U.S. Warns Japan of Sanctions, Calls for Trade Hearings : Commerce: White House announces it will retaliate for discriminatory practices in auto industry. It will also take its complaint to untested World Trade Organization.

WASHINGTON — The White House escalated its long-festering dispute with Japan over auto trade on Wednesday, formally announcing plans to retaliate with trade sanctions and moving to preempt the Japanese by taking its case before the controversial and untested new World Trade Organization.

U.S. Trade Representative Mickey Kantor said a list of measures against Japanese products--most likely steep tariffs or import taxes that could send the prices of some Japanese autos soaring--would be released within days.

The step significantly intensifies one of the United States’ most intractable trade disputes, one focusing on what the United States calls “unreasonable and discriminatory” practices blocking American companies from selling automobiles and auto parts to the Japanese.

And by announcing that it would plead its case before the WTO in Geneva--a step already promised by the Japanese--the White House ensured that the high-profile dispute would receive a full airing in the court of world opinion that it gambles will side against Japan.

But placing the dispute’s outcome in the hands of the WTO represents a political risk for President Clinton, who championed the creation of the organization and would face heavy criticism if it fails to uphold the U.S. position.

The White House position was hailed not only by the U.S. auto industry but also by U.S. trade groups ranging from the Iron and Steel Institute to the Software Publishers Assn.

Japanese car makers, likely to be the main target of sanctions, reacted defiantly to the U.S. announcement, which was made just after midnight Tokyo time. They said the threat of sanctions would not push them into buying more U.S. auto parts, the key issue in the dispute.

But in an apparent effort not to inflame the latest trade skirmish between the two countries, the reaction among Japanese government officials was generally muted and calm. U.S. officials also sought to downplay talk of a “trade war.”

“The Japanese side is still sitting on the table, waiting to negotiate,” said an official at the Japanese Embassy in Washington. Another Japanese official maintained that “there was nothing new in Kantor’s statement.”

While Kantor refused to say what products would be hit, the tariffs are believed to be aimed at top-of-the-line luxury cars, such as the Infiniti and the Lexus, and possibly at minivans and four-wheel-drive vehicles. Depending on the size of the tariffs, they could quickly price those vehicles far above those of competing American and European cars.

The rupture would be the biggest ever in a trade marriage that has been on the rocks for years. While sanctions on some Japanese electronics imports were imposed nearly a decade ago, the disruption in trade was not nearly as severe as the potential break in the auto trade.

The Japanese advantage in auto sales across the Pacific accounted for nearly 60% of the United States’ $65.7-billion trade deficit with Japan last year. Efforts to resolve the dispute, by providing guarantees that U.S. companies would have greater access to Japanese customers in the world’s second-largest auto market, have been at a near deadlock for 20 months.

Before tariffs or other sanctions can be put into effect, several steps must be taken over a period of at least a month. That raises the possibility that talks between U.S. and Japanese negotiators, which were broken off Friday, will be resumed and sufficient progress would be made to postpone or even cancel the threatened action.

However, such a resolution is unlikely before the middle of next month, giving Clinton a heavy club to take to his meeting with Japanese Prime Minister Tomiichi Murayama in Halifax, Canada, at the annual economic summit conference of the world’s seven largest industrial democracies.

By taking its complaint to the WTO, the international panel in Geneva that was established under a 1993 treaty to govern adherence to the rules of international commerce, the Administration will be making a preemptive strike. Japan has said that if sanctions are imposed, it would take the issue to the new trade body to seek a ruling against the United States.

The WTO, replacing the General Agreement on Tariffs and Trade, has so far been given only two relatively minor disputes to resolve.

Seeking a resolution in Geneva could take many months or even a year for a decision. The more immediate threat comes from the trade sanctions.

The dispute is being played out in complicated and uncertain Japanese financial and political arenas.

For one, there are reports in Japan that Toyota, already buying a sizable amount of U.S.-made parts for vehicles it builds in the United States, is considering breaking ranks with other car companies and the Japanese government and committing itself to maintaining a certain level of foreign parts purchases.

For another, there are suggestions that the much-vaunted unanimity among Japanese bureaucrats, Cabinet members and top business enterprises may be showing strains. The tension stems from the political turmoil there and the diverging value of the yen and the dollar, which has brought a sharp drop in the cost of goods priced in dollars--an appealing development if a company wants to buy U.S.-made parts.

In a response that surprised some analysts, Kantor’s announcement caused the dollar to rise against the yen. Some in the market suggested that the sanctions will help resolve the U.S. trade deficit by curbing Japanese exports to the United States.

Late in New York, the dollar was quoted at 83.91 yen, up from 83.45.

The news also caused U.S. auto shares to soar on the New York Stock Exchange. General Motors jumped $2.25 to $46, Ford rose $1.25 to $28.375 and Chrysler was up $1.75 to $43.625.

The heart of the dispute is about gaining a significant opening for U.S. automotive products in Japan--new vehicles, parts for new vehicles, and parts for vehicles already on the road. The United States is trying to crack the tightly controlled dealerships selling new cars, get around inspection procedures that it maintains keeps foreign parts manufacturers out of Japan, and reach a so-called “voluntary” agreement on Japan’s purchases of U.S. products.