Japan's Early Experience of Contract Management in the Treaty Ports (review)

With the signing in 1859 of commercial treaties with the United States, Great Britain, France, Russia, and the Netherlands, Japan entered into trade relations with these countries. Treaties with other Western countries followed thereafter. The treaties, however, limited trade between Western and Japanese merchants to treaty ports such as those established in Kanagawa (Yokohama), Nagasaki, and Hakodate.

Honjo's study deals with contract management in the early years after the opening of these ports (1859-1876). She focuses on trade practices, e.g., the way Western and Japanese merchants entered into business relations, and the role consular officials played in the solution of business disputes. Although she uses reports on business complaints in the treaty port press and information about the treaty port trade found in private writings (letters, diaries), the distinctive feature of Honjo's study is that she analyzes the mechanism of merchant interactions first and foremost by means of court documents. In that these documents record the statements of both parties to the dispute, use of them enables Honjo to take a more impartial and balanced view of the reality of the trade relationship between Westerners and Japanese than is afforded by the local press or private writings that express primarily the viewpoint of Westerners. The court statements also reveal, the author proposes, the conception of trade behavior each side assumed to be proper.

Establishing a successful trade relationship requires merchants to manage expectations and information in such a way as to reduce risks, but in the treaty ports both Western and Japanese merchants faced many difficulties in this regard. While foreigners were permitted to reside, establish businesses, and purchase or build private as well as mercantile houses within the defined area of the treaty ports, they were generally not allowed to leave the enclave and travel freely in the interior. Japanese, for their part, were forbidden to live within the treaty port enclave. Thus, over and above the language barrier, there was a boundary between the Japanese and foreign communities that hindered social contact and mutual communication. Lack of market information and ignorance of cultural differences in business practices added to mutual misunderstandings and made the establishment of good trade relations difficult.

After 250 years of seclusion under the Tokugawa regime, there was a scarcity not only of interpreters but of the kind of middlemen who in China specialized in trade with foreigners and provided them with pertinent information. As a result, the costs of obtaining information and drawing up written contracts were often prohibitive. In addition, the instability of the political situation in Japan up to the 1860s meant that the possibility that the treaty ports might be closed could not be ruled out. Under such conditions, many merchants, both foreign and Japanese, must have doubted whether it was worthwhile investing in long-term business ties.

Honjo points out that, to avoid the high costs of written contracts, merchants often opted for vaguely defined oral arrangements. Instead of drawing up contracts grounded on inadequate information, they made "a leap of faith" and entered into trade agreements assuming a degree of trust (p. 198). Although such trust might prove to be misplaced, an underdefined contract remained a preferable alternative to a detailed written contract that might prevent future trouble but was costly. Underdefined contracts also allowed for flexibility. Without resolution of the fundamental problems arising from the language barrier and lack of reliable information, however, friction was inevitable. Honjo offers a telling account of such friction in her description in chapter 7 of the 1875-1876 court case of Itô Hachibei vs. Walsh, Hall, and Co. Itô Hachibei was a rich merchant with influential connections in financial and political circles. In 1871 he had entered into a partnership in speculative transactions with the American firm Walsh, Hall, and Co. The latter argued that the partnership had been dissolved after the first loss and money advanced thereafter was a loan Itô was obliged to...