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VII. LEGAL ARGUMENTS CONCERNING VIOLATION CLAIMS
A. ARTICLE IIIOFGATT
1. INTRODUCTION
7.1 TheUnited States argues thatatthebeginning oftheKennedy Round, foreign anddomestic
photographic materials manufacturers soldfilmandpaper toJapan’sprimary wholesalers who,inturn,
distributed theseproducts tosecondary wholesalers, photo finishing laboratories andretailers. Atthat
time, manufacturers competed withoneanother todobusiness withwholesalers. When theKennedy
Round wasconcluded, theJapanese Cabinet directed thataframework should beestablished for
"countermeasures tobetaken bytheGovernment".1036According totheUnited States, theJapanese
Governmentfearedasitreducedformalmarketbarriersthatforeignphotographicmaterialsmanufacturers
would establish andexpand relationships withdomestic wholesalers inorder tousetheJapanese
distributionsystemtopenetratetheJapanesemarket.TheCabinetspecificallycalledforcountermeasures
torestrain foreign enterprises andstrengthen Japanese competitors.1037Thepurpose ofthose policies
wastofoster single-brand distribution forfilmandexclusive arrangements oraffiliations between
domesticmanufacturers,primaryphotospecialtywholesalersandphotofinishinglaboratories,andthereby
toexclude imported filmandpaper fromtraditional distribution channels. Bythemid-1970 's,allof
theprimary wholesalers exclusively handled domestic filmandpaper. Foreign manufacturers were
leftwithlessefficient alternatives suchasdistribution through smaller, more regional secondary
wholesalers ordirect-to-retail sales.
7.2 TheUnited States alleges thattheJapanese Government haspromulgated laws, regulations
andrequirements thathaveeffectively excluded imported photographic materials fromakeydistribution
channel, i.e.,primary wholesalers, andhavemaintained thisexclusion formorethan20years. Foreign
photographic material manufacturers were denied essential opportunities todistribute andselltheir
products intheJapanese market contrary toArticle III:4which mandates thattheconditions forsale
anddistribution ofimported products benolessfavourable thanthose fordomestic goods. TheJapanese
Governmentisallegedtohaveengineeredthisexclusionarydistributionsystembyapplyingacombination
offormal measures withaseries ofclosely-related, informal measures. ThefactthatJapan attimes
hasemployed untraditional andevenopaque methods ofaccording lessfavourable treatment should
notstand asanimpediment toalegalreview under Article III:4.1038TheUnited States requests the
Panel toexamine allthefactssurrounding theimposition ofthedistribution countermeasures, taking
intoconsideration anyunique features oftheJapanese system ofgovernment, inorder todetermine
whether Japan hasfailed toprovide equality ofcompetitive conditions forimported products. Regardless
ofwhether Japan sought tohinder imports ormerely helpdomestic producers, thedirect consequences
ofitsactionsweretodiminishopportunitiesforforeignphotographicmaterialmanufacturerstodistribute
theirproducts. TheUnited States claims thatbycreating distribution channels open exclusively to
domestic manufacturers, Japan intentionally enhanced competitive opportunities fordomestic
manufacturers tothedetriment ofimports inviolation ofArticle III:4. Byrestructuring thephotographic
10361967 Cabinet Decision, pp.3-4,USEx.67-6.
1037"Modernization lagsbehind mostinthedistribution sector. Here, thepower ofresistance against theinroad offoreign
capital isweak andtheimpact offoreign capital advancing intothissector willalsoposeasignificant impact intheproduction
sector". "[I]twould benecessary torestrain foreign enterprises coming intoJapan afterliberalization, from disturbing order
indomestic industries byresorting tothestrength oftheirsuperior power, andfromadvancing intothenon-liberalized sectors
byevading control". "The establishment ofcountermeasures forstrengthening thecapacity ofourenterprises forinternational
competitionandforpreventingforeignenterprisesfromdisturbingorderinourindustriesandmarketwouldbeabasicnecessity
iftheliberalization istobepromoted andifourpeople aretoenjoy itseconomic benefits". Ibid., p.4.
1038TheUSpointsoutthatGATT/WTOjurisprudence,abovealltheAppellateBody’sdecisioninJapan-TaxesonAlcoholic
Beverages ,makes clear thattheprotective nature andapplication ofameasure maybediscerned notonlyfrom thevery
language ofthemeasure itself, butalsorevealed from itsdesign, architecture andstructure, andfrom anunderstanding of
thepractical realities oftherelevant market.WT/DS44/R
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materials distribution system, Japan applied distribution countermeasures soastoafford protection
todomestic manufacturers, contrary totheprinciple stated inArticle III:1ofGATT.
7.3 Japan argues thattheUnited States failstoidentify "laws, regulations, orrequirements" that
would serve astheappropriate subject matter foranArticle IIIclaim. Furthermore, Japan stresses
thatsince noneofthealleged specific distribution policies citedbytheUnited States isstillineffect,
theyarenotproperly before thePanel. Japan rejects thecontention thatMITI’sdistribution
modernizationpoliciesduringthe1960sand1970swereimbuedwithaprotectionistpurpose1039,afforded
protection todomestic production andthereby accord "lessfavourable treatment" toimports inviolation
ofArticle III.According toJapan, MITI setouttoencourage distribution modernization through
rationalization oftransaction terms andsystemization ofdistribution practices wellbefore capital
liberalization became anissue. These goals were pursued toraisetheproductivity oftherelatively
backward distribution sector, andthereby alleviate thegrowing labour shortage andupward pressure
onconsumer prices. Once capital liberalization gotunderway, distribution modernization came to
serve another policy objective, namely promoting theinternational competitiveness ofthedistribution
sector.ThereisnoevidencethattheJapaneseGovernmentsoughttoblockforeigngoodsfromtraditional
distributionchannels.Rather,Japansoughttoenhancetheefficiencyandcompetitivenessofthedomestic
distribution sector withaviewtoenabling ittocompete more effectively withnewforeign entrants.
7.4 Japan notes theUnited States doesnotciteasingle government document oradvisory council
report which articulates anykindofpolicy ofencouraging vertical integration ofdomestic manufacturers
intodistribution infilm,paper, oranyother industry forthatmatter. According toJapan, theevidence
showsthatasmassproductiondevelopedaheadofmassdistributioninJapan,someleadingmanufacturers
didseektomodernizetheirdistributionchannelsthroughinstitutingsingle-branddistributionorengaging
inoutright vertical integration. Theresponse oftheJapanese Government wasnottoencourage this
trend, buttomonitor itonacase-by-case basis, allowing thecompetitive benefits ofvertical integration
while seeking tocontrol theanti-competitive consequences. With respect totheUnited States claims
thatthealleged"distributioncountermeasures"andtheirpurportedongoingeffectsonthemarketstructure
forfilmandpaper accord lessfavourable treatment toimports incontravention ofArticle III:4, and
thattheyareapplied soastoafford protection todomestic production inviolation ofArticle III:1,
Japan contends thattheUnited States overlooks theestablished principle thatArticle III:1doesnot
create anyindependent obligations, andthattheUnited States failstoestablish anyviolation of
Article III:4.
7.5 Asapreliminary matter, Japan notes thatseveral ofthealleged measures thatJapan believed
tobepartoftheUnited States claims arenotincluded inthelistofalleged "distribution
countermeasures"1040thattheUnited States provided inresponse toaPanel question. Accordingly,
Japan requests thePanel nottoconsider these claims asbeing within thescope oftheclaims raised
bytheUnited States under Article III.1041
1039Japan notes thatarecent GATT panel hasspecifically rejected the"aims andeffects" testwithrespect toArticle III,
noting thedifficulty ofdetermining theintent ofagovernment inenacting alawbased onthelegislative history. SeeJapan -
Taxes onAlcoholic Beverages ,WT/DS8, 10,11/R, para. 6.16. Thus, Japan contends, theUnited States allegations regarding
thesubjective intent oftheGovernment ofJapan areirrelevant tothisanalysis.
1040Japan mentions specifically thattheUnited States doesnotlisttheNinth Interim Report (1971) ortheTenth Interim
Report (1972). Inparagraph 10ofitsthirdparty submission, theECpoints tothecreation oftheNatural Colour Photography
Promotion Council in1963, the1990 Guidelines, andtheBusiness Innovation Law(1995) insupport ofitstheory thatJapan
hasviolated Article III.However, these actions, were alsonotcitedbytheUnited States and,inJapan 'sview, aretherefore
notapartoftheUSArticle IIIclaims. Japan notes thattheUnited States mentioned theBusiness Innovation Lawinpassing
butthelawwasnotincluded initslistofdistribution measures provided bytheUSinresponse toaPanel question.
1041Japan alsoemphasizes thatonlythe"distribution countermeasures" aresubject tobothArticle IIIandArticle XXIII
challenges; the"Large Stores Law" and"promotion countermeasures" aresubject onlytoArticle XXIII andlimited Article X
challenges.WT/DS44/R
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2. ARTICLE III:1
7.6 Article III:1ofGATT provides:
"The [Members] recognize thatinternal taxes andother internal charges, andlaws,
regulations andrequirements affecting theinternal sale,offering forsale,purchase,
transportation, distribution oruseofproducts, andinternal quantitative regulations
requiringthemixture,processingoruseofproductsinspecifiedamountsorproportions,
should notbeapplied toimported ordomestic products soastoafford protection to
domestic production".
7.7 TheUnited States underscores thattheAppellate Body hasexplained thatthe"broad and
fundamental purpose ofArticle III"istoavoid protectionism intheapplication ofinternal taxand
regulatory measures. More specifically, thepurpose ofArticle III"istoensure thatinternal measures
notbeapplied toimported ordomestic products soastoafford protection todomestic production."1042
Thus theUnited States argues thattheAppellate Body hasindicated thatsentences 1and4ofArticle
IIIareinextricably linked, finding thatArticle III:1"informs therestofArticle III"andestablishes
"part ofthecontext" forinterpreting theother paragraphs inArticle III.1043
7.8 Japan points outthatArticle III:1ofGATT isonlyastatement ofgeneral principles anddoes
notimpose anyobligation onMembers inaddition tothose specified elsewhere inArticle III.1044In
Japan'sview, thisconclusion follows fromtheordinary meaning ofthelanguage oftheprovision and
from GATT precedent. Article III:1provides thatlawsandregulations "should" notbeapplied so
astoafford protection todomestic production. Byusing "should" instead of"shall,"1045Article III:1
ismeant toserve asastatement ofgeneral principles fortherestofArticle III,andistobeusedas
aguide tointerpreting thespecific obligations contained intheotherparagraphs ofArticle III,including
paragraph 4thereof. InJapan'sview, GATT precedents support thisinterpretation. Thepanel on
Japan -Taxes onAlcoholic Beverages1046specifically heldthat"Article III:1doesnotcontain alegally
bindingobligationbutratherstatesgeneralprinciples".TheAppellateBodyupheldthisinterpretation.1047
AsArticle III:1doesnotcontain anyspecific obligations, itisimpossible foranyJapanese measure
toviolate Article III:1.
7.9 TheUnited States responds thatitisnotrequesting thisPanel tofindanindependent violation
ofArticle III:1. Rather, theUnited States views thegeneral principle embodied inArticle III:1as
being anintegral aspect ofArticle IIIasawhole andArticle III:4inparticular. TheUnited States,
along withtheEC,believes thatArticle III:4canbeunderstood fullyonlyifreadinconnection with
Article III:1. TheUnited States argues thatitsposition inthisregard isconsistent withtheleading
decision ontheissue, theAppellate Body’srecent decision inJapan -Taxes onAlcoholic Beverages.
Inthatmatter, theAppellate Body noted thatthegeneral principle embodied inArticle III:1"informs"
andconstitutes partofthecontext oftherestofArticle III.1048
1042AppellateBodyReportonJapan-TaxesonAlcoholicBeverages,adoptedon1November1996WT/DS8/,10,11/AB/R,
p.16(quoting United States -Section 337oftheTariff Actof1930,adopted on7November 1989, BISD 36S/345, pp.385-386,
para. 5.10).
1043Japan -Taxes onAlcoholic Beverages ,op.cit.,p.18.
1044Japan notes thatonlyrecently theUnited States agreed withJapan 'sinterpretation. InUnited States -Gasoline the
United States argued thatArticle III:1 was"only hortatory andcould notform thebasis ofaviolation". United States -
Gasoline ,WT/DS2/R, op.cit.,para. 6.17.
1045Japan notes thattheother provisions ofArticle III,eachofwhich contain specific obligations, usetheword "shall".
1046Japan -Alcoholic Beverages ,WT/DS8, 10,11/R, p.107, para. 6.12.
1047Appellate Body Report onJapan -Alcoholic Beverages, WT/DS8,10,11/AB/R, AB-1996-2, p.18.
1048Ibid, p.18.Although Alcoholic Beverages involved Article III:2rather thanArticle III:4, theUnited States believes
thatmuch ofitsreasoning ispertinent tothepresent dispute.WT/DS44/R
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7.10 TheUnited States notes that,based onthisanalysis, theAppellate Body found thatthe"broad
andfundamental purpose ofArticle IIIistoavoid protectionism intheapplication ofinternal taxand
regulatory measures. ...Article IIIobliges Members oftheWTO toprovide equality ofcompetitive
conditions forimported products inrelation todomestic products".1049Quoting anearlier panel report,
theAppellate Body stated: "[T]he intention ofthedrafters oftheAgreement wasclearly totreatthe
imported products inthesame wayasthelikedomestic products oncetheyhadbeencleared through
customs. Otherwise, indirect protection could begiven".1050TheAppellate Body further ruled that
panels should examine thevarious factors surrounding thepromulgation ofameasure todetermine
whether itserves protectionist purposes.1051TheAppellate Body emphasized thefact-specific nature
oftheinquiry, stating thatameasure ’s"protective application canmostoften bediscerned from the
design, thearchitecture, andtherevealing structure ofameasure ...Inconducting thisinquiry, panels
should givefullconsideration toalltherelevant factsandalltherelevant circumstances inagiven
case".1052TheAppellate Body cautioned against adopting aformulaic approach: "WTO rulesarenot
sorigidorinflexible asnottoleave room forreasoned judgments inconfronting theendless andever-
changing ebbandflowofrealfactsandrealcases intherealworld".1053
7.11 TheUnited States believes thatJapan apparently agrees withtheEC1054andtheUnited States
thatArticle III:1doesnotformthebasisofanindependent cause ofaction butthatitprovides essential
interpretive guidance foralltheprovisions ofArticle IIIwhich mustbereadwiththisprinciple inmind.
Where theparties appear topartcompany, theUnited States suggests, isintheirunderstanding ofhow
Article III:1affects Article III:4. Whereas theUnited States believes thatArticle III:4mustbeapplied
inasufficiently broad manner toeffectuate thegeneral principle ofparagraph 11055,intheUSview,
Japan essentially would limitArticle III:4tocases ofdejurediscrimination achieved through themost
formal government action. IntheUSview, Japan’sposition doesnotadvance theprinciples of
paragraph 1,nordoesitcomport withwell-established GATT jurisprudence, especially theAppellate
Body’sdecision inJapan -Alcoholic Beverages .
1049Ibid., p.16,citing United States -Taxes onPetroleum andCertain Imported Substances ,adopted on17June1987,
BISD34S/136,158-159,para.5.1.9;Japan-CustomsDuties,TaxesandLabellingPracticesonImportedWinesandAlcoholic
Beverages ,adopted on10November 1987, BISD 34S/83, 113-114, para. 5.5(b).
1050Ibid., quoting Italian Discrimination Against Imported Agricultural Machinery (Italian Agricultural Machinery), BISD
7S/60, 63-64, para. 11.
1051Ibid., pp.28-29. Indoing so,theAppellate Body wasnotadding alegal element toother paragraphs ofArticle III.
Rather, theAppellate Body wasinstructing panels togiveArticle IIIsufficient breadth toreach measures imposed byWTO
Members thatprotect domestic production. See,e.g., United States -Section 337,op.cit.,paras. 6.2-6.3 (panel found that
lessfavourable treatment wasaccorded even though there wasnodeliberate attempt todiscriminate against imports).
1052Ibid.
1053Ibid., p.31.
1054According totheUnited States, initsthird-party submission, theECindicated theirsupport fortheposition ofthe
United States andreaffirmed theWTO precedent described above. Specifically, theECmaintained that"Japanese internal
policies concerning [consumer photographic filmandpaper] products were infactdesigned toafford protection todomestic
products ontopandindependently from theirfacial objective ofpursuing general internal policies under theirjurisdiction".
1055TheAppellate Body inJapan -Alcoholic Beverages made clear thatitviewed paragraph 1assupplying a"broad and
fundamental purpose ...Otherwise indirect protection could begiven" (op.cit.,p.16,quoting Italian Agricultural Machinery,
op.cit.,para. 11). Thisposition reaches back todoctrine established intheearly daysoftheGATT, when thepanel in
theItalian Agricultural Machinery dispute readArticle IIIexpansively, determining thatitcovers "anylawsorregulations
which might adversely modify theconditions ofcompetition between thedomestic andimported products ontheinternal
market" (op.cit.,p.64,para. 12,emphasis added).WT/DS44/R
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3. ARTICLE III:4
7.12 Article III:4ofGATT provides intherelevant part:
"The products oftheterritory ofany[Member] imported intotheterritory ofanother
[Member] shallbeaccorded treatment nolessfavourable thanthataccorded tolike
products ofnational origin inrespect ofalllaws, regulations andrequirements affecting
theirinternal sale,offering forsale,purchase, transportation, distribution oruse".
7.13 TheUnited States submits thatthenational treatment principle, asitapplies tothefactsof
thisdispute, derives fromtwocommitments made byGATT contracting parties andsubsequently by
WTO Members:
(1) torefrain fromimpairing theconditions ofsaleordistribution ofimports forthepurpose
ofprotecting domestic production; and
(2) totreatimported products nolessfavourably thanlikedomestic products.
7.14 Japan underscores thattoprove thatanyofthepolicies cited above areinviolation of
Article III:4, theUnited States must establish theexistence ofeachofthefollowing twoelements:
(1) There isa"law", "regulation" or"requirement" affecting thesaleordistribution of
theproducts inquestion; and
(2) thatlaw,regulation orrequirement accords "less favourable" treatment toimported
products thanthataccorded tolikedomestic products.
(a) "Laws, regulations orrequirements" within thescope ofArticle III:4
(i) Thelegal test
7.15 TheUnitedStatesexplainsthattheJapaneseGovernmentrestructuredthephotographicmaterials
distribution system through itssystem of"concerted adjustment",1056working closely withtheprivate
sector toformulate aplanofinherently coercive nature forcounteracting international competition.1057
Specifically,thegovernmentplanned,promoted,facilitatedandcontributedessentialdirection,guidance,
technical expertise, andfinancing tocoordinate establishment ofnarrow vertical linesofdistribution,
withprimary wholesalers 'handling theproducts ofasingle domestic manufacturer. Inimplementing
therestructuring plan, thegovernment employed formal aswellasinformal methods, often providing
direction through administrative guidance. According totheUnited States, Japan haslongusedinformal
methods ofgovernment-private sector cooperation andadministrative guidance todirect industry
adjustment.1058Viewed asawhole, withitsformal andinformal components, andwithitsunderlying
structure ofcooperation between government andindustry, theJapanese regime istheembodiment
1056MITI, Formation ofaNew Industrial Order, 9May1962, MITI History, Volume 17,pp.403-407, USEx.62-5.
1057TheUnited States alsorefers totheEC'sstatement initsthirdparty submission: "[T]he Semiconductors Panel Report
wasconsidering notonlytheformality butthereality ofavery peculiar system, theJapanese interconnection between
government andindustry. Thisparticular situation ischaracterised byasignificant capability oftheGovernment todirectly
influence thebehaviour ofprivate companies through thetraditional peerstructure ofthesociety andthestrong pressure
thatitcanproduce without theneedofadopting legally binding instruments". Based onthisanalysis, theECcharacterized
Japan ’smeasures as"requirements" pursuant toArticle III:4but,given theextraordinary array ofmeasures atissue inthis
dispute, intheUSview, thePanel need notrestrict itsinquiry tothatoneterm.
1058Yamanouchi Kazuo, Kokka Komuin NoTame noGyosei Shidoron [Administrative Guidance Theory forGovernment
Officials], 1986, pp.1-2,USEx.86-1.WT/DS44/R
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andeffectuation ofJapanese Government policy andfallswithin thescope of"alllaws, regulations
andrequirements" inthemeaning ofArticle III:4.
7.16 Japan contends thatthere wasnothing inMITI’sdistribution modernization policies ofthe
1960s and1970s thatamounted toa"law", "regulation" or"requirement" inthemeaning ofArticle III
because theywere notenacted bytheDietasa"law", norwere theypromulgated as"regulations"
under therelevant administrative procedures, nordotheyqualify as"requirements" given thatthe
ordinary meaning ofagovernment "requirement" refers clearly tosome formofgovernment mandate.
7.17 TheUnited States deems Japan'sdefinition ofthetypes ofmeasures covered byArticle III:4
astoorestrictive iftheterm"laws" isunderstood toreferonlytothecommand ofalegislature inscribed
inastatutory code, andtheterm"regulations" islimited toaseries ofcodified rulespromulgated by
anadministrative agency. TheUnited States explains thatthephrase "alllaws, regulations and
requirements" speaks togovernment actions, i.e.,action taken inthename ofaWTO member, by
government officials orparties authorized toactonthegovernment ’sbehalf, inpursuit ofgovernment
policies. Theverylanguage ofArticle III:4indicates, thatitwasintended tocover "all"government
action which would include theformulation ofgovernment policy anditsimplementation.
7.18 Inreferring toArticle 31oftheVienna Convention, theUnited States argues thattheobject
andpurpose ofArticle IIIisto"avoid protection intheapplication ofinternal taxandregulatory
measures". Ifthephrase "laws, regulations andrequirements" would beinterpreted toencompass
onlyhighly formalized, mandatory rules, Article IIIwould failtoprohibit asignificant amount of
government action affording protection todomestic production andaccording lessfavourable treatment
toimports. Accordingly, fortheUnited States itisunnecessary toqualify thetypes orforms of
government actions thataresusceptible tobeing deemed "laws, regulations andrequirements". A
Member should bearresponsibility, ifitsgovernmental action accords lessfavourable treatment to
imported products thantodomestic products, regardless ofthemethod usedbytheMember toachieve
thisresult. Thequestion thusbecomes whether anysuchlessfavourable treatment maybeattributed
totheactions ofaWTO Member, asopposed tonon-governmental entities. IntheUSview, nosingle
orsetofcriteria should bedispositive, anapproach thatcomports withtheAppellate Body’spreference
forcase-specific, fact-intensive inquiries asreflected initsadmonition inJapan -Alcoholic Beverages
torefrain fromapplying WTO rulesinawaythatignores "realfactsandrealcasesintherealworld".1059
7.19 Japan submits that,foraparty tobesubject toagovernment requirement, itmusteither (1)
belegally obligated tocarry outtherequest, or(2)receive some advantage from thegovernment in
exchange forcompliance. Thus there mustbeeither agovernment sanction orthewithholding ofa
government benefit thatisattached, formally orsubstantively, tonon-compliance. Inthisregard, Japan
notes thatthepanel report onEEC-Regulation onImports ofParts andComponents ("EEC -Parts
andComponents") found thatundertakings inanti-circumvention proceedings under theECantidumping
lawcould beconsidered "requirements" within themeaning ofArticle IIIeventhough theundertakings
werevoluntarilyacceptedbecausethegovernmentmadethegrantingofanadvantage,i.e.,thesuspension
oftheanti-circumvention proceedings dependent ontheacceptance oftheundertakings.1060
7.20 TheUnited States notes thatthepanel onEEC-Parts andComponents found thattheEC's
acceptance of"undertakings" byprivate parties fellwithin thescope ofArticle III:4,1061eventhough
thegovernment action inquestion wasaninformal one,derived fromnoformal legislation orregulatory
codespecifically authorizing orrequiring theacceptance ofsuch"undertakings".1062Thatpanel noted
1059Japan -Taxes onAlcoholic Beverages, op.cit.,p.31.
1060Panel Report onEuropean Economic Community -Regulation ofImports ofParts andComponents, adopted on16
May 1990, BISD 37S/132, 197, para. 5.21.
1061Ibid.
1062Ibid., pp.134-135, paras. 2.3-2.7; p.197, para. 5.20.WT/DS44/R
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thatthere was"noobligation under theEEC’santi-dumping regulation tooffer parts undertakings,
toaccept suggestions bytheEEC Commission tooffer suchundertakings andtomaintain theparts
undertakings given".1063
7.21 According toJapan MITI's1970 Guidelines areclearly distinguishable fromtheundertakings
inEEC-Parts andComponents because compliance withthese non-binding recommendations was
amatter ofpurely voluntary decision andnogovernment sanction orwithholding ofagovernment-
provided benefit wasattached, either formally orsubstantively, tonon-compliance.
7.22 TheUnited States points outthatnowhere inGATT jurisprudence hasapanel everarticulated
adefinition ofthephrase "laws, regulations andrequirements" tobeapplied inallArticle III:4cases.
Thiswould beinappropriate since eachWTO Member hasaunique form ofgovernment andlegal
system andnoonedefinition could adequately encapsulate "alllaws, regulations andrequirements"
asthose terms relate totheWTO ’smore than120Members. Inthisrespect, theUnited States points
outthatpriorpanels havelooked atavariety offactors inexamining whether government action may
bedeemed alaw,regulation orrequirement under Article III:4. These factors include, i.e.,whether
aMember threatened punishment oroffered aninducement, butalsoother considerations. Moreover,
thepanel report onCanada -Administration oftheForeign Investment Review Act("Canada -FIRA"),
found "undertakings," orcontractual commitments, made byprivate investors withtheCanadian
Government tobe"requirements"1064andexpressly rejected Canada ’sargument thata"requirement"
could notbefound where thecontractual relationship involved wasessentially aprivate one.1065The
panel onCanada -FIRA explained thatitdidnotfeelconstrained tolimitthetypes ofmeasures that
could bedeemed "laws, regulations andrequirements" tothose previously recognized assuchbyother
panels: "Any interpretation which would exclude case-by-case action would, intheviewofthePanel,
defeat thepurposes ofArticle III:4".1066Therefore, theUnited States emphasizes, thepanels inthese
cases innowaysuggested thattheyhadformulated orwerefollowing anysetofgenerally applicable
criteria.
(ii) Japan 's"administrative guidance" inthelightofGATT precedents
7.23 TheUnited States submits thattheneedforcase-by-case review ofwhether government action
hasoccurredisparticularlystronginthisdisputebecauseJapancarriesoutitspoliciesthroughacomplex,
opaque system inwhich traditional legalmeasures areinterwoven withadministrative guidance and
other informal measures. Given itsunusual character, theJapanese regime isnoteasily compared
tothose found inother nations. TheUnited States quotes oneofJapan’sleading trade scholars who
defined that"administrative guidance isadefacto,rather thanadejure,directive issued bygovernment
officials ...Inabroad sense, administrative guidance isaformofgovernment regulation which imposes
some kinds ofrules ofconduct onprivate individuals orenterprises".1067Noting thepeculiarity of
theJapanese system, thetradescholar alsostated that"thedegree ofpervasiveness andtheimportance
ofadministrative guidance intheJapanese governmental process isprobably unique toJapan".1068
7.24 TheUnited States points outthattheJapan -Semiconductors panel found Japan’sregime of
formal andinformal measures tobe"prohibitions orrestrictions" forpurposes ofArticle XIofGATT
1063Ibid., p.54,para. 5.20.
1064Canada -FIRA,adopted on7February 1984, BISD 30S/140, 159, para.5.6.
1065Ibid.
1066Ibid., p.159, para. 5.5.
1067Matsushita Mitsuo, International Trade andCompetition LawinJapan, 1993, p.60,USEx.93-1.
1068Ibid.WT/DS44/R
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eventhough noformally binding ormandatory measures hadbeenimposed.1069Thepanel relied upon
thefollowing analysis inreaching thisconclusion:
"Government-industry relations varied from country tocountry, from industry to
industry, andfromcasetocaseandwereinfluenced bymany factors. There wasthus
awide spectrum ofgovernment involvement ranging from, forinstance, direct
government orders tooccasional government consultations withadvisory committees.
ThetaskofthePanel wastodetermine whether themeasures taken inthiscasewould
besuchastoconstitute a[violation]".1070
"The Panel considered thatthecomplex ofmeasures exhibited therationale aswell
astheessential elements ofaformal system ofexport control. Theonlydistinction
inthiscasewastheabsence offormal legally binding obligations inrespect of
exportation orsaleforexport ofsemi-conductors. However, thePanel concluded that
thisamounted toadifference informrather thansubstance because themeasures were
operated inamanner equivalent tomandatory requirements ...".1071
7.25 TheUnited States explains thattheconclusion oftheSemiconductors panel comports withthose
ofthepanel onJapan -Certain Agricultural Products which found that"thepractice of'administrative
guidance 'played animportant role" intheenforcement oftheJapanese supply restrictions, thatthis
practice was"atraditional toolofJapanese government policy based onconsensus andpeerpressure"
andthatadministrative guidance inthespecial circumstances prevailing inJapan could therefore be
regarded asagovernmental measure.1072Inthatcase, Japan hadtaken theposition thatwhile "itwas
irrelevant whether ornot[its]measures weremandatory andstatutory," itwassignificant whether the
measures "were effectively enforced bydetailed directives andinstructions tolocalgovernments and/or
...organizations". Japan hadexplained that"such centralised andmutually collaborative structure
ofpolicy implementation wasthecruxofgovernment enforcement inJapan".1073
7.26 Japan responds thattheJapan -Semiconductors panel noted explicitly that"Article XI:1, unlike
other provisions oftheGeneral Agreement, didnotrefertolawsorregulations butmore broadly to
measures"1074andtherebyestablishedstrictcriteriaforwhenJapaneseadministrativeguidanceconstitutes
a"measure".1075Items which donotqualify evenas"measures" inthecontext ofArticle XI:1are
not"requirements" within themeaning ofArticle IIIbecause "requirements" must satisfy astricter
testthan"measures". InJapan'sview, theECsupports thisinterpretation initsthirdparty submission.
7.27 TheUnited States explains thatinthepresent caseJapan resorted toavariety ofmeasures
such asadministrative guidance, coupled with more formal measures, inaccomplishing the
"systemization"and"rationalization"ofdistributioninthephotographicmaterialssector.Japanattempts
tominimize theimportance ofanyadministrative guidance inthiscontext claiming itwasjust
"promotional" ormerely advisory. TheUnited States requests thePanel nottoaccept suchlabels or
technical distinctions buttoscrutinize theJapanese Government ’sactions inthetotality ofthe
circumstances inwhich theyoccurred. Thegovernment planned, promoted andfacilitated the
consolidation oftheprimary distribution channels inthephotographic materials market. The
1069PanelonJapan-TradeinSemiconductors("Japan-Semiconductors"),adoptedon4May1988,BISD35S/116,157-158,
para. 117.
1070Japan -Semiconductors ,pp.154-155, para. 108.
1071Ibid., p.155, para. 109.
1072Japan -Restrictions onImports ofCertain Agricultural Products ("Japan -Certain Agricultural Products"), adopted
22March 1988, BISD 35S/163 .
1073Japan -Semiconductors ,p.154, para. 107, citing Panel onJapan -Certain Agricultural Products .
1074Ibid., pp.153-154, para. 106.
1075Ibid., p.155, para. 109.WT/DS44/R
Page329
government 'sactions viewed collectively orindividually constitute "laws, regulations andrequirements"
asthose terms areused inArticle III:4. TheUnited States emphasizes thatJapan should bear
responsibility fortheactions ofitsgovernment.
(iii) Arespecific distribution measures "laws, regulations andrequirements"?
7.28 Japan takes theposition thatanexamination ofthelistof"distribution countermeasures"
challenged bytheUnited States reveals thatmost ofthecited items donotconstitute a"law" ora
"regulation", nordotheyqualify as"requirements" within themeaning ofArticle III.InJapan'sview,
theUnited States hasonlybroadly claimed thatthealleged distribution countermeasures arewithin
thescope ofthatprovision without being precise inidentifying any"law", "regulation" or"requirement"
inamanner thatgives, initsinterpretation, proper weight totheterms ofArticle III.1076
7.29 TheUnited States considers some oftheJapanese Government ’sactions havebeenformal,
others not.Theformal measures bearthetypical characteristics of"laws, regulations andrequirements":
(1) The1967 Cabinet Decision;
(2) theinternational contract notification provision ofJapan’sAntimonopoly Law;
(3) JFTC Notification 17of1967; and
(4) loans tothedomestic photographic industry bytheJapan Development Bank (JDB)
andtheSmall andMedium Enterprise Agency (SMEA).
are,intheUSview, conventional legalmeasures. They werepromulgated withalloftheprocedures
traditionally associated withconventional legalmeasures. Although theUnited States doesnotsubscribe
tothecriteria proposed byJapan, these measures would satisfy those criteria because each is
(i)mandatory, (ii)imposes obligations or(iii)involves thegrant ofagovernment benefit.
7.30 TheUnited States emphasizes thatthedistribution countermeasures emanated fromaformal
policy oftheJapanese Government, asestablished byadecision oftheJapanese Cabinet, andthey
areembodied inaseries ofconcrete actions taken byMITI anditscommittees tocarry outthe
government ’spolicy asreflected intheir reports andguidelines. Therestructuring ofJapan’s
photospecialty distribution system emanated directly from the1967 Cabinet Decision toestablish a
framework of"countermeasures tobetaken bytheGovernment" tooffset theeffects oftrade
liberalization andtoprevent foreign manufacturers from penetrating theJapanese market through its
distribution system. Toimplement thispolicy inthephotographic sector, theUnited States contends,
MITI created ahostofjointgovernment-industry committees dedicated toestablishing standardized
transactiontermsdesignedtocementexclusiverelationshipsbetweendomesticproducersandwholesalers
andretailers. Toensure compliance from theprivate sector, thegovernment monitored the
implementation ofsuchstandardized transaction terms, revised those terms andother methodologies
overtime, andcontributed technical expertise andfinancing. Thegovernment, through theJDBand
SMEA, gavefinancial support fordomestic manufacturers, wholesalers andphoto finishing laboratories
toachieve "systemization".
7.31 Japan responds thatthere wasnothing inMITI'sdistribution modernization policies that
amounted toa"law", "regulation" or"requirement" inthemeaning ofArticle IIIbecause theywere
notenacted bytheDietasa"law", norwere theypromulgated as"regulations" under therelevant
administrative procedures, nordonotqualify as"requirements" given thattheordinary meaning of
agovernment "requirement" refers clearly tosome form ofgovernment mandate. InJapan'sview,
since the1970 Guidelines donotmeetcriteria setoutinthepanel report onJapan -Semiconductors ,
1076Japan onlyconcedes that(1)theinternational contract notification requirement, and(2)SMEA financing andtheJDB
loantoKonica, are"measures" forpurposes ofArticle XXIII:1(b), butnotforpurposes ofArticle III:4. Japan further recalls
thatithasraised procedural objections against these items.WT/DS44/R
Page330
andsincethecriteria forwhen administrative guidance constitutes a"law" "regulation" or"requirement"
forpurposes ofArticle IIIare,ifanything, stricter thanthose for"measures" inthecontext of
Article XI:1, itfollows thatthepolicies inquestion falloutside thescope ofArticle III.Moreover,
inJapan'sview, several items raised bytheUnited States suchasadvisory council andpublic reports,
arenotevenofficial statements ofgovernment policy. Japan argues thatforthesame reasons that
suchreports cannot constitute "measures" forpurposes ofnon-violation complaints, theycannot be
considered "laws, regulations, orrequirements" within themeaning ofArticle III.
7.32 TheUnitedStatesrespondsthattheinformalmeasuresusedbyJapantoinstitutetherestructuring
ofdistribution were equally important asformal measures infulfilling thegovernment ’sobjectives
given thatMITI anditscommittees steered theindustry through years ofcomplicated problems on
howtoreform distribution operations. Under MITI supervision, thecommittees observed practices
intheindustry, enforced compliance withgovernment-industry recommendations andrefined strategy
overtime. Prior panel decisions suchasthepanel reports onJapan -Semiconductors andJapan -
Certain Agricultural Products ,havediscussed theJapanese system ofadministrative guidance inways
thatprove illuminating inthiscase. Thesamereasoning should beapplied toJapan'suseof"concerted
adjustment" inthephotographic materials sector inwhich thegovernment formulates andmonitors
thealteration offundamental aspects ofanindustry andwhich involved official action onthepartof
theJapanese Government andtheexecution ofdefinitive government policies. FortheUnited States,
through MITI andother government agencies, "thegovernment actsastheformulator ofamaster plan
within which private enterprises make specific business decisions".1077TheUnited States maintains
thatthisinformal guidance hadtheforce andeffect oflaws, regulations, orrequirements.
(iv) Measures "nolonger ineffect"
7.33 Inthealternative, Japan argues thatontheassumption thatthealleged "distribution
countermeasures" would everhaveconstituted "laws, regulations, orrequirements" within thescope
ofArticle III,theyarenolonger ineffect andtherefore cannot befound toviolate Article III.Each
andevery oneofMITI’salleged distribution policies ofthe1960s and‘70soccurred decades agoand
hasbeensuperseded bymorerecent policies andindustry actions. Inparticular, MITI’s1990 Guidelines
target many ofthesame "irrational" distribution practices (e.g., rebates, returns, dispatching ofsales
employees tocustomers), aswereaddressed inthe1970 Guidelines. However, Japan contends that
nowtheMITI’srecommendations areexplicitly identified bytheUnited States asimproving market
access. According toJapan, theUnited States recently urged theJapanese industry tofollow the
recommendations ofthe1990 Guidelines.
7.34 Japan takes theviewthatsince virtually alloftheitems andpolicies included intheUnited
States claims under Article IIIarenolonger ineffect1078,itappears thattheUnited States claims boil
down totheargument thatthecontinuing effects ofthe"distribution countermeasures", i.e.,thecurrent
market structure forthedistribution offilmandpaper, are"laws", "regulations" or"requirements"
capable ofviolating Article III.Japan requests thePanel toreject thisargument based onitsreasoning
1077TheUnited States points outthattotheextent MITI oranother relevant regulatory agency isdissatisfied withprivate
sector intentions orperformance, thegovernment mayrecommend modification ofanindustry 'splan. MITI hasmany tools
atitsdisposal tostrengthen adomestic industry. Itmayaidinthecreation ofacartel, regulate price orproduction, promote
mergersandacquisitionsamongcompetitorsandcreatejointbuyingorsellingagencies.Coercivemeasuresarerarelynecessary
because, attheheart ofMITI’sreorganization efforts, isadiminution incompetition thatislikely tobenefit participating
enterprises. Whereas government scrutiny likely would beanimpediment ifprivate actors were toattempt toeffectuate
suchaplanontheirown, MITI’sroleallbutensures thatnoenforcement action willbetaken bytheJFTC orother government
agencies.
1078Japan notes thatNotification 17wasrepealed inApril 1996. Furthermore, Japan submits thatabilltorepeal the
International Contract Notification requirement hasbeenintroduced totheDiet, inlightoftheglobalization oftheJapanese
economyandforthereductionoftheadministrativeburden.Thebilltorepealtheinternationalcontractnotificationrequirement
waspassed inJune 1997. Simultaneously, JFTC Rule No.1under Article 6oftheAntimonopoly Lawwasabolished.WT/DS44/R
Page331
presented inrelation totheUSnon-violation claims against theabove-mentioned "measures" which,
inJapan'sview, applies withequal ifnotgreater force inrespect ofaviolation claim under Article III.
Moreover, Japan notes thattheUnited States concedes that"MITI ’ssystemization program waslargely
complete" by19751079,andexplicitly acknowledges thatmarket structure isnotevena"measure" within
themeaning ofArticle XXIII:1(b).
7.35 TheUnited States emphasizes thatitalleged atnopoint during thisproceeding thatthemarket
structure wasa"law, regulation orrequirement". Totheextent thattheUnited States referred toprivate
sector activities, itdidsoonlytodemonstrate howtheprivate sector acted inthemanner planned and
orchestrated bytheJapanese Government. TheUnited States, however, regards Japan’sbottle-necked
distribution system tobecompelling evidence oftheJapanese Government ’ssystematic efforts toerect
abulwark against foreign competitors. IntheUSview, thatmarket structure isthedirect result of
numerous actions bytheJapanese Government tostrengthen tiesbetween domestic manufacturers and
theprimary photospecialty wholesalers.
7.36 Japan recalls thatArticle XXIII:1(a) authorizes dispute settlement inviolation cases onlywhen
abenefit "isbeing nullified orimpaired" by"thefailure ofanother contracting party tocarry outits
obligations under thisAgreement". Theuseofthepresent tense indicates that,inthecontext of
Article III,some present andongoing law,regulation, orrequirement mustbeatissue. Specifically,
Article 3.7oftheDSUcontemplates threepossible outcomes intheabsence ofanegotiated settlement:
(1)withdrawal oftheoffending measure, which isexplicitly thepreferred alternative1080;(2)provision
ofcompensation asatemporary measure pending withdrawal oftheoffending measure; and
(3)suspension ofconcessions orother obligations bytheaggrieved Member iftheoffending measure
isnotwithdrawn. Article 19.1oftheDSUfurther confirms thatwithdrawal oftheoffending measure
istheprimary remedy: "Where apanel ortheAppellate Body concludes thatameasure isinconsistent
withacovered agreement, itshallrecommend thattheMember concerned bring themeasure into
conformity withthatagreement". InJapan'sview, thislanguage supports theconclusion thatonly
measures thatarecurrently ineffect areproperly before thePanel, sinceonlymeasures thatarecurrently
ineffect canbebrought intoconformity withtherelevant agreement. Japan emphasizes thatthelatter
twooptions presuppose theunavoidable continuation oftheoffending measure andthat,accordingly, -
ifthemeasure inquestion isnolonger ineffect -,thecomplaining party hasitsremedy andthemost
thatdispute settlement could accomplish hasalready happened. Japan further points outthatevenif
thePanel were tofindpastviolations, there would benoviable remedy available under theDSU.
Japan maintains thatitisbeyond thescope ofWTO dispute settlement topunish parties foralleged
transgressions ofthepast,ortoorder "affirmative action" inanattempt toundo thepast.
7.37 Inresponding toJapan'sargument onmeasures nolonger ineffect, theUnited States relies
uponitsposition, described above inPartVI.C.1. on"Governmental Measures", inparticular onsection
(d),entitled "Measures applied andmeasures ineffect".1081
7.38 Japan notes thatNotification 17wasrepealed inApril 1996. Therefore, Japan argues that
itshould notbethesubject ofthepresent proceeding. Norwillthegeneral designation ofunfair trade
practices under theAntimonopoly Lawoperate tocontinue thecontent oftheregulation. TheJFTC
willnotactautomatically against thepremium offers inexcess of100,000 yen;itwilltakemeasures
onlywhen specific harmtofaircompetition isproven. "Normal business practice" refers notto100,000
yen,buttothepractice acceptable from thepoint offaircompetition. Furthermore, Japan submits
thatabilltorepeal theInternational Contract Notification requirement hasbeenintroduced inMarch
1079Japan notes thattheUnited States usestheterm "systemization" tocover bothrationalization policies (the1970
Guidelines) andsystemization policies (reflected bythe1975 Manual).
1080Article 3.7oftheDSU specifies thattheprimary remedy inviolation cases iswithdrawal oftheoffending measure.
1081Seeparas. 6.119-6.126 above.WT/DS44/R
Page332
1997 totheDiet. Thebillwasenacted inJune1997, andthusthisrequirement hasbeenabolished.
Simultaneously, JFTC RuleNo.1under Article 6oftheAntimonopoly Lawwasabolished.
(b) "Less favourable treatment" inthemeaning ofArticle III:4
(i) Thelegal test
7.39 TheUnited States argues thattherequirement inArticle III:4thatimports aretoreceive
"treatment nolessfavourable thanthataccorded tolikeproducts ofnational origin" hasbeenconstrued
tomean that,ataminimum, government actions affecting thedistribution orsaleofgoods mustapply
toimports inthesame waythattheyapply tolikedomestic products. "[T]he intention ofthedrafters
...wasclearly totreattheimported products inthesame wayasthelikedomestic products oncethey
hadbeencleared through customs. Otherwise indirect protection could begiven".1082Though different
treatment mayinsome instances afford equal orbetter conditions forimports, andthusmaybe
permissible under Article III:41083,anynarrowing oftradeopportunities ortheimposition ofadditional
burdens forimports runsafoul ofthenational treatment principle.1084AWTO Member maynot
improperly "tipthebalance" ofcompetitive conditions infavour ofdomestic products.1085Article III:4
serves toprotect "expectations onthecompetitive relationship between imported anddomestic
products."1086Theextent towhich restrictions haveimpaired actual trade flows areunimportant.1087
7.40 Japan notes thattheproper limits oftherequirement toaccord "nolessfavourable" treatment
areframed bythelanguage ofArticle III:4which concerns governmental measures. Therefore, the
"treatment nolessfavourable" mustflowfromthe"laws", "regulations" or"requirements" indispute,
notfrom actsofprivate parties orother general circumstances. Theplain meaning oftheprovision
thusdemands thatthefocus ofArticle IIIanalysis beontheprovisions ofgovernment measures, not
onthehappenstance ofmarket conditions.1088
7.41 Japan further responds thattheelement of"nolessfavourable" treatment should beinterpreted
inview ofthegeneral purpose ofArticle IIItoprotect theequal competitive relationship between
imported anddomestic products bypreventing discriminatory treatment bygovernments, andnotto
guarantee anyparticular results inthemarketplace. TheAppellate Body report onJapan -Taxes on
Alcoholic Beverages recently reconfirmed that"Article IIIprotects expectations notofanyparticular
trade volume, butrather oftheequal competitive relationship between imported anddomestic
products".1089
7.42 Japan submits thatthephrase "nolessfavourable" mustbereadinthecontext ofthegeneral
principle contained inArticle III:1thatgovernment measures should notbeapplied "soastoafford
protection todomestic production". TheAppellate Body report inJapan -Taxes onAlcoholic Beverages
1082Panel Report onItalian Discrimination against Imported Agricultural Machinery ,adopted on23October 1958, BISD
7S/60, 63-64, para. 11.
1083SeePanel Report onUnited States -Section 337oftheTariff Actof1930 ("United States -Section 337") ,adopted
on7November 1989, BISD 36S/345, p.386, para. 5.11.
1084SeePanel Report onUnited States -Imports ofCertain Automotive Spring Assemblies ,adopted on26May1983, BISD
30S/107.
1085Panel Report onCanada -FIRA,adopted on7February 1984, BISD 30S/140, 166, para. 6.3.
1086United States -Section 337,BISD 36S/345, 387,para. 5.13, citing Panel Report onUnited States -Taxes onPetroleum
andCertain Imported Substances ,adopted on17June 1987, 34S/136, 158-159, para. 5.1.9.
1087United States -Section 337,op.cit.p.387, para. 5.13.
1088AsJapan discussed inrelation totheUSnon-violation claims, whether aparticular government policy accords "no
lessfavourabletreatment"toimportsthantoadomesticlikeproductistobejudgedbasedonthelaw,regulation,orrequirement
itself, andnotonthealleged consequences, i.e.,theallegedly "closed" distribution network intheJapanese filmmarket
today.
1089Japan -Taxes onAlcoholic Beverages ,WT/DS8, 10,11/AB/R, AB-1996-2, p.16.WT/DS44/R
Page333
recently affirmed that"[t]his general principle informs therestofArticle III".1090Thefocus of
Article III:1onprotectionism confirms thatArticle III:4isconcerned withdiscriminatory treatment,
notincidental burdens unrelated totheactual provisions ofthemeasures indispute.
7.43 TheUnited States emphasizes thatArticle III:4makes clear thatMembers maynotaccord
lessfavourable treatment inrespect of"alllaws, regulations andrequirements ...affecting ...
distribution" and,therefore, doesnotpermit WTO Members todeny foreign manufacturers access
todistribution channels thatareavailable todomestic manufacturers. Prior panels havefound that
government measures limiting distribution opportunities forimports violated Article III:4. Inparticular,
thiswasmade clearintwopanel reports thatpreviously addressed limitations applied onthedistribution
andsaleofimported alcoholic beverages: Canada -Import, Distribution andSaleofCertain Alcoholic
DrinksbyProvincialMarketingAgencies("Canada-AlcoholicDrinks")1091andUnitedStates-Measures
Affecting Alcoholic andMaltBeverages ("United States -Alcoholic Beverages") .1092
7.44 JapandistinguishesthepanelreportsonCanada-AlcoholicDrinksandUnitedStates-Alcoholic
Beverages from thepresent caseonthegrounds thatinthose cases, imports were legally forbidden
from using certain distribution channels thatwere opentodomestic products.
7.45 TheUnited States rejects Japan'sargument because itgoestothenature ofthemeasures
underlying thedisputes, i.e.,whether thegovernmental action constitutes alaw,regulation or
requirement. TheUnited States maintains thatthese cases stand fortheproposition thatgovernment
action resulting inadiminution ofdistribution opportunities forimported products constitutes less
favourable treatment under Article III.
7.46 IntheUSview,inCanada-AlcoholicDrinksthepanelexaminedwhetherprovincialliquor-board
restrictions onaccess forimported beertocertain points ofsalewere consistent withthenational
treatment principle ofArticle III:4. Thepanel concluded thatimported beerhadnotbeenafforded
lessfavourable treatment because itdidnothaveaccess tothesame distribution channels asdomestic
beer. Inreaching thisoutcome, thepanel rejected anargument proffered byCanada thatwasincertain
respects similar totheonecurrently being made byJapan. Canada maintained thatmany ofthepoints
ofsaledenied toforeign beerwere controlled byprivate businesses andthatanyhardship befalling
imports wastheresult ofprivate conduct.1093Thepanel, however, didnotfindpersuasive Canada 's
contention thatprivate distribution systems werefreetocarry foreign beerand,thus,thegovernment
should notbeheldresponsible forprivate business decisions torefrain fromdoing so.Thepanel decided
that"imported beerhadaccess tofewer points ofsalethandomestic beerbecause domestic brewers
wereauthorized toestablish private retail stores orhadaccess toretail outlets inwhich imported beer
could notbesold".1094
7.47 Inreaching thisconclusion, thepanel relied onthestandard setforth bythepanel onUnited
States -Section 337which explained that"thewords ‘treatment nolessfavourable ’callfor"effective
equality ofopportunities forimported products inrespect ofalllaws, regulations andrequirements
affecting theirinternal sale,offering forsale,purchase, transportation, distribution oruse."1095In
particular, thepanel reasoned thatwhether imports enjoy "equal opportunities" turns"onthedistinctions
1090Ibid., p.18.
1091PanelonCanada-Import,DistributionandSaleofCertainAlcoholicDrinksbyProvincialMarketingAgencies("Canada
-Alcoholic Drinks") ,DS21/R, adopted on18February 1992, BISD 39S/27.
1092PanelReportonUnitedStates-MeasuresAffectingAlcoholicandMaltBeverages("UnitedStates-AlcoholicBeverages"),
DS23/R, adopted on19June 1992, BISD 39S/206.
1093Canada -Alcoholic Drinks ,op.cit.,pp.44-45, para. 4.9.
1094Ibid., p.75,para. 5.5.
1095United States -Section 337,BISD 36S/345, 386, para. 5.11.WT/DS44/R
Page334
made bythelaws, regulations, orrequirements themselves andontheirpotential impact, rather than
ontheactual consequences forspecific imported products".1096
7.48 TheUnited States further refers tothepanel onUnited States -Alcoholic Beverages which
concerned statelawsrequiring imported beerandwinetobesoldonlythrough wholesalers while some
in-state likeproducts werepermitted tobesolddirectly toretailers. Thepanel found thatestablishing
different distribution channels forimported anddomestic beerandwine constituted lessfavourable
treatment ofimported products within themeaning ofArticle III:4.1097Thepanel "considered as
irrelevant ...thatmany -orevenmost -in-state beerandwineproducers preferred tousewholesalers
rather thanmarket theirproducts directly toretailers ...". Thepanel explained that,unlike imported
beer, certain domestic producers located inthestates inquestion "have theopportunity tochoose their
preferred method ofmarketing. Thepanel considered thatitistheverydenial ofthisopportunity in
thecaseofimported products which constitutes lessfavourable treatment".1098
(ii) "Less favourable treatment" based onproduct origin orproduct characteristics
7.49 Japan explains thatthere havebeenonlytwokinds ofcases inwhich laws, regulations, or
requirements haveeverbeenfound toviolate national treatment. Thefirsttypeofcaseinvolves laws,
regulations, orrequirements inwhich different treatment wasaccorded tosimilar or"like" products
explicitly based ontheirorigin. Inthese cases, thequestion before thepanel waswhether imported
products were treated anylessfavourably thandomestic products duetodifferences inthelegal
provisions.1099Japan underlines thatthedistribution measures atissue donotmake anydistinctions
between goods based oncountry oforigin. According toJapan, thislineofcases doesnotsupport
theUSclaims.
7.50 Thesecond typeofcaseinJapan'sunderstanding involves laws, regulations orrequirements
inwhich different treatment wasaccorded toproducts based oncharacteristics other thanorigin. In
these cases, certain measures apply tooneproduct andnotanother, eventhough theproducts may
beconsidered assimilar or"like" products. When suchmeasures aredeemed toaccord lessfavourable
treatment toimported products, thesemeasures maybefound toviolate Article III.1100However, Japan
emphasizes thatthealleged Japanese distribution measures donotdrawanylineatallbetween products
based onanyproduct characteristics.
7.51 TheUnited States responds thatifinJapan'sviewGATT precedent confines "treatment less
favourable" tomean either overt discrimination based onthecountry oforigin ofproducts or
discrimination based onartificial orimmaterial distinctions between products, Japan ineffect argues
thatonlycases ofdejurediscrimination fallwithin theprohibition ofArticle III:4. IntheUSview,
1096Ibid., pp.386-387, paras. 5.11 and5.13.
1097United States -Alcoholic Beverages ,op.cit., p.279-281, para. 5.31-5.32, 5.35, citing Panel Report onCanada -
FIRA,BISD 30S/140, 160-61.
1098United States -Alcoholic Beverages, op.cit.,p.279, para. 5.31.
1099Seee.g.,United States -Standards forReformulated andConventional Gasoline ,adopted on21May1996, WT/DS2/8;
United States -Measures Affecting theImportation, Internal SaleandUseofTobacco ,adopted on4October 1994, DS44/R;
United States -Taxes onAutomobiles ,dated 29September 1994, (unadopted); United States -Alcoholic Beverages ,adopted
on19June1992, BISD 39S/206; Canada -Alcoholic Drinks ,op.cit.;United States -Section 337,adopted on7November
1989, BISD 36S/345; Canada -FIRA, adopted on7February 1984, BISD 30S/140; EEC-Measures onAnimal FeedProteins ,
adopted on14March 1978, BISD 25S/49; andItalian Discrimination against Imported Agricultural Machinery ,adopted
on23October 1958, BISD 7S/60.
1100Seee.g., Japan -Taxes onAlcoholic Beverages ,WT/DS8, 10,11/R; United States -Alcoholic Beverages ,op.cit.;
United States -Taxes onPetroleum andCertain Imported Substances ,adopted on17June1987, BISD 34S/136; Japan -
Customs Duties, Taxes, andLabelling Practices onImported Wines andAlcoholic Beverages ,adopted on10November 1987,
BISD 34S/83. Japan notes thatmostArticle III"likeproduct" cases involve taxes under Article III:2rather thanregulations
under Article III:4. Thegeneral principles arethesame, however, regardless ofwhether taxes orregulations areatissue.WT/DS44/R
Page335
Japan articulates anunduly narrow construction ofArticle IIIthatisnotsupported bythelanguage
ofthearticle, priorGATT cases orthegeneral principle ofArticle III:1. Given thatArticle III:4makes
clearthat"all"laws, regulations andrequirements resulting in"treatment lessfavourable" toimported
products thandomestic products areimpermissible, theUnited States maintains thatthisprovision
contains nolimitation inthisregard andcannot besaidtoindicate arequirement thatameasure be
discriminatory onitsface.
7.52 TheUnited States contends that,while many GATT cases haveinvolved overt discrimination,
these cases innowaysuggest thatadispute mustfallintooneofthetwocategories described byJapan.
Panels havearticulated theexpansive nature ofArticle III:4byrecognizing correctly thatArticle III:4,
"informed" byArticle III:1, mustbesufficiently flexible toreach thevastarray ofsituations inwhich
WTO Members mayattempt toafford protection todomestic production byaccording imports less
favourable treatment.1101TheUnited States points outthatthepanel onUnited States -Section 337
made precisely thispointinstating that"the'nolessfavourable 'treatment requirement setoutinArticle
III:4, isunqualified".1102Thatpanel wentontoexplain thatthepresence offacial discrimination or
overtly different treatment, while animportant consideration, isnotinandofitself dispositive ofthe
question ofwhether lessfavourable treatment hasbeenaccorded. Thepanel stated that"ithastobe
recognized thatthere maybecases where application offormally identical legalprovisions would in
practice accord lessfavourable treatment toimported products".1103Onlybylooking tohowmeasures
actually apply "inpractice" willapanel beabletodetermine whether imported goods receive "effective
equality ofopportunities".1104
7.53 Inthislight, theUnited States submits thatpanels havegone beyond thefaceofmeasures,
examiningthepracticalcompetitiveopportunitiesavailableinthemarket,todeterminewhethermeasures
indispute accord lessfavourable treatment.1105Thepanel onCanada -Alcoholic Drinks addressed
seemingly even-handed minimum priceprovisions,1106which applied bothtoforeign anddomestic beer
andstated thatthenational treatment requirement "wasnormally metbyapplying toimported products
legalprovisions identical tothose applied todomestic products, butthatthere maybecases where the
application offormally identical legalprovisions would inpractice accord lessfavourable treatment".1107
Thatpanel found:
"thatminimum prices applied equally toimported beerdidnotnecessarily accord equal
conditions ofcompetition toimported anddomestic beer; whenever theyprevented
imported beerfrombeing supplied atapricebelow thatofdomestic beer,theyaccorded
infacttreatment toimported beerlessfavourable thanthataccorded todomestic beer;
when theyweresetatthelevelatwhich domestic breweries supplied beer...theydid
notchange thecompetitive opportunities fordomestic beerbutdidaffect thecompetitive
opportunities ofimported beerwhich could otherwise besupplied below theminimum
price".1108
1101These cases make plain thatArticle III:4 requires Members to"treat theimported products inthesame wayasthe
likedomestic products oncetheyhadbeencleared through customs." Appellate Body Report onJapan -Alcoholic Beverages ,
p.16.
1102United States -Section 337,op.cit., p.386, para. 5.11.
1103Ibid.
1104TheUSemphasizes thatthepanel made clear thattheanalysis ofwhether ameasure accords lessfavourable treatment
isprospective, looking atwhether theprovision inquestion "may lead" tolessfavourable treatment (Ibid., para5.13). That
noharm hadyetbeen shown onmarket access forimports didnotnecessarily effect theoutcome ofthepanel’sreview.
1105Ibid., p.394, para. 5.30.
1106"The panel tooknoteofthefactthattheminimum price wassetatthelowest price atwhich certain domestic beers
were sold." Canada -Alcoholic Drinks ,BISD 39S/27, 83-84, para5.27.
1107Ibid., p.84,para. 5.29.
1108Ibid., pp.84-85, para. 5.30.WT/DS44/R
Page336
(iii) Impact oncompetitive conditions forimported filmandpaper
7.54 Japan argues that-evenifthePanel accepts theUSargument thattheso-called "distribution
countermeasures" constitute laws, regulations, orrequirements within themeaning ofArticle III-,
itmuststilldetermine whether those laws, regulations orrequirements accord lessfavourable treatment
toimports thantolikedomestic products.
7.55 TheUnited States alleges thatbypromoting therestructuring ofthephotographic materials
distribution system, theJapanese Government modified theconditions ofcompetition intheindustry.
Whereas themajority ofphotospecialty wholesalers formerly carried multiple brands offilm,notone
ofthese wholesalers continued tohandle foreign filmafter Japan implemented thedistribution
countermeasures. TheUnited States explains that,incooperation withthedomestic industry, MITI
usedthreemethods totiewholesalers toindividual domestic manufacturers ofphotographic materials.
MITI instructed thelatter touse:1109
(1) standardized transaction terms, suchasvolume discounts, rebates andcommon credit
terms;
(2) joint activities between domestic manufacturers andwholesalers, including joint
warehouses anddistribution routes; and
(3) mutual computer links, databases andcommercial orders.
IntheviewoftheUnited States, eachofthese policies wasintended tominimize competition among
domestic manufacturers andtomake wholesalers more dependent onthedomestic manufacturer with
which itprimarily didbusiness.
7.56 TheUnited States alleges thattherationale underlying theCanada -Alcoholic Drinks andUnited
States -Alcoholic Beverages panel reports applies withequal force inthepresent circumstances. Due
toJapan'srestructuring ofthedistribution system andthecreation ofexclusive arrangements among
domestic photographic materials manufacturers andprimary photospecialty wholesalers, domestic
manufacturers have access toasignificant method ofdistribution thathasbeen denied toforeign
manufacturers. Itisirrelevant whether some alternative distribution channels maybeavailable for
foreignproducersbecauseprimarywholesalershaveconsiderableadvantageswithrespecttoinfrastructure
andtiestoretailers. Distribution opportunities havebeendenied toforeign producers asaresult of
itspolicies andactions because Japan maynotcreate asystem inwhich domestic producers aregiven
greater avenues ofdistribution thantheirforeign competitors. Accordingly, Japan’srestructuring of
thedistribution system forphotographic materials ineffect denies access toanydistribution channel
-letalone themostvaluable oneinthemarket asinthiscase-andamounts tolessfavourable treatment
inviolation ofArticle III:4.
7.57 Japan submits thatthepanel reports cited bytheUnited States arenotapplicable tothe
circumstances ofthepresent casebecause inthose cases, imports werelegally forbidden from using
certain distribution channels thatwere opentodomestic products. Inresponse totheUSargument
thatimported filmandpaper havelikewise beenexcluded from distribution channels, andthushave
beendenied "effective equality ofopportunities" required byArticle III,Japan argues thatevenifthe
domestic manufacturers ’primary wholesalers were tobedefined asaseparate distribution channel,
1109According totheUnited States, MITI established committees comprised ofgovernment andindustry officials dedicated
toforming vertical distribution channels inorder toimplement itsplans. MITI anditscommittees issued many reports urging
photographicmaterialsindustrytoaccept"systemization".Thesedocumentsrepeatedlycalledforuseofstandardizedpractices
toactasliberalization countermeasures combating foreign competition. Toensure compliance from theprivate sector, the
government coordinated theefforts ofvarious participants andcontributed expertise andfinancing. Inparticular, theUnited
Statesdescribesthatthegovernment,throughJDBandSMEA,gavefinancialsupportfordomesticmanufacturers,wholesalers,
andphoto finishing laboratories toachieve systemization.WT/DS44/R
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imports arenotlegally excluded from it.Japan asserts thattheUnited States hasnotpointed toany
governmental prohibition thatprevents those wholesalers from carrying other brands offilmifthey
sochoose.
7.58 With respect tofilm,Japan stresses thatforeign brands arenotprohibited from using any
distribution channel. Themajor foreign brand, Kodak, usesexactly thesame three basic channels
ofdistribution through which domestic filmbrands aresold. Japan explains thatKodak sellsallits
product toaprimary single-brand national wholesaler (i.e., Kodak Japan, formerly Nagase andthen
Kodak-Nagase), which thensells(1)directly tolarge retailers, (2)through secondary wholesalers,
and(3)through affiliated photofinishing laboratories. Given thatKodak, Fujifilm, andKonica allsell
through single-brand primary wholesalers, itisnecessarily thecasethattheydonotsellthrough the
sameparticular primary wholesalers because, bydefinition, asingle-brand wholesaler isonlycarrying
theproducts ofasingle manufacturer ataparticular point intime. Thisdoesnotmean, though, that
imports havebeenexcluded from adistribution channel.
7.59 Withrespect topaper ,Japan contends thatimported paper issoldthrough thesamedistribution
channels asdomestic paper.1110Since paper customers onlyuseonebrand ofpaper atatime, forJapan
itfollows ofnecessity thatforeign anddomestic paper producers donotshare thesame customers at
anygiven time; nevertheless, theyallusethesame basic channels ofdistribution. InJapan'sview,
there hasbeennoexclusion. Inthealternative, evenifthespecific customers ofthedomestic paper
manufacturers aredefined asconstituting aseparate distribution channel, Japan argues thatthere is
nogovernmentalprohibitionthatpreventsthosecustomersfromswitchingpaperbrandsiftheysochoose.
7.60 TheUnited States responds thatKodak Japan, which wascreated through amerger witha
division ofaJapanese import-export company, isnota"primary photospecialty wholesaler." Kodak
Japan isthelocalsubsidiary thatEastman Kodak established todistribute itsproducts afterthecompany
lostaccess toallmain photospecialty wholesalers inJapan.1111Unlike theprimary photospecialty
wholesalers, Kodak Japan doesnothavelongstanding relationships withcustomers nationwide, does
notcarry awide array ofphotospecialty products suchascameras andaccessories, doesnothavea
large nation-wide salesforce, andtherefore doesnothavethesame economies ofscale andscope as
theprimary photospecialty wholesalers. TheUnited States alsonotes thattheJapanese photographic
industry doesnotconsider Kodak Japan tobeawholesaler, asreflected inthestandard industry diagram
offilmdistribution inJapan.1112Fuji,bycontrast, hasexclusive access toalloftheprimary wholesalers.
Simply allowing aforeign manufacturer toestablish alocalsubsidiary doesnotmean thattheforeign
manufacturer hasequivalent access tothecountry ’sdomestic distribution system. With regard to
photographic paper ,foreign anddomestic firms market directly tophotographic laboratories which
theUnited States argues wereinduced toaffiliate withFujithrough SMEA programs explicitly identified
as"liberalization countermeasures.1113
(iv) Causal connection
7.61 TheUnited States emphasizes thatthelessfavourable treatment afforded bytheclosing ofthe
primary distribution system toimports ismanifest because theJapanese Government ’srolein
fundamentally altering thewayphotographic materials aresolddecisively tipsthebalance ofcompetitive
conditions infavour ofdomestic producers. While foreign manufacturers mayresort tosmaller
wholesalers ordirect salestoretailers, these alternatives arewholly inadequate. Smaller wholesalers
offer anarrow customer base andtendtobedominated byprimary wholesalers andJapanese
1110Japan elaborates thatpaper issoldthrough anaffiliated sales company to(1)affiliated photofinishing laboratories,
(2)asmall amount tomultibrand secondary wholesalers, and(3)directly toretail minilaboratories.
1111USEx.89-2 andUSEx.97-1 and2.
1112Second USSubmission, Figure 3,referenced, p.85,para. 240.
1113Seesection VI.D.3.(e)(ii) on"SMEA loans tophotoprocessing laboratories" above, inparticular paras. 6.368- 6.369.WT/DS44/R
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manufacturers. Moreover, evenifthealternatives were equally desirable, domestic manufacturers
would continue tohaveabroader range ofdistribution channels. Notonlydodomestic manufacturers
haveaccess tothealternate routes available toforeign producers, buttheyalone haveaccess tothe
primary distribution network.
7.62 Japan submits thatapart fromthefactthatanyalleged "lessfavourable treatment" doesnot
flowfrom "laws," "regulations" or"requirements," anexamination ofthealleged measures atissue
shows thatnoneofthem makes anydistinction between imported anddomestic products onthebasis
oftheirorigin, either explicitly orimplicitly. More significantly, theydonotdistinguish products
based onanycharacteristics atall:
(i) MITI recommendations contained inthe1970Guidelines apply equally towholesalers
andretailers regardless ofwhatbrand offilmtheysell.
(ii) Similarly, JDBloans andSMEA financing donotdistinguish between businesses that
selldomestic products andthose thatsellimported products.1114Therefore, Japan concludes
thatthese provisions establish "equal competitive opportunities" forimported anddomestic
filmandpaper.
(iii) Withrespect toJFTC Notification No.17,1115Japan claims thatitaccorded "treatment
nolessfavourable thanthataccorded tolikeproducts ofnational origin": First, imported
productsanddomesticproductsarenotcategorizedseparately.Second,theconceptof"premium
offers tobusiness entrepreneurs" isneither inherently related todomestic products norto
imported products. Restriction ofsuchoffers is,therefore, inJapan'sview, notinherently
lessrestrictive fordomestic products thanforimported products.
(iv) Japan explains thattheInternational Contract Notification isalsoconsistent with
Article III:4because: First, thesame procedure under theAntimonopoly Lawapplies to
enforcement actions against thesecontracts andtoactions against domestic contracts. Second,
theJFTC hasnotenforced, andwillnotenforce, MITI’spolicy through administrative guidance
under thenotification requirement.1116
7.63 TheUnited States doesnotaccept thatnone ofthealleged measures ofJapan makes any
distinction between products, either explicitly orimplicitly, based ontheircountry oforigin. Itargues
thatJapan studied theJapanese distribution sector anddesigned andimplemented theliberalization
countermeasures toprotect domestic manufacturers fromincreased foreign competition, i.e.,making
domestic manufacturers moreresistant toandcompetitive withforeign competition, asJapan liberalized
itstariffs, import quotas, andinvestments restrictions.
7.64 TheUnitedStatesfurtherarguesthatirrespectiveofthefacialneutrality1117ofJapan'sdistribution
countermeasures thetruesignificance ofthese measures canbeassessed onlyinthecontext ofthe
Japanese photographic materials market atthetimetheywereimposed andhavebeenapplied since.
1114According toJapan, photofinishing laboratories affiliated withKodak receive SMEA financing, justlikeFujifilm-
andKonica-affiliated laboratories. JDBAnnual Report, 1995, pp.26-27.
1115Japan states thatNotification 17wasrepealed inApril 1996. Therefore, Japan argues thatitshould notbethesubject
ofthepresent proceeding. Norwillthegeneral designation ofunfair trade practices under theAntimonopoly Lawoperate
tocontinue thecontent oftheregulation.
1116Abilltorepeal theInternational Contract Notification requirement hasbeen introduced totheDiet, inlightofthe
globalization oftheJapanese economy andforthereduction oftheadministrative burden.
1117TheUnited States notes thatthepanel onThailand -Cigarettes acknowledged theargument thatafacially neutral
banonadvertising could violate Article III:4inthatsucharestriction might preserve themarket superiority ofadominant
domestic supplier. Thailand -Importation ofandInternal Taxes onCigarettes ,adopted 7November 1990, BISD 37S/200,
224, para. 78.WT/DS44/R
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Prior totheimplementation ofthecountermeasures, foreign photographic materials weredistributed
through primary wholesalers largely inthesame wayasdomestic photographic materials. However,
afterthegovernment intervened inthemarket, primary wholesalers nolonger handled foreign film
andpaper butinstead exclusively handled theproducts ofdomestic manufacturers andforeign film
remains cutofffrom alloftheprimary wholesalers and,asaresult, more thanhalfofallretailers
selling film.
7.65 Japan maintains thattheUSclaim ofanArticle IIIviolation before thisPanel isutterly novel
andhasnoprecedent. InJapan'sview, theburden isontheUnited States todemonstrate thatapplication
ofthealleged measures, which donotdistinguish between imports anddomestic products, constitutes
lessfavourable treatment forimports. Japan emphasizes thatthereisnothing inherently unfavourable
toimports about encouraging more rational transaction terms, orpromoting computerization. Inthe
alternative, even iftheMITI’sdistribution policies sought toencourage single-brand wholesale
distribution offilmandaffiliations between domestic manufacturers andphotofinishing laboratories,
thereisnothing inherently discriminatory against imported products inpromoting vertical integration1118
because imports arefullycapable ofcompeting through single-brand distribution channels.1119
7.66 TheUnitedStatesinsiststhatwheneverimportedproductsaresubjecttolessfavourabletreatment
pursuant togovernment action, thenational treatment obligation isviolated. TheUnited States contends
thataccording toJapan'sinterpretation Article IIIisapplicable onlyintheevent thataWTO Member
overtly discriminates against theproducts ofother Members through highly formalized legalactivity.
Such aninterpretation would permit lessfavourable treatment tobeaccorded aslongasitisdonein
asubtle manner orthrough informal methods. IntheUSview, ifthePanel accepted Japan’sargument
thiswould mean thatArticle III:4doeslittleornothing toguard against hidden trade barriers.
7.67 Japan asserts thatthecurrent market structures forphotographic filmandpaper donotresult
fromanygovernment action, andcannot beconsidered "laws", "regulations" or"requirements." Japan
recalls thatArticle IIIapplies onlytogovernment actions, andnotprivate conduct. Itquotes from
thepanel report onUnited States -Alcoholic Beverages which states that"[t]he Article III:4requirement
isoneaddressed torelative competitive opportunities created bythegovernment inthemarket, not
totheactual choices made byenterprises inthatmarket".1120Japan concedes thattheUnited States
mayallege thatthedistribution arrangements intheJapanese filmandpaper markets constitute restrictive
business practices butmaintains thatsuchprivate practices areoutside thescope ofcurrent WTO rules.
(c) Causation ofmarket structure bygovernmental measures orprivate practices
7.68 Japan submits thattheArticle IIIargument oftheUnited States collapses duetofundamental
factual inaccuracies. InJapan'sview, acareful analysis ofthe"distribution countermeasures" during
the1960sand‘70sandtheallegedlyexclusionarymarketstructuresforimportsoffilmandpaperimports
shows thatthere isnocausal connection between theoneandtheother. ForJapan, single-brand
wholesale distribution offilmisthestandard practice throughout theworld. Japan explains thatthe
various alleged distribution measures didnotcreate single-brand distribution. IntheJapanese market,
single-brand distribution resulted fromprivate business decisions andnotfromgovernmental actions
because itevolved naturally duetothefactthattheproduction sector developed more rapidly than
1118AsJapan discusses inrelation totheUnited States non-violation claims, vertical integration maybeprocompetitive
oranticompetitive, depending ontheunique circumstances ofeach particular case.
1119Japan refers toKodak ’ssuccess intheJapanese market withrespect tox-ray film, motion picture filmandmicrofilm,
andPolaroid ’ssuccess intheinstant filmmarket despite thefactthatthese products aresoldthrough thesame kinds ofsingle-
brand distribution channels asconsumer photographic film.
1120United States -Alcoholic Beverages ,BISD 39S/206, 279-280, para. 5.31. SeealsoReview Pursuant toArticle XVI:5 ,
adopted on24May1960, BISD 9S/188, 192,para. 12("the GATT doesnotconcern itselfwithsuchaction byprivate persons
acting independently oftheir governments").WT/DS44/R
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thedistribution sector. Tocompensate fortheinefficiencies inthedistribution sector, Japanese
manufacturers, following theleadofmanufacturers inotheradvanced countries suchastheUS,decided
tointegrateforwardintodistributiontopromotetheefficientdistributionandmarketingoftheirproducts.
Given thatsingle-brand distribution emerged asapredominant industry trend already inthemid1960s
andwasvirtually complete by1968before virtually allofthealleged "distribution countermeasures"
wereimplemented, itwould belogically impossible forsubsequent government actions tobethecause
ofsingle-brand distribution. Therefore, inJapan'sview, thecurrent market structure istheresult of
private business decisions andthusnotwithin thescope ofArticle III.
7.69 TheUnited States responds thatitdoesnotpredicate itsclaim under Article IIIonthenotion
thatJapan’smarket structure forphotographic materials isa"law, regulation orrequirement", nor
doestheUnited States contend thatpurely private conduct maytrigger aviolation ofArticle III.The
United States emphasizes thatitsclaims arebased solely onthefactthattheJapanese Government
intervened inthemarket toaiditsdomestic industry inexcluding foreign competitors from themost
desirable distribution channels which fallssquarely within thepurview ofArticle III.
7.70 Japanarguesthatthereareabsolutelynogovernmentalorlegalobstaclesthatpreventtheprimary
wholesalers ofthedomestic manufacturers fromcarrying multiple brands offilm,1121orthatprevent
photofinishing laboratories fromswitching brands ofpaper.1122Japan concludes thatthusthere isno
causal connection between thecurrent market structure andthealleged measures. InJapan'sview,
whattheUnited States complains about isthedivergent competitive impact between anewbrand against
adominant brand, andnotthatbetween imported products anddomestic products.1123Japan alleges
thattheUnited States hasnotidentified anygovernmental orlegalobstacles, norhastheUnited States
identified anyongoing active government involvement inallegedly encouraging themaintenance of
these market structures.1124
7.71 Japan alsoemphasizes thatample evidence demonstrates thatimported filmandpaper enjoy
unimpeded access totheJapanese market. Foreign manufacturers arenotonlyallowed tosellthrough,
butinfactdosellthrough, thesame distribution channels usedbydomestic manufacturers. While
theUnited States argues thattheseroutes are"notviable alternatives", according toJapan, theempirical
reality shows widespread availability ofKodak brand film. InJapan'sview, Kodak Japan currently
functions asaprimary wholesaler because Kodak Japan sellsKodak brand filmtosecondary wholesalers
andretailers, justliketheother primary wholesalers doforother brands. Japan alsopoints outthat
Asanuma abandoned itsdealing withKodak filmin1975 because Kodak required Asanuma, oneof
Fuji'scurrent primary wholesalers, todealwithNagase, Kodak ’sagent andprimary wholesaler then,
andAsanuma ’scompetitor.1125
1121Japan claims thatindependent primary wholesalers carrying Fujibrand filmarefreetocarry other brands. Their
choice tohandle onlyFujibrand filmisapurely voluntary private business decision. Affidavit ofKaoru Konno, Japan Ex.
A-15. Affidavit ofYukiyoshi Noro, Japan Ex.A-14. Affidavit ofTakenosuke Katsuoka, Japan Ex.A-11. Affidavit of
Tomihiko Asada, Japan Ex.A-12.
1122Japan claims thattheirchoice toaffiliate withaparticular manufacturer isapurely voluntary private business decision.
1123InJapan 'sview, relaxation oftheregulations would notnecessarily haveoperated totheadvantage ofanewbrand,
because ofthereadiness ofadominant brand tocounter.
1124Japan points outthatinthecontext ofitsnon-violation claims, theUnited States doesnotmention any"distribution
countermeasures" occurring after theconclusion oftheTokyo Round in1979. Although theUnited States doesrefer to
the"ongoing application ofdistribution countermeasures" aftertheendoftheUruguay Round in1994, theonlyelaboration
isareference to"foreclosure from theprimary wholesale channels ofdistribution" which forJapan doesnotamount tothe
mentioning ofanygovernment action.
1125Japan argues thatAsanuma could notbuyfromNagase, andthencompete withNagase forthesame customers. Today,
asKodak Japan hassucceeded Nagase ’sbusiness towholesale Kodak film, other primary wholesalers choose nottobuy
fromKodak Japan, withwhich theywould havetocompete forthesame customers. Fujionlysellstotheprimary wholesalers
anddoesnotcompete withthem. Competition among thefourprimary wholesalers carrying Fujibrand filmisatthesame
level, theyallbuyfrom Fuji, andcompete witheach other onequal terms.WT/DS44/R
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7.72 TheUnited States notes itsearlier responses toJapan'serroneous claims thatKodak hasaccess
totheJapanesemarketonthegroundsthatKodakJapan"currentlyfunctionsasaprimarywholesaler."1126
TheUnited States further asserts thatJapan triestoattribute impeded access tothedistribution channels
exclusively toprivate conduct byarguing thatthemove tosingle-brand distribution wasbeginning
tooccur andwould haveoccurred regardless ofthegovernment 'smeasures. IfthePanel weretoendorse
sucharationale, itwould signal thatWTO Members mayaidandabetthedevelopment ofmarket forces
disadvantaging imported products. IntheviewoftheUnited States, thisresult would runcounter to
thepurpose ofArticle III.
(d) Conclusions
7.73 Insummary, theUnited States alleges thatJapan implemented thedistribution countermeasures
toaccord lessfavourable treatment toimported photographic materials. The1967 Cabinet Decision
andnumerousotherdocumentsreflectaconcernthatJapanesemanufacturerswereparticularlyvulnerable
toinroads byforeign producers making effective useofJapanese wholesalers todistribute theirproducts.
Asaconsequence, theJapanese Government adopted aseries ofmeasures specifically designed to
consolidatetheprimarydistributionchannelsunderthecontrolofJapanesefilmandpapermanufacturers,
andthereby severely restricted theopportunities forforeign manufacturers todistribute andselltheir
products inJapan. Suchactions constitute improper protection ofdomestic products andlessfavourable
treatments ofimports inviolation ofArticle III.
7.74 TheUnited States points outthatindetermining whether Japan’sdistribution countermeasures
violate Article III:4, thePanel needfindonlythatthese measures "tend totipthebalance infavour
of"Japanese producers offilmandpaper," whereas inthiscase, Japan'slaws, regulations and
requirements havedone farmore. Asaresult ofJapan'sactions, imported photographic materials
havebeenexcluded from theprimary distribution system andthushavebeensubstantially impaired
intheirability toreach abroad segment ofretail outlets.
7.75 Japan responds thattheUnited States hasfailed toidentify any"laws, "regulations", or
"requirements" thatwould serve astheappropriate subject matter foraclaim under Article III,since
itidentifies onlythecontinued existence ofsingle-brand wholesale distribution forfilmandaffiliations
betweendomesticpapermanufacturersandphotofinishinglaboratoriesas"distributioncountermeasures".
Japan'srecalls thatpurely private conduct isoutside thescope ofArticle III.AstotheMITI distribution
modernization policies ofthe1960s and‘70s,Japan emphasizes thattheadministrative guidance subject
toUSchallenge isnotwithin thescope ofArticle III.Furthermore, given thatnoneofthespecific
distribution policies fromthatperiod isstillineffect, Japan contends thattheyarenotproperly before
thisPanel.
7.76 Inthealternative, assuming thatthere"laws", "regulations" or"requirements" inthemeaning
ofArticle IIIatissue, Japan argues thattheUnited States hasfailed toshow thatthealleged measures
indispute extend "lessfavourable treatment" toimported filmandpaper. Japan emphasizes thatthe
general purpose ofthisphrase istoprotect theequal competitive relationship between imported and
domestic products andthatArticle III:4doesnotrequire anyparticular results inthemarketplace.
Furthermore, noneofthepolicies oftheJapanese Government wasapplied soastoafford protection
todomestic production within themeaning ofArticle III:1. Therefore, Japan requests thePanel to
reject theclaims raised bytheUnited States under Article III.
1126Seepara. 7.60 above.WT/DS44/R
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B. ARTICLE XOFGATT
1. INTRODUCTION
7.77 According totheUnited States ,indevising andimplementing itsbroad setofliberalization
countermeasures toprotect itsmarket from foreign competition, Japan followed theapproach of
"concerted adjustment" between government andindustry. TheJapanese Government acted behind
ashield ofopacity, deputizing orinstructing industry tocarry outpolicies, withincentives andleverage
from thegovernment standing behind private industry behaviour. Inthiscontext, foreign filmand
paper manufacturers encountered impenetrable market restrictions ofimperceptible origin. IntheUS
view, therestrictions originated withgovernment policy andactions, andtheJapanese Government
bears responsibility forpreventing itstrading partners andprivate businesses attempting tocompete
inJapan’smarket from understanding theprecise nature oftheGovernment ’sactions andtheir
consequences. These informal, non-transparent practices remain inplaceandcontinue torestrict market
access forforeign firms.
7.78 TheUSclaims focus essentially onthefollowing specific measures:
(1) Inthecontext ofthePremiums Lawandrelevant faircompetition codes, Japan'sfailure
topublish theJFTC 'sandthefairtradecouncils 'enforcement actions thatestablish ormodify
criteria applicable infuture cases violates Article X:1.
(2) Inthecontext oftheLarge Stores Lawandrelevant localregulations, Japan'sfailure
topublish guidance through which regional MITI offices, prefectural governments andlocal
authorities make applicants foraneworexpanded storeunder theLarge Stores Lawcoordinate
theirplans withlocalcompetitors before submitting anotification forgovernment review, and
continue toimpose a"prior explanation" requirement, violates Article X:1.
7.79 Asapreliminary matter, Japan notes that,while theUSrequest fortheestablishment ofthe
Panel mentioned violations ofArticle X:3ofGATT,1127theUnited States hasmade nolegal claims
under Article X:3initssubmissions tothePanel. Accordingly, Japan requests thePanel toevaluate
theUSclaims under Article Xwithexclusive reference toArticle X:1ofGATT.
7.80 Japan further responds thattheobligations ofArticle X:1donotapply tofairtrade councils '
andJFTC enforcement actions because these arenotmeasures of"general application," butonly
applications oflegalprinciples tospecific factual circumstances which donotestablish ormodify criteria
applicable tofuture cases. Thus, inJapan'sview, thepractices alleged bytheUnited States doesnot
exist.
7.81 Further, Japan contends thatnone oftheMITI branches, prefectural governments, orother
localgovernments mayeither require orrecommend thatstoreopeners provide prior explanations to,
orholdpriorconsultations with, localretailers. Japan emphasizes thatithascorrected andisprepared
tocorrect anysuchpractice upon discovery.
1127LetterfromUSAmbassadorBoothGardnertoWTODisputeSettlementBodyChairmanH.E.Mr.CelsoLaferRequesting
theEstablishment ofaPanel on20September 1996.WT/DS44/R
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2. THE LEGAL TEST
7.82 Article X:1provides intherelevant partasfollows:
"Laws, regulations, judicial decisions andadministrative rulings ofgeneral application,
made effective byany[WTO Member], pertaining totheclassification orthevaluation
ofproducts forcustoms purposes, ortoratesofduty, taxes orother charges, orto
requirements, restrictions orprohibitions onimports orexports oronthetransfers of
payments therefore, oraffecting thesale, distribution, transportation, insurance,
warehousing, inspection, exhibition, processing, mixing orotheruseshallbepublished
promptly insuchamanner astoenable governments andtraders tobecome acquainted
withthem".
7.83 TheUnitedStatessubmitsthatthepurposeofthisprovisionistoensureadegreeoftransparency
intheimposition ofgovernmental measures thatmayaffect thecompetitive opportunities ofWTO
members. Suchmeasures mustbe"published promptly" inorder "toenable governments andtraders
tobecome acquainted withthem".1128TheUnited States explains that,when aWTO Member fails
tofulfilitsobligations under Article X:1,foreign firms andtheirgovernments areunable tounderstand
the"rules oftheroad" inthatmarket andareimpeded intheirability toassess whether fundamental
GATT rights, e.g.,therighttonolessfavourable treatment under Article IIIandtherighttobenefits
arising outoftariff concessions inaccordance withArticles IIandXXIII:1(b), arebeing nullified or
impaired bythatWTO Member.
7.84 Japan explains thatinorder toprove aviolation ofArticle X:1,theUnited States hastoestablish
theexistence ofthefollowing elements:
(i) There isalaw,regulation, judicial decision oradministrative ruling
(ii) ofgeneral application ,
(iii) made effective byany[WTO Members],
(iv) pertaining to...requirements, restrictions orprohibitions onimports, ...oraffecting
theirsale,distribution [ofproducts] ...
(v) [that] hasnotbeenpublished promptly insuchamanner astoenable governments and
traders tobecome acquainted withthem.
Only when ameasure meets allofthese elements stipulated intheprovision, doesagovernment owe
anobligation topublish under Article X:1.
(a) "Laws, regulations, judicial decisions oradministrative rulings"
7.85 InJapan'sview, itisclear thatnoneofthealleged measures indispute amounts toa"law"
or"regulation" since noneofthemwasenacted bytheDiet, orwaspromulgated asaregulation under
therelevant administrative procedures. Likewise, forJapan itisobvious thatnone ofthealleged
measures qualifies asa"judicial decision".
7.86 Withrespect to"administrative rulings", Japan underscores thatitiscritical toremember that
ArticleX:1requirespublicationonlyofadministrativerulingsof"generalapplication".Thisrequirement
iscrucial especially inevaluating theUSclaims under Article Xrelating tothePremiums Law. In
Japan'sview, theUSallegation lacksspecificity, anditisdifficult todiscern bywhatcriteria theUnited
States concludes thatcertain enforcement actions areadministrative rulings of"general application"
tobepublished under Article X:1. Thus Japan claims thattheUnited States hasfailed toidentify any
1128SeePanel Report onEEC-Restrictions onImports ofDessert Apples, Complaint byChile,adopted on22June1989,
36S/93, 133, paras. 12.29-12.30.WT/DS44/R
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appropriate subject matter tobepublished under Article X:1. Although, theUSclaim isbased on
"administrative rulings", theUnited States failstospecify which administrative rulings areinviolation
ofArticle X.
7.87 TheUnited States confirms thatitsArticle X:1claims arebased onadministrative rulings
andnoton"laws, regulations, orjudicial decisions. TheUnited States agrees thattheobligations of
Article X:1apply onlytoadministrative rulings ofgeneral application. Itasserts thatJapan enforced
thePremiums LawandtheRetailers FairCompetition Code aswellastheLarge Stores Lawprimarily
through informal, unpublished enforcement actions inamanner inconsistent withArticle X.
7.88 Japan notes thatthepanel report onUnited States -Restrictions onImports ofCotton and
Man-made Fibre Underwear interpreted thephrase "general application" asmeaning that"[i]f, for
instance, therestraint wasaddressed toaspecific company orapplied toaspecific shipment, itwould
nothavequalified asameasure ofgeneral application".1129From thatJapan concludes thattheinformal
actions concerning thePremiums LawandtheRetailers Code arenotof"general application".
7.89 TheUnited States maintains thatJapan’sfailure topublish notice of"administrative rulings
ofgeneral application" runscounter toArticle X:1. Although, noGATT orWTO precedent squarely
addresses theissue, theUnited States submits thatJapan haspreviously taken theposition thatthe
publication requirement ofArticle X:1extends tothedisposition ofindividual matters byan
administrative agency, especially where principles applicable tofuture decisions areestablished. In
the1990 panel report onEEC-Regulation onImports ofParts andComponents, Japan challenged
theEEC’spractices regarding theacceptance ofundertakings pursuant totheEEC’santi-dumping
regulation andthedetermination oftheorigin ofpartsusedinassembly operations. Japan argued that:
"[t]he EEC hadnotmade public thecriteria usedintheconsideration ofoffers of
undertakings ....While theconditions under which duties could beimposed were
defined ...theonlyavailable information regarding theconditions under which the
EECwould consider undertakings acceptable consisted ofletters andoralexplanations
bytheEEC officials tocompanies involved inproceedings".1130
"[T]he issue ofthedetermination oftheorigin ofpartsormaterials usedinassembly
operations intheEEC hadledtodifficulties ....Itwasonlyafteraninvestigation
...started thatcompanies engaged inassembly operations within theEECwereina
position toascertain howtheEECCommission would determine theorigin oftheparts
usedinthese operations ...[I]npractice, there existed thepossibility ofchanges in
thecriteria todetermine origin ...Thishadledtoproblems forcertain Japanese
producers".1131
7.90 TheUnited States notes thatbecause thepanel inEEC-Parts andComponents resolved the
matter onother grounds, itchose nottoaddress Japan’sArticle Xargument. Nonetheless, theUnited
States suggests thatJapan’sprevious articulation before thatpanel ofthetypeofadministrative rulings
thataresubject toArticle Xshould govern inthepresent case. TheUnited States explains thatitdoes
notcontend thatArticle Xrequires allenforcement actions, nomatter howlimited inscope or
insignificantindevelopingnewdoctrine,bemadepublic.However,ArticleX:1mandatesthepublication
1129Panel Report onUnited States -Restrictions onImports ofCotton andMan-Made Fibre Underwea r,WT/DS24/R,
adopted on25February 1997, para. 7.65. Thisfinding isupheld bytheReport oftheAppellate Body. Appellate Body
Report onUnited States -Restrictions onImports ofCotton andMan-Made Fibre Underwear ,WT/DS24/AB/R, adopted
on25February 1997.
1130Panel Report onEEC-Regulation ofImports ofParts andComponents ,adopted on16May1990, BISD 37S/132,
155, para. 3.53.
1131Ibid., p.156, para. 3.54.WT/DS44/R
Page345
ofadministrative rulings thatestablish orsubstantially revise criteria which subsequently maybeapplied
inothercases inthefuture, recognizing ofcourse thatalldisputes should beanalyzed onacase-by-case,
fact-specific basis. Thisisparticularly significant inthepresent instance because ofthemultiple
enforcement bodies involved, eachofwhich mayfollow criteria differing fromtheothers. Thus, the
United States claims thatJapan’slackoftransparency inthefrequent useofunpublished enforcement
actions failstomake public applicable criteria andguidance thatmayberelied upon asprecedent in
future cases. Japan’scomplaint about theEC'measures inEEC-Parts andComponents applies with
equal force inthepresent dispute andthusJapan should beinstructed topublish Premiums Lawand
Large Retail Store enforcement actions ofgeneral applicability sothattraders andWTO Members may
become acquainted withthem.
7.91 WhileJapanmaintainsthepositionittookinEEC-PartsandComponents,i.e.,thatArticleX:1
mandates thepublication ofadministrative rulings thatestablish orsubstantially revise criteria which
subsequently maybeapplied inother cases1132,itemphasizes thatitsposition doesnotapply tothe
present case. Japan considers thatithasdulypublished alllaws, regulations, judicial decisions or
administrative rulings ofgeneral application relating tothePremiums LaworLarge Retail Stores Law
inamanner thatenables governments andtraders tobecome acquainted withthem. Japan maintains
thattheUnited States failstoidentify anyparticular unpublished enforcement actions thatfallinthe
definition of"general application" and,therefore, hasfailed todischarge itsburden ofproof inthis
regard. Therefore, theUnited States hasfailed toidentify anyproper subject matter foranArticle X:1
claim, anditisthusirrelevant whether anyofthesealleged measures havebeenpublished inaccordance
withArticle X:1.
3. MEASURES TAKEN INTHE CONTEXT OFTHE PREMIUMS LAW
(a) Premiums Lawenforcement actions
7.92 TheUnited States alleges thatJapan contravenes thepublication requirement ofArticle X:1
becauseJapan'senforcementofitspremiumandrepresentationprovisionsisshroudedinsecrecyresulting
fromtheuseofinformal mechanisms. Accordingly, Japan isalleged ofhaving established acomplex,
multi-tiered enforcement system foritspremium andrepresentation restrictions. Under thePremiums
Law, theJFTC, theprefectures anddeputized private sector councils haveauthority toenforce the
law.Thenumber ofentities involved inpolicing promotional activities results insubstantial confusion
forenterprises doing business inJapan. Notonlyareregulated businesses attimes unsure astowhich
enforcement body islikely totakeaction onaparticular matter, butthose subject totherestrictions
haveaccess tolittleornopublic record reflecting howtheJFTC, aprefecture oracouncil mayhave
addressed similar factsinthepastand,thus,howitisapttoruleinthefuture. Thisconfusion principally
arises from Japan’sfailure topublish alarge percentage ofadministrative rulings andenforcement
actions taken andthedifficulty inobtaining whatlittleinformation maybeavailable. Therefore, the
United States alleges thatJapan’spractice offailing topublish enforcement actions ofgeneral application
concerning premiums andrepresentations violates Article X:1.
7.93 Japan contends thattheenforcement system ofthePremiums Lawissufficiently transparent
andconsistent withArticle X:1.1133Enforcement regulations forthePremiums Lawarepublished and
readily available, andthePremiums Lawitself aswellasnumerous general andspecific notifications
1132Ibid.
1133According toJapan, onescholar notes that"[i]n theUnited States, Federal, State andeven local governments
independently regulate advertising. Each levelofgovernment enacts itsownlegislation andhaditsownseparate administration
tocarry outthislegislation." James R.Maxeiner andPeter Schotthöfer (eds.), Advertising LawinEurope andNorth America
(1992), p.317. Itwasalsonoted that"[s]elf-regulation isanimportant source ofadvertising regulation, especially fornational
advertising." Ibid., p.321, Japan Ex.E-13.WT/DS44/R
Page346
interpreting ithavealsobeenpublished.1134Japan further responds thatthereisanample public record
from which onecandiscern howthePremiums Lawwillbeapplied. Specific enforcement actions
simply apply general norms tothefactsofaparticular case.
7.94 Japan points thattheUnited States itself specifically identifies andrefers tonumerous JFTC
notifications which explain howthePremiums Lawisapplied: (i)Notification 17,identified bythe
United States as"[o]ne of[theJFTC ’s]mostsignificant restriction onpremiums."1135;(ii)Notification
34,which allegedly reflected "adistinctly newway" ofapplying thePremiums Law; (iii)Notification
5,which allegedly "tightened [JFTC] control ontheuseofpremiums offered toconsumers".1136The
JFTC hasalsopublished detailed notifications whenever ithasannounced "significant restrictions",
"adistinctly newway," or"tightened" control. Inaddition, recent decisions bytheJFTC torevise
andclarify theregulations onexcessive premiums havealsobeenpublished.
7.95 Inresponse, theUnited States submits thatsince thePremium Lawwasenacted in1962, the
JFTC hasinitiated relatively fewformal enforcement actions, butithasissued many "administrative
guidances" orwarnings. Japan hasfailed topublish theoverwhelming majority ofitsenforcement
actionsunderthePremiumsLaw.Byoneestimate,1137between1962and1994,theJFTCissuedwarnings
oradministrative guidances in11,362 cases, asopposed to683formal cease anddesist orders. The
JFTC hashandled alargenumber ofPremiums Lawcasesthrough informal means, presumably resulting
inunpublished findings inalmost every instance.1138Thislackoftransparency iscompounded bythe
factthatJapan’s47prefectural governments takethousands ofinformal enforcement actions, forwhich
theUnited States hasbeenunable tofindapublication orwritten description.1139
7.96 Japan replies thatalmost 700cease anddesist orders havebeenpublished andhavefurther
clarified thegeneral principles behind theenforcement ofthePremiums Law. Therelevant issueunder
Article X:1isnotwhether informal action isevertaken. Theonlyissue iswhether anynewpolicy
isbeing applied without adequate disclosure. These casediscussions arealsoincluded intheJFTC ’s
annual reports since 1967. Furthermore, since 1985 theJFTC haspublished theoutlines ofmajor
caseswhere warnings weregiven, which isanother source ofinformation concerning howthePremiums
Lawisapplied inspecific factual situations. Finally, theJFTC answers questions posed byinterested
enterprises concerning theinterpretation ofthePremiums Law. Therecord ofimportant questions
andanswers, which maybeofsome usetobusinesses, arepublished as"Actual Examples of
1134Kanpo, 15May1962. Thelawanditsnotifications arepublished notonlyinKanpo, butalsointheGenkou Houki
Souran. Enforcement standards arepublished intheKeihin-koukoku Housei Binran.
1135Japan states thatNotification 17hasbeen abolished.
1136Japan underscores thattheUSAppendix provides extensive documentation ofJFTC notifications andother explanations
ofPremiums Lawenforcement.
113720Years ofPromulgation oftheActAgainst Unjustifiable Premiums andMisleading Representations, Kosei Torihiki
Joho, 30August 1982, pp.14-17, USEx.82-10. Iftwoother categories ofJFTC action -"cautions" and"instructions" -
areincluded, thetotalnumber ofinformal actions risesto120,000. 1992 JFTC Annual Report, pp.84-85, USEx.73;1995
JFTC Annual Report, p.242, USEx.85.There appear tobeonlytwosources, adhocpress releases andtheAnnual
Compilation ofMajor Requests andWarnings, thatcarry discussions ofwarnings, themostformal ofadministrative guidance
measures. However, theselection ofwhich actions arecovered seems toberandom.
1138TheUnited States quotes from aformer senior JFTC official 'sstatement whoexplained that:
"Informal ways ofenforcement hadtheproblem oflackoftransparency. Bymaking theFTC"warning" public, effectiveness
ofthewarning asaninformal wayofenforcement would increase. Itshould beremembered thatpublic announcements
ordisclosure hasanaspect ofaneffective remedy insuchacountry asJapan where badpublicity isaveryserious concern
tobusiness". "Too much reliance oninformal enforcement could produce alack-of-transparency problem. Sometimes,
non-disclosure becomes animportant component ofinformal enforcement, thatis,non-disclosure makes iteasytogetthe
compliance oftherelated entrepreneurs. Ontheother hand, non-disclosure hasaproblem ofitsown, namely, itdoesnot
educate other businessmen whoengage inthesame conduct, andthegeneral public willnothave sufficient information
concerning enforcement ofthe[Antimonopoly Law] Act." Iyori Hiroshi andUesugi Akinori, TheAntimonopoly Laws and
Policies ofJapan, 1994, pp.213-214, 216-217, USEx.94-1.
1139According totheUnited States, more than85percent ofallinformal actions taken arecautions issued byprefectural
governments.WT/DS44/R
Page347
Consultations Regarding Premiums andRepresentations". Japan claims thattheJFTC hasthus
consistently published alladministrative rulings of"general application". Japan considers assignificant
thattheUnited States doesnotmake asingle specific allegation ofanyJFTC enforcement action at
oddswithalready published policies.
7.97 TheUnited States responds thatwhile Japan maintains thattheJFTC hasmettheobligations
ofArticle X:1bypublishing cease anddesist orders andotherformal actions taken under thePremiums
Law, itoffered noexplanation astowhyithasnotpublished thousands oftheJFTC ’sinformal
enforcement actions. Japan alleged thatnone oftheunpublished enforcement actions involves the
establishment ormodification ofcriteria thatmaybeapplied infuture cases. IntheUSview, itis
notcredible thatmore than90percent oftheJFTC 'senforcement actions havenoeffect ontheshaping
ofdoctrine orthecaselawsubsequently tobeapplied. Inthisregard, theUnited States recalls that
Japan tooktheposition thatthepublication requirement ofArticle X:1should beapplied "notonly
tomandatory laws, butalsoprovisions oflaws thathave thecharacter ofarecommendation or
exhortation."
(b) Actions under "Fair Competition Codes"
7.98 TheUnited States reports thatnone ofthefourprivate sector surrogate enforcement bodies
towhich theJFTC hasdelegated authority, i.e.,(1)theRetailers FairTrade Council, (2)thePromotion
Council,(3)theManufacturersFairTradeCounciland(4)theWholesalersFairTradeCouncil,publishes
itsenforcement actions sothattraders andgovernments maybecome familiar withthem. ThePromotion
Council ’srulesondispatched employees andrepresentations, aswellasboththecamera Manufacturers
andWholesalersCodes,containnorequirementthatenforcementactionsberecorded,letalonepublished.
OnlytheRetailers Code requires thatawritten record bemade ofenforcement actions butpublication
isnotmandatory.1140
7.99 Japan pointed outthatfaircompetition codes andfairtrade councils areirrelevant because
nocodes orcouncils cover photographic filmandpaper. Japan responds thattheprivate sector "fair
trade councils" havenopower asanenforcement body. Therefore, Japan takes theposition thatthe
industry self-regulation codes indispute arepurely private action andthatnogovernment action is
required orevenauthorized tomake itpublic. Moreover, faircompetition codes arepublished inthe
Official Gazette when theJFTC approves them, although theyfall,inJapan'sview, outside thescope
ofArticle X.
7.100 Japan explains thatthe"faircompetition codes" reflect thegeneral norms ofthePremiums
Law, notsome illicit, collusive purpose. Although thecodes areinitially drafted byindustry groups,
nocodecomes intoeffect untilithasreceived official review andapproval fromtheJFTC inaccordance
withArticle 10ofthePremiums Law. Thegeneral principles tobeapplied areallclearly stated in
thecodes themselves, which arepublished intheOfficial Gazette. InJapan'sview, theUnited States
hasnotevenalleged anyaction taken thatwasatoddswithbasic principles setforinthecodes.
7.101 IntheviewoftheUnited States ,Japan didnotcontest thatenforcement actions taken by"fair
trade councils" areunpublished. Inresponse toJapan'sargument thattheactions ofthese councils
arepurely private conduct andthusoutside thescope ofArticle X,theUnited States emphasizes that
the"fairtrade councils" and"faircompetition codes" arecreations ofJapanese law,inparticular
section 10ofthePremiums Law, andtheyremain under thesupervision oftheJFTC. TheUnited
States urges Japan toaccept responsibility fortheactions ofthese councils inthismatter justasitdid
in1987 before thepanel onJapan -Liquor Taxes andLabelling Practices ,where Japan referred to
itssystem of"faircompetition codes" under thePremiums Lawasaform of"legal regulation".
1140TheRetailers Council informed theUSGovernment thatitdoesnotpublish amonthly magazine, butreferred the
United States totheZenren Tsuho, theofficial publication ofthephotographic retailers association.WT/DS44/R
Page348
7.102 TheUnited States alsorejects Japan’salternative argument, thatthepublished "faircompetition
codes" specify allgenerally applicable criteria andthat,accordingly, thepublication ofenforcement
actions taken under these codes isunnecessary. IntheUSview, Japan’sposition seems tobethat
publicationofasetofrulesnegatesanyobligationunderArticleX:1topublishsubsequentinterpretations
andactions taken pursuant tothose rules. TheUnited States emphasizes thatArticle X:1requires not
onlyinitial publication ofalaworregulation, butalsothepublication ofanysubsequent actions taken
undersuchprovisions.Otherwise,theterm"administrativerulings"inArticleX:1wouldremaindevoid
ofmeaning.1141
7.103 Japan emphasizes thatnofaircompetition codeiscovering filmproducts, andthatnocode
inasomewhat related field, suchasthatcovering cameras, haseverbeenextended toapply tofilm.
Thus, inJapan'sview, there arenocodes forphotographic filmorpaper thatmustmeetArticle X:1
transparency requirements.
(c) Requests forinformation anddisclosure ofconfidential information
7.104 TheUnited States explains thattheproblems inhering inJapan’sfailure topublish theresults
ofthese enforcement activities areexacerbated bythedifficulty ofobtaining information about them.
TheUnitedStateshasmaderepeatedrequeststoreceivesuchinformationfromtheJapaneseGovernment,
therespective enforcement councils andrelevant photographic trade associations.1142Almost without
exception, these requests forinformation were denied.
7.105 Japan responds thatin1996 theJFTC received requests fromtheUSEmbassy inTokyo for
information oncertain matters related totheregulations onexcessive premiums andmisleading
representations, withtheexplanation thatitwasbeing sought inconnection withtheWTO proceedings.
TheJFTC provided theEmbassy withtheinformation thathadbeenmade available tothepublic, but
declined toprovide non-public information. ItistheJFTC ’sunderstanding thatthekindofinformation
theJFTC didnotprovide totheUSEmbassy isoutside thescope oftheobligations under Article X:1.
7.106 Japan notes thatasageneral matter, requests forinformation aregranted aslongasthere are
noconcerns about disclosure ofconfidential information. However, Article X:1setsoutaspecific
exception under which thisArticle will"notrequire any[WTO Member] todisclose confidential
information which would impede lawenforcement orotherwise becontrary tothepublic interest or
would prejudice thelegitimate commercial interests ofparticular enterprises, public orprivate".1143
7.107 Withrespect tothespecific exception inArticle X:1,theUnited States responds thatthetypes
ofinformation thatJapan should bedisclosing inthecontext ofthePremiums Lawdonotimplicate
confidentiality concerns. TheUnited States explains thatothercountries publish information concerning
specificenforcementactionsandthatcompany-specificcommercialinformationwhichdeservesprotection
canbeprotected onacase-by-case basisbyredacting thecritical information fromthepublic version
ofthedocument without withholding theentire document.
1141FortheUnited States, itbears noting thatArticle X:1distinguishes between "administrative rulings" and"regulations".
1142TheUnited States elaborates thatbetween July1996 andNovember 1996, anofficial attheUSEmbassy inTokyo
sentfiveletters totheJFTC, fourletters toindividuals andentities associated withtheRetailers Council, andoneletter to
thePromotion Council. Theletters asked forinformation about implementation andenforcement ofthePremiums Law,
andrelated matters. None oftheresponses provided therequested information.
1143Japan points outthatunder USlawthere isaspecific exception totheFreedom ofInformation Acttoallow authorities
torefuse such disclosure.WT/DS44/R
Page349
4. MEASURES TAKEN INTHE CONTEXT OFTHE LARGE STORES LAW
(a) MITI 's"prior explanation" procedures
7.108 TheUnitedStatessubmitsthatfromtheinceptionoftheLargeStoresLaw,MITIhasincreasingly
expanded theroleandleverage oflocalretailer interests inreviewing theproposed opening orexpansion
ofalargestore. Astheiropportunities toinfluence thelargestoreadjustment process increased, local
retailers increasingly employed theirinfluence toimpose delays, floor space reductions, andother
"adjustments" onlarge stores. TheUnited States describes thatin1982, Japan formally required the
builder ofalarge storetoconsult withlocalretailers andseektheiragreement foraneworexpanded
storeevenbefore thebuilder orretailer hadformally notified thegovernment ofitsintention tobuild
orexpand alarge store. This"prior adjustment" process became averypowerful means forthelocal
retailers towield influence overlarge stores because theformal large storereview procedures accord
decisive weight totheviews oflocalbusiness interests indetermining whether aneworexpanded large
store willbeforced to"adjust" itsplans (e.g., reduce itsfloor space orhours operation).
7.109 According toJapan ,theUnited States limits itsclaims under Article Xregarding theLarge
Stores Lawtoanallegedly unpublished policy ofrequiring newstoreopeners tomake priorexplanation
orconsultation. Japan points outthatin1992 MITI formally eliminated therequirement under the
Large Stores Lawthatlargestoreplanners provide apriorexplanation tolocalretailers before theinitial
notification thatcommences thelaw’sformal review andadjustment process. Procedural requirements
fornotifications ofnewstores werepublished, e.g.,inthe1992Public Briefing Circulars andthe1994
Public Briefing Circulars. They describe indetail whatisexpected oflarge storeplanners under the
lawandreflect the1992 policy decision toabolish theprevious "prior explanation" procedures1144
Japan contends thatnoneoftheMITI branches, prefectural governments, orother localgovernments
mayeither require orrecommend thatstoreopeners provide priorexplanations toorpriorconsultations
withlocalretailers. Japan emphasizes thatithascorrected andisprepared tocorrect anysuchpractice
upon discovery.
7.110 TheUnited States confirms thatanadministrative directive from MITI of29January 1992
addresses theelimination oftheprior explanation requirement under theLarge Stores Law. Inthe
USview, MITI formally revoked thisprioradjustment requirement inresponse topressure fromforeign
governments toliberalize large store restrictions. However, theUnited States contends thatthe
circulation ofpamphlets doesnotamount toapublication "inamanner astoenable governments and
traders tobecome acquainted with[legal requirements]" within themeaning ofArticle X:1.1145
(b) "Local explanation" procedures
7.111 AccordingtotheUnitedStates,studiesbytheJapaneseGovernment1146documentthatinpractice
MITI regional offices andprefectural andlocalgovernments continue inmany cases torequire, urge,
advise orrequest large stores pursuant toinformal administrative guidance toconsult andundertake
priorconsultation andeffectively tomake adjustments withlocalretailers andsmall stores competitors
before submitting theirformal notification under Article 3oftheLarge Stores Lawtothegovernment.
Innumerous cases, retailers proposing toopenorexpand large stores continue tofeelcompelled to
1144Japan submits thatoneofthe1992 Public Briefing Circulars explicitly abolished theauthority ofanyMITI official
torequire apriorexplanation tolocalretailers. Similarly, theother abolished thissame authority withrespect totheprefectural
governors. MITI, Public Briefing Nos. 25and26,Japan Ex.C-17.
1145TheUnited States points outthattheauthorities themselves didnotadmit inthesurvey byJapan 'sManagement and
Coordination Agency thattheyhadsuch pamphlets.
1146Insupport ofitsargument, theUnited States refers tostudies bytheJFTC andManagement andCoordination Agency
(MCA) indicating thattheauthorities continue toguide large retailers toconsult withlocal business interests before filing
anArticle 3notification.WT/DS44/R
Page350
negotiate withsmall retailers because thelawandMITI guidance givethelocal retailers ample
opportunity andpower toforce severe adjustments onlarge retailers whodonotnegotiate withthem
inadvance. Local retailers continue tosucceed inextracting restrictive agreements fromlarge stores
asacondition forallowing theformal newstoreopening procedures toproceed "smoothly".1147Japan
isalleged nottohavepublished theinstances inwhich ithasimposed therequirement. Therefore,
Japan’scontinued application ofthe"prior explanation" requirement isunpublished, leaving foreign
tradersandWTOMembersuncertainastotherelevantcriteriagovernmententitiesrelyuponinimposing
itinagiven case.
7.112 Japan responds thatneither MITI noranylocalgovernment maintains anyrulewhich "requires
orrecommends" thatstoreopeners provide prior explanations ofstoreopening plans tolocalretailers
orundertake prior consultations. Asaderegulation measure toshorten theexamination period under
theLarge Stores Law, andtoclarify when thatperiod officially began, MITI explicitly repealed the
practice ofprior explanation andprior consultation andaffirmatively promulgated thisrepeal among
theregional MITI branches andtheprefectural governments.1148MITI hasalsospecifically encouraged
theprefectural governments toensure thatthemunicipalities within theirjurisdiction comply withthese
deregulation measures.1149Inaddition, based onitsauthority under Article 15(5) oftheLarge Stores
Law, Japan hasexplicitly prohibited allprefectural andlocal governments from requiring or
recommendingpriorexplanationthroughadditionallocalregulationsbasedupontheirregulatoryauthority
delegated bytheLocal Autonomy Law.1150Accordingly, Japan ordered thatcorrective action betaken
against "excessive localregulations," including anyrulesforpriorexplanation, andthatby1993, such
localregulations bebrought intoconformity withthenational law.
7.113 IntheviewoftheUnited States ,Japan merely argues thattheLarge Stores Lawitself does
notrequire prior consultation. Thatthepractice isnolonger required under thelawdoesnotmean
thatJapanese officials arenotimposing it.TheUnited States underlines thattheprior consultation
requirement appears notinthetextofthelawbutinthepractice ofnumerous MITI regional offices
andprefectural andlocalgovernments. Therequirement hasnever beenwritten inthetextofthelaw.
While from1982to1992itatleastwaswritten withtransparency inaMITI directive, therequirement
hasnowbecome anon-transparent burden onlargestores. TheUnited States emphasizes thatJapanese
Government studies amply document thecontinuation ofaneffective prior consultation requirement.
7.114 Japan concludes thatwhere storeplanners arestilloffering apriorexplanation tolocalretailers,
thedecision todosoisbased notuponanygovernment requirement, butuponthestoreplanners 'own
andpurely private business decision,1151suchastheneedtoobtain information thatmight helpthe
storeplanner todevelop business fromlocalretailers orthewishtoaccelerate thecompletion ofpublic
briefing procedures under thelaw.Japan explains thatuponreceipt ofArticle 3Notifications, arelevant
MITI branch orprefectural government hastoselect consumers andlocalretailers (orotherassociations)
1147"Concerning theReevaluation ofGovernment Regulations intheDistribution Sector," Government Regulation and
Competition Policy Research Council, JFTC, June 1995, pp.22-23, USEx.95-11.
1148In1982, MITI issued circulars guiding MITI branches andprefectural governments torequest thatstoreopeners would
giveprior explanation to"municipal governments, etc.governing planned sites" (subsequent circulars specified "municipal
governments,ChambersofCommerceandIndustry,smallandmedium-sizedretailers,andconsumers").ImmediateMeasures
Regarding Notification toEstablish Large Scale Retail Stores, Sankyoku, No.36,issued byDirector-General forCommerce
andDistribution Policy [hereinafter "Director-General"], 30MITI January 1982, Japan Ex.C-16. However, in1992, MITI
issued circulars instructing bothMITI branches andprefectural governments (1)toabolish anyproceedings prior toArticle 3
Notifications, and(2)torequest thatstoreopeners givepublic briefings, similar proceedings, however, subsequent toArticle 3
Notifications. Instructing Parties Filing Notifications ofNewType-I Large Scale Retail Stores etc.toHold Public Briefing,
Sankyoku, Nos. 25and26,issued byDirector-General, MITI April 1,1992, Section 1,Japan Ex.C-17.
1149TheCirculars issued byMITI instruct bothMITI branches andprefectural governments toabolish anyproceedings
prior toArticle 3Notification. 1990 Prior Explanation Circular, Japan Ex.F-11.
1150SeeAdditional Local Regulations onNew Store Openings, etc.byLocal Governments, Sankyoku, No.24,issued
byDirector-General, MITI, January 29,1992, Section III,Japan Ex.C-13.
1151MCA Report, pp.13-14, USEx.95-15.WT/DS44/R
Page351
whoaretoreceive public briefings afterconsulting withrelevant Chambers ofCommerce andrelated
localgovernments, ifnecessary.1152Thefactthatstoreplanners offerpriorexplanation tolocalretailers
doesnotinanywaymean thatgovernment entities "request orrecommend" prior explanation asa
matter ofgeneral policy.
(c) Specific examples: TheMCA andJFTC studies
7.115 TheUnited States elaborates thataccording tothe1995 survey byJapan’sManagement and
Coordination Agency (MCA), several MITI regional offices andprefectural governments require or
recommend suchpriorexplanations asamatter ofgeneral policy.1153Forexample, in1995, theMCA
surveyed theprior consultation practices atsixMITI regional offices andsixprefectural orlocal
governments. Nineofthetwelve jurisdictions regularly required orurged large stores toundertake
prior consultation andadjustment. TheUnited States identified seven specific instances inwhich the
"prior explanation" wasimposed afterithadpurportedly beenrevoked:
(i) TheTokyo Municipal government published twopamphlets regarding theLarge Stores
Lawprocess which "direct retailers toprovide theMITI regional office, theprefecture, the
localtownandwardgovernments andtheChamber ofCommerce withanexplanatory outline
oftheirplans".
(ii) TheOsaka Prefectural government "requires prospective applicant retailers toprovide
concerned town governments andward councils withapre-notification explanation ofits
application andtoobtain astamp asaproof thatithadprovided suchexplanation. Some cities
andchambers ofcommerce [intheprefecture] indicate thatproviding localretailers ’associations
withapre-notification explanation isacondition foraccepting theapplication".
(iii) TheChugoku regional office ofMITI haspublished amanual that"directs prospective
retailers toprovide pre-notification explanation toconcerned localandwardgovernments and
Chambers ofCommerce".
(iv) TheKinki regional office ofMITI "directs applicants toprovide pre-notification
explanation toconcerned localparties inorder tomake theprocess gosmoother".
(v) TheKanto regional office ofMITI (Tokyo area)"instructs" retailers "toconsider the
advantages ofmeeting withlocal retailers ’associations inorder tomake theprocess go
smoothly".
(vi) TheTohoku regional office ofMITI andtheMiyazaki prefectural government advise
large stores that"prior explanation would make theprocess gomore smoothly".
(vii) TheHiroshima prefectural government orally requests "thattheoffice, prefecture, town
andwardgovernments andChambers ofCommerce beprovided withpre-notification Article 3
explanation".
7.116 With respect totheMCA Report, Japan explains thatallMITI branches andprefectural
governments subject tothereport responded thattheydidnotinstruct storeplanners toprovide aprior
explanation.1154Thediscussion ofprior explanation procedures intheMCA Report isbased onthe
11521994 Public Briefing Circulars, Japan Ex.C-18, Section VI.
1153Results oftheSurvey Regarding theLiberalization ofRegulations: Application ofLaws Dealing withAdjustment
ofRetail Business Activities intheArea ofLarge Scale Retail Stores, Management andCoordination Agency, October 1995,
pp.11-12, USEx.95-15.
1154MCA Report, p.11,USEx.95-15.WT/DS44/R
Page352
limited responses ofonly11large stores thatprimarily offered prior explanations based ontheirown
private business decisions.1155Specifically, ofthe11large stores thatresponded, 8replied thatthey
conducted prior explanation attheirownchoosing. Theremaining three explained thattheirdecision
toprovide priorexplanation stemmed primarily fromsomeundefined formof"administrative guidance"
or"local custom". ItisJapan'sunderstanding thatthethreecases described loosely as"administrative
guidance" areactually instances inwhich officers intherelevant authority, inresponse tostoreplanners '
specific inquiries forconsultation onthispoint, simply responded withthesuggestion thatitmight
bebeneficial forthem tocontact with, e.g.,relevant local governments, asearly aspossible inthe
process. Moreover, theReport never suggests thatanylocalcustoms thatmayexistareatthebehest
ofagovernment entity. Japan stresses thatnothing intheMCA Report suggests thatanyMITI branch
orprefectural government suggests either prior explanation orprior consultation asageneral policy.
7.117 According toJapan, theMCA survey indicates thatguidance byMITI branches andlocal
governments toprovide "prior explanations" occurred onlyinexceptional cases when thesurvey was
conducted in1995. Japan hasrecently taken corrective measures against allinappropriate practices
identified intheMCA Report. Forexample, when MITI learned in1995 thattheChugoku MITI
branch1156andHiroshima prefecture1157wereissuing guidance forlargestoreplanners toprovide "prior
explanation," MITI ordered thatthese authorities cease issuing suchguidance, andthesituation has
beenredressed. Moreover, asof31March 1997, theOsaka Prefectural Government1158nolonger
requires thereceipt ofsealimpressions from concerned municipal governments andChambers of
Commerce asacondition fortheacceptance ofArticle 3Notifications. Inaddition, theChugoku MITI
Branch nolonger provides storeopeners withthepamphlets described intheMCA Report.1159Japan
hasbeenmaking acontinued effort tofindandcorrect anysuchexcessive localregulations andpractices.
Tofacilitate thiseffort, Japan hasestablished ombudsman 'soffices inMITI andMITI branches since
April 1994 todealwithproblems thatstore planners encounter inthecontext oftheadministration
oftheLarge Stores Law.
7.118 According totheUnited States ,a1995 AdHocStudy Group Report from theJFTC 's
Government Regulation andCompetition Policy Research Council further confirms that"some local
offices ofMITI haveorally demanded thatthey[stores] laytheground work following localrulesor
customs, andtheyhavebeenforced intowhatamounts toanadjustment process duetodemands from
existing localretailers". According totheUnited States, theJFTC report found thatMITI regional
offices "orally demand" thatnewlargestores consult withlocalretailers. TheMCA survey identified
several MITI regional offices orprefectural orlocal authorities whoadmitted toatleastsuggesting
oradvising large retailers toconsult withlocalretailers. When MCA inturnasked large retailers for
theirexperiences regarding suchauthorities, insome cases theretailers wereabletoproduce pamphlets
from theauthorities directing large retailers toconsult withlocalbusiness interests.1160
7.119 Japan contends thattheJFTC AdHocStudy Group Report doesnotsubstantiate theUS
arguments thatlocal government entities arerequiring store planners toprovide prior explanations
tolocalretailers. LiketheMCA Report discussed above, theJFTC Report islimited inscope and
presents noconcrete example ofaprior explanation orconsultation offered tolocal retailers atthe
request ofagovernment entity. Japan notes thattheUScitation from thisReport addresses only
consultations requested bylocalChambers ofCommerce andlocalretailers atthepublic briefing stage,
1155Ibid., pp.11-14.
1156SeeUSexample (iii)inpara. 7.113 above.
1157SeeUSexample (vii)above.
1158SeeUSexample (ii)above.
1159SeeUSexample (iii)above.
1160Results oftheSurvey Regarding theLiberalization ofRegulations: Application ofLaws Dealing withAdjustment
ofRetail Business Activities intheArea ofLarge Scale Retail Stores, Management andCoordination Agency, October 1995,
pp.11-12, USEx.95-15.WT/DS44/R
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subsequent toArticle 3Notifications.1161Hence, Japan argues thattheJFTC Report doesnotdocument
anyinstances ofprior explanation requested byaMITI branch, aprefectural orlocalgovernment.1162
7.120 TheUnitedStatesmaintainsthattheMCA andJFTCstudiesindicatethatsuchrecentapplication
oftheprior consultation/adjustment requirements orrecommendations arenotisolated incidents, but
arewidely andconsistently applied measures cutting across many, ifnotamajority ofjurisdictions
inJapan. IntheUSview, thisrequirement, urging orrequest tolarge stores isalaw,regulation, or
administrative ruling ofgeneral application within themeaning ofArticle X:1. Thebasis oftheUS
claim under Article X:1regarding theLarge Stores Lawisprecisely thefactthatJapan continues to
require informally andnon-transparently whatitpreviously required formally.
(d) Administrative rulings "made effective"
7.121 Japan submits thattheUSclaims failtomeetthetextual requirements ofArticle X:1because
itdoesnotpoint toanyadministrative ruling ofgeneral application which hasyettobepublished.
Inparticular, asthecentral government haseither corrected orwillcorrect localpolicies thatdeviate,
these policies donotconstitute general rules "made effective" bythegovernment asrequired by
Article X:1. Since thetextofArticle X:1focuses onmeasures "made effective" byany[WTO
Member]", itisacentral government ’saction thatdetermines whether ornotthetrade regulations
within themeaning ofArticle X:1havebeen"made effective". Theonlyrulepromulgated byJapan
isthatsetforth intherelevant MITI circulars explicitly abolishing anyprior explanation procedures
andinstructing MITI branches andlocalgovernments nottoguide forprior explanation. InJapan's
view, given thatthealleged administrative guidance doesnotevenexist, there isnoadministrative
ruling thathasbeen"made effective" andthusthereisnothing thatmustbepublished under Article X:1.
7.122 TheUnited States accepts thattheterm"made effective" ispartofthetextofArticle X:1,
butcontends thatthemeasures subject toUSallegations under Article Xaremeasures thathavebeen
made effective byJapan.
(e) "Affecting thesaleordistribution ofimports"
7.123 TheUnited States notes thatArticle X:1requires aMember topublish itslaws, regulations,
judicialdecisionsandadministrativerulingsofgeneralapplicationthat"affect"the"sale"or"distribution"
ofimports. TheUnited States contends theterm"affecting", asitwasintended bythedrafters ofArticle
X:1,andasithasbeenrepeatedly applied bypanels inthecontext ofArticle III,means "notonly
thelawsandregulations which directly governed theconditions ofsaleorpurchase butalsoanylaws
orregulations which might adversely modify theconditions ofcompetition between thedomestic and
imported products ontheinternal market".1163
7.124 More specifically, theUnited States argues thatJapan’smeasures governing theopening or
expansion oflargestores, i.e.,thepriorconsultation process under theLarge Stores Law, clearly affect
thesaleanddistribution ofimported photographic filmwithin themeaning ofArticle X:1because this
process often results inalargestorefeeling compelled tomake downward adjustments initsoperating
plans. These downward adjustments limitthescope andoperation oflarge stores inJapan which in
turnreduce theopportunity forforeign products toreach themarket inJapan, given thatlarge stores
aremore likely todealinforeign products thansmall stores because large stores (a)havemore shelf
1161JFTC AdHocStudy Group Report, Concerning theReevaluation ofGovernment Regulations intheDistribution Sector,
June 1995, p.18,USEx.95-11.
1162Foranygovernmental body torequest thisconsultation isdirectly contrary totheexplicit Japanese Government policy
thatapublic briefing heldafteranArticle 3notification isexplicitly nottobeusedasamechanism forprior consultations
withapproval from local retailers. 1992 Public Briefings Circular, Japan Ex.C-17.
1163Panel onItalian Discrimination Against Imported Agricultural Machinery ,BISD 7S/60, 64,para.12.WT/DS44/R
Page354
space todevote tomultiple brands ofaproduct, and(b)aremore likely todealdirectly with
manufacturers, including foreign manufacturers, by-passing thewholesalers which tendnottodeal
inforeign film. Moreover, largestores aremore likely topricelower thansmall retailers. According
totheUnited States, theJapanese Government itselfhasconcluded thatlargestores generally increase
competition inthedistribution sector inJapan andareachallenge totheexclusive distribution structures
fostered byJapanese government policy. Byrestricting themostfavourable channel fordistribution
andsalesofimported film,Japan’srestrictions onlargestores "affect" thesaleanddistribution offilm
within themeaning ofArticle X:1. Therefore, theUnited States claims thatJapan’sfailure topublish
suchrequirements inamanner astoenable governments andtraders tobecome acquainted withthem
isinconsistent withJapan’sobligations under Article X:1.
7.125 Japan submits thattheLarge Stores Law, andconsequently, anyofitsenforcement actions,
including thepreviously existing practice of"prior explanation," donotaffect thesaleanddistribution
offilminthewayalleged bytheUnited States. Japan contends thattheprovisions oftheLarge Stores
Lawdonotdraw distinctions between imported anddomestic products. Determinations whether and
howtoapply thelaw’sfouradjustment factors areinnowaybased ontheorigin ofproducts carried
ornotcarried byalarge retailer. Likewise, Japan emphasizes thatnoneoftheadjustment factors has
anynecessary relation todecisions bylarge retailers astowhich products tocarry.
7.126 Japan alsostates thatthese general conclusions withrespect totheLarge Stores Lawapply
withadded force toanyalleged administrative guidance. Japan cannot conceive ofanyconnection
between whether ornotlargestoreplanners mustconduct "prior explanation" andcompetitive conditions
forimported film. InJapan'sview, thealleged administrative guidance doesnotchange thecompetitive
relationshipbetweendomesticandimportedfilm,andthereforedoesnot"affect"thesaleanddistribution
offilminviolation ofArticle X:1.
5. CONCLUSIONS
7.127 TheUnited States concludes that"faircompetition codes", respective enforcement actions
and"prior explanation" practices havecreated anopaque enforcement system pursuant tothePremiums
Lawandhavemade itimpossible forforeign firms andtheirgovernments to"become acquainted"
withrelevant procedures under theLarge Stores Law. Consequently, theUnited States claims that
Japan'sPremiums Lawenforcement system andcontinuing application oftheLarge Stores Law's"prior
explanation" requirement areinconsistent withJapan'sobligations under Article X:1.
7.128 Japan continues tomaintain thattheJFTC andMITI havepublished alllaws, regulations and
administrative rulings ofgeneral application inanappropriate form1164andJapan believes tobeinfull
compliance withtherequirement ofArticle X:1.
1164Japan notes thatimportant enforcement actions arereported inleading legalperiodicals, butclaims thattheyfalloutside
thescope ofArticle X.WT/DS44/R
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VIII. ARGUMENTS OFTHIRD PARTIES
A. THE EUROPEAN COMMUNITIES
8.1 TheEuropeanCommunities(EC)attachesgreateconomicandpoliticalimportancetomaintaining
conditions offairandtransparent market access conditions around theworld. TheECisamajor player
inthephotographic filmandpaper business andEC-origin products constitute from 5percent (film)
to8percent (photographic paper) oftheJapanese market andover20percent oftherestoftheworld
filmmarket. ECcompanies facedifficulties ofaccess todistribution channels forimported filmand
paper products inJapan, whereas Japanese companies donotfaceanyoftheseproblems when importing
Japanese origin products intoEurope. TheECalleges thatsome measures adopted byJapan could
affectthebalanceinthecompetitiveopportunitiesbetweenimportedfilmandpaperproductsanddomestic
filmandpaper products andtherefore beinbreach ofWTO rules andinparticular ofArticle III:4
ofGATT.
8.2 TheECemphasizes thatthiscaseraises important issues including thescope andapplicability
ofseveral keyWTO andGATT 1994 provisions. Itrequires thePanel toachieve "aproper balance
between rights andobligations ofMembers" inaccordance withArticle 3.3oftheDSU. Intheview
oftheEC,thefollowing aspects should becarefully considered:
i. Thenotion of"treatment nolessfavourable thanthataccorded todomestic products",
ontheonehand, andthenotion of"upsetting thecompetitive position" orof"restrictive business
practices" ,ontheother hand, cannot operate simultaneously.
ii. Thefirsthasbeenconsistently interpreted bydifferent panels inthepastasconcerning
"competitive opportunities between imported products anddomestic products". Thesecond
suggests thepossible violation ofinternal rulesconcerning competition between undertakings
orofgeneral domestic policies asimplemented byaWTO Member.
iii. ArticleIIIisnotdirectedagainstany"impediment"or"narrowingoftradeopportunities"
which might affect imports ofanykindbutonlyagainst internal measures affecting theinternal
saleofimported goods "soastoafford protection todomestic production"1165.AMember ’s
internal measure isrelevant inthecontext ofArticle IIIonlyinsofarasitaccords treatment
thatislessfavourable toimported thantodomestic goods. IntheEC'sview, thePanel should
beconcerned withtheprotection ofdomestic production which infringes GATT andWTO
rules, andnotwithanyother general governmental measure which isaimed atlimiting or
regulating, atthesametimeandinthesameway,themarketing ofbothdomestic andimported
products.1166
iv. Some aspects ofthisdispute suchastheeffects ofanti-competitive behaviour and
practices, confirm theneedforaninternational framework ofcompetition ruleswithin theWTO
system.
v. Thedispute settlement procedures have been conceived andstructured toprovide
"security andpredictability tothemultilateral trading system"1167andnottocompare or
harmonise different legaloreconomic systems applied byWTO Members. Therefore, itis
1165Article III:1 ofGATT.
1166TheECrelies onpanel reports onItalian Discrimination Against Imported Agricultural Machinery ,adopted on23
October 1958, BISD 7S/60, 65,para. 18andonUnited States -Section 337oftheTariff Actof1930,adopted on7November
1989, BISD 36S/345, 387, para. 5.13.
1167Article 3.2oftheDSU.WT/DS44/R
Page356
paramount foraconsistent analysis bythePanel thataclear anddirect relation between the
products whose importation ishindered andthecontested governmental measures beestablished
before anyfinding ofaninfringement ofGATT rules byaMember ismade.
1. FACTUAL ASPECTS
8.3 TheECsubmits thataccess totheJapanese market forimported filmandpaper hasproven
tobedifficult forEuropean producers. European filmandpaper hasnotbeenaccepted fordistribution
bythefourleading Japanese wholesalers (tokuyakuten ),which, duetothedistribution structure ofthe
Japanese filmandpaper market isakeyelement inmarket access. Thishascontributed tothedifficulties,
despite intensive efforts, forEuropean filmandphotographic products toacquire amarket share in
Japan which corresponds totheiractual overall world market share.
8.4 According totheEC,theimpressive volume ofinformation provided bytheUnited States
demonstrates thatJapan, during theperiod from 1960 to1975 anduptothepresent day,worked on
strengthening theeconomic andfinancial tiesbetween theJapanese photographic wholesalers andthe
Japanese producers offilmandpaper tothedetriment ofimported filmandpaper.
8.5 TheECcanconfirm thatitisimpossible tohaveadequate access toretailers inJapan ifthe
main wholesalers (tokuyakuten )areoutofreach. While access tosmall retailers andsmall shops is
notcompletely barred byJapan'smeasures, thecommercial position oftheproducts notsoldthrough
thetokuyakuten isparticularly weak, notably because ofthelackofbrand awareness oftheJapanese
public. Inorder toovercome thisimportant commercial weakness, onlystrong media advertising and
costly storepromotions could help. However, thesecostsinevitably raisethealready highdistribution
costsofoverseas products, affecting therefore either thecapability ofattaining areasonable profitability
ortocompete inprice withthemajor competing filmandpaper products onthatmarket, orboth.
These additional burdens donotaffect domestically produced filmandpaper.
8.6 Against thisbackground, theECnotes thatsince 1970theJapanese Government implemented
aseries ofactions toguide thedistribution sector ofJapan, andinparticular thetokuyakuten ,to
strengthen thelinksbetween thedomestic filmandpaper producers andthetokuyakuten .Theresult
ofthispolicy hasbeentheexclusion ofallimported filmandpaper products fromthemajor wholesale
distribution channels.
8.7 TheECnotes thatJapan objects totheexistence ofanyrelation between the1970 Guidelines
andtheactualso-called"verticalisation"ofthedistributionsystem.AccordingtoJapan,therestructuring
oftheJapanesetokuyakutenandtheirrevertingtothesingle-branddistributionmodewasalreadyon-going
before thatdate. InJapan'sview, therefore, there cannot beacausal linkbetween thegovernmental
action andtherestructuring ofthetokuyakuten thatledtotheexclusion fromthatdistribution channel
oftheimported filmandpaper products because theeffect wassupposedly happening before thealleged
cause.
8.8 TheECisnotconvinced bytheJapanese rebuttal fortwomain reasons: First,fortheEC
itisapparent thatthere was,andtoacertain extent there stillis,anexpressed worry onthesideof
theJapanese Government concerning thestateofitsinternal distribution system, inparticular inthe
filmsector. Allegedly inorder tostreamline theinternal distribution system, Japan established the
Distribution Systemization Promotion Council (1970), which published itsBasic Plan forthe
SystemizationofDistribution(1971).TheMITIDistributionSystemizationDevelopmentCentre(1972),
inexecuting theBasic Plan, issued theManual forSystemization ofDistribution byIndustry -Camera
andFilm(1975). TheMITI-sponsored creation ofa"Natural Colour Photography Promotion Council"
(1963)andthe"PhotosensitiveMaterialsCommitteeoftheDistributionSystemizationPromotionCouncil"
(1975) alsoresponded directly totheneedofrepresenting jointgovernment/private sector co-operation
inorder toformulate standardised transaction terms andnarrow linesofdistribution. The"BusinessWT/DS44/R
Page357
Reform Law" (1995) established abroad legal framework forMITI tocontinue itsintervention to
strengthen andprotect domestic industry, including filmandpaper materials.
8.9 TheECfurther notes thatMITI's"Guidelines forStandardisation ofTransaction Terms for
Photographic Film" of1970 weresubstantially maintained inforce in1990. Theimplementation of
those guidelines wasmonitored bytheJapanese Government. Japan alsoprovided funding through
theJapan Development Bank (JDB) todomestic producers inorder tosupport theimplementation of
MITI’sindustrial policy. TheECconcludes that,against thisbackground, itisnotcredible thatthe
Japanese Government wasintervening onlyatatimewhen thewhole restructuring ofthedistribution
system around therelation between thedomestic producers (Fuji andKonica) andthefourmajor
tokuyakuten hadalready taken place.
8.10 Second ,theECargues thatbeyond theobjective ofrestructuring theJapanese filmandpaper,
andcamera distribution chain towards animproved efficiency, alinkwascreated between thefour
major wholesalers andthedomestic filmandpaper producers, inparticular Fuji. Theresult ofthat
action, according totheEC,isclearly perceivable bytheinterconnection between Fujiandallfour
tokuyakuten:
i. Fujihasasubstantial equity participation inMisuzu andKashimura (15percent and
17.8percent according tothelatest figures). Thisisnotalimited investment inanotherwise
profitable business byaflourishing company butrepresents averysubstantial participation
inthose companies. Inbothcases, Fujiisthelargest outside owner;
ii. FujiispartoftheMitsui Keiretsu: thisimplies thatacross-shareholding isinplace
between thetwomajor banks ofMitsui Group (Mitsui Trust andSakura Bank) andFuji.The
banks arethelargest Fujishareholders andFujihasitslargest equity holding inthetwoMitsui
banks;
iii. ThetwoMitsui financial institutions arethemainbanks andlargest creditors ofthree
ofthefourtokuyakuten (Misuzu andKashimura plusAsanuma). Omiya, thefourth major
distributor, islinked strongly toFujithrough bothSakura bankandSumitomo bank, theother
major shareholders ofFuji.
8.11 TheECcontends thatFuji’slinkswiththetokuyakuten amount toconsiderably more thanan
arms-length business relationship. Thetokuyakuten areinastateoffinancial dependency fromFuji.
Inintervening legally, financially andbycontrol through MITI, theJapanese Government musthave
beenaware thattheresult ofitsaction would betoupset thecompetitive opportunities infavour of
thefilmandpaper domestic production bypreventing theimported filmandpaper products tohave
access tothemost important distribution channel, thefourmain wholesalers.
8.12 According totheEC,itisstandard practice allovertheworld, including inEurope, that
photographic producers haveonesubsidiary percountry representing theirinterests inselling their
products towholesalers, retailers, dealers orendusers independence oftheproducts andsituation.
Theextraordinary situation inJapan, however, istheexistence offourtokuyakuten distributing
exclusively orclosetoexclusively thesameproducts ofonlyonecompany, themajor domestic producer.
Asubsidiary ofaEuropean company inJapan isinthesame situation astheJapanese producers
themselves. Ithastofindmeans toenter intothemarket which includes thefourtokuyakuten already
serving thelarge majority ofretailers, wholesalers etc.Aslongasthefourmajor wholesalers refuse
topurchase anyfilmother thantheonedomestically produced byFuji,themarket access forimported
filmwillcontinue tobeimpaired.
8.13 IntheEC'sview, within theframework ofthepotentially legitimate goaltosupport the
restructuring oftheJapanese internal distribution system while theliberalisation under theauspicesWT/DS44/R
Page358
oftheGATT andtheWTO wasunder way,alesslegitimate action wasinfactimplemented, allowing
thecreation ofacomplex structure around themain domestic filmandpaper producer thattiedup
completely themostimportant andprofitable distribution channels inthecountry ,which, inviewof
theparticulardistributionstructureintheJapanesefilmandpapermarket,isessential.TheECconcludes
thattheresult ofthataction istheexclusion ofimported filmandpaper from thebestwaytoreach
theJapanese customers and,more important, theconsolidation ofthedomestic production which is
nowvirtually impossible toovercome interms ofmarket share.
2. LEGAL ASPECTS
8.14 TheECfocuses onthepartthatitconsiders tobeattheheartofthepresent case,namely whether
theJapanese Government hastaken measures thatafford lessfavourable treatment toimported products
thantolikedomestic products inviolation ofArticle III:4ofGATT 1994.
8.15 TheECnotes thatinpastGATT practice theexamination ofviolation caseshasalways preceded
thenon-violation cases. Thelatter areinfactusedtoremedy tonullification andimpairment ofbenefits
caused bytheadoption ofaGATT-legal measure asopposed totheviolation cases where theissue
isthenullification andimpairment caused byaGATT-illegal measure.
8.16 Moreover, inviewofthefactthatfilmandpaper arebulkproducts, there isnoneedtoenter
intoananalysis whether ornotdomestic andimported filmandpaper are"like", since thiswould be
thecaseunder anyofthegenerally accepted possible interpretations oftheword"like" under Article III.
8.17 TheEChasanalyzed thesituation inJapan concerning filmandpaper ontheassumption that
certain Japanese Government actions aremeasures having defacto abinding effect. TheECrecalls
thefindings ofthepanel onJapan -Trade inSemiconductors :
"Allthese factors ledthePanel toconclude thatanadministrative structure hadbeen
created bytheGovernment ofJapan which operated toexert themaximum pressure
ontheprivate sector tocease exporting atprices below company-specific costs. This
wasexercised through suchmeasures asrepeated direct requests byMITI, combined
withthestatutory requirement forexporters tosubmit information onexport prices,
thesystematic monitoring ofcompany andproduct-specific costs andexport prices
andtheinstitution ofthesupply anddemand forecasts mechanism anditsutilisation
inamanner todirectly influence thebehaviour ofprivate companies. These measures
operated furthermore strong peerpressure tocomply withrequests byMITI andat
thesame timetofoster aclimate ofuncertainty astothecircumstances under which
theexports could takeplace. ThePanel considered thatthecomplex ofmeasures
exhibited therationale aswellastheessential elements ofaformal system ofexport
control. Theonlydistinction inthiscasewastheabsence offormal legally binding
obligations inrespect ofexportation orsaleforexport ofsemi-conductors. However,
thePanel concluded thatthisamounted toadifference inform rather thansubstance
because themeasures wereoperated inamanner equivalent tomandatory requirements.
ThePanel concluded thatthecomplex ofmeasures constituted acoherent system
restricting thesaleforexport ofmonitored semi-conductors atprices below
company-specific costs tomarkets other thattheUnited States, inconsistent with
Article XI.1".1168
8.18 TheECnotes thatJapan, based onananalysis ofthedifferent language usedinArticle XI
andArticle III,refutes theapplicability oftheSemiconductors precedent tothiscase. Inparticular,
1168Adopted on4May 1988, BISD 35S/116, 157-158, para. 117.WT/DS44/R
Page359
Japan draws onthefactthatArticle XI:1refers to"other measures", while Article III:4contains the
words "laws, regulations andrequirements". InJapan'sview, thecomparison ofthetwotextsmakes
itclearthatthelanguage inArticle XI:1isbroader thanthatcontained inArticle III:4andtherefore
thesame reasoning thatisfound inSemiconductors cannot beextended persetothepresent procedure
where thecomplaining party should demonstrate theexistence ofatleast"requirements" andnotonly
"other measures".
8.19 While theECdoesnotdisagree withthebasis oftheJapanese legalanalysis, itcannot agree
withtheconclusions drawn. According totheEC,theabove quotation shows thatSemiconductors
wasconsidering notonly theformality butthereality ofavery peculiar system, theJapanese
interconnection between government andindustry. Thisparticular situation ischaracterised bya
significant capability oftheGovernment todirectly influence thebehaviour ofprivate companies through
thetraditional peerstructure ofthesociety andthestrong pressure thatitcanproduce without theneed
ofadopting legally binding instruments. FortheEC,itisstriking tonotetheperfect parallelism, mutatis
mutandis ,between thedescription ofGovernment intervention intheSemiconductors casequoted above
andtheonethatoccurred inthepresent case. TheECconcludes thattheactions areverysimilar,
themonitoring activities aresimilar, thegovernmental means usedareevenidentical (i.e., MITI
structure), andtheresults arestrikingly close.
8.20 FortheEC,itisnotsurprising thattheSemiconductors panel report when referring tothe
Japanese Government 'spractices instead ofusing thedefinition of"measures" reverted morespecifically
tothenotion of"requirements". TheECisoftheviewthatinthisspecific case, thereality shows
thattheJapanese Government 'saction amount toa"requirement" asdefined under Article III:4of
GATT.
8.21 TheECfurther notes thatJapan alsocontests theexistence ofthese measures atpresent. The
ECagrees thataviolation claim canonlybebased onmeasures thatareoperating, defactoordejure,
atthetimeoftheestablishment ofthePanel orareentering intoeffect shortly afterwards. Inthatregard,
theECrecalls thatthe1970 Guidelines fortherestructuring ofthedistribution system haveallegedly
beenreplaced bythe1990Guidelines andtheother governmental interventions haveapparently never
beenofficially repealed. However, theECconsiders thatthe1990 Guidelines andtheirapplication
havenothadtheeffect toeliminate themeasures concerned bythiscase. Onthecontrary, theimpression
isgiven thatthose measures havebeenconfirmed andarestillinplace.
8.22 TheECsuggests toreadtheterms "nolessfavourable treatment" inArticle IIIasreferring
tothecompetitive opportunities butnottotheactual economic impact ofthemeasure. Thisimplies
inturnthatArticle IIIisapplicable whether imports fromother contracting parties weresubstantial,
small ornon-existent.1169
8.23 TheECalsoemphasizes thatArticle III:4should notbereadasaffecting thedistinction between
trade policies andgeneral domestic policies (e.g., competition policy, labour policy, environmental
policy, monetary policy, immigration policy, consumers ’protection policy, etc.), given thattheformer
aresubject toWTO rules andscrutiny while thelatter arenot.Nevertheless, WTO rules should be
deemed tocover Member ’stradelawsandregulations (even when theyaretaken intheformofgeneral
internal measures) incases likethepresent onewhere evidence hasbeenprovided showing thatthe
Japanese internal policies concerning filmandpaper products wereinfactdesigned toafford protection
todomestic products ontopandindependently fromtheirfacial objective ofpursuing general internal
policies under theirjurisdiction andthereby violate Article III:1, readinconjunction withArticle III:4.
1169Panel Report onUnited States -Section 337oftheTariff Actof1930,BISD 36S/345.WT/DS44/R
Page360
8.24 TheECrefers totheAppellate Body Report onJapan -Taxes onAlcoholic Beverages1170,which
addresses thisissue byaffirming thatthe"issue ishowthemeasure inquestion isapplied" inorder
todetermine theexistence of"protective taxation" "inthelightoftheparticular circumstances ofeach
case". IntheEC’sview, thePanel should examine whether:
i. Intheparticular circumstances ofthiscasethere isalessfavourable treatment of
imported products when compared todomestic products;
ii. thereisagovernmental requirement (measure) creating suchlessfavourable treatment;
iii. themeasure isapplied insuchawayastocreate distortions intheconditions of
competition between domestic andimported likeproducts;
iv. there isadirect causal linkbetween theapplication ofthatmeasure tothose specific
products under those specific circumstances andthedistortion intheconditions ofcompetition
between domestic andimported products. Bycontrast, asimple side-effect resulting fromthe
implementation ofageneral measure pursuing ageneral internal policy, andwhich affects the
conditions ofcompetition, should notbeconsidered toinfringe Article III:4unless aclear
evidence isprovided thatthisgeneral policy measure wasdesigned toafford protection to
domestic products.
8.25 TheEC,therefore, argues that,based ontherelevant facts, itappears thatthe"objective intent"
ofJapan'saction wastoafford protection todomestic filmandpaper through thecreation ofacomplex
structure thatistheresult ofthesystemization aimed atpreventing imported filmandpaper from
benefitting from themajor andmost profitable distribution channels inthecountry. TheJapanese
Government could notignore thatbyacting inthatparticular wayitwould objectively create asystem
which apparently isstillinplace duetothepersistent pressure exerted bytheGovernment through
MITI.
8.26 However, theECdoesnotagree toanyinterpretation ofthe"protectionist intent" purely on
thebasisofanassessment ofthepolitical views expressed inaparticular country toachieve apolitical
result ("subjective intent"). Apart fromthealmost impossible taskofdetermining therealintentions
ofthelegislatorincountrieswherethelegislativepowerisconstitutionallynotsubmittedtoanyobligation
ofexplicit motivation, alegislative measure canbeimplemented formany years andbeapplied ina
manner which hasonlyaremote linkwiththeinitial intent ofthelegislator.
8.27 TheECconcludes thattheevidence before thePanel demonstrates thatanumber ofJapanese
Governmentmeasureswereadoptedwiththeobjectiveintenttoaffordprotectiontodomesticallyproduced
filmandpaper and,therefore, thataviolation ofArticle III:4hasbeencommitted. TheECbelieves
thataprima faciecasehasbeenobjectively demonstrated bytheUnited States and,therefore, thatunder
thecurrent Panel practice intheWTO, theburden ofproof toshow thecontrary hasshifted toJapan.
TheECisnotconvinced byarguments putforward byJapan thatthealleged violation doesnotexist.
Aviolation ofaWTO provision amounts persetoapresumption ofanullification andimpairment
ofrights andbenefits accruing under those agreements1171.Therefore, theECseesnoreason toenter
intoanydevelopment ofthenon-violation claims caseraised bytheUnited States.
1170Adopted on1November 1996, WT/DS8/AB/R, WT/DS10/AB/R andWT/DS11/AB/R.
1171Article 8oftheDSU.WT/DS44/R
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3. ARGUMENTS INREPLY BYJAPAN
8.28 Inresponse totheECthirdpartysubmission, Japan contests thatthealleged connection between
Fujianditsprimary wholesalers amounts to"considerably more thananarms-length business
relationship" andthatthisamounts toanArticle IIIviolation. Japan argues thatevenifonewereto
assume thattheprimary wholesalers weresubsidiaries ofFuji,thefactremains thatimported filmis
notprohibited from using thesame typeandthesame levelofdistribution channels. Allother film
manufacturers -bothforeign anddomestic -sellthrough theirownsingle-brand primary wholesalers.
8.29 Japan claims thatofallthemajor filmmanufacturers selling intheJapanese market, thelink
between Fujianditsprimary wholesalers istheweakest. Kodak andKonica eachsellthrough their
wholly-owned subsidiaries. Fuji’sprimary wholesalers areindependent companies andarenoteven
under contractual obligation todealexclusively withFuji.1172InJapan, foreign manufacturers areat
leastfreetomake anoffer toFuji'sprimary wholesalers, oreven toacquire oneormore ofthe
wholesalers. However, forJapan itisinconceivable thatintheUnited States anyJapanese manufacturer
could utilize Kodak ’sinternal salesstaffthathandle thedirect-to-retailer sales, thefunctional counterpart
totheprimary wholesalers thatselltoretailcustomers. Japan alsopoints outthatamajor partofKodak ’s
"distribution channel" isbased onexclusive relationships between Kodak andretailers.1173
8.30 According toJapan, theECacknowledges thatsingle-brand distribution isthe"standard practice
allover theworld, including inEurope". Nevertheless, theECnotes thatinmost countries
manufacturers sellthrough asingle subsidiary butthatinJapan Fujisellsthrough fourprimary
wholesalers. While Japan accepts thisdistinction isfactually true,itconsiders itaslogically irrelevant
because selling through fourwholesalers simply preserves thebenefits ofintra-brand competition.1174
Japan argues thatother manufacturers made abusiness decision tomerge thewholesalers theyacquired
intosingle entities, whereas Fujimade adifferent business decision.
8.31 InJapan'sview, theECappears toargue thatfourindependent primary wholesalers should
notbeallowed tomaintain single-brand relationships withFuji,andthatthegovernment measures are
somehow responsible forthis. Japan points out,however, thattheECprovides noevidence ofany
government measures thateither created therelationship between Fujianditsprimary wholesalers or
which prevent other manufacturers fromdeveloping arelationship withoneormore ofthose primary
wholesalers.
8.32 AccordingtoJapan,theECoverlooksapublicstatementmadebyAgfaemphasizingthedifficulty
itfacesinboththeUnited States andJapanese markets, duetoitsposition asanewentrant facing well-
established rivals: "Itcannot bedisputed thatthephotomarkets intheUnited States, aswellasJapan,
aredominated bytheirrespective domestic companies. Thismeans considerable barriers foroutsiders
suchasourselves". Japan underscores thatthere isnothing unusual about theJapanese market and
thatnewentrants always faceobstacles becoming established inamarket.1175
1172Japan indicates thatsome ofFuji’sprimary wholesalers handle Kodak ’sproducts other thanfilm.
1173Japan notes thatKodak alsousesavariety oftechniques, including cashpayments, toensure retail exclusivity.
1174Japan emphasizes thatintra-brand competition mayactually reduce Fujifilm ’seffectiveness asaninterbrand competitor.
Asaresult, Fujifilm ’suseofmultiple wholesalers could actually benefit competing manufacturers likeKodak. W.KipViscusi,
JohnM.Vernon, Joseph E.Harrington, Jr.,Economics ofRegulation andAntitrust, 1992, p.237,noting thatreduced intra-
brandcompetitioncouldmakeamanufactureramoreeffectiveinterbrandcompetitor,JapanEx.F-8;seegenerally,E.Thomas
Sullivan, Jeffrey L.Harrison, Understanding Antitrust anditsEconomic Implications, 1988, pp.147-177, Japan Ex.F-9,
discussing thefreerider problems caused byintra-brand competition.
1175Apublic statement made byAgfa, Film Dispute Before theWTO, October 17,1996, Japan Ex.F-10.WT/DS44/R
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B. MEXICO
8.33 Mexicostatesthatthisparticularcasedealswiththerelationshipbetweenthemeasuresintroduced
bytheJapanese Government andaccess toitsmarket forimports ofphotographic paper andfilm.
8.34 According toMexico, threetypesofmeasures which theJapanese Government hasimplemented
since the1960'shaveaffected access ofimports toJapan:
(a) measures thatimpede thedistribution ofimported photographic filmandpaper;
(b) measuresthatlimittheestablishmentoflargeretailstores,whichconstituteanalternative
system forthedistribution ofsuchimports;
(c) measures involving theimposition ofrestrictions onsales-price andadvertising
campaigns forsuchproducts.
8.35 Withregardtothedistributionofimportedphotographicpaperandfilm,theJapaneseGovernment
adopted anumber ofmeasures through MITI'sfostering theintegration ofmanufacturers anddistributors
attheendofthe1960'sandbeginning ofthe1970's.Japan promoted theadoption ofcommon
transaction terms between allmanufacturers anddistributors, which encourage theirintegration. These
terms relate todiscounts, rebates andpayment terms applicable todistributors, forimported goods
aswell.
8.36 Atthesame timesteps were taken topromote theusebymanufacturers anddistributors of
shared infrastructure, e.g.warehouses anddistribution routes, thereby strengthening theirties. This
wasachieved, interalia,through subsidized financing ofphotographic laboratories, fromwhich those
laboratories inwhich there wasforeign participation were excluded.
8.37 Moreover, efforts weremade tostrengthen information linksbetween domestic manufacturers
anddistributors through government agencies. Thisintegration hasaffected theaccess ofimports of
suchgoods totheJapanese market.
8.38 With respect tolarge retail stores ,Mexico notes thatalawwasenacted in1973 permitting
MITItolimittheestablishment,operationandexpansionofsuchstoresinordertoprotectsmallbusiness.
Notwithstanding itsgeneral character, thislawhasaffected access ofimports byrestricting analternative
channel forthedistribution ofphotographic paper andfilm.
8.39 Finally, asregards measures relating topromotions ,Mexico notes that,onthebasis ofthe
Anti-Monopoly Lawof1947andthePremiums Lawof1962, theJapanese authorities, starting atthe
endof1960's,imposed limitations ondiscounts andadvertising bylarge- andsmall-scale distributors
ofphotographic paper andfilm. These limitations affected theaccess ofimported goods.
8.40 Mexico emphasizes thattariff reduction, national treatment andnon-discrimination are
fundamental totheachievement oftheWTO 'sobjectives. Accordingly, thecontinued consistency
ofanymeasures adopted byWTO Members hastobeensured, inparticular with:
(a) Article IIIwhich stipulates thatproducts imported from aMember country shallbe
accorded treatment nolessfavourable thanthataccorded todomestic products;
(b) Article XXIII which establishes thelegalsafety thatmustbeafeature ofanyadvantage
enjoyed byaMember asadirect orindirect result ofGATT 1994;WT/DS44/R
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(c) Article Xwhich provides thatallprovisions ofgeneral application shallbebrought
totheknowledge ofbothgovernments andtraders.
8.41 Finally, Mexico requests thePanel to:
(i) conduct itsexamination inkeeping withtheterms ofreference established bytheDSB;
(ii) baseitsfindings andrecommendations onsuchrelevant provisions ofthecovered
Agreement ashavebeeninvoked bytheparties tothedispute;
(iii) avoid thecreation ofnewdisciplines through interpretations thatcould gofurther than
whatwasagreed bytheMembers oftheWTO; and
(iv) ensure fullimplementation oftheconcessions under theterms andconditions inwhich
theywere agreed andinconformity withtherelevant provisions oftheWTO.