WT/DS44/R
Page370
X. FINDINGS
A. PRELIMINARY ISSUES
10.1 Asapreliminarymatter,JapanrequeststhePaneltoexcludefromconsiderationeight1176separate
"measures"1177which Japan believes areoutside theterms ofreference ofthePanel asnothaving been
identified specifically intheUSrequest forthePanel'sestablishment. Theeight "measures" arethe
following:
(1) 1968 SixthInterim Report ofIndustrial Structure Council, "Distribution Modernization
Outlook andIssues";
(2) 1976 JDBfinancing toKonica forjointdistribution facilities;
(3) 1967/1977 SMEA financing tophotofinishing laboratories (toenable themtobuynew
equipment forcolour photofinishing);
(4) 1971JFTCRuleNo.1underArticle6oftheAntimonopolyLaw(InternationalContract
Notification Requirement);
(5) 1967 JFTC Notification No.17onpremiums tobusinesses;
(6) 1967 JFTC Notification No.34onopenlotteries;
(7) 1977 JFTC Notification No.5onpremiums tocustomers; and
(8) 1983 JFTC guidance ontheestablishment ofrules onloss-leader advertising and
dumping.
10.2 Japan claims thatthese "measures" werementioned forthefirsttimebytheUnited States in
itsinitial submission tothePanel andwere neither raised bytheUnited States during consultations
under Article 4.4oftheDSU noridentified specifically intheUSrequest fortheestablishment ofthe
panel under Article 6.2oftheDSU. Wenoteinthisregard thatalthough Japan makes arguments about
thealleged USfailure toconsult ontheeight"measures" thatJapan wishes toexclude fromconsideration
inthisproceeding, theruling requested byJapan relates solely tothealleged USfailure toidentify
specifically these same eight "measures" intheUSrequest fortheestablishment ofthisPanel.
Accordingly, weshall forego examination oftheconformity ofUSactions withtheconsultation
requirements ofArticle 4.4oftheDSU, concentrating instead onJapan'sclaim pursuant toArticle 6.2
oftheDSU.
10.3 TheUnited States counters thatitfulfilled therequirements ofArticle 6.2andthatthese
"measures" aretherefore within thePanel'sterms ofreference. Specifically, theUnited States argues
that: (1)Japan wasonadequate notice ofthe"measures" implicated intheUSrequest forthe
establishment ofthepanel; (2)Japan hasnotcomplained thatanyofthe"measures" arenotrelated
to"measures" thatwerediscussed intheconsultations andidentified inthepanel request; and(3)the
means selected byittodescribe these "measures" arenecessitated bythenature ofthe"measures"
themselves. Japan contests eachofthese USarguments.
1176Initsrequest forapreliminary ruling, Japan objected tonineofthe"measures" discussed inthefirstUSwritten
submission tothePanel. After theUSresponse toapanel question, inwhich theUnited States specified themeasures subject
toitsclaims, Japan objected tooneadditional measure, butdropped itsobjections inrespect oftwomeasures notspecified
intheUSresponse.
1177Inourfindings, oneofthecentral issues iswhether ornotcertain governmental actions orpolicies citedbytheUnited
StatesaremeasureswithinthemeaningofGATTArticleXXIII:1(b).Wheredealingwiththeparties'allegationsandarguments,
weputtheterm "measure" within quotation marks. Only where werefer totheterm more generally orwhere wehave
decided orassumed thatsuchgovernmental actions orpolicies aremeasures within themeaning ofArticle XXIII:1(b) do
weusetheterm without quotation marks.WT/DS44/R
Page371
1. SPECIFICITY OFTHE "MEASURES" IDENTIFIED INTHE PANEL REQUEST
(a) Article 6.2andtherequest forestablishment ofthePanel
10.4 Thestarting point forouranalysis isArticle 6.2oftheDSU, which provides inrelevant part
asfollows:
"Therequest fortheestablishment ofapanel shallbemade inwriting. Itshallindicate
whether consultations were held, identify thespecific measures atissue andprovide
abriefsummary ofthelegalbasis ofthecomplaint sufficient topresent theproblem
clearly. ..."(emphasis added).
10.5 Therelevant partoftheUSrequest fortheestablishment ofthisPanel reads asfollows:
"TheGovernment ofJapan hasimplemented andmaintains laws, regulations,
requirements andmeasures (collectively "measures") affecting thedistribution, offering
forsale,andinternal saleofimported consumer photographic filmandpaper, including:
liberalization countermeasures; distribution measures, suchas,butnotlimited to,the
cabinet decision, administrative guidance, andother measures listed inAttachment A;
theLawPertaining totheAdjustment ofBusiness Activities oftheRetail Industry for
Large Scale Retail Stores, No.109of1973 (Daiten Ho);Special Measures forthe
Adjustment ofRetail Business; No.155of1959 (Shocho Ho);theLawAgainst
Unjustifiable Premiums andMisleading Representations, No.134of1962; measures
regarding dispatched employees pursuant totheLawConcerning theProhibition of
PrivateMonopolyandMaintenanceofFairTrade,No.54of1947;theLawConcerning
Enterprise Reform forSpecified Industries, No.61of1995; theMinistry of
International Trade andIndustry Establishment Law, No.275of1952; andrelated
measures.
TheUnited States considers thatsuchmeasures nullify orimpair benefits
accruing toit,within themeaning ofArticles XXIII:1(a), asaresult ofthefailure of
theGovernment ofJapan tocarry outitsobligations under Article IIIandXofthe
GeneralAgreementonTariffsandTrade1994(GATT).Morespecifically,theJapanese
Government measures:
- were implemented andmaintained soastoafford protection todomestic
production ofconsumer photographic filmandpaper within themeaning of
GATT Article III:1;
- conflict withGATT Article III:4byaffecting theconditions ofcompetition
forthedistribution,offeringforsale,andinternalsaleofconsumerphotographic
filmandpaper inamanner thataccords lessfavourable treatment toimported
filmandpaper thantocomparable products ofnational origin; and
- conflict with GATT Articles X:1andX:3because themeasures lack
transparencyinthattheywerenotpromptlypublishedandwerenotadministered
inauniform, impartial andreasonable manner.
Inaddition, theapplication ofthese measures bytheGovernment ofJapan
nullifies orimpairs, within themeaning ofGATT Article XXIII:1(b), thetariff
concessionsthattheGovernmentofJapanmadeonblackandwhiteandcolourconsumer
photographic filmandpaper intheKennedy Round, Tokyo Round, andUruguay Round
multilateral tariff negotiations.WT/DS44/R
Page372
[Description ofconsultations omitted]
Accordingly, pursuant toArticles 4and6oftheDSU, theUnited States
respectfully requests theestablishment ofapanel withstandard terms ofreference as
setoutinArticle 7oftheDSU.
[Request forspecial meeting ofDSBomitted]
ATTACHMENT A
- MITI, "Administrative Guidance toPromote Rationalization ofDistribution
System", 1966
- Cabinet Decision, "Liberalization ofForeign Investment", 6June1967.
- MITI Industrial Structure Council Distribution Subcommittee, "Distribution
Systemization", 1969. (Tsusansho Koho,13and14August 1969).
- MITI Preparatory Survey, "TheActual StateofTrade Practices inPhoto Film",
1969.
- MITI, "Film Trade Normalization Guidelines", 1970.
- MITI, "Business Bureau Report onFilmPrices", 1970.
- MITI, "Basic PlanforDistribution Systemization", 1971.
- MITI, "Manual forSystemization ofDistribution", 1975.
- MITI, "Guidelines forImproving Business Practices", 1990.
- MITI andtheSmall andMedium Enterprises Agency, "Distribution Vision
forthe21stCentury", 1995 (andearlier versions forthe1970s, 1980s, and
1990s).
- Photo Industry Distribution Information Systemization Council [Kyogikai],
"Comprehensive Manual forPhoto Distribution Industry Distribution
Information Systemization", 1996(and1989, 1990, 1991, and1992versions).
- Other related measures, including guidelines."1178
(b) Analysis ofArticle 6.2
10.6 Weshall proceed withouranalysis oftheJapanese procedural objection inlight ofthe
interpretative rulesoftheVienna Convention1179andArticle XVIoftheWTO Agreement.1180Inthis
connection, weexamine, asappropriate, (i)theordinary meaning oftheterms ofArticle 6.2;(ii)the
context andtheobject andpurpose ofArticle 6.2;and(iii)pastpractice under Article 6.2andits
predecessor provision.1181
1178WT/DS44/2.
1179TheAppellate Body made clear initsfirsttwodecisions thatunder Article 3.2oftheDSU thestarting point forthe
interpretation ofWTO provisions istheVienna Convention ontheLawofTreaties. Article 31oftheVienna Convention
provides inrelevant partasfollows: "1.Atreaty shallbeinterpreted ingood faithinaccordance withtheordinary meaning
tobegiven totheterms ofthetreaty intheircontext andinlightofitsobject andpurpose". SeeAppellate Body Report
onJapan -Taxes onAlcoholic Beverages ("Japan -Alcoholic Beverages "),adopted on1November 1996, WT/DS8, 10
and11/AB/R, pp.10-12; Appellate Body Report onUnited States -Standards forReformulated andConventional Gasoline
("US-Gasoline "),adopted on20May 1996, WT/DS2/AB/R, pp.16-17.
1180Article XVIprovides: "Except asotherwise provided under thisAgreement ortheMultilateral Trade Agreements,
theWTO shallbeguided bythedecisions, procedures andcustomary practices followed bytheCONTRACTING PARTIES
toGATT 1947 andthebodies established intheframework ofGATT 1947".
1181Inthecaseofadopted panel reports, theAppellate Body hasstated: "Adopted panel reports areimportant partof
theGATT acquis .They areoften taken intoaccount bysubsequent panels. They create legitimate expectations among WTO
Members, and,therefore should betaken intoaccount where theyarerelevant toanydispute. However, theyarenotbinding,
except withrespect toresolving theparticular dispute between theparties tothatdispute". Japan -Alcoholic Beverages ,
WT/DS8/AB/R, p.14.WT/DS44/R
Page373
10.7 Theportion ofArticle 6.2relevant totheJapanese objection provides that"[t]he request for
theestablishment ofapanel shall...identify thespecific measures atissue ...". Bothparties agree,
andourreading oftheUSpanel request confirms, thatthispanel request doesnotexplicitly identify
theeight "measures" which arethesubject ofJapan'sobjection.
10.8 Thequestion thusbecomes whether theordinary meaning oftheterms ofArticle 6.2,i.e.,
that"thespecific measures atissue" beidentified inthepanel request, canbemetifa"measure" is
notexplicitly described intherequest. Tofallwithin theterms ofArticle 6.2,itseems clear thata
"measure" notexplicitly described inapanel request must haveaclear relationship toa"measure"
thatisspecifically described therein, sothatitcanbesaidtobe"included" inthespecified "measure".
Inourview, therequirements ofArticle 6.2would bemetinthecaseofa"measure" thatissubsidiary
orsoclosely related toa"measure" specifically identified, thattheresponding party canreasonably
befound tohavereceived adequate notice ofthescope oftheclaims asserted bythecomplaining party.
Thetwokeyelements --close relationship andnotice --areinter-related: onlyifa"measure" is
subsidiary orclosely related toaspecifically identified "measure" willnotice beadequate. Forexample,
weconsider thatwhere abasic framework lawdealing withanarrow subject matter thatprovides for
implementing "measures" isspecified inapanel request, implementing "measures" might beconsidered
inappropriate circumstances aseffectively included inthepanel request aswellforpurposes ofArticle
6.2. Such circumstances include thecaseofabasic framework lawthatspecifies theform and
circumscribes thepossible content andscope ofimplementing "measures". Asexplained below, this
interpretation ofArticle 6.2isconsistent withthecontext andtheobject andpurpose ofArticle 6.2,
aswellaspastpanel practice.
10.9 TheBananas IIIpanel found thattheobject andpurpose ofArticle 6.2'sspecificity requirement
istoensure clarity ofpanels 'terms ofreference, which pursuant toArticle 7oftheDSUaretypically
determined bythepanel request, andtoinform therespondent andpotential thirdparties ofthescope
ofthecomplaining party'sclaims (i.e., the"measures" challenged andtheWTO provisions invoked
bythecomplaining party).1182SolongasArticle 6.2isinterpreted torequire any"measure" challenged
tobespecified inthepanel request ortobesubsidiary orclosely related tothespecified "measures",
theobject andpurpose ofArticle 6.2aresatisfied.
10.10 Theproposed interpretation isalsoconsistent withpastWTO andGATT panel practice. The
Bananas IIIpanel istheonlyWTO panel tohaveinterpreted theaspect ofArticle 6.2atissue inthis
case,i.e.,thedefinition ofthe"measures" tobedeemed covered byapanel request. IntheBananas III
panel request, the"basic ECregulation atissue" hadbeenidentified byplace anddateofpublication.
Inaddition, therequest referred ingeneral terms to"subsequent EClegislation, regulations and
administrative measures ...which implement, supplement andamend [theECbanana] regime". The
Bananas IIIpanel found thatthisreference wassufficient forthespecificity requirement ofArticle 6.2
because themeasures thatthecomplainants werecontesting were"adequately identified", eventhough
theywerenotexplicitly listed.1183TheAppellate Body agreed thatthepanel request "contains sufficient
identification ofthemeasures atissue tofulfil therequirements ofArticle 6.2".1184Inourview,
"measures" thataresubsidiary orclosely related tospecified "measures" canbefound tobe"adequately
identified" asthatconcept wasapplied intheBananas IIIcase.
1182PanelReportonEuropeanCommunities-RegimefortheImportation,SaleandDistributionofBananas("BananasIII"),
adoptedon25September1997,WT/DS27/R,para.7.35,modifiedonothergroundsbytheAppellateBodyinWT/DS27/AB/R,
adopted on25September 1997. SeealsoAppellate Body Report onBananas III,WT/DS27/AB/R, para. 142;Appellate
Body Report onBrazil -Measures Affecting Desiccated Coconut ("Brazil -Desiccated Coconut "),adopted on20March 1997,
WT/DS22/AB/R, p.22.
1183Bananas III,WT/DS27/R, para. 7.27.
1184Bananas III,WT/DS27/AB/R, para. 140.WT/DS44/R
Page374
10.11 TheproposedinterpretationisalsoconsistentwithotherWTO/GATTcasesdealingwithterms-of-
reference issues. InonesuchWTO case, ameasure wasfound tobeoutside theterms ofreference
when ithadnotbeenmentioned atallinthepanel request.1185Ina1984GATT case, apanel declined
toexamine anymeasures related to"manufacture" ofgoods inviewofitsterms ofreference which
"only refertothepurchase ofgoods inCanada and/or theexport ofgoods fromCanada".1186Similarly,
claims based onprovisions ofGATT orother agreements notmentioned inthepanel request havealso
beenfound tobeoutside theterms ofreference ofthepanel concerned.1187
(c) Theeight "measures" inlightofArticle 6.2
10.12 Wewillnowanalyze theeight "measures" which arethesubject ofJapan'sobjection under
Article 6.2oftheDSU. Bearing inmind ouranalysis ofthetextofArticle 6.2inaccordance with
therules oftreaty interpretation oftheVienna Convention, webelieve thattheeight "measures" at
issue maybeusefully divided intofourcategories.
10.13 Inthefirstcategory wewould include twomeasures which, although notspecifically identified
intherequest fortheestablishment ofthepanel can,inourview, beviewed assubsidiary orclosely
related tothePremiums Law, which isspecifically identified intheUSpanel request. These two
measures areJFTC Notification No.17onpremiums tobusiness andJFTC Notification No.5on
premiums tocustomers, bothofwhich wereissued pursuant tothePremiums Lawandimplement its
general provisions. Thecontent ofthese notifications isgenerally predetermined bythePremiums
Law, which isitselfarelatively focused statute, dealing indetail withonerather narrow subject matter.
Article 1ofthePremiums Lawspecifies itspurpose:
"This Law, inorder toprevent inducement ofcustomers bymeans ofunjustifiable
premiumsandmisleadingrepresentationsinconnectionwithtransactionsofacommodity
orservice ...aimstosecure faircompetition andthereby toprotect theinterests of
consumers ingeneral".1188
Article 3oftheLawauthorizes theJFTC:
"when itfindsitnecessary toprevent unfair inducement ofcustomers, [to]limiteither
themaximum value ofapremium ortheaggregate totalamount ofpremiums, thekind
ofpremiums orthemethod ofoffering ofapremium oranyother matter relating
thereto, or[to]prohibit theoffering ofapremium".1189
Thetwonotifications atissue establish limits onpremiums inaccordance withthePremiums Law.
Given theclose association ofthese JFTC notifications withthePremiums Lawandinlinewiththe
reasoning inBananas III,weconsider thatJapan hadadequate notice thatthesenotifications werewithin
thescope oftheUSclaims. Thus, wedonotconsider thatJapan could besaidtobeprejudiced in
anywaybyinclusion ofthese twomeasures inthematter before thisPanel. Wetherefore findthat
1185Japan-AlcoholicBeverages,para.6.5.ThepanelrequestmentionedtheJapanLiquorTaxLaw;theadditionalmeasure
wastheTaxation Special Measures Law.
1186Panel Report onCanada -Administration oftheForeign Investment Review Act("Canada -FIRA"),adopted on
7February 1984, BISD 30S/140, 158,para. 5.3. SeealsoPanel Report onUnited States -Measures Affecting Alcoholic
andMaltBeverages ("US-MaltBeverages "),adopted on19June1992, BISD 39S/206, 226-228, paras. 3.1-3.5 (Thepanel
didnotconsider unspecified "new measures which maycome intoeffect during thePanel 'sdeliberation".).
1187See,e.g.,Bananas III,WT/DS27/R,para.7.30;Desiccated Coconut ,WT/DS22/R,para.290;PanelReportonUnited
States -Denial ofMost-favoured-nation Treatment astoNon-rubber Footwear fromBrazil ,adopted on19June1992, BISD
39S/128, 147-148, paras. 6.1-6.2.
1188LawAgainst Unjustifiable Premiums andMisleading Representations, LawNo.134of15May1962, Japan, Ex.D-1.
1189Ibid.WT/DS44/R
Page375
JFTC Notification No.17onpremiums tobusiness andJFTC Notification No.5onpremiums to
customers arewithin ourterms ofreference andproperly before thisPanel.
10.14 Inthesecond category wewould include a"measure", theSixth Interim Report oftheIndustrial
Structure Council 'sDistribution Committee, thatisclosely related, although notsubsidiary, toa
"measure" thatislisted inthepanel request. TheSixth Interim Report isnotlisted inthepanel request,
although itispartofaseries ofreports, another oneofwhich (theSeventh Interim Report) ismentioned
among the"measures" listed inthepanel request. Inthatsense, onemayviewtheSixth Interim Report
asbeing closely related toa"measure" thatislisted inthepanel request. Wenoteinthisregard that
Japan wasonnotice thattheUSclaims concerned thereports oftheIndustrial Structure Council 's
Distribution Committee. Weseenoreason tobelieve thatourconsideration ofthereport willcause
prejudice toJapan orthirdparties inthiscase,given thesimilar nature andsignificant degree ofoverlap
between theSixth andSeventh Interim Reports. Accordingly, wefindthatthereisasufficiently close
relationship between theSixth Interim Report andtheSeventh Interim Report, thattheformer iswithin
ourterms ofreference andproperly before thisPanel.
10.15 Inthethird category wewould include twomeasures which areonlyindirectly related toa
measure mentioned inthepanel request. These twomeasures are: JFTC RuleNo.1under Article 6
oftheAntimonopoly Law(International Contract Notification Requirement) andJFTC Notification
No.34onopenlotteries (1971). JFTC RuleNo.1andJFTC Notification No.34wereissued pursuant
toArticles 6and2(7),respectively, oftheAntimonopoly Law,which isnotlisted separately asameasure
challenged bytheUnited States. However, theAntimonopoly Lawisreferred tointhepanel request,
inconnection withtheidentification ofa"measure" regarding dispatched employees.
10.16 Inconsidering whether these twomeasures were adequately identified inthepanel request,
wenotethatincontrast tothePremiums Law, which hasarelatively narrow focus (i.e., premiums),
theAntimonopoly Lawhasaverybroad scope anddeals withabroad range ofissues. Assuch, we
would havesomehesitation insaying thatareference totheAntimonopoly Lawalone would besufficient
tobring allmeasures taken byJapan under thatLawwithin thescope ofthepanel request. Thetext
ofArticle 2(7), forexample, doesnotclearly specify andpredetermine theform, content andscope
ofsubsidiary regulations. Weneednotdecide thatissue, however, because therewasnosuchgeneral
reference made inthiscase. Inthiscase, thereference inthepanel request totheAntimonopoly Law
wasforthepurpose ofidentifying a"measure" dealing withdispatched employees, anissueunrelated
totheInternational Contract Notification Requirement oropenlotteries. Suchareference would not
normally besufficient toputJapan onnotice thatthese measures wereaconcern oftheUnited States.
Inaddition, weseenoreason why, assuggested bytheUnited States, thenature ofthese measures
precluded theirspecification bytheUnited States inthepanel request. Inourview, theInternational
Contract Notification Requirement andJFTC Notification No.34onopen lotteries (1971) arenot
subsidiary orclosely related toa"measure" specified asbeing atissueinthepanel request. Therefore,
wefindthatthese measures arenotproperly before thisPanel.
10.17 Inthefourth category wewould place thethree remaining "measures" which arethesubject
ofJapan'sprocedural objection under Article 6.2oftheDSU. These three "measures" areclearly not
related toany"measure" specifically identified inthepanel request. Thisisthecasefor:JDBfinancing
toKonica forjointdistribution facilities; SMEA financing tophotofinishing laboratories toenable them
tobuynewequipment forcolour photofinishing; andtheJFTC guidance onloss-leader advertising
anddumping (1983).
10.18 InthecaseoftheJDBandSMEA subsidies, theUSposition isthatJapan hadadequate notice
ofUSclaims relating tothem because MITI's1971 Basic PlanfortheSystemization ofDistribution,
which wasraised during consultations withJapan andfigures inthe"measures" listed inthepanel
request, makes reference to"positive support andguidance from thegovernment" being necessary
inrelation tocarrying outsystemization. Inourview, therelationship between these two"measures"WT/DS44/R
Page376
andthe1971Basic Planistootenuous tofindthattheyarecovered bythepanel request. Thetiming
ofthe"measures", which range from 1967 to19761190,doesnotseem connected toa1971 plan. In
addition, weagree withJapan thatthephrase "positive support" intheBasic Plandoesnotnecessarily
refertofinancial contributions andistoovague toconstitute anymeaningful notice toJapan thatJDB
andSMEA financing werecovered bythepanel request. Moreover, weseenoreason why,assuggested
bytheUnited States, thenature ofthese"measures" precluded theirspecification bytheUnited States.
Therefore, wefindthatthese "measures" arenotproperly before thisPanel.
10.19 InrespectofJFTCguidanceontheestablishmentofrulesonloss-leaderadvertisinganddumping,
wenotethattheprocedural objection tothis"measure" came inJapan'ssecond submission, asa
consequence ofitsinclusion intheUSlistof"measures" subject toclaims, which wassubmitted by
theUnited States following thefirstmeeting inresponse toapanel question. Itwastherefore notthe
subject ofdetailed arguments bytheparties, aswere theother "measures". Forourpurposes, itis
sufficient tonotethatthisguidance, which isdifficult tocomprehend inanyevent andinpartsubject
toatranslation dispute, probably isnotameasure forpurposes ofArticle XXIII:1(b) anddoesnot
seem toberelated atalltoany"measure" listed inthepanel request. Therefore, wefindthatthis
JFTC guidance isnotproperly before thisPanel.
2. SUMMARY
10.20 Tosumup,onthebasis ofourexamination ofJapan'sprocedural objection toinclusion of
eightspecific "measures" inthePanel'sterms ofreference, wefindthatthefollowing "measures" are
within ourterms ofreference:
1968SixthInterim Report ofIndustrial Structure Council, "Distribution Modernization Outlook
andIssues";
1967 JFTC Notification No.17onpremiums between businesses; and
1977 JFTC Notification No.5onpremiums tocustomers.
10.21 Wefurther findthatthefollowing "measures" falloutside ourterms ofreference andarenot
properly before thisPanel:
1976 JDBfinancing toKonica forjointdistribution facilities;
1967/1977SMEAfinancingtophotofinishinglaboratories(toenablethemtobuynewequipment
forcolour photofinishing);
1971 JFTC Rule No.1under Article 6oftheAntimonopoly Law(International Contract
Notification Requirement);
1971 JFTC Notification No.34onopenlotteries; and
1983 JFTC guidance ontheestablishment ofrules onloss-leader advertising anddumping.
1190TheJDBloanisdated 1976; theSMEA subsidies were given starting in1967.WT/DS44/R
Page377
B. CLAIMS OFTHE PARTIES
10.22 TheUnited States claims thatthrough theapplication ofthreebroad categories ofliberalization
"countermeasures"1191theJapanese Government formore than30years hasinhibited thedistribution
andsaleofimported consumer photographic filmandpaper1192inJapan. These three categories of
"measures" cover: (1)distribution "measures", which allegedly encourage andfacilitate thecreation
ofamarket structure forphotographic filmandpaper inwhich imports areexcluded fromtraditional
distribution channels; (2)restrictions onlarge retail stores, which allegedly restrict thegrowth ofan
alternative distribution channel forimported film; and(3)promotion "measures", which allegedly
disadvantage imports byrestricting theuseofsalespromotion techniques.
10.23 Inlightoftheforegoing ruling onJapan'sprocedural objection, thespecific "measures" which
arethesubject oftheUSclaims aresetoutbelow. Detailed descriptions ofthese"measures" arefound
inPartII.
Distribution "countermeasures"
- 1967 JFTC Notification 17onPremiums toBusinesses;
- 1967 Cabinet Decision onLiberalization ofofInward Direct Investment;
- 1968 Sixth Interim Report on"Distribution Modernization Outlook andIssues";
- 1969 Seventh Interim Report on"Systemization ofDistribution Activities";
- 1969 Survey Report regarding Transaction Terms;
- 1970 Guidelines forRationalizing Terms ofTrade forPhotographic Film;
- 1971 Basic PlanfortheSystemization ofDistribution;
- 1975 Manual forSystemization ofDistribution byIndustry: Camera andFilm;
Restrictions onlarge retail stores
- 1974 Large Stores Law;
- 1979 Amendment totheLarge Stores Law;
Promotion "countermeasures"
- 1967 JFTC Notification 17onPremiums toBusinesses;
- 1967 Cabinet Decision onLiberalization ofofInward Direct Investment;
- 1977 JFTC Notification 5onPremiums toConsumers;
- 1981 JFTC Guidance onDispatched Employees;
- 1982 Self-regulating Rules Concerning Fairness inTrade withBusiness;
- 1982 Establishment ofFairTrade Promotion Council;
1191Wenotethattheparties disagree astothecorrect translation oftheJapanese word taisaku .TheUnited States uses
countermeasure ,whereas Japan argues thatmeasure orpolicy inresponse toaremore appropriate translations. Onthisand
other translation issues werefer, totheextent appropriate, totheopinions oftwotranslation experts appointed bythePanel,
Professor Zentaro Kitagawa andProfessor Michael Young. SeePartIandthe"Annex onTranslation Problems" inPartXI.
Thetranslation experts consider thattaisaku canbetranslated aseither measure orcountermeasure ,depending onthecontext.
Inourfindings, werefer bothtomeasure and"countermeasure" ,butinthelatter casetheterm isalways written within
quotation marks.
1192Wenotethattheterm"consumer photographic film" asusedbytheUnited States includes bothcolour andblack and
white filmforuseinstillphotography byconsumers. Itincludes bothnegative (print) andreversal (slide) film, andincludes
filmincorporated inso-called "single-use cameras". Itexcludes various specialized films usedbyprofessional photographers
andvarious other specialty films (x-ray film, microfilm). Wefurther notethattheterm "consumer photographic paper"
asusedbytheUnited States refers tophotosensitive paper usedtomake stillcolour andblack andwhite photographic prints
from consumer photographic film. Hereafter werefer toconsumer photographic filmandconsumer photographic paper
as"film" and"paper".WT/DS44/R
Page378
- 1984 Self-Regulating Standards Concerning Display ofProcessing FeesforColour Negative
Film;
- 1987 JFTC approval oftheRetailers FairCompetition Code anditsenforcement body, the
Retailers FairTrade Council.
10.24 TheUnited States alleges thattheabove "measures", individually andcollectively, nullify or
impair benefits accruing totheUnited States within themeaning ofGATT Article XXIII:1(b). In
addition, italleges thattheabove distribution "measures" areinconsistent withGATT Article III:4.
Itfurther alleges that(i)unpublished enforcement actions bytheJFTC andfairtrade councils under
thePremiums Lawandrelevant faircompetition codes thatestablish ormodify criteria applicable in
future cases, and(ii)unpublished guidance through which theJapanese authorities make applicants
foraneworexpanded storeunder theLarge Stores Lawcoordinate theirplans withlocalcompetitors
before submitting anotification forgovernment review, areinconsistent withGATT Article X:1.
10.25 Japan denies alltheclaims oftheUnited States.
C. SEQUENCE OFCLAIMS TOBEADDRESSED
10.26 Wenotethattraditionally incases involving bothviolation andnon-violation claims, panels
firstaddress claims ofinconsistency withacovered agreement pursuant toArticle XXIII:1(a), before
moving ontoconsider claims ofnon-violation nullification orimpairment under Article XXIII:1(b).1193
Wenote, however, thatwhereas theUSrequest fortheestablishment ofthisPanel1194firstlistsits
violation claims, inthePanel proceedings theUnited States andJapan havefirstaddressed theUSclaims
ofnon-violation nullification orimpairment under Article XXIII:1(b), followed bythose dealing with
inconsistency withArticles III:4andX:1.
10.27 Even though there would appear tobemerit inthetraditional approach offirstconsidering
violation claims before moving toclaims ofnon-violation, given thatintheparticular casebefore us
theUnited States andJapan have begun withthenon-violation claims intheir written andoral
presentations andhavedevoted thelion'sshare oftheirarguments tothisportion ofthecase,weconsider
thatitwould bemostefficient toalsofollow thesequence chosen bytheparties inaddressing theUS
claims. Weshall therefore firstaddress theUSclaims dealing withnon-violation nullification or
impairment under Article XXIII:1(b) andthereafter consider theUSviolation claims under Articles III:4
andX:1.
D. BURDEN OFPROOF
10.28 Given thenature ofthisfactually complex dispute andparticularly itsclaims ofnon-violation
nullification orimpairment inrespect of16separate "measures", weconsider thattheresolution of
issues relating totheproper allocation oftheburden ofproof isofparticular importance.
10.29 Wenotethatasinallcases under theWTO/GATT dispute settlement system -and,indeed,
astheAppellate Body recently stated1195,under most systems ofjurisprudence -itisforthe
party asserting afact,claim ordefence tobeartheburden ofproviding proof thereof. Once thatparty
1193See,e.g., European Economic Community -Payments andSubsidies PaidtoProcessors andProducers ofOilseeds
andRelatedAnimal-FeedProteins("EEC-Oilseeds"),adoptedon25January1990,BISD37S/86,para.142.SeealsoWorking
Party Report onAustralian Subsidy onAmmonium Sulphate ,adopted on3April 1950, BISD II/188, paras. 1,12.
1194WT/DS44/2.
1195SeeAppellate Body Report onUnited States -Measures Affecting Imports ofWoven Wool Shirts andBlouses from
India ("US-Wool Shirts andBlouses "),adopted on23May 1997, WT/DS33/AB/R, p.14.WT/DS44/R
Page379
hasputforward sufficient evidence toraiseapresumption thatwhatisclaimed istrue,theburden of
producing evidence thenshifts totheother party torebut thepresumption. TheAppellate Body stated
theprinciple succinctly asfollows:
"Inaddressing thisissue, wefinditdifficult, indeed, toseehowanysystem ofjudicial
settlement could work ifitincorporated theproposition thatthemere assertion ofa
claim might amount toproof. Itis,thus, hardly surprising thatvarious international
tribunals, including theInternational Court ofJustice, havegenerally andconsistently
accepted andapplied therulethattheparty whoasserts afact,whether theclaimant
ortherespondent, isresponsible forproviding proof thereof. Also, itisagenerally-
accepted canon ofevidence incivillaw,common lawand,infact,mostjurisdictions,
thattheburden ofproof restsupontheparty, whether complaining ordefending, who
asserts theaffirmative ofaparticular claim ordefence. Ifthatparty adduces evidence
sufficient toraiseapresumption thatwhatisclaimed istrue,theburden thenshifts
totheother party, whowillfailunless itadduces sufficient evidence torebut the
presumption.
Inthecontext oftheGATT 1994 andtheWTO Agreement precisely howmuch and
precisely whatkindofevidence willberequired toestablish suchapresumption will
necessarily varyfrommeasure tomeasure, provision toprovision andcasetocase".1196
Thus, inthiscase, itwillbefortheUnited States tobeartheburden ofproving itsclaims. Once it
hasraised apresumption thatwhatitclaims istrue,itwillbeforJapan toadduce sufficient evidence
torebut anysuchpresumption.
10.30 Inacase ofnon-violation nullification orimpairment pursuant toArticle XXIII:1(b),
Article 26.1(a) oftheDSU andGATT jurisprudence confirm thatthisisanexceptional remedy for
which thecomplaining party bears theburden ofproviding adetailed justification toback upits
allegations. Specifically, Article 26.1oftheDSU provides inrelevant part:
"Where andtotheextent thatsuchparty considers andapanel ortheAppellate Body
determines thatacaseconcerns ameasure thatdoesnotconflict withtheprovisions
ofacovered agreement towhich theprovisions ofparagraph 1(b)ofArticle XXIII
ofGATT 1994areapplicable, theprocedures inthisUnderstanding shallapply, subject
tothefollowing:
(a) thecomplaining party shallpresent adetailed justification in
support ofanycomplaint relating toameasure which doesnot
conflict withtherelevant covered agreement ..."(emphasis
added).
10.31 ThisDSU requirement hadpreviously beencodified intheAnnex tothe1979Understanding
onDispute Settlement inavirtually identical form.1197Thisrequirement hasbeenrecognized andapplied
byanumber ofGATT panels. Forexample, thepanel onUruguayan Recourse toArticle XXIII noted
thatincases
"where there isnoinfringement ofGATT provisions, itwould be...incumbent on
thecountry invoking Article XXIII todemonstrate thegrounds andreasons forits
1196Idem (footnotes omitted).
1197SeeAnnex totheUnderstanding Regarding Notification, Consultation, Dispute Settlement andSurveillance ("Annex
tothe1979 Understanding onDispute Settlement "),adopted on28November 1979, BISD 26S/210, 216.WT/DS44/R
Page380
invocation. Detailed submissions onthepartofthatcontracting party onthese points
were therefore essential forajudgement tobemade under thisArticle".1198
Andthepanel onUS-Agricultural Waiver noted, inapplying the1979 codification ofthisrule:
"Thepartybringing acomplaint under [Article XXIII:1(b)] would normally beexpected
toexplain indetail thatbenefits accruing toitunder atariff concession havebeen
nullified orimpaired".1199
10.32 Consistent withtheexplicit terms oftheDSUandestablished WTO/GATT jurisprudence, and
recalling theAppellate Body ruling that"precisely howmuch andprecisely whatkindofevidence will
berequired toestablish ...apresumption [thatwhatisclaimed istrue]willnecessarily varyfrom...
provision toprovision", wethusconsider thattheUnited States, withrespect toitsclaim ofnon-violation
nullificationorimpairmentunderArticleXXIII:1(b),bearstheburdenofprovidingadetailedjustification
foritsclaim inorder toestablish apresumption thatwhatisclaimed istrue. ItwillbeforJapan to
rebut anysuchpresumption.
E. ARTICLE XXIII:1(B) -NON-VIOLATION NULLIFICATION ORIMPAIRMENT
10.33 Werecall theUSclaim under Article XXIII:1(b) thatspecific "measures" oftheGovernment
ofJapan --eight distribution "countermeasures", tworestrictions onlarge retail stores, andeight
promotion "countermeasures" --individually andincombination nullify orimpair benefits accruing
totheUnited States stemming from tariff concessions made byJapan onblack andwhite andcolour
photographic filmandpaper attheendofthree successive multilateral rounds oftrade negotiations -
-theKennedy Round, theTokyo Round andtheUruguay Round.1200
10.34 Weshallproceed withouranalysis ofthisUSclaim, examining asappropriate theordinary
meaning oftheterms ofArticle XXIII:1(b), their context andtheobject andpurpose of
Article XXIII:1(b), andpastGATT practice under Article XXIII:1(b).1201
1. OVERVIEW OFTHE NON-VIOLATION REMEDY
10.35 Theunderlying purpose ofArticle XXIII:1(b) wascogently explained bythepanel onEEC-
Oilseeds :
"The ideaunderlying [theprovisions ofArticle XXIII:1(b)] isthattheimproved
competitive opportunities thatcanlegitimately beexpected from atariff concession
canbefrustrated notonlybymeasures proscribed bytheGeneral Agreement butalso
bymeasures consistent withthatAgreement. Inorder toencourage contracting parties
tomake tariff concessions theymust therefore begiven aright ofredress when a
1198Panel Report onUruguayan Recourse toArticle XXIII ("Uruguayan Recourse "),adopted on16November 1962, BISD
11S/95, 100, para. 15.
1199Panel Report onUnited States -Restrictions ontheImportation ofSugar andSugar-Containing Products Applied Under
the1955 Waiver andUnder theHeadnote totheSchedule ofTariff Concessions ("US-Agricultural Waiver "),adopted on
7November 1990, 37S/228, 261-262, paras. 5.20-5.23, quoting para. 5.21. SeealsoJapan -Trade inSemi-conductors
("Japan -Semi-conductors "),adopted on4May 1988, BISD 35S/116, 161, para. 131.
1200There areonly16distinct "measures" intotalwithin thePanel 'sterms ofreference, astwoofthedistribution
"countermeasures" arealsocited aspromotion "countermeasures" (i.e., the1967 Cabinet Decision andthe1967 JFTC
Notification 17.
1201SeeArticle 31oftheVienna Convention.WT/DS44/R
Page381
reciprocal concession isimpaired byanother contracting party asaresult ofthe
application ofanymeasure, whether ornotitconflicts withtheGeneral Agreement".1202
...
"The Panel considered thatthemain value ofatariff concession isthatitprovides an
assurance ofbetter market access through improved price competition. Contracting
parties negotiate tariff concessions primarily toobtain thatadvantage. They must
therefore beassumed tobasetheirtariff negotiations ontheexpectation thattheprice
effect ofthetariff concessions willnotbesystematically offset. Ifnorightofredress
weregiven tothem insuchacasetheywould bereluctant tomake tariff concessions
andtheGeneral Agreement would nolonger beuseful asalegal framework for
incorporating theresults oftrade negotiations".1203
Clearly, thesafeguarding oftheprocess andtheresults ofnegotiating reciprocal tariff concessions
under Article IIisfundamental tothebalance ofrights andobligations towhich allWTO Members
subscribe.
10.36 Although thenon-violation remedy isanimportant andaccepted toolofWTO/GATT dispute
settlement andhasbeen"onthebooks" foralmost 50years, wenotethatthere haveonlybeeneight
cases inwhich panels orworking parties havesubstantively considered Article XXIII:1(b) claims.1204
Thissuggests thatboththeGATT contracting parties andWTO Members haveapproached thisremedy
withcaution and,indeed, havetreated itasanexceptional instrument ofdispute settlement. Wenote
inthisregard thatboththeEuropean Communities andtheUnited States intheEEC-Oilseeds case,
andthetwoparties inthiscase,haveconfirmed thatthenon-violation nullification orimpairment remedy
should beapproached withcaution andtreated asanexceptional concept.1205Thereason forthiscaution
isstraightforward. Members negotiate therulesthattheyagree tofollow andonlyexceptionally would
expect tobechallenged foractions notincontravention ofthose rules.
10.37 While weconsider thatthenon-violation remedy should beapproached withcaution andshould
remain anexceptional remedy, eachcaseshould beexamined onitsownmerits, bearing inmind the
above-mentioned needtosafeguard theprocess ofnegotiating reciprocal tariff concessions. Ourrole
asapanel charged withexamining claims under Article XXIII:1(b) is,therefore, tomake anobjective
assessment ofwhether, inlightofalltherelevant factsandcircumstances inthematter before us,
particular measures taken byJapan havenullified orimpaired benefits accruing totheUnited States
within themeaning ofArticle XXIII:1(b).
10.38 InGATT jurisprudence, mostofthecases ofnon-violation nullification orimpairment have
dealtwithsituations where aGATT-consistent domestic subsidy fortheproducer ofaproduct hasbeen
1202EEC -Oilseeds ,adopted on25January 1990, BISD 37S/86, 128-129, para.144.
1203Ibid, para.148.
1204Report oftheWorking Party onAustralian Subsidy onAmmonium Sulphate ,adopted on3April 1950, BISD II/188;
Panel Report onTreatment byGermany ofImports ofSardines ("Germany -Sardines "),G/26, adopted on31October 1952,
BISD 1S/53; Uruguayan Recourse ,adopted on16November 1962, BISD 11S/95; Panel Report onEC-Tariff Treatment
onImports ofCitrus Products fromCertain Countries intheMediterranean Region ("EC-Citrus Products "),GATT Doc.
L/5576, dated 7February 1985 (unadopted); Panel Report onEEC -Production AidsGranted onCanned Peaches, Canned
Pears, Canned Fruit Cocktail andDried Grapes ("EEC -Canned Fruit"),GATT Doc. L/5778, dated 20February 1985
(unadopted); Japan -Semi-conductors ,adopted on4May1988, BISD 35S/116; EEC -Oilseeds ,adopted on25January
1990, BISD 37S/86; United States -Agricultural Waiver ,adopted on7November 1990, BISD 37S/228.
1205InEEC -Oilseeds ,theUnited States stated thatit"concurred intheproposition thatnon-violation nullification or
impairment should remain anexceptional concept. Although thisconcept hadbeeninthetextofArticle XXIII oftheGeneral
Agreement from theoutset, acautious approach should continue tobetaken inapplying theconcept". EEC -Oilseeds ,
BISD37S/86,118,para.114.TheEECinthatcasestatedthat"recoursetothe'non-violation'conceptunderArticleXXIII:1(b)
should remain exceptional, since otherwise thetrading world would beplunged intoastateofprecariousness anduncertainty".
Ibid, para. 113.WT/DS44/R
Page382
introduced ormodified following thegrant ofatariff concession onthatproduct.1206Theinstant case
presents adifferent sortofnon-violation claim. Attheoutset, however, wewishtomake clearthat
wedonotaprioriconsideritinappropriatetoapplytheArticleXXIII:1(b)remedytoothergovernmental
actions, suchasthose designed tostrengthen thecompetitiveness ofcertain distribution orindustrial
sectors through non-financial assistance. Whether assistance isfinancial ornon-financial, direct or
indirect, doesnotdetermine whether itseffect mayoffset theexpected result oftariff negotiations.
Thus, aMember 'sindustrial policy, pursuing thegoalofincreasing efficiency inasector, could in
somecircumstancesupsetthecompetitiverelationshipinthemarketplacebetweendomesticandimported
products inawaythatcould giverisetoacause ofaction under Article XXIII:1(b). Inthecontext
ofaMember 'sdistribution system, forexample, itisconceivable thatmeasures thatdonotinfringe
GATT rules could beimplemented inamanner thateffectively results inadisproportionate impact
onmarket conditions forimported products. Inthisregard, however, wemustalsobearinmind that
tariff concessions havenever beenviewed ascreating aguarantee oftrade volumes, butrather, as
explained below, ascreating expectations astocompetitive relationships.
10.39 TheUnited States haspresented much evidence onthestructure oftheJapanese market for
film. Inconsidering theUSclaims, wenotethattheissueisnotwhether ornotthestructure described
bytheUnited States infactexists, butrather whether measures attributable totheGovernment ofJapan
havecontributed tothecreation ormaintenance ofthatstructure inawaythatnullifies orimpairs benefits
accruing totheUnited States within theterms ofArticle XXIII:1(b).
10.40 While acknowledging thepossible application ofArticle XXIII:1(b) inthiscontext, wealso
notethattherearesome unusual features tothecasebefore us.Many ofthecited"measures" goback
alongwayintimeandtheircurrent status isnotalways clear. Moreover, many ofthemare,ontheir
face,neutral astotheorigin ofproducts. These features maymake itmore difficult topresent adetailed
justification insupport ofnon-violation claims.
2. THREE REQUIRED ELEMENTS
10.41 Wenow return toourmore detailed examination ofthescope ofArticle XXIII:1(b).
Article XXIII:1(b) provides inrelevant part:
"IfanyMember should consider thatanybenefit accruing toitdirectly orindirectly
under thisAgreement isbeing nullified orimpaired ...astheresult of...(b)the
application byanother Member ofanymeasure ,whether ornotitconflicts withthe
provisions ofthisAgreement ..."(emphasis added).
ThetextofArticle XXIII:1(b) establishes three elements thatacomplaining party mustdemonstrate
inorder tomake outacognizable claim under Article XXIII:1(b): (1)application ofameasure by
aWTO Member; (2)abenefit accruing under therelevant agreement; and(3)nullification or
impairment ofthebenefit astheresult oftheapplication ofthemeasure.1207Weshallproceed with
ouranalysis byconsidering inturneachofthese three elements.
1206SeeAustralian Subsidy onAmmonium Sulphate ,BISD II/188; Working Party Report onOther Barriers toTrade ,
adopted on3March 1955, BISD 3S/222, 224,para. 13;Report onOperation oftheProvisions ofArticle XVI,adopted on
21November 1961, BISD 10S/201, 209,para. 28;EEC-Canned Fruit,GATT Doc. L/5778 (unadopted); EEC-Oilseeds ,
BISD 37S/86.
1207See,e.g.,EEC -Oilseeds ,BISD 37S/86, paras. 142-152; Australian Subsidy onAmmonium Sulphate ,BISD II/188,
192-193.WT/DS44/R
Page383
(a) Application ofameasure
10.42 Inanalysing theelements ofanon-violation claim, alogical starting point istherequirement
thattherebeapplication ofameasure byaWTO Member. Inthefirstinstance, itisnecessary todefine
whatismeant bythetermmeasure .Inthiscase, some oftheitems included bytheUnited States in
itslistof"measures" atissue arelawsorregulations. Others arelessformal orlessconcrete forms
ofgovernmentalaction,suchasgeneralpolicystatementsbygovernmentagenciesandofficialsofvarious
ranks. Yetothers aregovernmental actions generally authorizing certain private activities, where the
question istheextent towhich suchactivities areattributable tothegovernment. These lasttwokinds
ofalleged "measures" raiseanumber ofgeneral issues ofaconceptual nature andspecific issues in
respect oftheindividual "measures". Weexplore inthissection general issues related tothedefinition
ofmeasure .
(i) General considerations
10.43 Theordinary meaning ofmeasure asitisusedinArticle XXIII:1(b) certainly encompasses
alaworregulation enacted byagovernment. Butinourview, itisbroader thanthatandincludes
other governmental actions short oflegally enforceable enactments.1208Atthesame time, itisalso
truethatnotevery utterance byagovernment official orstudy prepared byanon-governmental body
attherequest ofthegovernment orwithsome degree ofgovernment support canbeviewed asameasure
ofaMember government.
10.44 InJapan, itisaccepted thatthegovernment sometimes actsthrough what isreferred toas
administrative guidance. Insuchacase, thecompany receiving guidance from theGovernment of
Japan maynotbelegally bound toactinaccordance withit,butcompliance maybeexpected inlight
ofthepower ofthegovernment andasystem ofgovernment incentives anddisincentives arising from
thewidearray ofgovernment activities andinvolvement intheJapanese economy. Asnoted bythe
parties, administrative guidance inJapan takes various forms. Japan, forexample, refers towhatit
calls"regulatoryadministrativeguidance",whichitconcedeseffectivelysubstitutesforformalgovernment
action.1209Italsorefers topromotional administrative guidance, where companies areurged todo
things thatareintheirinterest todoinanyevent. InJapan'sview, thissortofguidance should not
beassimilated toameasure inthesense ofArticle XXIII:1(b). Forourpurposes, these categories
inform, butdonotdetermine theissuebefore us.Thus, itisnotuseful forustotrytoplace specific
instances ofadministrative guidance intoonegeneral category oranother. Itwillbenecessary for
us,asithasbeenforGATT panels inthepast,toexamine eachalleged "measure" toseewhether it
hastheparticular attributes required ofameasure forArticle XXIII:1(b) purposes.
10.45 Ourreview ofGATT jurisprudence, particularly thepanel report onJapan -Semi-conductors ,
teaches thatwhere administrative guidance creates incentives ordisincentives largely dependent upon
governmentalactionforprivatepartiestoactinaparticularmanner,itmaybeconsideredagovernmental
measure.1210Inthatcase, thepanel found thatalthough ameasure wasnotmandatory, itcould be
considered arestriction subject toArticle XI:1because
"sufficient incentives ordisincentives existed fornon-mandatory measures totakeeffect
...[and] theoperation ofthemeasures ...wasessentially dependent onGovernment
action orintervention [because insuchacase] themeasures would beoperating ina
manner equivalent tomandatory requirements suchthatthedifference between the
1208Thetwodefinitions ofmeasure relevant toourconsideration intheConcise Oxford Dictionary (Ninth Edition 1995)
are"legislative enactment" and"suitable action toachieve some end".
1209Seepara. 6.94.
1210Japan -Semi-conductors ,BISD 35S/116, 154-55.WT/DS44/R
Page384
measures andmandatory requirements wasonlyoneofform andnotofsubstance
...".1211
10.46 Another panel, thatonJapan -Restrictions onImports ofCertain Agricultural Products ,found
thattheinformal administrative guidance usedbytheJapanese Government torestrict production of
certain agricultural products could beconsidered tobeagovernmental measure within themeaning
ofGATT Article XI:2because itemanated from thegovernment andwaseffective intheJapanese
context.1212Specifically asregards themethod usedtoenforce certain measures, thepanel found that:
"thepractice of'administrative guidance 'played animportant role. Considering that
thispractice isatraditional toolofJapanese Government policy based onconsensus
andpeerpressure, thePanel decided tobaseitsjudgements ontheeffectiveness ofthe
measures inspiteoftheinitial lackoftransparency".1213
Inlinewiththisobservation oftheJapan -Agricultural Products panel, weconsider thatouranalysis
ofthealleged "measures" inthiscasemustproceed inamanner thatissensitive tothecontext inwhich
these governmental actions aretaken andtheeffect theyhaveonprivate actors.
10.47 Inthiscase,Japan argues thatmeasures forpurposes ofArticle XXIII:1(b) musteither provide
benefits orimpose obligations, andthattoimpose obligations themeasure mustbeagovernment policy
oraction which imposes legally binding obligations orthesubstantive equivalent. TheUSposition
isthatthetermmeasure inArticle XXIII:1(b) should notbelimited toreferonlytolegally binding
obligations ortheirsubstantive equivalent. Itargues infavour ofamore encompassing definition of
theterm.
10.48 Recalling thecriteria applied inJapan -Semi-conductors fordetermining whether ornota
formally non-binding measure should beassimilated toagovernmental restriction under Article XI:1,
i.e.,thatadministrative guidance mustcreate incentives ordisincentives toactandcompliance with
theguidance mustdepend largely ongovernmental action, weconsider thatthesecriteria would certainly
alsolendthemselves satisfactorily tothedefinition ofthetermmeasure under Article XXIII:1(b).
However, wenote thatthere isnothing inJapan -Semi-conductors suggesting thatthis
incentives/disincentives testshould beseenastheexclusive testforcharacterizing formally non-binding
measures asgovernmental. Weconsider, therefore, thatJapan -Semi-conductors should notbeseen
assetting forththeexclusive testorouter limitofwhatmaybeconsidered toconstitute ameasure under
Article XXIII:1(b).
10.49 Inparticular, wearenotpersuaded thatthedefinition proposed byJapan, i.e.,thatameasure
must provide abenefit orimpose alegally binding obligation oritssubstantive equivalent, should
circumscribe whatmayconstitute ameasure within themeaning ofArticle XXIII:1(b). Inourview,
agovernment policy oraction neednotnecessarily haveasubstantially binding orcompulsory nature
forittoentail alikelihood ofcompliance byprivate actors inawaysoastonullify orimpair legitimately
expected benefits within thepurview ofArticle XXIII:1(b). Indeed, itisclearthatnon-binding actions,
which include sufficient incentives ordisincentives forprivate parties toactinaparticular manner,
canpotentially haveadverse effects oncompetitive conditions ofmarket access. Forexample, anumber
ofnon-violation cases haveinvolved subsidies, receipt ofwhich requires onlyvoluntary compliance
witheligibility criteria. Moreover, wealsoconsider itconceivable, incases where there isahigh
degreeofcooperationandcollaborationbetweengovernmentandbusiness,e.g.,wherethereissubstantial
reliance onadministrative guidance andothermoreinformal forms ofgovernment-business cooperation,
1211Ibid, p.155.
1212Panel Report onJapan -Restrictions onImports ofCertain Agricultural Products ("Japan -Agricultural Products "),
adopted on22March 1988, BISD 35S/163, 242.
1213Ibid(emphasis added).WT/DS44/R
Page385
thatevennon-binding, hortatory wording inagovernment statement ofpolicy could haveasimilar
effect onprivate actors toalegally binding measure orwhatJapan refers toasregulatory administrative
guidance. Consequently, webelieve weshould beopentoabroad definition ofthetermmeasure for
purposes ofArticle XXIII:1(b), which considers whether ornotanon-binding government action has
aneffect similar toabinding one.
10.50 Wereach thisconclusion inconsidering thepurpose ofArticle XXIII:1(b), which istoprotect
thebalance ofconcessions under GATT byproviding ameans toredress government actions not
otherwiseregulatedbyGATTrulesthatnonethelessnullifyorimpairaMember'slegitimateexpectations
ofbenefits from tariff negotiations.1214Toachieve thispurpose, inourview, itisimportant thatthe
kinds ofgovernment actions considered tobemeasures covered byArticle XXIII:1(b) should notbe
defined inanunduly restrictive manner. Otherwise, there istheriskofcases, inwhich governments
havebeeninvolved onewayoranother inthenullification orimpairment ofbenefits, thatwillnot
beredressable under Article XXIII:1(b), thereby preventing theachievement ofitspurpose. Wewould
stress, however, thatgiving abroad definition tomeasure does notexpand thescope ofthe
Article XXIII:1(b) remedy because itremains incumbent onthecomplaining Member toclearly
demonstrate howthemeasure atissueresults inorcauses nullification orimpairment ofbenefits, and
asexplained below, inthefinalanalysis theresponding Member 'sgovernment isonlyresponsible for
whatithasitself caused.
10.51 Finally onthesubject ofwhatmayconstitute agovernmental measure, wenotetheanalysis
ofseveral GATT panels dealing withtherelated issue ofwhatmayconstitute "alllaws, regulations
andrequirements affecting ...internal sale,offering forsale,purchase, transportation, distribution
oruse"under GATT Article III:4. Inthese cases, theconclusion thatthere isalaw,regulation or
requirement thatexists andviolates GATT rules gives risetoapresumption ofnullification or
impairment. Evenso,panels havetaken abroad viewofwhen agovernmental action isalaw,regulation
orrequirement. Forexample, in1984 apanel examined written purchase andexport undertakings
under theForeign Investment Review ActofCanada (FIRA), submitted byinvestors regarding the
conduct ofthebusiness theywere proposing toacquire orestablish, conditional onapproval bythe
Canadian government oftheproposed acquisition orestablishment. These written undertakings were
considered legally binding under FIRA. Thepanel determined thattheundertakings were tobe
considered "laws, regulations orrequirements" within themeaning ofArticle III:4, eventhough FIRA
didnotmake theirsubmission obligatory.1215Similarly, thepanel onEEC--Parts andComponents
considered thattheterm"laws, regulations orrequirements" included requirements "which anenterprise
voluntarily accepts inorder toobtain anadvantage fromthegovernment.1216Given thatthescope of
thetermrequirement would seem tobenarrower thanthatofmeasure ,thebroad reading given tothe
word requirement bytheCanada -FIRA andEEC-Parts andComponents panels supports aneven
broader reading oftheword measure inArticle XXIII:1(b).
(ii) Governmental versus private actions
10.52 AstheWTO Agreement isaninternational agreement, inrespect ofwhich onlynational
governments andseparate customs territories aredirectly subject toobligations, itfollows byimplication
thattheterm measure inArticle XXIII:1(b) andArticle 26.1 oftheDSU, aselsewhere inthe
WTO Agreement, refers onlytopolicies oractions ofgovernments, notthose ofprivate parties. But
1214EEC -Oilseeds ,BISD 37S/86, para. 144.
1215Canada --FIRA,BISD 30S/140, 158, para. 5.4.
1216Panel Report onEEC--Regulation onImports ofParts andComponents ("EEC--Parts andComponents "),adopted
on16May1990, BISD 37S/132, 197,para. 5.21. SeealsoPanel Report onBananas III,WT/DS27/R, paras. 7.179-7.180.
TheIllustrative ListofTrade-Related Investment Measures (TRIMs) contained intheAnnex totheAgreement onTRIMs
indicatesthatTRIMsinconsistentwithArticlesIII:4andXI:1includethosewhichare"mandatoryorenforceableunderdomestic
laworunder administrative rulings, orcompliance withwhich isnecessary toobtain anadvantage "(emphasis added).WT/DS44/R
Page386
while this"truth" maynotbeopentoquestion, there havebeenanumber oftrade disputes inrelation
towhich panels havebeenfaced withmaking sometimes difficult judgments astotheextent towhich
whatappear ontheirfacetobeprivate actions maynonetheless beattributable toagovernment because
ofsome governmental connection toorendorsement ofthose actions.
10.53 OneGATT study in1960, examining thequestion ofwhether subsidies financed bynon-
governmental levywerenotifiable under Article XVI, expressed theviewthat"thequestion ...depends
upon thesource ofthefunds andtheextent ofgovernment action, ifany,intheircollection".1217
10.54 InJapan-Semi-conductors,"Japancontendedthattherewerenogovernmentalmeasureslimiting
therightofJapanese producers andexporters toexport semi-conductors atanyprice theywished. ...
Exports werelimited byprivate enterprises intheirownself-interest andsuchprivate action wasoutside
thescope ofArticle XI:1".1218However, thepanel found that
"...anadministrative structure hadbeencreated bytheGovernment ofJapan which
operated toexert maximum possible pressure ontheprivate sector tocease exporting
atprices below company-specific costs ...thePanel considered thatthecomplex of
measures exhibited therationale aswellastheessential elements ofaformal system
ofexport control".1219
10.55 Anda1989 panel onEEC-Restrictions onImports ofDessert Apples noted that"theEEC
internal regime forapples wasahybrid one, which combined elements ofpublic andprivate
responsibility. Legally there weretwopossible systems, direct buying-in ofapples byMember State
authorities andwithdrawals byproducer groups". That panel found thatboththebuying-in and
withdrawal systems established forapples under theEEC regulation could beconsidered tobe
governmental measures forthepurposes ofArticle XI:2(c)(i).1220
10.56 These pastGATT cases demonstrate thatthefactthatanaction istaken byprivate parties does
notruleoutthepossibility thatitmaybedeemed tobegovernmental ifthere issufficient government
involvement withit.Itisdifficult toestablish bright-line rules inthisregard, however. Thus, that
possibility willneedtobeexamined onacase-by-case basis.
(iii) Measure versus continuing effect
10.57 ThetextofArticle XXIII:1(b) iswritten inthepresent tense, viz."IfanyMember should
consider thatanybenefit accruing toitdirectly orindirectly under thisAgreement isbeing nullified
orimpaired ...astheresult of...(b)theapplication byanother Member ofanymeasure, whether
ornotitconflicts withtheprovisions ofthisAgreement". Itthusstands toreason that,given thatthe
textcontemplates nullification orimpairment inthepresent tense, caused byapplication ofameasure,
"whether ornotitconflicts" (alsointhepresent tense), theordinary meaning ofthisprovision limits
thenon-violation remedy tomeasures thatarecurrently being applied.
10.58 Moreover, GATT/WTO precedent inother areas, including inrespect ofvirtually allpanel
cases under Article XXIII:1(a), confirms thatitisnotthepractice ofGATT/WTO panels toruleon
1217Report onReview Pursuant toArticle XVI:5 ,adopted on24May 1960, BISD 9S/188, 192.
1218Japan -Semi-conductors ,BISD 35S/116, para. 102.
1219Ibid, para. 117.
1220Panel Report onEEC -Restrictions onImports ofDessert Apples (Complaint byChile),adopted on22June 1989,
BISD 36S/93, 126.WT/DS44/R
Page387
measures which haveexpired orwhich havebeenrepealed orwithdrawn.1221Inonlyaverysmall
number ofcases, involving veryparticular situations, have panels proceeded toadjudicate claims
involving measures which nolonger existorwhich arenolonger being applied. Inthose cases, the
measures typically hadbeenapplied intheveryrecent past.1222
10.59 Wenotethattheparties tothedispute donotdisagree onthefundamental point thatonlya
measure thatcontinues tobeapplied, andnotthemarket structure which mayormaynotresult from
theapplicationofsuchmeasure,maybethebasisforacognizableclaimunderGATTArticleXXIII:1(b).
Ontheother hand, wenotethattheparties disagree astowhether ornotcertain ofthe"measures"
atissue arestillineffect. Whereas Japan argues thatmost ofthe"measures" ended years agoand
thusarenotcurrently actionable, theUnited States contends thatatmosttwo"measures" wereformally
repealed andthat,inanycase, allthepolicies underlying the"measures" continue today intheform
of"continuing administrative guidance". Given thesignificance oftheprinciple ofcontinued application
ofmeasures totheinterpretation ofArticle XXIII:1(b), weshall need togiveparticularly careful
analysis --inexamining theindividual "measures" --totheevidence relating tosuchalleged continuing
administrative guidance. Atthisstage, suffice ittosaythatwedonotruleoutthepossibility thatold
"measures" thatwere never officially revoked maycontinue tobeapplied through continuing
administrative guidance. Similarly, evenifmeasures wereofficially revoked, theunderlying policies
maycontinue tobeapplied through continuing administrative guidance. However, theburden ison
theUnited States todemonstrate clearly thatsuchguidance doesinfactexistandthatitiscurrently
nullifying orimpairing benefits.
(iv) Summary
10.60 Inexamining thenon-violation claims inthiscase, weconsider itimportant toapproach the
issueofwhether the"measures" indispute areprivate orattributable totheGovernment ofJapan with
particular care, especially inlightofthestrong disagreement between theparties astothenature of
certain ofthese"measures". Wearealsosensitive tothepossibility thatattimes itmaynotbepossible
todistinguish withgreatprecision abright-line testofameasure. Recalling theconsiderations outlined
inparagraphs 10.48 to10.50 above, wewilltakeanexpansive viewofwhatconstitutes ameasure,
bearing inmind thattheUnited States must, inanyevent, demonstrate thatthemeasure doesinfact
result innullification orimpairment ofexpected benefits.
(b) Benefit accruing under theGATT
10.61 Thesecond required element which must beconsidered toestablish acaseofnon-violation
nullification orimpairment under Article XXIII:1(b) istheexistence ofabenefit accruing toaWTO
Member under therelevant agreement (inthiscase, GATT 1994). InallbutoneofthepastGATT
casesdealing withArticle XXIII:1(b) claims, theclaimed benefit hasbeenthatoflegitimate expectations
1221SeeUS-Gasoline WT/DS2/R, para. 6.19, where thepanel observed that"ithadnotbeen theusual practice ofa
panel established under theGeneral Agreement toruleonmeasures that,atthetimethepanel'sterms ofreference were
fixed,werenotandwouldnotbecomeeffective".SeealsoPanelReportonArgentina-MeasuresAffectingImportsofFootwear,
Textiles, Apparel andOther Items,WT/DS56/R, circulated on25November 1997, pp.84-86.
1222See,e.g.,PanelReportonUS-WoolShirtsandBlouses,WT/DS33/R,upheldbytheAppellateBody,WT/DS33/AB/R,
where thepanel ruled onameasure thatwasrevoked aftertheinterim review butbefore issuance ofthefinalreport tothe
parties; Panel Report onEEC -Measure onAnimal Feed Proteins ,adopted on14March 1992, BISD 25S/49, where the
panel ruled onadiscontinued measure, butonethathadterminated after theterms ofreference ofthepanel hadalready
been agreed; Panel Report onUnited States -Prohibitions onImports ofTuna andTuna Products fromCanada ,adopted
on22February 1982, BISD 29S/91, 106,para. 4.3., where thepanel ruled ontheGATT consistency ofawithdrawn measure
butonlyinlightofthetwoparties 'agreement tothisprocedure; Panel Report onEEC -Restrictions onImports ofApples
fromChile,adopted on10November 1980, BISD 27S/98, where thepanel ruled onameasure which hadterminated before
agreement onthepanel'sterms ofreference butwhere theterms ofreference specifically included theterminated measure
and,given itsseasonal nature, there remained theprospect ofitsreintroduction.WT/DS44/R
Page388
ofimproved market-access opportunities arising outofrelevant tariff concessions.1223Thissame set
ofGATT precedents suggests thatforexpectations tobelegitimate, theymust takeintoaccount all
measures oftheparty making theconcession thatcould havebeenreasonably anticipated atthetime
oftheconcession.1224Ofcourse, aswiththefirstelement (application ofameasure), thecomplaining
party hastheburden ofdemonstrating the"benefit accruing".
10.62 Intheparticular casebefore us,thequestion oflegitimate expectations ofbenefits accruing
totheUnited States iscomplicated bythefactthattheUnited States isclaiming tohavehadexpectations
ofimproved market access benefits inrespect offourdifferent products (each under adifferent tariff
line), granted during three successive rounds ofmultilateral trade negotiations. Thisclaim raises two
general issues. First, maythebenefits legitimately expected byaMember derive fromsuccessive rounds
oftariff negotiations? Second, whatfactors should beconsidered todetermine ifaMember should
havereasonably anticipated measures thatitclaims nullified orimpaired benefits?
(i) Benefits under successive Rounds
10.63 TheUnited States claims tohavehadreasonable expectations ofbenefits accruing toitunder
Article XXIII:1(b) astheresult oftariff concessions granted byJapan onblack andwhite filmand
paper during theKennedy Round (1967), oncolour andblack andwhite filmandpaper during the
Tokyo Round (1979) andoncolour andblack andwhite filmandpaper during theUruguay Round
(1994). Japan argues thatthereasonable expectations oftheUnited States must belimited tothose
existing in1994 attheconclusion oftheUruguay Round inthatthese latter expectations reflected a
newbalance andglobal reassessment ofthevalue ofmarket access concessions, replacing anyreasonable
expectations thatmayhavearisen under prior tariff negotiations.
10.64 Twoprovisions ofGATT 1994 (sub-paragraphs (b)(i) and(d)ofparagraph 1)appear tous
toberelevant totheresolution ofthismatter. ThetextofGATT 1994 provides inrelevant part:
"1. TheGeneralAgreementonTariffsandTrade1994('GATT1994')shallconsist
of:
(a) theprovisions intheGeneral Agreement onTariffs andTrade, dated
30October 1947, ...
(b) theprovisions ofthelegalinstruments setforth below thathaveentered into
forceunder theGATT 1947before thedateofentryintoforceoftheWTO Agreement:
(i) protocols andcertifications relating totariff concessions;
...
(d) theMarrakesh Protocol toGATT 1994".
Asreferenced inthequoted text--alsoknown astheGATT 1994incorporation clause --GATT 1994
incorporates both"protocols andcertifications relating totariff concessions" under paragraph 1(b)(i)
1223Australian Subsidy onAmmonium Sulphate ,adopted on3April 1950, BISD II/188; Germany -Sardines ,adopted
on31October 1952, BISD 1S/53; Panel Report onUruguayan Recourse ,adopted on16November 1962, BISD 11S/95;
EC-Citrus Products ,GATT Doc. L/5776, dated 7February 1985 (unadopted); EEC -Canned Fruit,GATT Doc. L/5778,
dated 20February 1985 (unadopted); Japan -Semi-conductors ,adopted on4May1988, BISD 35S/116; EEC -Oilseeds ,
adopted on25January 1990, BISD 37S/86; US-Agricultural Waiver ,adopted on7November 1990, BISD 37S/228. Only
inEC-Citrus Products didthecomplaining party claim thatthebenefit denied wasnotimproved market access from tariff
concessions granted under GATT Article II,butrather GATT Article I:1("most-favoured-nation") treatment withrespect
tounbound tariff preferences granted bytheECtocertain Mediterranean countries.
1224See,e.g., Australian Subsidy onAmmonium Sulphate ,BISD II/188, 193-194; Germany -Sardines ,BISD 1S/53,
58-59; EEC -Oilseeds ,BISD 37S/86, 126-129.WT/DS44/R
Page389
and"theMarrakesh Protocol toGATT 1994" under paragraph 1(d). Theordinary meaning ofthe
textofparagraphs 1(b)(i) and1(d)ofGATT 1994, readtogether, clearly suggests thatallprotocols
relating totariff concessions, boththose predating theUruguay Round andtheMarrakesh Protocol
toGATT 1994, areincorporated intoGATT 1994 andcontinue tohavelegal existence under the
WTO Agreement.
10.65 Japan appears toargue thattheSchedules annexed totheMarrakesh Protocol prevail asalater
agreement overSchedules thatentered intoforceunder GATT 1947. Inourview, suchaninterpretation
would onlymake sense iftheMarrakesh Protocol, referred toinparagraph 1(d)ofGATT 1994, were
viewed aslaterintimethantheprotocols referred toinparagraph 1(b)(i) thereof, andthen, onlyto
theextent ofanyconflict between tariff concessions annexed totheMarrakesh Protocol andthe
concessions intheother tariff protocols incorporated inGATT 1994. Weconsider that,asargued
bytheUnited States, Article 30oftheVienna Convention1225,which isdesigned toresolve conflicts
between provisions ofsuccessive treaties onthesame subject matter, isnotapplicable tothesituation
athandbecause there isnothing inherently incompatible --inconflict --between theearlier andlater
agreed tariffconcessions. Suchaconflict would onlyseem toexistifthesubsequent concessions were
lessfavourable thanpriorconcessions, which isnotthesituation inthiscase. Where tariffconcessions
havebeenprogressively improved, thebenefits --expectations ofimproved market access --accruing
directly orindirectly under different tariff concession protocols incorporated inGATT 1994 canbe
readinharmony. Thisapproach isinaccordance withgeneral principles oflegalinterpretation which,
astheAppellate Body reiterated inUS-Gasoline ,teach thatoneshould endeavour togivelegaleffect
toallelements ofatreaty andnotreduce them toredundancy orinutility.1226
10.66 Theconclusion thatbenefits accruing from concessions granted during successive rounds of
tariff negotiations mayseparately giverisetoreasonable expectations ofimproved market access is
consistent withpastpanel reports.1227Thepanel inEEC-Canned Fruit found thattheUnited States
hadareasonable expectation arising fromtheEEC's1974tariffconcessions pursuant toArticle XXIV:6
negotiations and1979 Tokyo Round tariff concessions (even though thepanel separately found that
theUnited States could have anticipated certain subsidies inrespect oftheTokyo Round tariff
concessions).1228AndtheEEC-Oilseeds panel found thattheUnited States hadareasonable expectation
arising from theEEC's1962 Dillon Round tariff concessions.1229AstheUnited States points out,
thesefindings would nothavebeenpossible ifsubsequent multilateral tariffagreements orenlargement
agreements were deemed toextinguish wholesale thetariff concessions inprior tariff schedules.
10.67 Thefollowing quotation fromtheEEC-Oilseeds panel report appears toustobeparticularly
onpoint:
"Inthese circumstances, thepartners oftheCommunity inthesuccessive
renegotiations under Article XXIV:6 could legitimately assume, intheabsence ofany
indications tothecontrary, thattheoffer tocontinue atariff commitment bythe
Community wasanoffernottochange thebalance ofconcessions previously attained.
ThePanelnotedthatnothinginthematerialsubmittedtoitindicatedthattheCommunity
hadmade itclear toitsnegotiating partners thatthewithdrawal andreinstitution of
thetariff concessions foroilseeds aspartofthewithdrawal ofthewhole ofthe
1225Article 30oftheVienna Convention, entitled "Application ofsuccessive treaties relating tothesame subject-matter",
provides inrelevant part: "...3.When alltheparties totheearlier treaty areparties tothelatertreaty buttheearlier treaty
isnotterminated orsuspended inoperation under article 59,theearlier treaty applies onlytotheextent thatitsprovisions
arecompatible withthose ofthelatertreaty".
1226WT/DS2/AB/R, p.23.
1227SeeEEC -Canned Fruit,L/5778 (unadopted); EEC -Oilseeds ,BISD 37S/86.
1228EEC -Canned Fruit,L/5778 (unadopted), para. 54.
1229EEC -Oilseeds ,BISD 37S/86, 126-127, paras. 144-146.WT/DS44/R
Page390
Community Schedule meant thattheCommunity wasseeking anewbalance of
concessions withrespect tothese items. There isinparticular noevidence thatthe
Community, inthecontext ofthesenegotiations, offered tocompensate itsnegotiating
partners foranyimpairment ofthetariff concessions through production subsidies or
thatitaccepted compensatory tariffwithdrawals byitsnegotiating partners totakeinto
account anysuchimpairment. Thebalance ofconcessions negotiated in1962inrespect
ofoilseeds wasthusnotaltered inthesuccessive Article XXIV:6 negotiations. The
Panel therefore found thatthebenefits accruing totheUnited States under theoilseed
tariff concessions resulting fromtheArticle XXIV:6 negotiations of1986/87 include
theprotection ofreasonable expectations theUnited States hadwhen theseconcessions
were initially negotiated in1962".1230
10.68 ThefactthattheEEC-Oilseeds case(andtheunadopted EEC-Canned Fruit caseaswell)
dealtwithrenegotiation oftariff concessions under Article XXIV:6 asopposed toArticle XXVIII or
Article XXVIII bisdoesnot,inourview, undermine therelevance oftheabove finding tothecase
athand. Thisisbecause theArticle XXIV:6 procedure issimply ameans permitting aWTO Member,
which hasentered intoacustoms union andwhich proposes toincrease arateofdutyabove bound
levels, tomodify orwithdraw thatconcession under theprocedures ofArticle XXVIII.1231Thepanel
inEEC-Oilseeds found thattherewas,effectively, nomodification orwithdrawal oftariffconcessions
under Article XXIV:6 --andnonewbalance ofconcessions achieved, i.e.,"thebalance ofconcessions
negotiated in1962...wasnotaltered" --eventhough thetariffbindings onoilseeds hadbeenwithdrawn
andreinstated intact.
10.69 WenotethatArticle XXVIII maybeinvoked under specifically defined circumstances tomodify
orwithdraw concessions. And,asnoted above, Article XXIV:6 permits Members which haveentered
intocustoms unions tomodify orwithdraw those concessions under theprocedures ofArticle XXVIII.
Article XXVIII bis,incontrast, which provides alegalbasis forMembers toreduce andbindtariffs
onamutually advantageous (i.e.multilateral) basis, asageneral ruledoesnotprovide ameans tomodify
orwithdraw tariff concessions.1232
10.70 Weconsider, therefore, thatreasonable expectations mayinprinciple besaidtocontinue to
exist withrespect totariff concessions given byJapan onfilmandpaper insuccessive rounds of
Article XXVIII bisnegotiations. Nevertheless, theestablishment ofacasebased onexpectations from
rounds concluded 18or30years agomaybedifficult. TheUnited States must show thatthose
expectations, aswellasitsmore recent ones, arecurrently nullified orimpaired.
10.71 Turningtothefourproductsatissueinthisdisputeandtheirrelevancetoreasonableexpectations
claimed bytheUnited States, wenotethatthefirsttariff concessions byJapan onphotographic film
andpaper wereintheKennedy Round andthatthese related onlytoblack andwhite filmandpaper;
thesubsequent concessions granted during theTokyo andUruguay Rounds related tobothcolour and
black andwhite filmandpaper. Inlightofthese facts, twogeneral points canbemade astohow
weshallproceed withourArticle XXIII:1(b) analysis. First, itisclearthattheUnited States cannot
claim anyreasonable expectations oncolour filmorpaper emanating fromtheKennedy Round. Second,
1230Ibid, 127-28, para. 146.
1231Wenoteinthisregard thatArticle XXIV:6 doesnotestablish aseparate procedure, butexplicitly cross-references
theprocedures ofArticle XXVIII.
1232Inrespect ofGATT 1947 negotiating rounds under Article XXVIII bis,itshould benoted thatthere isaprovision
intheDillon Round "Protocol Embodying theResults ofthe1960-61 Tariff Conference" providing forthesubstitution of
newconcessions foroldconcessions where Dillon Round schedules provided fortreatment foraproduct lessfavourable
thanthatprovided inapre-existing schedule. BISD 8S/8, 9,para. 4.While there isnosuchprovision intheKennedy Round
orTokyo Round protocols, asimilar provision applicable onlytoEgypt, Peru, South Africa andUruguay isfound inparagraph
7oftheMarrakesh Protocol. These provisions would notberelevant toJapan 'sprogressive tariff reductions forfilmand
paper initsKennedy, Tokyo andUruguay Round schedules.WT/DS44/R
Page391
because theUSarguments andJapanese rebuttals focus mainly onthefilmmarket, andparticularly
onthatforcolour film,weconsider itappropriate toalsofocus onthefilmmarket inouranalysis and,
asof1979, onthecolour filmmarket inparticular, supplementing thisanalysis asnecessary with
reference tothemarket forblack andwhite filmandbothblack andwhite andcolour paper.
(ii) Legitimate expectations ofabenefit
10.72 ThetextofArticle XXIII:1(b) simply refers to"abenefit accruing, directly orindirectly, under
thisAgreement" anddoesnotfurther define orexplain whatbenefits arereferred to.PastGATT panel
reports haveconsidered thatsuchbenefits include those thataMember reasonably expects toobtain
from atariff negotiation.
10.73 ThefirstGATT report analysing Article XXIII:1(b) wasthe1950Report oftheWorking Party
onAustralian Subsidy onAmmonium Sulphate .TheWorking Party found thatthewithdrawal by
Australia ofawartime subsidy onsodium nitrate fertilizer while maintaining asubsidy onammonium
sulphate fertilizer, although notinconsistent withAustralia ’sGATT obligations, nullified orimpaired
benefits accruing toChile under theGeneral Agreement. TheWorking Party agreed thatimpairment
would existiftheAustralian action
"which resulted inupsetting thecompetitive relationship between sodium nitrate and
ammonium sulphate could notreasonably have been anticipated bytheChilean
Government, taking intoconsideration allpertinent circumstances andtheprovisions
oftheGeneral Agreement, atthetimeitnegotiated fortheduty-free binding onsodium
nitrate. Theworking party concluded thattheGovernment ofChile hadreason to
assume, during these negotiations, thatthewar-time fertilizer subsidy would notbe
removedfromsodiumnitratebeforeitwasremovedfromammoniumsulphate.[Reasons
omitted.] Forthesereasons, theworking partyalsoconcluded thattheAustralian action
should beconsidered asrelating toabenefit accruing toChile under theAgreement,
andthatitwastherefore subject totheprovisions ofArticle XXIII. ...Theinequality
created andthetreatment Chile could haveexpected atthetimeofthenegotiation,
aftertaking intoconsideration allpertinent circumstances, including thecircumstances
mentionedabove,andtheprovisionsoftheGeneralAgreement,wereimportantelements
intheworking party’sconclusions".1233
The1952 Panel Report onGermany -Sardines alsobased anon-violation finding onan"action of
theGerman Government, which resulted inupsetting thecompetitive relationship between [different
members ofthesame fishfamily that]could notreasonably havebeenanticipated bytheNorwegian
Government atthetimeitnegotiated fortariff reductions on[fish]".1234Insofinding, thepanel noted
thatNorway "hadreason toassume" thatthefishtheywere interested inwould notbetreated less
favourably.1235
10.74 TwoGATT study groups elaborated these concepts inthecontext ofsubsidies, ineachcase
focusing onwhether aparty hadreasonable expectations thatcertain treatment would continue. In
1955, aworking party wrote:
"Sofarasdomestic subsidies areconcerned, itwasagreed thatacontracting party
which hasnegotiated aconcession under Article IImaybeassumed, forthepurpose
ofArticle XXIII, tohaveareasonable expectation ,failing evidence tothecontrary,
1233Australian Subsidy onAmmonium Sulphate ,BISD II/188, para. 12(emphasis added).
1234BISD 1S/53, 58,para. 16(emphasis added).
1235Ibid. Thepanel found thatthefishatissue, although ofthesame family, were not"like products" andthusthe
differential tariff treatment didnotviolate Article I.WT/DS44/R
Page392
thatthevalue oftheconcession willnotbenullified orimpaired bythecontracting
party which granted theconcession bythesubsequent introduction orincrease ofa
domestic subsidy ontheproduct concerned".1236
A1961 report, citing theforegoing paragraph, stated:
"Inthisconnexionitwasnotedthattheexpression'reasonableexpectation'wasqualified
bythewords 'failing evidence tothecontrary '.BythisthePanel understands that
thepresumption isthatunless suchpertinent factswereavailable atthetimethetariff
concession wasnegotiated, itwasthenreasonably tobeexpected thattheconcession
would notbenullified orimpaired bytheintroduction orincrease ofadomestic
subsidy."1237
10.75 The1990 Panel Report onEEC-Oilseeds approached anon-violation complaint asfollows:
"The Panel examined whether itwasreasonable fortheUnited States toexpect that
theCommunity would notintroduce subsidy schemes systematically counteracting the
price effect ofthetariff concessions.
...
ThePanel doesnotshare theview oftheCommunity thattherecognition ofthe
legitimacy ofsuchexpectations would amount toare-writing oftherulesoftheGeneral
Agreement. Thecontracting parties havedecided thatafinding ofimpairment does
notauthorize themtorequest theimpairing contracting party toremove ameasure not
inconsistent withtheGeneral Agreement; suchafinding merely allows thecontracting
party frustrated initsexpectation torequest, inaccordance withArticle XXIII:2, an
authorization tosuspend theapplication ofconcessions orother obligations under the
General Agreement. Therecognition ofthelegitimacy ofanexpectation thusessentially
means therecognition ofthelegitimacy ofsucharequest. Therecognition ofthe
legitimacy ofanexpectation relating totheuseofproduction subsidies therefore in
nowayprevents acontracting party fromusing production subsidies consistently with
theGeneral Agreement; itmerely delineates thescope oftheprotection ofanegotiated
balance ofconcessions. Forthese reasons thePanel found thattheUnited States may
beassumed nottohave anticipated theintroduction ofsubsidies which protect
Community producers ofoilseeds completely fromthemovement ofprices forimports
andthereby prevent tariff concessions from having anyimpact onthecompetitive
relationshipbetweendomesticandimportedoilseeds,andwhichhaveasoneconsequence
thatalldomestically-produced oilseeds aredisposed ofintheinternal market
notwithstanding theavailability ofimports".1238
10.76 Assuggested bythe1961 report, inorder forexpectations ofabenefit tobelegitimate, the
challenged measures mustnothavebeenreasonably anticipated atthetimethetariff concession was
negotiated. Ifthemeasures wereanticipated, aMember could nothavehadalegitimate expectation
ofimproved market access totheextent oftheimpairment caused bythese measures.
10.77 Thus, under Article XXIII:1(b), theUnited States mayonlyclaim impairment ofbenefits related
toimproved market access conditions flowing fromrelevant tariff concessions byJapan totheextent
1236Working Party Report onOther Barriers toTrade ,adopted on3March 1955, BISD 3S/222, 224,para. 13(emphasis
added).
1237Panel Report onOperation oftheProvisions ofArticle XVI,adopted on21November 1961, BISD 10S/201, 209,
para. 28.
1238EEC -Oilseeds ,BISD 37S/86, 128-129, paras. 147-148.WT/DS44/R
Page393
thattheUnited States could nothavereasonably anticipated thatsuchbenefits would beoffset bythe
subsequent application ofameasure bytheGovernment ofJapan. Inthecasebefore us,there is
disagreement between theparties onthisissueofreasonable anticipation withrespect toeachandevery
"measure" claimed bytheUnited States tonullify andimpair benefits accruing toitunder GATT.
10.78 Anobvious starting point fordetermining whether ameasure wasreasonably anticipated is
toconsider whether themeasure wasadopted before oraftertheconclusion oftherelevant round of
tariff negotiations, which istheapproach taken inthe1961 report quoted above. Theparties argue,
however, thatthematter ismuch more complicated thanthat. According totheUnited States, itwas
simply unaware ofsome "measures" thatpredated theconclusion oftherelevant round oftariff
negotiations duetotheirnontransparent nature. Inother instances, theUnited States indicates that
although itwasaware oftheexistence ofthe"measures" prior tosuchconclusion, itdidnotknow
andcould nothaveknown oftheirsignificance inrelation toaccess ofimported filmandpaper tothe
Japanese market atthetimeoftherelevant tariff negotiations. Japan, incontrast, maintains thatthe
United States didanticipate orshould haveanticipated allofthealleged "measures". Inthisregard,
itargues thatexporting Members should reasonably anticipate GATT-consistent measures taken by
animporting Member toimprove theefficiency ofaparticular sector ofitseconomy, suchasthe
distribution sector.
10.79 Weconsider thattheissueofreasonable anticipation should beapproached inrespect ofspecific
"measures" inlightofthefollowing guidelines. First, inthecaseofmeasures shown bytheUnited
States tohavebeenintroduced subsequent totheconclusion ofthetariff negotiations atissue, itisour
viewthattheUnited States hasraised apresumption thatitshould notbeheldtohaveanticipated these
measures anditisthenforJapan torebutthatpresumption. Sucharebuttal might bemade, forexample,
byestablishing thatthemeasure atissueissoclearly contemplated inanearlier measure thattheUnited
States should beheldtohaveanticipated it.However, there must beaclear connection shown. In
ourview, itisnotsufficient toclaim thataspecific measure should havebeenanticipated because it
isconsistent withoracontinuation ofapastgeneral government policy. AsintheEEC-Oilseeds
case1239,wedonotbelieve thatitwould beappropriate tocharge theUnited States withhaving reasonably
anticipated allGATT-consistent measures, suchas"measures" toimprove what Japan describes as
theinefficient Japanese distribution sector. Indeed, ifaMember wereheldtoanticipate allGATT-
consistent measures, anon-violation claim would notbepossible. Nordoweconsider thatasageneral
ruletheUnited States should havereasonably anticipated Japanese measures thataresimilar tomeasures
inother Members 'markets. Ineachsuchinstance, theissue ofreasonable anticipation needs tobe
addressed onacase-by-case basis.
10.80 Second, inthecaseofmeasures shown byJapan tohavebeenintroduced priortotheconclusion
ofthetariff negotiations atissue, itisourviewthatJapan hasraised apresumption thattheUnited
States should beheldtohaveanticipated those measures anditisfortheUnited States torebut that
presumption. Inthisconnection, itisourviewthattheUnited States ischarged withknowledge of
Japanese government measures asofthedateoftheirpublication. Werealize thatknowledge ofa
measure 'sexistence isnotequivalent tounderstanding theimpact ofthemeasure onaspecific product
market. Forexample, avague measure could begiven substance through enforcement policies that
areinitially unexpected orlaterchanged significantly. However, where theUnited States claims that
itdidnotknow ofameasure 'srelevance tomarket access conditions inrespect offilmorpaper, we
would expect theUnited States toclearly demonstrate whyinitially itcould nothave reasonably
anticipated theeffect ofanexisting measure onthefilmorpaper market andwhen itdidrealize the
effect. Suchashowing willneedtobetiedtotherelevant points intime(i.e., theconclusions ofthe
Kennedy, Tokyo andUruguay Rounds) inorder toassess theextent oftheUnited States 'legitimate
expectations ofbenefits fromthesethreeRounds. Asimple statement thataMember 'smeasures were
1239EEC -Oilseeds ,BISD 37S/86, paras. 147, 148.WT/DS44/R
Page394
soopaque andinformal thattheirimpact could notbeassessed isnotsufficient. While itistruethat
inmostpastnon-violation cases, onecould easily discern aclearlinkbetween aproduct-specific action
andtheeffect onthetariff concession thatitallegedly impaired, onecanalsodiscern alinkbetween
general measures affecting theinternal saleanddistribution ofproducts, suchasrulesonadvertising
andpremiums, andtariff concessions onproducts ingeneral.
10.81 Third, forourpurposes, weconsider theconclusion ofthetariffnegotiations inthethreeRounds
tobeasfollows: InthecaseoftheKennedy Round, itappears thattariff negotiations continued until
theveryendoftheRound andthuswewillconsider thedateoftheconclusion oftheRound, i.e.,
30June1967, astherelevant date. InthecaseoftheTokyo Round, theconclusion oftheRound was
12April 1979, although therelevant Protocol wasformally dated 30June1979. Wewilladdress where
appropriate theUSargument thatthenegotiations onfilmtariff reductions ended earlier. Inthecase
oftheUruguayRound,tariffnegotiationsweresubstantiallycompletedasof15December1993,although
theformal endoftheRound occurred onthesigning oftheWTO Agreement inMarrakesh on15April
1994. Accordingly, wewillusethedateof15December 1993astheconclusion oftheUruguay Round
tariff negotiations.
(c) Nullification orimpairment ofbenefit: causality
10.82 Thethirdrequired element ofanon-violation claim under Article XXIII:1(b) isthatthebenefit
accruing totheWTO Member (e.g., improved market access from tariff concessions) isnullified or
impaired astheresult oftheapplication ofameasure byanother WTO Member. Inother words, it
mustbedemonstrated thatthecompetitive position oftheimported products subject toandbenefitting
from arelevant market access (tariff) concession isbeing upset by("nullified orimpaired ...asthe
result of")theapplication ofameasure notreasonably anticipated. Theequation of"nullification or
impairment" with"upsetting thecompetitive relationship" established between domestic andimported
products asaresult oftariff concessions hasbeenconsistently usedbyGATT panels examining non-
violation complaints. Forexample, theEEC-Oilseeds panel, indescribing itsfindings, stated that
ithad"found ...thatthesubsidies concerned hadimpaired thetariff concession because theyupset
thecompetitive relationship between domestic andimported oilseeds ,notbecause ofanyeffect ontrade
flows".1240Thesame language wasusedintheAustralian Subsidy andGermany -Sardines cases.1241
Thus, inthiscase, itisuptotheUnited States toprove thatthegovernmental measures thatitcites
haveupset thecompetitive relationship between domestic andimported photographic filmandpaper
inJapan tothedetriment ofimports. Inother words, theUnited States mustshow aclearcorrelation
between themeasures andtheadverse effect ontherelevant competitive relationships.
10.83 Weconsider thatthisthirdelement --causality --maybeoneofthemore factually complex
areas ofourexamination. Inthisconnection, wenotethatinthethree prior non-violation cases in
which panels found thatthecomplaining parties hadfailed toprovide adetailed justification tosupport
theirclaims, theissue turned primarily onthelackofevidence ofcausality.1242Four issues related
tocausation merit general discussion. First, thequestion ofthedegree ofcausation thatmustbeshown --
"butfor"orless. Second, therelevance oftheorigin-neutral nature ofameasure tocausation of
nullification orimpairment. Third, therelevance ofintent tocausality. Andfourth, theextent towhich
measures maybeconsidered collectively inananalysis ofcausation.
10.84 Astothefirstissue, theUnited States argues thatitneednotshow thatthemeasures inissue
area"butfor"cause ofimpairment ofmarket-access conditions forimported filmandpaper, butthat
itneedonlydemonstrate thatthese measures are"a"cause ofsuchdistortion. Japan argues thata
1240Follow-up onthePanel Report, EEC -Oilseeds ,BISD 39S/91, 114-115, para. 77(emphasis added).
1241Seepara. 10.73 above.
1242Uruguayan Recourse ,BISD 11S/95, 100,para. 15;Japan -Semi-conductors ,BISD 35S/116, 161,para. 131; US-
Agricultural Waiver ,BISD 37S/228, 261-62, paras. 5.20-5.23.WT/DS44/R
Page395
clearlinkage between themeasure atissueandthealleged nullification orimpairment mustbeproved
bythecomplaining party inorder toestablish thenecessary causal connection. Specifically, Japan
states thattheissueiswhether thecomplaining party hasprovided a"detailed justification" insupport
ofitsclaim thatameasure hascaused nullification orimpairment. Inourview, Japan should be
responsible forwhatiscaused bymeasures attributable totheJapanese Government asopposed, for
example, towhat iscaused byrestrictive business conduct attributable toprivate economic actors.
Atthisstage oftheproceeding, theissue iswhether suchameasure hascaused nullification or
impairment,i.e.,whetherithasmademorethanademinimis contributiontonullificationorimpairment.
10.85 Inrespect ofthesecond issue, Japan argues thatalloftheaccused "measures" areneutral as
toorigin ofthegoods, none ofthem distinguishing between theimported anddomestic products
concerned, andthatthere isaccordingly nocausal connection between thealleged "measures",
individually orcollectively, andanyunfavourable competitive conditions forimported filmandpaper.
TheUnitedStatesrespondsthatthe"measures"atissuehavehadadisparateimpactonimportedproducts
intheirapplication, thereby upsetting competitive conditions ofmarket access forimported filmand
paper. Inourview, evenintheabsence ofdejurediscrimination (measures which ontheir face
discriminate astoorigin), itmaybepossible fortheUnited States toshow defacto discrimination
(measures which haveadisparate impact onimports). However, insuchcircumstances, thecomplaining
party iscalled upon tomake adetailed showing ofanyclaimed disproportionate impact onimports
resulting from theorigin-neutral measure. And, theburden ofdemonstrating suchimpact maybe
significantly more difficult where therelationship between themeasure andtheproduct isquestionable.
10.86 WenotethatWTO/GATT caselawontheissueofdefactodiscrimination isreasonably well-
developed, bothinregard totheprinciple ofmost-favoured-nation treatment under GATT Article I1243
andinregard tothatofnational treatment under GATT Article III.1244Theconsistent focus ofGATT
andWTO panels onensuring effective equality ofcompetitive opportunities between imported products
from different countries andbetween imported anddomestic products hasbeen confirmed bythe
Appellate Body initsreports onJapan -Alcoholic Beverages1245andmostrecently inBananas III1246,
withrespect tobothGATT andGATS non-discrimination rules. Weconsider thatdespite thefact
thatthesepastcases dealtwithGATT provisions otherthanArticle XXIII:1(b), thereasoning contained
therein appears tobeequally applicable inaddressing thequestion ofdefactodiscrimination withrespect
toclaims ofnon-violation nullification orimpairment, subject, ofcourse, tothecaveat, thatinanArticle
XXIII:1(b) casetheissueisnotwhether equality ofcompetitive conditions exists butwhether therelative
conditions ofcompetition which existed between domestic andforeign products asaconsequence of
therelevant tariff concessions havebeenupset.1247
10.87 Thethirdissueistherelevance ofintent tocausality. Theparties disagree inmany caseswhether
theintent behind aspecific measure istolimitimports ortopromote anunrelated policy goal. From
ourreading ofthemeasures andconsideration oftheparties 'arguments, itisapparent thatthere may
havebeenmore thanonereason motivating theadoption ofmeasures. Wenote, however, thatArticle
XXIII:1(b) doesnotrequire aproof ofintent ofnullification orimpairment ofbenefits byagovernment
adopting ameasure. What matters forpurposes ofestablishing causality istheimpact ofameasure,
i.e.whether itupsets competitive relationships. Nonetheless, intent maynotbeirrelevant. Inour
1243See,e.g.,Panel Report onEuropean Economic Community -Imports ofBeeffromCanada ,adopted on10March 1981,
BISD 28S/92, 98,paras. 4.2,4.3.
1244SeePanel reports onUnited States -Section 337oftheTariff Actof1930 ("US-Section 337"),adopted on
7November1989,BISD36S/345,para.5.11;Canada-Import,DistributionandSaleofCertainAlcoholicDrinksbyProvincial
Marketing Agencies ,adopted on18February 1992, BISD 39S/27, paras. 5.12-5.14 and5.30-5.31; US-MaltBeverages ,
BISD 39S/206, para. 5.30; US-Gasoline ,WT/DS2/R, para. 6.10; Japan -Alcoholic Beverages ,WT/DS8/R, para. 6.33
andBananas III,WT/DS27/R/ECU, paras. 7.179-7.180
1245WT/DS8/AB/R, adopted on1November 1996, p.16.
1246WT/DS27/AB/R, pp.97-99.
1247Seepara. 10.82 above.WT/DS44/R
Page396
view, ifameasure thatappears onitsfacetobeorigin-neutral initseffect ondomestic andimported
products isnevertheless shown tohavebeenintended torestrict imports, wemaybemore inclined
tofindacausal relationship inspecific cases, bearing inmind thatintent isnotdeterminative where
itinfactexists. Itremains forthecomplaining party toshow thatthespecific measure itchallenges
doesinfactnullify orimpair benefits within themeaning ofArticle XXIII:1(b).
10.88 Finally, asfortheUSposition thatthePanel should examine theimpact ofthemeasures in
combination aswellasindividually (aposition contested byJapan), wedonotreject thepossibility
ofsuchanimpact. Itisnotwithout logic thatameasure, when analyzed inisolation, mayhaveonly
verylimited impact oncompetitive conditions inamarket, butmayhaveamore significant impact
onsuchconditions when seeninthecontext of--incombination with--alarger setofmeasures.
Notwithstanding thelogic ofthistheoretical argument, however, wearesensitive tothefactthatthe
technique ofengaging inacombined assessment ofmeasures soastodetermine causation issubject
topotential abuse andtherefore must beapproached withcaution andcircumscribed asnecessary.
10.89 Forthesakeofacomplete analysis oftheUSclaims, wewillexamine eachalleged "measure"
inlightofeachofthethree elements ofanon-violation claim. Thus, evenifwefindanalleged
"measure" isnotameasure forpurposes ofArticle XXIII:1(b), wewillcontinue withananalysis of
theother twoelements. Similarly, even ifwefindthatameasure should have been reasonably
anticipated, wewillnevertheless carry through withthecausality analysis.
3. DISTRIBUTION "MEASURES"
(a) General
10.90 TheUScaseagainst distribution "measures" maybestbeunderstood inthecontext ofthegeneral
theme advanced bytheUnited States totheeffect thatthereexists inJapan aunique relationship between
government andindustry. TheUSargument isthatforJapan todevelop andimplement itsindustrial
policy, thegovernment relies heavily ondifferent types ofquasi-governmental entities, including, inter
alia,fairtrade councils, advisory committees, study groups, research institutes, andchambers of
commerce. TheUSposition isthattheparticipation ofthese entities inthe"concerted adjustment"
process increases the"peer pressure" onthese entities tocomply withtheindustrial policies adopted
bythegovernment.
10.91 InJapan'sview, theUnited States relies onadistorted characterization oftheJapanese system
byattempting tolumpallforms ofgovernment-industry cooperation, aswellasadministrative guidance,
intoonecatch-all category ofinformal butbinding regulations. Japan'sposition isthateach"measure"
shouldbeexaminedonitsownmeritwithoutanypreconceivedprejudiceofaso-called"unique"Japanese
system.
10.92 TheUnited States argues thatwhen theliberalization ofinternational trading conditions became
imminent, MITI andJapanese industry recognized thesuperiority offoreign firms which could create
serious competition forJapanese manufacturers andtheirproducts. MITI andJapanese manufacturers,
itisargued, consequently devised aplantostreamline Japan'sdistribution system inorder tobring
itunder thecontrol ofdomestic producers. Thebasic USposition isthatMITI sought tostrengthen
vertical distribution channels thatwould handle theproducts ofaparticular domestic manufacturer
exclusively.
10.93 Asnoted above (para. 10.23), theUnited States claims thatJapan'sapplication ofthefollowing
eight distribution "measures" encouraged andfacilitated thecreation ofamarket structure forWT/DS44/R
Page397
photographicfilmandpaperinJapaninwhichimportsareexcludedfromtraditionaldistributionchannels,
thereby nullifying orimpairing benefits accruing totheUnited States under Article XXIII:1(b):1248
(1)1967 Cabinet Decision;
(2)1967 JFTC Notification 17onpremiums tobusinesses;
(3)1968 Sixth Interim Report onDistribution Modernization Outlook andIssues;
(4)1969 Seventh Interim Report onSystemization ofDistribution Activities;
(5)1969 Survey Report regarding Transaction Terms;
(6)1970 Guidelines forRationalizing Terms ofTrade forPhotographic Film;
(7)1971 Basic PlanfortheSystemization ofDistribution; and
(8)1975 Manual forSystemization ofDistribution byIndustry: Camera andFilm.
Wewillexamine eachofthese eight distribution "measures" intheorder listed above.
10.94 Inthefollowing analysis, wewillconsider whether theUSclaim inrespect ofeach"measure"
hasbeenjustified inlightofthethree required elements ofArticle XXIII:1(b): (i)theapplication of
ameasure; (ii)theexistence ofabenefit accruing totheUnited States; and(iii)thenullification or
impairment ofthatbenefit bythemeasure (causality).
(b) 1967 Cabinet Decision
10.95 Thefirstdistribution"measure"claimedbytheUnitedStatestonullifyorimpairbenefitsaccruing
toitunder Article XXIII:1(b) istheJapanese Cabinet Decision onLiberalization ofInward Direct
Investment of6June1967 ("1967 Cabinet Decision")1249.TheCabinet Decision gavethree points
as
"thebasic direction ofthecountermeasures thatthegovernment should adopt ...:
(1)prevent disorder thatmayarisefromtheadvancement offoreign capital; (2)create
thefoundation toenable ourenterprises tocompete withforeign enterprises onequal
terms; and(3)actively strengthen thequality of[domestic] enterprises andreorganize
theindustrial system sothattheycanfullycompete withforeign capital".1250
10.96 TheUnited States asserts thatthisCabinet Decision wasa"watershed" inJapan'sefforts to
restructure Japanese industry toresist imminent foreign competition following capital liberalization
inthe1960s, establishing aclearnational priority topursue distribution policies aimed atprotecting
domesticmanufacturersfromforeigncompetition.AccordingtotheUnitedStates,thisdecisionformally
endorsed theuseof"countermeasures" tooffset theeffects ofliberalization, making theprotection
ofJapanese markets fromforeign competition ahighnational priority. Thedecision further allegedly
emphasized thatthedistribution sector wasakeyareaforrenovation andimprovement soastosupport
theproduction sector, using aconcerted industry-government approach.
10.97 Japan responds thatthe1967 Cabinet Decision, which implemented thefirststage ofcapital
liberalization, wasconcerned generally withmodernization andimproved efficiency intheJapanese
1248Wefoundinparagraph10.21abovethatthreeadditionaldistribution"measures"citedbytheUnitedStates--specifically,
application oftheinternational contract notification provisions ofJFTC Rule No.1under Article 6oftheAntimonopoly
Law(April 1971), JDBfunding forKonica ’swholesalers (1976) andSMEA funding forphotoprocessing laboratories (July
1977) --arenotwithin theterms ofreference ofthisPanel because theywere notraised intherequest fortheestablishment
ofthePanel inamanner consistent withArticle 6.2oftheDSU. Wehavetherefore excluded themfromfurther consideration.
1249USEx.67-6. Itshould benoted thatthe1967 Cabinet Decision isalsocited bytheUnited States asapromotion
"countermeasure".
1250Ibid, p.4.WT/DS44/R
Page398
distribution sector soastopermit domestic industries tocompete withforeign rivals inthenew,less
regulated business environment.
10.98 Application ofmeasure. Although there canbelittledoubt thatthe1967 Cabinet Decision
asawhole constitutes ameasure, within themeaning ofArticle XXIII:1(b), wenotethatthepartof
thedecision addressing modernization oftheJapanese distribution system ismore inthenature ofa
general policy statement thaneither adecision onparticular government actions oramandate toprivate
industry tofollow governmental policy bytaking specific actions. Wefurther notethattheparties
differ ontheissueofwhether ornotthismeasure isstillineffect. While Japan submits andtheUnited
States concedes thatthe1967Cabinet Decision wasrepealed on26December 1980, theUnited States
argues thattherepeal affects onlythatportion ofthe1967 Cabinet Decision relating tocontrols on
international investment inJapan, notthedistribution policies andliberalization "countermeasures"
directed bythe1967 Cabinet Decision. Inreply, Japan indicates thatitisimpossible torespond
adequately tothiscontention because theUnited States doesnotspecify which measures itbelieves
resulted fromthe1967Cabinet Decision, andthatinanycaseanymeasures notspecifically identified
arenotproperly before thisPanel.
10.99 Reviewing the1967 Cabinet Decision, wenotethatitaddresses, ingeneral terms, broad
categories ofmeasures which theJapanese Government considered asneeding tobetaken inconjunction
withtheliberalization ofdirect investment rules. Thedecision indicates that
"[a]sforournational economy asliberalization progresses, although foreign capital
mayadvance intomany ofourindustries, itishoped thatourfirms willbeableto
compete fairly andeffectively withthemfairly andcooperate withthemonequal terms,
thereby promoting national economic interests. Thelargest future goalofthepeople,
business circles andgovernment mustbetheswift attainment ofsuchastage byour
national economy. ...[I]twould benecessary torestrain foreign enterprises coming
intoJapan afterliberalization fromdisturbing order indomestic industries, byresorting
tothestrength oftheirsuperior power, andfrom advancing intothenon-liberalized
sectors byevading control. ...Theestablishment ofthese countermeasures for
strengthening thecapacity ofourenterprises forinternational competition andfor
preventing foreign enterprises fromdisturbing order inourindustries andmarket would
beabasicnecessity iftheliberalization istobepromoted andifourpeople aretoenjoy
itseconomic benefits".1251
10.100 Byitsterms,theCabinetDecisionof26December1980abolishesthe1967CabinetDecision.1252
However, although there canbenodoubt thatthe1967Cabinet Decision hasbeenabolished, itisnot
cleartousthatthebroad policies onmodernization ofthemanufacturing anddistribution sectors outlined
inthe1967 Cabinet Decision havebeenabandoned. The1980 Decision provides onlythat
"1. TheGovernment willapply theForeign Exchange andForeign Trade Control
Lawinanappropriate manner forthemanagement offoreign direct investment ...
2. Furthermore, theGovernment, forthetimebeing, willdealcarefully, aswe
havedonesointhepastwithforeign direct investment inagriculture, forestry, mining,
oil,andleather andleather product manufacturing ...".
Inourview, the1967 policies could havebeencarried forward, consistently withthe1980 Decision.
Totheextent thepolicies havenotbeenabandoned, weconsider thattheycontinue toconstitute a
measure within themeaning ofArticle XXIII:1(b).
1251Ibid, pp.2,4.
1252Concerning theApplication ofInward Investments, Cabinet Decision, 26December 1980, Japan Ex.B-55.WT/DS44/R
Page399
10.101 Benefit accruing. Werecall theUSclaim thatthebenefits accruing toitareitslegitimate
expectations ofimproved market access resulting fromJapanese tariff concessions onfilmandpaper
attheconclusion oftheKennedy, Tokyo andUruguay Rounds. TheUnited States maintains thatit
could nothavereasonably anticipated theimpact ofthe1967 Cabinet Decision during theKennedy
Round negotiations. Specifically, according totheUnited States, atthetimeoftheKennedy Round
negotiations therewerenopertinent factsavailable concerning theactions Japan waspreparing totake
toimplement its"liberalization countermeasures programme" andthatasof30June1967, theCabinet
Decision hadyettobepromulgated andimplemented. Similarly, theUnited States argues thatitwas
unaware oftheimpact ofthisCabinet Decision onthefilmmarket inJapan evenasoftheconclusion
oftheTokyo andUruguay Rounds.
10.102 Japan argues thattheUnited States cannot properly claim tohaveanylegitimate expectations
ofsuchimproved market access because thefirstJapanese tariffconcessions onfilmandpaper --limited
toblack andwhite filmandpaper --occurred attheconclusion oftheKennedy Round on30June1967,
severalweeksfollowingtheCabinetDecisionof6June1967.Moreover,accordingtoJapan,theCabinet
Decision waspreceded byahigh-level public debate oncapital liberalization, adebate ofwhich the
United States would havebeenaware. Japan argues thatthemeasure should havebeenanticipated
bytheUnited States afortiori asoftheconclusion oftheTokyo andUruguay Rounds.
10.103 WenotethatthisCabinet Decision of6June1967 waspublished inKampo (Japan 'sofficial
gazette) on21June19671253,thuspredating theformal conclusion oftheKennedy Round (30June1967)
byninedays. Werecall thetestdeveloped inourgeneral discussion ofreasonable anticipation tothe
effect thataMember ispresumed tohaveknowledge ofameasure asofthedateofitspublication,
butthatthispresumption mayberebutted where theMember identifies exceptional circumstances.
Because oftheshorttimeperiod between thisparticular measure 'spublication andtheformal conclusion
oftheKennedy Round, weconsider itdifficult toconclude thattheUnited States should becharged
withhaving anticipated the1967Cabinet Decision sinceitwould beunrealistic toexpect thattheUnited
States would havehadanopportunity toreopen tariff negotiations onindividual products inthelast
fewdaysofamultilateral negotiating round. Accordingly, weconsider thattheUnited States, inrelation
tothe1967Cabinet Decision, haslegitimate expectations ofimproved market access emanating from
theKennedy Round. However, applying thetestdeveloped earlier, wefindthattheUnited States may
notclaim legitimate expectations arising from theTokyo andUruguay Round concessions.
10.104 Impairment andcausality. TheUnitedStatesarguesthatimprovedmarketaccesstotheJapanese
distribution system forfilmandpaper emanating from Japan'sKennedy Round concessions on
black andwhite filmandpaper arenullified andimpaired astheresult ofthe1967 Cabinet Decision
andsubsequent "liberalization countermeasures" oftheJapanese Government. Japan contends that
the1967Cabinet Decision contains onlyverygeneral policy statements astowhatsortsofactions the
governmentconsideredtobedesirableinordertomodernizeJapan'soveralldistributionsectorfollowing
capital liberalization; itdoesnotsetinmotion anyspecific measures which could besaidtodiscriminate
dejureordefactoagainst theaccess ofimports totheJapanese market. Japan argues thattheUnited
States hasnotprovided anyevidence tothePanel demonstrating "impairment" resulting fromtheCabinet
Decision.
10.105 Inouranalysis oftheclaim thatthe1967 Cabinet Decision impairs market-access benefits
accruing totheUnited States, wenotethatonetheme found inthe1967 Cabinet Decision isthatthe
Japanese Government should findways tohelpmodernize thedistribution sector soastorespond to
theintensified competition thatcapital liberalization wasexpected tobring. However, theportions
oftheCabinet Decision addressing theneedtomodernize theJapanese distribution system areinthe
nature ofvery general policy statements, which donotprovide forclear mandates, orders or
1253Table UofJapan 'sFirst Submission, p.188.WT/DS44/R
Page400
recommendations togovernment entities orprivate companies toactinaspecific way. Infact,the
United States hasnotbeenabletopoint toanyspecific governmental actions orprivate sector activity
inthedistribution sector emanating fromthe1967 Cabinet Decision inandofitself (although itdoes
argue thatingeneral terms most ofthesubsequent distribution "measures" itcitesaregrounded in
the1967 Cabinet Decision). Accordingly, wefindthattheUnited States hasnotdemonstrated that
thegeneral policy statements contained inthe1967Cabinet Decision, nullify orimpair benefits accruing
totheUnited States within themeaning ofArticle XXIII:1(b). Atmost, inourview, the1967Cabinet
Decision ispartofthecontext forlateractions taken bytheGovernment ofJapan.
10.106 Thus, while the1967 Cabinet Decision maystillbeviewed asameasure forpurposes of
Article XXIII:1(b) andtheUnited States isnotcharged withhaving anticipated themeasure prior to
theconclusion oftheKennedy Round, theUnited States should haveanticipated theDecision asof
theconclusion oftheTokyo andUruguay Rounds. Moreover, theUnited States hasnotshown that
themeasure nullifies orimpairs benefits accruing toitfrom theKennedy Round inrespect ofblack
andwhite filmandpaper, norfrom theTokyo orUruguay Rounds interms ofblack andwhite and
colour filmandpaper.
(c) 1967 JFTC Notification 17onpremiums tobusinesses
10.107 Thesecond distribution "measure" weshallexamine isJFTC Notification 17of10May1967,
which setsaceiling of100,000 yenperyearonpremiums between businesses (e.g., manufacturers
andwholesalers) ("JFTC Notification 17").1254Thisnotification isbased onArticle 3ofthePremiums
Law. Itlimits to100,000 yenannually theright ofmanufacturers ofcertain goods, including
manufacturers ofphotosensitivity materials, tooffercashorother premiums towholesalers orretailers
asaninducement forthewholesaler orretailer tobegin handling themanufacturer 'sproducts, orto
meetother transaction conditions. Anexception tothisprohibition onpremiums inexcess of100,000
yen(Item 2-4)allows amanufacturer toofferpremiums toemployees ofdistributors andretailers that
areinaspecial relationship withthemanufacturer (e.g. through capital investment, interlocking
directorates, etc.). JFTC Notification 17wasrepealed inApril 1996 inthecourse ofreview ofthe
Premiums Law.
10.108 Applicationofmeasure.TheUnitedStatescontendsthatJFTCNotification17isagovernmental
measure. While conceding thatthemeasure wasrepealed inApril 1996, theUnited States argues that
other provisions ofJapanese lawmake therepeal meaningless. Specifically, premiums from
manufacturers towholesalers arestillsubject toDesignation 9ofJFTC Notification 15of19821255,
i.e.,theprovision governing theuseof"unjust inducements" under theAntimonopoly Law. That
designation prohibits premium offers inexcess of"normal business practice". Thus, according tothe
United States, given thatJFTC Notification 17setindustry practice for19years, itisuncertain atbest
astowhether present restrictions under Designation 9willdiffer atallfromthesituation under JFTC
Notification 17.Japan counters that,although JFTC Notification 17wasatonetimeagovernmental
measure, itwasformally repealed inApril 1996. Thus, forJapan, there isnogovernmental measure
inissue. Asforthealleged continuation ofthepolicy underlying JFTC Notification 17through
Designation 9ofJFTC Notification 15(1982), Japan responds thattheUnited States isbelatedly raising
a"measure" orpolicy thatwasnotspecifically identified initspanel request andwhich istherefore
outside thePanel'sterms ofreference. Japan further states thatunder Designation 9ofJFTC
Notification 15,theautomatic trigger levelof100,000 yennolonger exists andtheburden ofproof
lieswiththeJFTC.
1254USEx.67-4; Japan Ex.D-42. Itshould benoted thatJFTC Notification 17isalsoclaimed bytheUnited States
tobeapromotion "countermeasure".
1255USEx.82-6.WT/DS44/R
Page401
10.109 Wenotethatbothparties agree thatbetween 1967 and1996, JFTC Notification 17wasa
governmental measure. Wealsonotethattheybothagree thatthemeasure wasrepealed inApril 1996.
Theissuebefore us,therefore, iswhether ornotweshould takecognizance ofwhattheUnited States
describes asacontinuation ofthepolicy ofJFTC Notification 17bymeans ofDesignation 9ofJFTC
Notification 15(1982), thelatter nothaving beenspecifically identified intheUSpanel request. On
thisissue, werecall thatJFTC Notification 17itself wasalsonotspecifically identified inthepanel
request, butthatwedecided toinclude itwithin ourterms ofreference given thatitwasameasure
taken pursuant tothePremiums Lawwhich wasspecifically identified intherequest. JFTC Notification
15of1982, incontrast, isameasure taken pursuant toArticle 2.9oftheAntimonopoly Lawof1947.
While theAntimonopoly Lawwascitedinthepanel request, itwascitedonlyinrespect ofa"measure"
relating todispatched employees. Consequently, wefound that"measures" unrelated todispatched
employees (i.e.,measures relating tointernational contract notification andtoguidance onloss-leader
advertising anddumping) werenotwithin ourterms ofreference. Thatfinding suggests thatweshould
alsonotconsider Designation 9ofJFTC Notification 15tobewithin ourterms ofreference. Moreover,
evenifweweretoconsider thatitisappropriate totakeintoaccount theUSargument thatthepolicy
underlying JFTC Notification 17(1967) hascontinued tobeapplied under Designation 9ofJFTC
Notification 15(1982), wenotethattheUnited States hasnotdemonstrated thatthepolicy underlying
JFTCNotification17hasbeencontinuedthroughongoingadministrativeguidanceundertheDesignation.
10.110 Benefit accruing. Werecall theUSargument thatthebenefits accruing toitarelegitimate
expectations ofimproved market access totheJapanese filmandpaper market emanating fromtariff
concessions made byJapan intheKennedy, Tokyo andUruguay Rounds, andthatitcould nothave
anticipated theimpact ofJFTC Notification 17atthetimeoftheKennedy Round negotiations because
there werenopertinent factsavailable atthattimeconcerning theactions Japan waspreparing totake
toimplement itsliberalization "countermeasures" programme. TheUnited States further argues that
itcould nothavereasonably anticipated theimpact ofthismeasure evenasofJapan'sconcessions on
filminpaper attheconclusion oftheTokyo andUruguay Rounds. Wealsorecall theJapanese position
thattheUnited States cannot properly claim tohaveanylegitimate expectations ofsuchimproved market
access because thefirstJapanese tariff concessions onfilmandpaper --limited toblack andwhite
filmandpaper --occurred attheconclusion oftheKennedy Round on30June1967, morethanamonth
andahalffollowing issuance JFTC Notification 17on10May1967. Japan argues thattheUnited
States should havereasonably anticipated themeasure afortiori asoftheconclusion ofthetwolater
rounds.
10.111 Inourview, given thatthepublication ofJFTC Notification 17predated theconclusion of
theKennedy Round, itisdifficult toconclude thattheUnited States should notbeheldtohaveanticipated
JFTC Notification 17inadvance ofJapan'sfirsttariff concessions onfilmandpaper. Aswenoted
earlier, theUnited States ischarged withknowledge ofJapanese regulations onpublication. Although
wecanconceive ofcircumstances where theexporting WTO Member maynotreasonably beaware
ofthesignificance ofameasure fororitspotential disparate impact onimported products untilsome
timeafteritspublication, theUnited States hasnotdemonstrated theexistence ofanysuchcircumstance
here. Wearenotpersuaded thattheUnited States hasmetitsburden ofestablishing thatinrelation
toJFTC Notification 17,ithaslegitimate expectations ofimproved market access emanating fromthe
Kennedy Round. Weconsider thatthisreasoning applies afortiori toclaimed legitimate expectations
arising from theTokyo andUruguay Round concessions.
10.112 Impairment andcausality. TheUnited States contends thateventhough JFTC Notification
17,which seta100,000 yen($278 in1967) maximum annual limitonthepremium thatamanufacturer
could givetoawholesaler orretailer (oraprimary wholesaler toasecondary wholesaler orretailer)
forallproducts traded between thetwo,applied tobothdomestic andforeign enterprises, itupset the
competitive relationship between thetwo. IntheUSview, foreign enterprises entering theJapanese
market ortrying toexpand theirmarket share following tariff reductions andimport liberalization,
werenotabletoinvest intheirowndistribution networks untilthe1970s when investment restrictionsWT/DS44/R
Page402
wereprogressively lifted. Thus, foreign enterprises hadtocompete withJapanese manufacturers for
existing wholesalers anddistributors tocarry theirproducts. JFTC Notification 17limited theability
offoreign enterprises tooutbid Japanese enterprises inthecompetition forJapanese distributors by
setting anarbitrarily lowceiling ontheamount ofpremiums thatamanufacturer could givetoa
wholesaler orretailer inanyoneyear. Inaddition, theUnited States argues thatforeign manufacturers,
which hadnodirect relationships withJapanese wholesalers because ofJapan'srequirement thatthey
dealwithasoleimport agent, wereprohibited from availing themselves oftheexception under Item
2-4oftheJFTC Notification 17which permitted theoffering ofunlimited premiums totheemployees
ofenterprises thatwere inexclusive, vertically-integrated relationships withthemanufacturer.
10.113 Japan responds thatJFTC Notification 17didnotsingle outthephotographic materials industry:
more than100industries werecovered. Inanyevent, theregulation onlyrestricted excessive premium
offerstodistributors,nototherpromotionalactivities.Therationalefortherestrictionwasthatexcessive
offers could impair fairandfreeprice competition inthedistribution sector andcould increase the
distribution costtothedetriment ofconsumer interests. Lowpriceoffers, rebates andoffers ofgoods
toassist theother parties 'promotional activities werenotregulated under thisJFTC notification. Japan
alsoargues thattheUnited States misconstrues thenature oftheexception found inItem2-4.Premiums
offered toemployees ofcompanies which were inaspecial relationship, through share holdings or
interlocking directorates, withthemanufacturer, didnotfallunder theregulation, because theywere
nodifferent thanpremiums offered toone'sownemployees. Theexception applied onlytotransactions
which were virtually identical tooperations within asingle entity. Fujianditsprimary wholesalers
werenoteligible because theywerenotinsuchaspecial relationship. Finally, astotheUSarguments
oninvestment restrictions, Japan responds thatduring theperiod before capital liberalization, ifKodak
hadwanted touseinvestments toestablish andbuild relationships withanysingle-brand primary
wholesalers itcould havedoneso.According toJapan, Kodak 'sexclusive importer, Nagase, could
anddidinvest indistribution bybuying twoprimary wholesalers; itcould havelegally made equity
investments inFuji'sprimary wholesalers ifithadwanted to.ForJapan, USarguments about capital
restrictions interfering withKodak 'sbusiness plans makes nosense because Kodak exercised virtually
noneofitslegaloptions during theperiod ofrestrictions oninvestments orevenaftersuchrestrictions
were lifted.
10.114 Assessing theissue ofimpairment andcausality, wenotethatJFTC Notification 17appears
tobedirected atpromotional activities withregard equally todomestic andforeign products. Itis
notspecifically aimed atimports, nordoesitspecifically target filmandpaper, eventhough itlists
"photographic materials" among themany consumer products towhich itisdirected. Although there
isreference inapress summary totheneedtocounteract theinfluence ofUScapital1256,theJFTC
explanation citesexcesses inJapanese industry leading todistortions inintrinsic competition forprice,
quality andbeneficial services, and"cut-throat sales practices promoted byhuge capital power" as
justifications forthemeasure.1257
10.115 Onbalance, inourview, theevidence concerning itsadoption suggests thatthismeasure is
directed against potential excesses ofpromotional activities inthedistribution sector ingeneral. It
targets excessive premiums given bymanufacturers towholesalers andbywholesalers toretailers.
Itdoesnot,however, attempt toregulate other forms ofpromotional activity, suchaslowpriceoffers
andrebates. Moreover, while wedonotreject thenotion thatformally neutral measures maybeshown
1256Severe Restrictions onBusinesses forPremium Offers: Shatokuren Hears JFTC Explanations atJyoshi Kaikan on
the12th, Nihon Shashin Kogyo Tsushin, 20June 1967, USEx.67-8, p.1.Inthispress summary, JFTC explained that
"[t]he primary objective of[Notification 17]is(a)rationalization ofthedistribution stage ...;and(b)eliminat[ion] ofthe
stronger preyupon theweaker sales competition based onthepower ofcapital ...IfUScapital were toconduct [premium
offers] directed attheJapanese distribution sector. thiswould benomatch for[Japan], sotherestrictions should beapplied
asabreakwater before liberalization". Ibid.
1257USEx.67-10, p.2.WT/DS44/R
Page403
tobeapplied toimported products inamanner thatupsets thecompetitive relationship between domestic
andimported products tothedetriment ofimports1258,theUnited States hasnotbeenabletopoint to
anysingle instance where implementation ofJFTC Notification 17hasledtosucharesult inrespect
ofUSfilmorpaper. Forexample, wenotethatatthetimeinquestion, Kodak hadarelationship with
aprimary wholesaler --Asanuma. Thatrelationship laterended in1975, apparently because ofKodak 's
refusal todealdirectly withAsanuma.1259TheUnited States hasnotshown thatitsinability togive
premiums toAsanuma employees wasrelevant tothetermination. Inaddition, theUScontextual
arguments about theimpact ofJapanese restrictions oninvestments, totheextent thattheyaretrue1260,
donotdemonstrate anything inrelation totheapplication ofJFTC Notification 17.Finally, astothe
exceptionprovidedinItem2-4ofJFTCNotification17,theevidencesuggeststhatthisprovision,neither
inherently norinitsapplication, discriminates against imported filmorpaper. Although itappears
thatKodak wasunable toavail itself ofthisexception, duetothestructure ofKodak 'sdistribution
relationships, thesame wastrueinthecaseofFuji.
10.116 Ontheevidence before us,therefore, wearenotpersuaded thatJFTC Notification 17,and
itsimplementation intheJapanese photographic materials sector (totheextent thisoccurred), have
resultedinupsettingthecompetitiverelationshipbetweendomesticandUSfilmandpaperintheJapanese
market bypreventing Kodak fromestablishing distribution relationships inthatmarket. Accordingly,
wefindthattheUnitedStateshasnotdemonstratedthatJFTCNotification17nullifiesorimpairsbenefits
accruing totheUnited States within themeaning ofArticle XXIII:1(b).
10.117 Thus, while theUnited States hasshown thatJFTC Notification 17isameasure forpurposes
ofArticle XXIII:1(b), itisnolonger ineffect. Moreover, theUnited States hasnotdemonstrated that
itshould notbeheldtohaveanticipated Notification 17inrelation toitsKennedy Round expectations
inrespect ofblack andwhite filmandpaper andithasnotdemonstrated thatNotification 17nullifies
orimpairs benefits accruing totheUnited States inrespect ofblack andwhite filmandpaper. Inrespect
ofcolour filmandpaper, ithasshown onlyoneoftherequired elements ofanArticle XXIII:1(b) claim --
theexistence ofameasure.
(d) 1968 Sixth Interim Report
10.118 Thethird distribution "measure" claimed bytheUnited States tonullify orimpair benefits
accruing toitunder Article XXIII:1(b) istheSixth Interim Report on"Distribution Modernization
Outlook andIssues" (5August 1968), prepared byMITI'sIndustrial Structure Council 'sDistribution
Committee ("Sixth Interim Report").1261ThisSixth Interim Report focuses ontheneedforbroad-based
efforts tomodernize thedistribution system inJapan. TheUnited States argues thatthereport analyzes
ways thatforeign manufacturers might gaincontrol ofJapan'sdistribution system andhighlights the
government 'sconcerns oversuchcontrol, including:
"1. There isariskthatgrowth sectors willfallunder themonopolistic control of
foreign capital, resulting from thedifference incapital resources andthelike.
2. There isariskthattheprocess ofsalesexpansion byforeign capital affiliated
distribution enterprises willaggravate excessive competition andhinder thesmooth
1258Seediscussion inparas. 10.85-10.86 above.
1259Affidavit ofTakenosuke Katsuoka, Japan Ex.A-11, pp.2-4.
1260Wenoteinthisregard Japan 'sreference toastatement bythePresident ofKodak Japan, Mr.Albert Sieg, ina1988
interview: "The glaring mistake waswaiting solongtotakeaggressive action inthismarket. Weshould have been here
withthisapproach tenyears ago. Clearly, themomentum ofourlocal competitors gotastrong forward thrust, andour
taskwillbemuch, much more difficult". Japan Ex.B-45. Japan alsoindicates thatKodak could haveestablished a50-50
jointventure, such asKodak Nagase (setupin1986), asearly as1971, orafully-owned subsidiary asof1976..
1261USEx.68-8 andJapan Ex.B-7.WT/DS44/R
Page404
implementation ofdistribution modernization plans, andthe[established] order oftrade
willbedisrupted.
3. There isariskthatthemanufacturing sector willbedominated bycontrolling
the sales routes, bringing about theinternational subcontracting ofJapanese
industry".1262
10.119 WenotetheUSposition thatunder Japan'ssystemization plan,thenature ofthelinksbetween
companies ina"system" would include commercial transaction ties,physical ties,andinformation
ties. Each ofthese tieswould become essential toensuring thatthesystem operated asasingle and
exclusive whole. TheUnited States argues thathorizontal business cooperation would make thesystem
more difficult forforeign firms topenetrate because many oftheindividual actors inthesystem would
bebound together inacommon distribution channel tiedtoanddominated bydomestic manufacturers.
10.120 Inresponse, Japan contends thattheSixth Interim Report isconcerned withmodernization
ofthedistribution sector asawhole, topromote efficiency andcompetitiveness ofdomestic industries,
notwithimpedingaccessofimportedgoodstodistributionchannelsinJapan.Distributionmodernization
would alsohelptheJapanese distribution sector compete withforeign capital. AscitedbyJapan, the
preface totheSixth Interim Report provides:
"Today, thedelay inmodernizing distribution activities isoften seentoprevent the
effectiveness ofeconomy andimprovement ofpeople 'sliving. Thenecessity of
improving thestructure ofthedistribution industry isgradually increasing. Inaddition,
themodernization ofdistribution activities ispressed bythefollowing twoviewpoints.
First, liberalization ofdirect investment byforeign capital isdrawing near. Itis
necessary toquickly establish [market] conditions inwhich domestic capital could
compete withforeign capital. Second, improving productivity ofdistribution activities
isconsidered aneffective waytosolve theconsumer price issue".1263
MITI'sconcern, according toJapan, wasthatdomestic manufacturers would bestuck withexisting
distribution channels while foreign producers freed fromcapital restrictions would beabletoconstruct
theirownmodern (andpossibly exclusive) distribution channels.
10.121 Application ofmeasure. TheUnited States contends thattheSixth Interim Report isa
governmental measure andthatitiseffectively stillinforce. Japan responds thattheSixth Interim
Report isnotagovernmental measure andisnothing more thanareport ofanadvisory council, setting
outcertain policy options forthegovernment. Japan further argues thatthisreport isnotcurrently
ineffect. According toJapan, MITI'spolicies resulted inrecommendations toindustry inthe1960s
and'70sonhowtomodernize distribution policies. These recommendations weremade, andprivate
businesses followed them orignored them attheirownchoosing. Thisreport, Japan maintains, was
never government action atall,andanysubstantive relevance ofitended decades agowhen theadvice
waseither acted upon orignored.
10.122 Inexamining thenature oftheSixth Interim Report, wenotethattheDistribution Committee
wasacommittee setupbyMITI'sIndustrial Structure Council which itself wasanadvisory council
composed ofacademics andindustry representatives, notgovernment officials. And, whereas the
Industrial Structure Council wasestablished pursuant toaCabinet Order, theadvisory nature ofthis
Council andtheDistribution Committee created under itdoesnotseem tobeindoubt. Applying the
analysis wedeveloped above inourgeneral discussion ofgovernmental measures, wenotethatthe
Sixth Interim Report isclearly notinthenature ofabinding laworregulation. Itprovides noincentives
1262USEx.68-8, p.8.
1263Preface toSixth Interim Report, Japan Ex.B-7.WT/DS44/R
Page405
ordisincentives totheprivate sector totakeanyparticular action. Essentially, theSixth Interim Report
isananalysis ofthecurrent andfuture status ofthedistribution sector thatrecommends certain general
policies forthegovernment tofollow inthedistribution sector. Those listed specifically are(i)the
promotion oforganized andcooperative business activity soastorealize economies ofscale, (ii)the
modernization offacilities andmanagement systems, (iii)thesecuring ofworkforce andpersonnel
training, and(iv)therationalization oftradepractices andtransaction terms. Since itisageneral report
tothegovernment, itcannot initself beviewed asagovernment exhortation totheprivate sector to
takespecific actions inthedistribution sector anditdoesnotentail thelikelihood ofcompliance as
exemplified byJapan -Semi-conductors andJapan -Agricultural Products (seeparas. 10.45-10.50
above). These recommendations aremade ingeneral terms; theyarenotspecific enough towarrant
concluding, evenintheJapanese system, thattheycould havethesame effect asformal government
action. Assuch, theSixth Interim Report appears tobeastudy report setting outpossible options
forgovernmental action, andwearenotpersuaded thatitisinthenature ofameasure attributable
tothegovernment. Accordingly, wefindthattheUnited States hasnotdemonstrated thattheSixth
Interim Report isameasure within themeaning ofArticle XXIII:1(b).
10.123 Ifdespiteourfindingabove,weassumethattheSixthInterimReportisagovernmentalmeasure,
there isstillthequestion ofwhether ornotitisstillinforce. Since areport byaquasi-governmental
entity isnormally notformally adopted orpromulgated byagovernment, itisnotsurprising thatthere
isnoevidence tosuggest thatithasbeenwithdrawn orotherwise disavowed bytheGovernment of
Japan. Nonetheless, inlightofthislackofdisavowal, andevenifthere aremore recent government
policy statements onmodernization oftheJapanese distribution sector, iftheSixth Interim Report is
ameasure, itmaystillbeineffect.
10.124 Benefit accruing. Werecall theUSargument thatthebenefits accruing toitarelegitimate
expectations ofimproved market access totheJapanese filmandpaper market emanating from the
Kennedy, Tokyo andUruguay Rounds, andthatitcould nothaveforeseen Japan'sintention toissue
theSixth Interim Report (1968) before theconclusion oftheKennedy Round. Similarly, theUnited
States argues thatitcould nothaveanticipated theimpact ofthismeasure ontheJapanese filmmarket
asoftheconclusion oftheTokyo andUruguay Rounds. Tothis,Japan responds thattheUnited States
shouldhavereasonablyanticipatedtheSixthInterimReportasofJune1967becausethepoliciesdiscussed
therein werethelogical outgrowth ofMITI'sdecision tohelppromote modernization oftheJapanese
distribution sector, following ahigh-profile, publicized debate oncapital liberalization. Japan further
argues thattheUnited States should reasonably haveanticipated themeasure afortiori asoftheTokyo
andUruguay Rounds.
10.125 Inassessing theissue ofwhattheUnited States should haveanticipated attheconclusion of
theKennedy Round inrelation totheSixth Interim Report, werecall ourconclusion thatnormally
aMember should notbeconsidered tohaveanticipated ameasure adopted aftertheconclusion ofa
negotiating round, absent some reason toreach acontrary result (para. 10.79). Inthisregard, we
arenotpersuaded byJapan'sargument thattheSixth Interim Report isalogical outgrowth ofJapan's
pre-Kennedy Round policies ondistribution andtherefore should havebeenanticipated bytheUnited
States. Inthefirstplace, wehavefound thatthe1967 Cabinet Decision didnotcallforanyspecific
actions tobetaken bytheGovernment ofJapan orprivate companies. Moreover, theFirstthrough
theFifth Interim Reports contain inpartdifferent recommendations from those oftheSixth Interim
Report. Thus, itcannot besaidthatthespecific conclusions oftheSixth Interim Report wereclearly
contemplated inthe1967 Cabinet Decision andthese earlier reports. Additionally, thenature ofthe
report --itemanates from anadvisory group composed ofacademics andindustry representatives,
isnon-binding, isnotproduct-specific initsrecommendations, andismore inthenature ofapolicy
option paper submitted tothegovernment thanwhatcould properly besaidtobeagovernmental measure
--issuchthatwefindthattheUnited States should notbecharged withhaving anticipated itsappearance
priortotheconclusion oftheKennedy Round. However, totheextent thatanylegitimate expectations
exist, wefindthatthese relate onlytoblack andwhite filmandpaper.WT/DS44/R
Page406
10.126 With respect toJapan'sconcessions attheconclusion oftheTokyo andUruguay Rounds, it
isdifficult nottoconclude thattheUnited States should beheldtohaveanticipated this1968 report
anditsapplication (totheextent thisoccurred) asof1979 and1993. Although wecanconceive of
circumstances where theexporting WTO Member maynotreasonably beaware ofthesignificance
ofameasure fororitspotential disparate impact onimported products untilsome timeafterits
publication, theUnited States hasnotdemonstrated theexistence ofanysuchcircumstance here.
Accordingly, wefindthattheUnited States hasnotdemonstrated thatinrelation totheSixth Interim
Report ithaslegitimate expectations ofimproved market access forphotographic filmandpaper
emanating from theTokyo orUruguay Rounds.
10.127 Impairmentandcausality.TheUnitedStatescontendsthattheSixthInterimReportrecommended
thatMITI takesteps tosystematize distribution by:adjustment ofmarket conditions; rationalizing
physical distribution techniques (packaging, storage, transportation, cargo handling)1264;andmaking
improvements inthedistribution environment (location ofdistributors, information links between
manufactures, wholesalers, andretailers, andfinancing).1265Theoverall goal, theUnited States
maintains, wastoimprove theefficiency ofdistribution channels and,more importantly, givecontrol
ofthese channels todomestic manufacturers inJapan by“striving forcooperation andsystemization
ofenterprises through producers, intermediate processors, andwholesalers ”.1266TheUnited States
notes thatthereport alsostates that“[t]here isariskthatthemanufacturing sector willbedominated
bycontrolling thesalesroutes, bringing about theinternational subcontracting ofJapanese industry ”.1267
10.128 Japan responds thatMITI sawthebackwardness ofthedistribution sector asan"Achilles 'heel"
thatwould render domestic manufacturers unable tocompete withforeign products. Specifically, the
concernwasthatdomesticmanufacturerswouldbestuckwithexistingdistributionchannelswhileforeign
producers, freed from investment restrictions, would beabletoconstruct their ownmodern (and
exclusive) distribution channels. However, Japan emphasizes, MITI policy onmodernizing the
distribution sector sought topromote efficiency andcompetitiveness ofdomestic industries following
liberalization, nottoblock imports. Overall, Japan argues thattheUnited States hasnotprovided any
evidence tothePanel toshow thecausal connection between themeasure andthealleged impairment.
10.129 Inassessing theissue ofwhether ornotUSmarket-access expectations areimpaired bythe
application oftheSixth Interim Report, wenotethat: first,thereport isanadvisory report directed
tothegovernment, setting outnon-binding policy options forthegovernment; second, these policy
options aredirected tomodernizing andimproving theoverall efficiency ofthedistribution sector in
Japan; third, theyarenotatallproduct-specific; andfourth, theUnited States hasnotbeenableto
point toanyspecific government actions resulting fromthispolicy options report, except perhaps for
the1970Guidelines discussed below. Wenotethatwhile itistruethatthereport supports cooperation
among different levels ofthedistribution system, italsodiscusses theneedtooffset thepossible adverse
effects ofsuchcooperation.1268Inanyevent, evenifweassume thattheSixth Interim Report constitutes
administrative guidance totheJapanese photographic filmindustry tointegrate vertically andusesingle-
brand primary wholesalers, there aretiming problems withrespect tocausation since most ofthe
wholesaledistributionsectorforfilminJapanwasalreadysingle-brandin1968(seepara.10.173below).
10.130 Inaddition, wenotethatthereport appears tobeorigin-neutral. While thereport refers to
theneedtoprepare forthearrival offoreign capital, inourview, theclearemphasis ofthereport is
ontheneedtoimprove thecompetitiveness oftheJapanese distribution sector sothatitcancompete
effectively. Thereport isnotdirected atpreventing thearrival offoreign capital, although itsuggests
1264Sixth Interim Report, USEx.68-8, p.9.
1265Ibid.
1266Ibid, p.14.
1267Ibid, p.8.
1268Ibid, e.g., pp.15,18.WT/DS44/R
Page407
aneedtoimprove thecompetitive position ofJapanese firms. Itinfactlistsadvantages thatwillflow
from liberalization inrespect ofincreased efficiency intheJapanese distribution sector.1269While it
ispossible thatameasure thatisformally neutral astotheorigin ofproducts maybeshown tobeapplied
inamannerthatresultsinupsettingthecompetitiverelationshipbetweendomesticandimportedproducts
tothedetriment ofimports1270,theUnited States hasnotbeenabletopoint toanysingle instance where
application oftheSixth Interim Report hasdonesoinrespect ofUSfilmorpaper.
10.131 Inthiscontext, itisdifficult toconclude thatthisadvisory report hascontributed inany
meaningful manner totheimpairment ofUSmarket-access expectations emanating fromtheKennedy
Round. Also, thereisnoevidence thatapplication ofthereport hasresulted inimpairment oflegitimate
expectations flowing from theTokyo andUruguay Rounds. Atmost, weconsider thatthereport
establishes partofthecontext oflatercitedmeasures oftheJapanese Government, suchasthe1970
Guidelines and1971 Basic Plan, which arediscussed below. Accordingly, wefindthattheUnited
States hasnotdemonstrated thattheSixth Interim Report nullifies orimpairs benefits accruing tothe
United States within themeaning ofArticle XXIII:1(b).
10.132 Thus, while theUnited States hasshown thatitshould notbeheldtohaveanticipated theSixth
Interim Report inrelation toitsKennedy Round expectations inrespect ofblack andwhite filmand
paper, ithasnotdemonstrated thattheSixth Interim Report isameasure forpurposes of
Article XXIII:1(b) orthatitnullifies orimpairs benefits accruing totheUnited States inrespect of
black andwhite filmandpaper. Inrespect ofcolour filmandpaper, ithasnotshown anyoftherequired
elements ofanArticle XXIII:1(b) claim.
(e) 1969 Seventh Interim Report
10.133 Thefourthdistribution"measure"istheSeventhInterimReporton"SystemizationofDistribution
Activities, prepared byMITI'sIndustrial Structure Council 'sDistribution Committee inJuly1969.1271
LiketheSixth Interim Report ofthiscommittee, which hasbeenaddressed above under theheading
"standardization oftransaction terms", theSeventh Interim Report setsoutaseries ofpolicy options
fortheconsideration ofMITI. WenotethattheSeventh Interim Report wasissued asa"first step
inmeetingthechallengescurrentlyfacingJapan'sdistributionsector".1272IntheCommittee'sperception,
theaimofsystemization wastoimprove functionality andproductivity. TheCommittee stated that
thebestapproach tosystemization wastolookatthedistribution sector notasacluster ofseparate
entities butasasingle whole andthereby apply asystems approach. Acknowledging thatwithrespect
togoods themostimportant factor isdistribution, theCommittee stated thatsystemization could only
progress through centralized processing ofphysical control atdistribution centres andstock points.
TheCommittee identified threeapproaches (commodity, institutional andfunctional) tosystemization
andproposed thefollowing policies tothegovernment: (i)establishing aDistribution Systemization
Council; (ii)presenting guide posts andpromoting standardization; (iii)establishing asystem for
providing distribution-related information; and(iv)providing incentives inareas suchasfinancing
andtaxation.
10.134 TheUnited States presents theSeventh Interim Report as,inessence, oneofthekeyfoundation
stones ofJapan'salleged plantosystematize thedistribution sector inJapan. Initsview, thereport
suggests thattotheextent thatfostering efficiency becomes inconsistent withprotection against foreign
competition, thelatter goalshould prevail. TheUnited States argues inparticular thatthepremise
ofdistribution systemization wastoreorganize theJapanese distribution system along vertical and
1269Ibid, p.7.
1270Seediscussion inparas. 10.85-10.86 above.
1271Distribution Systemization -Industrial Structure Council Distribution Committee, 22July1969(Seventh Interim Report
1969), USEx.69-4.
1272Ibid, p.1.WT/DS44/R
Page408
horizontallinesby(i)theformationandstrengtheningofproduct-specificverticaldistributiontiesbetween
aJapanese manufacturer andvarious wholesalers, andbetween thewholesalers andretailers, and(ii)
thecreation oflinkages --commercial, physical andinformation ties--among horizontal elements of
thedistribution system, which could bebrought more easily intothesystemized vertical arrangement
(paras. 5.81-5.82). Japan counters that,inMITI'sview, thebackwardness ofthedistribution system
would render domestic manufacturers unable tocompete withforeign producers. Specifically, the
concernwasthatdomesticmanufacturerswouldbestuckwithexistingdistributionchannelswhileforeign
producers, freed fromcapital restrictions, would beabletoconstruct theirownmodern (andexclusive)
distribution channels (para. 5.83).
10.135 Application ofmeasure. AsinthecaseoftheSixth Interim Report, theUnited States contends
thattheSeventh Interim Report isagovernmental measure andthatitiseffectively stillinforce. And
Japan responds thattheSeventh Interim Report isnotagovernmental measure, thatitisnothing more
thanareport ofanadvisory council, setting outcertain policy options forthegovernment. Japan further
argues thatthisreport isnotcurrently ineffect. According toJapan, MITI'spolicies resulted in
recommendations toindustry inthe1960s and'70sonhowtomodernize distribution policies. These
recommendations were made, andprivate businesses followed them orignored them attheirown
choosing.Thisreportwasnevergovernmentactionatall,Japanmaintains,andanysubstantiverelevance
ofitended decades agowhen theadvice waseither acted upon orignored.
136 Inexamining thenature ofthealleged "measure", weagain notethattheDistribution Committee
wasacommittee setupbyMITI'sIndustrial Structure Council which itself wasanadvisory council
composed ofacademics andindustry representatives, notgovernment officials. And, whereas the
Industrial Structure Council wasestablished pursuant toaCabinet Order, theadvisory nature ofthis
Council andoftheDistribution Committee created under itdoesnotseem tobeindoubt. Applying
theanalysis wedeveloped earlier, wenotethattheSeventh Interim Report isclearly notinthenature
ofabinding laworregulation. Itprovides noincentives ordisincentives totheprivate sector totake
anyparticular action. Since itisinitself ageneral report tothegovernment, itcannot beviewed as
agovernment exhortation totheprivate sector totakespecific actions inthedistribution sector and
itdoesnotentail thelikelihood ofcompliance asexemplified byJapan -Semi-conductors andJapan -
Agricultural Products (seeparas. 10.45-10.50 above). AsinthecaseoftheSixth Interim Report,
wedonotconsider thattherecommendations arespecific enough toconclude, eveninJapan, thatthey
could havethesameeffect asformal government measures. Assuch, theSeventh Interim Report appears
tobenomore thanastudy report setting outpossible options forgovernmental action, andweare
notpersuaded thatitisinthenature ofagovernmental measure. Accordingly, wefindthattheUnited
States hasnotdemonstrated thattheSeventh Interim Report isameasure within themeaning of
Article XXIII:1(b).
10.137 If,despite ourfinding above, weassume thattheSeventh Interim Report isagovernmental
measure, there isstillthequestion ofwhether ornotitisstillinforce. Since areport byaquasi-
governmentalentityisnormallynotformallyadoptedorpromulgatedbyagovernment,itisnotsurprising
thatthereisnoevidencetosuggestthatithasbeenwithdrawnorotherwisedisavowedbytheGovernment
ofJapan. Inlightofthislackofdisavowal, andevenifthere aremore recent government policy
statements onmodernization oftheJapanese distribution sector, iftheSeventh Interim Report isa
measure, itmaystillbeineffect.
10.138 Benefit accruing. Werecall theUSargument thatthebenefits accruing toitarelegitimate
expectations ofimproved market access totheJapanese filmandpaper market emanating from the
Kennedy, Tokyo andUruguay Rounds, andthatitcould nothaveforeseen Japan'sintention toissue
theSeventh Interim Report (1969) before conclusion oftheKennedy Round. Similarly, theUnited
States argues thatitstillcould notreasonably anticipate thesignificance ofthemeasure fortheJapanese
filmmarket asoftheconclusion oftheTokyo andUruguay Rounds. Tothis,Japan responds that
theUnited States should havereasonably anticipated theSeventh Interim Report asofJune1967becauseWT/DS44/R
Page409
thepolicies discussed therein were thelogical outgrowth ofMITI'sdecision tohelppromote
modernization oftheJapanese distribution sector, following ahigh-profile, publicized debate oncapital
liberalization. Japan further argues thattheUnited States should havereasonably anticipated themeasure
afortiori asoftheendoftheTokyo andUruguay Rounds.
10.139 Inassessing theissue ofwhattheUnited States should haveanticipated attheconclusion of
theKennedy Round inrelation totheSeventh Interim Report, werecall, aswedidinthecaseofthe
related Sixth Interim Report, ourconclusion thatnormally aMember should notbeconsidered tohave
anticipated ameasure adopted aftertheconclusion ofanegotiating round, absent some reason toreach
acontrary result. Inthisregard, wearenotpersuaded byJapan'sargument thattheSeventh Interim
Report isalogical outgrowth ofJapan'spre-Kennedy Round policies ondistribution andtherefore
should havebeenanticipated bytheUnited States. Inthefirstplace, wehavefound thatthe1967
Cabinet Decision didnotcallforanyspecific actions tobetaken bytheGovernment ofJapan orprivate
companies. Moreover, theFirst through theSixth Interim Reports contain inpartdifferent
recommendations fromthose oftheSeventh Interim Report. Thus, itcannot besaidthattheconclusions
oftheSeventh Interim Report wereclearly contemplated inthe1967Cabinet Decision orotherJapanese
measures. Additionally, thenature ofthereport --itemanates fromanadvisory group composed of
academics andindustry representatives, isnon-binding, isnotproduct-specific initsrecommendations,
andismore inthenature ofapolicy option paper submitted tothegovernment thanwhatcould properly
besaidtobeagovernmental measure --issuchthatwefindthattheUnited States should notbecharged
withhavingreasonablyanticipateditsexistencepriortotheconclusionoftheKennedyRound.However,
totheextent thatanylegitimate expectations exist, wefindthatthese relate onlytoblack andwhite
filmandpaper.
10.140 With respect toJapan'sconcessions attheconclusion oftheTokyo andUruguay Rounds, it
isdifficult nottoconclude thattheUnited States should beheldtohaveanticipated this1969 report
anditsapplication (totheextent thisoccurred) asof1979 and1993. Although wecanconceive of
circumstances where theexporting WTO Member maynotreasonably beaware ofthesignificance
ofameasure fororitspotential disparate impact onimported products until some timeafter its
publication, theUnited States hasnotdemonstrated theexistence ofanysuchcircumstance here.
Accordingly, wefindthattheUnited States hasnotdemonstrated thatinrelation totheSeventh Interim
Report ithaslegitimate expectations ofimproved market access forphotographic filmandpaper
emanating from theTokyo orUruguay Rounds.
10.141 Impairment andcausality. Werecall theUSargument thattheDistribution Committee stated
initsSeventh Interim Report that"theconcerted efforts ofgovernment andtheprivate sector must
bedirected atsystemization fromthepoint ofviewofacapital liberalization countermeasure"1273,and
thatthereport recommended systemization policies totheGovernment, including: (1)establishing
a“Distribution Systemization Promotion Council ”comprised ofscholars, manufacturers, wholesalers,
retailers, andcomputer specialists, toestablish consensus onthebasic direction forsystematizing
distribution activities; (2)researching andpromoting distribution systemization; and(3)providing
financial incentives through loans orspecial taxtreatment tosupport systemization.1274FortheUnited
States, Japanese Government documents leavenodoubt ofJapan'sintent tocreate andsupport vertically-
tied,domestic-manufacturer-dominateddistributionchannels.AsnotedbytheUnitedStates,theSeventh
Interim Report states thatunder systemization, "more systems willprobably beformed inwhich keiretsu
routes arecovered under theguidance ofthemanufacturer"1275and"...comprehensively and
1273Ibid, p.4.
1274Ibid,pp.9-10.TheDistributionCommittee'sNinthInterimReportdescribedtheSeventhInterimReportas“apowerful
political blueprint forreforming thedistribution sector ”.Industrial Structure Deliberation Council -Distribution forthe
1970s (Ninth Interim Report), 22July1971, Ex.US71-9.
1275USEx.69-4, p.7.WT/DS44/R
Page410
systematically integrate thevarious aspects ofproduction, processing, and[distribution] services".1276
Japan'sresponse isthat,inMITI'sview, thebackwardness ofthedistribution sector would render
domestic manufacturers unable tocompete withforeign products. However, Japan emphasizes, MITI
policy onmodernizing thedistribution sector sought topromote efficiency andcompetitiveness of
domestic industries, nottoblock imports. Overall, Japan argues, theUnited States hasnotprovided
anyevidence tothePanel toshowthecausal connection between themeasure andthealleged impairment.
10.142 Inassessing theissue ofwhether ornotUSmarket-access expectations areimpaired bythe
Seventh Interim Report, wenoteonceagain that: first, thereport isanadvisory report directed to
thegovernment,settingoutnon-bindingpolicyoptionsforthegovernmentwithoutrecommendingspecific
actionstothegovernmentorprivatecompanies;second,thesepolicyoptionsaredirectedtomodernizing
andimproving theoverall efficiency ofthedistribution sector inJapan; third, theyarenotatallproduct-
specific; andfourth, theUnited States hasnotbeenabletopoint toanyspecific government actions
resulting from thispolicy options report. While itistruethattheSeventh Interim Report supports
cooperation among different levels ofthedistribution system, itdoesnotendorse traditional forms
ofverticalintegrationassuch.Indeed,itexplicitlystatesintheintroductionthat"unlikeKeiretsunization,
cooperative business formations, etc.,theconcept ofsystemization aspresented innowayrefers to
suchpreconceived notions ofsuchinstitutions".1277Theemphasis inthereport isontheuseof"systems"
andthe"systems approach" tomodernize theJapanese distribution sector, including promotion of
standardized forms andpackaging. Asnoted below, foreign firms wereexpected tobenefit fromthis
aswellasdomestic ones, which suggests thatvertical integration andsingle-brand distribution were
notaimsofthereport. Inanyevent, evenifweassume thattheSeventh Interim Report constitutes
administrative guidance totheJapanese photographic filmindustry tointegrate vertically andusesingle-
brand primary wholesalers, there aretiming problems withrespect tocausation since most ofthe
wholesale distribution sector forfilminJapan wasalready single-brand in1968 (seepara. 10.173
below).
10.143 Inlightofitsemphasis onsystems, weviewthereport asorigin-neutral. Indeed, thereport
notes that"oneeffect ofsystematizing Japan'sdistribution system isthesimplification ofentry [into
Japan'smarket] byforeign capital". While itispossible thatameasure thatisformally neutral as
totheorigin ofproducts maybeshown tobeapplied inamanner thatresults inupsetting thecompetitive
relationship between domestic orimported products tothedetriment ofimports, theUnited States has
notbeenabletopoint toanysingle instance where application oftheSeventh Interim Report doesso
inrespect ofUSfilmorpaper. Inthiscontext, itisdifficult toconclude thatthisadvisory report has
contributed totheimpairment ofUSmarket-access expectations emanating fromtheKennedy Round.
10.144 Also, thereisnoevidence thatapplication ofthereport hasresulted inimpairment oflegitimate
expectations flowing from theTokyo andUruguay Rounds. Atmost, weconsider thatthereport
establishes partofthecontext ofthe1970 Guidelines andthe1971 Basic Plan, which arediscussed
below. Accordingly, wefindthattheUnited States hasnotdemonstrated thattheSeventh Interim Report
nullifies orimpairs benefits accruing totheUnited States within themeaning ofArticle XXIII:1(b).
10.145 Thus, while theUnited States hasshown thatitshould notbeheldtohaveanticipated theSeventh
Interim Report inrelation toitsKennedy Round expectations inrespect ofblack andwhite filmand
paper, ithasnotdemonstrated thattheSeventh Interim Report isameasure forpurposes ofArticle
XXIII:1(b) orthatitnullifies orimpairs benefits accruing totheUnited States inrespect ofblack and
white filmandpaper. Inrespect ofcolour filmandpaper, ithasnotshown anyoftherequired elements
ofanArticle XXIII:1(b) claim.
1276Ibid.
1277Ibid, p.1.WT/DS44/R
Page411
(f) 1969 Survey Report onTransaction Terms
10.146 Thefifthdistribution "measure" claimed bytheUnited States tonullify orimpair benefits
accruing toitunder Article XXIII:1(b) isMITI’sSurvey Report regarding Transaction Terms including
recommendations ontransaction terms (from March 1969)1278,andpublished drafts andrepublications
(e.g., 1971) ("1969 Survey Report").1279In1968, theInstitute forDistribution Research, anapparently
private organization, wasrequested byMITI toconduct asurvey oftransaction terms inseveral
industries. InMarch 1969, itsubmitted itssurvey ontransaction terms inthefilmindustry. Thesurvey
examined business practices relating to:sales contracts, including discounts andrebate policies;
deliveries andreturns; settlement ofaccounts; andpromotional practices, including dispatched
employees andrebates.1280
10.147 Applicationofmeasure.TheUnitedStatesarguesthatthe1969SurveyReportisagovernmental
measure andthatitisstillineffect. Japan responds thatthissurvey report isthatofaprivate institute,
undertaking research andanalysis andproviding information tothegovernment asappropriate.
Accordingly, Japan argues thatthissurvey isnotagovernmental measure andcannot evenbedescribed
asadministrative guidance. Inanycase,Japan argues, this1969survey isnotcurrently ineffect (para.
6.119). MITI'spolicies resulted inrecommendations toindustry inthe1960s and'70sonhowto
modernize distribution policies. Japan maintains thatthese recommendations weremade, andprivate
businesses followed them orignored them attheirownchoosing. Anysubstantive relevance ofthe
survey ended decades agowhen itwaseither acted upon orignored.
10.148 Inorder toconsider whether the1969 Survey Report isameasure forpurposes of
Article XXIII:1(b), werecall theanalytical framework wedeveloped above. Applying thisanalytical
framework, wenotethatthereport isclearly notinthenature ofabinding laworregulation. Itprovides
noincentives ordisincentives totheprivate sector totakeanyparticular action. Rather, itisinthe
nature ofafactual survey conducted byanapparently private organization attherequest ofthe
Government. Since itisareport tothegovernment, itcannot beviewed asagovernment exhortation
totheprivate sector tofollow specific distribution policies. While itistruethatthereport contains
afewintroductory pages (andconcluding paragraphs) onthesubject ofwhatareirrational contract
terms, thevastbulkofthe1969 Survey Report simply provides adescription ofexisting practices.
Assuch, itisnomore thanabackground report providing current factual information ofthebasison
which thegovernment might laterdecide toact.Inourview, thereport isnotinthenature ofa
governmental measure. Accordingly, wefindthattheUnited States hasnotdemonstrated thatthereport
isameasure within themeaning ofArticle XXIII:1(b). Atmost, thisstudy maybeviewed aspart
ofthecontext ofthe1970 Guidelines, which arediscussed below.
10.149 WenotethatMITI published the1969 Survey Report in1971. Wedonotconsider thatthis
factchanges ouranalysis. Publication byMITI cannot beseenasadministrative guidance ora
governmental exhortation tofollow specific practices, given (i)thefactthatthereport isessentially
anon-normative survey ofpastpractices, and(ii)theintervening publication ofthe1970Guidelines,
agovernmental action thatdeals withtransactions terms more specifically.
10.150 Ifdespite ourfinding above, weassume thatthe1969 Survey Report isameasure, there is
stillthequestion ofwhether ornotitisstillinforce. Onthisissue, there isnoevidence tosuggest
1278Institute forDistribution Research, Fact-finding Survey Report Pertaining toTransaction Terms: Actual Conditions
ofTransaction Practices intheWholesale Industry, March 1969, USEx.15.
1279MITI Business Bureau, Actual Conditions ofTransaction Terms intheWholesale Industry, 31August 1971, USEx.
20.Institute forDistribution Research, 1969 Survey ofTrade Conditions intheFilmandOther Industries, Japan Ex.B-1.
1280Theparties disagree astowhether theinstitute published thereport in1969. They agree thatMITI (re)published
itin1971.WT/DS44/R
Page412
thatthismeasure hasbeenwithdrawn orotherwise disavowed bytheGovernment ofJapan. However,
recalling thatthereport isessentially adescription ofpractices prevailing inthe1960s, itisnotclear
whatitwould mean todescribe itasstillinforce. Itsimply remains adescription ofpastpractices.
Nevertheless, totheextent thatthereport contains asmall amount ofnormative content ontherationality
oftransaction terms, ithasnotbeendisavowed andevenif,clearly, therearemore recent government
policy statements onmodernization oftheJapanese distribution sector, itcould beviewed asbeing
inforce inthatsense. Thus, ifthe1969 Survey Report istobeconsidered ameasure, thenitmay
stillbeineffect.
10.151 Benefit accruing. Werecall theUSargument thatthebenefits accruing toitarelegitimate
expectations ofimproved market access totheJapanese filmandpaper market emanating from the
Kennedy, Tokyo andUruguay Rounds, andthatitcould nothaveforeseen the1969 Survey Report
--whattheUnited States describes aspartof"theJapanese government 'sarray ofopaque, informal
measures" --before conclusion oftheKennedy Round. TheUnited States alsoargues thatitcould
notreasonably anticipate thesignificance ofthemeasure fortheJapanese filmmarket evenasofthe
conclusion oftheTokyo andUruguay Rounds. Tothis,Japan responds thattheUnited States should
havereasonably anticipated the1969 Survey Report asofJune1967 because thepolicies discussed
therein were thelogical outgrowth ofMITI'songoing distribution modernization policies aimed at
rationalization oftransaction terms andsystemization ofdistribution practices. Inaddition, Japan argues
thattheUnited States should havereasonably anticipated themeasure afortiori asoftheconclusion
oftheTokyo andUruguay Rounds.
10.152 Inassessing theissue ofwhattheUnited States should haveanticipated attheconclusion of
theKennedy Round inrelation tothe1969 Survey Report, werecall ourconclusion thatnormally a
Member should notbeconsidered tohaveanticipated ameasure adopted aftertheconclusion ofa
negotiating round, absent some reason toreach acontrary result. Inthisregard, wearenotpersuaded
bytheJapanese argument thatthereport isalogical outgrowth ofitspre-Kennedy Round distribution
policies andtherefore should havebeenanticipated bytheUnited States. Inthefirstplace, wehave
found thatthe1967Cabinet Decision didnotcallforanspecific actions tobetaken bytheGovernment
ofJapan orprivate companies. Additionally, thenature ofthe1969Survey Report --itisinthenature
ofastudy conducted byaquasi-governmental organization attherequest oftheGovernment, which
maybeseenasabackground report setting outthecurrent situation soastoprovide factual information
onthebasis ofwhich thegovernment might laterdecide thatcertain governmental actions should be
taken --issuchthatwefindthattheUnited States should notbecharged withhaving reasonably
anticipated itsexistence prior totheconclusion oftheKennedy Round. However, totheextent that
anylegitimate expectations exist, wefindthatthese relate onlytoblack andwhite filmandpaper.
10.153 With respect toJapan'sconcessions attheconclusion oftheTokyo andUruguay Rounds, it
isdifficult toconclude thattheUnited States could notreasonably anticipate this1969Survey Report,
its1971 publication anditsapplication (totheextent thisoccurred) asof1979 and1993. Although
wecanconceive ofcircumstances where theexporting WTO Member maynotreasonably beaware
ofthesignificance ofameasure fororitspotential disparate impact onimported products untilsome
timeafteritspublication, theUnited States hasnotdemonstrated theexistence ofanysuchcircumstance
here, where thereport isspecific tothefilmsector. Accordingly, wefindthattheUnited States has
notdemonstrated thatinrelation to1969Survey Report thatithaslegitimate expectations ofimproved
market access emanating from theTokyo orUruguay Rounds.
10.154 Impairment andcausality. Neither theUnited States norJapan hassubmitted anyevidence
orargumentregardingtheimpactofthe1969SurveyReportonUSmarket-accessexpectationsstemming
from theKennedy, Tokyo andUruguay Rounds, beyond thetypeofarguments made inrelation to
theSixthandSeventh Interim Reports. Accordingly, wefindthattheUnited States hasnotdemonstrated
theexistence ofanynullification orimpairment resulting from thisSurvey Report.WT/DS44/R
Page413
10.155 Thus, while theUnited States hasshown thatitshould notbeheldtohaveanticipated the1969
Survey Report inrelation toitsKennedy Round expectations inrespect ofblack andwhite filmand
paper, ithasnotdemonstrated thattheReport isameasure forpurposes ofArticle XXIII:1(b) orthat
itnullifies orimpairs benefits accruing totheUnited States inrespect ofblack andwhite filmandpaper.
Inrespect ofcolour film andpaper, ithasnotshown anyoftherequired elements ofan
Article XXIII:1(b) claim.
(g) 1970 Guidelines forRationalizing Terms ofTrade forPhotographic Film
10.156 Thesixth distribution "measure" claimed bytheUnited States tonullify orimpair benefits
accruing toitunder Article XXIII:1(b) consists ofthe1970 "Guidelines forRationalizing Terms of
TradeforPhotographicFilm"preparedbyMITI'sTransactionTermsStandardizationCommittee("1970
Guidelines").1281According totheUnited States, this"measure" includes related actions toimplement
recommendations inthe1970 Guidelines.
10.157 TheUnited States argues thatthe1970Guidelines aredirected atpromoting vertical integration
inthefilmdistribution sector through theuseoftransaction terms soastotiewholesale distributors
more closely todomestic manufacturers. According totheUnited States, MITI promoted thispolicy
inthe1970Guidelines bycalling forvolume discounts, rebates, andstandardized andshortened payment
terms: discounts andrebates encouraged wholesalers topurchase greater volume fromfewer suppliers;
andstandardized andshortened payment terms limited theopportunities forwholesalers toseekbetter
credit terms from other suppliers. This, theUnited States argues, leftwholesalers more dependent
onandvulnerabletothecredittermsofferedbythemanufacturerwithwhomtheyprimarilydidbusiness.
Wefurther notetheUSposition thatprior tostandardization, wholesalers wereableto"shop around"
different manufacturers forthebesttransaction terms. Thealleged MITI actions reduced such
competition inthedistribution sector. Theresult, according totheUnited States, wastocreate stable,
long-term andexclusive relationships inthedistribution chain.
10.158 Japan responds thatoverthe1970-1972 period, MITI issued rationalization guidelines to15
different industries, including photographic film. Theguidelines toeachofthe15industries addressed
thesameissues andmade basically thesamesuggestions. Wefurther recall Japan'sposition thatMITI
hasbeenconsistently concerned withrationalization oftrading terms inthedistribution sector since
the1960's.What hadhitherto existed, Japan maintains, wereirrational business practices thatwere
economically inefficient. According toJapan, the1970 Guidelines explicitly discouraged theuseof
rebates anddidnotcallforshorter payment terms. Thus, inJapan'sview, theywereunrelated and
inimical totheestablishment ofsingle-brand distribution. Inanycase, according toJapan, theUS
argument issubject tointractable timing problems sincesingle-brand distribution occurred asanindustry
trend before thealleged "measure" wasimplemented. Moreover, single-brand wholesale distribution
offilmisacommon business practice which prevails inevery major market intheworld. Japan notes
thatitsefforts towards distribution rationalization didnotendinthe1970s: in1990 MITI issued the
"Guidelines forImproving Trade Practices".
10.159 Application ofmeasure. TheUnited States argues thatthe1970Guidelines represent aclassic
formofJapanese administrative guidance and,inlinewithestablished caseprecedent, theyconstitute
ameasurewithinthemeaningofArticleXXIII:1(b).Japan'spositionisthatalthoughthe1970Guidelines
constitute aformofadministrative guidance (theonlyciteddistribution "measure" which Japan considers
canbesocharacterized), thisparticular administrative guidance isnotagovernmental measure because
MITI merely issued guidance withnogovernment-provided benefit attached tocompliance andno
government sanction attached tonon-compliance. Japan'sposition isthatthe1970 Guidelines were
simply general suggestions andlacked anylegalforce. Thus, according toJapan, theadministrative
1281USEx.70-3; USEx.70-4; Japan Ex.B-24.WT/DS44/R
Page414
guidance reflected inthe1970 Guidelines does notmeet thetwocriteria outlined inJapan -
Semiconductors .
10.160 Ouranalysis ofthe1970Guidelines andsubsequent actions taken byMITI andvarious industry
groups leads ustoconclude thatthe1970 Guidelines aremore thanamere setofsuggestions. When
publishing the1970 Guidelines intheMITI gazette, MITI explained thatit
"intends toseetoitthatimprovement ofterms oftrade willbeimplemented in
accordance with thisguideline. Asterms oftrade dealwithactual commercial
transactions, itisnotappropriate toimmediately relyonlegislative measures.
Accordingly weexpect thattheparties involved intransactions understand theneed
fortrade rationalization, andwillmake voluntary efforts toachieve thispurpose".1282
MITI wentontorequest industry associations toformulate andimplement more specific transaction
terms based onthe1970Guidelines andtoreport backtoMITI byNovember 1970.1283AstheUnited
States notes, shortly afterpublication ofMITI's1970 Guidelines, thephotosensitivity wholesalers
association published a"Transaction Outline" toimplement theassociation 'sowntransaction terms
based onthe1970 Guidelines andreported ittoMITI.1284Later, in1971, MITI commissioned the
Chamber ofCommerce, along withtheMITI-established Transaction Terms Standardization Committee
anddomestic photographic materials trade associations, todrafta"Model Contract" based upon the
transaction terms outlined inthe1970Guidelines forthephotographic filmsector.1285When publishing
thestandard transaction contract forphotographic filminthespring of1972, theChamber stated that
itsactions werepursuant totheMITI request.1286Japan questions thescope ofthese implementation
activities andresponds thatmostelements oftransactions werenotregulated bytheTransaction Outline
ortheStandard Contract andthatitwasleftopen tocompetitors tooffer more favourable non-
standardized transaction terms.
10.161 Inlightofthese statements andactions byMITI andindustry associations, weconsider that
there issufficient likelihood thattheadministrative guidance given byMITI inthe1970 Guidelines
provides sufficient incentives forprivate parties toactinaparticular manner suchthatitwould have
asimilar effect onbusiness activity inJapan toalegally binding measure. Inourview, thisconclusion
isinaccord withpastGATT practice.1287While wenoteJapan'sargument thatthetypeofadministrative
guidance given inthe1970 Guidelines doesnotmeetthetestsetoutinJapan -Semi-conductors ,we
recall ourexplanation thatthetestsetoutinJapan -Semi-conductors isnotanexhaustive testforthe
types ofadministrative guidance thatmaybeassimilated togovernmental measures. Accordingly,
wefindthatthe1970 Guidelines aremeasures within themeaning ofArticle XXIII:1(b).
10.162 Asforthequestion ofthecontinued application ofthismeasure, theUnited States argues that
the1970Guidelines, andinparticular thepolicies underlying them, havenever beenrevoked andare
stillineffect. Japan responds thatthe1970 Guidelines never hadanybinding effect, andthusnever
weremeasures "ineffect" evenfromthebeginning. Inthealternative, Japan argues thattheguidelines
areclearly nolonger ineffect given thatafteralmost 30years, thebusiness environment haschanged
somuch thatneither MITI norprivate industry considers the1970 Guidelines ashaving anycurrent
1282Japan Ex.B-24, p.1.
1283USEx.70-3; Japan Ex.B-24.
1284APolicy Outline, dated November 28,1970, onCommercial Transactions wassubmitted bytheShashoren toreplace
MITI'sRecommended Guidelines forMore Appropriate Transactions, Nihon Shashin Kogyo Tsushin, 10December 1970,
Japan Ex.B-31.
1285DraftaStandardContractforFilmwithCriteriaforStandardizationofTransactionTerms,ZenrenTsuho,August1971,
USEx.71-11.
1286Standard Contract Drafted forPhoto FilmBased ontheTransaction Standardization Guideline Assigned totheJapan
Chamber ofCommerce byMITI, USEx.24.
1287Japan -Agricultural Products ,BISD 35S/163, 242.WT/DS44/R
Page415
relevance oreffect. Japan further indicates thatthe1970Guidelines havebeensuperseded byMITI's
verysimilar 1990 Guidelines, thelatter receiving thesupport oftheUSGovernment.
10.163 Although onemayhavedoubts astothecontinued relevance today ofguidelines developed
byMITI in1970, there isnothing intherecord tosuggest thatMITI hasrevoked ordisavowed the
recommendations itmade in1970concerning rationalization oftransaction terms. Even ifonemight
positthatthese earlier guidelines, which werespecific tothefilmsector, havetoacertain extent been
replaced bythegenerally applicable 1990Guidelines, thereisnothing inthetextofthe1990Guidelines
suggesting thewithdrawal ofthe1970Guidelines, although some partsmight bedeemed tohavebeen
superseded bytheprovisions ofthe1990Guidelines. Accordingly, weconsider thatthe1970Guidelines
maystillbeineffect.
10.164 Benefit accruing. Werecall theUSargument thatthebenefits accruing toitarelegitimate
expectations ofimproved market access totheJapanese filmandpaper market emanating from the
Kennedy, Tokyo andUruguay Rounds, andthatitcould nothaveforeseen the1970Guidelines --part
of"theJapanese government 'sarray ofopaque, informal measures" --before conclusion oftheKennedy
Round. TheUnited States further argues thatitcould notanticipate thesignificance oftheguidelines
fortheJapanese filmmarket evenasoftheconclusion oftheTokyo andUruguay Rounds. Tothis,
Japan responds thattheUnited States should havereasonably anticipated the1970 Guidelines asof
June1967 because thepolicies discussed therein were thelogical outgrowth ofMITI'songoing
distribution modernization policies aimed atrationalization oftransaction terms andsystemization of
distribution practices. Moreover, according toJapan, thetrend towards single-brand distribution was
well-advanced asoftheconclusion oftheKennedy Round. Japan argues thattheUnited States should
havereasonably anticipated themeasure afortiori asoftheTokyo andUruguay Rounds.
10.165 Assessing theissue ofwhattheUnited States should haveanticipated attheconclusion ofthe
Kennedy Round inrelation tothe1970Guidelines, werecall ourconclusion thatnormally aMember
should notbeconsidered tohaveanticipated ameasure adopted aftertheconclusion ofanegotiating
round, absent some reason toreach acontrary result. Inthisregard, wenotethedegree towhich
thismeasure ismore specific initsanalysis andrecommendations ascompared totheprevious three
"measures". Even iftheUnited States should havebeenaware in1967thatthere wasatrend towards
vertical integration inthefilmandpaper industry, andthatMITI wasseeking topromote modernization
ofthedistribution sector, including rationalization oftransaction terms, wedonotbelieve thattheUnited
States should havebeenaware atthattimethatMITI would beenunciating adetailed setofproduct-
specific recommendations covering therationalization orstandardization oftransaction terms inthe
photographic filmsector. Accordingly, wefindthattheUnited States should notbecharged withhaving
reasonably anticipated theexistence ofthe1970 Guidelines prior totheconclusion oftheKennedy
Round. However, totheextent thatanylegitimate expectations exist, wefindthatthese relate only
toblack andwhite filmandpaper.
10.166 With respect toJapan'sconcessions attheconclusion oftheTokyo andUruguay Rounds, it
isdifficult toconclude thattheUnited States could notreasonably anticipate this1970 measure and
itsapplication asof1979and1993. Although wecanconceive ofcircumstances where theexporting
WTO Member maynotreasonably beaware ofthesignificance ofameasure fororitspotential disparate
impact onimported products untilsometimeafteritspublication, theUnited States hasnotdemonstrated
theexistence ofanysuch circumstance here, where themeasure isspecific tothefilmsector.
Accordingly, wefindthattheUnited States hasnotdemonstrated thatinrelation to1970 Guidelines
thatithaslegitimate expectations ofimproved market access withrespect tofilmandpaper emanating
from theTokyo orUruguay Rounds.
10.167 Impairment andcausality. TheUnited States contends thatapplication ofthe1970Guidelines,
establishing industry standards fordiscounts, rebates, terms ofpayment, anddispatched employees,
upset thecompetitive relationship between imported anddomestic photographic materials inseveralWT/DS44/R
Page416
ways. Thestandardization oftransaction terms chilled theability offoreign manufacturers tooffer
competitive terms toJapanese wholesalers: first, bysetting uniform transaction terms, limiting the
ability offoreign enterprises tooutbid theirJapanese competitors; second, byestablishing shortened
payment terms thatenhanced thefinancial strength ofJapanese manufacturers attheexpense of
wholesalers, andpositioned domestic manufacturers tobetter withstand foreign penetration; andthird,
byestablishing standardized terms, inparticular volume rebates, thatwerebytheirverynature more
beneficial toJapanese manufacturers withlarge market share.
10.168 Japan responds thatthestarting point fortheanalysis should bethewording ofthe1970
Guidelines which didnoteither mandate uniform transaction terms orprovide specific transaction terms
tobefollowed bymanufacturers, primary wholesalers, secondary wholesalers orretailers. The1970
Guidelines onlymade general suggestions related topayment terms, volume discounts, andrebates,
includingthat:(i)interestshouldbechargedforanunusuallylongpaymentperiod(neitherthereasonable
payment period, theamount ofinterest tobecharged, norother terms were specified); (ii)volume
discounts should havecleartransparent terms (whether andunder whatcircumstances suchdiscounts
should begranted andtheamount ofthediscounts were notspecified); and(iii)rebates should be
minimized (with nodetails atallabout thespecific terms ofrebates). The1970 Guidelines urged the
adoption ofeconomically rational transaction terms, andthenleftittoindividual manufacturers,
wholesalers andretailers toestablish theirownspecific terms.
10.169 Japan points outthat,infact,thetransaction terms ofindividual manufacturers mayanddo
vary, e.g.,Fujihadandcontinues tohavedifferent transaction terms witheachofitsfourindependent
primary wholesalers. Japan further states thatMITI believed thatrationalizing transaction terms would
helptoensure faircompetition inthemarket, thatthere wasneither ongoing monitoring norongoing
enforcement ofcompliance withthe1970 Guidelines (only oneofthree industry associations even
responded toarequest forareport ofactions taken, andnoenforcement efforts weredirected atspecific
companies), andthattheUnited States hasnotshown howanything inthedistribution policies ortheir
application discriminates against imports. Most importantly, according toJapan, theUnited States
hasnotbeenabletoshow anynexus between the1970Guidelines andsingle-brand distribution: private
companieshadtakenactionsregardingpaymenttermsandrebateswellbeforeanyactionsbytheJapanese
Governmentregarding"standardized"transactionterms;andprivatecompanieshadadoptedsingle-brand
distribution priortoanygovernment action --single-brand distribution hademerged bythemid-1960s,
andwasessentially complete by1968. Japan alsopoints outthatthealleged objective behind adoption
oftherationalized transaction terms, i.e.,single-brand distribution, isthecommon formofdistribution
inthefilmindustry inevery market intheworld.
10.170 Addressing theissues ofimpairment andcausality inrelation tothe1970Guidelines, weagree
withJapan thatthestarting point forouranalysis should bethetextoftheguidelines. Examining the
1970Guidelines, wenotethattheydonotencourage theuseofvolume discounts without reservation
butencourage transparency intheiruse,andthattheydiscourage theuseofrebates.1288They also
donotappear tomandate uniform terms orshortened payment terms. Thus, itappears thattheUnited
States mayhaveoverstated thespecificity oftheguidelines.
10.171 Inconsidering thepurpose oftheguidelines, wenotethattheintroduction tothe1970Guidelines
states:
"Itgoeswithout saying thatrationalization ofterms oftrade isessential toimproving
marketconditions,assuringeffectivecompetition,creatingefficientdistributionactivities,
developing alargescaledistribution system, systematizing distribution activities, and
facilitating theresponse toforeign capital".
12881970 Guidelines, USEx.70-4; Japan Ex.B-24.WT/DS44/R
Page417
However, beyond thisgeneral introductory reference tofacilitating theresponse toforeign capital,
therecommendations setoutinthe1970Guidelines appear tobeorigin neutral, i.e.,theydonotformally
differentiate astothetreatment ofdomestic andimported filmandpaper. Wearenotpersuaded,
therefore, thatthe1970 Guidelines aredirected atpromoting vertical integration inthephotographic
materials distribution sector withaviewtoimpeding market access forforeign products. Rather, as
argued byJapan, theyappear tobedirected atgenerally improving transaction efficiency inthissector,
aresult thatisnotinherently unfavourable toimports. Asnoted above, the1967 Cabinet Decision,
theSixth Interim Report, theSeventh Interim Report andthe1969Survey Report provide context for
theinterpretation ofthe1970 Guidelines. Ourexamination ofthose documents supports ourviewof
the1970Guidelines. While thedocuments occasionally make reference totheimminent entryofforeign
capital intoJapan, inourreading ofthem, their main focus isclearly onimproving thevarious
inefficiencies anddeficiencies inJapan'sdistribution system, asameans toaddress broader problems,
suchastheneedtocopewithinflationary pressures andlabour shortages. TheUSsupport forthe
1990 Guidelines lends support totheviewthatimproving theefficiency oftheJapanese distribution
system, through suchactions asstandardization ofbasic contract terms, promotes rather thanrestricts
theability ofimports toenter theJapanese market.
10.172 Nonetheless, wedonotruleoutthepossibility thatmeasures which appear tobeformally neutral
astotheoriginofproductsmayintheirapplicationturnouttohaveadisproportionateimpactonimports,
inthattheycould upset thecompetitive relationship between domestic andimported products tothe
detriment ofimports. TheUnited States hasnotbeenabletopoint toanyspecific governmental or
private actions withsuchimpact inthedistribution sector emanating from the1970 Guidelines.
10.173 More significantly, when weexamine whatisthefundamental assertion oftheUnited States,
i.e.,thatthe"measures" cited inconnection withthestandardization oftransaction terms, and,in
particular, the1970 Guidelines, were designed toanddidpromote single-brand distribution atthe
wholesale level, there areserious difficulties oftiming intheUSargument oncausation. Given the
evidence that(i)mostofthewholesale distribution sector forfilminJapan wasalready single-brand
before 1970, withKonica having allsingle-brand wholesaler distribution by19551289,andFujihaving
threeofitsfourwholesalerssingle-brandby19681290,withFuji'sfourthprimarywholesaler--Asanuma-
-becoming asingle-brand distributor in1975, apparently because Kodak refused todealwithit
directly1291,and(ii)Fujistarted totighten payment terms in1966, wellbefore theguidelines orother
citeddistribution "measures",1292wearenotpersuaded thatthere isameaningful nexus between the
1970Guidelines andthislargely pre-existing market structure. Wealsonote, asargued byJapan and
notcontested bytheUnited States, thatsingle-brand wholesale distribution isthecommon market
structure1293--indeed thenorm --inmostmajor national filmmarkets, including theUSmarket. While
theUnited States responds thattheUSmarket structure wastheresult ofprivate andnotgovernmental
actions, itisunclear whythesame economic forces acting intheUnited States would notalsoexist
inJapan.
10.174 Accordingly,wefindthattheUnitedStateshasnotdemonstratedthatthe1970Guidelinesnullify
orimpair benefits accruing totheUnited States within themeaning ofArticle XXIII:1(b).
1289Paras. 5.116, 6.350-6.351.
1290Paras. 5.115-5.119, 6.350-6.351; Affidavit ofTomihiko Asada, Japan Ex.A-12; Affidavit ofYukiyoshi Noro, Japan
Ex.A-14; Affidavit ofKaoru Kono, Japan Ex.A-15.
1291Paras. 5.116-5.117, 6.352. See:F.M. Scherer, Retail Distribution Channel Barriers toInternational Trade, October
1995, Japan Ex.A-19; Affidavit ofTakenosuke Katsuoka, Japan Ex.A-11, pp.2-4;
1292Paras. 5.122-5.133, 6.346-6.349, 6.356ff; FujiFilm'sResult ofStricter Policy onReceivables, Zenren Tsuho, March
1968, USEx.68-2; Affidavit Tanaka Takeshi, p.3,Japan Ex.A-10; Affidavit ofHaruyoshi Okyama, p.3,Japan Ex.A-18.
1293Paras. 5.111-5.112, 5.120WT/DS44/R
Page418
10.175 Thus, while theUnited States hasshown thatthe1970Guidelines areameasure forpurposes
ofArticle XXIII:1(b) andthatitshould notbeheldtohaveanticipated theminrelation toitsKennedy
Round expectations inrespect ofblack andwhite filmandpaper, theUnited States hasnotdemonstrated
thattheGuidelines nullify orimpair benefits accruing totheUnited States inrespect ofblack andwhite
filmandpaper. Inrespect ofcolour filmandpaper, ithasshown onlyoneoftherequired elements
ofanArticle XXIII:1(b) claim --thatthe1970 Guidelines areameasure.
(h) 1971 Basic PlanfortheSystemization ofDistribution
10.176 Theseventh distribution "measure" tobeexamined isthe"Basic PlanfortheSystemization
ofDistribution" (28July1971) ("1971 Basic Plan")1294,prepared byMITI'sDistribution Systemization
Promotion Council, together withactions toimplement recommendations inthePlan. Following a
recommendation contained intheSeventh Interim Report, MITI formed theDistribution Systemization
Promotion Council in1970. Thiscouncil published the1971 Basic PlaninJuly1971.
10.177 Theauthors ofthe1971 Basic Planindicate thatit"represents theresult ofgovernment and
theprivate sector joining forces toconsider thebasic direction andgoals forthesystemization of
distribution inJapan, andthemeans ofrealizing these goals, withtheyear1975 setasthetentative
target dateforcompletion".1295They alsoindicate that"[t]he decisive approach hereistoregard the
entire process ofdistribution fromproduction toconsumption asasingle system, andtoeffect anoverall,
comprehensive increase intheefficiency ofthissystem, i.e.the'systemization ofdistribution
activities '".1296
10.178 The1971BasicPlancallsforsystemizationofdistributionto"berealizedthroughvariousstages:
vertically from theintra-firm leveltotheinter-firm level; horizontally ontheinter-firm leveltothe
national economic level. Furthermore, inseeking toimplement this,sufficient attention mustbepaid
totheintroduction ofcomputers asaneffective means ofachieving [such systemization] ...".1297The
plansuggests that
"[t]he systemization ofdistribution must beconsistently planned within existing
individual sectors, andalsomusttranscend theboundaries ofmany existing industry
sectors. Inother words, there isaneedtoviewindividual industry sectors as'closed
systems ',andtoachieve asystematic coordination ofproduction, distribution and
consumptionwithinsuchaframework;wemustconsiderhowthiscanbeaccomplished.
Atthesametime, however, these'closed systems 'should belogically dismantled, and
existing industry sectors reshuffled through themedium ofdistribution ...".1298
Therecommendations ondistribution systemization contained inthe1971Basic Plandonotmake any
distinction between domestic andimported products, and,ingeneral, these recommendations arenot
product-specific. However, inasection dealing with"rational transaction terms", reference ismade
totheguidelines established withrespect tovarious specific industries, including those forthe
photographic filmindustry.1299Itisalsostated inthissection that"inorder topromote thespread
andadoption oftheseguidelines, [MITI] willseektoobtain thecooperation ofrelevant industry groups
todraftstandard agreements thatincorporate thesubstance ofthese guidelines".1300
1294USEx.71-10; Japan Ex.B-18.
1295USEx.71-10, p.4.
1296Ibid.
1297Ibid.
1298Ibid, p.6.
1299Ibid, p.10.
1300Ibid.WT/DS44/R
Page419
10.179 Application ofmeasure. TheUnited States contends thatthe1971Basic Planisagovernmental
measure andthatitiseffectively stillinforce. TheUnited States points outthattheDistribution
Systemization Promotion Council, which authored andpublished theplan, wasestablished byMITI
"asaforum forpromoting thesystemization ofdistribution through thejointefforts ofgovernment
andtheprivate sector", andthatuponpublication oftheplanthechiefofMITI'sBusiness Bureau stated
that"modernization ofdistribution isurgent from thestandpoint ofachieving balanced development
oftheJapanese economy, aswellasfromthestandpoint ofconsumer pricecountermeasures andcapital
liberalization countermeasures"1301,andthat"[w]ith thisplan, theMinistry ofInternational Trade and
Industry hasdecided tomake every effort toward thefulfilment ofdistribution systemization policies.1302
Assuch, theUnited States considers thatthisplanrepresents official policy ofMITI. Japan'sposition
isthatthe1971Basic Planissimply areport ofanadvisory bodytothegovernment andcantherefore
notbecharacterized asagovernmental measure. Japan further contends thattheplanisnolonger
ineffect. MITI'spolicies resulted inrecommendations toindustry inthe1960s and'70sonhowto
modernize distribution policies. According toJapan, these recommendations weremade, andprivate
businesses followed them orignored them attheirownchoosing. Thisplan, Japan maintains, was
never government action atall,andanysubstantive relevance ofitended decades agowhen theadvice
waseither acted upon orignored.
10.180 Applying theanalysis developed earlier inourgeneral discussion ofArticle XXIII:1(b), we
notethatthe1971 Basic Planisnotalaworregulation nordoesitprovide incentives ordisincentives
totheprivate sector totakeparticular action. Although the1971Basic Planwasauthored andpublished
byaquasi-governmentaladvisorybodycomposedofacademics,industryrepresentativesandgovernment
officials, itnonetheless bears some hallmarks ofagovernmental measure inthattheDistribution
Systemization Promotion Council wascreated byMITI andcommissioned byMITI toprepare theplan.
Moreover, asnoted above, uponitspublication senior MITI officials endorsed theplanandstated that
MITI would work withtheprivate sector toensure implementation oftheplan'srecommendations.
Inlightofthese statements andactions byMITI, weconsider thatthere issufficient likelihood that
theadministrative guidance given byMITI inconnection withthe1971Basic Planprovides sufficient
incentives forprivate parties toactinaparticular manner suchthatitwould haveasimilar effect on
business activity inJapan toalegally binding measure. Inourview, thisconclusion isinaccord with
pastGATT practice.1303Accordingly, wefindthatthe1971Basic Planisameasure within themeaning
ofArticle XXIII:1(b).
10.181 Asforthecurrent effectiveness oftheplan, although onemayquestion whether theparticular
recommendations contained intheplanstillhaverelevance intheJapanese market 26years afterthe
fact,there isnoevidence tosuggest thattheplanhaseverbeenabandoned. Accordingly, weconsider
that1971 Basic Plan, asameasure within themeaning ofArticle XXIII:1(b), maystillbeineffect.
10.182 Benefit accruing. Werecall theUSargument thatthebenefits accruing toitarelegitimate
expectations ofimproved market access totheJapanese filmandpaper market emanating from the
Kennedy, Tokyo andUruguay Rounds, andthatitcould nothaveforeseen the1971Basic Plan--part
of"theJapanese government 'sarray ofopaque, informal measures" --before conclusion oftheKennedy
Round. TheUnited States further argues thatitcould notreasonably anticipate thesignificance of
themeasure fortheJapanese filmandpaper market evenasoftheconclusion oftheTokyo andUruguay
Rounds. Tothis,theJapanese government responds thattheUnited States should havereasonably
anticipated the1971Basic PlanasofJune1967because thepolicies discussed therein werethelogical
outgrowth ofMITI'songoing distribution modernization policies aimed atrationalization oftransaction
terms andsystemization ofdistribution practices. Japan further argues thatevenassuming thatMITI's
distribution modernization policies during the1960s and'70sencouraged single-brand distribution
1301Ibid, p.2.
1302Ibid.
1303Japan -Agricultural Products ,BISD 35S/163, 242. SeealsoJapan -Semi-conductors ,BISD 35S/116, 155.WT/DS44/R
Page420
offilmandpaper asameans toexclude foreign brands from traditional distribution channels, these
trends began wellinadvance oftheconclusion oftheKennedy Round. Japan maintains thattheUnited
States should havereasonably anticipated theBasic Planafortiori asoftheconclusion oftheTokyo
andUruguay Rounds.
10.183 Inassessing theissue ofwhattheUnited States should haveanticipated attheconclusion of
theKennedy Round inrelation tothe1971 Basic Plan, even ifwearenotconvinced bytheUS
characterization oftheplanasan"opaque, informal measure", neither areweconvinced byJapan's
argument thatthisplanandtherelatively detailed recommendations contained therein should havebeen
anticipated aspartofa"logical outgrowth ofMITI'songoing distribution modernization policies".
Werecall ourconclusion thatnormally aMember should notbeconsidered tohaveanticipated ameasure
adopted aftertheconclusion ofatariff negotiating round. Thus, eveniftheUnited States should have
beenaware in1967 thatthere wasatrend towards vertical integration inthefilmandpaper industry,
andthatMITI wasseeking topromote modernization ofthedistribution sector, including systemization
ofdistribution practices, wedonotbelieve thattheUnited States necessarily should havebeenaware
atthattimethatMITI would beenunciating adetailed setofrecommendations covering systemization
ofdistribution practices intheJapanese economy. Accordingly, wefindthattheUnited States should
notbecharged withhaving reasonably anticipated theexistence ofthe1971 Basic Planprior tothe
conclusion oftheKennedy Round. However, totheextent thatanylegitimate expectations exist, these
relate onlytoblack andwhite filmandpaper.
10.184 With respect toJapan'sconcessions attheconclusion oftheTokyo andUruguay Rounds, it
isdifficult toconclude thattheUnited States could notreasonably anticipate this1971 measure and
itsapplication (totheextent thisoccurred) asof1979 and1993. Although wecanconceive of
circumstances where theexporting WTO Member maynotreasonably beaware ofthesignificance
ofameasure fororitspotential disparate impact onimported products until some timeafterits
publication, theUnited States hasnotdemonstrated theexistence ofanysuchcircumstance here.
Accordingly, wefindthattheUnited States hasnotdemonstrated thatinrelation to1971 Basic Plan
thatithaslegitimate expectations ofimproved market access emanating from theTokyo orUruguay
Rounds.
10.185 Impairment andcausality. TheUnited States argues thatthe1971 Basic Planannounced that
"modernization"oftheJapanesedistributionsectorwasurgentfromthestandpointofcapitalliberalization
"countermeasures"1304andthatforindividual industrial sectors "thedecisive approach hereistoregard
theentire distribution process fromproduction toconsumption asasingle system".1305According to
theUnited States, theplanwasthusaprime example, along withtheSeventh Interim Report, ofJapan's
intent topromote vertical keiretsu initssystemization policy.1306TheUnited States argues thatthese
factsareclear examples ofthemanner inwhich MITI sought toupset thecompetitive relationship
between domestic andimported filmandpaper inJapan. Japan argues thatthe1971 Basic Plan
recommended systemization inthedistribution sector oftheJapanese economy andindoing so,did
notdiscriminate infavour ofdomestic industries. According toJapan, systemization andtheresulting
improved efficiencies andmodernization inthedistribution sector were andaretothebenefit ofall
manufacturers, domestic andforeign alike.
10.186 Ourassessment oftheimpact ofthis1971 Basic Planisthatthepolicy recommendations for
systemization andmodernization intheJapanese distribution sector areaddressed todistribution of
products inthenational economy atlarge, without regard tothesource oftheproducts involved. Also,
evenifoneoftheconcerns expressed byMITI andtheDistribution Systemization Promotion Council
inadvancing theplanwastoaddress "capital liberalization countermeasures", thisconcern doesnot
1304USEx.71-10, p.2.
1305Ibid, p.4.
1306Ibid, p.6.WT/DS44/R
Page421
appear tobereflected intheactual recommendations advanced intheplan. Rather, therecommendations
appear tobeneutral astosource oftheproducts, whether domestic orforeign, promoting the
standardization andmodernization ofbusiness practices andmanagement techniques, including
computerization. Indeed, asnoted intheSeventh Interim Report, imported products were expected
tobenefit fromthesystemization ofdistribution. Although itispossible thatameasure thatisformally
neutral astoorigin ofproducts could nonetheless beapplied inamanner thatresults inupsetting the
competitive relationship between domestic andimported products tothedetriment ofimports, theUnited
States hasnotbeenabletopoint toanyspecific instances where the1971 Basic Planhasdonesoin
respect ofUSfilmorpaper. Nor,forthatmatter, hasitshown thatthismeasure would belikely to
leadtosucharesult.
10.187 Evenifweassume thatthe1971Basic Planconstitutes administrative guidance totheJapanese
filmindustry tointegrate vertically andusesingle-brand primary wholesalers, theUScomplaint has
asignificant timing problem inthatthetwodominant filmmanufacturers inJapan (Fuji andKonica)
hadvirtually completed single-brand vertical integration oftheirwholesale distributors wellinadvance
ofthe1971 Basic Plan.
10.188 Ontheevidence before us,wearenotpersuaded thatrecommendations ofthe1971Basic Plan,
andtheirimplementation intheJapanese economy (totheextent thisoccurred), haveresulted inupsetting
thecompetitive relationship between domestic andUSfilmandpaper intheJapanese market.
Accordingly, wefindthattheUnited States hasnotdemonstrated thatthe1971 Basic Plannullifies
orimpairs benefits accruing totheUnited States within themeaning ofArticle XXIII:1(b).
10.189 Thus, while theUnited States hasshown thatthe1971 Basic Planisameasure forpurposes
ofArticle XXIII:1(b) andthatitshould notbeheldtohaveanticipated theplaninrelation toitsKennedy
Round expectations inrespect ofblack andwhite filmandpaper, ithasnotdemonstrated thattheplan
nullifies orimpairs benefits accruing totheUnited States inrespect ofblack andwhite filmandpaper.
Inrespect ofcolour filmandpaper, ithasshown only oneoftherequired elements ofan
Article XXIII:1(b) claim --theexistence ofameasure.
(i) 1975 Manual forSystemization ofDistribution byIndustry: Camera andFilm
10.190 Theeighth andfinaldistribution "measure" isa"Manual forSystemization ofDistribution
byIndustry: Camera andFilm", prepared andpublished bytheDistribution Systemization Development
Centre inMarch 1975 ("1975 Manual")1307,together with actions taken toimplement its
recommendations. TheDistribution Systemization Development Centre wasestablished withMITI
support in1972, pursuant tothe1971 Basic Plan, inorder tofacilitate thework oftheDistribution
Systemization Promotion Council, andwasdelegated thetaskofworking withindustry toproduce
various "Systemization Manuals" forspecific industries. The1975Manual wasprepared bythecentre
incollaboration witha"Working Group" comprised ofindustry groups, camera manufacturers, film
manufacturers, camera andfilmwholesalers, camera andfilmretailers, andcamera andfilmindustry
publishers, andwithaMITI official observing theproceedings.
10.191 Inaforeword tothe1975Manual, thecentre acknowledges that"[a]stheeconomic environment
grows worse, thesystemization ofdistribution activities hasbecome anissueofcritical importance".1308
Thecentre alsoindicates thatthedevelopment ofthe1975 Manual wasonepartofMITI'spolicy to
actively develop effective policies related tothesystemization ofdistribution activities.1309The1975
Manual states that"itisanurgent needtoimprove thestructure ofmanufacturers toacapacity that
1307USEx.75-5.
1308Ibid.
1309Ibid.WT/DS44/R
Page422
willresist foreign capital affiliated firms".1310Withregard topromoting systemization ofdistribution
inthecameraandfilmindustry,the1975Manualmakesspecificrecommendationson:(i)standardization
oftransaction terms; (ii)integration ofcodes andforms; (iii)increasing efficiency ofphysical
distribution; and(iv)enhancement ofinformation processing, including computer tiesbetween
manufacturers, distributors andretailers.1311
10.192 The1975 Manual alsocallsfortheestablishment ofanassociation forthepromotion of
distribution systemization inthecamera andfilmindustry, toprovide aforum forindustry and
governmenttodiscussandstudyproposedsolutions.1312Thereafter,aPhotosensitiveMaterialsCommittee
wasestablished forthesystemization ofdistribution byindustry. Thiscommittee wascharged with
promoting information tiesandphysical integration ofdistribution facilities.
10.193 Application ofmeasure. TheUnited States claims thatthe1975 Manual isagovernmental
measure because theDistribution System Development Centre, which produced themanual, wasa
"MITI creation" andthemanual makes clear thatitwasprepared aspartofMITI'spolicy of
systemization.TheUnitedStatesalsoclaimsthatthismeasureiseffectivelystillinforce.Japanresponds
thattheauthor ofthe1975 Manual isanadvisory body toMITI, andthattheinformation and
recommendations contained inthe1975 Manual were directed toward MITI, notprivate industry.
Assuch, Japan claims, the1975 Manual caninnomanner beconstrued asagovernmental measure.
Inanycase, according toJapan, the"measure" isnotcurrently ineffect. MITI'spolicies resulted
inrecommendations toindustry inthe1960s and'70sonhowtomodernize distribution policies. These
recommendations were made, Japan argues, andprivate businesses followed them orignored them
attheir ownchoosing. Thisplanwasnever government action atall,Japan maintains, andany
substantive relevance ofitended decades agowhen theadvice waseither acted upon orignored.
10.194 Applying theanalysis developed above, wenotethatthe1975Manual isnotalaworregulation
nordoesitprovide incentives ordisincentives totheprivate sector totakeparticular action. However,
infurther addressing theissueofwhether ornotthe1975Manual isagovernmental measure, wefind
thattheevidence issomewhat conflicting. Whereas theDistribution System Development Centre was
established andinitially funded byMITI, there isnothing intherecord tosuggest thatthecentre 's
staffweregovernmental employees. Also, themembership oftheworking group which collaborated
inthepreparation ofthemanual appears tohavecome fromprivate industry. Ontheother hand, the
content ofthe1975Manual andthemandate foritspreparation suggest alinkage togovernmental policy
ondistribution systemization. And, asnoted above, theforeword tothemanual states thatthe
development ofthemanual "isonepartofMITI'spolicy ..."1313;itconcludes byexpressing thecentre 's
hope"forthewidespread adoption ofthismanual ...".1314This, ofcourse, isnotastatement bythe
Government ofJapan, butbythecentre itself. There isnoevidence thatthe1975Manual wasendorsed
byMITI, aswasthecaseforthe1970 Guidelines andthe1971 Basic Plan. Onbalance, incontrast
toourconclusions onthisissueinrespect ofthe1970Guidelines andthe1971Basic Plan, weconsider
thattheevidence onthisissue suggests thatthe1975 Manual doesnothavesufficient government
imprimatur tobeconsidered agovernmental measure inthiscase. There isnotthelikelihood of
compliance asexemplified byJapan -Semi-conductors andJapan -Agricultural Products ,discussed
earlier. Accordingly, wefindthattheUnited States hasfailed todemonstrate thatthe1975 Manual
isameasure within themeaning ofArticle XXIII:1(b).
10.195 If,however, weassume thatthe1975 Manual isagovernmental measure, westillhaveto
consider whether itiscurrently ineffect. Although onemayquestion whether theparticular
1310Ibid, p.122.
1311Ibid, pp.122-124.
1312Ibid, p.124.
1313Ibid, foreword.
1314Ibid.WT/DS44/R
Page423
recommendations contained therein stillhaverelevance intheJapanese market some 22years after
theirpublication, there isnoevidence tosuggest thattheplanhaseverbeenrevoked. Assuming that
the1975 Manual isameasure, itmaystillbeineffect.
10.196 Benefit accruing. Werecall theUSargument thatthebenefits accruing toitarelegitimate
expectations ofimproved market access totheJapanese filmandpaper market emanating from the
Kennedy, Tokyo andUruguay Rounds, andthatitcould nothaveforeseen the1975 Manual --part
of"theJapanese government 'sarray ofopaque, informal measures" --before conclusion oftheKennedy
Round. TheUnited States alsoargues thatitcould notreasonably foresee theimpact ofthe1975Manual
ontheJapanese filmandpaper market evenasoftheconclusion oftheTokyo andUruguay Rounds.
Tothis,theJapanese Government responds thattheUnited States should havereasonably anticipated
the1975 Manual asofJune1967 because thepolicies discussed therein were thelogical outgrowth
ofMITI'songoing distribution modernization policies aimed atrationalization oftransaction terms
andsystemization ofdistribution practices. Japan further argues thateven assuming thatMITI's
distribution modernization policies during the1960s and'70sencouraged single-brand distribution
offilmandpaper asameans toexclude foreign brands from traditional distribution channels, these
trends began wellinadvance oftheconclusion oftheKennedy Round. Japan maintains thattheUnited
States should havereasonably anticipated themeasure afortiori asoftheconclusion ofthetwolater
Rounds.
10.197 Assessing theissue ofwhattheUnited States should haveanticipated attheconclusion ofthe
Kennedy Round inrelation tothe1975Manual, evenifwearenotconvinced bytheUScharacterization
ofthemanual asan"opaque, informal measure", neither areweconvinced byJapan'sargument that
itandtherelatively detailed recommendations contained therein should havebeenanticipated aspart
ofa"logicaloutgrowthofMITI'songoingdistributionmodernizationpolicies".Werecallourconclusion
thatnormally aMember should notbeconsidered tohaveanticipated ameasure adopted afterthe
conclusion ofatariff negotiating round. Thus, eveniftheUnited States should havebeenaware in
1967thatthere wasatrend towards vertical integration inthefilmandpaper industry, andthatMITI
wasseeking topromote modernization ofthedistribution sector, including systemization ofdistribution
practices, wedonotbelieve thattheUnited States should havebeenaware atthattimethatMITI or
abodysuchasthecentre would beenunciating adetailed setofrecommendations covering systemization
ofdistribution practices intheJapanese economy. Accordingly, wefindthattheUnited States should
notbecharged withhaving reasonably anticipated theexistence ofthe1975 Manual prior tothe
conclusion oftheKennedy Round. However, totheextent thatanylegitimate expectations exist, we
again findthatthese relate onlytoblack andwhite filmandpaper.
10.198 With respect toJapan'sconcessions attheconclusion oftheTokyo andUruguay Rounds, it
isdifficult toconclude thattheUnited States could notreasonably anticipate the1975Manual andits
application (totheextent thisoccurred) asof1979and1993. Although wecanconceive ofcircumstances
where theexporting WTO Member maynotreasonably beaware ofthesignificance ofameasure for
oritspotential disparate impact onimported products untilsome timeafteritspublication, theUnited
States hasnotdemonstrated theexistence ofanysuchcircumstance inrespect ofthismanual, which
wenoteapplies tofilmbyitsterms. Accordingly, wefindthattheUnited States hasnotdemonstrated
thatinrelation to1975Manual thatithaslegitimate expectations ofimproved market access emanating
from theTokyo orUruguay Rounds.
10.199 Impairment andcausality. TheUnited States argues thatthe1975 Manual emphasized that
themajor issues facing theJapanese filmindustry included "theliberalization ofcapital andtrade"
andthatthere wasan"urgent needtoimprove thestructure ofmanufacturers toacapacity thatwill
resistforeigncapitalaffiliatedfirms",andrecommendedseveralactionstowardssystemization,includingWT/DS44/R
Page424
standardization oftransaction terms.1315TheUnited States further argues that,using thevehicle of
the1975Manual, MITI sawthedevelopment ofinformation linksasanintegral partofitsdistribution
systemization efforts andstrongly advocated improving computer linkages tocement theclosed vertical
distribution system andensure itsperpetuation.1316Japan'sviewisthatnoneofthepolicies discussed
inthe1975Manual wereinherently disadvantageous toimports. Moreover, according toJapan, there
isnobasis forassuming thatMITI'ssystemization policies, forexample thecreation ofinformation
ties,hadanyexclusionary impact. Japan notes inthisconnection thatNagase 'ssubsidiary Kuwada,
asingle-brand primary wholesaler forKodak, wasamember ofthewholesalers 'trade association at
thetimethe1975 Manual wasprepared. AndastotheUSargument thatJapanese manufacturers
established on-line computer links withtheirprimary wholesalers based onguidance from the1975
Manual, Japan responds thatFujididnotestablish itsfirston-line connection withaprimary wholesaler
until1989. Thus, Japan contends, thealleged systemization guidance thattheUnited States claims was
soeffective increating anexclusionary market structure wasinreality ignored foratleast14years.
10.200 Ourassessment oftheimpact ofthis1975 Manual issimilar tothatofthe1971 Basic Plan:
thepolicy recommendations forsystemization andmodernization intheJapanese distribution sector
arewithout regard tosource oftheproducts involved. Also, evenifoneoftheconcerns expressed
inthemanual wastoaddress "foreign capital affiliated firms", thisconcern doesnotappear tobe
reflected intheactual analysis orrecommendations advanced inthemanual. Forexample, themanual
explains thatsystemization ofdistribution hasbeenemphasized inrecent years forthefollowing five
reasons: (i)balancing supply anddemand; (ii)controlling price increases; (iii)coping withlabour
shortages andwageincreases; (iv)timely handling ofincreasing flows ofdistributed goods; (v)creating
amanagementsystemfortheinformationage.1317Inaddition,therecommendationsappeartobedirected
atpromoting thestandardization andmodernization ofbusiness practices andmanagement techniques,
including computerization. Indeed, asnoted intheSeventh Interim Report, imported products were
expected tobenefit fromthesystemization ofdistribution. Although itispossible thatameasure that
isformally neutral astoorigin ofproducts could nonetheless beapplied inamanner thatresults in
upsetting thecompetitive relationship between domestic andimported products tothedetriment of
imports, theUnited States hasnotbeenabletopointtoanyspecific instances where suchsystemization
ofthedistribution sector intheJapanese filmindustry hasundermined market-access conditions for
USfilmorpaper.
10.201 Evenifweassume thatthe1971Basic Planconstitutes administrative guidance totheJapanese
filmindustry tointegrate vertically andusesingle-brand primary wholesalers, theUScomplaint has
asignificant timing problem inthatthetwodominant filmmanufacturers inJapan (FujiandKonica)
hadvirtually completed single-brand vertical integration oftheirwholesale distributors wellinadvance
ofthe1975 Manual.
10.202 Ontheevidence before us,therefore, wearenotpersuaded thatthe1975 Manual andits
implementation intheJapanese economy (totheextent thishasoccurred), haveresulted inupsetting
thecompetitive relationship between domestic andUSfilmandpaper intheJapanese market.
Accordingly, wefindthattheUnited States hasnotdemonstrated thatthe1975Manual impairs nullifies
orimpairs benefits accruing totheUnited States within themeaning ofArticle XXIII:1(b).
10.203 Thus, while theUnited States hasshown thatitshould notbeheldtohaveanticipated the1975
Manual inrelation toitsKennedy Round expectations inrespect ofblack andwhite filmandpaper,
ithasnotdemonstrated thatthe1975 Manual isameasure forpurposes ofArticle XXIII:1(b) orthat
itnullifies orimpairs benefits accruing totheUnited States inrespect ofblack andwhite filmandpaper.
1315Ibid, p.122.
1316Ibid, pp.123-124.
1317Ibid, pp.117-118.WT/DS44/R
Page425
Inrespect ofcolour filmandpaper, ithasnotshown anyoftherequired elements ofan
Article XXIII:1(b) claim.
(j) Concluding observations ondistribution "measures"
10.204 Theessence oftheUSclaim inrespect ofdistribution "countermeasures" isthatJapan created
vertical integration andsingle-brand distribution intheJapanese filmandpaper market. IntheUS
view, thiswasdone through standardization oftransaction terms, systemization andlimitations on
premiums tobusinesses. Aswehavefound above, theUnited States hasnotbeenabletoshow that
thevarious "measures" itciteshaveupset competitive relationships between domestic andUSfilm
andpaper inJapan, principally because single-brand distribution appears tohaveoccurred before and
independently ofthose "measures", butalsobecause theUnited States hasnotdemonstrated thatthese
"measures" aredirected atpromoting vertical integration orsingle-brand distribution. Inanswering
thetiming problem, theUnited States hasprovided noconvincing evidence orarguments thatthecited
"measures" infacthadtheeffect ofreinforcing single-brand distribution. Equally, theUnited States
hasnotexplained whythevertically integrated, single-brand distribution structure ofthefilmsector
inJapan --astateofaffairs thattheevidence suggests issimilar tothatoccurring elsewhere inthe
world (including intheUnited States) --would have broken down intheabsence ofcontinuing
government intervention.
10.205 Inrespect ofanumber ofdistribution "measures", theUnited States argues thattheyhave
continued ineffect eventhough theymaybedated orhavebeenformally revoked. Inourview, the
United States hasnotshown thatthe1967 Cabinet Decision, theSixth andSeventh Interim Reports,
the1969 Survey Report, the1970 Guidelines, the1971 Basic Planandthe1975 Manual aretoday
upsetting competitive relationships between domestic andUSfilmandpaper inJapan.
10.206 WenotethattheSixth andSeventh Interim Reports, the1969Survey Report, the1971Basic
Planandthe1975Manual referto"foreign capital" andtheneedtoprepare foritsimminent appearance
inJapan. Ineachcase,however, thefocus ofthese"measures" isnotonforeign capital, butongeneral
reform oftheJapanese distribution sector forreasons unrelated toforeign capital (e.g.labour shortages).
Wedonotsuggest thatproof ofintent tonullify orimpair benefits isrequired under Article XXIII:1(b).
Wemerely notethatinourreview ofthese "measures", wewere notconvinced thatforeign capital
wasamajor factor intheiradoption orimplementation.
10.207 Totheextent thatthealleged "measures" existandshould nothavebeenreasonably anticipated
bytheUnited States, legitimate expectations inrelation tothese "measures" onlyexistforblack and
white filmandpaper. Wenoteinthisconnection thattoday theblack andwhite filmmarket inJapan
isinsignificant ascompared tocolour film. Theparties agree thatitisontheorder ofthreepercent.1318
Moreover, proof ofcausation withregard toblack andwhite filmisundermined byanapparent increase,
according toJapan, inmarket share from around 6.6percentin1965 toapeakofaround 41.4per
centin1985, despite thealleged impact ofthe"measures" inthe1965-1975 timeframe.1319TheUnited
States hassubmitted alternative statistics concerning themarket shares inthephotographic materials
market thatdonotseparately break outblack andwhite filmfrom colour film.1320
10.208 Finally, wewould notethatthere islittleargument from theUnited States inrespect ofthe
impact ofthese "measures" onimported paper. Asargued byJapan, theonlyevidence citedbythe
United States onimported paper relates toameasure (SMEA financing tophotofinishing laboratories)
which wefound nottobewithin ourterms ofreference.
1318Seeparas. 2.2,5.26, 6.279 and6.339 above.
1319Seepara. 2.4above.
1320TheUSstatistics rather focus ontheissue ofwhich percentage oftheprimary orsecondary wholesalers usedtoor
currently docarry foreign film.WT/DS44/R
Page426
4. RESTRICTIONS ONLARGE RETAIL STORES
10.209 TheUnited States claims thatJapan'sapplication of(1)theLarge Scale Retail Stores Lawof
1March 1974 (the"Large Stores Law")1321andrelated regulations andadministrative "measures",
including related local "measures", and(2)anamendment totheLarge Stores Law, effective
14May19791322,restricted thegrowth ofanalternative distribution channel forimported film,thereby
nullifying orimpairing benefits accruing totheUnited States under GATT Article XXIII:1(b). Inlight
oftheirobvious relationship, weshallexamine these twomeasures together inthissection.
10.210 TheLarge Stores Lawwaspassed bytheJapanese Dieton1October 1973, withaneffective
dateof1March 1974. Thelawestablished notification procedures toregulate theopening oflarge
store structures (where more thanoneretailer mayoperate) andtheopening andoperation ofretail
stores operating insuchstructures. Asoriginally enacted, itregulated stores withfloorspace inexcess
of1500square metres. The1979amendment effected twomainchanges: (1)thethreshold forstores
covered bythelawwaslowered from1500 square metres to500square metres; and(2)large stores
weredivided intotwoclasses --Class Istores (1500 square metres andabove) under MITI'sjurisdiction,
andClass IIstores (500to1500 square metres) under thejurisdiction oflocalprefectural governors.
Thelawpermits theregulation ofastore'ssize,opening date,operating hours andclosing days("store
holidays").
10.211 Article 3ofthelawrequires thataparty intending tobuild oropenalarge-scale retail store
mustsubmit, toMITI ortheappropriate prefecture, aninitial notification including theproposed floor
areaandplanned opening dateatleast12months before theplanned opening date. Ifthestoreisdeemed
tobesubject tothelaw'sprocedures, theplans forthestore must beexplained totheappropriate
authority, localretailers andconsumers. Following this,theauthority mayrecommend areduction
inthesizeofthestore and/or adelay intheopening dateand/or achange initsopening hours and
storeholidays. In1982, MITI instituted, through Directive No.36,a"prior explanation" requirement
toprecede theinitial notification required byArticle 3.1323Thisdirective wasrevoked in1992. Also
in1992, theminimum floorspace requirements forClass Istores wasraised from1500square metres
to3000 square metres (andto6000 square metres incities designated byordinance).
10.212 TheUnited States claims thatlarge retail stores remain onepotentially significant alternative
distribution channel inJapan forforeign filmmanufacturers despite theJapanese Government 'salleged
reorganization ofwholesale operations inthephotographic materials sector. According totheUnited
States, largeretailers offered foreign manufacturers, foreclosed fromtheprimary distribution network,
apartial alternative towholesalers. TheUnited States alsoargues thatlargestores havecarried imported
products, including film,more frequently thansmall stores andhavebeenlesssusceptible topressure
bydomestic manufacturers. Ifsuchstores werepermitted toproliferate across Japan, theUnited States
argues, wholesalers would become lesssignificant andforeign manufacturers could circumvent the
bottle-necked distribution system. Itwasinresponse tothisthreat, theUnited States submits, that
in1967and1968 Japan began toimpose controls ontheexpansion oflarge stores andfinally enacted
theLarge Stores Lawin1973. According totheUnited States, thislawimposes aburdensome process
ontheopening andexpansion oflarge retail stores.
10.213 Japan responds thattheLarge Stores Lawreflects long-standing Japanese policy, dating back
totheenactment oftheDepartment Store Lawin19561324,ofregulating large stores topreserve a
diversity ofsmall, medium andlarge retailing competitors, apolicy found inother countries aswell.
1321USEx.74-4; Japan Ex.C-1.
1322LawConcerning theAdjustment ofBusiness Activities oftheRetail Industry forLarge Retail Stores, 1978, USEx.
78-1.
1323USEx.82-2; Japan Ex.C-16.
1324USEx.56-2; Japan Ex.C-3.WT/DS44/R
Page427
Japan contends thatthelawdoesnotconcern products generally, orfilminparticular. Thelawdoes
notregulate which products large retailers cancarry, nordoesittakeintoaccount which products a
retailer sellswhen determining whether andwhatadjustments arenecessary. Accordingly, inJapan's
view, theLarge Stores Lawisincapable ofadversely modifying competitive conditions foranyimported
products, including film. Japan maintains thatthere isnocorrelation between store sizeandthe
likelihood ofcarrying foreign filmbrands. Japan alsoargues thatthelawhasbeen significantly
liberalized inrecent years andismore favourable toimports nowthanatthetimeofanyoftherelevant
tariff concessions.
10.214 Application ofmeasures. Bothparties agree --andwehavenoreason todoubt --thattheLarge
Stores Lawof1974 andthe1979 amendment aregovernmental measures within themeaning of
Article XXIII:1(b). Theparties alsoagree --andagain wehavenoreason todoubt --thattheLarge
Stores Law, asamended, iscurrently ineffect.
10.215 Benefits accruing. TheUnited States claims thatthebenefits accruing toitareitslegitimate
expectations ofimproved market access resulting from Japanese tariff concessions onfilmatthe
conclusion oftheKennedy, Tokyo andUruguay Rounds. Itclaims thatitcould nothavereasonably
anticipated thecontent oftheLarge Stores Laworits1979 amendment during theKennedy Round
negotiations because atthattime(1967) neither ofthese measures hadbeenproposed, andbecause
MITI'stwokeydirectives, which intheUSview, laidthefoundation forthelawbyexpanding the
scope oftheDepartment Store Law, werenotissued untilJune1968andSeptember 1970, respectively.
10.216 Japan argues thattheUnited States cannot properly claim tohaveanylegitimate expectations
ofsuchimproved market access because theenactment oftheLarge Stores Lawin1973andamendments
in1978 andthereafter, while subsequent totheKennedy Round, haverepresented thecontinuation
ofalong-standing policy ofpreserving retailing diversity through regulation oflarge stores. The
Department Store Law, which wasenacted in1956, required newdepartment stores toobtain permits
before opening. According toJapan, theLarge Stores Lawmerely represented anextension ofthis
preexisting regulatory policy tonewtypes ofstores thatwerestarting toappear, suchassupermarkets
andlarge-surface discount stores, andwasenacted inaneffort toblock thedeliberate circumvention
oftheearlier law. Moreover, inJapan'sview, eventhevarious versions oftheLarge Stores Law
havealways beenmore liberal thantheDepartment Store Law: theLarge Stores Lawreplaced a
permission-based system withanotification system; regulations onstore holiday andclosing hours
arenowlessrestrictive; andapproximately 96percentofnotified plans areimplemented today as
compared to84percentofapplications being permitted under theDepartment Store Law. Thus, Japan
argues, evenifoneaccepts, forargument 'ssake, thatrestrictions onlarge stores areunfavourable to
imported products, there isnothing unfavourable toimports thattheUnited States could nothave
anticipated atthetimeoftheKennedy Round tariff concessions.
10.217 Inanalysing theissue ofreasonable anticipation attheconclusion oftheKennedy Round, we
takenoteofJapan'sargument thatJapanese policy ofregulating themixoflarger andsmaller stores
dates backtotheDepartment Store Lawof1956 andthat,therefore, theUnited States should have
anticipated thatsuchapolicy would continue andwould evolve totakeaccount ofchanges instore
types. Asweconcluded earlier, however, inthecaseofmeasures shown bytheUnited States tohave
beenintroduced subsequent totheconclusion ofthetariff negotiations atissue, itisourviewthatthe
United States should notbeheldtohaveanticipated thesemeasures unless Japan canshow thecontrary.
Weconsider thatsuchabroad notion ofreasonable anticipation, asespoused byJapan, could have
theeffect ofdepriving thiselement ofanon-violation caseofitsmeaning. Inourview, itisnotsufficient
toclaim thataspecific measure should havebeenanticipated because itisacontinuation ofapastgeneral
government policy. Wenoteinthisregard thatthepanel onEEC-Oilseeds rejected asimilar argument
thattheexistence ofsome measures atthetimeofthetariff concessions meant thatthecomplainingWT/DS44/R
Page428
party (theUnited States) should have reasonably anticipated their significant modification or
enhancement.1325Wethusconsider thattheUnited States should notbedeemed tohavereasonably
anticipated theLarge Stores Lawanditssubsequent amendments, asoftheconclusion oftheKennedy
Round. Itsreasonable expectations inrespect ofJapan'sKennedy Round concessions arelimited to
black andwhite filmandpaper.
10.218 Concerning expectations inrespect oftheTokyo Round tariff concessions onfilmandpaper,
theUnited States concedes thatitwasaware oftheLarge Stores Lawatthattime; however, theUnited
States argues thatwhatnegotiators could nothaveknown, anddidnotknow, atthattimewastheextent
towhich Japan'sclosed distribution system forphotographic filmandpaper wastheresult ofthe
government 'sdistribution "countermeasures", andthatthedistribution "countermeasures", theLarge
Stores Lawandthepromotion "countermeasures" worked together toimpede market access. TheUnited
States emphasizes thatduring theTokyo Round, nocontracting party other thanJapan could have
anticipated theactions Japan would taketodramatically expand thescope andinvasiveness oftheLarge
Stores Lawfollowing conclusion oftheRound. Inparticular, theUnited States argues, theaddition
in1982 ofthe"prior explanation" requirement, bywhich builders were required tomeet withand
trytoobtain consent oflocalretailers before submitting theArticle 3Notification, significantly increased
theburdensome nature ofthelaw. Japan responds thattheUnited States should havereasonably
anticipated themeasures ineffect atthetimeofthetariff concession, including theLarge Stores Law
andits1979amendment. According toJapan, nosignificant government measures orpolicy changes
occurred after1979 (Directive No.36in1982 notbeing asignificant modification), andthus, there
were nomeasures, notanticipated atthetimeofthe1979 tariff concessions, thatwere capable of
upsetting thecompetitive position ofimported filmorpaper.
10.219 Weconsider thattheUnited States should becharged withknowledge oftheLarge Stores Law
of1974 prior totheconclusion oftheTokyo Round. Asforthe1979 amendment, itwaspassed by
theDieton15November 1978. Although itappears thatanagreement onfilmandpaper tariffs may
havebeenreached between Japan andtheUnited States inAugust 1978, itappears thatingeneral the
bilateral Japan-US negotiations ended onlyinDecember 19781326,afterthepassage oftheamendment.
Moreover, thenegotiations intheTokyo Round didnotenduntil12April 1979, withtheprotocol
being dated 30June1979. Inlightofthese facts, weconsider thattheUnited States should reasonably
haveanticipated the1979 amendment. Inthisregard, werecall ourconclusion thatknowledge ofa
measure 'sexistence isnotequivalent tounderstanding thepotential impact ofthemeasure onaspecific
product market. However, theUnited States hasnotdemonstrated whyinitially itcould nothave
reasonably anticipated theeffect oftheLarge Stores Law, asamended, onthefilmorpaper market.
Inourview, asimple statement thatJapan'smeasures weresoopaque andinformal thattheirimpact
could notbeassessed isnotsufficient. Asforthe1982 directive on"prior explanation", weaccept
thatthisparticular requirement wasnotreasonably anticipated bytheUnited States asoftheTokyo
Round.
10.220 TheUnited States concedes thatitwasaware oftheLarge Stores Law, asamended, asofthe
conclusion oftheUruguay Round, butclaims that,atthetimeoftheUruguay Round tariffnegotiations,
itwasnotaware andcould nothavebeenaware thatJapan hadseized upon theLarge Stores Lawas
akeyinstrument toprotect andsupport thevertical integration ofdistribution intheconsumer
photographic materials sector. Japan responds thatthelawandrelevant regulations havebeenpublished
andthattheirrequirements havelongbeenpublicly known facts. Moreover, Japan contends thatthe
United States hasbeenmaking these claims concerning theLarge Stores Lawwithrespect toimports
generally foryears, bothinthe"National Trade Estimate Report onForeign Trade Barriers", published
annually bytheOffice oftheUnited States Trade Representative, andinbilateral talkswiththeJapanese
Government under theStructural Impediments Initiative.
1325EEC -Oilseeds ,BISD 37S/86, 129, para. 149.
1326SeeGilbert R.Winham, International Trade andtheTokyo Round Negotiation 268(1986), Japan Ex.E-6.WT/DS44/R
Page429
10.221 InlightofthefactthattheLarge Stores Law, itsamendments andthemajor elements ofpolicy
underlying thelawanditsamendments allpredate theconclusion oftheUruguay Round, andindeed
appear tohavebeenthesubject ofofficial USpublications andbilateral discussions andjointreports
between theUnited States andJapan, wefindthattheUnited States should havereasonably anticipated
theessentialelementsofthelawanditsamendments,aswellastheirpotentialimpactonthephotographic
materials sector inJapan, asoftheconclusion oftheUruguay Round.
10.222 Impairment andcausality. TheUnited States contends thatthesuppression oflargestores under
theLarge Stores Lawaffects thedistribution offoreign filminJapan intworespects. First, restricting
largestores indirectly supports manufacturer domination ofoligopolistic distribution structures. This
structure depends onmanufacturer dominance ofwholesalers, andwholesaler dominance overretailers.
Retailers withgreater purchasing power andbusiness sophistication could effectively playthevarious
wholesalers andmanufacturers offofeachother togainmore favourable terms, andtoresist attempts
toholdtheretailers under thecontrol ofasingle manufacturer-wholesaler chain. Second, largestores
provide analternative channel tomarket filmforforeign manufacturers excluded fromthewholesale
distribution system. Withasufficiently developed network oflargestores, amanufacturer could reach
alarge portion oftheJapanese market withalimited number ofaccounts. Consequently, theUnited
States claims thatJapan upsetthecompetitive relationship between imported anddomestic photographic
filmandpaper byinhibiting thedevelopment ofaviable alternative channel forthedistribution and
saleofimported filmandpaper.
10.223 Japan argues inreply thatinthepresent casetheUnited States bears theburden toshow
specifically howtheapplication oftheLarge Stores Lawtothespecific products atissue, i.e.,black
andwhite filmandpaper, andcolour filmandpaper, nullifies orimpairs some benefit. Japan maintains
thatthelawanditsimplementing regulations neither apply directly tofilmorpaper, nortoanyproduct
generally. Thelawdoesnotdistinguish between domestic andimported filmandthusthereisnoexplicit
disadvantage imposed onimports. Furthermore, theregulation oflargestores under thislawalsodoes
notimpose anyinherent disadvantage onimports andthereisnothing intrinsic inthenature ofimports
thatrenders them lesscapable ofcompeting inamarketplace where adiversity ofretailing types is
promoted. Moreover, Japan points out,theLarge Stores Lawdoesnotvestthegovernment withthe
authority torecommend ororder anystore tocarry certain products orproducts ofacertain origin.
Indeed, theonlydistinction thelawdraws withrespect toproducts istoapply more liberal ruleswith
respect toretail stores thatcarry imported products. Inaddition, theregulations imposed bythelaw
onlargestores donotdiffer depending ontheorigin ofproducts carried bylargestores orsmall retailers
within theirvicinity. Thus, thelawdoesnotcreate anyartificial incentive forretailers tobuydomestic
film, nordoesitdiscourage retailers frombuying imported film. ForJapan, there isthusnoreason
tobelieve thatlarger retail space inherently works totheadvantage ofimported filmproducts, because
retailers choose products tomaximize profit, andthesizeofretailspace doesnotchange theprofitability
offilmproducts totheadvantage ofdomestic brands. Thelawisthusincapable ofaltering even
indirectly thecompetitive conditions between domestic andimported products. Japan concludes that
itisnotpossible forthislawtofrustrate anyreasonable USanticipation concerning specific products
atthetimeofanyoftherelevant tariff concessions. According toJapan, under theoverly broad US
theory ofArticle XXIII:1(b), virtually every formofgovernment policy would become actionable as
measures potentially relating tospecific products. Japan believes, however, thataclearnexus must
existbetween specific products andthechallenged government measure, andthattheUSallegations
concerning theLarge Stores Lawdonotmeetthistest.
10.224 Inevaluating theUSclaim thattheLarge Stores Lawupsets thecompetitive relationship between
domestic andimported filmandpaper, wewillconsider (i)therelationship oflargestores toimported
filmandpaper, and(ii)theevolution ofJapanese regulation oflarge stores.
10.225 First, astotherelationship oflarge stores toimported filmandpaper, wenotethatweare
presented withmeasures regulating large stores thatareclearly neutral astoproducts andtheoriginWT/DS44/R
Page430
ofproducts. Added tothis,there isalackofevidence astoanyproduct-specific ororigin-specific
implementation ofthese measures. Indeed, itseems clearthemotivating force behind opposition to
theexpansion oflargestores inJapan, andinmany other countries aswell,isfromsmall- andmedium-
sized stores concerned withtheimpact thatsuchstores mayhaveonthem, andnotbecause ofadesire
tohinder imports offoreign filmandpaper. Thus, therationale oftheLarge Stores Lawistheprotection
ofsmall stores.
10.226 Itispossible, however, thatameasure thatisformally neutral astotheorigin ofproducts may
beshowntobeappliedinamannerthatresultsinupsettingthecompetitiverelationshipbetweendomestic
andimported products tothedetriment ofimports. Inthisregard, wenotethattheUnited States asserts
thattheapplication oftheLarge Stores Lawhasnegatively affected therelative competitive position
ofimported filmintheJapanese market because itrestricts thespread oflargestores, which theUnited
States claims, onthebasisofsurvey evidence, aremore likely tocarry imported film. Japan contends,
however, thattheUSevidence shows onlythatstores selling ahighvolume offilm,whether theyare
largeorsmall stores, aremore likely tocarry imported film. TheUnited States ripostes thatitssurvey
data,when controlled forvolume ofsales, stillshows thatlargestores aremore likely tocarry imported
film. Itseems tousthatevenifthere isagreater tendency forlarge stores tocarry imported film,
access tolarge stores islessimportant forfilmthanforother imported products since filmtakes up
verylittleshelfspace eventaking account thatafulldisplay ofallfilmtypes iscomprised ofmany
rollsoffilm. Thiswould seem tobeconfirmed bytheJapanese evidence thathigh-volume sellers
offilm, whether large orsmall stores, aremore likely tocarry imported film. However, onbalance
weareleftwithconflicting evidence andnosurewaytoresolve theconflict. Inlightofourfindings
inthefollowing paragraphs, weconsider thatitisnotnecessary tomake afinding onthisissue.
10.227 Wenoteourunease, however, about relying onthetypeofevidence offered bytheUnited
States tojustify itsclaim here. Essentially, itargues thatsinceacertain typeofstoresellsmoreimported
products thanother stores, anyregulation ofthattypeofstoremaygiverisetolegitimate claims under
Article XXIII:1(b). Such anargument issimilar tooneusedtoattack Sunday closing lawsinthe
EuropeanCommunity,i.e.,sincehomeimprovementstoressellimportedproductsandsellmoreproducts
onSunday, limitations onSunday trading maybeassimilated toimport restrictions. TheECCourt
ofJustice refused tofindaviolation oftheECTreaty.1327
10.228 Second,inconsideringwhethertheLargeStoresLawupsetsthecompetitiverelationshipbetween
domestic andimported filmandpaper, weneedtoanalyze theevolution ofJapanese regulation oflarge
stores. Wewillexamine thedifferences between whatwasthesituation in1967, 1979 and1993 and
what isthesituation today. Inparticular, wewilllookatthefollowing factors: thedetail ofthe
regulations (permission versus notification; approval rates andqualifications, opening hours, store
holidays, store size); andtherelative market position oflarge stores intheJapanese economy.
10.229 Compared to1967, theregulation oflargestores hasbeentightened inthesense thattheLarge
Stores Lawcovers more retail establishments thandidtheDepartment Store Lawandstores of1000
square metres aresubject tothelawwhile theDepartment Store Lawapplied onlytostores of1500
square metres.1328Toevaluate theimpact ofthischange, however, itisnecessary toconsider thedetail
oftheregulation under thetwolaws, asof1967 andtoday. Japan notes thattheLarge Store Law
onlyrequires notifications asopposed toapplications forpermits (asrequired under theDepartment
1327TorfaenBoroughCouncilv.B&QPLC,CaseC-145/88,[1989]ECR3851.Forasubsequentdevelopmentofrelevant
EClawontheapplication ofArticle 30oftheECTreaty (prohibiting quantitative restrictions onimports andmeasures having
equivalent effect) generally, see:Keck &Mithouard, Cases C-267 &268/91, [1993] ECRI-6097, Punta CasaSpAv.Sindaco
delCommune diCapena, Cases C-69 &258/93, [1994] ECR I-2355.
1328TheLarge Stores Lawapplies tostores of500square metres, butsince 1994, stores oflessthan1000 square metres
aregenerally exempted from adjustment because theyareinprinciple deemed tohavenoprobability ofadversely affecting
nearby small andmedium-size retailers. Standards forEvaluating Probability Under Article 7(1,4) Large Stores Law, No.96,
MITI, 1April 1994, Japan Ex.C-7.WT/DS44/R
Page431
Store Law), butsince notified stores mayinfactberegulated astovarious elements (size, opening
hours), thisaspect oftheDepartment Store Lawdoesnotseem significantly more burdensome than
theprovisions oftheLarge Stores Law, which covers smaller stores, aswell. TheUnited States cites
statistics ondenials andrequired sizereductions under theLarge Stores Law, butitdoesnotshow
howthesituation differs from thatprevailing under theDepartment Store Lawasitapplied atthe
conclusion oftheKennedy Round in1967. Some firmconclusions maybedrawn, however. Interms
ofwhatisnormally permitted, policies onopening hours andstoreholidays arenowmore liberal than
theywerein1967. The"normal" closing timehasbeenextended from6p.m.to8p.m.andtherequired
number ofstoreholidays hasbeenreduced from48to24days. These changes aresignificant because
theyaffect theactual day-to-day operations oflarge stores. Ontherelative market position oflarge
stores intheJapanese economy, wenoteinitially thatneither party hassubmitted evidence fortheyears
between 1967and1982. However, since 1982, bothparties agree thatthemarket share oflargestores
inretail saleshasincreased, albeit modestly. Wenotethatthisincrease occurred despite theexistence
from 1982 to1992 ofthe"prior explanation" requirement.
10.230 Comparing thepresent situation inrespect oftheapplication oftheLarge Stores Lawtothose
existing attheconclusions oftheTokyo Round in1979 andoftheUruguay Round in1993 leads to
thesame result. Asoftheconclusion oftheTokyo Round, theLarge Stores Lawwasineffect and
applied tostores ofmore than500square metres. Since thattime, thesizethreshold hasbeenraised
to1000 square metres, the"normal" closing timehasbeenextended from 6p.m.to8p.m.andthe
required number ofstore holidays hasbeenreduced from 48to24days. Since 1982, bothparties
agree thatthemarket share oflarge stores inretail saleshasincreased, albeit modestly. Compared
tothesituation prevailing attheconclusion oftheUruguay Round in1993, thesizethreshold hasbeen
raised from500metres to1000square metres, the"normal" closing timehasbeenextended from7p.m.
to8p.m.andtherequired number ofstore holidays hasbeenreduced from 44to24days.
10.231 Onbalance, wearenotpersuaded thattheregulation oflarge stores today istighter thanit
wasin1967, 1979or1993. Theevidence relating totherecent evolution ofprocedural requirements
andconditions ofoperation ofstores under thelawsuggests thattherehasbeenasubstantial liberalization
intheapplication ofthelawsince theearly 1990s, withtheconcomitant result thatthelawisnow
more favourable totheopening oflarge stores thanitwasattheconclusion ofanyofthethreerounds
ofmultilateral trade negotiations.
10.232 Finally, weconsider theramifications fortheUSclaim under Article XXIII:1(b) ofour
conclusions concerning theevolution ofJapan'sregulation oflarge stores. Wenotethattheessence
oftheUSclaims inrespect oflargestores differs fromitsclaim inrespect ofdistribution andpromotion
measures. Inthecaseofthose measures, theUSclaim isthattheGovernment ofJapan acted toimpede
market access forimports bytaking actions thatmade itmore difficult tosellimported filmcompared
tothetimethetariff concession wasgranted. TheLarge Stores Lawclaim isdifferent. TheUnited
States concedes thattherearemore largestores inJapan today thantherewerein1982intotalnumber
andtheirshare ofretail salesisgreater thanitwasin1982. Thus, totheextent thatmore large stores
means more favourable conditions forimport market penetration, thesituation today isbetter thanit
wasin1982. (There isnoevidence onmarket shares oflarge stores prior to1982.) Inthese
circumstances, theargument would seem tobethatthesituation would beevenbetter ifJapan had
notinterfered withthisfavourable market evolution byslowing it.Thisraises thequestion ofwhether
theUnited States canclaim legitimate expectations related toexpected market evolution, asopposed
toexpectations thatthemarket situation atthetimeofatariff concession willnotbeupset, e.g.,by
agrant ofsubsidies orimplementation ofmeasures thatchange existing competitive relationships or
byrestricting theuseofpreviously permitted salestechniques. Normally, forcompetitive relationships
tobeupset, wewould expect anadverse change inthesituation existing atthetimeofthetariff
concessions. Inthecaseofsubsidies, forexample, aMember reasonably expects thatsubsidies will
notbeincreased, notthattheywillbedecreased. Totheextent thattheUnited States claim isviewed
asbeing based onexpectations about market evolution, thequestion becomes towhatextent itmustWT/DS44/R
Page432
establish ithadreasons toexpect in1967 (or1979 or1993) thatthere would bearelative expansion
ofthelarge-store segment ofJapan'seconomy, taking intoaccount theexisting regulation under the
Department Stores LaworLarge Stores Law. Evenassuming thatsuchexpectations would beprotected
byArticle XXIII:1(b), theUnited States hasnotestablished thatithadanysuchexpectation in1967,
1979 or1993.
10.233 Ontherecord before us,therefore, wefindthattheUnited States hasnotdemonstrated that
theLargeStoresLawof1974,itsamendmentin1979,oranyimplementingregulationsoradministrative
measures, nullifies orimpairs benefits accruing totheUnited States within themeaning of
Article XXIII:1(b).
5. PROMOTION "MEASURES"
10.234 TheUnited States claims thatJapan'sapplication ofthefollowing eight promotion
"countermeasures" allegedly disadvantage imports byrestricting salespromotions, thereby nullifying
orimpairing benefits accruing totheUnited States under Article XXIII:1(b):
(1) 1967 Cabinet Decision onLiberalization ofInward Direct Investment;
(2) 1967 JFTC Notification 17onpremiums tobusinesses;
(3) 1977 JFTC Notification 5onpremium offers toconsumers;
(4) 1981 JFTC Guidance onDispatched Employees;
(5) 1982 Self-Regulating Rules Concerning Fairness InTrade With Business;
(6) 1982 Establishment ofFairTrade Promotion Council;
(7) 1982 Self-Regulating Standards Concerning Display ofProcessing Fees; and
(8) 1987 JFTC approval oftheRetailers FairCompetition Code andtheRetailers Fair
Trade Council.
Thetextofandbackground material surrounding these "measures" issetoutinPartII.
10.235 Ingeneral terms, theUnited States claims thatJapan hasreinforced thedistribution
"countermeasures" notonlythrough legislated restrictions onretail stores butalsothrough asystem
ofmeasures limiting howphotographic material manufacturers, wholesalers andretailers maypromote
theirproducts inorder toexpand theirsalesofphotographic filmandpaper intheJapanese market
bymeans ofeconomic inducements andaggressive advertising. TheUnited States claims thatpromotion
"countermeasures" havedisadvantaged foreign manufacturers offilmandpaper byconstraining their
ability tousecertain discounts, gifts, coupons, andother inducements, ortorelyupon innovative
advertising campaigns, particularly where priceorpricecomparisons arediscussed. TheUnited States
argues thatJapan hasimplemented these promotion "countermeasures" through thePremiums Law
andcertain regulations issued bytheJFTC under theAntimonopoly Law. Although these measures
alsoapply todomestic filmandpaper producers, theUnited States contends thatJapan hasimposed
themwiththeintention ofstriking against international competition byforeign imports following trade
liberalization, i.e.,theability offoreign manufacturers toconvert theirstrong capitalization andcost
competitiveness intopotent marketing strategies andaggressive promotional competition.
10.236 Japan responds thatthePremiums Lawimposes restrictions onlyonexcessive premiums and
regulates onlymisleading representations. Intheinterest ofconsumer protection, thePremiums Law
isdesigned todealeffectively withunfair trade practices andencourage manufacturers tocompete
principally onthebasis ofprice andquality, notunfair inducements ordeceptive andmisleading
representations. Japan emphasizes thatthelawmakes nodistinctions between imported ordomestic
products. Japan further argues thatthePremiums Lawdoesnothinder vigorous priceandpromotional
competition. Lowprice offers arenotonlypermitted, butare,inJapan'sview, facilitated bythelaw,
andabroad range ofpromotional practices areconsistent withthelaw.Allcompanies, bothdomestic
andforeign, havebeenandcontinue tobefreetospend asmuch money astheywantonadvertising.WT/DS44/R
Page433
Companies arefreetouseanyexpressions theywish, solongastheydonotdeceive ormislead
consumers. Japan alsosubmits thatnobusinesses haveeverbeenrestricted fromoffering promotional
giftsorprizes bylotteries andcompetition, solongastheyareinlinewiththestandards setinaccordance
withthelawtoprotect consumers. InJapan'sview, these standards arenomore rigidthanthose set
bysimilar lawsinmany other countries. Japan alsocontends thatinsome respects, thestandards are
actually lessrigidthanthoseoftheUnited States because certain types oflotteries andprizecompetitions
prohibited intheUnited States havebeenallowed inJapan.
10.237 TheUnited States alsopoints outthatenforcement actions under thePremiums Lawmaybe
taken bytheJFTC andthe47prefectural governments. Moreover, theJFTC hasgiven itsofficial
sanction toso-called "faircompetition codes" promulgated byprivate sector "fairtrade councils".
TheUnited States alsoargues thatthe"fairtrade councils" haveauthority todiscipline members who
violate thecodes, often employing methods ofcoercion andmonetary penalties, andthatthestandards
established bythecouncils intheircodes typically areadopted bytheJFTC, which thenapplies the
same rulesto"outsiders" given thatthePremiums Lawexpressly exempts thecartel-like practices of
thecouncils fromantitrust enforcement. Japan responds thatprivate "faircompetition codes" andthe
"fairtrade councils" arenotrelevant tothiscasebecause no"code" or"council" covers photographic
filmorpaper.
10.238 Bearing inmind these general arguments oftheparties, weshall nowproceed withour
examination ofeachoftheeightpromotion "measures" inlightofthethreeelements ofanon-violation
caseoutlined earlier.
(a) 1967 Cabinet Decision
10.239 Thefirstpromotion"measure"claimedbytheUnitedStatestonullifyorimpairbenefitsaccruing
toitunder Article XXIII:1(b) istheJapanese Cabinet Decision onLiberalization ofInward Direct
Investment of6June1967 ("1967 Cabinet Decision")1329,considered previously inourexamination
ofdistribution"measures".WerecalltheUSassertionthatthis1967CabinetDecisionwasa"watershed"
inJapan'sefforts torestructure Japanese industry toresist imminent foreign competition following
capital liberalization inthe1960s. Wefurther recall Japan'sresponse thatthe1967Cabinet Decision,
which implemented thefirststageofcapital liberalization, wasconcerned generally withmodernization
andimproved efficiency intheJapanese distribution sector soastopermit domestic industries tocompete
withforeign rivals inthenew, lessregulated business environment.
10.240 WenotethatinJune1967, following arequest ofthegovernment forastudy concerning inward
direct investment, theForeign Investment Council ("FIC") Expert Committee, anadvisory committee
oftheMinistry ofFinance, submitted areport stating, interalia,that
"[f]or theprovision oflarge-scale premiums, itisbelieved thatestablishing fair
competition codes pursuant tothe[Premiums Law] withassistance fromtheindustry
thatmight beaffected, would beaneffective countermeasure".1330
Ontheregulation ofunfair trade practices, theFICExpert Committee Report alsostated:
"(1) When foreign capital isbrought intoJapan, itispossible foraparent company
tousevastamounts ofcapital toengage indumping, offer premiums, andconduct
large-scale publicity andadvertising, etc.Inthefuture, asliberalization ofdirect
investment inthedomestic market progresses, suchriskmayconceivably bereinforced.
Therefore, insuchasituation, itisnecessary tofullystudy whether theseactions qualify
1329USEx.67-6.
1330USEx.67-5 (B),p.3.WT/DS44/R
Page434
asunfair trade practices asdefined inArticle 2oftheAntimonopoly Lawandcanbe
regulated pursuant toprovisions under Article 19ofthesaidAntimonopoly Lawor
theLawAgainst Unjustifiable Premiums andMisleading Representations.
(2) Fortheapplication oftheAntimonopoly Law, while onemaynotspecifically
select foreign capital affiliated firms fordifferential treatment, foreign capital affiliated
firms nevertheless havethestrong capital andtechnological background oftheparent
company andareusually inaneconomically strong position. Consequently, itis
believed thattheywilloftenbecome theobject ofregulation oftheAntimonopoly Law.
Onthispoint, wemustbeabletoapply standards todealwithanydisorderly activities
byforeign capital because existing standards ofregulation ofunfair trade practices
arenotnecessarily clearandwemay, forexample, clarify them bymaking useofa
special designation orsome other method".1331
10.241 The1967 Cabinet Decision provides thefollowing basic direction forthe"countermeasures"
tobetaken incarrying outliberalization:
"If,therefore, ourenterprises aretocompete against foreign capital onequal terms,
thefollowingwouldbenecessary:companiesmustimprovetheirownqualityandpursue
theorganization oftheindustrial system, intensively strengthen thecapacity for
technologicaldevelopment,organizethefinancialsysteminparallelwiththeorganization
oftheindustrial system, andlower oflong-term interest rates.
Ontheother hand, itwould benecessary torestrain foreign enterprises coming into
Japan afterliberalization from disturbing order indomestic industries, byresorting
tothestrength oftheirsuperior power, andfrom advancing intothenon-liberalized
sectors byevading control.
Theestablishment ofthese countermeasures forstrengthening thecapacity ofour
enterprises forinternational competition andforpreventing foreign enterprises from
disturbing order inourindustries andmarket would beabasic necessity ifthe
liberalization istobepromoted andifourpeople aretoenjoy itseconomic benefits.
...
Thebasic direction ofthecountermeasures thatthegovernment should adopt arethe
following three points:
1) Prevent disorder thatmayarisefrom theadvancement offoreign capital;
2) Create thefoundation toenable ourenterprises tocompete withforeign
enterprises onequal terms;
3) Actively strengthen thequality of[domestic] enterprises andreorganize the
industrial system sothattheycanfullycompete withforeign capital".1332
10.242 Werecall theUSclaim thatinJuly1967, theCabinet adopted therecommendations ofthe
FICanditsExpertCommitteethatthePremiumsLawshouldbeusedasaliberalization"countermeasure"
byestablishing faircompetition codes. According totheUnited States, thegovernment directed that
thecodes weretobeestablished byindustry representatives andtrade associations, asprovided under
Article 10ofthePremiums Law, andthegovernment would exercise "active guidance".1333Japan
responds thatitdoesnotbelieve itisnecessary toaddress faircompetition codes orfairtrade councils
asnoneofthemcover photographic filmorpaper. Nevertheless, Japan argues thatitwasconsidered
1331Ibid.
1332MITI History Vol.17,pp.379-388, (provisional translation) USEx.67-6, p.4.
1333USEx.67-5, AandB.WT/DS44/R
Page435
desirable foreffective enforcement ofthePremiums Lawtohavebusiness entities agree onself-restraint
ofexcessive premiums andmisleading representations, andtoprevent actual violations ofthePremiums
Law. According toJapan, itisagainst thisbackground thatthePremiums Lawallows business entities
toadopt, subject totheJFTC 'sapproval, faircompetition codes onpremiums andrepresentations.
Japanalsoarguesthat,contrarytotheUSallegation,theCabinetdidnotadopttheFICExpertCommittee
Report. Therefore, Japan submits, theJapanese Government didnotexercise "active guidance".
10.243 Application ofmeasure. Although there canbelittledoubt thatthe1967 Cabinet Decision
asawhole constitutes agovernmental measure, within themeaning ofArticle XXIII:1(b), theparties
differ ontheissueofwhether ornotthismeasure isstillineffect. While Japan submits andtheUnited
States concedes thatthe1967Cabinet Decision wasrepealed on26December 1980, theUnited States
argues thattherepeal affects onlythatportion ofthe1967 Cabinet Decision relating tocontrols on
international investment inJapan, notthedistribution policies andliberalization "countermeasures"
directed bythe1967 Cabinet Decision. Inreply, Japan indicates thatitisimpossible toadequately
respond tothiscontention because theUnited States doesnotspecify which measures itbelieves resulted
from the1967 Cabinet Decision, butthatinanycaseany"measures" notspecifically identified are
notproperly before thisPanel.
10.244 Although theUnited States putstheemphasis hereonanother partofthe1967Cabinet Decision
thanitdidinitsarguments ondistribution "measures", thesame analysis thatweapplied inthe
distribution section inrespect oftheeffectiveness ofthe1967 Cabinet Decision applies hereaswell.
Onthebasisofthatanalysis, wefindthatthe1967policies could havebeencarried forward, consistently
withthe1980 Decision. Totheextent thatthese policies havenotbeenabandoned, weconsider that
theycontinue toconstitute ameasure within themeaning ofArticle XXIII:1(b).
10.245 Benefit accruing. Werecall theUSclaim thatthebenefits accruing toitareitslegitimate
expectations ofimproved market access resulting from Japanese tariff concessions onfilmandpaper
attheconclusion oftheKennedy, Tokyo andUruguay Rounds. TheUnited States maintains itcould
nothavereasonably anticipated theimpact ofthe1967 Cabinet Decision during theKennedy Round
negotiations. Specifically, according totheUnited States, atthetimeoftheKennedy Round negotiations
therewerenopertinent factsavailable concerning theactions Japan waspreparing totaketoimplement
its"liberalization countermeasures programme" andthatasof30June1967, theCabinet Decision
hadyettobepromulgated andimplemented. Similarly, theUnited States argues thatitwasunaware
oftheimpact ofthisCabinet Decision onthefilmindustry inJapan evenasoftheconclusion ofthe
Tokyo andUruguay Rounds.
10.246 Japan argues thattheUnited States cannot properly claim tohaveanylegitimate expectations
ofsuchimproved market access because thefirstJapanese tariffconcessions onfilmandpaper --limited
toblack andwhite filmandpaper --occurred attheconclusion oftheKennedy Round on30June1967,
severalweeksfollowingtheCabinetDecisionof6June1967.Moreover,accordingtoJapan,theCabinet
Decision waspreceded byahigh-level public debate oncapital liberalization, adebate ofwhich the
United States would havebeenaware. Japan alsoargues thatthePremiums Lawwasenacted in1962
andthatthislawtargeted conduct thathadbeenidentified bytheJFTC asunfair trade practices as
earlyas1953. Accordingly, Japan claims, theUnited States hadnolegitimate basisforexpecting fair
competition codes would notbeapproved orthatexcessive premiums anddeceptive advertising would
gounregulated, orthatthisregulation would notbeenforced vigorously. Japan argues thatthemeasure
should havebeenanticipated bytheUnited States afortiori asoftheconclusion oftheTokyo and
Uruguay Rounds.WT/DS44/R
Page436
10.247 WenotethatthisCabinet Decision of6June1967 waspublished inKampo (Japan 'sofficial
gazette) on21June19671334,thuspredating theformal conclusion oftheKennedy Round (30June1967)
byninedays. Werecall thetestdeveloped inourgeneral discussion ofreasonable anticipation tothe
effect thataMember ispresumed tohaveknowledge ofameasure asofthedateofitspublication,
butthatthispresumption mayberebutted where theMember identifies exceptional circumstances.
Because oftheshorttimeperiod between thisparticular measure 'spublication andtheformal conclusion
oftheKennedy Round, weconsider itdifficult toconclude thattheUnited States should becharged
withhaving anticipated the1967Cabinet Decision sinceitwould beunrealistic toexpect thattheUnited
States would havehadanopportunity toreopen tariff negotiations onindividual products inthelast
fewdaysofamultilateral negotiating round. Accordingly, weconsider thattheUnited States, inrelation
tothe1967Cabinet Decision, haslegitimate expectations ofimproved market access emanating from
theKennedy Round. However, applying thetestdeveloped earlier, wefindthattheUnited States may
notclaim legitimate expectations arising from theTokyo andUruguay Round concessions.
10.248 Impairment andcausality. TheUnitedStatesarguesthatimprovedaccesstotheJapanesemarket
forfilmandpaper emanating fromJapan'sKennedy Round concessions onblack andwhite filmand
paper arenullified andimpaired astheresult ofthe1967 Cabinet Decision andsubsequent promotion
"countermeasures" oftheJapanese Government. According totheUnited States, the1967 Cabinet
Decision approved theuseof"countermeasures" for"preventing foreign enterprises from disturbing
order inourindustries".1335TheUnited States further argues thatitsadditional expectations emanating
fromtheTokyo Round andtheUruguay Round, including those relating toimproved market access
forcolour filmandpaper, arealsonullified orimpaired.
10.249 Japan contends thatthe1967 Cabinet Decision contains onlyverygeneral policy statements
astowhatsortsofactions thegovernment considered tobedesirable inorder tomodernize Japan's
overall distribution sector following capital liberalization; itdoesnotsetinmotion anyspecific measures
which could besaidtodiscriminate dejureordefacto against theaccess ofimports totheJapanese
market. Japan argues thattheUnited States hasnotprovided anyevidence tothePanel demonstrating
"impairment" resulting from the1967 Cabinet Decision.
10.250 Ouranalysisoftheclaimthatthe1967CabinetDecisionimpairsmarket-accessbenefitsaccruing
totheUnited States ismade particularly difficult bythefactthat,asargued byJapan, theportions
oftheCabinet Decision addressing theneedtomodernize theJapanese distribution system areinthe
nature ofverygeneral policy statements. Theoverall theme ofthepolicy statements contained inthe
1967Cabinet Decision istotheeffect thattheJapanese Government should findwaystohelpmodernize
thedistribution sector soastorespond totheintensified competition thatcapital liberalization was
expected tobring. Moreover, theUnited States hasnotbeenabletopoint toanyspecific actions
governingorconsequencesofpromotionactivitiesdisfavouringimportsemanatingfromthe1967Cabinet
Decision (although itdoesargue thatingeneral terms mostofthesubsequent promotion "measures"
itcitesaregrounded inthe1967 Cabinet Decision). Accordingly, wefindthattheUnited States has
notdemonstrated thatthegeneral policy statements contained inthe1967 Cabinet Decision nullify
orimpair benefits accruing totheUnited States within themeaning ofArticle XXIII:1(b). Atmost,
inourview, the1967 Cabinet Decision ispartofthecontext forlateractions taken byJapan.
10.251 Thus, while the1967 Cabinet Decision maystillbeviewed asameasure forpurposes of
Article XXIII:1(b) andtheUnited States isnotcharged withhaving anticipated themeasure prior to
theconclusion oftheKennedy Round, theUnited States should haveanticipated theDecision asof
theconclusion oftheTokyo andUruguay Rounds. Moreover, theUnited States hasnotshown that
themeasure nullifies orimpairs benefits accruing toitfrom theKennedy Round inrespect ofblack
1334Table UofJapan 'sFirst Submission, p.188.
1335USEx.67-6, p.4.WT/DS44/R
Page437
andwhite filmandpaper, norfrom theTokyo orUruguay Rounds interms ofblack andwhite and
colour filmandpaper.
(b) 1967 JFTC Notification 17onpremiums tobusiness
10.252 Thesecondpromotion"measure"citedbytheUnitedStatesisJFTCNotification17onpremiums
tobusiness, of10May1967 ("JFTC Notification 17")1336,previously discussed under thesection on
distribution "measures". Thisnotification wasmade pursuant toArticle 3ofthePremiums Law
(authorization totheJFTC torestrict premiums), andprovides interaliathefollowing:
"Businesses ...whomanufacture (including process, hereinafter thesame) theproducts
listed intheattached tableorbusinesses whosellsuchproducts shallnotofferpremiums
tobusinesses whopurchase andselltheproducts involved insuchmanufacture orsale,
orwhousetheproducts tosupply services togeneral consumers (hereinafter referred
toas"other party business"), asameans ofinducing theother party business tobegin
totransact suchproducts, oronthecondition thattheother party business 'stransaction
amount orsuchother transaction condition satisfy certain criteria which the[first]
business hasestablished. Provided, however, thatthepreceding provisions shallnot
apply tocases ofpremium offers which arewithin theannual limitof100,000 yen
orlessperoneother party business, andwhich arefound reasonable inthelightof
normal business practices".1337
10.253 JFTC Notification 17limits to100,000 yenannually therightofmanufacturers ofcertain goods,
including manufacturers ofphotosensitive materials, tooffercashorother premiums towholesalers
orretailers asaninducement forthewholesaler orretailer tobegin handling themanufacturer 'sproducts,
ortomeet other conditions established bythemanufacturer (e.g., purchase tickets). Anexception
tothisprohibition onpremiums inexcess of100,000 yen(Item 2-4)allows amanufacturer tooffer
premiumstoemployeesofdistributorsandretailersthatareinaspecialrelationshipwiththemanufacturer
(e.g., through capital investment, interlocking directorates, etc.). JFTC Notification 17wasrepealed
inApril 1996 inthecourse ofareview ofthePremiums Law.
10.254 Applicationofmeasure.TheUnitedStatescontendsthatJFTCNotification17isagovernmental
measure. While conceding thatthemeasure wasrepealed inApril 1996, theUnited States argues that
other provisions ofJapanese lawmake therepeal meaningless. Specifically, premiums from
manufacturers towholesalers arestillsubject toDesignation 9ofJFTC Notification 15of19821338,
i.e.,theprovision governing theuseof"unjust inducements" under theAntimonopoly Law. That
designation prohibits premium offers inexcess of"normal business practice". Thus, according tothe
United States, given thatJFTC Notification 17setindustry practice for19years, itisuncertain atbest
astowhether present restrictions under Designation 9differ atallfromthesituation under Notification
17.
10.255 Japan contends that,although JFTC Notification 17wasatonetimeagovernmental measure,
itwasformally repealed inApril 1996. Thus, forJapan, there isnogovernmental measure inissue.
Asforthealleged continuation ofthepolicy underlying JFTC Notification 17through Designation
9ofJFTC Notification 15(1982), Japan responds thattheUnited States isbelatedly raising a"measure"
orpolicy thatwasnotspecifically identified initspanel request andwhich istherefore outside thePanel's
terms ofreference. Japan further states thatunder Designation 9ofJFTC Notification 15,theautomatic
trigger levelof100,000 yennolonger exists andtheburden ofproof lieswiththeJFTC.
1336USEx.67-4; Japan Ex.D-42.
1337Ibid, p.1.
1338Designation 9ofNotification 15(1982): "Inducing customers ofacompetitor todealwithoneself byoffering unjust
benefits inthelightofnormal business practice", USEx.82-6.WT/DS44/R
Page438
10.256 Wenotethatbothparties agree thatbetween 1967 and1996, JFTC Notification 17wasa
governmental measure. Wealsonotethattheybothagree thatthemeasure wasrepealed inApril 1996.
Theissuebefore us,therefore, iswhether ornotweshould takecognizance ofwhattheUnited States
describes asacontinuation ofthepolicy ofJFTC Notification 17bymeans ofDesignation 9ofJFTC
Notification 15(1982), thelatter nothaving beenspecifically identified intheUSpanel request. On
thisissue, werecall thatJFTC Notification 17itself wasalsonotspecifically identified inthepanel
request, butthatwedecided topermit itsinclusion within ourterms ofreference given thatitwasa
measure taken pursuant tothePremiums Lawwhich wasspecifically identified intherequest. JFTC
Notification 15of1982, incontrast, isa"measure" taken pursuant toArticle 2.9oftheAntimonopoly
Lawof1947. While theAntimonopoly Lawwascitedinthepanel request, itwascitedonlyinrespect
ofa"measure" relating todispatched employees. Consequently, wefound that"measures" unrelated
todispatched employees (i.e.,a"measure" relating tointernational contract notification andtoguidance
onloss-leader advertising anddumping) werenotwithin ourterms ofreference. Consistent withthat
finding wealsodonotconsider Designation 9ofJFTC Notification 15tobewithin ourterms of
reference. Moreover, even ifwewere toconsider thatitisappropriate totakeintoaccount the
USargument thatthepolicy underlying JFTC Notification 17(1967) hascontinued tobeapplied under
Designation 9ofJFTC Notification 15(1982), wenotethattheUnited States hasnotdemonstrated
thatthepolicy underlying JFTC Notification 17hasbeencontinued through ongoing administrative
guidance under theDesignation.
10.257 Benefit accruing. TheUnited States argues thatthebenefits accruing toitarelegitimate
expectations ofimproved market access totheJapanese filmandpaper market emanating fromtariff
concessions made byJapan intheKennedy, Tokyo andUruguay Rounds, andthatitcould nothave
anticipated theimpact ofJFTC Notification 17atthetimeoftheKennedy Round negotiations because
there werenopertinent factsavailable atthattimeconcerning theactions Japan waspreparing totake
toimplement itsliberalization "countermeasures" programme. Similarly, theUnited States argues
thatitcould nothaveanticipated theimpact ofthismeasure asoftheconclusion oftheTokyo and
Uruguay Rounds. Wealsorecall theJapanese position thattheUnited States cannot properly claim
tohaveanylegitimate expectations ofsuchimproved market access because thefirstJapanese tariff
concessions onfilmandpaper --limited toblack andwhite filmandpaper --occurred attheconclusion
oftheKennedy Round on30June1967, more thanamonth andahalffollowing issuance ofJFTC
Notification 17on10May1967. Japan further argues thatthemeasure should havebeenanticipated
afortiori asoftheconclusion oftheTokyo andUruguay Rounds.
10.258 Inourview, given thatthepublication ofJFTC Notification 17predated theconclusion of
theKennedy Round, itisdifficult toconclude thattheUnited States should notbeheldtohaveanticipated
JFTC Notification 17inadvance ofJapan'sfirsttariff concessions onfilmandpaper. Aswenoted
earlier, theUnited States ischarged withknowledge ofJapanese regulations onpublication. Although
wecanconceive ofcircumstances were theexporting WTO Member maynotreasonably beaware
ofthesignificance ofameasure fororitspotential disparate impact onimported products untilsome
timeafteritspublication, theUnited States hasnotdemonstrated theexistence ofanysuchcircumstance
here. Thisisparticularly truegiven thatasof1967 thecurrent structure oftheJapanese filmmarket
waslargely inplace, i.e.,therewereonlyafewprimary filmwholesalers andsingle-brand distribution
offilmwastypical, itwould seem thattheUnited States should havebeenabletoassess theimpact
ofthismeasure, ifany,ontheJapanese market forfilmatthetimeitwasintroduced. Thus, weare
notpersuaded thattheUnited States hasmetitsburden ofestablishing thatinrelation toJFTC
Notification 17,ithaslegitimate expectations ofimproved market access emanating fromtheKennedy
Round. Weconsider thatthisreasoning afortiori applies toclaimed legitimate expectations arising
from theTokyo andUruguay Round concessions.
10.259 Impairment andcausality. TheUnited States contends thateventhough JFTC Notification
17,which setsa100,000 yen($278 in1967) maximum annual limitonthepremium thatamanufacturer
could givetoawholesaler orretailer (oraprimary wholesaler toasecondary wholesaler orretailer)WT/DS44/R
Page439
forallproducts traded between thetwo,itupsetthecompetitive relationship between thetwo.According
totheUnited States, foreign enterprises entering theJapanese market ortrying toexpand theirmarket
sharefollowingtariffreductionsandimportliberalization,werenotabletoinvestintheirowndistribution
networks untilthe1970s when investment restrictions were progressively lifted. Thus, theUnited
Statesmaintains,foreignenterpriseshadtocompetewithJapanesemanufacturersforexistingwholesalers
anddistributors tocarry theirproducts. JFTC Notification 17limited theability offoreign enterprises
tooutbid Japanese enterprises inthecompetition forJapanese distributors bysetting anarbitrarily low
ceiling ontheamount ofpremiums thatamanufacturer could givetoawholesaler orretailer inany
oneyear. Moreover, theUnited States argues thatforeign manufacturers, which hadnodirect
relationships withJapanese wholesalers because ofJapan'srequirement thattheydealwithasoleimport
agent,wereprohibitedfromavailingthemselvesoftheexceptionunderItem2-4oftheJFTCNotification
17which permitted theoffering ofunlimited premiums totheemployees ofenterprises thatwerein
exclusive, vertically-integrated relationships withthemanufacturer.
10.260 Japan responds thatJFTC Notification 17didnotsingle outthephotographic materials industry:
more than100industries werecovered. Inanyevent, theregulation onlyrestricted excessive premium
offerstodistributors,nototherpromotionalactivities.Therationalefortherestrictionwasthatexcessive
offers could impair fairandfreeprice competition inthedistribution sector andcould increase the
distribution costtothedetriment ofconsumer interests. Lowpriceoffers, rebates andoffers ofgoods
toassist theother parties 'promotional activities werenotregulated under thisJFTC notification. Japan
alsoargues thattheUnited States misconstrues thenature oftheexception found inItem2-4.Premiums
offered toemployees ofcompanies which were inaspecial relationship, through share holdings or
interlocking directorates, withthemanufacturer, didnotfallunder theregulation, because theywere
nodifferent thanpremiums offered toone'sownemployees. Theexception applied onlytotransactions
which werevirtually identical tooperations within asingle entity. Fujianditsprimary wholesalers,
forexample, werenoteligible because theywerenotinaspecial relationship. Finally, astotheUS
arguments oninvestment restrictions, Japan responds thatduring theperiod before capital liberalization,
ifKodakhadwantedtouseinvestmentstoestablishandbuildrelationshipswithanysingle-brandprimary
wholesalers itcould havedoneso.According toJapan, Kodak 'sexclusive importer, Nagase, could
anddidinvest indistribution bybuying twoprimary wholesalers; itcould havelegally made equity
investments inFuji'sprimary wholesalers ifithadwanted to.ForJapan, USarguments about capital
restrictions interfering withKodak 'sbusiness plans makes nosense because Kodak exercised virtually
noneofitslegaloptions during theperiod ofrestrictions oninvestments orevenaftersuchrestrictions
were lifted.
10.261 Assessing theissue ofimpairment andcausality, wenotethatJFTC Notification 17appears
tobeequally directed atpromotional activities withrespect tobothdomestic andforeign products.
Itisnotspecifically aimed atimports, nordoesittarget filmandpaper, eventhough itlists"photographic
materials" among themany consumer products towhich itisdirected. Although there isreference
inapress summary totheneedtocounteract theinfluence ofUScapital1339,theJFTC drafting history
citesexcesses inJapanese industry leading todistortions inintrinsic competition forprice, quality and
beneficial services, and"cut-throat salespractices promoted byhugecapital power" asjustifications
forthemeasure.1340
1339Severe Restrictions Placed onBusinesses forPremium Offers: Shatokuren Hears JFTC Explanations atJyosui Kaikan
onthe12th, Nihon Shashin Kogyo Tsushin, 20June 1967, p.25,USEx.67-8, p.1.Inthispress summary, JFTC explained
that"[t]he primary objective of[Notification 17]is(a)rationalization ofthedistribution stage ...;and(b)eliminat[ion]
ofthestronger preyupontheweaker salescompetition based onthepower ofcapital ...IfUScapital weretoconduct [premium
offers] directed attheJapanese distribution sector, thiswould benomatch for[Japan], sotherestrictions should beapplied
asabreakwater before liberalization". Ibid.
1340RestrictiononPremiumOfferstoBusinesses,JFTC,PremiumsandRepresentationsInspectionDivision,KoseiTorihiki,
July1967, p.30,USEx.67-10, p.2.WT/DS44/R
Page440
10.262 Onbalance, inourview, theevidence suggests thatthismeasure isdirected against potential
excesses inthedistribution sector ingeneral. Ittargets excessive premiums given bymanufacturers
towholesalers andbywholesalers toretailers. Itdoesnot,however, attempt toregulate other forms
ofpromotional activity, suchaslowprice offers andrebates. Moreover, while wedonotreject the
notion thatfacially-neutral measures maybeshown tobeapplied inamanner thatupsets thecompetitive
relationship between domestic andimported products tothedetriment ofimports, theUnited States
hasnotbeenabletopoint toanysingle instance where implementation ofJFTC Notification 17has
ledtosucharesult inrespect ofUSfilmandpaper. Inthisregard, wenotethatuntil1975, Kodak
hadarelationship withaprimary wholesaler -Asanuma. Thatrelationship laterended apparently
because ofKodak 'srefusal todealdirectly withAsanuma.1341TheUnited States hasnotshown that
Kodak 'sinability togivepremiums toAsanuma wasrelevant tothetermination. Inaddition, theUS
contextual arguments about theimpact ofJapanese restrictions oninvestments, totheextent thatthey
aretrue1342,donotdemonstrate anything inrelation totheapplication ofJFTC Notification 17.Finally,
astotheexception provided inItem2-4ofJFTC Notification 17,theevidence suggests thatthis
provision, neither inherently norinitsapplication, discriminates against imported filmorpaper.
Although itappears thatKodak wasunable toavailitselfofthisexception, duetothestructure ofKodak 's
distribution relationships, thesame wastrueinthecaseofFuji.
10.263 Ontheevidence before us,therefore, wearenotpersuaded thatJFTC Notification 17,and
itsimplementation intheJapanese photographic materials sector (totheextent thishasoccurred), have
resultedinupsettingthecompetitiverelationshipbetweendomesticandUSfilmandpaperintheJapanese
market bypreventing Kodak fromestablishing distribution relationships inthatmarket. Accordingly,
wefindthattheUnitedStateshasnotdemonstratedthatJFTCNotification17nullifiesorimpairsbenefits
accruing totheUnited States within themeaning ofArticle XXIII:1(b).
10.264 Thus, while theUnited States hasshown thatJFTC Notification 17isameasure forpurposes
ofArticle XXIII:1(b), itisnolonger ineffect. Moreover, ithasnotshown thatitshould notbeheld
tohaveanticipated JFTC Notification 17inrelation toitsKennedy Round expectations inrespect of
black andwhite filmandpaper andithasnotdemonstrated thatJFTC Notification 17nullifies orimpairs
benefits accruing totheUnited States inrespect ofblack andwhite filmandpaper. Inrespect ofcolour
filmandpaper, ithasnotshown anyoftherequired elements ofanArticle XXIII:1(b) claim -except
thatitisameasure under Article XXIII:1(b).
(c) 1977 JFTC Notification 5onpremium offers toconsumers
10.265 Thethirdpromotion "measure" citedbytheUnited States isJFTC Notification 5onRestriction
onPremium Offers toConsumers of1March 1977("JFTC Notification 5").1343Thisnotification was
issued pursuant toArticle 3ofthePremiums Law. Itwasamended byJFTC Notification 2of
16February 1996(which removed theceiling of50,000 yenforpremiums toallpurchasers). Subject
tocertain exceptions dealing, interalia,withsamples, discount coupons, articles presented atbusiness
openings (allsubject tothecondition thattheybe"found reasonable inthelightofnormal business
practices"), JFTC Notification 5provides inrelevant part:
1341Affidavit ofTakenosuke Katsuoka, Japan Ex.A-11, pp.2-4.
1342Wenoteinthisregard Japan 'sreference toastatement bythePresident ofKodak Japan, Mr.Albert Sieg, ina1988
interview: "The glaring mistake waswaiting solongtotakeaggressive action inthismarket. Weshould have been here
withthisapproach tenyears ago. Clearly, themomentum ofourlocal competitors gotastrong forward thrust, andour
taskwillbemuch, much more difficult", ACentury ofSales, inTaking onJapan (1988), pp.35-39, Japan Ex.B-45. Japan
alsoindicates thatKodak could have established a50-50 jointventure, suchasKodak Nagase (setupin1986), asearly as
1971.
1343Japan Ex.D-32.WT/DS44/R
Page441
"1. Thevalue ofapremium offered togeneral consumers, excluding those by
lotteries orprize competition ...,shallbewithin 10percent ofthetransaction value
involved inthepremium offer(provided thatiftheamount islessthan100yen,the
limitshallbe100yen), andwhich isfound reasonable inthelightofnormal business
practices".1344
10.266 Werecall theUSclaim thatJFTC Notification 5hastheeffect ofseverely restricting theoffering
ofpremiums onphotographic filmandpaper togeneral consumers. According totheUnited States,
given therelatively lowprice offilmandpaper, thevalue ofanypremium falling within theJFTC 's
restrictions would benegligible.
10.267 Application ofmeasure. There isnodispute inthiscasethatJFTC Notification 5isa
governmental measure andthatitisstillineffect, although, asnoted above, itwasamended in
February 1996 withtheremoval oftheceiling of50,000 yenforpremiums toallpurchasers. We
therefore findthatthisnotification isameasure within themeaning ofArticle XXIII:1(b).
10.268 Benefit accruing. Werecall theUSclaim thatthebenefits accruing toitarelegitimate
expectations ofimproved market access totheJapanese filmandpaper market emanating fromtariff
concessions made byJapan intheKennedy, Tokyo andUruguay Rounds. Inparticular, theUnited
States argues thatitcould nothaveanticipated JFTC Notification 5attheconclusion oftheKennedy
Round negotiations since itwasnotissued until1977. There wasnoreason, according totheUnited
States, thatitcould orshould haveknown thatJapan would takesuchanaction. Similarly, theUnited
States maintains thatitcould nothaveanticipated theimpact ofthethismeasure asoftheconclusion
oftheTokyo andUruguay Rounds (although theseRounds wereconcluded subsequent tothemeasure).
10.269 Japan responds thatthePremiums Lawwasenacted in1962, thatJFTC Notification 5merely
representedanelaborationofthegeneralnormssetforthinthatlaw.AccordingtoJapan,thiselaboration
ofgeneral norms setoutinthePremiums Lawshould havebeenreasonably anticipated bytheUnited
States, sincetheUnited States could havehadnolegitimate basisforexpecting thatexcessive premiums
would gounregulated, orthatthePremiums Lawwould notbeenforced vigorously. Japan further
argues thatthemeasure should havereasonably beenanticipated afortiori priortoJapan'sconcessions
attheconclusion oftheTokyo andUruguay Rounds.
10.270 Inassessing whether theUnited States should havereasonably anticipated thismeasure, we
recall ourconclusion thatnormally aMember should notbeconsidered tohaveanticipated ameasure
adopted aftertheconclusion ofanegotiating round, absent some reason toreach acontrary result.
Here, wearenotpersuaded thattheexistence ofthePremiums Lawmeant thattheUnited States should
beheldtoanticipate thespecific wayandterms pursuant towhich premiums areregulated in
Notification 5.However, totheextent thatanylegitimate expectations exist, theyarelimited toblack
andwhite filmandpaper.
10.271 With respect totheTokyo andUruguay Round concessions, which weregranted subsequent
tothemeasure, itisdifficult nottoconclude thattheUnited States should haveanticipated thisalready
existingmeasure.Again,althoughwecanconceiveofcircumstanceswheretheexportingWTOMember
maynotreasonably beaware ofthesignificance ofameasure fororitspossible differential impact
untilsome timeafteritsoriginal publication, theUnited States hasnotdemonstrated theexistence of
anysuchcircumstance here. Accordingly, wefindthattheUnited States hasnotdemonstrated that
inrelation toJFTC Notification 5,ithaslegitimate expectations ofimproved market access for
photographic filmandpaper emanating from theTokyo orUruguay Round concessions.
1344Ibid, p.1.WT/DS44/R
Page442
10.272 Impairment andCausality. TheUnited States claims thattheJFTC 'simposition ofnew
restrictions ontheuseofpremiums upset theconditions ofcompetition between imported anddomestic
products aftertheKennedy Round byseverely limiting theinducements enterprises could usetoattract
wholesalers, retailers andconsumers totheirproducts. Specifically withregard toJFTC Notification 5,
theUnited States argues thattheimposition oflimits onthevalue ofpremium offers severely restricted
theoffering ofpremiums onfilmandpaper togeneral consumers, andthatgiven therelatively low
price ofsuchproducts, thevalue ofanypremium falling within theJFTC 'srestrictions would be
negligible. Although conceding thatJFTC Notification 5isfacially neutral, theUnited States argues
thatitsapplication isintended tohave, andhas,adisparate impact onimported filmandpaper. In
particular, theUnited States argues thatthismeasure helps preserve thedominant position ofJapanese
filmandpaper manufacturers byshielding them from significant forms ofpromotion competition.
Inshort, theUnited States claims, JFTC Notification 5,along withother JFTC notifications, hashad
a"chilling effect" ontheability offoreign producers toengage inpromotion activities sufficient to
compete effectively withdominant domestic brands.
10.273 Japan responds that: first,thePremiums LawandJFTC notifications aretrade-neutral, with
theregulationofpremiumsandrepresentationsunderthePremiumsLawandJFTCnotificationsapplying
equally toimported anddomestic products; second, there isnothing about restrictions onexcessive
premiums oronmisleading representations thatisinherently unfavourable toimports, noristhere
anythingintrinsictoimportsthatmakesthemparticularlyreliantonmisleadingrepresentationorexcessive
premiums; third, thereisno"chilling effect" inthattheregulations arenolessadvantageous toimported
products orproducts representing alower market share thantodomestic products; fourth, there is
noconstraint onforeign filmmanufacturers inpromoting theirproducts byspending asmuch asthey
want onadvertising, orbycompeting onprice andquality, lawful premiums andnon-misleading
representations1345;andfifth, evenifregulations were eased, thiswould notnecessarily operate to
theadvantage ofthechallenging brands inthatdominant brands would likely respond withfurther
aggressive promotional activities oftheirown. Inanycase,Japan submits thatinthecourse ofareview
ofitsregulations under thePremiums Lawin1996, theJFTC streamlined itsgeneral ruleonexcessive
premiums, abolished restrictions onpremium offers tobusinesses, andraised theceiling onprizes.
10.274 Onpricecompetition inparticular, werecall Japan'sclaim thatKodak film(theleading foreign
brand) isoften soldatretail atsubstantial discounts offmanufacturer 'ssuggested retail price, andthat
although Kodak doesnotadvertise asheavily asitsdomestic competitors, itdoesengage infocused
campaigns oftargeted heavy advertising, "with predictable results". Japan notes thatKodak 'sheavy
advertising andpromotion inNagano, siteofthe1998Winter Olympics (ofwhich Kodak isacorporate
sponsor), hasledtoadoubling ofitsmarket share inthatarea. Inresponse, theUnited States argues
thattheability offoreign manufacturers touseprice discounts toexpand theirpresence inJapan has
beenrather limited inthatpricereductions byforeign photographic materials manufacturers, including
Kodak andAgfa, haveoftennotbeenpassed ontoconsumers attheretail level. Forinstance, according
totheUnited States, Kodak hasreduced itsprices by56percentsince1986, substantially undercutting
itsJapanese competitors, yetthese price discounts havehadvirtually noeffect onconsumer prices
inthemarket. TheUnited States further states thatthislackofprice competition isreflected inthe
factthatJapan'sconsumer price index forfilmshowed almost nomovement between 1989and1996,
aperiod ofseven years.
10.275 Assessing theissues ofimpairment andcausality, wenotethatthetextofJFTC Notification 5
appears tobeequally directed atdomestic andforeign practices ofmanufacturers, distributors and
retailers, aswellasatmarket incumbents andmarket entrants. Itisnotspecifically aimed atimports,
nordoesitmake anymention oforotherwise target filmandpaper. Theevidence suggests thatthis
measure limits oneparticular typeofpromotional activity, specifically, thevalue ofpremiums (asa
1345According toJapan, theUnited States often emphasizes thedisadvantage feltbyachallenging brand against adominant
brand, notthemarket competition between imported anddomestic brands.WT/DS44/R
Page443
percentage ofthevalue ofindividual transactions) thatmaybegiven togeneral consumers by
manufacturers, distributors andretailers. Itdoesnot,however, regulate other forms ofpromotional
activity, suchaslowprice offers, rebates oradvertising generally. While weappreciate theneedfor
competitors withasmall market share inanoligopolistic market tobeabletoengage inpromotional
activities ingeneral, weconsider itsignificant thatJFTC Notification 5andtheotherspecific "measures"
citedbytheUnited States donotlimitgeneral advertising expenditures orpricecompetition ingeneral.
10.276 Turning firsttotheissueofhowimportant itisforaseller ofimported filmandpaper inJapan
tobeabletoofferpremiums toretail customers, wenotethattheUnited States suggests thattheability
tooffer premiums toretail customers isessential because retailers andwholesalers willnotpasson
lower wholesale prices toconsumers. However, while itisnotclearthatKodak hasgenerally advertised
asheavily asthedomestic companies, there isevidence thatwhen Kodak didadvertise heavily (inthe
Nagano region) itsmarket share increased.1346Thissuggests thatgiving premiums tocustomers is
notessential tosuccess intheJapanese market. Atthesametime,evenifcartel-like activities ofretailers
inJapan mayresult insuppression ofprice competition andafailure topassontoconsumers price
cutsgiven bymanufacturers todistributors orretailers, andevenifsuchactivity mayaffect theimports
offoreign manufacturers disproportionately, theUnited States hasnotdemonstrated --orevenclaimed --
thatsuchprivateanti-competitiveactivity,totheextentitexists,isattributabletogovernmentalmeasures,
andwetherefore refrain from considering suchhypotheses inthecontext ofthiscase.
10.277 Asnoted above, JFTC Notification 5applies equally todomestic andimported products.
Nonetheless, wedonotruleoutthepossibility thatameasure which appears tobeformally neutral
astotheorigin ofproducts maybeshown tobeapplied amanner thatupsets thecompetitive relationship
between domestic andforeign products tothedetriment ofimports. Inthisconnection, theUnited
States citestwoexamples initsclaims inrespect oftheRetailers Code thatinvolve premium offers
toretail customers. Asexplained inourlaterdiscussion oftheRetailers Code, wedonotconsider
thattheseexamples establish thatJapan'slimitations onpremium offers toretailcustomers haveresulted
inupsettingthecompetitiverelationshipbetweendomesticandUSfilmandpaperintheJapanesemarket.
Accordingly, wefindthattheUnited States hasnotdemonstrated thatJFTC Notification 5nullifies
orimpairs benefits accruing totheUnited States within themeaning ofArticle XXIII:1(b).
10.278 Thus,whileJFTCNotification5maybeviewedasameasureforpurposesofArticleXXIII:1(b),
theUnited States hasnotshown thatitshould notbeheldtohaveanticipated themeasure northat
themeasure nullifies orimpairs benefits accruing totheUnited States inrespect ofblack andwhite
filmandpaper. Inrespect ofcolour filmandpaper, ithasonlyshown oneoftherequired elements
ofanArticle XXIII:1(b) claim --theexistence ofameasure.
(d) 1981 JFTC Guidance onDispatched Employees
10.279 Thefourth promotion "measure" citedbytheUnited States isJFTC guidance ofDecember 1981
recommending theestablishment ofrules ontheuseofdispatched employees ("JFTC Guidance on
Dispatched Employees").1347InOctober 1979, theJFTC proposed andtheCabinet approved the
establishment ofaDistribution Sector Office ("DSO") to"administer duties pertaining tounfair trade
practicedesignationsrelatedtodistribution".1348Followingitsestablishment,theDSOstudied16business
sectors, issuing itsfindings oncameras andphotographic materials inDecember 1981, inwhich it
advised "camera, photographic materials, colour photo laboratories andrelated industries" toaddress
"problems" created bymanufacturers dispatching employees tolarge retail stores. Thealleged
1346Japan 'sstatement thatKodak 'sheavy advertising andpromotion inNagano ledtoadoubling ofitsmarket share in
thearea, isnotcontested bytheUnited States.
1347Kosugi Misao, Trade Practices Department, Distribution Sector Office JFTC, Status ofDistribution ofCameras, Kosei
Torihiki, No.377, March 1982, pp.45-49, USEx.82-3, p.8.
1348Cabinet Order No.43of1979, USEx.79-1.WT/DS44/R
Page444
administrative guidance takestheformofastatement byaDSOofficial oftheJFTC, inanarticle entitled
"The Status ofDistribution ofCameras". Therelevant partofthisarticle states thefollowing:
"TheJFTC isissuing guidance tothecamera, photographic accessories, colour photo
labandrelated industries toexamine theuseofself-regulating measures withrespect
tothepermanent dispatch ofsales people soasnottogotoofarasmanufacturers '
sales promotion methods orasactsbased onthebuying power ofvolume sales
stores".1349
10.280 TheUSviewisthatdispatched employees areaunique formofeconomic inducement between
businesses: theyreduce costsforwholesalers andretailers andthereby allow forincreased salesbased
uponcostorpricereductions passed down thelineofdistribution. Wealsorecall theJapanese response
thatthephotographic industry wasworking onstandards forthedispatch ofpersonnel evenbefore
theJFTC published theresult ofthe"Survey ofDistribution oftheCamera Industry" inDecember
1981.
10.281 Application ofmeasure. TheUnited States claims thattheJFTC Guidance onDispatched
Employees isameasure inthetraditional formofJapanese administrative guidance andthatitisstill
ineffect. Japan argues thatwhile thisstatement byaJFTC official mayhaveconstituted aform of
administrative guidance inthebroadest sense, itdoesnotrepresent thekindofadministrative guidance
thatcould beconsidered tobethesubstantive equivalent ofaformally binding measure, inthatitneither
provides sufficient incentives ordisincentives forprivate parties toact,nordoesitdepend ongovernment
action toensure compliance withtheguidance. Moreover, according toJapan, totheextent thatthis
everwasameasure, itisnolonger ineffect.
10.282 Ouranalysis oftheJFTC Guidance onDispatched Employees focuses, inthefirstinstance,
onwhether ornotthisparticular "guidance" should beviewed asthetypeofadministrative guidance
thatmeets therequirements ofameasure under Article XXIII:1(b). Wenotethatneither party has
devoted much space toarguing thisissue. Wenevertheless notethattherelevant statement oftheJFTC
official makes explicit reference to"guidance" andadvises thephotographic materials industry (ora
substantial partofit)"toexamine theuseofself-regulating measures withrespect tothepermanent
dispatch ofsalespeople ...".Given thisexplicit statement ofguidance tothephotographic materials
industry from thegovernment body charged withimplementation oftheAntimonopoly Lawandthe
Premiums Law, wethinkitreasonable toassume, intheabsence ofsubstantial argument tothecontrary,
thatthisJFTC Guidance onDispatched Employees meets thestandard forgovernmental measures that
welaidoutinourgeneral discussion ofArticle XXIII:1(b). Thisresult issupported bythefactthat
theguidance wasacted upon. Accordingly, wefindthattheJFTC Guidance onDispatched Employees
isameasure within themeaning ofArticle XXIII:1(b). Also, intheabsence ofanyindication that
thismeasure hasbeenwithdrawn, wefindthatitisstillineffect although wenotethatitssignificance
maybeminimal given thatthematter isnowdealtwithintheSelf-Regulating Measures, described
inthenextsection.
10.283 Benefit accruing. Werecall theUSclaim thatthebenefits accruing toitarelegitimate
expectations ofimproved market access totheJapanese filmandpaper market emanating fromtariff
concessions made byJapan intheKennedy, Tokyo andUruguay Rounds, andthat,inparticular, it
could nothaveanticipated themeasure attheconclusion oftheKennedy Round northatwithin two
years oftheconclusion oftheTokyo Round, theJFTC would issue JFTC Guidance onDispatched
Employees. TheUnited States alsoargues thatithaslegitimate expectations resulting from Japan's
Uruguay Round concessions inthatevenin1994 itwasnotaware oftheimpact thisguidance was
having ontheJapanese filmmarket.
1349USEx.82-3, p.8.WT/DS44/R
Page445
10.284 Japan responds thattheUnited States should havereasonably anticipated suchguidance inthe
context ofthegovernment 'scontinuing implementation ofthePremiums Law. Japan argues thatthe
United States should havereasonably anticipated themeasure afortiori asoftheconclusion ofthe
Uruguay Round.
10.285 TheJFTC Guidance onDispatched Employees waspublished inJanuary 1981, i.e.,afterthe
conclusion ofboththeKennedy andTokyo Rounds. Inlinewithourprevious assessment ofvarious
measures,wedonotconsiderthattheUnitedStatesshouldbechargedwithhavingreasonablyanticipated
theparticular application ofthePremiums Lawembodied inJFTC Guidance onDispatched Employees
asoftheconclusion oftheKennedy Round oroftheTokyo Round. Wetherefore findthatinrelation
toJFTC Guidance onDispatched Employees, theUnited States hasdemonstrated theexistence of
legitimate expectations ofimproved market access emanating fromtariffconcessions granted byJapan
during theKennedy andTokyo Rounds. These expectations arelimited toblack andwhite filmand
paper inrespect oftheKennedy Round, butcover thefullrange ofproducts atissue inrespect ofthe
Tokyo Round.
10.286 With respect toJapan'sUruguay Round concessions, which weregranted subsequent tothe
measure, itisdifficult toconclude thattheUnited States should notbeheldtohaveanticipated this
already existing measure. Again, although wecanconceive ofcircumstances where theexporting WTO
Member maynotreasonably beaware ofthesignificance ofameasure fororitspossible differential
impact onimported products untilsome timeafteritsoriginal publication, theUnited States hasnot
demonstrated theexistence ofanysuchcircumstance here. Accordingly, wefindthattheUnited States
hasnotdemonstrated thatinrelation toJFTC Guidance onDispatched Employees, ithaslegitimate
expectations ofimproved market access emanating from theUruguay Round concessions.
10.287 Impairment andcausality. TheUnited States argues thattheJFTC 'sGuidance onDispatched
Employees results intherestriction ofaunique form ofeconomic inducement between businesses.
According totheUnited States, theability ofmanufacturers andwholesalers todispatch employees
toretailers reduces costs tosuchretailers andthereby allows forincreased salesbased upon costor
pricereductions passed down thelineofdistribution. Japanese responds thatthephotographic industry
wasalready working onstandards forthedispatch ofpersonnel before theJFTC published theresult
ofthe"Survey ofDistribution oftheCamera Industry" inDecember 1981 (para. 5.249). Moreover,
according toJapan, theparticular guidance inissue isnotaddressed tothefilmandpaper sectors of
thephotographic materials industry.
10.288 TheJFTC Guidance onDispatched Employees arguably ledtotheSelf-Regulating Measures,
discussed inthenextsection. Those measures contain limitations ondispatched employees andtherefore
effectively fulfil theguidance. However, wewillconsider theeffect ofmeasures limiting dispatched
employees inthissection because theUnited States addresses theissue hereandnotinrespect ofthe
Self-Regulating Measures. Attheoutset, wenotethatthere isdisagreement between theparties as
towhether ornotthisguidance applies tothefilmandpaper sectors. Theguidance applies tothe
"camera, photographic accessories, colour photo labandrelated industries".1350Thefilmandpaper
sectors arenotexplicitly mentioned intheguidance. While itispossible thatthese sectors feltbound
bytheguidance under the"related industries" language, werecall thatthe1970 Guidelines stated:
"Dispatched employees arerarely seenatgeneral photography materials retailers". Thus, wehave
doubts astowhether thisguidance wasdirected atthefilmandpaper sectors.
10.289 Totheextent thattheguidance doesapply tothefilmandpaper sectors, wenotethatincalling
fortheuseofself-regulating measures withrespect tothepermanent dispatch ofsalespeople, theJFTC
Guidance onDispatched Employees potentially limits oneform ofpromotional activity. However,
1350USEx.82-3, p.8.WT/DS44/R
Page446
theUnited States hasnotprovided anyevidence tothePanel ofhowthisparticular measure hashad
anyadverse effect ontheefforts offoreign filmandpaper manufacturers tomarket theirproducts in
Japan. Asnoted above, there isevidence thattheuseofdispatched employees inthefilmandpaper
sector isnotsignificant.
10.290 Alsoasnoted above, thismeasure onitsfaceaffects domestic andimported products equally.
Nonetheless, wedonotruleoutthepossibility thatameasure which appears tobeformally neutral
astotheorigin ofproducts maybeshown tobeapplied inamanner thatcould upset thecompetitive
relationship between domestic andforeign products tothedetriment ofimports. There isnoevidence
intherecord before usthatthishasoccurred inrespect ofthismeasure.
10.291 Thelackofevidence ofimpact, when combined withtheJapanese statement --unrebutted by
theUnited States --thatthephotographic industry wasalready working onstandards inthisareaprior
totheJFTC guidance, leadsustofindthattheUnited States hasfailed todemonstrate thattheapplication
ofJFTC Guidance onDispatched Employees hasnullified orimpaired benefits accruing toitinterms
ofArticle XXIII:1(b).
10.292 Thus, JFTC Guidance onDispatched Employees maybeviewed asameasure forpurposes
ofArticle XXIII:1(b) andtheUnited States hasshown thatitshould notbeheldtohaveanticipated
themeasure inrespect ofitsexpectations onblack andwhite filmandpaper fromtheKennedy Round
andonthefullrange ofproducts atissueinrespect oftheTokyo Round. Ithasnotshown, however,
thatthemeasure nullifies orimpairs itsbenefits interms ofArticle XXIII:1(b). Inrespect oftheUruguay
Round, ithasonlyshown oneoftherequired elements ofanArticle XXIII:1(b) claim --theexistence
ofameasure.
(e) 1982Self-Regulating Measures onFairness InTrade andEstablishment oftheFairTrade
Promotion Council
10.293 Thefifthandsixthpromotion "measures" citedbytheUnited States aretheSelf-Regulating
Measures concerning Fairness inTrade withBusiness, issued inJune1982("Self-Regulating Measures
onFairness inTrade")1351,andtheEstablishment oftheFairTrade Promotion Council on23December
1982.1352Because ofthecloseinterrelatedness ofthesetwo"measures", weshallconsider themtogether
inthissection.
10.294 TheSelf-Regulating Measures onFairness inTrade, which aresetoutinPartII,concern (i)the
dispatch ofemployees bymanufacturers orwholesalers toretailers forthepurpose ofsalespromotion
orother salesactivities, and(ii)standards onpromotional money andcontributions.
10.295 TheFairTrade Promotion Council wasestablished bythedomestic photographic industry on
23December 1982. According toitsArticles ofAssociation, thecouncil isto,interalia,establish
fairtransaction order inthephotographic industry andtopromote andenforce theSelf-Regulating
Measures onFairness inTrade.1353Thecouncil consists ofsixgroups, including Zenren (retailers
association), Shashoren (photosensitive materials distributors 'association), Zenraboren, thePhoto-
Sensitive Materials Manufacturers 'Association, theCamera Industry Association andtheSupplies
Industry Association. Article 17provides that"[e]stablishing orabolishing theprovisions ofthese
1351Camera Times, "Self-Regulating Measures Regarding Making Business Dealings withTrading Partners Fair" ("Self-
Regulating Rules onFairness inTrade"), 22June 1982, USEx.82-8, pp.1-3.
1352TheNational Photography Industry FairTrade Promotion Council Articles ofAssociation, 23December 1982, see:
FairTrade Promotion Council Established: "AnAttempt toImprove theStructure oftheIndustry" Fujimori Masao (Misuzu)
Appointed Chairman oftheCouncil, in:Zenren Tsuho, January 1983, pp.46-47, USEx.83-3, pp.2ff.
1353Thecouncil alsoenacted the1984 Self-Regulating Standards regarding Representation ofDeveloping FeesforColour
Negative Film (15May 1984), USEx.84-4 (seebelow).WT/DS44/R
Page447
Articles ofAssociation andtheresponsibilities ofthisCouncil, shallrequire prior approval fromthe
Japan FairTrade Commission".1354
10.296 Applicationofmeasures.TheissuehereiswhethertheestablishmentoftheFairTradePromotion
Council andtheissuance andapplication oftheSelf-Regulating Measures onFairness inTrade can
beascribed totheGovernment ofJapan (theJFTC). Werecall theUSclaims thattheJFTC provided
administrative guidance tothenational photographic industry calling forself-regulating measures on
dispatched employees (theprevious measure considered above), andthatthereafter theJFTC created
theFairTrade Promotion Council byadministrative guidance. Inrelation tothislatter claim, a1992
directive oftheFairTrade Promotion Council states that
"[t]his council wasestablished under theguidance oftheJapan FairTrade Commission
inDecember of1982forthepurpose ofsecuring afairtradesystem inthephotographic
industry, deepening theexchange ofideas andunderstanding among businesses, and
contributing tothedevelopment oftheindustry".1355
TheUnited States further argues thatArticle 17oftheFairTrade Promotion Council 'sArticles of
Association illustrates thefactthattheJFTC oversees thecouncil 'sactivities. Article 17provides:
"Establishing orabolishing theprovisions ofthese Articles ofAssociation andtheresponsibilities of
thisCouncil shallrequire prior approval from theJapan FairTrade Commission".1356Moreover, in
theUSview, thedelegation ofauthority fromtheJFTC totheFairTrade Promotion Council ismade
explicit inArticle 4oftheArticles ofAssociation which confers upon thecouncil anumber of
enforcement powers:
"Inorder toachieve theobjectives which weredescribed inArticle 3above, theCouncil
willcreate acommittee which willberesponsible forthefollowing: ...secure fair
transaction order between allelements ofthedistribution system, manufacturers,
wholesalers, andretailers. ...Take thenecessary actions against those whoviolate
theSelf-Regulating Measures. ...Liaise withthecompetent governmental authorities.
...Allother responsibilities necessary toachieve theCouncil sobjectives".1357
TheUnited States alsoclaims thattheJapanese Government should bearresponsibility fortheeffects
offaircompetition codes andtheactivities offairtrade councils, including trade associations acting
under theaegisofacodeorcouncil because thecodes andcouncils aresubject toapproval bytheJFTC.
Specifically, Article 10(1) ofthePremiums Lawprovides:
"Businesses oratrade association may, upon obtaining authorization from theFair
Trade Commission inaccordance withtheRules oftheFairTrade Commission, with
respect tomatters relating topremiums orrepresentations, conclude orestablish an
agreement oracode, aiming atpreventing unjust inducement ofcustomers and
maintaining faircompetition. Thesame shallapply intheevent alterations thereto
areattempted".1358
TheUnited States points outthatArticle 10(3) goesontostatethattheoperation ofthecodes and
councils issubject toJFTC supervision, andthatArticle 10(5) exempts theiractivities fromantitrust
enforcement. Article 10(5) ofthePremiums Lawprovides thattheAntimonopoly Law"shall notapply
1354USEx.83-3.
1355National Photographic Industry FairTrade Promotions Council, Notice No.1,29August 1992, USEx.92-7.
1356USEx.83-3.
1357Ibid, p.2.
1358Premiums Law, USEx.62-6.WT/DS44/R
Page448
tothefaircompetition codethathasbeenauthorized ...andtosuchactsofentrepreneurs oratrade
association ashavebeendoneinaccordance therewith".1359
10.297 Japan responds thatindustry self-regulation isprivate-sector conduct, andnotagovernment
measure. According toJapan, theFairTrade Promotion Council isaprivate-sector organization which
wasestablished bythecamera industry toimplement voluntary standards ondispatched employees,
andhasnogovernmentalauthority.Japanpointsoutthatmembershipinthecouncilisnon-discriminatory
andopentodomestic andforeign entities; Kodak isamember through itsaffiliation withtheCamera
Manufacturers 'Association. Japan alsoargues thatalthough thecouncil 'sdocuments referto"approval"
and"guidance", andthatthecouncil isfreetodeclare thatitwillseektheJFTC 'sapproval orfollow
itsguidance, suchreferences donotdelegate tothecouncil anyauthority oftheJFTC. Moreover,
Japan argues thattheJFTC hasnostatutory authority toapprove agreements underlying theFairTrade
Promotion Council; theJFTC 'saction withregard tothecouncil 'senforcement oftheSelf-Regulating
Measures onFairness inTrade, particularly asitrelates todispatched employees, wasanon-binding
expression oftheJFTC 'sviewthattheagreement would notimmediately violate theAntimonopoly
Law. Inaddition, Japan argues, council actions under anapproved codearenotexempt from the
operation ofthesubstantive provisions, e.g.,prohibitions ofunfair tradepractices, oftheAntimonopoly
Law. Theonlylegalconsequence oftheJFTC approval isthattheJFTC mustfirstrevoke theapproval
before itenforces theAntimonopoly Lawagainst anapproved codeorimplementation thereof.
10.298 Inconsidering theissueofwhether ornottheestablishment oftheFairTrade Promotion Council
andtheissuance andapplication oftheSelf-Regulating Measures onFairness inTrade should be
considered asmeasures attributable totheJapanese Government, wenote, first, thatthedocuments
evidencing theSelf-Regulating Measures onFairness inTrade andtheestablishment oftheFairTrade
Promotion Council suggest thattheparticular self-regulating measures andthecouncil arelargely the
product ofdecisions byprivate industry associations. Atthesametime, however, wenotetheexistence
ofanumber ofreferences inthePremiums Law, theJFTC Guidance onDispatched Employees, the
Articles ofAssociation oftheFairTrade Promotion Council (aswellasalaterdirective ofthecouncil)
andtheSelf-Regulating Measures onFairness inTrade, suggesting asubstantial connection between
theJFTC andthese twoalleged "measures". Werecall inthisregard thestatement byaJFTC official
in1981 that
"theJFTC isissuing guidance tothecamera, photographic accessories, colour photo
labandrelated industries toexamine theuseofself-regulating measures withrespect
tothepermanent dispatch ofsales people soasnottogotoofarasmanufacturers '
salespromotion methods orasactsbased onthebuying power ofvolume salesstores"
(emphasis added).1360
Wefurther recall a1992 directive oftheFairTrade Promotion Council which states:
"Thiscouncil wasestablished under theguidance oftheJapan FairTrade Commission
inDecember of1982forthepurpose ofsecuring afairtrade system inthephotographic
industry ,deepening theexchange ofideas andunderstanding among businesses, and
contributing tothedevelopment oftheindustry" (emphasis added).1361
Moreover, Article 17oftheFairTrade Promotion Council 'sArticles ofAgreement provides asfollows:
"Establishing orabolishing theprovisions ofthese Articles ofAssociation andtheresponsibilities of
thisCouncil shallrequire priorapproval fromtheJapan FairTrade Commission "(emphasis added).1362
1359Ibid.
1360USEx.82-3, p.8.
1361National Photographic Industry FairTrade Promotions Council, Notice No.1,29August 1992, USEx.92-7.
1362USEx.83-3.WT/DS44/R
Page449
Inaddition, Article 4ofthesesamearticles callsonthecouncil, incarrying outitsobjectives (including
theestablishment offairtransaction order inthephotography industry), to"liaise withthecompetent
governmental authorities "(emphasis added).1363There isalsothestatement inthe"addendum" tothe
Self-Regulating Measures onFairness inTrade totheeffect that
"Each member company oftheFairTrade Promotion Council shallexertself-regulation
inaccordance withthesestandards, andtheFairTrade Promotion Council shall, under
theguidanceoftheJapanFairTradeCommission,issueguidancetothemasappropriate
andnecessary" (emphasis added).1364
10.299 Inlightoftheabove statements bytheJFTC andtheFairTrade Promotion Council, weconsider
thattheSelf-Regulating Measures havesufficient connection toadministrative guidance oftheJapanese
Government towarrant afinding thattheyareattributable tothegovernment within themeaning of
Article XXIII:1(b). Regardless ofwhether thePromotion Council 'sArticles ofAssociation orthe1982
Self-Regulating Measures wereinfactformally approved bytheJFTC, thereisasufficient likelihood
thatprivate parties willactinconformity withtheSelf-Regulating Measures toconsider itadministrative
guidance within theambit ofArticle XXIII:1(b).1365Inourview, thisfinding isconsistent withpast
GATT practice. Inthisregard, wenotethecharacterization ofthesimilar "faircompetition codes"
approved bytheJFTC as"legal regulations" inthe1987 Japan -Liquor Taxes case.1366Also, inthe
absence ofanyargument orevidence tothecontrary, wefindthatthesetwomeasures arestillineffect.
10.300 Benefit accruing. Werecall theUSclaim thatthebenefits accruing toitarelegitimate
expectations ofimproved market access totheJapanese filmandpaper market emanating from tariff
concessions made byJapan intheKennedy, Tokyo andUruguay Rounds, andthat,inparticular, it
could nothaveanticipated themeasures attheconclusion oftheKennedy Round northatbyJune1982,
within afewyears oftheconclusion oftheTokyo Round, thedomestic photographic industry would
respond toJFTC guidance inpromulgating itsSelf-Regulating Measures onFairness inTrade, orthat
thiswouldbefollowedsixmonthslaterbytheformalestablishmentoftheFairTradePromotionCouncil.
Similarly, theUnited States argues thatitwasunaware oftheimpact ofthese measures onthefilm
industry inJapan evenasoftheconclusion oftheUruguay Round.
10.301 Wefurther recall theJapanese response thattheSelf-Regulating Measures onFairness inTrade
andtheestablishment oftheFairTrade Promotion Council areirrelevant tothereasonable expectations
oftheUnited States because these twoactions represent private conduct.
10.302 Inassessing theissue ofwhattheUnited States should haveanticipated attheconclusion of
theKennedy andTokyo Rounds, werecall ourconclusion thatnormally aMember should notbe
considered tohaveanticipated measures taken aftertheconclusion ofanegotiating round, absent some
reason toreach acontrary result. Inrespect ofthese twospecific measures, weseenoreason why
theUnited States should haveanticipated them. Theexistence ofcodes andcouncils intheJapanese
business system doesnotimply thattheUnited States could orshould anticipate theparticular rules
contained inaspecific action taken byacouncil. Thus, wefindthattheUnited States haslegitimate
expectations ofimproved market access emanating from theKennedy andTokyo Round inrespect
ofthese measures.
10.303 However, withrespect toJapan'sUruguay Round concessions, which weregranted subsequent
tothemeasures, itisdifficult toconclude thattheUnited States could notreasonably anticipate these
1363Ibid.
1364USEx.82-8, p.3.
1365SeeJapan -Agricultural Products ,BISD 35S/163, 242. Seealsoparas. 10.46, 5.495 and5.501-5.505 above.
1366Panel Report onJapan -Customs Duties, Taxes andLabelling Practices onImported Wines andAlcoholic Beverages
("Japan -Liquor Taxes "),adopted on10November 1987, BISD 34S/83, 87,para. 2.7.WT/DS44/R
Page450
already existing measures. Again, although wecanconceive ofcircumstances where theexporting
WTO Member maynotreasonably beaware ofthesignificance ofameasure orofapossible differential
impact untilsometimeafteritsoriginal publication, theUnited States hasnotdemonstrated theexistence
ofanysuchcircumstance here. Thelackofsuchevidence would seem tobeespecially telling inview
ofthefactthatthecoderegulates andthecouncil encompasses members fromthephotographic industry,
i.e.,itwasproduct-specific. Accordingly, wefindthattheUnited States hasnotdemonstrated that
inrelation totheSelf-Regulating Measures onFairness inTrade andtheestablishment oftheFairTrade
PromotionCouncil,ithaslegitimateexpectationsofimprovedmarketaccessemanatingfromtheUruguay
Round concessions.
10.304 Impairment andcausality. TheUnited States argues thatbyregulating theuseofdispatched
employees, promotional funds andprice-related representations, theFairTrade Promotion Council
serves tosuppress competition forfilm,paper andother photographic goods. Inthisregard, theUnited
States argues thatthecouncil 'senforcement record reflects theextraordinary range ofitsactivities
andthepotencyofitsenforcementpowers.TheUnitedStatesgivestheexampleofthecouncil's"success
infoilingKodak'smostimportantpromotionalcampaignofthe1980s,theVRTrial-Pack".1367According
totheUnited States, thecouncil, atthebehest ofZenren (theretailers 'association) andworking with
theJFTC, determined before thecampaign hadevenbegun (inJune1983) thatKodak 'santicipated
advertisement ofadiscount price wasamisrepresentation; asaresult, thepromotion wascutback
andadvertisements forthecampaign werequitemuted. Inaddition, theUnited States claims thatthe
FairTrade Promotion Council continues toapply pressure onphotographic material manufacturers
toreduce thenumber ofemployees theydispatch toretailers. TheUnited States points outthatas
recently asJuly1996, thecouncil issued a"directive" toKodak stating thatthecouncil has"decided
inJuly1995torequest [Kodak 's]cooperation incontinuing toreduce dispatched employees" andthat
Kodak isto"immediately report thestatus ofyourcompany tothisCouncil".1368
10.305 Japan responds thatbecause theformation oftheFairTrade Promotion Council andtheissuance
ofSelf-Regulating Measures onFairTrade areprivate actions, therecanbenocognizable impairment
ofUSmarket-access conditions "astheresult of"suchactions. Although thecouncil wasestablished
afterconsultation withtheJFTC, Japan claims thatsuchconsultations didnotdelegate anyauthority
tothecouncil. Japan argues thatFairTrade Promotion Council isaprivate-sector organization which
wasestablished bythecamera industry toimplement voluntary standards ondispatched employees
inthatindustry, andhasnogovernmental authority, noranything todowithfilmorpaper. Moreover,
Japan argues, there hasnever been aproblem withorconcern overdispatched employees inthe
photographic filmorpaper industry, probably because, inthecaseoffilm, most consumers choose
suchmerchandise ontheirown, rather thanrelying onemployees 'salespitches, and,inthecaseof
paper, thisisgenerally marketed toprofessionals whodonotnormally relyondispatched employees.
Thus, according toJapan, evenassuming thattheestablishment oftheFairTrade Promotion Council
andtheissuance ofSelf-Regulating Measures onFairness inTrade could beassimilated togovernmental
measures, therecould benobasisforclaiming impairment therefrom. Japan alsoargues thattheonly
caseofimpairment citedbytheUnited States inrelation tothese twomeasures isthealleged action
tosuppress Kodak 'sVRcampaign in1983, anaction having nothing todowiththedispatch ofsales
personnel, thatinanycasethecampaign wasnot"foiled" butwentahead essentially asplanned, that
theJFTCplayedaveryminorroleindiscussionswithKodak'srepresentativesconcerningthiscampaign,
andthatthere issimply notruthtotheUSallegation thatZenren, theFairTrade Promotion Council
andtheJFTC acted inunison toprevent theVRcampaign.
1367TheUnited States explains thatKodak 's"VRtrialpack" wasdevised in1983byNagase Sangyo, Kodak 'smainimporter
inJapan, asapromotion strategy forthelaunch ofaspecial limited edition ofKodak 'sVRfilmseries. The"trial pack"
included a12-exposure rollofeachspeed ofVRfilm(100, 200,400and1000 ASA). Itwaspromoted through print and
television advertising andsoldata38percentdiscount offthestandard retail price.
1368Promotion Council, Issue No.8-1,22July1996, USEx.96-7.WT/DS44/R
Page451
10.306 Whileweconsiderthattheevidencepresentedstronglysuggeststhattheself-regulatingmeasures
wereinitiated andthecouncil wasestablished through actions taken largely bythecamera sector of
thephotographic materials industry inJapan, wealsoconsider thatthissame evidence suggests that
many different levels ofthephotographic materials industry participate inandarepotentially affected
byactions taken bytheFairTrade Promotion Council. Thus, itisnotclear tous,despite Japan's
arguments, thatthese measures arenecessarily irrelevant tothefilmandpaper sectors oftheJapanese
economy. Atthesametime, however, weagree withJapan thattheonlyconcrete example putforward
bytheUnited States ofanyclaimed impairment resulting from these measures isthealleged foiling
ofKodak 'sVRcampaign inJune1983.
10.307 Concerning theVRcampaign, wefirstnotethatthisKodak promotion scheme hadnothing
todowiththedispatching ofemployees orpromotional money, thetwogeneral activities regulated
bytheSelf-Regulating Measures. Indeed, theevidence ofrecord suggests, asargued byJapan, that
theissue ofdispatching salespersonnel wasoflittlesignificance inthephotographic filmandpaper
market. Even before theadoption ofthecode, MITI's1970 Guidelines themselves indicated that
dispatching ofemployees wasnotacommon occurrence intheJapanese filmmarket1369,andthe1990
MITI Guidelines basically recommend restricting theuseofdispatched employees "tosales ofnew
products where specialized knowledge andskills arerequired ...".1370And, indeed, theUnited States
hasnotindicated tothePanel how, orevenif,dispatching ofemployees hasbeenorisusedinthe
Japanese filmandpaper market, norhasitcitedexamples ofhowtheuseofpromotional money has
beenlimited.
10.308 Second, wearenotpersuaded byJapan'sargument thattheproblems citedbytheUnited States
inrespect oftheKodak VRcampaign solely concerned aprivate-sector action bytheFairTrade
Promotion Council. Theevidence advanced bythetwoparties shows thattheaction against theVR
trialpackhaditsorigins withZenren, thephoto retailers 'association, putting pressure onKodak 's
distributor (Nagase) tolimitpromotion, inparticular itspricing discounts onthisnewtypeoffilm.
Indeed, theevidence suggests thatZenren succeeded inpersuading Kodak toreduce thescope and
duration ofthispromotional discount scheme. Inaddition tothisprivate initiative byZenren, however,
theevidence alsosuggests thatJFTC officials, attheurging oftheFairTrade Promotion Council, issued
guidance toKodak concerning potential issues under theAntimonopoly Lawinrelation tooperation
oftheVRcampaign. According totheUnited States, theguidance related todisclosing thelimited
nature oftheoffer, thenumber ofTrialPacks involved, thestores carrying themandtheterms ofthe
offer. Also, Kodak wasrequested byJFTC officials toadjust itssecond shipment andtoannounce
atstorecounters when theproducts weresoldout.1371Itisnotcleartousthatcompliance withmost
ofthese terms would seriously hinder theVRcampaign. Inanyevent, Japan contests whether such
guidance wasgiven. Inthisregard, wenotethatother evidence submitted bytheUnited States suggests
thattheVRcampaign waslimited bypromises made toZenren.1372Considering alltheevidence taken
together, itappears thatthepressure putonKodak 'ssubsidiary byZenren wasbyfarthemajor factor
impacting theVRcampaign. Thepressure fromZenren hasnotbeenshown tohaveemanated inany
wayfrom theJFTC. Thus, wefindthattheUnited States hasnotcome forward withasufficient
demonstration ofhowstatements made toKodak representatives byJFTC andcouncil officials inrelation
totheVRcampaign could besaidtohaveimpaired competitive market-access conditions accruing
totheUnited States. According totheevidence ofrecord, itappears thatKodak didcarry outa
1369Cover notetothe1970 Guidelines, USEx.70-3; 1970 Guidelines, USEx.70-4; Japan Ex.B-24. Specifically,
theMITI Guidelines statethat"[d]ispatched employees arerarely seenatgeneral photography materials retailers. There
aredispatched employees intheDPEdepartments oflarge retailers; however, fewaresystematized practices andthedispatch
ismade onlyinspecial cases". Ibid. Seepara. 2.19 above.
1370MITI, Guidelines forImproving Business Practices, 25June 1990, USEx.90-5, p.6.
1371Affidavit ofIshikawa Sumio, Nagase official, USEx.97-10.
1372"Trial Pack Acclaimed inAmerica, butinJapan ...?". Shukan Shashin Sokuho, 29July1983, p.2,quoting Nagase
Kodak Deputy Yokoyama, USEx.83-19, p.2.WT/DS44/R
Page452
successful ifsomewhat abbreviated VRcampaign. Finally, wenotethatthis14year-old incident is
theonlyonecitedbytheUnited States.
10.309 Accordingly, given thislackofevidence ofhowtheSelf-Regulating Measures onFairness
inTrade havenullified orimpaired legitimate market-access expectations accruing totheUnited States,
wedonotfindthattheUnited States hasmetitsburden inthisregard.
10.310 Thus, theSelf-Regulating Measures onFairness inTrade andtheestablishment oftheFair
Trade Promotion Council maybeviewed asmeasures forpurposes ofArticle XXIII:1(b) andtheUnited
States hasshown thatitshould notbeheldtohaveanticipated them inrespect ofitsexpectations on
black andwhite filmandpaper from theKennedy Round andonthefullrange ofproducts atissue
inrespect oftheTokyo Round. Ithasnotshown, however, thattheynullify orimpair benefits within
themeaning ofArticle XXIII:1(b). Inrespect oftheUruguay Round, ithasonlyshown oneofthe
required elements ofanArticle XXIII:1(b) claim --theexistence ofameasure.
(f) 1984 Self-Regulating Standards
10.311 Theseventhpromotion"measure"citedbytheUnitedStatesisthePromotionCouncil'sissuance
inMay1984of"Self-Regulating Standards Concerning Display ofProcessing FeesforColour Negative
Film" ("1984 Self-Regulating Standards").1373These standards prescribe themanner inwhich prices
forfilmdeveloping andprinting mayberepresented. Specifically, theydefine theinformation that
filmprocessing businesses ("those whoreceive colour filmdirectly from thegeneral consumer for
processing") should useinconnection withrepresentations ofprices forcolour filmdeveloping and
printing, including theprinting fee,developing fee,processing time, andpaper manufacturer. The
standardsmandate"provisionsinregardtotherepresentationofphotoprocessingfeesforcolournegative
film...andprinting fee[s] forservice-size prints fordirect orders from general consumers untilthe
FairCompetition Code isestablished".1374According tothestandards,
"businessesshouldproperlylistfeessuchasthedevelopingfeeofcolourfilmandshould
notmake representations thatmight mislead thegeneral consumer orpossibly lead
them tohaveexcessive expectations. ...Thisstandard should notbeusedtolimitor
restrain businesses freedom tosetfees".1375
Thestandards alsoprovide thatthe"Fair Trade Promotion Council shallconduct investigations and
provide guidance ontheoperation ofthese standards ifnecessary".1376
10.312 TheUnitedStatesassertsthatbecausethe1984Self-RegulatingStandardscover"representation[s]
ofthephoto processing feeforcolour negative film", there isarelationship between this"measure"
andphotographic materials. Japan argues thatthese standards wereadopted todealwiththeproblem
ofwhen service providers whodisplayed inexpensive printing charges butcharged customers ahigh
developing fee.Theintention oftheguidelines wastogiveconsumers adequate information about
bothdeveloping andprinting charges. Assuch, according toJapan, theguidelines were notrelated
tosalesoffilm, andtheJFTC 'srolewaslimited.
1373NationalPhotographyIndustryFairTradePromotionCouncil,15May1984,"TheSelf-RegulatingStandardsRegarding
Representation ofDeveloping FeesforColour Negative Film", USEx.84-4; Kosei Torihiki Joho, No.993,28May1984,
"Photo Industry toEstablish Self-Regulating Standards Regarding Representations ofDevelopment andPrinting Price, etc.",
USEx.84-3.
1374USEx.84-4.
1375Ibid.
1376Ibid.WT/DS44/R
Page453
10.313 Application ofmeasure. TheUnited States claims thatthe1984 Self-Regulating Standards
are,effectively, agovernmental measure because theFairTrade Promotion Council "isthecreation
ofJapanese law", andbecause these standards weredeveloped under theinstruction of,andinclose
collaboration withtheJFTC. TheUnited States further argues thatthe"measure" isstillineffect.
Japan'sresponse isthatbecause (i)theFairTrade Promotion Council, which issued the1984 Self-
Regulating Standards, isaprivate-sector organization, and(ii)theJFTC played onlyalimited role
intheelaboration ofthese standards, thestandards arenotagovernmental measure.
10.314 Inanalyzing whether ornotthe1984 Self-Regulating Standards should beassimilated to
governmental action, werecall thatwhereas theFairTrade Promotion Council isclearly agrouping
ofprivate-sector trade associations, itnonetheless haselaborate linkstotheJFTC. Wealsonotethat
anarticle appearing inaspecialized industry publication justtwoweeks aftertheissuance ofthe1984
Self-Regulating Measures states that"[t]he Council established 'Self-Regulating Standards Regarding
Development andPrinting Price Representations 'onMay15,andreported themtotheJapan Fair
TradeCommission"(emphasisadded).1377Thearticlegoesontostatethat"[t]heself-regulatingstandards
areonlyatemporary measure untilafaircompetition codeisestablished", andthat"[i]ttooktheCouncil
alongtimeandinstructionsfromJFTCtoestablishtheseself-regulatingstandards"(emphasisadded).1378
Even though the1984Self-Regulating Standards wereapparently notformally approved bytheJFTC,
inviewofthese express references tothedependence oftheFairTrade Promotion Council onliaison
withtheJFTC fortheestablishment ofthesestandards, weconsider thatthereisasufficient likelihood
thatprivate parties willactinconformity withthe1984 Self-Regulating Standards toconsider them
administrative guidance attributable totheJapanese Government. Thus, the1984 Self-Regulating
Standards, assuch, havesufficient connection totheJapanese Government towarrant afinding that
theyareameasure within theambit ofArticle XXIII:1(b).1379Thisfinding isconsistent withpastGATT
practice. Inthisregard, wenotethecharacterization ofthesimilar "faircompetition codes" approved
bytheJFTC as"legal regulations" inthe1987 Japan -Liquor Taxes case.1380Astowhether ornot
thismeasure isstillineffect, given thatthetextofthemeasure itselfindicates thatthemeasure isonly
temporary "until theFairCompetition Code isestablished", wearenotpersuaded, butshallassume
forthefollowing analysis, thatitisstillineffect.
10.315 Benefit accruing. Werecall theUSclaim thatthebenefits accruing toitarelegitimate
expectations ofimproved market access totheJapanese filmandpaper market emanating fromtariff
concessions made byJapan intheKennedy, Tokyo andUruguay Rounds, andthat,inparticular, it
could nothaveanticipated thatinMay1984, afterboththeKennedy andTokyo Rounds, thedomestic
photographic industry, through theFairTrade Promotion Council, would respond toJFTC guidance
inpromulgating itssecond setofself-regulating measures, the1984 Self-Regulating Standards. The
United States similarly argues thatevenasoftheconclusion oftheUruguay Round itwasnotaware
oftheimpact ofthismeasure onthefilmandpaper market. Wefurther recall theJapanese response
thatthe1984Self-Regulating Standards areirrelevant tothereasonable expectations oftheUnited States
because thisaction oftheFairTrade Promotion Council represents private conduct andwasan
"outgrowth" ofthepreviously applied policies.
10.316 Inassessing theissue ofwhattheUnited States should haveanticipated attheconclusion of
theKennedy andTokyo Rounds, wenotethatthismeasure applies onlytocolour film. Thus, the
Kennedy Round isnotrelevant. Additionally, werecall ourconclusion thatnormally aMember should
notbeconsidered tohaveanticipated ameasure taken aftertheconclusion ofanegotiating round, absent
some reason toreach acontrary result. Here, weseenoreason whytheUnited States should have
anticipated thisparticular consumer protection measure simply because faircompetition codes andfair
1377USEx.84-3.
1378Ibid.
1379SeeJapan -Agricultural Products ,BISD 35S/163, 242.
1380Panel Report onJapan -Liquor Taxes ,BISD 34S/83, 87;Seealsoparas. 2.7and5.509-5.510 above.WT/DS44/R
Page454
tradecouncils assuchalready existed inJapan priortotheTokyo Round. Thus, wefindthatinrelation
tothe1984Self-Regulating Standards, theUnited States haslegitimate expectations ofimproved market
access emanating from theTokyo Round.
10.317 Withrespect toJapan'sUruguay Round concessions, which weregranted subsequent to1984,
itisdifficult toconclude thattheUnited States could notreasonably anticipate thisalready existing
measure. Again, although wecanconceive ofcircumstances where theexporting WTO Member may
notreasonably beaware ofthesignificance ofameasure orofapossible differential impact onimports
untilsome timeafteritsoriginal publication, theUnited States hasnotdemonstrated theexistence of
anysuchcircumstance here. Thislackofevidence isespecially telling inlightofthefactthattheSelf-
Regulating Standards relate specifically tocolour film. Accordingly, wefindthattheUnited States
hasnotdemonstrated thatinrelation tothe1984Self-Regulating Standards, ithaslegitimate expectations
ofimproved market access emanating from theUruguay Round concessions.
10.318 Impairment andcausality. TheUnited States argues thatbyregulating theuseofprice-related
representations through the1984Self-Regulating Standards, theFairTrade Promotion Council serves
torestrict competition forfilmandpaper, andthatthecouncil 'senforcement record reflects the
extraordinary range ofitsactivities andthepotency ofitsenforcement powers. Japan responds that
the1984Self-Regulating Standards areprivate-sector regulation directed atensuring fairness inregard
totherepresentation ofprocessing andprinting feesforcolour film, andthattheUnited States has
notdemonstrated howthisalleged "measure" upsets competitive market-access conditions forimported
colour filmintheJapanese market. Japan further argues thatthepurpose oftheSelf-Regulating
Standards isconsumer protection, without regard totheorigin oftheproduct.
10.319 Addressingtheissueofimpairmentandcausality,wenotethatthe1984Self-RegulatingStandards
regulate thetypeofinformation thatphoto processing firms arerequired toprovide when advertising
colour filmprocessing andprinting. Inessence, thismeasure appears directed atconsumer protection,
inparticular, preventing misleading price representations inthefilm-processing industry. Wealso
notethattheUnited States hasnotsuggested tothePanel, nordemonstrated where orhowoperation
ofthe1984Self-Regulating Standards oftheFairTrade Promotion Council, which seem tobeneutral
astotheorigin ofcolour film, haveimpacted Kodak orotherwise upset thecompetitive relationship
between domestic andimported colour filminJapan. Accordingly, wefindthattheevidence ofrecord
doesnotdemonstrate thatapplication ofthe1984 Self-Regulating Standards --totheextent thatthis
hasoccurred --nullifies orimpairs benefits accruing totheUnited States.
10.320 Thus, the1984 Self-Regulating Standards maybeviewed asameasure forpurposes of
Article XXIII:1(b) andtheUnited States hasshown thatitshould notbeheldtohaveanticipated the
standards inrespect ofitsexpectations oncolour filmand(indirectly) paper fromtheTokyo Round.
Ithasnotshown, however, thattheynullify orimpair benefits within themeaning ofArticle XXIII:1(b).
Inrespect oftheUruguay Round, ithasshown onlyoneoftherequired elements ofanArticle XXIII:1(b)
claim --theexistence ofameasure.
(g) 1987 TheRetailers FairCompetition Code andtheRetailers Council
10.321 Theeighth andfinalpromotion "measure" citedbytheUnited States istheJFTC approval,
inMarch 1987, oftheRetailers FairCompetition Code ("Fair Competition Code") anditsenforcement
body, theRetailers FairTrade Council ("Retailers Council").1381On31March 1987, acting pursuant
toArticle10(1)ofthePremiumsLaw,theJFTCapprovedtheFairCompetitionCodeanditsenforcement
body, theRetailers Council. Theobjectives oftheFairCompetition Code arestated tobe"toprotect
1381FairCompetition Code Regarding Representations intheCamera andRelated Products Retailers Industry, Kanpo,
(Official Gazette), 11April 1987, USEx.87-4; FairCompetition Code Regarding Representations intheCamera andRelated
Products Retailers Industry, Kampo, 11April 1987, p.1-3,Japan Ex.D-66.WT/DS44/R
Page455
thegeneral consumers 'appropriate product selection, prevent theunfair inducement ofcustomers,
andthereby tosecure faircompetition".1382Byitsterms, thecodeapplies to"camera category" (as
translated byJapan) or"cameras andrelated products" (astranslated bytheUnited States)1383,not
explicitly including filmorpaper, andsetsoutrules regarding representations made byretailers of
these products, including inrelation tostorefront displays, fliers, price comparisons ("representation
ofdualprices"), instalment sales, theuseofexpressions suchas"very best", "cheapest" and"new
release", comparative representations ofquality, performance andtransaction terms, andprohibitions
onmisleading representations andloss-leader advertising. These objectives, definitions andstandards
arecovered inArticles 1through 12ofthecode. Article 13establishes theRetailers Council "toachieve
theobjectives ofthiscode", andArticle 14liststheactivities oftheRetailers Council, including those
pertaining tomaking adjustments tohowthecodeisbeing observed, investigating suspected violations
ofthecode, taking necessary steps against those whohaveviolated thecode, processing complaints
received fromgeneral consumers, making thePremiums Lawand"other lawsandordinances pertaining
tofairtrade widely understood andpreventing violations thereto", and"liaison withthecompetent
authorities". Articles 15through 17thendealwithinvestigation anddecisions onviolations. Finally,
Article 18states thattheRetailers Council mayestablish regulations toexecute andoperate thecode,
andthat"[p]rior toestablishing ormaking amendments totheregulations ...[theRetailers Council]
shallobtain approval from theJapan FairTrade Commission".1384
10.322 TheUSviewisthattheJapanese Government, inapproving theFairCompetition Code and
theRetailers Council, hasdelegated authority totheRetailers Council totakeenforcement actions under
boththecodeandthePremiums Law. TheUnited States alsoargues thatthestandards established
bytheFairCompetition Code apply totheactivities ofallbusinesses selling photographic items, and
thatalthough itdoesnotexplicitly include filmwithin itsscope, thecodehasbeenapplied topromotions
forfilmandpaper products. According totheUnited States, thisexpansive application arises from
Article 2.2which provides: "Toattain theobjectives outlined intheabove Article, businesses are
torespect thespirit ofthiscodeevenwhen theproducts being dealtwithdonotcorrespond exactly
toCameras andRelated Products". TheUnited States goesontosaythatapplication ofthecodeto
filmanddeveloping andprinting wasfundamental tosecuring Zenren 's(theretailers association) support
forthecodeandtheRetailers Council.
10.323 Japan responds thattheFairCompetition Code byitsterms doesnotapply, andnever hasbeen
applied, tofilmorpaper. Rather, according toJapan, thecode(andtheRetailers Council established
therein) consists of47prefecture-wide retailers associations, representing 6600 individual business
entities, anddealsonlywithrepresentations pertaining totheretailsaleofcameras andrelated products;
premiums arecompletely outside itsscope. Japan submits thattheJFTC hasnever allowed andhas
nointention toallow application ofthecodetofilmorpaper.
10.324 Application ofmeasure. Theissue hereisnotwhether theJFTC 'sapproval oftheRetailers '
FairCompetition Code anditsenforcement body, theRetailers Council, inandofitselfshould beviewed
asagovernmental measure. Clearly, theactofapproval byagovernmental body --theJFTC --is
agovernment measure. Rather, theissue iswhether suchapproval bytheJFTC means thatactions
takenbytheRetailersCouncilunderthecodeandtheprovisionsembodiedinthecodemaybeassimilated
togovernmental measures.
10.325 Onthispoint, theUnited States alleges that,justasJapan didinthecaseoftheFairTrade
Promotion Council, Japan hasdeputized theRetailers Council asanenforcement surrogate fortheJFTC
under thePremiums Law. Itargues thattheRetailers Council isparticularly illustrative ofthe
1382Ibid, p.1.
1383WenotethatthePanel 'stranslation experts agree withJapan 'stranslation oftheJapanese term"kamera-rui" as"camera
category". SeeTranslation Issue 17inPartXI.
1384USEx.87-4; Japan Ex.D-66, p.9.WT/DS44/R
Page456
relationship between atradeassociation andafairtradecouncil, anddemonstrates thepowers effectively
delegated toatrade association bytheJapanese Government. TheUnited States further argues that
theJapanese Government should beheldaccountable fortheeffects offaircompetition codes andthe
activities offairtradecouncils, including tradeassociations acting under theaegis ofacodeorcouncil
because thecodes andcouncils arethecreation ofJapanese law,specifically Article 10ofthePremiums
Law, subsection (1)ofwhich provides:
"Businesses oratrade association may, upon obtaining authorization from theFair
Trade Commission inaccordance withtheRules oftheFairTrade Commission, with
respect tomatters relating topremiums orrepresentations, conclude orestablish an
agreement oracode, aiming atpreventing unjust inducement ofcustomers and
maintaining faircompetition. Thesame shallapply intheevent alterations thereto
areattempted" (emphasis added).1385
TheUSposition isthatArticle 10(1) makes clearthattheestablishment ofthecodeissubject toapproval
bytheJFTC. Similarly, thatArticle 10(3) ofthePremiums Lawstates thattheoperation ofthecodes
andcouncils issubject toJFTC supervision. TheUnited States emphasizes, moreover, thatthepower
oftheRetailers Council andZenren isevengreater because Article 10(5) ofthePremiums Lawstates
thatJapan'sAntimonopoly Law"shall notapply tothefaircompetition codethathasbeenauthorized
...andtosuchactsofentrepreneurs oratradeassociation ashavebeendoneinaccordance therewith".
TheUnited States alsoargues thatinaprevious panel, thatonJapan -Liquor Taxes ,Japan claimed
thatfaircompetition codes promulgated byfairtrade councils inJapan were "legal regulations" of
theJapanese Government.1386
10.326 Japan responds thattheRetailers Council 'sFairCompetition Code constitutes self-regulation
among business entities approved bytheJFTC inaccordance withthePremiums Law, andthatthe
Retailers Council isavoluntary organ established bythecodetoimplement thisself-regulation. Japan
contends thattheRetailers Council ismerely responsible fortheobservance ofthecode against
misleading representations andhasnoauthority toenforce thePremiums Law, normayitrestrict low
price offers. According toJapan, whereas theRetailers Council maytakeprivate enforcement action
against codemembers, itmaynotapply thecodetonon-members: outsiders arenotsubject toany
action ofthecouncil foranynon-compliance withthecode. Japan further contends thatcouncil actions
under anapproved code arenotexempt from theoperation ofthesubstantive provisions, e.g.,
prohibitions ofunfair trade practices, oftheAntimonopoly Law; inthesame waythatactivities of
other associations aresubject totheAntimonopoly Law, anything acouncil doesisactionable. The
onlylegalconsequence ofJFTC approval, Japan argues, isthattheJFTC mustfirstrevoke theapproval
before itenforces theAntimonopoly Lawagainst anapproved codeorimplementation thereof.
10.327 InanalyzingtheextenttowhichactionstakenbytheRetailersCouncilundertheFairCompetition
Code maybeassimilated togovernmental measures within themeaning ofArticle XXIII:1(b), we
consider thatitmaybehelpful tofocus onthestatus these actions aregiven intheeyesoftheJapanese
Government andthephotographic industry. Onthisissue, wenotethereferences made bytheUnited
States toArticle 10ofthePremiums Law, particularly Article 10(1) which states thattradeassociations
mayobtain JFTC approval tosetupfaircompetition codes, Article 10(3) which states thattheoperation
ofcodes andcouncils issubject toJFTC supervision, andArticle 10(5) which states thatJapan's
Antimonopoly Lawshallnotapply tofaircompetition codes thathavebeenauthorized ortotheactions
ofbusinesses ortrade associations under thecodes.1387Viewed inthecontext oftheJFTC having
approved theFairCompetition Code andtheRetailers Council, andofArticle 10(5) appearing togive
agovernmental exemption fromcertain provisions oftheAntimonopoly Lawtoactions bytheRetailers
1385Premiums Law, USEx.62-6; Japan Ex.D-1.
1386BISD 34S/83, 86-87, para. 2.7.
1387USEx.62-6; Japan Ex.D-1.WT/DS44/R
Page457
Council andcodemembers under thecode, itisdifficult toconclude thatinvestigation, enforcement
andgovernmental liaison actions oftheRetailers Council under thecodearepurely private actions
ofaprivate tradeassociation. Thelikelihood thatsuchactions havegovernmental orquasi-governmental
character isreinforced bythereference intheFairCompetition Code, inArticle 1thereof, tothe
"objective" of"establishing rules regarding representations made inretail transactions forcameras
andrelated products based on[Article 10(1) ofthePremiums Law]", andthefurther reference in
Article 18(2) totherequirement that"[p]rior toestablishing ormaking amendments totheregulations
inaccordance withClause 1above, [theRetailers Council] shallobtain approval fromtheJapan Fair
Trade Commission".1388
10.328 Accordingly, wefindthatinlightoftheJFTC approval oftheFairCompetition Code and
theRetailers Council andtheJFTC sanctioning ofactions taken bytheRetailers Council under the
FairCompetition Code, those actions havesufficient connection toadministrative guidance ofand
approval bytheJapanese Government towarrant afinding thattheyaremeasures attributable tothe
government within themeaning ofArticle XXIII:1(b). Inviewoftheabove-described involvement
oftheJFTC, weconsider thatthereisasufficient likelihood thatprivate parties willactinconformity
withtheFairCompetition Code asifitwerealegally binding measure.1389Thisfinding isconsistent
withpastGATT practice. Inthisregard, werecall thecharacterization of"faircompetition codes"
approved bytheJFTC as"legal regulations" inthe1987 Japan -Liquor Taxes case.1390Finally, we
notethatafinding tothecontrary would create ariskthatWTO obligations could beevaded through
aMember 'sdelegation ofquasi-governmental authority toprivate bodies. Inrespect ofobligations
concerning statetrading, theprovisions ofGATT explicitly recognize thispossibility. Inthisregard,
aninterpretative notetoArticles XI,XII,XIII, XIVandXVIII states: "Throughout Articles XI,XII,
XIII,XIVandXVIII, theterms "import restrictions" or"export restrictions" include restrictions made
effective through state-trading operations". Theexistence ofthisnotedemonstrates thatthedrafters
oftheGeneral Agreement recognized aneed toaddress explicitly oneaspect ofthegovernment-
delegation-of-authority problem. Inourview, itsupports ourfinding thatmeasure forpurposes of
Article XXIII:1(b) should beinterpreted soastoprevent actions byentities withgovernmental-like
powers from nullifying orimpairing expected benefits.
10.329 Benefit accruing. Werecall theUSclaim thatthebenefits accruing toitarelegitimate
expectations ofimproved market access totheJapanese filmandpaper market emanating fromtariff
concessions made byJapan intheKennedy andTokyo Rounds, andthat,inparticular, itcould not
haveanticipated thatinMarch 1987, wellafterboththeKennedy andTokyo Rounds, theJFTC would
create theFairCompetition Code andtheRetailers Council tosetandenforce standards for
misrepresentations inadvertising related topriceandpromotional terms. Similarly, theUnited States
maintains thatitwasstillunaware ofthebreadth ofimpact ofthismeasure ontheJapanese filmmarket
asoftheconclusion oftheUruguay Round. Japan responds thatthe1987 JFTC approval oftheFair
Competition Code andtheRetailers Council isirrelevant tothereasonable expectations oftheUnited
States because thisaction relates onlytocameras andrelated photographic hardware. Moreover, in
Japan'sview, theJFTC approval ofthecodein1987wasanapplication ofthepre-existing Premiums
Law, andbrought about nochange totheimplementation ofpolicy under thatlaw.
10.330 Inassessing theissue ofwhattheUnited States should haveanticipated attheconclusion of
theKennedy andTokyo Rounds, werecall ourconclusion thatnormally aMember should notbe
considered tohaveanticipated ameasure taken aftertheconclusion ofanegotiating round, absent some
reason toreach acontrary result. Here, weseenoreason whytheUnited States should haveanticipated
these particular measures. Thefactthatfaircompetition codes andfairtrade councils existed inJapan
priortotheUruguay Round, andwereauthorized byArticle 10ofthePremiums Law, doesnotimply
1388Retailers FairCompetition Code, USEx.87-4; Japan Ex.D-66.
1389SeeJapan -Agricultural Products ,BISD 35S/163, 242.
1390BISD 34S/83, 87,para. 2.7.WT/DS44/R
Page458
thatspecific embodiments ofcodes andcouncils should beforeseeable. Thus, wefindthatinrelation
totheFairCompetition Code andtheRetailers Council, theUnited States haslegitimate expectations
ofimproved market access emanating from theKennedy andTokyo Rounds
10.331 However, withrespect toJapan'sUruguay Round concessions, which weregranted subsequent
to1987, itisdifficult toconclude thattheUnited States could notreasonably anticipate thisalready
existingmeasure.Again,althoughwecanconceiveofcircumstanceswheretheexportingWTOMember
maynotreasonably beaware ofthesignificance ofameasure orofapossible differential impact until
some timeafteritsoriginal publication, theUnited States hasnotdemonstrated theexistence ofany
suchcircumstance here. Accordingly, wefindthattheUnited States hasnotdemonstrated thatinrelation
totheFairCompetition Code andtheRetailers Council, ithaslegitimate expectations ofimproved
market access emanating from theUruguay Round concessions.
10.332 Impairment andcausality. Inconsidering theissueofcausality, wewilladdress three issues.
First, whether theFairCompetition Code applies tofilmandpaper products atall.Second, whether
Articles 3and4oftheCode onorigin nullify orimpair benefits. Third, whether theapplication of
theCode impairs benefits.
10.333 Astothefirstissue, theUSposition isthatthecodeapplies, bothdejureanddefacto,tofilm
andpaper. TheUnited States points outthatArticle 2.2ofthecodeprovides that"[t]oattain the
objectives outlined intheabove Article, businesses aretorespect thespirit ofthiscodeevenwhen
theproducts being dealtwithdonotcorrespond exactly toCameras andRelated Products".1391The
United States goesontosaythatanindustry member explained thatitwould "indeed have been
impossibletopersuadeZenrenmemberswhosemainlineofbusinessisdevelopmentprintingtocontribute
if[theregulations] only[apply to]hardware".1392IntheUSview, Japan hasinvited itsphotographic
industry todevise andenforce rules intheirself-interest, andmarket realities associated withsuch
industry cooperation should notbeignored.
10.334 Japan, ontheother hand, argues thatthecode, byitsterms andinitsapplication, doesnot
cover filmorpaper, andthatobservance ofthe"spirit ofthecode", asprovided forinArticle 2.2
thereof, maynotextend toitems notincluded inthe"camera category". According toJapan, even
iftheindustry weretodecide toexpand thescope ofthecodetoinclude these products, suchadecision
would havenoimpact ontheoperation ofthePremiums LawortheAntimonopoly Law, unless itwere
approved bytheJFTC. Japan argues thattheJFTC hasnever allowed andhasnointention ofallowing
application ofthecodetofilmorpaper.
10.335 Ourassessment ofthisinitial issueisthatthecodeclearly covers cameras butthatitisunclear
fromtheevidence submitted whether thecode'sstipulations extend andhavebeenapplied tofilmand
paper. However, forthepurpose oftherestofouranalysis, weshallassume thatthecodedoesextend
tothose products.
10.336 Inrespect ofArticles 3and4ofthecode, theUnited States argues thatthose articles ontheir
facediscriminate against imports withrespect torepresentations concerning thecountry oforigin of
theproduct. Article 3,pertaining tostorefront displays, andArticle 4,governing fliers, require
advertisementstoindicatethecountryoforiginforimportedmerchandise;suchindicationisnotrequired
ofproducts ofJapanese origin, unless suchdomestic merchandise looks similar to(i.e.,maybeconfused
with) imported products.
1391Cf.Japan 'stranslation of"kamera rui"as"camera category", not"cameras andrelated products". Japan Ex.D-68.
WenotethatthePanel 'sexperts agree withJapan 'stranslation. SeeTranslation Issue 17,PartXI.
1392Discussion onProgress ofFairTrade Council Focuses onMaking Competition Codes Fully Known, Zenren Tsuho,
August 1987, pp.16-20, USEx.87-7, Japan Ex.D-70. Cf.Japan 'sdiffering translation ofthisphrase. Wenotethatthe
Panel 'stranslation experts appear toagree thattheUStranslation isthemore accurate. SeeTranslation Issue 18,PartXI.WT/DS44/R
Page459
10.337 Japan responds thattheintention behind therequirement ofproviding country-of-origin
designations forimported products issimply toprovide adequate information toconsumers. Moreover,
Japan argues, theUnited States hasnotshown howtheapplication ofthisprovision hasupset the
competitive conditions ofimported filmorpaper.
10.338 Onthisissue, while being sensitive tothepossibility thatadiscriminatory country-of-origin
designation requirement could result inimpairment ofcompetitive relationships, weinitially notethat
GATT Article IXspecifically allow origin- marking requirements. Thus, wehesitate tocondemn
automatically therequirements inthecode, although theygobeyond marking. Moreover, wenote
thatthecoderequires indications oforigin inrespect ofcertain domestic, aswellasimported products,
andthatJapan hasprovided anexplanation fortreating domestic andimported products differently
withrespect tocountry-of-origin designations. More significantly, theUnited States hasfailed to
demonstrate howsuchadesignation requirement inthecodehasupsetcompetitive relationships between
domestic andimported filmorpaper.
10.339 Inrespect ofthethirdissue --theapplications ofthecode--theUnited States argues thatthe
FairCompetition Code provides theRetailers Council withauthority totakeenforcement actions for
misrepresentations inpromotions notonlyunder thecodeitself, butalsounder thePremiums Law
andrelated competition laws. Specifically, Article 14.7ofthecodestates thattheRetailers Council
shallperform, interalia,"[a]ctivities pertaining tomaking the[Premiums Law] andother lawsand
ordinances pertaining tofairtrade widely understood andpreventing violations thereto". IntheUS
view, theRetailers Council actsasasubstitute enforcement body fortheJFTC. TheUnited States
goesontoargue thattheRetailers Council applies thecodetopromotional activities ofnon-members,
notjustthose businesses thathaveagreed toadhere tothecode. Thispractice, according totheUnited
States, comports withwhat theUnited States saysistheposition oftheJapanese Government that
competition codes mustapply industry-wide inorder tohavetheirintended effect. TheUnited States
goesontostatethattheJFTC hasconfirmed thatitrelies uponfaircompetition codes when applying
thePremiums Lawto"outsiders".1393Inaddition, theUnited States argues thattheJFTC, through
itsapproval ofthecode, confers notonlybroad authority onprivate parties toactassurrogate enforcers,
butalsoexempts themfromprosecution fortheiractivities. Onthispoint, theUnited States citesthe
JFTC Secretary General asstating that"even ifthecontents ofthecodes ortheactions based onthe
codes violate theAntimonopoly Law, noproceedings torestrict them willbetaken based onthe
Antimonopoly Law".1394TheUnited States alsocitesthedirector oftheJFTC 'sdivision onpremiums
andrepresentations guidance asstating that"[t]he approval oftheCode means thattheroleweplay
totakeenforcement actions1395onviolations willbelefttotheFairTrade Council. Ifthisexpectation
isnotmet,[theapproval] willhavenomeaning".1396
10.340 Japan responds thattheRetailers Council maytakeself-regulation measures under theFair
Competition Code against insiders, butmaynotapply thecodetonon-members. According toJapan,
1393Onthispoint, theUnited States citesaZenren circular from February 1988, entitled "Don 'tGive UpExposing and
Forwarding Materials [Regarding Violations] -Japan FairTrade Commission Probing Non-Members ''Representations
Violations '",Zenren Tsuho, USEx.88-2; Japan Ex.D-83. Thiscircular mentions that"[a]lmost allwhohave received
repeated caution orwarnings were non-members, thatis,while amember 'sstance isrectified byaverbal caution, amore
severe warning inwritings isissued toanon-member". Thecircular alsopresents "some recent good examples inwhich
outsiders whohavebeenexposed [forviolations] many times, inparticular, havebeensilenced orforwhich theJapan Fair
Trade Commission hasalready initiated investigations". Ibid.
1394Competition Policy Law, Itoga Shogo, JFTC Secretary General, JireiDokusen Kinshi Ho,15December 1995, US
Ex.95-20, p.5.
1395Japan translates "teki-hatsu" as"discovery", not"enforcement actions", Japan Ex.D-82. ThePanel 'stranslation
experts donotagree ontheappropriate translation incontext, butleantowards atranslation suggesting anaction thatismore
active thanthatof"discovery". SeeTranslation Issue 20,PartXI.
1396FairTrade Council Established, Operated byZenren, WillRespect "Fair Competition Code" -Urgent Need toHave
Code Known byOctober Start, Zenren Tsuho, July1987, p.3,USEx.87-5.WT/DS44/R
Page460
outsiders arenotsubject toanyaction ofthecouncil fornon-compliance withthecode. TheJFTC,
ontheother hand, makes itsownjudgment about theconduct ofoutsiders, butwillonlytakeaction
ifitisdetermined thattheconduct isaviolation ofthePremiums Law. Japan further argues thatbecause
therules onmisleading representations inthecodes arebased onthePremiums Law, there isno
fundamental difference between theconcept ofmisleading representations under thePremiums Law
andunder thecodes. However, Japan emphasizes, theenforcing authority oftheJFTC under the
Premiums Lawmaynotbedelegated toaprivate body.
10.341 Wenoteinitially thattheevidence putforward onthisissue, inparticular theFebruary 1988
circular ofZenren, indicates thateventhough theterms oftheFairCompetition Code donotexpressly
apply to"outsiders", theRetailers Council hasinfactencouraged members toreport suspected
"violations" bynon-members andhassucceeded inpressuring non-members tocomply withthecode,
relying onthefactthatnon-members thatdonotcomply withthecodearesubject toAntimonopoly
Lawenforcement actions. Theevidence alsosuggests thatthisaction bytheRetailers Council is
accomplished withthefullknowledge --andatleasttacitapproval --oftheJFTC.
10.342 WethenrecallJapan'sclaimthattheUnitedStateshasfailedtoindicatewhichspecificprovisions
ofthecodeorwhich specific activities oftheRetailers Council haveupset thecompetitive conditions
ofimported photographic filmandpaper. ForJapan, thereason forthisUSomission isthatno"code"
or"council" haseveraffected theimportation offilmorpaper.
10.343 Onthisbasicissueofdemonstrating impairment andcausality, werecall theUSstatement that
theeffect ofJapan'soverlapping enforcement mechanisms --theJFTC, thePromotion Council, the
Retailers Council andother "fairtrade councils" andtrade associations --coupled withthenumerous
legalprovisions thatcould stymie apromotion, havehadasignificant "chilling effect" onimporters
likeKodak. TheUnited States argues thatKodak hasdeveloped many ideas forpremiums andprizes,
butthat,according toageneral manager ofKodak, "they wereremoved fromtheplans iftheypotentially
conflicted withgovernment regulations ortheindustry 'sself-regulation ...wetriedtoregulate ourselves
before receiving suchmeasures [from theJFTC ortheFairTrade Council]".1397
10.344 TheUnited States alsomentions several examples involving premiums inconnection withfilm
developing, prizes andother promotions which, itclaims, Kodak attempted tolaunch buthadtocancel.
Specifically, according totheUnited States:
- In1979, i.e.,before themeasure, Kodak conducted acontest offering video cassette recorders
asprizesworthapproximately100,000yen.TheJFTCallegedlyinformedKodakthatitscontest
wasimproper.1398
- In1987, Kodak attempted todevise jointpromotions withMcDonald 'sbutwasfrustrated by
theten-percent limitation onpremiums thatmaybeoffered togeneral consumers. Kodak wanted
togiveaway freeKodak Panorama single-use cameras withMcDonald 'smeals. Because of
theten-percent rule,Kodak allegedly hadtosettle forapromotion inwhich purchasers ofa
McDonald 'smeal gota'luckdraw'which gavethem achance towinaPanorama camera
through adrawing.1399
- Also in1987, Kodak hadnegotiated anarrangement with theMinistry ofPosts and
Communications according towhich Kodak would sellphotographic postcards atpostoffices
across Japan atprices undercutting thegoing retail price. Consumers would beabletocharge
thecostofthepostcards against theirsavings deposits atthepostoffices. However, theministry
1397Affidavit ofSumi Hiromichi, 27November 1996, USEx.96-10, para. 24ff.
1398Affidavit ofYasuyuki Suzuki, 13February 1997, USEx.97-6.
1399Affidavit ofWilliam Jack, 13February 1997, USEx.97-2, pp.7-8.WT/DS44/R
Page461
withdrewfromthearrangement,allegedlybecauseofpressureexercisedbyZenren,andallegedly
issued administrative guidance toKodak towithdraw fromtheplan. Kodak allegedly wasforced
tocomply because ofcommercial risksinvolved indisobeying theministry 'sguidance.1400
- In1990, theJFTC allegedly intervened inapromotion conducted byaKodak-affiliated
photofinishing laboratory, Nakamurabashi Photo Station. Nakamurabashi offered apremium
ofaphoto album, worth around 200yen,inconnection withfilmdeveloping. TheJFTC
allegedly found thispromotion tobetooradical andgaveguidance totakesufficient precautions
onsubsequent promotional activities.1401
10.345 Tothis,Japan responds thatinthecases ofwhich itisaware, actions were taken because
premiums involved wereinexcess ofthelawful ceiling. Japan argues thatorigin oftheproduct had
nothing todowiththeJFTC 'sactions, andsimilar campaigns fordomestic products would havebeen
equally heldunlawful. Also, according toJapan, premiums regulations havebeenfurther relaxed,
inparticular since 1994, andaresubject tocontinuous JFTC review. The"new general premiums
rule" hasbeenapplied toallindustries asofApril 1996, andthatsince thattimetheJFTC hasbeen
reviewing premiums regulations applicable toindividual industries, including industry-specific JFTC
notifications andprivate "faircompetition codes", inorder toensure consistency withthenewgeneral
premiums rule.Asaresult, outof29industry-specific notifications, tenhavebeenabolished oramended
asofMarch 1997.1402Notification 17onPremiums toBusinesses wasabolished on16February 1996.
According toJapan, nooneintherelevant Japanese government office remembers thealleged 1987
incident, recounted bytheUnited States, involving Kodak 'sattempted "post card" campaign. Japan
argues that,inanycase, theabove alleged actions taken bytheJFTC andtheMinistry ofPostand
Telecommunications havenothing todowiththe1987 JFTC approval oftheFairCompetition Code
andtheRetailers Council. Finally, Japan submits, since filmandpaper falloutside thescope ofany
faircompetition code, andarenotsubject toanyaction byafairtrade council, theUSarguments on
the"chilling effect" ofthese codes andcouncils could make sense onlyinrelation toKodak cameras,
andnottofilmproducts onwhich theUnited States bases itscomplaint inthepresent proceeding.
10.346 Reviewing thearguments andevidence onthespecific examples ofalleged impairment put
forward bytheUnited States, wenotethatnoneoftheseappears tohaveaclearconnection tothe1987
JFTC approval oftheFairCompetition Code andtheRetailers Council, nortoanyactions taken by
theRetailers Council under thecode. Specifically, the1979offerofvideo cassette recorders asprizes
predated themeasure byapproximately eight years andallegedly involved direct intervention bythe
JFTC,nottheRetailersCouncil;the1987plantogiveawayKodakPanoramacameraswithMcDonald's
meals allegedly cameupagainst theJFTC 'stenpercent ruleonpremiums, notanyaction bytheRetailers
Council; the1987planforKodak tosellphotographic postcards through Japanese postoffices allegedly
fellthrough duetopressure from Zenren andguidance from theMinistry ofPosts and
Telecommunications, notanyaction bytheRetailers Council; andthe1990 promotion conducted by
aKodak-affiliated photofinishing laboratory, Nakamurabashi Photo Station, allegedly wasterminated
astheresult ofdirect intervention bytheJFTC, again notbecause ofanyaction bytheRetailers Council.
Moreover, wearenotconvinced thatanyofthese actions bytheJFTC ortheMinistry ofPosts and
Telecommunications hasupset thecompetitive relationship between domestic andimported filmor
paper. Finally, weconsider thattheUSclaim of"chilling effect" ismade asaverygeneral argument,
andisnotsupported bysufficient evidence.
1400Affidavit ofMikio Suzuki, 13February 1997, USEx.97-3, pp.1-4.
1401Affidavit ofIsshi Norito, 13February 1997, USEx.97-5, pp.1-3.
1402Kampo, 16February 1996, Japan Ex.D-30; Kampo, 10December 1996, Japan Ex.D-31.WT/DS44/R
Page462
10.347 Fortheabove reasons, wefindthattheUnited States hasnotdemonstrated thattheJFTC
approval oftheFairCompetition Code andtheRetailers Council inMarch 1987, oranysubsequent
action bytheRetailers Council, nullifies orimpairs benefits accruing totheUnited States interms
ofArticle XXIII:1(b).
10.348 Thus, theJFTC approval oftheFairCompetition Code andtheRetailers Council maybeviewed
asameasure forpurposes ofArticle XXIII:1(b) andtheUnited States hasshown thatitshould not
beheldtohaveanticipated itinrespect ofUSexpectations onblack andwhite filmandpaper from
theKennedy Round andonthefullrange ofproducts atissue inrespect oftheTokyo Round. Ithas
notshown, however, thatthemeasure nullifies orimpairs benefits within themeaning of
Article XXIII:1(b). Inrespect oftheUruguay Round, ithasshown onlyoneoftherequired elements
ofanArticle XXIII:1(b) claim --theexistence ofameasure.
(h) Concluding observations onpromotion "measures"
10.349 Wenotethatamong thepromotion "countermeasures" citedbytheUnited States, theevidence
points toonlyisolated instances ofenforcement actions taken bytheJFTC andtheRetailers Council
pursuant toJFTC Notifications andtheFairCompetition Code. Theevidence alsoconfirms thatneither
theJFTC Notifications northeFairCompetition Code meaningfully limits advertising orprice
competition. Accordingly, wehavefound thattheUnited States hasfailed todemonstrate thatany
ofthepromotion measures upsets thecompetitive relationship between imported anddomestic film
andpaper intheJapanese market.
6. COMBINED EFFECTS
10.350 Werecall theUSclaim thatthedistribution "countermeasures", Large Stores Lawandrelated
"measures", andpromotion "countermeasures" incombination nullify orimpair benefits accruing to
theUnited States, within themeaning ofArticle XXIII:1(b). More specifically, theUnited States claims
that: thedistribution "countermeasures", asaset,nullify orimpair benefits within themeaning of
Article XXIII:1(b); theLarge Stores Lawandrelated "measures" alsonullify orimpair benefits within
themeaning ofArticle XXIII:1(b), inthecontext oftherestrictive distribution structure inJapan;
andthepromotion "countermeasures", asaset,nullify orimpair benefits within themeaning of
Article XXIII:1(b), inthecontext oftherestrictive distribution structure inJapan.
10.351 TheUnited States argues thatthedistribution "measures" worktogether asan"organic whole".
IntheUSview, theindividual studies, reports, surveys, guidelines orother distribution "measures"
standing alone maynothavebeensufficient toaccomplish Japan'sgoalofrestructuring thedistribution
system. TheUnited States claims thatMITI expected government andindustry towork together to
settargets forindustrial restructuring, andforbusinesses tomake efforts toachieve these targets,
supported bygovernment fiscal andother incentives. According totheUnited States, leading scholars
inJapan agree thatonewaythatadministrative guidance ismade effective isbyacontinuing process
ofstudying, surveying, cajoling, andtargeting theuseoffiscal incentives thatkeeps theprivate sector
focused onthegoals setbythegovernment, assesses theirachievement ofthose goals, andbuilds peer
pressure onthose whoarefalling behind intheirachievement.
10.352 WerecalltheJapaneseresponsethatsincenoneoftheallegeddistribution"measures"individually
adversely affect imported products oraltertheconditions ofcompetition faced byimporting products,
considering them asa"setofmeasures" innowayalters thefactthatthemeasures donotupset
competitive market-access conditions forimported filmorpaper. Japan argues, inbrief, that"nothing
combined withnothing isstillnothing".
10.353 Inourview, itisnotimplausible thatindividual measures which donotimpair benefits when
considered inisolation, could nonetheless haveanadverse impact onconditions ofcompetition whenWT/DS44/R
Page463
considered collectively. However, forsuchalegaltheory tobeshown tohavefactual relevance in
thepresent case, theUnited States must adduce relevant specific evidence andprovide adetailed
justification showing howthisevidence supports thetheory. Inconsidering theUSallegations inrelation
to"combined effects", werecall ourdiscussion ofthefactsthat(i)thevarious "measures" citedby
theUnited States --distribution andpromotion "measures" andrestrictions onlarge stores --were
introduced overaperiod ofseveral decades, and(ii)anumber ofthese "measures" arenolonger in
effect. Wealsorecall ourdiscussion ofthetiming problems asbetween theissuance ofthe"measures"
andtheemergence ofstandard transaction terms andsingle-brand distribution intheJapanese market.
Against thisbackground, totheextent thattheUnited States claims thatvarious "measures" intheareas
ofdistribution, promotion andlargestores setinmotion policies which aresaidtohaveacomplementary
andcumulative effect onimported filmandpaper, weconsider thatitisfortheUnited States toprovide
thisPanel withadetailed showing ofhowthese alleged "measures" interact withoneanother intheir
implementation soastocause effects different from, andadditional to,those effects which arealleged
tobecaused byeach"measure" acting individually.
10.354 Werecallourfindingsinrelationtotheallegeddistribution"measures",inparticularourfindings
thattheUnited States hasnotdemonstrated thatanyofthealleged distribution "measures" --
individually --hasupset thecompetitive market-access conditions forimported filmorpaper. In
particular, werecall thatwefound inrespect ofeachoftheindividual distribution "measures" cited
bytheUnited States thatthere wasa"timing" problem, i.e.,thevertical integration andsingle-brand
distribution complained ofbytheUnited States hadlargely occurred priortotheadoption ofthevarious
"measures". Thistiming problem obviously applies tothedistribution "measures" asaset.Inlight
ofthese earlier findings andthefactthattheUnited States hasnotpresented additional argument or
adduced additional evidence astohowthese same "measures", "operating asaset",havenegatively
impacted thedistribution ofimported filmandpaper inJapan, wefindthattheUnited States hasnot
demonstrated thatthecombined effects ofthedistribution "measures" impair competitive market-access
expectations forimported USfilmorpaper intheJapanese market.
10.355 TheUnitedStatesfurtherarguesthattheLargeStoresLawandrelated"measures",inthecontext
oftherestrictive distribution structure inJapan, nullify orimpair competitive market-access conditions
forimported filmorpaper. Inparticular, theUnited States alleges thattheLarge Stores Lawandrelated
"measures"haveoperatedtosupporttheverticallyaligneddistributionsystemfosteredbytheGovernment
ofJapan inthephotographic filmandpaper sector. TheUnited States points toa1969 MITI survey
regarding transaction terms which, theUnited States maintains, demonstrates thatMITI viewed large
stores asathreat toFujiandKonica ’soligopolistic distribution systems. According totheUnited States,
thissurvey citesastwothreats tothisoligopolistic system, first,the"growth ofretail routes (especially
regular chains andsupermarkets) other thanthephoto retail route andchanges intransaction terms
duetothisleadership", andsecond, the"effects offullparticipation ofEastman Kodak". Theguidance
allegedly explained whylargestores threatened oligopolistic distribution: “When thisshare [theshare
offilmsalesbysupermarkets] becomes larger, influence overmanufacturers willgrow, andthemarket
system controlled bymanufacturers willbeshaken ”.Without themeasures torestrict thegrowth of
largestores, theUnited States contends thatlargestores would havebrought sufficient bargaining power
andcompetition intotheJapanese distribution system toerode theexclusive vertical control over
distribution exercised byJapanese manufacturers. Therefore, theUnited States takes theposition, the
Large Stores Lawandrelated "measures" should beconsidered asimportant "measures" inJapan’s
overall efforts tocreate andsupport manufacturer-dominated, vertically aligned distribution inJapan.
10.356 Tothis,Japan responds thattheUnited States takes astatement outofcontext toconstruct
itsargument thattheLarge Stores Lawhas"operated tosupport" thedistribution system allegedly
fostered bythegovernment inthephotographic filmandpaper sector. Specifically, Japan notes that
theUnited States selects afewsentences from theresidual category "other" attheendofaseveral-WT/DS44/R
Page464
hundred-page MITI survey report ontransaction terms.1403Japan argues thatcomments inthereport
about "future problems" areadiscussion about thethreat ofthereintroduction ofirrational business
terms, notthepossible threat oflarge stores tosome supposed oligopolistic distribution system that
thegovernment wasallegedly trying toprotect. Japan points outthattheMITI report spoke of"free
competition" asapositive development. Inthisregard, Japan notes thattheUnited States leftouta
keyportion ofthequote: "themarket system controlled bymanufacturers willbeshaken, thisleading
toanenvironment offreecompetition "(emphasis added). Japan alsoclaims tohaveinadvertently made
atranslation errorinleaving outthephrase "andthiseffect isdesirable" attheendoftheabove quote.1404
Finally, Japan argues thatthefearexpressed regarding theincrease insalesbysupermarkets wasnot
afearoverthethreat tosome established domestic oligopoly, butrather afearthatthese newretail
channelswouldintroduceirrationalbusinesspractices,suchasabnormallylongpaymentperiods,product
returns, anddispatched employee practices.1405
10.357 Again, fortheUStheory of"measures" acting incombination tobeshown tohavefactual
relevance inthepresent caseitmust bebased onadetailed justification andconvincing evidence.
Onthebasis oftheevidence andarguments presented bythetwoparties, andtaking intoaccount the
additional portion oftheMITI Survey Report mentioned byJapan, weconsider thattheMITI survey
report citedbytheUnited States, when correctly translated andreadincontext, doesnotsufficiently
support theUSproposition inrelation tothealleged roleoftheLarge Stores Law(andrelated
"measures") insupporting whattheUnited States claims isanoligopolistic distribution system forfilm
andpaper inJapan. Rather, theevidence would seemtosuggest thatMITI wasmostly concerned with
avoiding thereintroduction ofwhatMITI viewed asirrational business terms. Totheextent thatthe
USclaimisthattheLargeStoresLaw"created"manufacturer-dominated,verticallyintegrateddistribution
inJapan, itsuffers fromthetiming problem referred toabove, i.e.,suchadistribution structure existed
prior totheadoption oftheLarge Stores Lawin1973. TheUnited States offers insufficient evidence
astohowtheLarge Stores Lawplayed aroleinkeeping thisalready-existing vertically integrated
structure inplace. Intheabsence ofother evidence andargument tosupport theUSclaim, andin
lightofourearlier findings thattheUnited States hasnotdemonstrated thattheLarge Stores Lawand
related "measures" haveupset thecompetitive market-access conditions forimported filmorpaper,
wefindthattheUnited States hasnotdemonstrated thattheLarge Stores Lawandrelated "measures"
haveoperated tosupport avertically aligned distribution system inJapan forfilmandpaper.
10.358 TheUnited States alsoclaims thatindependently oftherolethattheLarge Stores Lawplays
insupporting theoligopolistic distribution system intheJapanese filmandpaper market, therestrictions
onlargestores havelimited market access bycurtailing analternate channel tomarket foreign products.
TheUnited States argues thatevenifunrestricted growth inlarge stores would notaltertheexclusive
manufacturer domination overJapanese wholesalers, itstillwould allow expansion ofasaleschannel
that,according totheUnited States, hasbeenmore friendly toimports inJapan. TheUnited States
offers theexample ofAgfa which allegedly makes atleasthalfitsfilmsales inJapan totheDaiei
supermarket chain, Japan’slargest retailer. IfDaiei’sgrowth hadnotbeenretarded forthree decades
byrepressive Japanese government regulation, theUnited States maintains, itmight beanevenlarger
chain today andAgfa’ssalestoitwould begreater. Ontheother hand, theUnited States argues, if
Japan’sprimary wholesalers werenotinexclusive relationships withJapanese manufacturers andwere
willing tocarry foreign film,theneedtorelyonlargestores asanalternative would bemuch reduced.
Thus, inaddition tothealleged action oftheLarge Stores Lawincombination withthedistribution
"measures", theUnited States claims thattheLarge Stores Law(andrelated "measures") byitself,
inthecontext ofaclosed distribution system, nullifies orimpairs benefits withthemeaning of
Article XXIII:1(b).
1403MITI's1969 Survey Report onTransaction Terms, Japan Ex.B-1,p.309; USEx.15.
1404Ibid. Japan argues thatalthough itisunlikely thattheinitial quote would beviewed asidentifying athreat, thecorrected
quote clearly indicates that"free competition" wasviewed as"desirable". Ibid.
1405Ibid.WT/DS44/R
Page465
10.359 Japan refutes theUSclaims ofimpairment withrespect totheeffects oftheLarge Stores Law
andrelated "measures" acting incombination inthecontext ofthe"closed" Japanese distribution system,
restating itsviewthatnoneofthealleged "measures" individually adversely affect imported products
oraltertheconditions ofcompetition facing imported products. According toJapan, large stores are
notmore likely tocarry imported products. What counts issalesvolume, regardless ofwhether one
isspeaking ofsmaller orlarger stores. Japan further argues thatlargestores haveincreased innumber
regardless oftheexistence oftheLarge Stores Law. Japan reiterates thatthere isnoevidence ofa
combined effect oftheLarge Stores Lawandrelated "measures", inthecontext ofaclosed distribution
system, because combining nothing withnothing stillproduces nothing.
10.360 Asnoted earlier, forthenotion ofcombined effects tobeshown tohavefactual relevance in
thepresent casetheUnited States must clearly demonstrate howtheevidence supports thisclaim.
Werecall inthisregard ourfindings inrelation totheLarge Stores Lawandrelated "measures", which
weexamined together, inparticular ourfindings thattheUnited States hasnotdemonstrated thatany
ofthese alleged "measures" hasupset thecompetitive market-access conditions forimported filmor
paper. Inlightofthese earlier findings andthefactthattheUnited States hasnotpresented additional
argument oradduced additional evidence astohowthese same "measures", "operating asaset",have
negatively impacted thedistribution ofimported filmandpaper inJapan, other thanananecdotal
reference toAgfa'suseoftheDaiei supermarket chain asamajor means offilmdistribution inJapan
(anargument which, iffactually correct, could beseenasindicative oftheavailability ofsuchalternative
source ofdistribution intheJapanese context), wefindthattheUnited States hasnotdemonstrated
thatthecombined effects oftheLarge Stores Lawandrelated "measures", inthecontext ofanalleged
closed distribution system, impair competitive market-access conditions forimported USfilmorpaper
inJapan.
10.361 Wenextrecall theUSclaim thatthepromotion "countermeasures" alsohavesupported the
closed distribution system. According totheUnited States, JFTC Notification 17under thePremiums
Lawtookaway animportant means forforeign manufacturers tooffer Japanese distributors amore
attractive dealtohandle foreign products. JFTC Notification 17,intheUSview, essentially ruled
outallmanner ofpremiums frommanufacturers towholesalers, except those oftoken value thatcould
beconsidered reasonable inlightofnormal business practice. TheUnited States maintains thatlimiting
theability toofferpremiums restricted theability offoreign manufacturers tousetheirfinancial and
marketing strengths toentice Japanese distributors from theirexclusive relationships withJapanese
manufacturers, ortosolidify theirrelationships withJapanese distributors. Andbecause, intheUS
view, Notification 17directly supported theJapanese manufacturer dominated distribution system,
itshould beconsidered bothasadistribution "countermeasure" andapromotion "countermeasure".
Other promotion "countermeasures", theUnited States argues, alsohelped torestrict market access
forforeign photographic filmandpaper inJapan. When aforeign manufacturer haslimited access
tothedistribution system, itisespecially important thatitbeabletoreach Japanese consumers with
attractive premiums andpromotions. Taken individually, theUnited States believes, anyoneofthe
limits onpremiums andpromotions might nothavesubstantially impaired theability offoreign firms
tocompete inJapan. Buttaken asagroup, theUnited States argues, thepromotion "countermeasures"
didhaveasignificant chilling effect, particularly inthecontext ofthesystem ofenforcement through
thefaircompetition codes andcouncils andtheactions oftheFairTrade Promotion Council.
10.362 JapanrebutstheUSclaimthattheallegedpromotion"measures",asaset,haveimpairedbenefits
accruing totheUnited States, since, intheJapanese view, noneofthealleged "measures" individually
adversely affect imported products oraltertheconditions ofcompetition facing imported products.
Japan reiterates thatevenwhen thedistribution policies andthe"measures" related tothePremiums
Lawareindividually considered asa"setofmeasures", theydonotinanywaydisadvantage imports
because, inJapan'sview, combining nothing withnothing stillproduces nothing.WT/DS44/R
Page466
10.363 Again wenotethatfortheUStheory ofcombined effects tobeshown tohavefactual relevance
inthepresent case, itmust bebased onadetailed justification andconvincing evidence ofrecord.
Werecall inthisregard ourfindings inrelation tothealleged promotion "measures", inparticular
ourfindings thattheUnited States hasnotdemonstrated thatanyofthese alleged "measures" --
individually --hasupset thecompetitive market-access conditions forimported filmorpaper. While
afewspecific promotional activities (e.g., falseadvertising, certain premiums) areregulated ona
nondiscriminatory basis, tools such astruthful advertising andprice competition arepermitted.
Altogether, theUnited States offers onlyafewexamples, spread overmany years, where Kodak
promotional activities werelimited inanyway. Inlightofthese earlier findings andthefactthatthe
United States hasnotpresented additional argument oradduced additional evidence astohowthese
same "measures", "operating asaset",havenegatively impacted thedistribution ofimported filmand
paper inJapan, wefindthattheUnited States hasnotdemonstrated thatthecombined effects ofthe
promotion"measures",inthecontextofanallegedcloseddistributionsystem,impaircompetitivemarket-
access conditions forimported USfilmorpaper inJapan.
10.364 Finally, theUnited States claims thatthepromotion "countermeasures" asasethaveoperated
incombination withJapanese Government efforts torestructure thedistribution system through the
distribution "countermeasures" andlarge stores "measures" tonullify orimpair benefits within the
meaning ofArticle XXIII:1(b).
10.365 Japan responds thattheUSclaims ofthethreecategories of"measures" acting incombination
witheachother arefactually andlogically flawed. InJapan'sview, theUnited States hasnotsubmitted
credible evidence thatthe"measures" were intended toactorinfactdidactincombination. Japan
alsoalleges thattheUnited States hasnotprovided evidence thattheLarge Stores Lawinanyway
sought toaffect foreign product given thatthelawcurrently applies andhasalways applied uniformly
toallentities seeking toprovide retailing services. Similarly, Japan contends thattheUnited States
hasnotprovided evidence ofJFTC actions adversely affecting foreign products (para. 4.27).
10.366 Here again, werecall ourfindings thattheevidence presented bytheUnited States failsto
show thatanyoftheindividual "measures" --distribution "measures", "measures" restricting large
stores, orpromotion "measures" --nullifies orimpairs benefits accruing totheUnited States inrespect
ofcompetitive market-access expectations forimported filmorpaper. Inlightoftheseearlier findings
andthefactthattheUnited States hasnotpresented additional argument oradduced additional evidence
insupport ofitsclaim thatallthese "measures" haveworked inconcert toupset USmarket-access
expectations, wefindthattheUnited States hasnotdemonstrated thatthethreecategories of"measures"
incombination nullify orimpair benefits accruing totheUnited States within themeaning of
Article XXIII:1(b).
10.367 Inthefinalanalysis, itisnotincumbent uponthisPanel toengage initsownextensive, unaided
investigation intothepotential applicability inthiscaseoftheUStheory ofcombined effects. Rather,
itisfortheUnited States, asthecomplaining party, tomake adetailed showing oftherelevance of
thistheory tothematter athand. Weconsider thattheUnited States hasfailed tomake suchashowing
here.WT/DS44/R
Page467
F. ARTICLEIII:4-NATIONALTREATMENTINRESPECTOFLAWS,REGULATIONS
AND REQUIREMENTS
10.368 TheUnited States claims thatthesame distribution "measures" ithascited asnullifying or
impairing benefits under Article XXIII:1(b) alsoaccord lessfavourable treatment toimported filmand
paper inviolation ofArticle III:4. Specifically, theUnited States claims thatJapan'sapplication of
thefollowing eight distribution "measures" violate Article III:4:1406
(1) 1967 Cabinet Decision onLiberalization ofInward Direct Investment;
(2) 1967 JFTC Notification 17onpremiums tobusinesses;
(3) 1968 Sixth Interim Report onDistribution Modernization Outlook andIssues;
(4) 1969 Seventh Interim Report onSystemization ofDistribution Activities;
(5) 1969 Survey Report regarding Transaction Terms;
(6) 1970 Guidelines forRationalizing Terms ofTrade forPhotographic Film;
(7) 1971 Basic PlanfortheSystemization ofDistribution; and
(8) 1975 Manual forSystemization ofDistribution byIndustry: Camera andFilm.
Before examining theseeightdistribution measures inlightofArticle III:41407,wewishtomake several
general observations concerning thisGATT provision anditsproper interpretation intheinstant case.
10.369 Article III:4provides inrelevant partasfollows:
"4. Theproducts oftheterritory ofaMember imported intotheterritory ofany
other Member shallbeaccorded treatment nolessfavourable thanthataccorded to
likeproducts ofnational origin inrespect ofalllaws, regulations andrequirements
affecting theirinternal sale,offering forsale,purchase, transportation, distribution
oruse".
Weconsider thatinlinewithGATT/WTO precedent, under thisprovision theUnited States isrequired
todemonstrate theexistence of:(a)alaw,regulation orrequirement affecting theinternal sale,offering
forsaleordistribution ofimported filmorpaper; and(b)treatment accorded inrespect ofthelaw,
regulation orrequirement thatislessfavourable totheimported filmorpaper thantolikeproducts
ofnational origin.1408Wenotethattheparties donotdisagree onthispoint.
10.370 Inexamining therelevance ofArticle III:4inthepresent dispute, weconsider thatwealso
needtotakeintoaccount thegeneral principle enunciated inArticle III:1, which reads:
"1. 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".
1406Wefoundinparagraph10.21abovethatthreeadditionaldistribution"measures"citedbytheUnitedStates--specifically,
application oftheinternational contract notification provisions ofJFTC Rule No.1under Article 6oftheAntimonopoly
Law(April 1971), JDBfunding forKonica ’swholesalers (1976) andSMEA funding forphotoprocessing laboratories (July
1977) --arenotwithin theterms ofreference ofthisPanel because theywere notraised intherequest fortheestablishment
ofthePanel inamanner consistent withArticle 6.2oftheDSU. Wehavetherefore excluded themfromfurther consideration.
1407Because thearguments oftheEuropean Communities under Article III:4 largely coincide withthose oftheUnited
States, wedonotaddress theEC'sarguments separately.
1408See,e.g., US-Gasoline ,WT/DS2/9, p.33.WT/DS44/R
Page468
AstheAppellate Body stated inJapan -Alcoholic Beverages :
"Article III:1articulates ageneral principle thatinternal measures should notbeapplied
soastoafford protection todomestic production. Thisgeneral principle informs the
restofArticle III.Thepurpose ofArticle III:1istoestablish thisgeneral principle
asaguide tounderstanding andinterpreting thespecific obligations contained in
Article III:2andintheother paragraphs ofArticle III,while respecting, andnot
diminishing inanyway,themeaning ofthewords actually usedinthetextsofthose
other paragraphs".1409
Essentially, asreiterated bytheAppellate Body inJapan -Alcoholic Beverages ,"Article IIIobliges
Members oftheWTO toprovide equality ofcompetitive conditions forimported products inrelation
todomestic products".1410
10.371 Wenotethatthespecific national treatment issueaddressed bytheAppellate Body inJapan -
Alcoholic Beverages wasthatofinternal taxdifferentials under Article III:2andthatalthough the
Appellate Body clearly indicates thatthegeneral principle articulated inArticle III:1informs therest
ofArticle IIIandshould beusedasaguide tounderstanding andinterpreting theother paragraphs
ofArticle III,inBananas IIItheAppellate Body stated that"adetermination ofwhether therehasbeen
aviolation ofArticle III:4doesnotrequire aseparate consideration ofwhether ameasure 'afford[s]
protection todomestic production '".1411Accordingly, andinlinewiththeAppellate Body'smostrecent
stipulation inBananas III,weshallusethegeneral principle articulated inArticle III:1asaguide to
interpreting Article III:4butshallnotgiveseparate consideration towhether themeasures cited by
theUnited States "afford protection todomestic production".
10.372 Asfortheburden ofproof, asstated earlier (section D),wenotethatitisfortheparty asserting
afact,claim ordefence tobeartheburden ofproviding proof thereof. Once thatparty hasputforward
sufficient evidence toraiseapresumption thatwhatisclaimed istrue,theburden ofproducing evidence
shifts totheother party torebut thepresumption.1412Thus, inthiscase, including theclaims under
Articles IIIandX,itisfortheUnited States tobeartheburden ofproving itsclaims. Once ithas
raised apresumption thatwhatitclaims istrue,itisforJapan toadduce sufficient evidence torebut
anysuchpresumption.
(a) Laws, regulations orrequirements
10.373 Turning totheeightdistribution "measures" citedbytheUnited States, wemustfirstdetermine
whether these constitute "laws, regulations [or]requirements" within themeaning ofArticle III:4.
Onthisissue, wefirstrecall thatinaddressing theinterpretation ofthetermmeasure inthecontext
ofArticle XXIII:1(b), including inrelation tothesame eight distribution "measures" atissue here,
weconcluded thatthattermshould begiven abroad construction.1413
10.374 Wefurther recall ourreference inthatsamesection toprevious GATT cases dealing withwhat
mayconstitute "alllaws, regulations andrequirements" under Article III:4. There wenoted that,in
1409WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, p.18.
1410Ibid, p.16,citing US-Taxes onPetroleum Products andCertain Imported Substances ,BISD 34S/136, para. 5.1.9
andJapan -Liquor Taxes ,BISD 34S/83, para. 5.5(b). SeeUS-Section 337,discussed below, which wasthefirstpanel
tostatethat"[t]he words 'treatment nolessfavourable 'inparagraph 4[ofArticle III]callforeffective equality ofopportunities
forimported products inrespect oftheapplication oflaws, regulations andrequirements affecting theinternal sale,offering
forsale,purchase, transportation, distribution oruseofproducts" (emphasis added). Adopted on7November 1989, BISD
36S/345, 386-387, para. 5.11. SeealsoEEC -Parts andComponents ,BISD 37S/132; Canada -FIRA,BISD 30S/140.
1411WT/DS27/AB/R, p.92(emphasis inoriginal).
1412SeeUS-Wool Shirts andBlouses ,WT/DS33/AB/R, p.14.
1413Seeparas. 10.47-10.50.WT/DS44/R
Page469
theseprevious cases, theconclusion thatthereisalaw,regulation orrequirement thatexists andviolates
GATT rules gives risetoapresumption ofnullification orimpairment. Even so,panels havetaken
abroad view ofwhen agovernmental action isalaw,regulation orrequirement. Forexample, in
1984apanel examined written purchase andexport undertakings under theForeign Investment Review
ActofCanada (FIRA), submitted byinvestors regarding theconduct ofthebusiness theywereproposing
toacquire orestablish, conditional onapproval bytheCanadian government oftheproposed acquisition
orestablishment. These written undertakings wereconsidered legally binding under FIRA. Thepanel
determined thattheundertakings were tobeconsidered "laws, regulations orrequirements" within
themeaning ofArticle III:4, eventhough FIRA didnotmake theirsubmission obligatory.1414Similarly,
thepanel onEEC--Parts andComponents considered thattheterm"laws, regulations orrequirements"
included requirements "which anenterprise voluntarily accepts inorder toobtain anadvantage from
thegovernment.1415
10.375 Wenotethattheparties disagree astothebreadth ofinterpretation tobegiven tothephrase
"alllaws, regulations andrequirements" inArticle III:4. TheUnited States argues thatthephrase
speaks togovernment actions, i.e.action taken inthename ofaWTO Member, bygovernment officials
orparties authorized toactonthegovernment 'sbehalf, inpursuit ofgovernment policies. According
totheUnited States, theverylanguage ofArticle III:4indicates thatitwasintended tocover "all"
government action which would include theformulation ofgovernment policy anditsimplementation.
TheUnited States maintains thataMember should bearresponsibility ifitsgovernmental action accords
lessfavourable treatment toimported products thantodomestic products, regardless ofthemethod
usedbytheMember toachieve thisresult. IntheUSview, nosingle orsetofcriteria should be
dispositive,anapproachwhich,theUnitedStatesasserts,comportswiththeAppellateBody'sadmonition
inJapan -Alcoholic Beverages totakeacase-specific approach andtorefrain from applying WTO
rules inawaythatignores "real factsandrealcases intherealworld".1416Japan responds thatfor
aparty tobesubject toagovernment requirement, itmusteither (i)belegally obligated tocarry out
therequest, or(ii)receive some advantage fromthegovernment inexchange forcompliance. Inother
words, there must beeither agovernment sanction orthewithholding ofagovernment benefit that
isattached, formally orsubstantively, tonon-compliance.
10.376 Aliteral reading ofthewords alllaws, regulations andrequirements inArticle III:4could
suggest thattheymayhaveanarrower scope thantheword measure inArticle XXIII:1(b). However,
whether ornotthese words should begiven asbroad aconstruction astheword measure ,inviewof
thebroad interpretation assigned tothem inthecases citedabove, weshallassume forthepurposes
ofourpresent analysis thattheyshould beinterpreted asencompassing asimilarly broad range of
government action andaction byprivate parties thatmaybeassimilated togovernment action. Inthis
connection, weconsider thatourprevious discussion ofGATT cases onadministrative guidance in
relation towhatmayconstitute a"measure" under Article XXIII:1(b), specifically thepanel reports
onJapan -Semi-conductors andJapan -Agricultural Products ,isequally applicable tothedefinitional
scope of"alllaws, regulations andrequirements" inArticle III:4.
10.377 Oftheeight distribution "measures" atissue, werecall ourearlier findings thatonlyfourof
these "measures" --the1967 Cabinet Decision, the1967 JFTC Notification 17,the1970 Guidelines
andthe1971 Basic Plan--areorweremeasures within themeaning ofArticle XXIII:1(b). Ofthese
four, wefound thatJFTC Notification 17isnolonger ineffect. Thus, oftheeight distribution
1414Canada --FIRA,BISD 30S/140, 158, para. 5.4.
1415EEC--PartsandComponents,BISD37S/132,197,para.5.21.SeealsoBananasIII,WT/DS27/R,paras.7.179-7.180.
WealsonotethattheIllustrative ListofTrade-Related Investment Measures (TRIMs) contained intheAnnex totheAgreement
onTRIMs indicates thatTRIMs inconsistent withArticles III:4andXI:1include those which are"mandatory orenforceable
under domestic laworunder administrative rulings, orcompliance withwhich isnecessary toobtain anadvantage "(emphasis
added).
1416Citing Japan -Alcoholic Beverages ,p.31.WT/DS44/R
Page470
"measures" citedbytheUnited States, wehavealready found thatonlythe1967 Cabinet Decision,
the1970 Guidelines andthe1971 Basic Planaretobeconsidered asmeasures within themeaning of
Article XXIII:1(b). Applying theassumption outlined above astothesimilarity oflaws, regulations
andrequirements inArticle III:4tomeasures inArticle XXIII:1(b), weshallaccordingly assume that
these three measures meet thedefinition oflaws, regulations [or]requirements within themeaning
ofArticle III:4. Further, forthesakeofcompleteness ofouranalysis, inexamining whether less
favourable treatment isaccorded toimported products, weshallassume thattheother fivedistribution
"measures" citedbytheUnited States arealsolaws, regulations [or]requirements under Article III:4.
(b) Nolessfavourable treatment
10.378 Werecall theUSclaim thattheeight distribution "measures" inissue accord lessfavourable
treatment toimported filmandpaper thantolikedomestic filmandpaper intheJapanese market.
Incontrast, Japan argues thattheUnited States hasfailed toshow thatthealleged "measures" extend
lessfavourable treatment toimported filmorpaper.1417
10.379 Recalling thestatement oftheAppellate Body inJapan -Alcoholic Beverages that"Article III
obliges Members oftheWTO toprovide equality ofcompetitive conditions forimported products in
relation todomestic products"1418,weconsider thatthisstandard ofeffective equality ofcompetitive
conditions ontheinternal market isthestandard ofnational treatment thatisrequired, notonlywith
regard toArticle IIIgenerally, butalsomore particularly withregard tothe"nolessfavourable
treatment" standard inArticle III:4. Wenoteinthisregard thattheinterpretation ofequal treatment
interms ofeffective equality ofcompetitive opportunities, firstclearly enunciated bythepanel onUS-
Section 3371419,hasbeenfollowed consistently insubsequent GATT andWTO panel reports.1420The
panel report onUS-Section 337explains thetestinveryclear terms, noting that
"the'nolessfavourable 'treatment requirement setoutinArticle III:4, isunqualified.
These words aretobefound throughout theGeneral Agreement andlaterAgreements
negotiated intheGATT framework asanexpression oftheunderlying principle of
equality oftreatment ofimported products ascompared tothetreatment given either
toother foreign products, under themost favoured nation standard, ortodomestic
products, under thenational treatment standard ofArticle III.Thewords "treatment
nolessfavourable"inparagraph4callforeffectiveequalityofopportunitiesforimported
products inrespect oftheapplication oflaws, regulations andrequirements affecting
theinternal sale, offering forsale, purchase transportation, distribution oruseof
products. Thisclearly setsaminimum permissible standard asabasis" (emphasis
added).1421
10.380 Werecall ourearlier findings thatnoneoftheeightdistribution "measures" citedbytheUnited
States hadbeen shown todiscriminate against imported products, either interms ofadejure
discrimination (ameasure thatdiscriminates onitsfaceastotheorigin ofproducts) orinterms of
adefactodiscrimination(ameasurethatinitsapplicationupsetstherelativecompetitivepositionbetween
domestic andimported products, asitexisted atthetimewhen arelevant tariffconcession wasgranted).
1417Neither party contests thefactthatimported filmandpaper are"like products" todomestic (i.e., Japanese) filmand
paper, andweseenoreason toexamine thisparticular requirement ofanArticle III:4 case.
1418Japan -Alcoholic Beverages ,p.16,citing US-Taxes onPetroleum Products andCertain Imported Substances ,BISD
34S/136, para. 5.1.9 andJapan -Liquor Taxes ,BISD 34S/83, para. 5.5(b).
1419US-Section 337,BISD 36S/345, 386-387, para. 5.11.
1420See,e.g., Canada -Import, Distribution andSaleofCertain Alcoholic Drinks byProvincial Marketing Agencies ,
adopted on18February 1992, BISD 39S/27, paras. 5.12-5.14 and5.30-5.31; US-MaltBeverages ,BISD 39S/206, para.
5.30; US-Gasoline ,WTO/DS2/R, para. 6.10; Canada -Periodicals ,WT/DS31/R, adopted on30July1997, p.75;
Bananas III,WT/DS27/R, paras. 7.179-7.180.
1421US-Section 337,BISD 36S/345, 386-387, paras. 5.11.WT/DS44/R
Page471
Inthisconnection, itcould beargued thatthestandard weenunciated andapplied under
ArticleXXIII:1(b)--thatof"upsettingthecompetitiverelationship"--maybedifferentfromthestandard
of"upsetting effective equality ofcompetitive opportunities" applicable toArticle III:4. However,
wedonotseeanysignificant distinction between thetwostandards apart from thefactthatthis
Article III:4standard callsfornolessfavourable treatment forimported products ingeneral, whereas
theArticle XXIII:1(b) standard callsforacomparison ofthecompetitive relationship between foreign
anddomesticproductsattwospecificpointsintime,i.e.,whentheconcessionwasgrantedandcurrently.
10.381 Here, asinourexamination ofthesame measures inlightoftheUSclaim ofnon-violation
nullification orimpairment, theevidence citedbytheUnited States indicates thatthemeasures neither
(i)discriminate ontheirfaceagainst imported filmorpaper (they areformally neutral astotheorigin
ofproducts), nor(ii)intheirapplication have adisparate impact onimported filmorpaper. As
previously noted inthenon-violation analysis, wearenotpersuaded thatthe1967 Cabinet Decision
orthe1970 Guidelines aredirected atpromoting vertical integration inthephotographic materials
distribution sector withaview toimpeding market access forforeign products. Further, there are
serious difficulties oftiming intheUSarguments oncausation suchthatwearenotpersuaded that
thereisameaningful nexus between the1967Cabinet Decision orthe1970Guidelines andthelargely
pre-existing market structure. Moreover, therecommendations ofthe1971 Basic Planappear tobe
neutral astothesource oftheproducts, promoting standardization andmodernization ofbusiness
practicesandmanagementtechniques,includingcomputerization.Additionally,aswealsonotedearlier,
single brand wholesale distribution isthecommon market structure --indeed thenorm --inmostmajor
national filmmarkets, including theUSmarket. Itisunclear whythesame economic forces acting
topromote single brand wholesale distribution intheUnited States would notalsoexistinJapan.
10.382 Accordingly, andessentially forthereasons already stated inourfindings onnon-violation
nullification andimpairment, wefindthattheUnited States hasfailed todemonstrate thatanyofthe
distribution "measures" inissue accords lessfavourable treatment toimported filmandpaper thanto
filmandpaper ofJapanese origin. TheUSclaim under Article III:4must therefore berejected.
G. ARTICLE X:1-PUBLICATION OFADMINISTRATIVE RULINGS OFGENERAL
APPLICATION
10.383 TheUnited States claims thatthefollowing twoalleged actions bytheGovernment ofJapan
areinconsistent withGATT Article X:1:1422
(1) inthecontext ofthePremiums Lawandrelevant faircompetition codes, Japan'sfailure
topublish theJFTC 'sandthefairtradecouncils 'enforcement actions thatestablish ormodify
criteria applicable infuture cases; and
(2) inthecontext oftheLarge Stores Lawandrelevant localregulations, Japan'sfailure
topublish guidance through which regional MITI offices, prefectural governmental andlocal
authorities make applicants foraneworexpanded storeunder theLarge Stores Lawcoordinate
theirplans withlocalcompetitors before submitting anotification forgovernment review, and
continue toimpose a"prior explanation" requirement.
1422Wenotethatwhereas theUSrequest fortheestablishment ofthisPanel (WT/DS44/2) makes reference toviolations
ofbothArticle X:1andArticle X:3,theUnited States hasmade nolegal claims under Article X:3initssubmissions tothe
Panel. Accordingly, welimitourexamination ofclaims under Article Xtoclaims made under paragraph 1thereof.WT/DS44/R
Page472
1. GENERAL CONSIDERATIONS ONTHE LEGAL TEST UNDER ARTICLE X:1
10.384 Prior toexamining eachoftheseclaims, weshalladdress some more general points inrelation
tothelegaltestunder Article X:1. ThetextofArticle X:1provides inrelevant partasfollows:
"Laws, regulations, judicial decisions andadministrative rulings ofgeneral application ,
made effective byanyMember, pertaining totheclassification orthevaluation of
products forcustoms purposes, ortorates ofduty, taxes orother charges, orto
requirements, restrictions orprohibitions onimports orexports oronthetransfers of
payments therefore, oraffecting their sale, distribution, transportation, insurance,
warehousing, inspection, exhibition, processing, mixing orotheruseshallbepublished
promptly insuchamanner astoenable governments andtraders tobecome acquainted
withthem"(emphasis added).
WenotethattheUSclaims relate nottolaws, regulations orjudicial decisions, buttoadministrative
rulings andthatthemain issue presented bytheUSclaims inthisareaiswhether theadministrative
rulings, which theUnited States maintains Japan hasfailed topublish, areadministrative rulings of
general application .Inparticular, theUnited States maintains thatJapan enforces thePremiums Law
andtheRetailers FairCompetition Code aswellastheLarge Stores Lawprimarily through informal,
unpublished enforcement actions inamanner inconsistent withArticle X:1.
10.385 Themeaning of"general application" wasaddressed intherecent WTO panel report onUnited
States -Restrictions onImports ofCotton andMan-Made Fibre Underwear .1423Thatpanel considered
that"[i]f, forinstance, therestraint wasaddressed toaspecific company orapplied toaspecific
shipment, itwould nothavequalified asameasure ofgeneral application".1424Weagree withthis
analysis andconsider that,consistent withtheplainmeaning ofArticle X:1,thepublication requirement
ofArticle X:1doesnotextend toadministrative rulings addressed tospecific individuals orentities.
10.386 There are,however, noother GATT orWTO precedents directly onpoint.1425Inparticular,
there arenoprecedents onwhether ornottheArticle X:1publication requirement withrespect to
administrative rulings ofgeneral application extends, asargued bytheUnited States, tothedisposition
ofindividualmattersbyanadministrativeagencythatestablishorsubstantiallyrevisecriteriaorprinciples
which maybeapplied infuture cases. Thissaid,Japan apparently made averysimilar argument to
thepanel onEEC-Parts andComponents inchallenging theEEC'spractices regarding theacceptance
ofundertakings pursuant totheEEC'santi-dumping regulation andthedetermination oftheorigin
ofpartsusedinassembly operations.1426Because theEEC-Parts andComponents panel decided the
caseonother grounds, itdidnotaddress theArticle Xclaim.
10.387 Werecall thatJapan stands byitsargument made tothepanel inEEC-Parts andComponents ,
butcontends thatthisargument isinapposite tothepresent case. Specifically, Japan contends that
ithasdulypublished alllaws, regulations, judicial decisions andadministrative rulings ofgeneral
application relating tothePremiums LawandLarge Stores Lawinamanner enabling governments
andtraders tobecome acquainted withthem. Japan maintains thattheUnited States failstoidentify
1423Panel Report onUnited States -Restrictions onImports ofCotton andMan-Made Fibre Underwear ("US-Restrictions
onUnderwear "),WT/DS24/R, adopted on25February 1997, para. 7.65.
1424Ibid. Thisfinding wasupheld bytheAppellate Body. Appellate Body Report onUS-Restrictions onUnderwear ,
WT/DS24/AB/R, adopted on25February 1997.
1425Inanumber ofcases where panels examining quantitative restrictions havefound those restrictions tobeinconsistent
withArticle XI:1, thepanels have declined tomake findings withrespect to"subsidiary claims" raised concerning the
consistency withArticle Xoftheadministration ofthequantitative restrictions, stating, forinstance, thatArticle X"dealt
withtheadministration ofquotas thatmaybeapplied consistently withtheGeneral Agreement" (emphasis added). Japan -
Agricultural Products ,adopted on2February 1988, BISD 35S/163, 242, para. 5.4.2.
1426BISD 37S/132, 155, para. 3.53.WT/DS44/R
Page473
anyparticular unpublished enforcement orother actions thatfallunder thedefinition of"general
application" and,therefore, hasfailed todischarge itsburden ofproof.
10.388 Inourview, itstands toreason thatinasmuch astheArticle X:1requirement applies toall
administrative rulings ofgeneral application, italsoshould extend toadministrative rulings inindividual
cases where suchrulings establish orrevise principles orcriteria applicable infuture cases. Atthe
same time, weconsider thatitisincumbent upontheUnited States inthiscasetoclearly demonstrate
theexistence ofsuchunpublished administrative rulings inindividual matters which establish orrevise
principles applicable infuture cases. Weshallnowproceed toexamine inturnthetwoclaims made
bytheUnited States.
2. "MEASURES" TAKEN INTHE CONTEXT OFTHE PREMIUMS LAW
10.389 TheUnited States claims thatinthecontext ofthePremiums Lawandrelevant faircompetition
codes, Japan'sfailure topublish theJFTC 'sandthefairtradecouncils 'enforcement actions thatestablish
ormodify criteria applicable infuture cases violates Article X:1. Weshallfirstexamine thisclaim
inrelation tothePremiums Lawenforcement actions bytheJFTC.
(a) Premiums Lawenforcement actions
10.390 TheUnited States argues thatJapan'senforcement ofitspremium andrepresentation provisions
is"shroudedinsecrecy"resultingfromtheuseofinformal,unpublishedenforcementactions.According
totheUnited States, theproblem isexacerbated duetothemulti-tiered nature ofJapan'senforcement
system, withtheJFTC, theprefectural governments anddeputized private sector councils allhaving
authority toenforce thePremiums Law. Theconfusion forcompanies attempting todobusiness in
Japan primarily arises fromJapan'sfailure topublish alarge percentage ofadministrative rulings and
enforcement actions andthedifficulty inobtaining whatinformation maybeavailable. TheUnited
States submits thatsince thePremiums Lawwasenacted in1962, theJFTC hasinitiated relatively
fewformal enforcement actions buthasissued many "administrative guidances" orwarnings, the
overwhelming majority ofwhich areunpublished. Thelackoftransparency iscompounded, theUnited
States maintains, bythefactthatJapan's47prefectural governments takethousands ofinformal actions.
10.391 Japan responds thattheenforcement system ofthePremiums Lawissufficiently transparent
andconsistent withArticle X:1. According toJapan, thePremiums Lawitself andenforcement
regulations forthePremiums Law, aswellasnumerous general andspecific notifications interpreting
thePremiums Lawhavebeenpublished. Japan contends thatthere isanample public record, readily
available togovernments andtraders, from which onecandiscern howthePremiums Lawwillbe
applied. Japan points outthattheUnited States itself specifically identifies andrefers tonumerous
JFTC notifications which explain howthePremiums Lawisapplied. Moreover, Japan maintains, the
JFTC haspublished detailed notifications whenever ithasannounced significant restrictions or
modifications initsenforcement policy. ForJapan, therelevant issue isnotwhether informal
enforcement actions aretaken butwhether anynewpolicy isbeing applied without adequate disclosure.
Japan considers assignificant thattheUnited States doesnotmake asingle specific allegation ofany
JFTC enforcement action atoddswithalready published policies.
10.392 Addressing thisclaim, wenotethattheprimary difference between theparties isonwhether
ornotsuchenforcement actions --i.e.,unpublished enforcement actions thatestablish ormodify criteria
applicable infuture cases --exist. Whereas Japan argues thatithasconsistently published all
administrative rulings ofgeneral application aswellasnumerous cease anddesist orders, general and
specific notifications interpreting thePremiums Law, andoutlines ofmajor cases where warnings were
given, theUnited States argues thatitisnotcredible thatnoneoftheunpublished enforcement actions -
-more than90percentofallenforcement actions, according totheUnited States --involves the
establishment ormodification ofcriteria thatmaybeapplied infuture cases.WT/DS44/R
Page474
10.393 Weagree withtheUnited States thatthevastmajority ofindividual enforcement actions are
unpublished. However, wenotethatthere isapronounced lackofevidence astothenature ofany
alleged unpublished enforcement actions effecting changes toJFTC enforcement criteria. Weagree
withJapan thattherecord isdevoid ofanyspecific allegation bytheUnited States astoanyJFTC
enforcement action thatisatoddswithalready published policies. Weacknowledge thatthenature
oftheUSclaim makes itdifficult tociteexamples --ifaruling isunpublished howcantheUnited
States know thatiteffects suchchanges? TheUnited States maintains ithasmade repeated requests
forinformation onenforcement activities fromtheJapanese Government, therespective enforcement
councils andrelevant photographic tradeassociations, butthat,almost without exception, theserequests
havebeendenied. Nonetheless, itwould seem thattheUnited States should beabletociteexamples
ofchanged policies thatitbelieves wereinfactimplemented firstinunpublished decisions. Otherwise,
wehavenobasisforfinding thattherearesuchdecisions. Even iftherateofpublished-to-unpublished
actions islow,wehavenothing before usthatsuggests whatitshould be.Wecannot findthatJapan
should publish "more" decisions intheabsence ofspecific examples ofthetypes ofdecisions thatshould
bepublished, i.e.,administrative rulings establishing ormodifying criteria applicable infuture cases.
Inthese circumstances, wefindthattheUnited States hasfailed demonstrate theexistence ofanysuch
administrative rulings establishing ormodifying criteria applicable infuture cases, thenon-publication
ofwhich could beviewed asaviolation ofArticle X:1.
(b) Actions under "Fair Competition Codes"
10.394 TheUnited States alsoargues thatnoneofthefourprivate sector enforcement bodies towhich
theJFTC allegedly delegates authority, i.e.,(1)theRetailers FairTrade Council ("RFTC"), (2)the
PromotionCouncil,(3)theManufacturersFairTradeCouncil,or(4)theWholesalersFairTradeCouncil,
publishes itsenforcement actions sothattraders andgovernments maybecome familiar withthem.
TheUnited States maintains thatthese "fairtrade councils" and"faircompetition codes" arecreations
ofJapanese law,inparticular Section 10ofthePremiums Law, andtheyremain under thesupervision
oftheJFTC. Assuch, theUnited States urges thatJapan should takeresponsibility fortheenforcement
actions ofthesecouncils under thecodes, including those unpublished enforcement actions establishing
ormodifying criteria applicable infuture cases.
10.395 Japan responds thatnofaircompetition codecovers photographic filmorpaper andthatthere
havebeennoactions under thesecodes evenaddressed tothefilmorpaper industry. Japan alsoargues
thatthese private sector councils areengaged inindustry self-regulation andhave nopower as
enforcement bodies under thePremiums Law. Moreover, Japan states thatalthough thefaircompetition
codes arepublished intheOfficial Gazette onceapproved bytheJFTC, asindustry self-regulation
codes theyfalloutside thescope ofArticle X:1. Finally, Japan argues thattheUnited States hasnot
evenalleged thatanyaction taken byanyofthecouncils isatoddswiththebasic principles setforth
inthecodes.
10.396 WenotethatthisUSclaim isnotlimited tofilmorpaper. Assuming thattheenforcement
actions ofthevarious "fair trade councils" under thevarious "fair competition codes" aretobe
assimilated to"administrative rulings" oftheJapanese Government1427under Article X:1,wemust
stilldetermine whether anyofthese administrative rulings areofthetyperequiring publication under
Article X:1. Onthisissue, weareagain confronted withalackofevidence astothenature ofany
alleged unpublished enforcement actions effecting changes toJFTC orcodeenforcement criteria. The
record isdevoid ofanyspecific allegation bytheUnited States astoanyaction taken byanyofthe
councils thatisatoddswiththebasic principles setforth inthecodes. Inthese circumstances, we
findthattheUnited States hasfailed demonstrate theexistence ofanysuchadministrative rulings by
1427Werecall inthisconnection ourfindings thatcertain actions ofthePromotion Council andtheRetailers Council may
beassimilated togovernmental measures within themeaning ofArticle XXIII:1(b).WT/DS44/R
Page475
anyofthecouncils, establishing ormodifying criteria applicable infuture cases, thenon-publication
ofwhich could beviewed asaviolation ofArticle X:1.
3. "MEASURES" TAKEN INTHE CONTEXT OFTHE LARGE STORES LAW
10.397 TheUnited States claims thatinthecontext oftheLarge Stores Lawandrelevant local
regulations, Japan'sfailure topublish guidance pursuant towhich regional MITI offices, prefectural
governmental andlocalauthorities make applicants foraneworexpanded storeunder theLarge Stores
Lawcoordinatetheirplanswithlocalcompetitorsbeforesubmittinganotificationforgovernmentreview,
andcontinue toimpose a"prior explanation" requirement, isinconsistent withArticle X:1. Although
MITI issued anadministrative directive inJanuary 1992 formally abolishing the"prior explanation"
requirement under theLarge Stores Law, theUnited States argues thatMITI didsothrough the
circulation ofapamphlet which, intheUSview, didnotamount toapublication "insuchamanner
astoenable governments andtraders tobecome acquainted with[thedirective]", asrequired by
Article X:1. Moreover, theUnited States argues, MITI regional offices andprefectural andlocal
governments continue inmany cases togiveadministrative guidance requiring orrequesting largestore
owners toundertake prior consultations andeffectively tomake adjustments withlocalretailers and
small storecompetitors before submitting theirformal notifications under Article 3oftheLarge Stores
Lawtothegovernment. TheUnited States maintains thatinnumerous cases, retailers proposing to
open orexpand large stores continue tofeelcompelled tonegotiate withsmall retailers because the
lawandMITI guidance givethelocalretailers ample possibility toforce severe adjustments onlarge
retailers whodonotnegotiate withthem inadvance.
10.398 Japan responds thatinJanuary 1992MITI issued adirective toMITI branches andprefectural
governments, formally eliminating the"prior explanation" requirement under theLarge Stores Law.
According toJapan, procedural requirements fornotifications ofnewstores werepublished in,e.g.,
the1992and1994Public Briefing Circulars.1428Japan states thatthesedescribe indetail whatisexpected
oflargestoreowners under thelawandreflect the1992policy decision toabolish theprevious "prior
explanation" procedures. Asaresult oftheabolition ofthisprovision, Japan contends, noneofthe
MITI branches, prefectural governments, orother localgovernments mayeither require orrecommend
thatlargestoreownersprovidepriorexplanationto,orundertakepriorconsultationswith,localretailers.
Japan emphasizes thatitisprepared totakecorrective action against anyentity acting inviolation of
thisdecision. Inaddition, Japan states that,based onitsauthority under Article 15(5) oftheLarge
Stores Law, ithasexplicitly prohibited allprefectural andlocal governments from requiring or
recommendingpriorexplanationthroughadditionallocalregulationsbasedupontheirregulatoryauthority
delegated bytheLocal Autonomy Law. Insum,Japan argues that(i)theUnited States hasnotpointed
toanyadministrative rulings ofgeneral application which havenotbeenpublished, and(ii)because
thecentral government haseither corrected orwillcorrect anylocalpolicies thatmaydeviate from
published policy, such local deviations donotconstitute general rules "made effective" bythe
government, asrequired byArticle X:1.
10.399 Considering theabove, wenotethatwearefaced withconflicting argument andevidence on
whether ornotthere isunpublished administrative guidance promoting continuation through informal
means oftheformally abolished government policy requiring "prior explanation" bylarge stores.
However, theissue under Article X:1isnotwhether ornotunpublished administrative rulings are
being issued, butrather, whether ornotsuchadministrative rulings arerulings of"general application".
Asweindicated inouranalysis oftheArticle X:1claims withrespect toenforcement actions under
thePremiums Law, weconsider thattheconcept ofadministrative rulings of"general application"
mayinprinciple encompass administrative rulings inindividual caseswhich establish ormodify criteria
applicable infuture cases. Thekeyissuehere, therefore, inrespect ofalleged continuing unpublished
1428Instructing Parties Filing Notifications ofNewType-I Large Scale Retail Stores toHold Public Briefing, Sankyoku,
Nos. 25and26,MITI, 29January 1982, Japan Ex.C-17, Nos. 93and94,MITI, 1April 1994, Japan Ex.C-18.WT/DS44/R
Page476
guidance under theLarge Stores Law, iswhether ornotanysuchguidance, assuming itsexistence,
establishesormodifiescriteriaapplicableinfuturecases,orisotherwisearulingof"generalapplication".
10.400 Onthismore specific issue, theUnited States argues thataccording toa1995survey byJapan's
Management andCoordination Agency ("MCA"), several MITI regional offices andprefectural
governmentscontinuedtorequireorrecommendsuchpriorexplanationsasamatterofgeneralpolicy.1429
TheMCA surveyed theprior consultation practices atsixMITI regional offices andsixprefectural
orlocal governments. According totheUnited States, thereport indicates thatnineofthetwelve
jurisdictions regularly required orurged large stores toundertake prior consultation andadjustment.
TheUnited States identified seven specific instances inwhich the"prior explanation" policy wasimposed
afterithadpurportedly beenrevoked. Japan responds thatnothing intheMCA survey suggests that
anyMITI branch orprefectural government suggests either prior explanation orprior consultation as
ageneral policy. Moreover, according toJapan, theMCA survey indicates thatguidance byMITI
branches andlocalgovernments toprovide "prior explanations" occurred onlyinexceptional cases
when thesurvey wasconducted in1995. Japan argues thatithasrecently taken corrective measures
against allinappropriate practices identified intheMCA report.
10.401 Onthebasisofourownappreciation oftheevidence andarguments submitted bytheparties,
weconsider that(i)theJapanese Government atthenational levelhaspublished adirective formally
eliminating the"prior explanation" requirement under theLarge Stores Law, but(ii)thereisanecdotal
evidence ofcertain continued guidance atthesub-national levelinJapan urging large stores owners
tocontinue thepractice ofpriorexplanation andadjustment. However, wealsoconsider thattheUnited
States hasnotdemonstrated thatsuchguidance amounts to--orshould beassimilated to--rulings
which establish ormodify criteria applicable infuture cases, orisotherwise inthenature of
administrative rulings of"general application". Wetherefore findthatinrelation toJapan's
administration oftheLarge Stores Lawandrelevant localregulations, theUnited States hasnotprovided
sufficient evidence ofaviolation ofArticle X:1.
H. CONCLUSIONS
10.402 Inlightofourfindings insections E.3,E.4,E.5andE.6above, weconclude thattheUnited
States hasnotdemonstrated thattheJapanese "measures" citedbytheUnited States individually or
collectively nullify orimpair benefits accruing totheUnited States within themeaning ofGATT
Article XXIII:1(b).
10.403 Inlight ofourfindings inSection Fabove, weconclude thattheUnited States hasnot
demonstrated thattheJapanese distribution "measures" citedbytheUnited States accord lessfavourable
treatment toimported photographic filmandpaper within themeaning ofGATT Article III:4.
10.404 Inlight ofourfindings inSection Gabove, weconclude thattheUnited States hasnot
demonstrated thatJapan failed topublish administrative rulings ofgeneral application inviolation of
GATT Article X:1.
1429Results oftheSurvey Regarding theLiberalization ofRegulations, MCA (1995), USEx.95-15, p.15.