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Phase I: Japan's Distribution System and Options for Improving U.S. Access

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Phase I: Japan's Distribution System and Options for Improving U.S. Access PHASE I: JAPAN'S DISTRIBUTION SYSTEM AND OPTIONS FOR IMPROVING U.S. ACCESS Report to the House Committee on Ways and Means on Investigation No. 332-283 Under Section 332 (g) ,· of the Tariff Act of 1930 · USITC PUBLICATION 2291 JUNE 1990 United States International Trade Commission Washington, DC 20436 UNITED STATES INTERNATIONAL TRADE COMMISSION COMMISSIONERS Anne E. Brunsdale, Chairman Ronald A. Cass, Vice Chairman Alfred E. Eckes Seeley G. Lodwick David B. Rohr Don E. Newquist Office of Economics John W. Suomela, Director Trade Reports Division Martin F. Smith, Chief Diane L. Manifold Project Leader Judith Czako Kim S. Frankena Paul R. Gibson Michael Hagey Andrew Wylegala Principal Authors Assistance was also provided by Gerald Berg, Richard Bo/tuck, Robert Feinberg, Joseph Shaanan, Janet Whisler, and Salvatore Scanio, Intern. Data assistance was provided by Dean M. Moore. Supporting assistance was provided by Paula R. Wells and Linda Cooper. Address all communications to Kenneth R. Mason, Secretary to the Commission United States International Trade Commission Washington, DC 20436 PREFACE On October 23, 1989, the United States International Trade Commission (USITC) received a letter from the House Committee on Ways and Means (presented as appendix A) requesting that the Commission conduct an investigation, in two phases, under section 332(g) of the Tariff Act of 1930 with respect to Japan's distribution system and options for improving U.S. access to that system. In response to the request from the House Ways and Means Committee, the Commission instituted investigation No. 332-283 on November 13, 1989. The first phase of the report was to be submitted on June 22, 1990 and Phase II of the report by October 23, 1990. The Committee requested that the first phase of the study provide an overview of Japan's distribution system, including a discussion of its structural features; official policies and practices affecting it; and business practices. In addition, the study was to "analyze the composition of Japanese imports from the United States and other countries (e.g., capital goods, consumer goods), with a view to determining the sorts of changes in Japan's distribution system that are most likely to benefit U.S. exporters." The second phase of the study would seek experts' views on options for improving U.S. access to the Japanese distribution system, including information on the experiences of U.S. and foreign businesses with the distribution system. A public hearing in connection with this investigation was held on January 26, 1990 and testimony was received from interested parties (witness list is presented as appendix B). Notice of this investigation was given by posting copies of the notice at the Office of the Secretary, U.S. International Trade Commission, Washington, D.C., and by publishing the notice in the Federal Register 54 F.R. 48324, November 22, 1989)(appendix B). CONTENTS Page Preface ................................................................... Executive Summary ........................................................ vii Introduction and Summary ................................................. 1 Purpose of the report ...................................................... 1 Organization of the report ................................................. 1 Summary of major themes .................................................. 2 Close-up view of the system ............................................... 2 Profile of the wholesale and retail sector ..............· ....................... 2 Manufacturers, wholesalers, and retailers .................................... 3 Japanese consumers ........ , ............................................. 3 The "channels" ............ : ............................................ 3 Keiretsu, trading companies, and trade associations ............................ 3 Public policies and other features affecting distribution ......................... 4 Business practices ....................................................... 4 Composition of Japan's trade .............................................. 4 The effects of the "system" on imports ...................................... 4 Background .................. , .............................................. 5 Relative importance of distribution to other trade issues ......................... 5 Corporate behavior and the business climate .......... ; ........................ 7 Long-term relations ...................................................... 7 Loyalty and obligation ..................................................... 8 Impact of loyalty and obligation on decision to switch suppliers .................. 9 Personal contact ........................................................ 9 The legal environment for business in Japan ................................... 10 Structural Features of Japan's "Distribution System" ........................... 10 Profile of the wholesale and retail sectors ..................................... 11 Factors contributing to the ·number of wholesalers and retailers .................. 13 Efficiencies or inefficiencies of the distribution system .......................... 14 Manufacturers, wholesalers and retailers ...................................... 16 Manufacturers ........................................................... 16 Historical role· in distribution .............................· ................ 16 Current role in distribution .............................................. 17 Wholesalers ............................................................ 18 Retailers ........· ....................................................... 21 Consumer behavior .................. : .. : ..... : ...... ·...................... 25 Traditional characteristics · ................................................. 25 Changing demographics and spending patterns ................................ 27 Consumer consciousness and organization ................................... 28 Types of distribution channels ............................................... 29 Trading companies ....................................................... 30 Role in import distribution .............................................. 33 Impact on aggregate trade flows .......................................... 33 Advantages of using trading companies .................................... 34 Disadvantages of using trading companies .................................. 35 Prospects for import expansion ............................................ 37 Ties to industrial groups ........ ·.............................. ·........... 37 Ties to affiliate networks ................................................ 38 Sole import agents ·............. ·.......................................... 40 Joint ventures .................. ·; .·· .. .- ..... ·.............................. 42 Licensing arrangements ................................................. 42 Direct marketing ........................................................ 42 Direct mail ........................................................... 43 iii CONTENTS-Continued Page Structural Features of Japan's "Distribution System"-Continued Setting up independent distribution channels ................ ; . 43 Land costs ..........· .................................. · . 45 Other costs . 4 7 Unique features of Japan's distribution system . 48 Keiretsu . 48 Structure ........................................... • . 48 Inter-market keiretsu . SO Intra-market keiretsu . 53 Distribution keiretsu . 54 Japan's automobile distribution system . 57 Auto import sales in Japan . 58 Relations between Japan's auto manufacturers and dealers . 60 Trade associations . .. 61 Cartels . 63 Distribution-related public policies . 64 Antimonopoly Law . 64 Restrictions on sales promotions . 68 Restrictions on retail distribution ............................ , . 68 Legal requirements and application of the Large Scale Retail Stor~ Law . 69 lmpaet of the law on retail distribution .· ....·. : . .......... ·. 71 Impact of the law on imported products . 73 Prospects for change .......... , ........................ '... 75 The Liquor Control Law................................................... 80 Impact of the law ............ , . 81 Prospects for change . 82 Restrictions on wholesale distribution . 83 Regulations affecting automobile service centers . 83 Restrictions on the distribution of agricultural products . 84 Beef and citrus . • . 85 State-trading .......... : : .... , , . 86 Feedgrains ................... , . 86 Pork import system ............ , . 86 Dairy products ............... , . 86 Food additives ............... , . 86 Wood products ............... , . 87 Restrictions on investment ........ , . 87 Mergers and acquisitions ......... , . 90 Other features of the economy affecting distribution . 91 Entry procedures and warehousing ... , . 91 Customs clearance ............... , . 91 Air facilities ..................... , . 92 Seaports .......................... , . 93 Bonded areas . 94 Enforcement of other ministries' laws . 95 Customs clearance, review of documentation, appraisement and evaluation . 96 Classification ............ .- .......... , . 97 Examination of goods . 98 Duty payment and release of goods . 98 Collection of consumption tax . 99 Duty payment and drawback . 99 Temporary importation of samples and equipment . 99 Post customs clearance . 100 Computerized customs clearance through NACCS . 100 Dispute resolution . 1o1 iv CONTENTS-Continued Page Structural Features of Japan's "Distribution System"-Continued Other entry related procedures . 102 · Marking and labeling requirements ................· . 102 Standards, testing, and certification procedures ...... ; . 102 Trucking . 103 Functional Features of Japan's Distribution System . 103 Business practices . 103 Exclusive dealings . ..
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