Saturday, January 31, 2015

Post 22

As usual, we begin this Post 22 with a summary of what you are about to read--

Summary of this Post 22.  The second installment of Zenith Radio’s Second war . . . do not  blame the Japanese . . . three theories as to what happened . . . the Curtis theory . . . how Curtis obtained evidence of dumping . . . rebates paid . . .  “disloyal” government employees . . .finally! the Treasury admits dumping occurred . . . . an “orderly marketing agreement” . . . Zenith seeks help . . . the case goes to the Supreme Court . . . Zenith loses 5 to 4 . . . Zenith forced to go off-shore . . . question:  should  the story of Zenith Radio continue? 
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                      Zenith's Radio's Second War, Second Installment

After reading the first installment, you are probably wondering how such a thing
could have happened--that the  Government of the United States  actually  assisted the Japanese in taking over the entire American consumer products industry by nullifying two long-established laws--the Anti-Dumping Law and the Sherman Anti-Trust Act!

Before we heap too much of the blame on the Japanese, we must consider three theories as to why this breech of justice may have occurred, and how it was done.  

First,   The Curtis Theory:  Curtis  attributes the problem  primarily to the actions of "faithless servants of government" who betrayed their own government through shameless self-interest, and do it by trading their influence for personal gain;                       
Philip J. Curtis

Second,  The Cold War Theory:  From 1947 t0 1991, the United States was in a  bitter Cold War with Russia, where every means to attain victory were used, short of actual conflict. And that meant setting up the Japanese as an ally in the cold war against Russia; 

Third,   The "One World" Theory:  Through  treaties such as the GATT Treaty, and Nafta Trade Agreement, and other agreements with the World Trade Organization, the United States had agreed to throw open its markets to all nations unencumbered by any internal restriction  to trade.

The Curtis theory is set forth by Curtis in the Second Installment of this Post 22.  First.     let's look  the Second Theory--that Japan was enlisted as an ally in the Cold War with Russia. And since David Sarnoff was said by Curtis to be active in enlisting Japan by instructing Japan how to set up a cartel, Sarnoff  can  also be considered an ally. And the fact that he had been  appointed a Brigadier General of the U.S. Army, lends credence to this assumption.                                   
David Sarnoff    

Further,  the  fact that the Japanese country was adjacent to Russia--"in the maw" of the Russia bear,  so to speak, was a plus.  All that was needed was to build up the Japanese economy by opening up our markets unrestricted to the Japanese--to build them to super-state economic status. And indeed, that is what Japan became, and No. 2 behind the United States.  

With the second theory firmly in mind, we can now proceed with the story Curtis tells, and see why the agencies such as the Treasury Department and the Department of Justice acted the way they did. Very simply, it seems that they were  told to "stand down" in the enforcement  of two major laws by three administrations: the Nixon, the Carter, and the Reagan administrations.                                                                
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The Curtis account continues from the first installment--

 In addition to dumping by the Japanese cartel, there was the matter of secret rebates being paid to large American buyers, with the rebates concealed by falsified customs entry documents.  Even though the evidence of the rebate practice was “rock solid,” the Treasury Department took no action.

But first, it must be told how Curtis gathered evidence of the dumping of television sets by Japan in violation of the anti-dumping law. In 1978, long-time Zenith employee and engineering specialist  Vito Brugliera was sent to Japan as an expert witness. His task was to gain evidence of how the Japanese priced their television sets in domestic sales. This evidence was compared with the predatory pricing Japan used when the same sets were sold on the U.S. market. It is from this evidence that Curtis was able to accuse Japan of “dumping” their television sets on the American market, and provide irrefutable justification for the charge of dumping.

Vito Brugliera
Brugliera continued to help Curtis, especially in tracking the activities of the firms that received a secret rebate on the prices they paid on Japanese sets.  Most American retailers big and small, were guilty of receiving selling Japanese sets at a price fixed by the Japanese,  and receiving rebates.

At the close of 1970, Treasury was finally forced to admit there was dumping by the Japanese cartel under the Anti-Dumping Act of 1921.  The Tariff Commission unanimously declared that the American Television Industry was being seriously injured by the unlawful dumping practices of the Japanese cartel.  This finding gave Zenith hope that something would be done, but not too much hope in the light of Japanese influence on the Treasury Department, and indeed, influence on every segment of American government in which Japan had interests.  Curtis summed up the situation –

“We were, however, becoming less confident that the Treasury Department would follow the law.  It was becoming apparent that the lobbyists and law firms representing the Japanese were influencing high-level government officials.  Many of these top trade officials were being offered extremely lucrative private-sector jobs as lobbyists for Japanese interests.  The temptations were great and overwhelmed a surprising number of ‘loyal’ government servants.  This unprecedented movement became the largest and most heavily funded operation to purchase political influence by foreign interests in American history.”
Zenith, being an ethical American company, refused to follow the lead of the Japanese government, and retain lobbyists to influence government decisions in Washington.

Finally, the government takes action!

In April of 1980, the government finally settled the dumping case ten full years after the Customs Bureau found evidence of dumping.  (During  those ten years, most of the American television companies had been forced to go out of business.) The penalty was $77 million for dumping duties and Customs fraud penalties.  Curtis estimated that the penalty  should have been more like $1 billion.  Zenith filed a brief declaring the settlement to be illegal, and showed exactly why it was illegal, and pointed up the role of "disloyal government officials" in arriving at the “settlement.”

So compelling was the evidence of dumping that the International Trade Commission was forced to act, and the case went to the President for action – the President being Jimmy Carter.  An OMA – “orderly marketing agreement”-- was negotiated, which supposedly would provide a fair settlement tfor Zenith’s complaint.
According to Curtis, President Carter’s administration had been heavily infiltrated by Japan’s new agents of influence, who were anxious to deliver for  their new employers. Curtis names Robert Strauss as one of those who was designated to negotiate  an "Orderly Marketing Agreement" with the Japanese government. The resulting agreement was in two “layers”—the first layer was a quota which restricted exports to the United States to 1.75 million units for a three-year period.  Note that this quota was “voluntary” on the part of the Japanese, and was not enforced by law:  as a result, it might as well have been written on water.  Also, this agreement did not affect the output of the American companies already acquired by the Japanese cartel, such as the television business acquired from Motorola by Matsushita. (As noted, Motorola had opted out of the television as being unprofitable due to the dumping of the Japanese cartel, of which Matsushita was the foremost dumper.)

Curtis sums up this outrage—
The U.S. government thus—incredibly—abandoned its constitutional and statutory duty to  enforce the civil and criminal laws of the land.   In effect, the rule of law was declared to be inapplicable to the pernicious and predatory assault on the American industry and its workers.”

Zenith tried again, this time by filing a petition for the imposing of countervailing duties on Japanese imports.  The U.S. Congress became aware of the dilatory tactics of Treasury in dealing with the petition, and gave Treasury one year to resolve the matter.  Congress was made well aware of Japan's actions by Zenith's President, John Nevin, who went to Washington and testified before Congress about the failure  of the Treasury Department to  enforce the law against dumping.  Treasury  studied the matter, waited one full year to the day, and then denied Zenith’s petition.
Daniel Rostenskowski

(REC’s comment) Zenith  did, however, call upon Daniel Rostenkowski—the Senator from Illinois, to help Zenith’s effort. At that time, Rostenkowski was one of the most powerful men in U.S. Government.  So he tried to get the treasury to act. Try as he might, he could not attain a remedy for Zenith’s problem.  The author asked him why this was so , and Rostenskowski  summed it up in three words:  “They wouldn’t budge.” So even his efforts had no effect on the apparent attempts by the government to  render ineffective a long -established law of its own making.)                         
Frustrated at every turn in its 15-year effort to obtain justice, Zenith tried once more, this time filing a suit in Customs Courts to countervail a commodity tax subsidy that helped support the predatory dumping scheme.  A panel of three judges was assigned, with the United States Justice Department as defendant! The Customs Court unanimously declared on behalf of Zenith. Our Justice Department then appealed to a higher court—the Court of Customs and Patent Appeals—which reversed the unanimous decision of the lower court.  The role of the Department of Justice of the United States in encouraging and even cooperating with the cartel members was just one of a long string of disloyal actions of government officials, according to Curtis.
Because of the chain of events, the Supreme court agreed to review the case.  The incredible chain of events became even more incredible.

In gross violation of the rules, and unknown to Zenith, a threatening note from the Government of Japan was secretly slipped to the justices of the Supreme Court. The note stated in effect that unless the Court ruled in favor of Japan, it would damage world trade generally, and would seriously damage U.S.–Japanese trade relations, and bring about a breakdown of the General Agreement on Tariffs and Trade (GATT).

[Note: This was the GATT agreement which was the subject of such ire during the candidacy of Ross Perot, who opposed it as the “giant sucking sound” of jobs going over the boa                   
Ross Perot

But the Japanese threat had its effect, for the Supreme Court upheld the reversal of the decision Court of Customs and Patent Appeals, and the subsidy conferred on the Japanese cartel was “legalized.”
The Final Battle:  Matsushita et al v. Zenith
Like the legendary Scottish hero Robert Bruce, Zenith came back once again to battle what were becoming overwhelming odds—a powerful cartel whose criminalities were supported by our own government.  As noted, Matsushita, with the sanction of the U.S. Department of Justice, had acquired Motorola’s television business as a result of predatory dumping, so it was forced to sell its television business to Matsushita, ironically, one of the main dumpers. In addition to Motorola, other television companies would also be acquired so that the Japanese companies could sell Japanese sets as “American.” Curtis viewed this as the final exercise in “mopping up” the remaining television manufacturers.

Zenith filed a treble-damage case in the United States District court in Philadelphia against the principal members of the cartel.  The suit challenged the dumping scheme as a violation of both (note this well, for it pertains to a later action by the Supreme Court) the Sherman Anti-Trust Act and the 1916 Anti-Dumping Act.  As usual, the defense counsel used every possible tactic to prevent the case from coming to trial.  And, the judge assigned,  Judge Higgenbotham, was apparently viewed as “hostile” by RCA’s attorneys, and as a result,  received a political appointment to a higher court. 

(Do you recall  the attempt of  RCA-Sarnoff cartel to get Chicago's Judge Igoe reassigned in the first Zenith War? Judge Igoe refused  the re-assignment.  But Judge Higginbotham did not refuse the political assignment.   

Judge Edward R. Becker

A new judge, Edward R. Becker, was assigned in Higginbotham’s  place.  This appointment put a different aspect on the case, for as Curtis clearly points out, Becker was hostile to the Zenith case and favored Mitsubishi at every turn.  He allowed the defense counsel full latitude in using diversionary, time-wasting tactics expensive to Zenith in attempt to delay trial.  In an incredible final move in favor of Mitsubishi, Becker literally threw the case out of court on the basis that “there wasn’t enough admissible evidence to warrant a trial” even though there were several dozen printed volumes of such evidence.
Judge Becker got his come-uppance when the United States Court of Appeals for the Third District unanimously over-ruled him on the basis that there was ample admissible evidence, and remanded the case for jury trial.

But the cartel’s lawyers were frantic to avoid a jury trial because it would expose the predatory tactics of the Japanese cartel to the American public (and to the  laid-off workers!)–-the predatory actions that resulted in the loss of hundreds of thousands of American jobs.  In their filings to the Supreme Court, the cartel’s lawyers separated the two supposedly unrelated conspiracies, one a Japan-side conspiracy, and a United States-side conspiracy, with the Japan-side conspiracy not to be considered! in the antitrust legislation.  Then the Supreme Court was persuaded to review only the Sherman Antitrust Act portion of the case, and disregard the evidence Zenith had produced in 15 years of records of dumping by the Japanese.  This “dismemberment” of an antitrust action went against all legal precedents established by the Supreme Court itself.  But dismembered it was.  As a result, and as Curtis writes:  “The evidence to be considered must be improperly limited to "pricing activity" in the United States, and the cartel lawyers were freed to advance their scurrilous defense.”

And scurrilous it was, and against all precedents and custom in practice before the Supreme Court of the United States.  The cartel produced a law review article by a “legal scholar” who later was proved to be a consultant to the Japanese companies in the case.  Here is a summary of the argument of the “scholar” against the charge of dumping:
“The plaintiffs in the case (Zenith) maintain for the last fifteen years or more,  at least ten Japanese manufacturers have sold TV sets at less than cost in order to drive United States firms out of business.  Such conduct cannot possibly produce profits by harming competition, however … they (the Japanese) were just engaged in hard competition.” [Emphasis added.]

Zenith lost again, and it was the final loss.  The Supreme Court split 5-4 against Zenith, and Judge Becker triumphed as his act in throwing out the case was sustained.  The majority five of Supreme Court justices had accepted the “scholar’s” article lock, stock and barrel, and ordered summary judgment in favor of the cartel based entirely on the “scholar’s” analysis.  The forty-volume record of evidence of dumping Zenith had collected over the years was not even considered by the court as, as one justice put it, “. . . the amount of evidence was ‘too daunting’ to consider.”
The four dissenting justices expressed shock and disbelief at the decision of the majority five.  In the words of Curtis:                                                                   
Justice White

“Justice White lambasted the majority five for improperly substituting their own peculiar economic ‘theory’ for the record evidence … accusing Powell [the judge who wrote the majority opinion] of overturning settled law, making unfounded assumptions at violence with the evidence.”

(And if you review the Sherman Anti-Trust Act, you will find nothing concerning competition or  its “extent.”)
But Zenith had lost the battle, and it was the final loss, for after the Supreme Court had handed down its appalling decision, further legal recourse was impossible.  The Japanese cartel had triumphed, and there must have been big celebrations in Tokyo.  Not only had the entire American consumer electronics industry been wiped out, but hundreds of thousands of American workers saw their jobs go out of the country.  Zenith itself was fatally injured:  long years of losing money followed, culminating in a filing for bankruptcy in 1998.
The question must be answered:  How could such an appalling miscarriage of justice have occurred?  In a bitter conclusion, Philip Curtis sums up his message:
  • If you want an industrial sector in America, simply copy the rapacious trade scheme set forth in the record evidence on file in the Matsushita case.
  • Exploit the revolving door of political appointees in and out of the U.S. government.
  • Be generous with the “lobbyists” and “experts” when they solicit you, and retain leading public relations firms to promote your dumping venture as a project to benefit American consumers.
  • Be generous in your contributions to American "think tanks," which are expert at rationalizing unfair trade tactics.
  • Read Pat Choate’s Agents of Influence (1990) and Clyde V. Prestowitz’s Trading Places:  How we Allowed Japan to Take the Lead (1988).  These excellent works provide an accurate overview of America’s systemic weaknesses in government.            

Here is shown a copy of the cover of Dr. Pat Choate's best-selling book Agents of Influence(Click on this URL to be taken to the Amazon.com website.) In his book,  Choate substantiates nearly  every one of Curtis's accusations against the cartel, and reveals others that Curtis did not cover.  It is suggested that you get a copy from Amazon.com, where the paperback edition is for sale at about $3.50 a copy. Read especially Chapter 6, which is titled "Japan Takes Television."

Japan comes off as the villain in the accounts of both Curtis and Choate. However, let also look further  at the theory that Japan--and David Sarnoff--were actually the allies of the United States in it Cold war with Russia.  Japan was an ideal ally because of its close location to Russia. And it was most ready to take on the role as an American ally.  It was struggling to recover  from loss of the  war with the Allied powers--two of its major cities had been incinerated by the atomic bomb, and Tokyo had been fire-bombed with a enormous loss of life. Its military power was nil, and the Japanese people wanted no more of war.  So it was country nearly helpless  in a very dangerous world. 

The Japanese are perhaps the hardest working people on the planet, so much  so that many of them "burn out"by middle age.  It is said that over 40 per cent of the Japanese people are of the age where they can no longer work. And, the Japanese birth rate has not kept up with the loss of population.  

To top it all, the land the Japanese had occupied for  thousands of years is a dangerous land, subject to devastating earthquakes and volcanic eruptions.  Its location on the legendary Pacific Ocean "ring of fire" guarantees a constant series of disasters. The latest disaster was  an off-shore earthquake that resulted in a tsunami that overwhelmed their coastal nuclear power plants, and caused a flooding that resulted in the death toll of 16,000.   And the resulting residual radiation will be a threat to life for many years.    

Let's consider further why  Japan was selected as an ally of the United States in the Cold war:  It is extremely able as a inventor and manufacturer  of electronic devices.  Also, and perhaps  with the tutelage of Sarnoff, Japan was  not at all  unwilling to take full advantage of the situation in Washington, by liberally paying  off those who  Curtis called "faithless servants of government," and where influence is so readily for sale.  Japan was so able in taking advantage of this corruption  that it became No. 2 after the United States in the world ranking.

So it appears that Japan  may have became the willing ally of the united  States in its Cold war with Russia.

(Note:  In recent years, Japan appears to have lost it primacy in what it excelled in most: consumer electronics.  It missed the cell-phone market and the television panel display market. Its economy is struggled.  It has been superseded in engineering and product development excellence from an unexpected quarter--by  two South Korean firms, LG Electronics and  Samsung, whose products now dominate the marketplace. 

(Further, Japan  is flanked by the Russian Bear whose growling is getting more menacing, and the Chinese Dragon, which is now blowing more fire than smoke, and which has its eye on the Kirile Islands owned by Japan. (There may be oil there!)  And the promised military support of the United States may be waning as Obama has decided that the America will no be the "policeman of the world. " So the halls of governance in Japan must be places of great worry.)  

And as for the third theory-- the "One World" Theory:  Through  treaties such as the GATT Treaty, and Nafta Trade Agreement, the United States had agreed to throw open its markets to all nations unencumbered by any internal restrictions  to trade.  Let's leave that consideration  to those who are much more knowledgeable of international trade affairs than  the humble writer of this discourse.  (Although it should be noted that the United States was sued twice by the World Trade Organization for its attempts to enforce its anti-dumping law.)

Of course, you, the readers, will have your own opinions.

SO, THAT IS IT--three explanations as to why Zenith and the entire American consumer electronics industry were destroyed. The remainder  of the Zenith story is a mixed one--alternate periods of seeming success, and a sense of failure and  despair by Zenith employees and Zenith managers.
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And so ends the sad story of how Zenith was destroyed, as was  the entire  American consumer electronics industry.  Look for American-made radios and television sets manufactured on this continent and you will find them  no more.  And  this Post 22 may be  the end of this weblog and the story of Zenith Radio Corporation--its triumphs and downfall.    After all, it is nearly a quarter of a century since the Zenith that we all knew has disappeared.  The author of this tale will leave it up to you--the readers:

Shall this weblog  carry on with the story  of  the remainder of Zenith's  triumphs and failures?  

Please let Let me know. --Ralph E. Clarke   

These are the ways you can let me know--

1.  Use the Comments box  below.
2. Respond to the email that transmitted this Post to you . There is a little arrow on the right side of the top of the message.  Just click on it and a return message to me will open. Or, 
3.,  just write me an email at ducord@gmail.com

(Sadly)   Mizpah!