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VI. LEGAL ARGUMENTS CONCERNING NON-VIOLATION CLAIMS
A. INTRODUCTION TOARTICLE XXIII:1(b) OFGATT
1. GENERAL PRINCIPLES
6.1 According toJapan ,when examining thefactual andlegalclaims brought bytheUnited States
concerning consumer photographic filmandpaper intheJapanese market, three general principles
forpanel proceedings should guide theanalysis. First, anyinterpretation ofGATT should bein
accordance with customary rules ofinterpretation under public international law. Second, the
recommendations orrulings ofthisPanel cannot addtoordiminish therights andobligations ofthe
WTO Members. Third, theburden ofproof restswiththecomplaining party. Japan emphasizes that
these general principles should guide thePanel'sconsideration notonly oftheclaims under
Article XXIII:1(b), butalsowithrespect tothose raised under Articles IIIandX(discussed indetail
inPartVIIinfra).
6.2 Japan points outthatArticle 3.2oftheDSU refers to"customary rules ofinterpretation of
public international law"asgeneral principles forinterpreting WTO Agreements within theframework
oftheWTO dispute settlement system. Japan isoftheview thatArticle 31onthegeneral rules of
interpretation andArticle 32onthesupplementary means ofinterpretation oftheVienna Convention
ontheLawofTreaties represent such"customary rulesofinterpretation ofpublic international law".546
Japan requests thePanel inthisproceeding tointerpret andapply theprovisions oftheWTO Agreement
pertinent tothiscaseinaccordance withtherelevant rules oftheVienna Convention.
6.3 Japan alsourges thePanel totakeacautious approach andtorefrain from adding toor
diminishing therights andobligations oftheWTO Members under theWTO Agreement inaccordance
withArticles 3.2547and19.2548oftheDSU which provides forthesame principle withrespect tothe
findings andrecommendations ofpanels andtheAppellate Body.
6.4 Withrespect toJapan'sadmonition tothePanel thatitshould notaddtoordiminish therights
andobligations oftheWTO Members under theWTO Agreement, theUnited States notes thatin
thiscaseJapan appears tobetrying todiminish therights oftheUnited States andallother Members
under Article XXIII:1(b) byinstructing thePanel toapply certain "rules" initsinterpretation and
application ofArticle XXIII:1(b) inthisdispute.549
546See,e.g., Appellate Body Report onUnited States -Standards forReformulated andConventional Gasoline ("United
States -Gasoline" ),WT/DS2/AB/R, adopted on20May1996 andAppellate Body Report onJapan -Taxes onAlcoholic
Beverages ("Japan -Alcoholic Beverages" ),WT/DS8, 10&11/AB/R, adopted on1November 1996.
547Inarecent article, Professor John Jackson oftheUniversity ofMichigan echoed thesame concern:
"Arguably, [Article 3oftheDSU] resonates inthedirection ofacaution tothepanels tousejudicial restraint andavoid
being tooactivist. ...Sothisnotion ofrestraining panels from making changes intherights andobligations ofthenation
states isquiteprevalent inthesystem. TheUnited States would likely beoneofthemostjealous inpreserving judicial restraint,
yetatthesame timeitappears tobepushing theenvelope insome ofitsowncomplaints totheWTO. When, forinstance,
theUnited States oranother country brings acasethatdoesnotinvolve aviolation butinstead targets competition policy,
theJapanese keiretsu ,orsomething elsethatcurrent treaty texts donotcover, itislikely tobeasking apanel tochange
'rights andobligations '.Inother words, itissaying toapanel, 'Wewant youtointerpret nullification orimpairment to
embrace some ofthese results thatforpolicy reasons wewould liketoseeinthiscase'.Thatisrisky -akintodoing with
onehand what theother istrying toprevent. Obviously, thishasfundamental long-term implications." JohnJackson, The
WTO Dispute Settlement Procedures: APreliminary Appraisal, in:Jeffrey J.Schott (ed.), TheWorld Trading System:
Challenges Ahead December 1996, p.163, Japan Ex.E-10.
548Japan notes thatArticle 19:2oftheDSU stipulates: "...intheirfindings andrecommendations, thepanel andAppellate
Body cannot addtoordiminish therights andobligations provided inthecovered agreements".
549TheUnited States refers inparticular toJapan 'sstatement that"indetermining whether abenefit isbeing nullified
orimpaired, thisPanel must focus exclusively onthemeasures themselves".WT/DS44/R
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6.5 Japan submits thatunder theWTO dispute settlement system, theMember bringing acase
hastheinitial burden ofproving itsclaims. Thiswasawell-established principle under GATT 1947
dispute settlement550andhasbeencarried overintotheWTO, based onArticle 3.1oftheDSU and
Article XVI:1 oftheMarrakesh Agreement Establishing theWTO.551
6.6 Japan emphasizes thatinnon-violation cases under Article XXIII:1(b), thecomplaining party
isrequired tobearaparticularly heavy burden ofproof according toArticle 26:1(a) oftheDSU, which
requires"[t]hecomplainingpartyshallpresentadetailedjustificationinsupportofanycomplaintrelating
toameasure which doesnotconflict withtherelevant covered agreement". Inthisconnection, Japan
notes thatthisrequirement ofa"detailed justification" innon-violation cases wasincorporated inthe
1979 Agreed Description oftheCustomary Practice oftheGATT intheField ofDispute Settlement552
andhadbeenapplied bytherelevant GATT panels.553
2. THE LEGAL TEST UNDER ARTICLE XXIII:1(b)
6.7 TheUnited States claims thatJapan'sliberalization countermeasures detailed inPartVnullify
orimpair tariff concessions onconsumer photographic filmandpaper within themeaning ofArticle
XXIII:1(b) ofGATT. Article XXIII:1(b) provides fordispute settlement under thefollowing
circumstances:
"1. Ifany[Member] should consider thatanybenefit accruing toitdirectly or
indirectly under thisAgreement isbeing nullified orimpaired orthattheattainment
ofanyobjective oftheAgreement isbeing impeded astheresult of...
(b) theapplication byanother [Member] ofanymeasure, whether
ornotitconflicts withtheprovisions ofthisAgreement ...".
6.8 TheUnited States recalls thatthepanel report onEuropean Economic Community -Payments
andSubsidies PaidtoProcessors andProducers ofOilseeds andRelated Animal FeedProteins ("EEC -
Oilseeds") noted thattheunderlying purpose ofArticle XXIII:1(b) wastosafeguard theprocess of
reciprocal tariff concessions under Article II:
"The ideaunderlying [theprovisions ofArticle XXIII:1(b)] isthattheimproved
competitive opportunities thatcanlegitimately beexpected from atariff concession
canbefrustrated notonlybymeasures proscribed bytheGeneral Agreement butalso
bymeasures consistent withthatAgreement. Inorder toencourage contracting parties
tomake tariff concessions theymust therefore begiven aright ofredress when a
550See,e.g., Panel Report onJapan -Tariff onImports ofSpruce, Pine, Fir(SPF) Dimension Lumber ,adopted on19
July1989, BISD 36S/167, p.198,para. 5.10; Panel Report onCanada -Import, Distribution andSaleofCertain Alcoholic
Drinks byProvincial Marketing Agencies ("Canada -Alcoholic Drinks"), adopted on18February 1992, BISD 39S/27, p.75,
para.5.3.SeealsoJohnH.Jackson,WilliamJ.Davey&AlanO.Sykes,LegalProblemsofInternationalEconomicRelations,
1995, p.355, Japan Ex.E-2.
551Article3.1oftheDSUaffirmsthattheWTOMembersadhere"totheprinciplesforthemanagementofdisputesheretofore
applied under Articles XXII andXXIII ofGATT 1947". Article XVI:1 oftheMarrakesh Agreement Establishing theWTO
providesthat"theWTOshallbeguidedbythedecisions,procedures,andcustomarypracticesfollowedbytheCONTRACTING
PARTIES toGATT 1947 ...".
552UnderstandingRegardingNotificationConsultation,DisputeSettlementandSurveillance,Annex,adoptedon28November
1979, BISD 26S/210, p.216.
553Apastpanelreportstatesthat"[a]ccordingtothe1979UnderstandingonDisputeSettlement,acontractingpartybringing
acomplaint under Article XXIII:1(b) iscalled upon toprovide adetailed justification" (United States -1955 Waiver, BISD
37S/228,261,para.5.21).SeealsoPanelReportonJapan-TradeinSemi-Conductors("Japan-Semi-Conductors"),adopted
on4May1988, BISD 35S/116, 35S/116, 161,para. 131;andPanel Report onUruguayan Recourse toArticle XXIII,adopted
on14November 1962, BISD 11S/95, 99-100, para. 15.WT/DS44/R
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reciprocal concession isimpaired byanother contracting party asaresult ofthe
application ofanymeasure, whether ornotitconflicts withtheGeneral Agreement".554
"The Panel considered thatthemain value ofatariff concession isthatitprovides an
assurance ofbetter market access through improved price competition. Contracting
parties negotiate tariff concessions primarily toobtain thatadvantage. They must
therefore beassumed tobasetheirtariff negotiations ontheexpectation thattheprice
effect ofthetariff concessions willnotbesystematically offset. Ifnorightofredress
weregiven tothem insuchacasetheywould bereluctant tomake tariff concessions
andtheGeneral Agreement would nolonger beuseful asalegal framework for
incorporating theresults oftrade negotiations".555
6.9 TheUnitedStatescitesanotherpanelreporttothesameeffect:"ArticleXXIII:1(b),asconceived
bythedrafters andapplied bytheCONTRACTING PARTIES, serves mainly toprotect thebalance
oftariff concessions".556Thevalue thattheUnited States placed onobtaining tariff concessions on
photographic filmandpaper andtheattendant expectations ofimproved competitive opportunities is
evident from itscontinuing efforts tosecure improved access totheJapanese filmandpaper market
during three successive rounds ofmultilateral trade negotiations. TheUnited States assumed thatthe
concessions forwhich itnegotiated would notbesystematically offset bytheJapanese Government.
6.10 According totheUnited States ,prior working parties andpanels haveapplied thefollowing
elements inanalysing claims under Article XXIII:1(b):
(1) atariff concession wasnegotiated;
(2) government measures, whether ornotinconsistent withtheGeneral Agreement, were
introduced which upset thecompetitive relationship between thebound product and
directly competitive products from other origins; and
(3) themeasures could nothavebeenreasonably anticipated bytheparty towhom the
binding wasmade, atthetimeofthetariff concession.557
6.11 Inthecurrent case, theUnited States submits thattheconsideration oftheUSclaim canbe
broken down intothree separate elements:
(1) whether theUnited States hadareasonable expectation ofimproved market access
opportunities arising from Japan'stariff concessions;
(2) whether Japanese Government measures upset thecompetitive relationship between
imported anddomestic products; and
(3) whether theUnited States could haveanticipated Japan'snullification orimpairment
ofitstariff concessions.
554Panel Report adopted on25January 1990, BISD 37S/86, pp.126-127, para. 144.
555Ibid., pp.128-129, para. 148.
556Panel Report onUnited States -Restrictions ontheImportation ofSugar andSugar-Containing Products Applied Under
the1955 Waiver andUnder theHeadnote totheSchedule ofTariff Concessions ("United States -1955 Waiver" ),adopted
on7November 1990, BISD 37S/228, 261, para.5.21.
557EEC-Oilseeds,BISD37S/86,126-131,paras.142-152.SeealsoReportoftheWorkingPartyontheAustralianSubsidy
onAmmonium Sulphate ("Australia -Ammonium Sulphate"), adopted on3April 1950, BISD II/188, 192-193, para. 12;
PanelReportonTreatmentbyGermanyofImportsofSardines,adoptedon31October1952,BISD1S/53,58-59,paras.16-17;
EEC-CitrusProducts,L/5776(unadopted)pp.84-85,para.4.26;PanelReportonEuropeanEconomicCommunity-Production
AidsGranted onCanned Peaches, Canned Pears, Canned Fruit Cocktails andDried Grapes ("EEC -Canned Fruit"), GATT
Doc. L/5778, 20February 1985 (unadopted), p.15,para. 51.WT/DS44/R
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6.12 TheUnited States claims thateachofthese elements ispresent inthiscase:
(1) TheUnited States negotiated forandJapan granted theUnited States tariffconcessions
onphotographic filmandpaper products insuccessive rounds ofmultilateral trade
negotiations: theKennedy, Tokyo, andUruguay Rounds.
(2) Japan enacted, implemented andapplied thedistribution countermeasures, restrictions
onlarge retail stores, andpromotion countermeasures toobstruct market access and
alterthecompetitive relationship between imports anddomestic products.
(3) Atthetimeeachround oftariff concessions wasmade, theUnited States reasonably
anticipated thatbetter market access through improved pricecompetition would result
from theconcessions, andneither theUnited States noranyofJapan'sother trading
partners could haveforeseen thattheJapanese Government would impair thevalue
ofthoseconcessionsthroughanintricatewebofmeasuresdesignedtocountertheeffects
ofliberalization.
6.13 TheUnited States emphasizes thatitprovided, inaccordance withArticle 26.1oftheDSU,
adetailed justification establishing itsclaim thatJapan'sdistribution countermeasures, Large Stores
Lawandrelatedmeasures,andpromotioncountermeasurescollectivelyandindividuallynullifyorimpair
its
(1) Kennedy Round tariff concessions onblack andwhite filmandpaper;
(2) Tokyo Round tariffconcessions onblack andwhite filmandpaper andoncolour film
andpaper; and
(3) Uruguay Round tariff concessions onblack andwhite filmandpaper andoncolour
filmandpaper.
6.14 Japan submits thatthescope ofArticle XXIII:1(b) inGATT jurisprudence iswelldefined
andmaybediscerned byreference tothree keyphrases inthetextoftheprovision:
(1) "anybenefit accruing ...under thisAgreement",
(2) the"application byanother [Member] ofanymeasure", and
(3) "isbeing nullified orimpaired".
6.15 First, there mustbea"benefit" accruing under thisAgreement. Thisbenefit consists ofthe
legitimate expectations ofimproved competitive opportunities arising outofrelevant tariffconcessions.
Forexpectations tobelegitimate, theymust takeintoaccount allmeasures oftheparty making the
concession thatcould havebeenreasonably anticipated atthetimeoftheconcession. Inother words,
measures reasonably anticipated atthetime ofthetariff concession cannot frustrate legitimate
expectations, andthuscannot nullify orimpair abenefit accruing under thisAgreement.
6.16 Second, there must betheapplication ofameasure byanother WTO Member. Theterm
"measure" refers toagovernment policy oraction, butnotevery suchpolicy oraction constitutes a
measureforpurposesofArticleXXIII:1(b).Measuresmusteitherprovidebenefitsorimposeobligations.
Astothelatter, ameasure fornon-violation purposes must beagovernment policy oraction which
imposes legally binding obligations orthesubstantive equivalent. Furthermore, there must bean
"application" ofthemeasure. Thisrequirement isrelevant inthecaseofmeasures nolonger ineffect
andmeasures notapplied toproducts.
6.17 Third, thecomplaining party must show thatthebenefit inquestion "isbeing nullified or
impaired" astheresult oftheapplication ofthemeasure. Tomeetthisrequirement, thecomplaining
party mustdemonstrate thattherelevant measure isupsetting thecompetitive position oftheimported
products subject totherelevant tariff concession.WT/DS44/R
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6.18 With respect tothecaseatissue, inJapan'sview, theUSnon-violation claims donotmeet
anyoftherequired elements mentioned above forthefollowing reasons:
6.19 Withrespect tothefirstelement, Japan notes thatformeasures tonullify orimpair thebenefit
oftariff concessions, itmust beestablished thattheycould nothavebeenreasonably anticipated at
thetimeoftherelevant concession. Although theUnited States alleges nullification orimpairment
oftariffconcessions onfilmandpaper inthreesuccessive negotiating rounds -the1967Kennedy Round
concessions (only onblack andwhite filmandpaper), the1979 Tokyo Round concessions, andthe
1994 Uruguay Round concessions -Japan believes thatthe"benefits accruing under theAgreement"
islimited tothebenefits oftheUruguay Round concessions. InJapan'sview, the1994 concessions
form anewbalance oftariff concessions thatwereactually negotiated andagreed upon atthattime.
6.20 Japan further argues thatallofthepolicies inquestion wereenacted andknown totheUnited
States longbefore therelevant tariff concessions, i.e.,those made in1994 withrespect toblack and
white andcolour filmandpaper. Even ifearlier tariff concessions weretobetaken intoaccount, the
timing problems thatplague theUSargument would remain. Withrespect tocolour filmandpaper,
the1967tariffconcessions cannot berelevant atallbecause therewerenotariffconcessions oncolour
filmandpaper until1979. Since virtually every government action inthiscaseoccurred before 1979,
itisinconceivable thatthese policies could notbereasonably anticipated atthetimeofthe1979 tariff
concessions.Evenwithrespecttothe1967concessionsonblackandwhitefilmandpaper,manypolicies
could bereasonably anticipated atthetimeofthetariff concessions. Accordingly, inJapan'sview,
allofthealleged measures could havebeenreasonably anticipated bytheUnited States atthetime
ofthose tariff concessions.
6.21 With respect tothesecond element, inJapan'sview, theUnited States claims thatMITI's
distribution modernization policies during the1960s and'70sdirected theprivate sector torestructure
distribution practices soastodisadvantage imports. Furthermore, according toJapan, those policies
didnotimpose anylegally binding obligations orthesubstantive equivalent, andthuswerenotmeasures
within themeaning ofArticle XXIII:1(b). However, thosepolicies ended years ago,andthus,inJapan's
view, arenotcurrently actionable under Article XXIII:1(b). InthecaseoftheLarge Scale Retail Store
Law, Japan argues thattheUnited States failstoallege specific applications which nullify orimpair
abenefit. Japan concludes thattheabsence ofany"application" ofameasure renders theUSclaims
regarding thislawlegally insufficient.
6.22 Withrespect tothethirdelement, Japan contends thatthegovernment policies inquestion do
notupset thecompetitive conditions relating toanyofthedistinct products subject tothisdispute:
black andwhite film, black andwhite paper, colour film, andcolour paper. With respect toeachof
thethreesetsofpolicies atissueJapan submits that:(i)noneofthesegovernment policies distinguishes
betweentheimportedanddomesticproductsconcernedorimposesanyinherentdisadvantageonimports;
(ii)there isnocausal connection between thealleged measures andanyunfavourable competitive
conditions;and(iii)theallegedmeasuresastheyexisttodayareunchangedormorefavourabletoimports
ascompared tothetimeofanyrelevant tariff concession.
6.23 TheUnited States contends thatthelegalcriteria suggested byJapan havenobasisinthetext
ofArticle XXIII:1(b) orother WTO Agreements, anysubsequent agreements oftheMembers, orthe
negotiating history ofArticle XXIII:1(b). Totheextent thatpriorpanel decisions support theapplication
ofJapan'srules, theUnited States contends thatthedisputes involved inthose panel decisions presented
significantly different factsandcircumstances thanthose present inthisdispute.
6.24 TheUnited States suggests thatJapan'spurpose inproposing these rules istopreclude the
Panel fromseriously examining theliberalization countermeasures atissueinthisdispute andthereby
permitting Japan toevade responsibility forthemeasures thathaveimpeded market access inJapan
forimported filmandpaper forthirty years. Incontrast, theUnited States proposes thatthePanelWT/DS44/R
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consider thisdispute inthemanner inwhich panels always haveresolved disputes: onacase-by-case
basis inconsideration ofalloftherelevant factsandcircumstances.
6.25 TheUnitedStatesnotesthattheAppellateBodyinJapan-TaxesonAlcoholicBeveragesstressed
theimportance ofcase-by-case analysis.558While theAppellate Body'scomments were directed
specifically athowapanel should conduct anArticle III:2inquiry, theUnited States argues thatthose
comments, consistent withpastprecedent, arerelevant toalldisputes.559TheUnited States alleges
thatJapan would prefer thatthePanel avoid substantive consideration ofthefactsandcircumstances
inthisdispute byapplying Japan'sfabricated, mechanical rulesoradopting findings fromother cases
thatarebased oncompletely different factsandcircumstances. TheUnited States urges thePanel to
address thisdispute onitsownmerits inlightofArticle XXIII:1(b) andathorough examination of
therelevant factsandcircumstances inthisdispute.
3. SYSTEMIC IMPLICATIONS FOR WTO DISPUTE SETTLEMENT
6.26 InJapan'sview,thiscasehasimportantimplicationsfortheWTOdisputesettlementmechanism.
Japan submits thattheUSnon-violation claims areurging adramatic expansion ofwhathashistorically
beenanexceptional andlimited remedy. Japan notes thatwithoneexception allprevious non-violation
cases involved tariffconcessions andsubsequent government actions thatessentially undid thebenefits
accruing fromthose concessions.560Inallthese cases, themeasures indispute wereessentially either
tariff orproduct-specific subsidies which provided direct financial benefits tospecific products.
Therefore,itwasobviousthatthemeasuresaffectedthecompetitiveconditionsoftheproductsconcerned.
Inallpriorpanels which found non-violation nullification orimpairment, thecomplaining partyshowed
aclear connection between thealleged measures andtheunfavourable competitive position ofthe
imported products.
6.27 TheUnited States rejects Japan'saccusation thattheUnited States isseeking a"dramatic
expansion" ofthenon-violation remedy under Article XXIII:1(b). TheUnited States argues thatwhat
Japan claims tobea"dramatic expansion" isinfactnothing more thanthelegitimate exercise ofthe
USrightofredress under Article XXIII:1(b). IntheUSview, Article XXIII:1(b) ofGATT provides
arightofredress toaMember whoconsiders thatanybenefit accruing under theAgreement isbeing
nullified orimpaired bytheapplication ofanymeasure whether ornotitconflicts withtheprovisions
oftheAgreement. TheUnited States emphasizes thatthelanguage ofArticle XXIII:1(b) could not
558"[W]e believe thatanexamination inanycaseofwhether dissimilar taxation hasbeenapplied soastoafford protection
requires acomprehensive andobjective analysis ofthestructure andapplication ofthemeasure inquestion ondomestic as
compared toimported products. ...Although itistruethattheaimofameasure maynotbeeasily ascertained, nevertheless
itsprotectiveapplicationcanmostoftenbediscernedfromthedesign,thearchitecture,andtherevealingstructureofameasure.
...Inconducting thisinquiry, panels should givefullconsideration toalltherelevant factsandalltherelevant circumstances
inanygiven case" (Japan -Alcoholic Beverages ,WT/DS8/AB/R, p.29,emphasis added).
559See,e.g., Panel Report onEuropean Economic Community Restrictions onImports ofDessert Apples, Complaint by
Chile,adopted on22June1989, BISD 36S/93, 123,para. 12.1("[The Panel] would takeintoaccount ...theparticular
circumstances ofthiscomplaint"); Japan -Semi-Conductors ,BISD 35S/116, 154,para. 108("The Panel recognized that
notallnon-mandatory requests could beregarded asmeasures within themeaning ofArticle XI:1. Government-industry
relations varied from country tocountry, from industry toindustry, andfrom casetocaseandwere influenced bymany
factors"); Panel Report onCanada -Withdrawal ofTariff Concessions ,adopted on17May1978, BISD 25S/42, 48,para. 17
("The Panel came totheconclusion thatacorrect andreasonable interpretation oftheGATT, intheparticular circumstances
applying inthiscase...."); Australia -Ammonium Sulphate ,BISD II/188, 192-193, para. 12("[T]he inequality created and
thetreatment thatChile could reasonably have expected atthetimeofthenegotiation, after taking intoconsideration all
pertinent circumstances, including thecircumstances mentioned above...were important elements intheworking party's
conclusion").
560Theexception isthecaseofthePanel Report onEuropean Economic Community -Tariff Treatment onImports of
Citrus Products from Certain Countries intheMediterranean Region ("EEC -Citrus Products"), GATT Doc. L/5776,
7February 1985 (unadopted), p.85,para. 4.27, which dealt withunbound tariffs onsome products, andbound tariffs on
other products.WT/DS44/R
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bewritten anymore clearly, i.e.,itsetsnolimitations onthetypes ofmeasures thatcanbesubject
toscrutiny. Norwould suchalimitation serve thepurposes ofArticle XXIII:1(b). Asnoted bythe
EEC-Oilseeds panel, Article XXIII:1(b) provides a"right ofredress" intheevent thatanother Member
nullifies andimpairs atariffconcession.561Absent thisrightofredress, drafters feared thatMembers
would bereluctant tomake tariffconcessions andGATT would nolonger beuseful asalegalframework
forincorporating theresults oftrade negotiations.562Therefore, contrary toJapan'sargument, the
United States contends thatitwould bedetrimental totheWTO system ifthenon-violation "remedy"
were artificially limited tocases involving onlysubsidies andtariffs.
6.28 Japanstatesthatneithercontractingpartiesnorpanelspushedtoextendthenon-violationconcept
beyond alimited range ofcases, andtheconcept wasapplied consistently andwithdiscipline onlywhen
specific requirements were met. Boththecontracting parties andpanels were justifiably concerned
about thepolicy implications ofanundisciplined expansion oftheconcept. Thenon-violation remedy
wasusedasatooltopreserve theintegrity ofnegotiated tariff concessions. If,however, theremedy
wereapplied without proper restraints, inJapan'sview, itcould degenerate intoamechanism notfor
maintaining theagreed balance oftariff concessions between parties, butforimposing adefacto
rearrangement oftheestablished balance oftariffconcessions inthecomplaining party'sfavour without
anyformal tariff negotiations. Thus, Japan argues thatoveruse ofthenon-violation remedy could
perversely undermine, rather thanpreserve, theintegrity oftariff concessions.
6.29 Japan concurs withtheposition taken bytheUnited States intheEEC-Oilseeds proceeding,
i.e.thatthenon-violation remedy should remain anexceptional concept andthatanychange of
governmental policies, even ifithasharmful trade effects, isnotnecessarily actionable under
Article XXIII:1(b):
"114. TheUnited States concurred intheproposition thatnon-violation nullification
orimpairment should remain anexceptional concept. Although thisconcept hadbeen
inthetextofArticle XXIII oftheGeneral Agreement from theoutset, acautious
approach should continue tobetaken inapplying theconcept. TheUnited States did
notconsider thatanychange ofgovernmental policies, evenifithasharmful trade
effects, constitutes non-violation nullification orimpairment. Acontracting party does
nothave areasonable expectation thatacontracting party which grants itatariff
concession willnotchange general income taxrates."563
6.30 Moreover, Japan notes thatinthatcase, theEECalsotooktheposition that"recourse tothe
'non-violation 'concept under Article XXIII:1(b) should remain exceptional, sinceotherwise thetrading
world would beplunged intoastateofprecariousness anduncertainty".564
6.31 TheUnited States notes thatitcontinues tobelieve thatthenon-violation remedy remains an
"exceptional concept" inthatitprovides aright ofredress whether ornotameasure conflicts with
theGATT. There should bea"cautious approach" inapplying thisconcept andthatsuchcaution is
achieved bytheMembers 'exercise ofself-restraint andpanels 'application ofthe"detailed justification"
requirement inArticle 26.1oftheDSU. After 50years, therehavebeenonly8cases (i.e.,Ammonium
Sulphate, Sardines, Uruguayan Recourse, Citrus, Canned Fruit, Oilseeds, Semiconductors, andSugar)
inwhich panels havesubstantively considered Article XXIII:1(b), andinthree ofthose cases (i.e.,
Uruguayan Recourse, Semiconductors, andSugar) thepanel applied the"detailed justification"
requirement thatnowappears inArticle 26.1oftheDSU todismiss frivolous non-violation claims.
According totheUnited States, theECmade asimilar argument intheEEC-Oilseeds casethatan
561SeeEEC -Oilseeds ,BISD 37S/86, 126-127, para. 144.
562Ibid., pp.126-128, paras. 144and148.
563Ibid., pp.117-118, para. 114(emphasis added).
564Ibid., p.117, para. 113WT/DS44/R
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affirmative finding under Article XXIII:1(b) would "plunge" theworld "into astateofprecariousness
anduncertainty,"565which adecade laterhasnotturned outtobethecase. Mostimportantly, theUnited
Statescontinuestobelievethatpanelsshoulddeterminewhetherparticulargovernmentpoliciesconstitute
non-violation nullification orimpairment onacase-by-case basis inlightofalltherelevant factsand
circumstances. Inthiscase, theUnited States emphasizes, theissue isnotwhether some unrelated
social oreconomic policy ishaving anincidental effect onthefilmmarket. Rather, thiscaseisabout
aconcerted andcoordinated effort bytheJapanese Government directed atprotecting itsdomestic film
industry from import competition.
6.32 Japan points outthatwhen thenon-violation remedy isapplied, thelosing party -although
ithasfullycomplied withallofitsGATT obligations, -mustnonetheless make a"mutually satisfactory
adjustment",i.e.,eitherchangepoliciesoroffercompensation,orelsefacethesuspensionofconcessions
byanother WTO Member. Thus, thenon-violation remedy hasthepractical effect ofimposing arange
ofconstraints onMembers withrespect toGATT-consistent measures similar tothatwhich applies
tomeasures thatviolate theGATT. Japan emphasizes thatpastpanels haveconsistently construed
theremedy narrowly, andapplied theremedy inexceptional circumstances. Japan argues thatthese
reasons apply withevengreater force intheWTO framework which reaffirmed thelimited nature of
non-violation remedies.
a. First, Article 26.1(a) oftheDSUimposes important limitations ontheapplication and
scope ofthenon-violation remedy. Itmakes clearthenon-violation remedy should apply onlywhen
thecomplaining party hasprovided a"detailed justification insupport ofanycomplaint". Thus, the
complaining party mustmeetaparticularly highstandard ofjustification foritscomplaint. InJapan's
view, however, theUSnon-violation claims inthisproceeding transparently failtomeetanyofthe
established requirements forapplication ofArticle XXIII:1(b).
b. Second, evenifapanel accepts thenon-violation claim, theparty complained about
doesnothavetowithdraw themeasure atissue. Rather, Article 26.1(b) oftheDSUspecifically indicates
that"there isnoobligation towithdraw themeasure". InJapan'sview, theWTO Members were
correctly waryofapplying theextraordinary non-violation remedy unless therewasaclear, compelling,
andunambiguous basis fordoing so;eventhen, theywerenotwilling tooblige theparty complained
against towithdraw themeasure.
6.33 TheUnited States responds thatthePanel should interpret Article XXIII:1(b) correctly, not
broadly ornarrowly, butconsistently withthecustomary rulesofinternational law.Thus, theUnited
States argues thatthePanel'staskinthiscaseisnotdifferent thaninanyother WTO dispute.
6.34 Japan submits thatthereasons foranarrow construction ofthenon-violation remedy have
grown evenmore cogent withtheaddition ofother multilateral agreements totheGATT. Under
GATT 1947, thenon-violation remedy served thefunction ofprotecting GATT contracting parties '
expectations withrespect totariffconcessions fromfrustration bymeasures notsubject tomultilateral
discipline. Now, asmore andmore areas havecome within thescope ofmultilateral discipline, and
thegapsinthescope ofmultilateral discipline havenarrowed considerably, theneedfortheprotection
ofbenefits accruing under GATT 1994bythenon-violation remedy hasbecome correspondingly less.
ForJapan, given thebroad range ofWTO agreements nowinforce, restraint inapplication ofthenon-
violation remedy ismore appropriate thaneverbefore.
6.35 TheUnited States replies thatJapan'sopinion ontheutility ofArticle XXIII:1(b) isirrelevant
tothisPanel'sdetermination ofwhether theUSclaim satisfies Article XXIII:1(b). Although thescope
oftheWTO disciplines hasexpanded beyond theoriginal GATT disciplines, intheUSview, thenon-
565Ibid.WT/DS44/R
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violation "safety net"isstillneeded forthose measures thatdonotviolate theWTO Agreements.566
TheUnited States emphasizes thattheUruguay Round negotiators recognized thisneedbyadding a
non-violation remedy totheGATS andtheTRIPS Agreement (although thenon-violation remedy will
notbeavailable under theTRIPS Agreement untiltheyear2000).
6.36 Japan contends thattheUSnon-violation claims inthisproceeding urgeadramatic expansion
ofthenon-violation remedy because, inJapan'sview, theUnited States asksthatthisexceptional remedy
beapplied beyond recognized andappropriate limits:
- notonlytomeasures subsequent tothemostrecent tariffconcessions, butalsotoalleged
measures taken earlier andstretching backthree decades;
- notonlytomeasures unanticipated atthetimeoftherelevant tariff concessions, but
alsotoalleged measures already ineffect and/or known about atthetimetheconcessions
were made;
- notonlytogovernment measures, butalsotoprivate conduct allegedly encouraged
bygovernment action;
- notonlytolegally binding requirements andtheirsubstantive equivalents, butalso
tonon-mandatory requests andgovernment reports;
- notonlytocurrent measures, butalsototheallegedly continuing effects ofpast
measures which arenolonger ineffect;
- notonlytomeasures thatdrawdistinctions between products anddisadvantage imports,
butalsotoalleged measures thatmake nodistinctions between imported anddomestic
products;
- notonlytomeasures which disadvantage imports, butalsotomeasures which have
nocausal connection withcompetitive conditions unfavourable toimports;
- notonlytoadverse changes inpolicy since thetimeoftherelevant tariffconcessions,
butalsotopolicies thathavestayed thesame orevenbeenliberalized.
6.37 Japan emphasizes thatnobinding GATT rulesconcerning private business practices ormarket
structures haseverbeenestablished. The1948 Havana Charter foranInternational Trade Organization
(ITO) included achapter onrestrictive business practices, withobligations ongovernments. TheITO
never cameintoexistence andthoseruleswerenotcarried overintotheGATT. In1958, theContracting
Parties decided toappoint agroup ofexperts tostudy andmake recommendations withregard to
restrictive business practices ininternational trade. In1960, theReport oftheGroup ofExperts on
"Restrictive Business Practices" wasadopted bytheContracting Parties. IntheReport, theGroup
wasdivided onthenature offurther measures toberecommend butthemajority firstnoted thatthere
wasnomultilateralagreementonrestrictivebusinesspractices.567Ofgreaterrelevanceinthisproceeding
istheReport 'sfurther admonition forcaution inthisarea.568Having considered theReport, the
Contracting Parties adopted aDecision onArrangements forConsultations in1960, which didnotrefer
566Asnoted byProfessors Jackson, Davey andSykes intheirtextbook: "The discovery ofnewprotective devices appears
tobeanendless process. Assoonastheinternational system establishes restraints orregulations onaparticular protective
device, government officials andhuman ingenuity seem abletoturnupsome other measures toaccomplish atleastpartof
their protective purposes", Legal Problems ofInternational Economic Relations, op.cit.,p.377.
567"Thenecessaryconsensusamongcountriesuponwhichsuchanagreementcouldbebaseddidnotyetexist,andcountries
didnotyethave sufficient experience ofaction inthisfieldtodevise aneffective control procedure." Report oftheGroup
ofExperts onRestrictive Business Practices: Arrangements forConsultations, L/1015, adopted on2June1960, BISD 9S/170.
568"However, themajority wereconvinced that,regardless ofthequestion whether Article XXIII could legally beapplied,
theyshould recommend totheCONTRACTING PARTIES thattheytakenoaction under thisArticle. Such action would
involve thegrave riskofretaliatory measures under theprovisions ofparagraph 2ofthatArticle, which would betaken
onthebasis ofjudgments which would have tobemade without adequate factual information about therestrictive practice
inquestion, withconsequent counter-productive effects ontrade." Ibid., p.172.WT/DS44/R
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toArticle XXIII.569Japan further mentions thattheWTO Members onlytookatentative stepto
addressing issues suchascompetition andinvestment policies attheSingapore Ministerial Conference
inDecember 1996. TheMinisters reached acompromise toestablish aworking group toaddress the
emerging issue oftheinteraction between trade andcompetition policy.570Japan recalls thatthere is
stillnoconsensus among theWTO Members onhowtodealwiththeissueoftherelationship between
certain private business practices andtheirimpact ontrade. According toJapan, inparticular theUS
claims regarding "distribution countermeasures" boildown toanattack against vertical relationships,
e.g.,single-brandwholesaledistributionoffilm.However,verticalrelationshipsmaybepro-competitive
oranticompetitive, depending onthecircumstances ofeachcase. While thereiswidespread consensus
thathorizontal agreements tofixprices areanticompetitive, andthattheyshould besubject tolegal
restrictions, thereisnosuchconsensus about vertical restraints.571Accordingly, Japan urges thePanel
totakeacautious approach intheexamination oftheUSclaims concerning alleged "distribution
countermeasures" andnottoengage itself inarule-making exercise inthisrespect.
6.38 TheUnited States responds thatitisnotchallenging "private business practices" or"market
structures" inthisdispute, butmeasures oftheJapanese Government. Thespecific measures atissue
inthisdispute arethose listed intheUSresponse toaPanel question (seeSection III.A. supra). The
term"anymeasure"inArticleXXIII:1(b)isbroadenoughtoencompassmeasuresdesigned,promulgated,
andapplied byCouncils, Committees, Centers, tradeassociations, andotherquasi-governmental entities
thathaveincluded private sector participants, acting under theauthority orinconcert withJapanese
Government ministries andagencies. Although amarket structure isnotameasure persewithin the
meaning ofArticle XXIII:1(b), thesteps taken bytheJapanese Government tocreate andmaintain
anexclusionary market structure intheJapanese photographic materials sector doconstitute measures.
Tothisend,thecharacteristics ofthemarket structure intheJapanese consumer filmandpaper market
areclearly relevant inthisdispute andprovide compelling evidence oftheJapanese Government ’s
systematic efforts toimpede market access forimported filmandpaper.
569Decision onRestrictive Business Practices: Arrangements forConsultations, adopted on18November 1960, BISD
9S/28. Japan notes thatexperts from theUnited States were partofthemajority inthatworking party, andthusparticipated
inmaking thisspecific recommendation.
570Specifically, theSingapore Ministerial Declaration states:
"Having regard totheexisting WTO provisions onmatters related toinvestment andcompetition policy andthebuilt-in agenda
inthese areas, including under theTRIMs Agreement, andontheunderstanding thatthework undertaken shallnotprejudge
whether negotiations willbeinitiated inthefuture ,wealsoagree to:...
- establish aworking group tostudy issues raised byMembers relating totheinteraction between trade andcompetition
policy, including anti-competitive practices, inorder toidentify anyareas thatmaymerit further consideration
intheWTO framework ...
TheGeneral Council willkeep thework ofeachbody under review, andwilldetermine aftertwoyears howthework of
eachbody should proceed. Itisclearly understood thatfuture negotiations, ifany,regarding multilateral disciplines inthese
areas, willtakeplace onlyafteranexplicit consensus decision istaken among WTO Members regarding suchnegotiations".
Singapore Ministerial Declaration, adopted on13December 1996, WT/MIN (96)/DECEMBER, (emphasis added).
571Japan notes thatthisuncertainty hasledProfessor F.M. Scherer ofHarvard University toconclude:
"Vertical restraints arerecognized bybotheconomists andcompetition policy authorities tohavebothbenefits andcompetition-
impeding costs. Itisdifficult todraw neatlinesbetween those thatshould beallowed andthose thatshould beprohibited.
Even when those lineshavebeendrawn, asmyanalysis ofUSantitrust policy toward automobile partsdistribution hasshown,
enforcement ofthevertical restraints lawhasbeenamuddle. Ifnations havedifficulty determining thecorrect policies and
enforcing them within their ownborders, itwillsurely bemuch more difficult toadjudicate such policies internationally.
Thispessimistic conclusion mayleave anoccasionally significant barrier tointernational trade untouched. Butwisdom in
public policy analysis begins withtherecognition thatnotallproblems canbesolved." F.M. Scherer, Retail Distribution
Channel Barriers toInternational Trade, October 1995, p.30,Working paper presented ataColumbia University Conference
entitled TheMultilateral Trading System ofthe21stCentury, Japan Ex.A-19. (emphasis added)WT/DS44/R
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4. REMEDIES
6.39 TheUnited States argues thatinGATT jurisprudence, theremedy available depends uponthe
legaltheory atissue: For"violation" disputes, DSUArticle 19.1provides thatwhere thepanel concludes
thatameasure isinconsistent withacovered agreement, it"shall recommend thattheMember concerned
bring themeasure intoconformity withthatagreement". ItisJapan'sdecision inthefirstinstance
todetermine what steps itwilltaketoeliminate thenullification orimpairment resulting from its
violation. Inaccordance withArticle 19.1oftheDSU, however, thePanel could suggest thatJapan
takesteps toundo theexclusionary aspects ofthedistribution system forphotographic materials that
itsmeasures havebrought about.
6.40 Fordisputes concerning non-violation nullification orimpairment, Article 26.1oftheDSU
providesthatwherethepanelfindsthatameasureisnullifyingorimpairingbenefits,it"shallrecommend
thattheMember concerned make amutually satisfactory adjustment". Pursuant toArticle 26.1(c)
oftheDSU, anarbitrator maysuggest "ways andmeans ofreaching amutually satisfactory adjustment".
Amutually satisfactory adjustment inthisdispute could involve either aneffort bytheJapanese
Government torestore thecompetitive relationship between imported anddomestic products ortogrant
compensation totheUnited States forthenullification orimpairment oftariffbenefits, although Japan
hasnoobligation towithdraw themeasures orprovide compensation. Iftheparties failtoreach a
mutually satisfactory adjustment, thepanel'sfinding ofnullification orimpairment under
Article XXIII:1(b) would entitle theUnited States torestore theoriginal balance ofconcessions between
theparties bysuspending theapplication ofappropriate obligations orconcessions under theGATT 1994
andother WTO Agreements.
6.41 TheUnited States submits thatthisPanel neednotattempt toassess thequantum ofnullification
orimpairment. Inviolation disputes, thisbecomes anissue onlyiftheresponding party pays
compensation orthecomplaining party suspends concessions inaccordance withArticle 22.6ofthe
DSU, inwhich casetheparties haverecourse toarbitration ifthelevel ofsuspension proposed is
contested. Innon-violation disputes, however, either party mayrequest arbitration, inaccordance with
Article 26.(1)(c) oftheDSU, todetermine thelevelofbenefits which havebeennullified orimpaired.
6.42 InJapan ’sview, theUnited States seems tobeessentially requesting atypeofaffirmative
action whereby primary wholesalers handling domestic brands, including Konica ’ssubsidiaries, are
forced todealwithKodak asthe"mutually satisfactory adjustment" inthecaseofnon-violation claims
ormeans to"bring themeasures intoconformity withtheagreement" inthecaseofArticle IIIclaims.
Thisisanextraordinary remedy which would involve thisPanel intherestructuring oftheJapanese
distribution sector. ForaPanel tomake suchadecision would bearadical expansion oftheauthority
granted under theDSU.WT/DS44/R
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B. RELEVANT TARIFF CONCESSIONS
1. GENERAL CONSIDERATIONS
6.43 TheUnited States submits thatJapan granted thefollowing tariff concessions totheUnited
States onphotographic filmandpaper products intheKennedy, Tokyo, andUruguay rounds of
multilateral trade negotiations.
ROUND FILM PAPER
B&W Colour B&W Colour
Pre-Kennedy Round 30%* 40%* 25%* 40%*
Kennedy Round (1967) 15% 40%* 12.5% 40%*
Tokyo Round (1979) 7.2% 4% 6.6% 4%
Uruguay Round (1994) Free Free Free Free
(*=Applied, notbound)
6.44 TheUnited States claims thatthethreesetsofpolicies -(i)distribution modernization policies,
(ii)restrictions onlarge retail stores, and(iii)restrictions onpromotional andmarketing activities -
individually andcollectively "nullify orimpair", within themeaning ofArticle XXIII:1(b), eachof
thetariff concessions thatJapan granted onblack andwhite andcolour photographic filmandpaper
intheKennedy Round, Tokyo Round, andUruguay Round.
6.45 Japan submits thattheUnited States doesnotestablish howtherequired elements forannon-
violation claim aremetwithrespect totherelevant tariffconcessions oneachofthefourdistinct products
subject tothisproceeding. InJapan'sview, asregards black andwhite filmaswellasblack andwhite
paper, andthetariff concessions onthese products, there isneither argument norevidence howany
ofthealleged measures orthealleged results ofthese measures upset thecompetitive conditions for
these products. TheUnited States hasnotaddressed theseproducts specifically interms ofthealleged
measures, theapplicability ofthealleged measures totheproducts ortheeffect ofthealleged measures
ontheproducts. Japan argues thatthese products haveunique characteristics from aretailing and
marketing perspective. Furthermore, Japan emphasizes thatimports ofblack andwhite filmandpaper
rosedramatically almost immediately aftertheKennedy Round tariff concessions, continued torise
throughout theperiod ofthealleged liberalization "countermeasures" anddidnotpeakuntilatleast
adecade afterthelastofthealleged measures. With foreign market share ofblack andwhite film
peaking at41.4percent in1985 andforeign market share ofblack andwhite paper peaking at54.0
percent in1989, Japan alleges thattheUnited States triestoobscure anyfocus onthesespecific products.
6.46 Japan alsocontends thattheUnited States hasnotdistinguished thealleged measures andtheir
effects oncolour paper from thealleged measures andtheireffects oncolour film. InJapan'sview,
thedistribution system forcolour paper differs significantly fromthatforcolour film. Colour paper
issoldtophotofinishers, notretailers. ForJapan thereisnocredible evidence thatthealleged measures
creating themarket structure forfilmevenaddressed themarket structure fordistribution ofcolour
paper.572Moreover, Japan asserts thatthere isnoevidence thattheUSclaims regarding large scale
retail stores areapplicable tocolour paper. Thus, Japan contends thattotheextent thattheUnited
States hastriedtoestablish non-violation case,thatcaserelates onlytocolour film,butfailstosatisfy
evenasingle element required under Article XXIII:1(b).
572Japan submits thattheonlyallegations relevant topaper areclaims about SMEA financing tophotofinishers. InJapan 's
view, eventheUnited States admits thispoint. However, Japan recalls thatithasraised procedural objections against these
claims.WT/DS44/R
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6.47 TheUnited States argues thatparagraph 1(b)(i) ofGATT 1994incorporated alloftheprotocols
andcertifications relating totariffconcessions thathadentered intoforce under theGATT 1947before
theeffective dateoftheWTO Agreement, including Japan'stariff concessions intheKennedy and
Tokyo Rounds. Thus, theUnited States asserts thatthebenefits accruing toitunder theseconcessions,
aswellastheconcessions arising from Japan'sschedule attached totheMarrakesh Protocol, are
GATT 1994benefits. TheUnited States argues that,ineachRound, itbargained fortheconcessions
andanticipated improved competitive opportunities. Oneachoccasion, Japan granted aconcession,
butintheUSview, thensystematically sought toundermine itsbenefits, andthecompetitive relationship
between imported anddomestic photographic materials hasbeen, andcontinues tobe,upset asaresult
ofJapan'smeasures.
6.48 Japan explains thatthebenefits oftariff concessions consist ofthelegitimate expectation of
better market access opportunities created bythereduction ofbound tariffratesaswellasthelegitimate
expectation thatthevalue oftheconcession willnotbefrustrated. Since thenegotiation ofsuccessive
tariff concessions provides anopportunity foranyalleged frustration ofexpectations created byprior
tariff concessions tobeaddressed, inJapan'sview, itshould bepresumed thatsuchfrustration will
alsobetaken intoaccount bytheparties during subsequent negotiations. Therefore, aslongasthe
newbalance oftariffconcessions hasbeenactually negotiated andagreed upon, theresult ofthelatest
tariff negotiation should bedeemed tohavecreated anewexpectation concerning thebalance oftariff
concessions andtohavereplaced anyreasonable expectation thatarose under apriortariffnegotiation.
Since thetariff concessions onphotographic filmandpaper inthepresent casehavebeenactually
negotiated andgranted atreduced rates under three successive rounds, theUruguay Round tariff
concessions should bedeemed tohavereplaced allprevious expectations andformed anewbalance
oftariff concessions. Japan thusargues thatthepresumption should bethatanyalleged frustration
ofexpectations relating toprior concessions hasalready beenincorporated intothenewbalance of
tariff concessions astheresult ofthelatest tariff negotiations under theUruguay Round. Therefore,
astotheissuewhether rights andexpectations fromtheearlier concessions survive evenwhen during
eachsubsequentroundfurthertariffreductionsarenegotiatedandgranted,Japanbelievesthatthe"benefit
accruing ...under theAgreement" islimited tothebenefit oftheUruguay Round tariff concessions.
Accordingly, inJapan'sview, thebenefits oftheKennedy Round andTokyo Round negotiations are
irrelevant inthiscase.
6.49 Japan alsomaintains thattheresults ofthelatest tariffnegotiations intheUruguay Round have
removed anyreasonable expectations ofthebenefits thatarose under priortariffnegotiations andhave
created newexpectations concerning thebalance oftariff concessions. Thebenefits of(orthe
expectations relating to)thetariff concessions of1967 and1979 themselves should, inJapan'sview,
bedeemed tobepastbenefits (orexpectations) under GATT 1947. Accordingly, Japan argues that
theirnullification orimpairment (ortheiralleged frustration) cannot constitute asituation where "any
benefit accruing ...under thisAgreement [i.e., GATT 1994] isbeing nullified orimpaired".
6.50 Astotherelevanceofdifferentprotocolsembodyingtariffconcessions,theUnitedStatessubmits
thatArticle XXIII provides thataMember hasa"non-violation" claim ifitconsiders that"anybenefit
accruing toitdirectly orindirectly under thisAgreement isbeing nullified orimpaired ...".Article 31
oftheVienna Convention ontheLawofTreaties instructs thatthislanguage "shall beinterpreted in
goodfaithinaccordance withtheordinary meaning tobegiven totheterms ofthetreaty intheircontext
andinlightofitsobject andpurpose". According toArticle 31,theordinary meaning ofatreaty term
istobeinterpreted incontext andbytaking intoaccount "anysubsequent agreement between theparties
regarding theinterpretation ofthetreaty oftheapplication ofitsprovisions".
6.51 TheUnited States claims thatthe"benefits" atissue inthisdispute arethemarket access
opportunitiesarisingfromJapan'sKennedyRound,TokyoRound,andUruguayRoundtariffconcessions
onconsumer photographic filmandpaper. IntheUSview, nothing intheKennedy Round, Tokyo
Round orUruguay Round tariff protocols suggests thatthetariff concessions attached thereto wouldWT/DS44/R
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be"deemed" tohaveexpired ortohavebeenwithdrawn ataspecific timeorasaresult ofaspecific
event orbyvirtue ofasubsequent tariff agreement.
6.52 TheUnited States further explains thattheobject andpurpose ofthenon-violation remedy
istoencourage tariff concessions under Article IIofGATT. IntheUSview, afinding bythispanel
thataMember 'sreasonable expectations from anexisting tariff concession areextinguished assoon
asitreceives anewtariff concession would havetheopposite effect. Members would bereluctant
toenterintonewnegotiations andthenegotiations themselves would become impossibly burdensome.
Members would becompelled toinitiate andcomplete non-violation disputes onallsuspected instances
ofnullification orimpairment prior tonegotiating newtariff concessions. Alternatively, Members
would abandon theformulaic approach totariff cutsfirstadopted intheKennedy Round infavour of
product-by-product negotiations toredress thenullification orimpairment ofprior concessions and
attempt topursue further tariff liberalization simultaneously.
6.53 Japan requests thattheUnited States should notbeallowed torelyontariffconcessions arising
from previous rounds oftariff negotiations because thiswould undermine theintegrity andstability
ofnegotiated tariffconcessions. Japan points outthatacountry mayadopt ameasure which isconsistent
withtheWTOAgreementbutsomehownullifiesorimpairsabenefitaccruingtoanotherWTOMember.
Inthatcase,an"aggrieved" country could sitonitsrights fordecades. Round afterround ofsubsequent
tariffnegotiations ontheproduct inquestion would haveoccurred, andstillthe"aggrieved" partywould
donothing. Andyet,decades later, the"aggrieved" party could atlonglastdecide toassert itsrights
andexpect apanel tofindinitsfavour.
6.54 TheUnited States rejects Japan'ssuggestion that,ifthisPanel affirms thattariff concessions
andreasonable expectations arising therefrom continue toexistunless theconcession ismodified or
withdrawn under Article XXVIII, Members would "sitontheirrights fordecades". TheUnited States
responds thatthepurpose ofWTO dispute settlement isremedial, notpunitive, andtherefore WTO
dispute settlement provides onlyprospective relief. Asaconsequence, Members havenoincentive
todelay inbringing adispute oncetheydiscover thatanother Member isviolating anagreement or
otherwise nullifying orimpairing itstariffconcessions within themeaning ofArticle XXIII:1(b). While,
intheUSview, thisdiscovery could takeyears, aMember 'srightofredress should notbeextinguished
because thenullifying andimpairing measures arehardtodetect.
2. PAST GATT PANEL REPORTS
6.55 TheUnited States submits thattwopriorpanels havefound nullification orimpairment oftariff
benefits thatweregranted inatariff negotiation thatwassucceeded bymultilateral tariffnegotiations,
i.e.,EEC-Canned Fruit573andEEC -Oilseeds .574According totheUnited States, these twopanel
decisions support itsposition andthere arenonetothecontrary. TheUnited States explains thatthe
panel onEEC-Canned Fruit found thattheUnited States hadareasonable expectation arising from
theEC's1974tariffconcessions pursuant toArticle XXIV:6 negotiations and1979Tokyo Round tariff
concessions.575IntheviewoftheUnited States, thepanel onEEC-Oilseeds found thattheUnited
States hadareasonable expectation arising from theEC's1962 Dillon Round tariff concessions.576
TheUnited States notes thatthese disputes wereinitiated in1982and1988, respectively, subsequent
tothe1979Tokyo Round multilateral tariffnegotiations. TheUnited States alsomentions thatneither
theECnorthepanels questioned whether theTokyo Round negotiations created anewbalance oftariff
concessionsthatextinguishedUSreasonableexpectationswithrespecttopriortariffconcessions.Rather,
573GATT Doc. L/5778, 20February 1985 (unadopted).
574Adopted on25January 1990, BISD 37S/86.
575Thepanel found separately thattheUnited States could haveanticipated certain subsidies inrespect ofthe1979 tariff
concessions. SeeEEC -Canned Fruit,L/5778, p.17,para. 49.
576SeeEEC -Oilseeds ,BISD 37S/86, pp.126-128, paras. 144-146.WT/DS44/R
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theECargued only thatithadwithdrawn tariff concessions pursuant toArticle XXIV:6 and
Article XXVIII negotiations andthereby extinguished USreasonable expectations withrespect tothose
particular concessions. TheUnited States concludes thatthese findings would nothavebeenpossible
ifsubsequent multilateral tariff agreements orenlargement agreements were deemed toextinguish
wholesale thetariff concessions inprior tariff schedules.
6.56 InJapan 'sview, itsposition withrespect totherelevant tariff concessions tobeconsidered
inannon-violation caseisconsistent withthereasoning ofthepanel onEEC-Oilseeds .Thefacts
before thatpanel were thatthetariff concessions foroilseeds (duty-free tariff bindings) hadbeen
originally made in1962. During successive tariffnegotiations under Article XXIV:6 ofGATT 1947,
theseduty-free tariffbindings weremaintained atthesamelevel. Thepanel examined "whether benefits
accruing totheUnited States under thetariff concessions presently inforce [atthetimeofthepanel
deliberations] include theprotection ofexpectations thatprevailed in1962when tariff concessions ...
were originally incorporated" intotheSchedule.577Noting that"[Article XXIII:1(b)], asconceived
bythedrafters andapplied bytheCONTRACTING PARTIES, serves mainly toprotect thebalance
oftariff concessions", thatpanel found that:
"...theanswer tothequestion ofwhether theexpectations of1962 continue tobe
protected depend onwhether theconcessions onoilseeds resulting fromthesubsequent
renegotiations under Article XXIV:6 were partofanewbalance ofconcessions or
whether thereinstitution oftheconcessions atthesame rateafter thesuccessive
enlargements oftheCommunity meant thatthebalance ofconcessions originally
negotiated in1962wastobecontinued ...Theresult oftheArticle XXIV:6 negotiations
following thesuccessive enlargement oftheCommunity wasnotthecreation ofanew
common external tariff buttheextension oftheexisting tariff concessions ...".578
6.57 Japan distinguishes thefactsintheEEC-Oilseeds casefromthose inthepresent oneasfollows:
IntheEEC-Oilseeds case, thebalance oftariff concessions originally granted withduty-free tariff
bindings wascontinued throughout thesuccessive tariffconcessions. Inthepresent case,bycontrast,
Japan agreed toreduce itsbindings oncolour film, black andwhite film, andcolour paper from 3.7
percent tozero, anditsbinding onblack andwhite paper from 6.6percent tozerointheUruguay
Round tariffnegotiations. TheEEC-Oilseeds panel alsosuggested thatanewbalance ofconcessions
would involve a"global reassessment ofthevalue" ofallofaparty'sconcessions.579TheUruguay
Round wasaprocess ofsucha"global reassessment ofvalue" oftariff concessions. Therefore, in
Japan'sview, thereasoning ofthepanel onEEC-Oilseeds leads totheconclusion thattheresult of
theUruguay Round tariff negotiations wasthecreation ofanewbalance oftariff concessions onthe
products atissue inthiscase.
6.58 TheUnited States submits thatthefirstEEC-Oilseeds caseof1989focused ontheexpectations
flowing froma1962 concession bytheEC(thezerobinding onoilseeds). TheECargued thatbecause
negotiations hadbeenconducted since 1962 under Article XXVIII procedures (through theroute of
Article XXIV:6) concerning theECSchedule, theexpectations thathadtobetaken intoaccount were
theexpectations asofthemostrecent suchnegotiation in1986. According totheUnited States, the
panel onEEC-Oilseeds correctly rejected thatargument, noting thatthepractice oftheCommunity
ineachenlargement hadbeentoextend theapplication ofitspre-existing common customs tariff(CCT)
toinclude theterritory ofitsnewmember States. Where theapplication oftheCCT resulted inthe
impairment oftariffconcessions intheschedules oftheacceding member States, theCommunity (acting
onbehalf ofitsmember States) discharged itsobligations under Article XXVIII andpaidcompensation
bylowering dutyratesoncertain items fortheECasawhole. However, noneoftheenlargements
577Ibid., pp.126-127, para. 144.
578Ibid., pp.126-127, paras. 144-145 (emphasis added byJapan).
579Ibid., pp.126-127, para. 145.WT/DS44/R
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evermodified orwithdrew theparticular CCTconcession onoilseeds made in1962. Thus, eventhough
theECsubstituted successive Schedules forthe1962 Schedule oftheEECofSix,theconcession on
oilseeds made in1962 hadnever itself beenmodified orwithdrawn. FortheUnited States, itwas
therefore theexpectations of1962 thatwererelevant, nottheexpectations of1986 oranyother year
after1962.
6.59 Japan contests theUSconclusion thatthepanel onEEC-Oilseeds rejected theECargument
thattheexpectations which hadtobetaken intoaccount weretheexpectations ofthemostrecent tariff
negotiation under Article XXIV:6 because noneoftheenlargements evermodified orwithdrew the
particular common customs tariffconcession onoilseeds made in1962. Japan explains thatthefindings
ofthepanel onEEC-Oilseeds needtobelooked atintheproper context. From thereference that
"theanswer tothequestion ofwhether theexpectations of1962 continue tobeprotected depends on
whether theconcessions onoilseeds resulting fromthesubsequent renegotiations under Article XXIV:6
werepartofanewbalance ofconcessions orwhether ...thebalance ofconcessions originally negotiated
in1962 wastobecontinued", itisclearforJapan thatthepanel focused ontheissue ofwhether or
notanewbalance ofconcessions wascreated, andnotontheissueoftheprocedures andtheformalities
ofthetariff negotiation. Japan maintains thatthepanel onEEC-Oilseeds alsoreferred totheissue
ofwhether ornotthetariff negotiation atissueinvolved a"global reassessment ofthevalue ofallthe
Community 'sconcessions". Japan insists thatitsargument isconsistent withthisanalysis bytheEEC
-Oilseeds panel, while theUSargument isnot.
3. THE TYPES OFTARIFF NEGOTIATIONS UNDER GATT
6.60 Astotheissuewhether thelegalrelationship between tariffconcessions bound intheUruguay
Round, Tokyo Round andKennedy Round schedules differs depending onwhether tariffbindings derive
fromtariffnegotiations orre-negotiations under Articles XXIV:6, XXVIII andXXVIII bis,theUnited
States describes itsposition asfollows: Under theGATT 1947, eachnewSchedule ofacontracting
party coexisted legally withallprior Schedules. Each oftheconcessions ineachSchedule remained
legally binding except totheextent ithadbeenmodified orwithdrawn under Article XXVIII. Since
theGATT 1947 Schedules were incorporated intotheGATT 1994, theconcessions inthe
GATT 1947 Schedules remain legally binding andcoexist withtheconcessions intheUruguay Round
schedules andallsubsequent schedules entered intounder theGATT 1994.580
6.61 With respect tothelegal relationship among Article XXIV:6 negotiations, themodification
ofSchedules under Article XXVIII, andthetypes oftariffnegotiations stipulated byArticle XXVIII bis,
Japan 'sviewisthatthelegalnature oftariff negotiations orthemodification ofschedules inrelation
tonon-violation complaints needs tobeevaluated based onthesubstance ofwhether thenewbalance
ofconcessions hasbeenformed.
(a) Article XXVIII
6.62 TheUnited States points outthatGATT provides onlyonegenerally-available legal means
formodifying orwithdrawing, i.e."re-negotiating" atariff concession, which isArticle XXVIII. A
Member mayinvoke Article XXVIII onlyunder specifically defined circumstances. TheUnited States
elaborates thataMember maymodify orwithdraw aconcession bynegotiation andagreement under
Article XXVIII:1-3 during thetriennial "open season". AMember mayenter intonegotiations for
modification orwithdrawal ofaconcession under Article XXVIII:4 ifsoauthorized. AMember may
modify orwithdraw aconcession inaccordance withtheprocedures ofArticle XXVIII:1-3 ifithas
made atimely reservation ofrights todosounder Article XXVIII:5.
580TheUnited States alsomentions thattheinitial negotiating rights attached toGATT 1947 concessions remain inforce
today andthattheparty which initially negotiated anygiven concession, even aconcession from 1947, retains aright to
beconsulted andcompensated ifthatconcession ismodified orwithdrawn today.WT/DS44/R
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6.63 TheUnited States contends thatJapan hasmade various setsoftariff concessions invarious
Schedules attached toprotocols aftertrade negotiating rounds. Thelaterconcessions havenothad
thelegaleffect ofmodifying orwithdrawing theearlier concessions, because Japan hasnever invoked
Article XXVIII withrespect toitsconcessions onfilmandpaper. TheUnited States maintains that
allofJapan'sconcessions onfilmandpaper therefore remain ineffect, andtheexpectations attached
toeachremain protected byArticle XXIII:1(b).
6.64 Withregard tothemodification orwithdrawal oftheconcessions onspecific products contained
intheschedule ofanindividual WTO Member made under Article XXVIII, Japan explains thatthe
Member which proposes tomodify orwithdraw theconcession negotiates compensation withrespect
toother products withother Members inorder to"maintain ageneral levelofreciprocal andmutually
advantageous concessions". Therefore, thelegal nature ofmodification orwithdrawal under
Article XXVIII should bedeemed asthecontinuation ofthebalance oftariff concessions asawhole.
Japan alsostates thattheprocedure setforthinArticle XXVIII alsoapplies tothemodification ofthe
schedules fortheArticle XXIV:6 negotiations.
(b) Article XXIV:6
6.65 TheUnited States submits thatArticle XXIV:6 permits aMember which hasentered intoa
customs union andwhich proposes toincrease arateofdutyabove bound levels tomodify orwithdraw
thatconcession under theprocedures ofArticle XXVIII.581TheUnited States points outthat
Article XXIV:6 thusdoes notprovide anindependent route tomodification ofconcessions with
independentprocedures,butmerelyameanstoinvokethestandardproceduresofArticleXXVIIIoutside
ofan"open season".
6.66 Japan contends thatthenegotiations under Article XXIV:6 areconducted toextend theexisting
common external tariff ofacustoms union totheirnewmember(s), onthepremise that"theduties
...shallnotonthewhole behigher ormore restrictive thanthegeneral incidence oftheduties ...
applicable intheconstituent territories" (Article XXIV:5). Although thenegotiations willleadtothe
modification ofthepartoftheschedules ofthecustoms union, thelegalnature ofthenegotiations under
Article XXIV:6 should bedeemed asthecontinuation oftheprior balance oftariff concessions asa
whole. Inthisconnection, Japan points outthatthepanel onEEC-Oilseeds found that"theresult
oftheArticle XXIV:6 negotiations following thesuccessive enlargements oftheCommunity was...
theextension oftheexisting tariff concessions oftheCommunity tothenewmember States" andthat
thebalance oftariff concessions originally made wastobecontinued.
581TheUnited States elaborates thatArticle XXIV:6 wasadded totheGeneral Agreement in1948 toaccommodate a
customs union between France andItaly. Analytical Index (1995), p.810. Atthetime, thetextofArticle XXVIII barred
anymodification ofschedules until1January 1951. See:Final ActAdopted attheConclusion oftheSecond Session of
thePreparatory Committee oftheUnited Nations Conference onTrade andEmployment, Vol.1,pp.61-62. France sought
theaddition ofArticle XXIV:6 because ofthetiming element inArticle XXVIII. France needed tobeabletoinvoke the
procedures ofArticle XXVIII immediately sothatitcould raise duties consistent withitslegal obligations.WT/DS44/R
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(c) Article XXVIII bis
6.67 TheUnited States argues that,byitsterms, Article XXVIII bis582provides alegalbasis for
addingconcessionstoSchedules,butnotabasisformodifyingorwithdrawingpre-existingconcessions.583
Tariff negotiating rounds inGATT were always conducted asoccasions forreducing oreliminating
tariffs, notasopportunities forcontracting parties tothrow thepre-existing leveloftradeliberalization
intouncertainty andrenegotiate theirschedules. When concessions havebeenmodified orwithdrawn
during around oftradenegotiations, themodification orwithdrawal hastaken place through invocation
ofArticle XXVIII itself, notArticle XXVIII bis.584According totheUnited States, thereareonlytwo
exceptions tothegeneral rulethattariff negotiations add,anddonotsubtract, concessions, butthese
exceptions prove therule:
6.68 First, theProtocol Embodying theResults ofthe1960-61 Tariff Conference ("Dillon Round
Protocol") included aspecial paragraph found innoother GATT tariffprotocol. Under thisparagraph,
ineachcasewhere certain schedules provided fortreatment foraproduct lessfavourable thanthat
provided inapre-existing schedule applicable tothesamecontracting party, theprovision intheearlier
schedule would beterminated.585However, thereisnosimilar provision intheKennedy Round protocol
orTokyo Round protocol, and,inanyevent, thiscircumstance would notapply toJapan'sreductions
ofitstariffs forphotographic filmandpaper.
6.69 Second, during theUruguay Round, certain developing country participants offered tomake
ceiling bindings onallproducts orentire product sectors intheirschedules. During thefinaltariff
negotiations inthespring of1994, inalmost allinstances these participants agreed nottomodify or
withdraw pre-existing bindings atlower dutyratesintheirGATT 1947 schedules. However, four
participants didmodify orwithdraw suchbindings: Egypt, Peru, South Africa andUruguay. Toprovide
thelegalbasisforsuchmodification orwithdrawal, paragraph 7wasadded totheMarrakesh Protocol,
usinglanguageborrowedfromtheDillonRoundProtocol.Paragraph7providesthatthesefourMembers
"shall bedeemed tohavetaken appropriate action aswould otherwise havebeennecessary under the
relevant provisions ofGATT 1947 or1994". TheUnited States concludes thatparagraph 7ofthe
Marrakesh Protocol waslegally necessary toensure thatthemore favourable earlier concessions of
Egypt, Peru, South Africa andUruguay would notcontinue tobelegally binding, andtomake itpossible
forthese fourMembers toliquidate theirprior inconsistent tariff concessions. However, theUnited
StatesemphasizesthatthisprovisionbyitstermsappliesonlytothefourMemberslistedtherein,whereas
allother countries continue tobebound byallprior concessions inGATT 1947 schedules.
6.70 InJapan 'sview, thetypes oftariff negotiations stipulated byArticle XXVIII bisare"directed
tothesubstantial reduction ofthegeneral leveloftariffs", "with dueregard totheobjectives ofthe
GATT andthevarying needs ofindividual Members", asopposed tothemodification andwithdrawal
582Article XXVIII biswasadded totheGATT in1955 andentered intoforce on7October 1957.
583Concessions alsohavebeenadded toSchedules under other legalbases: through thefourrounds oftariff negotiations
thattookplace before 1957, through exchanges ofconcessions inaccession tariff negotiations, andthrough theProcedures
forModification andRectification ofSchedules (which were utilized, forexample, inthecaseoftherecent Information
Technology Agreement). See26March 1980, CONTRACTING PARTIES 'Decision onProcedures forModification and
Rectification ofSchedules ofTariff Concessions, BISD 27S/25.
584TheUnited States mentions thefollowing examples:
(i) TheEC's1994 modification ofitsconcession onbananas wascarried outnotunder theauthority ofthePunta del
EsteDeclaration butpursuant toaninvocation ofArticle XXVIII. Panel Report onEuropean Communities -Regime for
theImportation, SaleandDistribution ofBananas ,circulated on22May1997, para. 3.31; Article XXVIII notification in
SECRET/343, referenced inAnalytical Index (1995) p.979.
(ii) Thenegotiation ofthecommon external tariff oftheEEC which tookplace intheDillon Round tookplace in
accordance withtheprovisions ofArticles XXVIII:1-3 andXXIV:6. BISD 8S/112, para. 18.
(iii) When Denmark, Ireland andtheUnited Kingdom acceded totheECin1972, theECcarried outnegotiations under
theprocedures ofArticle XXVIII (invoked through Article XXIV:6), notaspartoftheTokyo Round tariff negotiations.
585BISD 8S/8, 9,para. 4.WT/DS44/R
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under Article XXVIII, which isaprocess of"maintaining ageneral levelofreciprocal andmutually
advantageous concessions". Tariff negotiations under Article XXVIII bisshould bedeemed tobe
conducted fromscratch, taking intoaccount thevarious circumstances atthetimeregarding theproducts
concerned. When thereduction orelimination oftariff concessions arenegotiated andagreed upon
inthose tariff negotiations, theyshould bedeemed tohavecreated anewbalance ofconcessions, and
anewexpectation concerning thebalance oftariffconcessions created bythelatest negotiations should
bedeemed tohavereplaced anyprevious expectation under prior concessions. Inparticular, any
multilateral tradenegotiation round liketheKennedy Round, theTokyo Round andtheUruguay Round,
should bedeemed aprocess ofcreating a"new balance ofconcessions" asawhole, bymaking aglobal
reassessment ofthevalue oftheconcessions through thecomprehensive tariffnegotiations onabroader
basis. Accordingly, Japan maintains thatthemeasures existing prior tothenewconcessions, which
should bedeemed tobetaken intoaccount during suchnegotiations, willnotnullify orimpair benefits
under Article IIofGATT.
6.71 TheUnited States responds thatJapan'sargument thatArticle XXVIII bisnegotiations -but
notArticle XXVIII orXXIV:6 negotiations -create anewbalance oftariffconcessions thatextinguishes
previous expectations under priorconcessions isexactly backwards. IntheUSview, Article XXVIII bis
negotiations docreate anewbalance oftariff concessions withnewexpectations relating totariff
concessions arising outofthose negotiations. However, because Article XXVIII bisnegotiations cannot
anddonotwithdraw ormodify prior tariff concessions, suchnegotiations cannot extinguish oraffect
theexpectations relating tothose prior tariff concessions. Incontrast, when aMember withdraws or
modifies atariff concession under Article XXVIII -either directly under Article XXVIII orthrough
therouteofArticle XXIV:6 -theMember maybechanging thelegalobligation thatthetariffconcession
represents andasaconsequence thereasonable expectations associated withthose concessions would
necessarily change andanewbalance ofconcessions would beachieved withrespect tothatround
oftariff concessions.
6.72 TheUnited States submits thatthepanel report onEEC-Oilseeds fullysupports itsposition:
"Inthesecircumstances, thepartners oftheCommunity inthesuccessive renegotiations
under Article XXIV:6 could legitimately assume, intheabsence ofanyindications
tothecontrary, thattheoffertocontinue atariff commitment bytheCommunity was
anoffernottochange thebalance ofconcessions previously attained. ThePanel noted
thatnothing inthematerial submitted toitindicated thattheCommunity hadmade
itclear toitsnegotiating partners thatthewithdrawal andreinstitution ofthetariff
concessions foroilseeds aspartofthewithdrawal ofthewhole oftheCommunity
Schedule meant thattheCommunity wasseeking anewbalance ofconcessions with
respect tothese items. There isinparticular noevidence thattheCommunity, inthe
context ofthese negotiations, offered tocompensate itsnegotiating partners forany
impairment ofthetariff concessions through production subsidies orthatitaccepted
compensatory tariff withdrawals byitsnegotiating partners totakeintoaccount any
suchimpairment. Thebalance ofconcessions negotiated in1962inrespect ofoilseeds
wasthusnotaltered inthesuccessive Article XXIV:6 negotiations. ThePanel therefore
found thatthebenefits accruing totheUnited States under theoilseed tariffconcessions
resulting from theArticle XXIV:6 negotiations of1986/87 include theprotection of
reasonable expectations theUnited States hadwhen these concessions were initially
negotiated in1962."586
FortheUnited States, thequoted textshows thatthepanel onEEC-Oilseeds found thateventhough
thetariff concessions onoilseeds hadbeen withdrawn andre-instituted intact, pursuant to
586EEC -Oilseeds ,BISD 37S/86, 127-128, para. 146.WT/DS44/R
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Articles XXIV:6/Article XXVIII (actions thatcannot occur under Article XXVIII bis),nonewbalance
ofconcessions hadbeenachieved.
6.73 Japan responds thattheparties differ withrespect tothecriterion ofjudgement overwhen
anewexpectation should bedeemed created regarding tariffconcessions. InJapan'sview, theUnited
States refers totheprocedures andtheformalities ofwhether ornotatariffnegotiation wasconducted
inaccordance withArticle XXVIII ofGATT andwhether ornotabound tariff ratewasincreased.
Japan considers whattheUnited States points outmayonlymean thatcertain tariff concessions will
result intheexpectation thatcustoms duties willnotbeapplied inexcess ofthebound rates, andthat
such expectations cancontinue unless theconcessions willbemodified orwithdrawn under
Article XXVIII. Japan doesnotdisagree, since itcertainly would notargue thataMember cannegate
itscommitments ontariff bindings unilaterally. Onthecontrary, Japan believes thatevery Member
isbound byitstariff concessions irrespective oftheprocedures andtheformalities followed.
6.74 However, which expectations created byprevious tariffconcessions should betaken intoaccount
intheexamination ofnon-violation claims, inJapan'sview, isacompletely different issue. Inthis
respect, Japan takes theposition thatthecriterion tobeusedshould notbewhether ornotthelevel
ofthetariffbinding hasbeenincreased orreduced, butwhether ornotanewbalance oftariffconcessions
hasbeencreated asaresult ofmultilateral orsector-specific tariff negotiations, inwhich various
circumstances including non-tariff measures (e.g., domestic subsidies) relating totheproducts subject
tonegotiation aretaken intoaccount. InJapan'sview, what needs tobeexamined regarding the
expectation arising outofcertain tariffconcessions inrelation totheissueofthe"benefit" forthepurpose
ofanon-violation caseisthefollowing: When thesurrounding situations arechanged because ofthe
introduction ofacertain measure, which expectations created byprevious tariff concessions should
betaken intoaccount inevaluating theimpact ofthechange insituations.
6.75 Japan reiterates thattheOilseeds panel stated that"theanswer tothequestion ofwhether the
expectations of1962continue tobeprotected depends onwhether theconcessions onoilseeds resulting
fromthesubsequent renegotiations under Article XXIV:6 werepartofanewbalance ofconcessions
orwhether ...thebalance ofconcessions originally negotiated in1962 wastobecontinued". From
thisreference, inJapan’sview, itisclearthatthepanel focused ontheissue ofwhether ornotanew
balance ofconcessions wascreated andnotontheissueofprocedures andtheformalities ofthetariff
negotiation. Japan alsoemphasizes thattheOilseeds panel alsoreferred totheissue ofwhether or
notthetariff negotiation atissue involved a"global reassessment ofthevalue ofalltheCommunity ’s
concessions".
4. THE INCORPORATION CLAUSE OFGATT 1994
6.76 Theincorporation clause ofGATT 1994 provides intherelevant parts:
"1. TheGeneralAgreementonTariffsandTrade1994("GATT1994")shallconsist
of:...
(b) theprovisions ofthelegalinstruments setforthbelow thathaveentered
intoforce under GATT 1947 bythedateofentry intoforce ofthe
WTO Agreement:
(i) protocols andcertifications relating totariff concessions; ...
(d) theMarrakesh Protocol toGATT 1994".
6.77 TheUnited States submits thatprior totheUruguay Round, Japan made tariff concessions
onfilmandpaper intheKennedy Round andTokyo Round. Those concessions arenowpartof
GATT 1994 byvirtue ofparagraph 1(b)(i) ofGATT 1994, which incorporated alloftheprotocols
andcertifications relating totariffconcessions thathadentered intoforceunder theGATT 1947before
theeffective dateoftheWTO Agreement, including Japan'stariff concessions intheKennedy andWT/DS44/R
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Tokyo Rounds. Therefore, theUnited States claims thatthebenefits accruing directly orindirectly
under GATT 1994 within themeaning ofArticle XXIII:1 include thebenefits thattheUnited States
reasonably expected toreceive fromJapan'sKennedy Round andTokyo Round concessions, aswell
astheconcessions arising fromJapan'sschedule attached totheMarrakesh Protocol. Allofthemgive
risetoexpectations ofimproved market access forwhich theGeneral Agreement provides arightof
redress intheevent thatexpectations arefrustrated under Article XXIII:1(b).
6.78 Insupport ofitsposition thattheonlytariff concessions embodied intheUruguay Round
Schedule canberelied onforpurposes ofnon-violation complaints under Article XXIII:1(b), Japan
submits thatparagraph 1oftheGATT 1994 provides thattheGATT 1994 shallconsist of,among
others, "protocols andcertifications relating totariff concessions" which "entered intoforce under
theGATT1947"(paragraph1(b)(i)),butalsoincludessub-paragraph(d),whichrefersto"theMarrakesh
Protocol toGATT 1994". InJapan'sview, thisprovision means thattheeffective concessions included
intheSchedules oftheMembers annexed tothesepriorprotocols andcertifications, andtheconcessions
newly agreed asaresult oftheUruguay Round negotiations, asawhole, constitute tariff concessions
which areapplied under theGATT 1994.
6.79 Japan argues that, since paragraph 1does notprovide forahierarchy among sub-
paragraphs (a)to(d),itmustbereadasawhole sothateachsub-paragraph isapplied andinterpreted
inamanner consistent withtheothers. Accordingly, paragraph 1must bereadsothattheearlier
protocols andcertifications referred toinparagraph 1(b)(i) ofGATT 1994donotundermine themost
recent balance ofconcessions agreed among theWTO Members andincluded intheirSchedules to
theMarrakesh Protocol. Therefore, when there isanydifference between theconcessions contained
intheschedules annexed totheMarrakesh Protocol andthoseintheschedules annexed topriorprotocols
andcertifications referred toinparagraph 1(b)(i) ofGATT 1994 (e.g., when theconcessions onthe
same products aredifferent), inJapan'sview, theconcessions contained intheschedules annexed to
theMarrakesh Protocol prevail asalateragreement andshallbeapplied toWTO Members pursuant
toArticles IandIIofGATT. ForJapan, allowing priorprotocols andcertifications toaltertheagreed
balance ofconcessions intheMarrakesh Protocol would detract from stability andcertainty among
theparties toGATT intheirtrading relations.
6.80 TheUnited States responds thatJapan, inarguing thatconcessions intheschedules annexed
totheMarrakesh Protocol prevail overconcessions inother tariff protocols asa"later agreement",
appears toberelying ontheprinciple provided inArticle 30oftheVienna Convention ontheLaw
ofTreaties, although itdoesnotstatethisaffirmatively. Article 30(1) oftheVienna Convention deals
with"therights andobligations ofparties tosuccessive treaties relating tothesame subject-matter"
andprovides generally thatwhere theearlier treaty hasnotbeenterminated, "theearlier treaty applies
onlytotheextent thatitsprovisions arecompatible withthose ofthelattertreaty". However, theUnited
States contends thatArticle 30doesnotapply tothesituation before thisPanel because thiscaseis
notabout "successive treaties" butabout coexisting treaties which must beinterpreted soastogive
effect toeach.
6.81 TheUnited States explains thattheeffect oftheGATT 1994incorporation clause wastocreate
anewlegalinstrument,the"GATT1994"587whichwascontemporaneouswiththeotherlegalinstruments
attached totheWTO Agreement. Under theGATT 1994 incorporation clause, "GATT 1994" is
composed ofanumber ofelements including, inter alia,theMarrakesh Protocol andother tariff
587TheUnited States explains thatitwasforthisreason thattheGeneral Interpretative Note toAnnex 1Awasinserted
intothetextoftheWTO Agreement inthefallof1993, aspartofthedecision toinclude theGATT intheWTO Agreement
throughanincorporationclause.ThenegotiatorswishedthatAnnex1AagreementsotherthantheGATT1994takeprecedence
overtheGATT 1994intheevent ofconflict. Absent theGeneral Interpretive NotetoAnnex 1A,thiswould nothaveoccurred
becausetheeffectoftheincorporationclausewastomaketheentire"GATT1994"contemporaneouswiththeotheragreements,
sothatArticle 30oftheVCLT would nothave achieved thedesired result.WT/DS44/R
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protocols. Through theGATT 1994incorporation clause, WTO Members agreed anewtoeachelement
of"GATT 1994" andeachsuchelement iscontemporaneous witheachother suchelement. Although
GATT 1947 hasbeenterminated, thetariff protocols doneunder GATT 1947remain legally binding
solely because theyarepartofGATT 1994. Thus, Article 30(3) oftheVienna Convention doesnot
apply totherelationship between thesetariffprotocols andtheother elements comprising GATT 1994.
Therefore, fortheUnited States neither Article 30oftheVienna Convention northeprinciple expressed
therein establishes anyhierarchy between thevarious tariff protocols within "GATT 1994". Inany
event, theUnited States points outthatthegeneral principle reflected inArticle 30oftheVienna
Convention cannot bereadtooverride thespecific ruleestablished bytheGATT 1994 incorporation
clause. IntheUSview, evenifArticle 30didapply, theconcessions annexed totheMarrakesh Protocol
arefullycompatible withtheconcessions intheother tariff protocols inGATT 1994, because there
isno"conflict" between tariff concessions unless asubsequent concession islessfavourable thana
prior concession.
6.82 According totheUnited States, Japan argues thattheGATT 1994 incorporation clause does
notconstitute anexpress agreement between Members toensure thecontinuing existence oftariff
concessions relating toGATT 1947. TheUnited States responds thatparagraph 1(b)(i) ofthatclause
cannot bereadsoastoundermine paragraph 1(d)which refers totheMarrakesh Protocol of
GATT 1994. TheUnited States emphasizes thatnosubsequent instrument suggested thattheMembers
hadagreed tothewithdrawal ofJapan'sKennedy Round andTokyo Round tariff concessions. Inthe
USview, theGATT 1994 incorporation clause provides tothecontrary. IntheUSview, Japan has
presented noreasons whythisPanel'srecognition thatJapan'sKennedy Round andTokyo Round tariff
concessions onfilmandpaper continue toexistwould undermine theMarrakesh Protocol. Forthe
UnitedStates,toreachanyotherconclusiondefiestheordinarymeaningoftheGATT1994incorporation
clause andArticle XXIII:1 ofGATT 1994.
5. CERTIFICATION OFMODIFICATIONS AND RECTIFICATIONS
6.83 Japan submits thattheCertification ofModifications andRectifications toSchedule XXXVIII -
Japan toGATT 1994, dated 8February 1996, states that"[t]his Schedule replaces allpriorSchedules
XXXVIII totheGeneral Agreement onTariffs andTrade 1994...onthedatethatthisSchedule becomes
effective". ThisCertification, containing Japan'sSchedule annexed totheMarrakesh Protocol, as
modified inaccordance withthe1996 Harmonized Commodity Description andCoding System
("Harmonized System"), isapartoftheWTO Agreement. Theprovisions oftheCertification, including
thereference tothereplacement ofprior schedules, arelegally effective. Japan further notes thatno
objection wasraised byanyMember tothisspecific provision during theprocedures ofthemodifications
andrectificationstoScheduleXXXVIII-Japan,whichhasbeencompletedinaccordancewithaDecision
onProcedures toImplement Changes intheHarmonized System.588Accordingly, Japan claims that
itsschedule currently legally effective under GATT 1994 has"replaced" theprior tariff concessions
under GATT 1947.
6.84 According totheUnited States ,Japan argues thatthe1996 "Certification ofModifications
andRectifications toSchedule XXVIII -Japan totheGATT 1994" constitutes asubsequent agreement
between theparties totheeffect thatJapan waswithdrawing allofitspriortariffconcessions. However,
intheUSview, thisCertification mayreplace Japan'sprior schedules -butitdoesnotwithdraw its
priorconcessions asattested tobyJapan'srepresentation thatthecertification wasmade "inconformity
withthe8October 1991CONTRACTING PARTIES Decision onProcedures toImplement Changes inthe
Harmonized System (8February 1991)". Thisdecision makes clear thattheparties didnotintend
forschedules submitted toimplement changes intheHarmonized System tohaveanysubstantive effect
onprior tariff concessions. IntheUSview, thesubmission ofaSchedule pursuant tothisDecision
588L/6905, Decision of8October 1991, BISD 39S/300.WT/DS44/R
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doesnotsubstitute foraproper invocation ofArticle XXVIII. TheUnited States further maintains
thatJapan didnotinvoke Article XXVIII tomodify orwithdraw tariff concessions onconsumer
photographic filmandpaper.
6. CONCLUSIONS
6.85 TheUnited States submits thatJapan hasmade various setsoftariff concessions invarious
Schedules attached toprotocols aftertrade negotiating rounds. Thefactthattheconcessions given
inaprior multilateral round havebeensucceeded byconcessions inasubsequent multilateral round
doesnotextinguish either thepriorconcessions, ortheexpectations arising fromthosepriorconcessions.
IntheUSview, thelaterconcessions havenothadthelegaleffect ofmodifying orwithdrawing the
earlier concessions because Japan never hasinvoked Article XXVIII toexplicitly givenotice ofits
intent tomodify orwithdraw itspriortariffconcessions onphotographic filmandpaper. Thus, Japan
-aswellastheUnited States -continue tobelegally bound bytheirGATT 1947concessions andthe
reasonableexpectationsattendantuponthosereceivingtheconcessions,aswellasbythelegalobligations
incidental tothose concessions, including compensation obligations connected withinitial negotiating
rights. Similarly, theUnited States argues, Japan's1996 schedule proposed asarectification to
incorporate changes intheHarmonized System doesnotaffect thescope ofanyofJapan'sprior tariff
concessions. Therefore, intheUSview, allofJapan'sKennedy Round, Tokyo Round andUruguay
Round concessions onconsumer photographic filmandpaper remain ineffect andcontinue toexist
inparallel. Accordingly, theUnited States claims tohaveretained itsexpectations ofimproved market
access arising from eachconcession andthusretains therighttoredress under Article XXIII:1(b) to
protect those reasonable expectations.
6.86 Japan maintains thatonlythebenefit accruing from theUruguay Round tariff concessions
arerelevant inthiscase, because anewbalance oftariff concessions onphotographic filmandpaper
hasbeenactually negotiated andagreed uponunder thetypeoftariffnegotiations stipulated byArticle
XXVIII bis,andtheresult ofthelatest tariff negotiation should bedeemed tohave created anew
expectation concerning thebalance oftariffconcessions, andtohavereplaced anyreasonable expectation
thatarose under aprior tariff negotiation. InJapan’sview, thecriterion ofjudgement should bea
substantive one,i.e.,whether ornotanewbalance oftariff concessions hasbeencreated asaresult
oftariff negotiations, inwhich various circumstances atthetimeofthetariff concessions weretaken
intoaccount. Japan requests thePanel toexamine theUSnon-violation complaints before itonthat
basis.WT/DS44/R
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C. GOVERNMENTAL MEASURES
1. THE LEGAL TEST
6.87 According totheUnited States ,bytheterms ofArticle XXIII:1(b), "theapplication ...of
anymeasure, whether ornotitconflicts withtheprovisions of[theGeneral Agreement]", maygive
risetoanArticle XXIII:1(b) claim. Theordinary meaning oftheterm"anymeasure" asitappears
intheArticle suggests thatitincludes allmanner ofgovernment policies andactions. Thisreading
ofthetermisreinforced bytheobject andpurpose ofArticle XXIII:1(b), which, GATT Panels have
found, istoprovide arightofredress insituations outside thescope ofother GATT articles.
6.88 TheUnitedStatesarguesthatallofthemeasuresthatithasspecificallychallengedare"measures"
within themeaning ofArticle XXIII:1(b). TheUnited States notes thatthephrase "anymeasure" has
never before beenthesubject ofcontroversy inanArticle XXIII:1(b) dispute. NorhasanyGATT
panel attempted todefine theterm"anymeasure". TheUnited States further notes thatJapan goes
togreatlengths tocraftadefinition thatwould notonlyexonerate Japan inthisdispute, butalsowould
place Japanese administrative guidance beyond thereach oftheWTO.
6.89 Japan submits thatinthecontext ofanon-violation claim, thecomplaining partymustestablish
theexistence ofanapplication ofameasure byanother WTO Member. ForJapan, thistextual
requirement means thefollowing three criteria:
(1) First, since themeasure must beagovernment measure, private conduct isoutside
thescope ofArticle XXIII:1(b). When agovernment doesnothing more thanmake
formally andsubstantively non-binding recommendations, thedecision whether to
comply isaprivate andvoluntary one.
(2) Second, notevery government policy oraction constitutes ameasure fornon-violation
purposes.Ameasuremusteitherprovideabenefitorimposelegallybindingobligations
ortheirsubstantive equivalent. Withrespect tothelatter, anypolicy oraction allegedly
regulating private conduct mustimpose legally binding obligations ortheirsubstantive
equivalent.
(3) Third, there must beacurrent andactual application ofthemeasure totheproducts
inquestion. Inparticular, there canbenoapplication ofameasure thatisnolonger
ineffect.
6.90 Japan suggests thattheUnited States seems toagree withthefirstandthethirdrequirements,589
butthattheparties differ, however, withrespect tothesecond criterion.
6.91 TheUnited States responds asfollows:
(1) TheUnited States isnotchallenging purely private conduct inthisproceeding. Its
claim isbased onactions taken by,atthedirection of,orinconcert with, the
Government ofJapan inorder toachieve government objectives.
(2) There isnorequirement under Article XXIII:1(b) thatameasure impose legally binding
obligations orprovide abenefit. Thecases citedbyJapan, i.e.,Japan -Restrictions
589Japan points outthatwithregard tothefirstrequirement, theUnited States admits that"[t]he term‘anymeasure ’in
Article XXIII:1(b) doesrefer togovernment policies andactions". With regard tothethirdrequirement, Japan asserts that
theUnited States onlyargues thatthemeasures atissue inthiscasearestillineffect.WT/DS44/R
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onImports ofCertain Agricultural Products ("Japan -Agricultural Products")590and
Japan -Trade inSemiconductors ("Japan -Semiconductors") ,591arenotapplicable
herewithrespect towhat constitutes ameasure under Article XXIII:1(b), although
theyareapplicabletotheextenttheystandforthegeneralpropositionthatadministrative
guidance canbeameasure.
(3) Allofthemeasures challenged bytheUnited States inthisproceeding areeither still
ineffect today, orhavebeensuperseded byother measures thatcarry forward their
objectives andpolicies. Virtually allofthemeasures challenged bytheUnited Sates
inthisproceeding remain ineffect today. Thefewthathavebeenrevoked, suchas
JFTC Notification 17of1967, wereredundant inthattheirobjectives arestillachieved
though measures remaining ineffect.
(a) Administrative guidance
6.92 TheUnited States submits thatwhen theJapanese Government gives guidance toindustry, it
isexpressing theGovernment 'spolicy andtaking action todevelop, disseminate, andenact thatpolicy.
Japan should bejustasaccountable fortheeffects arising fromthistypeofmeasure asfortheeffects
arising fromameasure which is"binding". TheUnited States points outthattwoGATT panels, i.e.,
thepanels inJapan -Agricultural Products andJapan -Semiconductors ,havefound thatadministrative
guidance has"played animportant roleinJapan" andisa"traditional toolofJapanese Government
policy based onconsensus andpeerpressure," noting further thatadministrative guidance hasoperated
within thecontext ofthe"special characteristics ofJapanese society."592These panels havefound that
theseadministrative guidances constituted "measures" inbothofthose cases. TheJapanese Government
isabletorelyonitstraditionally close relationship withindustry anditsextraordinary power and
influence overindustry toachieve itsgoals through measures thatarenotformally binding.
6.93 TheUnited States explains thatJapan defines theterm"administrative guidance" as"guidance,
recommendation, advice, orother actsbywhich anAdministrative Organ mayseek, within thescope
ofitsduties ordesignated functions, certain feasance ornon-feasance onthepartofspecified persons
inorder torealize administrative aims, where suchactsarenotdispositions".593Although inatechnical
sense "administrative guidance" doesnothaveaformal legalconsequence attached tonon-compliance,
"administrative guidance isaform ofgovernment regulation which imposes some kinds ofrules of
conduct onprivate individuals orenterprises".594What differentiates "administrative guidance" from
arequest made between twoprivate entities istheextraordinary power oftheentity making therequest,
i.e.,theGovernment ofJapan.595Thispower isenhanced manifold because inJapan "thegovernment
often represents theconsensus oftheindustry inwhich theruleofconduct should beenforced".596
Thus, whatmight beseenbyoutsiders asnothing more thanpolicy guidelines orrecommendations
areinfactaccepted within Japan astantamount togovernmental directives. Ministries likeMITI may
590Japan -Restrictions onImports ofCertain Agricultural Products ,adopted on22March 1988, BISD 35S/163.
591Japan -Trade inSemiconductors ,adopted 4May 1988, BISD 35S/116.
592Japan -Agricultural Products ,BISD 35S/163, para. 5.4.1.4, quoted inJapan -Semiconductors ,BISD 35S/116, para.
107.
593Article 2(6)oftheAdministrative Procedure Law, Public Law No.88(1993). MITI'slegal authority toissue
administrative guidance arises outofitsorganic enabling legislation, theMITI Establishment Law(Public Law275,1952),
USEx.52-2. "Government agencies, especially theMITI, haveemphasized thatadministrative guidance isallowed bythe
'establishment law'eventhough there isnospecific provision intheauthorization law". Matsushita Mitsuo, op.cit.,p.65.
594Ibid. p.60.
595Ibid. p.61.
596Ibid.WT/DS44/R
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pressureorinduceregulatedenterprisesintocompliancewith"guidances".597"[A]dministrativeguidance
canputirresistible pressure upon theaddressee".598
6.94 InJapan 'sview, theUnited States ignores critical distinctions among types ofadministrative
guidance anddistorts Professor Matsushita 'sanalysis. Japan emphasizes thatMITI issues different
types ofadministrative guidance: MITI'sguidance varies from"soft" guidance (i.e.,meresuggestions)
to"hard" guidance (i.e.,guidance issued inplace ofmore formal regulatory measures). Japan explains
thatProfessor Matsushita hasdivided administrative guidance intothreedistinct types, which provide
ausefulanalyticalframeworkforunderstandingthenatureofadministrativeguidance,andtheimportance
ofevaluating administrative guidance onacase-by-case basis. Regulatory administrative guidance
coversguidanceusedbygovernmentagenciestoregulatetheconductofbusinessenterprisesandpersons,
often asasubstitute foramore formal order. Administrative guidance usedinthiswayisasubstitute
forlegalcompulsion. Thisisthekindofguidance which theUnited States would assert astheuniversal
norm. Aside fromregulatory guidance, however, there isalsopromotional administrative guidance,
which covers advice andinformation given toenterprises toadvance andpromote theirowninterests.
Thiscategory describes the1970 Guidelines perfectly: MITI wasadvising filmmanufacturers and
distributors onways tomake theirbusinesses more efficient andcompetitive, notimposing some
obligation onthem infurtherance ofapublic policy objective. Finally, adjudicatory administrative
guidance, notrelevant here, covers guidance usedtohelpprivate enterprises tosolve disputes among
themselves.599
6.95 TheUnited States argues thatJapan’sargument thatadministrative guidance mustbe"binding"
wasrejected bythepanel inJapan -Semiconductors andJapan -Agricultural Products andshould
berejected here. AnytypeofJapanese administrative guidance --whether regulatory, promotional,
oradjudicatory --canbea"measure" within themeaning ofArticle XXIII:1(b). When theJapanese
Government isgiving "promotional guidance" toindustry, itisexpressing theJapanese Government 's
policy andtaking action todevelop, disseminate, andenactthatpolicy. TheJapanse Government should
bejustasaccountable fortheeffect arising from thistypeofmeasure asfortheeffects arising from
themeasure forwhich itimposes acriminal penalty. Ineither case, theJapanese Government has
takenactiontoinfluencethemarketconsistentwiththespecialcircumstancesinJapan.Thetwosituations
illustrate adifference indegree astohowfarthegovernment needs andiswilling togotoachieve
thedesired effects --notanysubstantive difference inwhether thegovernment hastaken purposeful
action. ThetwoGATT panel decisions noted offer strong support fortheUSposition.600
6.96 TheUnited States further argues thattheimportant question regarding administrative guidance
inJapan isitsoperation andeffect --notthelabels thatmaybeusedtodescribe it.Professor Hiroshi
Shiono, described byJapan initsfirstsubmission as"aleading scholar ofJapanese administrative law,"
stated: "[t]he threecategories mentioned above arenotnecessarily exclusive tooneanother ....Even
ifassistance-related administrative guidance isissued, itinvolves anaspect ofleading theparties
concerned toacertain direction laidoutbytheadministrative body, andthusitcannot bedenied that
597Ibid. pp.61-62, 67.
598Ibid. p.69.
599SeeMitsuo Matsushita, op.cit.,pp.61-64, Japan Ex.E-7;Mitsuo Matsushita andThomas Schoenbaum, Japanese
International Trade andInvestment Law31-41 (1989), Japan Ex.E-8. AJapanese administrative lawprofessor alsoadopts
these three categories. Hiroshi Shiono, Gyoseiho I(Administrative LawI),(2ded.1994) pp.166-167, Japan Ex.B-6.
Other commentators alsorecognize thethree categories. See,e.g., KenDuck, Comment: Now ThatTheFogHasLifted:
TheImpact ofJapan 'sAdministrative Procedure LawontheRegulation ofIndustry andMarket Governance, 19Fordham
Int'l.L.J.1686, 1709 (1996), Japan Ex.E-9.
600SeeJapan -Agricultural Products ,para. 5.4.1.4 (finding that"thepractice of‘administrative guidance ’played an
important role" inJapanese Government policy-making andisa"traditional toolofJapanese Government policy based on
consensusandpeerpressure"):Japan-Semiconductors,para.108(recognizingthatnon-mandatorymeasuresoftheGovernment
ofJapan canbemeasures within themeaning ofArticle XI).WT/DS44/R
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ithasaregulatory aspect aswell."601Further, theJapanese Government itself haspromulgated an
official definition ofadministrative guidance intheAdministrative Procedure Lawwhich doesnot
differentiate among different types ofadministrative guidance.602TheUnited States concludes that,
regardless ofhowonemight sub-categorize eachparticular administrative guidance inthiscase, itis
clearthattheguidance played acritical roleintheachievement oftheobjectives oftheGovernment
ofJapan.
(b) PastGATT panel reports
6.97 Japan argues thatGATT precedent confirms thatnotalladministrative guidance qualifies as
a"measure" forGATT purposes, andthattherelevant distinction iswhether theguidance inquestion
amounts, insubstance ifnotformally, totheimposition ofabinding obligation. Specifically, thepanel
onJapan -Semi-Conductors603considered whether formally non-mandatory administrative guidance,
namely, requests thatJapanese semiconductor producers eliminate dumping inthirdcountry markets,
could constitute "measures" forpurposes ofArticle XI.Japan points outthatthere isnoexplicit
distinction made between a"measure" forpurposes ofArticle XIanda"measure" forpurposes of
non-violation claims. Absent areason tothecontrary, inJapan'sview, atermusedinoneprovision
ofGATT maybeconstrued tohavethesame meaning when itisusedinanother provision. Japan
argues thatthereisnothing tosuggest thattheterm"measure" wasintended tohaveabroader meaning
inArticle XXIII:1(b) thaninArticle XI.ForJapan, thetextual interrelation between Article XXIII:1(b)
andArticle XXIII:1(c) alsosupports theconclusion thatthenon-violation remedy isnotavailable in
thecaseofformally andsubstantively non-binding recommendations. Specifically, Article XXIII:1(b)
applies to"measures", while Article XXIII:1(c) thenallows parties tocomplain about "any other
situation". InJapan'sview, "measures", asopposed totheall-encompassing "anyother situation",
hasalimited meaning, referring togovernment measures, nottoprivate decisions whether ornotto
follow non-binding recommendations.
6.98 TheUnited States responds thatthecriteria advanced byJapan would render administrative
guidance -atraditional toolofJapanese Government policy -beyond thereach ofGATT disciplines.
According totheUnited States, Japan'sargument isnotsupported bythetextofArticle XXIII:1(b)
and,ifaccepted, would defeat thepurpose ofthatprovision. TheUnited States explains thatthroughout
GATT, thedrafters usedavariety ofterms todescribe government policies oractions inthecontext
ofdistinct rulesaimed atparticular concerns.604Article XI:1refers to"prohibitions orrestrictions ...
601Article 2(6)oftheAdministrative Procedure Lawprovides Japan ’sofficial definition ofadministrative guidance.
602Hiroshi Shiono, Administrative LawI,p.167,Japan Ex.B-6. TheUnited States alsonotes thatJapan submitted only
onepartofstudent KenDuck ’slawreview article tocontend thatthedistinctions among types ofadministrative guidance
dramatically change thelegal effects oftheguidance, thearticle actually doesnotsupport thatpremise. Thearticle also
stated that:
"Thenon-transparentandanti-competitiveregulatorymethodsofJapan’seconomicbureaucracyimpedenewentrants
toJapanese markets. Japan ’sregulatory system emphasizes close, informal contacts between theregulators andthefirms
theyregulate. Gyosei shido, oradministrative guidance, theprocess bywhich ministries usedimplied threats offuture action
orinaction inseeking aparty’scompliance withanadministrative goal, istheprimary regulatory method inJapan. Japan ’s
informal style ofregulatory governance, including administrative guidance, evolved from informal means ofgovernance
inJapanese history. TheJapanese legalsystem andother institutional arrangements, liketheamakudari [descent fromheaven
retirement]systemandtheshingikaicouncils,whichemphasizeclose,informaltiesbetweengovernmentandbusiness,perpetuate
Japan ’sinformal regulatory system andenhance compliance withadministrative guidance."
KenDuck, Comment: NowThatTheFogHasLifted: TheImpact ofJapan ’sAdministrative Procedure LawontheRegulation
ofIndustry andMarket Governance, 19Fordham Int’lL.J.1686 (1996), Japan Ex.E-9.
603BISD 35S/116, adopted 4May 1988.
604Forexample, Article I:1refers to"customs duties andcharges ofanykind;" Article III:2 refers to"internal taxes
orother internal charges ofanykind"; Article III:4refers to"alllaws, regulations, andrequirements"; Article VIII:1 refers
to"[a]ll feesandcharges ofwhatever character ...imposed ...inconnection withimportation orexportation"; Article IX:2
refers to"laws andregulations relating tomarks oforigin"; Article X:1refers to"[l]aws, regulations, judicial decisions
andadministrative rulings ofgeneral application".WT/DS44/R
Page191
ontheimportation ...orontheexportation ...ofanyproduct". Incomparison, theUnited States
underscores thatArticle XXIII:1(b) refers to"anymeasure", reflecting thedrafters 'intent that
Article XXIII:1(b) should beasafety netpotentially providing redress foranygovernment policy or
action thatnullifies orimpairs benefits under theGeneral Agreement. Hadthedrafters intended
ArticleXXIII:1(b)tocoveronlythosegovernmentpoliciesandactionswhichdirectlyconferredabenefit
orimposed alegalobligation ,theycould havedonesobyselecting words toconvey those limitations
justastheyselected words tolimitthescope ofother Articles.
6.99 Japan contends thatalthough thepanel onJapan -Semi-Conductors recognized thespecial
importance ofadministrative guidance asatoolofJapanese government policy,605itnonetheless made
clearthat"notallnon-mandatory requests could beregarded asmeasures".606Thepanel emphasized
thattheissuewould havetobedecided onacase-by-case basis.607Thepanel identified two"essential
criteria" thatwould needtobemetfornon-mandatory requests toqualify as"measures" forArticle XI
purposes:
(1) "there were reasonable grounds tobelieve thatsufficient incentives ordisincentives
existed fornon-mandatory measures totakeeffect"; and
(2) thefulfilment ofthegovernment requests "wasessentially dependent onGovernment
action orintervention".608
InJapan -Semi-Conductors ,thepanel found thatthese twocriteria weremet. Thepanel found that
theofficial commitment bytheJapanese Government inaformal agreement toeliminate thirdcountry
dumping created reasonable incentives ordisincentives forJapanese producers toperform appropriately,
andthusfulfilled thefirstcriterion. Thepanel noted, however, thatthiscircumstance alone wasnot
sufficient toensure compliance, since subsequent totheconclusion oftheUnited States -Japan
Semiconductor Arrangement inSeptember 1986(inwhich thiscommitment wasmade) some producers
andexporters continued toengage indumping. Byrequiring thesubmission ofprice andcostdata
andinstituting regular supply anddemand forecasting, theJapanese Government secured effective
compliance.ThepanelthusdeterminedthattheJapaneseGovernmentcreatedanadministrativestructure
"which operated toexert maximum possible pressure ontheprivate sector" tocomply withnon-
mandatory administrative guidance. Accordingly, thepanel found thattheonlydifference between
thisguidance andformal legally binding obligations "amounted toadifference inform rather than
substance",609andthattheadministrative guidance therefore constituted "measures" forArticle XI
purposes.
6.100 TheUnited States contends thatGATT precedent doesnotconfirm thatadministrative guidance
mustbe"binding" toconstitute ameasure within themeaning ofArticle XXIII:1(b). IntheUSview,
theonlyprecedent thatJapan citesforthisproposition isJapan -Semi-Conductors which itattempts
toargue isrelevant herebecause there isnodistinction between theterms "any measure" in
Article XXIII:1(b) and"other measures" inArticle XI.IntheUSview, however, thepanel should
notapply thetwoparttestusedinthatcasetodetermine whether thedistribution countermeasures
atissue inthisdispute aremeasures within themeaning ofArticle XXIII:1(b).
605Japan -Trade inSemiconductors ,BISD 35S/116, p.154, para. 107.
606Ibid. p.154, para. 108.
607Ibid.
608Ibid. p.155, para. 109.
609Ibid. p.158, para. 117.WT/DS44/R
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6.101 First, according totheUnited States, Japan argued inthatdispute thatthenon-mandatory
"measures" complained ofwere notrestrictions within themeaning ofArticle XI:1.610Incontrast,
thequestion inthisdispute iswhether themeasure complained ofare"anymeasures" thatnullify or
impair benefits within themeaning ofArticle XXIII:1(b). Second, themeaning oftheterm"measures"
under Article XXIII:1(b) should notbeconfused withthequestion ofwhether ameasure ishaving
aneffect thatGATT intends toprevent. Thepanel inJapan -Semi-Conductors focused onwhether
themeasure hadtheeffect ofprohibiting orrestricting exportation ofsemiconductors. Thus, itlooked
atwhether theJapanese Government 'sactions prohibited manufacturers from exporting atdumped
prices orgavethemincentives nottodoso.IntheUSview, thisisadifferent inquiry fromthatneeded
todecide whether distribution countermeasures hadtheeffect ofupsetting thecompetitive relationship
between imported anddomestic products. Anon-mandatory measure maynotbeabletohavethesame
effect asa"restriction orprohibition" under Article XI:1ifitisnotlegally binding ordoesnotimpose
anequivalent obligation. Butanon-mandatory measure cancertainly havetheeffect ofadversely
affecting thecompetitive opportunities forimported products.
6.102 Japan responds thatsince boththeJapan -Semi-Conductors caseandthepresent casedeal
withnon-mandatory administrative guidance, thefinding oftheJapan -Semi-Conductors panel provides
auseful benchmark forthepresent caseindetermining whatconstitutes a"measure" forthepurpose
ofnon-violation complaints. Japan deems USefforts todistinguish Article XIfrom Article XXIII
unpersuasive because inbothprovisions, theterm"measure" isthenfollowed byaqualification that
relates the"measure" totheoperative purpose ofthatprovision andthereisnoexplicit distinction being
made between "measures" forpurposes ofArticle XIanda"measure" forArticle XXIII:1(b) purposes.
Japan further notes thatalthough theUnited States argues thattheSemiconductor panel doesnotsupport
Japan’sargument because itfound that"anymeasure ...wascovered, irrespective ofthelegalstatus
ofthemeasure," thepanel further stated that"notallnon-mandatory requests could beregarded as
measures within themeaning ofArticle XI:1" andapplied its"two essential criteria" tothe
"non-mandatory requests."
6.103 Japan further submits thatthequestion ofwhether Japanese administrative guidance constituted
a"measure" alsoarose inthepanel report onJapan -Agricultural Products .611Theissuearose under
Article XI:2(c)(i), which provides anexception toArticle XIforimport restrictions onagricultural
products thatarenecessary totheenforcement of"measures" which operate torestrict domestic
production. Thepanel found thatproduction restrictions pursuant toadministrative guidance did
constitute "measures" within themeaning oftheprovision. InJapan'sview, thiskindofregulatory
guidance, inwhich thesubjects areurged toactcontrary totheircommercial self-interest, isclearly
distinguishable from thepromotional guidance atissue inthiscase. Japan further notes thatnon-
compliance withtheguidance inJapan -Agricultural Products resulted inlossofeligibility for
government subsidies andloans.612
6.104 Inresponse toJapan'sargument thattheadministrative guidance atissue before thepanels
onJapan -Agricultural Products andJapan -Semi-Conductors urged industry toactcontrary toits
self-interest, theUnited States argues thatagovernment action orpolicy neednotbeadverse toindustry
interest tobeameasure. TheUnited States contends, ifthatwere thecase, none oftheprior
Article XXIII:1(b) cases involving subsidies would havebeensuccessful. IntheUSview, thereal
significance oftheissueraised byJapan isthatagovernment mayuselessformal, lessintrusive means
toachieve itspolicies ifindustry isreceptive tothose policies. Thefactthatthegovernment canmore
610Ibid., pp.153-154, para. 106. ThePanel noted "thatArticle XI:1, unlike other provisions oftheGeneral Agreement,
didnotrefer tolawsorregulations butmore broadly tomeasures. Thiswording indicated clearly thatanymeasure instituted
ormaintained byacontracting party which restricted theexportation orsaleforexport ofproducts wascovered bythis
provision, irrespective ofthelegal status ofthemeasure". Ibid.
611Adopted on22March 1988, BISD 35S/163.
612Ibid., pp.234-237, paras. 5.3.5.1, 5.3.8.1.WT/DS44/R
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easily achieve itsgoals because ofanindustry 'sreceptiveness doesnotabsolve agovernment of
responsibility forthechanges intheconditions ofcompetition resulting fromitsmeasures. IntheUS
view, Japan admitted thatMITI'sadministrative guidance ondistribution countermeasures wasinthe
interest ofmanufacturers whowould benefit from systematized distribution channels.
6.105 TheUnited States alsoargues thatwhen theJapanese Government gives guidance toindustry,
itisexpressing theGovernment ’spolicy andtaking action todevelop, disseminate, andenactthatpolicy.
Japan should bejustasaccountable fortheeffects arising fromthistypeofmeasure asfortheeffects
arising fromameasure which is"legally binding," asthattermisusedbytheGovernment ofJapan.
Acontraryfindingwouldmakeacceptableallcollaborationbetweengovernmentandindustry,effectively
immunizing Japanese administrative guidance, concerted adjustment, andindustrial policy fromattack
attheWTO. Such anoutcome would giveWTO sanction toacareful andcalculated plantooffset
andundermine tariffconcessions. Thiscould cause numerous countries thatmade difficult concessions
intheUruguay Round toquestion whytheyshould honour theircommitments. Itwould havebeen
anopen invitation fornation ’stopractice newforms ofimport-inhibiting industrial policy and
protectionist government intervention.
(c) Governmental attributability ofmeasures
6.106 Japan argues thatMITI advisory committee reports, plans, andmanuals andtheformation
ofcodesandcouncilsthatregulatepromotionsarenotmeasureswithinthemeaningofArticleXXIII:1(b),
because these measures areattributable totheprivate sector, nottheJapanese Government.
6.107 TheUnited States responds thatitisnotchallenging private business practices, butmeasures
oftheJapanese Government. Theterm"anymeasure" inArticle XXIII:1(b) isbroad enough toinclude
notonlyactions ofthegovernment, butmeasures designed, promulgated, orapplied byanumber of
Councils, Committees, Centres, trade associations, andother quasi-governmental entities thathave
includedprivatesectorparticipants,actingundertheauthorityoforinconcertwithJapaneseGovernment
ministries andagencies. Ineach oftheprincipal areas inwhich Japan applied liberalization
countermeasures, i.e.,distribution countermeasures, theLarge Stores Lawandrelated measures, and
thepromotions countermeasures, theJapanese Government made extensive useofquasi-governmental
agencies toimplement government policy. These entities arenotacting independently ofgovernmental
authority ordirection. Measures developed orapplied bytheseentities aremeasures within themeaning
ofArticle XXIII:1(b).
6.108 According totheUnited States, forJapan'srestructuring ofthephotomaterials distribution
system tosucceed, "aclose relationship between government andbusiness [was] necessary".613The
government andprivate sector cooperate wellbecause "there hashistorically beenaclose relationship
between thegovernment andbusiness community" and"[t]here isastrong desire among thebusiness
community toavoid confrontation withthegovernment evenifthebusiness community feelsthatthe
administrativeagencyhasactedwithoutlegalauthority".614Giventhestrongtiesbetweenthegovernment
andbusiness community, theJapanese Government hasbeenabletorelyupon informal methods as
wellasformal measures inimposing itspolicies.615TheUnited States argues thatMITI frequently
relies oninformal administrative guidance toachieve itspolicy objectives.616
6.109 TheUnited States argues thattheJapanese Government actively promoted aspartofitsindustrial
policy mechanism theclose government-private sector relationship based ontheapproach described
613Matsushita Mitsuo, International Trade andCompetition LawinJapan (Oxford: Oxford University Press, 1993) p.276,
USEx.93-1.
614Ibid. pp.67,276.
615Ibid. p.277.
616Ibid. p.60.WT/DS44/R
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inaMITI document entitled "TheFormation ofaNewIndustrial Order."617Thisdocument introduced
theconcept of"concerted adjustment" between thegovernment andprivate sector toformulate and
implement industrial policy andliberalization countermeasures. And, infacttheMITI History notes
theimportanceoftheNewIndustrialOrderinitiativeinimplementingtheliberalizationcountermeasures:
"Asthenewindustrial order isshaped, itmight beeffective thatthespecific target
issetbythecooperation between government andbusinesses, businesses make efforts
toachieve thetarget, andintheprocess ofbusinesses achieving itstarget, the
government takes preferential measures withrespect totaxation andfinancing. Of
course, inthisprocess, persuasion andassertions would repeatedly beheldbetween
government andbusinesses, andthiseffort should becontinued untilbothsides are
satisfied."618
6.110 Although theJapanese Dietdidnotpassthe"Special Measures LawForPromoting Designated
Industries" thatwasbased on"TheFormation oftheNewIndustrial Order," MITI didtakealternative
action toimplement theNewIndustrial Order initiative andtheconcept ofconcerted adjustment. In
June1964, MITI Minister Takeo Fukuda presented apolicy statement totheCabinet entitled "The
Future Policy aftertheFailure oftheProposed Special Measures LawforPromoting Designated
Industries," which theCabinet accepted.619Thestatement outlined howMITI would implement this
government-private sector coordination system discussed intheFormation oftheNewIndustrial Order.
MITI’sofficial history, published in1990, confirms thatJapan didimplement theNewIndustrial Order
approach togovernment andprivate sector coordination:
"therealization wassinking inthatthetimehadarrived toundertake liberalization
countermeasures andwork oncreating anewindustrial order. Thus, thedecision was
made torealize theidealofpublic-private sector cooperation onanindustry-by-industry
basis through administrative guidance."620
6.111 TheUnited States further argues thatunder theconcerted adjustment process, theclose
involvement ofindustry attheearly stages ofthepolicy development process helps ensure thatthe
actual implementation canlaterbeachieved through informal measures suchasadministrative guidance
without theJapanese Government having torelyonmore formal lawsorregulations. Theparticipation
ofindustryassociations,advisorycouncilsandotherquasi-governmentalpolicyentities,inturn,enhances
the"peer pressure" generated intheindustrial policy process toensure compliance withtheadopted
measures.
6.112 TheUnited States argues thatgiven thatthedomestic industry isanactive participant andits
self-interest isfullyconsidered attheinitial stage ofdeveloping themeasures, themeasures often take
onthecharacteristic ofconfirming actions thatarealready being taken inthemarketplace bydomestic
firms. TheUnited States believes thatonlywhen itisimpossible toimplement measures through this
approach doesMITI apply formal measures. Tothisend,theUnited States contends thatanimportant
partofimplementing administrative guidance iscontinued follow-up bythegovernment toensure that
thedesired actions havebeentaken, toassist some segments oftheprivate sector inacting ontheir
owninterest, andtocontinue pressuring companies thatmaybeinclined tostrayfrom theguidance.
TheUnited States notes thatacommon method ofsuchfollow-up istocontinue tosurvey industry
andtopublicly identify andcriticize those companies thatarenotcomplying.
617MITI, Formation oftheNew Industrial Order, USEx.62-5.
618Ibid., p.9,USEx.62-5.
619MITI, History onIndustrial Policy, Vol.10,31March 1990, pp.82-83, USResponse toSupplemental Panel Questions,
USEx.7.
620Ibid.WT/DS44/R
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6.113 FortheUnited States, theuseofthe"concerted adjustment" method inthiscase, including
theapplication ofadministrative guidance, echoes thefindings ofthepanel inJapan -Agricultural
Products, which stated thatadministrative guidance has"played animportant role" inJapan andhas
been"atraditional toolofJapanese Government policy based onconsensus andpeerpressure."621
6.114 Japan asserts thattheUnited States attempts topaintapicture ofJapan asanunusual country
withunique practices unlike those anywhere elseintheworld. InJapan'sview, theUnited States has
focused particular attention ongovernment-business relationships andsuggests thatanygovernmental
interaction withbusiness issomehow strange. Japan responds thattheUnited States triestodistort
andexaggerate thegovernment-business relationship inJapan. Inreality, allgovernments, including
theUSGovernment interact withbusiness.622Thegovernment-business interaction inJapan isnot
unusual, inparticular since theUnited States itself acknowledges playing sucharolewithitsprivate
sector.
(d) Measures "applied" andmeasures "ineffect"
6.115 Japan points outthatmany oftheUSallegations inthiscaseconcern "measures" thatareno
longer ineffect (i.e.,distribution modernization policies during the1960s and'70s)orpastapplication
ofcurrently existing measures (i.e.,theLarge Scale Retail Store LawandthePremiums Law). Japan
emphasizes thattheWTO dispute settlement process isdesigned toresolve differences overpresent
policies thataffect trade, nottoserve asanhistorical tribunal ortoattempt topunish orundoalleged
pasttransgressions.
6.116 Japan argues thatthelanguage ofArticle XXIII:1(b) makes clearthatthenon-violation remedy
isdesigned toapply when abenefit isbeing nullified orimpaired bytheapplication ofanymeasure,
whether ornotit"conflicts" withtheprovisions ofGATT. Given thatthetextcontemplates nullification
orimpairment inthepresent tense, caused bytheapplication ofameasure inthepresent tense, the
ordinary meaning ofthisprovision, withitsuseofpresent tense verbs, inJapan'sview, limits thenon-
violation remedy tomeasures thatarecurrently being applied. According toJapan, thisconclusion
isreinforced byArticle 26.1oftheDSU which provides thatevenwhen ameasure isfound tonullify
orimpairbenefitsunderArticleXXIII:1(b),"thereisnoobligationtowithdrawthemeasure".InJapan's
view, thislanguage clearly contemplates theongoing existence ofthemeasure indispute.
6.117 According toJapan, since theGATT 1994 "islegally distinct from" theGATT 1947, as
Article II:4oftheWTO Agreement provides, GATT 1994should notbeapplied retroactively tomany
ofthealleged "measures" which werenolonger ineffect before itsentry intoforce on1January 1995.
Thisposition isinlinewithArticle 28oftheVienna Convention ontheLawofTreaties regarding
thegeneral principle ofnon-retroactivity oftreaties.623
621Japan -Agricultural Products ,adopted on22March 1988, BISD 35S/163, para. 5.4.1.4.
622Inapresentation attheOECD in1968, theUnited States explained:
"The Department ofCommerce isatthecentre oftheGovernment 'srelations withbusiness. Over theyears theDepartment
hasbeen accused ofspeaking forbusiness within theGovernment. Thisisclearly notthecaseatthepresent time: the
Department talks withandtobusiness, rather thanforbusiness, andthedifference isfarfrom being merely verbal. Itis
nowconsidered theDepartment 'stasktoidentify those things which needtobedone inthepublic interest andtowhich the
business community hasnotgiven sufficient attention orwithwhich business cannot dealbecause itisnotproperly organized
forthatpurpose. TheDepartment brings together people from industry todiscuss suchmatters -some ofwhich, itmight
beadded, businessmen arereluctant toexplore within their ownprivate groupings because oftheanti-trust laws".
SeeUSIndustrial Policies: Observations Presented bytheUSDelegation before theIndustry Committee atits6thSession
(OECD, 1968), p.38,para. 113(emphasis original). Japan Ex.F-3.
623Article 28oftheVienna Convention provides "Unless adifferent intention appears from thetreaty orisotherwise
established, itsprovisions donotbindaparty inrelation toanyactorfactwhich tookplace oranysituation which ceased
toexist before thedateoftheentry intoforce ofthetreaty withrespect tothatparty".WT/DS44/R
Page196
6.118 Japan further submits thatGATT precedent supports therejection oftheUSnon-violation claims
regarding pastJapanese measures. InUnited States -Gasoline ,thepanel stated clearly thatitwould
notruleonmeasures thatwere notineffect andwere unlikely toberenewed.624
6.119 TheUnited States doesnotdisagree withJapan'sbasic argument thatthemeasures mustbe
ineffect tonullify orimpair tariff concessions within themeaning ofArticle XXIII:1(b), although it
doesdisagree withsome ofJapan'slegalreasoning andJapan’sfactual conclusion thatthemeasures
atissue inthisdispute arenolonger ineffect. Infact,theUnited States hasdemonstrated thatallof
themeasures being challenged areineffect andarebeing reinforced bytheJapanese Government.
TheUnited States hasdemonstrated thatJapan hasengaged inacontinuing course ofconduct over
morethan25years andthatJapan’smorerecent actions should properly beviewed asancillary measures
reinforcing thedistribution countermeasures, aswellasevidence thatthose original measures andthe
policiesunderlyingthemcontinuetobeimplementedbytheJapaneseGovernment.Recognizedprinciples
ofstateresponsibility lendadditional support totheconclusion thatJapan should properly beheld
accountable foritsactions asaresult ofitscontinuing course ofconduct.625
6.120 TheUnited States alsopoints outthatsome panels haveevenruled thatmeasures, prior to
theirrevocation, werecontrary toGATT rules, eventhough theywerenolonger ineffect atthetime
ofthepanel'sdeliberations.626Thisisnotthecasewiththemeasures atissue inthisdispute.
6.121 TheUnited States explains thatJapan'sreliance ontheUnited States -Gasoline decision in
support ofitsarguments ismisplaced. Thatdispute involved ameasure thathadnever beenapplied
andthathadaffirmatively andofficially expired before thepanel wasestablished. Thecomplaining
parties argued thatthenon-application ofthemeasure should notprevent thepanel fromruling onit
because "themereexistence of[themeasure] might haveinhibiting effects oncommercial andinvestment
decisions"and"thepossibilityofitsfutureapplicationwassufficienttoestablishanArticleIviolation".627
IntheviewoftheUnited States, thecritical factsintheUnited States -Gasoline dispute aresignificantly
different from thecritical factsinthisdispute. First, thedistribution countermeasures wereandare
being applied, whereas the"75percent rule" atissue inGasoline lapsed without everbeing applied.
Second, thedistribution countermeasures donothaveaspecified expiration date,whereas thelifetime
ofthe75percent rulewasclearly stated intheregulations. Andthird, thedistribution countermeasures
continue tohaveaneffect, evenafterthepanel'sterms ofreference were established, whereas the
Gasoline panel found the75percent rulenottohaveaneffect subsequent toitsexpiration.
624"The Panel observed thatithadnotbeen theusual practice ofapanel established under theGeneral Agreement to
ruleonmeasures that,atthetimethepanel'sterms ofreference were fixed, were notandwould notbecome effective".
WT/DS2/R, pp.37-38, para. 6.19. United States -Standards forReformulated andConventional Gasoline ,WT/DS2/R,
adopted on20May 1996, pp.37-38, para. 6.19.
625See,e.g., Draft Articles onState Responsibility, Article 25:2, which provides:
"2.Thebreach ofaninternational obligation, byanactoftheState composed ofaseries ofactions oromissions
inrespect ofseparate cases, occurs atthemoment when thataction oromission oftheseries isaccomplished which establishes
theexistence ofthecomposite act.Nevertheless, thetimeofcommission ofthebreach extends overtheentire period from
thefirstoftheactions oromissions constituting thecomposite actnotinconformity withtheinternational obligation and
solongassuch actions oromissions arerepeated."
Yearbook oftheInternational LawCommission, 1980, Vol.II,Part. II,p.32-33 (United Nations 1981). SeealsoYearbook
oftheInternational LawCommission, 1978, Vol.II,Part. II,p.89-97 (United Nations 1979) (forcommentary onArticle
25).
626See,e.g., Panel Report onUnited States -Measures Affecting Imports ofWoven Wool Shirts andBlouses ("United
States -Wool Shirts") ,adopted on23May1997, WT/DS33/R, p.77,para. 8.1;Panel Report onEEC-Measures onAnimal
Feed Proteins ,adopted on14March 1978, BISD 25S/49; Panel Report onUnited States -Prohibition onImports ofTuna
andTuna Products from Canada, adopted on22February 1982, BISD 29S/91, 106, para. 4.3.
627United States -Gasoline ,WT/DS2/R, p.7,para. 3.10. TheUnited States addsthatthepanel didnotexamine the
measure under Article I:1foravariety ofreasons, including that"thePanel 'sterms ofreference were established afterthe
[measure] hadceased tohave anyeffect". Ibid., pp.37-38, para. 6.19.WT/DS44/R
Page197
6.122 TheUnited States further argues thatprior panels considering thequestion ofmeasures no
longer inforce werepresented withmeasures thatwereunquestionably nolonger inforce which, in
theUSview, isnotthecaseinthisdispute. TheUnited States maintains thatvirtually allofthemeasures
applied byJapan remain inforce today andJapan hasnotmade anyshowing tothecontrary.
6.123 TheUnited States further explains thatJapan'sdistribution countermeasures thatblock foreign
filmfrom theprincipal wholesale distribution channels, theLarge Stores Lawthatbuttresses these
measures andlimits alternative routes tomarket through largestores andthepromotion countermeasures
thatrestrict innovative andeffective promotion toJapanese consumers continue tohavetheeffect of
severely curtailing competitive opportunities forimported products today.
6.124 According totheUnited States, through thedistribution countermeasures, Japan established
anexclusionary wholesale distribution system thatcould operate inperpetuity withlittleadditional
governmentinterventiongiventheoligopolisticstructureoftheJapanesefilmsectorandtheGovernment's
ongoing enforcement oftheLarge Stores Law andthePremiums Law andrelated promotion
countermeasures.
6.125 TheUnited States further contends that,notwithstanding theself-perpetuating nature ofthe
exclusionary system established bythedistribution countermeasures, Japan iscontinuing toreinforce
andsupplement these measures. First, itiscontinuing toenforce theLarge Stores Lawandpromotion
countermeasures. Second, theJapanese government iscontinuing tosupport thestructure ofthesystem
through business assistance programs. Third, Japan'spassage oftheBusiness Reform Lawandits
initial designation ofthephotographic materials sector forassistance under thisbroad measure
demonstrates Japan'songoing effort tobuttress thestructure ofthesystem whenever theneedarises.
IntheUSview,theseactionsbytheJapanesegovernmentdemonstrateongoing,activeeffortstoreinforce
thesystem established bytheinitial distribution countermeasures sothatitremains abulwark against
penetration byimports.
6.126 TheUnited States emphasizes thatthisPanel'sdetermination astowhether thedistribution
countermeasures areineffect willsendanimportant signal toMembers considering using informal
andephemeral means toaccomplish protectionist purposes. Members should beheldaccountable for
measures which maysuperficially appear tobeshort-lived butinreality achieve lasting distortions
inthecompetitive relationship between domestic andimported products. Toexcuse Members inthese
circumstances would create animportant exemption totheWTO rules anddisciplines.
6.127 Japan alsoargues thatinrelation totherequirement inArticle XXIII:1(b) thatnullification
orimpairment ofabenefit needs tobetheresult ofthe"application" ofameasure, thecomplaining
party mustshow howthe"application" ofameasure tospecific products nullifies orimpairs benefits
withrespect tothose products. Since thebenefit consists oflegitimate expectations concerning the
competitive opportunities forimported products ,itfollows thatforameasure tonullify orimpair that
benefit, itmust"apply" totheproducts inquestion. InJapan’sview, given thebasisofthenon-violation
remedy intariffconcessions ongoods, itisnotenough toname alawandassert some economic impact
onspecific products.WT/DS44/R
Page198
(e) Measures andmarket structure
6.128 TheUnited States submits thattheongoing application ofdistribution countermeasures, the
Large Retail Stores Lawandthepromotion countermeasures hascontinued tooperate tonullify or
impair USbenefits, dueto:(1)foreclosure from theprimary wholesale channels ofdistribution as
aresult ofthedistribution countermeasures; (2)sharp diminution ofalternative channels (i.e., large
stores, secondary wholesalers); and(3)inability toprice andpromote products effectively and
competitively asaresult ofrestrictions under thePremiums LawandAntimonopoly Law. Intheview
oftheUnited States, these measures nullify orimpair benefits accruing totheUnited States notonly
from theUruguay Round, buttheTokyo andKennedy Rounds aswell.
6.129 Japan responds thattheUnited States isinfactcomplaining about themarket structures, in
particular, thedecisions bytheprimary wholesalers ofthedomestic filmmanufacturers nottocarry
other brands offilm,andaffiliations between domestic manufacturers andphotofinishing laboratories,
thathavebeeninplace sincethemid-1970s. According toJapan, theUnited States makes noallegation
ofanyadditional measures since thattimewhich allegedly encourage single-brand distribution.628To
Japan itappears thattheUnited States considers thecontinued existence ofamarket structure -i.e.,
single-branddistribution-allegedlyencouragedbypoliciesinthepasttoconstitute"ongoingapplication"
ofmeasures. Japan argues thatamarket structure should notbedeemed ameasure. Since a"measure"
must beapplied byaWTO Member, theterm"measure" must referexclusively tothepolicies and
actions ofagovernment.629InJapan'sview, thedecisions ofcertain primary wholesalers topurchase
filmonlyfrom particular suppliers areassuchamatter ofpurely private conduct. Japan concedes
thattheUnited States maybelieve thatthese private company decisions constitute restrictive business
practices. However, forJapan itisbeyond contention thatallegedly restrictive business practices are
notcovered bythecurrent dispute settlement system under GATT.
6.130 JapancontendsthattheUnitedStateshasnotidentifiedanygovernment-imposedorlegalobstacle
thatprevents wholesalers frombuying other brands offilmorthatprevents photofinishing laboratories
from switching toother brands ofpaper. Japan argues thattheUnited States hasnoteventriedto
point outanyongoing active involvement bytheJapanese Government incontinuing toencourage or
maintain themarket structures itcomplains about. Accordingly, inJapan'sview, theUSclaims about
"ongoing application" of"distribution countermeasures" boildown toallegations about private business
practices which arewholly outside thescope ofArticle XXIII:1(b).
6.131 TheUnited States responds thatitisnotclaiming inthisdispute thatmarket structure isa
measure,onlythatJapan'sbottle-neckeddistributionsystemprovidescompellingevidenceoftheJapanese
Government 'ssystematic efforts toimpede market access forimported filmandpaper. Although a
market structure isnotameasure persewithin themeaning ofArticle XXIII:1(b), thesteps taken by
theJapanese Government tocreate andmaintain anexclusionary market structure intheJapanese
photographic materials sector constitute measures. Therefore, theUnited States argues thatthe
characteristicsofthemarketstructureintheJapaneseconsumerfilmandpapermarketareclearlyrelevant
inthisdispute. Whereas thecontinued existence oftheexclusionary market structure, intheUSview,
reflects theongoing application ofmeasures, theUnited States emphasizes thatitisnotclaiming in
thisdispute thatpurely private conduct isameasure. Rather, theUnited States isclaiming thatmeasures
628Japan emphasizes thatthealleged "distribution countermeasures" during the1960s and'70sarenolonger ineffect.
According toJapan, theUnited States itself mentions inpassing the1990 Guidelines. InJapan 'sview, given thefactthat
theUnited States itselfhasurged Japanese industry tofollow those guidelines, itisnotsurprising thattheUnited States mentions
these guidelines onlyinpassing anddoes notmake anyeffort toincorporate these guidelines intoitslegal theory.
629Article IIoftheMarrakesh Agreement Establishing theWorld Trade Organization describes theWTO asproviding
theframework forconducting trade relations "among itsMembers" (Article II:1), andexplains thattheagreement is"binding
onallMembers" (Article II:2). Thefocus ofWTO remedies should alsobeontheMembers -inother words, governments.WT/DS44/R
Page199
designed, promulgated orapplied byanumber ofcouncils, committees, centres, trade associations
andother quasi-governmental entities thathaveincluded private sector participants, acting under the
authority oforinconcert withJapanese government ministries andagencies, constitute measures.
Ineachoftheprincipal areas inwhich Japan applied liberalization countermeasures, theUnited States
argues thattheJapanese Government made extensive useofquasi-governmental entities toimplement
governmentpolicy.IntheUSview,theseentitiesarenotactingindependentlyofgovernmentalauthority
ordirection.630Accordingly, intheUSview, measures developed orapplied bythese entities are
measures within themeaning ofArticle XXIII:1(b).
6.132 Japan contends thatArticle XXIII:1(b) focuses on"measures" because theWTO applies only
togovernmental actions, notprivate actions. Therequirement ofa"measure" thuscreates afundamental
dividing linebetween actions subject toWTO discipline andactions beyond thescope ofWTO
obligations. TheWTO properly reflects theabsence ofanyinternational consensus togobeyond
governmental actstoreach private sector conduct. Japan argues thatthealleged "measures" identified
bytheUnited States aremerely advisory bodies 'analysis orsuggestions andtheindustries 'self-
regulation, which isapurely private sector conduct.
2. DISTRIBUTION "COUNTERMEASURES"
6.133 TheUnited States specifies thefollowing distribution countermeasures assubject toitsclaim
under Article XXIII:1(b):
(1) 1967 Cabinet Decision;
(2) 1967 JFTC Notification 17;
(3) 1968Sixth Interim Report oftheIndustrial Structure Council Distribution Committee;
(4) 1969SeventhInterimReportoftheIndustrialStructureCouncilDistributionCommittee;
(5) 1969 Survey onTransaction Terms;
(6) 1970 Guidelines forRationalizing Terms ofTrade forPhotographic Film;
(7) 1971 JFTC Rule1(International Contract Notification);
(8) 1971 Basic PlanoftheDistribution Systemization Promotion Council;
(9) 1975 Manual oftheDistribution Systemization Development Center;
(10) 1976 JDBfunding forKonica 'swholesalers;
(11) 1977 SMEA funding forphotoprocessing laboratories.
These measures andthebackground leading totheiradoption aredescribed indetail inSection Bof
PartIIandinSection AofPartVabove.
6.134 TheUnited States contends thattheforegoing measures aregovernmental measures andthat
theyareeffectively stillinforce.
6.135 Japan responds thattheyarenotgovernmental measures forpurposes ofArticle XXIII:1(b)
andthattheyarenotcurrently ineffect.
630SeePanelReporton,ReviewPursuanttoArticleXVI:5,adoptedon24May1960,BISD9S/188,192,para.12(explaining
that"theGATT does notconcern itself withsuch action byprivate persons acting independently oftheir governments")
(emphasis added bytheUnited States).WT/DS44/R
Page200
(a) Attributability tothegovernment
6.136 Japan concedes thatfouroftheforegoing items, i.e.,
(2) JFTC Notification 17;
(7) International Contract Notification;
(10) JDBfunding;
(11) SMEA funding.
wereonce"measures". Japan notes, however, thatallfourofthese items wereraised bytheUnited
States forthefirsttimeinitsfirstsubmission tothePanel andthus,aresubject toprocedural objections
byJapan.
6.137 InJapan'sview, the1967Cabinet Decision (item 1)wasnota"measure" because itwasmerely
apolicy statement issued bytheCabinet andaddressed togovernment agencies anddidnotlegally
obligate anyone outside ofthegovernment todoanything. Only subsequent actions bytheagencies
could constitute measures, depending ontheparticular circumstances ofeachaction.
6.138 TheUnitedStatescounters thattheCabinet Decision contained bothbroad andspecific direction
oftheJapanese Government toimplement theliberalization countermeasures, andthattheDecision
specifically referenced problems related toliberalization ofthedistribution sector.631Further, theUnited
States hasalsodemonstrated thattheother documents andactions referenced byJapan alsoconstitute
"measures" within themeaning Article XXIII:1(b).632
6.139 According toJapan ,theremaining items listed bytheUnited States didnotimpose binding
obligations orthesubstantive equivalent. They offered recommendations, tobefollowed ornoton
avoluntary basis. Japan contends thattheUnited States triestoblurawiderange ofactions intoa
single catch-all category of"administrative guidance". ForJapan, however, itiscritical tokeepin
mindthatinfactthereisonlyoneitemofadministrative guidance intheUSlist,i.e.,the1970 Guidelines
(item 6).InJapan'sview, theother items identified bytheUSdonoteven risetothelevel of
administrative guidance.
6.140 Morespecifically,Japanarguesthatthefiveremainingalleged"measures"relatingtodistribution
policies arereports orsurveys:
(3) 1968Sixth Interim Report oftheIndustrial Structure Council Distribution Committee;
(4) 1969SeventhInterimReportoftheIndustrialStructureCouncilDistributionCommittee;
(5) 1969 Survey onTransaction Terms;
(8) 1971 Basic PlanoftheDistribution Systemization Promotion Council;
(9) 1975 Manual oftheDistribution Systemization Development Center.
6.141 Japan emphasizes thatnoneofthesereports byadvisory councils represents anofficial statement
orpolicy ofMITI ortheJapanese Government. Advisory councils merely fillanadvisory roleand
theirreports merely analyze issues andmake recommendations tothegovernment ofpossible policy
responses.Privateorganizations,suchastheInstituteforDistributionResearch(1969Survey),undertake
research andanalysis, andprovide information tothegovernment asappropriate. Therefore, Japan
concludes thatthese reports cannot beconsidered tobeadministrative guidance.
631Seepara. 2.9ofSection II.B.1.
632Seesub-sections VI.C.1.(a) and(c)on"Administrative guidance" and"Governmental attributability ofmeasures,"
inparticular paras. 6.94 and6.108.WT/DS44/R
Page201
6.142 Japan explains thatreports byadvisory councils, suchastheIndustrial Structure Council and
theDistribution Systemization Promotion Council, reflect notofficial government policy, butsteps
intheprocess offormulating policy. Theyanalyze issues andmake recommendations ofpossible policy
responses. Although thesereports shedlightonMITI'sdecision-making process inpursuing distribution
modernization, thereports themselves donotdecide anything because theauthorizing legislation of
theIndustrial Structure Council allows theCouncil onlytosubmit itsopinions totheMITI minister.
Thus, according toJapan, there isnodelegation ofdecision-making authority. Japan points outthat
under itslaw,administrative agencies arenotlegally bound tofollow theopinion oftheiradvisory
councils. Asnoted byaleading scholar ofJapanese administrative law:
"[G]enerally speaking, theraison d'êtreofcouncils istodemocratize administration,
tointroduce professional knowledge, toensure fairness ofadministrative acts,and/or
toadjust among interested parties ...Acouncil isdifferent from anindependent
administrative committee. Itdoesnotexpress theintent ofthegovernment tothepublic.
Although theadministrative agency mustrespect theCouncil 'sopinions asanatural
consequence, theagency isnotlegally bound bytheopinions".633
Japan explains thatinpractice, agencies sometimes adopt their councils 'suggestions and
recommendations, andsometimes donot.Therefore, Japan concludes thatitsreports arenotformal
statements oftheJapanese Government and,accordingly, theycannot constitute "measures" within
themeaning ofArticle XXIII:1(b).
6.143 AstoJapan'scontention thatthePanel should notconsider thevarious surveys, reports, and
actionsotherthantheGuidelinestobemeasuresoftheJapaneseGovernment,theUnitedStatesresponds
thateachofthequasi-governmental organizations carrying outthestudies, reports, orother actions
hadclose links tothegovernment andinmany respects acted asanarmofthegovernment inthe
"concerted adjustment" process. Inmany cases, MITI made clearthatthereports andother documents
were tobeseenasofficial government policy, often byrepeatedly republishing thesurvey orstudy
under MITI'sname andwithclear indication thatthedocument represented MITI policy.
6.144 Forexample, withrespect totheIndustrial Structure Council, MITI’sofficial historians have
explained that:
"Thecouncil wasgenerally made upofrepresentatives ofrelevant industries andgroups
ofpeople ofexperience oracademic standing (such asscholars, journalists, andformer
bureaucrats), andtheresponsible MITI bureau ordivision would serve astheSecretariat
office. Tothiscouncil, thematerials fromMITI would bepresented, policies indicated,
pertinent opinions from relevant industries areheard, experts make theadjustments,
andthentheinformation iscompiled bytherelevant bureaus. Thiswasthenormal
process. Because oftheirlargesizeandinfluence, which wasaresult ofbeing related
totrade andindustry, theIndustrial Structure Survey Committee andIndustrial
RationalizationCouncilwereintegratedin1964,creatingtheIndustrialStructureCouncil
(ISC). When necessary, anumber ofcommittees weresetup.Thisstructure made
itpossible togainconsensus within industry, orbetween industry andthegovernment;
andfunctioned asaneffective organization forobtaining cooperation between thepublic
andprivate sectors."634
633Hiroshi Shiono, Gyoseiho I(Administrative LawI)(2ded.,1994) p.265, Japan Ex.B-6.
634MITI, MITI History: "Public-Private Sector Cooperation, Volume 1(May 31,1991), p.62,USEx.69andFirst
Panel Meeting, USResponse toSupplemental Panel Questions, Attachment 22.WT/DS44/R
Page202
6.145 TheUnited States further notes thatJapanese scholars confirm thepolicy roleplayed byquasi-
governmental entities inobtaining cooperation between thepublic andprivate sectors:
"These councils tendtobecriticized asbeing captive totheministry, andcertainly
thebureaucrats work toseethatdeliberations come outtoreflect theiropinions. In
practice, however, itisnotthecasethatonlythings desired bytheministry arereflected
inthegroups ’reports, foronissues thatdirectly affect theinterests offirms, industry
representatives dospeak outstrongly. Infact,onsuchissues, thecouncils takeon
thecoloration ofaforum inwhich parties canadjust proposals toreflect theirjoint
interests. Thus, proposals thatarepassed through these councils, thatis,thathave
beennegotiated toreflect vested interests, canbeafterwards implemented relatively
smoothly, atleastinterms oftheindustries represented ontherelevant councils. In
thissense, theShingikai [deliberative council] process isoneexplicitly democratic
development inpostwar Japanese Government. Onepointthatneeds tobeemphasized
regarding suchcouncils istheirroleintheexchange ofinformation andobtaining
consensus onpolicy matters.635
(i) 1970 Guidelines: background, publication andfollow-up
6.146 TheUnitedStatesarguesthatinordertodevelopandimplementitsindustrialpolicy,theJapanese
Government relies heavily ondifferent types ofquasi-governmental entities including deliberative
councils, advisory committees, study groups, research institutes, chambers ofcommerce, andtrade
associations. These organizations haveplayed acentral roleinJapan'suseofthegovernment-industry
cooperation method (kanmin kyocho seido) toimplement itsliberalization countermeasures. The
participation ofthese entities inthe"concerted adjustment" process increases the"peer pressure" on
these entities tocomply withtheindustrial policies adopted bythegovernment.
6.147 TheUnited States reports thatin1963, MITI directed thefourdomestic photographic film
andpaper manufacturers toestablish theNatural Colour Photography Promotion Council (NCPPC)
tocounter foreign competition. MITI officials, including theofficial responsible forthephotosensitive
materials sector, attended theCouncil 'smeetings, andMITI officials recommended specific policies
tohelptheCouncil achieve itsobjectives. According totheUnited States, throughout themid-1960 's,
MITI worked todevelop the"government-private sector cooperation system" intheconsumer
photographic filmandpaper sector, andlaidthegroundwork forworking with thedomestic
manufacturers torestructure thedistribution system toresist foreign competition aftertheliberalization
offormal trade andinvestment restrictions.
6.148 TheUnited States submits thatin1968, following theSixth Interim Report bytheDistribution
Committee, MITI commissioned theInstitute forDistribution Research, aMITI-affiliated organization,
tomakeasurveyoftransactiontermsinseveralsectorsincludingphotographicfilmwhichwascompleted
in1969. Itreported thatforeign manufacturers posed athreat totheoligopolistic distribution system
dominated byFujiandKonica, andemphasized thatrationalizing andstandardizing transaction terms
wasimportant toaddress thisconcern.
6.149 According totheUnited States, based onthe1969 survey, MITI Business Bureau prepared
transaction terms guidelines forthephotographic sector which werepublished inaphoto industry journal
inSeptember 1969. Thedraftguidelines advocated eachofthethree transaction terms important for
distribution keiretsu-nization, i.e.,shortening ofpayment terms, andgreater useofvolume discounts
andprogressive rebates. TheUnited States notes thatalthough Japan disputes promoting progressive
rebates, these published draftGuidelines stated, "[w]ith regard torebates, progressive rebates should
beaggressively promoted inorder tofacilitate large volume transactions".
635Ryutaro Komiya, Industrial Policy ofJapan (Academic Press Japan, Inc.1988) pp.15-18, USEx.59.WT/DS44/R
Page203
6.150 TheUnited States continues thatinMarch 1970, MITI published thefinalGuidelines for
Standardization ofTransaction Terms forPhotographic Film636thatcalled forthestandardization637
oftransaction terms inorder to"prevent disruption oftheestablished order oftradebyforeign capital".
ThefinalGuidelines noted thattheterms between manufacturers andwholesalers already were ina
desirable state, butasbetween primary wholesalers andsecondary wholesalers andretailers, thefinal
Guidelines repeated thecallforshortened payment terms andvolume discounts.
6.151 Japan concedes thatthe1970 Guidelines didconstitute aform ofadministrative guidance.
However, initsview, thatfactalone doesnotestablish thattheywere"measures" forpurposes ofnon-
violation complaints. Inthisregard, Japan recalls itsargument thattheUnited States relies onadistorted
characterization ofadministrative guidance intheJapanese system because theUnited States attempts
tolump alladministrative guidance intoonecatch-all category ofinformal butnonetheless binding
regulations. Japan contends thatnotalladministrative guidance isthesame. Withregard totheissue
ofwhether administrative guidance constitutes thesubstantive equivalent offormally binding regulation,
thepanel onJapan -Semi-Conductors found thateachsetofguidance mustbeevaluated onacase-by-
casebasis andnotbased onamechanical rule.638
6.152 InJapan'sview, anexamination ofthecontents ofthe1970 Guidelines makes clearthatthe
government action inthisinstance wasnothing more thanrecommendations. Japan emphasizes that
MITI merely issued promotional guidance with(1)nogovernment-provided benefit attached to
compliance,and(2)nogovernmentsanctionattachedtonon-compliance.Accordingly,theadministrative
guidance reflected inthe1970 Guidelines doesnotmeet thetwocriteria outlined inJapan -Semi-
Conductors.JapanexplainsthedifferencebetweentheadministrativeguidanceinJapan-Semiconductors
andthe1970 Guidelines asshown inthetablebelow:
636MITI, "Guidelines fortheStandardization ofTransaction Terms forthePhotofilm Industry", 1970, reprinted inZenren
Tsuho, July1970, USEx.70-4.
637Japan notes thattheUnited States consistently translates "tekisei(-ka)" as"standardization" rather thanthemore accurate
alternative "rationalization." InJapan 'sview, iftheJapanese original hadmeant "standardization", itwould haveusedthe
term "Ityoujun-ka".
638Japan -Semiconductors ,BISD 35S/116, 154, para108.WT/DS44/R
Page204
COMPARISON OFADMINISTRATIVE GUIDANCE
INJAPAN -SEMICONDUCTORS AND
THE 1970 GUIDELINES
Semiconductors Panel 1970 Guidelines
specific request tocompanies nottoexport
semiconductors atprices below thecostof
production tothirdcountry markets (paras.
99,115)639several general suggestions ofbasic principles
torationalize trade terms, nosingle specific
instruction forwhich theGovernment of
Japan could verify compliance
mandatory datacollection requirements
imposed oneachindividual semiconductor
producer (para. 99)onetimefactual survey before Guidelines;
nodatacollection system aftertheGuidelines
wasdeveloped tomeasure compliance
TheGovernment ofJapan created "statutory
requirement" toprovide data, andcreated
"heavy penalties" fornon-compliance,
including finesandprison terms (paras. 99,
113)nopenalties atallfornon-compliance; some
suggestions were followed, others were not
followed; nolegalbasis foranypenalties
systematic price andcostmonitoring for
"precise identification" ofindividual
companies notcomplying withdumping
requirements (paras. 99,113)nospecific follow upatcompany level; only
aonetimerequest thattheassociation report
generally onwhatwasbeing done; only1of
3associations replied
more stringent export licensing practices, in
order toimprove theeffectiveness ofthe
monitoring efforts (paras. 112,116)noeffort toexpand scope ofsome other law
toimprove compliance, orbring industry
within thescope ofother regulatory regimes
created anewsystem ofquarterly supply and
demand forecasts, withtheGovernment of
Japan playing the"decisive role" in
implementing thesystem (paras. 99,114)nonewsystem ofdeveloping datatohelp
guide theindustry, ortomonitor compliance
implementing formal international
arrangement, withformal government
commitment to"ensure" nothirdcountry
dumping (para. 110)noformal international agreement topursue
rationalization oftrade terms; noformal
commitments toanother country
theGovernment ofJapan itself hadtouted in
writing theeffectiveness ofmeasures in
meeting itsobligation "toensure" nothird
country dumping (paras. 112,116)nowritten claims given toother countries
about theeffectiveness ofthe1970 Guidelines
inrealizing objective.
639References toparagraph numbers aretothepanel report intheJapan -Semiconductors case. BISD 35S/116.WT/DS44/R
Page205
6.153 Japan explains thatthetextofthe1970Guidelines andtheirtransmittal lettertothefilmindustry
makeclearthatcompliancewiththeguidelines,althoughobviouslyrecommended,waspurelyvoluntary.
According toJapan, insome instances, specifically withrespect tocurtailing rebates, industry flatly
ignored theguidelines. Furthermore, Japan points outthatnogovernment benefit wascontingent upon
following therecommendations ofthe1970 Guidelines andthatMITI didnotprodcompliance with
itsrecommendations.640TheJapanese Government hadmade noformal agreement withanother foreign
country committing todistribution modernization. Japan emphasizes thatMITI didnotestablish any
ongoing institutional mechanism thatwas"essential" forachieving compliance. Thus, inJapan'sview,
MITI's1970 Guidelines werefundamentally different fromMITI'sefforts tocontrol semi-conductor
pricing. Inthesemi-conductor situation, MITI wasattempting topressure private parties toactcontrary
totheir perceived interests infurtherance ofapublic policy goal, i.e.,honouring Japan'sformal
commitment totheUnited States. However, withrespect tothe1970 Guidelines, therecipients of
theGuidelineswereaskedtosubmitaone-timeprogressreportontheirimplementationoftheGuidelines'
recommendations, butwhether tosubmit areport ornotandthecontent ofthereport waslefttotheir
discretion. Japan argues thatwhen itbecame apparent thatsome oftheGuidelines 'recommendations
were being ignored, MITI didnothing. ForJapan, thefactthattwodecades later, MITI wasstill
addressing thesametraditional business practices inits1990 Guidelines shows thedifference between
MITI'ssuggestions andactual legally binding obligations. Japan argues thatifthe1970 Guidelines
werelegally binding, theproblematic business practices would havebeeneliminated andthere would
havebeennoneedforthe1990 Guidelines. Japan concludes thattherewasnoindication ofanongoing
monitoring andenforcement system established andadministered byMITI.
6.154 InresponsetoJapan'sargumentthatthe1970Guidelinesweremerelysuggestionsthatitsindustry
could chose toadopt orreject asitsawfit,theUnited States submits thatthe1970 Guidelines were
preceded andfollowed byanearcontinuous series ofmeasures, including surveys andstudies carried
outatthebehest oftheJapanese Government byorganizations itcontrolled ordominated, reports and
monitoring byMITI ofimplementation ofitsGuidelines, andpromulgation ofstandard contracts and
specific industry guides tobring about industry acceptance andimplementation ofthemeasures.
6.155 TheUnited States questions Japan'scontention thatMITI didnothing tofollow-up itsissuance
ofthe1970 Guidelines. Itnotes thatwhen publishing theGuidelines inanindustry journal, MITI
explained thattheGuidelines were"abstract" and"thegreatest common denominator" andthatindustry
associations were asked toformulate andimplement more specific transaction terms based onthe
Guidelines andtoreport backtoMITI byNovember 1970. TheUnited States submits that,inresponse
toMITI'sdemand,thephotospecialtywholesalersassociationpromptlypublisheda"TransactionOutline"
toimplement theassociation 'sowntransaction terms based ontheMITI Guidelines andreported it
toMITI. With respect topayment terms, theOutline gavespecific content totheGuidelines 'callfor
shortened payment terms. Asforrebates, theOutline stated, "with regard toquantity-related [volume]
rebates, thesewillbeadopted toward massdistribution ofproducts under sound andfaircompetition".
TheUnited States argues that,although theOutline didnotmention standardization oftransaction terms,
nonetheless, theOutline initselfamounted toanexercise ofstandardization because itwasanoutline
byanindustry association ofbusiness practices thattheassociation intended topursue.
6.156 TheUnited States further submits thatin1971, MITI republished the1969 survey report on
transaction terms inthephoto filmsector originally written bytheInstitute forDistribution Research.641
Thenewpublication contained inaddition anextensive report setting forththeparticular transaction
terms inusebetween manufacturers andeachprimary wholesaler (identified generically) andbetween
eachprimary wholesaler andsecondary wholesalers. IntheUSview, thepublication ofthisspecific
information supported thestandardization oftransaction terms byallowing theprimary wholesalers
640Japan notes thatthecover letter, accompanying the1970 Guidelines, said, "[W]e expect thatthetransaction parties
understand theneed fortrade rationalization andmake voluntary efforts forsuch apurpose."
641MITIBusinessBureau,ActualConditionsofTransactionTermsintheWholesaleIndustry,21August1971,USEx.20.WT/DS44/R
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toknowwhattermstheircompetitorswereoffering.TheUnitedStatesunderscoresthattherepublication
ofthesurvey under MITI'sname emphasized thatthesurvey anditsrecommendations reflected MITI
policy.642
6.157 Japan notes thatinformation suchasexamples ofactual transaction terms isquite common
insuchfactual surveys. There isnoindication thesurvey evaluated anyspecific terms either favourably
orunfavourably, andthustheycould notbe"targets."
6.158 TheUnited States underlines that,aspartofMITI'seffort tosystematize distribution, in1971
MITI commissioned theChamber ofCommerce, along withtheMITI-established Transaction Terms
Standardization Committee anddomestic photographic materials tradeassociations, todrafta"Model
Contract" based uponthestandardized transaction terms outlined inthe1970MITI Guidelines forthe
photographic filmsector. When publishing thestandard transaction contract forphotographic film
inspring of1972, theChamber emphasized thatitsactions werepursuant toaMITI mandate.643For
theUnited States, thisemphasis onMITI policy wasimportant, because theChamber inJapan has
broad authority toactonbehalf ofMITI inmany government programs, including theadministration
ofsubsidies andother government benefits.
6.159 According totheUnited States, MITI continued topromote standardized transaction terms.
In1973, MITI published under itsname materials bythequasi-governmental Transaction Terms
Stabilization Committee.644Inrepublishing thismaterial fromtheCommittee, MITI noted thatittoo
"plan[ned] tomove forward withmeasures forstandardizing transactions". Accordingly, MITI
commissioned theChamber topublish, in1975, acompilation andcommentary, entitled
"Recommendation onStandardized Contracts forTransactions" (the"Chamber Guidance").645The
Chamber Guidance alsoaddressed payment terms anddiscounts, among other terms ofthestandard
contract. Regarding payment terms, theChamber Guidance elaborated ontheneedformonthly payment
incash, andfortheuseofnotes withfixed terms andinterest -again pushing forshort payment terms.
Italsocalled forcashdiscounts toreward theprompt payment ofaccounts. Regarding volume discounts
andrebates, theChamber Guidance stated thatthevolume discounts inthefilmsector operated "the
same asrebates". TheChamber stated thattheterms ofsuchdiscounts should bestipulated, butit
didnototherwise callfortheiralteration orelimination.646
642TheUnited States notes thattherepublished version ofthesurvey bluntly notes thatthephoto filmindustry "has
established adistribution system where oligopolistic manufacturers lead". Itthencontinues tociteastwothreats tothis
oligopolistic system: "Asfuture problems, wecancitefirstthe'growth ofretail routes (especially regular chains and
supermarkets) other thanthephoto retail route andchanges intransaction terms duetothisleadership, 'andsecondly the
'effects offullparticipation ofEastman Kodak '".According totheUnited States, thesurvey focused ontransaction terms
astheresponse tothese challenges. With respect torebates, thesurvey stated thatthere wastoomuch emphasis onrebates
thataccord significant discretion tothesellers, andnotenough emphasis onprogressive rebates withclear standards that
function asvolume discounts. However, theUnited States claims thatthere isamistranslation ofthepassage onrebates
inJapan Ex.B-1.TheUnited States supplied thecorrections inUSEx.20,pp.308-09.
643"The drafting ofastandard transaction contract forphotographic film, which wascommissioned totheJapan Chamber
ofCommerce andbased onMITI's'Transaction Standardization Guidelines forPhotographic Film, 'wascompleted and
published". Nihon Shashin Kogyo Tsushin, 1July1972, p.20,USEx.24.
644TheCommittee'sfindingsstatedthat"thestandardizationoftransactiontermsisessentialfor...systematizingdistribution
activities aswellascountermeasures against foreign capital".
645TheChamber Guidance reiterated thatthereasons forpromoting standardized transaction terms included, "toestablish
thestandards forproper transaction terms inorder toprevent disorder intransactions arising from capital liberalization".
Japan Chamber ofCommerce, Recommendations onStandardized Contracts forTransactions, Commission byMinistry of
International Trade andIndustry, July1975, p.3,USEx.32.TheChamber noted thatitprepared the14standard contracts
incooperation withthe"involved industries based onthe[MITI] Guidelines" andexpressed its"expectation thatsuchmeasures
willexpand evenmore sothattheideaunderlying theGuidelines willbecome diffused among thegeneral business community".
Ibid., p.4.
646TheUnitedStatessubmitsthatin1975,theChamberpublishedacommentaryonstandardizedcontracts,whichdiscussed
theconnection between discounts andrebates inthephotographic filmsector. Thestandard contract alsoprovided fordispute
settlement byarbitration before theJapan Commercial Arbitration Association. TheUnited States points outthattheChairmanWT/DS44/R
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6.160 TheUnited States argues that, while theChamber 'sstandard contract didnotmention
standardization oftransaction terms, theverypublication ofastandard contract byJapanese industry
amounts initself toanexercise instandardization. TheUnited States notes thatregarding payment
terms, theChamber 'sstandard contract called forpayment incashonamonthly basiswhich isashort
timeframe forsettling accounts. Regarding discounts, thestandard contract called fortheuseofvolume
discounts, andfordiscounts toreward theprompt payment ofaccounts. Moreover, tofollow upon
disseminationandimplementationofthestandardcontract,in1974and1975theChamber,incooperation
withtradeassociations,conducted"StandardizedContractDisseminationExplanationSessions"inseveral
cities.
6.161 IntheUSview, theimplementation andstandardization ofthetransaction terms advocated
bytheJapanese Government wasinthemanufacturers 'interest. However, unifying thetransaction
terms ofdifferent manufacturers canbedifficult, ascompetition forwholesalers canleadmanufacturers
tostrike different bargains. TheUnited States emphasizes thatGovernment monitoring ofspecific
transaction terms andgovernment support fortheir"standardization" canprovide adiscipline against
anywholesaler orretailer resistance totheseterms. Given thattheparticular transaction terms advocated
byMITI didnotnecessarily serve theinterest ofwholesalers,647intheUSview, theJapanese government
would havetoextend more effort at"concerted adjustment" withthewholesalers inorder toimplement
standardized transaction terms atthatlevelofthedistribution process. TheUnited States emphasizes
thattheimplementation ofMITI'stransaction terms policies would least benefit theretailers.648
Therefore, thestrongest resistance could beexpected fromretailers and,accordingly, thegreatest need
fortheJapaneseGovernmenttocreatestrongrewardsorpunishmentstoretailerstoearntheircompliance
inthesystem. Given thisbackground, according totheUnited States, Japan tookavariety ofsteps
toimplement andstandardize thetransaction terms inthephotographic filmandpaper sector.
6.162 TheUnited States emphasizes thattheextensive interaction between government andtheprivate
sector, e.g.,regarding transaction terms, demonstrates thattheJapanese Government went togreat
lengths toensure thatitspolicies were adopted. Therepeated advocacy andmonitoring builtpeer
pressure andserved asaconstant reminder thattheGovernment waswatching andpushing forthese
changes. Moreover, intheclassic "concerted adjustment" method, MITI didnotproclaim from on
high, butinvolved theinterested industry groups inthestudy, monitoring, andimplementation process
inorder tobuild consensus. TheUnited States claims thatMITI alsoapplied pressure totheprocess
where necessary, completed withspecific information onthetransaction terms applied byindividual
companies thatexposed theextent towhich theindustries werefalling short ofMITI'spolicies. The
United States stresses thatpublic exposure andembarrassment isoneofthetoolsMITI usestoenforce
itsadministrative guidance. Moreover, theexposure ofthiscompany-specific information facilitated
standardization byallowing eachcompany tohaveasense oftheterms offered byitscompetitors.
IntheUSview, MITI alsoapplied pressure through theChamber ofCommerce which disposes of
significant authority toinfluence thedispensing orwithholding ofgovernment benefits, andfrequently
actsasaninformation-gathering armforMITI. Forthese reasons, theUnited States maintains that
medium andsmall enterprises would havethought twice before ignoring theChamber 'sGuidance on
transactionterms.Finally,theUnitedStatespointsoutthatMITIusedwidespreadfearoverliberalization
ofinvestment inthephotographic sector, topressure industry intoadopting thetransaction terms policies
andexecutive director oftheArbitration Association arealsoexecutives oftheChamber, thatitsoffices arelocated within
theChamber, andthattheArbitration Association hasbeenaretirement entity forMITI officials. TheJapan Commercial
Arbitration Association, Dantai Meikan, p.427, USEx86.
647Themanufacturers 'shortening oftheirpayment terms would increase financial pressure onthewholesalers, andthe
useofrebates andvolume discounts could tiethem toaparticular manufacturer andlimittheir supplier options. Onthe
other hand, ifthewholesalers were abletoimpose thesame sortofsystem further downstream, theywould reapthesame
benefits withrespect totheretailers asthemanufacturers would gainfrom applying those terms tothewholesalers.
648Retailers would suffer theupward shiftofeconomic power andlossofautonomy without having another lower-down
level inthedistribution system toturnto.WT/DS44/R
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itadvocated.649Therefore, theUnited States concludes thatMITI veryeffectively ensured thatindustry
implemented itsguidelines.
6.163 Japan responds thatnosteps were taken toensure thatthe1970 Guidelines were followed,
nomonitoring oftheextent towhich theguidelines wereadopted tookplace, andnosanction orother
pressures were imposed byMITI eventhough theGuidelines were notfollowed. Japan notes, for
example, thatthe"standard contract" presented bytheJapan Chamber ofCommerce andIndustry was
made toencourage theprivate sector tousewritten forms andtomake contracts more transparent,
andstandardizing anyspecific transaction terms wasnotintended. Japan alsonotes thatinanyevent,
thereisaserious timing problem tolinkthe1970Guidelines andtheactual reform oftransaction terms
orthedevelopment ofsingle-brand distribution asalleged bytheUnited States.
(ii) 1975 Manual
6.164 TheUnited States further submits thatin1975theMITI-affiliated Distribution Systemization
Development Center published theManual fortheSystemization ofDistribution byIndustry
(Camera-Film)650which wasprepared incollaboration withindustry groups, camera manufacturers,
filmmanufacturers,cameraandfilmwholesalers,cameraandfilmretailers,andcameraandfilmindustry
publishers. The1975 Manual reported indetail onthedistribution trends intheindustry, andmade
several specific recommendations tocombat increased competition from Kodak, including the
standardization oftransaction terms, including discounts andrebates, theestablishment ofthe
Photosensitive Materials Committee fortheSystemization ofDistribution byIndustry (Camera-Film)
under theDistribution System Promotion Council,651andthepromotion ofcomputer linkages
(implemented byMITI insubsequent years).652
6.165 Japan points outthatthe1975 Manual isareport prepared byapublic corporation, butnot
byMITI, andthuscannot beconsidered either "administrative guidance" orastatement ofofficial
Japanese governmental policy. MITI commissioned theworkinfurtherance ofitspolicy ofencouraging
distribution modernization. Japan points outthatthere isnothing either intheManual itselforinthe
history ofsubsequent industry action tosuggest thattherecommendations ofthereport wereadopted
byMITI andthenimposed asformally orinformally binding obligations. Although theManual was
completed, Japan emphasizes thatMITI never formally issued theManual totheindustry. According
toJapan, themostcompelling evidence ofindustry ambivalence about the1975 Manual comes from
theindustry 'sresponse toinformation systemization. Fujididnotestablish computer linkswithits
primary wholesalers until1989.
649Asanindustry journal article from1976 submitted byJapan states, "thisistheyear[of]100percent capital liberalization
ofthefilmmanufacturing industry ...themostfeared development byphotosensitive material makers". TheUnited States
alsoreports thatthearticle goesontostatethatinanticipation ofKodak 'spossible investment inJapan, Japanese industry
hadimplemented countermeasures "tothepoint ofperfection".
650Seesub-section II.B.2.(e) above, inparticular paras. 2.23-2.25, andUSEx.75-5.
651Seesub-section II.B.2.(d) foradescription ofDistribution System Promotion Council, inparticular para. 2.20.
652Seesub-section VI.D.3.(f) on"Electronic information links" infraforadiscussion ofMITI’spromotion ofcomputer
linkages, inparticular paras. 6.380-381.WT/DS44/R
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(b) Current effectiveness
6.166 Withrespect tothespecific distribution measures atissue, Japan emphasizes thatonlyoneof
theitems specifically identified bytheUnited States (i.e., international contract notification) wasstill
ineffect atthebeginning ofthePanel proceedings.
(i) Reports, surveys, plans andmanuals
According toJapan, thefollowing fivereports orsurveys were never government actions atall:
(3) 1968Sixth Interim Report oftheIndustrial Structure Council Distribution Committee;
(4) 1969SeventhInterimReportoftheIndustrialStructureCouncilDistributionCommittee;
(5) 1969 Survey onTransaction Terms;
(8) 1971 Basic PlanoftheDistribution Systemization Promotion Council;
(9) 1975 Manual oftheDistribution Systemization Development Center.
Moreover, anysubstantive relevance ofthese reports ended when theadvice waseither acted upon
orignored.
(ii) JDB/SMEA funding andinternational contract notification
6.167 With respect tofouroftheitems challenged bytheUnited States, Japan concedes thatthey
were once"measures", i.e.,
(2) 1967 JFTC Notification 17;
(7) 1971 International contract notification;
(10) 1976 JDBfunding;
(11) 1967 SMEA funding.
6.168 Astotheircurrent effectiveness, Japan points outthattheallegations about SMEA financing
in1967 andtheJDBloantoKonica in1976 were bothfactually specific events thathappened and
were finished more thantwodecades ago.
6.169 According toJapan, therequirement forinternational contract notification wastechnically still
ineffect asof20May1997, butthere wasalready apending proposal torepeal thismeasure. This
lawwasinfactenacted andbecame effective inJune1997, making itunnecessary foranyinternational
contracts tobenotified totheJFTC. Simultaneously, theJFTC RuleNo.1under Article 6ofthe
Antimonopoly Lawwasabolished. Moreover, inJapan'sview, thismeasure never favoured Japanese
domestic filmorpaper.
6.170 TheUnited States emphasizes thatJapan canpoint tojusttwodistribution countermeasures
thatitpurportedly revoked, JFTC Notification 17andthe1967Cabinet Decision. Theextent towhich
these measures areinoperative andnolonger inforce, however, isfarlessclear thanJapan claims.
(iii) 1967 JFTC Notification 17
6.171 Japan submits thatJFTC Notification 17wasformally abolished inApril 1996, thuscannot
beineffect and,therefore, fallsoutside thescope ofthepresent proceedings.
6.172 While theUnited States concedes thatNotification 17hasbeenrepealed, itmaintains thatthere
areother provisions thatmake therepeal ofNotification 17meaningless. According totheUnited
States, premiums frommanufacturers towholesalers arestillsubject toJFTC Designation 9ofJFTC
Notification 15of1982, i.e.,theprovision governing theuseof"unjust inducements" under theWT/DS44/R
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Antimonopoly Law. Thatdesignation prohibits premium offers inexcess of"normal business practice".
Given thatNotification 17setindustry practice for19years, fortheUnited States, itisuncertain at
bestastowhether present restrictions under Designation 9willdiffer atallfrom thesituation under
Notification 17.
6.173 Japan responds thatJFTC Designation 9doesnotviolate theWTO Agreements. Moreover,
Japan contends thattheUnited States raises ameasure orapolicy thatwasnotlisted initspanel request.
Thus Japan encourages thePanel todismiss theUSclaims concerning allmeasures andpolicies that
werenotspecifically identified intheUSpanel request, including theclaims made concerning JFTC
Designation 9.
(iv) 1967 Cabinet Decision
6.174 Japan submits thatthe1967 Cabinet Decision wasformally repealed on26December 1980.
6.175 While theUnited States concedes thatthe1967Cabinet Decision hasbeenrepealed, itargues
thattherepeal affects onlythatportion ofthedecision relating tocontrols oninternational investment
inJapan. TheUnited States is,however, unaware ofanyevidence tosuggest thatthe1980 decision
revoked thedistribution policies andliberalization countermeasures directed bythe1967 decision.
The1980decision mentions onlystepsthatwillbetaken toliftrestrictions oninward foreign investment
inlinewith theOECD, butnotcountermeasures ordistribution policies. Thedistribution
countermeasures arisefromamuch broader andmore recent setofmeasures thanonlythe1967Cabinet
Decision. Finally, theUnited States claims thatthe1990 MITI Guidelines havenotchanged MITI's
restrictive policies andmeasures.
6.176 Japan responds thatthereisample evidence demonstrating thatnoneofthedistribution policies
bytheUnited States arecurrently ineffect, anditisimpossible toadequately respond tothiscontention
because theUnited States didnotspecify which measures itbelieves resulted from the1967 Cabinet
Decision. However, inJapan'sview, iftheUnited States implies thattheCabinet Decision resulted
ingovernment actions otherthanthose listed intheUSrequest forapanel, those actions arenotproperly
before thisPanel.
(v) 1970 Guidelines and1990 Guidelines
6.177 While Japan concedes thatthe1970Guidelines653wereagovernmental actrelating tothefilm
industry, itexplains thereasons whythisspecific pastgovernment action isnolonger ineffect asfollows:
InJapan'sview, the1970Guidelines never hadanybinding effect, either formal orinformal, andthus
never were"measures" within themeaning ofArticle XXIII:1(b), because these guidelines werenot
"ineffect" evenfromthebeginning. Inthealternative, evenifitwereaccepted thatthe1970 Guidelines
were once"measures" within themeaning ofArticle XXIII:1(b), Japan argues thattheyareclearly
nolonger ineffect given thatafteralmost thirty years, thebusiness environment haschanged somuch
overthislongperiod thatneither MITI northeprivate industry considers the1970 Guidelines ashaving
anycurrent relevance oreffect.
6.178 Japan further submits thatsubsequent events confirm thatthe1970Guidelines havelongsince
lostanyrelevance. By1984, rationalizing trade terms wasnolonger apriority issue. TheReport
bytheIndustrial Structure Council entitled, "Distribution inthe1980s"654,doesnotevenmention the
various trade rationalization guidelines issued overthe1970 to1972 period. Thereport putsspecial
emphasis onresponding totheneeds ofconsumers andsupporting small andmedium-sized companies.
653Japan Ex.B-24 andUSEx.70-4. Seesub-section II.B.2.(c) above.
654Industrial Structure Council, 80Nendai noRyuutsuu Sangyou Bijon (Distribution Vision forthe1980s) January 1984,
Japan Ex.F-6.WT/DS44/R
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6.179 AccordingtoJapan,duringthetalksontheUnitedStates-JapanStructuralImpedimentsInitiative
(SII), when theUnited States argued forarenewed effort toencourage theJapanese distribution system
toabandon traditional practices formore economically rational practices, MITI issued anewsetof
distribution guidelines in1990.655According toJapan, iftheearlier 1970 Guidelines werestillineffect
inanysense, onewould haveexpected the1990 Guidelines todiscuss theearlier suggestions, butthey
didnot.InJapan'sview, itisnotcredible thatthese MITI suggestions from 27years agocontinue
tobeacurrent government action properly subject toWTO review today.
6.180 TheUnited States responds thatnoneofthearguments raised byJapan leadstotheconclusion
thatthedistribution countermeasures arenolonger ineffect andthatMITI'srestrictive policies and
measures havechanged. TheUnited States maintains thatJapan hasnever stopped intervening inthe
distribution system forthephotographic materials sector. According totheUnited States, Japan can
point tojusttwodistribution countermeasures thatitpurportedly revoked, i.e.,JFTC Notification 17
andthe1967 Cabinet Decision. TheUnited States asserts thattherevocation oftwodistribution and
promotion countermeasures doesnotmean thatallofthemeasures falling within those twogroups
ofmeasures arenolonger ineffect. Nordoestheissuance ofalaterguideline retract thepriorguidelines
anddistribution countermeasures. Accordingly, theUnited States doesnotagree thatthese specific
measures, andinparticular thepolicies underlying them, havebeenrevoked.
6.181 InJapan 'sview, the1990 MITI Guidelines addressed exactly thesame kinds of"irrational"
business practices asthose targeted bythe1970 Guidelines, e.g., rebates, returns anddispatched
employees.Yetforthe1990Guidelines,encouragementofimportswastheguidingpurposefortargeting
these practices. Japan points outthatthese guidelines hadtheirorigin intheStructural Impediments
Initiative (SII). IntheFinal Joint SIIReport, MITI made thefollowing commitment: "Astotrade
practices concerning distribution, animproved environment willbesought from thestandpoint of
promoting competition andsecuring market openness".656Later inthereport, MITI elaborated itsplans
toissue guidelines ondistribution practices.657
6.182 Japan emphasizes thatin1990, MITI issued distribution guidelines encouraging thereform
of"irrational" trade practices, atthedirect request oftheUnited States, torender theJapanese market
more accessible toimports. Inthecurrent dispute, however, theUnited States argues thatguidelines
from20years earlier, covering thesame subject matter andmaking thesame recommendations, were
somehow involved inimpeding imports. ForJapan itisinconceivable thatthesamerecommendations
could beanti-import policies in1970andthensomehow transform themselves intopro-import policies
in1990.
6.183 TheUnited States rejects Japan'scontention thatMITI's1990 Guidelines reveal thatMITI's
distribution policies forthelastthree decades have notaimed atpromoting exclusive, vertically
oligopolistic distribution. TheUnited States confirms thatthe1990 Guidelines arose outofinternational
pressure onJapan toincrease market access, including SIItalksbetween Japan andtheUnited States.
Onlyinreaction tothatpressure, theUnited States argues, Japan introduced guidelines indicating that
"international harmony isrequired" andbusinesses "must giveconsideration soasnottohavetheir
business practices become obstacles toothers [including foreign suppliers]".658TheUnited States points
outthatthisstatement contrasts withJapan'srepeated callstotakecountermeasures "inorder toprevent
disorder arising from" theincursion offoreign capital enterprises, stated inmany ofthekeydocuments
655USEx.90-5, Japan Ex.B-22.
656Final Report ontheJapan -USStructural Impediments Initiatives (SII), Actions ontheGovernment ofJapan Side,
28June 1990, p.III-1", Japan Ex.B-30.
657Ibid. p.III-14, Japan Ex.B-30.
6581990 Guidelines, p.2,USEx.90-5.WT/DS44/R
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from thelate1960s andearly 1970s. TheUnited States concludes thatthe1990 Guidelines depart
inanimportantrespectfromthemanypolicydocumentsinthelate1970saddressingtransactionterms.659
6.184 TheUnited States explains thatbased onpositive statements byJapan inthecontext ofthe
SII,theUnited States hastaken theposition thatthe1990 Guidelines havethepotential tohelpimprove
market access inthedistribution sector (asJapan promised), ifJapan infactimplements thepolicies
indicated inthesepositive statements. However, intheUnited States view, Japan hasnotimplemented
these policies inthephotographic materials sector orinanyother sector. InlightofJapan'sfailure
toimplement these policies, theUnited States stated initsNovember 1996 submission toJapan on
deregulation matters,660thatJapan should implement thecontents ofthese Guidelines. Asaresult of
thisfailure ofimplementation, theUnited States hasconcluded thatJapan infacthasnotchanged its
basicpolicies ondistribution, andinfacthasnotimplemented thepositions stated inthe1990 Guidelines
tocorrect therestrictive structures inthedistribution system forphotographic filmandpaper.
6.185 FortheUnited States, inconsidering theimplementation ofthe1990 Guidelines, itisimportant
tobearinmind thatJapan implemented itsdistribution policies, beginning inthe1960s and1970s,
notbyamereannouncementofGuidelinesin1970,butbasedontheback-and-forthprocessof"concerted
adjustment" between government andindustry. Thatprocess spanned years andinvolved continuous
government surveying andconsulting withthedomestic industry, building consensus, issuing reports
andguidelines, following upwithmoresurveys andguidance toindustry. TheUnited States emphasizes
thatitwould takeevengreater efforts byMITI toundo what ithasdone, particularly because the
formation oflimited foreign access totheJapanese distribution system wasintheinterest ofJapanese
manufacturers, whereas itsdismantling would poseadirect challenge tothetwo-company oligopoly
ofFujiandKonica.
6.186 TheUnited States claims thattothebestofitsknowledge, Japan hasundertaken noactions
inthephotographic filmandpaper sector tofollow-up onthe1990 Guidelines. Specifically, theUnited
States submits thatMITI hasnotpursued anymeaningful actions toreverse itspolicies ontransaction
terms ortoaddress therestricted structure ofthedistribution system forphotographic filmandpaper
inJapan. Moreover, according totheUnited States, theexclusionary distribution system remains in
forceintheformitexisted in1990, andanelaborate system ofrebates anddiscounts continues atvarious
levels ofthedistribution system inthissector.661Japan'sinterpretation oftheAntimonopoly Law
continues toprovide thattheuseoftransaction terms departing from standard industry terms canbe
anunfair trade practice, andtheAntimonopoly Lawcontinues torequire reporting ofallcontracts
between foreign manufacturers andJapanese distributors.
6.187 Therefore, theUnited States concludes that-although the1990Guidelines weredifferent from
the1970 Guidelines intheir intention toavoid some adverse effects ofkeiretsu -Japan hasnot
implemented theGuidelines inawaytoachieve results, asJapan didwiththe1970 Guidelines. The
United States takestheposition thatthereisnothing inconsistent withtheUnited States calling forJapan
toimplement thepolicies announced inthe1990 Guidelines, while noting thatsofarJapan hasfailed
todoso.
6.188 AstotheUSview thatthe1990 Guidelines areindirect conflict withtheclaim about the
1970 Guidelines, Japan refers totheUSrequest totheJapanese Government inthelatest US
659Specifically, regarding rebates, the1990 Guidelines emphasize that: "Itisdesirable formanufacturers tovoluntarily
refrainfromofferingrebatesaimedatmaintainingakeiretsu-basedrelationshipinordertopreventmanufacturersfromexercising
excessive influence overthebusiness ofretailers". 1990 Guidelines, p.8,USEx.90-5.
660Submission bytheUSGovernment totheJapanese Government Regarding Deregulation, Administrative Reform and
Competition Policy inJapan, 15November 1996, Japan Ex.B-23.
661Actual Rebate Conditions: FujiPhoto Film Co., Ltd.Versus Eastman Kodak, Co., Toyo Keizai (24July1995),
USEx.90.WT/DS44/R
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recommendationsonderegulationissuedpursuanttotheUS-JapanFrameworkAgreement.662InJapan's
view, theUnited States issimultaneously urging Japanese businesses tofollow current administrative
guidance onreforming irrational business practices of1990 andurging before thisPanel thatsimilar
guidance of1970 hasviolated USrights under theGATT. InJapan'sview, the1990 Guidelines are
nodifferent fromthe1970 Guidelines inpromoting "afree,transparent andcompetitive distribution
system".
(vi) Conclusions
6.189 InJapan'sview, theUSclaims focus onthepast,notthepresent. Japan contends thatthose
specific items thattheUnited States identified arenolonger ineffect. MITI'spolicies resulted in
recommendations toindustry inthe1960s and'70sonhowtomodernize distribution practices. These
recommendations weremade decades ago,andprivate businesses followed them orignored them at
theirownchoosing. According toJapan, thefivereports orsurveys werenever government actions
atall,andanysubstantive relevance ofthese reports ended when theadvice waseither acted upon
orignored.
6.190 Japan concedes thattherequirement forinternational contract notification inJFTC RuleNo.1
wastechnically stillineffect asof20May1997, butthere isapending proposal totheDiettorepeal
thismeasure thatbecomes effective June1997. Japan addsthatthislawwasinfactenacted inJune
1997, making itunnecessary foranyinternational contracts tobenotified totheJFTC. Simultaneously,
theJFTC RuleNo.1under Article 6oftheAntimonopoly Lawwasabolished.
6.191 Japan points outthattheallegations about SMEA financing (1967) andtheJDBloantoKonica
(1976) werebothfactually specific events thathappened andwerefinished more thantwodecades ago.
InJapan'sview, theUnited States hasnotdisputed thisfact.
6.192 Japan further submits thatthe1996 National Trade Estimate Report onForeign Trade Barriers
("NTE Report") bytheOffice oftheUSTrade Representative provides that"[t]he liberalization
countermeasures were implemented between 1967 and1984".663Thus, inJapan'sview, theUnited
States implied thatthedistribution policies atissueended about 13years ago.Japan further notes that
inthisNTEReport, theterm"liberalization countermeasures" appears torefertoMITI'sdistribution
policies andinvestment restrictions.664However, according toJapan, theUnited States hasnotand
cannot point toanycurrent MITI action orpolicy concerning thedistribution sector thatinanyway
nullifies orimpairs anytariff concessions. Japan points outthattheUnited States doesnotidentify
asingle itemthatoccurred after 1977, i.e.,almost twenty years ago,andbefore thefirsttariff
concessions oncolour filmandpaper inthe1979 Tokyo Round results.
6.193 TheUnited States argues thatthelongevity ofthedistribution countermeasures doesnotdictate
thattheyarenolonger ineffect. TheUnited States contends thatJapan'sposition would suggest that
mandatory legislation codified longagoistobedeemed revoked ifnoenforcement actions aretaken
under itaftersome period oftimehaslapsed. TheUnited States contest thisproposition because it
overlooks thepossibility thatalawcanbeself-enforcing ifnoparty isviolating it.Therefore, the
United States rejects Japan'sassertion thatvirtually allthedistribution andpromotion countermeasures
arenolonger inforce.
662"MonitorandreportonadherencebytheJapanesebusinesscommunitytotheMITI1990GuidelinesonBusinessPractices
inorder topromote afree,transparent andcompetitive distribution system". Submission bytheUSGovernment totheJapanese
Government Regarding Deregulation, Administrative Reform andCompetition Policy inJapan, 15November 1996, p.7,
Japan Ex.B-23.
663United States Trade Representative (USTR), National Trade Estimate Report onForeign Trade Barriers (NTE Report)
(1996) issued inMarch 1996, before theUnited States began thisPanel proceeding,
664USTR, 1996 NTE Report, p.209, Japan Ex.F-5.WT/DS44/R
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6.194 Intheview oftheUnited States, Japan iscontinuing toreinforce andsupplement these
countermeasures inseveral keyways. First, itiscontinuing toenforce theLarge Stores Lawand
promotioncountermeasureswhichpreventserosionofthesystembyrestrictingthecompetitivepressures
thatlargeretailers andmanufacturers attempting tobreak intothesystem would provide intheabsence
ofthese ongoing restrictions. Second, theJapanese government iscontinuing tosupport thestructure
ofthesystem through business assistance programs. Third, Japan'spassage oftheBusiness Reform
Lawanditsinitial designation ofthephotographic materials sector forassistance under thisbroad
measure demonstrates Japan'songoing effort toreinforce thestructure ofthesystem established by
theinitial distribution countermeasures sothatitremains abulwark against penetration byimports.
6.195 TheUnited States emphasizes thattheactions needed tomaintain theexclusionary distribution
structure aredifferent fromthemeasures needed tocreate thestructure inthefirstinstance. Forexample,
onceKonica hadreceived aJDBsubsidy andbuiltanewjointdistribution center withitswholesalers,
ithadestablished anew,closer degree ofintegration withthose wholesalers, accomplishing thepurpose
ofthesubsidy. From thatpoint on,itnolonger needed asubsidy forthispurpose. Similarly, the
amount ofeffort theJapanese Government expended toassist intheinitial information link-up ofFuji
withitswholesalers exceeds whatiscurrently needed forFujitomaintain those information linksand
thecontrol overthedistribution system.
6.196 TheUnited States maintains thatwithrespect tothepromotion ofjointdistribution facilities
andinformation links between manufacturers anddistributors there isnoindication thatthepolicy
underlying Japan'sactions haschanged anditcontinues tobegovernmental policy ofJapan.665The
factthatFujiandKonica havebuiltthese systems andfacilities inconformity withJapan'spolicies,
andthattheythereforecurrentlymightneedlessassistanceandpromotionfromtheJapaneseGovernment,
proves onlythatthese companies havecomplied withtheirGovernment 'swishes. According tothe
United States, there were nomeaningful efforts byJapan tosuggest toeither ofthese companies to
change itscourse regarding information links andjointdistribution facilities.
6.197 TheUnited States further argues thatinthecaseoftransaction terms, there isnoindication
thatJapan haschanged itspolicies infavour ofstandardized transaction terms, andJapan hasmade
nomeaningful efforts toimplement anychanges inrebate anddiscount practices inthephotographic
filmsector. According totheUnited States, Fujicontinues tomaintain ahighly complex rebate and
discount scheme. Intheabsence offorceful implementation ofachange inpolicy byJapan, Fuji's
rebate scheme willcontinue tofavour "channel exclusivity", standardized transaction terms willcontinue
toprovide abenchmark against which tojudge whether non-standard terms are"unfair tradepractices",
andtheJFTC 'sinternational contract notification rules willcontinue toallow automatic scrutiny of
contracts between foreign manufacturers andJapanese wholesalers.666
6.198 Insummary, theUnited States concurs withJapan ontheproposition thatafinding ofnon-
violation nullification andimpairment maybebased onlyonmeasures thatarecurrently inforce. The
United States doesnotbelieve, however, thatJapan haspresented credible evidence thatitsintervention
inphotographic material distribution ismerely afactofthepast.
6.199 Japan argues thattheUnited States maybeoftheposition thatthealleged measures, even
ifnotineffect anymore, arestillactionable, because their"effects" or"consequences" aresustained
byother items which arenotincluded intheterms ofreference. InJapan’sview, however, theUnited
665TheUnited States notes thattheJDBprogram thatprovided theloantoKonica remains inplace, andJapan generally
hascontinued toadvocate andfinancially support joint distribution facilities andelectronic information tiesbetween
manufacturers, wholesalers andretailers. Seee.g.,MITI's1990Guidelines, p.9,USEx.90-5andPhoto Industry Information
System Manual, USEx.96.
666Japan contends thatabilltorepeal theinternational contract notification requirement waspassed inJune1997, and
simultaneously JFTC Rule No.1under Article 6oftheAntimonopoly Lawwasabolished.WT/DS44/R
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States should notbeallowed tomake suchanargument. Japan stresses thatwhatmatters should be
whether thealleged measures listed bytheUnited States arethemselves ineffect ornot.Anyitems
outside theterms ofreference forthispanel cannot substitute fortheitems within them. Japan notes
thattheUnited States didnotargue thatthealleged measures inside theterms ofreference anditems
outside ofitincombination havehadcertain alleged effects. IftheUnited States believes thatthealleged
measures (intheterms ofreference) arestillineffect, itshould havepresented a"detailed justification"
forclaiming thealleged measures remain ineffect bythemselves. InJapan'sview, theUSattempt
topoint outother items doesnotmeettherequirement of"detailed justification."
3. PROMOTION "COUNTERMEASURES"
(a) TheCouncils andCodes
6.200 AsfarastheJFTC related issues areconcerned, Japan agrees withtheUnited States thatthe
following aregovernmental "measures" within themeaning ofArticle XXIII:1(b):
(i) thePremiums Law(asamended);
(ii) theJFTC Notifications; and
(iii) theapproval bytheJFTC offaircompetition codes.
6.201 TheUnited States submits thattheprivate sector plays animportant roleinenforcing Japan's
promotion countermeasures byvirtue ofthesystem ofso-called faircompetition codes andfairtrade
councils. Japan isalleged tohavedeputized fairtradecouncils asenforcement surrogates fortheJFTC
under thePremiums Law. TheUnited States asserts thatindustry tradeassociations playanimportant
roleinthefairtrade councils and,insome instances, dominate theaffairs ofaparticular council. The
United States clarifies thatinthisdispute itisconcerned withtheactions oftrade associations only
astheyrelate toacodeorcouncil. IntheUSview, Japan should bearresponsibility foracouncil
whose formation itpromoted andapproved, aswellastherules andcodes which thatcouncil
promulgated.
6.202 TheUnited States argues that, even though individual aspects ofJapan'spromotion
countermeasures approximate facets ofmeasures elsewhere, theUnited States isunaware ofanynation
witharegime thatisequal toJapan's.Inparticular, nonation hasanenforcement mechanism of
government/industry cooperation akintoJapan'ssystem of"fairtradecouncils" and"faircompetition
codes." Thissystem allows powerful businesses andtradeassociations toformulate asetofcompetition
rulesand,withtheassistance ofthegovernment, impose those standards notonlyonmembers oftheir
groups butonnon-members aswell.667TheUnited States argues thatindustry "faircompetition codes"
playedacriticalroleintheJFTC'sassessmentofwhatconstituted"normalbusinesspractices"inapplying
thepromotion countermeasures. Ifthere isafaircompetition code, thenthecodewillbeusedasthe
standard. Ifnoneexists, theJFTC willmake adetermination afterinvestigating thebusiness practices
ofthatindustry orissue guidance totheindustry toestablish afaircompetition code. Thisclose
government/industry relationship hasbeenusedtostifleforeign competition suchaswhen thePromotion
Council worked withtheJFTC toundermine Kodak 'sVRcampaign before itevenbegan.668
667Severe Restrictions Placed onBusinesses forPremium Offers: Shatokuren Hears JFTC Explanations atJyosui Kaikan
onthe12th, Nihon Shashin Kogyo Tsushin, 20June 1967, USEx.67-8.
668IntheUSview,JapanfailedtoprovideanyevidencecontradictingtheUSrecitationofeventsregardingtheVRcampaign.
Japan contends thatstatements contained inMr.Ishikawa Sumio 'saffidavit oftheUnited States arenotsubstantially objective
evidence andtherefore arenottrustworthy.WT/DS44/R
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6.203 AccordingtotheUnitedStates,Japan'sphotographicmaterialssectorhasfourrelevantcouncils:
(1) theManufacturers FairTrade Council,
(2) theWholesalers FairTrade Council,
(3) thePhotographic Industry FairTrade Promotion Council, and
(4) theRetailers FairTrade Council.
TheUnited States emphasizes thatwithrespect tothetwocouncils mostrelevant totheUScase, i.e.,
thePromotion Council andtheRetailers FairTrade Council, tradeassociations dominate theactivities
andpolicies ofeachcouncil.
6.204 Japan argues thatafaircompetition codedoesnotbyitself constitute a"measure" ofthe
Government ofJapan forthefollowing reasons. Afaircompetition codeisanagreement, oracontract,
among non-government industry members. Itsenforcement willhavetobeaffected, ultimately, by
thejudiciary, andtheJFTC hasnoroletoplayintheenforcement process. Itisonlywhen parties
tothecodefailtoobserve thePremiums Law, Notifications, orother JFTC regulations, thatthe
Commission takes anyaction. Industry members mayfreely choose whether ornottoparticipate in
acode. TheJFTC doesnotdemand membership. According toJapan, therationale forsucha
mechanism iswellunderstood overseas aswell: Forexample, the"guidelines oncodes ofpractice"
prepared bytheUnited Kingdom 'sOffice ofFairTrade statethat"[t]he codeorarticles willalsoset
outthepenalties fornon-compliance uptoandincluding dismissal fromtheassociation."669Similarly,
theAnnual Report 1987-1988 ofAustralia 'sTrade Practices Commission states that"[c]odes should
include commercially significant andrealistic sanctions fortheirenforcement."670
(i) Manufacturers 'Council
6.205 TheUnited States argues thatprior totheestablishment oftheRetailers Council, Japan
established twofairtrade councils incooperation withthemanufacturers andwholesaler associations.
Pursuant toArticle 10ofthePremiums Law, theJFTC approved on15October 1965 the"Fair
Competition Code Regarding Restrictions Premiums Offers bytheCameras andRelated Products
Manufacturers 'Industry" ("Manufacturers 'Code") "toenable thisCode tobeenforced smoothly and
effectively". Article 4oftheManufacturers 'Code established theCamera Manufacturers FairTrade
Council ("Manufacturers 'Council"). Article 4further defines theduties oftheManufacturers 'Council,
which include theresponsibility to"investigate those whomaybeinviolation ofthecode" andto"take
necessary measures against those whohaveviolated theCode".
6.206 Japan notes thatKodak Japan Limited (Nagase Sangyo, until1988) hasbeenparticipating in
theManufacturer 'sCouncil asacamera manufacturer since 1988.
(ii) Wholesalers 'Council
6.207 According totheUnited States ,theJFTC similarly approved the"Fair Competition Code
Regarding Restrictions ofPremium Offers bytheCameras andRelated Products Wholesalers Industry"
("Wholesalers'Code")on29October1966.Article4oftheWholesalers'Codeestablished"theCameras
andRelated Products Wholesale Industry FairTrade Council ("Wholesalers 'Council"). Article 4-3
defines theduties oftheWholesalers 'Council. Articles 5and6authorize theWholesalers 'Council
toinvestigate violations andtotakemeasures against violators, including theimposition offines.
669Japan Ex.D-72 andEx.D-73.
670Trade Practices Commission, Annual Report 1987-1988, p.114, Japan Ex.D-74 andEx.D-44.WT/DS44/R
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(iii) Promotion Council
6.208 TheUnited States further submits thatthePhotographic Industry FairTrade Promotion Council
("Promotion Council") isavertically-integrated industry association representing every stage ofthe
distribution ofphotographic materials andequipment, withthephotosensitive materials distributors '
association (Shashoren) andtheRetailers Association (Zenren) being theprimary beneficiaries ofthe
organization.TheUnitedStatespointsoutthattheJFTCcreatedthePromotionCouncilbyadministrative
guidance.671
6.209 According totheUnited States, thefactthattheJFTC oversees thefairtradecouncil isillustrated
byArticle 17ofthePromotion Council 'sarticles ofassociation which provides:
"EstablishingorabolishingtheprovisionsoftheseArticlesofAssociationandtheresponsibilities
ofthisCouncil shallrequire prior approval from theJapan FairTrade Commission".672
6.210 IntheviewoftheUnited States, thedelegation ofauthority fromtheJFTC tothePromotion
CouncilismadeexplicitinArticle4whichconfersuponthePromotionCouncilanumberofenforcement
powers. Article 4provides:
"Inorder toachieve theobjectives which weredescribed inArticle 3above, theCouncil
willcreate acommittee which willberesponsible forthefollowing: ...secure fair
transaction order between allelements ofthedistribution system, manufacturers,
wholesalers, andretailers. Take thenecessary actions against those whoviolate the
Self-Regulating Measures. Liaise withthecompetent governmental authorities. All
other responsibilities necessary toachieve theCouncil sobjectives".
Accordingly, thesameassociation-council dynamic exists between thePromotion Council andtheJFTC
asitistruewithrespect totheRetailers Council andtheJFTC, which isdescribed below. The
Promotion Council hasreceived asimilar delegation ofauthority from theJapanese Government.
6.211 Japan responds thatindustry self-regulation isprivate-sector conduct, andnotagovernment
"measure". Japan explains thatthePromotion Council isaprivate-sector organization, which was
established bythecamera industry toimplement voluntary standards ondispatched employees, and
thathasnogovernmental authority.
6.212 TheUnited States responds thatthePromotion Council anditsfirstsetofrules, governing
dispatched employees, wereestablished under guidance from theJFTC.673According totheUnited
States, Japan admitted that"thePromotion Council wasestablished afterconsultation withtheJFTC"
andconceded that"[t]he Promotion Council refers totheJFTC 's'approval 'or'guidance 'foritsaction
initsrules."674Regardless ofwhether thePromotion Council isapurely private trade association or
aquasi-governmental association, Article 8-2oftheAntimonopoly Lawrequires that"[e]very trade
association ...fileareport [with theJFTC] within thirty daysasfromthedateofitsformation". JFTC
671Theofficial directive ofthePromotion Council states: "This council wasestablished under theguidance oftheJapan
FairTrade Commission inDecember of1982 forthepurpose ofsecuring afairtrade system inthephotographic industry,
deepening theexchange ofideas andunderstanding among businesses, andcontributing tothedevelopment oftheindustry".
National Photographic Industry FairTrade Promotion Council, No.1,29August 1992, USEx.92-7.
672FairTrade Promotion Council Establishment: AnAttempt toImprove theStructure oftheIndustry, Zenren Tsuho,
January 1983, pp.46-47, USEx.83-3.
673USEx.92-7. ("the council wasestablished under theguidance oftheJFTC inDecember of1982"); USEx.83-3
("the JFTC expressed anunderstanding [about] establishing theCouncil").
674Atthetimeoftheformation ofthePromotion Council, theCouncil 'schairman stated thatthecouncil had"thestamp
ofapproval oftheFairTrade Commission." Shashin Kogyo Junpo, 20October 1982, USEx.46.WT/DS44/R
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Notification 2of1953, asamended, requires suchassociations tofilebasic information suchasthe
copyofthearticles ofassociation, business plan, membership, andself-regulating measures.675
6.213 Japan further points outthattheJFTC hasnostatutory authority toapprove agreements
underlying thePromotion Council. Itsaction withregard totheiragreements ondispatched employees
or"develop-print" pricerepresentations676wasanon-binding expression oftheviewthattheagreements
would notimmediately violate theAntimonopoly Law. Inthatrespect, thestatus ofthePromotion
Council isnodifferent fromthatoftheir"ordinary" industry associations. Accordingly, Japan concludes
thatthePromotion Council 'sindividual activities cannot constitute "measures" forpurposes ofnon-
violation complaints.677
6.214 TheUnitedStatesrespondsthattheexemptioncreatedbysection5ofArticle10ofthePremiums
Lawapplies notonlytotheestablishment ofafaircompetition code, butalsoto"such actsof
entrepreneurs oratrade association ashavebeendoneinaccordance therewith." TheUnited States
alsowasunaware ofanyreason toview thePromotion Council differently from theother councils
relevant tothisdispute.
(iv) Retailers 'Council
6.215 According totheUnited States, theexample oftheRetailers FairTrade Council ("Retailers
Council") displays therelationship between atradeassociation andafairtradecouncil andisillustrative
ofthepowers effectively delegated toatrade association bytheJapanese Government:
6.216 TheUnited States submits that,since itsinception, theRetailers FairCompetition Code
("Retailers Code")678hasessentially beenadministered bythephotographic retailers tradeassociation,
orZenren, acting astheRetailers Council. According totheUnited States, itwasZenren thatasked
theJFTC toapprove theestablishment oftheRetailers Code andsince thenZenren officials have
dominated theFairTrade Council 'sboard ofdirectors.679Moreover, Zenren 'sofficial journal, Zenren
Tsuho, isusedtodisseminate information relating toactivities ofthecouncil.680Zenren andtheRetailers
Council holdannual meetings atthesame timeandinthesame location, andtheyevenoccupy the
same offices.681
6.217 Japan points outthattheRetailers Council, which isresponsible fortheobservance ofthe
Industry Code, isestablished separately from "Zenren," anational federation ofprefecture-wide
photographic products retailers organizations. TheRetailers Council hasanindependent assembly
andanindependent board, aswellasitsownsecretariat andbudget. Inforeign countries, industrial
organizations often serve asanimplementation organ forvoluntary restraints.
6.218 TheUnited States submits thattheRetailers Code specifies sweeping enforcement powers
fortheRetailers Council, including enforcement authority under thePremiums Lawandother "fair
675TheUnited States mentions thatithasrequested theJapanese Government toprovide copies ofthereport filedby
thePromotion Council. Although thereport would notnormally contain business confidential information, theJapanese
Government refused toprovide anydocumentation relating tothePromotion Council.
676Japan states thatKosei Torihiki Joho, thepublication theUnited States citesasanofficial publication, isinfactnot
anofficial publication.
677TheUnited States confirmed thattheCouncil actions which theybelieve areproblems aretheir reaction totheVR
campaign, andthe1996 Circular. Japan notes thatthe1996 Circular, however, isonlyaninquiry anddoes notinstruct
members tosuspend theservice ofdispatched employees.
678USEx.87-4.
679See,e.g., Zenren Tsuho, June 1987, p.6-11, USEx.87-5.
680SeetheRetailers FairTrade Council 's1994 and1995 fiscal yearbusiness plans.
681Zenren Tsuho, August 1987, pp.16-20, USEx.87-7.WT/DS44/R
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trade" laws.682Article 15oftheCode outlines theRetailers Council 'spowers toinvestigate suspected
violations683andArticle 16specifies penalties684inthecaseofabusiness operator 'snon-compliance
withtheCode.
6.219 Japan contends thattheRetailers 'Code, constitutes self-regulation among business entities
approved bytheJFTC inaccordance withthePremiums Law. InJapan'sview, theRetailers Council
isavoluntary organ established bytheCode toimplement theself-regulation. NordoesArticle 14,
paragraph 7oftheRetailers Code serve asabasistoconfer ontheRetailers Council authority toenforce
thePremiums Law. Itonlygives theCouncil thetaskofmaking thePremiums LawortheAntimonopoly
Lawmore widely understood andobserved.
(v) Federation ofFairTrade Councils
6.220 TheUnited States further points outthattheJFTC hasdelegated certain authority toanumbrella
organization offairtrade councils, i.e.,theFederation ofFairTrade Councils (the"Federation"), to
manage theoperation ofCodes. TheFederation wasestablished bytheJapanese Government in1979
topromote, coordinate, andcooperate intheimplementation offaircompetition codes, conduct surveys
onthedegree ofcompliance withthem, andperform other duties pertaining totheprevention of
violations ofthePremiums Law.685TheJFTC convenes theFederation annually todetermine policy
relating tofaircompetition codes andfairtrade councils, andreports ontheFederation activities in
itslegally mandated Annual Report totheJapanese parliament.686According totheUnited States,
theRetailers Council executive director regularly participates inpolicy meetings withsenior officials
oftheJFTC. Furthermore, theJFTC regularly issues awards through theFederation toreward the
activities ofthefairtrade councils.
682Article 14oftheRetailers Code provides: "The Retailers FairTrade Council shall perform thefollowing:
(1) Activities pertaining tocausing theCode tobethoroughly understood.
(2) Activities pertaining tooffering consultation anddirections inconnection withtheCode.
(3) Activities pertaining tomaking adjustments pertaining tohowtheCode isbeing observed.
(4) Activities pertaining toinvestigating thefactswhen there issuspicion ofviolation oftheCode.
(5) Activities pertaining totaking thenecessary steps against those whohave violated theCode.
(6) Activities pertaining toprocessing complaints received from thegeneral consumer.
(7) Activities pertaining tomaking theActAgainst Unjustifiable Premiums and
Misrepresentations andother laws andordinances pertaining tofairtrade widely
understood andpreventing violations thereto.
(8) Activities pertaining toliaison withcompetent authorities.
(9) Activities pertaining toproviding information tothemembers.
(10) Activities pertaining toother activities connected withimplementing theCode".
683Article 15oftheRetailers Code provides:
"theFairTradeCouncilmaysummonthepartiesinvolvedtoheartheirexplanations,sendoutthenecessaryinquiries,
obtain theopinions ofwitnesses, andconduct thenecessary investigations forother circumstances".
684Article 16oftheRetailers Code states:
"[w]hen abusiness operator isfound tobeinviolation ...theFairTrade Council mayserve awritten warning
...When thebusiness operator served withthewarning aspertheabove isfound nottoobeythesame, theFairTrade Council
maylevyonthebusiness operator apenalty ofupto500,000 yen,ordismiss itfromthemembership oftheFairTrade Council,
orwhen necessary, request thattheJapan FairTrade Commission takethenecessary measures".
685TheFairCompetition Code System andStatus ofEstablishing FairCompetition Codes, Kosei Torihiki, No.390,April
1983, pp.37-38, published byJapan FairTrade Institute, JFTC, Trade Practice Department, USEx.83-8.
6861995 JFTC Annual Report Antimonopoly White Paper, July, 1996, pp.247-251.WT/DS44/R
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(b) Attributability tothegovernment
(i) FairCompetition Codes
6.221 TheUnited States claims thattheJapanese Government should bearresponsibility fortheeffects
offaircompetition codes andtheactivities offairtrade councils, including trade associations acting
under aegis ofacodeorcouncil because thecodes andcouncils arethecreation ofJapanese law,
specifically Article 10ofthePremiums Law. Subsection (1)ofthatprovision provides:
"Businesses oratrade association may, upon obtaining authorization from theFair
Trade Commission inaccordance withtheRules oftheFairTrade Commission, with
respect tomatters relating topremiums orrepresentations, conclude orestablish an
agreement oracode, aiming atpreventing unjust inducement ofcustomers and
maintaining faircompetition. Thesame shallapply intheevent alterations thereto
areattempted".687
IntheviewoftheUnited States, Article 10(1) makes clearthattheestablishment ofthecodeissubject
toapproval bytheJFTC. Similarly, Article 10(3) states thattheoperation ofthecodes andcouncils
issubject toJFTC supervision.
6.222 TheUnited States emphasizes thatthepower oftheRetailers Council andZenren -likeall
other councils andtradeassociations -isevengreater because Article 10ofthePremiums Lawexempts
theiractivities from antitrust enforcement. Article 10(5) ofthePremiums Lawstates that:
"Theprovisions ofSection 48[recommendation, recommendation decision] andSection
49[initiation ofhearing procedures], Section 67(1) [urgent injunction] andSection
73[accusation] ofthe[Antimonopoly Law] shallnotapply tothefaircompetition code
thathasbeenauthorized under Subsection (1),andtosuchactsofentrepreneurs or
atrade association ashavebeendoneinaccordance therewith".
6.223 Japan replies thatcouncil actions under anapproved codearenotexempt fromtheoperation
ofthesubstantive provisions, e.g.,prohibitions ofunfair trade practices, oftheAntimonopoly Law.
FortheJFTC, anything acouncil doesisactionable, justasactivities ofother associations. Theonly
legalconsequence oftheJFTC approval isthatitmustfirstrevoke theapproval before itenforces the
Antimonopoly Lawagainst anapproved codeorimplementation thereof.
6.224 Japan explains thataccording toArticle 10ofthePremiums Lawentrepreneurs oratrade
association mayconclude orestablish acode("fair competition code"), aiming attheprevention of
unjust inducement ofcustomers andmaintaining faircompetition. TheLawalsoprovides thatsuch
codebeconcerned withmatters related topremiums orrepresentations, andthatitmustbeapproved
bytheJFTC.688Accordingly, withregard toother matters, suchasthedispatch ofemployees,
entrepreneurs cannot conclude a"code". Japan submits thattheJFTC mayapprove a"code" only
when itisfound tomeet strict conditions.689Before deciding whether ornottoapprove a"code",
theJFTC holds public hearings toreceive opinions from general consumers, people oflearning and
knowledge aswellasrepresentatives fromenterprises concerned. ThePremiums Lawfurther provides
687USEx.62-6 (emphasis added).
688Article 10(1)ofthePremiums Law.
689According toArticle 10(2)Premiums Lawa"code" maybeapproved onlyif:
(i) itisappropriate forpreventing unjust inducement ofcustomers andtomaintain faircompetition;
(ii) itisnotlikely toimpede unreasonably theinterests ofconsumers ingeneral ortherelated entrepreneurs;
(iii) itisnotunjustly discriminatory; and,
(iv) itdoes notrestrict unreasonably theparticipation inorwithdrawal from thefaircompetition code.WT/DS44/R
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theJFTC withoversight authority, allowing theJFTC tosubsequently revoke itsapproval. When the
JFTC approves a"code", itispublished intheofficial gazette. Japan argues thattheapproval bythe
JFTC hastheeffect ofaconfirmation thatthecontent ofthe"code", aswellasactsdoneincompliance
withthecode, doesnotviolate theAntimonopoly Law.690
(ii) FairTrade Councils
6.225 Japan explains that,forthepurpose ofimplementing andobserving thecodeeffectively, the
parties (entrepreneurs) tothe"code" usually organize themselves intoaprivate bodycalled afairtrade
council, composed ofthemembers ofthecode, which arelegally distinct from theexisting trade
association. Although approved codes maycontain provisions ontheestablishment andoperation of
councils, inJapan'sview, thecouncils remain private organizations because theapproval ofthe
establishment ofanorganization composed ofprivate parties does notrender theorganization a
governmental entity. Many codes provide thatthecouncil mayormust takethefollowing actions:
(a) Thecouncil istoreport totheJFTC thedecisions made attheannual meetings ofthe
council.
(b) Thecouncil istoreport totheJFTC thefactofhaving taken suchactions as
(i) requiring breach-of-contract damages forthedisobedience ofthecode, or
(ii) expulsion ofamember whodidnotobeythecode.
(c) Thecouncil mayrequest theJFTC totakenecessary measures against those members
whodidnotobeythefaircompetition code.
Theactions in(a)and(b)above areintended toensure thattheJFTC isinformed ofmaindevelopments
regarding theoperation ofthecode. With regard toactions in(c)above, theJFTC isnotobliged to
takeanyaction inresponse tosuchapproaches from thecouncils.
6.226 Japan states, however, thatitisnotobligatory foracodetohaveprovisions regarding theabove-
mentioned actions. They areincluded inthecodebased onthevoluntary decision ofthemembers
ofthecode. Japan further notes thatcouncils arenotrequired to,andactually donot,seektheJFTC 's
approvalonsuchmattersasitsannualbusinessplanorbudget,appointmentofpersonnel,oritsindividual
actions. Japan further emphasizes thatfairtrade councils arenotgovernmental oreven semi-
governmental organizations, andtheirexecutive committee members oritsstaffarenotgovernment
officials.
6.227 TheUnited States alleges that,ineffect, theJapanese Government hasdelegated enforcement
authority under thePremiums Lawtofairtradecouncils andtheindustry tradeassociations thatcomprise
them. According totheUnited States, byitsveryterms, thePremiums Lawdelegates enforcement
authority totrade associations acting asfairtrade councils, empowering them toimplement JFTC-
approved faircompetition codes. According totheUnited States, inthislight, thedirector oftheJFTC 's
division onpremiums hasexplained that
"[t]he approval oftheCode means thattheroleweplaytotakeenforcement actions
onviolations willbelefttotheFairTrade Council. Ifthisexpectation isnotmet,
[theapproval] willhavenomeaning".691
According totheUnited States, e.g.,Members oftheRetailers Council haveechoed hissentiments,
stating that"[t]he retailers fairtrade council isjustlikeasubcontractor fortheJFTC".692
690Article 10(5)Premiums Law.
691Zenren Tsuho, July1987, p.7,USEx.87-5. Japan contends that"teki-hatsu" should betranslated as"discovery"
rather thanas"enforcement action". Seetranslation issue 20.
692Shukan Shashin Sokuho, 7August 1987, p.3,USEx.87-9.WT/DS44/R
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6.228 TheUnited States further points outthattheJFTC, through itsapproval ofthecode, confers
notonlybroad authority onprivate parties toactassurrogate enforcers, butalsoexempts them from
prosecution fortheiractivities. AstheJFTC hasexplained, "even ifthecontents ofthecodes orthe
activities based onthecodes violate theAntimonopoly Law, nocontrol measures willbetaken based
ontheAntimonopoly Law".693
6.229 Japan contends thattheenforcing authority oftheJFTC maynotbedelegated toaprivate
body. Thekinds ofactions which theUnited States citesasexamples ofdelegation ofpower arethe
oneswhich acouncil mayundertake onitsown.694
6.230 Astothenature oftherelationship between theJFTC andthefairtrade councils, Japan notes
thattheJFTC enforces onlythePremiums Lawandnotthecodes. Since faircompetition codes are
agreements among private entrepreneurs, thespecific performance ofthecodes tothemembers is
ultimately effected bythecourt. Japan explains thattheJFTC isempowered byArticle 10ofthe
Premiums Lawtoapprove afaircompetition codedrafted byentrepreneurs oratrade association.
Theamendment ofthecodealsorequires theJFTC 'sapproval. ThePremiums Lawhasnoprovision
referring tothecouncil assuch. Although codes approved bytheJFTC usually contain provisions
oncouncils, theJFTC 'slegalrelationship withthecouncils isthesame asthatwithordinary private
organizations orenterprises. TheJFTC would beready totakeappropriate steps, should thecouncils
befound tobeobstructing faircompetition.
6.231 Japan emphasizes thatfairtrade councils arenotdelegated anypowers fromtheJFTC. With
regard totherelations between theJFTC andtheprefectural governments, Articles 9:2to9:5ofthe
Premiums Lawprovide thatcertain powers aredelegated tothelatter. However, nosuchprovision
exists inArticle 10ofthePremiums Law, which deals withfaircompetition codes. From that,itis
clearforJapan thattheJFTC cannot delegate anypower tonon-governmental bodies without explicit
authorization bythelaw.
6.232 Japan points outthattheself-regulation codes arenotenforceable tomembers without being
approved andpublished bytheJFTC. They arenaturally notenforceable tonon-members, either.
Japan points outthatsuchself-regulatory codes areeffective solongastheydonotcontravene the
Antimonopoly Law.695However, JFTC-approved codes areapplicable tomembers andcanbeenforced
bycourts. According toJapan, many codes haveaprovision thatenables thecouncil totakecertain
actions against those whodonotobeythecodes, suchasrequiring abreach-of-contract damages or
expulsion fromthecode. Inthissense, onemaybeabletosaythatthecodeis"enforceable" bythe
fairtradecouncil. However, Japan emphasizes thattheJFTC hasnopower toapprove individual actions
taken bytheorganization composed ofthemembers ofthecode(thefairtrade council). Moreover,
many codes provide thattheworks ofthecouncil include:
693JireiDokusen Kinshi Ho,15December 1995, p.442, USEx.95-20.
694Japan states that,e.g., anybody mayestablish "selfregulation forfireprevention", andtakeenforcement actions, such
asasurvey, imposition ofapenalty, orarequest foranaction withtheappropriate authorities.
695TheJFTC willregulate self-regulatory agreements when theyfallupon oneofthefollowing:
(i) theself-regulatory agreements constitute "unreasonable restraint oftrade" byentrepreneurs, suchascartel,
(Article 3oftheAntimonopoly Law)
(ii) theself-regulatory agreements constitute either
(a) substantial restraint ofcompetition byatrade association, or
(b) unjust restriction ofthefunction oractivities ofthemembers ofthecode.
(Article 8oftheAntimonopoly Law).WT/DS44/R
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(i) making thecodebetter known,
(ii) looking intothepossible disobedience ofthecodes andtaking certain actions against
it,and
(iii) preventing theviolation ofthePremiums Law.696
InJapan'sview, since allofthese areactions taken inconformity withanagreement among private
parties (i.e., thecode) withaviewtocomplying withtherules inthecodeandthePremiums Law,
theycannot beregarded astheuseofpowers delegated tothecouncil bytheJFTC.
6.233 InJapan'sview, thefactthatcouncils areauthorized toimpose "penal fines" onmembers who
violated thecodes, isnotacaseofdelegated power. Private persons arebasically freetoagree (a)
thattheyabide byacertain ruleand(b)thatthose whohavebroken therulepaybreach-of-contract
damages. Ittakes nodelegation ofgovernmental power tomake andcomply withsuchanagreement.
Inmany instances, thecodeprovides thatwhen thecouncil hasrequired breach-of-contract damages
forthedisobedience ofthecode, thecouncil istoreport thefacttotheJFTC. Such aprovision is
intended tomake surethattheJFTC isinformed ofmaindevelopments regarding theoperation ofthe
code. Itisnothing butan"expostfacto" notification, anddoesnotindicate theJFTC 's"involvement
in"or"responsibility for"theactivities ofthecouncils.
(iii) Conclusions
6.234 TheUnitedStatescontendsthattheJapaneseGovernmentestablisheditsprivate-sector-enforced
codesystem, atleastinpart,tocounteract theperceived superior marketing abilities andpromotion
budgets offoreign firms. TheUnited States quotes aleading Japanese antitrust scholar whoexplained
that"[F]air competition codes canalsobeeffective incontrolling firms iftheydisturb themarket.697
Given these circumstances, theUnited States takes theposition thattheactivities ofthese councils and
associations areattributable totheJapanese Government andfallwithin thepurview oftheWTO and
thisPanel.
6.235 TheUnited States emphasizes thatJapan'spresent position, i.e.,thattheeffects ofthecodes
andcouncils cannot beattributed tothegovernment, contradicts theposition ittookinthe1987Japan -
Customs Duties, Taxes andLabelling Practices onImported Wines andAlcoholic Beverages case.698
Initssubmission tothatpanel, Japan stated that"labelling ofalcoholic beverages inJapan isregulated
byarange oflegal controls asfollows: ...(iii)faircompetition codes inaccordance withthesaid
Act[against Unjustifiable Premiums andMisleading Representations]."699Japan further explained:
"Article 10ofthe[Premiums Law] establishes thefaircompetition codesystem. While
thecodeisarulevoluntarily setbytheindustry concerned withaviewtocontributing
thecorrect selection byconsumers andassuring faircompetition, itrequires approval
696Theitems usually listed inthecode astheworks ofthecouncil areasfollows:
(i) making thecodes better known;
(ii) consultation andgiving advice onmatters related tothecode;
(iii) surveys onthesituation regarding thecompliance ofthecode;
(iv) surveys regarding possible disobedience ofthecode;
(v) taking actions against members whodidnotobey thecode;
(vi) dealing withcomplaints from consumers;
(vii) making thePremiums Lawandother lawsrelated tofairtrading better known, andpreventing theviolation
ofsuch laws; and
(viii) getting incontact withthegovernment agencies concerned.
697Matsushita Mitsuo, Antimonopoly LawandInternational Transactions, 25May 1970, pp.83-84, USEx.70-2.
698Panel Report onJapan -Customs Duties,Taxes andLabelling Practices onImported Wines andAlcoholic Beverages
("Japan -Liquor Taxes andLabelling Practices") ,adopted on10November 1987, BISD 34S/83.
699Submission ofJapan tothepanel inJapan -Liquor Taxes andLabelling Practices ,Annex 9,p.15(emphasis added).WT/DS44/R
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bytheFairTrade Commission. Thisfaircompetition codeprovides forsanctions
(imposition ofapenal sum)against disobedience ofthestipulated obligations, inorder
toensure itsproper enforcement."700
6.236 Inthisregard, thepanel onJapan -Liquor Taxes andLabelling Practices stated inthesection
on"factual aspects":
"Japan enacted various legal regulations inorder toprevent theuseoftrade names
insuchamanner astomisrepresent thetrueorigin ofaproduct, including theLaw
forthePrevention ofUnfair Competition, theActAgainst Unjustifiable Premiums and
Misleading Representations, arange of"faircompetition codes" voluntarily laiddown
byeachindustry concerned pursuant toArticle 10ofthelatter Actandapproved by
theFairTrade Commission, andtheLawConcerning Liquor Business Association
andMeasures forSecuring Revenue ofLiquor Tax".701
6.237 According totheUnited States, Japan tookthisposition todemonstrate thatithadmetits
obligations under Article IX:6ofGATT, which requires Members tocooperate withoneanother to
protect thetrade names offoreign products. IntheUSview, Japan should notbeabletotakecredit
foritssystem ofcodes andcouncils tosuititsposition inanearlier proceeding onlytolaterclaim that
thecodes andcouncils havenothing todowiththegovernment.
6.238 Japan responds thata"fair competition code" isanagreement among private parties for
autonomous control. Thepassage inthequoted panel report specifically states that"faircompetition
codes [are]voluntarily laiddown byeachindustry concerned". Atthesame time, acodeapproved
bytheJFTC isalsoanenforceable agreement. InJapan'sview, theexpression of"legal regulations"
intheabove-mentioned report wasusedinthissense.
6.239 Japan further contends thatafaircompetition codedoesnotbyitself constitute a"measure"
oftheJapanese Government forthefollowing reasons:
(i) Afaircompetition codeisanagreement, oracontract, among non-government industry
members. Itsenforcement willhavetobeeffected, ultimately, bythejudiciary, andtheJFTC
hasnoroletoplayintheenforcement process. Itisonlywhen parties tothecodefailtoobserve
thePremiums Law, Notifications, orother JFTC regulations, thattheCommission takes any
action.
(ii) Industry members mayfreely choose whether ornottoparticipate inacode. TheJFTC
doesnotdemand membership.
6.240 Japan further submits thatalsoindividual activities carried outbyafairtrade council orother
industry association arenot"measures". Japan notes thatafairtradecouncil isnotgranted aparticular
status inthelaw,norisitsubject tospecial control orguidance oftheGovernment:
(i) Theconcept orthestatus ofafairtrade council isnotdefined orregulated bythelaw.
Itisanestablishment defined andprovided forinacode. Itistreated asan"industry 's
association" innowaydifferently from other suchorganizations.
700Ibid. p.26.
701Panel Report onJapan -Liquor Taxes andLabelling Practices, adopted on10November 1987, BISD 34S/83, 86-87
para. 2.7.WT/DS44/R
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(ii) There isnodejureordefacto presumption oflawfulness conferred onindividual
activities ofafairtrade council. Conversely, unless thecouncil commits anunlawful
activity, theJFTC isnotauthorized torequire reporting from thebody.
(iii) Participation inafairtrade council isnotmandatory.
6.241 Japanfurtheremphasizesthatthereisnofaircompetitioncodewhichisapplicabletophotographic
filmandpaper.
6.242 Insummary, Japan concludes thatactivities offairtradecouncils orother industry association
ofthistypecannot constitute agovernmental "measure" within thepurview ofArticle XXIII:1(b).