The following story appeared in the April 30 edition of The Daily Yomiuri.

Perhaps the highest-profile trade-related dispute between Japan and the United States these days involves Eastman Kodak Co. and Fuji Photo Film Co.

Kodak's main beef is alleged restrictions on foreign access to Japan's consumer film market, the world's second largest. Kodak charges that Fuji, working with the Japanese government, has conspired to keep non-Fuji film off store shelves in Japan in a move that has cost the U.S. company an estimated 5.6 billion dollars in export revenue between 1975 and 1993.

Kodak holds 70 percent of the U.S. market and 9 percent of Japan's, while Fuji has 67 percent of the Japanese market and about 12 percent of the market in the United States.

In May 1995, the Rochester, N.Y.-based Kodak filed a petition with the U.S. government under Section 301 of the Trade Act of 1974, asking Washington to "investigate and remedy decades of anticompetitive trade practices in the Japanese market for consumer photographic film and paper."

According to the petition, "These practices, while industry-wide, generally involved Fuji Photo Film Ltd., and were at times conducted with the knowledge and participation of the government of Japan."

Fuji responded with a 595-page rebuttal in which it said Kodak's arguments were based on a "misrepresentation of the facts and fanciful logic" and that its arch rival's weak penetration of Japan's film market was the result of poor business decisions.

The U.S. Trade Representative completed its investigation last June, agreed with Kodak and eventually took the case to the World Trade Organization. The Geneva-based WTO--set up in 1995 to resolve international trade disputes--established a panel last October to examine the case. Washington issued its first submission to the panel Feb. 20. On April 3, Japan submitted its report.

"From our viewpoint, the allegations by the United States are groundless," said an official from the International Trade and Industry Ministry who requested anonymity. "If one looks at the actual facts and situation objectively, they can see there is no basis for the U.S. claim."

The three-member panel held its first face-to-face meetings on the Kodak-Fuji case April 17-18. During the meeting, the European Union sided with the United States on its distribution claim. A final decision is expected in October, but if appealed the case could stretch into the early part of 1998.

A closer look at the dispute
"Basically what the Japanese government did was they blocked access to the main place people go to buy film: the small shops," said Ira Wolf, Kodak's director of Japan relations. "It also blocked the ability of large stores to expand, so that's not an alternative, and then when you were actually able to get through to a retailer, it prevented you from doing promotions that could attract the consumer."

Wolf said the Japanese government set up "liberalization countermeasures" to offset the benefits of reductions in import tariffs and foreign investment liberalization.

MITI denied the allegation.

"First of all, we don't see any of the alleged government measures as countermeasures," said the MITI official. "In Japanese, 'taisaku' (simply means) measure, but they intentionally translated the word taisaku to mean 'countermeasure.' There were no such countermeasures."

Kodak and the USTR categorized Japan's alleged liberalization countermeasures into three main areas:

Distribution countermeasures
The U.S. side claims that during the 1960s and early 1970s, as Japan was liberalizing its film industry, it was simultaneously undermining the effects of these changes by restructuring the distribution system to prevent foreign film from passing through.

The MITI official denied the allegation and said any changes in the distribution system were the result of market forces, not government intervention.

Restrictions on large retail stores
"The second part of the case relates to Daitenho, or the Large-Scale Retail Store Law," Wolf said. He said the law restricts the ability to open new stores and thus closes off an alternative channel for foreign film sales.

According to MITI, the law is designed to "make the process of establishing large-scale retail stores clear and transparent. It neither limits the number of such stores nor takes accounts of specific products--including film--in its regulatory structure."

Promotion countermeasures
According to Kodak and the USTR, the Japanese government implemented various "promotion countermeasures" based on the Antimonopoly Law and the Premiums Law to prevent importers from effectively using discount pricing, special promotions and advertising to market their products.

The MITI official said the Premiums Law is designed to protect consumers. It imposes restrictions only on excessive premiums and regulates only misleading representations. "And there is no discrimination against foreign countries," he added. "The regulation is applied to domestic and foreign companies on an equal basis, and the standards are not very strict compared with other countries."

Back to The Diederich Journal, Spring 1997.