Academic journal article Law and Policy in International Business

Bad Lawyering or Ulterior Motive? Why the United States Lost the Film Case before the WTO Dispute Settlement Panel

Academic journal article Law and Policy in International Business

Bad Lawyering or Ulterior Motive? Why the United States Lost the Film Case before the WTO Dispute Settlement Panel

Article excerpt

I. INTRODUCTION

In order to convince countries such as the United States to forgo unilateral response measures to violations of the General Agreement on Tariffs and Trade (GATT),(1) the World Trade Organization (WTO) Dispute Settlement Understanding (DSU) arose out of the Uruguay Round of GATT Negotiations in 1994,(2) as an efficient dispute settlement mechanism.

Since its inception, the Dispute Settlement Body(3) has received 163 consultation requests on 125 different matters.(4) The United States has invoked the WTO DSU in 34 cases to date as plaintiff, 7 of which have continued beyond the consultation phase.(5) On January 30, 1998, the DSU panel, formed in October 1996 to hear the case brought by the United States against Japan and its photographic film market,(6) announced its final decision that the United States had lost.(7) This Note will attempt to analyze why. Did this infallible dispute settlement mechanism fail, or did the United States simply not have a case? Did the United States lose the case but still get what it wanted? This Note will also look at the consequences of this decision on international trade and examine alternative courses of action that the United States could have taken, has taken, and will probably take in the future.

II. BACKGROUND

A. The Route to the WTO

1. Eastman Kodak Complained

On May 18, 1995, Eastman Kodak Company (Kodak) filed a petition for relief from Japanese market barriers in consumer photographic film and consumer photographic paper with the U.S. Trade Representative (USTR) under section 301 of the Trade Act of 1974.(8) Kodak's petition alleged that the anticompetitive practices of Fuji Photo Film (Fuji) amounted to unfair trade practices under the Japanese Antimonopoly Act.(9) Kodak argued that the Japanese government's tolerance of those practices had deprived it of $5.6 billion in cumulative forgone revenues in Japan since 1975 and created a protected profit sanctuary in Japan for Fuji.(10) Kodak argued that this affected the global competitive balance between Kodak and Fuji and fostered dumping in world markets, including the U.S. market.(11)

2. Section 301 Determination

Section 301 authorizes the USTR to take all "appropriate and feasible action" in order to obtain "the elimination of the act, policy or practice" that he or she determines is "unreasonable or discriminatory and burdens or restricts United States commerce."(12) U.S. companies have been fighting trade barriers to the Japanese market for some time, citing such key barriers as the Japanese regulatory technique of "administrative guidance," keiretsu, and complex distribution systems.(13) These restrictive practices were made the focal point of the section 301 petition.

The petition submitted that all four of Japan's major photographic supply wholesalers have exclusive supply contracts with Fuji.(14) A market survey conducted by Kodak's legal team found that Kodak is wholly absent from two-thirds of the stores in Japan, unable to get its products on the shelves. The survey also found that Kodak only has a 9.8% market share in Japan, its lowest share in any major market in the world.(15)

On June 13, 1996, following a one-year investigation, the USTR made its section 301 determination; that "certain acts, policies, and practices of the government of Japan with respect to the sale and distribution of consumer photographic materials in Japan [were] unreasonable and burden or restrict U.S. commerce."(16) Specifically, the USTR mentioned Japan's toleration of a market structure that impedes U.S. exports, as well as "certain Japanese government liberalization counter-measures" that it believes contravened Japan's obligations under the GATT and nullified or impaired the benefits accruing to the United States under this agreement.(17)

3. United States Requests WTO Panel

Pursuant to DSU procedures, the USTR requested a consultation with Japan. …

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