New Trade Gripe May Be More Strain Than Gain : News analysis: White House probe into Kodak’s claim Japan has closed its film market may bruise multilateral trade.
Clinton Administration’s decision Monday to initiate another high-profile trade complaint against Japan--on the heels of a bruising two-year battle over the Japanese auto market--places new strains on the global trading system and fails to address the fundamental problems in the contentious relationship between the two economic giants, Japan experts say.
As expected, the White House said Monday it will launch an investigation into complaints by Eastman Kodak Co. that Japan has closed its photo film market to foreign manufacturers. The U.S. government is pursuing the investigation under Section 301 of the 1974 Omnibus Trade Act, which provides a mechanism for retaliating against foreign countries accused of unfair trade practices. If the case isn’t resolved within a year, the U.S. government is instructed to impose punitive penalties against the offending government.
Japan experts agree that Kodak’s 300-page complaint against the Japanese government and Fuji Photo Film Co., which controls 75% of the domestic market, is persuasive. But they said this week’s initiation of another Section 301 case raises questions about the U.S. government’s reliance on a trade law that critics accuse of violating the rules established by the fledgling World Trade Organization.
By threatening bilateral sanctions rather than taking the case to the WTO, which was created to oversee the global trading system, the United States sends the message that the world’s most powerful economy doesn’t respect the Geneva-based organization. Other countries are likely to follow suit, leaving the global trading system to dissolve into a series of bilateral disputes.
The Section 301 trade law could quickly lose its effectiveness if it is perceived as either a toothless threat or a billy club that turns trade conflicts into highly emotional battles along the lines of the recent dispute over U.S. access to the Japanese auto market. In that contentious faceoff, top U.S. officials voiced concerns about poisoning the bilateral alliance while European and Asian allies joined Japan in criticizing the United States for threatening to invoke $5.9 billion of punitive sanctions.
Critics fear the United States’ decision to go it alone has strengthened Japan’s position in other parts of the world, particularly the fast-growing economies of Asia, and weakened relationships vital to U.S. security concerns around the globe.
“To use it [Section 301] now, really means to evoke the kind of international hostility that would not have been evoked in the past and winds up having us called before an international tribunal for breaking international law,” explains Gary Saxonhouse, a Japan specialist at the University of Michigan at Ann Arbor.
Others argue Section 301 doesn’t attack the fundamental differences that are alleged to have kept U.S. companies out of the Japanese market. Those include Japan’s close relationship between government and business and the keiretsu system of longstanding personal and financial ties between manufacturers, suppliers and financial institutions.
Chalmers Johnson, head of the Japan Policy Research Institute, argues the United States must use both its national trade laws and the global trading system more aggressively if it is going to succeed in leveling the playing field.
He urged the United States to file a complaint of unfair trade practices against Japan with the WTO to force the group to address the accusations of invisible trade barriers and managed trade. But he also said the U.S. government should continue using its national trade laws, such as Section 301, to illuminate specific issues of concern.
“Only by doing the unilateral will we make the multilateral work,” he said. “Right now, the WTO looks good on paper, but we don’t know whether it works or not.”
Japan contends Section 301 sanctions violate the rules established by the WTO, which was ratified last year by Congress after a lobbying push by the Clinton Administration.
Under WTO rules, members are supposed to file their complaints with the organization. If accepted, a WTO panel hears the case and makes a ruling. Punitive trade sanctions are allowed only if the WTO finds a country guilty of unfair trade practices.
“We are told that at least 50 different cases are awaiting 301-type measures,” said a top Japanese official with the Ministry of Trade and Industry. “We felt unless we break up that traditional approach, perhaps both sides will just end up with completely managed trade.”
The Clinton Administration claimed it was not violating the WTO rules in the auto dispute because it targeted invisible trade barriers--such as Japan’s distribution system and automobile inspection system--that were not covered by WTO rules. Similar charges are being leveled in the Kodak complaint.
Kodak officials applauded the government’s decision to push forward on its case, which was filed after a yearlong investigation by the company. The lengthy complaint against the Japanese government and Fuji detailed alleged instances of price fixing by Japanese trade groups, cash payments to financially strapped wholesalers and retailers and boycotts of distributors that carried Kodak products.
Officials of Fuji and the Japanese government deny the charges.
Kodak officials said they hope their complaint ends up opening the Japanese market to foreign film companies rather than provoking a trade war.
“We seek resolution, not retaliation,” said Kodak Chief Executive George Fisher, the strong-willed former Motorola executive who was the force behind Kodak’s decision to file the complaint.
