TESTING WTO'S METTLE

Things are about to get serious at the World Trade Organization, which last week appointed a panel to investigate U.S. charges that Japan is barring foreign film from its market. The complaint set in motion a process that will test the WTO's mettle.

The organization can squarely face the issues the case presents, and hand down a clear and forceful decision. Or it can come out with a wimpy ruling on grounds so narrow and language so sophistic that it will solve nothing. That would be the shortest way for the WTO to join at its young age the ranks of international organizations - including its predecessor, the GATT - that never delivered.The case pits Kodak against Fuji Film, or, as some trade analysts would have it, the United States against Japan's keiretsu system of interlocking and impenetrable industrial groupings. U.S. trade officials who are closest to the case themselves are quick to emphasize that the Fuji film case has implications for a wide range of products, including Japanese imports of chemicals, cosmetics, paper products and glass, to name a few. They point to the European Union's decision to join the case on the U.S. side as clear evidence of its enormous importance.

That is, of course, as exaggerated as most of the trade claims the Clinton administration is making these days. The U.S. allegations in the case are quite specific. Europe entered the case to prevent a cozy Kodak-Fuji deal. Washington contends that Tokyo, through subtle ''interlocking liberalization countermeasures,'' has made its market inaccessible to imports of photographic film and paper.

The crux of Tokyo's misconduct, according to Washington, is that Japan restricted foreigners' access to the existing film distribution system, limited their options to invest in their own distribution systems and restricted their use of marketing incentives, such as discount pricing. By doing so, the United States says, Japan

ified the trade liberalization effect of its import-tariff reductions and thereby violated WTO rules.

Proving these allegations will be a formidable task. The Japanese government, which vehemently denies any wrongdoing - or even any involvement - may well bury the WTO panel under an avalanche of paper, making the case as impenetrable as its often subtle role in the private sector. It will take a great deal of sifting for both the U.S. side and the WTO to get to the core of the dispute.

While U.S. trade officials exaggerate the precedent-setting nature of the case, its importance is clear. This is the first time the WTO is asked to look into Japan's keiretsu system. A ruling against Japan, although not toppling the keiretsu system, would make a substantial dent in it and make it vulnerable to further assault. The difficulties of proof notwithstanding, it would encourage the filing of other cases involving other products.

Such a ruling also would serve notice on South Korea, whose chaebols closely resemble Japan's keiretsu, that they cannot use government interventions to circumvent their market-access obligations.

Some observers caution that the very importance of this issue makes it inappropriate for the WTO dispute-settlement system. They argue questions of this magnitude should be dealt with in bilateral negotiations.

That would have been true in the past because the GATT could not resolve tough trade questions and compel compliance with its rulings. The WTO, by contrast, has those powers.

The United States and Japan have been involved in sector-specific negotiations for decades, almost always with the threat of unilateral sanctions lurking in the background. The WTO, with its stronger rules, offers the possibility of a solution based on rules, not threats. It should seize this opportunity.

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