Commentary: The World Trade Court Is The Right Venue Now

In the auto trade showdown with Japan, the U.S. hauled out a cannon to bag a pigeon. The accord forged in Geneva likely will spur modest increases in Japanese purchases of U.S. cars and car parts. But it doesn't hack away at the web of collusive business practices that make it tough for foreign companies to sell shock absorbers--or most anything else--in Japan.

If the Clinton Administration is serious about cracking Japan's markets, this is no time to declare victory and back off. The U.S. has a chance to marshal global frustration with a system that is out of kilter with accepted norms. The Clintonites should challenge Japan's rigged markets in the new World Trade Organization by pressing ahead with a broad case documenting a pattern of blatant, unfair trade practices.

TAILOR-MADE. It wouldn't require much legwork. Eastman Kodak Co. already has filed a massive complaint with American officials that alleges in excruciating detail the existence of a conspiracy between Tokyo and Fuji Photo Film Co. to protect Japan's consumer film market from foreign competition. Trade lawyers in Washington believe that Kodak's cut-and-dried case is tailor-made to test the WTO's ability to police anticompetitive behavior.

Why bother? For one thing, it would peel back the onion layers of Japanese keiretsu, or cartel-like business dealings, in a highly public forum. And a WTO case would elevate U.S.-Japan sniping about collusive practices into an international matter that would be far harder to shrug off. Both would make Tokyo squirm. Japanese consumers might realize just how much they're being ripped off. And pressure could build for changes that Japan's bureaucracy is resisting.

To be sure, the WTO is not designed to police all invisible barriers. So, Washington should also take House Speaker Newt Gingrich's advice and quietly squeeze Japan in the U.S. by using some of the same administrative tactics Japanese bureaucrats employ to fend off foreign companies. Meanwhile, taking Japan to the court would test the organization's reach and help defuse the growing controversy over section 301 of American trade law. That provision authorizes President Clinton to slap sanctions on another country if negotiations to eliminate unfair trade practices fail. But WTO rules forbid a member state from imposing such sanctions without the organization's permission.

In the auto dispute, the U.S. got a verbal drubbing in European and Asian capitals for unilaterally threatening $5.9 billion in punitive tariffs on Japanese luxury car imports. U.S. Trade Representative Mickey Kantor insisted the U.S. had the right to apply its laws in cases where WTO rules aren't strictly applicable. But that's hotly debated in legal circles. "We ought to try a case at the WTO looking at keiretsu-type exclusive behavior in Japan to resolve once and for all what aspects of anticompetitive practices are covered" by the new court, says Erin Endean, a lawyer with Washington consultants Hills & Co. who headed USTR's Japan desk in the Bush Administration. "If the WTO says it's not, we are perfectly justified in taking a 301 case and threatening sanctions."

Few countries in the WTO would object to a U.S. suit against Japan. Highly distrustful of Japan's mercantilism, the Europeans have slapped quotas on Japanese car imports. And officials of many Asian nations--even those mimicking Japan's industrial policy--feel victimized by Japanese resistance to reciprocal trading arrangements.

HARD SELL. There's a potential political payoff at home, too. A WTO ruling that comes down hard on Japan's cartel-like maneuvers would shore up American public support for the fledgling trade court. Right now, America Firsters are having a field day claiming that the WTO will trample U.S. trade law and national sovereignty.

In fact, both the Bush and Clinton Administrations championed the creation of the WTO because they viewed it as a means to advance American trade policy goals in much the same way that Presidents have

used the U.N. to muster international support for U.S. geopolitical


It may be a hard sell to convince companies to become party to a legal test of such international proportions. But the alternative is worse: The auto battle ultimately fell into the same old rut of past U.S.-Japan trade showdowns. The U.S. threatened, and Japan conceded the minimum to ward off sanctions. That pattern must be broken. Rolling out big guns to bag small game just doesn't pay.

Borrus covers trade issues from Washington. She previously was based in Tokyo.

Before it's here, it's on the Bloomberg Terminal.