A Yokohama neighborhood's battle to cut through red tape: an American lawyer and his neighbors fight to keep a big retail store from moving in next door - part 1 of 2 - Case Study

Japan, Inc., Sept, 2002 by Glenn Newman

FOR THE PAST SEVEN years or so, I worked in Japan as an attorney in the Tokyo office of a multinational law firm and then as Asia-Pacific counsel for a Silicon Valley software company. For much of that time I was also an adjunct lecturer in law at Temple University Japan. Most of my students were American law students on a semester-in-Japan program. Late last year Temple asked me to teach a class entitled Regulation of Business in Japan,' a course I hadn't taught before.

I believed that guest lectures by other actual practitioners working in the trenches,' so to speak, would give the students a more practical understanding of doing business in Japan.

I also decided that the focus of the class should not be on highly detailed discussions of particular regulatory regimes but rather on the principles, processes and thought patterns that underlie the Japanese approach to regulating business.

I concluded that one of the most straightforward examples of the ways by which the Japanese regulate business was a matter that involved me, my Japanese, American and Scandinavian neighbors, a Japanese retail store developer, an 80-something Japanese lawyer and landlord, and the city of Yokohama's department of buildings. Although I will focus on a particular project in Yokohama, I hope that this case study will give a sense of the underpinnings of the Japanese regulatory regime at all levels.

The Neighborhood and the XYZ Home Center

A few years ago my family and I lived in a quiet residential neighborhood in Yokohama. It was a fairly typical Japanese neighborhood of small, densely packed homes, except for six American-style houses situated rather incongruously in the center. We lived in one of those six houses. Immediately adjacent to the foreigners' houses was a large empty lot. This lot had previously been a wooded hill. The hill had been leveled some years before to pave the way for a development project that had been abandoned before ground was broken. About a year and a half into our two-year lease we learned that a plan was afoot to develop this empty lot into the Japanese equivalent of a 'superstore' which I'll call the XYZ Home Center.

Naturally, we were quite disturbed by the news. We became even more distressed when we heard that the access road to the store would be located about 10 feet from the back wall of our house and that projections indicated 1,000 cars would travel this road every weekday and 2,000 cars a day every weekend--not to mention the diesel delivery trucks at the crack of dawn each morning. But let me back up.

US Trade Policy

The lot had been vacant for decades; why the rush to develop it in the midst of a stagnant Japanese economy and a seemingly interminable decline in consumer confidence and spending? The root cause of the decision to build this superstore in my backyard was-surprise--the United States government.

Over the past 30 years or so, successive US administrations have, with limited success, been protesting and trying to chip away at Japan's relatively closed market. US and international pressure had, through multilateral trade negotiations under GATT (the precursor to the WTO) and bilateral negotiations, largely eliminated tariffs and import quotas as significant barriers to the importation of foreign products, except for a few protected industries such as agriculture. However, the US and other countries gradually realized that the elimination of tariffs and quotas alone would not lead to the hoped-for opening of the Japanese market.

Many of the reasons for the failure of tariff reductions to lead to the opening of the Japanese market were lumped together under the term 'non-tariff trade barriers.' A non-tariff trade barrier is essentially any obstacle (aside from a tariff J to the importation of foreign products, services or capital that arises out of government policy, industry practice or cultural predisposition.

For many years one of the biggest and most contentious trade disputes between the US and Japan was the US assertion that non-tariff trade barriers were behind the failure of large American retail stores to crack the Japanese market. Many barriers were cited, some cultural (such as the average Japanese consumer's purported preference for shopping at small neighborhood 'mom and pop' shops, which smothered their customers with personal attention) and some were structural (such as Japan's infamous multi-tiered, tradition-bound distribution system). It was difficult for the US government to effectively press the Japanese government to change culture-bound preferences and systems since they were arguably beyond the Japanese government's ability to meaningfully influence.

The Large-Scale Retail Store Law

There was another non-tariff trade barrier to the expansion of foreign retailers in Japan that was clearly under the Japanese government's control, namely a post-World War II statute known as the Large-Scale Retail Store Law. The US government therefore decided to press the Japanese government to repeal this law.