22 June (Chakravarthi Raghavan) -- Japan and the United States resumed at the World Trade Organization Thursday the second round of their consultations under Art XXII of the GATT-1994, with little sign of either side giving way, and with both sending out some contradictory and confusing signals and messages to each other and to their domestic audiences.

With the US unilateral trade sanctions on the auto dispute already under provisional application, and due to be formally finalised in six days, the other disputes and threats of retaliation and counter-retaliation (on the US threat of punitive tariffs over the alleged violations of a bilateral aviation agreement and the ability of the US Federal Express carriers to distribute in Japan some 'mail' directly (credit cards), the stage seems to be set for a trade war of sorts between the two majors or a compromise that may or may not bring gains for either or both but severely damage the trade system.

While still a war of words via the media, it could become a trade war very quickly, in a matter of days, war of trade sanctions and retaliations.

While the WTO talks opened in the morning, the two sides were due to meet early in the afternoon at the Japanese mission, for parallel discussions within the parameters of the US-Japan framework talks, on the auto- and autoparts trade questions.

While the talks began with the Japanese side led by Yoshihiro Sakamoto, Vice-minister of Trade in Japan's powerful MITI (Ministry of International Trade and Industry) and Amb. Booth Gardner, head of the US Mission to the WTO and the Deputy US Trade Representative in Geneva, the two left separately a little later (to enable Sakamoto to prepare and go for the afternoon bilateral talks), leaving their aides behind to carry on the WTO discussions. When the consultations broke up before lunch-time, the Japanese side implied that they would resume in the afternoon. But the US side was more cagey and would not confirm this.

Before the morning WTO talks broke up, the head of the US mission to the WTO, Amb. Booth Gardner, who left the talks told the media that there had been "nothing new" in the Art XXII consultations and he did not expect anything.

Gardner seemed to imply that any moves in terms of the US trade sanctions against Japanese luxury cars, technically due to be formalised in six days, but with retrospective effect from 20 May and already being enforced provisionally, would depend on Japanese responses in the bilateral talks.

The Japanese vice-Minister for Trade in Japan's Ministry of International Trade and Industry (MITI), Yoshihiro Sakomoto, who came a little later told the media that he had no special expectations about the afternoon talks and he would decide what to do afterwards.

In his opening remarks at the WTO consultations, a copy of which was made available to the media, Sakomoto focused on the US violations of the WTO and GATT 1994 through its unilateral sanctions, pressed for its revocation and said: "In the event that the US goverment failed to provide sufficient explanation of the consistency of its measures with the WTO agreement in this round of consultations and that no progress is made towards resolving the issues, we will have to reach the conclusion that the consultations have failed to settle the dispute."

Japan had formally sought the consultations with the US under Art. XXII of the GATT 1994 on 17/18 May as a matter of urgency. The US has not agreed it is an urgent matter, but is dealing with it as a normal dispute. In terms of the WTO's Dispute Settlement Understanding Art. 4:7, if no settlement is reached within 60 days (i.e. 17 July), or if both sides agree before that the consultations have failed, Japan can ask for and get a panel set up.

The US embassy in Tokyo, and the Japanese automobile industry as well as some sections of its foreign office, in a muted way perhaps, were suggesting flexible positions that could produce a compromise. But officials of the USTR and Commerce departments as well as Japan's own powerful Ministry of International Trade and Industry (MITI) were talking tough.

US officials, at press briefings in Geneva and at Washington, said announced sanctions of 100% tariffs on Japanese luxury car imports would go into effect if Japan does not yield before 28 June.

Japan's MITI officials, including vice-Minister Yoshihiro Sakamoto at a press briefing Wednesday evening, said they did not expect anything to come out of the talks, with Sakamoto agreeing with a newsmen that both sides had painted themselves into a corner making compromises difficult.

Tokyo reports speak of the Japanese government preparing its own list of items on which it could take retaliatory actions against the United States in the auto dispute and the US S.301 sanctions.

Sakamoto said that this was a natural process in any government, but made clear that in terms of retaliation over the WTO dispute it had raised, Japan would take no retaliatory measures except through the WTO process -- winning its case against the US and getting a ruling and, if the US fails or refuses to implement it, get WTO authorization under its Dispute Settlement Mechanism, before imposing retaliatory action.

But the civil aviation dispute, not being one within the WTO framework, and so long as the Japanese retaliation -- expected to involve denying the US Federal Express and Northwest Airlines carrier cargo flight rights from Tokyo to Asian destinations like Korea and Singapore -- does not impinge on the trade areas covered by the WTO agreement, it could go into effect swiftly.

While the auto-dispute and the US unilateral sanctions has already aroused some nationalist sentiments in Japan, the US demands in civil aviation, based as it is on the agreements that the US got Japan to sign in the immediate post-war years (US occupation and tutelage of Japan) seems likely to strike a more nationalist chord in Japan.

In the WTO resumed consultations, Japan demanded immediate withdrawal of the US unilateral measures announced or implemented in the auto sector, since they were in clear violation of US obligations under WTO.

Sakamoto repeated that the withholding of liquidation of entries of Japanese luxury cars, announced on 16 May and implemented from 20 May, along with the proposed 100% tariff which could be retroactive from 20 May was a violation of Art. I, XI and XIII of GATT-1994, and nullified and impaired benefits accruing to Japan under Art. II (bound tariff schedules of US concessions). The penal tariffs when implemented also would violate the Articles I and II, while the affirmative determination made by USTR on May 10, under US trade law S.301 also violated Art. 23 of the DSU (unilateral determination about impairment of rights and obligations).

The US, Sakamoto complained, had not given any substantive response in the consultations to the Japanese case. The US explanation that since the sanctions had not been formalised, it was "premature" to talk of US violation of the WTO agreement, was not "convincing", since the US government had clearly announced that it would impose the 100% duties on 28 June, and the withholding of customs clearance was already in effect.

These US actions was already adversely affecting related industries of Japan, but also those of the US, EU, Australia etc. It was thus not possible to accept the US arguments that the US announcements and actions were not a "measure" and there was nothing inconsistent with the WTO accord.

The US reasoning, without any supporting legal grounds, that its S. 301 determination was outside the scope of the WTO agreement, was insufficient. The US S.301 determination, judging from the relevant documents including the notices published in the US Federal Register, showed that it fell within the scope of the WTO agreement.

The unilateral measures of the US government was "a serious challenge" to the WTO system, Sakamoto said.

"If the US, the world's largest country both in terms of size of its economy and volume of its trade, and an important advocate of free trade system, takes an action to undermine the fundamental principle of the WTO, it will have an enormous impact upon other WTO member countries", Sakamoto warned.

The Japanese trade official also dismissed the US view that the WTO consultations were on 'technical issues', and said in the Japanese view they were "highly important issues".

The US-Japan dispute on auto and auto-parts, with maximum effort on both sides, was capable of resolution on the dealership issue and autoparts aftermarket deregulation, taking into account factors such as international rules and safety concerns.

But the two sides had been unable to reach a conclusion because of the US insistence on increase of the purchasing plan (by the private Japanese automakers) which was beyond the Japanese government reach.

The objective of the US S. 301 investigation was apparently the auto parts aftermarket issue and Japanese government had addressed all the US demands so long as it did not compromise safety concerns. And while the differences between the two sides on this issue seemed to be small, the US government had made an affirmative determination under S.301 and had announced its intention to impose sanctions.

"We cannot help reaching the conclusion that the US Government is using the 'Section 301' procedures as a threat to realize its demand for increased purchasing plan," Sakamoto asserted.

"Nevertheless," he added, "we continue to believe, if the inconsistency of these 'Section 301' related measures within the WTO agreement is thoroughly discussed in this round of consultations, and if the US Government withdraws these measures, then we will have a better chance of resolving the auto and auto parts issues altogether."

It was clear that both sides were engaged in a dangerous game of bluff in taking the issues to the brink, till the last moment, in the hope and belief that the other side would 'blink'.

Japanese trade officials were quoted in the media as saying in Brussels that the US-Japan talks would go down to the wire (till 28 June) and no agreement would be reached in talks in Geneva this week.

US Commerce under-secretary Garten had also said Wednesday in a press briefing that the deadline was not the WTO talks this week, but 28 June (when the trade sanctions against Japanese luxury car imports are to be formally confirmed by Washington)

The United States seems to be believing or hoping that as in the past the Japanese side would give way at the last moment -- a view that is also the perception among many trade diplomats, who fear though that such a compromise would encourage the US to engage in S.301 threats and actions against others, and thus destroy the WTO trade system and the trade security which they thought had been assured.

Japan's MITI, whose Minister is being portrayed in the US media as having an eye on the post of Prime Minister to succeed Murayama, appears to be taking the view that it is time to make a stand against the US unilateralism.

Apart from the comments and views of MITI officials from Tokyo and Brussels, Sakamoto agreed with a questioner that any compromise by Japan, without specific repudiation by the US of its S.301 sanctions approach, would not only whet the US appetite against Japan more, but would damage severely the entire WTO trading system and its credibility.