Document: WT/DS44/R Page 321 VII. LEGAL ARGUMENTS CONCERNING VIOLATION CLAIMS A. ARTICLE III OF GATT
Document codes: WT/DS44/R
Complainant: U.S.
Respondent: Japan
Third parties: EU, Mexico
Dispute stage: Panel
Agreements cited: Art. III:1, III:4, X:1, X:3, XXIII:1(b)  GATT 1994

VII. LEGAL ARGUMENTS CONCERNING VIOLATION CLAIMS
A. ARTICLE III OF GATT
1. INTRODUCTION
7.1 The United States argues that at the beginning of the Kennedy Round, foreign and domestic
photographic materials manufacturers sold film and paper to Japan’ s primary wholesalers who, in turn,
distributed these products to secondary wholesalers, photo finishing laboratories and retailers. At that
time, manufacturers competed with one another to do business with wholesalers. When the Kennedy
Round was concluded, the Japanese Cabinet directed that a framework should be established for
"countermeasures to be taken by the Government".1036 According to the United States, the Japanese
Government feared as it reduced formal market barriers that foreign photographic materials manufacturers
would establish and expand relationships with domestic wholesalers in order to use the Japanese
distribution system to penetrate the Japanese market. The Cabinet specifically called for countermeasures
to restrain foreign enterprises and strengthen Japanese competitors.1037 The purpose of those policies
was to foster single-brand distribution for film and exclusive arrangements or affiliations between
domestic manufacturers, primary photospecialty wholesalers and photofinishing laboratories, and thereby
to exclude imported film and paper from traditional distribution channels. By the mid-1970's, all of
the primary wholesalers exclusively handled domestic film and paper. Foreign manufacturers were
left with less efficient alternatives such as distribution through smaller, more regional secondary
wholesalers or direct-to-retail sales.
7.2 The United States alleges that the Japanese Government has promulgated laws, regulations
and requirements thathaveeffectively excluded importedphotographicmaterials from a keydistribution
channel, i.e., primary wholesalers, and have maintained this exclusion for more than 20 years. Foreign
photographic material manufacturers were denied essential opportunities to distribute and sell their
products in the Japanese market contrary to Article III:4 which mandates that the conditions for sale
and distributionof imported productsbe noless favourable than those for domestic goods. The Japanese
Government is alleged to have engineered this exclusionary distribution system by applying a combination
of formal measures with a series of closely-related, informal measures. The fact that Japan at times
has employed untraditional and even opaque methods of according less favourable treatment should
not stand as an impediment to a legal review under Article III:4.1038 The United States requests the
Panel to examine all the facts surrounding the imposition of the distribution countermeasures, taking
into consideration any unique features of the Japanese system of government, in order to determine
whetherJapanhas failedtoprovideequalityofcompetitiveconditionsfor importedproducts. Regardless
of whether Japan sought to hinder imports or merely help domestic producers, the direct consequences
of its actions were to diminish opportunities for foreign photographic material manufacturers to distribute
their products. The United States claims that by creating distribution channels open exclusively to
domestic manufacturers, Japan intentionally enhanced competitive opportunities for domestic
manufacturerstothe detrimentof importsinviolationofArticle III:4. Byrestructuringthe photographic
10361967 Cabinet Decision, pp. 3-4, US Ex. 67-6.
1037"Modernization lags behind most in the distribution sector. Here, the power of resistance against the inroad of foreign
capital is weak and the impact of foreign capital advancing into this sector will also pose a significant impact in the production
sector". "[I]t would be necessary to restrain foreign enterprises coming into Japan after liberalization, from disturbing order
in domestic industries by resorting to the strength of their superior power, and from advancing into the non-liberalized sectors
by evading control". "The establishment of countermeasures for strengthening the capacity of our enterprises for international
competition and for preventing foreign enterprises from disturbing order in our industries and market would be a basic necessity
if the liberalization is to be promoted and if our people are to enjoy its economic benefits". Ibid., p. 4.
1038The US points out that GATT/WTO jurisprudence, above all the Appellate Body’ s decision in Japan - Taxes on Alcoholic
Beverages, makes clear that the protective nature and application of a measure may be discerned not only from the very
language of the measure itself, but also revealed from its design, architecture and structure, and from an understanding of
the practical realities of the relevant market.

materials distribution system, Japan applied distribution countermeasures so as to afford protection
to domestic manufacturers, contrary to the principle stated in Article III:1 of GATT.
7.3 Japan argues that the United States fails to identify "laws, regulations, or requirements" that
would serve as the appropriate subject matter for an Article III claim. Furthermore, Japan stresses
that since none of the alleged specific distribution policies cited by the United States is still in effect,
they are not properly before the Panel. Japan rejects the contention that MITI’ s distribution
modernization policies during the 1960s and 1970s were imbued with a protectionist purpose1039, afforded
protection to domestic production and therebyaccord "less favourable treatment" toimports inviolation
of Article III. According to Japan, MITI set out to encourage distribution modernization through
rationalization of transaction terms and systemization of distribution practices well before capital
liberalization became an issue. These goals were pursued to raise the productivity of the relatively
backward distribution sector, and thereby alleviate the growing labour shortage and upward pressure
on consumer prices. Once capital liberalization got underway, distribution modernization came to
serve another policy objective, namely promoting the international competitiveness of the distribution
sector. There is no evidence that the Japanese Government sought to block foreign goods from traditional
distribution channels. Rather, Japan sought to enhance the efficiency and competitiveness of the domestic
distribution sector with a view to enabling it to compete more effectively with new foreign entrants.
7.4 Japan notes the United States does not cite a single government document or advisory council
reportwhicharticulatesany kindof policyofencouragingverticalintegrationof domestic manufacturers
into distribution in film, paper, or any other industry for that matter. According to Japan, the evidence
shows that as mass production developed ahead of mass distribution in Japan, some leading manufacturers
did seek to modernize their distribution channels through instituting single-brand distribution or engaging
in outright vertical integration. The response of the Japanese Government was not to encourage this
trend, but to monitor it on a case-by-case basis, allowing the competitive benefits of vertical integration
while seeking to control the anti-competitive consequences. With respect to the United States claims
that the alleged "distribution countermeasures" and their purported ongoing effects on the market structure
for film and paper accord less favourable treatment to imports in contravention of Article III:4, and
that they are applied so as to afford protection to domestic production in violation of Article III:1,
Japan contends that the United States overlooks the established principle that Article III:1 does not
create any independent obligations, and that the United States fails to establish any violation of
Article III:4.
7.5 As a preliminary matter, Japan notes that several of the alleged measures that Japan believed
to be part of the United States claims are not included in the list of alleged "distribution
countermeasures"1040 that the United States provided in response to a Panel question. Accordingly,
Japan requests the Panel not to consider these claims as being within the scope of the claims raised
by the United States under Article III.1041
1039Japan notes that a recent GATT panel has specifically rejected the "aims and effects" test with respect to Article III,
noting the difficulty of determining the intent of a government in enacting a law based on the legislative history. See Japan -
Taxes onAlcoholic Beverages, WT/DS8, 10, 11/R, para. 6.16. Thus, Japan contends, the UnitedStates allegationsregarding
the subjective intent of the Government of Japan are irrelevant to this analysis.
1040Japan mentions specifically that the United States does not list the Ninth Interim Report (1971) or the Tenth Interim
Report (1972). In paragraph 10 of its third party submission, the EC points to the creation of the Natural Colour Photography
Promotion Council in 1963, the 1990 Guidelines, and the Business Innovation Law (1995) in support of its theory that Japan
has violated Article III. However, these actions, were also not cited by the United States and, in Japan's view, are therefore
not a part of the US Article III claims. Japan notes that the United States mentioned the Business Innovation Law in passing
but the law was not included in its list of distribution measures provided by the US in response to a Panel question.
1041Japan also emphasizes that only the "distribution countermeasures" are subject to both Article III and Article XXIII
challenges; the "Large Stores Law" and "promotion countermeasures" are subject only to Article XXIII and limited Article X
challenges.

2. ARTICLE III:1
7.6 Article III:1 of GATT provides:
"The [Members] recognize that internal taxes and other internal charges, and laws,
regulations and requirements affecting the internal sale, offering for sale, purchase,
transportation, distribution or use of products, and internal quantitative regulations
requiring the mixture, processing or use of products in specified amounts or proportions,
should not be applied to imported or domestic products so as to afford protection to
domestic production".
7.7 The United States underscores that the Appellate Body has explained that the "broad and
fundamental purpose of Article III" is to avoid protectionism in the application of internal tax and
regulatory measures. More specifically, the purpose of Article III "is to ensure that internal measures
not be applied to imported or domestic products so as to afford protection to domestic production."1042
Thus the United States argues that the Appellate Body has indicated that sentences 1 and 4 of Article
III are inextricably linked, finding that Article III:1 "informs the rest of Article III" and establishes
"part of the context" for interpreting the other paragraphs in Article III.1043
7.8 Japan points out that Article III:1 of GATT is only a statement of general principles and does
not impose any obligation on Members in addition to those specified elsewhere in Article III.1044 In
Japan's view, this conclusion follows from the ordinary meaning of the language of the provision and
from GATT precedent. Article III:1 provides that laws and regulations "should" not be applied so
as to afford protection to domestic production. By using "should" instead of "shall,"1045 Article III:1
is meant to serve as a statement of general principles for the rest of Article III, and is to be used as
a guide to interpreting the specific obligations contained in the other paragraphs of Article III, including
paragraph 4 thereof. In Japan's view, GATT precedents support this interpretation. The panel on
Japan - Taxes on Alcoholic Beverages1046 specifically held that "Article III:1 does not contain a legally
binding obligation but rather states general principles". The Appellate Body upheld this interpretation.1047
As Article III:1 does not contain any specific obligations, it is impossible for any Japanese measure
to violate Article III:1.
7.9 The United States responds that it is not requesting this Panel to find an independent violation
of Article III:1. Rather, the United States views the general principle embodied in Article III:1 as
being an integral aspect of Article III as a whole and Article III:4 in particular. The United States,
along with the EC, believes that Article III:4 can be understood fully only if read in connection with
Article III:1. The United States argues that its position in this regard is consistent with the leading
decision on the issue, the Appellate Body’ s recent decision in Japan - Taxes on Alcoholic Beverages.
In that matter, the Appellate Body noted that the general principle embodied in Article III:1 "informs"
and constitutes part of the context of the rest of Article III.1048
1042Appellate Body Report on Japan - Taxes on Alcoholic Beverages, adopted on 1 November 1996 WT/DS8/,10,11/AB/R,
p. 16 (quoting United States - Section 337 of the Tariff Act of 1930, adopted on 7 November 1989, BISD 36S/345, pp. 385-386,
para. 5.10).
1043Japan - Taxes on Alcoholic Beverages, op. cit., p. 18.
1044Japan notes that only recently the United States agreed with Japan's interpretation. In United States - Gasoline the
United States argued that Article III:1 was "only hortatory and could not form the basis of a violation". United States -
Gasoline, WT/DS2/R, op. cit., para. 6.17.
1045Japan notes that the other provisions of Article III, each of which contain specific obligations, use the word "shall".
1046Japan - Alcoholic Beverages, WT/DS8, 10, 11/R, p. 107, para. 6.12.
1047Appellate Body Report on Japan - Alcoholic Beverages, WT/DS8,10,11/AB/R, AB-1996-2, p. 18.
1048Ibid, p. 18. Although Alcoholic Beverages involved Article III:2 rather than Article III:4, the United States believes
that much of its reasoning is pertinent to the present dispute.

7.10 The United States notes that, based on this analysis, the Appellate Body found that the "broad
and fundamental purpose of Article III is to avoid protectionism in the application of internal tax and
regulatory measures. ... Article III obliges Members of the WTO to provide equality of competitive
conditions for imported products in relation to domestic products".1049 Quoting an earlier panel report,
the Appellate Body stated: "[T]he intention of the drafters of the Agreement was clearly to treat the
imported products in the same way as the like domestic products once they had been cleared through
customs. Otherwise, indirect protection could be given".1050 The Appellate Body further ruled that
panels should examine the various factors surrounding the promulgation of a measure to determine
whether it serves protectionist purposes.1051 The Appellate Body emphasized the fact-specific nature
of the inquiry, stating that a measure’ s "protective application can most often be discerned from the
design, the architecture, and the revealing structure of a measure ... In conducting this inquiry, panels
should give full consideration to all the relevant facts and all the relevant circumstances in a given
case".1052 The Appellate Body cautioned against adopting a formulaic approach: "WTO rules are not
so rigid or inflexible as not to leave room for reasoned judgments in confronting the endless and ever-
changing ebb and flow of real facts and real cases in the real world".1053
7.11 The United States believes that Japan apparently agrees with the EC1054 and the United States
that Article III:1 does not form the basis of an independent cause of action but that it provides essential
interpretive guidance for all the provisions of Article III which must be read with this principle in mind.
Where the parties appear to part company, the United States suggests, is in their understanding of how
Article III:1 affects Article III:4. Whereas the United States believes that Article III:4 must be applied
in a sufficiently broad manner to effectuate the general principle of paragraph 11055, in the US view,
Japan essentially would limit Article III:4 to cases of de jure discrimination achieved through the most
formal government action. In the US view, Japan’ s position does not advance the principles of
paragraph 1, nor does it comport with well-established GATT jurisprudence, especially the Appellate
Body’ s decision in Japan - Alcoholic Beverages.
1049Ibid., p. 16, citing United States - Taxes on Petroleum and Certain Imported Substances, adopted on 17 June 1987,
BISD 34S/136, 158-159, para. 5.1.9; Japan - Customs Duties, Taxes and Labelling Practices on Imported Wines and Alcoholic
Beverages , adopted on 10 November 1987, BISD 34S/83, 113-114, para. 5.5(b).
1050Ibid., quotingItalian Discrimination Against Imported Agricultural Machinery (Italian Agricultural Machinery), BISD
7S/60, 63-64, para. 11.
1051Ibid., pp. 28-29. In doing so, the Appellate Body was not adding a legal element to other paragraphs of Article III.
Rather, the Appellate Body was instructing panels to give Article III sufficient breadth to reach measures imposed by WTO
Members that protect domestic production. See, e.g., United States - Section 337, op. cit., paras. 6.2-6.3 (panel found that
less favourable treatment was accorded even though there was no deliberate attempt to discriminate against imports).
1052Ibid.
1053Ibid., p. 31.
1054According to the United States, in its third-party submission, the EC indicated their support for the position of the
United States and reaffirmed the WTO precedent described above. Specifically, the EC maintained that "Japanese internal
policies concerning [consumer photographic film and paper] products were in fact designed to afford protection to domestic
products on top and independently from their facial objective of pursuing general internal policies under their jurisdiction".
1055The Appellate Body in Japan - Alcoholic Beverages made clear that it viewed paragraph 1 as supplying a" broad and
fundamental purpose ... Otherwiseindirect protection could be given" (op. cit., p. 16, quoting Italian Agricultural Machinery,
op. cit., para. 11). This position reaches back to doctrine established in the early days of the GATT, when the panel in
the Italian Agricultural Machinery dispute read Article III expansively, determining that it covers "any laws or regulations
which might adversely modify the conditions of competition between the domestic and imported products on the internal
market" (op. cit., p. 64, para. 12, emphasis added).

3. ARTICLE III:4
7.12 Article III:4 of GATT provides in the relevant part:
"The products of the territory of any [Member] imported into the territory of another
[Member] shall be accorded treatment no less favourable than that accorded to like
products of national origin in respect of all laws, regulations and requirements affecting
their internal sale, offering for sale, purchase, transportation, distribution or use".
7.13 The United States submits that the national treatment principle, as it applies to the facts of
this dispute, derives from two commitments made by GATT contracting parties and subsequently by
WTO Members:
(1) torefrain from impairingtheconditionsof sale ordistributionof importsfor thepurpose
of protecting domestic production; and
(2) to treat imported products no less favourably than like domestic products.
7.14 Japan underscores that to prove that any of the policies cited above are in violation of
Article III:4, the United States must establish the existence of each of the following two elements:
(1) There is a "law", "regulation" or "requirement" affecting the sale or distribution of
the products in question; and
(2) that law, regulation or requirement accords "less favourable" treatment to imported
products than that accorded to like domestic products.
(a) "Laws, regulations or requirements" within the scope of Article III:4
(i) The legal test
7.15 The United States explains that the Japanese Government restructured the photographic materials
distribution system through its system of "concerted adjustment",1056 working closely with the private
sector to formulate a plan of inherently coercive nature for counteracting international competition.1057
Specifically, the government planned, promoted, facilitated and contributed essential direction, guidance,
technical expertise, and financing to coordinate establishment of narrow vertical lines of distribution,
with primary wholesalers' handling the products of a single domestic manufacturer. In implementing
the restructuring plan, the government employed formal as well as informal methods, often providing
directionthroughadministrativeguidance. Accordingtothe UnitedStates, Japan haslongusedinformal
methods of government-private sector cooperation and administrative guidance to direct industry
adjustment.1058 Viewed as a whole, with its formal and informal components, and with its underlying
structure of cooperation between government and industry, the Japanese regime is the embodiment
1056MITI, Formation of a New Industrial Order, 9 May 1962, MITI History, Volume 17, pp. 403-407, US Ex. 62-5.
1057The United States also refers to the EC's statement in its third party submission: "[T]he Semiconductors Panel Report
was considering not only the formality but the reality of a very peculiar system, the Japanese interconnection between
government and industry. This particular situation is characterised by a significant capability of the Government to directly
influence the behaviour of private companies through the traditional peer structure of the society and the strong pressure
that it can produce without the need of adopting legally binding instruments". Based on this analysis, the EC characterized
Japan’ s measures as "requirements" pursuant to Article III:4 but, given the extraordinary array of measures at issue in this
dispute, in the US view, the Panel need not restrict its inquiry to that one term.
1058Yamanouchi Kazuo, Kokka Komuin No Tame no Gyosei Shidoron [Administrative Guidance Theory for Government
Officials], 1986, pp. 1-2, US Ex. 86-1.

and effectuation of Japanese Government policy and falls within the scope of "all laws, regulations
and requirements" in the meaning of Article III:4.
7.16 Japan contends that there was nothing in MITI’ s distribution modernization policies of the
1960s and 1970s that amounted to a "law", "regulation" or "requirement" in the meaning of Article III
because they were not enacted by the Diet as a "law", nor were they promulgated as "regulations"
under the relevant administrative procedures, nor do they qualify as "requirements" given that the
ordinary meaning of a government "requirement" refers clearly to some form of government mandate.
7.17 The United States deems Japan's definition of the types of measures covered by Article III:4
as too restrictive if the term "laws" is understood to refer only to the command of a legislature inscribed
in a statutory code, and the term "regulations" is limited to a series of codified rules promulgated by
an administrative agency. The United States explains that the phrase "all laws, regulations and
requirements" speaks to government actions, i.e., action taken in the name of a WTO member, by
government officials or parties authorized to act on the government’ s behalf, in pursuit of government
policies. The very language of Article III:4 indicates, that it was intended to cover "all" government
action which would include the formulation of government policy and its implementation.
7.18 In referring to Article 31 of the Vienna Convention, the United States argues that the object
and purpose of Article III is to "avoid protection in the application of internal tax and regulatory
measures". If the phrase "laws, regulations and requirements" would be interpreted to encompass
only highly formalized, mandatory rules, Article III would fail to prohibit a significant amount of
government action affording protection to domestic production and according less favourable treatment
to imports. Accordingly, for the United States it is unnecessary to qualify the types or forms of
government actions that are susceptible to being deemed "laws, regulations and requirements". A
Member should bear responsibility, if its governmental action accords less favourable treatment to
imported products than to domestic products, regardless of the method used by the Member to achieve
this result. The question thus becomes whether any such less favourable treatment may be attributed
to the actions of a WTO Member, as opposed to non-governmental entities. In the US view, no single
or set of criteria should be dispositive, an approach that comports with the Appellate Body’ s preference
for case-specific, fact-intensive inquiries as reflected in its admonition in Japan - Alcoholic Beverages
to refrain from applying WTO rules in a way that ignores "real facts and real cases in the real world".1059
7.19 Japan submits that, for a party to be subject to a government requirement, it must either (1)
be legally obligated to carry out the request, or (2) receive some advantage from the government in
exchange for compliance. Thus there must be either a government sanction or the withholding of a
government benefit that is attached, formally or substantively, to non-compliance. In this regard, Japan
notes that the panel report on EEC - Regulation on Imports of Parts and Components ("EEC - Parts
andComponents")foundthatundertakingsinanti-circumventionproceedingsundertheECantidumping
law could be considered "requirements" within the meaning of Article III even though the undertakings
were voluntarily accepted because the government made the granting of an advantage, i.e., the suspension
of the anti-circumvention proceedings dependent on the acceptance of the undertakings.1060
7.20 The United States notes that the panel on EEC - Parts and Components found that the EC's
acceptance of "undertakings" by private parties fell within the scope of Article III:4,1061 even though
the government action in question was an informal one, derived from no formal legislation or regulatory
code specifically authorizing or requiring the acceptance of such "undertakings".1062 That panel noted
1059Japan - Taxes on Alcoholic Beverages, op. cit., p. 31.
1060Panel Report on European Economic Community - Regulation of Imports of Parts and Components, adopted on 16
May 1990, BISD 37S/132, 197, para. 5.21.
1061Ibid.
1062Ibid., pp. 134-135, paras. 2.3-2.7; p. 197, para. 5.20.

that there was "no obligation under the EEC’ s anti-dumping regulation to offer parts undertakings,
to accept suggestions by the EEC Commission to offer such undertakings and to maintain the parts
undertakings given".1063
7.21 According to Japan MITI's 1970 Guidelines are clearly distinguishable from the undertakings
in EEC - Parts and Components because compliance with these non-binding recommendations was
a matter of purely voluntary decision and no government sanction or withholding of a government-
provided benefit was attached, either formally or substantively, to non-compliance.
7.22 The United States points out that nowhere in GATT jurisprudence has a panel ever articulated
a definition of the phrase "laws, regulations and requirements" to be applied in all Article III:4 cases.
This would be inappropriate since each WTO Member has a unique form of government and legal
system and no one definition could adequately encapsulate "all laws, regulations and requirements"
as those terms relate to the WTO’ s more than 120 Members. In this respect, the United States points
out that prior panels have looked at a variety of factors in examining whether government action may
be deemed a law, regulation or requirement under Article III:4. These factors include, i.e., whether
a Member threatened punishment or offered an inducement, but also other considerations. Moreover,
the panel report on Canada - Administration of the Foreign Investment Review Act ("Canada - FIRA"),
found "undertakings," or contractual commitments, made by private investors with the Canadian
Government to be "requirements"1064 and expressly rejected Canada’ s argument that a "requirement"
could not be found where the contractual relationship involved was essentially a private one.1065 The
panel on Canada - FIRA explained that it did not feel constrained to limit the types of measures that
could be deemed "laws, regulations and requirements" to those previously recognized as such by other
panels: "Any interpretation which would exclude case-by-case action would, in the view of the Panel,
defeat the purposes of Article III:4".1066 Therefore, the United States emphasizes, the panels in these
cases in no way suggested that they had formulated or were following any set of generally applicable
criteria.
(ii) Japan's "administrative guidance" in the light of GATT precedents
7.23 The United States submits that the need for case-by-case review of whether government action
has occurred is particularly strong in this dispute because Japan carries out its policies through a complex,
opaque system in which traditional legal measures are interwoven with administrative guidance and
other informal measures. Given its unusual character, the Japanese regime is not easily compared
to those found in other nations. The United States quotes one of Japan’ s leading trade scholars who
defined that "administrative guidance is a de facto, rather than a de jure, directive issued by government
officials ... In a broad sense, administrative guidance is a form of government regulation which imposes
some kinds of rules of conduct on private individuals or enterprises".1067 Noting the peculiarity of
the Japanese system, the trade scholar also stated that "the degree of pervasiveness and the importance
of administrative guidance in the Japanese governmental process is probably unique to Japan".1068
7.24 The United States points out that the Japan - Semiconductors panel found Japan’ s regime of
formal and informal measures to be "prohibitions or restrictions" for purposes of Article XI of GATT
1063Ibid., p. 54, para. 5.20.
1064Canada - FIRA, adopted on 7 February 1984, BISD 30S/140, 159, para.5.6.
1065Ibid.
1066Ibid., p. 159, para. 5.5.
1067Matsushita Mitsuo, International Trade and Competition Law in Japan, 1993, p. 60, US Ex. 93-1.
1068Ibid.

even though no formally binding or mandatory measures had been imposed.1069 The panel relied upon
the following analysis in reaching this conclusion:
"Government-industry relations varied from country to country, from industry to
industry, and from case to case and were influenced by many factors. There was thus
a wide spectrum of government involvement ranging from, for instance, direct
government orders to occasional government consultations with advisory committees.
The task of the Panel was to determine whether the measures taken in this case would
be such as to constitute a [violation]".1070
"The Panel considered that the complex of measures exhibited the rationale as well
as the essential elements of a formal system of export control. The only distinction
in this case was the absence of formal legally binding obligations in respect of
exportation or sale for export of semi-conductors. However, the Panel concluded that
this amounted to a difference in form rather than substance because the measures were
operated in a manner equivalent to mandatory requirements ... ".1071
7.25 The United States explains that the conclusion of the Semiconductors panel comports with those
of the panel on Japan - Certain Agricultural Products which found that "the practice of 'administrative
guidance' played an important role" in the enforcement of the Japanese supply restrictions, that this
practice was "a traditional tool of Japanese government policy based on consensus and peer pressure"
and that administrative guidance in the special circumstances prevailing in Japan could therefore be
regarded as a governmental measure.1072 In that case, Japan had taken the position that while "it was
irrelevant whether or not [its] measures were mandatory and statutory," it was significant whether the
measures "were effectively enforced by detailed directives and instructions to local governments and/or
... organizations". Japan had explained that "such centralised and mutually collaborative structure
of policy implementation was the crux of government enforcement in Japan".1073
7.26 Japan respondsthatthe Japan- Semiconductorspanel notedexplicitlythat"Article XI:1, unlike
other provisions of the General Agreement, did not refer to laws or regulations but more broadly to
measures"1074 and thereby established strict criteria for when Japanese administrative guidance constitutes
a "measure".1075 Items which do not qualify even as "measures" in the context of Article XI:1 are
not "requirements" within the meaning of Article III because "requirements" must satisfy a stricter
test than "measures". In Japan's view, the EC supports this interpretation in its third party submission.
7.27 The United States explains that in the present case Japan resorted to a variety of measures
such as administrative guidance, coupled with more formal measures, in accomplishing the
"systemization" and "rationalization" of distribution in the photographic materials sector. Japan attempts
to minimize the importance of any administrative guidance in this context claiming it was just
"promotional" or merely advisory. The United States requests the Panel not to accept such labels or
technical distinctions but to scrutinize the Japanese Government’ s actions in the totality of the
circumstances in which they occurred. The government planned, promoted and facilitated the
consolidation of the primary distribution channels in the photographic materials market. The
1069Panel on Japan - Trade in Semiconductors ("Japan - Semiconductors"), adopted on 4 May 1988, BISD 35S/116, 157-158,
para. 117.
1070Japan - Semiconductors, pp. 154-155, para. 108.
1071Ibid., p. 155, para. 109.
1072Japan - Restrictions on Imports of Certain Agricultural Products ("Japan - Certain Agricultural Products"), adopted
22 March 1988, BISD 35S/163.
1073Japan - Semiconductors, p. 154, para. 107, citing Panel on Japan - Certain Agricultural Products.
1074Ibid., pp. 153-154, para. 106.
1075Ibid., p. 155, para. 109.

government'sactionsviewedcollectivelyorindividuallyconstitute"laws,regulationsandrequirements"
as those terms are used in Article III:4. The United States emphasizes that Japan should bear
responsibility for the actions of its government.
(iii) Are specific distribution measures "laws, regulations and requirements"?
7.28 Japan takes the position that an examination of the list of "distribution countermeasures"
challenged by the United States reveals that most of the cited items do not constitute a "law" or a
"regulation", nor do they qualify as "requirements" within the meaning of Article III. In Japan's view,
the United States has only broadly claimed that the alleged distribution countermeasures are within
the scope of thatprovisionwithoutbeingprecise inidentifyingany "law", "regulation"or"requirement"
in a manner that gives, in its interpretation, proper weight to the terms of Article III.1076
7.29 The United States considers some of the Japanese Government’ s actions have been formal,
othersnot. Theformal measuresbearthetypicalcharacteristicsof "laws,regulationsand requirements":
(1) The 1967 Cabinet Decision;
(2) the international contract notification provision of Japan’ s Antimonopoly Law;
(3) JFTC Notification 17 of 1967; and
(4) loans to the domestic photographic industry by the Japan Development Bank (JDB)
and the Small and Medium Enterprise Agency (SMEA).
are, in the US view, conventional legal measures. They were promulgated with all of the procedures
traditionallyassociatedwithconventionallegal measures. Althoughthe UnitedStates doesnotsubscribe
to the criteria proposed by Japan, these measures would satisfy those criteria because each is
(i) mandatory, (ii) imposes obligations or (iii) involves the grant of a government benefit.
7.30 The United States emphasizes that the distribution countermeasures emanated from a formal
policy of the Japanese Government, as established by a decision of the Japanese Cabinet, and they
are embodied in a series of concrete actions taken by MITI and its committees to carry out the
government’ s policy as reflected in their reports and guidelines. The restructuring of Japan’ s
photospecialty distribution system emanated directly from the 1967 Cabinet Decision to establish a
framework of "countermeasures to be taken by the Government" to offset the effects of trade
liberalization and to prevent foreign manufacturers from penetrating the Japanese market through its
distribution system. To implement this policy in the photographic sector, the United States contends,
MITI created a host of joint government-industry committees dedicated to establishing standardized
transaction terms designed to cement exclusive relationships between domestic producers and wholesalers
and retailers. To ensure compliance from the private sector, the government monitored the
implementation of such standardized transaction terms, revised those terms and other methodologies
over time, and contributed technical expertise and financing. The government, through the JDB and
SMEA, gave financial supportfor domesticmanufacturers, wholesalersand photofinishinglaboratories
to achieve "systemization".
7.31 Japan responds that there was nothing in MITI's distribution modernization policies that
amounted to a "law", "regulation" or "requirement" in the meaning of Article III because they were
not enacted by the Diet as a "law", nor were they promulgated as "regulations" under the relevant
administrative procedures, nor do not qualify as "requirements" given that the ordinary meaning of
a government "requirement" refers clearly to some form of government mandate. In Japan's view,
since the 1970 Guidelines do not meet criteria set out in the panel report on Japan - Semiconductors,
1076Japan only concedes that (1) the international contract notification requirement, and (2) SMEA financing and the JDB
loan to Konica, are "measures" for purposes of Article XXIII:1(b), but not for purposes of Article III:4. Japan further recalls
that it has raised procedural objections against these items.

and sincethe criteriafor when administrativeguidance constitutesa "law""regulation"or"requirement"
for purposes of Article III are, if anything, stricter than those for "measures" in the context of
Article XI:1, it follows that the policies in question fall outside the scope of Article III. Moreover,
in Japan's view, several items raised by the United States such as advisory council and public reports,
are not even official statements of government policy. Japan argues that for the same reasons that
such reports cannot constitute "measures" for purposes of non-violation complaints, they cannot be
considered "laws, regulations, or requirements" within the meaning of Article III.
7.32 The United States responds that the informal measures used by Japan to institute the restructuring
of distribution were equally important as formal measures in fulfilling the government’ s objectives
given that MITI and its committees steered the industry through years of complicated problems on
how to reform distribution operations. Under MITI supervision, the committees observed practices
in the industry, enforced compliance with government-industry recommendations and refined strategy
over time. Prior panel decisions such as the panel reports on Japan - Semiconductors and Japan -
Certain Agricultural Products, have discussed the Japanese system of administrative guidance in ways
that prove illuminating in this case. The same reasoning should be applied to Japan's use of "concerted
adjustment" in the photographic materials sector in which the government formulates and monitors
the alteration of fundamental aspects of an industry and which involved official action on the part of
the Japanese Government and the execution of definitive government policies. For the United States,
through MITI and other government agencies, "the government acts as the formulator of a master plan
within which private enterprises make specific business decisions".1077 The United States maintains
that this informal guidance had the force and effect of laws, regulations, or requirements.
(iv) Measures "no longer in effect"
7.33 In the alternative, Japan argues that on the assumption that the alleged "distribution
countermeasures" would ever have constituted "laws, regulations, or requirements" within the scope
of Article III, they are no longer in effect and therefore cannot be found to violate Article III. Each
and every one of MITI’ s alleged distribution policies of the 1960s and ‘ 70s occurred decades ago and
has been supersededbymorerecent policiesand industryactions. In particular,MITI’ s 1990 Guidelines
target many of the same "irrational" distribution practices (e.g., rebates, returns, dispatching of sales
employees to customers), as were addressed in the 1970 Guidelines. However, Japan contends that
now the MITI’ s recommendations are explicitly identified by the United States as improving market
access. According to Japan, the United States recently urged the Japanese industry to follow the
recommendations of the 1990 Guidelines.
7.34 Japan takes the view that since virtually all of the items and policies included in the United
States claims under Article III are no longer in effect1078, it appears that the United States claims boil
down to the argument that the continuing effects of the "distribution countermeasures", i.e., the current
market structure for the distribution of film and paper, are "laws", "regulations" or "requirements"
capable of violating Article III. Japan requests the Panel to reject this argument based on its reasoning
1077The United States points out that to the extent MITI or another relevant regulatory agency is dissatisfied with private
sector intentions or performance, the government may recommend modification of an industry's plan. MITI has many tools
at its disposal to strengthen a domestic industry. It may aid in the creation of a cartel, regulate price or production, promote
mergers and acquisitions among competitors and create joint buying or selling agencies. Coercive measures are rarely necessary
because, at the heart of MITI’ s reorganization efforts, is a diminution in competition that is likely to benefit participating
enterprises. Whereas government scrutiny likely would be an impediment if private actors were to attempt to effectuate
such a plan on their own, MITI’ s role all but ensures that no enforcement action will be taken by the JFTC or other government
agencies.
1078Japan notes that Notification 17 was repealed in April 1996. Furthermore, Japan submits that a bill to repeal the
International Contract Notification requirement has been introduced to the Diet, in light of the globalization of the Japanese
economy and for the reduction of the administrative burden. The bill to repeal the international contract notification requirement
was passed in June 1997. Simultaneously, JFTC Rule No. 1 under Article 6 of the Antimonopoly Law was abolished.

presented in relation to the US non-violation claims against the above-mentioned "measures" which,
in Japan's view, applies with equal if not greater force in respect of a violation claim under Article III.
Moreover, Japan notes that the United States concedes that "MITI’ s systemization program was largely
complete" by 19751079, and explicitlyacknowledges thatmarket structureisnoteven a "measure" within
the meaning of Article XXIII:1(b).
7.35 The United States emphasizes that it alleged at no point during this proceeding that the market
structure was a "law, regulation or requirement". To the extent that the United States referred to private
sector activities, it did so only to demonstrate how the private sector acted in the manner planned and
orchestrated by the Japanese Government. The United States, however, regards Japan’ s bottle-necked
distribution system to be compelling evidence of the Japanese Government’ s systematic efforts to erect
a bulwark against foreign competitors. In the US view, that market structure is the direct result of
numerous actions by the Japanese Government to strengthen ties between domestic manufacturers and
the primary photospecialty wholesalers.
7.36 Japan recalls that Article XXIII:1(a) authorizes dispute settlement in violation cases only when
a benefit "is being nullified or impaired" by "the failure of another contracting party to carry out its
obligations under this Agreement". The use of the present tense indicates that, in the context of
Article III, some present and ongoing law, regulation, or requirement must be at issue. Specifically,
Article 3.7 of the DSU contemplates three possible outcomes in the absence of a negotiated settlement:
(1) withdrawal of the offending measure, which is explicitly the preferred alternative1080; (2) provision
of compensation as a temporary measure pending withdrawal of the offending measure; and
(3) suspension of concessions or other obligations by the aggrieved Member if the offending measure
is not withdrawn. Article 19.1 of the DSU further confirms that withdrawal of the offending measure
is the primary remedy: "Where a panel or the Appellate Body concludes that a measure is inconsistent
with a covered agreement, it shall recommend that the Member concerned bring the measure into
conformity with that agreement". In Japan's view, this language supports the conclusion that only
measures that are currentlyin effect are properly before the Panel, since onlymeasures that are currently
in effect can be brought into conformity with the relevant agreement. Japan emphasizes that the latter
two options presuppose the unavoidable continuation of the offending measure and that, accordingly, -
if the measure in question is no longer in effect -, the complaining party has its remedy and the most
that dispute settlement could accomplish has already happened. Japan further points out that even if
the Panel were to find past violations, there would be no viable remedy available under the DSU.
Japan maintains that it is beyond the scope of WTO dispute settlement to punish parties for alleged
transgressions of the past, or to order "affirmative action" in an attempt to undo the past.
7.37 In responding to Japan's argument on measures no longer in effect, the United States relies
uponitsposition,described above inPart VI.C.1. on"Governmental Measures", inparticularonsection
(d), entitled "Measures applied and measures in effect".1081
7.38 Japan notes that Notification 17 was repealed in April 1996. Therefore, Japan argues that
it should not be the subject of the present proceeding. Nor will the general designation of unfair trade
practices under the Antimonopoly Law operate to continue the content of the regulation. The JFTC
will not act automatically against the premium offers in excess of 100,000 yen; it will take measures
only when specific harm to fair competitionis proven. "Normal business practice" refers not to100,000
yen, but to the practice acceptable from the point of fair competition. Furthermore, Japan submits
that a bill to repeal the International Contract Notification requirement has been introduced in March
1079Japan notes that the United States uses the term "systemization" to cover both rationalization policies (the 1970
Guidelines) and systemization policies (reflected by the 1975 Manual).
1080Article 3.7 of the DSU specifies that the primary remedy in violation cases is withdrawal of the offending measure.
1081See paras. 6.119-6.126 above.

1997 to the Diet. The bill was enacted in June 1997, and thus this requirement has been abolished.
Simultaneously, JFTC Rule No. 1 under Article 6 of the Antimonopoly Law was abolished.
(b) "Less favourable treatment" in the meaning of Article III:4
(i) The legal test
7.39 The United States argues that the requirement in Article III:4 that imports are to receive
"treatment no less favourable than that accorded to like products of national origin" has been construed
to mean that, at a minimum, government actions affecting the distribution or sale of goods must apply
to imports in the same way that they apply to like domestic products. "[T]he intention of the drafters
... was clearly to treat the imported products in the same way as the like domestic products once they
had been cleared through customs. Otherwise indirect protection could be given".1082 Though different
treatment may in some instances afford equal or better conditions for imports, and thus may be
permissible under Article III:41083, any narrowing of trade opportunities or the imposition of additional
burdens for imports runs afoul of the national treatment principle.1084 A WTO Member may not
improperly "tip the balance" of competitive conditions in favour of domestic products.1085 Article III:4
serves to protect "expectations on the competitive relationship between imported and domestic
products."1086 The extent to which restrictions have impaired actual trade flows are unimportant.1087
7.40 Japan notes that the proper limits of the requirement to accord "no less favourable" treatment
are framed by the language of Article III:4 which concerns governmental measures. Therefore, the
"treatment no less favourable" must flow from the "laws", "regulations" or "requirements" in dispute,
not from acts of private parties or other general circumstances. The plain meaning of the provision
thus demands that the focus of Article III analysis be on the provisions of government measures, not
on the happenstance of market conditions.1088
7.41 Japan further responds that the element of "no less favourable" treatment should be interpreted
in view of the general purpose of Article III to protect the equal competitive relationship between
imported and domestic products by preventing discriminatory treatment by governments, and not to
guarantee any particular results in the marketplace. The Appellate Body report on Japan - Taxes on
Alcoholic Beverages recently reconfirmed that "Article III protects expectations not of any particular
trade volume, but rather of the equal competitive relationship between imported and domestic
products".1089
7.42 Japan submits that the phrase "no less favourable" must be read in the context of the general
principle contained in Article III:1 that government measures should not be applied "so as to afford
protectiontodomestic production". The Appellate BodyreportinJapan - Taxes onAlcoholic Beverages
1082Panel Report on Italian Discrimination against Imported Agricultural Machinery, adopted on 23 October 1958, BISD
7S/60, 63-64, para. 11.
1083See Panel Report on United States - Section 337 of the Tariff Act of 1930 ("United States - Section 337"), adopted
1084See Panel Report on United States - Imports of Certain Automotive Spring Assemblies, adopted on 26 May 1983, BISD
30S/107.
1085Panel Report on Canada - FIRA, adopted on 7 February 1984, BISD 30S/140, 166, para. 6.3.
1086United States - Section 337, BISD 36S/345, 387, para. 5.13, citing Panel Report on United States - Taxes on Petroleum
and Certain Imported Substances, adopted on 17 June 1987, 34S/136, 158-159, para. 5.1.9.
1087United States - Section 337, op. cit. p. 387, para. 5.13.
1088As Japan discussed in relation to the US non-violation claims, whether a particular government policy accords "no
less favourable treatment" to imports than to a domestic like product is to be judged based on the law, regulation, or requirement
itself, and not on the alleged consequences, i.e., the allegedly "closed" distribution network in the Japanese film market
today.
1089Japan - Taxes on Alcoholic Beverages, WT/DS8, 10, 11/AB/R, AB-1996-2, p. 16.

recently affirmed that "[t]his general principle informs the rest of Article III".1090 The focus of
Article III:1 on protectionism confirms that Article III:4 is concerned with discriminatory treatment,
not incidental burdens unrelated to the actual provisions of the measures in dispute.
7.43 The United States emphasizes that Article III:4 makes clear that Members may not accord
less favourable treatment in respect of "all laws, regulations and requirements ... affecting ...
distribution" and, therefore, does not permit WTO Members to deny foreign manufacturers access
to distribution channels that are available to domestic manufacturers. Prior panels have found that
governmentmeasureslimitingdistributionopportunitiesforimportsviolatedArticle III:4. Inparticular,
this was made clear in two panel reports that previously addressed limitations applied on the distribution
and sale of imported alcoholic beverages: Canada - Import, Distribution and Sale of Certain Alcoholic
Drinks by Provincial Marketing Agencies ("Canada - Alcoholic Drinks")1091 and United States - Measures
Affecting Alcoholic and Malt Beverages ("United States - Alcoholic Beverages").1092
7.44 Japan distinguishes the panel reports on Canada - Alcoholic Drinks and United States - Alcoholic
Beverages from the present case on the grounds that in those cases, imports were legally forbidden
from using certain distribution channels that were open to domestic products.
7.45 The United States rejects Japan's argument because it goes to the nature of the measures
underlying the disputes, i.e., whether the governmental action constitutes a law, regulation or
requirement. The United States maintains that these cases stand for the proposition that government
action resulting in a diminution of distribution opportunities for imported products constitutes less
favourable treatment under Article III.
7.46 In the US view, in Canada - Alcoholic Drinks the panel examined whether provincial liquor-board
restrictions on access for imported beer to certain points of sale were consistent with the national
treatment principle of Article III:4. The panel concluded that imported beer had not been afforded
less favourable treatment because it did not have access to the same distribution channels as domestic
beer. In reaching this outcome, the panel rejected an argument proffered by Canada that was in certain
respects similar to the one currently being made by Japan. Canada maintained that many of the points
of sale denied to foreign beer were controlled by private businesses and that any hardship befalling
imports was the result of private conduct.1093 The panel, however, did not find persuasive Canada's
contention that private distribution systems were free to carry foreign beer and, thus, the government
shouldnot be held responsiblefor privatebusiness decisionsto refrain from doingso. The panel decided
that "imported beer had access to fewer points of sale than domestic beer because domestic brewers
were authorized to establish private retail stores or had access to retail outlets in which imported beer
could not be sold".1094
7.47 In reaching this conclusion, the panel relied on the standard set forth by the panel on United
States - Section 337 which explained that "the words ‘ treatment no less favourable’ call for "effective
equality of opportunities for imported products in respect of all laws, regulations and requirements
affecting their internal sale, offering for sale, purchase, transportation, distribution or use."1095 In
particular,the panel reasonedthatwhether importsenjoy"equalopportunities"turns"on the distinctions
1090Ibid., p. 18.
1091Panel on Canada - Import, Distribution and Sale of Certain Alcoholic Drinks by Provincial Marketing Agencies ("Canada
- Alcoholic Drinks"), DS21/R, adopted on 18 February 1992, BISD 39S/27.
1092Panel Report on United States - Measures Affecting Alcoholic and Malt Beverages ("United States - Alcoholic Beverages"),
DS23/R, adopted on 19 June 1992, BISD 39S/206.
1093Canada - Alcoholic Drinks, op. cit., pp. 44-45, para. 4.9.
1094Ibid., p. 75, para. 5.5.
1095United States - Section 337, BISD 36S/345, 386, para. 5.11.

made by the laws, regulations, or requirements themselves and on their potential impact, rather than
on the actual consequences for specific imported products".1096
7.48 The United States further refers to the panel on United States - Alcoholic Beverages which
concerned state laws requiring imported beer and wine to be sold only through wholesalers while some
in-state like products were permitted to be sold directly to retailers. The panel found that establishing
different distribution channels for imported and domestic beer and wine constituted less favourable
treatment of imported products within the meaning of Article III:4.1097 The panel "considered as
irrelevant ... that many - or even most - in-state beer and wine producers preferred to use wholesalers
rather than market their products directly to retailers ...". The panel explained that, unlike imported
beer, certain domestic producers located in the states in question "have the opportunity to choose their
preferred method of marketing. The panel considered that it is the very denial of this opportunity in
the case of imported products which constitutes less favourable treatment".1098
(ii) "Less favourable treatment" based on product origin or product characteristics
7.49 Japan explains that there have been only two kinds of cases in which laws, regulations, or
requirements have ever been found to violate national treatment. The first type of case involves laws,
regulations, or requirements in which different treatment was accorded to similar or "like" products
explicitly based on their origin. In these cases, the question before the panel was whether imported
products were treated any less favourably than domestic products due to differences in the legal
provisions.1099 Japan underlines that the distribution measures at issue do not make any distinctions
between goods based on country of origin. According to Japan, this line of cases does not support
the US claims.
7.50 The second type of case in Japan's understanding involves laws, regulations or requirements
in which different treatment was accorded to products based on characteristics other than origin. In
these cases, certain measures apply to one product and not another, even though the products may
be considered as similar or "like" products. When such measures are deemed to accord less favourable
treatment to imported products, these measures may be found to violate Article III.1100 However, Japan
emphasizes that the alleged Japanese distribution measures do not draw any line at all between products
based on any product characteristics.
7.51 The United States responds that if in Japan's view GATT precedent confines "treatment less
favourable" to mean either overt discrimination based on the country of origin of products or
discrimination based on artificial or immaterial distinctions between products, Japan in effect argues
that only cases of de jure discrimination fall within the prohibition of Article III:4. In the US view,
1096Ibid., pp. 386-387, paras. 5.11 and 5.13.
1097United States - Alcoholic Beverages, op.cit., p. 279-281, para. 5.31-5.32, 5.35, citing Panel Report on Canada -
FIRA, BISD 30S/140, 160-61.
1098United States - Alcoholic Beverages, op. cit., p. 279, para. 5.31.
1099Seee.g., United States- Standards forReformulatedand ConventionalGasoline, adopted on21May1996, WT/DS2/8;
United States - Measures Affecting the Importation, Internal Sale and Use of Tobacco, adopted on 4 October 1994, DS44/R;
United States - Taxes on Automobiles, dated 29 September 1994, (unadopted); United States - Alcoholic Beverages, adopted
on 19 June 1992, BISD 39S/206; Canada - Alcoholic Drinks, op. cit.; United States - Section 337, adopted on 7 November
1989, BISD 36S/345; Canada - FIRA, adopted on 7 February 1984, BISD 30S/140; EEC - Measures on Animal Feed Proteins,
adopted on 14 March 1978, BISD 25S/49; and Italian Discrimination against Imported Agricultural Machinery, adopted
on 23 October 1958, BISD 7S/60.
1100See e.g., Japan - Taxes on Alcoholic Beverages, WT/DS8, 10, 11/R; United States - Alcoholic Beverages, op. cit.;
United States - Taxes on Petroleum and Certain Imported Substances, adopted on 17 June 1987, BISD 34S/136; Japan -
Customs Duties, Taxes, and Labelling Practices on Imported Wines and Alcoholic Beverages, adopted on 10 November 1987,
BISD 34S/83. Japan notes that most Article III "like product" cases involve taxes under Article III:2 rather than regulations
under Article III:4. The general principles are the same, however, regardless of whether taxes or regulations are at issue.

Japan articulates an unduly narrow construction of Article III that is not supported by the language
of the article, prior GATT cases or the general principle of Article III:1. Given that Article III:4 makes
clear that "all" laws, regulations and requirements resulting in "treatment less favourable" to imported
products than domestic products are impermissible, the United States maintains that this provision
contains no limitation in this regard and cannot be said to indicate a requirement that a measure be
discriminatory on its face.
7.52 The United States contends that, while many GATT cases have involved overt discrimination,
these cases in no way suggest that a dispute must fall into one of the two categories described by Japan.
Panels have articulated the expansive nature of Article III:4 by recognizing correctly that Article III:4,
"informed" by Article III:1, must be sufficiently flexible to reach the vast array of situations in which
WTO Members may attempt to afford protection to domestic production by according imports less
favourable treatment.1101 The United States points out that the panel on United States - Section 337
made precisely this point in stating that "the 'no less favourable' treatment requirement set out in Article
III:4, is unqualified".1102 That panel went on to explain that the presence of facial discrimination or
overtly different treatment, while an important consideration, is not in and of itself dispositive of the
question of whether less favourable treatment has been accorded. The panel stated that "it has to be
recognized that there may be cases where application of formally identical legal provisions would in
practice accord less favourable treatment to imported products".1103 Only by looking to how measures
actually apply "in practice" will a panel be able to determine whether imported goods receive "effective
equality of opportunities".1104
7.53 In this light, the United States submits that panels have gone beyond the face of measures,
examining the practical competitive opportunities available in the market, to determine whether measures
in dispute accord less favourable treatment.1105 The panel on Canada - Alcoholic Drinks addressed
seemingly even-handed minimum price provisions,1106 which applied both to foreign and domestic beer
and stated that the national treatment requirement "was normally met by applying to imported products
legal provisions identical to those applied to domestic products, but that there may be cases where the
applicationof formally identicallegal provisionswouldinpractice accord lessfavourable treatment".1107
That panel found:
"that minimum prices applied equally to imported beer did not necessarily accord equal
conditions of competition to imported and domestic beer; whenever they prevented
imported beer from being supplied at a price below that of domestic beer, they accorded
in fact treatment to imported beer less favourable than that accorded to domestic beer;
when they were set at the level at which domestic breweries supplied beer ... they did
notchangethe competitiveopportunitiesfor domesticbeer butdidaffect thecompetitive
opportunities of imported beer which could otherwise be supplied below the minimum
price".1108
1101These cases make plain that Article III:4 requires Members to "treat the imported products in the same way as the
like domestic products once they had been cleared through customs." Appellate Body Report on Japan - Alcoholic Beverages,
p. 16.
1102United States - Section 337, op.cit., p. 386, para. 5.11.
1103Ibid.
1104The US emphasizes that the panel made clear that the analysis of whether a measure accords less favourable treatment
is prospective, looking at whether the provision in question "may lead" to less favourable treatment (Ibid., para 5.13). That
no harm had yet been shown on market access for imports did not necessarily effect the outcome of the panel’ s review.
1105Ibid., p. 394, para. 5.30.
1106"The panel took note of the fact that the minimum price was set at the lowest price at which certain domestic beers
were sold." Canada - Alcoholic Drinks, BISD 39S/27, 83-84, para 5.27.
1107Ibid., p. 84, para. 5.29.
1108Ibid., pp. 84-85, para. 5.30.

(iii) Impact on competitive conditions for imported film and paper
7.54 Japan argues that - even if the Panel accepts the US argument that the so-called "distribution
countermeasures" constitute laws, regulations, or requirements within the meaning of Article III -,
it must still determine whether those laws, regulations or requirements accord less favourable treatment
to imports than to like domestic products.
7.55 The United States alleges that by promoting the restructuring of the photographic materials
distribution system, the Japanese Government modified the conditions of competition in the industry.
Whereas the majority of photospecialty wholesalers formerly carried multiple brands of film, not one
of these wholesalers continued to handle foreign film after Japan implemented the distribution
countermeasures. The United States explains that, in cooperation with the domestic industry, MITI
used three methods to tie wholesalers to individual domestic manufacturers of photographic materials.
MITI instructed the latter to use:1109
(1) standardized transaction terms, such as volume discounts, rebates and common credit
terms;
(2) joint activities between domestic manufacturers and wholesalers, including joint
warehouses and distribution routes; and
(3) mutual computer links, data bases and commercial orders.
In the view of the United States, each of these policies was intended to minimize competition among
domestic manufacturers and to make wholesalers more dependent on the domestic manufacturer with
which it primarily did business.
7.56 The UnitedStates alleges thatthe rationaleunderlying the Canada- AlcoholicDrinksand United
States - Alcoholic Beverages panel reports applies with equal force in the present circumstances. Due
to Japan's restructuring of the distribution system and the creation of exclusive arrangements among
domestic photographic materials manufacturers and primary photospecialty wholesalers, domestic
manufacturers have access to a significant method of distribution that has been denied to foreign
manufacturers. It is irrelevant whether some alternative distribution channels may be available for
foreign producers because primary wholesalers have considerable advantages with respect to infrastructure
and ties to retailers. Distribution opportunities have been denied to foreign producers as a result of
its policies and actions because Japan may not create a system in which domestic producers are given
greater avenues of distribution than their foreign competitors. Accordingly, Japan’ s restructuring of
the distribution system for photographic materials in effect denies access to any distribution channel
- let alone the most valuable one in the market as in this case - and amounts to less favourable treatment
in violation of Article III:4.
7.57 Japan submits that the panel reports cited by the United States are not applicable to the
circumstances of the present case because in those cases, imports were legally forbidden from using
certain distribution channels that were open to domestic products. In response to the US argument
that imported film and paper have likewise been excluded from distribution channels, and thus have
been denied "effective equality of opportunities" required by Article III, Japan argues that even if the
domestic manufacturers’ primary wholesalers were to be defined as a separate distribution channel,
1109According to the United States, MITI established committees comprised of government and industry officials dedicated
to forming vertical distribution channels in order to implement its plans. MITI and its committees issued many reports urging
photographic materials industry to accept "systemization". These documents repeatedly called for use of standardized practices
to act as liberalization countermeasures combating foreign competition. To ensure compliance from the private sector, the
government coordinated the efforts of various participants and contributed expertise and financing. In particular, the United
States describes that the government, through JDB and SMEA, gave financial support for domestic manufacturers, wholesalers,
and photo finishing laboratories to achieve systemization.

imports are not legally excluded from it. Japan asserts that the United States has not pointed to any
governmental prohibition that prevents those wholesalers from carrying other brands of film if they
so choose.
7.58 With respect to film, Japan stresses that foreign brands are not prohibited from using any
distribution channel. The major foreign brand, Kodak, uses exactly the same three basic channels
of distribution through which domestic film brands are sold. Japan explains that Kodak sells all its
product to a primary single-brand national wholesaler (i.e., Kodak Japan, formerly Nagase and then
Kodak-Nagase), which then sells (1) directly to large retailers, (2) through secondary wholesalers,
and (3) through affiliated photofinishing laboratories. Given that Kodak, Fujifilm, and Konica all sell
through single-brand primary wholesalers, it is necessarily the case that they do not sell through the
same particular primary wholesalers because, by definition, a single-brand wholesaler is only carrying
the products of a single manufacturer at a particular point in time. This does not mean, though, that
imports have been excluded from a distribution channel.
7.59 With respect to paper, Japan contends that imported paper is sold through the same distribution
channels as domestic paper.1110 Since paper customers only use one brand of paper at a time, for Japan
it follows of necessity that foreign and domestic paper producers do not share the same customers at
any given time; nevertheless, they all use the same basic channels of distribution. In Japan's view,
there has been no exclusion. In the alternative, even if the specific customers of the domestic paper
manufacturers are defined as constituting a separate distribution channel, Japan argues that there is
no governmental prohibition that prevents those customers from switching paper brands if they so choose.
7.60 The United States responds that Kodak Japan, which was created through a merger with a
division of a Japanese import-export company, is not a "primary photospecialty wholesaler." Kodak
Japan is the local subsidiary that Eastman Kodak established to distribute its products after the company
lost access to all main photospecialty wholesalers in Japan.1111 Unlike the primary photospecialty
wholesalers, Kodak Japan does not have longstanding relationships with customers nationwide, does
not carry a wide array of photospecialty products such as cameras and accessories, does not have a
large nation-wide sales force, and therefore does not have the same economies of scale and scope as
the primary photospecialty wholesalers. The United States also notes that the Japanese photographic
industry does not consider Kodak Japan to be a wholesaler, as reflected in the standard industry diagram
of film distributionin Japan.1112 Fuji, by contrast, has exclusiveaccess to all of the primary wholesalers.
Simply allowing a foreign manufacturer to establish a local subsidiary does not mean that the foreign
manufacturer has equivalent access to the country’ s domestic distribution system. With regard to
photographic paper, foreign and domestic firms market directly to photographic laboratories which
the UnitedStates argues were inducedtoaffiliate withFujithroughSMEA programs explicitlyidentified
as "liberalization countermeasures.1113
(iv) Causal connection
7.61 The United States emphasizes that the less favourable treatment afforded by the closing of the
primary distribution system to imports is manifest because the Japanese Government’ s role in
fundamentally alteringthe way photographicmaterials are solddecisivelytipsthe balance ofcompetitive
conditions in favour of domestic producers. While foreign manufacturers may resort to smaller
wholesalers or direct sales to retailers, these alternatives are wholly inadequate. Smaller wholesalers
offer a narrow customer base and tend to be dominated by primary wholesalers and Japanese
1110Japan elaborates that paper is sold through an affiliated sales company to (1) affiliated photofinishing laboratories,
(2) a small amount to multibrand secondary wholesalers, and (3) directly to retail minilaboratories.
1111US Ex. 89-2 and US Ex. 97-1 and 2.
1112Second US Submission, Figure 3, referenced, p. 85, para. 240.
1113See section VI.D.3.(e)(ii) on "SMEA loans to photoprocessing laboratories" above, in particular paras. 6.368- 6.369.

manufacturers. Moreover, even if the alternatives were equally desirable, domestic manufacturers
would continue to have a broader range of distribution channels. Not only do domestic manufacturers
have access to the alternate routes available to foreign producers, but they alone have access to the
primary distribution network.
7.62 Japan submits that apart from the fact that any alleged "less favourable treatment" does not
flow from "laws," "regulations" or "requirements," an examination of the alleged measures at issue
shows that none of them makes any distinction between imported and domestic products on the basis
of their origin, either explicitly or implicitly. More significantly, they do not distinguish products
based on any characteristics at all:
(i) MITI recommendations contained in the 1970 Guidelines apply equally to wholesalers
and retailers regardless of what brand of film they sell.
(ii) Similarly, JDB loans and SMEA financing do not distinguish between businesses that
sell domestic products and those that sell imported products.1114 Therefore, Japan concludes
that these provisions establish "equal competitive opportunities" for imported and domestic
film and paper.
(iii) With respect to JFTC Notification No. 17,1115 Japan claims that it accorded "treatment
no less favourable than that accorded to like products of national origin": First, imported
products and domestic products are not categorized separately. Second, the concept of "premium
offers to business entrepreneurs" is neither inherently related to domestic products nor to
imported products. Restriction of such offers is, therefore, in Japan's view, not inherently
less restrictive for domestic products than for imported products.
(iv) Japan explains that the International Contract Notification is also consistent with
Article III:4 because: First, the same procedure under the Antimonopoly Law applies to
enforcement actions against these contracts and to actions against domestic contracts. Second,
the JFTC has not enforced, and will notenforce, MITI’ s policy throughadministrative guidance
under the notification requirement.1116
7.63 The United States does not accept that none of the alleged measures of Japan makes any
distinction between products, either explicitly or implicitly, based on their country of origin. It argues
that Japan studied the Japanese distribution sector and designed and implemented the liberalization
countermeasures to protect domestic manufacturers from increased foreign competition, i.e., making
domestic manufacturers more resistantto and competitivewith foreigncompetition, as Japan liberalized
its tariffs, import quotas, and investments restrictions.
7.64 The United States further argues that irrespective of the facial neutrality1117 of Japan's distribution
countermeasures the true significance of these measures can be assessed only in the context of the
Japanese photographic materials market at the time they were imposed and have been applied since.
1114According to Japan, photofinishing laboratories affiliated with Kodak receive SMEA financing, just like Fujifilm-
and Konica-affiliated laboratories. JDB Annual Report, 1995, pp. 26-27.
1115Japan states that Notification 17 was repealed in April 1996. Therefore, Japan argues that it should not be the subject
of the present proceeding. Nor will the general designation of unfair trade practices under the Antimonopoly Law operate
to continue the content of the regulation.
1116A bill to repeal the International Contract Notification requirement has been introduced to the Diet, in light of the
globalization of the Japanese economy and for the reduction of the administrative burden.
1117The United States notes that the panel on Thailand - Cigarettes acknowledged the argument that a facially neutral
ban on advertising could violate Article III:4 in that such a restriction might preserve the market superiority of a dominant
domestic supplier. Thailand - Importation of and Internal Taxes on Cigarettes, adopted 7 November 1990, BISD 37S/200,
224, para. 78.

Prior to the implementation of the countermeasures, foreign photographic materials were distributed
through primary wholesalers largely in the same way as domestic photographic materials. However,
after the government intervened in the market, primary wholesalers no longer handled foreign film
and paper but instead exclusively handled the products of domestic manufacturers and foreign film
remains cut off from all of the primary wholesalers and, as a result, more than half of all retailers
selling film.
7.65 Japan maintains that the US claim of an Article III violation before this Panel is utterly novel
and has no precedent. In Japan's view, the burden is on the United States to demonstrate that application
of the alleged measures, which do not distinguish between imports and domestic products, constitutes
less favourable treatment for imports. Japan emphasizes that there is nothing inherently unfavourable
to imports about encouraging more rational transaction terms, or promoting computerization. In the
alternative, even if the MITI’ s distribution policies sought to encourage single-brand wholesale
distribution of film and affiliations between domestic manufacturers and photofinishing laboratories,
thereisnothinginherentlydiscriminatoryagainstimportedproductsinpromotingverticalintegration1118
because imports are fully capable of competing through single-brand distribution channels.1119
7.66 The United States insists that whenever imported products are subject to less favourable treatment
pursuantto government action, the national treatment obligation is violated. The United States contends
that according to Japan's interpretation Article III is applicable only in the event that a WTO Member
overtly discriminates against the products of other Members through highly formalized legal activity.
Such an interpretation would permit less favourable treatment to be accorded as long as it is done in
a subtle manner or through informal methods. In the US view, if the Panel accepted Japan’ s argument
this would mean that Article III:4 does little or nothing to guard against hidden trade barriers.
7.67 Japan asserts that the current market structures for photographic film and paper do not result
from any government action, and cannot be considered "laws", "regulations" or "requirements." Japan
recalls that Article III applies only to government actions, and not private conduct. It quotes from
the panel report on United States - Alcoholic Beverages which states that "[t]he Article III:4 requirement
is one addressed to relative competitive opportunities created by the government in the market, not
to the actual choices made by enterprises in that market".1120 Japan concedes that the United States
mayallege thatthe distributionarrangementsintheJapanese filmandpaper marketsconstituterestrictive
business practices but maintains that such private practices are outside the scope of current WTO rules.
(c) Causation of market structure by governmental measures or private practices
7.68 Japan submits that the Article III argument of the United States collapses due to fundamental
factual inaccuracies. In Japan's view, a careful analysis of the "distribution countermeasures" during
the 1960s and ‘ 70s and the allegedly exclusionary market structures for imports of film and paper imports
shows that there is no causal connection between the one and the other. For Japan, single-brand
wholesale distribution of film is the standard practice throughout the world. Japan explains that the
various alleged distribution measures did not create single-brand distribution. In the Japanese market,
single-brand distribution resulted from private business decisions and not from governmental actions
because it evolved naturally due to the fact that the production sector developed more rapidly than
1118As Japan discusses in relation to the United States non-violation claims, vertical integration may be procompetitive
or anticompetitive, depending on the unique circumstances of each particular case.
1119Japan refers to Kodak’ s success in the Japanese market with respect to x-ray film, motion picture film and microfilm,
and Polaroid’ s success in the instant film market despite the fact that these products are sold through the same kinds of single-
brand distribution channels as consumer photographic film.
1120United States - Alcoholic Beverages, BISD 39S/206, 279-280, para. 5.31. See also Review Pursuant to Article XVI:5,
adopted on 24 May 1960, BISD 9S/188, 192, para. 12 ("the GATT does not concern itself with such action by private persons
acting independently of their governments").

the distribution sector. To compensate for the inefficiencies in the distribution sector, Japanese
manufacturers, following the lead of manufacturers in other advanced countries such as the US, decided
to integrate forward into distribution to promote the efficient distribution and marketing of their products.
Given that single-brand distribution emerged as a predominant industry trend already in the mid 1960s
and was virtually complete by 1968 before virtually all of the alleged "distribution countermeasures"
were implemented, it would be logically impossible for subsequent government actions to be the cause
of single-brand distribution. Therefore, in Japan's view, the current market structure is the result of
private business decisions and thus not within the scope of Article III.
7.69 The United States responds that it does not predicate its claim under Article III on the notion
that Japan’ s market structure for photographic materials is a "law, regulation or requirement", nor
does the United States contend that purely private conduct may trigger a violation of Article III. The
United States emphasizes that its claims are based solely on the fact that the Japanese Government
intervened in the market to aid its domestic industry in excluding foreign competitors from the most
desirable distribution channels which falls squarely within the purview of Article III.
7.70 Japan argues that there are absolutely no governmental or legal obstacles that prevent the primary
wholesalers of the domestic manufacturers from carrying multiple brands of film,1121 or that prevent
photofinishing laboratories from switching brands of paper.1122 Japan concludes that thus there is no
causal connection between the current market structure and the alleged measures. In Japan's view,
what the United States complains about is the divergent competitive impact between a new brand against
a dominant brand, and not that between imported products and domestic products.1123 Japan alleges
that the United States has not identified any governmental or legal obstacles, nor has the United States
identified any ongoing active government involvement in allegedly encouraging the maintenance of
these market structures.1124
7.71 Japan also emphasizes that ample evidence demonstrates that imported film and paper enjoy
unimpeded access to the Japanese market. Foreign manufacturers are not only allowed to sell through,
but in fact do sell through, the same distribution channels used by domestic manufacturers. While
the United States argues that these routes are "not viable alternatives", according to Japan, the empirical
reality shows widespread availability of Kodak brand film. In Japan's view, Kodak Japan currently
functionsasa primarywholesalerbecause Kodak Japan sells Kodak brandfilm tosecondary wholesalers
and retailers, just like the other primary wholesalers do for other brands. Japan also points out that
Asanuma abandoned its dealing with Kodak film in 1975 because Kodak required Asanuma, one of
Fuji's current primary wholesalers, to deal with Nagase, Kodak’ s agent and primary wholesaler then,
and Asanuma’ s competitor.1125
1121Japan claims that independent primary wholesalers carrying Fuji brand film are free to carry other brands. Their
choice to handle only Fuji brand film is a purely voluntary private business decision. Affidavit of Kaoru Konno, Japan Ex.
A-15. Affidavit of Yukiyoshi Noro, Japan Ex. A-14. Affidavit of Takenosuke Katsuoka, Japan Ex. A-11. Affidavit of
Tomihiko Asada, Japan Ex. A-12.
1122Japan claims that their choice to affiliate with a particular manufacturer is a purely voluntary private business decision.
1123In Japan's view, relaxation of the regulations would not necessarily have operated to the advantage of a new brand,
because of the readiness of a dominant brand to counter.
1124Japan points out that in the context of its non-violation claims, the United States does not mention any "distribution
countermeasures" occurring after the conclusion of the Tokyo Round in 1979. Although the United States does refer to
the "ongoing application of distribution countermeasures" after the end of the Uruguay Round in 1994, the only elaboration
is a reference to "foreclosure from the primary wholesale channels of distribution" which for Japan does not amount to the
mentioning of any government action.
1125Japan argues that Asanuma could not buy from Nagase, and then compete with Nagase for the same customers. Today,
as Kodak Japan has succeeded Nagase’ s business to wholesale Kodak film, other primary wholesalers choose not to buy
from Kodak Japan, with which they would have to compete for the same customers. Fuji only sells to the primary wholesalers
and does not compete with them. Competition among the four primary wholesalers carrying Fuji brand film is at the same
level, they all buy from Fuji, and compete with each other on equal terms.

7.72 The United States notes its earlier responses to Japan's erroneous claims that Kodak has access
to the Japanese market on the grounds that Kodak Japan "currently functions as a primary wholesaler."1126
The United States further asserts that Japan tries to attribute impeded access to the distribution channels
exclusively to private conduct by arguing that the move to single-brand distribution was beginning
tooccur and would have occurred regardless of the government's measures. If the Panel were to endorse
such a rationale, it would signal that WTO Members may aid and abet the development of market forces
disadvantaging imported products. In the view of the United States, this result would run counter to
the purpose of Article III.
(d) Conclusions
7.73 In summary, the United States alleges that Japan implemented the distribution countermeasures
to accord less favourable treatment to imported photographic materials. The 1967 Cabinet Decision
and numerous other documents reflect a concern that Japanese manufacturers were particularly vulnerable
toinroadsbyforeignproducersmakingeffective useof Japanese wholesalerstodistributetheirproducts.
As a consequence, the Japanese Government adopted a series of measures specifically designed to
consolidate the primary distribution channels under the control of Japanese film and paper manufacturers,
and thereby severely restricted the opportunities for foreign manufacturers to distribute and sell their
products inJapan. Such actions constitute improper protection of domestic products and less favourable
treatments of imports in violation of Article III.
7.74 The United States points out that in determining whether Japan’ s distribution countermeasures
violate Article III:4, the Panel need find only that these measures "tend to tip the balance in favour
of" Japanese producers of film and paper," whereas in this case, Japan's laws, regulations and
requirements have done far more. As a result of Japan's actions, imported photographic materials
have been excluded from the primary distribution system and thus have been substantially impaired
in their ability to reach a broad segment of retail outlets.
7.75 Japan responds that the United States has failed to identify any "laws, "regulations", or
"requirements" that would serve as the appropriate subject matter for a claim under Article III, since
it identifies only the continued existence of single-brand wholesale distribution for film and affiliations
between domestic paper manufacturers and photofinishing laboratories as "distribution countermeasures".
Japan's recalls that purely private conduct is outside the scope of Article III. As to the MITI distribution
modernization policies of the 1960s and ‘ 70s, Japan emphasizes that the administrative guidance subject
to US challenge is not within the scope of Article III. Furthermore, given that none of the specific
distribution policies from that period is still in effect, Japan contends that they are not properly before
this Panel.
7.76 In the alternative, assuming that there "laws", "regulations" or "requirements" in the meaning
of Article III at issue, Japan argues that the United States has failed to show that the alleged measures
in dispute extend "less favourable treatment" to imported film and paper. Japan emphasizes that the
general purpose of this phrase is to protect the equal competitive relationship between imported and
domestic products and that Article III:4 does not require any particular results in the marketplace.
Furthermore, none of the policies of the Japanese Government was applied so as to afford protection
to domestic production within the meaning of Article III:1. Therefore, Japan requests the Panel to
reject the claims raised by the United States under Article III.
1126See para. 7.60 above.

B. ARTICLE X OF GATT
1. INTRODUCTION
7.77 According to the United States, in devising and implementing its broad set of liberalization
countermeasures to protect its market from foreign competition, Japan followed the approach of
"concerted adjustment" between government and industry. The Japanese Government acted behind
a shield of opacity, deputizing or instructing industry to carry out policies, with incentives and leverage
from the government standing behind private industry behaviour. In this context, foreign film and
paper manufacturers encountered impenetrable market restrictions of imperceptible origin. In the US
view, the restrictions originated with government policy and actions, and the Japanese Government
bears responsibility for preventing its trading partners and private businesses attempting to compete
in Japan’ s market from understanding the precise nature of the Government’ s actions and their
consequences. These informal, non-transparentpractices remain in place and continue torestrict market
access for foreign firms.
7.78 The US claims focus essentially on the following specific measures:
(1) In the context of the Premiums Law and relevant fair competition codes, Japan's failure
to publish the JFTC's and the fair trade councils' enforcement actions that establish or modify
criteria applicable in future cases violates Article X:1.
(2) In the context of the Large Stores Law and relevant local regulations, Japan's failure
to publish guidance through which regional MITI offices, prefectural governments and local
authorities make applicants for a new or expanded store under the Large Stores Law coordinate
their plans with local competitors before submitting a notification for government review, and
continue to impose a "prior explanation" requirement, violates Article X:1.
7.79 As a preliminary matter, Japan notes that, while the US request for the establishment of the
Panel mentioned violations of Article X:3 of GATT,1127 the United States has made no legal claims
under Article X:3 in its submissions to the Panel. Accordingly, Japan requests the Panel to evaluate
the US claims under Article X with exclusive reference to Article X:1 of GATT.
7.80 Japan further responds that the obligations of Article X:1 do not apply to fair trade councils'
and JFTC enforcement actions because these are not measures of "general application," but only
applicationsof legal principlestospecific factual circumstances whichdonot establishormodify criteria
applicable to future cases. Thus, in Japan's view, the practices alleged by the United States does not
exist.
7.81 Further, Japan contends that none of the MITI branches, prefectural governments, or other
local governments may either require or recommend that store openers provide prior explanations to,
or hold prior consultations with, local retailers. Japan emphasizes that it has corrected and is prepared
to correct any such practice upon discovery.
1127Letter from US Ambassador Booth Gardner to WTO Dispute Settlement Body Chairman H.E. Mr. Celso Lafer Requesting
the Establishment of a Panel on 20 September 1996.

2. THE LEGAL TEST
7.82 Article X:1 provides in the relevant part as follows:
"Laws,regulations,judicialdecisionsand administrativerulingsof general application,
made effective by any [WTO Member], pertaining to the classification or the valuation
of products for customs purposes, or to rates of duty, taxes or other charges, or to
requirements, restrictions or prohibitions on imports or exports or on the transfers of
payments therefore, or affecting the sale, distribution, transportation, insurance,
warehousing,inspection, exhibition,processing,mixing orotheruse shall be published
promptly in such a manner as to enable governments and traders to become acquainted
with them".
7.83 The United States submits that the purpose of this provision is to ensure a degree of transparency
in the imposition of governmental measures that may affect the competitive opportunities of WTO
members. Such measures must be "published promptly" in order "to enable governments and traders
to become acquainted with them".1128 The United States explains that, when a WTO Member fails
to fulfil its obligations under Article X:1, foreign firms and their governments are unable to understand
the "rules of the road" in that market and are impeded in their ability to assess whether fundamental
GATT rights, e.g., the right to no less favourable treatment under Article III and the right to benefits
arising out of tariff concessions in accordance with Articles II and XXIII:1(b), are being nullified or
impaired by that WTO Member.
7.84 Japan explainsthat inorder toprove a violationof Article X:1, the UnitedStates has to establish
the existence of the following elements:
(i) There is a law, regulation, judicial decision or administrative ruling
(ii) of general application,
(iii) made effective by any [WTO Members],
(iv) pertaining to ... requirements, restrictions or prohibitions on imports, ... or affecting
their sale, distribution [of products] ...
(v) [that] has not been published promptly in such a manner as to enable governments and
traders to become acquainted with them.
Only when a measure meets all of these elements stipulated in the provision, does a government owe
an obligation to publish under Article X:1.
(a) "Laws, regulations, judicial decisions or administrative rulings"
7.85 In Japan's view, it is clear that none of the alleged measures in dispute amounts to a "law"
or "regulation" since none of them was enacted by the Diet, or was promulgated as a regulation under
the relevant administrative procedures. Likewise, for Japan it is obvious that none of the alleged
measures qualifies as a "judicial decision".
7.86 With respect to "administrative rulings", Japan underscores that it is critical to remember that
Article X:1 requires publication only of administrative rulings of "general application". This requirement
is crucial especially in evaluating the US claims under Article X relating to the Premiums Law. In
Japan's view, the US allegation lacks specificity, and it is difficult to discern by what criteria the United
States concludes that certain enforcement actions are administrative rulings of "general application"
to be published under Article X:1. Thus Japan claims that the United States has failed to identify any
1128See Panel Report on EEC - Restrictions on Imports of Dessert Apples, Complaint by Chile, adopted on 22 June 1989,
36S/93, 133, paras. 12.29-12.30.

appropriate subject matter to be published under Article X:1. Although, the US claim is based on
"administrative rulings", the United States fails to specify which administrative rulings are in violation
of Article X.
7.87 The United States confirms that its Article X:1 claims are based on administrative rulings
and not on "laws, regulations, or judicial decisions. The United States agrees that the obligations of
Article X:1 apply only to administrative rulings of general application. It asserts that Japan enforced
the Premiums Law and the Retailers Fair Competition Code as well as the Large Stores Law primarily
through informal, unpublished enforcement actions in a manner inconsistent with Article X.
7.88 Japan notes that the panel report on United States - Restrictions on Imports of Cotton and
Man-made Fibre Underwear interpreted the phrase "general application" as meaning that "[i]f, for
instance, the restraint was addressed to a specific company or applied to a specific shipment, it would
not have qualified as a measure of general application".1129 From that Japan concludes that the informal
actions concerning the Premiums Law and the Retailers Code are not of "general application".
7.89 The United States maintains that Japan’ s failure to publish notice of "administrative rulings
of general application" runs counter to Article X:1. Although, no GATT or WTO precedent squarely
addresses the issue, the United States submits that Japan has previously taken the position that the
publication requirement of Article X:1 extends to the disposition of individual matters by an
administrative agency, especially where principles applicable to future decisions are established. In
the 1990 panel report on EEC - Regulation on Imports of Parts and Components, Japan challenged
the EEC’ s practices regarding the acceptance of undertakings pursuant to the EEC’ s anti-dumping
regulation and the determination of the origin of parts used in assembly operations. Japan argued that:
"[t]he EEC had not made public the criteria used in the consideration of offers of
undertakings ... . While the conditions under which duties could be imposed were
defined ... the only available information regarding the conditions under which the
EEC would consider undertakings acceptable consisted of letters and oral explanations
by the EEC officials to companies involved in proceedings".1130
"[T]he issue of the determination of the origin of parts or materials used in assembly
operations in the EEC had led to difficulties ... . It was only after an investigation
... started that companies engaged in assembly operations within the EEC were in a
position to ascertain how the EEC Commission would determine the origin of the parts
used in these operations ... [I]n practice, there existed the possibility of changes in
the criteria to determine origin ... This had led to problems for certain Japanese
producers".1131
7.90 The United States notes that because the panel in EEC - Parts and Components resolved the
matter on other grounds, it chose not to address Japan’ s Article X argument. Nonetheless, the United
States suggests that Japan’ s previous articulation before that panel of the type of administrative rulings
that are subject to Article X should govern in the present case. The United States explains that it does
not contend that Article X requires all enforcement actions, no matter how limited in scope or
insignificant in developing new doctrine, be made public. However, Article X:1 mandates the publication
1129Panel Report on United States - Restrictions on Imports of Cotton and Man-Made Fibre Underwear, WT/DS24/R,
adopted on 25 February 1997, para. 7.65. This finding is upheld by the Report of the Appellate Body. Appellate Body
Report on United States - Restrictions on Imports of Cotton and Man-Made Fibre Underwear, WT/DS24/AB/R, adopted
on 25 February 1997.
1130Panel Report on EEC - Regulation of Imports of Parts and Components, adopted on 16 May 1990, BISD 37S/132,
155, para. 3.53.
1131Ibid., p. 156, para. 3.54.

of administrativerulingsthatestablishorsubstantiallyrevise criteria whichsubsequentlymay be applied
in other cases in the future, recognizing of course that all disputes should be analyzed on a case-by-case,
fact-specific basis. This is particularly significant in the present instance because of the multiple
enforcement bodies involved, each of which may follow criteria differing from the others. Thus, the
United States claims that Japan’ s lack of transparency in the frequent use of unpublished enforcement
actions fails to make public applicable criteria and guidance that may be relied upon as precedent in
future cases. Japan’ s complaint about the EC' measures in EEC - Parts and Components applies with
equal force in the present dispute and thus Japan should be instructed to publish Premiums Law and
Large Retail Store enforcement actions of general applicability so that traders and WTO Members may
become acquainted with them.
7.91 While Japan maintains the position it took in EEC - Parts and Components, i.e., that Article X:1
mandates the publication of administrative rulings that establish or substantially revise criteria which
subsequently may be applied in other cases1132, it emphasizes that its position does not apply to the
present case. Japan considers that it has duly published all laws, regulations, judicial decisions or
administrative rulings of general application relating to the Premiums Law or Large Retail Stores Law
in a manner that enables governments and traders to become acquainted with them. Japan maintains
that the United States fails to identify any particular unpublished enforcement actions that fall in the
definition of "general application" and, therefore, has failed to discharge its burden of proof in this
regard. Therefore, the United States has failed to identify any proper subject matter for an Article X:1
claim, and it is thus irrelevant whether any of these alleged measures have been published in accordance
with Article X:1.
3. MEASURES TAKEN IN THE CONTEXT OF THE PREMIUMS LAW
(a) Premiums Law enforcement actions
7.92 The United States alleges that Japan contravenes the publication requirement of Article X:1
because Japan's enforcement of its premium and representation provisions is shrouded in secrecy resulting
from the use of informal mechanisms. Accordingly, Japan is alleged of having established a complex,
multi-tiered enforcement system for its premium and representation restrictions. Under the Premiums
Law, the JFTC, the prefectures and deputized private sector councils have authority to enforce the
law. The number of entities involved in policing promotional activities results in substantial confusion
for enterprises doing business in Japan. Not only are regulated businesses at times unsure as to which
enforcement body is likely to take action on a particular matter, but those subject to the restrictions
have access to little or no public record reflecting how the JFTC, a prefecture or a council may have
addressed similar facts inthe past and, thus, how it is apt to rule in the future. This confusion principally
arises from Japan’ s failure to publish a large percentage of administrative rulings and enforcement
actions taken and the difficulty in obtaining what little information may be available. Therefore, the
UnitedStates alleges thatJapan’ spractice of failingtopublishenforcement actionsof general application
concerning premiums and representations violates Article X:1.
7.93 Japan contends that the enforcement system of the Premiums Law is sufficiently transparent
and consistent with Article X:1.1133 Enforcement regulations for the Premiums Law are published and
readily available, and the Premiums Law itself as well as numerous general and specific notifications
1132Ibid.
1133According to Japan, one scholar notes that "[i]n the United States, Federal, State and even local governments
independentlyregulateadvertising. Each levelof governmentenacts itsownlegislation andhad itsown separateadministration
to carry out this legislation." James R. Maxeiner and Peter Schotthöfer (eds.), Advertising Law in Europe and North America
(1992), p. 317. It was also noted that "[s]elf-regulation is an important source of advertising regulation, especially for national
advertising." Ibid., p. 321, Japan Ex. E-13.

interpreting it have also been published.1134 Japan further responds that there is an ample public record
from which one can discern how the Premiums Law will be applied. Specific enforcement actions
simply apply general norms to the facts of a particular case.
7.94 Japan points that the United States itself specifically identifies and refers to numerous JFTC
notifications which explain how the Premiums Law is applied: (i) Notification 17, identified by the
United States as "[o]ne of [the JFTC’ s] most significant restriction on premiums."1135; (ii) Notification
34, which allegedly reflected "a distinctly new way" of applying the Premiums Law; (iii) Notification
5, which allegedly "tightened [JFTC] control on the use of premiums offered to consumers".1136 The
JFTC has also published detailed notifications whenever it has announced "significant restrictions",
"a distinctly new way," or "tightened" control. In addition, recent decisions by the JFTC to revise
and clarify the regulations on excessive premiums have also been published.
7.95 In response, the United States submits that since the Premium Law was enacted in 1962, the
JFTC has initiated relatively few formal enforcement actions, but it has issued many "administrative
guidances" or warnings. Japan has failed to publish the overwhelming majority of its enforcement
actions under the Premiums Law. By one estimate,1137 between 1962 and 1994, the JFTC issued warnings
or administrative guidances in 11,362 cases, as opposed to 683 formal cease and desist orders. The
JFTC hashandledalarge numberof Premiums Lawcases throughinformal means, presumablyresulting
in unpublished findings in almost every instance.1138 This lack of transparency is compounded by the
fact that Japan’ s 47 prefectural governments take thousands of informal enforcement actions, for which
the United States has been unable to find a publication or written description.1139
7.96 Japan replies that almost 700 cease and desist orders have been published and have further
clarified the general principles behind the enforcement of the Premiums Law. The relevant issue under
Article X:1 is not whether informal action is ever taken. The only issue is whether any new policy
is being applied without adequate disclosure. These case discussions are also included in the JFTC’ s
annual reports since 1967. Furthermore, since 1985 the JFTC has published the outlines of major
cases where warningswere given,which isanother source of informationconcerning howthe Premiums
Law is applied in specific factual situations. Finally, the JFTC answers questions posed by interested
enterprises concerning the interpretation of the Premiums Law. The record of important questions
and answers, which may be of some use to businesses, are published as "Actual Examples of
1134Kanpo, 15 May 1962. The law and its notifications are published not only in Kanpo, but also in the Genkou Houki
Souran. Enforcement standards are published in the Keihin-koukoku Housei Binran.
1135Japan states that Notification 17 has been abolished.
1136JapanunderscoresthattheUSAppendixprovidesextensivedocumentationofJFTCnotifications andotherexplanations
of Premiums Law enforcement.
113720 Years of Promulgation of the Act Against Unjustifiable Premiums and Misleading Representations, Kosei Torihiki
Joho, 30 August 1982, pp. 14-17, US Ex. 82-10. If two other categories of JFTC action - "cautions" and "instructions" -
are included, the total number of informal actions rises to 120,000. 1992 JFTC Annual Report, pp. 84-85, US Ex. 73; 1995
JFTC Annual Report, p. 242, US Ex. 85. There appear to be only two sources, ad hoc press releases and the Annual
Compilation of Major Requests and Warnings, that carry discussions of warnings, the most formal of administrative guidance
measures. However, the selection of which actions are covered seems to be random.
1138The United States quotes from a former senior JFTC official's statement who explained that:
"Informal ways of enforcement had the problem of lack of transparency. By making the FTC "warning" public, effectiveness
of the warning as an informal way of enforcement would increase. It should be remembered that public announcements
or disclosure has an aspect of an effective remedy in such a country as Japan where bad publicity is a very serious concern
to business". "Too much reliance on informal enforcement could produce a lack-of-transparency problem. Sometimes,
non-disclosure becomes an important component of informal enforcement, that is, non-disclosure makes it easy to get the
compliance of the related entrepreneurs. On the other hand, non-disclosure has a problem of its own, namely, it does not
educate other businessmen who engage in the same conduct, and the general public will not have sufficient information
concerning enforcement of the [Antimonopoly Law] Act." Iyori Hiroshi and Uesugi Akinori, The Antimonopoly Laws and
Policies of Japan, 1994, pp. 213-214, 216-217, US Ex. 94-1.
1139According to the United States, more than 85 percent of all informal actions taken are cautions issued by prefectural
governments.

Consultations Regarding Premiums and Representations". Japan claims that the JFTC has thus
consistently published all administrative rulings of "general application". Japan considersas significant
that the United States does not make a single specific allegation of any JFTC enforcement action at
odds with already published policies.
7.97 The United States responds that while Japan maintains that the JFTC has met the obligations
of Article X:1 by publishing cease and desist orders and other formal actions taken under the Premiums
Law, it offered no explanation as to why it has not published thousands of the JFTC’ s informal
enforcement actions. Japan alleged that none of the unpublished enforcement actions involves the
establishment or modification of criteria that may be applied in future cases. In the US view, it is
not credible that more than 90 percent of the JFTC's enforcement actions have no effect on the shaping
of doctrine or the case law subsequently to be applied. In this regard, the United States recalls that
Japan took the position that the publication requirement of Article X:1 should be applied "not only
to mandatory laws, but also provisions of laws that have the character of a recommendation or
exhortation."
(b) Actions under "Fair Competition Codes"
7.98 The United States reports that none of the four private sector surrogate enforcement bodies
to which the JFTC has delegated authority, i.e., (1) the Retailers Fair Trade Council, (2) the Promotion
Council, (3) the Manufacturers Fair Trade Council and (4) the Wholesalers Fair Trade Council, publishes
itsenforcement actionssothattradersand governmentsmay become familiar withthem. The Promotion
Council’ s rules on dispatched employees and representations, as well as both the camera Manufacturers
and Wholesalers Codes, contain no requirement that enforcement actions be recorded, let alone published.
Only the Retailers Code requires that a written record be made of enforcement actions but publication
is not mandatory.1140
7.99 Japan pointed out that fair competition codes and fair trade councils are irrelevant because
no codes or councils cover photographic film and paper. Japan responds that the private sector "fair
trade councils" have no power as an enforcement body. Therefore, Japan takes the position that the
industry self-regulation codes in dispute are purely private action and that no government action is
required or even authorized to make it public. Moreover, fair competition codes are published in the
Official Gazette when the JFTC approves them, although they fall, in Japan's view, outside the scope
of Article X.
7.100 Japan explains that the "fair competition codes" reflect the general norms of the Premiums
Law, not some illicit, collusive purpose. Although the codes are initially drafted by industry groups,
no code comes into effect until it has received official review and approval from the JFTC in accordance
with Article 10 of the Premiums Law. The general principles to be applied are all clearly stated in
the codes themselves, which are published in the Official Gazette. In Japan's view, the United States
has not even alleged any action taken that was at odds with basic principles set for in the codes.
7.101 In the view of the United States, Japan did not contest that enforcement actions taken by "fair
trade councils" are unpublished. In response to Japan's argument that the actions of these councils
are purely private conduct and thus outside the scope of Article X, the United States emphasizes that
the "fair trade councils" and "fair competition codes" are creations of Japanese law, in particular
section 10 of the Premiums Law, and they remain under the supervision of the JFTC. The United
States urges Japan to accept responsibility for the actions of these councils in this matter just as it did
in 1987 before the panel on Japan - Liquor Taxes and Labelling Practices, where Japan referred to
its system of "fair competition codes" under the Premiums Law as a form of "legal regulation".
1140The Retailers Council informed the US Government that it does not publish a monthly magazine, but referred the
United States to the Zenren Tsuho, the official publication of the photographic retailers association.

7.102 The United States also rejects Japan’ s alternative argument, that the published "fair competition
codes" specify all generally applicable criteria and that, accordingly, the publication of enforcement
actions taken under these codes is unnecessary. In the US view, Japan’ s position seems to be that
publication of a set of rules negates any obligation under Article X:1 to publish subsequent interpretations
and actions taken pursuant to those rules. The United States emphasizes that Article X:1 requires not
only initial publication of a law or regulation, but also the publication of any subsequent actions taken
under such provisions. Otherwise, the term "administrative rulings" in Article X:1 would remain devoid
of meaning.1141
7.103 Japan emphasizes that no fair competition code is covering film products, and that no code
in a somewhat related field, such as that covering cameras, has ever been extended to apply to film.
Thus, in Japan's view, there are no codes for photographic film or paper that must meet Article X:1
transparency requirements.
(c) Requests for information and disclosure of confidential information
7.104 The United States explains that the problems inhering in Japan’ s failure to publish the results
of these enforcement activities are exacerbated by the difficulty of obtaining information about them.
The United States has made repeated requests to receive such information from the Japanese Government,
the respective enforcement councils and relevant photographic trade associations.1142 Almost without
exception, these requests for information were denied.
7.105 Japan responds that in 1996 the JFTC received requests from the US Embassy in Tokyo for
information on certain matters related to the regulations on excessive premiums and misleading
representations, with the explanation that it was being sought in connection with the WTO proceedings.
The JFTC provided the Embassy with the information that had been made available to the public, but
declined to provide non-public information. It is the JFTC’ s understanding that the kind of information
the JFTC did not provide to the US Embassy is outside the scope of the obligations under Article X:1.
7.106 Japan notes that as a general matter, requests for information are granted as long as there are
no concerns about disclosure of confidential information. However, Article X:1 sets out a specific
exception under which this Article will "not require any [WTO Member] to disclose confidential
information which would impede law enforcement or otherwise be contrary to the public interest or
would prejudice the legitimate commercial interests of particular enterprises, public or private".1143
7.107 With respect to the specific exception in Article X:1, the United States responds that the types
of information that Japan should be disclosing in the context of the Premiums Law do not implicate
confidentialityconcerns. TheUnitedStatesexplainsthatothercountriespublishinformationconcerning
specific enforcement actions and that company-specific commercial information which deserves protection
can be protected on a case-by-case basis by redacting the critical information from the public version
of the document without withholding the entire document.
1141For the United States, it bears noting that Article X:1 distinguishes between "administrative rulings" and "regulations".
1142The United States elaborates that between July 1996 and November 1996, an official at the US Embassy in Tokyo
sent five letters to the JFTC, four letters to individuals and entities associated with the Retailers Council, and one letter to
the Promotion Council. The letters asked for information about implementation and enforcement of the Premiums Law,
and related matters. None of the responses provided the requested information.
1143Japan points out that under US law there is a specific exception to the Freedom of Information Act to allow authorities
to refuse such disclosure.

4. MEASURES TAKEN IN THE CONTEXT OF THE LARGE STORES LAW
(a) MITI's "prior explanation" procedures
7.108 The United States submits that from the inception of the Large Stores Law, MITI has increasingly
expanded the roleand leverage of local retailer interests in reviewing the proposedopening or expansion
of a large store. As their opportunities to influence the large store adjustment process increased, local
retailers increasingly employed their influence to impose delays, floor space reductions, and other
"adjustments" on large stores. The United States describes that in 1982, Japan formally required the
builder of a large store to consult with local retailers and seek their agreement for a new or expanded
store even before the builder or retailer had formally notified the government of its intention to build
or expand a large store. This "prior adjustment" process became a very powerful means for the local
retailers to wield influence over large stores because the formal large store review procedures accord
decisive weight to the views of local business interests in determining whether a new or expanded large
store will be forced to "adjust" its plans (e.g., reduce its floor space or hours operation).
7.109 According to Japan, the United States limits its claims under Article X regarding the Large
Stores Law to an allegedly unpublished policy of requiring new store openers to make prior explanation
or consultation. Japan points out that in 1992 MITI formally eliminated the requirement under the
Large Stores Law that large store planners provide a prior explanation to local retailers before the initial
notification that commences the law’ s formal review and adjustment process. Procedural requirements
for notifications of new stores were published, e.g., in the 1992 Public Briefing Circulars and the 1994
Public Briefing Circulars. They describe in detail what is expected of large store planners under the
law and reflect the 1992 policy decision to abolish the previous "prior explanation" procedures1144
Japan contends that none of the MITI branches, prefectural governments, or other local governments
may either require or recommend that store openers provide prior explanations to or prior consultations
with local retailers. Japan emphasizes that it has corrected and is prepared to correct any such practice
upon discovery.
7.110 The United States confirms that an administrative directive from MITI of 29 January 1992
addresses the elimination of the prior explanation requirement under the Large Stores Law. In the
US view, MITI formally revoked this prioradjustment requirement in responseto pressurefrom foreign
governments to liberalize large store restrictions. However, the United States contends that the
circulation of pamphlets does not amount to a publication "in a manner as to enable governments and
traders to become acquainted with [legal requirements]" within the meaning of Article X:1.1145
(b) "Local explanation" procedures
7.111 According to the United States, studies by the Japanese Government1146 document that in practice
MITI regional offices and prefectural and local governments continue in many cases to require, urge,
advise or request large stores pursuant to informal administrative guidance to consult and undertake
prior consultation and effectively to make adjustments with local retailers and small stores competitors
before submitting their formal notification under Article 3 of the Large Stores Law to the government.
In numerous cases, retailers proposing to open or expand large stores continue to feel compelled to
1144Japan submits that one of the 1992 Public Briefing Circulars explicitly abolished the authority of any MITI official
to require a prior explanation to local retailers. Similarly, the other abolished this same authority with respect to the prefectural
governors. MITI, Public Briefing Nos. 25 and 26, Japan Ex. C-17.
1145The United States points out that the authorities themselves did not admit in the survey by Japan's Management and
Coordination Agency that they had such pamphlets.
1146In support of its argument, the United States refers to studies by the JFTC and Management and Coordination Agency
(MCA) indicating that the authorities continue to guide large retailers to consult with local business interests before filing
an Article 3 notification.

negotiate with small retailers because the law and MITI guidance give the local retailers ample
opportunity and power to force severe adjustments on large retailers who do not negotiate with them
in advance. Local retailers continue to succeed in extracting restrictive agreements from large stores
as a condition for allowing the formal new store opening procedures to proceed "smoothly".1147 Japan
is alleged not to have published the instances in which it has imposed the requirement. Therefore,
Japan’ s continued application of the "prior explanation" requirement is unpublished, leaving foreign
traders and WTO Members uncertain as to the relevant criteria government entities rely upon in imposing
it in a given case.
7.112 Japan responds that neither MITI nor any local government maintains any rule which "requires
or recommends" that store openers provide prior explanations of store opening plans to local retailers
or undertake prior consultations. As a deregulation measure to shorten the examination period under
the Large Stores Law, and to clarify when that period officially began, MITI explicitly repealed the
practice of prior explanation and prior consultation and affirmatively promulgated this repeal among
the regional MITI branches and the prefectural governments.1148 MITI has also specifically encouraged
the prefectural governments to ensure that the municipalities within their jurisdiction comply with these
deregulation measures.1149 In addition, based on its authority under Article 15(5) of the Large Stores
Law, Japan has explicitly prohibited all prefectural and local governments from requiring or
recommending prior explanation through additional local regulations based upon their regulatory authority
delegated by the Local Autonomy Law.1150 Accordingly, Japan ordered that corrective action be taken
against "excessive local regulations," including any rules for prior explanation, and that by 1993, such
local regulations be brought into conformity with the national law.
7.113 In the view of the United States, Japan merely argues that the Large Stores Law itself does
not require prior consultation. That the practice is no longer required under the law does not mean
that Japanese officials are not imposing it. The United States underlines that the prior consultation
requirement appears not in the text of the law but in the practice of numerous MITI regional offices
and prefectural and local governments. The requirement has never been written in the text of the law.
While from 1982 to 1992 it at least was written with transparency in a MITI directive, the requirement
has now become a non-transparent burden on large stores. The United States emphasizes that Japanese
Government studies amply document the continuation of an effective prior consultation requirement.
7.114 Japan concludesthat where store plannersare stilloffering a prior explanationto local retailers,
the decision to do so is based not upon any government requirement, but upon the store planners' own
and purely private business decision,1151 such as the need to obtain information that might help the
store planner to develop business from local retailers or the wish to accelerate the completion of public
briefing procedures under the law. Japan explains that upon receipt of Article 3 Notifications, a relevant
MITI branch orprefectural government has toselect consumers and local retailers(or otherassociations)
1147"Concerning the Reevaluation of Government Regulations in the Distribution Sector," Government Regulation and
Competition Policy Research Council, JFTC, June 1995, pp. 22-23, US Ex. 95-11.
1148In 1982, MITI issued circulars guiding MITI branches and prefectural governments to request that store openers would
give prior explanation to "municipal governments, etc. governing planned sites" (subsequent circulars specified "municipal
governments, Chambers of Commerce and Industry, small and medium-sized retailers, and consumers"). Immediate Measures
Regarding Notification to Establish Large Scale Retail Stores, Sankyoku, No. 36, issued by Director-General for Commerce
and Distribution Policy [hereinafter "Director-General"], 30 MITI January 1982, Japan Ex. C-16. However, in 1992, MITI
issued circulars instructing both MITI branches and prefectural governments (1) to abolish any proceedings prior to Article 3
Notifications, and(2) torequest thatstore openersgive publicbriefings, similarproceedings, however, subsequent toArticle 3
Notifications. Instructing Parties Filing Notifications of New Type-I Large Scale Retail Stores etc. to Hold Public Briefing,
Sankyoku, Nos. 25 and 26, issued by Director-General, MITI April 1, 1992, Section 1, Japan Ex. C-17.
1149The Circulars issued by MITI instruct both MITI branches and prefectural governments to abolish any proceedings
prior to Article 3 Notification. 1990 Prior Explanation Circular, Japan Ex. F-11.
1150See Additional Local Regulations on New Store Openings, etc. by Local Governments, Sankyoku, No. 24, issued
by Director-General, MITI, January 29, 1992, Section III, Japan Ex. C-13.
1151MCA Report, pp. 13-14, US Ex. 95-15.

who are to receive public briefings after consulting with relevant Chambers of Commerce and related
local governments, if necessary.1152 The fact that store planners offer prior explanation to local retailers
does not in any way mean that government entities "request or recommend" prior explanation as a
matter of general policy.
(c) Specific examples: The MCA and JFTC studies
7.115 The United States elaborates that according to the 1995 survey by Japan’ s Management and
Coordination Agency (MCA), several MITI regional offices and prefectural governments require or
recommend such prior explanations as a matter of general policy.1153 For example, in 1995, the MCA
surveyed the prior consultation practices at six MITI regional offices and six prefectural or local
governments. Nine of the twelve jurisdictions regularly required or urged large stores to undertake
prior consultation and adjustment. The United States identified seven specific instances in which the
"prior explanation" was imposed after it had purportedly been revoked:
(i) The Tokyo Municipal government published two pamphlets regarding the Large Stores
Law process which "direct retailers to provide the MITI regional office, the prefecture, the
local town and ward governments and the Chamber of Commerce with an explanatory outline
of their plans".
(ii) The Osaka Prefectural government "requires prospective applicant retailers to provide
concerned town governments and ward councils with a pre-notification explanation of its
application and to obtain a stamp as a proof that it had provided such explanation. Some cities
andchambers ofcommerce[intheprefecture]indicatethatprovidinglocalretailers’ associations
with a pre-notification explanation is a condition for accepting the application".
(iii) The Chugoku regional office of MITI has published a manual that "directs prospective
retailers to provide pre-notification explanation to concerned local and ward governments and
Chambers of Commerce".
(iv) The Kinki regional office of MITI "directs applicants to provide pre-notification
explanation to concerned local parties in order to make the process go smoother".
(v) The Kanto regional office of MITI (Tokyo area) "instructs" retailers "to consider the
advantages of meeting with local retailers’ associations in order to make the process go
smoothly".
(vi) The Tohoku regional office of MITI and the Miyazaki prefectural government advise
large stores that "prior explanation would make the process go more smoothly".
(vii) The Hiroshimaprefectural governmentorallyrequests"thatthe office,prefecture, town
and ward governments and Chambers of Commerce be provided with pre-notification Article 3
explanation".
7.116 With respect to the MCA Report, Japan explains that all MITI branches and prefectural
governments subject to the report responded that they did not instruct store planners to provide a prior
explanation.1154 The discussion of prior explanation procedures in the MCA Report is based on the
11521994 Public Briefing Circulars, Japan Ex. C-18, Section VI.
1153Results of the Survey Regarding the Liberalization of Regulations: Application of Laws Dealing with Adjustment
of Retail Business Activities in the Area of Large Scale Retail Stores, Management and Coordination Agency, October 1995,
pp. 11-12, US Ex. 95-15.
1154MCA Report, p. 11, US Ex. 95-15.

limited responses of only 11 large stores that primarily offered prior explanations based on their own
private business decisions.1155 Specifically, of the 11 large stores that responded, 8 replied that they
conducted prior explanation at their own choosing. The remaining three explained that their decision
toprovidepriorexplanationstemmed primarilyfromsome undefinedform of"administrativeguidance"
or "local custom". It is Japan's understanding that the three cases described loosely as "administrative
guidance" are actuallyinstances inwhich officers inthe relevant authority,in responseto storeplanners'
specific inquiries for consultation on this point, simply responded with the suggestion that it might
be beneficial for them to contact with, e.g., relevant local governments, as early as possible in the
process. Moreover, the Report never suggests that any local customs that may exist are at the behest
of a government entity. Japan stresses that nothing in the MCA Report suggests that any MITI branch
or prefectural government suggests either prior explanation or prior consultation as a general policy.
7.117 According to Japan, the MCA survey indicates that guidance by MITI branches and local
governments to provide "prior explanations" occurred only in exceptional cases when the survey was
conducted in 1995. Japan has recently taken corrective measures against all inappropriate practices
identified in the MCA Report. For example, when MITI learned in 1995 that the Chugoku MITI
branch1156 and Hiroshima prefecture1157 were issuing guidance for large store planners to provide "prior
explanation," MITI ordered that these authorities cease issuing such guidance, and the situation has
been redressed. Moreover, as of 31 March 1997, the Osaka Prefectural Government1158 no longer
requires the receipt of seal impressions from concerned municipal governments and Chambers of
Commerce as a condition for the acceptance of Article 3 Notifications. In addition, the Chugoku MITI
Branch no longer provides store openers with the pamphlets described in the MCA Report.1159 Japan
has been making a continuedeffort tofind and correct any such excessive local regulationsand practices.
To facilitate this effort, Japan has established ombudsman's offices in MITI and MITI branches since
April 1994 to deal with problems that store planners encounter in the context of the administration
of the Large Stores Law.
7.118 According to the United States, a 1995 Ad Hoc Study Group Report from the JFTC's
Government Regulation and Competition Policy Research Council further confirms that "some local
offices of MITI have orally demanded that they [stores] lay the ground work following local rules or
customs, and they have been forced into what amounts to an adjustment process due to demands from
existing local retailers". According to the United States, the JFTC report found that MITI regional
offices "orally demand" that new large stores consult with local retailers. The MCA survey identified
several MITI regional offices or prefectural or local authorities who admitted to at least suggesting
or advising large retailers to consult with local retailers. When MCA in turn asked large retailers for
their experiences regarding such authorities, in some cases the retailers were able to produce pamphlets
from the authorities directing large retailers to consult with local business interests.1160
7.119 Japan contends that the JFTC Ad Hoc Study Group Report does not substantiate the US
arguments that local government entities are requiring store planners to provide prior explanations
to local retailers. Like the MCA Report discussed above, the JFTC Report is limited in scope and
presents no concrete example of a prior explanation or consultation offered to local retailers at the
request of a government entity. Japan notes that the US citation from this Report addresses only
consultations requested by local Chambers of Commerce and local retailers at the public briefing stage,
1155Ibid., pp. 11-14.
1156See US example (iii) in para. 7.113 above.
1157See US example (vii) above.
1158See US example (ii) above.
1159See US example (iii) above.
1160Results of the Survey Regarding the Liberalization of Regulations: Application of Laws Dealing with Adjustment
of Retail Business Activities in the Area of Large Scale Retail Stores, Management and Coordination Agency, October 1995,
pp. 11-12, US Ex. 95-15.

subsequent to Article 3 Notifications.1161 Hence, Japan argues that the JFTC Report does not document
any instances of prior explanation requested by a MITI branch, a prefectural or local government.1162
7.120 The United States maintains that the MCA and JFTC studies indicate that such recent application
of the prior consultation/adjustment requirements or recommendations are not isolated incidents, but
are widely and consistently applied measures cutting across many, if not a majority of jurisdictions
in Japan. In the US view, this requirement, urging or request to large stores is a law, regulation, or
administrative ruling of general application within the meaning of Article X:1. The basis of the US
claim under Article X:1 regarding the Large Stores Law is precisely the fact that Japan continues to
require informally and non-transparently what it previously required formally.
(d) Administrative rulings "made effective"
7.121 Japan submits that the US claims fail to meet the textual requirements of Article X:1 because
it does not point to any administrative ruling of general application which has yet to be published.
In particular, as the central government has either corrected or will correct local policies that deviate,
these policies do not constitute general rules "made effective" by the government as required by
Article X:1. Since the text of Article X:1 focuses on measures "made effective" by any [WTO
Member]", it is a central government’ s action that determines whether or not the trade regulations
within the meaning of Article X:1 have been "made effective". The only rule promulgated by Japan
is that set forth in the relevant MITI circulars explicitly abolishing any prior explanation procedures
and instructing MITI branches and local governments not to guide for prior explanation. In Japan's
view, given that the alleged administrative guidance does not even exist, there is no administrative
rulingthat has been "made effective" and thus there isnothing thatmust be published underArticle X:1.
7.122 The United States accepts that the term "made effective" is part of the text of Article X:1,
but contends that the measures subject to US allegations under Article X are measures that have been
made effective by Japan.
(e) "Affecting the sale or distribution of imports"
7.123 The United States notes that Article X:1 requires a Member to publish its laws, regulations,
judicial decisions and administrative rulings of general application that "affect" the "sale" or "distribution"
of imports. The United States contends the term "affecting", as it was intended by the drafters of Article
X:1, and as it has been repeatedly applied by panels in the context of Article III, means "not only
the laws and regulations which directly governed the conditions of sale or purchase but also any laws
or regulations which might adversely modify the conditions of competition between the domestic and
imported products on the internal market".1163
7.124 More specifically, the United States argues that Japan’ s measures governing the opening or
expansion of large stores, i.e., the prior consultation process under the Large Stores Law, clearly affect
the sale and distribution of imported photographic film within the meaning of Article X:1 because this
process often results in a large store feeling compelled to make downward adjustments in its operating
plans. These downward adjustments limit the scope and operation of large stores in Japan which in
turn reduce the opportunity for foreign products to reach the market in Japan, given that large stores
are more likely to deal in foreign products than small stores because large stores (a) have more shelf
1161JFTCAdHoc StudyGroupReport, Concerning theReevaluationof Government RegulationsintheDistributionSector,
June 1995, p. 18, US Ex. 95-11.
1162For any governmental body to request this consultation is directly contrary to the explicit Japanese Government policy
that a public briefing held after an Article 3 notification is explicitly not to be used as a mechanism for prior consultations
with approval from local retailers. 1992 Public Briefings Circular, Japan Ex. C-17.
1163Panel on Italian Discrimination Against Imported Agricultural Machinery, BISD 7S/60, 64, para.12.

space to devote to multiple brands of a product, and (b) are more likely to deal directly with
manufacturers, including foreign manufacturers, by-passing the wholesalers which tend not to deal
in foreign film. Moreover, large stores are more likely to price lower than small retailers. According
to the United States, the Japanese Government itself has concluded that large stores generally increase
competition in the distribution sector in Japan and are a challenge to the exclusive distribution structures
fostered by Japanese government policy. By restricting the most favourable channel for distribution
and sales of imported film, Japan’ s restrictions on large stores "affect" the sale and distribution of film
within the meaning of Article X:1. Therefore, the United States claims that Japan’ s failure to publish
such requirements in a manner as to enable governments and traders to become acquainted with them
is inconsistent with Japan’ s obligations under Article X:1.
7.125 Japan submits that the Large Stores Law, and consequently, any of its enforcement actions,
including the previously existing practice of "prior explanation," do not affect the sale and distribution
of film in the way alleged by the United States. Japan contends that the provisions of the Large Stores
Law do not draw distinctions between imported and domestic products. Determinations whether and
how to apply the law’ s four adjustment factors are in no way based on the origin of products carried
or not carried by a large retailer. Likewise, Japan emphasizes that none of the adjustment factors has
any necessary relation to decisions by large retailers as to which products to carry.
7.126 Japan also states that these general conclusions with respect to the Large Stores Law apply
with added force to any alleged administrative guidance. Japan cannot conceive of any connection
between whetherornotlargestoreplannersmustconduct"priorexplanation"andcompetitiveconditions
for imported film. In Japan's view, the alleged administrative guidance does not change the competitive
relationship between domestic and imported film, and therefore does not "affect" the sale and distribution
of film in violation of Article X:1.
5. CONCLUSIONS
7.127 The United States concludes that "fair competition codes", respective enforcement actions
and "prior explanation" practices have created an opaque enforcement system pursuant to the Premiums
Law and have made it impossible for foreign firms and their governments to "become acquainted"
with relevant procedures under the Large Stores Law. Consequently, the United States claims that
Japan's Premiums Law enforcement systemand continuing applicationof the Large Stores Law's"prior
explanation" requirement are inconsistent with Japan's obligations under Article X:1.
7.128 Japan continues to maintain that the JFTC and MITI have published all laws, regulations and
administrative rulings of general application in an appropriate form1164 and Japan believes to be in full
compliance with the requirement of Article X:1.
1164Japan notes that important enforcement actions are reported in leading legal periodicals, but claims that they fall outside
the scope of Article X.

VIII. ARGUMENTS OF THIRD PARTIES
A. THE EUROPEAN COMMUNITIES
8.1 The European Communities (EC) attaches great economic and political importance to maintaining
conditions of fair and transparent market access conditions around the world. The EC is a major player
in the photographic film and paper business and EC-origin products constitute from 5 percent (film)
to 8 percent (photographic paper) of the Japanese market and over 20 percent of the rest of the world
film market. EC companies face difficulties of access to distribution channels for imported film and
paper products in Japan, whereas Japanese companies do not face any of these problems when importing
Japanese origin products into Europe. The EC alleges that some measures adopted by Japan could
affect the balance in the competitive opportunities between imported film and paper products and domestic
film and paper products and therefore be in breach of WTO rules and in particular of Article III:4
of GATT.
8.2 The EC emphasizes that this case raises important issues including the scope and applicability
of several key WTO and GATT 1994 provisions. It requires the Panel to achieve "a proper balance
between rights and obligations of Members" in accordance with Article 3.3 of the DSU. In the view
of the EC, the following aspects should be carefully considered:
i. The notion of "treatment no less favourable than that accorded to domestic products",
onthe one hand, and the notionof "upsettingthe competitiveposition"orof "restrictivebusiness
practices", on the other hand, cannot operate simultaneously.
ii. The first has been consistently interpreted by different panels in the past as concerning
"competitive opportunities between imported products and domestic products". The second
suggests the possible violation of internal rules concerning competition between undertakings
or of general domestic policies as implemented by a WTO Member.
iii. Article III is not directed against any "impediment" or "narrowing of trade opportunities"
which might affect imports of any kind but only against internal measures affecting the internal
sale of imported goods "so as to afford protection to domestic production"1165. A Member’ s
internal measure is relevant in the context of Article III only in so far as it accords treatment
that is less favourable to imported than to domestic goods. In the EC's view, the Panel should
be concerned with the protection of domestic production which infringes GATT and WTO
rules, and not with any other general governmental measure which is aimed at limiting or
regulating, at the same time and in the same way, the marketing of both domestic and imported
products.1166
iv. Some aspects of this dispute such as the effects of anti-competitive behaviour and
practices, confirm the need for an internationalframework of competition ruleswithin the WTO
system.
v. The dispute settlement procedures have been conceived and structured to provide
"security and predictability to the multilateral trading system"1167 and not to compare or
harmonise different legal or economic systems applied by WTO Members. Therefore, it is
1165Article III:1 of GATT.
1166The EC relies on panel reports on Italian Discrimination Against Imported Agricultural Machinery, adopted on 23
October 1958, BISD 7S/60, 65, para. 18 and on United States - Section 337 of the Tariff Act of 1930, adopted on 7 November
1989, BISD 36S/345, 387, para. 5.13.
1167Article 3.2 of the DSU.

paramount for a consistent analysis by the Panel that a clear and direct relation between the
productswhoseimportationishinderedandthe contestedgovernmental measuresbe established
before any finding of an infringement of GATT rules by a Member is made.
1. FACTUAL ASPECTS
8.3 The EC submits that access to the Japanese market for imported film and paper has proven
to be difficult for European producers. European film and paper has not been accepted for distribution
by the four leading Japanese wholesalers (tokuyakuten), which, due to the distribution structure of the
Japanese film and paper market is a key element inmarket access. Thishas contributedtothe difficulties,
despite intensive efforts, for European film and photographic products to acquire a market share in
Japan which corresponds to their actual overall world market share.
8.4 According to the EC, the impressive volume of information provided by the United States
demonstrates that Japan, during the period from 1960 to 1975 and up to the present day, worked on
strengthening the economic and financial ties between the Japanese photographic wholesalers and the
Japanese producers of film and paper to the detriment of imported film and paper.
8.5 The EC can confirm that it is impossible to have adequate access to retailers in Japan if the
main wholesalers (tokuyakuten) are out of reach. While access to small retailers and small shops is
not completely barred by Japan's measures, the commercial position of the products not sold through
the tokuyakuten is particularly weak, notably because of the lack of brand awareness of the Japanese
public. In order to overcome this important commercial weakness, only strong media advertising and
costly store promotions could help. However, these costs inevitably raise the already high distribution
costs of overseas products, affecting therefore either the capability of attaining a reasonable profitability
or to compete in price with the major competing film and paper products on that market, or both.
These additional burdens do not affect domestically produced film and paper.
8.6 Against this background, the EC notes that since 1970 the Japanese Government implemented
a series of actions to guide the distribution sector of Japan, and in particular the tokuyakuten, to
strengthen the links between the domestic film and paper producers and the tokuyakuten. The result
of this policy has been the exclusion of all imported film and paper products from the major wholesale
distribution channels.
8.7 The EC notes that Japan objects to the existence of any relation between the 1970 Guidelines
and the actual so-called "verticalisation" of the distribution system. According to Japan, the restructuring
of the Japanese tokuyakuten and their reverting to the single-brand distribution mode was already on-going
before that date. In Japan's view, therefore, there cannot be a causal link between the governmental
action and the restructuring of the tokuyakuten that led to the exclusion from that distribution channel
of the imported film and paper products because the effect was supposedly happening before the alleged
cause.
8.8 The EC is not convinced by the Japanese rebuttal for two main reasons: First, for the EC
it is apparent that there was, and to a certain extent there still is, an expressed worry on the side of
the Japanese Government concerning the state of its internal distribution system, in particular in the
film sector. Allegedly in order to streamline the internal distribution system, Japan established the
Distribution Systemization Promotion Council (1970), which published its Basic Plan for the
Systemization of Distribution (1971). The MITI Distribution Systemization Development Centre (1972),
in executing the Basic Plan, issued the Manual for Systemization of Distribution by Industry - Camera
and Film (1975). The MITI-sponsored creation of a "Natural Colour Photography Promotion Council"
(1963) and the "Photosensitive Materials Committee of the Distribution Systemization Promotion Council"
(1975) also responded directly to the need of representing joint government/private sector co-operation
in order to formulate standardised transaction terms and narrow lines of distribution. The "Business

Reform Law" (1995) established a broad legal framework for MITI to continue its intervention to
strengthen and protect domestic industry, including film and paper materials.
8.9 The EC further notes that MITI's "Guidelines for Standardisation of Transaction Terms for
Photographic Film" of 1970 were substantially maintained in force in 1990. The implementation of
those guidelines was monitored by the Japanese Government. Japan also provided funding through
the Japan Development Bank (JDB) to domestic producers in order to support the implementation of
MITI’ s industrial policy. The EC concludes that, against this background, it is not credible that the
Japanese Government was intervening only at a time when the whole restructuring of the distribution
system around the relation between the domestic producers (Fuji and Konica) and the four major
tokuyakuten had already taken place.
8.10 Second, the EC argues that beyond the objective of restructuring the Japanese film and paper,
and camera distribution chain towards an improved efficiency, a link was created between the four
major wholesalers and the domestic film and paper producers, in particular Fuji. The result of that
action, according to the EC, is clearly perceivable by the interconnection between Fuji and all four
tokuyakuten:
i. Fuji has a substantial equity participation in Misuzu and Kashimura (15 percent and
17.8 percent according to the latest figures). This is not a limited investment in an otherwise
profitable business by a flourishing company but represents a very substantial participation
in those companies. In both cases, Fuji is the largest outside owner;
ii. Fuji is part of the Mitsui Keiretsu: this implies that a cross-shareholding is in place
between the two major banks of Mitsui Group (Mitsui Trust and Sakura Bank) and Fuji. The
banks are the largest Fuji shareholders and Fuji has its largest equity holding in the two Mitsui
banks;
iii. The two Mitsui financial institutions are the main banks and largest creditors of three
of the four tokuyakuten (Misuzu and Kashimura plus Asanuma). Omiya, the fourth major
distributor, is linked strongly to Fuji through both Sakura bank and Sumitomo bank, the other
major shareholders of Fuji.
8.11 The EC contends that Fuji’ s links with the tokuyakuten amount to considerably more than an
arms-length business relationship. The tokuyakuten are in a state of financial dependency from Fuji.
In intervening legally, financially and by control through MITI, the Japanese Government must have
been aware that the result of its action would be to upset the competitive opportunities in favour of
the film and paper domestic production by preventing the imported film and paper products to have
access to the most important distribution channel, the four main wholesalers.
8.12 According to the EC, it is standard practice all over the world, including in Europe, that
photographic producers have one subsidiary per country representing their interests in selling their
products to wholesalers, retailers, dealers or end users in dependence of the products and situation.
The extraordinary situation in Japan, however, is the existence of four tokuyakuten distributing
exclusivelyorclose toexclusivelythe same productsof onlyone company,the major domestic producer.
A subsidiary of a European company in Japan is in the same situation as the Japanese producers
themselves. It has to find means to enter into the market which includes the four tokuyakuten already
serving the large majority of retailers, wholesalers etc. As long as the four major wholesalers refuse
to purchase any film other than the one domestically produced by Fuji, the market access for imported
film will continue to be impaired.
8.13 In the EC's view, within the framework of the potentially legitimate goal to support the
restructuring of the Japanese internal distribution system while the liberalisation under the auspices

of the GATT and the WTO was under way, a less legitimate action was in fact implemented, allowing
the creation of a complex structure around the main domestic film and paper producer that tied up
completely the most important and profitable distribution channels in the country, which, in view of
the particular distribution structure in the Japanese film and paper market, is essential. The EC concludes
that the result of that action is the exclusion of imported film and paper from the best way to reach
the Japanese customers and, more important, the consolidation of the domestic production which is
now virtually impossible to overcome in terms of market share.
2. LEGAL ASPECTS
8.14 The EC focuses on the part that it considersto be at the heart of the present case, namely whether
the Japanese Government has taken measures that afford less favourable treatment to imported products
than to like domestic products in violation of Article III:4 of GATT 1994.
8.15 The EC notes thatin past GATT practice the examination of violation cases has always preceded
the non-violation cases. The latter are in fact used to remedy to nullification and impairment of benefits
caused by the adoption of a GATT-legal measure as opposed to the violation cases where the issue
is the nullification and impairment caused by a GATT-illegal measure.
8.16 Moreover, in view of the fact that film and paper are bulk products, there is no need to enter
into an analysis whether or not domestic and imported film and paper are "like", since this would be
the case under any of the generallyaccepted possibleinterpretations of the word"like" underArticle III.
8.17 The EC has analyzed the situation in Japan concerning film and paper on the assumption that
certain Japanese Government actions are measures having de facto a binding effect. The EC recalls
the findings of the panel on Japan - Trade in Semiconductors:
"All these factors led the Panel to conclude that an administrative structure had been
created by the Government of Japan which operated to exert the maximum pressure
on the private sector to cease exporting at prices below company-specific costs. This
was exercised through such measures as repeated direct requests by MITI, combined
with the statutory requirement for exporters to submit information on export prices,
the systematic monitoring of company and product-specific costs and export prices
and the institution of the supply and demand forecasts mechanism and its utilisation
in a manner to directly influence the behaviour of private companies. These measures
operated furthermore strong peer pressure to comply with requests by MITI and at
the same time to foster a climate of uncertainty as to the circumstances under which
the exports could take place. The Panel considered that the complex of measures
exhibited the rationale as well as the essential elements of a formal system of export
control. The only distinction in this case was the absence of formal legally binding
obligations in respect of exportation or sale for export of semi-conductors. However,
the Panel concluded that this amounted to a difference in form rather than substance
because the measures were operated ina manner equivalentto mandatory requirements.
The Panel concluded that the complex of measures constituted a coherent system
restricting the sale for export of monitored semi-conductors at prices below
company-specific costs to markets other that the United States, inconsistent with
Article XI.1".1168
8.18 The EC notes that Japan, based on an analysis of the different language used in Article XI
and Article III, refutes the applicability of the Semiconductors precedent to this case. In particular,
1168Adopted on 4 May 1988, BISD 35S/116, 157-158, para. 117.

Japan draws on the fact that Article XI:1 refers to "other measures", while Article III:4 contains the
words "laws, regulations and requirements". In Japan's view, the comparison of the two texts makes
it clear that the language in Article XI:1 is broader than that contained in Article III:4 and therefore
the same reasoning that is found in Semiconductors cannot be extended per se to the present procedure
where the complaining party should demonstrate the existence of at least "requirements" and not only
"other measures".
8.19 While the EC does not disagree with the basis of the Japanese legal analysis, it cannot agree
with the conclusions drawn. According to the EC, the above quotation shows that Semiconductors
was considering not only the formality but the reality of a very peculiar system, the Japanese
interconnection between government and industry. This particular situation is characterised by a
significantcapabilityofthe Governmenttodirectlyinfluencethe behaviourof privatecompaniesthrough
the traditional peer structure of the society and the strong pressure that it can produce without the need
of adoptinglegally bindinginstruments. For the EC, it isstriking tonote the perfect parallelism, mutatis
mutandis, between the descriptionof Government intervention in the Semiconductorscase quoted above
and the one that occurred in the present case. The EC concludes that the actions are very similar,
the monitoring activities are similar, the governmental means used are even identical (i.e., MITI
structure), and the results are strikingly close.
8.20 For the EC, it is not surprising that the Semiconductors panel report when referring to the
JapaneseGovernment'spractices insteadofusingthedefinitionof"measures"revertedmore specifically
to the notion of "requirements". The EC is of the view that in this specific case, the reality shows
that the Japanese Government's action amount to a "requirement" as defined under Article III:4 of
GATT.
8.21 The EC further notes that Japan also contests the existence of these measures at present. The
EC agrees that a violation claim can only be based on measures that are operating, de facto or de jure,
at the time of the establishment of the Panel or are entering into effect shortly afterwards. In that regard,
the EC recalls that the 1970 Guidelines for the restructuring of the distribution system have allegedly
been replaced by the 1990 Guidelines and the other governmental interventions have apparently never
been officially repealed. However, the EC considers that the 1990 Guidelines and their application
have not had the effect toeliminate the measures concerned by this case. On the contrary, the impression
is given that those measures have been confirmed and are still in place.
8.22 The EC suggests to read the terms "no less favourable treatment" in Article III as referring
to the competitive opportunities but not to the actual economic impact of the measure. This implies
in turn that Article III is applicable whether imports from other contracting parties were substantial,
small or non-existent.1169
8.23 The EC also emphasizes that Article III:4 should not be read as affecting the distinction between
trade policies and general domestic policies (e.g., competition policy, labour policy, environmental
policy, monetary policy, immigration policy, consumers’ protection policy, etc.), given that the former
are subject to WTO rules and scrutiny while the latter are not. Nevertheless, WTO rules should be
deemed to cover Member’ s trade laws and regulations (even when they are taken in the form of general
internal measures) in cases like the present one where evidence has been provided showing that the
Japanese internal policies concerning film and paper products were in fact designed to afford protection
to domestic products on top and independently from their facial objective of pursuing general internal
policies under their jurisdiction and thereby violate Article III:1, read in conjunction with Article III:4.
1169Panel Report on United States - Section 337 of the Tariff Act of 1930, BISD 36S/345.

8.24 The EC refers to the Appellate Body Report on Japan - Taxes on Alcoholic Beverages1170, which
addresses this issue by affirming that the "issue is how the measure in question is applied" in order
to determine the existence of "protective taxation" "in the light of the particular circumstances of each
case". In the EC’ s view, the Panel should examine whether:
i. In the particular circumstances of this case there is a less favourable treatment of
imported products when compared to domestic products;
ii. there is a governmental requirement (measure) creating such less favourable treatment;
iii. the measure is applied in such a way as to create distortions in the conditions of
competition between domestic and imported like products;
iv. there is a direct causal link between the application of that measure to those specific
products under those specific circumstances and the distortion in the conditions of competition
between domestic and imported products. By contrast, a simple side-effect resulting from the
implementation of a general measure pursuing a general internal policy, and which affects the
conditions of competition, should not be considered to infringe Article III:4 unless a clear
evidence is provided that this general policy measure was designed to afford protection to
domestic products.
8.25 The EC, therefore, argues that, based on the relevant facts, it appears that the "objective intent"
of Japan's action was to afford protection to domestic film and paper through the creation of a complex
structure that is the result of the systemization aimed at preventing imported film and paper from
benefitting from the major and most profitable distribution channels in the country. The Japanese
Government could not ignore that by acting in that particular way it would objectively create a system
which apparently is still in place due to the persistent pressure exerted by the Government through
MITI.
8.26 However, the EC does not agree to any interpretation of the "protectionist intent" purely on
the basis of an assessment of the political views expressed in a particular country to achieve a political
result ("subjective intent"). Apart from the almost impossible task of determining the real intentions
of the legislator in countries where the legislative power is constitutionally not submitted to any obligation
of explicit motivation, a legislative measure can be implemented for many years and be applied in a
manner which has only a remote link with the initial intent of the legislator.
8.27 The EC concludes that the evidence before the Panel demonstrates that a number of Japanese
Government measures were adopted with the objective intent to afford protection to domestically produced
film and paper and, therefore, that a violation of Article III:4 has been committed. The EC believes
that a prima facie case has been objectively demonstrated by the United States and, therefore, that under
the current Panel practice in the WTO, the burden of proof to show the contrary has shifted to Japan.
The EC is not convinced by arguments put forward by Japan that the alleged violation does not exist.
A violation of a WTO provision amounts per se to a presumption of a nullification and impairment
of rights and benefits accruing under those agreements1171. Therefore, the EC sees no reason to enter
into any development of the non-violation claims case raised by the United States.
1170Adopted on 1 November 1996, WT/DS8/AB/R, WT/DS10/AB/R and WT/DS11/AB/R.
1171Article 8 of the DSU.

3. ARGUMENTS IN REPLY BY JAPAN
8.28 In response tothe EC thirdparty submission, Japan contests thatthe alleged connectionbetween
Fuji and its primary wholesalers amounts to "considerably more than an arms-length business
relationship" and that this amounts to an Article III violation. Japan argues that even if one were to
assume that the primary wholesalers were subsidiaries of Fuji, the fact remains that imported film is
not prohibited from using the same type and the same level of distribution channels. All other film
manufacturers - both foreign and domestic - sell through their own single-brand primary wholesalers.
8.29 Japan claims that of all the major film manufacturers selling in the Japanese market, the link
between Fuji and its primary wholesalers is the weakest. Kodak and Konica each sell through their
wholly-owned subsidiaries. Fuji’ s primary wholesalers are independent companies and are not even
under contractual obligation to deal exclusively with Fuji.1172 In Japan, foreign manufacturers are at
least free to make an offer to Fuji's primary wholesalers, or even to acquire one or more of the
wholesalers. However, for Japan it is inconceivable that in the United States any Japanese manufacturer
couldutilizeKodak’ sinternalsales staffthathandle thedirect-to-retailersales,the functionalcounterpart
tothe primary wholesalers thatsellto retailcustomers. Japan also pointsout thata major partof Kodak’ s
"distribution channel" is based on exclusive relationships between Kodak and retailers.1173
8.30 AccordingtoJapan,the EC acknowledges thatsingle-branddistributionisthe"standardpractice
all over the world, including in Europe". Nevertheless, the EC notes that in most countries
manufacturers sell through a single subsidiary but that in Japan Fuji sells through four primary
wholesalers. While Japan accepts this distinction is factually true, it considers it as logically irrelevant
because selling through four wholesalers simply preserves the benefits of intra-brand competition.1174
Japan argues that other manufacturers made a business decision to merge the wholesalers they acquired
into single entities, whereas Fuji made a different business decision.
8.31 In Japan's view, the EC appears to argue that four independent primary wholesalers should
not be allowed to maintain single-brand relationships with Fuji, and that the government measures are
somehow responsible for this. Japan points out, however, that the EC provides no evidence of any
government measures that either created the relationship between Fuji and its primary wholesalers or
which prevent other manufacturers from developing a relationship with one or more of those primary
wholesalers.
8.32 According to Japan, the EC overlooks a public statement made by Agfa emphasizing the difficulty
it faces in both the United States and Japanese markets, due to its position as a new entrant facing well-
established rivals: "It cannot be disputed that the photomarkets in the United States, as well as Japan,
are dominated by their respective domestic companies. This means considerable barriers for outsiders
such as ourselves". Japan underscores that there is nothing unusual about the Japanese market and
that new entrants always face obstacles becoming established in a market.1175
1172Japan indicates that some of Fuji’ s primary wholesalers handle Kodak’ s products other than film.
1173Japan notes that Kodak also uses a variety of techniques, including cash payments, to ensure retail exclusivity.
1174Japanemphasizesthatintra-brand competitionmayactuallyreduceFujifilm’ s effectiveness asaninterbrandcompetitor.
As aresult, Fujifilm’ s use of multiple wholesalerscould actuallybenefit competingmanufacturers likeKodak. W. KipViscusi,
John M. Vernon, Joseph E. Harrington, Jr., Economics of Regulation and Antitrust, 1992, p. 237, noting that reduced intra-
brand competition could make a manufacturer a more effective interbrand competitor, Japan Ex. F-8; see generally, E. Thomas
Sullivan, Jeffrey L. Harrison, Understanding Antitrust and its Economic Implications, 1988, pp. 147-177, Japan Ex. F-9,
discussing the free rider problems caused by intra-brand competition.
1175A public statement made by Agfa, Film Dispute Before the WTO, October 17, 1996, Japan Ex. F-10.

B. MEXICO
8.33 Mexico states that this particular case deals with the relationship between the measures introduced
by the Japanese Government and access to its market for imports of photographic paper and film.
8.34 AccordingtoMexico, three typesof measureswhichthe JapaneseGovernment has implemented
since the 1960's have affected access of imports to Japan:
(a) measures that impede the distribution of imported photographic film and paper;
(b) measures that limit the establishment of large retail stores, which constitute an alternative
system for the distribution of such imports;
(c) measures involving the imposition of restrictions on sales-price and advertising
campaigns for such products.
8.35 With regard to the distribution of imported photographic paper and film, the Japanese Government
adoptedanumberofmeasuresthroughMITI'sfosteringtheintegrationof manufacturersanddistributors
at the end of the 1960's and beginning of the 1970's. Japan promoted the adoption of common
transaction terms between all manufacturers and distributors, which encourage their integration. These
terms relate to discounts, rebates and payment terms applicable to distributors, for imported goods
as well.
8.36 At the same time steps were taken to promote the use by manufacturers and distributors of
shared infrastructure, e.g. warehouses and distribution routes, thereby strengthening their ties. This
was achieved, inter alia, through subsidized financing of photographic laboratories, from which those
laboratories in which there was foreign participation were excluded.
8.37 Moreover, efforts were made to strengthen information links between domestic manufacturers
and distributors through government agencies. This integration has affected the access of imports of
such goods to the Japanese market.
8.38 With respect to large retail stores, Mexico notes that a law was enacted in 1973 permitting
MITI to limit the establishment, operation and expansion of such stores in order to protect small business.
Notwithstandingitsgeneralcharacter, thislaw has affectedaccess of importsbyrestrictingan alternative
channel for the distribution of photographic paper and film.
8.39 Finally, as regards measures relating to promotions, Mexico notes that, on the basis of the
Anti-Monopoly Law of 1947 and the Premiums Law of 1962, the Japanese authorities, starting at the
end of 1960's, imposed limitations on discounts and advertising by large- and small-scale distributors
of photographic paper and film. These limitations affected the access of imported goods.
8.40 Mexico emphasizes that tariff reduction, national treatment and non-discrimination are
fundamental to the achievement of the WTO's objectives. Accordingly, the continued consistency
of any measures adopted by WTO Members has to be ensured, in particular with:
(a) Article III which stipulates that products imported from a Member country shall be
accorded treatment no less favourable than that accorded to domestic products;
(b) Article XXIII which establishes the legal safety that must be a feature of any advantage
enjoyed by a Member as a direct or indirect result of GATT 1994;

(c) Article X which provides that all provisions of general application shall be brought
to the knowledge of both governments and traders.
8.41 Finally, Mexico requests the Panel to:
(i) conduct its examination in keeping with the terms of reference established by the DSB;
(ii) base its findings and recommendations on such relevant provisions of the covered
Agreement as have been invoked by the parties to the dispute;
(iii) avoid the creation of new disciplines through interpretations that could go further than
what was agreed by the Members of the WTO; and
(iv) ensure full implementation of the concessions under the terms and conditions in which
they were agreed and in conformity with the relevant provisions of the WTO.