Nissan cuts exports in trade row

BY DIANE COYLE

Economics Correspondent

The Nissan Motor Company announced yesterday that it will halt production of luxury cars for the US market in the next 10 days. It has been shipping 4,000 vehicles a month from its Infiniti range.

The announcement followed a statement by Toyota on Tuesday that it would slash production of its luxury models for the US market from 8,000 to 3,000 in June. Mitsubishi Motors said it would cancel exports of 230 of its Diamante cars.

These cuts in Japan's car production prompted Ryutaro Hashimoto, the Trade Minister, to claim that the US threat to impose punitive tariffs on imports of top-of-the-range Japanese vehicles from 28 June was already damaging Japanese industry and could also damage American industry.

Mr Hashimoto demanded that the American Trade Representative, Mickey Kantor, reply this week to Japan's request for urgent talks in Geneva under the auspices of the new World Trade Organisation. Japan wants to hold talks before the leaders of the Group of Seven industrial countries meet in Canada in two weeks' time.

The Japanese reminded their US counterparts that under WTO rules they must meet before 17 June, a month after Japan filed its initial complaint about American tactics. If Mr Kantor continues to refuse talks until after the G7 summit on 15-17 June, Japan will move to the next stage of the WTO grievance procedure, the formation of an independent panel to adjudicate the dispute. If this takes place, the process of negotiation will take months.

So far the Americans have insisted instead on bilateral talks in Washington taking place after the summit and only days before the 100 per cent tariffs are due to come into effect. But they are likely to have to give way.

For one thing, the Americans have managed to unite the international community against their heavy-handed sanctions tactic. In particular, the European countries are determined to see that the WTO gets off the ground successfully.

As far as they can see, the US has broken international trading rules and is trying to undermine the principle of multilateral rather than bilateral settlement of disputes.

In addition, the Japanese seem unusually determined not to give way to American demands for concessions on imports of US cars to Japan. Hisoshi Hosokawa, a senior trade negotiator, said yesterday: "The Americans are demanding too much. It is unreasonable. Why should we make any concessions?" Japanese politicians such as Mr Hashimoto have also toughened their tone and are sounding surprisingly confrontational.

The new-found toughness is the result of fears about the dire state of the Japanese economy, in part due to the strong yen. Trade deals are seen as irrelevant to this fundamental problem.

The strength of the currency is driving production offshore and damaging growth in export volumes. The news on the Japanese economy seems to get ever worse.

After figures on Tuesday showing a new post-war record for unemployment and a fall in industrial output in April, yesterday brought news that housing starts had fallen 8.6 per cent in the year to April. The Construction Ministry said they would fall again in May and would have been lower still this year if it were not for rebuilding after the Kobe earthquake.

Worries about the depressed economy are spilling over into the stock market. The Nikkei 225 average has fallen 22 per cent so far this year. Yesterday it dropped 326 points to 15,437, and analysts predict a drop to below 15,000.

The Japanese government has already said there will be another supplementary budget to stimulate the economy later this year, and ministers have promised further deregulation of Japanese markets. An additional fall in short- term interest rates, to around 1 per cent, is also likely.