VI. LEGAL ARGUMENTS CONCERNING NON-VIOLATION CLAIMS A. INTRODUCTION TO ARTICLE XXIII:1(b) OF GATT 1. GENERAL PRINCIPLES
Document: 6.1 According to Japan, when examining the factual and legal claims brought by the United States concerning consumer photographic film and paper in the Japanese market, three general principles for panel proceedings should guide the analysis. First, any interpretation of GATT should be in accordance with customary rules of interpretation under public international law. Second, the recommendations or rulings of this Panel cannot add to or diminish the rights and obligations of the WTO Members. Third, the burden of proof rests with the complaining party. Japan emphasizes that these general principles should guide the Panel's consideration not only of the claims under Article XXIII:1(b), but also with respect to those raised under Articles III and X (discussed in detail in Part VII infra). 6.2 Japan points out that Article 3.2 of the DSU refers to "customary rules of interpretation of public international law" as general principles for interpreting WTO Agreements within the framework of the WTO dispute settlement system. Japan is of the view that Article 31 on the general rules of interpretation and Article 32 on the supplementary means of interpretation of the Vienna Convention on the Law of Treaties represent such "customary rules of interpretation of public international law".546 Japan requests the Panel in this proceeding to interpret and apply the provisions of the WTO Agreement
Date: 20 May 1996
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

VI. LEGAL ARGUMENTS CONCERNING NON-VIOLATION CLAIMS
A. INTRODUCTION TO ARTICLE XXIII:1(b) OF GATT
1. GENERAL PRINCIPLES
6.1 According to Japan, when examining the factual and legal claims brought by the United States
concerning consumer photographic film and paper in the Japanese market, three general principles
for panel proceedings should guide the analysis. First, any interpretation of GATT should be in
accordance with customary rules of interpretation under public international law. Second, the
recommendations or rulings of this Panel cannot add to or diminish the rights and obligations of the
WTO Members. Third, the burden of proof rests with the complaining party. Japan emphasizes that
these general principles should guide the Panel's consideration not only of the claims under
Article XXIII:1(b), but also with respect to those raised under Articles III and X (discussed in detail
in Part VII infra).
6.2 Japan points out that Article 3.2 of the DSU refers to "customary rules of interpretation of
public international law" as general principles for interpreting WTO Agreements within the framework
of the WTO dispute settlement system. Japan is of the view that Article 31 on the general rules of
interpretation and Article 32 on the supplementary means of interpretation of the Vienna Convention
on the Law of Treaties represent such "customary rules of interpretation of public international law".546
Japan requests the Panel in this proceeding to interpret and apply the provisions of the WTO Agreement
pertinent to this case in accordance with the relevant rules of the Vienna Convention.
6.3 Japan also urges the Panel to take a cautious approach and to refrain from adding to or
diminishing the rights and obligations of the WTO Members under the WTO Agreement in accordance
with Articles 3.2547 and 19.2548 of the DSU which provides for the same principle with respect to the
findings and recommendations of panels and the Appellate Body.
6.4 With respect to Japan's admonition to the Panel that it should not add to or diminish the rights
and obligations of the WTO Members under the WTO Agreement, the United States notes that in
this case Japan appears to be trying to diminish the rights of the United States and all other Members
under Article XXIII:1(b) by instructing the Panel to apply certain "rules" in its interpretation and
application of Article XXIII:1(b) in this dispute.549
546See, e.g., Appellate Body Report on United States - Standards for Reformulated and Conventional Gasoline ("United
States - Gasoline"), WT/DS2/AB/R, adopted on 20 May 1996 and Appellate Body Report on Japan - Taxes on Alcoholic
Beverages ("Japan - Alcoholic Beverages"), WT/DS8, 10 & 11/AB/R, adopted on 1 November 1996.
547In a recent article, Professor John Jackson of the University of Michigan echoed the same concern:
"Arguably, [Article 3 of the DSU] resonates in the direction of a caution to the panels to use judicial restraint and avoid
being too activist. ... So this notion of restraining panels from making changes in the rights and obligations of the nation
states is quite prevalent in the system. The United States would likely be one of the most jealous in preserving judicial restraint,
yet at the same time it appears to be pushing the envelope in some of its own complaints to the WTO. When, for instance,
the United States or another country brings a case that does not involve a violation but instead targets competition policy,
the Japanese keiretsu, or something else that current treaty texts do not cover, it is likely to be asking a panel to change
'rights and obligations'. In other words, it is saying to a panel, 'We want you to interpret nullification or impairment to
embrace some of these results that for policy reasons we would like to see in this case'. That is risky - akin to doing with
one hand what the other is trying to prevent. Obviously, this has fundamental long-term implications." John Jackson, The
WTO Dispute Settlement Procedures: A Preliminary Appraisal, in: Jeffrey J. Schott (ed.), The World Trading System:
Challenges Ahead December 1996, p. 163, Japan Ex. E-10.
548Japan notes that Article 19:2 of the DSU stipulates: "... in their findings and recommendations, the panel and Appellate
Body cannot add to or diminish the rights and obligations provided in the covered agreements".
549The United States refers in particular to Japan's statement that "in determining whether a benefit is being nullified
or impaired, this Panel must focus exclusively on the measures themselves".

6.5 Japan submits that under the WTO dispute settlement system, the Member bringing a case
has the initial burden of proving its claims. This was a well-established principle under GATT 1947
dispute settlement550 and has been carried over into the WTO, based on Article 3.1 of the DSU and
Article XVI:1 of the Marrakesh Agreement Establishing the WTO.551
6.6 Japan emphasizes that in non-violation cases under Article XXIII:1(b), the complaining party
is required to bear a particularly heavy burden of proof according to Article 26:1(a) of the DSU, which
requires "[t]he complaining party shall present a detailed justification in support of any complaint relating
to a measure which does not conflict with the relevant covered agreement". In this connection, Japan
notes that this requirement of a "detailed justification" in non-violation cases was incorporated in the
1979 Agreed Description of the Customary Practice of the GATT in the Field of Dispute Settlement552
and had been applied by the relevant GATT panels.553
2. THE LEGAL TEST UNDER ARTICLE XXIII:1(b)
6.7 The United States claims that Japan's liberalization countermeasures detailed in Part V nullify
or impair tariff concessions on consumer photographic film and paper within the meaning of Article
XXIII:1(b) of GATT. Article XXIII:1(b) provides for dispute settlement under the following
circumstances:
"1. If any [Member] should consider that any benefit accruing to it directly or
indirectly under this Agreement is being nullified or impaired or that the attainment
of any objective of the Agreement is being impeded as the result of . . .
(b) the application by another [Member] of any measure, whether
or not it conflicts with the provisions of this Agreement . . .".
6.8 The United States recalls that the panel report on European Economic Community - Payments
and Subsidies Paid to Processors and Producers of Oilseeds and Related Animal Feed Proteins ("EEC -
Oilseeds") noted that the underlying purpose of Article XXIII:1(b) was to safeguard the process of
reciprocal tariff concessions under Article II:
"The idea underlying [the provisions of Article XXIII:1(b)] is that the improved
competitive opportunities that can legitimately be expected from a tariff concession
can be frustrated not only by measures proscribed by the General Agreement but also
by measures consistent with that Agreement. In order to encourage contracting parties
to make tariff concessions they must therefore be given a right of redress when a
550See, e.g., Panel Report on Japan - Tariff on Imports of Spruce, Pine, Fir (SPF) Dimension Lumber, adopted on 19
July 1989, BISD 36S/167, p. 198, para. 5.10; Panel Report on Canada - Import, Distribution and Sale of Certain Alcoholic
Drinks by Provincial Marketing Agencies ("Canada - Alcoholic Drinks"), adopted on 18 February 1992, BISD 39S/27, p. 75,
para. 5.3. See also John H. Jackson, William J. Davey & Alan O. Sykes, Legal Problems of International Economic Relations,
1995, p. 355, Japan Ex. E-2.
551Article 3.1 of the DSU affirms that the WTO Members adhere "to the principles for the management of disputes heretofore
applied under Articles XXII and XXIII of GATT 1947". Article XVI:1 of the Marrakesh Agreement Establishing the WTO
provides that "the WTO shall be guided by the decisions, procedures, and customary practices followed by the CONTRACTING
PARTIES to GATT 1947 . . .".
552Understanding Regarding Notification Consultation, Dispute Settlement and Surveillance, Annex, adopted on 28 November
1979, BISD 26S/210, p. 216.
553A past panel report states that "[a]ccording to the 1979 Understanding on Dispute Settlement, a contracting party bringing
a complaint under Article XXIII:1(b) is called upon to provide a detailed justification" (United States - 1955 Waiver, BISD
37S/228, 261, para. 5.21). See also Panel Report on Japan - Trade in Semi-Conductors ("Japan - Semi-Conductors"), adopted
on 4 May 1988, BISD 35S/116, 35S/116, 161, para. 131; and Panel Report on Uruguayan Recourse to Article XXIII, adopted
on 14 November 1962, BISD 11S/95, 99-100, para. 15.

reciprocal concession is impaired by another contracting party as a result of the
application of any measure, whether or not it conflicts with the General Agreement".554
"The Panel considered that the main value of a tariff concession is that it provides an
assurance of better market access through improved price competition. Contracting
parties negotiate tariff concessions primarily to obtain that advantage. They must
therefore be assumed to base their tariff negotiations on the expectation that the price
effect of the tariff concessions will not be systematically offset. If no right of redress
were given to them in such a case they would be reluctant to make tariff concessions
and the General Agreement would no longer be useful as a legal framework for
incorporating the results of trade negotiations".555
6.9 The United States cites another panel report to the same effect: "Article XXIII:1(b), as conceived
by the drafters and applied by the CONTRACTING PARTIES, serves mainly to protect the balance
of tariff concessions".556 The value that the United States placed on obtaining tariff concessions on
photographic film and paper and the attendant expectations of improved competitive opportunities is
evident from its continuing efforts to secure improved access to the Japanese film and paper market
during three successive rounds of multilateral trade negotiations. The United States assumed that the
concessions for which it negotiated would not be systematically offset by the Japanese Government.
6.10 According to the United States, prior working parties and panels have applied the following
elements in analysing claims under Article XXIII:1(b):
(1) a tariff concession was negotiated;
(2) government measures, whether or not inconsistent with the General Agreement, were
introduced which upset the competitive relationship between the bound product and
directly competitive products from other origins; and
(3) the measures could not have been reasonably anticipated by the party to whom the
binding was made, at the time of the tariff concession.557
6.11 In the current case, the United States submits that the consideration of the US claim can be
broken down into three separate elements:
(1) whether the United States had a reasonable expectation of improved market access
opportunities arising from Japan's tariff concessions;
(2) whether Japanese Government measures upset the competitive relationship between
imported and domestic products; and
(3) whether the United States could have anticipated Japan's nullification or impairment
of its tariff concessions.
554Panel Report adopted on 25 January 1990, BISD 37S/86, pp. 126-127, para. 144.
555Ibid., pp. 128-129, para. 148.
556Panel Report on United States - Restrictions on the Importation of Sugar and Sugar-Containing Products Applied Under
the 1955 Waiver and Under the Headnote to the Schedule of Tariff Concessions ("United States - 1955 Waiver"), adopted
on 7 November 1990, BISD 37S/228, 261, para.5.21.
557EEC - Oilseeds, BISD 37S/86, 126-131, paras. 142-152. See also Report of the Working Party on the Australian Subsidy
on Ammonium Sulphate ("Australia - Ammonium Sulphate"), adopted on 3 April 1950, BISD II/188, 192-193, para. 12;
Panel Report on Treatment by Germany of Imports of Sardines, adopted on 31 October 1952, BISD 1S/53, 58-59, paras. 16-17;
EEC - Citrus Products, L/5776 (unadopted) pp. 84-85, para. 4.26; Panel Report on European Economic Community - Production
Aids Granted on Canned Peaches, Canned Pears, Canned Fruit Cocktails and Dried Grapes ("EEC - Canned Fruit"), GATT
Doc. L/5778, 20 February 1985 (unadopted), p. 15, para. 51.

6.12 The United States claims that each of these elements is present in this case:
(1) The United States negotiated for and Japan granted the United States tariff concessions
on photographic film and paper products in successive rounds of multilateral trade
negotiations: the Kennedy, Tokyo, and Uruguay Rounds.
(2) Japan enacted, implemented and applied the distribution countermeasures, restrictions
on large retail stores, and promotion countermeasures to obstruct market access and
alter the competitive relationship between imports and domestic products.
(3) At the time each round of tariff concessions was made, the United States reasonably
anticipated that better market access through improved price competition would result
from the concessions, and neither the United States nor any of Japan's other trading
partners could have foreseen that the Japanese Government would impair the value
of those concessions through an intricate web of measures designed to counter the effects
of liberalization.
6.13 The United States emphasizes that it provided, in accordance with Article 26.1 of the DSU,
a detailed justification establishing its claim that Japan's distribution countermeasures, Large Stores
Law and related measures, and promotion countermeasures collectively and individually nullify or impair
its
(1) Kennedy Round tariff concessions on black and white film and paper;
(2) Tokyo Round tariff concessions on black and white film and paper and on colour film
and paper; and
(3) Uruguay Round tariff concessions on black and white film and paper and on colour
film and paper.
6.14 Japan submits that the scope of Article XXIII:1(b) in GATT jurisprudence is well defined
and may be discerned by reference to three key phrases in the text of the provision:
(1) "any benefit accruing ... under this Agreement",
(2) the "application by another [Member] of any measure", and
(3) "is being nullified or impaired".
6.15 First, there must be a "benefit" accruing under this Agreement. This benefit consists of the
legitimate expectations of improved competitive opportunities arising out of relevant tariff concessions.
For expectations to be legitimate, they must take into account all measures of the party making the
concession that could have been reasonably anticipated at the time of the concession. In other words,
measures reasonably anticipated at the time of the tariff concession cannot frustrate legitimate
expectations, and thus cannot nullify or impair a benefit accruing under this Agreement.
6.16 Second, there must be the application of a measure by another WTO Member. The term
"measure" refers to a government policy or action, but not every such policy or action constitutes a
measure for purposes of Article XXIII:1(b). Measures must either provide benefits or impose obligations.
As to the latter, a measure for non-violation purposes must be a government policy or action which
imposes legally binding obligations or the substantive equivalent. Furthermore, there must be an
"application" of the measure. This requirement is relevant in the case of measures no longer in effect
and measures not applied to products.
6.17 Third, the complaining party must show that the benefit in question "is being nullified or
impaired" as the result of the application of the measure. To meet this requirement, the complaining
party must demonstrate that the relevant measure is upsetting the competitive position of the imported
products subject to the relevant tariff concession.

6.18 With respect to the case at issue, in Japan's view, the US non-violation claims do not meet
any of the required elements mentioned above for the following reasons:
6.19 With respect to the first element, Japan notes that for measures to nullify or impair the benefit
of tariff concessions, it must be established that they could not have been reasonably anticipated at
the time of the relevant concession. Although the United States alleges nullification or impairment
of tariff concessions on film and paper in three successive negotiating rounds - the 1967 Kennedy Round
concessions (only on black and white film and paper), the 1979 Tokyo Round concessions, and the
1994 Uruguay Round concessions - Japan believes that the "benefits accruing under the Agreement"
is limited to the benefits of the Uruguay Round concessions. In Japan's view, the 1994 concessions
form a new balance of tariff concessions that were actually negotiated and agreed upon at that time.
6.20 Japan further argues that all of the policies in question were enacted and known to the United
States long before the relevant tariff concessions, i.e., those made in 1994 with respect to black and
white and colour film and paper. Even if earlier tariff concessions were to be taken into account, the
timing problems that plague the US argument would remain. With respect to colour film and paper,
the 1967 tariff concessions cannot be relevant at all because there were no tariff concessions on colour
film and paper until 1979. Since virtually every government action in this case occurred before 1979,
it is inconceivable that these policies could not be reasonably anticipated at the time of the 1979 tariff
concessions. Even with respect to the 1967 concessions on black and white film and paper, many policies
could be reasonably anticipated at the time of the tariff concessions. Accordingly, in Japan's view,
all of the alleged measures could have been reasonably anticipated by the United States at the time
of those tariff concessions.
6.21 With respect to the second element, in Japan's view, the United States claims that MITI's
distribution modernization policies during the 1960s and '70s directed the private sector to restructure
distribution practices so as to disadvantage imports. Furthermore, according to Japan, those policies
did not impose any legally binding obligations or the substantiveequivalent, and thus were not measures
withinthe meaning of Article XXIII:1(b). However, thosepoliciesended years ago, and thus,inJapan's
view, are not currently actionable under Article XXIII:1(b). In the case of the Large Scale Retail Store
Law, Japan argues that the United States fails to allege specific applications which nullify or impair
a benefit. Japan concludes that the absence of any "application" of a measure renders the US claims
regarding this law legally insufficient.
6.22 With respect to the third element, Japan contends that the government policies in question do
not upset the competitive conditions relating to any of the distinct products subject to this dispute:
black and white film, black and white paper, colour film, and colour paper. With respect to each of
the three sets of policies at issue Japan submits that: (i) none of these government policies distinguishes
between the imported and domestic products concerned or imposes any inherent disadvantage on imports;
(ii) there is no causal connection between the alleged measures and any unfavourable competitive
conditions; and (iii) the alleged measures as they exist today are unchanged or more favourable to imports
as compared to the time of any relevant tariff concession.
6.23 The United States contends that the legal criteria suggested by Japan have no basis in the text
of Article XXIII:1(b) or other WTO Agreements, any subsequent agreements of the Members, or the
negotiatinghistoryof Article XXIII:1(b). Tothe extentthat priorpanel decisionssupportthe application
of Japan's rules, the United States contends that the disputes involved in those panel decisions presented
significantly different facts and circumstances than those present in this dispute.
6.24 The United States suggests that Japan's purpose in proposing these rules is to preclude the
Panel from seriously examining the liberalization countermeasures at issue in this dispute and thereby
permitting Japan to evade responsibility for the measures that have impeded market access in Japan
for imported film and paper for thirty years. In contrast, the United States proposes that the Panel

consider this dispute in the manner in which panels always have resolved disputes: on a case-by-case
basis in consideration of all of the relevant facts and circumstances.
6.25 The United States notes that the Appellate Body in Japan - Taxes on Alcoholic Beverages stressed
the importance of case-by-case analysis.558 While the Appellate Body's comments were directed
specifically at how a panel should conduct an Article III:2 inquiry, the United States argues that those
comments, consistent with past precedent, are relevant to all disputes.559 The United States alleges
that Japan would prefer that the Panel avoid substantive consideration of the facts and circumstances
in this dispute by applying Japan's fabricated, mechanical rules or adopting findings from other cases
that are based on completely different facts and circumstances. The United States urges the Panel to
address this dispute on its own merits in light of Article XXIII:1(b) and a thorough examination of
the relevant facts and circumstances in this dispute.
3. SYSTEMIC IMPLICATIONS FOR WTO DISPUTE SETTLEMENT
6.26 In Japan's view, this case has important implications for the WTO dispute settlement mechanism.
Japan submits that the US non-violation claims are urging a dramatic expansion of what has historically
been an exceptional and limited remedy. Japan notes that with one exception all previous non-violation
cases involved tariff concessions and subsequent government actions that essentially undid the benefits
accruing from those concessions.560 In all these cases, the measures in dispute were essentially either
tariff or product-specific subsidies which provided direct financial benefits to specific products.
Therefore, it was obvious that the measures affected the competitive conditions of the products concerned.
In all prior panels which found non-violation nullificationor impairment, the complaining party showed
a clear connection between the alleged measures and the unfavourable competitive position of the
imported products.
6.27 The United States rejects Japan's accusation that the United States is seeking a "dramatic
expansion" of the non-violation remedy under Article XXIII:1(b). The United States argues that what
Japan claims to be a "dramatic expansion" is in fact nothing more than the legitimate exercise of the
US right of redress under Article XXIII:1(b). In the US view, Article XXIII:1(b) of GATT provides
a right of redress to a Member who considers that any benefit accruing under the Agreement is being
nullified or impaired by the application of any measure whether or not it conflicts with the provisions
of the Agreement. The United States emphasizes that the language of Article XXIII:1(b) could not
558"[W]e believe that an examination in any case of whether dissimilar taxation has been applied so as to afford protection
requires a comprehensive and objective analysis of the structure and application of the measure in question on domestic as
compared to imported products. ... Although it is true that the aim of a measure may not be easily ascertained, nevertheless
its 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 any given case" (Japan - Alcoholic Beverages, WT/DS8/AB/R, p. 29, emphasis added).
559See, e.g., Panel Report on European Economic Community Restrictions on Imports of Dessert Apples, Complaint by
Chile, adopted on 22 June 1989, BISD 36S/93, 123, para. 12.1 ("[The Panel] would take into account ... the particular
circumstances of this complaint"); Japan - Semi-Conductors, BISD 35S/116, 154, para. 108 ("The Panel recognized that
not all non-mandatory requests could be regarded as measures within the meaning of Article XI:1. Government-industry
relations varied from country to country, from industry to industry, and from case to case and were influenced by many
factors"); Panel Report on Canada - Withdrawal of Tariff Concessions, adopted on 17 May 1978, BISD 25S/42, 48, para. 17
("The Panel came to the conclusion that a correct and reasonable interpretation of the GATT, in the particular circumstances
applying in this case ...."); Australia - Ammonium Sulphate, BISD II/188, 192-193, para. 12 ("[T]he inequality created and
the treatment that Chile could reasonably have expected at the time of the negotiation, after taking into consideration all
pertinent circumstances, including the circumstances mentioned above...were important elements in the working party's
conclusion").
560The exception is the case of the Panel Report on European Economic Community - Tariff Treatment on Imports of
Citrus Products from Certain Countries in the Mediterranean Region ("EEC - Citrus Products"), GATT Doc. L/5776,
7 February 1985 (unadopted), p. 85, para. 4.27, which dealt with unbound tariffs on some products, and bound tariffs on
other products.

be written any more clearly, i.e., it sets no limitations on the types of measures that can be subject
to scrutiny. Nor would such a limitation serve the purposes of Article XXIII:1(b). As noted by the
EEC - Oilseeds panel, Article XXIII:1(b) provides a "right of redress" in the event that another Member
nullifies and impairs a tariff concession.561 Absent this right of redress, drafters feared that Members
would be reluctant to make tariff concessions and GATT would no longer be useful as a legal framework
for incorporating the results of trade negotiations.562 Therefore, contrary to Japan's argument, the
United States contends that it would be detrimental to the WTO system if the non-violation "remedy"
were artificially limited to cases involving only subsidies and tariffs.
6.28 Japan states that neither contracting parties nor panels pushed to extend the non-violation concept
beyond a limited range of cases, and the concept was applied consistently and with discipline only when
specific requirements were met. Both the contracting parties and panels were justifiably concerned
about the policy implications of an undisciplined expansion of the concept. The non-violation remedy
was used as a tool to preserve the integrity of negotiated tariff concessions. If, however, the remedy
were applied without proper restraints, in Japan's view, it could degenerate into a mechanism not for
maintaining the agreed balance of tariff concessions between parties, but for imposing a de facto
rearrangement of the established balance of tariff concessions in the complaining party's favour without
any formal tariff negotiations. Thus, Japan argues that overuse of the non-violation remedy could
perversely undermine, rather than preserve, the integrity of tariff concessions.
6.29 Japan concurs with the position taken by the United States in the EEC - Oilseeds proceeding,
i.e. that the non-violation remedy should remain an exceptional concept and that any change of
governmental policies, even if it has harmful trade effects, is not necessarily actionable under
Article XXIII:1(b):
"114. The United States concurred in the proposition that non-violation nullification
or impairment should remain an exceptional concept. Although this concept had been
in the text of Article XXIII of the General Agreement from the outset, a cautious
approach should continue to be taken in applying the concept. The United States did
not consider that any change of governmental policies, even if it has harmful trade
effects, constitutes non-violation nullification or impairment. A contracting party does
not have a reasonable expectation that a contracting party which grants it a tariff
concession will not change general income tax rates."563
6.30 Moreover, Japan notes that in that case, the EEC also took the position that "recourse to the
'non-violation' conceptunderArticle XXIII:1(b) shouldremain exceptional, sinceotherwisethe trading
world would be plunged into a state of precariousness and uncertainty".564
6.31 The United States notes that it continues to believe that the non-violation remedy remains an
"exceptional concept" in that it provides a right of redress whether or not a measure conflicts with
the GATT. There should be a "cautious approach" in applying this concept and that such caution is
achieved bythe Members' exercise of self-restraint and panels' applicationof the "detailed justification"
requirement in Article 26.1 of the DSU. After 50 years, there have been only 8 cases (i.e., Ammonium
Sulphate,Sardines, Uruguayan Recourse, Citrus, Canned Fruit, Oilseeds, Semiconductors, and Sugar)
in which panels have substantively considered Article XXIII:1(b), and in three of those cases (i.e.,
Uruguayan Recourse, Semiconductors, and Sugar) the panel applied the "detailed justification"
requirement that now appears in Article 26.1 of the DSU to dismiss frivolous non-violation claims.
According to the United States, the EC made a similar argument in the EEC - Oilseeds case that an
561See EEC - Oilseeds, BISD 37S/86, 126-127, para. 144.
562Ibid., pp. 126-128, paras. 144 and 148.
563Ibid., pp. 117-118, para. 114 (emphasis added).
564Ibid., p. 117, para. 113

affirmative finding under Article XXIII:1(b) would "plunge" the world "into a state of precariousness
and uncertainty,"565 which a decade later has not turned out to be the case. Most importantly, the United
States continues to believe that panels should determine whether particular government policies constitute
non-violation nullification or impairment on a case-by-case basis in light of all the relevant facts and
circumstances. In this case, the United States emphasizes, the issue is not whether some unrelated
social or economic policy is having an incidental effect on the film market. Rather, this case is about
a concerted and coordinated effort by the Japanese Government directed at protecting its domestic film
industry from import competition.
6.32 Japan points out that when the non-violation remedy is applied, the losing party - although
it has fully complied with all of its GATT obligations, - must nonetheless make a "mutually satisfactory
adjustment", i.e., either change policies or offer compensation, or else face the suspension of concessions
by another WTO Member. Thus, the non-violation remedy has the practical effect of imposing a range
of constraints on Members with respect to GATT-consistent measures similar to that which applies
to measures that violate the GATT. Japan emphasizes that past panels have consistently construed
the remedy narrowly, and applied the remedy in exceptional circumstances. Japan argues that these
reasons apply with even greater force in the WTO framework which reaffirmed the limited nature of
non-violation remedies.
a. First, Article 26.1(a) of the DSU imposes important limitations on the application and
scope of the non-violation remedy. It makes clear the non-violation remedy should apply only when
the complaining party has provided a "detailed justification in support of any complaint". Thus, the
complaining party must meet a particularly high standard of justification for its complaint. In Japan's
view, however, the US non-violation claims in this proceeding transparently fail to meet any of the
established requirements for application of Article XXIII:1(b).
b. Second, even if a panel accepts the non-violation claim, the party complained about
doesnot have towithdrawthe measure at issue. Rather, Article26.1(b) of the DSU specificallyindicates
that "there is no obligation to withdraw the measure". In Japan's view, the WTO Members were
correctly wary of applying the extraordinary non-violation remedy unless there was a clear, compelling,
and unambiguous basis for doing so; even then, they were not willing to oblige the party complained
against to withdraw the measure.
6.33 The United States responds that the Panel should interpret Article XXIII:1(b) correctly, not
broadly or narrowly, but consistently with the customary rules of international law. Thus, the United
States argues that the Panel's task in this case is not different than in any other WTO dispute.
6.34 Japan submits that the reasons for a narrow construction of the non-violation remedy have
grown even more cogent with the addition of other multilateral agreements to the GATT. Under
GATT 1947, the non-violation remedy served the function of protecting GATT contracting parties'
expectations with respect to tariff concessions from frustration by measures not subject to multilateral
discipline. Now, as more and more areas have come within the scope of multilateral discipline, and
the gaps in the scope of multilateral discipline have narrowed considerably, the need for the protection
of benefits accruing under GATT 1994 by the non-violation remedy has become correspondingly less.
For Japan, given the broad range of WTO agreements now in force, restraint in application of the non-
violation remedy is more appropriate than ever before.
6.35 The United States replies that Japan's opinion on the utility of Article XXIII:1(b) is irrelevant
to this Panel's determination of whether the US claim satisfies Article XXIII:1(b). Although the scope
of the WTO disciplines has expanded beyond the original GATT disciplines, in the US view, the non-
565Ibid.

violation "safety net" is still needed for those measures that do not violate the WTO Agreements.566
The United States emphasizes that the Uruguay Round negotiators recognized this need by adding a
non-violation remedy to the GATS and the TRIPS Agreement (although the non-violation remedy will
not be available under the TRIPS Agreement until the year 2000).
6.36 Japan contends that the US non-violation claims in this proceeding urge a dramatic expansion
of the non-violationremedy because, inJapan'sview, the UnitedStates asksthatthisexceptional remedy
be applied beyond recognized and appropriate limits:
- notonly tomeasures subsequentto the most recent tariff concessions,but alsoto alleged
measures taken earlier and stretching back three decades;
- not only to measures unanticipated at the time of the relevant tariff concessions, but
alsotoalleged measures already ineffect and/orknownaboutat the time the concessions
were made;
- not only to government measures, but also to private conduct allegedly encouraged
by government action;
- not only to legally binding requirements and their substantive equivalents, but also
to non-mandatory requests and government reports;
- not only to current measures, but also to the allegedly continuing effects of past
measures which are no longer in effect;
- not onlytomeasures thatdraw distinctionsbetween productsand disadvantageimports,
but also to alleged measures that make no distinctions between imported and domestic
products;
- not only to measures which disadvantage imports, but also to measures which have
no causal connection with competitive conditions unfavourable to imports;
- not only to adverse changes in policy since the time of the relevant tariff concessions,
but also to policies that have stayed the same or even been liberalized.
6.37 Japan emphasizes that no binding GATT rules concerning private business practices or market
structures has ever been established. The 1948 Havana Charter for an International Trade Organization
(ITO) included a chapter on restrictive business practices, with obligations on governments. The ITO
never came into existence and thoserules were not carried over intothe GATT. In 1958, the Contracting
Parties decided to appoint a group of experts to study and make recommendations with regard to
restrictive business practices in international trade. In 1960, the Report of the Group of Experts on
"Restrictive Business Practices" was adopted by the Contracting Parties. In the Report, the Group
was divided on the nature of further measures to be recommend but the majority first noted that there
was no multilateral agreement on restrictive business practices.567 Of greater relevance in this proceeding
is the Report's further admonition for caution in this area.568 Having considered the Report, the
Contracting Parties adopted a Decision on Arrangements for Consultations in 1960, which did not refer
566As noted by Professors Jackson, Davey and Sykes in their textbook: "The discovery of new protective devices appears
to be an endless process. As soon as the international system establishes restraints or regulations on a particular protective
device, government officials and human ingenuity seem able to turn up some other measures to accomplish at least part of
their protective purposes", Legal Problems of International Economic Relations, op. cit., p. 377.
567"The necessary consensus among countries upon which such an agreement could be based did not yet exist, and countries
did not yet have sufficient experience of action in this field to devise an effective control procedure." Report of the Group
of Experts onRestrictiveBusinessPractices: Arrangementsfor Consultations, L/1015, adoptedon2 June1960, BISD 9S/170.
568"However, the majority were convinced that, regardless of the question whether Article XXIII could legally be applied,
they should recommend to the CONTRACTING PARTIES that they take no action under this Article. Such action would
involve the grave risk of retaliatory measures under the provisions of paragraph 2 of that Article, which would be taken
on the basis of judgments which would have to be made without adequate factual information about the restrictive practice
in question, with consequent counter-productive effects on trade." Ibid., p. 172.

to Article XXIII.569 Japan further mentions that the WTO Members only took a tentative step to
addressing issues such as competition and investment policies at the Singapore Ministerial Conference
in December 1996. The Ministers reached a compromise to establish a working group to address the
emerging issue of the interaction between trade and competition policy.570 Japan recalls that there is
still no consensus among the WTO Members on how to deal with the issue of the relationship between
certain private business practices and their impact on trade. According to Japan, in particular the US
claims regarding "distribution countermeasures" boil down to an attack against vertical relationships,
e.g., single-brand wholesale distribution of film. However, vertical relationships may be pro-competitive
or anticompetitive, depending on the circumstances of each case. While there is widespread consensus
that horizontal agreements to fix prices are anticompetitive, and that they should be subject to legal
restrictions, there is no such consensus about vertical restraints.571 Accordingly, Japan urges the Panel
to take a cautious approach in the examination of the US claims concerning alleged "distribution
countermeasures" and not to engage itself in a rule-making exercise in this respect.
6.38 The United States responds that it is not challenging "private business practices" or "market
structures" in this dispute, but measures of the Japanese Government. The specific measures at issue
in this dispute are those listed in the US response to a Panel question (see Section III.A. supra). The
term "any measure" in Article XXIII:1(b) is broad enough to encompass measures designed, promulgated,
andappliedbyCouncils,Committees,Centers, tradeassociations,andotherquasi-governmentalentities
that have included private sector participants, acting under the authority or in concert with Japanese
Government ministries and agencies. Although a market structure is not a measure per se within the
meaning of Article XXIII:1(b), the steps taken by the Japanese Government to create and maintain
an exclusionary market structure in the Japanese photographic materials sector do constitute measures.
To this end, the characteristics of the market structure in the Japanese consumer film and paper market
are clearly relevant in this dispute and provide compelling evidence of the Japanese Government’ s
systematic efforts to impede market access for imported film and paper.
569Decision on Restrictive Business Practices: Arrangements for Consultations, adopted on 18 November 1960, BISD
9S/28. Japan notes that experts from the United States were part of the majority in that working party, and thus participated
in making this specific recommendation.
570Specifically, the Singapore Ministerial Declaration states:
"Having regard to the existing WTO provisions on matters related to investment and competition policy and the built-in agenda
in these areas, including under the TRIMs Agreement, and on the understanding that the work undertaken shall not prejudge
whether negotiations will be initiated in the future, we also agree to: . . .
- establish aworking group to studyissues raised by Membersrelating to the interactionbetween trade andcompetition
policy, including anti-competitive practices, in order to identify any areas that may merit further consideration
in the WTO framework ...
The General Council will keep the work of each body under review, and will determine after two years how the work of
each body should proceed. It is clearly understood that future negotiations, if any, regarding multilateral disciplines in these
areas, will take place only after an explicit consensus decision is taken among WTO Members regarding such negotiations".
Singapore Ministerial Declaration, adopted on 13 December 1996, WT/MIN (96)/DECEMBER, (emphasis added).
571Japan notes that this uncertainty has led Professor F.M. Scherer of Harvard University to conclude:
"Vertical restraintsare recognizedbyboth economistsand competitionpolicyauthoritiesto haveboth benefits andcompetition-
impeding costs. It is difficult to draw neat lines between those that should be allowed and those that should be prohibited.
Even when those lines have been drawn, as my analysis of US antitrust policy toward automobile parts distribution has shown,
enforcement of the vertical restraints law has been a muddle. If nations have difficulty determining the correct policies and
enforcing them within their own borders, it will surely be much more difficult to adjudicate such policies internationally.
This pessimistic conclusion may leave an occasionally significant barrier to international trade untouched. But wisdom in
public policy analysis begins with the recognition that not all problems can be solved." F.M. Scherer, Retail Distribution
Channel Barriers to International Trade, October 1995, p. 30, Working paper presented at a Columbia University Conference
entitled The Multilateral Trading System of the 21st Century, Japan Ex. A-19. (emphasis added)

4. REMEDIES
6.39 The United States argues that in GATT jurisprudence, the remedy available depends upon the
legaltheoryat issue: For "violation"disputes,DSU Article19.1providesthatwhere the panel concludes
thata measure isinconsistentwitha covered agreement, it"shall recommend thatthe Member concerned
bring the measure into conformity with that agreement". It is Japan's decision in the first instance
to determine what steps it will take to eliminate the nullification or impairment resulting from its
violation. In accordance with Article 19.1 of the DSU, however, the Panel could suggest that Japan
take steps to undo the exclusionary aspects of the distribution system for photographic materials that
its measures have brought about.
6.40 For disputes concerning non-violation nullification or impairment, Article 26.1 of the DSU
provides that where the panel finds that a measure is nullifying or impairing benefits, it "shall recommend
that the Member concerned make a mutually satisfactory adjustment". Pursuant to Article 26.1(c)
of the DSU, an arbitratormay suggest"ways and means of reaching a mutuallysatisfactory adjustment".
A mutually satisfactory adjustment in this dispute could involve either an effort by the Japanese
Government to restore the competitive relationship between imported and domestic products or to grant
compensation to the United States for the nullification or impairment of tariff benefits, although Japan
has no obligation to withdraw the measures or provide compensation. If the parties fail to reach a
mutually satisfactory adjustment, the panel's finding of nullification or impairment under
Article XXIII:1(b) wouldentitle the United States to restorethe original balance of concessions between
thepartiesbysuspendingthe applicationofappropriateobligationsorconcessionsunderthe GATT 1994
and other WTO Agreements.
6.41 The United States submits that this Panel need not attempt to assess the quantum of nullification
or impairment. In violation disputes, this becomes an issue only if the responding party pays
compensation or the complaining party suspends concessions in accordance with Article 22.6 of the
DSU, in which case the parties have recourse to arbitration if the level of suspension proposed is
contested. In non-violation disputes, however, either party may request arbitration, in accordance with
Article 26.(1)(c) of the DSU, to determine the level of benefits which have been nullified or impaired.
6.42 In Japan’ s view, the United States seems to be essentially requesting a type of affirmative
action whereby primary wholesalers handling domestic brands, including Konica’ s subsidiaries, are
forced to deal with Kodak as the "mutually satisfactory adjustment" in the case of non-violation claims
or means to "bring the measures into conformity with the agreement" in the case of Article III claims.
This is an extraordinary remedy which would involve this Panel in the restructuring of the Japanese
distribution sector. For a Panel to make such a decision would be a radical expansion of the authority
granted under the DSU.

B. RELEVANT TARIFF CONCESSIONS
1. GENERAL CONSIDERATIONS
6.43 The United States submits that Japan granted the following tariff concessions to the United
States on photographic film and paper products in the Kennedy, Tokyo, and Uruguay rounds of
multilateral trade negotiations.
ROUND FILM PAPER
B&W Colour B&W Colour
Pre-Kennedy Round 30 %* 40%* 25 %* 40%*
Kennedy Round (1967) 15 % 40%* 12.5% 40%*
Tokyo Round (1979) 7.2% 4% 6.6% 4%
Uruguay Round (1994) Free Free Free Free
(* = Applied, not bound)
6.44 The United States claims that the three sets of policies - (i) distribution modernization policies,
(ii) restrictions on large retail stores, and (iii) restrictions on promotional and marketing activities -
individually and collectively "nullify or impair", within the meaning of Article XXIII:1(b), each of
the tariff concessions that Japan granted on black and white and colour photographic film and paper
in the Kennedy Round, Tokyo Round, and Uruguay Round.
6.45 Japan submits that the United States does not establish how the required elements for an non-
violationclaim are met withrespect to the relevant tariff concessionson each of the four distinctproducts
subject to this proceeding. In Japan's view, as regards black and white film as well as black and white
paper, and the tariff concessions on these products, there is neither argument nor evidence how any
of the alleged measures or the alleged results of these measures upset the competitive conditions for
these products. The United States has not addressed these products specifically in terms of the alleged
measures, the applicability of the alleged measures to the products or the effect of the alleged measures
on the products. Japan argues that these products have unique characteristics from a retailing and
marketing perspective. Furthermore, Japan emphasizes that imports of black and white film and paper
rose dramatically almost immediately after the Kennedy Round tariff concessions, continued to rise
throughout the period of the alleged liberalization "countermeasures" and did not peak until at least
a decade after the last of the alleged measures. With foreign market share of black and white film
peaking at 41.4 percent in 1985 and foreign market share of black and white paper peaking at 54.0
percent in 1989,Japan alleges that the UnitedStates triesto obscure any focus on these specific products.
6.46 Japan also contends that the United States has not distinguished the alleged measures and their
effects on colour paper from the alleged measures and their effects on colour film. In Japan's view,
the distribution system for colour paper differs significantly from that for colour film. Colour paper
is sold to photofinishers, not retailers. For Japan there is no credible evidence that the alleged measures
creating the market structure for film even addressed the market structure for distribution of colour
paper.572 Moreover, Japan asserts that there is no evidence that the US claims regarding large scale
retail stores are applicable to colour paper. Thus, Japan contends that to the extent that the United
States has tried to establish non-violation case, that case relates only to colour film, but fails to satisfy
even a single element required under Article XXIII:1(b).
572Japan submits that the only allegations relevant to paper are claims about SMEA financing to photofinishers. In Japan's
view, even the United States admits this point. However, Japan recalls that it has raised procedural objections against these
claims.

6.47 The United States argues thatparagraph 1(b)(i) of GATT 1994 incorporated allof the protocols
and certifications relating to tariff concessions that had entered into force under the GATT 1947 before
the effective date of the WTO Agreement, including Japan's tariff concessions in the Kennedy and
Tokyo Rounds. Thus, the United States asserts that the benefits accruing to it under these concessions,
as well as the concessions arising from Japan's schedule attached to the Marrakesh Protocol, are
GATT 1994 benefits. The United States argues that, in each Round, it bargained for the concessions
and anticipated improved competitive opportunities. On each occasion, Japan granted a concession,
butinthe US view, thensystematicallysoughttoundermine itsbenefits, and the competitiverelationship
between imported and domestic photographic materials has been, and continues to be, upset as a result
of Japan's measures.
6.48 Japan explains that the benefits of tariff concessions consist of the legitimate expectation of
better market access opportunities created by the reduction of bound tariff rates as well as the legitimate
expectation that the value of the concession will not be frustrated. Since the negotiation of successive
tariff concessions provides an opportunity for any alleged frustration of expectations created by prior
tariff concessions to be addressed, in Japan's view, it should be presumed that such frustration will
also be taken into account by the parties during subsequent negotiations. Therefore, as long as the
new balance of tariff concessions has been actually negotiated and agreed upon, the result of the latest
tariff negotiation should be deemed to have created a new expectation concerning the balance of tariff
concessions and to have replaced any reasonable expectation that arose under a prior tariff negotiation.
Since the tariff concessions on photographic film and paper in the present case have been actually
negotiated and granted at reduced rates under three successive rounds, the Uruguay Round tariff
concessions should be deemed to have replaced all previous expectations and formed a new balance
of tariff concessions. Japan thus argues that the presumption should be that any alleged frustration
of expectations relating to prior concessions has already been incorporated into the new balance of
tariff concessions as the result of the latest tariff negotiations under the Uruguay Round. Therefore,
as to the issue whether rights and expectations from the earlier concessions survive even when during
each subsequent round further tariff reductions are negotiated and granted, Japan believes that the "benefit
accruing ... under the Agreement" is limited to the benefit of the Uruguay Round tariff concessions.
Accordingly, in Japan's view, the benefits of the Kennedy Round and Tokyo Round negotiations are
irrelevant in this case.
6.49 Japan also maintains that the results of the latest tariff negotiations in the Uruguay Round have
removed any reasonable expectations of the benefits that arose under prior tariff negotiations and have
created new expectations concerning the balance of tariff concessions. The benefits of (or the
expectations relating to) the tariff concessions of 1967 and 1979 themselves should, in Japan's view,
be deemed to be past benefits (or expectations) under GATT 1947. Accordingly, Japan argues that
their nullification or impairment (or their alleged frustration) cannot constitute a situation where "any
benefit accruing ... under this Agreement [i.e., GATT 1994] is being nullified or impaired".
6.50 As to the relevance of different protocols embodying tariff concessions, the United States submits
that Article XXIII provides that a Member has a "non-violation" claim if it considers that "any benefit
accruing to it directly or indirectly under this Agreement is being nullified or impaired ...". Article 31
of the Vienna Convention on the Law of Treaties instructs that this language "shall be interpreted in
good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context
and in light of its object and purpose". According to Article 31, the ordinary meaning of a treaty term
is to be interpreted in context and by taking into account "any subsequent agreement between the parties
regarding the interpretation of the treaty of the application of its provisions".
6.51 The United States claims that the "benefits" at issue in this dispute are the market access
opportunities arising from Japan's Kennedy Round, Tokyo Round, and Uruguay Round tariff concessions
on consumer photographic film and paper. In the US view, nothing in the Kennedy Round, Tokyo
Round or Uruguay Round tariff protocols suggests that the tariff concessions attached thereto would

be "deemed" to have expired or to have been withdrawn at a specific time or as a result of a specific
event or by virtue of a subsequent tariff agreement.
6.52 The United States further explains that the object and purpose of the non-violation remedy
is to encourage tariff concessions under Article II of GATT. In the US view, a finding by this panel
that a Member's reasonable expectations from an existing tariff concession are extinguished as soon
as it receives a new tariff concession would have the opposite effect. Members would be reluctant
to enter into new negotiations and the negotiations themselves would become impossibly burdensome.
Members would be compelled to initiate and complete non-violation disputes on all suspected instances
of nullification or impairment prior to negotiating new tariff concessions. Alternatively, Members
would abandon the formulaic approach to tariff cuts first adopted in the Kennedy Round in favour of
product-by-product negotiations to redress the nullification or impairment of prior concessions and
attempt to pursue further tariff liberalization simultaneously.
6.53 Japan requests that the United States should not be allowed to rely on tariff concessions arising
from previous rounds of tariff negotiations because this would undermine the integrity and stability
of negotiated tariff concessions. Japan points out thata country may adopt a measure which is consistent
with the WTO Agreement but somehow nullifies or impairs a benefit accruing to another WTO Member.
In that case, an "aggrieved" country could sit on its rights for decades. Round after round of subsequent
tariff negotiations on the product in question would have occurred, and still the "aggrieved" party would
do nothing. And yet, decades later, the "aggrieved" party could at long last decide to assert its rights
and expect a panel to find in its favour.
6.54 The United States rejects Japan's suggestion that, if this Panel affirms that tariff concessions
and reasonable expectations arising therefrom continue to exist unless the concession is modified or
withdrawn under Article XXVIII, Members would "sit on their rights for decades". The United States
responds that the purpose of WTO dispute settlement is remedial, not punitive, and therefore WTO
dispute settlement provides only prospective relief. As a consequence, Members have no incentive
to delay in bringing a dispute once they discover that another Member is violating an agreement or
otherwisenullifyingorimpairingitstariffconcessionswithinthe meaningofArticle XXIII:1(b). While,
in the US view, this discovery could take years, a Member's right of redress should not be extinguished
because the nullifying and impairing measures are hard to detect.
2. PAST GATT PANEL REPORTS
6.55 The United States submits that two prior panels have found nullification or impairment of tariff
benefits that were granted in a tariff negotiation that was succeeded by multilateral tariff negotiations,
i.e., EEC - Canned Fruit573 and EEC - Oilseeds.574 According to the United States, these two panel
decisions support its position and there are none to the contrary. The United States explains that the
panel on EEC - Canned Fruit found that the United States had a reasonable expectation arising from
the EC's 1974 tariff concessions pursuant to Article XXIV:6 negotiations and 1979 Tokyo Round tariff
concessions.575 In the view of the United States, the panel on EEC - Oilseeds found that the United
States had a reasonable expectation arising from the EC's 1962 Dillon Round tariff concessions.576
The United States notes that these disputes were initiated in 1982 and 1988, respectively, subsequent
to the 1979 Tokyo Round multilateral tariff negotiations. The United States also mentions that neither
the EC nor the panels questioned whether the Tokyo Round negotiations created a new balance of tariff
concessions that extinguished US reasonable expectations with respect to prior tariff concessions. Rather,
573GATT Doc. L/5778, 20 February 1985 (unadopted).
574Adopted on 25 January 1990, BISD 37S/86.
575The panel found separately that the United States could have anticipated certain subsidies in respect of the 1979 tariff
concessions. See EEC - Canned Fruit, L/5778, p. 17, para. 49.
576See EEC - Oilseeds, BISD 37S/86, pp. 126-128, paras. 144-146.

the EC argued only that it had withdrawn tariff concessions pursuant to Article XXIV:6 and
Article XXVIII negotiations and thereby extinguished US reasonable expectations with respect to those
particular concessions. The United States concludes that these findings would not have been possible
if subsequent multilateral tariff agreements or enlargement agreements were deemed to extinguish
wholesale the tariff concessions in prior tariff schedules.
6.56 In Japan's view, its position with respect to the relevant tariff concessions to be considered
in an non-violation case is consistent with the reasoning of the panel on EEC - Oilseeds. The facts
before that panel were that the tariff concessions for oilseeds (duty-free tariff bindings) had been
originally made in 1962. During successive tariff negotiations under Article XXIV:6 of GATT 1947,
these duty-free tariff bindings were maintained at the same level. The panel examined "whether benefits
accruing to the United States under the tariff concessions presently in force [at the time of the panel
deliberations] include the protection of expectations that prevailed in 1962 when tariff concessions ...
were originally incorporated" into the Schedule.577 Noting that "[Article XXIII:1(b)], as conceived
by the drafters and applied by the CONTRACTING PARTIES, serves mainly to protect the balance
of tariff concessions", that panel found that:
"... the answer to the question of whether the expectations of 1962 continue to be
protected depend on whether the concessions on oilseeds resulting from the subsequent
renegotiations under Article XXIV:6 were part of a new balance of concessions or
whether the reinstitution of the concessions at the same rate after the successive
enlargements of the Community meant that the balance of concessions originally
negotiated in1962 was tobe continued ... The result of the Article XXIV:6 negotiations
following the successive enlargement of the Community was not the creation of a new
common external tariff but the extension of the existing tariff concessions ...".578
6.57 Japan distinguishes the facts in the EEC - Oilseeds case from those in the present one as follows:
In the EEC - Oilseeds case, the balance of tariff concessions originally granted with duty-free tariff
bindings was continued throughout the successive tariff concessions. In the present case, by contrast,
Japan agreed to reduce its bindings on colour film, black and white film, and colour paper from 3.7
percent to zero, and its binding on black and white paper from 6.6 percent to zero in the Uruguay
Round tariff negotiations. The EEC - Oilseeds panel also suggested that a new balance of concessions
would involve a "global reassessment of the value" of all of a party's concessions.579 The Uruguay
Round was a process of such a "global reassessment of value" of tariff concessions. Therefore, in
Japan's view, the reasoning of the panel on EEC - Oilseeds leads to the conclusion that the result of
the Uruguay Round tariff negotiations was the creation of a new balance of tariff concessions on the
products at issue in this case.
6.58 The United States submits that the first EEC- Oilseeds case of 1989 focused on the expectations
flowing from a 1962 concession by the EC (the zero binding on oilseeds). The EC argued that because
negotiations had been conducted since 1962 under Article XXVIII procedures (through the route of
Article XXIV:6) concerning the EC Schedule, the expectations that had to be taken into account were
the expectations as of the most recent such negotiation in 1986. According to the United States, the
panel on EEC - Oilseeds correctly rejected that argument, noting that the practice of the Community
in each enlargement had been to extend the application of its pre-existing common customs tariff (CCT)
to include the territory of its new member States. Where the application of the CCT resulted in the
impairment of tariff concessionsin the schedulesof the acceding member States, the Community (acting
on behalf of its member States) discharged its obligations under Article XXVIII and paid compensation
by lowering duty rates on certain items for the EC as a whole. However, none of the enlargements
577Ibid., pp. 126-127, para. 144.
578Ibid., pp. 126-127, paras. 144-145 (emphasis added by Japan).
579Ibid., pp. 126-127, para. 145.

ever modified or withdrew the particular CCT concession on oilseeds made in 1962. Thus, even though
the EC substituted successive Schedules for the 1962 Schedule of the EEC of Six, the concession on
oilseeds made in 1962 had never itself been modified or withdrawn. For the United States, it was
therefore the expectations of 1962 that were relevant, not the expectations of 1986 or any other year
after 1962.
6.59 Japan contests the US conclusion that the panel on EEC - Oilseeds rejected the EC argument
that the expectations which had to be taken into account were the expectations of the most recent tariff
negotiation under Article XXIV:6 because none of the enlargements ever modified or withdrew the
particular common customs tariff concession on oilseeds made in 1962. Japan explains that the findings
of the panel on EEC - Oilseeds need to be looked at in the proper context. From the reference that
"the answer to the question of whether the expectations of 1962 continue to be protected depends on
whether the concessions on oilseedsresulting from the subsequent renegotiations underArticle XXIV:6
were part of a new balance of concessions or whether ... the balance of concessions originally negotiated
in 1962 was to be continued", it is clear for Japan that the panel focused on the issue of whether or
not a new balance of concessions was created, and not on the issue of the procedures and the formalities
of the tariff negotiation. Japan maintains that the panel on EEC - Oilseeds also referred to the issue
of whether or not the tariff negotiation at issue involved a "global reassessment of the value of all the
Community's concessions". Japan insists that its argument is consistent with this analysis by the EEC
- Oilseeds panel, while the US argument is not.
3. THE TYPES OF TARIFF NEGOTIATIONS UNDER GATT
6.60 As to the issue whether the legal relationship between tariff concessions bound in the Uruguay
Round, TokyoRound and Kennedy Round schedulesdiffers dependingon whether tariff bindingsderive
from tariff negotiations or re-negotiations under Articles XXIV:6, XXVIII and XXVIIIbis, the United
States describes its position as follows: Under the GATT 1947, each new Schedule of a contracting
party coexisted legally with all prior Schedules. Each of the concessions in each Schedule remained
legally binding except to the extent it had been modified or withdrawn under Article XXVIII. Since
the GATT 1947 Schedules were incorporated into the GATT 1994, the concessions in the
GATT 1947 Schedules remain legally binding and coexist with the concessions in the Uruguay Round
schedules and all subsequent schedules entered into under the GATT 1994.580
6.61 With respect to the legal relationship among Article XXIV:6 negotiations, the modification
of Schedules under Article XXVIII, and the types of tariff negotiationsstipulated byArticle XXVIIIbis,
Japan's view is that the legal nature of tariff negotiations or the modification of schedules in relation
to non-violation complaints needs to be evaluated based on the substance of whether the new balance
of concessions has been formed.
(a) Article XXVIII
6.62 The United States points out that GATT provides only one generally-available legal means
for modifying or withdrawing, i.e. "re-negotiating" a tariff concession, which is Article XXVIII. A
Member may invoke Article XXVIII only under specifically defined circumstances. The United States
elaborates that a Member may modify or withdraw a concession by negotiation and agreement under
Article XXVIII:1-3 during the triennial "open season". A Member may enter into negotiations for
modification or withdrawal of a concession under Article XXVIII:4 if so authorized. A Member may
modify or withdraw a concession in accordance with the procedures of Article XXVIII:1-3 if it has
made a timely reservation of rights to do so under Article XXVIII:5.
580The United States also mentions that the initial negotiating rights attached to GATT 1947 concessions remain in force
today and that the party which initially negotiated any given concession, even a concession from 1947, retains a right to
be consulted and compensated if that concession is modified or withdrawn today.

6.63 The United States contends that Japan has made various sets of tariff concessions in various
Schedules attached to protocols after trade negotiating rounds. The later concessions have not had
the legal effect of modifying or withdrawing the earlier concessions, because Japan has never invoked
Article XXVIII with respect to its concessions on film and paper. The United States maintains that
all of Japan's concessions on film and paper therefore remain in effect, and the expectations attached
to each remain protected by Article XXIII:1(b).
6.64 With regard to the modification or withdrawal of the concessions on specific products contained
in the schedule of an individual WTO Member made under Article XXVIII, Japan explains that the
Member which proposes to modify or withdraw the concession negotiates compensation with respect
to other products with other Members in order to "maintain a general level of reciprocal and mutually
advantageous concessions". Therefore, the legal nature of modification or withdrawal under
Article XXVIII should be deemed as the continuation of the balance of tariff concessions as a whole.
Japan also states that the procedure set forth in Article XXVIII also applies to the modification of the
schedules for the Article XXIV:6 negotiations.
(b) Article XXIV:6
6.65 The United States submits that Article XXIV:6 permits a Member which has entered into a
customs union and which proposes to increase a rate of duty above bound levels to modify or withdraw
that concession under the procedures of Article XXVIII.581 The United States points out that
Article XXIV:6 thus does not provide an independent route to modification of concessions with
independent procedures, but merely a means to invoke the standard procedures of Article XXVIII outside
of an "open season".
6.66 Japan contends that the negotiations under Article XXIV:6 are conducted toextend the existing
common external tariff of a customs union to their new member(s), on the premise that "the duties
... shall not on the whole be higher or more restrictive than the general incidence of the duties ...
applicable in the constituent territories" (Article XXIV:5). Although the negotiations will lead to the
modification of the part of the schedules of the customs union, the legal nature of the negotiations under
Article XXIV:6 should be deemed as the continuation of the prior balance of tariff concessions as a
whole. In this connection, Japan points out that the panel on EEC - Oilseeds found that "the result
of the Article XXIV:6 negotiations following the successive enlargements of the Community was ...
the extension of the existing tariff concessions of the Community to the new member States" and that
the balance of tariff concessions originally made was to be continued.
581The United States elaborates that Article XXIV:6 was added to the General Agreement in 1948 to accommodate a
customs union between France and Italy. Analytical Index (1995), p. 810. At the time, the text of Article XXVIII barred
any modification of schedules until 1 January 1951. See: Final Act Adopted at the Conclusion of the Second Session of
the Preparatory Committee of the United Nations Conference on Trade and Employment, Vol. 1, pp. 61-62. France sought
the addition of Article XXIV:6 because of the timing element in Article XXVIII. France needed to be able to invoke the
procedures of Article XXVIII immediately so that it could raise duties consistent with its legal obligations.

(c) Article XXVIIIbis
6.67 The United States argues that, by its terms, Article XXVIIIbis582 provides a legal basis for
adding concessions to Schedules, but not a basis for modifying or withdrawing pre-existing concessions.583
Tariff negotiating rounds in GATT were always conducted as occasions for reducing or eliminating
tariffs, not as opportunities for contracting parties to throw the pre-existing level of trade liberalization
into uncertainty and renegotiate their schedules. When concessions have been modified or withdrawn
during a round of trade negotiations, the modification or withdrawal has taken place through invocation
of Article XXVIII itself, not Article XXVIIIbis.584 According to the United States, there are only two
exceptions to the general rule that tariff negotiations add, and do not subtract, concessions, but these
exceptions prove the rule:
6.68 First, the Protocol Embodying the Results of the 1960-61 Tariff Conference ("Dillon Round
Protocol") included a special paragraph found in no other GATT tariff protocol. Under this paragraph,
in each case where certain schedules provided for treatment for a product less favourable than that
provided in a pre-existing schedule applicable to the same contracting party, the provision in the earlier
schedule would be terminated.585 However, there is nosimilar provisioninthe Kennedy Round protocol
or Tokyo Round protocol, and, in any event, this circumstance would not apply to Japan's reductions
of its tariffs for photographic film and paper.
6.69 Second, during the Uruguay Round, certain developing country participants offered to make
ceiling bindings on all products or entire product sectors in their schedules. During the final tariff
negotiations in the spring of 1994, in almost all instances these participants agreed not to modify or
withdraw pre-existing bindings at lower duty rates in their GATT 1947 schedules. However, four
participantsdidmodify orwithdrawsuchbindings: Egypt,Peru,SouthAfrica and Uruguay. Toprovide
the legal basis for such modification or withdrawal, paragraph 7 was added to the Marrakesh Protocol,
using language borrowed from the Dillon Round Protocol. Paragraph 7 provides that these four Members
"shall be deemed to have taken appropriate action as would otherwise have been necessary under the
relevant provisions of GATT 1947 or 1994". The United States concludes that paragraph 7 of the
Marrakesh Protocol was legally necessary to ensure that the more favourable earlier concessions of
Egypt, Peru, SouthAfrica and Uruguaywould notcontinue to be legally binding,and tomake itpossible
for these four Members to liquidate their prior inconsistent tariff concessions. However, the United
States emphasizes that this provision by its terms applies only to the four Members listed therein, whereas
all other countries continue to be bound by all prior concessions in GATT 1947 schedules.
6.70 In Japan's view, the types of tariff negotiations stipulated by Article XXVIIIbis are "directed
to the substantial reduction of the general level of tariffs", "with due regard to the objectives of the
GATT and the varying needs of individual Members", as opposed to the modification and withdrawal
582Article XXVIIIbis was added to the GATT in 1955 and entered into force on 7 October 1957.
583Concessions also have been added to Schedules under other legal bases: through the four rounds of tariff negotiations
that took place before 1957, through exchanges of concessions in accession tariff negotiations, and through the Procedures
for Modification and Rectification of Schedules (which were utilized, for example, in the case of the recent Information
Technology Agreement). See 26 March 1980, CONTRACTING PARTIES' Decision on Procedures for Modification and
Rectification of Schedules of Tariff Concessions, BISD 27S/25.
584The United States mentions the following examples:
(i) The EC's 1994 modification of its concession on bananas was carried out not under the authority of the Punta del
Este Declaration but pursuant to an invocation of Article XXVIII. Panel Report on European Communities - Regime for
the Importation, Sale and Distribution of Bananas, circulated on 22 May 1997, para. 3.31; Article XXVIII notification in
SECRET/343, referenced in Analytical Index (1995) p. 979.
(ii) The negotiation of the common external tariff of the EEC which took place in the Dillon Round took place in
accordance with the provisions of Articles XXVIII:1-3 and XXIV:6. BISD 8S/112, para. 18.
(iii) When Denmark, Ireland and the United Kingdom acceded to the EC in 1972, the EC carried out negotiations under
the procedures of Article XXVIII (invoked through Article XXIV:6), not as part of the Tokyo Round tariff negotiations.
585BISD 8S/8, 9, para. 4.

under Article XXVIII, which is a process of "maintaining a general level of reciprocal and mutually
advantageous concessions". Tariff negotiations under Article XXVIIIbis should be deemed to be
conducted from scratch, taking intoaccount the various circumstances at the time regarding the products
concerned. When the reduction or elimination of tariff concessions are negotiated and agreed upon
in those tariff negotiations, they should be deemed to have created a new balance of concessions, and
a new expectation concerning the balance of tariff concessions created by the latest negotiations should
be deemed to have replaced any previous expectation under prior concessions. In particular, any
multilateraltrade negotiation roundlike the Kennedy Round, the Tokyo Round and the Uruguay Round,
should be deemed a process of creating a "new balance of concessions" as a whole, by making a global
reassessment of the value of the concessions through the comprehensive tariff negotiations on a broader
basis. Accordingly, Japan maintains that the measures existing prior to the new concessions, which
should be deemed to be taken into account during such negotiations, will not nullify or impair benefits
under Article II of GATT.
6.71 The United States responds that Japan's argument that Article XXVIIIbis negotiations - but
notArticle XXVIII or XXIV:6 negotiations- create a new balance of tariff concessionsthatextinguishes
previous expectationsunder priorconcessions is exactly backwards. In the US view, Article XXVIIIbis
negotiations do create a new balance of tariff concessions with new expectations relating to tariff
concessions arising out of those negotiations. However, because Article XXVIIIbis negotiations cannot
and do not withdraw or modify prior tariff concessions, such negotiations cannot extinguish or affect
the expectations relating to those prior tariff concessions. In contrast, when a Member withdraws or
modifies a tariff concession under Article XXVIII - either directly under Article XXVIII or through
the routeof Article XXIV:6 - the Member may be changing the legal obligation thatthe tariff concession
represents and as a consequence the reasonable expectations associated with those concessions would
necessarily change and a new balance of concessions would be achieved with respect to that round
of tariff concessions.
6.72 The United States submits that the panel report on EEC - Oilseeds fully supports its position:
"In these circumstances, the partners of the Community inthe successive renegotiations
under Article XXIV:6 could legitimately assume, in the absence of any indications
to the contrary, that the offer to continue a tariff commitment by the Community was
an offer not to change the balance of concessions previously attained. The Panel noted
that nothing in the material submitted to it indicated that the Community had made
it clear to its negotiating partners that the withdrawal and reinstitution of the tariff
concessions for oilseeds as part of the withdrawal of the whole of the Community
Schedule meant that the Community was seeking a new balance of concessions with
respect to these items. There is in particular no evidence that the Community, in the
context of these negotiations, offered to compensate its negotiating partners for any
impairment of the tariff concessions through production subsidies or that it accepted
compensatory tariff withdrawals by its negotiating partners to take into account any
such impairment. The balance of concessions negotiated in 1962 in respect of oilseeds
was thusnotaltered inthe successive Article XXIV:6 negotiations. The Panel therefore
found that the benefits accruing to the United States under the oilseed tariff concessions
resulting from the Article XXIV:6 negotiations of 1986/87 include the protection of
reasonable expectations the United States had when these concessions were initially
negotiated in 1962."586
For the United States, the quoted text shows that the panel on EEC - Oilseeds found that even though
the tariff concessions on oilseeds had been withdrawn and re-instituted intact, pursuant to
586EEC - Oilseeds, BISD 37S/86, 127-128, para. 146.

Articles XXIV:6/Article XXVIII (actions that cannot occur under Article XXVIIIbis), no new balance
of concessions had been achieved.
6.73 Japan responds that the parties differ with respect to the criterion of judgement over when
a new expectation should be deemed created regarding tariff concessions. In Japan's view, the United
States refers to the procedures and the formalities of whether or not a tariff negotiation was conducted
in accordance with Article XXVIII of GATT and whether or not a bound tariff rate was increased.
Japan considers what the United States points out may only mean that certain tariff concessions will
result in the expectation that customs duties will not be applied in excess of the bound rates, and that
such expectations can continue unless the concessions will be modified or withdrawn under
Article XXVIII. Japan does not disagree, since it certainly would not argue that a Member can negate
its commitments on tariff bindings unilaterally. On the contrary, Japan believes that every Member
is bound by its tariff concessions irrespective of the procedures and the formalities followed.
6.74 However, whichexpectationscreatedbyprevioustariffconcessionsshouldbetakenintoaccount
in the examination of non-violation claims, in Japan's view, is a completely different issue. In this
respect, Japan takes the position that the criterion to be used should not be whether or not the level
of the tariff binding has been increased or reduced, butwhether or nota new balance of tariff concessions
has been created as a result of multilateral or sector-specific tariff negotiations, in which various
circumstances including non-tariff measures (e.g., domestic subsidies) relating to the products subject
to negotiation are taken into account. In Japan's view, what needs to be examined regarding the
expectationarisingoutof certain tariff concessionsin relationtothe issueof the "benefit" for the purpose
of a non-violation case is the following: When the surrounding situations are changed because of the
introduction of a certain measure, which expectations created by previous tariff concessions should
be taken into account in evaluating the impact of the change in situations.
6.75 Japan reiterates that the Oilseeds panel stated that "the answer to the question of whether the
expectations of 1962 continue to be protected depends on whether the concessions on oilseeds resulting
from the subsequent renegotiations under Article XXIV:6 were part of a new balance of concessions
or whether ... the balance of concessions originally negotiated in 1962 was to be continued". From
this reference, in Japan’ s view, it is clear that the panel focused on the issue of whether or not a new
balance of concessions was created and not on the issue of procedures and the formalities of the tariff
negotiation. Japan also emphasizes that the Oilseeds panel also referred to the issue of whether or
not the tariff negotiation at issue involved a "global reassessment of the value of all the Community’ s
concessions".
4. THE INCORPORATION CLAUSE OF GATT 1994
6.76 The incorporation clause of GATT 1994 provides in the relevant parts:
"1. The General Agreement on Tariffs and Trade 1994 ("GATT 1994") shall consist
of: ...
(b) the provisions of the legal instrumentsset forth below thathave entered
into force under GATT 1947 by the date of entry into force of the
WTO Agreement:
(i) protocols and certifications relating to tariff concessions; ...
(d) the Marrakesh Protocol to GATT 1994".
6.77 The United States submits that prior to the Uruguay Round, Japan made tariff concessions
on film and paper in the Kennedy Round and Tokyo Round. Those concessions are now part of
GATT 1994 by virtue of paragraph 1(b)(i) of GATT 1994, which incorporated all of the protocols
and certifications relating to tariff concessions that had entered into force under the GATT 1947 before
the effective date of the WTO Agreement, including Japan's tariff concessions in the Kennedy and

Tokyo Rounds. Therefore, the United States claims that the benefits accruing directly or indirectly
under GATT 1994 within the meaning of Article XXIII:1 include the benefits that the United States
reasonably expected to receive from Japan's Kennedy Round and Tokyo Round concessions, as well
as the concessions arising from Japan's schedule attached to the Marrakesh Protocol. All of them give
rise to expectations of improved market access for which the General Agreement provides a right of
redress in the event that expectations are frustrated under Article XXIII:1(b).
6.78 In support of its position that the only tariff concessions embodied in the Uruguay Round
Schedule can be relied on for purposes of non-violation complaints under Article XXIII:1(b), Japan
submits that paragraph 1 of the GATT 1994 provides that the GATT 1994 shall consist of, among
others, "protocols and certifications relating to tariff concessions" which "entered into force under
the GATT 1947" (paragraph 1(b)(i)), but also includes sub-paragraph (d), which refers to "the Marrakesh
Protocol to GATT 1994". In Japan's view, this provision means that the effective concessions included
in the Schedules of the Members annexed to these prior protocols and certifications, and the concessions
newly agreed as a result of the Uruguay Round negotiations, as a whole, constitute tariff concessions
which are applied under the GATT 1994.
6.79 Japan argues that, since paragraph 1 does not provide for a hierarchy among sub-
paragraphs (a) to (d), it must be read as a whole so that each sub-paragraph is applied and interpreted
in a manner consistent with the others. Accordingly, paragraph 1 must be read so that the earlier
protocols and certifications referred to in paragraph 1(b)(i) of GATT 1994 do not undermine the most
recent balance of concessions agreed among the WTO Members and included in their Schedules to
the Marrakesh Protocol. Therefore, when there is any difference between the concessions contained
in the schedulesannexed tothe Marrakesh Protocoland thosein the schedules annexed to priorprotocols
and certifications referred to in paragraph 1(b)(i) of GATT 1994 (e.g., when the concessions on the
same products are different), in Japan's view, the concessions contained in the schedules annexed to
the Marrakesh Protocol prevail as a later agreement and shall be applied to WTO Members pursuant
to Articles I and II of GATT. For Japan, allowing prior protocols and certifications to alter the agreed
balance of concessions in the Marrakesh Protocol would detract from stability and certainty among
the parties to GATT in their trading relations.
6.80 The United States responds that Japan, in arguing that concessions in the schedules annexed
to the Marrakesh Protocol prevail over concessions in other tariff protocols as a "later agreement",
appears to be relying on the principle provided in Article 30 of the Vienna Convention on the Law
of Treaties, although it does not state this affirmatively. Article 30(1) of the Vienna Convention deals
with "the rights and obligations of parties to successive treaties relating to the same subject-matter"
and provides generally that where the earlier treaty has not been terminated, "the earlier treaty applies
only to the extent that its provisions are compatible with those of the latter treaty". However, the United
States contends that Article 30 does not apply to the situation before this Panel because this case is
not about "successive treaties" but about coexisting treaties which must be interpreted so as to give
effect to each.
6.81 The United States explains that the effect of the GATT 1994 incorporation clause was to create
a new legal instrument, the "GATT 1994"587 which was contemporaneous with the other legal instruments
attached to the WTO Agreement. Under the GATT 1994 incorporation clause, "GATT 1994" is
composed of a number of elements including, inter alia, the Marrakesh Protocol and other tariff
587The United States explains that it was for this reason that the General Interpretative Note to Annex 1A was inserted
into the text of the WTO Agreement in the fall of 1993, as part of the decision to include the GATT in the WTO Agreement
through an incorporation clause. The negotiators wished that Annex 1A agreements other than the GATT 1994 take precedence
over the GATT 1994 in the event of conflict. Absent the General Interpretive Note to Annex 1A, this would not have occurred
because the effect of the incorporation clause was to make the entire "GATT 1994" contemporaneous with the other agreements,
so that Article 30 of the VCLT would not have achieved the desired result.

protocols. Through the GATT 1994 incorporation clause, WTO Members agreed anew to each element
of "GATT 1994" and each such element is contemporaneous with each other such element. Although
GATT 1947 has been terminated, the tariff protocols done under GATT 1947 remain legally binding
solely because they are part of GATT 1994. Thus, Article 30(3) of the Vienna Convention does not
apply to the relationship between these tariff protocols and the other elements comprising GATT 1994.
Therefore, for the United States neither Article 30of the Vienna Convention nor the principle expressed
therein establishes any hierarchy between the various tariff protocols within "GATT 1994". In any
event, the United States points out that the general principle reflected in Article 30 of the Vienna
Convention cannot be read to override the specific rule established by the GATT 1994 incorporation
clause. In the US view, even if Article 30 did apply, the concessions annexed to the Marrakesh Protocol
are fully compatible with the concessions in the other tariff protocols in GATT 1994, because there
is no "conflict" between tariff concessions unless a subsequent concession is less favourable than a
prior concession.
6.82 According to the United States, Japan argues that the GATT 1994 incorporation clause does
not constitute an express agreement between Members to ensure the continuing existence of tariff
concessions relating to GATT 1947. The United States responds that paragraph 1(b)(i) of that clause
cannot be read so as to undermine paragraph 1(d) which refers to the Marrakesh Protocol of
GATT 1994. The United States emphasizes that no subsequent instrument suggested that the Members
had agreed to the withdrawal of Japan's Kennedy Round and Tokyo Round tariff concessions. In the
US view, the GATT 1994 incorporation clause provides to the contrary. In the US view, Japan has
presented no reasons why this Panel's recognition that Japan's Kennedy Round and Tokyo Round tariff
concessions on film and paper continue to exist would undermine the Marrakesh Protocol. For the
United States, to reach any other conclusion defies the ordinary meaning of the GATT 1994 incorporation
clause and Article XXIII:1 of GATT 1994.
5. CERTIFICATION OF MODIFICATIONS AND RECTIFICATIONS
6.83 Japan submitsthattheCertification ofModifications andRectifications toSchedule XXXVIII -
Japan to GATT 1994, dated 8 February 1996, states that "[t]his Schedule replaces all prior Schedules
XXXVIII to the General Agreement on Tariffs and Trade 1994... onthe date that thisSchedule becomes
effective". This Certification, containing Japan's Schedule annexed to the Marrakesh Protocol, as
modified in accordance with the 1996 Harmonized Commodity Description and Coding System
("Harmonized System"),isa partof the WTO Agreement. Theprovisionsof the Certification, including
the reference to the replacement of prior schedules, are legally effective. Japan further notes that no
objectionwas raised by any Member tothisspecific provision duringthe procedures of the modifications
and rectifications to Schedule XXXVIII - Japan, which has been completed in accordance with a Decision
on Procedures to Implement Changes in the Harmonized System.588 Accordingly, Japan claims that
its schedule currently legally effective under GATT 1994 has "replaced" the prior tariff concessions
under GATT 1947.
6.84 According to the United States, Japan argues that the 1996 "Certification of Modifications
and Rectifications to Schedule XXVIII - Japan to the GATT 1994" constitutes a subsequent agreement
between the parties to the effect that Japan was withdrawing all of its prior tariff concessions. However,
in the US view, this Certification may replace Japan's prior schedules - but it does not withdraw its
prior concessions as attested to by Japan's representation that the certification was made "in conformity
with the 8 October 1991 CONTRACTING PARTIES Decision on Procedures to Implement Changes in the
Harmonized System (8 February 1991)". This decision makes clear that the parties did not intend
for schedules submitted to implement changes in the Harmonized System to have any substantive effect
on prior tariff concessions. In the US view, the submission of a Schedule pursuant to this Decision
588L/6905, Decision of 8 October 1991, BISD 39S/300.

does not substitute for a proper invocation of Article XXVIII. The United States further maintains
that Japan did not invoke Article XXVIII to modify or withdraw tariff concessions on consumer
photographic film and paper.
6. CONCLUSIONS
6.85 The United States submits that Japan has made various sets of tariff concessions in various
Schedules attached to protocols after trade negotiating rounds. The fact that the concessions given
in a prior multilateral round have been succeeded by concessions in a subsequent multilateral round
doesnotextinguisheitherthe priorconcessions,ortheexpectationsarisingfrom thosepriorconcessions.
In the US view, the later concessions have not had the legal effect of modifying or withdrawing the
earlier concessions because Japan never has invoked Article XXVIII to explicitly give notice of its
intent to modify or withdraw its prior tariff concessions on photographic film and paper. Thus, Japan
- as well as the United States - continue to be legally bound by their GATT 1947 concessions and the
reasonable expectations attendant upon those receiving the concessions, as well as by the legal obligations
incidental to those concessions, including compensation obligations connected with initial negotiating
rights. Similarly, the United States argues, Japan's 1996 schedule proposed as a rectification to
incorporate changes in the Harmonized System does not affect the scope of any of Japan's prior tariff
concessions. Therefore, in the US view, all of Japan's Kennedy Round, Tokyo Round and Uruguay
Round concessions on consumer photographic film and paper remain in effect and continue to exist
in parallel. Accordingly, the United States claims to have retained its expectations of improved market
access arising from each concession and thus retains the right to redress under Article XXIII:1(b) to
protect those reasonable expectations.
6.86 Japan maintains that only the benefit accruing from the Uruguay Round tariff concessions
are relevant in this case, because a new balance of tariff concessions on photographic film and paper
has been actually negotiated and agreed upon under the type of tariff negotiations stipulated by Article
XXVIIIbis, and the result of the latest tariff negotiation should be deemed to have created a new
expectationconcerningthe balanceof tariffconcessions,and tohave replaced anyreasonable expectation
that arose under a prior tariff negotiation. In Japan’ s view, the criterion of judgement should be a
substantive one, i.e., whether or not a new balance of tariff concessions has been created as a result
of tariff negotiations, in which various circumstances at the time of the tariff concessions were taken
into account. Japan requests the Panel to examine the US non-violation complaints before it on that
basis.

C. GOVERNMENTAL MEASURES
1. THE LEGAL TEST
6.87 According to the United States, by the terms of Article XXIII:1(b), "the application ... of
any measure, whether or not it conflicts with the provisions of [the General Agreement]", may give
rise to an Article XXIII:1(b) claim. The ordinary meaning of the term "any measure" as it appears
in the Article suggests that it includes all manner of government policies and actions. This reading
of the term is reinforced by the object and purpose of Article XXIII:1(b), which, GATT Panels have
found, is to provide a right of redress in situations outside the scope of other GATT articles.
6.88 The United States argues that all of the measures that it has specifically challenged are "measures"
within the meaning of Article XXIII:1(b). The United States notes that the phrase "any measure" has
never before been the subject of controversy in an Article XXIII:1(b) dispute. Nor has any GATT
panel attempted to define the term "any measure". The United States further notes that Japan goes
to great lengths to craft a definition that would not only exonerate Japan in this dispute, but also would
place Japanese administrative guidance beyond the reach of the WTO.
6.89 Japan submits that in the context of a non-violation claim, the complaining party must establish
the existence of an application of a measure by another WTO Member. For Japan, this textual
requirement means the following three criteria:
(1) First, since the measure must be a government measure, private conduct is outside
the scope of Article XXIII:1(b). When a government does nothing more than make
formally and substantively non-binding recommendations, the decision whether to
comply is a private and voluntary one.
(2) Second, not every government policy or action constitutes a measure for non-violation
purposes. A measure must either provide a benefit or impose legally binding obligations
or their substantive equivalent. With respect to the latter, any policy or action allegedly
regulating private conduct must impose legally binding obligations or their substantive
equivalent.
(3) Third, there must be a current and actual application of the measure to the products
in question. In particular, there can be no application of a measure that is no longer
in effect.
6.90 Japan suggests that the United States seems to agree with the first and the third requirements,589
but that the parties differ, however, with respect to the second criterion.
6.91 The United States responds as follows:
(1) The United States is not challenging purely private conduct in this proceeding. Its
claim is based on actions taken by, at the direction of, or in concert with, the
Government of Japan in order to achieve government objectives.
(2) There isno requirement under ArticleXXIII:1(b) thata measure impose legallybinding
obligations or provide a benefit. The cases cited by Japan, i.e., Japan - Restrictions
589Japan points out that with regard to the first requirement, the United States admits that "[t]he term ‘ any measure’ in
Article XXIII:1(b) does refer to government policies and actions". With regard to the third requirement, Japan asserts that
the United States only argues that the measures at issue in this case are still in effect.

on Imports of Certain Agricultural Products ("Japan - Agricultural Products")590 and
Japan - Trade in Semiconductors ("Japan - Semiconductors"),591 are not applicable
here with respect to what constitutes a measure under Article XXIII:1(b), although
they are applicable to the extent they stand for the general proposition that administrative
guidance can be a measure.
(3) All of the measures challenged by the United States in this proceeding are either still
in effect today, or have been superseded by other measures that carry forward their
objectives and policies. Virtually all of the measures challenged by the United Sates
in this proceeding remain in effect today. The few that have been revoked, such as
JFTC Notification 17 of 1967, were redundant in that their objectives are still achieved
though measures remaining in effect.
(a) Administrative guidance
6.92 The United States submits that when the Japanese Government gives guidance to industry, it
is expressing the Government's policy and taking action to develop, disseminate, and enact that policy.
Japan should be just as accountable for the effects arising from this type of measure as for the effects
arising from a measure which is "binding". The United States points out that two GATT panels, i.e.,
the panels in Japan - Agricultural Products and Japan - Semiconductors, have found that administrative
guidance has "played an important role in Japan" and is a "traditional tool of Japanese Government
policy based on consensus and peer pressure," noting further that administrative guidance has operated
within the context of the "special characteristics of Japanese society."592 These panels have found that
these administrativeguidancesconstituted"measures" inbothof those cases. The Japanese Government
is able to rely on its traditionally close relationship with industry and its extraordinary power and
influence over industry to achieve its goals through measures that are not formally binding.
6.93 The United States explains that Japan defines the term "administrative guidance" as "guidance,
recommendation, advice, or other acts by which an Administrative Organ may seek, within the scope
of its duties or designated functions, certain feasance or non-feasance on the part of specified persons
in order to realize administrative aims, where such acts are not dispositions".593 Although in a technical
sense "administrative guidance" does not have a formal legal consequence attached to non-compliance,
"administrative guidance is a form of government regulation which imposes some kinds of rules of
conduct on private individuals or enterprises".594 What differentiates "administrative guidance" from
a request made between two private entities is the extraordinary power of the entity making the request,
i.e., the Government of Japan.595 This power is enhanced manifold because in Japan "the government
often represents the consensus of the industry in which the rule of conduct should be enforced".596
Thus, what might be seen by outsiders as nothing more than policy guidelines or recommendations
are in fact accepted within Japan as tantamount to governmental directives. Ministries like MITI may
590Japan - Restrictions on Imports of Certain Agricultural Products, adopted on 22 March 1988, BISD 35S/163.
591Japan - Trade in Semiconductors, adopted 4 May 1988, BISD 35S/116.
107.
593Article 2(6) of the Administrative Procedure Law, Public Law No. 88 (1993). MITI's legal authority to issue
administrative guidance arises out of its organic enabling legislation, the MITI Establishment Law (Public Law 275, 1952),
US Ex. 52-2. "Government agencies, especially the MITI, have emphasized that administrative guidance is allowed by the
'establishment law' even though there is no specific provision in the authorization law". Matsushita Mitsuo, op. cit., p. 65.
594Ibid. p. 60.
595Ibid. p. 61.
596Ibid.

pressure or induce regulated enterprises into compliance with "guidances".597 "[A]dministrative guidance
can put irresistible pressure upon the addressee".598
6.94 In Japan's view, the United States ignores critical distinctions among types of administrative
guidance and distorts Professor Matsushita's analysis. Japan emphasizes that MITI issues different
types of administrative guidance: MITI's guidance varies from "soft" guidance (i.e., mere suggestions)
to "hard" guidance (i.e., guidance issued in place of more formal regulatory measures). Japan explains
that Professor Matsushita has divided administrative guidance into three distinct types, which provide
a useful analytical framework for understanding the nature of administrative guidance, and the importance
of evaluating administrative guidance on a case-by-case basis. Regulatory administrative guidance
covers guidance used by government agencies to regulate the conduct of business enterprises and persons,
often as a substitute for a more formal order. Administrative guidance used in this way is a substitute
for legal compulsion. This is the kind of guidance which the United States would assert as the universal
norm. Aside from regulatory guidance, however, there is also promotional administrative guidance,
which covers advice and information given to enterprises to advance and promote their own interests.
This category describes the 1970 Guidelines perfectly: MITI was advising film manufacturers and
distributors on ways to make their businesses more efficient and competitive, not imposing some
obligation on them in furtherance of a public policy objective. Finally, adjudicatory administrative
guidance, not relevant here, covers guidance used to help private enterprises to solve disputes among
themselves.599
6.95 The United States argues that Japan’ s argument that administrative guidance must be "binding"
was rejected by the panel in Japan - Semiconductors and Japan - Agricultural Products and should
be rejected here. Any type of Japanese administrative guidance -- whether regulatory, promotional,
or adjudicatory -- can be a "measure" within the meaning of Article XXIII:1(b). When the Japanese
Government is giving "promotional guidance" to industry, it is expressing the Japanese Government's
policy and taking action todevelop, disseminate, and enact that policy. The Japanse Government should
be just as accountable for the effect arising from this type of measure as for the effects arising from
the measure for which it imposes a criminal penalty. In either case, the Japanese Government has
taken action to influence the market consistent with the special circumstances in Japan. The two situations
illustrate a difference in degree as to how far the government needs and is willing to go to achieve
the desired effects -- not any substantive difference in whether the government has taken purposeful
action. The two GATT panel decisions noted offer strong support for the US position.600
6.96 The United States further argues that the important question regarding administrative guidance
in Japan is its operation and effect -- not the labels that may be used to describe it. Professor Hiroshi
Shiono, described by Japan in its first submission as "a leading scholar of Japanese administrative law,"
stated: "[t]he three categories mentioned above are not necessarily exclusive to one another ... . Even
if assistance-related administrative guidance is issued, it involves an aspect of leading the parties
concerned to a certain direction laid out by the administrative body, and thus it cannot be denied that
597Ibid. pp. 61-62, 67.
598Ibid. p. 69.
599See Mitsuo Matsushita, op. cit., pp. 61-64, Japan Ex. E-7; Mitsuo Matsushita and Thomas Schoenbaum, Japanese
International Trade and Investment Law 31-41 (1989), Japan Ex. E-8. A Japanese administrative law professor also adopts
these three categories. Hiroshi Shiono, Gyoseiho I (Administrative Law I), (2d ed. 1994) pp. 166-167, Japan Ex. B-6.
Other commentators also recognize the three categories. See, e.g., Ken Duck, Comment: Now That The Fog Has Lifted:
The Impact of Japan's Administrative Procedure Law on the Regulation of Industry and Market Governance, 19 Fordham
Int'l. L.J. 1686, 1709 (1996), Japan Ex. E-9.
600See Japan - Agricultural Products, para. 5.4.1.4 (finding that "the practice of ‘ administrative guidance’ played an
important role" in Japanese Government policy-making and is a "traditional tool of Japanese Government policy based on
consensus and peer pressure"): Japan - Semiconductors, para. 108 (recognizing that non-mandatory measures of the Government
of Japan can be measures within the meaning of Article XI).

it has a regulatory aspect as well."601 Further, the Japanese Government itself has promulgated an
official definition of administrative guidance in the Administrative Procedure Law which does not
differentiate among different types of administrative guidance.602 The United States concludes that,
regardless of how one might sub-categorize each particular administrative guidance in this case, it is
clear that the guidance played a critical role in the achievement of the objectives of the Government
of Japan.
(b) Past GATT panel reports
6.97 Japan argues that GATT precedent confirms that not all administrative guidance qualifies as
a "measure" for GATT purposes, and that the relevant distinction is whether the guidance in question
amounts, in substance if not formally, to the imposition of a binding obligation. Specifically, the panel
on Japan - Semi-Conductors603 considered whether formally non-mandatory administrative guidance,
namely, requests that Japanese semiconductor producers eliminate dumping in third country markets,
could constitute "measures" for purposes of Article XI. Japan points out that there is no explicit
distinction made between a "measure" for purposes of Article XI and a "measure" for purposes of
non-violation claims. Absent a reason to the contrary, in Japan's view, a term used in one provision
of GATT may be construed to have the same meaning when it is used in another provision. Japan
argues that there is nothing to suggest that the term "measure" was intended to have a broader meaning
inArticle XXIII:1(b) thaninArticle XI. For Japan, the textualinterrelationbetween Article XXIII:1(b)
and Article XXIII:1(c) also supports the conclusion that the non-violation remedy is not available in
the case of formally and substantively non-binding recommendations. Specifically, Article XXIII:1(b)
applies to "measures", while Article XXIII:1(c) then allows parties to complain about "any other
situation". In Japan's view, "measures", as opposed to the all-encompassing "any other situation",
has a limited meaning, referring to government measures, not to private decisions whether or not to
follow non-binding recommendations.
6.98 The United States responds that the criteria advanced by Japan would render administrative
guidance - a traditional tool of Japanese Government policy - beyond the reach of GATT disciplines.
According to the United States, Japan's argument is not supported by the text of Article XXIII:1(b)
and, if accepted, would defeat the purpose of that provision. The United States explains that throughout
GATT, the drafters used a variety of terms to describe government policies or actions in the context
of distinct rules aimed at particular concerns.604 Article XI:1 refers to "prohibitions or restrictions ...
601Article 2(6) of the Administrative Procedure Law provides Japan’ s official definition of administrative guidance.
602Hiroshi Shiono, Administrative Law I, p. 167, Japan Ex. B-6. The United States also notes that Japan submitted only
one part of student Ken Duck’ s law review article to contend that the distinctions among types of administrative guidance
dramatically change the legal effects of the guidance, the article actually does not support that premise. The article also
stated that:
"The non-transparent and anti-competitive regulatory methods of Japan’ s economic bureaucracy impede new entrants
to Japanese markets. Japan’ s regulatory system emphasizes close, informal contacts between the regulators and the firms
they regulate. Gyosei shido, or administrative guidance, the process by which ministries used implied threats of future action
or inaction in seeking a party’ s compliance with an administrative goal, is the primary regulatory method in Japan. Japan’ s
informal style of regulatory governance, including administrative guidance, evolved from informal means of governance
in Japanese history. The Japanese legal system and other institutional arrangements, like the amakudari [descent from heaven
retirement] system and the shingikai councils, which emphasize close, informal ties between government and business, perpetuate
Japan’ s informal regulatory system and enhance compliance with administrative guidance."
Ken Duck, Comment: Now That The Fog Has Lifted: The Impact of Japan’ s Administrative Procedure Law on the Regulation
of Industry and Market Governance, 19 Fordham Int’ l L.J. 1686 (1996), Japan Ex. E-9.
603BISD 35S/116, adopted 4 May 1988.
604For example, Article I:1 refers to "customs duties and charges of any kind;" Article III:2 refers to "internal taxes
or other internal charges of any kind"; Article III:4 refers to "all laws, regulations, and requirements"; Article VIII:1 refers
to "[a]ll fees and charges of whatever character ... imposed ... in connection with importation or exportation"; Article IX:2
refers to "laws and regulations relating to marks of origin"; Article X:1 refers to "[l]aws, regulations, judicial decisions
and administrative rulings of general application".

on the importation ... or on the exportation ... of any product". In comparison, the United States
underscores that Article XXIII:1(b) refers to "any measure", reflecting the drafters' intent that
Article XXIII:1(b) should be a safety net potentially providing redress for any government policy or
action that nullifies or impairs benefits under the General Agreement. Had the drafters intended
Article XXIII:1(b) to cover only those government policies and actions which directly conferred a benefit
or imposed a legal obligation, they could have done so by selecting words to convey those limitations
just as they selected words to limit the scope of other Articles.
6.99 Japan contends that although the panel on Japan - Semi-Conductors recognized the special
importance of administrative guidance as a tool of Japanese government policy,605 it nonetheless made
clear that "not all non-mandatory requests could be regarded as measures".606 The panel emphasized
that the issue would have to be decided on a case-by-case basis.607 The panel identified two "essential
criteria" that would need to be met for non-mandatory requests to qualify as "measures" for Article XI
purposes:
(1) "there were reasonable grounds to believe that sufficient incentives or disincentives
existed for non-mandatory measures to take effect"; and
(2) the fulfilment of the government requests "was essentially dependent on Government
action or intervention".608
In Japan - Semi-Conductors, the panel found that these two criteria were met. The panel found that
the official commitment by the Japanese Government in a formal agreement to eliminate third country
dumpingcreatedreasonableincentivesordisincentivesforJapanese producerstoperform appropriately,
and thus fulfilled the first criterion. The panel noted, however, that this circumstance alone was not
sufficient to ensure compliance, since subsequent to the conclusion of the United States - Japan
Semiconductor Arrangement in September 1986 (in which this commitment was made) some producers
and exporters continued to engage in dumping. By requiring the submission of price and cost data
and instituting regular supply and demand forecasting, the Japanese Government secured effective
compliance. The panel thus determined that the Japanese Government created an administrative structure
"which operated to exert maximum possible pressure on the private sector" to comply with non-
mandatory administrative guidance. Accordingly, the panel found that the only difference between
this guidance and formal legally binding obligations "amounted to a difference in form rather than
substance",609 and that the administrative guidance therefore constituted "measures" for Article XI
purposes.
6.100 The United States contendsthatGATT precedent doesnotconfirm thatadministrativeguidance
must be "binding" to constitute a measure within the meaning of Article XXIII:1(b). In the US view,
the only precedent that Japan cites for this proposition is Japan - Semi-Conductors which it attempts
to argue is relevant here because there is no distinction between the terms "any measure" in
Article XXIII:1(b) and "other measures" in Article XI. In the US view, however, the panel should
not apply the two part test used in that case to determine whether the distribution countermeasures
at issue in this dispute are measures within the meaning of Article XXIII:1(b).
605Japan - Trade in Semiconductors, BISD 35S/116, p. 154, para. 107.
606Ibid. p. 154, para. 108.
607Ibid.
608Ibid. p. 155, para. 109.
609Ibid. p. 158, para. 117.

6.101 First, according to the United States, Japan argued in that dispute that the non-mandatory
"measures" complained of were not restrictions within the meaning of Article XI:1.610 In contrast,
the question in this dispute is whether the measure complained of are "any measures" that nullify or
impair benefits within the meaning of Article XXIII:1(b). Second, the meaning of the term "measures"
under Article XXIII:1(b) should not be confused with the question of whether a measure is having
an effect that GATT intends to prevent. The panel in Japan - Semi-Conductors focused on whether
the measure had the effect of prohibiting or restricting exportation of semiconductors. Thus, it looked
at whether the Japanese Government's actions prohibited manufacturers from exporting at dumped
prices or gave them incentives not to do so. In the US view, this is a different inquiry from that needed
to decide whether distribution countermeasures had the effect of upsetting the competitive relationship
between imported and domestic products. A non-mandatory measure may not be able to have the same
effect as a "restriction or prohibition" under Article XI:1 if it is not legally binding or does not impose
an equivalent obligation. But a non-mandatory measure can certainly have the effect of adversely
affecting the competitive opportunities for imported products.
6.102 Japan responds that since both the Japan - Semi-Conductors case and the present case deal
withnon-mandatoryadministrativeguidance, the findingof the Japan- Semi-Conductorspanel provides
a useful benchmark for the present case in determining what constitutes a "measure" for the purpose
of non-violation complaints. Japan deems US efforts to distinguish Article XI from Article XXIII
unpersuasive because in both provisions, the term "measure" is then followed by a qualification that
relates the "measure" to the operative purpose of that provision and there is no explicit distinction being
made between "measures" for purposes of Article XI and a "measure" for Article XXIII:1(b) purposes.
Japan further notes that although the United States argues that the Semiconductor panel does not support
Japan’ s argument because it found that "any measure ... was covered, irrespective of the legal status
of the measure," the panel further stated that "not all non-mandatory requests could be regarded as
measures within the meaning of Article XI:1" and applied its "two essential criteria" to the
"non-mandatory requests."
6.103 Japan further submits that the question of whether Japanese administrative guidance constituted
a "measure" also arose in the panel report on Japan - Agricultural Products.611 The issue arose under
Article XI:2(c)(i), which provides an exception to Article XI for import restrictions on agricultural
products that are necessary to the enforcement of "measures" which operate to restrict domestic
production. The panel found that production restrictions pursuant to administrative guidance did
constitute "measures" within the meaning of the provision. In Japan's view, this kind of regulatory
guidance, in which the subjects are urged to act contrary to their commercial self-interest, is clearly
distinguishable from the promotional guidance at issue in this case. Japan further notes that non-
compliance with the guidance in Japan - Agricultural Products resulted in loss of eligibility for
government subsidies and loans.612
6.104 In response to Japan's argument that the administrative guidance at issue before the panels
on Japan - Agricultural Products and Japan - Semi-Conductors urged industry to act contrary to its
self-interest, the United States argues that a government action or policy need not be adverse to industry
interest to be a measure. The United States contends, if that were the case, none of the prior
Article XXIII:1(b) cases involving subsidies would have been successful. In the US view, the real
significance of the issue raised by Japan is that a government may use less formal, less intrusive means
to achieve its policies if industry is receptive to those policies. The fact that the government can more
610Ibid., pp. 153-154, para. 106. The Panel noted "that Article XI:1, unlike other provisions of the General Agreement,
did not refer to laws or regulations but more broadly to measures. This wording indicated clearly that any measure instituted
or maintained by a contracting party which restricted the exportation or sale for export of products was covered by this
provision, irrespective of the legal status of the measure". Ibid.
611Adopted on 22 March 1988, BISD 35S/163.
612Ibid., pp. 234-237, paras. 5.3.5.1, 5.3.8.1.

easily achieve its goals because of an industry's receptiveness does not absolve a government of
responsibility for the changes in the conditions of competition resulting from its measures. In the US
view, Japan admitted that MITI's administrative guidance on distribution countermeasures was in the
interest of manufacturers who would benefit from systematized distribution channels.
6.105 The United States also argues that when the Japanese Government gives guidance to industry,
itisexpressingthe Government’ spolicyand takingactiontodevelop, disseminate, and enact that policy.
Japan should be just as accountable for the effects arising from this type of measure as for the effects
arising from a measure which is "legally binding," as that term is used by the Government of Japan.
A contrary finding would make acceptable all collaboration between government and industry, effectively
immunizing Japanese administrative guidance, concerted adjustment, and industrial policy from attack
at the WTO. Such an outcome would give WTO sanction to a careful and calculated plan to offset
and undermine tariff concessions. This could cause numerous countries that made difficult concessions
in the Uruguay Round to question why they should honour their commitments. It would have been
an open invitation for nation’ s to practice new forms of import-inhibiting industrial policy and
protectionist government intervention.
(c) Governmental attributability of measures
6.106 Japan argues that MITI advisory committee reports, plans, and manuals and the formation
of codes and councils that regulate promotions are not measures within the meaning of Article XXIII:1(b),
because these measures are attributable to the private sector, not the Japanese Government.
6.107 The United States responds that it is not challenging private business practices, but measures
of the Japanese Government. The term "any measure" in Article XXIII:1(b) is broad enough to include
not only actions of the government, but measures designed, promulgated, or applied by a number of
Councils, Committees, Centres, trade associations, and other quasi-governmental entities that have
included private sector participants, acting under the authority of or in concert with Japanese Government
ministries and agencies. In each of the principal areas in which Japan applied liberalization
countermeasures, i.e., distribution countermeasures, the Large Stores Law and related measures, and
the promotions countermeasures, the Japanese Government made extensive use of quasi-governmental
agencies to implement government policy. These entities are not acting independently of governmental
authority or direction. Measures developed or applied by these entities are measures within the meaning
of Article XXIII:1(b).
6.108 According to the United States, for Japan's restructuring of the photomaterials distribution
system to succeed, "a close relationship between government and business [was] necessary".613 The
government and private sector cooperate well because "there has historically been a close relationship
between the government and business community" and "[t]here is a strong desire among the business
community to avoid confrontation with the government even if the business community feels that the
administrative agency has acted without legal authority".614 Given the strong ties between the government
and business community, the Japanese Government has been able to rely upon informal methods as
well as formal measures in imposing its policies.615 The United States argues that MITI frequently
relies on informal administrative guidance to achieve its policy objectives.616
6.109 TheUnitedStates arguesthattheJapanese Government activelypromotedaspartofitsindustrial
policy mechanism the close government-private sector relationship based on the approach described
613MatsushitaMitsuo, International Trade andCompetitionLaw inJapan (Oxford: Oxford University Press, 1993) p. 276,
US Ex. 93-1.
614Ibid. pp. 67, 276.
615Ibid. p. 277.
616Ibid. p. 60.

in a MITI document entitled "The Formation of a New Industrial Order."617 This document introduced
the concept of "concerted adjustment" between the government and private sector to formulate and
implement industrial policy and liberalization countermeasures. And, in fact the MITI History notes
the importance of the New Industrial Order initiative in implementing the liberalization countermeasures:
"As the new industrial order is shaped, it might be effective that the specific target
is set by the cooperation between government and businesses, businesses make efforts
to achieve the target, and in the process of businesses achieving its target, the
government takes preferential measures with respect to taxation and financing. Of
course, in this process, persuasion and assertions would repeatedly be held between
government and businesses, and this effort should be continued until both sides are
satisfied."618
6.110 Although the Japanese Diet did not pass the "Special Measures Law For Promoting Designated
Industries" that was based on "The Formation of the New Industrial Order," MITI did take alternative
action to implement the New Industrial Order initiative and the concept of concerted adjustment. In
June 1964, MITI Minister Takeo Fukuda presented a policy statement to the Cabinet entitled "The
Future Policy after the Failure of the Proposed Special Measures Law for Promoting Designated
Industries," which the Cabinet accepted.619 The statement outlined how MITI would implement this
government-private sector coordination system discussed in the Formation of the New Industrial Order.
MITI’ s official history, published in 1990, confirms that Japan did implement the New Industrial Order
approach to government and private sector coordination:
"the realization was sinking in that the time had arrived to undertake liberalization
countermeasures and work on creating a new industrial order. Thus, the decision was
made torealize the ideal of public-privatesector cooperationonan industry-by-industry
basis through administrative guidance."620
6.111 The United States further argues that under the concerted adjustment process, the close
involvement of industry at the early stages of the policy development process helps ensure that the
actual implementation can later be achieved through informal measures such as administrative guidance
without the Japanese Government having to rely on more formal laws or regulations. The participation
of industry associations, advisory councils and other quasi-governmental policy entities, in turn, enhances
the "peer pressure" generated in the industrial policy process to ensure compliance with the adopted
measures.
6.112 The United States argues that given that the domestic industry is an active participant and its
self-interest is fully considered at the initial stage of developing the measures, the measures often take
on the characteristic of confirming actions that are already being taken in the marketplace by domestic
firms. The United States believes that only when it is impossible to implement measures through this
approach does MITI apply formal measures. To this end, the United States contends that an important
part of implementing administrative guidance is continued follow-up by the government to ensure that
the desired actions have been taken, to assist some segments of the private sector in acting on their
own interest, and to continue pressuring companies that may be inclined to stray from the guidance.
The United States notes that a common method of such follow-up is to continue to survey industry
and to publicly identify and criticize those companies that are not complying.
617MITI, Formation of the New Industrial Order, US Ex. 62-5.
618Ibid., p.9, US Ex. 62-5.
619MITI, Historyon Industrial Policy, Vol. 10, 31 March 1990, pp. 82-83, US Response toSupplemental Panel Questions,
US Ex. 7.
620Ibid.

6.113 For the United States, the use of the "concerted adjustment" method in this case, including
the application of administrative guidance, echoes the findings of the panel in Japan - Agricultural
Products, which stated that administrative guidance has "played an important role" in Japan and has
been "a traditional tool of Japanese Government policy based on consensus and peer pressure."621
6.114 Japan asserts that the United States attempts to paint a picture of Japan as an unusual country
with unique practices unlike those anywhere else in the world. In Japan's view, the United States has
focused particular attention on government-business relationships and suggests that any governmental
interaction with business is somehow strange. Japan responds that the United States tries to distort
and exaggerate the government-business relationship in Japan. In reality, all governments, including
the US Government interact with business.622 The government-business interaction in Japan is not
unusual, in particular since the United States itself acknowledges playing such a role with its private
sector.
(d) Measures "applied" and measures "in effect"
6.115 Japan points out that many of the US allegations in this case concern "measures" that are no
longer in effect (i.e., distribution modernization policies during the 1960s and '70s) or past application
of currently existing measures (i.e., the Large Scale Retail Store Law and the Premiums Law). Japan
emphasizes that the WTO dispute settlement process is designed to resolve differences over present
policies that affect trade, not to serve as an historical tribunal or to attempt to punish or undo alleged
past transgressions.
6.116 Japan argues that the language of Article XXIII:1(b) makes clear that the non-violation remedy
is designed to apply when a benefit is being nullified or impaired by the application of any measure,
whether or notit "conflicts" with the provisions of GATT. Giventhat the text contemplates nullification
or impairment in the present tense, caused by the application of a measure in the present tense, the
ordinary meaning of this provision, with its use of present tense verbs, in Japan's view, limits the non-
violation remedy to measures that are currently being applied. According to Japan, this conclusion
is reinforced by Article 26.1 of the DSU which provides that even when a measure is found to nullify
or impair benefits under Article XXIII:1(b), "there is no obligation to withdraw the measure". In Japan's
view, this language clearly contemplates the ongoing existence of the measure in dispute.
6.117 According to Japan, since the GATT 1994 "is legally distinct from" the GATT 1947, as
Article II:4 of the WTO Agreement provides, GATT 1994 should not be applied retroactively to many
of the alleged "measures" which were no longer in effect before its entry into force on 1 January 1995.
This position is in line with Article 28 of the Vienna Convention on the Law of Treaties regarding
the general principle of non-retroactivity of treaties.623
621Japan - Agricultural Products, adopted on 22 March 1988, BISD 35S/163, para. 5.4.1.4.
622In a presentation at the OECD in 1968, the United States explained:
"The Department of Commerce is at the centre of the Government's relations with business. Over the years the Department
has been accused of speaking for business within the Government. This is clearly not the case at the present time: the
Department talks with and to business, rather than for business, and the difference is far from being merely verbal. It is
now considered the Department's task to identify those things which need to be done in the public interest and to which the
business community has not given sufficient attention or with which business cannot deal because it is not properly organized
for that purpose. The Department brings together people from industry to discuss such matters - some of which, it might
be added, businessmen are reluctant to explore within their own private groupings because of the anti-trust laws".
See US Industrial Policies: Observations Presented by the US Delegation before the Industry Committee at its 6th Session
(OECD, 1968), p. 38, para. 113 (emphasis original). Japan Ex. F-3.
623Article 28 of the Vienna Convention provides "Unless a different intention appears from the treaty or is otherwise
established, its provisions do not bind a party in relation to any act or fact which took place or any situation which ceased
to exist before the date of the entry into force of the treaty with respect to that party".

6.118 Japan furthersubmitsthatGATTprecedent supportsthe rejectionof theUS non-violationclaims
regarding past Japanese measures. In United States - Gasoline, the panel stated clearly that it would
not rule on measures that were not in effect and were unlikely to be renewed.624
6.119 The United States does not disagree with Japan's basic argument that the measures must be
in effect to nullify or impair tariff concessions within the meaning of Article XXIII:1(b), although it
does disagree with some of Japan's legal reasoning and Japan’ s factual conclusion that the measures
at issue in this dispute are no longer in effect. In fact, the United States has demonstrated that all of
the measures being challenged are in effect and are being reinforced by the Japanese Government.
The United States has demonstrated that Japan has engaged in a continuing course of conduct over
more than25 years and thatJapan’ s more recent actionsshould properly be viewed as ancillary measures
reinforcing the distribution countermeasures, as well as evidence that those original measures and the
policies underlying them continue to be implemented by the Japanese Government. Recognized principles
of state responsibility lend additional support to the conclusion that Japan should properly be held
accountable for its actions as a result of its continuing course of conduct.625
6.120 The United States also points out that some panels have even ruled that measures, prior to
their revocation, were contrary to GATT rules, even though they were no longer in effect at the time
of the panel's deliberations.626 This is not the case with the measures at issue in this dispute.
6.121 The United States explains that Japan's reliance on the United States - Gasoline decision in
support of its arguments is misplaced. That dispute involved a measure that had never been applied
and that had affirmatively and officially expired before the panel was established. The complaining
parties argued that the non-application of the measure should not prevent the panel from ruling on it
because "themere existenceof [themeasure] mighthave inhibitingeffects oncommercial andinvestment
decisions" and "the possibility of its future application was sufficient to establish an Article I violation".627
In the view of the United States, the critical facts in the United States - Gasoline dispute are significantly
different from the critical facts in this dispute. First, the distribution countermeasures were and are
being applied, whereas the "75 percent rule" at issue in Gasoline lapsed without ever being applied.
Second, the distribution countermeasures do not have a specified expiration date, whereas the lifetime
of the 75 percent rule was clearly stated in the regulations. And third, the distribution countermeasures
continue to have an effect, even after the panel's terms of reference were established, whereas the
Gasoline panel found the 75 percent rule not to have an effect subsequent to its expiration.
624"The Panel observed that it had not been the usual practice of a panel established under the General Agreement to
rule on measures that, at the time the panel's terms of reference were fixed, were not and would not become effective".
WT/DS2/R, pp. 37-38, para. 6.19. United States - Standards for Reformulated and Conventional Gasoline, WT/DS2/R,
625See, e.g., Draft Articles on State Responsibility, Article 25:2, which provides:
"2. The breach of an international obligation, by an act of the State composed of a series of actions or omissions
in respect of separate cases, occurs at the moment when that action or omission of the series is accomplished which establishes
the existence of the composite act. Nevertheless, the time of commission of the breach extends over the entire period from
the first of the actions or omissions constituting the composite act not in conformity with the international obligation and
so long as such actions or omissions are repeated."
Yearbook of the International Law Commission, 1980, Vol. II, Part. II, p. 32-33 (United Nations 1981). See also Yearbook
of the International Law Commission, 1978, Vol. II, Part. II, p. 89-97 (United Nations 1979) (for commentary on Article
25).
626See, e.g., Panel Report on United States - Measures Affecting Imports of Woven Wool Shirts and Blouses ("United
States - Wool Shirts"), adopted on 23 May 1997, WT/DS33/R, p. 77, para. 8.1; Panel Report on EEC - Measures on Animal
Feed Proteins, adopted on 14 March 1978, BISD 25S/49; Panel Report on United States - Prohibition on Imports of Tuna
and Tuna Products from Canada, adopted on 22 February 1982, BISD 29S/91, 106, para. 4.3.
627United States - Gasoline, WT/DS2/R, p. 7, para. 3.10. The United States adds that the panel did not examine the
measure under Article I:1 for a variety of reasons, including that "the Panel's terms of reference were established after the
[measure] had ceased to have any effect". Ibid., pp. 37-38, para. 6.19.

6.122 The United States further argues that prior panels considering the question of measures no
longer in force were presented with measures that were unquestionably no longer in force which, in
the US view, is not the case in this dispute. The United States maintains that virtually all of the measures
applied by Japan remain in force today and Japan has not made any showing to the contrary.
6.123 The United States further explains that Japan's distribution countermeasures that block foreign
film from the principal wholesale distribution channels, the Large Stores Law that buttresses these
measures andlimitsalternativeroutestomarket throughlarge storesand the promotioncountermeasures
that restrict innovative and effective promotion to Japanese consumers continue to have the effect of
severely curtailing competitive opportunities for imported products today.
6.124 According to the United States, through the distribution countermeasures, Japan established
an exclusionary wholesale distribution system that could operate in perpetuity with little additional
government intervention given the oligopolistic structure of the Japanese film sector and the Government's
ongoing enforcement of the Large Stores Law and the Premiums Law and related promotion
countermeasures.
6.125 The United States further contends that, notwithstanding the self-perpetuating nature of the
exclusionary system established by the distribution countermeasures, Japan is continuing to reinforce
and supplement these measures. First, it is continuing to enforce the Large Stores Law and promotion
countermeasures. Second, the Japanese government is continuing to support the structure of the system
through business assistance programs. Third, Japan's passage of the Business Reform Law and its
initial designation of the photographic materials sector for assistance under this broad measure
demonstrates Japan's ongoing effort to buttress the structure of the system whenever the need arises.
In the US view, these actions by the Japanese government demonstrate ongoing, active efforts to reinforce
the system established by the initial distribution countermeasures so that it remains a bulwark against
penetration by imports.
6.126 The United States emphasizes that this Panel's determination as to whether the distribution
countermeasures are in effect will send an important signal to Members considering using informal
and ephemeral means to accomplish protectionist purposes. Members should be held accountable for
measures which may superficially appear to be short-lived but in reality achieve lasting distortions
in the competitive relationship between domestic and imported products. To excuse Members in these
circumstances would create an important exemption to the WTO rules and disciplines.
6.127 Japan also argues that in relation to the requirement in Article XXIII:1(b) that nullification
or impairment of a benefit needs to be the result of the "application" of a measure, the complaining
party must show how the "application" of a measure to specific products nullifies or impairs benefits
with respect to those products. Since the benefit consists of legitimate expectations concerning the
competitive opportunities for imported products, it follows that for a measure to nullify or impair that
benefit, it must "apply" to the products in question. In Japan’ s view, given the basis of the non-violation
remedy in tariff concessions on goods, it is not enough to name a law and assert some economic impact
on specific products.

(e) Measures and market structure
6.128 The United States submits that the ongoing application of distribution countermeasures, the
Large Retail Stores Law and the promotion countermeasures has continued to operate to nullify or
impair US benefits, due to: (1) foreclosure from the primary wholesale channels of distribution as
a result of the distribution countermeasures; (2) sharp diminution of alternative channels (i.e., large
stores, secondary wholesalers); and (3) inability to price and promote products effectively and
competitively as a result of restrictions under the Premiums Law and Antimonopoly Law. In the view
of the United States, these measures nullify or impair benefits accruing to the United States not only
from the Uruguay Round, but the Tokyo and Kennedy Rounds as well.
6.129 Japan responds that the United States is in fact complaining about the market structures, in
particular, the decisions by the primary wholesalers of the domestic film manufacturers not to carry
other brands of film, and affiliations between domestic manufacturers and photofinishing laboratories,
that have been in place since the mid-1970s. According to Japan, the United States makes no allegation
of any additional measures since that time which allegedly encourage single-brand distribution.628 To
Japan it appears that the United States considers the continued existence of a market structure - i.e.,
single-brand distribution - allegedly encouraged by policies in the past to constitute "ongoing application"
of measures. Japan argues that a market structure should not be deemed a measure. Since a "measure"
must be applied by a WTO Member, the term "measure" must refer exclusively to the policies and
actions of a government.629 In Japan's view, the decisions of certain primary wholesalers to purchase
film only from particular suppliers are as such a matter of purely private conduct. Japan concedes
that the United States may believe that these private company decisions constitute restrictive business
practices. However, for Japan it is beyond contention that allegedly restrictive business practices are
not covered by the current dispute settlement system under GATT.
6.130 Japan contends that the United States has not identified any government-imposed or legal obstacle
that prevents wholesalers from buying other brands of film or that prevents photofinishing laboratories
from switching to other brands of paper. Japan argues that the United States has not even tried to
point out any ongoing active involvement by the Japanese Government in continuing to encourage or
maintain the market structures it complains about. Accordingly, in Japan's view, the US claims about
"ongoing application"of "distributioncountermeasures" boildown toallegations aboutprivatebusiness
practices which are wholly outside the scope of Article XXIII:1(b).
6.131 The United States responds that it is not claiming in this dispute that market structure is a
measure, only that Japan's bottle-necked distribution system provides compelling evidence of the Japanese
Government's systematic efforts to impede market access for imported film and paper. Although a
market structure is not a measure per se within the meaning of Article XXIII:1(b), the steps taken by
the Japanese Government to create and maintain an exclusionary market structure in the Japanese
photographic materials sector constitute measures. Therefore, the United States argues that the
characteristics of the market structure in the Japanese consumer film and paper market are clearly relevant
in this dispute. Whereas the continued existence of the exclusionary market structure, in the US view,
reflects the ongoing application of measures, the United States emphasizes that it is not claiming in
this dispute that purely private conduct is a measure. Rather, the United States is claiming that measures
628Japan emphasizes that the alleged "distribution countermeasures" during the 1960s and '70s are no longer in effect.
According to Japan, the United States itself mentions in passing the 1990 Guidelines. In Japan's view, given the fact that
the United Statesitself has urgedJapanese industry tofollow those guidelines, it is notsurprising thatthe United Statesmentions
these guidelines only in passing and does not make any effort to incorporate these guidelines into its legal theory.
629Article II of the Marrakesh Agreement Establishing the World Trade Organization describes the WTO as providing
the framework for conducting trade relations "among its Members" (Article II:1), and explains that the agreement is "binding
on all Members" (Article II:2). The focus of WTO remedies should also be on the Members - in other words, governments.

designed, promulgated or applied by a number of councils, committees, centres, trade associations
and other quasi-governmental entities that have included private sector participants, acting under the
authority of or in concert with Japanese government ministries and agencies, constitute measures.
In each of the principal areas in which Japan applied liberalization countermeasures, the United States
argues that the Japanese Government made extensive use of quasi-governmental entities to implement
government policy. In the US view, these entities are not acting independently of governmental authority
or direction.630 Accordingly, in the US view, measures developed or applied by these entities are
measures within the meaning of Article XXIII:1(b).
6.132 Japan contends that Article XXIII:1(b) focuses on "measures" because the WTO applies only
togovernmentalactions, notprivateactions. The requirement of a "measure" thus creates a fundamental
dividing line between actions subject to WTO discipline and actions beyond the scope of WTO
obligations. The WTO properly reflects the absence of any international consensus to go beyond
governmental acts to reach private sector conduct. Japan argues that the alleged "measures" identified
by the United States are merely advisory bodies' analysis or suggestions and the industries' self-
regulation, which is a purely private sector conduct.
2. DISTRIBUTION "COUNTERMEASURES"
6.133 The United States specifies the following distribution countermeasures as subject to its claim
under Article XXIII:1(b):
(1) 1967 Cabinet Decision;
(2) 1967 JFTC Notification 17;
(3) 1968 Sixth Interim Report of the Industrial Structure Council Distribution Committee;
(4) 1969 Seventh Interim Report of the Industrial Structure Council Distribution Committee;
(5) 1969 Survey on Transaction Terms;
(6) 1970 Guidelines for Rationalizing Terms of Trade for Photographic Film;
(7) 1971 JFTC Rule 1 (International Contract Notification);
(8) 1971 Basic Plan of the Distribution Systemization Promotion Council;
(9) 1975 Manual of the Distribution Systemization Development Center;
(10) 1976 JDB funding for Konica's wholesalers;
(11) 1977 SMEA funding for photoprocessing laboratories.
These measures and the background leading to their adoption are described in detail in Section B of
Part II and in Section A of Part V above.
6.134 The United States contends that the foregoing measures are governmental measures and that
they are effectively still in force.
6.135 Japan responds that they are not governmental measures for purposes of Article XXIII:1(b)
and that they are not currently in effect.
630See Panel Report on, Review Pursuant to Article XVI:5, adopted on 24 May 1960, BISD 9S/188, 192, para. 12 (explaining
that "the GATT does not concern itself with such action by private persons acting independently of their governments")
(emphasis added by the United States).

(a) Attributability to the government
6.136 Japan concedes that four of the foregoing items, i.e.,
(2) JFTC Notification 17;
(7) International Contract Notification;
(10) JDB funding;
(11) SMEA funding.
were once "measures". Japan notes, however, that all four of these items were raised by the United
States for the first time in its first submission to the Panel and thus, are subject to procedural objections
by Japan.
6.137 In Japan's view, the 1967 Cabinet Decision (item 1) was not a "measure" because it was merely
a policy statement issued by the Cabinet and addressed to government agencies and did not legally
obligate anyone outside of the government to do anything. Only subsequent actions by the agencies
could constitute measures, depending on the particular circumstances of each action.
6.138 The United Statescountersthat the Cabinet Decisioncontainedbothbroadand specific direction
of the Japanese Government to implement the liberalization countermeasures, and that the Decision
specificallyreferencedproblemsrelatedtoliberalizationofthedistributionsector.631 Further,the United
States has also demonstrated that the other documents and actions referenced by Japan also constitute
"measures" within the meaning Article XXIII:1(b).632
6.139 According to Japan, the remaining items listed by the United States did not impose binding
obligations or the substantive equivalent. They offered recommendations, to be followed or not on
a voluntary basis. Japan contends that the United States tries to blur a wide range of actions into a
single catch-all category of "administrative guidance". For Japan, however, it is critical to keep in
mindthatinfact there isonlyone item of administrativeguidance inthe US list,i.e., the 1970 Guidelines
(item 6). In Japan's view, the other items identified by the US do not even rise to the level of
administrative guidance.
6.140 More specifically, Japan argues that the five remaining alleged "measures" relating to distribution
policies are reports or surveys:
(3) 1968 Sixth Interim Report of the Industrial Structure Council Distribution Committee;
(4) 1969 Seventh Interim Report of the Industrial Structure Council Distribution Committee;
(5) 1969 Survey on Transaction Terms;
(8) 1971 Basic Plan of the Distribution Systemization Promotion Council;
(9) 1975 Manual of the Distribution Systemization Development Center.
6.141 Japan emphasizes thatnone of these reportsby advisorycouncilsrepresents an official statement
or policy of MITI or the Japanese Government. Advisory councils merely fill an advisory role and
their reports merely analyze issues and make recommendations to the government of possible policy
responses. Private organizations, such as the Institute for Distribution Research (1969 Survey), undertake
research and analysis, and provide information to the government as appropriate. Therefore, Japan
concludes that these reports cannot be considered to be administrative guidance.
632See sub-sections VI.C.1.(a) and (c) on "Administrative guidance" and "Governmental attributability of measures,"
in particular paras. 6.94 and 6.108.

6.142 Japan explains that reports by advisory councils, such as the Industrial Structure Council and
the Distribution Systemization Promotion Council, reflect not official government policy, but steps
in the process of formulating policy. They analyze issues and make recommendations of possible policy
responses. AlthoughthesereportsshedlightonMITI'sdecision-makingprocessinpursuingdistribution
modernization, the reports themselves do not decide anything because the authorizing legislation of
the Industrial Structure Council allows the Council only to submit its opinions to the MITI minister.
Thus, according to Japan, there is no delegation of decision-making authority. Japan points out that
under its law, administrative agencies are not legally bound to follow the opinion of their advisory
councils. As noted by a leading scholar of Japanese administrative law:
"[G]enerally speaking, the raison d'être of councils is to democratize administration,
to introduce professional knowledge, to ensure fairness of administrative acts, and/or
to adjust among interested parties ... A council is different from an independent
administrativecommittee. It doesnotexpressthe intentof the government tothe public.
Although the administrative agency must respect the Council's opinions as a natural
consequence, the agency is not legally bound by the opinions".633
Japan explains that in practice, agencies sometimes adopt their councils' suggestions and
recommendations, and sometimes do not. Therefore, Japan concludes that its reports are not formal
statements of the Japanese Government and, accordingly, they cannot constitute "measures" within
the meaning of Article XXIII:1(b).
6.143 As to Japan's contention that the Panel should not consider the various surveys, reports, and
actions other than the Guidelines to be measures of the Japanese Government, the United States responds
that each of the quasi-governmental organizations carrying out the studies, reports, or other actions
had close links to the government and in many respects acted as an arm of the government in the
"concerted adjustment" process. In many cases, MITI made clear that the reports and other documents
were to be seen as official government policy, often by repeatedly republishing the survey or study
under MITI's name and with clear indication that the document represented MITI policy.
6.144 For example, with respect to the Industrial Structure Council, MITI’ s official historians have
explained that:
"The council was generallymade upof representativesof relevant industriesand groups
of people of experience or academic standing (such as scholars, journalists, and former
bureaucrats), and the responsibleMITI bureau ordivisionwouldserve as theSecretariat
office. To thiscouncil, the materials from MITI would be presented, policiesindicated,
pertinent opinions from relevant industries are heard, experts make the adjustments,
and then the information is compiled by the relevant bureaus. This was the normal
process. Because of their large size and influence, which was a result of being related
to trade and industry, the Industrial Structure Survey Committee and Industrial
Rationalization Council were integrated in 1964, creating the Industrial Structure Council
(ISC). When necessary, a number of committees were set up. This structure made
it possible to gain consensus within industry, or between industry and the government;
and functionedas an effective organizationfor obtainingcooperationbetween the public
and private sectors."634
633Hiroshi Shiono, Gyoseiho I (Administrative Law I) (2d ed., 1994) p. 265, Japan Ex. B-6.
634MITI, MITI History: "Public-Private Sector Cooperation, Volume 1 (May 31, 1991), p. 62, US Ex. 69 and First
Panel Meeting, US Response to Supplemental Panel Questions, Attachment 22.

6.145 The United States further notes that Japanese scholars confirm the policy role played by quasi-
governmental entities in obtaining cooperation between the public and private sectors:
"These councils tend to be criticized as being captive to the ministry, and certainly
the bureaucrats work to see that deliberations come out to reflect their opinions. In
practice, however, it is not the case that only things desired by the ministry are reflected
in the groups’ reports, for on issues that directly affect the interests of firms, industry
representatives do speak out strongly. In fact, on such issues, the councils take on
the coloration of a forum in which parties can adjust proposals to reflect their joint
interests. Thus, proposals that are passed through these councils, that is, that have
been negotiated to reflect vested interests, can be afterwards implemented relatively
smoothly, at least in terms of the industries represented on the relevant councils. In
this sense, the Shingikai [deliberative council] process is one explicitly democratic
development in postwar Japanese Government. One point that needs to be emphasized
regarding such councils is their role in the exchange of information and obtaining
consensus on policy matters.635
(i) 1970 Guidelines: background, publication and follow-up
6.146 The United States argues that in order to develop and implement its industrial policy, the Japanese
Government relies heavily on different types of quasi-governmental entities including deliberative
councils, advisory committees, study groups, research institutes, chambers of commerce, and trade
associations. These organizations have played a central role in Japan's use of the government-industry
cooperation method (kanmin kyocho seido) to implement its liberalization countermeasures. The
participation of these entities in the "concerted adjustment" process increases the "peer pressure" on
these entities to comply with the industrial policies adopted by the government.
6.147 The United States reports that in 1963, MITI directed the four domestic photographic film
and paper manufacturers to establish the Natural Colour Photography Promotion Council (NCPPC)
to counter foreign competition. MITI officials, including the official responsible for the photosensitive
materials sector, attended the Council's meetings, and MITI officials recommended specific policies
to help the Council achieve its objectives. According to the United States, throughout the mid-1960's,
MITI worked to develop the "government-private sector cooperation system" in the consumer
photographic film and paper sector, and laid the groundwork for working with the domestic
manufacturers to restructure the distribution system to resist foreign competition after the liberalization
of formal trade and investment restrictions.
6.148 The United States submits that in 1968, following the Sixth Interim Report by the Distribution
Committee, MITI commissionedthe Institutefor Distribution Research, a MITI-affiliated organization,
to make a survey of transaction terms in several sectors including photographic film which was completed
in 1969. It reported that foreign manufacturers posed a threat to the oligopolistic distribution system
dominated by Fuji and Konica, and emphasized that rationalizing and standardizing transaction terms
was important to address this concern.
6.149 According to the United States, based on the 1969 survey, MITI Business Bureau prepared
transactiontermsguidelinesforthe photographicsector whichwere publishedinaphotoindustryjournal
in September 1969. The draft guidelines advocated each of the three transaction terms important for
distribution keiretsu-nization, i.e., shortening of payment terms, and greater use of volume discounts
and progressive rebates. The United States notes that although Japan disputes promoting progressive
rebates, these published draft Guidelines stated, "[w]ith regard to rebates, progressive rebates should
be aggressively promoted in order to facilitate large volume transactions".
635Ryutaro Komiya, Industrial Policy of Japan (Academic Press Japan, Inc. 1988) pp. 15-18, US Ex. 59.

6.150 The United States continues that in March 1970, MITI published the final Guidelines for
Standardization of Transaction Terms for Photographic Film636 that called for the standardization637
of transaction terms in order to "prevent disruption of the established order of trade by foreign capital".
The final Guidelines noted that the terms between manufacturers and wholesalers already were in a
desirable state, but as between primary wholesalers and secondary wholesalers and retailers, the final
Guidelines repeated the call for shortened payment terms and volume discounts.
6.151 Japan concedes that the 1970 Guidelines did constitute a form of administrative guidance.
However, in its view, that fact alone does not establish that they were "measures" for purposes of non-
violationcomplaints. In this regard, Japan recalls itsargument thatthe UnitedStates reliesona distorted
characterization of administrative guidance in the Japanese system because the United States attempts
to lump all administrative guidance into one catch-all category of informal but nonetheless binding
regulations. Japan contends that not all administrative guidance is the same. With regard to the issue
of whetheradministrativeguidanceconstitutesthesubstantiveequivalentofformally bindingregulation,
the panel on Japan - Semi-Conductors found that each set of guidance must be evaluated on a case-by-
case basis and not based on a mechanical rule.638
6.152 In Japan's view, an examination of the contents of the 1970 Guidelines makes clear that the
government action in this instance was nothing more than recommendations. Japan emphasizes that
MITI merely issued promotional guidance with (1) no government-provided benefit attached to
compliance, and (2) no government sanction attached to non-compliance. Accordingly, the administrative
guidance reflected in the 1970 Guidelines does not meet the two criteria outlined in Japan - Semi-
Conductors. Japan explains the difference between the administrative guidance in Japan - Semiconductors
and the 1970 Guidelines as shown in the table below:
636MITI, "Guidelines for the Standardization of Transaction Terms for the Photofilm Industry", 1970, reprinted in Zenren
Tsuho, July 1970, US Ex. 70-4.
637Japannotes thatthe UnitedStates consistentlytranslates "tekisei(-ka)" as"standardization" ratherthan themore accurate
alternative "rationalization." In Japan's view, if the Japanese original had meant "standardization", it would have used the
term "Ityoujun-ka".
638Japan - Semiconductors, BISD 35S/116, 154, para 108.

COMPARISON OF ADMINISTRATIVE GUIDANCE
IN JAPAN - SEMICONDUCTORS AND
THE 1970 GUIDELINES
Semiconductors Panel 1970 Guidelines
specific request to companies not to export
semiconductors at prices below the cost of
production to third country markets (paras.
99, 115)639
several general suggestions of basic principles
to rationalize trade terms, no single specific
instruction for which the Government of
Japan could verify compliance
mandatory data collection requirements
imposed on each individual semiconductor
producer (para. 99)
one time factual survey before Guidelines;
no data collection system after the Guidelines
was developed to measure compliance
The Government of Japan created "statutory
requirement" to provide data, and created
"heavy penalties" for non-compliance,
including fines and prison terms (paras. 99,
113)
no penalties at all for non-compliance; some
suggestions were followed, others were not
followed; no legal basis for any penalties
systematic price and cost monitoring for
"precise identification" of individual
companies not complying with dumping
requirements (paras. 99, 113)
no specific follow up at company level; only
a one time request that the association report
generally on what was being done; only 1 of
3 associations replied
more stringent export licensing practices, in
order to improve the effectiveness of the
monitoring efforts (paras. 112, 116)
no effort to expand scope of some other law
to improve compliance, or bring industry
within the scope of other regulatory regimes
created a new system of quarterly supply and
demand forecasts, with the Government of
Japan playing the "decisive role" in
implementing the system (paras. 99, 114)
no new system of developing data to help
guide the industry, or to monitor compliance
implementing formal international
arrangement, with formal government
commitment to "ensure" no third country
dumping (para. 110)
no formal international agreement to pursue
rationalization of trade terms; no formal
commitments to another country
the Government of Japan itself had touted in
writing the effectiveness of measures in
meeting its obligation "to ensure" no third
country dumping (paras. 112, 116)
no written claims given to other countries
about the effectiveness of the 1970 Guidelines
in realizing objective.
639References to paragraph numbers are to the panel report in the Japan - Semiconductors case. BISD 35S/116.

6.153 Japan explains thatthe text of the 1970 Guidelines and their transmittal letterto the film industry
make clear that compliance with the guidelines, although obviously recommended, was purely voluntary.
According to Japan, in some instances, specifically with respect to curtailing rebates, industry flatly
ignored the guidelines. Furthermore, Japan points out that no government benefit was contingent upon
following the recommendations of the 1970 Guidelines and that MITI did not prod compliance with
its recommendations.640 The Japanese Government had made no formal agreement with another foreign
country committing to distribution modernization. Japan emphasizes that MITI did not establish any
ongoing institutional mechanism that was "essential" for achieving compliance. Thus, in Japan's view,
MITI's 1970 Guidelines were fundamentally different from MITI's efforts to control semi-conductor
pricing. In the semi-conductor situation, MITI was attempting to pressure private parties to act contrary
to their perceived interests in furtherance of a public policy goal, i.e., honouring Japan's formal
commitment to the United States. However, with respect to the 1970 Guidelines, the recipients of
the Guidelines were asked to submit a one-time progress report on their implementation of the Guidelines'
recommendations, but whether to submit a report or not and the content of the report was left to their
discretion. Japan argues that when it became apparent that some of the Guidelines' recommendations
were being ignored, MITI did nothing. For Japan, the fact that two decades later, MITI was still
addressing the same traditional business practices in its 1990 Guidelines shows the difference between
MITI's suggestions and actual legally binding obligations. Japan argues that if the 1970 Guidelines
were legally binding, the problematic business practices would have been eliminated and there would
have been no need for the 1990 Guidelines. Japan concludes that there was no indication of an ongoing
monitoring and enforcement system established and administered by MITI.
6.154 In response to Japan's argument that the 1970 Guidelines were merely suggestions that its industry
could chose to adopt or reject as it saw fit, the United States submits that the 1970 Guidelines were
preceded and followed by a near continuous series of measures, including surveys and studies carried
out at the behest of the Japanese Government by organizations it controlled or dominated, reports and
monitoring by MITI of implementation of its Guidelines, and promulgation of standard contracts and
specific industry guides to bring about industry acceptance and implementation of the measures.
6.155 The United States questions Japan's contention that MITI did nothing to follow-up its issuance
of the 1970 Guidelines. It notes that when publishing the Guidelines in an industry journal, MITI
explained that the Guidelines were "abstract" and "the greatest common denominator" and that industry
associations were asked to formulate and implement more specific transaction terms based on the
Guidelines and to report back to MITI by November 1970. The United States submits that, in response
to MITI's demand, the photospecialty wholesalers association promptly published a "Transaction Outline"
to implement the association's own transaction terms based on the MITI Guidelines and reported it
to MITI. With respect to payment terms, the Outline gave specific content to the Guidelines' call for
shortened payment terms. As for rebates, the Outline stated, "with regard to quantity-related [volume]
rebates, these will be adopted toward mass distribution of products under sound and fair competition".
The UnitedStates argues that,althoughthe Outlinedidnot mentionstandardizationof transactionterms,
nonetheless, the Outline in itself amounted to an exercise of standardization because it was an outline
by an industry association of business practices that the association intended to pursue.
6.156 The United States further submits that in 1971, MITI republished the 1969 survey report on
transaction terms in the photo film sector originally written by the Institute for Distribution Research.641
The new publication contained in addition an extensive report setting forth the particular transaction
terms in use between manufacturers and each primary wholesaler (identified generically) and between
each primary wholesaler and secondary wholesalers. In the US view, the publication of this specific
information supported the standardization of transaction terms by allowing the primary wholesalers
640Japan notes that the cover letter, accompanying the 1970 Guidelines, said, "[W]e expect that the transaction parties
understand the need for trade rationalization and make voluntary efforts for such a purpose."
641 MITI Business Bureau, Actual Conditions of Transaction Terms in the Wholesale Industry, 21 August 1971, US Ex. 20.

to know what terms their competitors were offering. The United States underscores that the republication
of the survey under MITI's name emphasized that the survey and its recommendations reflected MITI
policy.642
6.157 Japan notes that information such as examples of actual transaction terms is quite common
in such factual surveys. There is no indication the survey evaluated any specific terms either favourably
or unfavourably, and thus they could not be "targets."
6.158 The United States underlines that, as part of MITI's effort to systematize distribution, in 1971
MITI commissioned the Chamber of Commerce, along with the MITI-established Transaction Terms
Standardization Committee and domestic photographic materials trade associations, to draft a "Model
Contract" based upon the standardized transaction terms outlined in the 1970 MITI Guidelines for the
photographic film sector. When publishing the standard transaction contract for photographic film
in spring of 1972, the Chamber emphasized that its actions were pursuant to a MITI mandate.643 For
the United States, this emphasis on MITI policy was important, because the Chamber in Japan has
broad authority to act on behalf of MITI in many government programs, including the administration
of subsidies and other government benefits.
6.159 According to the United States, MITI continued to promote standardized transaction terms.
In 1973, MITI published under its name materials by the quasi-governmental Transaction Terms
Stabilization Committee.644 In republishing this material from the Committee, MITI noted that it too
"plan[ned] to move forward with measures for standardizing transactions". Accordingly, MITI
commissioned the Chamber to publish, in 1975, a compilation and commentary, entitled
"Recommendation on Standardized Contracts for Transactions" (the "Chamber Guidance").645 The
Chamber Guidance also addressed payment terms and discounts, among other terms of the standard
contract. Regardingpayment terms, the Chamber Guidance elaborated onthe need for monthlypayment
in cash, and for the use of notes with fixed terms and interest - again pushing for short payment terms.
It also called for cash discounts to reward the prompt payment of accounts. Regarding volume discounts
and rebates, the Chamber Guidance stated that the volume discounts in the film sector operated "the
same as rebates". The Chamber stated that the terms of such discounts should be stipulated, but it
did not otherwise call for their alteration or elimination.646
642The United States notes that the republished version of the survey bluntly notes that the photo film industry "has
established a distribution system where oligopolistic manufacturers lead". It then continues to cite as two threats to this
oligopolistic system: "As future problems, we can cite first the 'growth of retail routes (especially regular chains and
supermarkets) other than the photo retail route and changes in transaction terms due to this leadership,' and secondly the
'effects of full participation of Eastman Kodak'". According to the United States, the survey focused on transaction terms
as the response to these challenges. With respect to rebates, the survey stated that there was too much emphasis on rebates
that accord significant discretion to the sellers, and not enough emphasis on progressive rebates with clear standards that
function as volume discounts. However, the United States claims that there is a mistranslation of the passage on rebates
in Japan Ex. B-1. The United States supplied the corrections in US Ex. 20, pp. 308-09.
643"The drafting of a standard transaction contract for photographic film, which was commissioned to the Japan Chamber
of Commerce and based on MITI's 'Transaction Standardization Guidelines for Photographic Film,' was completed and
published". Nihon Shashin Kogyo Tsushin, 1 July 1972, p. 20, US Ex. 24.
644The Committee's findings stated that "the standardization of transaction terms is essential for ... systematizing distribution
activities as well as countermeasures against foreign capital".
645The Chamber Guidance reiterated that the reasons for promoting standardized transaction terms included, "to establish
the standards for proper transaction terms in order to prevent disorder in transactions arising from capital liberalization".
Japan Chamber of Commerce, Recommendations on Standardized Contracts for Transactions, Commission by Ministry of
International Trade and Industry, July 1975, p. 3, US Ex. 32. The Chamber noted that it prepared the 14 standard contracts
in cooperation with the"involved industries based on the [MITI] Guidelines"and expressed its "expectation that suchmeasures
willexpand evenmoreso thatthe ideaunderlyingtheGuidelines willbecome diffused amongthe generalbusiness community".
Ibid., p. 4.
646The United States submits that in 1975, the Chamber published a commentary on standardized contracts, which discussed
the connection between discounts and rebates in the photographic film sector. The standard contract also provided for dispute
settlement by arbitration before the Japan Commercial Arbitration Association. The United States points out that the Chairman

6.160 The United States argues that, while the Chamber's standard contract did not mention
standardization of transaction terms, the very publication of a standard contract by Japanese industry
amounts in itself to an exercise in standardization. The United States notes that regarding payment
terms, the Chamber's standard contract called for payment in cash on a monthly basis which is a short
time frame for settling accounts. Regarding discounts, the standard contract called for the use of volume
discounts, and for discounts to reward the prompt payment of accounts. Moreover, to follow up on
dissemination and implementation of the standard contract, in 1974 and 1975 the Chamber, in cooperation
with trade associations, conducted "Standardized Contract Dissemination Explanation Sessions" in several
cities.
6.161 In the US view, the implementation and standardization of the transaction terms advocated
by the Japanese Government was in the manufacturers' interest. However, unifying the transaction
terms of different manufacturers can be difficult, as competition for wholesalers can lead manufacturers
to strike different bargains. The United States emphasizes that Government monitoring of specific
transaction terms and government support for their "standardization" can provide a discipline against
anywholesalerorretailer resistance totheseterms. Giventhatthe particulartransactionterms advocated
byMITI didnotnecessarilyserve the interestof wholesalers,647 inthe US view, the Japanese government
would have to extend more effort at "concerted adjustment" with the wholesalers in order to implement
standardized transaction terms at that level of the distribution process. The United States emphasizes
that the implementation of MITI's transaction terms policies would least benefit the retailers.648
Therefore, the strongest resistance could be expected from retailers and, accordingly, the greatest need
for the Japanese Government to create strong rewards or punishments to retailers to earn their compliance
in the system. Given this background, according to the United States, Japan took a variety of steps
to implement and standardize the transaction terms in the photographic film and paper sector.
6.162 The United States emphasizes that the extensiveinteraction between government and the private
sector, e.g., regarding transaction terms, demonstrates that the Japanese Government went to great
lengths to ensure that its policies were adopted. The repeated advocacy and monitoring built peer
pressure and served as a constant reminder that the Government was watching and pushing for these
changes. Moreover, in the classic "concerted adjustment" method, MITI did not proclaim from on
high, but involved the interested industry groups in the study, monitoring, and implementation process
in order to build consensus. The United States claims that MITI also applied pressure to the process
where necessary, completed with specific information on the transaction terms applied by individual
companies that exposed the extent to which the industries were falling short of MITI's policies. The
United States stresses that public exposure and embarrassment is one of the tools MITI uses to enforce
its administrative guidance. Moreover, the exposure of this company-specific information facilitated
standardization by allowing each company to have a sense of the terms offered by its competitors.
In the US view, MITI also applied pressure through the Chamber of Commerce which disposes of
significant authority to influence the dispensing or withholding of government benefits, and frequently
acts as an information-gathering arm for MITI. For these reasons, the United States maintains that
medium and small enterprises would have thought twice before ignoring the Chamber's Guidance on
transaction terms. Finally, the United States points out that MITI used widespread fear over liberalization
ofinvestmentinthe photographicsector, topressureindustryintoadoptingthe transactionterms policies
and executive director of the Arbitration Association are also executives of the Chamber, that its offices are located within
the Chamber, and that the Arbitration Association has been a retirement entity for MITI officials. The Japan Commercial
Arbitration Association, Dantai Meikan, p. 427, US Ex 86.
647The manufacturers' shortening of their payment terms would increase financial pressure on the wholesalers, and the
use of rebates and volume discounts could tie them to a particular manufacturer and limit their supplier options. On the
other hand, if the wholesalers were able to impose the same sort of system further downstream, they would reap the same
benefits with respect to the retailers as the manufacturers would gain from applying those terms to the wholesalers.
648Retailers would suffer the upward shift of economic power and loss of autonomy without having another lower-down
level in the distribution system to turn to.

it advocated.649 Therefore, the United States concludes that MITI very effectively ensured that industry
implemented its guidelines.
6.163 Japan responds that no steps were taken to ensure that the 1970 Guidelines were followed,
no monitoring of the extent to which the guidelines were adopted took place, and no sanction or other
pressures were imposed by MITI even though the Guidelines were not followed. Japan notes, for
example, that the "standard contract" presented by the Japan Chamber of Commerce and Industry was
made to encourage the private sector to use written forms and to make contracts more transparent,
and standardizing any specific transaction terms was not intended. Japan also notes that in any event,
there is a serious timing problem to link the 1970 Guidelines and the actual reform of transaction terms
or the development of single-brand distribution as alleged by the United States.
(ii) 1975 Manual
6.164 The United States further submits that in 1975 the MITI-affiliated Distribution Systemization
Development Center published the Manual for the Systemization of Distribution by Industry
(Camera-Film)650 which was prepared in collaboration with industry groups, camera manufacturers,
film manufacturers, camera and film wholesalers, camera and film retailers, and camera and film industry
publishers. The 1975 Manual reported in detail on the distribution trends in the industry, and made
several specific recommendations to combat increased competition from Kodak, including the
standardization of transaction terms, including discounts and rebates, the establishment of the
Photosensitive Materials Committee for the Systemization of Distribution by Industry (Camera-Film)
under the Distribution System Promotion Council,651 and the promotion of computer linkages
(implemented by MITI in subsequent years).652
6.165 Japan points out that the 1975 Manual is a report prepared by a public corporation, but not
by MITI, and thus cannot be considered either "administrative guidance" or a statement of official
Japanese governmental policy. MITI commissionedthe workin furtherance of itspolicy of encouraging
distribution modernization. Japan points out that there is nothing either in the Manual itself or in the
history of subsequent industry action to suggest that the recommendations of the report were adopted
by MITI and then imposed as formally or informally binding obligations. Although the Manual was
completed, Japan emphasizes that MITI never formally issued the Manual to the industry. According
to Japan, the most compelling evidence of industry ambivalence about the 1975 Manual comes from
the industry's response to information systemization. Fuji did not establish computer links with its
primary wholesalers until 1989.
649As an industry journal article from 1976 submitted by Japan states, "this is the year [of] 100 percent capital liberalization
of the film manufacturing industry ... the most feared development by photosensitive material makers". The United States
also reports that the article goes on to state that in anticipation of Kodak's possible investment in Japan, Japanese industry
had implemented countermeasures "to the point of perfection".
650See sub-section II.B.2.(e) above, in particular paras. 2.23-2.25, and US Ex. 75-5.
651See sub-section II.B.2.(d) for a description of Distribution System Promotion Council, in particular para. 2.20.
652See sub-section VI.D.3.(f) on "Electronic information links" infra for a discussion of MITI’ s promotion of computer
linkages, in particular paras. 6.380-381.

(b) Current effectiveness
6.166 With respect to the specific distribution measures at issue, Japan emphasizes that only one of
the items specifically identified by the United States (i.e., international contract notification) was still
in effect at the beginning of the Panel proceedings.
(i) Reports, surveys, plans and manuals
According to Japan, the following five reports or surveys were never government actions at all:
(3) 1968 Sixth Interim Report of the Industrial Structure Council Distribution Committee;
(4) 1969 Seventh Interim Report of the Industrial Structure Council Distribution Committee;
(5) 1969 Survey on Transaction Terms;
(8) 1971 Basic Plan of the Distribution Systemization Promotion Council;
(9) 1975 Manual of the Distribution Systemization Development Center.
Moreover, any substantive relevance of these reports ended when the advice was either acted upon
or ignored.
(ii) JDB/SMEA funding and international contract notification
6.167 With respect to four of the items challenged by the United States, Japan concedes that they
were once "measures", i.e.,
(2) 1967 JFTC Notification 17;
(7) 1971 International contract notification;
(10) 1976 JDB funding;
(11) 1967 SMEA funding.
6.168 As to their current effectiveness, Japan points out that the allegations about SMEA financing
in 1967 and the JDB loan to Konica in 1976 were both factually specific events that happened and
were finished more than two decades ago.
6.169 According to Japan, the requirement for international contract notification was technically still
in effect as of 20 May 1997, but there was already a pending proposal to repeal this measure. This
law was in fact enacted and became effective in June 1997, making it unnecessary for any international
contracts to be notified to the JFTC. Simultaneously, the JFTC Rule No. 1 under Article 6 of the
Antimonopoly Law was abolished. Moreover, in Japan's view, this measure never favoured Japanese
domestic film or paper.
6.170 The United States emphasizes that Japan can point to just two distribution countermeasures
that it purportedly revoked, JFTC Notification 17 and the 1967 Cabinet Decision. The extent to which
these measures are inoperative and no longer in force, however, is far less clear than Japan claims.
(iii) 1967 JFTC Notification 17
6.171 Japan submits that JFTC Notification 17 was formally abolished in April 1996, thus cannot
be in effect and, therefore, falls outside the scope of the present proceedings.
6.172 While the United States concedes that Notification 17 has been repealed, it maintains that there
are other provisions that make the repeal of Notification 17 meaningless. According to the United
States, premiums from manufacturers to wholesalers are still subject to JFTC Designation 9 of JFTC
Notification 15 of 1982, i.e., the provision governing the use of "unjust inducements" under the

AntimonopolyLaw. Thatdesignationprohibitspremium offers inexcess of "normal businesspractice".
Given that Notification 17 set industry practice for 19 years, for the United States, it is uncertain at
best as to whether present restrictions under Designation 9 will differ at all from the situation under
Notification 17.
6.173 Japan responds that JFTC Designation 9 does not violate the WTO Agreements. Moreover,
Japan contends that the United States raises a measure or a policy that was not listed in its panel request.
Thus Japan encourages the Panel to dismiss the US claims concerning all measures and policies that
were not specifically identified in the US panel request, including the claims made concerning JFTC
Designation 9.
(iv) 1967 Cabinet Decision
6.174 Japan submits that the 1967 Cabinet Decision was formally repealed on 26 December 1980.
6.175 While the United States concedes that the 1967 Cabinet Decision has been repealed, it argues
that the repeal affects only that portion of the decision relating to controls on international investment
in Japan. The United States is, however, unaware of any evidence to suggest that the 1980 decision
revoked the distribution policies and liberalization countermeasures directed by the 1967 decision.
The 1980 decision mentions only steps that will be taken to lift restrictions on inward foreign investment
in line with the OECD, but not countermeasures or distribution policies. The distribution
countermeasures arise from a much broader and more recent set of measures than only the 1967 Cabinet
Decision. Finally, the United States claims that the 1990 MITI Guidelines have not changed MITI's
restrictive policies and measures.
6.176 Japan responds that there is ample evidence demonstrating that none of the distribution policies
by the United States are currently in effect, and it is impossible to adequately respond to this contention
because the United States did not specify which measures it believes resulted from the 1967 Cabinet
Decision. However, in Japan's view, if the United States implies that the Cabinet Decision resulted
in government actions other than those listed in the US request for a panel, those actions are not properly
before this Panel.
(v) 1970 Guidelines and 1990 Guidelines
6.177 While Japan concedes that the 1970 Guidelines653 were a governmental act relating to the film
industry,itexplainsthe reasonswhythisspecific pastgovernment actionisnolongerineffect as follows:
In Japan's view, the 1970 Guidelines never had any binding effect, either formal or informal, and thus
never were "measures" within the meaning of Article XXIII:1(b), because these guidelines were not
"in effect" even from the beginning. In the alternative, even if it were accepted that the 1970 Guidelines
were once "measures" within the meaning of Article XXIII:1(b), Japan argues that they are clearly
no longer in effect given that after almost thirty years, the business environment has changed so much
over this long period that neither MITI nor the private industry considers the 1970 Guidelines as having
any current relevance or effect.
6.178 Japan further submits that subsequent events confirm that the 1970 Guidelines have long since
lost any relevance. By 1984, rationalizing trade terms was no longer a priority issue. The Report
by the Industrial Structure Council entitled, "Distribution in the 1980s"654, does not even mention the
various trade rationalization guidelines issued over the 1970 to 1972 period. The report puts special
emphasis on responding to the needs of consumers and supporting small and medium-sized companies.
653Japan Ex. B-24 and US Ex. 70-4. See sub-section II.B.2.(c) above.
654Industrial Structure Council, 80 Nendai no Ryuutsuu Sangyou Bijon (Distribution Vision for the 1980s) January 1984,
Japan Ex. F-6.

6.179 According to Japan, during the talks on the United States - Japan Structural Impediments Initiative
(SII), when the United States argued for a renewed effort to encourage the Japanese distribution system
to abandon traditional practices for more economically rational practices, MITI issued a new set of
distribution guidelines in 1990.655 According to Japan, if the earlier 1970 Guidelines were still in effect
in any sense, one would have expected the 1990 Guidelines to discuss the earlier suggestions, but they
did not. In Japan's view, it is not credible that these MITI suggestions from 27 years ago continue
to be a current government action properly subject to WTO review today.
6.180 The United States responds that none of the arguments raised by Japan leads to the conclusion
that the distribution countermeasures are no longer in effect and that MITI's restrictive policies and
measures have changed. The United States maintains that Japan has never stopped intervening in the
distribution system for the photographic materials sector. According to the United States, Japan can
point to just two distribution countermeasures that it purportedly revoked, i.e., JFTC Notification 17
and the 1967 Cabinet Decision. The United States asserts that the revocation of two distribution and
promotion countermeasures does not mean that all of the measures falling within those two groups
of measures are no longer in effect. Nor does the issuance of a later guideline retract the prior guidelines
and distribution countermeasures. Accordingly, the United States does not agree that these specific
measures, and in particular the policies underlying them, have been revoked.
6.181 In Japan's view, the 1990 MITI Guidelines addressed exactly the same kinds of "irrational"
business practices as those targeted by the 1970 Guidelines, e.g., rebates, returns and dispatched
employees. Yet for the 1990 Guidelines, encouragement of imports was the guiding purpose for targeting
these practices. Japan points out that these guidelines had their origin in the Structural Impediments
Initiative (SII). In the Final Joint SII Report, MITI made the following commitment: "As to trade
practices concerning distribution, an improved environment will be sought from the standpoint of
promoting competition and securing market openness".656 Later in the report, MITI elaborated its plans
to issue guidelines on distribution practices.657
6.182 Japan emphasizes that in 1990, MITI issued distribution guidelines encouraging the reform
of "irrational" trade practices, at the direct request of the United States, to render the Japanese market
more accessible to imports. In the current dispute, however, the United States argues that guidelines
from 20 years earlier, covering the same subject matter and making the same recommendations, were
somehow involved in impeding imports. For Japan it is inconceivable that the same recommendations
could be anti-import policies in 1970 and then somehow transform themselves into pro-import policies
in 1990.
6.183 The United States rejects Japan's contention that MITI's 1990 Guidelines reveal that MITI's
distribution policies for the last three decades have not aimed at promoting exclusive, vertically
oligopolisticdistribution. The UnitedStatesconfirms thatthe 1990 Guidelinesarose outof international
pressure on Japan to increase market access, including SII talks between Japan and the United States.
Only in reaction to that pressure, the United States argues, Japan introduced guidelines indicating that
"international harmony is required" and businesses "must give consideration so as not to have their
businesspractices become obstacles toothers [includingforeignsuppliers]".658 The UnitedStates points
out that this statement contrasts with Japan's repeated calls to take countermeasures "in order to prevent
disorder arising from" the incursion of foreign capital enterprises, stated in many of the key documents
655US Ex. 90-5, Japan Ex. B-22.
656Final Report on the Japan - US Structural Impediments Initiatives (SII), Actions on the Government of Japan Side,
28 June 1990, p. III-1", Japan Ex. B-30.
657Ibid. p. III-14, Japan Ex. B-30.
6581990 Guidelines, p. 2, US Ex. 90-5.

from the late 1960s and early 1970s. The United States concludes that the 1990 Guidelines depart
in an important respect from the many policy documents in the late 1970s addressing transaction terms.659
6.184 The United States explains that based on positive statements by Japan in the context of the
SII, the United States has taken the position that the 1990 Guidelines have the potential to help improve
market access in the distribution sector (as Japan promised), if Japan in fact implements the policies
indicated in these positive statements. However, in the United States view, Japan has not implemented
these policies in the photographic materials sector or in any other sector. In light of Japan's failure
to implement these policies, the United States stated in its November 1996 submission to Japan on
deregulation matters,660 that Japan should implement the contents of these Guidelines. As a result of
this failure of implementation, the United States has concluded that Japan in fact has not changed its
basic policiesondistribution,and in fact has notimplemented the positionsstated inthe 1990 Guidelines
to correct the restrictive structures in the distribution system for photographic film and paper.
6.185 For the United States, in considering the implementation of the 1990 Guidelines, it is important
to bear in mind that Japan implemented its distribution policies, beginning in the 1960s and 1970s,
not by a mere announcement of Guidelines in 1970, but based on the back-and-forth process of "concerted
adjustment" between government and industry. That process spanned years and involved continuous
government surveying and consulting with the domestic industry, building consensus, issuing reports
and guidelines, followingup withmore surveysand guidance toindustry. The UnitedStates emphasizes
that it would take even greater efforts by MITI to undo what it has done, particularly because the
formation of limited foreign access to the Japanese distribution system was in the interest of Japanese
manufacturers, whereas its dismantling would pose a direct challenge to the two-company oligopoly
of Fuji and Konica.
6.186 The United States claims that to the best of its knowledge, Japan has undertaken no actions
in the photographic film and paper sector to follow-up on the 1990 Guidelines. Specifically, the United
States submits that MITI has not pursued any meaningful actions to reverse its policies on transaction
terms or to address the restricted structure of the distribution system for photographic film and paper
in Japan. Moreover, according to the United States, the exclusionary distribution system remains in
force in the form it existed in 1990, and an elaborate system of rebates and discounts continues at various
levels of the distribution system in this sector.661 Japan's interpretation of the Antimonopoly Law
continues to provide that the use of transaction terms departing from standard industry terms can be
an unfair trade practice, and the Antimonopoly Law continues to require reporting of all contracts
between foreign manufacturers and Japanese distributors.
6.187 Therefore, the United States concludes that - although the 1990 Guidelines were different from
the 1970 Guidelines in their intention to avoid some adverse effects of keiretsu - Japan has not
implemented the Guidelines in a way to achieve results, as Japan did with the 1970 Guidelines. The
United States takes the position that there is nothing inconsistent with the United States calling for Japan
to implement the policies announced in the 1990 Guidelines, while noting that so far Japan has failed
to do so.
6.188 As to the US view that the 1990 Guidelines are in direct conflict with the claim about the
1970 Guidelines, Japan refers to the US request to the Japanese Government in the latest US
659Specifically, regarding rebates, the 1990 Guidelines emphasize that: "It is desirable for manufacturers to voluntarily
refrain from offering rebates aimed at maintaining a keiretsu-based relationship in order to prevent manufacturers from exercising
excessive influence over the business of retailers". 1990 Guidelines, p. 8, US Ex. 90-5.
660Submission by the US Government to the Japanese Government Regarding Deregulation, Administrative Reform and
Competition Policy in Japan, 15 November 1996, Japan Ex. B-23.
661Actual Rebate Conditions: Fuji Photo Film Co., Ltd. Versus Eastman Kodak, Co., Toyo Keizai (24 July 1995),
US Ex. 90.

recommendations on deregulation issued pursuant to the US - Japan Framework Agreement.662 In Japan's
view, the United States is simultaneously urging Japanese businesses to follow current administrative
guidance on reforming irrational business practices of 1990 and urging before this Panel that similar
guidance of 1970 has violated US rights under the GATT. In Japan's view, the 1990 Guidelines are
no different from the 1970 Guidelines in promoting "a free, transparent and competitive distribution
system".
(vi) Conclusions
6.189 In Japan's view, the US claims focus on the past, not the present. Japan contends that those
specific items that the United States identified are no longer in effect. MITI's policies resulted in
recommendations to industry in the 1960s and '70s on how to modernize distribution practices. These
recommendations were made decades ago, and private businesses followed them or ignored them at
their own choosing. According to Japan, the five reports or surveys were never government actions
at all, and any substantive relevance of these reports ended when the advice was either acted upon
or ignored.
6.190 Japan concedes that the requirement for international contract notification in JFTC Rule No. 1
was technically still in effect as of 20 May 1997, but there is a pending proposal to the Diet to repeal
this measure that becomes effective June 1997. Japan adds that this law was in fact enacted in June
1997, making it unnecessary for any international contracts to be notified to the JFTC. Simultaneously,
the JFTC Rule No. 1 under Article 6 of the Antimonopoly Law was abolished.
6.191 Japan points out that the allegations about SMEA financing (1967) and the JDB loan to Konica
(1976) were both factually specific events that happened and were finished more than two decades ago.
In Japan's view, the United States has not disputed this fact.
6.192 Japan further submits that the 1996 National Trade Estimate Report on Foreign Trade Barriers
("NTE Report") by the Office of the US Trade Representative provides that "[t]he liberalization
countermeasures were implemented between 1967 and 1984".663 Thus, in Japan's view, the United
States implied that the distribution policies at issue ended about 13 years ago. Japan further notes that
in this NTE Report, the term "liberalization countermeasures" appears to refer to MITI's distribution
policies and investment restrictions.664 However, according to Japan, the United States has not and
cannot point to any current MITI action or policy concerning the distribution sector that in any way
nullifies or impairs any tariff concessions. Japan points out that the United States does not identify
a single item that occurred after 1977, i.e., almost twenty years ago, and before the first tariff
concessions on colour film and paper in the 1979 Tokyo Round results.
6.193 The United States argues that the longevity of the distribution countermeasures does not dictate
that they are no longer in effect. The United States contends that Japan's position would suggest that
mandatory legislation codified long ago is to be deemed revoked if no enforcement actions are taken
under it after some period of time has lapsed. The United States contest this proposition because it
overlooks the possibility that a law can be self-enforcing if no party is violating it. Therefore, the
United States rejects Japan's assertion that virtually all the distribution and promotion countermeasures
are no longer in force.
662"Monitor and report on adherence by the Japanese business community to the MITI 1990 Guidelines on Business Practices
in orderto promotea free, transparentand competitive distributionsystem". Submission bythe USGovernment tothe Japanese
Government Regarding Deregulation, Administrative Reform and Competition Policy in Japan, 15 November 1996, p. 7,
Japan Ex. B-23.
663United States Trade Representative (USTR), National Trade Estimate Report on Foreign Trade Barriers (NTE Report)
(1996) issued in March 1996, before the United States began this Panel proceeding,
664USTR, 1996 NTE Report, p. 209, Japan Ex. F-5.

6.194 In the view of the United States, Japan is continuing to reinforce and supplement these
countermeasures in several key ways. First, it is continuing to enforce the Large Stores Law and
promotion countermeasures which prevents erosion of the system by restricting the competitive pressures
that large retailers and manufacturers attempting to break into the system would provide in the absence
of these ongoing restrictions. Second, the Japanese government is continuing to support the structure
of the system through business assistance programs. Third, Japan's passage of the Business Reform
Law and its initial designation of the photographic materials sector for assistance under this broad
measure demonstrates Japan's ongoing effort to reinforce the structure of the system established by
the initial distribution countermeasures so that it remains a bulwark against penetration by imports.
6.195 The United States emphasizes that the actions needed to maintain the exclusionary distribution
structureare different fromthe measures needed tocreate the structureinthe firstinstance. Forexample,
once Konica had received a JDB subsidy and built a new joint distribution center with its wholesalers,
it had established a new, closer degree of integration with those wholesalers, accomplishing the purpose
of the subsidy. From that point on, it no longer needed a subsidy for this purpose. Similarly, the
amount of effort the Japanese Government expended to assist in the initial information link-up of Fuji
with its wholesalers exceeds what is currently needed for Fuji to maintain those information links and
the control over the distribution system.
6.196 The United States maintains that with respect to the promotion of joint distribution facilities
and information links between manufacturers and distributors there is no indication that the policy
underlying Japan's actions has changed and it continues to be governmental policy of Japan.665 The
fact that Fuji and Konica have built these systems and facilities in conformity with Japan's policies,
and that they therefore currently might need less assistance and promotion from the Japanese Government,
proves only that these companies have complied with their Government's wishes. According to the
United States, there were no meaningful efforts by Japan to suggest to either of these companies to
change its course regarding information links and joint distribution facilities.
6.197 The United States further argues that in the case of transaction terms, there is no indication
that Japan has changed its policies in favour of standardized transaction terms, and Japan has made
no meaningful efforts to implement any changes in rebate and discount practices in the photographic
film sector. According to the United States, Fuji continues to maintain a highly complex rebate and
discount scheme. In the absence of forceful implementation of a change in policy by Japan, Fuji's
rebateschemewillcontinuetofavour"channelexclusivity",standardizedtransactiontermswillcontinue
to provide a benchmark against which to judge whether non-standard terms are "unfair trade practices",
and the JFTC's international contract notification rules will continue to allow automatic scrutiny of
contracts between foreign manufacturers and Japanese wholesalers.666
6.198 In summary, the United States concurs with Japan on the proposition that a finding of non-
violation nullification and impairment may be based only on measures that are currently in force. The
United States does not believe, however, that Japan has presented credible evidence that its intervention
in photographic material distribution is merely a fact of the past.
6.199 Japan argues that the United States may be of the position that the alleged measures, even
if not in effect any more, are still actionable, because their "effects" or "consequences" are sustained
by other items which are not included in the terms of reference. In Japan’ s view, however, the United
665The United States notes that the JDB program that provided the loan to Konica remains in place, and Japan generally
has continued to advocate and financially support joint distribution facilities and electronic information ties between
manufacturers, wholesalersand retailers. Seee.g., MITI's 1990Guidelines, p. 9, USEx. 90-5 andPhoto Industry Information
System Manual, US Ex. 96.
666Japan contends that a bill to repeal the international contract notification requirement was passed in June 1997, and
simultaneously JFTC Rule No. 1 under Article 6 of the Antimonopoly Law was abolished.

States should not be allowed to make such an argument. Japan stresses that what matters should be
whether the alleged measures listed by the United States are themselves in effect or not. Any items
outside the terms of reference for this panel cannot substitute for the items within them. Japan notes
that the United States did not argue that the alleged measures inside the terms of reference and items
outside of it in combination have had certain alleged effects. If the United States believes that the alleged
measures (in the terms of reference) are still in effect, it should have presented a "detailed justification"
for claiming the alleged measures remain in effect by themselves. In Japan's view, the US attempt
to point out other items does not meet the requirement of "detailed justification."
3. PROMOTION "COUNTERMEASURES"
(a) The Councils and Codes
6.200 As far as the JFTC related issues are concerned, Japan agrees with the United States that the
following are governmental "measures" within the meaning of Article XXIII:1(b):
(i) the Premiums Law (as amended);
(ii) the JFTC Notifications; and
(iii) the approval by the JFTC of fair competition codes.
6.201 The United States submits that the private sector plays an important role in enforcing Japan's
promotion countermeasures by virtue of the system of so-called fair competition codes and fair trade
councils. Japan is alleged to have deputized fair trade councils as enforcement surrogates for the JFTC
under the Premiums Law. The United States asserts that industry trade associations play an important
role in the fair trade councils and, in some instances, dominate the affairs of a particular council. The
United States clarifies that in this dispute it is concerned with the actions of trade associations only
as they relate to a code or council. In the US view, Japan should bear responsibility for a council
whose formation it promoted and approved, as well as the rules and codes which that council
promulgated.
6.202 The United States argues that, even though individual aspects of Japan's promotion
countermeasures approximate facets of measures elsewhere, the United States is unaware of any nation
with a regime that is equal to Japan's. In particular, no nation has an enforcement mechanism of
government/industry cooperation akin to Japan's system of "fair trade councils" and "fair competition
codes." This system allows powerful businesses and trade associations to formulate a set of competition
rules and, with the assistance of the government, impose those standards not only on members of their
groups but on non-members as well.667 The United States argues that industry "fair competition codes"
played a critical role in the JFTC's assessment of what constituted "normal business practices" in applying
the promotion countermeasures. If there is a fair competition code, then the code will be used as the
standard. If none exists, the JFTC will make a determination after investigating the business practices
of that industry or issue guidance to the industry to establish a fair competition code. This close
government/industryrelationshiphasbeen usedtostifleforeigncompetitionsuchaswhen the Promotion
Council worked with the JFTC to undermine Kodak's VR campaign before it even began.668
667Severe Restrictions Placed on Businesses for Premium Offers: Shatokuren Hears JFTC Explanations at Jyosui Kaikan
on the 12th, Nihon Shashin Kogyo Tsushin, 20 June 1967, US Ex. 67-8.
668In the US view, Japan failed to provide any evidence contradicting the US recitation of events regarding the VR campaign.
Japan contends that statements contained in Mr. Ishikawa Sumio's affidavit of the United States are not substantially objective
evidence and therefore are not trustworthy.

6.203 According to the United States, Japan's photographic materials sector has four relevant councils:
(1) the Manufacturers Fair Trade Council,
(2) the Wholesalers Fair Trade Council,
(3) the Photographic Industry Fair Trade Promotion Council, and
(4) the Retailers Fair Trade Council.
The United States emphasizes that with respect to the two councils most relevant to the US case, i.e.,
the Promotion Council and the Retailers Fair Trade Council, trade associations dominate the activities
and policies of each council.
6.204 Japan argues that a fair competition code does not by itself constitute a "measure" of the
Government of Japan for the following reasons. A fair competition code is an agreement, or a contract,
among non-government industry members. Its enforcement will have to be affected, ultimately, by
the judiciary, and the JFTC has no role to play in the enforcement process. It is only when parties
to the code fail to observe the Premiums Law, Notifications, or other JFTC regulations, that the
Commission takes any action. Industry members may freely choose whether or not to participate in
a code. The JFTC does not demand membership. According to Japan, the rationale for such a
mechanism is well understood overseas as well: For example, the "guidelines on codes of practice"
prepared by the United Kingdom's Office of Fair Trade state that "[t]he code or articles will also set
out the penalties for non-compliance up to and including dismissal from the association."669 Similarly,
the Annual Report 1987-1988 of Australia's Trade Practices Commission states that "[c]odes should
include commercially significant and realistic sanctions for their enforcement."670
(i) Manufacturers' Council
6.205 The United States argues that prior to the establishment of the Retailers Council, Japan
established two fair trade councils in cooperation with the manufacturers and wholesaler associations.
Pursuant to Article 10 of the Premiums Law, the JFTC approved on 15 October 1965 the "Fair
Competition Code Regarding Restrictions Premiums Offers by the Cameras and Related Products
Manufacturers' Industry" ("Manufacturers' Code") "to enable this Code to be enforced smoothly and
effectively". Article 4 of the Manufacturers' Code established the Camera Manufacturers Fair Trade
Council("Manufacturers' Council"). Article 4furtherdefinesthe dutiesof theManufacturers' Council,
which include the responsibility to "investigate those who may be in violation of the code" and to "take
necessary measures against those who have violated the Code".
6.206 Japan notes that Kodak Japan Limited (Nagase Sangyo, until 1988) has been participating in
the Manufacturer's Council as a camera manufacturer since 1988.
(ii) Wholesalers' Council
6.207 According to the United States, the JFTC similarly approved the "Fair Competition Code
Regarding Restrictions of Premium Offers by the Cameras and Related Products Wholesalers Industry"
("Wholesalers' Code") on 29 October 1966. Article 4 of the Wholesalers' Code established "the Cameras
and Related Products Wholesale Industry Fair Trade Council ("Wholesalers' Council"). Article 4-3
defines the duties of the Wholesalers' Council. Articles 5 and 6 authorize the Wholesalers' Council
to investigate violations and to take measures against violators, including the imposition of fines.
669Japan Ex. D-72 and Ex. D-73.
670Trade Practices Commission, Annual Report 1987-1988, p. 114, Japan Ex. D-74 and Ex. D-44.

(iii) Promotion Council
6.208 The United States further submits that the Photographic Industry Fair Trade Promotion Council
("Promotion Council") is a vertically-integrated industry association representing every stage of the
distribution of photographic materials and equipment, with the photosensitive materials distributors'
association (Shashoren) and the Retailers Association (Zenren) being the primary beneficiaries of the
organization. The United States points out that the JFTC created the Promotion Council by administrative
guidance.671
6.209 According tothe UnitedStates, the fact thatthe JFTC oversees the fair trade councilisillustrated
by Article 17 of the Promotion Council's articles of association which provides:
"Establishing or abolishing the provisions of these Articles of Association and the responsibilities
of this Council shall require prior approval from the Japan Fair Trade Commission".672
6.210 In the view of the United States, the delegation of authority from the JFTC to the Promotion
Council is made explicit in Article 4 which confers upon the Promotion Council a number of enforcement
powers. Article 4 provides:
"In order to achieve the objectives whichwere described in Article 3 above, the Council
will create a committee which will be responsible for the following: ... secure fair
transaction order between all elements of the distribution system, manufacturers,
wholesalers, and retailers. Take the necessary actions against those who violate the
Self-Regulating Measures. Liaise with the competent governmental authorities. All
other responsibilities necessary to achieve the Council s objectives".
Accordingly, the same association-council dynamic existsbetween the Promotion Council and the JFTC
as it is true with respect to the Retailers Council and the JFTC, which is described below. The
Promotion Council has received a similar delegation of authority from the Japanese Government.
6.211 Japan responds that industry self-regulation is private-sector conduct, and not a government
"measure". Japan explains that the Promotion Council is a private-sector organization, which was
established by the camera industry to implement voluntary standards on dispatched employees, and
that has no governmental authority.
6.212 The United States responds that the Promotion Council and its first set of rules, governing
dispatched employees, were established under guidance from the JFTC.673 According to the United
States, Japan admitted that "the Promotion Council was established after consultation with the JFTC"
and conceded that "[t]he Promotion Council refers to the JFTC's 'approval' or 'guidance' for its action
in its rules."674 Regardless of whether the Promotion Council is a purely private trade association or
a quasi-governmental association, Article 8-2 of the Antimonopoly Law requires that "[e]very trade
association ... file a report [with the JFTC] within thirty days as from the date of its formation". JFTC
671The official directive of the Promotion Council states: "This council was established under the guidance of the Japan
Fair Trade Commission in December of 1982 for the purpose of securing a fair trade system in the photographic industry,
deepening the exchange of ideas and understanding among businesses, and contributing to the development of the industry".
National Photographic Industry Fair Trade Promotion Council, No. 1, 29 August 1992, US Ex. 92-7.
672Fair Trade Promotion Council Establishment: An Attempt to Improve the Structure of the Industry, Zenren Tsuho,
January 1983, pp. 46-47, US Ex. 83-3.
673US Ex. 92-7. ("the council was established under the guidance of the JFTC in December of 1982"); US Ex. 83-3
("the JFTC expressed an understanding [about] establishing the Council").
674At the time of the formation of the Promotion Council, the Council's chairman stated that the council had "the stamp
of approval of the Fair Trade Commission." Shashin Kogyo Junpo, 20 October 1982, US Ex. 46.

Notification 2 of 1953, as amended, requires such associations to file basic information such as the
copy of the articles of association, business plan, membership, and self-regulating measures.675
6.213 Japan further points out that the JFTC has no statutory authority to approve agreements
underlying the Promotion Council. Its action with regard to their agreements on dispatched employees
or "develop-print" price representations676 was a non-binding expressionof the view that the agreements
would not immediately violate the Antimonopoly Law. In that respect, the status of the Promotion
Council isnodifferent fromthatoftheir"ordinary"industryassociations. Accordingly,Japanconcludes
that the Promotion Council's individual activities cannot constitute "measures" for purposes of non-
violation complaints.677
6.214 The United States responds that the exemption created by section 5 of Article 10 of the Premiums
Law applies not only to the establishment of a fair competition code, but also to "such acts of
entrepreneurs or a trade association as have been done in accordance therewith." The United States
also was unaware of any reason to view the Promotion Council differently from the other councils
relevant to this dispute.
(iv) Retailers' Council
6.215 According to the United States, the example of the Retailers Fair Trade Council ("Retailers
Council") displays the relationship between a trade association and a fair trade council and is illustrative
of the powers effectively delegated to a trade association by the Japanese Government:
6.216 The United States submits that, since its inception, the Retailers Fair Competition Code
("Retailers Code")678 has essentially been administered by the photographic retailers trade association,
or Zenren, acting as the Retailers Council. According to the United States, it was Zenren that asked
the JFTC to approve the establishment of the Retailers Code and since then Zenren officials have
dominated the Fair Trade Council's board of directors.679 Moreover, Zenren's official journal, Zenren
Tsuho,isusedtodisseminateinformationrelatingtoactivitiesof the council.680 Zenren and the Retailers
Council hold annual meetings at the same time and in the same location, and they even occupy the
same offices.681
6.217 Japan points out that the Retailers Council, which is responsible for the observance of the
Industry Code, is established separately from "Zenren," a national federation of prefecture-wide
photographic products retailers organizations. The Retailers Council has an independent assembly
and an independent board, as well as its own secretariat and budget. In foreign countries, industrial
organizations often serve as an implementation organ for voluntary restraints.
6.218 The United States submits that the Retailers Code specifies sweeping enforcement powers
for the Retailers Council, including enforcement authority under the Premiums Law and other "fair
675The United States mentions that it has requested the Japanese Government to provide copies of the report filed by
the Promotion Council. Although the report would not normally contain business confidential information, the Japanese
Government refused to provide any documentation relating to the Promotion Council.
676Japan states that Kosei Torihiki Joho, the publication the United States cites as an official publication, is in fact not
an official publication.
677The United States confirmed that the Council actions which they believe are problems are their reaction to the VR
campaign, and the 1996 Circular. Japan notes that the 1996 Circular, however, is only an inquiry and does not instruct
members to suspend the service of dispatched employees.
678US Ex. 87-4.
679See, e.g., Zenren Tsuho, June 1987, p. 6-11, US Ex. 87-5.
680See the Retailers Fair Trade Council's 1994 and 1995 fiscal year business plans.
681Zenren Tsuho, August 1987, pp. 16-20, US Ex. 87-7.

trade" laws.682 Article 15 of the Code outlines the Retailers Council's powers to investigate suspected
violations683 and Article 16 specifies penalties684 in the case of a business operator's non-compliance
with the Code.
6.219 Japan contends that the Retailers' Code, constitutes self-regulation among business entities
approved by the JFTC in accordance with the Premiums Law. In Japan's view, the Retailers Council
is a voluntary organ established by the Code to implement the self-regulation. Nor does Article 14,
paragraph 7 of the Retailers Code serve as a basis to confer on the Retailers Council authority to enforce
the Premiums Law. It onlygives the Council the task of making the Premiums Law or the Antimonopoly
Law more widely understood and observed.
(v) Federation of Fair Trade Councils
6.220 The United States furtherpointsoutthatthe JFTC has delegated certain authoritytoan umbrella
organization of fair trade councils, i.e., the Federation of Fair Trade Councils (the "Federation"), to
manage the operation of Codes. The Federation was established by the Japanese Government in 1979
to promote, coordinate, and cooperate in the implementation of fair competition codes, conduct surveys
on the degree of compliance with them, and perform other duties pertaining to the prevention of
violations of the Premiums Law.685 The JFTC convenes the Federation annually to determine policy
relating to fair competition codes and fair trade councils, and reports on the Federation activities in
its legally mandated Annual Report to the Japanese parliament.686 According to the United States,
the Retailers Council executive director regularly participates in policy meetings with senior officials
of the JFTC. Furthermore, the JFTC regularly issues awards through the Federation to reward the
activities of the fair trade councils.
682Article 14 of the Retailers Code provides: "The Retailers Fair Trade Council shall perform the following:
(1) Activities pertaining to causing the Code to be thoroughly understood.
(2) Activities pertaining to offering consultation and directions in connection with the Code.
(3) Activities pertaining to making adjustments pertaining to how the Code is being observed.
(4) Activities pertaining to investigating the facts when there is suspicion of violation of the Code.
(5) Activities pertaining to taking the necessary steps against those who have violated the Code.
(6) Activities pertaining to processing complaints received from the general consumer.
(7) Activities pertaining to making the Act Against Unjustifiable Premiums and
Misrepresentations and other laws and ordinances pertaining to fair trade widely
understood and preventing violations thereto.
(8) Activities pertaining to liaison with competent authorities.
(9) Activities pertaining to providing information to the members.
(10) Activities pertaining to other activities connected with implementing the Code".
683Article 15 of the Retailers Code provides:
"the Fair Trade Council may summon the parties involved to hear their explanations, send out the necessary inquiries,
obtain the opinions of witnesses, and conduct the necessary investigations for other circumstances".
684Article 16 of the Retailers Code states:
"[w]hen a business operator is found to be in violation ... the Fair Trade Council may serve a written warning
... When the business operator served with the warning as per the above is found not to obey the same, the Fair Trade Council
may levy on the business operator a penalty of up to 500,000 yen, or dismiss it from the membership of the Fair Trade Council,
or when necessary, request that the Japan Fair Trade Commission take the necessary measures".
685The Fair Competition Code System and Status of Establishing Fair Competition Codes, Kosei Torihiki, No. 390, April
1983, pp. 37-38, published by Japan Fair Trade Institute, JFTC, Trade Practice Department, US Ex. 83-8.
6861995 JFTC Annual Report Antimonopoly White Paper, July, 1996, pp. 247-251.

(b) Attributability to the government
(i) Fair Competition Codes
6.221 The UnitedStates claims thatthe Japanese Government shouldbear responsibilityfor the effects
of fair competition codes and the activities of fair trade councils, including trade associations acting
under aegis of a code or council because the codes and councils are the creation of Japanese law,
specifically Article 10 of the Premiums Law. Subsection (1) of that provision provides:
"Businesses or a trade association may, upon obtaining authorization from the Fair
Trade Commission in accordance with the Rules of the Fair Trade Commission, with
respect to matters relating to premiums or representations, conclude or establish an
agreement or a code, aiming at preventing unjust inducement of customers and
maintaining fair competition. The same shall apply in the event alterations thereto
are attempted".687
In the view of the United States, Article 10(1) makes clear that the establishment of the code is subject
to approval by the JFTC. Similarly, Article 10(3) states that the operation of the codes and councils
is subject to JFTC supervision.
6.222 The United States emphasizes that the power of the Retailers Council and Zenren - like all
other councils and trade associations - is even greater because Article 10 of the Premiums Law exempts
their activities from antitrust enforcement. Article 10(5) of the Premiums Law states that:
"TheprovisionsofSection48[recommendation,recommendationdecision]andSection
49 [initiation of hearing procedures], Section 67(1) [urgent injunction] and Section
73 [accusation] of the [Antimonopoly Law] shall not apply to the fair competition code
that has been authorized under Subsection (1), and to such acts of entrepreneurs or
a trade association as have been done in accordance therewith".
6.223 Japan replies that council actions under an approved code are not exempt from the operation
of the substantive provisions, e.g., prohibitions of unfair trade practices, of the Antimonopoly Law.
For the JFTC, anything a council does is actionable, just as activities of other associations. The only
legal consequence of the JFTC approval is that it must first revoke the approval before it enforces the
Antimonopoly Law against an approved code or implementation thereof.
6.224 Japan explains that according to Article 10 of the Premiums Law entrepreneurs or a trade
association may conclude or establish a code ("fair competition code"), aiming at the prevention of
unjust inducement of customers and maintaining fair competition. The Law also provides that such
code be concerned with matters related to premiums or representations, and that it must be approved
by the JFTC.688 Accordingly, with regard to other matters, such as the dispatch of employees,
entrepreneurs cannot conclude a "code". Japan submits that the JFTC may approve a "code" only
when it is found to meet strict conditions.689 Before deciding whether or not to approve a "code",
the JFTC holds public hearings to receive opinions from general consumers, people of learning and
knowledge as well as representatives from enterprises concerned. The Premiums Law further provides
687US Ex. 62-6 (emphasis added).
688Article 10 (1) of the Premiums Law.
689According to Article 10 (2) Premiums Law a "code" may be approved only if:
(i) it is appropriate for preventing unjust inducement of customers and to maintain fair competition;
(ii) it is not likely to impede unreasonably the interests of consumers in general or the related entrepreneurs;
(iii) it is not unjustly discriminatory; and,
(iv) it does not restrict unreasonably the participation in or withdrawal from the fair competition code.

the JFTC with oversight authority, allowing the JFTC to subsequently revoke its approval. When the
JFTC approves a "code", it is published in the official gazette. Japan argues that the approval by the
JFTC has the effect of a confirmation that the content of the "code", as well as acts done in compliance
with the code, does not violate the Antimonopoly Law.690
(ii) Fair Trade Councils
6.225 Japan explains that, for the purpose of implementing and observing the code effectively, the
parties (entrepreneurs) to the "code" usually organize themselves into a private body called a fair trade
council, composed of the members of the code, which are legally distinct from the existing trade
association. Although approved codes may contain provisions on the establishment and operation of
councils, in Japan's view, the councils remain private organizations because the approval of the
establishment of an organization composed of private parties does not render the organization a
governmental entity. Many codes provide that the council may or must take the following actions:
(a) The council is to report to the JFTC the decisions made at the annual meetings of the
council.
(b) The council is to report to the JFTC the fact of having taken such actions as
(i) requiring breach-of-contract damages for the disobedience of the code, or
(ii) expulsion of a member who did not obey the code.
(c) The council may request the JFTC to take necessary measures against those members
who did not obey the fair competition code.
The actions in (a) and (b) above are intended to ensure that the JFTC is informed of main developments
regarding the operation of the code. With regard to actions in (c) above, the JFTC is not obliged to
take any action in response to such approaches from the councils.
6.226 Japan states, however, thatit is not obligatoryfor a code to have provisions regarding the above-
mentioned actions. They are included in the code based on the voluntary decision of the members
of the code. Japan further notes that councils are not required to, and actually do not, seek the JFTC's
approval on such matters as its annual business plan or budget, appointment of personnel, or its individual
actions. Japan further emphasizes that fair trade councils are not governmental or even semi-
governmental organizations, and their executive committee members or its staff are not government
officials.
6.227 The United States alleges that, in effect, the Japanese Government has delegated enforcement
authorityunderthe Premiums Lawtofair trade councilsandthe industrytrade associationsthatcomprise
them. According to the United States, by its very terms, the Premiums Law delegates enforcement
authority to trade associations acting as fair trade councils, empowering them to implement JFTC-
approved fair competitioncodes. Accordingto the United States, inthis light,the directorof the JFTC's
division on premiums has explained that
"[t]he approval of the Code means that the role we play to take enforcement actions
on violations will be left to the Fair Trade Council. If this expectation is not met,
[the approval] will have no meaning".691
According to the United States, e.g., Members of the Retailers Council have echoed his sentiments,
stating that "[t]he retailers fair trade council is just like a subcontractor for the JFTC".692
690Article 10 (5) Premiums Law.
691Zenren Tsuho, July 1987, p. 7, US Ex. 87-5. Japan contends that "teki-hatsu" should be translated as "discovery"
rather than as "enforcement action". See translation issue 20.
692Shukan Shashin Sokuho, 7 August 1987, p. 3, US Ex. 87-9.

6.228 The United States further points out that the JFTC, through its approval of the code, confers
not only broad authority on private parties to act as surrogate enforcers, but also exempts them from
prosecution for their activities. As the JFTC has explained, "even if the contents of the codes or the
activities based on the codes violate the Antimonopoly Law, no control measures will be taken based
on the Antimonopoly Law".693
6.229 Japan contends that the enforcing authority of the JFTC may not be delegated to a private
body. The kinds of actions which the United States cites as examples of delegation of power are the
ones which a council may undertake on its own.694
6.230 As to the nature of the relationship between the JFTC and the fair trade councils, Japan notes
that the JFTC enforces only the Premiums Law and not the codes. Since fair competition codes are
agreements among private entrepreneurs, the specific performance of the codes to the members is
ultimately effected by the court. Japan explains that the JFTC is empowered by Article 10 of the
Premiums Law to approve a fair competition code drafted by entrepreneurs or a trade association.
The amendment of the code also requires the JFTC's approval. The Premiums Law has no provision
referring to the council as such. Although codes approved by the JFTC usually contain provisions
on councils, the JFTC's legal relationship with the councils is the same as that with ordinary private
organizations or enterprises. The JFTC would be ready to take appropriate steps, should the councils
be found to be obstructing fair competition.
6.231 Japan emphasizes that fair trade councils are not delegated any powers from the JFTC. With
regard to the relations between the JFTC and the prefectural governments, Articles 9:2 to 9:5 of the
Premiums Law provide that certain powers are delegated to the latter. However, no such provision
exists in Article 10 of the Premiums Law, which deals with fair competition codes. From that, it is
clear for Japan that the JFTC cannot delegate any power to non-governmental bodies without explicit
authorization by the law.
6.232 Japan points out that the self-regulation codes are not enforceable to members without being
approved and published by the JFTC. They are naturally not enforceable to non-members, either.
Japan points out that such self-regulatory codes are effective so long as they do not contravene the
Antimonopoly Law.695 However, JFTC-approved codes are applicable to members and can be enforced
by courts. According to Japan, many codes have a provision that enables the council to take certain
actions against those who do not obey the codes, such as requiring a breach-of-contract damages or
expulsion from the code. In this sense, one may be able to say that the code is "enforceable" by the
fair trade council. However, Japan emphasizes thatthe JFTC has nopower to approve individualactions
taken by the organization composed of the members of the code (the fair trade council). Moreover,
many codes provide that the works of the council include:
693Jirei Dokusen Kinshi Ho, 15 December 1995, p. 442, US Ex. 95-20.
694Japan states that, e.g., anybody may establish "self regulation for fire prevention", and take enforcement actions, such
as a survey, imposition of a penalty, or a request for an action with the appropriate authorities.
695The JFTC will regulate self-regulatory agreements when they fall upon one of the following:
(i) theself-regulatory agreementsconstitute"unreasonablerestraintoftrade"byentrepreneurs, suchascartel,
(Article 3 of the Antimonopoly Law)
(ii) the self-regulatory agreements constitute either
(a) substantial restraint of competition by a trade association, or
(b) unjust restriction of the function or activities of the members of the code.
(Article 8 of the Antimonopoly Law).

(i) making the code better known,
(ii) looking into the possible disobedience of the codes and taking certain actions against
it, and
(iii) preventing the violation of the Premiums Law.696
In Japan's view, since all of these are actions taken in conformity with an agreement among private
parties (i.e., the code) with a view to complying with the rules in the code and the Premiums Law,
they cannot be regarded as the use of powers delegated to the council by the JFTC.
6.233 In Japan's view, the fact that councils are authorized to impose "penal fines" on members who
violated the codes, is not a case of delegated power. Private persons are basically free to agree (a)
that they abide by a certain rule and (b) that those who have broken the rule pay breach-of-contract
damages. It takes no delegation of governmental power to make and comply with such an agreement.
In many instances, the code provides that when the council has required breach-of-contract damages
for the disobedience of the code, the council is to report the fact to the JFTC. Such a provision is
intended to make sure that the JFTC is informed of main developments regarding the operation of the
code. It is nothing but an "ex post facto" notification, and does not indicate the JFTC's "involvement
in" or "responsibility for" the activities of the councils.
(iii) Conclusions
6.234 The United States contends that the Japanese Government established its private-sector-enforced
code system, at least in part, to counteract the perceived superior marketing abilities and promotion
budgets of foreign firms. The United States quotes a leading Japanese antitrust scholar who explained
that "[F]air competition codes can also be effective in controlling firms if they disturb the market.697
Given these circumstances, the United States takes the position that the activities of these councils and
associations are attributable to the Japanese Government and fall within the purview of the WTO and
this Panel.
6.235 The United States emphasizes that Japan's present position, i.e., that the effects of the codes
and councils cannot be attributed to the government, contradicts the position it took in the 1987 Japan -
Customs Duties, Taxes and Labelling Practices on Imported Wines and Alcoholic Beverages case.698
In its submission to that panel, Japan stated that "labelling of alcoholic beverages in Japan is regulated
by a range of legal controls as follows: ... (iii) fair competition codes in accordance with the said
Act [against Unjustifiable Premiums and Misleading Representations]."699 Japan further explained:
"Article 10 of the [Premiums Law] establishes the fair competition code system. While
the code is a rule voluntarily set by the industry concerned with a view to contributing
the correct selection by consumers and assuring fair competition, it requires approval
696The items usually listed in the code as the works of the council are as follows:
(i) making the codes better known;
(ii) consultation and giving advice on matters related to the code;
(iii) surveys on the situation regarding the compliance of the code;
(iv) surveys regarding possible disobedience of the code;
(v) taking actions against members who did not obey the code;
(vi) dealing with complaints from consumers;
(vii) making the Premiums Law and other laws related to fair trading better known, and preventing the violation
of such laws; and
(viii) getting in contact with the government agencies concerned.
697Matsushita Mitsuo, Antimonopoly Law and International Transactions, 25 May 1970, pp. 83-84, US Ex. 70-2.
698Panel Report on Japan - Customs Duties,Taxes and Labelling Practices on Imported Wines and Alcoholic Beverages
("Japan - Liquor Taxes and Labelling Practices"), adopted on 10 November 1987, BISD 34S/83.
699Submission of Japan to the panel in Japan - Liquor Taxes and Labelling Practices, Annex 9, p. 15 (emphasis added).

by the Fair Trade Commission. This fair competition code provides for sanctions
(imposition of a penal sum) against disobedience of the stipulated obligations, in order
to ensure its proper enforcement."700
6.236 In this regard, the panel on Japan - Liquor Taxes and Labelling Practices stated in the section
on "factual aspects":
"Japan enacted various legal regulations in order to prevent the use of trade names
in such a manner as to misrepresent the true origin of a product, including the Law
for the Prevention of Unfair Competition, the Act Against Unjustifiable Premiums and
Misleading Representations, a range of "fair competition codes" voluntarily laid down
by each industry concerned pursuant to Article 10 of the latter Act and approved by
the Fair Trade Commission, and the Law Concerning Liquor Business Association
and Measures for Securing Revenue of Liquor Tax".701
6.237 According to the United States, Japan took this position to demonstrate that it had met its
obligations under Article IX:6 of GATT, which requires Members to cooperate with one another to
protect the trade names of foreign products. In the US view, Japan should not be able to take credit
for its system of codes and councils to suit its position in an earlier proceeding only to later claim that
the codes and councils have nothing to do with the government.
6.238 Japan responds that a "fair competition code" is an agreement among private parties for
autonomous control. The passage in the quoted panel report specifically states that "fair competition
codes [are] voluntarily laid down by each industry concerned". At the same time, a code approved
by the JFTC is also an enforceable agreement. In Japan's view, the expression of "legal regulations"
in the above-mentioned report was used in this sense.
6.239 Japan further contends that a fair competition code does not by itself constitute a "measure"
of the Japanese Government for the following reasons:
(i) A fair competition code is an agreement, or a contract, among non-government industry
members. Its enforcement will have to be effected, ultimately, by the judiciary, and the JFTC
has no role to play in the enforcement process. It is only when parties to the code fail to observe
the Premiums Law, Notifications, or other JFTC regulations, that the Commission takes any
action.
(ii) Industry members may freely choose whether or not to participate in a code. The JFTC
does not demand membership.
6.240 Japan further submits that also individual activities carried out by a fair trade council or other
industry association are not "measures". Japan notes that a fair trade council is not granted a particular
status in the law, nor is it subject to special control or guidance of the Government:
(i) The concept or the status of a fair trade council is not defined or regulated by the law.
It is an establishment defined and provided for in a code. It is treated as an "industry's
association" in no way differently from other such organizations.
700Ibid. p. 26.
701Panel Report on Japan - Liquor Taxes and Labelling Practices, adopted on 10 November 1987, BISD 34S/83, 86-87
para. 2.7.

(ii) There is no de jure or de facto presumption of lawfulness conferred on individual
activities of a fair trade council. Conversely, unless the council commits an unlawful
activity, the JFTC is not authorized to require reporting from the body.
(iii) Participation in a fair trade council is not mandatory.
6.241 Japan further emphasizes that there is no fair competition code which is applicable to photographic
film and paper.
6.242 In summary, Japan concludes that activities of fair trade councils or other industry association
of this type cannot constitute a governmental "measure" within the purview of Article XXIII:1(b).