Japan and the US failed to narrow their differences over hefty US steel tariffs at a meeting of their top trade officials on Thursday, setting the stage for Tokyo to prepare retaliatory measures.
Japan reiterated its demand that the "safeguard" measures put in place by the Bush administration be scrapped and threatened to hit back if Washington failed to provide compensation.
US Trade Representative Robert Zoellick shot back with a critique of Japan's steel policy and issued a warning of his own.
"We respect the right of any country to challenge our interpretation of the WTO," he told a news conference. "What we are quite adamant about is that it's not the place of any country to make a unilateral WTO interpretation."
Zoellick said any retaliatory steps based on such an interpretation would be "a dangerous prospect for the WTO".
Japan and other US trading partners filed a petition with the WTO last month against the US decision to slap tariffs of up to 30 percent on steel imports.
The US says its action is legal under WTO safeguard rules that allow countries to impose temporary measures to help industries that have been harmed by a surge in imports.
"I told him that the US decision is not in line with WTO rules and US steel imports are not rapidly increasing," Japanese Trade Minister Takeo Hiranuma said after his first face-to-face talks with Zoellick since the tariffs took effect. "I asked him to withdraw the decision."
The US tariffs come at a bad time for Japanese steel producers, which have seen domestic demand from builders and manufacturers slump as the world's second-biggest economy struggles with its deepest recession since World War II.
Hiranuma and Zoellick were to continue talks on the steel row by telephone because they ran out of time in their Tokyo session.
"We had our say and they had theirs ... but as they arrived late, we didn't have enough time," Vice Trade Minister Katsusada Hirose told a news conference.
A Japanese Trade Ministry official said Hiranuma told his US counterpart that Tokyo would have no choice but to draw up retaliatory steps if Washington failed to come up with compensation for the safeguards.
"The sluggish business in the US steel industry is not caused by imports, but by the lack of domestic competitiveness," Hiranuma was quoted as telling Zoellick. "If you decide to stick with your safeguard measures, we would like you to give us a positive response on compensation steps. If not, we will need to prepare retaliatory steps."
Zoellick also expressed concern that a move by the EU to retaliate against the US tariffs could trigger a chain reaction of import restrictions around the world. Zoellick said Washington would be sensitive about continuing to providing exemptions.
He that for Japan it had exempted 21 steel-related items from the safeguard measures.
"We are committed to following the WTO rules," he said. "That means that these safeguards are temporary. They will phase down. We expect our industry to use this period to restructure and become more competitive."
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