9:13 AM Jun 27, 1995

US-JAPAN MINISTERIAL AUTO TALKS INTO SECOND DAY

Geneva 27 June (Chakravarthi Raghavan) -- The United States and Japan went into a second day of hard talks on their auto-trade disputes, with every indication that, make-or-break, the talks will continue into Wednesday.

US President Bill Clinton has scheduled a Wednesday evening (local time) announcement in Washington - when he could announce an agreement and get the public benefit or announce the sanctions imposed going ahead, showing how tough the US administration is to fight for US workers.

Meanwhile, on another major trade issue, the negotiations on financial services (which the WTO head Renato Ruggiero and other trade officials have described as the 'real time-bomb' under the WTO) seems likely to end Thursday in a format assuring continuance for another two years.

Trade diplomats have been speculating that the US, dissatisfied with the level of concessions it has got from key developing nations, is likely to entering MFN exemptions on its schedule of financial service commitments.

Simultaneously, it is may announce that it would unilaterally suspend this discriminatory approach, and apply MFN principles to its commitment, subjecting this to a review after two years - during which period the 'laggards' could do more to satisfy the US to make the MFN commitment more permanent.

Some trade officials explain this as aimed at satisfying US Congress (and election year politics), while at the same time giving a leeway to other trading partners (in their capitals) not to be precipitate in their reactions.

It is not clear whether this would be sufficient to persuade the EU, Japan and others to continue to maintain their MFN commitment and schedule or whether they too would emulate the US example.

On the auto-trade dispute issue, which has hogged media headlines, the US Trade Representative, Mickey Kantor and the Japanese Trade Minister Ryutaro Hashimoto, went into a meeting at the US Trade Representative's office Monday night and that meeting went on till mid-night.

The two were due to meet again Tuesday morning at the Japanese Mission here, as also their vice-ministers and lower level officials. These talks are expected to go on well into the night.

The US has announced -- by way of unilateral trade sanctions, under S.301 of its trade law -- 100% tariffs on 13 varieties of luxury car imports from Japan and these are set to go into effect 28 June (midnight Washington time, four in the morning of 29 European time).

While the US side is saying that this is a deadline against which they are negotiating, the Japanese side has said that they are not negotiating in terms of US trade laws and its deadlines.

Both sides have been publicly cautioning against any optimism, and Japanese and US officials have been telling media that the gap between the gap is very large still.

At background briefings Monday night (after the Hashimoto-Kantor talks broke up), US officials said there were "wide gaps" on all the "major issues", that the experts on both sides were meeting to put down in writing the various issues for the benefit of ministers, and that the US wanted progress on all three areas (US autoparts purchases by Japanese manufacturers for their plants in Japan and in the US, the deregulation of the after-sales market for parts, and the dealerships issue for US car sales in Japan.

The US official, who under the groundrules for such briefing can't be identified or named, cited Kantor as saying the US was looking for "real market opening, fundamental changes, and an agreement that works, because it can be monitored and because we can evaluate implementation as it occurs."

Kantor himself was due to leave Geneva on Wednesday to go to Denver, Colarado to attend a 'labour summit' -- US labour union leadership.

Clinton who has virtually launched his re-election campaign are now busy courting US trade unions and blue-collar workers in the auto industry and other unions. Kantor too is engaged in this task on behalf of his boss.

With Japan-bashing proving to be highly popular in the United States at this point of time, it is difficult to see an agreement being reached now excepting on the basis of Japan giving in on all counts to the United States.

But Hashimoto too is having an eye on Japanese political spectrum and elections -- he is hoping to succeed Prime Minister Murayama.

As the negotiations continued on Tuesday, there was a growing view among trade officials and diplomats at the WTO, that an agreement might be difficult at this point, and that the US tariffs would go into effect hurting the Japanese auto-industry whose luxury car exports to the United States is about five billion dollars trade value (at wholesale price level).

This would mean Japan would go ahead with its WTO dispute, seeking a panel to be set up, even as the United States is hoping to put in its own complaint against Japanese market practices.

But the US has first to seek 'consultations' with Japan within the WTO -- setting out Japanese measures and practices that are either WTO illegal, or legal but nevertheless causing impairment of US expectations of benefits or "other reasons" causing such impairment.

There is then the 10-day limit for Japan to respond, for 20-days to hold consultations, and 60-day period when the US, with or without agreement of Japan, could go to the WTO for dispute settlement - and perhaps ask the same panel to look into it.

Trade officials at the WTO and trade diplomats here are already feeling queezy at where this road will lead the two major trading nations, and the WTO system in its wake -- more so since the outcome of any panel rulings would come right in the midst of next year's US elections.

With US officials and Congressmen, whether on the auto dispute with Japan or financial services question, talking as if it is WTO that has to prove itself, through its performance and ability to deliver the rest of the world to US trade interests, and not US compliance with the international rules it agreed to, the past year's talk of 'the powerful WTO and its rule-based system' is no longer being heard.

It has been replaced by the talk of "facts of international life -- the world is still based on power, where the powerful don't have to obey rules".