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. Last Updated: 07/27/2016

U.S. Sanctions on Japan Could Open a Pandora's Box

WASHINGTON -- In taking the first step toward imposing trade sanctions on Japan, the Clinton administration has lit a fuse that leads to a potentially explosive mix of economic and political frustrations on both sides of the Pacific.

Surveying the growing tension between the two economic superpowers, experts said Tuesday that they see two primary scenarios: The most likely outcome, analysts agree, is that after some months of tension, the two sides will back off enough to avert a trade war. That's the way it has usually happened in the past in other, similar confrontations with Europe and Japan over semiconductors, soybeans and other products over the past quarter century.

Far less likely, but much scarier, is the doomsday scenario. In this version, American sanctions would provoke Japanese retaliation -- fueling demands in Congress for even harsher treatment of Japanese imports. The result would be an accelerating downward spiral that would sharply reduce Japanese-American trade and leave both countries poorer.

"I think there is the potential for it getting out of hand. Neither side wants that," said I.M. "Mac" Destler, director of the University of Maryland's Center for International and Security Studies.

The dominoes could begin to topple if Japan refused to settle the dispute over a 1989 agreement to open the cellular telephone market in the Tokyo-Nagoya urban corridor. The Clinton administration Tuesday said it intends to impose heavy penalties on selected Japanese products if there is no resolution.

Clinton administration officials stressed again Tuesday that this dispute is not the beginning of a chain reaction of measures against Japan.

But suppose Japan says no. As a falling Japanese stock market and a rising yen deepen Japan's recession, resistance could mount in Tokyo to Clinton administration demands. The administration might then respond with a new set of pressures ? tough new trade legislation directed at Japan or retaliation against other Japanese industries where trade disputes are simmering, such as wood products or semiconductors.

Japan might then take its case to the General Agreement on Tariffs and Trade, the Geneva-based world trading organization, charging that the U.S. sanctions violate GATT rules. Although the United States could veto any GATT ruling that it did not like, it would pay a high cost in world opinion. (Once the new GATT rules agreed to in December take effect, in 1995, however, GATT rulings would stick.)

Japan also could put the brakes on the market-opening moves it has promised, leaving a host of U.S. companies with a tougher uphill struggle to expand in Japan.

Most analysts find this as a long-shot or far-fetched scenario, but troublingly not impossible.

"I don't think this is the beginning of a trade war," said

Yotaro Kobayashi, chairman of Fuji Xerox Co. and co-chairman of the U.S.-Japan Business Council. But, he added: "There is the possibility of this flaring up into something that would be unmanageable."

But the cellular phone dispute shows how quickly tensions could escalate. If it carries out its threat, the Clinton administration will tack prohibitively high U.S. tariffs or border taxes on several hundred million dollars of Japanese products, to be announced in 30 days. The amount is meant to approximate the potential sales Motorola, the key U.S. maker, could have had if it had been permitted to compete, according to U.S. Trade Representative Mickey Kantor.

The hit list would start with Japanese-made telecommunications equipment.

A logical target could be fax machines, since Japan sells more than $1 billion worth of them to U.S. customers. There are few suppliers other than Japanese companies, however, and it could take time for other producers to fill the gap, confronting U.S. consumers with shortages and higher prices, until other suppliers filled the gap.

What makes the current standoff with Japan dangerous, say administration officials, is that the United States and Japan are on uncharted ground. Both nations have ambitious new leaders who are trying to put a personal stamp on economic policy, facing each other across a gulf of governmental mistrust.