More trade issues arise for United States, Japan


TOKYO -- There's no rest for the weary in U.S.-Japan trade rows.

With the auto trade dispute out of the way, U.S. negotiators must now address a couple of high-stakes and highly contentious issues that could dissolve into more threats of punitive sanctions against Japan.

The cases involve two elite U.S. firms and their battles in the Japanese market -- Eastman Kodak Co. and Federal Express Corp.

U.S. Trade Representative Mickey Kantor last week announced a one-year investigation into Kodak's complaint that Fuji Photo Film Co. colludes with its distributors to keep Kodak's familiar yellow boxes out of Japanese stores.

Kodak says its market share in Japan hovers around 10 percent despite two decades of trying to expand its presence in Japan. The company maintains a 3,000-member marketing organization to sell its film and photographic paper.

If its complaint is ruled valid and negotiations over the next year to open the market fail, the United States could slap sanctions on Fuji products in the United States.

Meanwhile, on Friday the United States will ban cargo flights by Japan Airlines Co. and Nippon Cargo Airlines Co. that contain cargo originating in any country other than Japan. Transportation Secretary Federico F. Pena threatened to stop the flights when Japan refused to allow Federal Express to ship cargo to third countries through Japan.

Federal Express says the right to make the flights originates in a 1952 U.S.-Japan trade treaty. The leading U.S. air cargo firm wanted to use the right to start up a regional hub at Subic Bay in the Philippines on May 1. That plan has been put on hold.

Some business lobbyists in Tokyo worry that the Clinton administration's demonstrated willingness to accept face-saving compromises that do not contain specific promises may doom these two cases, which are considered far stronger than those presented by U.S. automakers.

"It [the auto agreement] undermines the Clinton administration's credibility with Americans who are on the front lines of trade," fumed one lobbyist. "Principle isn't worth a damn in Washington. It's all politics."

Kodak officials, who filed their complaint in mid-May, say their goal is to open Japan's market and not engage in theatrics. "I am glad the two sides reached an agreement on autos," said Ira Wolf, director of Japanese relations for Kodak. "A trade war doesn't help anyone trying to do business here or negotiate deals."

Yet Kodak's 252-page brief outlining Fuji's allegedly collusive and exclusionary practices amounts to a textbook documenting why so many U.S. businessmen end up in the U.S. trade representative's office rather than in corporate anterooms when trying to penetrate Japan.

Kodak sought report

The report was commissioned by Kodak's new chief executive, 54-year-old George Fisher, a veteran of Japan trade wars from his days as chief executive officer at Schaumburg, Ill.-based Motorola Inc. Shortly after he took the Kodak job, Mr. Fisher took one look at the film giant's market shares around the world -- 70 percent in North America, 40 percent in Europe and 10 percent in Japan -- and hired the Washington law firm of Dewey Ballatine to find out why.

The firm, headed by Alan Wolff, a former deputy trade representative under President Jimmy Carter, spent a year and more than $1 million documenting the 25-year history of government-industry collusion in Japan's film industry.

The complaint alleges that Fuji and the Japanese government colluded in the early 1970s to establish exclusionary distribution channels that tied four dominant wholesalers and the estimated 280,000 film outlets in Japan into a web designed to exclude foreign and competing domestic firms. Only 15 percent of Japanese outlets carry Kodak film.

At the time, Japan was under pressure from the United States and the Organization for Economic Cooperation and Development to liberalize its market. Reducing Japan's high tariffs and quotas on imported film would decimate domestic producers, the government feared.

By the time the controls came off in 1976, the collusive web was in place. Domestic competitors and potential foreign rivals were restricted to permanent marginal status in the market, the report alleged. Fuji controls 70 percent of the market for film and paper in Japan.

Since that time, Fuji has maintained its exclusive distribution network by fixing prices at an inordinately high level and by cutting off supplies to any retailers who try to sell lower-cost film, the report alleged.

"Fuji competes with Kodak worldwide, but it makes virtually all of its profits in Japan itself," the report said. "It uses those funds to finance low-price, unprofitable sales in the world outside of Japan."

"In other words, it's dumping," Mr. Wolf said.

Fuji disagrees

Fuji charged Kodak's lawyers with constructing a document "full of factual misrepresentation and rhetoric. They are shifting the responsibility for their lack of sales growth onto us," Masayuki Muneyuki, senior managing director of Fuji, told the Asahi newspaper chain. "The number of stores handling Kodak is few because of the gap in sales promotion and technical service."

Fuji suggested that Kodak file a complaint with Japan's Fair Trade Commission if it thought its retail practices were anti-competitive. Until a year ago, Kodak operated under a federal consent decree constraining similar practices in the United States.

Most observers believe Federal Express has an open-and-shut case against the Japanese authorities. The 1952 U.S.-Japan aviation agreement gives U.S. carriers so-called "beyond" rights not enjoyed by the Japanese in the U.S. market, but those rights are spelled out on paper.

The Japanese government has not hidden that it refused to honor those rights in order to set back U.S. firms' growing presence in Asia, which Japan considers its back yard. "We cannot accept the [Federal Express] request at all because it would widen the imbalance between Japan and the U.S. in the Asia-Pacific aviation market," said Transportation Minister Shizuka Kampei.

After Mr. Pena threatened retaliatory sanctions on two Japanese carriers, the firms asked the Japanese government to impose countersanctions against U.S. carriers. So far, none have been announced.

In the aviation case, most observers believe Japan will back off.

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