Spotlight: The Lion That Roared

Taiji Sato

Taiji Sato is a young but tenacious lion struggling against Japan's mighty Ministry of International Trade and Industry (MITI). Sato, a Japanese gasoline retailer, wants to bring cheaper gasoline to his country. He's tried several times to do this by importing cheap gasoline from abroad. But MITI, with its unofficial limitation on oil imports, has blocked every attempt. Sato has lost $1 million in his struggle, but he refuses to give up.

Sato started his career 10 years ago, when he purchased a filling station in downtown Tokyo. "It was such a poorly located one that the only way left for my survival was to offer gasoline at prices lower by 20 percent than those of established gas stations," he recalls. He did just that, and within three months he was selling six times as much gas as his competitors.

Sato is now the 32-year-old president of Lions Petroleum Co., which owns eight filling stations and franchises 45 more. He's confident he could slash prices further if he could import gasoline himself. But in his attempts to buy abroad, this enterprising businessman has incurred the wrath of Japan's protectionist bureaucracy. MITI claims that it must maintain a stable supply of oil in order to meet the fluctuating demand for various oil products. And the only way to do that, says MITI, is to control the market.

Sato rejects this argument, pointing out that Japan doesn't have to worry right now about a stable supply of oil. "There's an oil glut," he told the Japanese magazine Gendai. "Cheap imported gasoline will force the domestic refiners to streamline their operations and become more competitive internationally." But while the Petroleum Business Law supposedly allows anyone to import petroleum, MITI makes sure this doesn't happen.

Believing he could offer cheaper gas if only he could import it himself, Sato went to the Singapore Petroleum Company in November 1984 and signed an import contract. But that's as far as he got. Explains Sato, "At the news that a tanker filled with 3,000 kiloliters of gasoline was heading for Osaka, [MITI] was dismayed. Since oil import is legal, MITI used its pressure—the so-called administrative guidance. MITI Minister Murata advised me to give up my gasoline import. At the same time, the Minister asked my bank not to loan money to me. With the loan commitment cancelled, I was forced to abandon the plan."

Sato tried again, first with the same Singapore refiner, then with the Philippine National Petroleum Company, and later with the Chinese National Petroleum Company. But all the import deals fell through, thanks to the pressure that the Japanese government exerted on the foreign oil companies. When the Philippines' ambassador asked Sato to cancel the import contract, the ambassador hinted that the deal might jeopardize negotiations over a $600-million yen-based loan to the Philippines. Southeast Asian countries, Sato found, could not resist such pressure when their credit with Japan was at stake.

Finally Sato went to the United States, seeking contracts with three independent oil companies in California. About this time, the Japanese government introduced a bill, "Temporary Measures for the Importation of Specific Petroleum Products," that would permit gasoline importation. The real aim of the bill, however, is to permit only the few government-sanctioned oil wholesalers to do the importing. This was guaranteed by carefully defining the criteria for becoming an importer registered with MITI.

Sato, who has written a book about his battle titled I Was Knocked Off by MITI, discloses the rationale behind the bill. "One of the largest factions of the [ruling] Liberal Democratic Party depends on political donations from large petroleum companies. High officials of MITI are seeking future appointments with those corporations after retirement.…Such common interests direct MlTl's policy in opposition to [the] free market."

The new law went into effect on January 6 of this year. To make matters worse, Japanese legislators at the last minute extended its term from 5 to 10 years. "Temporary measure" became a misnomer.

The Japanese government expects the law to increase oil imports by 20 percent and thus help mitigate trade friction between the United States and Japan. But Sato speculates that imports will increase by only three to five percent, "since oil wholesalers do not want to import cheaper gasoline against which they cannot compete." In Sato's opinion, "the best way to reduce the trade imbalance between Japan and other countries is to completely liberalize importation of oil products."

Sato is now seeking an import agreement with the United States, a country less vulnerable than Southeast Asian countries to Japanese threats. Japan's Ministry of Foreign Affairs fears that the United States might take his case seriously. Sato says he's eager to make Americans aware of "how MlTl's administrative guidance is counteracting American efforts to liberalize the Japanese markets."

American policymakers who are interested in promoting free international trade, Sato says, should listen not to large establishments that want to protect the status quo but to small entrepreneurs like him "who have contributed to making [the] Japanese economy prosperous."

Toshio Murata, REASON's Japanese correspondent, is a professor of economics at Yokohama College of Commerce.