Dispute puts competition on agenda

Date: 01/08/1996

By Tim Jones

A HIGH-profile international trade dispute is offering the European Commission a back-door opportunity to put a proposal for international competition rules on the agenda of the World Trade Organisation.

Until now, the titantic struggle between US photo-film-maker Eastman Kodak and Fuji Photo Film of Japan has centred on the trade elements of the dispute and the Americans' use of the infamous Section 301 of the US Omnibus Trade Act of 1988.

But as 60 days of consultation come to an end on 12 August, European negotiators are hoping that a little noticed aspect of the controversy will come to the fore and give them the leverage they need.

“At its heart, this case is really a competition law issue and that is an area the Europeans are very interested in and want on the WTO agenda,” said a lawyer closely involved in the case.

Only last week, Commission officials travelled to Geneva to put their case to an informal meeting of the envoys to the 122-member organisation.

“For decades we managed to live without proper international rules on competition,” said Alexander Schaub,

the Commission's director-general for competition. “But this cannot persist in a context of increasing liberalisation and globalisation.”

Trade Commissioner Sir Leon Brittan has been unfailing in his efforts to negotiate a set of competition rules within the WTO. All too often, he believes, restrictions on competition are the cause of trade friction, yet they harm rivals within that country as much as they do companies from outside.

For some observers, the Kodak/Fuji battle is a prime example of this, saying more about competitive conditions in the two national markets than it does about bilateral trade relations.

In May last year, Kodak filed a complaint under Section 301 with then US Trade Representative (USTR) Mickey Kantor. This alleged that Tokyo first supported and later tolerated anti-competitive practices which placed Fuji in a dominant position on the Japanese market.

Section 301 obliges the USTR to investigate an alleged trade restriction and, within a year, either negotiate it away or announce retaliation. To keep the dispute within the multilateral trade framework agreed under the Uruguay Round liberalisation settlement of 1994, the US filed the complaint with the WTO in June.

Since then, consultations have been under way. If no solution is found, the Americans will have the right to have the issues discussed at two WTO panels and in a further round of consultations.

The first panel will hear its complaint that Japan took actions which violated the Uruguay Round agreement of 1994 and, in so doing, impaired its benefits to the US.

A second complaint alleges that Japan broke the commitments it made under the General Agreement on Trade and Services by passing the Large-Scale Retail Store Law. Under Article 16 of the GATT agreement, it is forbidden to restrict the number of retailers or their volumes of trade. This can be used as a cover for defending local companies with a grip over small retailers.

However, the US is unable to call a formal panel over the third aspect of the case: anti-competitive private business practices outside the area of government - and this is where the European interest lies.

“The EU is interested in this one either as a precedent or a vehicle to discuss these issues more globally,” said an EU official. “They could use this case to see how we should be looking at these problems.”

It is a fact that Kodak and Fuji are dominant in their respective national markets, while the German firm Agfa has been unable to make significant inroads into either country. In Japan, Fuji has a market share of 70&percent; while Kodak commands the same percentage in the US. World-wide, Kodak has 36&percent; and Fuji 33&percent;. In Europe, Agfa has more presence but is still up against Kodak's and Fuji's combined share of more than 50&percent; of the market.

Allegations about each company's business practices abound. Fuji claims that Kodak exercises undue influence on photo-finishing through its willingness to pay for tied contracts upfront with money that competitors cannot match, while Kodak points to Fuji's 'vertical integration' of finishers.

For both Japan and Europe, the third round of consultations on these issues are the crux of the issue.

Last autumn, the EU called for the issue to be discussed within the trade and competition law committee of the Organisation for Economic Cooperation and Development.

“This is an opportunity to advance their (European) agenda on competition law by either getting it into a working party or as a test case,” said a lawyer. “Clearly, this is the first clear, unambiguous dispute on private business practices within the WTO.”