U.S., Kodak Lose Japan Trade Suit
Eastman Kodak Co. and U.S. trade policy suffered a major blow Friday when the World Trade Organization rejected the U.S. charge that Japanese bureaucrats and business leaders conspired to keep foreign photo film companies out of their market.
Friday’s preliminary ruling represents the first time the U.S. has lost a complaint before the Geneva-based world trade group and is a major setback to American firms that had hoped the Kodak case would serve as a crowbar to force open the Japanese market more rapidly.
It also revived fears among critics in the U.S. that the fledgling WTO is ill-equipped to handle such disputes.
The Clinton administration had accused the Japanese government of helping Fuji Photo Film Co. to freeze foreign companies out of Japan’s $13-billion film market by limiting their access to major distributors and retailers and practicing price collusion.
But the three-person WTO panel ruled the U.S. government, which filed the case on behalf of Kodak, had not proved its case that the Japanese government had implemented policies that restricted Kodak’s ability to sell film in Japan.
In Japan, the ruling was seen as validation that Kodak’s complaints were unfounded. Fuji Chairman and Chief Executive Minoru Ohnishi said it showed that “imported film is widely available and competitively priced in Japan.”
But an angry George Fisher, Kodak chairman and chief executive, said the decision “ignored market realities” and vowed to keep pressing his company’s case. Kodak, which is struggling to fight off Fuji’s competitive inroads in the U.S., claims Japan’s trade practices have cost Kodak as much as $8 billion in lost sales.
Kodak has about a 10% share of Japan’s photo film market--far less than it enjoys in other foreign markets--and Fuji has a slightly larger share of the U.S. market. Each company has about 70% of its home market.
“The WTO has failed to come to grips with Japan’s brand of protectionism,” said Christopher Padilla, Kodak’s director of international trade relations.
Steve Clemons of the Washington-based Economic Strategy Institute fears the WTO decision will bolster Japan’s resistance to badly needed domestic reforms at a critical time in the Asian financial crisis.
“This decision coming in the middle of all of this will only keep Japan from making the moves it needs to make,” he said.
The WTO ruling has also outraged congressional critics of the WTO, who argue that the U.S. has surrendered its economic sovereignty by agreeing to live by the rules of the global trading arrangement and gotten little in return.
U.S. Sen. John Ashcroft, chairman of the consumer affairs and foreign commerce subcommittee, said the ruling raises “serious questions about the credibility of this international body and of the U.S. Trade Representative’s capacity to secure and defend free-trade agreements.”
U.S. Trade Representative Charlene Barchefsky said she was “extremely disappointed” by the WTO ruling and would consider all options, including the use of the Super 301 trade law, to pursue the film case. Super 301 allows the U.S. to impose tariffs or other penalties against countries deemed guilty of trade violations.
Barchefsky met Friday afternoon with Japanese Foreign Minister Keizo Obuchi and urged Japan to press forward vigorously with its deregulation measures and fiscal reforms, according to a U.S. trade official. She also voiced concern about the mounting U.S. trade deficit with Japan and market access for U.S. automobiles.
The film case’s WTO panel, which was made up of trade experts from Brazil, Switzerland and New Zealand, is expected to make its final ruling in February. In the past, the final ruling has not deviated much from the preliminary findings. The U.S. can challenge the decision before a special WTO appellate panel.
Analysts said the Kodak case has the highest profile of the 53 cases that have been submitted to the WTO and was a significant test for the fledgling organization. The WTO, championed by the United States and its major trading partners, was established in 1995. It sets the rules for global trading and provides a multilateral arena to resolve disputes among its 131 members.
Edward Graham, a senior fellow at the Institute for International Economics in Washington, said the U.S. government erred when it filed the Kodak complaint because it called on the WTO to take actions that exceeded its legal powers.
He said the Clinton administration needs to first work on expanding the WTO’s jurisdiction so it can pursue legitimate complaints about anti-competitive practices committed by the private sector.
“The case does underscore that the WTO cannot deal with private restrictive business practices that foreclose markets to foreign imports,” he said.
Graham said it would be a “colossal blunder” for the Clinton administration to pursue unilateral trade sanctions because it would seriously undermine the WTO’s effectiveness by sending out the message that the United States only plays by multilateral rules when it wins the game.
“Most sadly of all, the WTO could wind up being the big loser,” he said. “The WTO does have to decide these cases on the merits against the rules that exist, and I think that’s what they’ve decided. If we think the rules should be changed, then we should work to change the rules.”
But a U.S. trade official said the Clinton administration is not convinced the WTO lacks jurisdiction over these issues, citing several places where the panel acknowledged a “profound lack of competition” in Japan’s film market and stated that “the government bears responsibility for private collusive activities that restrict competition.” He also pointed out that the U.S. has already enjoyed significant benefits from the WTO, winning relief in 14 other cases it filed ranging from intellectual property to agriculture.
“I think we have to put this question to further scrutiny,” he said.
