Staff writer

The European Union will very likely ask the World Trade Organization next month to establish a neutral panel to settle a nagging trade dispute with Japan over leather products, informed sources said Wednesday.

The sources said that working-level officials of the European Commission, the executive arm of the 15-nation EU, have decided to make the request at a regular meeting of the WTO’s Dispute Settlement Body, scheduled for Jan. 25.

However, the sources, who are familiar with the bilateral leather-trade dispute, said that the decision has yet to be formally endorsed by Sir Leon Brittan, vice president of the commission and a top EU official in charge of external economic affairs.

Brittan is expected to give the nod to the working-level commission decision if no breakthrough is achieved during his talks early next month with Kaoru Yosano, the Japanese international trade and industry minister, according to the sources.

Yosano is scheduled to make a tour of Europe from around Jan. 6, during which time he will meet with Brittan in Brussels. Although the leather issue will be discussed between the two top trade officials, no progress is likely, the sources said.

The EU filed a complaint with the WTO, the Geneva-based watchdog on international commerce, in early October over Japan’s import restrictions on leather products under the so-called tariff-quota, or TQ system — designed to protect weak domestic industries from foreign competition.

Under the tariff-quota system, Japan imposes a quota on imported leather products that are subject to relatively low tariff rates. Imports that exceed the quota face prohibitively high tariff rates and, as a result, lose much of their price competitiveness in the lucrative Japanese market.

The leather trade row surfaced at the end of 1996 when, apparently prodded by major leather-exporting EU members such as France, Italy and Spain, the European Commission began to press Japan to increase imports from Europe by modifying the tariff-quota system.

The EU insists that Japanese government subsidies to domestic tanners, as well as what it views as Japan’s opaque running of the tariff-quota system, could be in violation of WTO rules.

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