Summers reiterates U.S. readiness to impose sanctions against Japan.

WASHINGTON -- A senior Treasury official yesterday warned that the United States stands ready to impose sanctions against Japan if trade negotiations fail to produce an agreement by the end of the month.

"The United States is going to use the tools of our trade policy.to seek the removal of particularly egregious trade barriers," said Lawrence Summers, the Treasury's undersecretary for international affairs, in a speech to the American Business Conference.

A text of the Summers speech distributed by Treasury officials said: "Unilateral measures must be retained in our arsenal. They bring the full force of American trade law to bear 'against nations which refuse to dismantle barriers."

Summers' comments came a day after financial markets were jolted by a Commerce Department report showing that the U.S. trade deficit surged unexpectedly to $11 billion in July, the highest level in two and a half years.

U.S. officials resumed trade negotiations yesterday with Japanese officials in an effort to reach agreement by Sept. 30, the deadline for averting U.S.-imposed sanctions. Fears that the dispute will not be resolved have spurred a sell-off of the dollar in foreign exchange markets, which in turn has undermined the bond market.

Summers said the U.S. position in the talks with Japan iS not an attempt to manage trade, as charged by critics of the U.S. policy, but a reasonable move to change restrictive practices by the Japanese government.

"We're seeking no numerical target as a basis for retaliation -- simply a commitment that that situation is going to change," Summers said.

Summers said he is optimistic that Congress will approve the Uruguay Round of global trade negotiations before adjournment, in order to have U.S. support in place by Jan. 1, 1995, when the pact is scheduled to take effect.

A Treasury study produced earlier this year estimated that the world trade agreement will add from $100 billion to $200 billion in U.S. income and produce as many as 1.4 million new jobs. Officials also estimated the pact will reduce taxes by as much as $750 billion around the word.

The business executives also heard Laura D' Andrea Tyson, head of the president's Council of Economic Advisers, deliver an upbeat assessment of the U.S. economy.

Tyson said she expects to see "a cyclical uptick in the inflation rate," but called fears of a large upturn in inflation "unfounded." The administration's forecast calls for consumer prices to rise 3.2%' next year and 3.3% in 1996.

Tyson cited industrial price indexes published by the Journal of Commerce and the National Association of Purchasing Management as evidence of rising inflation pressures.

But, she went on, commodity price increases are not being passed on in final consumer prices, wage costs remain modest, and price increases of the services component of the consumer price index have slowed this year.

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