7:26 PM Oct 4, 1996

KODAK-FUJI WAR BEFORE WTO

Geneva 3 Oct (Chakravarthi Raghavan) -- The United States and Japan, Thursday, traded further charges against each other at the WTO over purported government measures and anti-competitive or restrictive business practices (RBPs) of the private operators in their markets.

The occasion came at the WTO's Dispute Settlement Body where the US sought a panel to be set up over its complaint that Japanese laws, governmental measures and administrative guidance blocked access to its retail markets in the consumer photofilm sector.

The US complaint, initiated at the instance of the Eastman Kodak Company, is under GATT 1994, and alleges that Japanese measures are contrary to Art. III:1 and Art. III:4 (relating to like treatment for domestic and imported products) and Art X:1 and X:3 relating to transparency of trade policy measures and their administration.

The US request for a panel which came up before the DSB for the first time, was blocked by Japan. But it will come up again at the next meeting of the DSB on 16 October when, under the WTO rules, the establishment of the panel will be automatic.

This high-visibility dispute over photofilms, is one where Kodak and Fuji have expended considerable funds and expertise (with tomes of paper about each other's practices) to trade charges against each other. Kodak and Fuji, each have about 70% share of their respective domestic market and about 10% share in each other's market.

At Kodak's instance, the US administration has invoked GATT and GATS rules, as well as a 36-year old decision of GATT Contracting Parties that appears never to have been actually used, to enable 'consultations' over RBPs. These consultations under the 1960 decision does not involve any dispute settlement process.

A former US ambassador to GATT, Mr. Rufus Yerxa, now a trade lawyer with a firm based in Brussels (but gets ready access to other trade diplomats here), has been to Geneva in recent weeks to meet trade delegations to explain and lobby the Kodak case.

The US raised the GATT dispute on 13 June claiming Japanese specific laws, regulations and government requirements affect the distribution, offering for sale and internal sale of consumer photographic paper and film, and alleges that Japan has established and maintained a series of inter-related measures over the last three decades to thwart imports and protect its domestic market and carefully guide its internal distribution system so as to block any foreign manufacturer gaining meaningful access.

Among other, the US charged in a statement at the DSB by Mr. Andy Shoyer (legal officer of the mission), that Japanese government has effectively blocked foreign access to consumers through primary distribution channels, and has prevented foreign manufacturers to gain access through alternative channels. This it is alleged has been done through cumbersome and non-transparent restrictions on growth of large retail stores, and non-transparent restrictions on use of premiums and advertising tools.

Refuting the US charges, Japanese ambassador, Mr. Nobutoshi Akao, said Japan was still willing to hold further consultations to reach a mutually satisfactory solution if the US so desired.

Akao complained that while listing various Japanese laws, regulations and measures, the US has not clearly indicated, either in its request for consultations or during consultations, which specific measures violated which specific GATT obligations and the grounds for such assertion by the US.

This, he said, was contrary to the requirements of the dispute settlement procedures and rules, Art.4 paras 4 and 5, and the US had not identified the specific measures complained about as required by Art. 6 para 2 of the DSU. Most of the measures cited by the US were obsolete and it was not clear what was the positive solution sought by the US. Such an approach not only posed problems in terms of the dispute settlement procedures of this particular case but also has serious implications for the future functioning of the dispute settlement mechanism as a whole.

After their initial statements, the two sides traded further accusations against each other.

The US charged that the Japanese counter-request for consultations under the 1960 decision (on RBPs) amounted to use of WTO mechanisms for tactical reasons to deflect attention from the serious concerns raised by the US over RBPs in Japan's domestic markets.

Japan refuted this charge, and insisted that the measures complained of by the US in respect of GATT 1994 were fully in conformity with Japan's GATT obligations and there was no protectionist purpose. The complaints (by Kodak) over Fuji's anti-competitive behaviour ought to be raised and settled under Japanese anti-trust legislation.

The EU Commission's Jan Wilkinson noted the Japanese and US statements, and the US request for consultations on RBPs and said the EU had already made a request to join these latter consultations.

The 1960 decision by the CPs was on a report of an expert group on RBPs set up by the GATT CPs in 1959. The experts were drawn from 12 countries, all of them from the industrialized world. A majority of them (from Austria, Canada, then West Germany, Japan, Netherlands, Switzerland, UK and the USA) said it was unrealistic to recommend any multilateral agreement for control of international RBPs.

The minority (Danish, French, Norwegian and Swedish experts), on certain fundamental respects held different views, some of which (holding consultations, and reporting the outcome to the secretariat, and in turn by the secretariat in an annual report to the CPs) was incorporated in the CPs decision.

But the minority view that in the event of failure of consultations, the issue should be referred to a group of experts for examination and report to the secretariat and the CPs, was not accepted.

The failure of the GATT to act on RBPs ultimately led to a UN initiative, and ultimately to a UN Conference under UNCTAD auspices that produced the voluntary RBP guidelines, including some provisions for consultations and exchange of information, but without any mandatory provisions - the US, Europe and Japan opposed it.

Even now in the runup to the Singapore Ministerial Conference (where the EU wants some decision on competition), the EU Commission views the UNCTAD code as 'too ambitious', and is against any WTO decision for any compulsory sharing of information over RBP practices operating in one country but originating in another.

The US has also raised a complaint over the same film issue under the General Agreement on Trade in Services (GATS) over Japanese regulations relating to retail markets, but this is yet to work its way through the consultation processes before a panel can be sought.

On the US request for consultations over the RBPs of Fuji, Japan has agreed to hold such consultations, but countered with its own request to the US for similar consultations over Kodak's RBPs in the US market. The US though cried foul, saying it was a 'tactical gamesmanship', a view rejected by Japan at the DSB.