Document: WORLD TRADE WT/DS62/R WT/DS67/R WT/DS68/R ORGANIZATION 5 February 1998 (98-0277) Original: English European Communities - Customs Classification of Certain Computer Equipment Report of the Panel
Date: 5 February 1998
Document codes: WT/DS62/R; WT/DS67/R; WT/DS68/R
Complainant: U.S.
Respondent: EU
Third parties: India, Japan, South Korea, Singapore
Dispute stage: Appellate Body
Agreements cited: Art. II  GATT 1994

European Communities - Customs Classification
of Certain Computer Equipment
Report of the Panel
The report of the Panel on European Communities - Customs Classification of Certain Computer
Equipment is being circulated to all Members, pursuant to the DSU. The report is being circulated
as an unrestricted document from 5 February 1998 pursuant to the Procedures for the Circulation and
Derestriction of WTO Documents (WT/L/160/Rev.1). Members are reminded that in accordance with
the DSU only parties to the dispute may appeal a panel report, an appeal shall be limited to issues
of law covered in the panel report and legal interpretations developed by the panel, and that there shall
be noex partecommunicationswiththe panel or AppellateBodyconcerningmatters underconsideration
by the panel or Appellate Body.
Noteby the Secretariat: This PanelReport shallbe adopted bythe Dispute Settlement Body(DSB) within60 days afterthe dateof itscirculation
unless a party to the dispute decides to appeal or the DSB decides by consensus not to adopt the report. If the Panel Report is appealed
to the Appellate Body, it shall not be considered for adoption by the DSB until after the completion of the appeal. Information on the current
status of the Panel Report is available from the WTO Secretariat.

I. INTRODUCTION
1.1 On 8 November 1996, the United States requested consultations with the European Communities
(EC) pursuant to Article 4 of the Understanding on Rules and Procedures Governing the Settlement
of Disputes (DSU) and Article XXII:1 of the General Agreement on Tariffs and Trade 1994
(GATT 1994) regarding tariff reclassification by the customs authorities of the EC and their member
States of Local Area Network (LAN) equipment and personal computers (PCs) with multimedia capability

1.2 Korea and Canada requested, in communications dated 22 and 25 November 1996, respectively
(WT/DS62/2 and WT/DS62/3), to be joined in the consultations, pursuant to paragraph 11 of Article 4
of the DSU.
1.3 Consultations were held between the United States and the EC on 23 January 1997, with Korea
and Canada participating. The consultations did not result in a resolution of the dispute. As a result,
in a communication dated 11 February 1997 (WT/DS62/4), the United States requested the establishment
of a Panel. Accordingly, the Dispute Settlement Body (DSB) at its meeting of 25 February 1997
established a panel with the following terms of reference:
"To examine, in the light of the relevant provisions of the covered agreements cited by the
United States in document WT/DS62/4, the matter referred to the DSB by the United States
in that document and to make such findings as will assist the DSB in making the
recommendations or in giving the rulings provided for in those agreements".
1.4 The United States, incommunications dated 14 February 1997 (WT/DS67/1 and WT/DS68/1),
requested consultations with the United Kingdom and Ireland. These requests were made pursuant
to Article 4 of the DSU and Article XXII:1 of the GATT 1994 and concerned the tariff reclassification
by the customs authorities of the United Kingdom of LAN equipment and PCs with multimedia capability,
and the tariff reclassification by the customs authorities of Ireland of LAN equipment.
1.5 Korea requested in a communication dated 28 February 1997 (WT/DS67/2) to join in the
consultations requested by the United States with the United Kingdom.
1.6 On 24February 1997,the United KingdomandIrelandrespondedbyreferring theUnited States
to a letter of the same date, in which the European Communities officially informed the United States
that the requested consultations would not be entered into. As the United Kingdom as well as Ireland
had declined to enter into consultations, the United States, in communications dated 7 March 1997,
proceeded directly to request the establishment of two Panels; one to examine the measures taken by
the United Kingdom (WT/DS67/3), and the other to examine the measures taken by Ireland
(WT/DS68/2).
1.7 At its meeting of 20 March 1997, the DSB agreed to modify, at the request of the parties to
the dispute, the terms of reference of the Panel established at its meeting on 25 February 1997 so that
the panel requests by the United States contained in documents WT/DS67/3 and WT/DS68/2 would
be incorporated into the mandate of the already existing Panel.
1.8 The modified terms of reference of the Panel are as follows:
"To examine, in light of the relevant provisions in the GATT 1994, the matters referred to
the DSB by the United States in documents WT/DS62/4, WT/DS67/3 and WT/DS68/2, and

to make such findings as will assist the DSB in making the recommendations or in giving the
rulings provided for in that agreement".
1.9 In light of this decision, the DSB agreed not to establish separate panels pursuant to the requests
submitted by the United States and circulated as documents WT/DS67/3 and WT/DS68/2.
1.10 The DSB also took note that the parties had agreed that the "panel established on
25 February 1997, with the terms of reference as modified at the present meeting, will be able to
consider, and rule upon, any matter that might have been considered if separate panels had been
established in response to those panel requests".
1.11 Furthermore, the DSB took note "that the modification of the terms of reference of the panel
established on 25 February 1997 is without prejudice to the interpretation of the European Communities
and its member States of the provisions of Article 4, paragraph 3 of the DSU, with regard to the 30-day
period referred to in the second sentence of that paragraph".
1.12 The parties to the dispute agreed on 18 April 1997 to the following composition of the Panel:
Chairman: Mr. Crawford Falconer
Members: Mr. Ernesto de La Guardia
Mr. Carlos Antonio da Rocha Paranhos
India, Japan, Korea and Singapore reserved their rights as third parties to the dispute.
II. FACTUAL ASPECTS
A. Product Description
1. Local Area Network equipment1
2.1 A LAN is an interconnection of a number of computers and computer peripherals (for example,
printers, input units, memory units, etc.) using a cabling system. These cables physically interconnect
allthe individualdevices toenable them tocommunicate through the transmission of data. The principal
types of LANs are Ethernet, Token Ring and Fibre Distributed Data Interface (FDDI). A LAN
is distinguished from other types of data networks in that the communication is usually limited to a
discrete area such as a single office building, a warehouse or a campus.
2.2 In order for PCs to participate in a LAN, they must be connected to each other. This connection
has traditionally been made via an adapter, which is inserted in the PC. An adapter card or network
card is a small electronic card generally incorporated into the PC within a network. It converts,
processes and formats data for transmissionwithin the computing environmentor outsideof the network
thereby acting as the interface between multiple systems that may employ different technologies.
2.3 If the LAN becomes bigger (for example, larger number of PCs are concerned or larger distances
to be covered), more components are needed to connect the different elements of the LAN. Examples
1This description of certain LAN equipment has been given using information provided by the EC and the
United States. It is understood that the products described do not present an exhaustive list of all LAN components.

of such components are a hub (or concentrator). With a hub all the PCs in the LAN have a wire or
cable leading from the LAN adapter card to a shared hub. The computers connected to the hub "see"
all the packets2 sent over the network. However, only the intended recipient PC "recognizes" the
destination address, which triggers it to process the incoming packet. In this arrangement, only one
computer in the LAN can transmit data at a time. Hubs may also act as network managers, by collecting
informationaboutthe statusof each networkportand activatingorshuttingdowna portwherenecessary.
2.4 Computers sharing a single hub are referred to as a LAN segment. Segments can be connected
to other segments by means of a device called a bridge. A bridge hands data from one segment to
the next, and affords security within a network as segments are partitioned from one another, thereby
permitting restricted access to individual segments where necessary. In a typical LAN bridge
architecture, a number of networks orsegments will be bridgedto each other creating a circle of bridges,
one of which acts as an inactive back-up which will activate or "boot" on failure of an existing active
bridge.
2.5 A router is another device used to link segments within a local area network or to link more
than one local area network. Unlike the bridge, it is aware of exact destination addresses within a
network and can optimize the route by which the data is to be delivered within the network. It segments
a network in the same manner as a bridge, filters data, offers security, and protects data from "traffic
jams".
2.6 Another way to organize a LAN is to use LAN switches. As noted above, the limitation of
using a hub is that only one computer can transmit data at a time. With a switch, packets are directed
only to their intended destination and therefore the system can direct packets from several sources to
several destinations at one time.
2.7 A repeater is a device that regenerates data which is being routed from one part of the computer
network to another. The repeater receives, builds and passes on the signal within a LAN, so that it
can still be "heard" by the time it reaches its destination.
2.8 A network may use a variety of media to link up the various units operating on the LAN, for
example optical fibre converter, thick or thin coaxial cable, shielded or unshielded twisted pair
cable. Media interface modules (MIMs) are used to allow these different media to be connected
into one network. A multistation access unit or multi media access center is a unit combining a
repeater module and a number of media interface modules.
2. Personal computers with multimedia capabilities3
2.9 From their inception, computers have had the ability to process data in the form of digital,
video and audio media. However, factors such as cost, memory capacity and speed rendered it
impractical to incorporate these types of functions into most early PC models. In the late 1980s and
early 1990s, continuing technological developments enabled PCs to process digital data streams more
effectively and efficiently, resulting in the appearance of personal computers with multimedia capabilities.
Such equipment, which may include a large capacity data storage unit such as a CD-ROM drive, is
2Specialized software formats data into "packets", which can then be sent from one PC to another. The formatted
data will include a source address, a destination address and control information which is used by the network
to direct packet through the network.
3The description has been given using information provided by the EC and the United States.

able to use computing technology to produce sounds, images or video, and may have specialized circuitry
(i.e. a TV tuner card) which allows the computer to convert a television reception signal into a digital
data stream for display on the computer's monitor.
B. Tariff concessions contained in EC Schedule - LXXX relating to items under tariff headings
84.71, 84.73, 85.17, 85.21 and 85.28
2.10 Schedule LXXX provides that the base rate on "automatic data processing machines and units"
under HS heading 84.71 will be reduced from 4.9 per cent to a final bound rate of either 2.5 per cent
or duty free depending on the product. For "parts and accessories of machines under 84.71" covered
by HS heading 84.73, and more particularly electronic assemblies, the base rate of 4 per cent is to
be reduced to 2 per cent. In the case of parts and accessories of such machines other than electronic
assemblies, the base rate of 4 per cent will be reduced to duty free. In the case of "electrical apparatus
for line telephony or telegraphy" under HS heading 85.17, the base rate of 7.5 per cent is to be reduced
to3.6 per cent or dutyfree, and the base rate of 4.6 per cent to 3.6 per cent or 3 per cent. For products
underHSheading85.21concerningvideorecordingorreproducingapparatus, noreductionisenvisaged
and the bound rates are either duty free, 8 per cent or 14 per cent. Heading 85.28 pertaining to television
receivers have bound rates of 8 per cent and 14 per cent with no reduction envisaged on any item with
the exception of black and white or other monochrome television receivers which will have their base
rate of 14 per cent reduced to 2 per cent. Regarding the staging of these tariff reductions, according
to the Marrakesh Protocol to the GATT 1994, "... The tariff reductions agreed upon by each Member
shall be implemented in five equal rate reductions, except as may be otherwise specified in a Member's
Schedule." The first such reduction was to be made effective upon the entry into force of the WTO
Agreement and each successive reduction is to be made effective on 1 January of each following year.4
C. Classification determinations in the EC, Ireland and the United Kingdom
1. Commission Regulations
(a) Classification procedure in the EC
2.11 The European Communities form a customs union.5 Accordingly, on imports from third
countries, a Common Customs Tariff (CCT) is applied.6 While the CCT is adopted centrally by the
EC, the member States' customs authorities are involved for the purpose of administration. When
goods arrive at the Community frontier for customs clearance, the customs authorities of the member
4See Annex 1. Additionally, a note on "Implementation of Concessions" in Section II (Other Products) of
Part I (Most-Favoured-Nation Tariff) of Schedule LXXX reads as follows: "Should the US not implement its
concessions under the conditions set out in Note 2 to Chapter 84 and Note 12 to Chapter 85 in its schedule, the
EC reserves the right to do the same with respect to the concessions indicated in this schedule for the following
headings: ... Chapter 85; 85.17.10.00; 85.17.20.00; 85.17.30.00; 85.17.40.00: 85.17.81.10; 85.17.81.90;
85.17.82.00; 85.17.90.90; Ex1 New, Ex2 New; 85.17.90.91; Ex1 New, Ex2 New; 85.17.90.90, Ex1 New,
Ex2 New; ...". Consequently, the applied duty rate in the European Communities for these products under heading
85,17 has been 7.5 per cent since 1995.
5Articles 12 to 17 of the Treaty Establishing the European Communities.
6Articles 18 to 29 of the Treaty Establishing the European Communities.

State through which the goods are imported in the EC territory apply the CCT determined for that
year.7 The customs authorities check which heading of the CN the importer has mentioned on the
declaration forms and apply the corresponding duty of the CCT. It is possible that, as may occur
in any customs administration, customs authorities in different member States classify a product
differently, which could lead to different duties being applied. It was indicated that, for this reason,
the EC has put into place mechanisms in order to detect and remedy any such divergent practices.8
2.12 When divergences on a classification matter have been detected, the Tariff and Statistical
Nomenclature Section (TSNS) of the Customs Code Committee which is composed of representatives
of the member States and chaired by representativesof the Commission9, examines the issue and advises
on what it views the correct classification to be. The Committee may examine a matter referred to
it by its Chairman either on the Chairman's initiative or at the request of a representative of a member
State. Following the opinion of the Committee, the Commission may adopt a Regulation concerning
the classification of goods. Where the Commission does not agree with the Committee's opinion, or
where no opinion is delivered within the time-limit set out by its Chairman, the Commission presents
its proposal to the Council, which takes a decision through a qualified majority. A classification
Regulation, adopted either by the Commission or the Council is binding in its entirety and directly
applicable in all member States of the European Communities.
2.13 It is also possible that where an individual believes that a customs decision is based on an
incorrect classification of goods, the customs decision may be attacked before the national tribunals
and courts of the member State in question. If the national tribunal or court considers it unclear how
the product should be classified, it may refer the case to the European Court of Justice (ECJ).10 As
such the ECJ can clarify classification issues in its case law.
7"The Commission shall adopt each year by means of a Regulation a complete version of the combined
nomenclature together with the corresponding autonomous and conventional rates of duty of the Common Customs
Tariff, as it results from measures adopted by the Council or by the Commission. The said Regulation shall
be published not later than 31 October in the Official Journal of the European Communities and it shall apply
from 1 January of the following year." (Article 12 of Council Regulation (EEC) No. 2658/87, OJ 1987 L 256/1).
8In particular, the EC has created a data base containing all Binding Tariff Information (BTI - see section
2(a) for "Definition and Evolution of BTIs within the EC") issued within the EC. Customs authorities must
consult this data base before issuing a new BTI in order to make sure that they are aware of the classification
practices as contained in the BTIs of all other customs authorities in the EC. If they discover in the data base
that their own classification practice differs from that of any other customs authority in the EC for a similar product,
they must consult with such other customs authority. If the customs authorities directly concerned cannot agree
on a common approach, the internal co-ordination process of the EC is set in motion.
9Article 7 of Council Regulation 2658/87, OJ 1987 L 256/1.
10Article 177 of the Treaty Establishing the European Communities.

(b) Commission Regulation (EC) No 1165/9511 on LAN Adapter Cards
2.14 On 23 May 1995, the Commission of the EC adopted Regulation (EC) No. 1165/95 which
classifiedLANadapter cards underthe Combined Nomenclature (CN) Code12 8517.8290whichcovers:
"Electrical apparatus for line telephony or line telegraphy, including such apparatus for
carrier-current line systems:
- Other apparatus
--Telegraphic
---other"
2.15 The stated intention of this Regulation was to ensure that henceforth LAN adapter cards were
classified in HS heading 8517.8290 in face of the fact that certain member States had issued Binding
Tariff Information13 under a heading other than the one considered appropriate for this product. The
Regulation states that an adapter card is for "incorporation in cable linked digital automatic
data-processing(ADP) machines enabling the exchange of data over a local area network (LAN) without
using a modem. With such a card, an ADP-machine can be used as an input-output device for another
machine or a central processing unit. The card constitutes a printed circuit of a size of about 10x21 cm
incorporatingintegratedcircuitsandactive and passivecomponents. It isfittedwitha rowof pincontacts
corresponding to an expansion slot in the ADP-machine with an attachment to the connection cable
of the LAN and light emitting diodes (LEDs)".
2. Binding Tariff Information (BTI)
(a) Definition and evolution within the EC
2.16 A natural or legal person wishing to know how goods planned for export or import are classified
by the national customs authorities of the member State through which the goods will enter the EC
market, may requesta BTI. A BTIconstitutesa commitmentof the relevant customsauthoritiesvis-à-vis
the individual applicant on how they will read the nomenclature and classify the goods described in
the request for customs purposes.
2.17 Prior to 1991, BTIs only existed, on the basis of national law, in Germany and could only
be obtained and used for customs clearance there. This practice was extended Community-wide with
the stated rationale of encouraging import and export trade by facilitating the conclusion of medium-and
long-termcontractsforidenticalgoodsonthe basisof reliablecustomsinformation. Thiswas introduced
in the EC by Council Regulation No. 1715/90 with rules for implementation contained in Commission
Regulations Nos. 3796/90 and 2674/92. The first two of these Regulations entered into force on
1 January 1991, and on the basis of these provisions, BTIs could be obtained from a customs office
in a particular member State, but could not be used for customs clearance in the customs offices of
11See Annex 2.
12The EC's Combined Nomenclature (CN) Code provided for in Council Regulation (EEC) 2658/87 of 23
July 1987, is based on the Harmonized Commodity Description and Coding System. The Harmonized System
(HS) was established by the International Convention on the Harmonized Commodity Description and Coding
System on 14 June 1983, and the EC adhered to this Convention on 7 April 1987, by means of a Council Decision
87/369. It entered into force in the EC on 1 January 1988.
13See section 2(a) of this text for "Definition and Evolution of BTIs within the EC".

a member State other than the one whose customs authorities had issued the BTI. On 1 January 1993,
Commission Regulation No. 2674/92 which stipulated for the first time that BTIs issued by the customs
authorities of one EC member State were binding on customs authorities of all other EC member States,
came intoforce. These ruleshave now been consolidated inCouncil Regulation No. 2913/92 containing
the Community Customs Code and by Commission Regulation No. 2454/93 containing implementing
provisions for the Community Customs Code. These implementing provisions entered into force on
1 January 1994 as provided in Article 915 of Commission Regulation 2454/93.
(b) Withdrawal and re-issuance of BTIs by the Ireland Revenue Commission concerning
LAN equipment
2.18 By letter of 28 April 1995, the Ireland Revenue Commission withdrew BTIs it had issued on
11 August 1993 to a company Cabletron Systems LTD, in which it had classified units of bridges,
routers, hubs, repeaters, media interface module and multi media access centre in CN
heading 8471.99.10000, dutiable at 4.9 per cent. Simultaneously, it issued new BTIs classifying these
products under 8517.8290, dutiable at 7.5 per cent. In their letter to Cabletron, the Irish authorities
had statedthatthisactionhad beentaken followingdiscussionsbytheTariff andStatisticalNomenclature
Section (mechanical sector) of the Customs Code Committee (Nomenclature Committee) of the European
Union on the classification of networking equipment and the issuance of Commission Regulation (EC)
1638/94 which classified adapters and transceivers in CN heading 85.17. The letter also indicated
that discussion had been taking place at the Nomenclature Committee on the classification of network
cards, that agreement had been reached that these products should be classified at CN heading 85.17,
that a classification regulation was being drafted and that the Irish authorities would be amending
Cabletron's BTIs for network cards as soon as the classification regulation was published. After the
publication of Regulation 1165/95, the Irish authorities withdrew Cabletron's BTIs for LAN adapter
cards that had been classified at CN heading 84.71. The Irish authorities simultaneously issued BTIs
for these products in CN heading 85.17.
3. Customs determination by the UK HM Customs and Excise concerning LAN equipment
2.19 On 23 March 1992, the UK HM Customs and Excise issued a letter stating that LAN adapter
cards would be classified under heading 8471.9910.900.14 It further specified that "This decision does
not constitute Binding Tariff Information (BTI) within the meaning of Regulation (EEC) 1715/90. On
28 July 1993, UK HM Customs and Excise issued another letter specifying that LAN boards and
repeaters imported in board form were dutiable at 4 per cent under CN code 84.73 ("Parts and
accessories of the machines of heading84.71"); repeaters imported in complete units were to be dutiable
at 4.9 per cent, under classification 8471.9910.900.
2.20 On 5 April 1994, the UK HM Customs and Excise issued a letter which reversed the decision
contained in its letter of March 1992. It indicated that a review had been undertaken of the classification
of networking equipment and on the basis of this review, it had concluded that all networking equipment
including Local Area, Wide Area, Token Ring, Ethernet networks were "appropriately classified as
data transmission apparatus in heading 8517". The reason provided was that apparatus which accepted
data and transmitted it to a local or remote site was performing a data transmission function, which
met the terms of heading 85.17, covering electrical apparatus for line telephony or line telegraphy
which included apparatus for carrier current line systems. It considered heading 85.17 to be more
specific thanheading84.71,whichcoveredunitsofan automaticdata processingmachine. Additionally,
14Although not indicated in the letter, the product was dutiable at 4.9 per cent.

the final paragraph of Chapter 84, note 515 of the Harmonized System16 directed that heading 84.71
did not cover machines incorporating or working in conjunction with an automatic data processing
machine and performing a specific function. The UK HM Customs and Excise further stated that in
its letter dated 23 March 1992, it had classified LAN adapter cards under heading 8471.9910.900,
but to " ... note that all future importations/exportations of these products will be under
heading 8517.82900, duty rate 7.5 per cent".
2.21 In another letter also dated 5 April 1994, the UK HM Customs and Excise provided the same
aforementioned explanations before referring to its letter dated 28 July 1993, in which it had classified
LAN Boards, Repeaters, Token Ring and Ethernet Products under headings 84.71/84.73 and noting
"...that all future importations/exportations of these products will be under heading 8517.8290, duty
rate 7.5 per cent...".
4. UK VAT and Duties Tribunal ruling on PCTVs17
2.22 On 17 April 1996, the UK VAT and Duties Tribunal upheld a customs administration
determination classifying as a "television receiver" under heading 85.28 a multimedia PC.
2.23 The appeal was taken by International Computer LTD (ICL) against a decision of the UK
Customs and Excise Commissioners as to the tariff classification for import customs duty of a Fujitsu
ICL "PCTV". The tribunal stated that this PCTV "is both a multimedia personal computer and a
full function colour television set, integrated within the same unit and using the same screen". ICL
contended thatthemachine shouldbeclassifiedunderheading84.71entitled"Automatic data processing
machines", which carried a duty rate on importation of 4.4 per cent. The Commissioners had decided
that it fell under heading 85.28 - "Television receivers", which carried a rate of duty on importation
of 14 per cent. ICL contended that the PCTV's principal function and/or its essential character was
that of a personal computer. The Commissioners maintained that it was not possible to determine a
principal function; so, when presented with two tariff headings which equally deserved consideration,
they would classify the PCTV under that heading which occurred last in numerical order, namely 85.28
"Television receivers".
15Note 5 of Chapter 84 of the HS: "(A) For the purposes of heading No. 84.71, the expression "automatic
data processing machines" means: (a) Digital machines, capable of (1) storing the processing program or programs
and at least the data immediately necessary for the execution of the program; (2) being freely programmed in
accordance with the requirements of the user; (3) performing arithmetical computations specified by the user;
and (4) executing, without human intervention, a processing program which requires them to modify their execution,
by logical decision duringthe processing run; (b) Analogue machines capable ofsimulating mathematical models
and comprising at least; analogue elements, control elements and programming elements; (c) Hybrid machines
consisting of either a digital machine with analogue elements or an analogue machine with digital elements. (B)
Automatic data processing machines may be in the form of systems consisting of a variable number of separately-housed
units. A unit is to be regarded as being a part of the complete system if it meets all the following conditions:
(a) it is connectable to the central processing unit either directly or through one or more units; (b) it is specifically
designed as part of such a system (it must, in particular, unless it is a power supply unit, be able to accept or
deliver data in a form (code or signals) which can be used by the system). Such units presented separately are
also to be classified in heading No. 84.71. Heading No. 84.71 does not cover machines incorporating or working
in conjunction with an automatic data processing machine and performing a specific function. Such machines
are classified in the headings appropriate to their respective functions or, failing that, in residual headings".
16See footnote 12.
17See Annex 3.

2.24 The tribunal dismissed the appeal. It did not find it possible to determine the principal function
of the PCTV. The tribunal also found it doubtful that the "essential character" criterion was applicable
in classifying a machine such as the PCTV. Even if that criterion was applicable, the tribunal was
not persuaded that the automatic data processing machine was the component which gave the PCTV
its essential character. According to the tribunal, the PCTV was "a new kind of hybrid machine which
was both a PC and a TV," and neither of which gave it its essential character.
III. CLAIMS OF THE PARTIES
3.1 The United States requested the Panel to find that:
- the EC's reclassification of LAN adapter cards under Regulation (EC) 1165/95 resulted in
treatment of those products less favourable than that provided for in Part I of Schedule LXXX
and therefore was inconsistent with obligations under GATT Article II;
- the EC's reclassification of other types of LAN equipment resulted in treatment of those products
lessfavourable thanthat providedfor inPart I of Schedule LXXX and therefore was inconsistent
with obligations under GATT Article II;
- the EC's reclassification of multimedia personal computers resulted in treatment of those products
lessfavourable thanthat providedfor inPart I of Schedule LXXXand therefore was inconsistent
with obligations under GATT Article II;
- theUnited Kingdom'sreclassificationofLANequipmentresultedintreatmentof thoseproducts
less favourable than that provided for in Part I of EC's Schedule of concessions and therefore
was inconsistent with obligations under GATT Article II;
- the United Kingdom's reclassification of multimedia personal computers resulted in treatment
of those productslessfavourable than thatprovided for inPart I of EC's Schedule of concessions
and therefore was inconsistent with obligations under GATT Article II;
- Ireland's reclassification of LAN equipment resulted in treatment of those products less
favourable than that provided for in Part I of EC's Schedule of concessions and therefore was
inconsistent with obligations under GATT Article II;
- the above measures nullified or impaired the value of concessions accruing to the United States
under the GATT 1994.
3.2 The United States also requested that the Panel specify which of these parties was responsible
to the United States for this nullification or impairment and that the Panel recommend that the EC,
Ireland and the United Kingdom bring the treatment of these products into conformity with obligations
under GATT 1994.
3.3 The European Communities requested the Panel to reject the US claims in their entirety.
More specifically:
- the EC requested the Panel to reject the US claims against Ireland and the United Kingdom.
As these member States had not engaged in any tariff bindings vis-à-vis the United States or
any other country, they could not be considered to have violated any obligations under GATT

Article II, nor had they nullified or impaired the value of concessions accruing to the
United States under the GATT 1994;
- moreover, the EC requested the Panel to reject the US claims against the EC, as the EC had
for none of the products concerned committed itself to apply the duty rate bound for computers
during the Uruguay Round. The EC had not reclassified the products concerned, resulting
in treatment of those products less favourable than that provided for in its Schedule. The EC
had consequently not violated any obligations under GATT Article II, nor had it nullified or
impaired the value of concessions accruing to the United States under the GATT 1994.
IV. ISSUES REGARDING THE SCOPE OF THE CLAIM
A. Product Coverage
1. LAN equipment
4.1 The European Communities noted that as established by an earlier panel "Prior to the
commencement of the Panel's examination, ... the product coverage must be clearly understood and
agreed between the parties to the dispute".18 However, this was not the situation in the present case.
The United States, as complainant had failed to define clearly LAN products subject to the dispute,
with the exception of LAN adapter cards. In its first submission, the United States had indicated that
products specifically involved in these tariff disputes were: repeaters, bridges, routers, hubs, adapters
or network cards, optical fibre converters, media interface modules and multistation access units or
multi media access centers. In its pleadings during the first substantive meeting of the Panel, the
United States had stated in very general terms that one of the measures attacked was "the change in
treatmentandresultingincreasesintariffsappliedtootherLANequipment,includingrepeaters,bridges,
routers, hubs, optical fibre converters, media interface modules, and multi station access units". In
its responsestothe questionsby the Panel onthis matter, the United States had presented an enumeration
of LAN components, including this time LAN adapter cards, LAN controllers, LAN repeaters, LAN
interface units and bridges, LAN concentrators, LAN switches, LAN hubs and LAN routers. With
regard to controllers and switches the EC noted that these items were not included in the original US
claim. Moreover, the United States appeared to have dropped equipment which it had originally
designated as LAN equipment, notably optical fibre converters and multi media access centres.
Therefore, in the EC's view, the only products relating to LAN equipment that were subject to dispute
were LAN adapter cards. With regard to all other LAN equipment, the United States had failed to
identify with sufficient precision and consistency which items were concerned by its original complaint.
4.2 The United States asserted that it had specified that the products at issue were LAN equipment,
both LAN adapter cards and other LAN equipment. There was nothing vague about the consultation
or panel requests by the United States in this respect: the term used in the trade was LAN equipment.
Those products were classifiable as "automatic data processing equipment" in the Schedule maintained
by the EC, Ireland and the United Kingdom. The United States had provided further detail when
requested by the Panel19, but the answer could have been ten pages long or hundred pages long,
18Panel Report on EEC - Quantitative Restrictions against Imports of Certain Products from Hong Kong, adopted
on 12 July 1983, BISD 30S/129, para. 30.
19US response to the Panel's question: " ... violation of tariff commitments under Schedule LXXX ... has
taken place with respect to all LAN equipment. Sometimes referred to as "modules,""LAN boards," or "LAN
(continued...)

depending on the level of detail desired. But the answer would not have been more complete, because
the terms "LAN equipment", "LAN adapter cards" and "other LAN equipment" were meaningful phrases
in the trade.
2. Personal computers with multimedia capability
4.3 The European Communities stated that with regard to PCTVs, the scope of the US claim
was even more confusing. The United States had stated on different occasions that the claim concerned
"personal computers", "personal computers with multimedia capability" and "all personal computers
the tariff treatment of which had been impaired relative to the treatment such products received during
the relevant period". At the same time the United States had stated that its complaint was "provoked"
by the UK tribunal decision of 1996 in the ICL case and had continued to suggest that its claim was
limited to the specific type of PCTV dealt with in that case. As a result, the EC submitted that the
only item subject to the dispute was the PCTV implicated in the 1996 judgement.
4.4 The United States argued that it sought restoration of the concession negotiated during the
Uruguay Round for those personal computers for which tariff treatment had been impaired. This included
multimedia PCs with television capability. It also included a broader range of personal computers,
such as those which utilized storage devices based on laser-reading technology (i.e., CD-ROMs) and
those which also had attendant audio or video capabilities. These were the products which had been
subjected to duties in excess of the tariff commitments made by the EC and its member States under
heading 84.71. The personal computers involved in this dispute were dealt with in EC Regulation
No. 1153/97, issued on 24 June 1997 and which had entered into force on 1 July 1997. That regulation
amended the EC tariff schedule to reflect a tariff rate of 3.8 per cent applicable to computers "capable
of receiving and processing television, telecommunication, audio and video signals," and of 10.5 per cent
applicable to computers "capable of receiving and processing television signals but having no other
specific subsidiary functions".20
19(...continued)
cards," this product area includes the following general categories: - LANadapter cards, including butnot limited
to LAN adapter cards and LAN network cards of all types, including those for Token Ring, Ethernet and FDDI
systems; - LAN controllers, including but not limited to disk controllers, memory controllers, cluster controllers
(including remote control units), storage system controllers, device drivers, and similar controller units; - LAN
repeaters, including but not limited to frame relay devices, multi station access units and media interface modules; -
LAN interface units and bridges, including but not limited to access servers (analogous to computer network
servers), LAN extenders (low end LAN access devices), media interface modules, multi station access units and
network computers; LAN concentrators; LAN switches; LAN hubs, including hublets; and LAN routers,
including terminal servers not otherwise described as routers".
20In its response to the questions posed by the Panel at the first substantive meeting, the United States had
stated that, in March 1997, the EC had submitted to the WTO a document specifying how the appropriate duty
treatment to carry out the information Technology Agreement ("ITA") would be provided in its WTO schedule
of concessions, pursuant to paragraph 2 of the Ministerial Declaration on Trade in Information Technology Products.
This notification concerning the EC's ITA implementation indicated that, as of the 1 July 1997 implementation
date for the ITA, the EC and its member States would apply tariffs to these products in excess of the 1997 bound
rate for computers provided in Schedule LXXX. However, as the details of ITA implementation by the EC and
its member States were not known to the United States at the time of its response, it was not clear whether this
implementation would eliminate the violation of tariff commitments by the EC, and its member States. In its
second submission, the United States had indicated that the EC had on 24 June 1997 issued its regulation
implementing its ITA commitments - Regulation No. 1153/97. As a result, the EC's Common Customs Tariff
(continued...)

4.5 The European Communities asserted that the United States was trying to expand the scope
of the dispute, by mentioning for the first time in its second written submission, EC Regulation
No. 1153/97 issued on 24 June 1997, which was unacceptable.
B. Measures at issue
4.6 The European Communities stated that the United States had neglected to indicate for each
of the items mentioned in its list, how the EC was supposed to have violated its tariff commitments.
The only products for which the United States had identified violating measure were with respect to
LAN adapter cards and the PCTV implicated in the 1996 UK judgement; so in its view, those were
the only products subject to this dispute.
4.7 The United States asserted that (i) on 23 May 1995, EC Commission Regulation (EC)
No. 1165/95 mandated reclassification of LAN adapter cards to heading 85.17. It became binding
on all member States; (ii) In 1995 and 1996, following adoption of Regulation No. 1165/95, the Irish
Revenue Commission withdrew earlier BTIs on various types of LAN equipment and issued a series
of new rulings reclassifying them as telecommunications apparatus under heading 85.17. The UK
likewise reversed previously issued written determinations confirming treatment of LAN equipment
under headings 84.71 and 84.73. In the wake of Regulation No. 1165/95,customsauthoritiesin several
other member States, including France, Belgium and Luxembourg also reclassified other types of LAN
equipment under heading 85.1721; (iii) since 1996 UK customs authorities had reclassified certain
personal computers to heading 85.28. Specifically, the United Kingdom had reclassified and continued
to classify, certain personal computers as "television receivers" under CN heading 85.28 as they were
capable of receiving and processing television signals. The United States also argued that the amendment
of Annex 1 to Council Regulation (EEC) 2658/87 on the tariff and statistical nomenclature and on
the Common Customs Tariff through the issuance of Regulation No. 1153/97, confirmed that the EC
and its member States had increased the tariff rates applicable to computers with multimedia capability,
and confirmed that these products were specifically provided for in heading 84.71.
4.8 In summary, the reclassification of LAN adapter cards and other LAN equipment as
"telecommunications apparatus" had resulted in an increase in the applicable tariff to 7.5 per cent from
the current applicable bound rate of 2 per cent under heading 84.71. Reclassification of personal
computers as "television receivers" had resulted in an increase in the applicable tariff to 14 per cent,
from the current bound rate of 3.5 per cent for personal computers under heading 84.71.
20(...continued)
now explicitly reflected that tariffs were being applied to computers with multimedia capability provided for in
heading 84.71 at rates higher than the concession rates agreed to by the EC and its member States during the
Uruguay Round.
21The US also wished to point out that after the EC published the LAN adapter card regulation in May 1995,
the United States had expressed its concerns to the EC. In a 7 December 1995 letter, the EC Commissioner
Sir Leon Brittan had responded to Ambassador Kantor that " ... The product in question is variously called a
network or LAN card. These are the adapter cards permitting exchange of data over a local area network without
using a modem. Some Member States in 1994 were classifying these items under heading 8473, as parts of
automatic data-processing machines, while others (and indeed the majority) were classifying them under heading
8517,as electrical apparatus for line telephony or line telegraphy performing a specific function ...". Responding
to a letter from Ambassador Kantor as to the classification of "additional LAN equipment including bridges,
routers and other products", Sir Leon Brittan wrote in a letter dated 28 March 1996 that "there is no current
decision or planned action to classify the products you mention as telecoms apparatus." He also noted that he
intended "to follow classification proposals closely since they are not just a technical matter".

C. Status of defending parties
4.9 The European Communities argued that the United States had not always been clear about
who the parties to the present dispute were. While the Panel was established on the understanding
that the EC replies would address all the claims made by the United States against Ireland and the
United Kingdom, there were indications that the United States considered these two member States
to be somehow parties to the dispute, which was not the case, in the view of the EC.
4.10 Since the late 1950s and the early 1960s, with the inception of the EC there had been a transfer
of sovereignty from the EC member States to the EC, in particular in the area of customs tariffs and
associated measures. For this reason, EC member States' individual schedules of tariff concessions
had been withdrawn in the GATT and replaced by a (single) EC Schedule of tariff concessions. This
happened most recently at the occasion of the accession of Austria, Finland and Sweden at the beginning
of 1995 under the aegis of the WTO. When compared to the Schedule of commitments in the area
of services, which had as a heading "European Communities and their member States", it became clear
that in the present EC Schedule of tariff concessions, which had as a heading "European Communities",
such tariff concessions were bound in the GATT 1994 (like in the GATT 1947) exclusively at the level
of the EC and not at the level of individual member States. This was entirely compatible with
Article XI:1 of the WTO Agreement which was negotiated in full knowledge of the above and which
did not require EC member States to submit individual schedules of tariff concessions. The EC was
an original WTO Member, in its own right.
4.11 In addition, the EC recalled the understanding reached in the present dispute by the joint letter
of 20 March 1997 addressed to the Chairman of the DSB, Ambassador Wade Armstrong, which stated
that ".. any argument that the United States may wish to put forward relating to the tariff treatment
actually applied by the UK or Irish authorities, or related to classification decisions that lie behind
such tariff treatment, can be put forward to the Panel established on 25 February 1997 (with terms
of reference modified), and ... the European Communities will address any such point in their replies
to the US submissions". Moreover, it was agreed in that letter that the Panel already established against
the EC would also deal with the claims raised by the United States in documents WT/DS67/3 and
WT/DS68/2 with regard to Ireland and the United Kingdom, respectively.
4.12 The United States claimed that the present dispute was directed against WTO Members in
addition to the EC, as Ireland and the United Kingdom were defending parties in this dispute.
Consultation requests had first been addressed to each Member pursuant to Article 4 of the DSU, and
subsequently, requests for the establishment of a panel. Indeed, the United States was forced to ask
for consultations and establishment of a panel with respect to Ireland and the United Kingdom because
it was told during consultations with the EC that there was no centralized EC customs authority and
that the Community could not control the classification practices of member State customs authorities.
4.13 The Panel's terms of reference were clear in that they incorporated three dispute settlement
matters -- one with respect to the measures of the EC, another with respect to the measures of the
United Kingdom, and the third with respect to the measures of Ireland. If there had been only one
matter before the Panel (i.e., that with respect to the Communities), then the DSB would have adopted
terms of reference concerning a single matter. The understanding enshrined in the joint letter of
20 March 1997 dealt with form rather than substance. The European Commission had wished to avoid
the establishment of three separate panels. The United States had wished to pursue its rights pursuant
to each of the three panel requests and wished to avoid certain procedural delays. The United States
had, in fact, traded its right to request three separate panels for the certainty that the existing panel
would address its claims in all three of the matters raised, based on the assurances of the Commission

that the United States would not be prejudiced in a single panel in its choice of arguments. The EC,
Ireland and the United Kingdom were Members of the WTO. As independent Members, Ireland and
the United Kingdom hid behind no other Member. Nothing in the text of the GATT 1994 or the DSU
limited the scope of application of the provisions of these two agreements with respect to either Member
as to its status in a dispute brought under these agreements.
4.14 Moreover, the Commission appeared tosuggestthat a transfer of sovereignty withinthe internal
legal framework of the EC had resulted in fewer rights and obligations being allotted to the member
States. That might be the case in the internal legal framework of the Communities, but that framework
was not at issue in this dispute. What was at issue were the WTO rights of the United States and the
WTO obligations of the EC, Ireland and the United Kingdom. As such, the obligations of Ireland
and the United Kingdom under Article II:1 of GATT 1994 and the concessions reflected in the tariff
schedule for the customs union of which Ireland and the United Kingdom were constituents, were in
dispute. The United States sought nothing more or less than the benefit of the bargain it had struck
in the Uruguay Round. That bargain was reflected in, inter alia, those tariff concessions. Whether
the European Commission negotiated the tariff concessions on behalf of the member States was beside
the point. The legally relevant fact was that a Schedule of Tariff Concessions had been annexed with
respect to Ireland and the United Kingdom.
4.15 The European Communities disagreed with the US allegation that the transfer of sovereignty
between EC member States and the EC was irrelevant on the external plane. The EC had bound a
tariff schedule of its own in GATT 1994 and was an original Member of the WTO. This indicated
that the transfer of sovereignty had been recognized by Members, and that the EC was more than a
simple customs union. The EC was ready to assume its international obligations, but was not ready
to allow an attack on its constitution in the WTO.
V. MAIN ARGUMENTS
5.1 The United States claimed that the tariff concession granted on heading 84.71 in the
EC-Schedule LXXX legallybenefited and applied withrespect to LANequipment and multimedia PCs.
The imposition of higher dutiesbythe EC, Ireland and the United Kingdomon these products benefiting
from this concession through reclassification actions was therefore inconsistent with their obligations
under Article II:1 of GATT 1994.
5.2 The European Communities disagreed with the US assertion that these products had been
reclassified. This was because the EC had never committed itself nor could it be construed to have
given the impression that it would classify LAN equipment and PCs with multimedia capabilities under
heading 84.71 and apply the corresponding duty.22 Accordingly, the US complaint could not be
22The EC argued that it had always considered LAN equipment to be classified under heading 85.17, due
to its data transmission function. When considering PCs with “ multimedia capabilities” , one had to look at the
overall situation. When applying the classification rules to individual cases, the EC had determined that these
products essentially fell into four categories. One type would be the product classified in heading 85.21 due to
its capability of reproducing video images (this product was no longer produced). Another type would be classifiable
under heading 85.28 because of its television capabilities. Yet another category would be for products with a
full range of multimedia functions (i.e. TV, telecommunications, audio and video) which fell within heading
85.43. All other PCs either without or with more limited multimedia functions fell under heading 84.71.
Additionally, the particular equipment implicated in the 1996 ICL case was never classified as a computer; therefore
it could not have been "reclassified" by the UK customs authorities. In this case the importer had visibly given
(continued...)

interpreted in any other way than as an attempt to revise the negotiating record of the Uruguay Round.
However, the result of the Uruguay Round could not be put into question now before the Panel. Indeed,
Article 3.2 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU)
provided that: ".....Recommendations and rulings by the DSB cannot add to or diminish the rights
and obligationsprovidedinthecovered agreement". India, Japan,Korea and Singapore, whointervened
as third parties, seemed to have blindly adopted the allegations of the US, in particular the statement
that the EC during the Uruguay Round, uniformly classified the products concerned as computers.
However, they did not bring any proof to this claim either.23
5.3 The United States wished to note that this dispute did not concern reclassification as such,
and that the WTO Agreement included no legal provisions concerning where products should be classified
for customs purposes. Rather, this dispute concerned tariff treatment, and in particular the duty increases
on LAN equipment and certain personal computers in the EC, Ireland and the United Kingdom. For
this reason, the United States was of the view thatthe originaltitle assignedto this disputewas incorrect.
The United States had requested that the title of the Panel's report on these disputes be corrected to
read "European Communities, Ireland and the United Kingdom - Increases in Tariffs on Certain
Computer Equipment".
5.4 The European Communities stated that the US wish to change the title of the dispute, as
reflected in its second submission, indicated that it had changed its mind on what the dispute was all
about. The EC disagreed with this attempt to redirect the dispute against new parties at the present
stage of the procedure as the United States now seemed to insinuate that the EC, Ireland and the
United Kingdom were somehow collectively responsible for the situation complained about, as was
apparent from the use of the word "and" in the suggested redrafting of the title of the dispute. It would,
anyhow, be extraordinary if the title of the dispute was amended in the course of the procedure, and
there was not justification whatsoever for that in the present case.
22(...continued)
up any hope for a more favourable judgement upon appeal, because the importer had allowed the judgement
of the UK court to become final by not appealing it domestically within the relevant time limit. It appeared instead,
that the Panel was now being requested to act as a sort of an appellate body on a domestic court ruling handed
down in an individual case. To the knowledge of the EC, challenging a domestic court ruling as a "measure"
under the WTO was a novel way of attempting to obtain a more favourable ruling in an individual case. Even
if it were true that the domestic court had failed to classify the imported product in a manner allowing proper
tariff treatment, which the EC submitted it had not, the EC considered that Article II:5 which would be applicable
in such circumstances would pre-empt the Panel from simply overturning the domestic court ruling by a de novo
examination of the case. Rather, Article II:5 provided for the need to compensate for the loss in tariff concessions
that might ensue. Additionally, as the United States itself had recognized, the equipment implicated in this case
was a Taiwanese manufacture involving a Japanese company. The classification of this particular product by
definition did not concern the United States, and did not prejudge the classification of other US products which
might have different characteristics.
The United States noted that the EC was admitting that it was treating some multimedia computers as
dutiable under headings other than 84.71 (and at higher duty rates). As for Article II:5, the United States had
duly brought the reclassification-related impairment of tariff concessions on the products at issue directly to the
attention of the EC, and had requested informal consultations by letter on 2 May 1996. On 4 June and 23 July
1996, the United States and the EC had held bilateral consultations, which did not resolve the matter. The
United States had subsequently brought its concerns directly to the attention of the United Kingdom and Ireland,
both of which had declined to discuss the matter with the United States.
23See also Section VI on "Third Parties Submissions."

A. Scope of the concession
1. Duty treatment of new products or products affected by Harmonized System (HS)24 changes
5.5 The United States claimed that the practice of the GATT with regard to the treatment of new
products or products affected by HS changes was instructive in interpreting the scope of a concession
that was described generally, but for which there was no record of any discussion or agreement describing
the product scope in exhaustive detail. In both instances, there would not necessarily have been any
discussion of whether a particular product or variation of a product should be included in the scope
of a concession. As established by the Gramophone Records case, the practice in such instances was
to resolve silence in favour of deeming the new or undiscussed product to be covered by the existing
concession.Thiscase concerned Germany'scomplaint25 thatGreece had raised the tariff onlong-playing
gramophone records to levels above its bound rates for gramophone records. Greece considered that
"long playing" records were a new item and therefore not covered by the "records" binding because
they contained a higher volume of recordings, were lighter than conventional records, and were made
of a different material. The Group of Experts which examined Germany's complaint reported that
the "Group agreed that the practice generally followed in classifying new products was to apply the
tariff item, if one existed, that specified the products by name, or, if no such item existed, to assimilate
the new products to existing items in accordance with the principles established by the national tariff
legislation." The Group also observed that when Greece granted the concession on records, it had
not attached any qualification to the description of the product. The Group was of the opinion that
"long-playing" records were covered by the description of "gramophone records" in the concession
and therefore the rate of duty to be applied to those records was that bound under that item in the Greek
schedule.26
5.6 Another case worth noting in this context was when the EC proposed to modify its binding
on item 9211.A.II, "sound reproducers," in order to raise the duty on digital audio disc players (DADS)
in 1983.27 The withdrawal was to be made on a preemptive basis when trade in this product was still
at low levels. The EC proposal was controversial and triggered a series of discussions in the GATT
Council and the Committee on Tariff Concessions. During these discussions, even the EC did not
argue that the lack of any reference to DADS in the EC tariff schedule, since they were new products,
meant that DADs were unbound. Eventually, this issue was taken up in the Negotiating Group on
GATT Articles and resulted in the provisions of paragraph 4 of the Understanding on the Interpretation
of Article XXVIII of the GATT 1994.
5.7 The United States pointed out that while there was no obligation under the GATT to follow
any particular system for classifying goods, a reclassification subsequent to the making of a concession
24See footnote 12.
25Greek Increase in Bound Duties, complaint L/575, S.R. 11/12, pages 115 and 116.
26Report by the Group of Experts on Greek Increase in Bound Duty, 9 November 1956, L/580.
27Notification in SECRET/296 and Add.1 with respect to "sound reproducers with laser optical reading system",
dated 24 February 1983.

underGATTmustnotviolatethebasic commitmentregardingthatconcession.28 Tariffchangesresulting
from reclassification and their GATT legal implications were also thoroughly discussed in the early
1980s, during preparations for the introduction of the HS nomenclature. It was clear then, as it is
now, that changes in nomenclature or classification which altered the bound treatment of a product
were inconsistent with a Member's obligations under Article II:1 of GATT 1994. Implementation
of the HS became a massive Article XXVIII exercise in negotiating compensation for the impairment
of tariffs consequential to changes in nomenclature. These considerations have applied on a continual
basis with respect to the implementation of HS revisions adopted by the WCO. The GATT 1947
CONTRACTING PARTIES decided that implementation of such changes "shall not involve any alteration
in the scope of concessions nor any increase in bound rates of duty unless their maintenance results
in undue complexity in the national tariffs. In such cases the contracting parties concerned shall inform
the other contracting parties of the technical difficulties in question, e.g. why it has not been possible
to create a new subheading to maintain the existing concession on a product or products transferred
from within one HS 6-digit subheading to another".29
5.8 If a Member could raise duties at will on new or undiscussed product variations through
reclassification, it would not need to invoke Article XXVIII. Nor would it need to provide any
compensation if it wished to make a preemptive withdrawal of the sort proposed by the EC in 1983
for DADS. Paragraph 4 of the Understanding on the Interpretation of Article XXVIII would be reduced
to inutility. The link between Article II and Article XXVIII was recognized by ten countries that made
the compromise proposal for the Understanding, when they remarked that Article II:1(a) "is designed
to provide security for the future and creates a presumption that the conditions governing access at
the time of negotiations will be maintained".30
5.9 The European Communities responded that the above cited case of the Gramophone Records
did not support the US complaint at all. This case was different from the present case in that it dealt
with new products. The current US complaint was limited to products which already existed during
the Uruguay Round. Thus, the question which needed to be addressed was which duty rate had been
bound for the products concerned and not under which heading this equipment should be classified.
5.10 Nor was the EC alleging in any way that WTO Members could somehow undo tariff bindings
by reclassifying products at will, without following the procedures of Article XXVIII of GATT 1994,
and thereby unravelling the results of 50 years of tariff liberalization. On the contrary, even in cases
of a reclassificationas a consequence of an agreement inthe WCO, the EC maintained the tariff treatment
originally agreed upon in the tariff negotiations. For example, the EC used to classify power supply
units for computers under the tariff classification heading for computers (8471.99). As such the bound
duty rate for this product was 3.9 per cent in 199531 and would have been 2 per cent in 1996.32 However,
28Panel Report on Spain - Tariff Treatment of Unroasted Coffee, adopted on 11 June 1981, BISD 28S/102,
para. 4.4 and n.1. See TAR/M/4, Committee on Tariff Concessions, Minutes of Meeting, 31 July 1981, at para.
7.14.
29Decision on Gatt Concessions under the Harmonized Commodity Description and Coding System, Procedures
to Implement Changes in the Harmonized System, 8 October 1991, BISD 39S/300, para.1.
30MTN.GNG/NG7/W/59, proposal byArgentina, Canada, Colombia, Czechoslovakia HongKong,Hungary,
Korea, Mexico, New Zealand and Singapore circulated on 3 November 1989, page 3.
31See the annex to EC Regulation 1395/95.

following a decision of the HS Committee, power supplyunits were reclassified underheading 8504.40.
The tariff rate normally applying to this heading was 4.8 per cent in 1996. Yet the EC created a separate
subheading, 8504.4030 with the rate of 2 per cent in order to maintain the concession it had negotiated
in the WTO.
2. "products described"
5.11 The United States claimed that the products at issue were within the scope of the EC concession
on item 84.71. Article II:1(b) required that the "products described" in a Member's Schedule which
were the products of territories of other Members "shall...be exempt from ordinary customs duties
in excess of those set forth and provided therein.". The ordinary meaning of "describe" was "to
state the characteristics of...". The negotiating history of Article II confirmed that the drafters deliberately
chose the general term "described" in preference to the narrower term "enumerated".33 The EC-
Schedule LXXX provided a concession on item 84.71 comprising automatic data processing machines
and units thereof. The characteristics of LAN equipment and of personal computers with multimedia
capability corresponded, in the United States' view, to those stated in this tariff concession on 84.71,
and their parts within the scope of the concession on 84.73.
5.12 Moreover, this fact had been confirmed by the World Customs Organization (WCO). The
WCO HS Committee at its eighteenth session in November 1996, had decided that a PC with television
and audiocapabilities was properly classifiedas an automatic data processing machine in HS Chapter 84
at sub-heading8471.49. Inaccordance withArticle8 ofthe InternationalConventiononthe Harmonized
Commodity Description and Coding System the classification decision was deemed accepted by the
Council on 1 February 1997, as noreservation was entered onthis decision during the two-monthperiod
allowed under the Convention. The Committee also decided at its eighteenth Session to draft an opinion
which embodied this decision for inclusion in the Compendium of Classification Opinions. This text34
was adopted by the Committee at its nineteenth Session in April 1997. Unless a WCO member made
a reservation and sought to have the text of the opinion reconsidered by the Committee, this text would
be deemed to be accepted by the Council as of 1 July 1997, and would be included in the next set of
amendments to the Compendium of Classification Opinions. The WCO HS Committee also at its
nineteenth Session in April 1997, voted on the proper classification of certain LANequipment including
routers, cluster controllers, hubs, multistation access units and optical fibre converters. The
overwhelming majority of HS Committee members agreed that these products were properly classified
under heading84.71. While the United States was of the view that this case was not about classification,
the WCO decisions confirmed that the United States was justified in expecting the products at issue
to be classifiable under heading 84.71 and subject to the bound duty rate pertaining to that heading.
32(...continued)
32See the annex to EC Regulation 3009/95.
33EPCT/TAC/PV/23, pages 18 and 19.
34"8471.49 Multimedia personal computer consisting of three separately housed units: a 14 inch (35
cm) colour television receiver (display) with a digital processing unit, a keyboard (input unit), and an infra-red
remote control device. The unit comprises a processor (60486DX2), a memory (4 MB RAM), a diskette drive
(1.44 MB), a hard disk (350 MB), a CD-ROM drive, a colour monitor television receiver, non-interlaced in
PC mode and interlaced in TV mode, and stereophonic loudspeakers. The system plays audio and software CDs
and records digital audio files. The different functions (PC, television or soundstack) are selected by using either
a trackball incorporated in a keyboard, the keyboard itself or the infra-red remote control device. The system
also plays audio and software CDs and records digital audio files." (Annex K/14 to Doc.41.100E (HSC/19/Apr.97).

5.13 The European Communities failed tosee howthesedraft opinionsdated 1996/97couldconfirm
that the products subject to the dispute were classified under 8471 in 1993/94. If anything, the recent
draft amendment merely showed that until recently it had been disputed how the products concerned
should be classified. Otherwise the HS would not need to be amended. In any case the EC, had
introduced reservations in respect of both classification opinions (i.e. the PCTVs and certain LAN
equipment) on 26 June 1997. But, even if the draft opinions as they stood now were to become final,
the EC considered that it would not affect the present case, because the case was about duty treatment
and not about product classification. A decision of the WCO could not affect the balance of concessions
of the respective parties agreed upon during the Uruguay Round. Tariff negotiations were about tariffs,
not about customs classification. Customs classification, thus, was only the background for such tariff
negotiations, but not its subject matter. If it were different, tariff negotiations would be carried out
in the framework of the WCO and not in the WTO. It was possible to have divergent views between
participants in tariff negotiations concerning the classification of certain products, but that question
should be addressed in the WCO. Furthermore, the EC noted that in the WTO Agreement on Rules
of Origin reference was made to the future elaboration of arrangements concerning the "settlement
of disputes relating to customs classification".35 Such an arrangement had not yet been considered,
which was another reason why this Panel should abstain from pronouncing itself on customs classification
issues.
3. treatment accorded at the time the concession was negotiated
(a) "treatment ... provided for" and "treatment ... contemplated"
5.14 The United States argued that interpreting Article II:1 in its context, including Article II:5,
the "treatment...provided for" in a tariff concession included the "treatment...contemplated" when the
concession was made. Under GATT Article II:1(a), each WTO Member had to accord to the commerce
of the other Members "treatment no less favourable than that provided for in the appropriate Part of
the appropriate Schedule annexed to this Agreement." The reference to "treatment....provided for"
in Article II:1(a) did not mean "classification specifically provided for." Such an interpretation would
mean that in all cases where a WTO Member had not specifically provided in a concession that a
particular product would be given a specific tariff classification, that Member could reclassify the product
at will to a higher-duty tariff position and apply higher tariffs. The reference to "treatment...provided
for" had to be interpreted in the light of its context and the object and purpose of Article II. The context
of Article II:1 included Article II:5.
5.15 Article II:5 provided that "If any contracting party considers that a product is not receiving
from another contracting party the treatment which the first contracting party believes to have been
contemplated by a concession provided for in the appropriate Schedule annexed to this Agreement,
it shall bring the matter directly to the attention of the other contracting party. . . ." Thus, the
"treatment...provided for" was to be understood as the "treatment...contemplated" by a concession.
Article II:5 did not require the treatment to have been discussed or expressly agreed. The ordinary
meaning of "contemplate" in this context was "to expect". The treatment in question had to be the
treatment by the importing Member which was contemplated at the time. Thus, the treatment provided
by a concession was the treatment reasonably expected by the trading partners of the Member making
the concession.
35Article 9.4 of the Agreement on Rules of Origin.

5.16 The European Communities noted that in referring to "reasonable expectations" with regard
to the tariff treatment of certain computer equipment, the United States had used language that was
borrowedfrom panel reportsdealingwith ArticleXXIII:1(b) of GATT 1994,the so-called non-violation
cases. Butthe United States had never raised formally the matter of ArticleXXIII:1(b) inthe procedure,
nor during consultations. At the same time the United States appeared to allege that the EC had violated
its obligations under Article II:1 of GATT 1994, which indicated by contrast that the claim appeared
to be based on Article XXIII:1(a) of GATT 1994.
5.17 The United States had justified use of this language by referring to Article II:5 of GATT 1994,
in particular by quoting the words "...the first contracting party believes to have been contemplated
by a concession provided for in the appropriate schedule....". From the EC's point of view, this
explanation was inconsistent with the claim that the EC had allegedly violated Article II:1 of GATT 1994.
The consequence of the invocation of Article II:5 could only be that there should be negotiations on
how to resolve the divergence of views depending on the subjective beliefs of the interested Members,
rather than the relevant exporting industry. Nowhere in Article II:5 was there an indication that the
belief, which the United States translated by "reasonable expectations", could replace the objective
determination of an existing agreement on a tariff binding of a particular product.
5.18 The United States claimed that this dispute was about the violation of the obligations of the
EC, Ireland and the United Kingdom under Article II:1 of the GATT 1994 and the nullification or
impairment of benefits arising from those violations. However, it was worth recalling that one of the
precepts developed under GATT 1947 was that rules and disciplines governing the multilateral trading
system served to protect legitimate expectations of Members as to the competitive relationship between
their products and those of the other Members. As the Superfund panel had pointed out, such rules
and disciplines " ... are not only to protect current trade but also to create the predictability needed
to plan future trade".36 The protection of legitimate expectations was central to creating security and
predictability in the multilateral trading system, for governments and for trade itself. Furthermore,
the Newsprint case had made clear that "reasonable expectation" was enforceable under Article II:1.
Reasonable was not based on certainty or absolute clarity. It was the treatment that a Member "believes
tohave been contemplated bya concession", as that phrase appeared inArticle II:5. This1984 Newsprint
panel case concerned an EC regulation on the duty-free tariff rate quota for newsprint. The EC had
agreed to give fully duty-free access to the EFTA countries for newsprint and had reduced the MFN
tariff rate quota for newsprint (bound at 1.5 million tonnes) by subtracting an amount corresponding
to EFTA access (1 million tonnes) The EC claimed that it was not impairing the binding on newsprint,
but the Panel found that the EC was, for the following reasons: "...under long-standing GATT practice,
even purely formal changes in the tariff schedule of a contracting party.... have been considered to
require renegotiations. ... In granting the concession in 1973, the EC had not made it subject to any
qualification or reservation in the sense of Article II:1(b) although at the time the concession was made,
it was known that agreement had already been reached that the EFTA countries would obtain full
duty-free access to the Community market for newsprint from 1 January 1984 onward. The Panel
therefore found that although in the formal sense the EC had not modified its GATT concession, it
had in fact changed its GATT commitment unilaterally, by limiting its duty-free tariff quota for m.f.n.
suppliers for 1984 to 500,000 tonnes".37 The Panel had concluded that "....the EC, in unilaterally
establishing for 1984 a duty-free quota of 500,000 tonnes, had not acted in conformity with their
obligations under Article II of the GATT. The Panel shared the view expressed before it relating to
36Panel Report on United States - Taxes on Petroleum and Certain Imported Substances, adopted on 17 June
1987, BISD 34S/136, para. 5.2.2.
37Panel Report on Newsprint, adopted on 20 November 1984, BISD 31S/114, para. 50.

the fundamental importance of the securityand predictability of GATT tariff bindings, a principlewhich
constitutes a central obligation in the system of the General Agreement".38
(b) "treatment ... contemplated" and "treatment accorded "
5.19 The United States claimed that in the absence of explicit provision in a Schedule or specific
discussions during negotiations, the "treatment ... contemplated" could be inferred from the "treatment
accorded" at the time the concession was negotiated. In other words, the latter provided a basis for
interpreting the product scope and the nature of the "treatment... provided for". Under Article II,
Members were free to specify the terms of, and any conditions or qualifications on, the concessions
they make. The Member making the concession might specify explicitly the treatment it intended or
the exact product composition of the concession. Those who had made the concessions in
Schedule LXXX did not do so. In fact, Schedule LXXX could have provided that the concessions
therein would be subject to reclassification at will or could have provided explicitly that the trading
partners of the EC, Ireland and the United Kingdom were not guaranteed a continuation of the treatment
known to be provided during the negotiations. No such qualification or reservation appeared in
Schedule LXXX. Nor were there any reservations for particular types of computer or computer
equipment. Hence, the parties which were bound by Schedule LXXX had agreed to continue to provide
the treatment contemplated by their trading partners at the time the bargain was struck.
5.20 The European Communities statedthattheUnited States hadcreatedconfusionbyitsstatement
that "the product scope of a concession", and thus the "treatment ... contemplated" could be determined
from the treatment actually accorded at the time that the concession was negotiated. Such an approach,
if followed, would mean that a decision by a local customs authority for a particular consignment would
amount to a new tariff binding under Article II of the GATT which was absurd. Information by local
customs offices or even by national customs authorities to individual importers on the classification
of individual consignments or goods identified by name (brand and model) could not become the
equivalent of a tariff binding since a tariff binding referred to a category of products identified in a
generic way by the product description in the relevant tariff line of the customs tariff. Such tariff
bindings needed to be agreed during tariff negotiations, as provided for under the relevant provisions
of the GATT 1994 (particularly Article XXVIII bis). It might be possible to infer a tariff binding for
a category of products corresponding to the product description in a given tariff line from circumstances
that were not laid down in written records of the negotiations, but the party invoking such special
circumstances would have to bear the burden of proof for the existence of such circumstances. It would
certainly be necessary, in order to meet this burden of proof, to show that negotiators had knowledge
of the circumstances and that they were relevant to a category of products coming under a particular
tariff line and not for individual imports alone.
5.21 The United States said that the EC had conceded that a tariff binding could be inferred for
a group of products corresponding to the product description in a given tariff line, on the basis of
circumstances outside the written negotiating record. However, the EC argument that negotiators must
have had knowledge of these circumstances and the circumstances must have been relevant to a group
of products under a particular tariff line, and not for individuals alone, was calculated to deprive BTIs
and other member State classification actions of any significance. It was important to note, however,
that an importer who had obtained a BTI for goods of a particular type could use the BTI to import
the same goods throughout the EC. In addition, the importer would know that, no matter what the
ultimate EC market for the product, it could be entered through the country that issued the BTI at the
38Ibid., para. 52.

rate specified in the BTI. Other importers of identical or similar products might also expect those
products to receive the same tariff treatment.39
(c) at the time the concession was negotiated
5.22 The United States said that the "time" or time period relevant to defining the rights and
obligations with respect to the EC's tariff commitments on the products at issue began in March 1990
when the United States tabled the offer/request for the electronics sectoral proposal. The relevant time
period closed in two stages, first and primarily with the Uruguay Round on 15 December 1993
(MTN.TNC/40). The more limited second stage closed at the end of verification of tariff schedules,
which took place from February 1994 through 31 March 1994. As substantive tariff negotiations closed
on15 December 1993,changesintreatment duringtheverificationof tariffscheduleswere onlyrelevant
to defining rights and obligations with respect to tariff concessions to the extent that the party making
such changes brought them to the attention of its negotiating partners.
5.23 The European Communities were of the view that the starting base for the Uruguay Round
was established in the "Procedures for the Negotiations".40 The Uruguay Round tariff negotiations
were held on the basis of the HS nomenclature and had lasted until the completion of the verification
process that enabled participants to raise any problems they had with regard to the reflection of
concessions negotiated in proposed schedules. This process ended in March 1994 with the finalization
of the verification process.
5.24 The United States agreed with the EC that the starting point for the relevant period was
established inthe textagreed to on 30January 1990 on"Procedures for the Negotiations". The Uruguay
Round tariff negotiations were held on this basis, and ended in March 1994 with the finalization of
the verification process. The US trading conditions were reflected not only in the tabling of the first
"zero-for-zero" request/offer but in its preparation.
5.25 The United States recalled that, at the close of substantive tariff negotiations, the delegations
had agreed that "no adjustments entailing a withdrawal of an offer or elements of offers would be
permitted" from then forward (MTN.TNC/W/131). As also agreed, they had submitted their draft
final schedules to the Secretariat by 14 February 1994. Between 14 February and 31 March 1994,
the participants had engaged in the verification process, to ensure that the final schedules accurately
reflected thenegotiatedconcessionsagreeduponbytheparticipants.In adherencetothe deadlinesagreed
upon, the United States, the EC and the other participants had completed verification by the end of
March 1994. On 15 April 1994,the contracting partieshad signedthe FinalAct of the Uruguay Round,
at which time their schedules of concessions were annexed to the Marrakesh Protocol.
B. Tariff treatment of products
1. LAN equipment
(a) Negotiating History
5.26 The United States claimed that inclusion of LAN equipment within heading 84.71 was supported
by negotiating history. If a party had made and maintained an offer of coverage for a specific item
39Additional discussion on this matter is to be found in paragraphs 5.43 to 5.62.
40Procedures for the Negotiations, MTN.GNG/NG1/17 of 1 February 1990.

identified as within a particular tariff heading, then that party could be assumed to have induced
reasonable reliance by its tradingpartners onthat offer; the tradingpartners concerned could reasonably
expect that the concession wouldinclude thoseitems; and unlessthe finalconcessionexplicitly provided
otherwise, it could be inferred that the final concession was intended to include that item at the rate
applicable to the tariff heading in question. The same was true if a party had received a request for
a specific item identified as within a particular tariff heading and had not objected that the request was
wrongly targeted. In the present case, the US "zero-for-zero" request/offer of 15 March 1990 had
proposed elimination of duties by the United States and its trading partners, including the EC, with
respect to a long listof products, including electronic articlesin HS chapters 84, 85and 90. Singapore’ s
June 1990 request made to the EC requested duty reductions on "microcomputers desk top type" and
"microcomputers other" (both 8471.20), as well as "control units", "adaptor units", "gateways" and
"concentrators or multiplexers" (all 8471.99), and "printed circuit boards assembled" (8473.30). In
other words, Singapore had submitted a request to the EC for tariff reduction on LAN equipment within
heading 84.71 and the EC had not objected to that classification of LAN equipment at that time. Thus,
the EC's own conduct showed that it intended to include LAN equipment under the concession rate
for heading 84.71.
5.27 Furthermore, representatives of the US computer industry had closely monitored the Uruguay
Round negotiations,and hadregularlyraisedtheirconcernswiththeUnited StatesTrade Representative
(USTR) and members of the US Congress. During this time, they did not raise any concerns with
respect to EC’ s classification and duty treatment of LAN equipment and personal computers with
multimedia capability. They assumed, in light of the fact that this issue was not raised by the EC,
that headings 84.71 and 84.73 would continue to cover LAN equipment products. The industry's only
concern was that the EC’ s reduction in tariffs on those headings would be insufficient, as reflected
in a letter on 10November 1993 toAmbassador Kantor from the US Computer and BusinessEquipment
Manufacturers Association (CBEMA). Reviewing the tariff headings of interest to CBEMA members,
the letter noted that "there is ... enormous trade in the next level of value-added, the "stuffed circuit
board" (small boards are sometimes called cards), or "electronic assembly" or sometimes called in
Europe the "PCB" (for "printed circuit board"). There is a wide variety of PCB's or electronic
assemblies, most of which are classified in [heading 8473] as computer parts: memory boards, graphics
accelerator boards, LAN cards." In the letter, CBEMA went on to criticize a proposal floated by the
EC to divide HS heading 8473 into two items, "electronic assemblies," with no duty reduction, and
"other," subject to zero duties. The proposal would be inadequate, CBEMA said, because "other"
computer parts consisted of plastic cases and metal chassis, which had low or nonexistent trade, and
"electronic assemblies" consistedof "PCBs orstuffed circuitboards"withsubstantialtrade. Essentially,
the significance of this letter was that in the face of dramatic differences in tariff rates depending upon
the classification of the products -- a difference of 3.5 per cent and 14 per cent in some cases -- the
industry advisors were noticeably silent on the treatment of LAN equipment in reacting to the EC offer.
Yet they commented specifically on the offers of other products. So the industry's understanding of
tariff treatment was based, in turn on the treatment their exports had actually received, as evidenced
in part by the BTIs and by their attestations that the United States submitted to support its claims.41
The US government, in turn, during the Uruguay Round negotiations had reasonably relied on the
experience of its exporters and traders in actually exporting these products to the EC under Chapter
84 and reasonably expected that these products would continue to receive treatment by the EC as
computers, computer units or computer parts under Chapter 84.
41See Annex 4.

5.28 The European Communities stated that during the Uruguay Round, both the EC and the
United States had made numerous tariff concessions in various areas. However, none of the products
at issue were discussed by name. No specific binding was made for any of the individual products
at issue. Only the tariff headings in question were bound. Singapore's request on heading 84.71
in which it identified by name "gateways, "concentrators" and "multiplexer", did not constitute any
evidence that the EC had accepted that its concessions on computers would cover these components.
First Singapore's product listing under heading 84.71 was derived from Singapore's own tariff
classification, and secondly subsequently to this preliminary tariff request, Singapore sent a revised
tariff request to the EC on 10 October 1990.42 Significantly in the revised list, "gateways",
"concentrators" and "multiplexers" were not mentioned anymore under the tariff heading 84.71.
Singapore had not submitted any evidence that the EC in the meantime, or afterwards, had accepted
to grant the tariff treatment accorded to computers to these products. On the contrary, the EC had
clearly classified multiplexers, for instance, as telecom equipment in a 1992 Regulation43, well before
the end of the Uruguay Round. If Singapore had any expectations left, this Regulation certainly must
have put an end to them. For these reasons, Singapore could not legitimately claim to have established
that the EC indicated or raised expectations during the Uruguay Round, that LAN equipment would
be covered by the tariff concession on computers. In any event, any expectations raised by this bilateral
correspondence in the mind of Singapore could not be conferred on the United States.
5.29 The EC, additionally alleged, contrary to the United States, that American industry was aware
of this problem. The American Electronics Association (AEA), which represented the computer industry,
had scheduled a meeting with Commission officials on 25 February 1994 in order to discuss a number
of issues including classification differences in member States with respect to a number of products
including LAN interface. Tariff headings to be discussed in this context included 85.17, 84.71 and
84.73. So when asking for the meeting, the AEA (and certainly some of their members manufacturing
LAN) were aware that LAN equipment was not classified in a uniform manner within the EC.
5.30 The United States responded that during negotiations it had not inquired specifically into the
treatment of these products, as there was no reason to doubt that these products would continue to
be treated as dutiable under heading 84.71. The EC on its part did not provide any notice to US
negotiators during the negotiations of any doubts that the EC or member State authorities might have
had concerning the proper classification or duty rate applicable to these products. And, of course,
given the tariff treatment applied at the time, there would have been no logical reason for the EC to
do so. Moreover, tariff negotiators dealing with thousands of tariff lines could not have discussed the
precise product composition of each line without taking an additional ten years to complete the Uruguay
Round. Thus, the EC’ s position would throw into uncertainty practically every tariff concession the
EC or any of its trading partners made in the Uruguay Round. As for the AEA meeting, the
42This letter contained the following:
"Dear Paul,
I am writing with reference to my letter of 22 June wherein I forwarded to you Singapore's
preliminary request list for the tariff negotiations.
Following bilateral discussions with your market access negotiators, Singapore has revised its
request list. I am enclosing the revised Singapore tariff request list to EEC. It would be appreciated if you
could transmit it to the appropriate authorities. I hope that these requests would be considered favourably.
Yours sincerely, [signature]"
43EC Regulation 396/92 of 18 February 1992, OJ 1992 L44/9.

United States had made inquiries, and was unable to confirm whether a meeting had, in fact, taken
place in February 1994 or before the end of the Uruguay Round.
5.31 The United States questioned whether the argument that no specific binding was made for any
of the products at issue because they were not discussed by name during the Uruguay Round and only
the tariff headingsinquestionwere boundmeant thatif there was no"specificbinding"for these products
under Chapter 84, then they were bound under Chapter 85, and if so, why there, given the evidence
suggesting otherwise? And if not, were they then to be considered unbound? The implications of
such an argument were disturbing when considered in relation to the Uruguay Round tariff concessions,
and even more so for Tokyo Round and Kennedy Round concessions. Although the United States
had negotiated in the Uruguay Round on a request/offer basis, some participants in the Round had
negotiated by using a tariff reduction formula. The US-EC negotiation on Chapter 84 provided an
example of how two groups of busy negotiators dealing with billions of dollars of trade and hundreds
of tariff lines relied on a continuation of the status quo. Discussion of specific product coverage was
even less likely when all negotiators used a formula approach to tariff reduction, as was the case in
the Tokyo Round and the Kennedy Round. Was the EC arguing that whenever the formula approach
was utilized, the headings were bound but the products within the headings were not, and if so an
importing country could reclassify such products at will into higher-duty headings with no duty to provide
compensation? If so, not only was the balance established by all previous negotiating rounds upset,
but all future negotiations would require a fundamentally different, and more time-consuming and
complicated, approach.
5.32 The European Communities stated that the allegation raised by the United States, that the
EC's position was that the products subject to the dispute were unbound under the EC-Schedule LXXX,
was absurd. Its real position was that these products were not bound with computers under tariff
heading 84.71, but were bound with electric machinery under the relevant tariff headings of chapter
85 of the EC schedule.
5.33 It was possible that the EC and the US negotiators did not have the same understanding on
what precisely were the products to which their tariff negotiations related. In fact, no party to the
negotiations raised the issue that customs duty treatment of LAN equipment differed from one country
to another. This meant that different concessions were negotiated by various parties for the same
products. The US negotiators might find it difficult to admit now that their understanding of the tariff
classification in the EC of the products they talk about now was erroneous; however, they only had
themselves to blame. They should have come forward and requested clarification from the EC negotiators
if theywere notsure where these productsshould be classified inthe EC especially since they themselves
had reclassified these products only shortly beforehand; a fact which was conveniently omitted by
the United States. During the Uruguay Round, the United States had considered LAN equipment to
be covered by category 85.17, but in 1992 on its own initiative the United States had reclassified LAN
equipment under heading 84.71; so, in fact, the reclassifying party was the United States and not the
EC. Moreover, the United States, after havingreclassified LAN equipmentitself,in1992from telecom
equipment to computers, did not acknowledge or inform trading partners of this fact, nor did it amend
its offer/request to the EC during the Uruguay Round. Canada was another example of a reclassifying
Member. During the NAFTA negotiations, the parties to this agreement had admitted that it was difficult
to classify LAN equipment, and they had agreed to consult on this issue and to endeavour to agree,
no later than 1 January 1994, on the classification of such goods in each Party's tariff schedule.44
Following this agreement and not earlier than May 1995, Canada modified its classification practice
44Annex 308.3 to NAFTA.

and began to classify LAN equipment from then on under heading 84.71. In a Customs Notice of
24 May 1995, the Canadian Department of Revenue observed that: "Although valid statements can
be made for classification under heading No. 85.17, the Department has decided to adopt a harmonized
NAFTA classification position for LAN apparatus under heading No. 84.71"45
5.34 The United States argued that the first important point to note was that the classification by
the United States of imported goods under the Tariff Schedules of the United States Annotated or the
Harmonized Tariff Schedule of the United States did not affect the reasonable expectation of the
United States that the EC, the United Kingdom and Ireland would provide the tariff treatment to LAN
equipment according to the concessions in the EC Schedule for automatic data processing equipment
or parts thereof. It was unaware of any assumptions about the classification decisions taken by EC,
UK or Irish customs authorities based upon the decisions of the United States under its tariff schedule.
Such assumptions would have been wholly speculative, at best. Furthermore, the impact of US
classification of such goods on its GATT tariff bindings was not apparent, as the United States had
negotiated during the relevant period in the context of the North American Free Trade Agreement an
understanding to move to MFN duty-free treatment of imported automatic data processing equipment.
5.35 The European Communities stated that the change in classification or reclassification by the
United States in 1992 and Canada in 1995 was important enough to be mentioned because it showed
that classification of LAN equipment was unsettled during the Uruguay round. These examples illustrated
that the United States had no particular reason to expect that the EC would classify LAN equipment
as computers. They also helped to put the initially inconsistent classifications of some national customs
authorities in the EC into better perspective. Classification of this equipment was indeed a difficult
exercise for everybody. This shouldhave forewarned EC trading partnersnot to draw hastyconclusions
from tariff treatment in individual cases which they found favourable. Furthermore, the recent
negotiations on the Information Technology Agreement showed again the many diversities between
WTO trading partners in classifying LAN equipment. For instance, two of the third parties to this
dispute, Japan and Korea, were still classifying some LAN equipment as telecom equipment.46
(b) Imports of products
5.36 The United States claimed that imports of the products at issue into the EC were treated under
Chapter 84 during the Uruguay Round. This treatment could be determined through examining trade
figures and other data such as invoices. In conjunction with actual treatment, classification rulings
by the importing country provided particularly compelling evidence of the actual product scope of a
particular tariff heading.
5.37 The European Communities noted that as indicated before, tariff treatment was different from
custom classification. The fact of classifying a product under a certain tariff heading was separate
from the agreement Members might have reached on the tariff treatment for particular items during
multilateral tariff negotiations. A tariff binding could not be inferred from individual classification
decisions by local customs authorities on individual consignments. If as a result of such individual
classification decisions, an importer obtained more favourable tariff treatment than that foreseen in
the tariff schedule, this represented a windfall benefit for that company and did not have an effect on
the rights and obligations held by WTO Members.
45Canadian Customs Notice No. 963 of 24 May 1995, page 4.
46See Annex 5.

5.38 The United States argued that the classification actions by the importing member States of
the EC were clearly relevant in determining such treatment. Such actions demonstrated where trade
was expected to and did, flow. They provided particularly compelling evidence that specific products
fell within the product scope of a particular tariff heading, and that the authorities in the EC were aware
of that product scope. In particular, the treatment accorded to LAN equipment under BTIs and other
member State classification actions prior to 1993 was especially compelling given the absence of any
EC-wide classification regulations on these products or even a mechanism to obtain BTIs with EC-wide
applicability. Nolegitimateobjection couldbe raised thatthe classificationof goods importedconsistent
with such a ruling was fraudulent or mistaken.
5.39 The European Communities responded that it was clear that the EC was not bound vis-à-vis
itstradingpartners byany actionsof nationalauthoritieswhichwere inconsistentwith the EC's position,
but which might have benefited certain individuals. Likewise the EC would not claim to derive any
rights against the US government, for instance, if a local US customs office mistakenly levied duties
on EC imports that were lower than those negotiated and bound by the United States in the WTO.
5.40 The United States argued that the analogy was misplaced on the ground that EC member States
were themselves WTO Members, as already mentioned. Moreover, the situation in the present dispute
had special features because the actual treatment of any product in the EC depended on actions by the
customs authorities of each EC member State.
5.41 At the same time, the United States wished to note that sufficiency of evidence such as BTIs
should not be the issue in this case. It just so happened that US exporters of the products subject to
this dispute sought BTIs before exporting their products and those BTIs demonstrated treatment during
the Uruguay Round as automatic data processing equipment. But what if they had not? What if there
had been no document from UK and Irish customs officials articulating tariff treatment? In the normal
course of trade US exporters sent products to Europe, claimed tariff treatment under headings 84.71
and 84.73 (for parts) and, in the absence of review by customs authorities, paid the duties owed. The
paper trail there would not have involved a piece of paper from the customs authorities themselves.
What then? Legally, it would have no effect on the strength of the US claim. Trade in the product,
and the mere fact of customs treatment should be enough. That was not just the US view, but also
the view of the European Commission, as set out in an "Aide-Mémoire" as far back as in 1981 when
the EC had wished to draw the attention of the US authorities to the tariff reclassification by US customs
service of tire protection chains. These products had been classified under TSUS no. 652.24 through
652.33, but in October 1979, the US Customs Service considered this classification as erroneous and
proposed to classify these chains under TSU no. 652.35, resulting in an increase of the applied duty.
The Commission had indicated that it was "...of the opinion that the reclassification under TSUS
no. 652.35, bearing a much higher duty rate than the concessional rates (for TSUS nos. 652.24 through
652.33) is inconsistent with the obligations of the US under the GATT. Furthermore, the Commission
considers that, even if it could be maintained that the articles in question had been erroneously classified
under TSUS no. 652.24 through 652.33, the fact that over a period of many years (including the period
during which the relevant tariff concession was negotiated) these articles were treated as belonging
to these headings would be sufficient in itself to establish the concessional rights of the EC to a
continuation of the tariff treatment promised in respect of the classification for these articles".47
5.42 The European Communities noted that the "Aide Mémoire" referred to by the United States
was dated 22 May 1981, which was almost sixteen years ago. It was written in a completely different
47European Commission Aide-Mémoire, 22 May 1981.

context and related to different products, and therefore could not be relevant to the present case.
Moreover, the background to the situation was unknown. Additionally, in that "Aide-Mémoire" the
EC had referred to an acknowledgement by the US State Department that "for some cases brought
up, the Community might have some GATT rights". In the present dispute, this was not the case;
the EC was not acknowledging that the United States had any WTO rights.
(i) BTIs and national classification
5.43 The United States claimed that classification actions by member States provided evidence that
these products were treated uniformly under Chapter 84 during the Uruguay Round. In fact, prior
to the conclusion of the Uruguay Round, and going back as far as 1988, many EC member States,
including at least Ireland, the United Kingdom, France, Belgium and Luxembourg, treated imports
from the United Statesof LANadaptercards and otherLANequipmentascomputer equipment,dutiable
at the rates applicable toproducts fallingunder heading8471. Additionally, prior tothe implementation
of the European Commission’ s LAN adapter card Regulation, other member States, including the
Netherlands and Denmark, also issued BTIs treating LAN equipment under Chapter 84. The existing
treatment in these member States prior to 1994 formed the basis for the United States’ expectations
during the Uruguay Round negotiations.
5.44 To support this claim, in addition to the BTIs issued by Ireland48, and classification decisions
by the UK49 Customs and Excise, in which certain LAN equipment products subject to dispute were
classified under 84.71, the United States had also producedletters from four of the leading US exporters
of LAN equipment to Europe50 attesting to the fact that all of their LAN equipment exported to Ireland
and the United Kingdom between 1991 and 1994 was classified by customs authorities under 84.71
or 84.73. One of them distributed its products through its primary warehousing facility in Ireland.
Another distributed through a subsidiary in the United Kingdom. The four companies which submitted
the letters represented over 75 per cent of LAN equipment export from the United States to the EC.
The United States had also submitted four BTIs issued by the Dutch51 customs authorities,eight BTIs
issued by the French52 customs authorities and four BTIs by the Danish53 authorities during the period
from October 1993 to January 1995 in which LAN equipment was determined to be dutiable under
heading 84.71 or 84.73. Furthermore, as late as June 1995, France had asserted at a meeting of the
EuropeanCommission CustomsCode Committee54 thatonly"realtelecommunicationequipment"could
be classified under 85.17. US exporters of LAN equipment had also verified that routers imported
into Belgium55 in 1995 were classified under 8471.9910, and at least one manufacturer of computer
products had imported routers into Luxembourg under the heading 84.71 in 1993 and 1994.
48See Annex 4, Table 1, Nos. 13-44.
49See Annex 4, Table 2, Nos. 1-3.
50See Annex 4, Table 3, Nos. 6-9.
51See Annex 4, Table 1, Nos. 45-48.
52See Annex 4, Table 1, Nos. 5-12.
53See Annex 4, Table 1, Nos. 1-4.
54See Annex 4, Table 3, No. 5.
55See Annex 4, Table 3, No. 1.

5.45 In addition to the EC-12, at least two of the three countries that acceded to the EC in 1995
provided tariff treatment for LAN equipment under heading 84.71 prior to accession. Both Finland
and Sweden56, at the time had bound their tariffs under the Uruguay Round and prior to accession to
the EC had treated LAN equipment as ADP equipment under heading 84.71. Under Finland's Uruguay
Round Schedule of tariff concessions, LAN equipment under heading 84.71 was bound at a flat rate
of 0.9 per cent. Under Sweden's Uruguay Round schedule of tariff concessions, LAN equipment,
under heading 8471.9910, was staged from a base rate of 3.8 per cent in 1995 to a duty free bound
rate in 1999 (other products under heading 84.71 were staged from 3.8 per cent to 1.9 per cent).
5.46 The European Communities noted that, contrary to what the United States alleged, the EC
member States did not treat these products uniformly under Chapter 84 during the Uruguay Round.
Significantly, in the EC there had been a tendency since the early 1990s to classify more and more
components, which could be used in LAN and other kind of networks (e.g. telephone networks), as
telecom equipment. The question of proper classification of LAN equipment was litigated early on,
in Germany. There, the customs authorities issued, already in 1989, BTIs classifying LAN under
heading 85.17. These rulings were upheld by the German Federal Tax Court in 1991.57 Subsequently
the German customs authorities duly continued to issue BTIs for LAN equipment under heading 85.17.
For example, in 1992, the German customs authorities had issued a BTI for LAN adapter cards under
85.1758; the Dutch customs authorities had also issued BTIs classifying LAN equipment under
heading 85.1759, as did the UK60 and French61customs authorities.
5.47 It was also true that customs authorities in some member States had initially considered LAN
equipment to fall under heading 84.71, for example Ireland had issued BTIs classifying some LAN
equipment under heading 84.71. However, the EC wished to recall that the impact of a BTI was limited.
It could only be invoked by the individual to whom it was addressed and was temporary and restricted
to the specific type of product it covered; its validity was limited in time and a BTI did not guarantee
that the classification of the goods was correct and could be relied upon by the individual in the future.
BTIs did not represent classification decisions of the EC. As such, BTIs created no rights or legitimate
expectations for governments in the context of WTO. Thus, the Community Customs Code provided
explicitly that a BTI ceased to be valid where an EC regulation was adopted and the information no
longer conformed to the law laid down thereby or where the BTI was incompatible with a judgement
of the ECJ.
5.48 For these reasons, the BTIs issued by the Irish Customs authorities could not have created
rights and expectations for the United States about future classifications or duty treatment by the EC.
Especially, in that particular case, as these BTIs were all issued on the same day by one customs office
to one single company. It was not as if these BTIs reflected a consistent practice of the Irish customs
authorities. With respect to the United Kingdom, reference was made to a few letters from customs
56See Annex 4, Table 3, Nos. 3 and 4.
57See Annex 6, Table 2, No. 1.
58See Annex 6, Table 1, No.4.
59See Annex 6, Table 1, Nos. 5-34.
60See Annex 6, Table 1, Nos. 35-44.
61See Annex 6, Table 1, Nos. 1-3.

authorities and it was even unclear to whom they were addressed. As far as France and Belgium were
concerned the United States had produced initially importers invoices to support its allegation. However,
these documents were dated 1995 and 1996 and were therefore beyond the relevant period. Also, there
was no indication that these documents concerned LAN equipment; they only referred to "computer
parts". Finally, as far as the EC could determine, these invoices reflected only self-certification by
importers,and nodecisionbycustoms authorities. Regarding France, inparticular,the unofficial report
of the EC's Nomenclature Committee meeting produced by the United States, reflected an opinion
which the French representative was supposed to have expressed during the meeting; it did not establish
thatthe French customsauthoritiesactually classifiedLANequipmentunder heading84.71. The French
BTIs which had been submitted were also issued after 1993 which indicated that they could not have
formed the basis of reasonable expectations by the United States that tariff treatment was going to be
that covered by 84.71. With respect to the Netherlands, the United States had submitted merely one
"original" BTI issued by the competent Dutch authorities. Moreover this original contained no stamp
or other means of certification In any event according to the English translation, the rulings date from
1995, which was after the conclusion of the Uruguay Round and could certainly not have created
reasonable expectations for the United States during those negotiations. With regard to Denmark, the
United States had produced five "original" BTIs which were unidentifiable. No date was mentioned
in the English translations or identifiable in the "original rulings". With respect to Luxembourg, no
document had even been submitted regarding the classification practice of its customs authorities.
The United States had also claimed that Finland and Sweden at the time they had bound their tariffs
under the Uruguay Round, which was prior to their accession to the EC, had treated LAN equipment
under heading 84.71. This might well be true but was irrelevant. As already explained, when countries
acceded to the EC, they withdrew their individual schedules. A new schedule of the enlarged Community
was then negotiated with the EC trading partners. The EC and the United States had already agreed
on the EC concessions under this new schedule, and therefore no reasonable expectations could be
based on the withdrawn individual schedules of Finland and Sweden.
5.49 With reference to the letters which the United States had submitted from the four leading US
companies exporting LAN equipment to the EC, the EC pointed out that in the evidence submitted
to the Panel by the EC, the EC had included a BTI issued to one of those companies in 1993 by the
UK HM Customs and Excise, which classified a router under tariff heading 85.17.62 This seemed
to contradict the claim by that company that all its export of LAN equipment to the United Kingdom
was classified under 84.71 during the relevant period. This situation created serious doubt as to the
reliability of the statement made by that company that all its export of LAN equipment to Ireland and
the United Kingdom was classified under Chapter 84.
5.50 What had been demonstrated by the above information was the fact that there was no uniform
classification63 in the EC member States with respect to LAN equipment during the Uruguay Round
62See Annex 4, Table 3, No. 8 and Annex 6, Table 1, No. 41.
63The aim and purpose of the relevant EC law in the context of the present case was to ensure that no conflicting
BTIs be issued for the same product, nor even for similar products. That did not mean that such situations would
never arise in practice. The EC had put in place a data base in order to avoid such situations as much as humanly
possible. However, such undesirable things did happen occasionally in practice. In this context it was important
to remember that the EC customs authorities were dealing daily with hundreds of applications in eleven different
official languages. Misunderstandings or even fraudulent behaviour were a reality under such circumstances
(Importers were required to indicate whether they have knowledge of the existence of a BTI for the product for
which they are submitting a BTI application (cf. Article 6 para. 4 lit. j. of Commission Regulation No. 2454/93).
(continued...)

period. Although, the process of unifying the views on classification of LAN equipment had taken
time, the EC applying the HS interpretation rules had consistently taken the view that components of
data transmitting networks in general and LAN in particular should be classified under 85.17 on the
basis that its principal function is the communication/transmission of data. This was reflected in a number
of Regulations issued on this matter starting from 1992. In 1992, the EC had issued a Regulation which
classified a multiplexer under heading 85.17, describing a multiplexer as "an electronic multiplexing
applianceinitsownhousingwhichenablesmultiplelink-upstobe madebetween the different connection
points of a computer network.64 In March 1994, the EC had issued another Classification Regulation
in which it classified modems as telecom equipment under 85.17.65 A few weeks later, it decided that
heading85.17shouldequallyapplytoadapters and transceivers.66 Finally,the Commission had adopted
on 23 May 1995 a Regulation noting inter alia that the proper classification of LAN adapter cards
was 85.17.67
5.51 In view of all of the above, the United States should not have formed any "reasonable
expectations" as to the treatment accorded to the products subject to the dispute.
5.52 The United States disagreed with the EC argument that the BTIs issued by customs authorities
from Netherlands, Denmark and France after 1993 were irrelevant. These BTIs were relevant because
they reflected previous practice (i.e. during the Uruguay Round) by these countries. According to
the experience of US exporters, these member States had continued to treat imports of the relevant
LAN equipment as computer parts and units under headings 84.71 and 84.73 until 1995-1996. Following
the EC’ s publication of the adapter card regulation, these and other member States began reclassifying
LAN adapter cards and other LAN equipment. In some instances, customs authorities also began in
1995 to make the unwarranted demand that importers pay additional duties for past LAN equipment
imports based on the difference between the 84.71 or 84.73 rate and the 85.17 rate. For example,
in August 1995, the Luxembourg customs authorities sent invoices to importers seeking to reopen their
duty liability and collect for shipments since January 1993 the difference between the 3.6 per cent actually
charged under heading 84.71 and the 7.5 per cent applicable under 85.17. As another example, a
company whose LAN equipment had entered the United Kingdom on 11 May 1995 as ADP machines
under heading 84.71, received a demand note for the difference in duties on 7 June 1996, when the
63(...continued)
There was a delicate balance to be drawn between a thorough and efficient implementation of EC customs law
in individual cases and a smooth handling of ongoing trade operations by customs authorities. Customs formalities
in the EC had to allow for the thorough implementation of all customs rules, but was not to become an obstacle
for trade. The only alternative to the present decentralized organization of customs services would be to have
a fully centralized customs service with specialized offices for particular products. The EC did not believe that
such a change would be in the interest of the trading community. Also to be recalled was the fact that something
which was not provided for in law or which was prohibited by law did not mean that it did not exist. Theft was
presumably prohibited by law everywhere in the world. The promulgation and implementation of the relevant
legal provisions did unfortunately not mean that theft had been eradicated and no longer existed, however,
thoroughly the law was applied in individual countries.
64Regulation 396/92, op cit.
65Regulation 754/94 of 30 March 1994, OJ 1994 L 89/2.
66Regulation 1638/94 of 5 July 1994, OJ 1994 L 172/5.
67Commission Regulation 1165/95, OJ 1995 L 117/15.

United Kingdom reclassified these products. In this note, the UK customs authority asked the higher
tariff rate on the imports of the products for the past year.
5.53 The EC had suggested that US expectations should instead have been formed based upon a
1991 decision by the German Bundesfinanzhof affirming BTIs issued by German customs authorities
to a non-US firm (Transtec) in 1989. The reference to the Transtec ruling was irrelevant as this ruling
had no authority outside of Germany and did not justify tariff treatment less favourable than or
inconsistentwith the EC UruguayRound bindings negotiatedfor heading8471. UnderEC law, national
court rulings concerning the classification of products were not binding on the customs authorities of
othermember States. In addition, the legal basisof the Transtec decisionwas reversed in a later decision
by the ECJ. In the case of Siemens Nixdorf, ECJ Case C-11/93, the ECJ had ruled in favour of broad
product coverage under heading 84.71.68 In so doing, the ECJ had rejected the rationale relied on
bythe Transtec court. In the Transtec case, the Bundesfinanzhofhad ruledthatcertaincomputer network
equipment were classifiable as telecommunications equipment based upon the court’ s interpretation
of the term "specific function" in Note 5 to Chapter 84 of the HS.69 In the German court’ s view,
classification under heading 84.71 was precluded where the equipment in question was viewed by customs
authoritiesas havinga"specific function"(datatransmission)whichwasdistinctfrom "dataprocessing."
In Siemens-Nixdorf, the ECJ had rejected this reasoning, and instead interpreted Note 5 to mean that
"any unit which is connected to the central processing unit of a data-processing system and which is
able to accept or deliver data in a form -- code or signals -- which can be used by the system is to
be regarded as beinga partof the complete systemof an automatic data processingmachine and classified
under heading 8471".70
5.54 The EC had also claimed that products classified by the Regulations referred to by the EC
signalled a tendency in the EC to classify LAN components under 85.17 which should have warned
the United States; however, these products were outside the scope of this dispute. The EC had included
multiplexers and modems in its description of LAN equipment, suggesting that these, too, were LAN
products, which was not the case. Modems were combined modulators-demodulators, which operated
to convert a signal in order to achieve compatibility in a telecommunications environment. Modems
had been historically classified and accorded tariff treatment as telecommunications apparatus by the
EC and other US trading partners. Likewise multiplexers were not LAN products. "Multiplexing"
was a technique for interleaving point-to-point telecommunications calls coming from different sources
and going to different destinations but passing through common telecommunications trunk lines. The
mostsimple way to describe this was the method by whichone "dials"a call on the telephone orfacsimile
machine. Without multiplexers, each destination (eg. a telephone) would have to be individually
connected to each other's end point, rather than through common trunk lines. Such multiplexing did
not operate in a LAN environment. In a LAN, all data and processing information was automatically
68See Annex 4, Table 3, No. 10.
69See footnote 15.
70The reasoning of the ECJ in Siemens-Nixdorf was consistent with the Opinion of the Advocate General
and the position of the European Commission. The ECJ issued its decision on May 19, 1994. However, the
Advocate General and the European Commission provided their views, with which the ECJ concurred, well
before that date. The Advocate General delivered his opinion on January 27, 1994, after receiving and reviewing
the views of the parties. The Advocate General wrote that he was adopting the views expressed by the European
Commission, that Note 5 to Chapter 84 of the Combined Nomenclature should be interpreted as meaning that
“ separately housed units which are integral parts of a data-processing system come under heading 8471, if by
virtue of their design, they are not suitable for using except as part of a data-processing system.”

passed to all active interfaces or stations that were connected. Only those interfaces or stations which
recognized themselvesasbeingintendeddestinationswouldcopythetransmitteddatafromtheirphysical
interface to their processing engines.
5.55 Additionally, these Regulations were issued after the relevant negotiating period. Specifically
the EC had cited its classification Regulation on LAN adapters issued in June 1994. The United States
noted that given that the EC had issued the relevant Regulation several months after it had bound its
tariff in the Uruguay Round, the EC had no legitimate basis to rely on the adapter regulation as evidence
of the United States' expectations during the Uruguay Round regarding tariff treatment of those or
other LAN products.
5.56 The BTIs submitted by the EC from 3 (France, Netherlands and the United Kingdom) of 15
member States over a four year time-period concerning a number of narrowly-defined products from
specific producers did not, as claimed by the EC, constitute evidence that the EC had changed its
collective opinion of the classification of all networking equipment. The UK BTI71 effective
December 1993 related to a “ statistical time division multiplexer,” which was a product outside the
scope of this dispute. Six UK BTIs72 were effective as from February 1994, i.e. only after the close
of substantive tariff negotiations and their existence was not drawn to the attention of US tariff negotiators
during the verification process. A Dutch BTI73 appeared also to relate to a multiplexer. One French
BTI74 referring to a “ multiprotocol terminal server for server/mainframe exchanges” which was related
to a front-end controller for mainframe computers, was not relevant to the products at issue.
5.57 The question raised by the EC about the apparent contradiction between the BTI issued by
the UK customs classifying a router under 85.17, and the exporting US company's claim in a letter
that all its exports of LAN equipment had always been classified by UK customs under 84.71 did not
cast any doubts about the reliability of the company's claim. The explanation was as follows: the
company's UK office had used the 84.71 classification for its import entries until the UK customs had
issued the BTI of 11 October 1993 for certain router products. The company had instructed its customs
broker to initiate protest procedures, and had corresponded with the UK Customs on this matter until
the company's protest about the classification of this product under 85.17 had been finally rejected
on 5 May 1994. Moreover, because this company used the method of distribution75, whereby it was
71UK 55700: See Annex 6, Table 1, No. 42.
72UK57112, UK57127, UK57128, UK57141, UK57142, UK 57110: See Annex 6, Table 1, Nos: 35, 36,
37, 38, 39 and 40.
73NL199109209450089-0: See Annex 6, Table 1, No. 10.
74FR 06190199102248: See Annex 6, Table 1, No. 3.
75Product distribution in the EC may take place in many ways, but two scenarios are the most frequent.
First, if products are distributed on a Free-on-Board (FOB) Plant basis, the EC customer takes possession of
the goods at the foreign manufacturer’ s plant and is responsible forall subsequent distribution activities, including
transportation, customs clearance, and subsequent delivery to an end user in the EC; in this scenario there may
be many entry points. In the second likely scenario, a foreign multinational retains title to the goods and undertakes
these activities itself. To provide the customer with the lowest landed cost and maximum flexibility, distribution
is often done through a centralized location. Redistribution to end customers may be done post customs clearance
where the goods are in free circulation, or in bond using a T1 transit document which enables the goods to be
transported to the final destination country where customs clearance will be made. A growing number of

not the importer, it had relied on information from its customers who were the importers that the common
treatment of this equipment in the EC was under 84.71 during this same period.
5.58 The point worth noting was that the United States had produced as many BTIs from as many
member States where networking equipment was classified under heading 84.71 or 84.73. It would
appear that this consideration begged the question of what effect actions by one member State’ s customs
authorities might have on expectations with regard to treatment under concessions for another member
State. While actions at the Community level might affect expectations regarding market access with
respect to trade into all member States, the treatment of a product by Greece, for instance, could not
be deemed to affect the expectations of an exporter with respect to the treatment contemplated for its
exports to the United Kingdom or for its exports to the entire Community. If so, then the concessions
of the Community and of the member States were all fundamentally unreliable, and the Community,
alone among WTO Members, was placed in the unique position in which the treatment accorded by
the Community, and each of its member States, could be reduced to the least common denominator
of the treatment by any of its member States. Such an interpretation should not be accorded to Article II
or to these concessions. Moreover, since the EC’ s trading partners knew that exporters could enter
goods in one member State and then ship them free of duty to any other member State, they should
be able to rely on the most favourable treatment provided in any member State. The United States
noted the parallel to the interpretation that had been given to GATT Article III in disputes concerning
measures of provinces or states in the United States and Canada; past GATT panels had held that
Article III required treatment of imported products no less favourable than the treatment accorded to
the most-favoured domestic product.76
5.59 The European Communities stated that the EC considered the principal function of LAN
equipment to be the transmission of data between computers. Thus the communication function was
paramount. The purpose of processing data by the LAN equipment was to enable that data to be
communicated. Some modems were peripheral devices that permitted a personal computer,
minicomputer, or mainframe, to receive and transmit data in digital format across voice
telecommunication lines. Thus, their function was not unlike that of a router. Some multiplexers also
fell within the definition of LAN equipment. In a US ruling of 21 March 1989 (NY 837606), sixteen
line intelligent multiplexers described as networking boards, which were to be installed in a mainframe
computer chassisand whichappeared tobe dedicated to the transmissionof signalsrepresentingsymbols
and data, were classified under HS heading 8517.82. Later, following the reclassification decision of
LAN equipment by the United States in 1992, a product known as statistical multiplexers was classified
in HS heading 8471.80 in a ruling of 13 February 1996 (NY A80132). The multiplexers in question
were designed to provide interconnection between dumb terminals and/or desk-top processors with
centrally located minicomputers in both LAN and WAN applications. Moreover, Singapore, in its
submission, had identified a multiplexer as LAN equipment.77 In conclusion, if this dispute was about
companies, including a number of the exporters of LAN equipment, are transitioning to the latter distribution
strategy (Information provided by the United States).
76Panel Report on United States - Measures Affecting Alcoholic and Malt Beverages, adopted on 19 June
1992, BISD 39S/206, para. 5.17; Panel Report on Canada - Import, Distribution and Sale of Certain Alcoholic
Drinks by Provincial Marketing Agencies, adopted on 18 February 1992, BISD 39S/27, note to para. 5.4; see
Analytical Index/Guide to GATT Law and Practice (1995 ed.), page. 130.
77It stated the following: "Significantly, Singapore's request on 8471.99 identified by name examples of
LAN equipment covered by the request namely: 'gateways', 'concentrators' and 'multiplexers'".

LAN equipment other than LAN adapter cards, which the EC contested, it necessarily also included
certain modems and multiplexers.
5.60 In this connection, it was also important to note that the BTIs issued by France, the Netherlands
and the United Kingdom submitted by the EC were relevant. They were not as asserted by the
United States dealing with products outside the scope of this issue. They, in fact, dealt with those
types of LAN equipment which were complete in that they were imported in their own housing and
included routers, bridges, hubs, servers and multiplexers used in computer networks for data
transmission. They were not limited to connecting computers within a local area network but were
alsousedfor communication between networks.For example, routerscontrolledthe flowof information
between the different LANs that made up the larger wide-area networks (WAN).
5.61 Furthermore, the ECJ ruling in the siemens Nixdorf case had not undermined the ruling of
the German Bundesfinanzhof of 1991. In the German case, the product at issue related to LAN
components, including a LAN adapter device. In the Siemens-Nixdorf case, the product at issue was
a video monitor that could only receive signals from a data processing machine. The two products
were therefore completely different and their functions did not correspond in any way. The German
court case still stood and was not only relevant for Germany, as the United States wrongly alleged,
since products imported into Germany participated in the free circulation of goods in the entire EC.
5.62 Finally, the EC wished to emphasize that how many individual classifications had been made
in one direction rather than in the other could certainly not be considered decisive since at best the
classification practice could only be characterized as inconsistent. How under these circumstances
the US negotiators could have derived certainty about an agreed tariff treatment or even simple
expectations from individual classification decisions while they were negotiating tariff concessions with
the EC as a whole was extremely unclear; the EC could not be held bound by such unjustified
expectations.
(ii) Trade Flows
5.63 The United States claimed that trade data demonstrated that the EC and its member States
treated imports of these products under Chapter 84. The data and documents containing trade statistics
relied on during the negotiations demonstrated that there were large and increasing trade flows of the
products at issue within tariff heading 84.71. The EC’ s trading partners had a right to rely on this
well-known treatment in bargaining for tariff concessions and to assume that such treatment would
continue in the absence of any statement to the contrary by the EC. The calculations submitted by
the EC in the 1993 negotiations to justify the value of its Uruguay Round tariff offer confirmed the
reasonableness of the US expectation in this regard. These data indicated that US-originating imports
into the EC of products treated as automatic data processing products under Chapter 84 closely tracked
US exports of computers, computer peripherals and computer parts. Trade flow trends confirmed
the US claim that, in the aftermath of the Uruguay Round, the EC changed the tariff treatment of the
products at issue from that which was negotiated. Thus, while US exports of LAN equipment, as
reported on the Shipper's Export Declarations under expected heading 8471.99 continued to rise in
1994 and 1995, the EC's trade data indicated thatthe productsas classifiedas dutiableunder thatheading
sharply declined in 1995. At the same time, the EC's reported imports of products dutiable as
telecommunications equipment under 8517.82 increased in an amount disproportionate to the US exporters
reported exports of products they expected to be treated under that heading.78
78See Annex 7.

5.64 Furthermore, interpretation of trade flows in relation to the headings in a particular schedule
had to take into account the agreed context of the tariff negotiations in the Uruguay Round. The
Mid-term Review decision of Ministers on Tariffs adopted at the Montreal Ministerial Meeting of
December 1988 provided explicitly: "Participants have agreed that in the negotiation of tariff concessions,
current nomenclatures should be employed... ."79 Thus, the participants had agreed that the tariff
negotiations would take place on the basis of the tariff treatment that was operative during the
negotiations.
5.65 The European Communities stated that with regard to the arguments put forward by the
United States on trade figures, EC import figures from the United States for 8471.99 did not show
that they had “ sharply declined in 1995” . Indeed the volume of imports from the US trade under
heading 8471.99 had remained fairly constant since 1990; this constancy was also reflected in EC imports
from the United States for the products under 84.71. However, for all products falling under 85.17
there had been since 1990 growth in imports from the United States. This was due to the ever increasing
use of telephone and telecommunications equipment. LAN equipment was involved in that growth but
did not account for all of it. While exporters might have said that the products they had shipped to
the EC under 84.71 were LAN equipment, the EC did not know whether, in all such cases, the products
were declared as LAN equipment or just declared as computers or computer products. Apart from
this, the following elements also had to be considered:
- It was possible that certain companies in certain cases had received windfall benefits through
BTIs which enabled them to obtain a lower duty treatment for specific LAN products in another
heading, e.g. 84.71/84.73.
- In other cases, as was already mentioned, importers might not have specifically mentioned
LAN equipment when declaring products under 84.71/84.73. Indeed the evidence supplied
to the Panel’ s questions by the United States showed that the products in question were declared
as computer parts under HS heading 84.73 ("accessoires d’ ordinateurs" and "onderdelen voor
computers")80 and not as LAN equipment.
- It was quite possible, not to say likely, that certain exporters were regarding all products they
had shipped under 84.71 to be LAN equipment. Indeed, the statements submitted by the
United States wereambiguous,ifnotincorrect.When productswere shippedtheyweredeclared
according to the exporting country’ s classification of a particular product, and in the period
referred to, the United States had classified these products under tariff heading 84.71. However,
when products were imported into a third country, they should be declared in accordance with
the classification as determined by the importing country. When the United States and the EC
disagreed on a particular classification of an EC product, the United States did not grant tariff
treatment under the heading supported by the EC but under the heading they themselves found
appropriate. One example of this, which had already been mentioned, was the US company
which had claimed that all its LAN equipment exported during a certain time period to the
United Kingdom had been classified by UK customs authorities under 84.71. But, in fact a
BTI issued by the UK customs during that time-period to the same company had classified
the product under tariff heading 85.17. Moreover, it should be remembered that in order
79MTN.TNC/7(MIN); also referenced in the agreed text on Procedures for the Negotiations, op cit., para.
5: “ Participants have agreed that in the negotiation on tariff concessions, current nomenclatures should be
employed . . .” .
80See Annex 4, Table 3, Nos. 1 and 2.

to facilitate trade, EC customs officials only verified a small proportion of imports and the
accompanying declarations.
2. Personal Computers with multimedia capability
5.66 The United States claimed that PCs with multimedia capability were treated as products under
Chapter 84 during the Uruguay Round. The EC had admitted that personal computers at issue in this
dispute, including those capable of receiving and processing television signals, existed and were marketed
prior to 1994. When the EC had bound its tariffs in early 1994, it had treated all PCs, including those
withmultimedia capability,as automatic data processingmachines as providedfor under heading84.71.
In negotiating its Uruguay Round concessions, the EC had not made any reservations under heading 84.71
for any particular type of personal computer.
5.67 The European Communities responded that as more and more functionalities had been added
to PCs, it had become more common to refer to such PCs as PCs with multimedia capabilities. At
the same time classification of such products had become much more difficult because it was necessary
to determine whether the product was a PC with multimedia capabilities or a multimedia machine with
computing facilities.
5.68 However, neither during nor at the end of the Uruguay Round, could the United States have
had reasonable expectations that the EC would classify PCTVs or other multimedia equipment under
tariff heading 84.71 and apply the corresponding duty rate. In fact, the United States had not produced
any documentation showingthat the EC had indeed classifiedall computers with multimedia capabilities
underheading84.71duringtheUruguayRound. Moreover, on30March 1994,EC Regulation 754/9481
was issued which classified "Compact Disc Interactive System" (CDI System) made by the Dutch
company Philips under tariff heading 85.21, "video apparatus." This Regulation put the trading
community on notice concerning treatment of "multimedia equipment". As far as PCTVs were concerned,
the United States should have had even fewer reasonable expectations that the EC would apply the
tariff concession regarding heading 84.71. The mere fact that importers were able to clear certain
shipments of these products under heading 84.71 was, by itself, irrelevant. As already mentioned,
customs clearance in the EC depended on self-certification for over 90 per cent of imports in order
to keep trade flowing, and importers derived no rights from their own misstatements. Neither should
the US government.
5.69 The United States stated that the absence of rulings on treatment suggested (1) a consensus
among importers that classification was obviously under tariff heading 84.71 and (2) a general acceptance
of that view by customs officials who had ample opportunity to engage importers in discussion at local
ports and throughother means. Long-standingtradingpractices confirmed thisconclusion. The process
of customs entry and importation was in fact designed to work without written rulings: to be
self-executing based on the plain text of the Harmonized System, the guidance of the Notes to Chapters
in the Harmonized System, and the advice provided by the text of the Explanatory Notes. An importer
with a new product normally began by undertaking a classification analysis based on these sources,
as well as any pertinent available written rulings. Knowledgeable importers did this all the time, relying
on their own expertise. If the analysis resulted in an obvious classification, the importer did not seek
advance advice from customs authorities in the form of written rulings. Contrary to the EC’ s
suggestions, such advance written advice was not required. Indeed, if it were, the normal course of
international trade wouldbe seriously disruptedbya requirement whichno competent customsauthority
81Commission Regulation 754/94, OJ 1994 L 89/2, product 5.

was staffed to implement within commercially acceptable time limits. Instead, the importer started
importing the merchandise, using the classification that its analysis indicated was correct. This was
particularly the case where the change in a product was evolutionary.
5.70 The United States argued that one should not be misled by the EC's claim that only 10 per cent
of shipments were physically inspected, which suggested that only 10 per cent of shipments were
classified correctly. The EC and member States had their own classification experts in major product
areas, such as ADP equipment. They read the trade press, kept up with technological change, and
applied their knowledge of customs classification principles and the HS sources to new products. They
were not hesitanttoask questionsoreven demand writtenpresentationsif theyhad questions. If customs
authorities in the EC had indeed inspected 10 per cent of shipments, it was very unlikely that they
would not have inspected multimedia-capable computers; if they had not accepted that the appropriate
tariff treatment was that under heading 84.71, they would have treated them as subject to a different
heading.
5.71 The system had to work this way, and was described in the Kyoto Convention to which the
EC and the member States were parties. Importers had an affirmative obligation to classify products
correctly, whether or not the products were physically inspected. The fact that there were no EC
reclassification of multimedia-capable computers during the Uruguay Round in the face of substantial
trade indicated that importers were doing their jobs, customs authorities were satisfied with their
classifications, and customs authorities agreed that these products were properly dutiable under
heading 84.71.
5.72 Furthermore, the CDI System to which the EC had referred was outside the product scope
of the present dispute, as it was not a computer. The EC asserted that this product had "computing
capabilities", however, this assertion was misleading. Although the user had an array of available
choices, at its most basic level the CDI System could only be “ programmed” to perform in a finite
number of ways, like a microwave oven or a VCR. Those, too, had various computing functions,
but were not computers. The EC’ s tariff treatment of microwave ovens and VCRs could not reasonably
be relied upon as the measure of the EC’ s tariff treatment of personal computers. Nor could the EC’ s
treatment of the CDI unit be reasonably relied upon by the United States and its exporters of computers
as an indicator of the EC’ s future treatment of computers, including computers with multimedia capacity.
5.73 During consultations in this case, the EC had indicated that personal computers capable of
receiving and processing television signals were treated by the United Kingdom alone among the EC
member States as dutiable under heading 85.28, and that this was inconsistent with EC practice.82
The EC had since stated that such statements were "erroneous." Subsequently, the EC stated that
"PCTV’ s have always been classified in the EC in 85.28." This inconsistency in the EC position
illustrated why the United States had found it necessary to seek clarification concerning the treatment
by the United Kingdom and the EC of all types of multimedia computers.
5.74 With the issuance of EC Regulation 1153/97, the EC Commission had now admitted that such
computers -- as well as all computers "capable of receiving and processing television, telecommunication,
audio and video signals" -- were properly treated as "automatic data processing machines and units
thereof" in heading 84.71. This Regulation which became effective on 1 July 1997 amended the EC
Common Tariff Nomenclature and the Common Customs Tariff. It was a Regulation whichwas adopted
82Information Fiche which in the US submission was attached to a 13 March 1997 letter from R.E. Abbott,
Head of the Permanent Delegation of the European Commission to the International Organizations in Geneva,
to A.L. Stoler, Chargé d'Affaires of the Permanent Mission of the United States to the WTO.

to implement EC commitments under the Information Technology Agreement (ITA) reached at the
Singapore Ministerial Conference. The ITA was intended "to achieve maximum freedom of world
trade in information technology products" through the reduction and ultimate elimination of customs
duties on information technology products. However, the Regulation blatantly imposed tariffs at
higher-than-concession rates on computers provided for in the concession on heading 84.7183.
5.75 The European Communities wished to point out that Regulation 754/94 which classified the
CDI System under 85.21 had also classified the Commodore Dynamic Total Vision System84, which
was a product referred to by the United States as a computer with multimedia capacity, under 85.21.
Therefore, this Regulation should have put the trading community on notice concerning treatment of
"multimedia equipment" in the EC.
5.76 With respect to the "erroneous statement", referred to by the United States, it was contained
in an "information fiche", for a meeting. This was an informal document, which had no legal value
and could not be considered a formal EC position statement. It was prepared within a short deadline
and it had not been possible to consult with all the Commission services involved in the matter. In
fact, the statement should have read “ As regards the classification of PCTVs, the general practice in
the EU is that these fall under heading 85.28" instead of "84.71". It was a mistake and did not represent
inconsistencies on the part of the EC.
5.77 On the last point, Regulation 1153/97 which was adopted in order to implement the results
of the ITA was, in the view of the EC and as already noted, at odds with the scope of what this dispute
was about; it was a new Agreement negotiated after the Uruguay Round. Following the decision in
the WCO on the classification of a multimedia personal computer, the EC had had to adapt its
nomenclature in accordance with the substance of that ruling which effectively moved the PCTV from
HS heading 85.28 to 84.71.85 On the US assertion that the Regulation "blatantly imposed tariffs at
higher-than-concession rates on computers provided for in the concession on heading 84.71", the EC
had always held that PCTVs should receive tariff treatment which was originally provided for under
85.28. The idea being that even if there was a reclassification, for instance because of discussions
at the WCO, it should not affect the tariff treatment. This approach had also been taken by the GATT
with regard to the introduction of the HS, and was reflected in a decision taken by the GATT Council
83Other information submitted by the United States concerning multimedia computers included: a chart and
catalogues describing models of multimedia personal computers on the market in 1992 and 1993; report of the
57th meeting of the Tariff and Statistical Nomenclature Section of the EC Customs Code Committee, held on
29-30 June 1995; flash sheet dated February 1996 regarding multimedia PCs, and a letter regarding the same
from the UK Department of Trade and Industry dated 27 March 1996; a European Commission document entitled
"Information Note with regard to Classification of Multimedia and Related Products"; minutes of the 14 March 1996
meeting of the WTO Committee on Market Access (G/MA/M/5); and trade data on multimedia PCs submitted
in response to the Panel's questions.
84The EC claimed that the Regulation classifying the Commodore Dynamic Total Vision (CDTV) product
(item 4 in Regulation 754/94) established the principle that even though a piece of equipment was capable of
computing, other functionalities might be added, thus bringing the equipment into another product category in
the HS nomenclature. Also, at the time when Commission Regulation (EC) No. 754/94 was adopted, the CDTV
was an exceptional product compared with the standard type of PCs imported under HS heading 8471 and
presumably declared under that heading as computers.
85The EC, under the WCO process, made a reservation for the reason to seek clarity with regard to the term
"multimedia", which was, as already noted, broad and imprecise.

which stated that: "The main principle to be observed in connexion with the introduction of the
Harmonized System in national tariffs is that existing bindings should be maintained unchanged. The
alteration of existing bindings should only be envisaged where their maintenance would result in undue
complexity in the national tariffs and should not involve a significant or arbitrary increase in customs
duties collected on a particular product".86 In fact, Article II obliged Members to give tariff treatment
not less favourable than that which derived from tariff negotiations.
C. Nullification and Impairment
5.78 The United States claimed that the EC-Schedule LXXX provided tariff concessions for HS
heading 84.71, "automatic data-processing machines and units thereof". These concessions were
negotiated and agreed to during the Uruguay Round, after intensive negotiations between the United States
and the EC on behalf of the EC member States initially within the context of the US zero-for-zero
initiative within the electronics sector. There was no discussion, during this time-period, between the
EC and the United States of treating LAN equipment and PCs with multimedia capability as anything
other than computers, computer units or computer parts subject to the tariffs applicable under tariff
heading 8471 and 84.73. These products were, also during this period of time, already marketed,
traded and legally imported into member States of the EC under headings 84.71 and 84.73, as
demonstrated by BTIs and/or written classification determinations of member State customs authorities
and by other evidence. As a result, the United States was justified in reasonably expecting the products
at issue being provided the treatment foreseen under the relevant tariff headings of chapter 84 of the
EC Schedule LXXX. By classifying these products to tariff headings carrying higher duty rates which
were in excess of the rates provided for in Schedule LXXX under the relevant tariff headings of
chapter 84, the EC, Ireland and the UK had violated their obligations under Article II:1, and as a result
these measures had nullified or impaired the value of concessions accruing to the United States under
the GATT 1994.
5.79 The European Communities argued that the United States did not have a legitimate basis to
claim "reasonable expectations". On the contrary, all that had been revealed with the BTIs and
classification actions of EC member states' customs authorities submitted to the Panel was that during
the Uruguay Round there was no uniform treatment, within the EC member states for these products,
and that if anyone re-classified LAN equipment during this period of time it was the United States
and notthe EC. This situation demonstratedthe uncertainty thatexisted withrespect tothe classification
of these products within the EC member states and EC's trading partners and therefore the claim of
"reasonable expectations" could not be justified. Moreover, the United States had not been able to
establish the existence of a meeting of the minds of the negotiators constituting an agreement at any
moment in the course of the Uruguay Round tariff negotiations concerning the tariff treatment of these
products. In view of the above, the classification actions of the EC, Ireland and the United Kingdom
should be viewed as having been intended to rectify a situation of divergences within the EC member
states regarding the treatment of these products, and not one of reclassification. Furthermore, it should
be noted that while the customs authorities of EC member States might have classified these products
differently, thereby according different duty treatment to the same products, the EC itself had always
held the view that these products should be classified under the relevant tariff headings of chapter 85
as the primary function of these products was data transmission and not data processing. In view
of all of the above, the actions by the EC, Ireland and the United Kingdom could not have nullified
or impaired the value of concessions accruing to the United States under the GATT 1994.
86GATT Concessions under the Harmonized Commodity Description and Coding System, adopted on
12 July 1983, BISD 30S/17, para. 2.1.

VI. THIRD PARTIES SUBMISSIONS
A. India
6.1 Indiarequested the Panel tofindthatthe EC's classificationofLANequipmentunderRegulation
(EC) 1165/95, had resulted in the treatment of those products becoming less favourable than that provided
for in Part I of Schedule LXXX and therefore was inconsistent with obligations under Article II of
GATT 1994.
6.2 India exported approximately Rs.1 billion worth of LAN equipment to the EC in 1995-1996.87
In addition to this substantial trade interest, India was interested in the systemic issues raised by this
dispute. In particular, India was concerned with the possibility that a Member might avoid its specific
obligationsrelated to tariff rate concessions under Article II through the reclassification of bound items.
In examining this matter, emphasis had to be placed on the "fundamental importance of the security
and predictability of GATT tariff bindings", a principle which constituted a central obligation in the
system of the General Agreement, as mentioned in 1984 Panel Report on Newsprint.88
6.3 On 27 April 1997, an overwhelming majority of the members of the WCO HS Committee
voted to classify LAN equipment, under heading 84.71. Notwithstanding this decision, the EC had
not adopted any measures bringing its member States into conformity with this decision. As was clear
from this decision, it was India's understanding that the products subject to this dispute should be
classified under heading 84.71.
6.4 One could conclude from these facts that in the Uruguay Round tariff negotiations, other
Members including developing country Members like India, who were beginning to export such products
to the EC, had reason to believe that the EC had agreed to bind LAN equipment as a product under
the heading 84.71. Thus the EC and its member States were under obligation to provide the tariff
treatment granted at the time of the Uruguay Round to LAN equipment based on the provisions under
Article II of GATT 1994.
B. Japan
6.5 Japan argued that on the technical side, as was clear from the decision of the WCO HS
Committee and as had always beenJapan'sunderstanding,thatthe productssubjecttothisdisputeshould
be classified under tariff heading 84.71. At its eighteenth Session of the Harmonized System (HS)
Committee of the WCO held in November 1996, the Committee had decided to classify "PCTV"
multimedia PCs under tariff heading 84.71 as a result of a vote. At its nineteenth Session held in
April 1997, the HS Committee had voted to classify LAN equipment, especially (1) communications
controllers or router, (2) cluster controllers, (3) multistation access unit and (4) optical fibre converter
under heading 84.71. Notwithstanding these decisions, the EC had not adopted any measure to bring
its member States into conformity with these decisions. While, the WTO Agreement imposed no
obligation on Members to follow any specific nomenclature including the HS, the scope of the concession
for a tariff line in the EC's Schedule which was based on the HS nomenclature, had to be considered
orinterpreted,unlessotherwisespecified inthe Schedule, inlightof the relatedHS documents, including
the text of the HS nomenclature and Notes to Chapters. However, there was no such specification
87Statistics of Foreign Trade of India (1995-96).
88Panel Report on Newsprint, op cit., para. 52.

or qualification concerning the product coverage for the heading 84.71 or 85.28 in the EC's schedule.
Moreover, in actual practice the EC had applied the same tariff rate as the bound rate on LAN equipment
and PCTVs under the heading 84.71, before reclassification actions by the EC, Ireland and the
United Kingdom.
6.6 From this factual background, it could be concluded that during the Uruguay Round tariff
negotiations, other Members had reason to believe that the EC had agreed to bind LAN equipment
and PCTVs as "automatic data processing machines" under the heading 84.71. Thus, the EC and its
member States were under the obligation to provide the tariff treatment granted at the time of the
Uruguay Round to LAN equipment and multimedia PCs based on the provisions of Article II of
GATT 1994. Instead, the EC, Ireland and the United Kingdom had unilaterally, through reclassification,
imposed higher tariff rates than those bound during Uruguay Round without initiating the procedures
set forth in Article XXVIII of GATT 1994. Wherever these products were classified, the three defending
parties should have maintained the value of tariff concessions at 3.9 per cent on LAN equipment and
multimedia PCs, which the EC had committed to in the Uruguay Round. The three defending parties
had therefore violated their obligations under Article II of GATT 1994.
6.7 The EC had argued that the EC had exclusive prerogative to decide on the classification of
products under particular tariff headings, and that the application of particular tariff rates to certain
products by the customs authorities of its member States should not be the basis for expectations
regarding tariff concessions; therefore the Commission Regulation (EC) 1165/95 had not reclassified
LAN adapter cards nor resulted in an increase in tariff rate. In fact, in Japan's view, in the absence
of clear announcements or rules to show that the EC would classify those products under the
heading 85.17 or 85.28, it would be natural for countries outside the EC when engaging in tariff
negotiations to base themselves on the reality at that time. If the EC wished to argue otherwise, it
should have been for the EC to bear the burden of proof. Japan had not found convincing evidence
to that effect in the submission by the EC. In other words, the EC had not been able to produce sufficient
evidence to show that the countries outside the EC should have anticipated such increases in tariff rates
after the Uruguay Round.
6.8 This particular issue was systemic in that it could be a problem with regard to not only the
productsindisputenowbut alsotoother products. As technologyprogressed,a number of new products
would be coming into the market. Whenever new negotiations took place with regard to those products,
the same issue would inevitably come out. It would then be difficult to negotiate tariff concessions
on those items on which the EC did not have uniform classification on tariff headings. Moreover,
if the EC was allowed to change the tariff rates after the tariff negotiations in the name of proper and
uniform classification, it would disturb the delicate balance of interests formulated by the tariff
negotiations.
6.9 It was in this context that Japan requested the Panel to find that the unilateral increase of tariff
rates as a result of the EC reclassification, or classification, of LAN adapter cards and its member
States' reclassification of other types of LAN equipment and PCTVs were inconsistent with their
obligations under Article II of GATT 1994.

C. Korea89
6.10 Korea argued that as a WTO Member, Korea had reasonable expectation during the Uruguay
Round that LANadapter cards and other LAN equipment wouldcontinue to be treated as ADP machines
and units thereof under tariff heading 84.71, and that they would not be reclassified under a customs
heading with a higher import duty. In addition, Korea had reasonably expected that multimedia PCs
would remain under tariff heading 84.71 and not be changed to tariff heading 85.28. Systemic problems
which stemmed from the propensity to classify technologically innovative multi-purpose or hybrid
products under tariff headings carrying higher duty rates should be resolved pursuant to the decisions
rendered by international standard setting bodies such as the WCO.
6.11 During the Uruguay Round, Korea had every reason to expect that the EC would classify LAN
adapter cards and other LAN equipment as ADP machines and units thereof, as per tariff heading 84.71,
not as telecommunications apparatus under category 85.17. Moreover, Korea had reasonably expected
that multimedia PCs would be classified under tariff heading 84.71, not under heading 85.28.
6.12 Korea noted that the EC had claimed in its first written submission that the fundamental point
of the current dispute was the "scope of the bindings negotiated in the Uruguay Round". The EC had
contended that because it did not negotiate specific concessions on the customs duties applicable to
LAN or multimedia equipment, Korea and other WTO Members could not have derived reasonable
expectation that these products would be classified under tariff heading 84.71. However, certain salient
aspects of the EC’ s classification practices, notably the issuance of BTIs by the customs authorities
of member States, had led to the conclusion that Korea and other WTO Members could have reasonably
expected that the EC would treat LAN equipment and multimedia PCs as ADP machines and units
thereof. These practices included the fact that:
- "The EC has no centralized administration of the Common Customs Tariff, but involved the
member States’ customs authorities for the purpose of administration";
- "It may occur, in particular when it is not obvious in which heading a given product should
be classified, thatcustomsauthoritiesindifferentmember States classifythatproductdifferently
and consequently apply different duties."
- "PriortoDecember 1993,when substantiveUruguayRound negotiationswere concluded, there
was no classification regulation on LAN equipment with an EC-wide applicability that had
been adopted and implemented by the EC Commission or by the Council. Nor had there been
a ruling by the European Court of Justice on the classification decision of LAN equipment".
6.13 In short, the classification of LAN equipment was left to the customs authorities of the EC
member States prior to the conclusion of the Uruguay Round negotiations. Based on the factual
information provided in the first written submission of the EC, it could be inferred that the practices
of the member States’ customs authorities constituted the only source for identifying "classification
rules and practices at the time of the Uruguay Round".
6.14 To show that the reasonable expectation derived by the United States and other WTO Members
from BTIs was misplaced, the EC had alluded by way of examples to various contradictory BTIs issued
89On the procedural background, Korea in its submission had also indicated that on 2 December 1996, the
EC had requested the consulting parties to delay the proceedings until after the completion of the Information
Technology Agreement, and it was so agreed.

by member States during the Uruguay Round negotiations. The customs authorities of Germany and
the Netherlandshad renderedBTIswhichclassifiedLANequipmentundertariff heading85.17, whereas
the BTIs issued by the customs authorities of the United Kingdom and Ireland had classified LAN
equipment under 84.71. At the same time, the EC had attempted to mitigate the significance of BTIs
as a source of reasonable expectation regarding the classification of a product by citing Article 12.5
of the Community Customs Code which provided that "a BTI ceases to be valid where an EC regulation
is adopted and the information no longer conforms to the law laid down thereby, or where the BTI
is incompatible with a judgement of the European Court of Justice." Contrary to the EC’ s assertion,
that provision appeared to endorse the role of BTIs to supplement the absence of Community-wide
rules governing the practical classification of a variety of products. The EC’ s first written submission
failed to point out any alternative source of concrete reference, other than the BTIs, regarding the
practices of some of its member States, such as the United Kingdom and Ireland, governing the
classification of LAN equipment during the Uruguay Round negotiations. Because there were no EC
regulations or judgments of the ECJ which specified the classification of LAN equipment, Korea was
of the opinion that the BTIs provided the best available source for exporters to identify the practices
of the relevant countries. No explicit reference appeared to have been made during the Uruguay Round
tariff negotiations. The EC stated that "none of the products at issue were discussed by name." In
the absence of any specific exceptions or explicit reservations on the part of the EC, participating
countries to the Uruguay Round tariff negotiations had no choice but to expect that the then existing
classification would continue to be applied.
6.15 More significantly, as was stated by the United States, the EC’ s Uruguay Round concessions
were set forth in Schedule LXXX. Article II of the GATT 1994 obliged contracting parties to apply
the established rates of duties which appeared in their respective schedules. The imposition of a duty
higher than the rates appearing in the schedule would nullify or impair the value of the concessions
accruing to other WTO Members. At the time of the Uruguay Round negotiations, and prior to its
conclusion, the EC had treated LAN equipment as ADP machines and units thereof under tariff
heading 84.71 and such products were indeed imported under that category. After the finalization of
the Uruguay Round tariff concessions, the EC began to apply the higher rate of duty under tariff
heading 85.17 as mandated by Regulation (EC) No. 1165/95.
6.16 A noteworthy point made by the United States was that between 14 February and 31 March 1994,
participantshad engaged in a verificationprocess toconfirm thatnegotiated concessionswere accurately
reflected in the final schedules. Despite the fact that the EC was aware that its trading partners relied
on BTI rulings and communications in the negotiations which indicated that LAN equipment would
be treated as ADP machines underheading 8471,the EC had nottaken any steps todefine ADP machines
to exclude LAN equipment. It was only after the Uruguay Round negotiations that the EC and several
of its member States had started to categorize LAN equipment under tariff heading 85.17.
6.17 In view of the treatment of LAN equipmentunder tariff heading 84.71at the time of the Uruguay
Round negotiations and the EC’ s commitment in Schedule LXXX, the EC could not refute the claim
that it had committed itself to apply the duty rate bound for computer equipment to LAN equipment.
Participating countries could reasonably expect that the EC would continue to classify LAN equipment
under tariff heading 84.71 and apply the corresponding tariff set forth in Schedule LXXX. However,
such reasonable expectation was nullified and impaired by the application of Regulation (EC)
No. 1165/95 to LAN adapter cards and by the subsequent reclassification of other LAN equipment
from tariff heading 84.71 to 85.17.
6.18 With respect to PCTVs, it was common in today’ s international marketplace for a number of
technological new products to be developed by incorporating certain functions of other products into

an already existing product. Unless new headings were created and new tariff rates negotiated, there
was no other way to classify the new, multi-functional products but to rely on the headings of existing
products, whose functions were reflected closely or remotely in the new, multi-functional product.
Given the different duty rates for the existing products to which a new product might be related, there
was a possibility that the WTO Members might attempt to “ shop around” to apply the highest possible
duty rates to the new, multi-functional products.
6.19 Allowing WTO Members to classify new, multi-functional products under the heading of the
related existing product with the highest possible duty rates without appropriate justification, would
undermine the value of the concessions negotiated and committed to by WTO Members. If personal
computers withtelevisioncapabilitiesreplaced conventionalPCs and thenew breed of PCs weredutiable
under the high-dutyheading of televisionreceivers, the concessions made for personalcomputers would
become substantially affected and reduced in value. When tariff negotiations were conducted, it was
reasonable to assume that the existing product containing simple functions could be replaced by a new
generation of multi-functional products. As science and technology progressed, such results were
inevitable, especially in the field of goods involving high technology.
6.20 By definition, multi-functional products carried out multiple functions. Therefore, it was difficult,
if not impossible, to determine the appropriate classification of multi-functional devices solely on the
basis of functions, as was argued by the EC. It, therefore, became essential to scrutinize the end-use
and determine which existing products were replaced by the new multi-functional goods in the largest
quantity. It was unlikely that consumers purchased PCTVs for the exclusive purpose of using them
asordinarytelevisionreceivers,withoutregardtotheirotherapplications. Furthermore,itwasobserved
that this device worked solely in conjunction with a computer (automatic data processing machine).
6.21 One way of identifying an appropriate classification for new multi-functional products was
through examination and decision by the WCO. As the EC had admitted, the HS Committee of the
WCO had adopted a draft amendment to the Compendium of Classification Opinions with regard to
PCTVs in favour of tariff heading 84.71. This meant that the EC had not come up with a justification,
even in the form of an interim decision under the WCO, for its reclassification of PCTVs under a higher
tariff heading. Apart from this, the EC had failed to suggest in its first submission any justification
for the reclassification.
6.22 Based on the above stated observations, Korea challenged the EC’ s classification of automatic
data processing machines with television capabilities under tariff heading 85.28 as an act which
undermined and devalued the concession on products under tariff heading 84.71 as contained in the
EC Schedule. The EC had failed to justify its classification of these new multi-functional products
under the heading of the related existing products with a higher tariff rate. Unless the EC was able
to justify such classification, Korea was of the opinion that the EC’ s classification of computers with
television capabilities resulted in treatment of those products less favourable than that provided for
in Part I of Schedule LXXX.
6.23 For the reasons described above, the Republic of Korea requested the Panel to find that the
EC’ s reclassification of LAN adapter cards under the Regulation (EC) No. 1165/95 and that of other
LAN equipment and computers with television capabilities through measures taken by several of its
member States were inconsistent with its obligations under Article II of GATT 1994.

D. Singapore
6.24 Singapore argued that during the Uruguay Round negotiations, and prior to finalization of these
tariff concessions, certain EC member States classified LAN equipment under tariff heading 84.71,
as evidenced by numerous BTIs and other written rulings. In addition, the EC had clear notice from
the inception of the negotiations that its trading partners, including Singapore, had negotiated with
the understanding that the EC offers on ADP units included LAN equipment. Through various
procedures,thedefendingpartiessubsequentlyclassifiedLANequipment,includingLANadaptercards,
into tariff heading 85.17 as telecommunication apparatus. This classification resulted in the imposition
of customs duties on LAN equipment imports in excess of the bound rate commitments for ADP units
under Schedule LXXX.
6.25 In terms of trade interest Singapore exported approximately S$2 billion worth of LAN equipment,
including LAN adapter cards, to the EC between May 1996, the effective date of the reclassification,
and December 1996. In addition to this substantial trade interest, Singapore was interested in the
systemic issues raised by this dispute. In particular, Singapore was concerned with the possibility that
Members might avoid specific obligations related to tariff rate concessions under Article II through
the reclassification of bound items. In examining this matter, emphasis had to be placed on the
"fundamental importance of the security and predictability of GATT tariff bindings, a principle which
constitutes a central obligation in the system of the General Agreement".90
6.26 The EC's reclassification of LAN computer equipment violated EC's tariff concessions under
Article II of GATT 1994. GATT Article II:1(b) provided that "The products described in Part I of
the Schedule relating to any contracting party, which are the products of territories of other contracting
parties, shall, on their importation into the territory to which the Schedule relates, and subject to the
terms, conditions or qualifications set forth in that Schedule, be exempt from ordinary customs duties
in excess of those set forth and provided therein." Under Article II:7 of GATT 1994, the annexed
concession schedules were an integral part of the Agreement. The EC concessions on ADP units that
were at issue in this matter appeared in Schedule LXXX of GATT 1994. Article II.1(b) was violated
by tariff classifications, including reclassification, that resulted in increased duties on bound items.
This was reflected in the Agreement itself under Article II.5, which contemplated compensatory
adjustmentincases where internalclassificationdecisionseffectively prevented contracting partiesfrom
according agreed-to tariff concessions.91 In short, it was settled that "[i]f ... there is a divergence
between a national customs tariff of a contracting party to GATT and its schedule, the international
obligations of that country are those described in its schedule of concessions".92
6.27 The dispute on Greek Increase in Bound Duty confirmed that contracting parties should not
avoidtheirArticleII obligationsbyreclassifyingbounditems. In thatdispute,a GATTGroupof Experts
examined Germany's complaint that Greece had raised its tariff on long-playing gramophone records,
90Panel Report on Newsprint, op cit., para. 52.
91As one GATT scholar has noted: "A reclassification subsequent to the making of a GATT concession
could ... be a violation of the basic commitment regarding that concession. ... Paragraph 5 of Article II recognizes
the possibility that reclassification of goods can violate a GATT concession and provides for consultation and
renegotiation in such cases.", Jackson, John H., World Trade and the Law of GATT, 1969, p. 212.
92 See Note by the Secretariat on Tariff Reclassification dated 27 April 1981, Committee on Tariff
Concessions, TAR/W/19, para. 1.

despite the fact that "gramophone records" were bound in the Greek schedule.93 Greece contended
that the introduction of later-developed, long-playing records made of different material constituted
a new item not subject to the earlier binding. The reviewing Group agreed with Germany that the
disputed records were covered by the description of "gramophone records" in the bound item and found
that Greece had violated its Article II obligations.94
6.28 As demonstrated below, the defending parties in this dispute had similarly used tariff classification
authority in violation of their Article II.1(b) commitments. In reclassifying LAN equipment from the
controlling categories covering ADP units, the defending parties applied customs duties in excess of
the bound rates specified for such products in the EC's concession schedule. In the present matter,
at the time the EC tariff bindings were negotiated, substantial volumes of LAN equipment were being
imported into and classified by EC member States in the categories covering automatic data processors
and units. As documented in the US submission dated 14 May 1997, such practice was widespread
and highlighted by written BTIs and letter rulings by certain EC member States.95 Accordingly, the
EC had clear knowledge of the practice. The EC, however, contended that it "never committed itself
nor could it be construed to have given the impression that it would classify LAN ... equipment with
computer equipment under heading 84.71 and apply the corresponding duty to the products concerned".96
Such an assertion was plainly incorrect. As pointed out in the US submission, the documents exchanged
in the concession negotiations clearly indicated that the parties viewed the EC's ADP units/tariff
heading 84.71 concession as encompassing LAN equipment.
6.29 The US assertion was confirmed by negotiating documents exchanged by Singapore and the
EC. In particular, in its original concession request directed to the EC in June 1990, Singapore had
requested the EC to reduce tariffs on subheading 8471.99 from 4.9 per cent to zero. Significantly,
Singapore's requeston 8471.99 identified byname examples of LANequipment covered by the request,
namely "gateways," "concentrators" and "multiplexers." Through such an exchange, the EC had received
express notice of Singapore's expectation that any eventual EC tariff concessions on ADP units in tariff
heading 84.71 would specifically include LAN equipment. The negotiations proceeded on this basis
and the EC never expressed any reservations withincludingLANequipment among the productssubject
toits concessionsonADP units/tariffheading84.71. Consequently, Singapore had reasonablyexpected
such treatment. Thus, contrary to the EC's assertions, its trading partners had relied not only on EC
rulings classifying LAN equipment in ADP categories, but on communications in the negotiations
indicating the understanding that LAN equipment would be covered by the EC's ADP concessions.
Withfullknowledgeof suchan understanding,the EC had notmade any reservationsonLANequipment
or otherwiseattempted todefine itsADP concessionina manner thatwouldnotincludeLANequipment.
As demonstrated in the US submission, the EC had not given any indication of any contrary perception
until after the agreement was finalized.
93Greek Increase in Bound Duties, complaint op cit., pages 115 and 116.
94Report by the Group of Experts on Greek Increase in Bound Duty, op cit., pages 168 to 170.
95Pursuant to such rulings, certain EC member States applied the rates for ADP units and parts to imports
of LAN equipment from numerous sources.

6.30 The scope of a tariff concession had to be interpreted based on the circumstances known at
the time the binding was negotiated. For example, in the Panel on Newsprint97 the EC had made an
Article II binding that provided duty-free access to 1.5 million tonnes of newsprint per year, and then
afterwards had unilaterally reduced the quantity by 1 million tonnes, which corresponded to the amount
of duty-free access granted to EFTA partners under a separate agreement. Finding that the EC had
not acted in conformity with Article II commitments, the Panel had emphasized that the EC had made
no reservation on its 1.5 million tonnes MFN commitment even though "it was known that agreement
had already been reached that the EFTA countries would obtain full duty-free access to the Community
market ... ".98 Similarly, in the present matter, the EC was aware of the understanding by its trading
partners that LAN equipment was encompassed within the tariff negotiations on ADP equipment. In
view of these circumstances, the EC's failure to apply to LAN equipment the bound rates for ADP
units constituted a plain violation of its Article II.1(b) commitment.
6.31 The EC's violation of its Article II.1(b) commitment constituted a prima facie case of nullification
and impairment under Article XXIII.1(a). In addition, even if the EC had not directly abrogated its
Article II commitment, its failure to accord LAN equipment the bound rates for ADP units nullified
or impaired the value of its commitment under Article XXIII.1(b). The EC had not rebutted the US
contention that the EC's trade partners had good reason to believe, based on information exchanged
in the negotiations, that the EC's concession on ADP units/tariff heading 84.71 would apply to LAN
equipment. Any such rebuttal would not be tenable given the explicit references to LAN equipment
in Singapore's concession request submitted to the EC. Such documentation demonstrated that the
EC's trading partners had reasonably expected that the EC's heading 84.71 bindings covered LAN
equipment.
6.32 The concept of nullification and impairment was inextricably linked to the expectations formed
by parties during the negotiation process. It was well-established that Article XXIII.1(b) violations
occurred where actions subsequent to undertaking a GATT commitment resulted in the frustration of
reasonable expectations. For instance, in Treatment by Germany of Imports of Sardines99, the Panel
had considered Norway's complaint that Germany had nullified benefits accruing to Norway when
Germany had reduced tariffs on certain sardines imported from other countries to levels that were lower
than tariff bindings that Germany had previously committed to on competitive sardines of a type
principally imported from Norway. Although Germany had technically adhered to its bound rate on
imports from Norway, the Panel had determined that Germany had impaired the intended benefits of
the commitment by subsequently according more favourable duty treatment to imports of competitive
sardines shipped by other countries. As stated by the Panel, Germany's actions "could not reasonably
have been anticipated" at the time of the negotiations and Norway "had reason to assume during these
negotiations" that its exports would not be less favourably treated than other countries' exports.100
97Panel Report on Newsprint, op cit.
98Ibid., para. 50.
99Panel Report on Treatment by Germany of Imports of Sardines, adopted on 31 October 1952, BISD 1S/53.
100Ibid., para.16. See, also Report on The Australian Subsidy on Ammonium Sulphate, Report adopted on
3 April 1950, page 188, BISD Volume II, May 1952, (finding that although no violation occurred, contracting
party "had reason to assume, during these negotiations that ... ."); and Reports Relating to the Review of the
Agreement, Quantitative Restrictions, adopted on 2,4 and 5 March 1955, BISD 3S/170, para. 63 (contracting
parties could not resort to withdrawal of concessions or suspension of obligations, "unless the effects of the measure
concurred in proved to be substantially different from what could have been foreseen at the time the measure

6.33 Similarly, Singapore had valid reasons for expecting that the ADP binding under negotiation
would apply to LAN equipment. Having explicitly referred to various types of LAN equipment in
its ADP concession request, which prompted no objection from the EC, Singapore had no reason to
assume that the EC would resist applying its ADP binding to LAN equipment. The EC's subsequent
unilateral action nullified the benefits Singapore had reasonably expected that it would derive from
the concession.
6.34 Furthermore, the WCO's HS Committee had recently decided that LAN equipment was properly
classifiable in heading 84.71 of the HS.101 The HS Committee had specifically declined to adopt the
positionadvancedthatheading85.17wastheappropriatecategory.102 Giventhatthelanguageinterpreted
by the HS Committee was identical to the EC's description in its concession schedule for heading 84.71,
the decision confirmed that the EC had no valid basis for increasing the bound rates on ADP units
on imports of LAN equipment.103 The decision also provided additional corroboration of the
reasonableness of EC tradingpartners' expectationsthattheirLANequipmentexportswouldbe covered
by such bound rates. The EC had suggested that the HS Committee decision was intended solely to
establish the appropriate HS classification for future imports. It ignored that the language interpreted
by the HS Committee was the same language appearing in the EC's HS nomenclature and in the EC's
concession schedule at the time of the negotiations and afterwards. The HS Committee decision did
not purport to modify the language or alter prior HS Committee's interpretation. Instead, it interpreted
longstanding HS provisions that were incorporated within the parties' nomenclature throughout the
course of the GATT concession negotiations. As such, the decision demonstrated that the EC's trading
partners had reasonably expected the ADP bindings to cover LAN equipment.
6.35 The EC submission emphasized that the HS Committee's decision was "not yet final" and noted
that reservations could be made to the WCO by 1 July 1997. Significantly, the EC had not suggested
that there was any chance that the HS Committee's decision would not be adopted on substantive grounds,
nor could they have, given the overwhelming majority of members who were in favour of the decision.
The EC instead appeared to be referring to the rules of HS Convention that permitted any member
from lodging reservations to prevent the Council's adoption of the HS Committee's decisions as
Classification Opinions. However, the current legal status of the decision did not negate the fact that
the HS Committee had fully considered the matter and formally determined that LAN equipment was
classifiable in tariff heading 84.71. Again, such determination had confirmed the sound foundation
was considered ...").
101Decisions of the Harmonized System Committee, Annex H/1 to Doc.41.100E (HSC/19/Apr.97).
102The HS Committee's decision will be embodied in a Classification Opinion, which will be deemed to be
approved by the WCO unless a party specifically requests that the matter be referred to the Council. See
International Convention on the Harmonized Commodity and Coding System, Article 8.2.
103In interpreting the scope of a tariff concession, "the product description ... is the essential element for
delimitating the coverage of the concession." The EC Schedule LXXX identified all products subject to bound
rates by (1) tariff item numbers correlating with the Harmonized System; and (2) a narrative description based
on the language of the corresponding HS headings. Due to the EC's election, the scope of its tariff concessions
should be determined with reference to the scope of the matching descriptions contained in the HS nomenclature.

of expectations that LAN equipment would be treated by the EC as ADP units under its concession
schedule.104
6.36 It should also be noted that one principal function of the HS Committee and predecessor bodies
was to ensure uniform classification under common nomenclatures to protect tariff bindings under
Article II. Many countrieshad adoptedthe HS specifically as a means toenhance protectionof Article II
tariff concessions through greater tariff classification uniformity.105 This enthusiasm was shared by
GATT: "[F]rom a GATT point of view adoption of the Harmonized System would ensure greater
uniformity among countries in customs classification and thus a greater ability for countries to monitor
and protect the value of tariff concessions ... ".106 These GATT expectations were seriously undermined
by the EC's insistence on autonomously interpreting the scope of common product descriptions in
concession schedules and harmonized tariff nomenclature. The prevailing views of the international
organization that developed the uniform product descriptions, and in whom interpretative authority
was entrusted, should not be so easily dismissed.
6.37 The reclassification by the defending parties could not be justified under the general rationale
that GATT contracting parties were not obligated to follow any particular system for classifying goods.
Member countries' authority over their own national customs tariffs had been noted by certain panels
examining the Article I consistency of tariff differentiation through the addition of subcategories in
tariff nomenclatures.107 Each panel had plainly cautioned that classification authority must be exercised
in conformity with GATT obligations. The Panel in the Unroasted Coffee dispute noted, in particular,
that reclassification was appropriate "provided that a reclassification subsequent to the making of a
104Under WCO's internal rules, any single member could have made a reservation that would have prevented
the HSC from issuing its decision. The EC did not lodge any reservation and fully participated in the HS
Committee proceedings, making a thorough presentation of its views. Further, the EC acknowledged (par. 97
of EC's first submission) that the intended effect of the HS Committee proceedings in which they participated
was to ensure uniform classification of LAN equipment in Heading 84.71. Based on this acknowledgement and
the EC's extensive participation, the EC's trading partners had been led to reasonably expect EC's compliance
with the HS Committee's decision. Otherwise, individual members could abuse the HS Committee's procedures
by having their positions fully considered, and then escape the consequences of the Committee's fully deliberated
decisions by withholding reservations until the last minute after their positions had been rejected. To prevent
such type of abuse, CCC members had agreed that compliance with HS Committee decisions was a "moral"
obligation. See Report to the Customs Cooperation Council of the Fifth Session of the Harmonized System
Committee, CCC Doc. No. 35.960, 12 April 1990.
105This was in fact one of the primary benefits envisioned by the complainant in this matter. "Adoption
by the United States of the Harmonized System would, therefore, serve to protect the value of tariff concessions
granted the United States." See Interim Report on the Harmonized Commodity Description and Coding System,
USITC Pub. 1106 at 31-32, November 1980.
106Decision on GATT Concessions under the Harmonized Commodity Description and Coding System, op
cit., para. 1.2. Consistent with this, the Article 7.1 (e) of the HS Convention indicates that one of the functions
of the HS Committee is to furnish guidance on classification of specific goods under the HS system to
"intergovernmental or other international organizations," including GATT. Thus, while GATT envisioned that
nomenclature harmonization would protect tariff concessions, the WCO's role is to furnish advice on the HS
classification of specific goods for use in GATT proceedings.
107Panel Report on Spain - Tariff Treatment of Unroasted Coffee, op cit., para 4.4; and Panel Report on
Canada/Japan: Tariff on Imports of Spruce, Pine, Fir (SPF) Dimension Lumber, adopted on 19 July 1989, BISD
36S/167, para. 5.9. The goods in such disputes were not subject to bound tariffs under Article II.

tariff concession under the GATT would not be a violation of the basic commitment regarding that
concession (Article II:V)".108 Consequently, a partycould not validlyrely on the authorityover national
tariffs to reclassify goods to circumvent bound tariffs.109
6.38 In conclusion, the defending parties had circumvented the prescribed requirements and procedures
for ensuring that tariff reclassification conformed to Article II concessions. The transition to the HS
nomenclature was closely controlled and monitored by GATT to ensure that nomenclature conversions
conformed with contracting parties' existing tariff concessions under GATT Article II and the
requirements of Article XXVIII. In the conversion, the "main principle to be observed in connection
with the introduction of the Harmonized System in national tariffs is that existing bindings should be
maintained unchanged".110 The contracting parties had agreed to detailed requirements and procedures
designedtoensureorderlynotification,challengeopportunities,determinationsofwhetheranyArticle II
concessions had been violated or impaired, and any necessary negotiations on compensation.111 Additional
procedures were adopted in 1991 to ensure adherence to Article II tariff concessions when countries
implemented HS nomenclature amendments adopted by the CCC.112 Such activity largely reaffirmed
(and streamlined procedures for implementing) pre-existing obligations to formally revise concession
schedules when adopting any nomenclature changes in national customs tariffs.113
108Spain - Tariff Treatment of Unroasted Coffee, op cit., para. 4.4, n.1. The SPF Panel stated that it must
be "borne in mind that [tariff] differentiations may lend themselves to abuse, insofar as they may serve to
circumscribe tariff advantages ... ." op cit., para. 5.9.
109This was particularly true of parties, such as the EC, that have adopted the Harmonized System. While
HScontracting parties have discretion toestablish subdivisionsbeyond the six-digit HS Code, they were obligated
to "use all the headings and subheadings of the Harmonized System without addition or modification, together
with their related numerical codes". Articles 3.1(a)(i) and 3(3)of the HS Convention. Thus,the HS was purposely
structured to leave no room for classifying goods outside the controlling 6-digit HS subheadings.
110Decision on GATT Concessions Under the Harmonized Commodity Description and Coding System, op
cit., para. 2.1; see also the GATT Ministerial Decision on Tariffs, adopted 29 November 1982, referring to
contracting parties' agreement that, if HS nomenclature is adopted, " ... the general level of benefits provided
by GATT concessions must be maintained ... ." BISD 29S/18, para. 2.
111To this end, the parties agreed to requirements specifying (1) information to be provided to the GATT
Secretariat by each country adopting the HS; (2) rules to be used for conversion of duty rates when combining
headings or parts of headings; and (3) procedures governing renegotiations under Article XXVIII. "GATT
Concessions under the Harmonized Commodity Description and Coding System", BISD 30S/17, supra.
112See Decision on Procedures to Implement Changes in the Harmonized System, adopted on8 October 1991,
BISD 39S/300-301. Members who change their nomenclatures based on CCC HS amendments are required to
formally submit proposed changes to their tariff concession schedules for all nomenclature revisions, whether
or not such changes alter the scope of Article II concessions. Ibid., paras. 2(a) and 2(b). Such proposals are
subject to objections and challenges by other members, as well as negotiation or consultation requirements under
Article XXVIII. Ibid., paras. 4 to 6.
113See, e.g., Decision on Procedures for Rectification and Modification of Schedules, adopted 26 March
1980, BISD 27S/25, para. 2: Changes in the authentic texts of Schedules shall be made when amendments or
rearrangements which do not alter the scope of a concession are introduced in national customs tariffs in respect
of bound items. Such changes and other rectifications of a purely formal character shall be made by means of
Certifications. If no objection is made to the Secretariat within three months, the proposed change to the tariff
schedule is deemed to be approved. See 1985 Secretariat Note on "Loose-leaf Schedules Based on Harmonized

6.39 During this process, the GATT Committee on Tariff Concessions had confirmed that the
described protections and safeguards applied to reclassification decisions, as well as nomenclature
amendments.114 The contracting partieshad agreed, inparticular, that these requirements appliedwhere
the reclassification was occasioned by efforts to correct a perceived erroneous classification practice115,
the exact situation here. Notably, the EC itself was at the forefront of the successful initiative to extend
Article II compliance procedures to reclassification decisions.116 Such extension was a direct response
to the EC and other parties' concerns that certain countries were avoiding Article II compliance
requirements by reinterpreting existing tariff provisions in lieu of amending the tariff nomenclature.
6.40 In the present matter, the defending parties effected reclassification unilaterally without giving
the requisite notice and without seeking the necessary GATT approval. The defending parties had also
failed to comply with the mandatory requirement to submit for approval proposed amendments to
concession schedules that reflected the altered tariff treatment accorded to the goods. Such
non-compliance appeared contrary to the EC's historical positions which aggressively advocated that
contractingparties effected productreclassificationin fullconformitywith ArticleII and ArticleXXVIII
requirements. For instance, the EC had defended its own tariff reclassification practices under these
Articles, and had openly questioned adherence by other contracting parties.117
6.41 In its submission of 4 June 1997, the EC had not contended that it had complied with the
procedural requirements or, for that matter, even acknowledged the existence of such requirements.
Instead, the EC had argued that the United States should have raised the matter on its own initiative
during the concession negotiations.118 As demonstrated above, however, the party making Article II
concessions had the affirmative obligation to give the requisite notice through formal GATT procedures
when it altered effective duty rates through reclassification.119 In any event, as discussed above, Singapore
in fact had taken the initiative when the negotiations had commenced by specifically referring to various
types of LAN equipment in its concession request for ADP units under tariff heading 84.71.
Consequently, the EC was aware that trading partners such as Singapore had negotiated with the
understandingthatthe EC offers onADP unitsincludedLANequipment. Accordingly,the Panel should
System Nomenclature," TAR/W/55/Add. 1, p. 2-3, paras. 5-7. "[U]nder longstanding GATT practice, even
purely formal changes in the tariff schedule of a contracting party, which may not affect the GATT rights of
other countries, such as the conversion of a specific to an ad valorem duty without an increase in the protective
effect of the tariff rate in question, have been considered to require renegotiations." Panel Report on Newsprint,
op cit., para. 50.
114See Note by the Secretariat on Tariff Reclassification, op cit, paras. 6(iii), 8 and 14.
115Ibid., para. 6(iii).
116See TAR/M/3 dated 10 March 1981, Minutes of Meeting, Committee on Tariff Concessions, pages 11
and 12, para. 5.2.
117Ibid., para. 5.2 (the EC representative "was wondering whether, through the secretariat, it would not
be possible to know what were the legal possibilities available in various countries in order to be able to maintain
obligations under GATT in reclassification cases.")
118See, e.g., para. 92. Even if EC's partners anticipated future events and raised the issue during the
negotiations, such consultations would not have relieved the EC from its obligation to follow the requisite GATT
requirements when it later mandated that EC member states increase the effective duty rates on the disputed items.
119Any obligations of fellow contracting parties are triggered only upon the receipt of such formal notice.

reject the EC's attempt to shiftits burden toother Members, and itsattempt toalter itsbinding obligation
that it had committed to during the course of the negotiations.
6.42 As a conclusion, during the tariff concessionnegotiations, Singapore and the EC's other trading
partners had every reason to believe that the EC's concessions on ADP units included LAN equipment.
Singapore's original request to the EC for heading 8471 concessions explicitly referred to various types
of LAN equipment, and the EC had never indicated any reservations or opposition. The reasonableness
of EC trading partners' expectations was subsequently corroborated by the HS Committee's determination
that tariff heading 84.71 was the controlling HS category for LAN equipment. The language interpreted
by the HS Committee was identical to the language appearing in tariff heading 84.71 of the EC's HS
nomenclature and the language in the EC's ADP tariff concession. Consequently, the EC's
reclassification of LAN equipment and resulting imposition of duties at rates that exceeded the bound
rates for ADP units had violated Article II obligations, and nullified or impaired the value of the benefits
EC trading partners had reasonably expected to receive.
VII. INTERIM REVIEW
7.1 On 21 October 1997, the European Communities and the United States requested the Panel
to review, in accordance with Article 15.2 of the DSU, the interim report that had been issued to the
parties on 7 October 1997. The European Communities also requested the Panel to hold a further
meeting with the parties to discuss the points raised in its written comments. The Panel met with the
parties on 12 November 1997, reviewed the entire range of arguments presented by the European
Communities and the United States, and finalized its report, taking into account the specific aspects
of these arguments it considered to be relevant.
7.2 Regarding paragraph 7.8 of the interim report (now paragraph 8.8 of the final report), the
European Communities recalled that it had argued that a wide definition of LAN equipment necessarily
included certain modems and multiplexers (see paragraph 5.59) and that Singapore had also argued
before the Panel that multiplexers were LAN equipment (see paragraphs 5.26 and 6.30). The European
Communities questioned how the Panel could justify the exclusion of multiplexers, since the Panel
had made findings that applied to "all LAN equipment". The European Communities submitted that
multiplexers should be considered LAN equipment. For the same reason, the European Communities
requested that the Panel reconsider the relevance of the BTIs issued by the Netherlands (see
paragraph 8.40). Given the large number of BTIs issued by the Netherlands (Annex 6, Table 1, Nos 5
to 34), the European Communities argued, this reconsideration of the Dutch BTIs should lead the Panel
to the conclusion that there was enough evidence on the EC side to rebut the evidence submitted by
the United States in this dispute.
7.3 The Panel noted that footnote 124 made it clear that multiplexers were outside the scope of
the Panel's examination. The Panel recalled that the United States -- the complainant in this dispute
-- stated that tariff treatment of multiplexers was not part of its claims. The Panel had found the United
States' technical explanation in paragraph 5.54 to provide reasonable grounds to conclude that
multiplexers should not be considered to be LAN equipment. The European Communities asserted
otherwise (see paragraph 5.59), but provided no rationale for its position except the United States'
own classification practice, which was not relevant in this case in the Panel's view (see paragraph 7.5
below). Accordingly, the Panel did not accept the European Communities' request on this point, and
decided to retain paragraph 8.8 as it originally appeared as paragraph 7.8 of the interim report.
Correspondingly, there was no reason, in the Panel's view, to reconsider the relevance of the Dutch
BTIs.

7.4 The European Communities noted that in paragraph 7.23 of the interim report (now
paragraph 8.23 of the final report) the Panel found that "the meaning of a particular expression in a
tariff schedule cannot be determined in isolation from its context". It further noted that in paragraph 7.26
of the interim report (now paragraph 8.26 of the final report) the Panel stated that "it is clearly the
case that most descriptions are to be treated with the utmost care to maintain their integrity precisely
because, on its face, they normally constitute the most concrete, tangible and reliable evidence of
commitments made". The European Communities argued that the Panel failed to explain how it could
interpret the importing country's tariff schedule in context while omitting any reference to the relevant
customs legislation of the importing country with regard to the interpretation of the tariff nomenclature,
which is derived from the Harmonized System. The European Communities further pointed out that
it had submitted to the Panel all the relevant interpretative notes (see footnote 15) as well as the EC
legislation referring to the issuance and the legal value of the BTIs. The Panel, according to the
European Communities, should have taken into account these legal elements in interpreting
Schedule LXXX and in doing so should have come to the conclusion that Schedule LXXX does not
require the European Communities to grant LAN equipment a tariff treatment that is below the bound
duty rate for telecommunication apparatus.
7.5 After carefully examining this argument by the European Communities, the Panel remained
of the view that the European Communities failed to accord imports of LAN equipment treatment no
less favourable than that provided for under Schedule LXXX. First, the Panel noted that the both parties
considered this dispute as a case about duty treatment, not about product classification. Indeed, the
European Communities itself (see paragraph 5.13) stated that "this Panel should abstain from pronouncing
itself on customs classification issues". In this respect, the European Communities was in agreement
with the United States, which stated "this case was not about classification" (see paragraph 5.12, see
alsoparagraph5.3). The Paneladopteditsinterpretativeapproachaccordingly. Furthermore, inmaking
its finding, the Panel considered that BTIs were relevant to the formation of legitimate expectations
to the extent that they indicate actual tariff treatment of the products concerned. In dealing with the
matter, the legal status of BTIs within the European Communities was fully taken into account by the
Panel, but whether or not BTIs were legally binding under the EC law, in the Panel's view, did not
materially affect the conclusion that they constituted evidence of actual tariff treatment. Consequently,
the Panel decided to reject the European Communities' request on this point.
7.6 The European Communities argued that the Panel's findings in paragraphs 7.36, 7.41 and 7.55
of the interim report (now paragraphs 8.36, 8.41 and 8.55, respectively) regarding the tariff treatment
of LANequipmentin the EuropeanCommunities were notreconcilable withthe fact that"The American
Electronics Association (AEA), which represented the computer industry, had scheduled a meeting
with Commission officials on 25 February 1994 in order to discuss a number of issues including
classificationdifference inmember Stateswithrespect toanumber ofproductsincludingLANinterface"
(paragraph 5.29). According to the European Communities, the existence of the scheduled meeting
clearly indicated that the US industry was fully aware of the difficulties in classification of LAN
equipment and that some imports of LAN products were classified as telecommunication apparatus
by some EC customs authorities, including those located in the United Kingdom. The European
Communities further argued that tariff commitments were negotiated by government officials, not by
the industry. It therefore failed to understand how it could be held responsible for the alleged failure
bythe US industrytoproperlybrief the US Government duringthe UruguayRound aboutthe differences
in classification within the European Communities.
7.7 The Panel was not persuaded by this argument. The AEA meeting with EC officials might
have been scheduled, but it was not clear whether or when it actually took place (see paragraph 5.30).
The European Communities did not put forward more detailed explanation regarding that meeting than

is contained in paragraph 5.29. In the Panel's view, it was impossible to infer from this information
alone that the US industry which exported LAN equipment to Ireland and the United Kingdom was
fullyaware of the difficultiesinclassification of LANequipmentand thatsome imports of LANproducts
were classified as telecommunication apparatus in Ireland or the United Kingdom during the
Uruguay Round. Moreover, in the Panel's view, the Panel had not attributed to the European
Communities any failure by the US industry to brief the US Government. Rather, it was the matter
of whether the European Communities bore the responsibility for creating the expectations that LAN
equipment would be treated as ADP machines, or whether there was sufficient evidence to indicate
"a manifest anomaly" (see paragraph 8.44) which the United States should have been aware of.
Consequently, the Panel did not find it necessary to change its findings in paragraphs 8.41 and 8.55.
However, in order to clarify its position further, the Panel decided to expand footnote 152.
7.8 The European Communities further argued that, in view of the agreement between the parties
that the relevant period for this dispute was from January 1990 to March 1994 (see paragraph 5.24),
it failed to understand how the finding in paragraph 7.41 of the interim report (now paragraph 8.41
of the final report) could be based on an objective appreciation of facts as they appeared from the file.
According to the European Communities, apart from the classification carried out by other EC customs
authorities (e.g. Germany) the BTI issued by the UK customs authorities to CISCO showed that it had
not been possible for the US industry to have a genuine understanding during the relevant period that
all LAN equipment would be classified as ADP machines. Moreover, the European Communities
argued, this evidence showed that CISCO, when submitting its letter referred to in Annex 4, Table 3,
No. 8 was not telling the truth (see paragraph 5.49).
7.9 The Panel noted that when it made the finding in paragraph 8.41, it was fully aware that the
BTI issued to CISCO had become effective within the relevant period, but in its view, the fact that
the event occurred at the very end of the period as a single incidence also had to be given due weight
(see also footnote 152). It also took into account the apparent contradiction between the BTI and the
CISCO letter to the US Government. However, bearing in mind the plausibility of the explanation
given by the United States (see paragraph 5.57), this did not itself constitute a sufficient basis to cast
doubtonthe veracity of otheraspects of the CISCO letter. Norhad the European Communities provided
any other evidence to do so. These elements did not affect the Panel's conclusion that the counter-
evidence was not sufficient to rebut the presumption that US claim was true.
7.10 Regarding paragraph 7.44 of the interim report (now paragraph 8.44 of the final report), the
European Communities returned to its argument in paragraph 5.48 regarding the relevance of Danish
and Dutch BTIs due to the dates of their issuance and stated that these BTIs could not serve as sufficient
evidence to support that the customs authorities of Denmark and the Netherlands were classifying LAN
equipment as ADP machines during the relevant period.
7.11 The Panel noted that paragraph 7.37 of the interim report (now paragraph 8.37 of the final
report) had been drafted with this issue directly in mind, and did not find it necessary to change its
findings on this point: i.e. regarding its view that those BTIs provided supplementary support to the
US claim. However, in order to clarify its position further, the Panel modified the language as used
in paragraph 8.44 of the final report.
7.12 Regarding paragraph 7.56 of the interim report (now paragraph 8.56 of the final report), the
European Communities pointed out that the United States itself had reclassified during the course of
the Uruguay Round, namely in 1992, LAN equipment from telecommunication apparatus to ADP
machines and that this reclassification had happened after the United States had made its "zero-for-zero"
request/offer of 15 March 1990, which included electronic articles in HS chapters 84, 85 and 90 (see

paragraph 5.26). The European Communities also noted that during the negotiations of the North
American Free Trade Agreement, the parties to that agreement had admitted that it was difficult to
classify LAN equipment and they had agreed to consult on this issue and to endeavour to agree no
later than 1 January 1994 on the classification of such goods in each party's tariff schedule (see
paragraph 5.33). The European Communities further recalled that after the conclusion of the Uruguay
Round, the HS Committee of the World Customs Organization had to examine the proper classification
of certain LAN equipment (see paragraph 5.12). Finally, the European Communities stated that even
some third parties to this dispute, namely Japan and Korea, were currently classifying some or all LAN
equipment as telecommunication apparatus (see paragraph 5.35).
7.13 Referring to paragraph 7.49 of the interim report (now paragraph 8.49 of the final report),
theEuropeanCommunitiesmaintained thatthefactsmentionedinthe previousparagraph clearlyshowed
that there had been, and to a certain extent still was "a manifest anomaly" because of the extraordinary
difficulty concerning the correct classification of LAN equipment. It also showed, according to the
European Communities, the question of precise classification of LAN equipment in the EC schedule
could not possibly have influenced the way in which the United States conducted the Uruguay Round
tariff negotiations since the United States' "zero-for-zero" request/offer was submitted before its own
reclassification of LAN equipment, i.e. without prejudice to classification details. The European
Communities asked the Panel to take these elements into account and therefore come to a different
conclusion.
7.14 The Panel agreed withthe EuropeanCommunities thatthese elements had indeed been presented
before the Panel, and accordingly modified and expanded the relevant paragraphs in its findings.
However, for reasons explained in paragraphs 8.58 and 8.59 of the final report, it did not agree with
the European Communities that it should come to a different conclusion.
7.15 The United States requested that the first sentence of footnote 167 be deleted as unnecessary
and potentially misleading. That sentence, according to the United States, could be misinterpreted
to suggest that production of BTIs, customs rulings or actual invoices was essential to showing a violation
of Article II:1 of GATT 1994. The United States argued that it could not predict what types of evidence
of actual tariff treatment mightexist ina future disputebetween different parties, withdifferent domestic
legal systems, concerning different concessions. According to the United States, it would be unwise
for this Panel to imply that these three types of evidence were inherently superior to all other types
of evidence or were the only types of evidence relevant in any case. The European Communities objected
to the deletion of the sentence.
7.16 In the Panel's view, there would be no danger of misinterpretation as suggested by the United
States. However, in order to clarify its views on evidence in this regard, the Panel introduced certain
modifications to the sentence.
7.17 The United States also made other drafting suggestions concerning the description of its
arguments, some of which the Panel accepted and introduced in its final report. These changes are
reflected in paragraphs 2.9, 5.52, 8.2, 8.13, 8.14 and 8.65, and footnotes 4 and 83 of the final report.
VIII. FINDINGS
A. Claims of the Parties
8.1 The facts leading to this dispute can be summarized as follows. At the conclusion of the Uruguay
Round, the European Communities bound its tariff rate on products described as "automatic data

processing machines and units thereof; magnetic or optical readers, machines for transcribing data
onto data media in coded form and machines for processing such data, not elsewhere specified or
included" (hereinafter referred to as "ADP machines") under heading 84.71 at 2.5 per cent -- or zero
per cent on some products -- (to be reduced from the base rate of 4.9 per cent) in its Schedule of
Concessions and Commitments annexed to the Marrakesh Protocol to the General Agreement on Tariffs
and Trade 1994 (Schedule LXXX). The bound rates of duty on "parts and accessories of the machines
of heading No 8471" under heading 84.73 was 2.0 per cent. The bound rates of duty on "electrical
apparatus for linetelephonyorlinetelegraphy, includingsuchapparatus for carrier current linesystems"
(hereinafter referred to as "telecommunication apparatus") under heading 85.17 were varied, but generally
higher than those on ADP machines (3.0 to 3.6 per cent, to be reduced from the base rate of 4.6 to
7.5 per cent). The bound rate of duty on "television receivers (including video monitors and video
projectors)" under heading 85.28 was 14.0 per cent.119
8.2 According to the United States, the customs authorities in the European Communities, particularly
those of Ireland and the United Kingdom, generally treated LAN equipment as ADP machines during
the Uruguay Round and for some time after its conclusion. In May 1995, the Commission adopted
Regulation (EC) 1165/95 classifying LAN adapter cards as telecommunication apparatus under
heading 85.17.120 Followingthe adoption of this regulation, according to the United States, the customs
authorities in the European Communities including those of Ireland and the United Kingdom started
treating LAN adapter cards as telecommunication apparatus as mandated by the regulation, and also
started classifying other LAN equipment as telecommunication apparatus.
8.3 In April 1996, a tribunal in the United Kingdom upheld a customs administration determination
classifying a product known as PCTV (a combination of personal computer and colour television set,
integrated in the same unit) as a television receiver under heading 85.28.121
8.4 In June 1997, the Commission adopted Regulation (EC) 1153/97, classifying all personal
computers (hereinafter "PCs") as ADP machines, but applying higher rates of duty (as much as
14 per cent) on those with multimedia capability.
8.5 The United States claims as follows:
(a) The European Communities' reclassification of LAN adapter cards under Regulation
(EC) 1165/95 has resulted in treatment of those products less favourable than that
providedfor inPart I of Schedule LXXX and therefore isinconsistentwiththe European
Communities' obligations under Article II:1 of the General Agreement on Tariffs and
Trade 1994 (hereinafter "GATT 1994");
(b) The European Communities' reclassification of other types of LAN equipment has
resulted in treatment of those products less favourable than that provided for in Part I
of Schedule LXXX and therefore is inconsistent with the European Communities'
obligations under Article II:1 of GATT 1994;
119For a more detailed description of these products and their bound rates, see Annex 1. Regarding products
under heading 85.17, see also footnote 4.
120Annex 2.
121Annex 3.

(c) The European Communities' reclassification of multimedia PCs has resulted in treatment
of those products less favourable than that provided for in Part I of Schedule LXXX
and therefore is inconsistent with the European Communities' obligations under
Article II:1 of GATT 1994;
(d) The United Kingdom's reclassification of LAN equipment has resulted in treatment
of those products less favourable than that provided for in Part I of Schedule LXXX
and therefore is inconsistent with the United Kingdom's obligations under Article II:1
of GATT 1994;
(e) The United Kingdom's reclassification of multimedia PCs has resulted in treatment
of those products less favourable than that provided for in Part I of Schedule LXXX
and therefore is inconsistent with the United Kingdom's obligations under Article II:1
of GATT 1994;
(f) Ireland's reclassification of LAN equipment has resulted in treatment of those products
less favourable than that provided for in Part I of Schedule LXXX and therefore is
inconsistent with Ireland's obligations under Article II:1 of GATT 1994; and
(g) The above measures have nullified or impaired the value of concessions accruing to
the United States under GATT 1994.
8.6 The European Communities rejects these claims for the following reasons:
(h) The United States' claims against Ireland and the United Kingdom (i.e., (d), (e) and
(f) above) should be rejected because these member States did not engage in any tariff
bindings vis-à-vis the United States or any other country and could not be considered
to have violated any obligations under Article II of GATT 1994; and
(i) The United States' claims against the European Communities (i.e., (a), (b) and (c)
above) should be rejected because the European Communities did not reclassify the
products concerned, resulting in treatment of those products less favourable than that
provided for in its tariff schedule. The European Communities has not violated any
of its obligations under Article II of GATT 1994, nor has it nullified or impaired the
value of concessions accruing to the United States under GATT 1994.
B. Issues Regarding the Scope of the Claim
8.7 Before examining the substantive aspects of the case, we need to rule on three preliminary
issues raised by the European Communities regarding the scope of the United States' claim. These
are the issues relating to product coverage, scope of the measures and the status of Ireland and the
United Kingdom in this dispute.
1. Product Coverage
8.8 The European Communities argues that the United States has failed to define clearly "LAN
equipment" subject to the dispute with the exception of LAN adapter cards, and suggests that all the

claims on LAN equipment other than LAN adapter cards should be dismissed.122 The United States
argues that its definition of LAN equipment is clear.123 In response to a question from the Panel, the
United States has submitted that the term "LAN equipment" means all LAN equipment including LAN
adapter cards, LAN controllers, LAN repeaters, LAN interface units and bridges, LAN extenders,
LAN concentrators, LAN switches, LAN hubs and LAN routers.124
8.9 We note that the European Communities cites, in support of its position, the panel report on
"EEC - Quantitative Restrictions against Imports of Certain Products from Hong Kong", which made
the following observation:
"The Panel considered that just as the terms of reference must be agreed between the parties
prior to the commencement of the Panel's examination, similarly the product coverage must
be clearly understood and agreed between the parties to the dispute. The Panel considered
that to allow the inclusion of an additional product item about which one party had not been
formally advised prior to the commencement of proceedings would be to introduce an element
of inequity."125
In our view, however, the present case should be distinguished from the Quantitative Restrictions case
cited by the European Communities in that no new product was added by the United States in the course
of the proceedings. The definition by the United States in the previous paragraph is an elucidation of
the product coverage already specified in the United States' requests for the establishment of a panel
on this matter (WT/DS62/4, WT/DS67/3 and WT/DS68/2). Consequently, we find that the definition
is sufficiently specific for the purposes of our consideration of this dispute and reject the European
Communities' suggestion.
8.10 The EuropeanCommunities alsoargues thatthe scope of the United States' claim onmultimedia
PCs is unclear. According to the European Communities, the only item which can be considered to
be the subject of this dispute settlement proceeding is the PCTV implicated in the 1996 judgement
of a UnitedKingdom tribunal,and the European Communities suggests thatthe restof the United States'
claim on multimedia PCs should be dismissed.126 In response to a question by the Panel, the United
States has submitted that its claim includes a broad range of personal computers with multimedia
capability such as those which utilize storage devices based on laser-reading technology (i.e., CD-ROMs)
and those which have attendant audio and video capabilities.127 Again, noting that the United States'
reference to "PCs with multimedia capability" in its panel requests (WT/DS62/4, WT/DS67/3 and
122See paragraph 4.1.
123See paragraph 4.2.
124See footnote 19 or a more precise description of these products. According to the United States, modems
and multiplexers are not included in this definition. See paragraph 5.54. Evidence on these products is not accepted
by the Panel as proof regarding the tariff treatment of LAN equipment.
125Panel Report on EEC- Quantitative Restrictions against Imports of Certain Products from Hong Kong,
op cit., para. 30.
126See paragraph 4.3.
127See paragraph 4.4.

WT/DS68/2)covers allthese products,wefindthatthisdefinitionissufficientlyspecific forthe purposes
of our consideration of this dispute and reject the European Communities' suggestion.
8.11 For the reasons stated above, we reject the European Communities' argument and find that
all LAN equipment and personal computers with multimedia capability, as specified by the United States,
are the subject of this dispute.
2. Scope of the Measures
8.12 The European Communities argues that the United States has failed to identify measures where
tariff commitments have allegedly been violated, except Regulation (EC) 1165/95 regarding LAN adapter
cards and the above-mentioned UK tribunal judgement regarding PCTVs. The United States argues
that in addition to these two measures, practices of the customs authorities in Ireland, the United Kingdom
and other member States regarding LAN equipment, as well as the UK customs authorities' practice
regarding multimedia PCs, are included within the scope of this dispute.128 Although the United States'
formulation of its claims appears to emphasize the "reclassification" aspect of the dispute, the substance
of the present case is the actual tariff treatment by customs authorities in the European Communities
and the evaluation of that treatment in light of the tariff commitments in Schedule LXXX. Both parties
have presented their arguments on this basis.129 Viewed from this perspective, we find that the
United States has sufficiently identified the measures subject to the dispute, which concerns tariff
treatment of LANequipmentand multimedia PCs bycustomsauthoritiesinthe EuropeanCommunities.
8.13 Separately, the United States refers to Regulation (EC) 1153/97, which entered into force on
1 July 1997, as itself imposing tariffs at higher-than-concession rates under heading 84.71.130 The
European Communities objects to its inclusion for consideration by the Panel.131
8.14 Regarding Regulation (EC) 1153/97, we note that the regulation was issued on 24 June 1997,
almost four months after the establishment of this Panel on 25 February 1997. It has been the consistent
practice of previous panels not to examine measures introduced after the establishment of the panels.132
We see no reasons to depart from this practice in the present case. The United States argues that
Regulation (EC) 1153/97 "confirms" the existing measures. It does not however explain how and why
this amounts to "confirmation".133 Accordingly, we do not examine the conformity of Regulation (EC)
1153/97 with GATT 1994 in this report.
128See paragraph 4.8. See also paragraph 8.5.
129See paragraphs 5.3 (arguments by the United States) and 5.13 (arguments by the European Communities).
130See paragraph 5.74.
131See paragraph 4.6.
132Panel Report on Uruguayan Recourse to Article XXIII, adopted on 16 November 1962, BISD 11S/95,
para. 18; Panel Report on United States - Section 337 of the Tariff Act of 1930, adopted on 7 November 1989,
BISD 36S/345, para. 5.2.
133See paragraph 4.8.

3. Status of Ireland and the United Kingdom
8.15 The United States has requested that the Panel specify which of the defending parties (the
European Communities, Ireland and the United Kingdom) are responsible for the alleged nullification
or impairment of its benefits under GATT 1994.134 The European Communities claims that Ireland
and the United Kingdom are not parties to this dispute.
8.16 The terms of reference of this Panel clearly mandates us to examine "the matters referred to
the DSB by the United States in documents WT/DS62/4, WT/DS67/3 and WT/DS68/2". The
respondents in these documents are the European Communities, the United Kingdom and Ireland,
respectively. However, as we stated earlier, what is at issue in this dispute is tariff treatment of LAN
equipment and multimedia PCs by customs authorities in the European Communities.135 Since the
European Communities, Ireland and the United Kingdom are all bound by their tariff commitments
under Schedule LXXX, our examination willfocus, inthe firstinstance, onwhether customsauthorities
in the European Communities, including those located in Ireland and the United Kingdom, have or
have not deviated from the obligations assumed under that Schedule. Accordingly, we will revert to
this issue in light of the conclusions of that examination.
8.17 As a related matter, the United States has requested that the title of the report of this Panel
be changed to read "European Communities, Ireland and the United Kingdom - Increases in Tariffs
on Certain Computer Equipment".136 The European Communities does not agree to this change.137
Given that the report is a consolidated response to the United States' requests contained in documents
WT/DS62/4, WT/DS67/3 and WT/DS68/2, the change in the title might have been acceptable if it
had been agreed upon by the parties to the dispute when they reached an agreement on the terms of
reference of this Panel. However, the United States requested this change at the very end of the second
substantive meeting, which in our view was rather late in the process. Considering that the current
title of this report, read together with the three document symbols (WT/DS62/R, WT/DS67/R and
WT/DS68/R) it carries, does not lead to any confusion or misunderstanding regarding the substance
of this dispute and that, more generally, it is desirable for the title of a dispute to remain unchanged
throughout the process (from consultations to implementation), we reject the request by the United States.
In so doing, we also note that the title of a particular dispute is given for the sake of convenience in
reference and in no way affects the substantive rights and obligations of the parties to the dispute.
C. General Interpretative Issue
8.18 As indicated earlier, the substance of this dispute is whether the tariff treatment of LAN
equipment and multimedia PCs by the customs authorities in the European Communities has been in
compliance with the tariff concessions contained in Schedule LXXX. The pertinent provision in
GATT 1994 is Article II:1, which reads in relevant parts as follows:
134See paragraph 3.2.
135See paragraph 8.12.
136See paragraph 5.3.
137See paragraph 5.4.

"(a) Each Member shall accord to the commerce of the other Members treatment no less
favourable than that provided for in the appropriate Part of the appropriate Schedule annexed
to this Agreement.
"(b) The products described in Part I of the Schedule relating to any Member, which are
the products of territories of other Members, shall, on their importation into the territory to
which the Schedule relates, and subject to the terms, conditions or qualifications set forth in
that Schedule, be exempt from ordinary customs duties in excess of those set forth and provided
therein. Such products shall also be exempt from all other duties or charges of any kind imposed
on or in connection with the importation in excess of those imposed on the date of this
Agreement or those directly and mandatorily required to be imposed thereafter by legislation
in force in the importing territory on that date."
The specific question facing this Panel is whether customs authorities in the European Communities
accorded tariff treatment to certain products less favourable than what is described in Part I of its tariff
schedule -- Schedule LXXX. Whether LAN equipment or multimedia PCs are properly classified under
a certain tariff heading is not an issue before this Panel because the question of their classification per
se has not been raised by the United States. It should also be emphasized that the object of our
examination is limited to Schedule LXXX. We have no intention of passing a judgement regarding
in which tariff category a certain product must be classified. Such a question is outside the terms of
reference of this Panel.
8.19 Thus, it is necessary to interpret Schedule LXXX in its relation to Article II:1 of GATT 1994.
As noted earlier, Schedule LXXX is annexed to the Marrakesh Protocol, which in turn forms part of
GATT 1994. As such, it is an integral part of the WTO Agreement, subject to "customary rules of
interpretation of public international law" (Article 3.2 of the DSU).
8.20 Article 31 of the 1969 Vienna Convention on the Law of Treaties (hereinafter referred to as
"Vienna Convention") sets out the general rules of treaty interpretation as follows:
"1. A treaty 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 the light of its object and purpose.
"2. The context for the purpose of the interpretation of a treaty shall comprise, in addition
to the text, including its preamble and annexes:
(a) any agreement relating to the treaty which was made between all the parties in
connexion with the conclusion of the treaty;
(b) any instrument which was made by one or more parties in connexion with the
conclusion of the treaty and accepted by the other parties as an instrument related to
the treaty.
"3. There shall be taken into account, together with the context:
(a) any subsequent agreement between the parties regarding the interpretation of the treaty
or the application of its provisions;
(b) any subsequent practice in the application of the treaty which establishes the agreement
of the parties regarding its interpretation;

(c) any relevant rules of international law applicable in the relations between the parties.
4. A special meaning shall be given to a term if it is established that the parties so
intended."
8.21 Article 32 of the Vienna Convention further provides:
"Recourse may be had to supplementary means of interpretation, including the preparatory
work of the treaty and the circumstances of its conclusion, in order to confirm the meaning
resultingfrom the applicationof Article 31, or todetermine the meaning when the interpretation
according to Article 31:
(a) leaves the meaning ambiguous or obscure; or
(b) leads to a result which is manifestly absurd or unreasonable."
8.22 We will follow these rules of interpretation in determining whether the tariff treatment of LAN
equipment and multimedia PCs is in conformity with the tariff commitments contained in
Schedule LXXX. The purpose of interpretation is, as is the case with any treaty text, to ascertain what
a particular expression in the Schedule means.
8.23 The meaning of a particular expression in a tariff schedule cannot be determined in isolation
from its context. It has to be interpreted in the context of Article II of GATT 1994 -- a provision that
gives the rationale for the specification of products and duty rates in tariff schedules in the first place:
i.e., they constitute a binding commitment arising out of a negotiation. It should be noted in this regard
that the protection of legitimate expectations in respect of tariff treatment of a bound item is one of
the most important functions of Article II. The panel on Oilseeds stated as follows:
"... 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 primarilyto obtain thatadvantage. 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..."138
The fact that the Oilseeds panel report concerns a non-violation complaint does not affect the validity
of this reasoning in cases where an actual violation of tariff commitments is alleged. If anything, such
a direct violation would involve a situation where expectations concerning tariff concessions were even
more firmly grounded.
8.24 The importance of legitimate expectations in interpretation of tariff commitments can be
confirmed by the text of Article II itself. Article II:5 provides as follows (emphasis added):
"If any Member considers that a product is not receiving from another Member the treatment
which the first Member believes to have been contemplated by a concession provided for in
138Panel Report on European Economic Community - Payments and Subsidies Paid to Processors and Producers
of Oilseeds and Related Animal-Feed Proteins, adopted on 25 January 1990, BISD 37S/86, para. 148.

the appropriate Schedule annexed to this Agreement, it shall bring the matter directly to the
attention of the other Member. If the latter agrees that the treatment contemplated was that
claimed by the first Member, but declares that such treatment cannot be accorded because a
court or other proper authority has ruled to the effect that the product involved cannot be
classified under the tariff laws of such Member so as to permit the treatment contemplated
inthis Agreement, the two Members, togetherwith any other Members substantially interested,
shall enter promptly into further negotiations with a view to a compensatory adjustment of
the matter."
Although Article II:5 is a provision for the special bilateral procedure regarding tariff classification,
not directly at issue in this case, the existence of this provision confirms that legitimate expectations
are a vital element in the interpretation of Article II and tariff schedules.
8.25 This conclusion is also supported by the object and purpose of the WTO Agreement and those
of GATT 1994. The security and predictability of "the reciprocal and mutually advantageous
arrangements directed to the substantial reduction of tariffs and other barriers to trade" (expression
common in the preambles to the two agreements) cannot be maintained without protection of such
legitimateexpectations. ThisisconsistentwiththeprincipleofgoodfaithinterpretationunderArticle 31
of the Vienna Convention. It should be recalled that the panel report on Underwear stated as follows:
"[T]he relevant provisions [of the Agreement on Textiles and Clothing] have to be interpreted
in good faith. Based upon the wording, the context and the overall purpose of the Agreement,
exporting Members can ... legitimately expect that market access and investments made would
not be frustrated by importing Members taking improper recourse to such action."139
8.26 In our view, it may, as a matter of fact, be the case that in nearly all instances, the ordinary
meaning of the terms of the actual description in a tariff schedule accurately reflects and exhausts the
content of the legitimate expectations. It is clearly the case that most descriptions are to be treated
with the utmost care to maintain their integrity precisely because, on their face, they normally constitute
the most concrete, tangible and reliable evidence of commitments made. In our view, however, this
cannot be the case a priori for all tariff commitments. It must remain possible, at least in principle,
that parties have legitimately formed expectations based on other particular supplementary factors.
8.27 To deny this a priori would be to reduce the nature and meaning of commitments under Article II
to a purely formal and mechanical task of noting descriptions in schedules. This would be to rob such
commitments of the reality of the context in which they clearly occur in Article II.
8.28 In interpreting Schedule LXXX, we will accordingly undertake inter alia an evaluation of what,
as a matter of fact, the United States was entitled to expect legitimately regarding the actual tariff
treatment of LAN equipment and multimedia PCs in the European Communities.
D. LAN Equipment
8.29 The United States claims that LAN equipment should have been accorded the tariff treatment
of ADP machines or parts thereof under heading 84.71 or heading 84.73 in Schedule LXXX. The
European Communities claims that its treatment of LAN equipment as telecommunication apparatus
139Panel Report on United States - Restrictions on Imports of Cotton and Man-made Fibre Underwear, adopted
on 25 February 1997, WT/DS24/R, para. 7.20. See also Panel Report on India - Patent Protection for
Pharmaceutical and Agricultural Chemical Products", WT/DS50/R, para. 7.18.

under heading 85.17 of Schedule LXXX is justified and that it is entitled to levy the rate of duty under
that heading accordingly. Thus, we need to determine the proper interpretation of Schedule LXXX
regarding LAN equipment. As noted earlier, the general question of where LAN equipment should
be classified in a tariff nomenclature is beyond our mandate. Our finding is specific to obligations
under Schedule LXXX, and should not be taken as anything going beyond that.
1. Textual Analysis
8.30 Following the rules of the Vienna Convention140, we start from the textual analysis.
Schedule LXXX does not specifically refer to LAN equipment. It generally refers to "automatic data
processing machines and units thereof; magnetic or optical readers, machines for transcribing data
onto data media in coded form and machines for processing such data, not elsewhere specified or
included" under heading 84.71 and "parts and accessories of machines of heading No 8471" under
heading 84.73. In view of the data processing capacities of LAN equipment, one might conclude that
any type of LAN equipment is an ADP machine or part thereof. However, if one emphasizes the fact
that LAN equipment is used for communication among various computer devices and the expression
"not elsewhere specified", one could also argue that LAN equipment is an "electrical apparatus for
line telephony or line telegraphy, including such apparatus for carrier current line systems" under
heading 85.17.
8.31 Thus, for the purposes of Article II:1, it is impossible to determine whether LAN equipment
should be regarded as an ADP machine purely on the basis of the ordinary meaning of the terms used
in Schedule LXXX taken in isolation. However, as noted above, the meaning of the term "ADP
machines" in this context may be determined in light of the legitimate expectations of an exporting
Member.141
2. Actual Tariff Treatment and Legitimate Expectations
8.32 The United States claims that it is entitled to tariff treatment of LAN equipment as ADP machines
or parts thereof because customs authorities in the European Communities, particularly those in Ireland
and the United Kingdom, actually treated LAN equipment that way when the tariff concession was
being negotiated, thereby effectively creating legitimate expectations on the part of the United States
that such tariff treatment would continue. The European Communities claims that the EC member
States did not in fact treat these products uniformly during the Uruguay Round and therefore that the
United States was not entitled to such expectations.
8.33 In addressing this issue, we consider it necessary (a) to weigh the evidence submitted by both
parties regarding the actual tariff treatment of LAN equipment in the European Communities and, if
the result supports the US claim, (b) to determine whether the actual tariff treatment entitles the
United States to legitimate expectations in this regard.
(a) Evaluation of the Evidence of Actual Tariff Treatment
8.34 In the Shirts and Blouses case, the Appellate Body made the following observation:
140See paragraph 8.20.
141See paragraphs 8.23-8.28.

"[W]e find it difficult, indeed, to see how any system of judicial settlement could work if it
incorporated the proposition that the mere assertion of a claim might amount to proof. It is,
thus, hardly surprising that various international tribunals, including the International Court
of Justice, have generally and consistently accepted and applied the rule that the party who
assertsa fact, whether the claimant orthe respondent,isresponsiblefor providingproofthereof.
Also, it is a generally-accepted canon of evidence in civil law, common law and, in fact, most
jurisdictions, that the burden of proof rests upon the party, whether complaining or defending,
who asserts the affirmative of a particular claim or defence. If that party adduces evidence
sufficient to raise a presumption that what is claimed is true, the burden then shifts to the other
party, who will fail unless it adduces sufficient evidence to rebut the presumption."142
8.35 Accordingly, we first examine evidence produced by the United States to determine whether
it has successfully raised a presumption that its claim on the actual tariff treatment of LAN equipment
in the European Communities is true.
8.36 To support its claim, the United States has submitted Binding Tariff Information (BTI) issued
by Ireland143 and letters from the UK Customs and Excise144, which treated certain LAN equipment
as ADP machines during the Uruguay Round. It has also produced letters from four of the leading
US exporters of LAN equipment to Europe attesting to the fact that all of their LAN equipment exported
to Ireland and the United Kingdom -- which were their major market -- between 1991 and 1994 had
been treated as ADP machines.145 The US industry appears to have been satisfied with this tariff
treatment at that time, and did not voice any concerns in this regard to the US Government during
the Uruguay Round.
8.37 Moreover, the BTIs submitted by the United States regarding other member States further support
its position.146 They indicate that even after the conclusion of the Uruguay Round tariff negotiations,
customs authorities in Denmark, France and the Netherlands treated LAN equipment as ADP machines.
In the case of France, a statement by a French customs official at a meeting of the European
Commission's Customs Code Committee is also cited as support of this claim.147 Although the United
States cannot -- and does not -- claim that these BTIs formed the basis of its expectations because of
the timing of their issuance, they lend supplementary support to the US claim on how LAN equipment
was treated in the European Communities during the Uruguay Round in as much as there is no evidence
to suggest that these BTIs were a particular departure from the prevailing practice in these member
States.
8.38 We also note US export data showing that US exports of LAN equipment (classified under
USX 847199 and 847330) to the European Communities continued to rise after the Uruguay Round,
142Appellate Body Report on United States - Measure Affecting Imports of Woven Wool Shirts and Blouses
from India, adopted on 23 May 1997, WT/DS33/AB/R, p. 14 (footnotes omitted).
143Annex 4, Table 1.
144Annex 4, Table 2.
145Annex 4, Table 3. See also paragraph 5.44.
146Annex 4, Table 1.
147See paragraph 5.44.

while EC import statistics, which formerly moved in the same direction as US export statistics, indicate
a decline in the imports of "other ADP machines" (under CN 847199) from the United States and a
simultaneous increase in the imports of telecommunication apparatus (under CN 851782) in 1995.148
These statistics are aggregated at a level that makes it difficult to draw specific conclusions in respect
of the tariff treatment of LAN equipment. This evidence does, however, indirectly support the US
argument in as much as it is consistent with the effects that would be anticipated if there was a change
in tariff treatment in the European Communities after the Uruguay Round.
8.39 In light of the evidence described in the preceding paragraphs, we conclude that the United
States has adduced evidence sufficient to raise a presumption that its claim that LAN equipment was
treated as ADP machines in the European Communities during the Uruguay Round is true.
8.40 Following the Appellate Body report on Shirts and Blouses149, the burden now shifts to the
European Communities. To rebut the presumption raised by the United States, the European
Communities has produced documents which indicate that LAN equipment had been treated as
telecommunication apparatus by other customs authorities in the European Communities. In Germany,
the customsauthorities treated certain LANequipment as telecommunication apparatus already in1989,
a practice upheld by the German Federal Tax Court (Bundesfinanzhof) in 1991.150 The European
Communities has also produced BTIs issued by the Dutch, French, German and UK customs authorities
treating certain LAN equipment as telecommunication apparatus151, although a close examination of
these BTIs reveals that those from the Netherlands pertain to either multiplexers, which are outside
the scope of our examination, or more generic networking equipment, which may or may not fall under
the definition of LAN equipment used in this report.
8.41 The only direct counter-evidence against the US claim on practices in Ireland and the
United Kingdom is a December 1993 BTI issued by the UK customs authority (HM Customs and Excise)
to one of the US companies (CISCO), classifying one type of LAN equipment (routers) as
telecommunication apparatus.152 Since it became effective only a week or so before the conclusion
of the Uruguay Round negotiations, it is not in our view sufficient to rebut the above presumption,
which was raised by more extensive and general evidence, that LAN equipment was generally treated
as ADP machines in Ireland and the United Kingdom during the Uruguay Round.
148Annex 7.
149See paragraph 8.34.
150See paragraph 5.46.
151Annex 6, Table 1.
152See paragraph 8.32. We do not consider other BTIs issued by the HM Customs and Excise submitted
by the European Communities (Annex 6, Table 1) to be relevant because they became valid after the conclusion
of substantive tariff negotiations of the Uruguay Round. In this connection, we find it noteworthy that the European
Communities did not produce any British or Irish BTIs issued prior to December 1993 to support its case on
this important issue. The European Communities suggests that the fact that American Electronics Association
had scheduled a meeting with Commission officials on 25 February 1994 in order to discuss a number of issues
including classification difference in member States with respect toa number ofproducts including LANinterface
is another indication of the non-uniform treatment of LAN equipment within the European Communities. See
paragraph 5.29. However, in our view, the information was too vague and indirect to rebut the presumption
mentioned above, even to the extent that it was unclear that the meeting had actually taken place.

8.42 Regarding France, the European Communities has submitted conflicting BTIs (i.e., ones that
classify LAN equipment as telecommunication apparatus) issued after the conclusion of the Uruguay
Round. Thus, in light of our reasoning in paragraph 8.37, it would be reasonable to conclude at least
that the practice was not uniform in France during the Uruguay Round.
8.43 Germany appears tohave consistently treated LANequipment as telecommunication apparatus.
As noted above, a 1991 Bundesfinanzhof ruling affirmed BTIs treating LAN equipment as
telecommunication apparatus, although the BTIs involved in that case were issued to a non-US firm
and could not have formed any basis for US expectations. In addition, the European Communities
has submitted one German BTI, issued in 1992, treating LAN equipment as telecommunication apparatus.
8.44 In our view, the evidence produced by the European Communities does not rebut the presumption
raised by the United States concerning the accuracy of its claim regarding the actual tariff treatment
of LAN equipment during the Uruguay Round. The evidence concerning Ireland and the
United Kingdom, whichare the largestexportmarket intheEuropeanCommunities for the USindustry,
as well as the supplementary evidence concerning Denmark and the Netherlands, supports the US
position, leaving Germany as the only member State with practices to the contrary.
(b) Legitimate Expectations
8.45 We nowturn tothe examinationof whether the actual tariff treatment of LANequipment entitles
the United States to legitimate expectations in this regard sufficient to establish its claim of a violation
of Article II of GATT 1994 by the European Communities. In our view, an exporting Member's
legitimate expectations regarding tariff commitments are normally based, at a minimum, on the
assumption that the actual tariff treatment accorded to a particular product at the time of the negotiation
will be continued unless suchtreatment is manifestlyanomalous or there is information readilyavailable
to the exporting Member that clearly indicates the contrary. The existence of such expectations in
tariff negotiations can be seen in the fact that negotiators normally use actual trade data to calculate
the effect of "requests" and "offers", and to evaluate the resulting tariff reductions in terms of
trade-weighted average.153 In other words, they work on the general assumption that the actual tariff
treatment accorded to a particular product as traded is the relevant item for the purposes of negotiations.
8.46 In the present case, in view of the prevailing practice in the European Communities during
the Uruguay Round, the United States would appear to have a legitimate expectation that LAN equipment
would continue to be accorded tariff treatment as ADP machines in the European Communities.
Certainly, such treatment could not be characterized as manifestly anomalous.154 Was there information
readily available to the United States that indicated that the actual tariff treatment of LAN equipment
would not be continued?
8.47 In this regard, the European Communities challenges the legitimacy of the United States'
expectations by saying: "The US negotiators may find it difficult to admit now that their understanding
153For instance, when the Ministers agreed in Montreal in 1988 on a "substantial reduction ... with a target
amount for overall reductions at least as ambitious as that achieved by the formula participants in the Tokyo
Round" (MTN.TNC/11), it was generally understood to mean more than 33 per cent reduction in trade-weighted
average for industrial products. For how this figure was calculated, see General Agreement on Tariffs and Trade,
The Tokyo Round of Multilateral Trade Negotiations: Report by the Director-General of GATT (Geneva,
April 1979), p. 120.
154See paragraphs 8.30-8.31.

of the tariff classification in the EC of the products they talk about now was erroneous; however, they
only have themselves to blame. They should have come forward and requested clarification from the
EC negotiators if they were not sure where these products should be classified in the EC especially
since theythemselves had reclassified these products onlyshortly beforehand".155 There are twodistinct
issues in this argument: (i) Were the US negotiators required to clarify where LAN equipment was
to be classified in the draft Schedule LXXX during the negotiations?; and (ii) Does the United States'
own reclassification of LAN equipment from telecommunication apparatus to ADP machines affect
the legitimacy of the United States' expectations? We examine these issues in turn.
(i) Requirement of Clarification
8.48 The European Communities argues that the United States should have clarified, during the
negotiations, where LAN equipment would be classified. The question here is whether the exporting
Member has any inherent obligation to seek clarification when it has been otherwise given a basis to
expect that actual tariff treatment by the importing Member will be maintained.
8.49 In our view, to require exporting parties in negotiations to effectively work on the assumption
that, absent a manifest anomaly, explicit and particular clarification should be sought at an item-by-item
level would run fundamentally counter to the object and purpose of tariff negotiations (which in turn
form the context for Article II and tariff schedules). On one level, it would both risk an erosion of
the confidence upon which it is necessary for parties to rely in the conduct of tariff negotiations, as
well as raising logistic difficulties which would make the actual management of them particularly
onerous. More fundamentally, such a requirement would risk presumptively raising systemic doubt
and uncertainty about the exact nature and scope of the actual tariff concessions themselves. Such
an inherent tendency cannot be reconciled with one of the major objectives of the WTO, from which
tariff negotiations pursuant to, inter alia, Articles XXVIII and XXVIII bis of GATT 1994 draw their
purpose, viz: "reciprocal and mutually advantageous arrangements directed to the substantial reduction
of tariffs" (an expression common to the preambles of the WTO Agreement and GATT 1994). Any
interpretationof Article IIwhichwouldbepronetohavethe practicaleffect ofmoregenerallyfacilitating
the occasions upon which Members may apply a higher rate of duty and/or undermine the stability
of concessionsmade (other than, of course, circumstances underwhichsuchaction isexplicitlyprovided
for pursuant to relevant provisions of the WTO Agreement would run counter to this objective).
8.50 We also note in this context that a tariff commitment is an instrument in the hands of an importing
Member which inherently serves the importing Member's "protection needs and its requirements for
the purposes of tariff and trade negotiations".156 The exporting party is well aware of that fact, and
may therefore reasonably expect -- absent something explicit to the contrary -- that the importing party,
in making a particular commitment has taken those needs and requirements already into account as
matters over which it has competence and control. It is for this reason that it behooves the importing
party, as the effective bearer of its rights and responsibilities, to correctly identify products and relevant
duties in its tariff schedules, including such limitations or modifications as it intends to apply.
155See paragraph 5.33.
156Panel Report on Japan - Tariff on Imports of Spruce, Pine, Fir (SPF) Dimension Lumber, op cit., para.
5.9. Although this report affirms Japan's classification of particular items as a practice meeting these needs
and requirements, the Panel Report on Spain - Tariff Treatment of Unroasted Coffee, op cit., -- which found
Spain's classification practice to be inconsistent with GATT 1947 on other grounds -- states that such a practice
is subject to the condition "that a reclassification subsequent to the making of a concession under the GATT would
not be a violation of the basic commitment regarding that concession" (para. 4.4, footnote 1).

8.51 We consider that this reasoning is supported by past cases. In 1956, Germany complained
that the Greek Government had increased the duty on gramophone records, which had been bound
at the Annecy and Torquay rounds of tariff negotiations. The Group of Experts that examined the
case stated as follows:
"The Greek representative saidthat hisGovernment had left unalteredthe specific duty as bound
in Schedule XXV on item 137, e, 3. What they had done was to impose a duty which, with
surtax, amounted to 70 per cent advalorem on 'long-playing' records (33 1/3 and 45revolutions
per minute). His Government explained this action on the grounds that such records did not
exist at the time the Greek Government granted the above concession, that they contained a
volume of recordings up to five times that of the old records, that they were lighter than
conventional records, that they were made of different material, and that, therefore, as a new
product, they were not covered by the item bound at Annecy and Torquay. The Greek
representativefurtherpointedoutthatcountrieswhichimposeadvaloremdutiesongramophone
recordswere,becauseofthehighervalueoflong-playingrecords,collectingsubstantiallyhigher
duties in monetary terms.

"The Group agreed that the practice generally followed in classifying new products was to
apply the tariff item, if one existed, that specified the products by name, or, if no such item
existed, to assimilate the new products to existing items in accordance with the principles
established by the national tariff legislation. It was noted that when this item was negotiated
the parties concerned did not place any qualification upon the words 'gramophone record'.
"The Group consequently reports to the CONTRACTING PARTIES its finding that
'long-playing' records (under 78 revolutions per minute) are covered by the description of item
137, e, 3 bound in Schedule XXV (Annecy and Torquay) and, therefore, the rate of duty to
be applied to long-playing records is that bound in the schedules under that item. As the action
taken by the Greek Government involves a modification in a bound rate, it is the opinion of
the Group that the Greek Government should have resorted to the procedures provided in the
Agreement for such modification."157
Despite the fact that "long-playing" records did not exist at the time of the Annecy or Torquay rounds,
the group concluded that Greece was bound by its commitment on gramophone records because it did
not place any qualification on the term "gramophone records" during the negotiations. The onus of
clarifying (in this case "limiting") the scope of the tariff concession was put on the side of the importing
Member.
8.52 The European Communities claims that the Gramophone Records case is not relevant to the
present dispute because the case dealt with new products, while the US complaint in the present dispute
is limited to products which already existed during the Uruguay Round.158 We disagree. If the product
had existed at the time of the negotiation, it would, if anything, have been easier for the importing
Member to qualify the scope of its tariff commitments regarding that product, as it would not even
have recourse to the argument that subsequent novelty was involved. Consequently, the reasoning
157Greek Increase in Bound Duty, complaint, op cit.
158See paragraph 5.9.

regarding the requirement to respect the integrity of the commitment without qualification would seem
to have even more force.
8.53 Similarly, inresponsetoa Canadian claim thattheEuropeanCommunities had for theyear 1984
opened an import quota for newsprint of only 500,000 tonnes instead of the bound quota of 1,500,000
tonnes as described in its tariff schedule and that this action was inconsistent with the European
Communities' obligations under Article II of GATT 1947, the panel on Newsprint stated as follows:
"The Panel could not share the argument advanced by the European Communities that their
action did not constitute a change in their GATT tariff commitment. It noted that under
long-standing GATT practice, even purely formal changes in the tariff schedule of a contracting
party, which may not affect the GATT rights of other countries, such as the conversion of
a specific to an ad valorem duty without an increase in the protective effect of the tariff rate
in question, have been considered to require renegotiations. By the same token, the European
Communities action would, in the Panel's view, have required the European Communities to
conduct such negotiations. The Panel also noted that in granting the concession in 1973, the
European Communities had not made it subject to any qualification or reservation in the sense
of Article II:1(b) although at the time the concession was made, it was known that agreement
had already been reached that the EFTA countries would obtain full duty-free access to the
Community market for newsprint from 1 January 1984 onward. The Panel therefore found
that although in the formal sense the European Communities had not modified its GATT
concession, it had in fact changed its GATT commitment unilaterally, by limiting its duty-free
tariff quota for m.f.n. suppliers for 1984 to 500,000 tonnes."159
8.54 In our view, the reasoning applied in these cases is consistent with that set forth in
paragraphs 8.49and 8.50above. Theyconfirmthatthe onusof clarifyingtariff commitment isgenerally
placed on the importing Member. In the absence of any such limitation by the importing Member,
the benefits of the concession accrue to the exporting Member(s).
8.55 In light of the above, we find that the European Communities cannot place the burden of
clarificationon the United States in cases where it has created, through its own practice, the expectations
regarding the continuation of the actual tariff treatment prevailing at the time of the tariff negotiations.
It would not be reasonable to expect the US Government to seek clarification when it had not heard
any complaints from its exporters, who were apparently satisfied with the current tariff treatment of
LAN equipment in their major export market -- Ireland and the United Kingdom. We have found
no evidence to suggest that such treatment was manifestly anomalous or that there was information
readily available that clearly indicated that the treatment would not be continued.
(ii) The United States' Own Reclassification
8.56 The European Communities further argues that since the United States itself had classified LAN
equipmentas telecommunication apparatus inits tariff schedule until1992,itcould nothave legitimately
expected that the European Communities would treat LAN equipment as ADP machines.160 It also
argues that the difficulty of classifying LAN equipment was recognized in the negotiations of the North
American Free Trade Agreement and that it was not until 1995 that Canada reclassified LAN equipment
159Panel Report on Newsprint, op cit., para.50.
160See paragraph 5.26.

as ADP machines.161 It further argues that Japan and Korea, which are third parties to this dispute,
still classify some or all LAN equipment as telecommunication apparatus.162
8.57 Furthermore, the European Communities points out that it was not until April 1997 that the
Harmonized System (HS) Committee of the World Customs Organization (WCO) decided on the
classification of LAN equipment, indicating the difficulty of tariff classification of this product.163
8.58 We are not persuaded by these arguments. The subject matter of this dispute is the EC tariff
schedule (Schedule LXXX). How the like or similar product is treated in the US tariff schedule
(Schedule XX) or in any other Member's schedule is not relevant to the US expectations regarding
the tariff treatment in its export market. Regarding the European Communities' argument on the
difficulty of classification, we would recall that both parties are of the view that this is not a dispute
about customs classification itself; rather it concerns the actual tariff treatment by customs authorities
in the European Communities.
8.59 That being said, to the extent that the evolution of US classification practice has relevance at
all, it fails, in our view, to support the European Communities' argument. Insofar as the United States
and the US industry had been satisfied with the treatment of LAN equipment as ADP machines in the
European Communities, the classification change bythe UnitedStates in1992(from telecommunication
apparatus to ADP machines) would have been perceived as a move in the right direction. Rather than
giving any reasons for occasioning US uncertainty about the nature of actual tariff treatment of LAN
equipment in the European Communities, it would, if anything, have signified that the United States
had more reason than ever to believe that such actual tariff treatment would continue. Certainly, neither
the US Government nor the US industry would have had any reason to be alarmed. Thus, we find
that the United States' own reclassification of LAN equipment does not affect the legitimacy of the
US expectations.
3. Conclusion
8.60 We findthatthe UnitedStates was entitled tolegitimateexpectationsthat LANequipmentwould
continue to be accorded tariff treatment as ADP machines in the European Communities, based on
the actual tariff treatment during the Uruguay Round, particularly in Ireland and the United Kingdom
(which were the major export market for US products). We further find that the United States was
not required to clarify the scope of the European Communities' tariff concessions on LAN equipment
and that the United States' own reclassification of LAN equipment in 1992 was not relevant to the
formation of its legitimate expectations regarding the European Communities' tariff treatment of the
like or similar product.
8.61 It is clear from evidence that these legitimate expectations were frustrated by the subsequent
change inthe classificationpractice intheEuropeanCommunities, includingthroughthe reclassification
of LAN adapter cards under Regulation (EC) 1165/95.
8.62 We thus find that LAN equipment should have obtained the tariff treatment afforded to ADP
machines in Schedule LXXX and that the European Communities has violated Article II:1 of GATT 1994
161See paragraph 5.33.
162See paragraph 5.35.
163See paragraph 5.12.

by failing to accord imports of LAN equipment from the United States treatment no less favourable
than that provided for under heading 84.71 or heading 84.73, as the case may be, in Part I of
Schedule LXXX.
E. Multimedia PCs
8.63 The United States claims that personal computers with multimedia capability should have been
accorded the tariff treatment as ADP machines within the meaning of Schedule LXXX. The European
Communities claims that the United States could not have had legitimate expectations that the European
Communities would classify PCTVs or other multimedia equipment under tariff heading 84.71 and
apply the corresponding duty rate.
1. Textual Analysis
8.64 Our starting point again is the textual analysis. We need not reproduce the definition of ADP
machines under heading 84.71 in Schedule LXXX. We simply note that, as in the case of LAN
equipment, certain types of multimedia PCs can be regarded, based on the ordinary meaning of the
terms used in that Schedule, either as ADP machines under heading 84.71 or as television receivers
under heading 85.28 depending on whether they are seen as "computers that can receive television
signals" or as "television receivers that can also function as computers".164 The textual analysis of
Schedule LXXX alone does not lead to a clear solution of the problem.
2. Legitimate Expectations
8.65 The United States claims that it is entitled to the legitimate expectations that multimedia PCs
would be accorded the tariff treatment as ADP machines within the meaning of Schedule LXXX. We
recall in this context the Appellate Body's observation regarding what amounts to proof.165 We also
note that the United States' assertion that "PCs with multimedia capability were treated as products
under Chapter 84 during the Uruguay Round"166 is not substantiated by any evidence as regards actual
tariff treatment.167 The only evidence produced by the United States in this regard is a judgement by
a UK court on PCTVs, ruling that they are properly classified under heading 85.28 as television
receivers.168 We fail to see how this judgement supports the US position without any showing of the
previous practices in the European Communities or in the United Kingdom. It is true that Regulation
164It should be emphasized once again that it is not our task to determine where multimedia PCs should be
classified in a tariff nomenclature.
165See paragraph 8.34.
166See paragraph 5.66.
167Unlike the case of LAN equipment, the United States has not produced any evidence of record on actual
tariff treatment, e.g., BTIs, customs rulings or actual invoices. Paragraphs 5.69 to 5.71 are the US replies to
the following question by the Panel: "How do you respond to the EC argument that 'the United States did not
produce any document showing that the EC did indeed classify all computers with multimedia capabilities under
heading 84.71 during the Uruguay Round'? Do you have any specific documentation regarding the actual tariff
treatment of computers with multimedia capabilities on importation during the period covered by the Uruguay
Round?".
168Annex 3.

(EC) 1153/97 classifies all computers "capable of receiving and processing television, telecommunication,
audio and video signals" under heading 84.71, but this regulation became effective in July 1997. Since
the regulation was adopted in part to reflect a 1996 decision by the HS Committee of the WCO, it
cannot be viewed as evidence of the EC practice during the Uruguay Round.
8.66 In summary, regarding multimedia PCs, the United States has failed to adduce evidence sufficient
to raise a presumption that these products were in fact treated as ADP machines in the European
Communities during the Uruguay Round. Thus, we are unable to decide the case on the basis of
legitimate expectations as we did with respect to LAN equipment.
3. Other Means of Interpretation
8.67 The analysis of the context, object or purpose of Schedule LXXX, GATT 1994 or the WTO
Agreement -- apart from those relating to legitimate expectations -- does not clarify the situation. Nor
do we find any clear guidance in subsequent agreements or practices. Moreover, recourse to the
supplementary means of treaty interpretation169 is not helpful because neither party has produced sufficient
evidence thereof. We are therefore unable to reach a positive conclusion that multimedia PCs should
have been treated as ADP machines within the meaning of Schedule LXXX.
8.68 In conclusion, based on the evidence submitted by the parties that is admissible under the terms
of reference of this Panel, we do not find that the European Communities has violated Article II:1
of GATT 1994 regarding the tariff treatment of multimedia PCs.
F. Nullification or Impairment
8.69 We note the claim by the United States that the value of concessions accruing to the United States
has been nullified or impaired by the application of the measures identified under item (a) through
(f) of paragraph 8.5.
8.70 In view of our finding that the tariff treatment of LAN equipment by customs authorities in
the European Communities violated Article II:1 of GATT 1994 (US claims under item (a) and (b) of
paragraph 8.5), we find that it is not necessary to examine this additional claim with respect to LAN
equipment, except to note that the infringement of GATT rules is considered prima facie to constitute
a case of nullification or impairment under Article 3.8 of the DSU.
8.71 Regarding the tariff treatment of multimedia PCs, we note that we have not found a violation
of GATT rules on the part of the European Communities. We also note that the United States has
not attempted to establish nullificationor impairment of the value of concessions accruing to it in respect
of multimedia PCs, except through its claim on the violation of tariff bindings by the European
Communities.
8.72 Finally, with respect to LAN equipment, since we find a violation of Article II:1 by the European
Communities, it is unnecessary to rule on the US claims under item (d) and (f) of paragraph 8.5. With
respect to multimedia PCs, we did not find any evidence of a violation (US claims under (c) and (e)
of paragraph 8.5). Therefore, we do not find it necessary to make a specific finding on the request
by the United States referred to in paragraph 8.15 regarding either product category.
169See paragraph 8.21.

IX. CONCLUSIONS
9.1 In light of the findings above, the Panel finds that the European Communities, by failing to
accord importsof LANequipmentfrom the UnitedStates treatment nolessfavourable thanthatprovided
for under heading 84.71 or heading 84.73, as the case may be, in Part I of Schedule LXXX, acted
inconsistently with the requirements of Article II:1 of GATT 1994.
9.2 The Panel recommends that the Dispute Settlement Body request the European Communities
to bring its tariff treatment of LAN equipment into conformity with its obligations under GATT 1994.

ANNEX 1
Tariff Concessions contained in EC Schedule - LXXX relating to items under tariff headings 84.71, 84.73, 85.17, 85.21 and 85.28
Tariff item
number
Description of products Base rate of duty Bound rate of
duty
Initial
negotiating right
Other duties and
charges
Remarks
1 2 3 4 5 6 7
8471 Automatic data processing machines and units thereof;
magnetic or optical readers, machines for transcribing
data onto data media in coded form and machines for
processing such data, not elsewhere specified or
included:
8471.10 -Analogue or hybrid automatic data processing
machines:
8471.10.10 --For use in civil aircraft 0.0 0.0
8471.10.90 --Other 4.9 2.5
8471.20 -Digital automatic data processing machines,
containing in the same housing at least a central
processing unit and an input and output unit, whether
or not combined:
8471.20.10 --For use in civil aircraft 0.0 0.0
--Other:
8471.20.40 ---With a random access memory (RAM) with a
capacity not exceeding 64 kilobytes
4.9 2.5
8471.20.50 ---With a random access memory (RAM) with a
capacity exceeding 64 kilobytes but not exceeding 256
kilobytes
4.9 2.5
8471.20.60 ---With a random access memory (RAM) with a
capacity exceeding 256 kilobytes but not exceeding 512
kilobytes
4.9 2.5
8471.20.90 ---With a random access memory (RAM) with a
capacity exceeding 512 kilobytes
4.9 2.5
-Other:
8471.91 --Digital processing units, whether or not presented
with the rest of a system, which may contain in the
same housing one or two of the following types of unit
: storage units, input units, output units:
8471.91.10 ---For use in civil aircraft 0.0 0.0
---Other
8471.91.40 ----With a random access memory (RAM) with a
capacity not exceeding 64 kilobytes
4.9 2.5

Tariff item
number
Description of products Base rate of duty Bound rate of
duty
Initial
negotiating right
Other duties and
charges
Remarks
1 2 3 4 5 6 7
8471.91.50 ----With a random access memory (RAM) with a
capacity exceeding 64 kilobytes but not exceeding 256
kilobytes
4.9 2.5
8471.91.60 ----With a random access memory (RAM) with a
capacity exceeding 256 kilobytes but not exceeding 512
kilobytes
4.9 2.5
8471.91.90 ----With a random access memory (RAM) with a
capacity exceeding 512 kilobytes
4.9 2.5
8471.92 --Input or output units, whether or not presented with
the rest of a system and whether or not containing
storage units in the same housing:
8471.92.10 ---For use in civil aircraft 0.0 0.0
8471.92.90 ---Other 4.9 0.0
8471.93 --Storage units, whether or not presented with the rest
of a system:
8471.93.10 ---For use in civil aircraft 0.0 0.0
---Other:
8471.93.40 ----Central storage units 4.9 0.0
----Other:
8471.93.50 -----Disk storage units 4.9 0.0
8471.93.60 -----Magnetic tape storage units 4.9 0.0
8471.93.90 -----Other 4.9 0.0
8471.99 --Other:
8471.99.10 ---Peripheral units 4.9 0.0
8471.99.30 ---Punches, verifiers and calculators 4.9 0.0
8471.99.90 ---Other 4.9 0.0
8473 Parts and accessories (other than covers, carrying
cases and the like) suitable for use solely or principally
with machines of headings Nos 8469 to 8472:
8473.10.00 -Parts and accessories of the machines of heading
No 8469:
EX1-NEW --Electronic assemblies 4.0 3.0
EX2-NEW --Other 4.0 0.0
-Parts and accessories of the machines of heading
No 8470:
8473.21.00 --Of the electronic calculating machines of subheading
No 8470 10, 8470 21 or 8470 29:
EX1-NEW ---Electronic assemblies 6.3 3.0
EX2-NEW ---Other 6.3 0.0

Tariff item
number
Description of products Base rate of duty Bound rate of
duty
Initial
negotiating right
Other duties and
charges
Remarks
1 2 3 4 5 6 7
8473.29.00 --Other:
EX1-NEW ---Electronic assemblies 4.0 3.0
EX2-NEW ---Other 4.0 0.0
8473.30.00 -Parts and accessories of the machines of heading
No 8471:
EX1-NEW --Electronic assemblies 4.0 2.0 C o n c e s s i o n t o b e
implemented over 8 years
EX2-NEW --Other 4.0 0.0
8473.40.00 -Parts and accessories of the machines of heading
No 8472:
EX1-NEW --Electronic assemblies 4.0 3.0
EX2-NEW --Other 4.0 0.0
8517 Electrical apparatus for line telephony or line
telegraphy, including such apparatus for carrier-current
line systems:
8517.10.00 -Telephone sets 7.5 0.0
8517.20.00 -Teleprinters 7.5 3.6
8517.30.00 -Telephonic or telegraphic switching apparatus 7.5 3.6
8517.40.00 -Other apparatus, for carrier-current line systems 4.6 3.6
-Other apparatus:
8517.81 --Telephonic:
8517.81.10 ---Entry-phone systems 7.5 3.6
8517.81.90 ---Other 7.5 3.6
8517.82.00 --Telegraphic 7.5 3.6
8517.90 -Parts:
8517.90.10 --Of apparatus of subheading 8517 40 00:
EX1-NEW ---Electronics assemblies and sub-assemblies 4.6 3.0
EX2-NEW ---Other 4.6 3.0
--Other:
8517.90.91 ---Of telephonic apparatus:
EX1-NEW ----Electronics assemblies and sub-assemblies 7.5 3.0
EX2-NEW ----Other 7.5 3.0
8517.90.99 ---Of telegraphic apparatus
EX1-NEW ----Electronics assemblies and sub-assemblies 7.5 3.0
EX2-NEW ----Other 7.5 3.0
8521 Video recording or reproducing apparatus:
8521.10 -Magnetic tape-type:

Tariff item
number
Description of products Base rate of duty Bound rate of
duty
Initial
negotiating right
Other duties and
charges
Remarks
1 2 3 4 5 6 7
8521.10.10 --For use in civil aircraft 0.0 0.0
--Other:
---Of a width not exceeding 1,3 cm and allowing
recording or reproduction at a tape speed not exceeding
50 mm per second:
8521.10.31 ----Within the same housing a built-in television
camera
14.0 14.0
8521.10.39 ----Other 14.0 14.0
8521.10.90 ---Other 8.0 8.0
8521.90.00 -Other 14.0 14.0
8528 Television receivers (including video monitors and
video projectors), whether or incorporating radio-
broadcast receivers or sound or video recording of
reproducing apparatus:
8528.10 -Colour:
--Video recording or reproducing apparatus
incorporating a video tuner:
---Using magnetic tape on reels or in cassettes:
8528.10.11 ----Of a width not exceeding 1,3 cm and allowing
recording or reproduction at a tape speed not exceeding
50 mm per second
14.0 14.0
8528.10.19 ----Other 8.0 8.0
8528.10.30 ---Other 14.0 14.0
8528.10.40 --Television projection equipment 14.0 14.0
8528.10.50 --Apparatus incorporating a videophonic recorder or
reproducer
14.0 14.0
8528.10.60 --Video monitors 14.0 14.0
--Other:
---With integral tube, with a diagonal measurement of
the screen:
8528.10.71 ----Not exceeding 42 cm 14.0 14.0
8528.10.73 ----Exceeding 42 cm but not exceeding 52 cm 14.0 14.0
8528.10.79 ----Exceeding 52 cm 14.0 14.0
---Other:
8528.10.91 ----Video tuners 14.0 14.0
8528.10.99 ----Other 14.0 14.0
8528.20 -Black and white or other monochrome:
--With integral tube:
8528.20.10 ---Video monitors 14.0 14.0

Tariff item
number
Description of products Base rate of duty Bound rate of
duty
Initial
negotiating right
Other duties and
charges
Remarks
1 2 3 4 5 6 7
---Other, with a diagonal measurement of the screen:
8528.20.71 ----Not exceeding 42 cm 14.0 2.0
8528.20.73 ----Exceeding 42 cm but not exceeding 52 cm 14.0 2.0
8528.20.79 ----Exceeding 52 cm 14.0 2.0
8528.20.90 --Other 14.0 2.0
Source: European Communities - Schedule LXXX.
Note: "The tariff reductions agreed upon by each Member shall be implemented in five equal rate reductions, except as may be otherwise specified in a Member's Schedule. The first
such reduction shall be made effective on the date of entry into force of the WTO Agreement, each successive reduction shall be made effective on 1 January of each of the following
years, and the final rate shall become effective no later than the date four years after the date of entry into force of the WTO Agreement, except as may be otherwise specified
in the Member's Schedule." (Marrakesh Protocol to the General Agreement on Tariffs and Trade 1994, paragraph 2)

ANNEX 2
Commission Regulation (EC) No. 1165/95
of 23 May 1995
concerning the classification of certain goods in the combined nomenclature
THE COMMISSION OF THE EUROPEAN COMMUNITIES,
Having regard to the Treaty establishing the European Community,
Having regard to Council Regulation (EEC) No. 2658/87170 on the tariff and statistical nomenclature
and on the Common Customs Tariff, as last amended by Commission Regulation (EC) No. 3115/94171,
and in particular Article 9,
Whereas in order to ensure uniform application of the combined nomenclature annexed to the said
Regulation, it is necessary to adopt measures concerning the classification of the goods referred to
in the Annex to this Regulation;
Whereas Regulation (EEC) No. 2658/87 has set down the general rules for the interpretation of the
combined nomenclature and those rules also apply to any other nomenclature which is wholly or partly
based onit orwhichaddsany additionalsubdivisiontoitand whichisestablishedbyspecific Community
provisions, with a view to the application of tariff and other measures relating to trade in goods;
Whereas, pursuant to the said general rules, the goods described in column 1 of the table annexed to
the present Regulation must be classified under the appropriate CN codes indicated in column 2, by
virtue of the reasons set out in column 3;
Whereas it is acceptance that binding tariff information issued by the customs authorities of Member
States in respect of the classification of goods in the combined nomenclature and which do not conform
to the rights established by this Regulation, can continue to be invoked, under the provisions in
Article 12(6) of Council Regulation (EEC) No. 2913/92 establishing the Community Customs Code172,
for a period of three months by the holder;
Whereas the tariff and statisticalnomenclature sectionof theCustoms Code Committee has notdelivered
an opinion with the time limit set by its chairman as regards products Nos. 4 and 7 in the annexed
table;
Whereas the measures provided for in this Regulation are in accordance with the opinion of the tariff
and statistical nomenclature section of the Customs Code Committee as regards products Nos. 1, 3,
5 and 6 in the annexed table,
170OJ No. L 256, 7/9/1987, p.1.
171OJ No. L 345, 31/12/94, p.1.
172OJ No. L 302, 19/10/92, p.1.

HAS ADOPTED THIS REGULATION:
Article 1
The goods described in column 1 of the annexed table are now classified within the combined
nomenclature under the appropriate CN codes indicated in column 2 of the said table.
Article 2
Binding tariff information issued by the customs authorities of Member States which do not conform
to the rights established by this Regulation can continue to be invoked under the provisions of
Article 12(6) of Regulation (EEC) No. 2913/92 for a period of three months.
Article 3
This Regulation shall enter into force on the 21st day following its publication in the Official Journal
of the European Communities.
This Regulation shall be binding in its entirety and directly applicable in all Member States.
Done at Brussels, 23 May 1995.
For the Commission
Mario MONTI
Member of the Commission

ANNEX
Description of goods Classification
CN code
Reason
(1) (2) (3)
1. An ornamental article (luminous fountain or "running
tap"), put up unassembled in a packing for retail sale.
Assembled, the various plastic components (a base
about 15 cm. diameter, incorporating a lighting
system and an electric motor with a power-supply
cable, and equipped with a switch, three basins,
various pipe connections, a tap, a small figure of a
dancer, artificial flowers and foliage, etc.) form one
or other of the articles depicted(*) (height between 30
cm. and 40 cm.)
(*)See photograph
3926 40 00 Classification is determined by the provisions
of General Rules 1 and 6 for the interpretation
of the combined nomenclature and by the
wording of CN codes 3926 and 3926 40 00
2. Slippers consisting of a textile upper and an outer sole
of plastic (approximately one centimetre thick), the
outside of which is entirely covered by a very thin
layer of textile material, with poor wearing properties,
stuck along the edges
6404 19 10 Classification is determined by the provisions
of General Rules 1 and 6 for the interpretation
of the combined nomenclature, note 4(b) to
Chapter 64 and by the wording of CN codes
6404, 6404 19 and 6404 19 10
3. An automated cartridge system in a casing consisting,
essentially, of:
(a) one or more library storage modules (each containing
cartridge storage cells and a microprocessor controlled
robot and having one or more attached cartridge drive
frames and control units); and
(b) a library management unit with integral software
(which acts as the link between the library storage
modules and one or more central processing units).
This system is specifically designed for the automatic
loading, processing, storage and unloading of
magnetic tape cartridges for automatic data processing
purposes
8471 99 10 Classification is determined by the provisions
of General Rules 1 and 6 for the interpretation
of the combined nomenclature, by note 5B to
Chapter 84 and by the wording of CN codes
8471, 8471 99 and 8471 99 10
4. An adapter card for incorporation in cable linked
digital automatic data-processing (ADP) machines
enabling the exchange of data over a local area
network (LAN) without using a modem.
With such a card, an ADP-machine can be used as an
input-output device for another machine or a central
processing unit.
The card constitutes a printed circuit of a size of
about 10 x 21 cm. incorporating integrated circuits
and active and passive components.
It is fitted with a row of pin contacts corresponding to
an expansion slot in the ADP-machine, with an
attachment to the connection cable of the LAN and
light emitting diodes (LEDs).
8517 82 90 Classification is determined by the provisions
of General Rules 1 and 6 for the interpretation
of the combined nomenclature, by note 5 to
Chapter 84 and by the wording of CN codes
8517, 8517 82 and 8517 82 90
5. A miniature electro-acoustic receiver (earphone) in a
housing whose exterior dimensions do not exceed
7 x 7 x 5 mm.
The receiver comprises a magnet, a coil and a
diaphragm to receive electrical signals which cause
the diaphragm to vibrate thus producing audible
sound.
The receiver may be used together with an amplifier
as a hearing aid.
8518 30 90 Classification is determined by the provisions
of General Rules 1 and 6 for the interpretation
of the combined nomenclature, by note 2(a) to
Chapter 90 and by the wording of CN codes
8518, 8518 30 and 8518 30 90

Description of goods Classification
CN code
Reason
(1) (2) (3)
6. A laser copier comprising mainly a device for
scanning (scanner), a digital image processing device
and a printing device (laser printer), contained in a
housing.
The scanning device uses an optical system, consisting
of a lamp, mirrors, lenses and photocells to scan the
original image line by line.
The copies are produced electrostatically via a drum
on the laser printer using the indirect process. The
laser copier has several additional features for altering
the original image, e.g. reduction, enlargement,
shading.
9009 12 00 Classification is determined by the provisions
of General Rules 1 and 6 for the interpretation
of the combined nomenclature and by the
wording of CN codes 9009 and 9009 12 00
7. Little star and heart shapes in a variety of colours
(red, green and shiny silver) and multicoloured
granules, the size of pinheads, made from plastic
film, and used to decorate e.g. a table on which food
for a carnival celebration, children's party or Advent
festivity is served. The decorative effect is achieved
by sprinkling the products.
9505 90 00 Classification is determined by the provisions
of General Rules 1 and 6 for the interpretation
of the combined nomenclature and by the
wording of CN codes 9505 and 9505 90 00

ANNEX 3
CUSTOMS DUTIES - classification - combined nomenclature - rules of interpretation - "PCTV"
whether a composite machine with a "principal function" as an Automatic Data Processing Machine
or composite goods given its "essential character" by the ADPM components so classified under
heading 84.71 "ADPMs" or whether it fails to be classified by default under heading 85.28
"Television Receivers" - Council Reg. 2658/87 Annex 1, GIRs1.3(b)&(c)
LONDON TRIBUNAL CENTRE
INTERNATIONAL COMPUTERS LIMITED
Appellant
- and -
THE COMMISSIONERS OF CUSTOMS AND EXCISE
Respondents
Tribunal: MR. R.K. MILLER CB (Chairman)
MRS. S. SADEQUE M.Phil. MSc
Sitting in public at 15-19 Bedford Avenue, London WC1 on Thursday, 18 January and Friday,
19 January 1996
Mrs. P.A. Hamilton of Coopers and Lybrand for the Appellant
Mr. Hugh Davies, counsel instructed by the Solicitor for Customs and Excise for the respondents.
CROWN COPYRIGHT 1996

DECISION
Thisappeal byInternationalComputers Ltd.("ICL") isagainst a decisionof the Commissioners
on review as to the tariff classification for import customs duty of a machine known as the "PCTV".
The machine has a full title "the Fujitsu ICL PCTV", Fujitsu being the major shareholder in ICL.
It is an innovative product. The machine is both a multimedia personal computer and a full function
colour television set, integrated within the same unit and using the same screen.
It is common ground that the machine fails to be classified in one of two headings. ICL contends
that it should be classified under heading 84.71 of the Community Customs Code - "Automatic data
processing machines", which carry a rate of duty on importation of 4.4 per cent. The Commissioners
decided that it falls under heading 85.28 - "Television receivers", which carry a rate of duty on
importation of 14 per cent. The dispute turns upon the way in which the rules governing how goods
are to be classified are to be applied. ICL contends that the PCTV's "principal function" and/or its
"essential character" is that of a personal computer. The Commissioners maintain that it is not possible
to determine a principal function; so, presented with two tariff headings which equally merit
consideration, one must classify the PCTV under that heading which occurs last in numerical order,
namely 85.28 "Television receivers".
We heard oral evidence from Mr. Sidney Burton, Development Manager for the Advanced
Technology Group of ICL, who designed the machine: Mr. Justin Matthew Houghton Clarke, Market
Development Manager for consumer products within ICL; and Professor Robert Spence, Professor
of Information Engineering at Imperial College. These witnesses were all called by Mrs. Hamilton,
who presented the case for ICL. No witnesses were called on behalf of the Commissioners, who were
represented by Mr. Hugh Davies. Mr. Burton demonstrated the machine in court. We were not,
however, able to see it in operation as a TV because of the lack of a proper aerial on the tribunal's
premises. Mrs. Hamilton also put before the tribunal a bundle of documents. It was not an agreed
bundle but was used as a working bundle for both sides.
The goods to which the disputed decision refers were imported between 1 May and 31 July 1995
by Design to Distribution Ltd., a wholly owned subsidiary of ICL from Taiwan where the machines
are manufactured.
ICL has designed a range of multimedia personal computers ("PCs") known as the Fujitsu Indiana
range. Multimedia PCs are computer systems which can incorporate a number of media functions,
such as CD-ROM, CD audio, PC generated sound, Joystick for games etc., in addition to the normal
personal computer functions. The PCTV is part of that range and is an integrated single unit designed
for use in the home. The finish of the unit is charcoal-grey to be more in keeping with, for example,
normal Hi-Fi equipment and is intended to be used in a study or teenager's bedroom. It integrates
a multimedia personalcomputer witha remote controlled televisionfacility. It isthus a fully functioning
PC and a fully functioning full screen analogue TV. It is supplied packaged in one box, which contains
a Main Pack, with the PCTV system unit as the first item, and an Accessories Pack, of which the first
item is the keyboard with built-in trackball (the equivalent of a "mouse").
The Accessories Pack also contains the PCTV software and Microsoft software, with their
documentation packs, and the remote control and power cable.
It has a single power cable and, although the machine contains two power supplies, there is
a single on/off switch. The PCTV, the very first time it is switched on and provided the keyboard

is connected, turns on as a TV, the PC needing time to load. Thereafter the PC is fully capable from
the time it is switched on.
The PCTV comes with a 66 MHz 486 DX2 processor 350 MB hard disk, 4 MB RAM, and
double speed CD-ROM drive, integrated TV tuner with Teletext and Nicam Stereo, the integrated
trackball on the keyboard, 14" SVGA display, 0.28mm dot pitch, Local bus graphics, 1 MB VRAM,
16-bit stereo sound; and software, MS DOS 6.22, Windows 3.11, MS Works CD, ICL The Den
pre-installed and, on CD ROM, Wing Commander Privateer. MS Encarta, Putt Putt Joins Parade
and PGA Tour Golf.
Both the PC and TV functions can be operated by the remote control unit. It is a normal remote
control unit which can be used to change TV channels and to use Teletext. But it is unique in having
an extra button which will operate the mouse using directional arrows and by being "clicked".
The ICL software applications can be accessed through "The Den" or by going instead direct
to Windows. The Den is an ICL application consisting of a recognisable front end to Windows, to
make it easier for novices to use the PCTV. Once the user is logged in he is presented with a graphic
representation of a room full of familiar looking objects such as a CD player, games cupboard, clock,
calendar and filing cabinet which act as "hotspots". By moving the cursor onto a hotspot a "prompt
box" appears which explains the function. Clicking onto a "hotspot" activates the function.
The SoundStack is a comprehensive electronic CD player, recorder and mixer, for playing
audio CDs, MIDI files and recording to hard disk.
The TV is automatically tuned in when the PCTV is switched on for the first time. Thereafter,
it can be returned using the TV Channel controller. This software will automatically identify, name
channels and place them in logical order. All cable and satellite channels can be picked up. Selected
channels can be barred by parents so that access by unauthorised users is prevented until a password
is entered.
The ICL application software also includes a "Live Mag" teletext "magazine" which stores
selected teletext pages in an electronic file which are saved on the hard disk and updated automatically.
Since the pixels on a VGA screen are smaller and the degree of resolution required to display
images generated by a PC even at the lowest VGA frequency is twice the frequency of 15,625 KHz
fixed for all world wide TV standards, a television cathode ray tube is not physically capable of
displaying the images generated by a PC nor is the television electronics capable of handling the PC
display. But a PC cathode ray tube and electronics can have as a subset of its specification the necessary
mode to allow the TV image to be displayed and with a picture quality which is sharper than on an
equivalent portable TV.
Specifically, the PCTV has been designed as a standard Extended VGA monitor sub-system
using a cathode ray tube and electronics to display all the common Extended VGA modes but with
an additional 15.625 KHz mode for the display of images such as TV, VCR, Satellite and games controls.
These TV style images are produced by a television card (a printed circuit board) using TV industry
standard components to receive terrestrial broadcast signals or any composite video source and convert
them to standard TV signals for the cathode ray tube electronics to display. Thus the monitor supports
VGA resolutions up to 1024 x 768 pixels: the TV mode supports the 625 line/50 Hz PAL 1 and PAL
B/G standards.

The audio design of the PCTV is a combination of the standard sound capabilities found in
all multimedia PC's and which are normally achieved by adding a PC industry standard sound card
containing those functions. This PC industry function has been incorporated into the PCTV by making
the power amplifier part of the TV printed circuit board so that the TV related sounds can be routed
through the common amplifier as well as the PC generated sounds. Hi Fi quality stereo sound is
delivered through 12W Phillips Acoustic Horn Technology speakers, which are built into the system
unit, in both PC and TV modes.
The machine does not contain a VCR. It has the capacity to play back signals from a VCR,
although it might be more usual to use a larger screen TV for this, say the main household set in the
sitting room. The TV facility on the PCTV being seen by ICL as providing a secondary TV set.
The imported value of the PCTV is 1500 US$ of which the TV printed circuit board represents
a value of 120 US$.
The PCTV was designed to exploit a perceived market opportunity for personal computers
specifically to be used in the home. It is not designed to be networked. It is targeted primarily at
people in social categories A, B, and C, with school age children and also at other high income groups,
e.g. students.
It is sold through a number of well known retail outlets, some of whom also sell TV sets, and
through some retail buying chains. Shops display the PCTV with computers in that part of the shop
and retail advertisements, for example in computer magazines, but also in other advertisements, include
it with multi-media and other PCs.
ICL commissioned research from an independent research organisation to find out who would
be likely to buy a PCTV, where it would be used, who would make the decisions about buying it and
how computer literate they were. The results were used in devising its advertising campaigns.
The marketing material and the guidance produced, for example for sales staff in the retail
outlets, varies, as one would expect, in presenting the features and advantages of the PCTV to the
particular audience at which that material is aimed. Consistently, however, it is presented as a fully
integrated PC and TV, whereas sometimes it is the fully functional TV which is emphasized and at
others it is its qualities as a multi-media PC which is put first.
In Professor Spence's opinion the PCTV in terms of its technical functionality is extremely
rich. He identifiedthosefunctionsasincluding(a)programmability,(b)interactivity,(c)multi-modality
(i.e. image, sound and text), (d) the storage of data and programs, (e) the representation of internally
generated data, (f) the presentation of such data, (g) the performance, via a loudspeaker, of stored
sound from a CD, (h) the presentation of externally generated data (i.e. the TV programmes). Of
those technical functions, he said, only one can be described as a "TV set".
The cathode ray tube, which could well give the machine the appearance of being a TV set
at first glance, simply takes data signals and displays them in graphical form. It does that equally for
data created by the computer and data produced from the electronics which capture a broadcast signal
and turn it into data that can be presented in sound and vision.
Professor Spence also examined the principal function of the PCTV in terms, as he put it, of
its empowerment of human achievement in the cognitive and perceptual sense. In this he contrasted
the passive role of the TV viewer and the interactive role offered by the ADP function of the PCTV.

The one he described as being as a "simple, passive one-way experience" and the other a "rich, active
and interactive experience", the difference between them being "staggering".
All this led him to the opinion that the principal function of the PCTV was its ADP function.
That was also in his view its essential character, the essence of the machine being a personal computer
notwithstanding its ability to present TV programmes.
The Combined Nomenclature, upon which the Community Customs Tariff is based, is reproduced
in the annual revision of Annex 1 to Council Regulation (EEC) No. 2658/87 of 23rd July 1987 on
the tariff and statistical nomenclature and on the Common Customs Tariff. Section 1 of Part 1 sets
out under A the general rules for the interpretation of the combined nomenclature (the "GIRs"). The
GIRs lay down the principles which govern the classification of goods in the combined nomenclature
(or "CN").
Rule 1 states:
"The titles of sections, chapters and sub-chapters are provided for ease of reference only:
for legal purposes, classification shall be determined according to the terms of headings and
any relative section or chapter notes and, provided such headings or notes do not otherwise
require, according to the following provisions:"
From this it appears that the titles of sections etc. have no legal bearing on classification, that
must be determined according to the terms of the headings and any relevant section or chapter notes,
and it is only where those headings or notes do not otherwise require - in other words they are paramount
and thus the first consideration in determining classification - that classification may be determined,
where appropriate, according to the provisions of the rules which follow.
Of those following rules, Rule 3 only was referred to in argument. Rule 3 states:
"When by application of rule 2(b) or for any other reason, goods are prima facie
classifiable under two or more headings, classification shall be effected as follows:
(a) The heading which provides the most specific description shall
be preferred to headings providing a more general description.
However, when two or more headings each refer to part only of the
materials or substances contained in mixed or composite goods or to
part only of the items in a set put up for retail sale, those headings
are to be regarded as equally specific in relation to those goods, even
if one of them gives a more complete or precise description of the
goods.
(b) Mixtures, composite goods consisting of different materials or made up
of different components, and goods put up in sets for retail sale, which cannot
be classified by reference to 3(a), shall be classified as if they consisted of the
material or component which gives them their essential character in so far as
this criterion is applicable.
(c) When goods cannot be classified by reference to 3(a) or 3(b), they
shall be classified under the heading which occurs last in numerical
order among those which equally merit consideration."

It is common ground that the PCTV falls within Section XVI of the CN. It is also common
ground that the applicable Section Note is Section Note 3 which states:
"Unless the context otherwise requires, composite machines consisting of two or more
machines fitted together to form a whole and other machines adapted for the purpose
of performing two or more complementary or alternative functions are to be classified
as if consisting only of that component or as being that machine which performs the
principal function."
"Machine" for these purposes "means any machine, machinery, plant, equipment, apparatus
or appliance cited in the headings of Chapter 84 or 85." - see Section Note 5.
Mrs. Hamilton for ICL submits that the PCTV is a "composite machine" and that its "principal
function"isthat of an Automatic Data ProcessingMachine ("ADPM") fallingunder headingNo. 84.71.
Chapter Note 5 to Chapter 84 states -
"(A) For the purposes of headingNo. 84.71, the expression "automatic data processing
machines" means:
(a) Digital machines, capable of (1) storing the processing program
or programs and at least the data immediately necessary for execution
of the program; (2) being freely programmed in accordance with the
requirements of the user; (3) performing arithmetical computations
specified by the user; and, (4) executing, without human intervention,
a processing program which requires them to modify their execution,
by logical decision during the processing run;
(b) Analogue machines capable of simulating mathematical models
and comprising at least: analogue elements, control elements and
programming elements;
(c) Hybrid machines consisting of either a digital machine with
analogue elements or an analogue machine with digital elements."
Mrs. Hamilton also referred to what are commonly called "HSENs", that is to say the
Explanatory Notes of the Customs Co-operation Council. The "HS" or "Harmonized System", which
is itself short for the International Convention on the Harmonized Commodity and Coding System,
is administered under the auspices of the Customs Co-operation Council. As the recitals to Council
Regulation (EEC) No. 2658/87 show, the European Community is a signatory to the Convention and
the Combined Nomenclature of the Common Customs Tariff of the Community had to "be established
on the basis of the Harmonized System".
That being the case, the HSENs, whilst not having legal force, nevertheless may be considered
as a valuable aid to the interpretation of the provisions of the tariff although they may not alter their
proper meaning. See the judgment of the European Court of Justice in Develop Dr. Eisbein v.
Hauptzollamt Stuttgart-West Case C-35/93 (1993) ECR1-2655: in particular paragraph 21 of that
judgment, and the decision of this tribunal in Tretec UK Limited v. Customs and Excise Commissioners
(1995) Case No. C2. We gratefullyaccept and adoptthe reasoningat paragraphs 24 to28 of the decision
with which we respectfully agree.

HSEN (V1) to Section XVI Note 3 states - (so far as is here relevant) -
"In general, multi-function machines are classified according to the principal function
of the machine:
Multi-function machines are, for example, machine tools for working metal using
interchangeable tools, which enable them to carry out different machining operations
(e.g. milling, boring, lapping).
Where it is not possible to determine the principal function, and where, as provided
in Note 3 to the Section, the context does not otherwise require, it is necessary to apply
General Interpretative Rule 3 (c): such is the case, for example, in respect of multi-
function machines potentially classifiable in several of the headings 84.25 to 84.30,
in several of the headings 84.58 to 84.63 or in several of the headings 84.69 to 84.72.
Composite machines consisting of two or more machines or appliances of different
kinds, fitted together to form a whole, consecutively or simultaneously performing
separate functions which are generally complementary and are described in different
headings of Section XVI, are also classified according to the principal function of the
composite machine.
The following are examples of such composite machines: printing machines with a
subsidiary machine for holding the paper (heading 84.43); a cardboard box making
machine combined with an auxiliary machine for printing a name or simple design
(heading 84.41); industrial furnaces combined with lifting or handling machinery
(heading 84.17 or 85.14); cigarette making machinery combined with subsidiary
packaging machinery (Heading 84.78).
For the purposes of the above provisions, machines of different kinds are taken to be
fitted together to form a whole when incorporated one in the other or mounted one
on the other; or mounted on a common base or frame or in a common housing.
Assemblies of machines should not be taken to be fitted together to form a whole unless
the machines are designed to be permanently attached either to each other or to a
common base, frame, housing etc. This excludes assemblies which are of a temporary
nature or are not normally built as a composite machine.....
Note 3 to Section XVI need not be invoked when the composite machine is covered
as such by a particular heading, for example, some types of air conditioning machines
(heading 84.15).....
In Mrs. Hamilton's submission the principal function of the PCTV as a "composite machine"
is as an Automatic Data Processing Machine. She contended that principal function can be deduced
from the following areas: Design; Development Strategy; Manufacture; Cost; Marketing;
Advertising; Retailing; Price; Packaging and presentation; Technical and active functionality.
Furtherand in the alternative she submitted that the PCTV is within the definition of "composite
goods" in GIR 3(b). As will have been seen, where such goods cannot be classified by reference to
GIR 3(a), GIR 3(b) lays down that they "shall be classified as if they consisted of the material or
component which gives them their essential character in so far as this criterion is applicable". (emphasis
added).

She relied upon HSEN (IX) to GIR 3(b). This states:
"(IX) For the purposes of this Rule, composite goods made up of different components
shall be taken to mean not only those in which the components are attached to each
other to form a practically inseparable whole but also those with separate components,
provided these components are adapted one to the other and are mutually complementary
and that together they form a whole which would not normally be offered for sale in
separate parts.
Examples of the latter category of goods are:
(1) Ashtrays consisting of a stand incorporating a removable ash bowl.
(2) Household spice racks consisting of a specially designed frame (usually of wood)
and an appropriate number of empty spice jars of suitable shape and size.
As a general rule, the components of these composite goods are put up in a common
packing".
The HSEN (VI) to GIR 3(b) says that this "second method" relates only to (i) Mixtures,
(ii) Composite goods consisting of different materials, (iii) Composite goods consisting of different
components, (iv) Goods put up in sets for retail sale. It applies only if Rule 3(a) fails.
HSEN (VII) to GIR 3(b) says that in all those cases the goods are to be classified as if they
consisted of the material or component which gives them their essential character, insofar as this criterion
is applicable.
HSEN (VIII) to GIR 3(b) then states:
"The factor which determines essential character will vary as between different kinds
of goods. It may, for example, be determined by the nature of the material or
component, its bulk, quantity, weight or value, or, by the role of a constituent material
in relation to the use of the goods".
Mrs.Hamilton submitted that the same evidence and criteria as she relied upon to establish
the "principal function" of the PCTV were relevant and established that it was the ADPM component
which gave it its "essential character".
Approaching the determination of the appropriate classification by that route, Section Note
3 toSection XVI requires the PCTV tobe classifiedunder84.71"Automatic Data ProcessingMachines"
because, if Mrs. Hamilton is right, that is its "principal function". GIR 1 applies and that is an end
of the matter. GIR 3 does not come into the picture because the terms of the headings and of the section
note to Section XVI "do otherwise require" and they are paramount.
But, if it is not possible to determine its principal function as a composite machine, so that
the PCTV isprima facie classifiableundertwoormore headings,one doesgotoGIR 3, and inparticular
GIR 3(b), and looks for the material or component which gives the PCTV as "composite goods" its
essential character if that criterion is applicable.
It is only when that fails, and Mrs. Hamilton maintains that criterion is applicable and determines
the classification of the PCTV as an ADPM, that GIR 3(c) can operate, as the Commissioners say

that it has to be operated, to classify the PCTV under 85.28 "Television Receivers" as "the heading
which occurs last in numerical order among those which equally merit consideration".
Mr. Davies put at the forefront of his submissions on behalf of the Commissioners that there
are wider principles governing classification of goods identified in the case law of the European Court
of Justice. First, there is the principle of legal certainty at the point of customs clearance. Thus "the
preference is, in the interests of legal certainty and ease of verification, to have recourse to criteria
for classification based on the objective characteristics and properties, as defined in the wording of
the headings of the Common Customs Tariff and of the notes to the sections and chapters, which can
be ascertained at the point of customs clearance" - paragraph 18 of the judgment in the
Develop Dr. Eisbein case (supra). He also referred to the court's judgments in Case No. C-233/88
GifsVan de Kolk DouaneExpediteur BV v Inspecteur der Invoerrechten en Accijnsen (1990) ECR1-265;
paras 12 and 16; and Case No. 200/84 Erika Daiber v. Hauptzollamt Reutlingen (1985) ECR 3363;
para 13. Second, there is the objective of securing uniformity in the interpretation and application
of the Harmonized System relating, in particular, to the application of the nomenclature. Mr. Davies
pointed to the institutionalised and permanent mechanism set up to this end under the Brussels Convention
(which continues under the Harmonized System) as explained in the Opinion of the Advocate General
(Tesauro) in the Van de Kolk case (supra) at (1990) ECR-1 at pp. 273-5.
Mr. Davies submitted that there is no one heading which adequately classifies the PCTV. The
classifications in the Tariff inevitably lag behind the advances in technology.
In his submission the route to the classification of the PCTV is through GIR 1 to the texts of
the headingsand relativesectionand chapter notes. ADPMs withinheading84.71are narrowlydefined;
they do not equate with personal computers and, as the HSEN to that heading explains, that heading
does not cover parts of the personal computer working in conjunction with an ADPM and having a
specific function. Note 3 to Section XVI applies the principal function test both to "composite machines
consisting of two or more machines fitted together to form a whole", the description contended for
by the appellant, and "other machines adapted for the purpose of performing two or more alternative
functions", as the Commissioners have regarded the PCTV. Either way classification is on the basis
of treating the machine "as if consisting only of that component or as being that machine which performs
the principal function".
Mr. Davies contended that it was not possible in relation to the PCTV to discern the component
or machine which performs the principal function, that is to say a component or machine falling within
a heading of the Tariff. The Commissioners on review had identified in relation to the PCTV four
classifications in the Tariff based on function: 84.71 ADPMs; 85.19 "Other sound reproducing
apparatus"; 85.21 "Video recording or reproducing apparatus"; and 85.28 "Television Receivers".
None of these functions objectively considered could, in his submission, be said to be the principal
one. The subjective tests put forward by Mrs. Hamilton are, in his view, manifestly undesirable:
the proper approach to function is to determine what the machine does.
Where, as he maintained is the case with the PCTV, it is not possible to determine the principal
function, HSEN (VI) to Section Note 3 explains that it is necessary to apply GIR 3(c), this being a
case "where the context does not otherwise require". The HSEN does not alter the wording of the
headings and notes but is entirely consistent with them in promoting certainty and consistency and
uniformity in interpretation. The HSEN, which contains nothing to require a different approach for
composite machines where it is not possible to determine a principal function, then makes the point
of entry into GIR 3 specifically rule 3(c) - i.e. the last in the hierarchical structure of that rule which
applies only if rules 3(a) and 3(b) fail in classification (see HSEN (1) to GIR 3) - and 3(c) provides

for the machine to be classified under the heading which appears last in numerical order among those
which equally merit consideration.
That provided a somewhat crude classification but one which had the merit of producing
consistency and ease of verification.
If he was wrong on that, and GIR 3(b) did come into the picture, Mr. Davies observed that
it is very difficult conceptually to think of determining that component which gives the PCTV as
"composite goods" its "essential character" when, by definition, it has not been possible to determine
the component which performs the principal function. But it was equally impossible to determine
objectively what component gives the PCTV its "essential character". The PCTV is both a PC and
a television set.
Mr. Davies introduced, by way of illustration of a similar result by the correct application
of the rules, Commission Regulation (EEC) No. 754/94 of 30th March 1994 concerning the classification
of certain goods in the combined nomenclature. That regulation, as shown by the recitals, was made
having regard to Article 9 of Council Regulation (EEC) No. 2658/87 establishing the CN. It also
recites that "... pursuant to the [general rules of interpretation set down in that Council Regulation],
the goods described in the column 1 of the table annexed to the Present Regulation must be classified
under the appropriate CN codes indicated in column 2, by virtue of the reasons set out in column 3".
Products 4 and 5 in the table are both classified under heading 85 21 90 00 "Video recording
or reproducing apparatus, whether or not incorporating a video tuner", sub-heading "other" and for
the following reasons:
"Classification is determined by the provisions of General Rules 1, 3(c) and 6 for the
interpretation of the combined nomenclature, Note 5 to Chapter 84 to the combined nomenclature
as well as the texts of CN codes 85 21 and 85 21 90 00."
General Rule 6 applies the rules in GIR 1 at sub-heading levels.
The description of product 4 refers to it as "A multi-media interactive system in a single
housing ... capable of reproducing on a monitor, loudspeakers or headphones, audio, graphics text
and video data recorded on compact disc". An infra-red remote control forms part of the system and
through "the addition of other accessories (e.g. disk drive, keyboard and mouse) it may be used as
a personal computer". The list of components shows a printed circuit board, including a digital
processing unit (CPU, 1MB RAM and 512 KB ROM), a graphics component, a video component,
a sound component with own CD audio unit, and a CD ROM.
The full description of product 5 is:
"5. A CD interactive system in a single housing for the reproduction of digitally recorded
pictures and sound for television by means of a laser optical reading system. It is supplied
with a mouse and infra-red remote control unit.
It contains a control unit that processes signals from the playing unit, from the remote control
or from the mouse unit, to the television display and loudspeaker unit, enabling interaction
with picture and sound".

The question for us to decide first is thus whether the PCTV can be classified under a heading
in Section XVI of the Combined Nomenclature applying Section Note 3 because that heading describes
the machine which performs the principal function. It seems to us that Mr. Davies was right to stress
that one has to focus on the headings. Section Note 5, in defining the expression "machine" makes
that abundantly clear. Also Chapter Note 5A, as Mr. Davies pointed out, defines an "ADPM" for
the purpose of heading 84.71 in a very specific way; one cannot approach the question that we have
to decide by, as it were, treating the PCTV as if what is not a TV is all an "ADPM" within
heading 84.71. Whilst we accept that what Mr. Burton did was in his words to put a TV on top of
a PC, it is misleading for our present purpose to refer to the PC element of the PCTV as if it equated
with an "ADPM" as defined. This, as we see it, lessens the value of Professor Spence's evidence
interesting though that contribution was.
Although there is a difference between the parties as to which limb it falls under, there is no
dispute at this point in the argument that we have to look for that machine or component - that is to
say component machine - of the PCTV which performs the principal function. The test is not so much
what it is used for but what does it do.
In our judgement it is not possible in these terms and given the approach which we are
constrained to adopt to determine the principal function of the PCTV. Although Mrs. Hamilton was
right to point out that the cases in the European Court of Justice relied on by Mr. Davies show that
there are limits to these principles, the objectives of legal certainty, uniformity of interpretation and
ease of verification at the point of customs clearance are very important. Much of the matter relied
upon by Mrs. Hamilton is in our opinion far too subjective to serve as criteria for determining what
is a machine's principal function. The PCTV functions equally as a high quality TV and as a state
of the art PC.
It is perhaps worth noting, although it does not form the basis for our decision, that HSEN
(VI) to Section Note 3 in describing composite machines classified according to their principal function
(and, agreeing with Mrs. Hamilton, in our judgement the PCTV is a "composite machine" and not
an other, multi-function machine, for the purposes of Section Note 3) gives examples of where there
is clearly a principal function for the composite machine and the function of the other machines within
the composite machine are equally clearly auxiliary or subsidiary. Viewed objectively the TV function
of the PCTV is not an auxiliary or subsidiary function of an ADPM.
It is also common ground that if it is not possible to determine the principal function one is
thrown back into GIR 3. It is also common ground that GIR 3 provides a hierarchical approach and
that the first sub-rule (a) does not apply. The dispute is as to the point of entry, GIR 3(b) or GIR 3(c).
If one goes straight to 3(c), the Commissioners on the basis of our judgement so far have applied the
correct classification.
Mr. Davies contends that the PCTV is a multi-function machine and that in explaining
Section Note 3 HSEN (VI), as we understand the argument, shows that the terms of that Section Note
require the point of entry to be GIR 3(c) and the conclusion must be the same even if the PCTV is
to be regarded instead as being a composite machine.
We reject that argument. HSEN (VI) quite plainly is dealing with multi-function machines
separately from composite machines. We have also determined that the PCTV is not a multi-function
machine, by which is meant, in the terms of Section Note 3, "other" - that is in contrast to "composite
machines consisting of two or more machines fitted together to form a whole" - "machines adapted
for the purpose of performing two or more complementary functions". HSEN (VI) gives as examples

of multi-function machines - "tools for working metal using interchangeable tools, which enable them
to carry out different machinery operations (e.g. milling, boring, lapping)". It describes "composite
machines" as "consisting of two or more machines or appliances of different kinds, fitted together to
form a whole, consecutively or simultaneously performing separate functions, which are generally
complementary and are described in different headings of Section XVI ...".
Making the necessary transition from mechanical machines as contemplated in the HSEN to
the electronic machines before us, in our opinion a "composite machine" best describes the PCTV.
It also seems to us that Mrs. Hamilton was right to submit that the absence of a reference to
GIR 3(c) in HSEN (VI) where it deals with composite machines is not accidental. The kind of
multi-function machine contemplated, at least the kind of machine referred to in the example, seems
to be one where it is very unlikely that it will be possible to determine a principal function let alone
that machine which gives it its essential character. The latter may be possible in respect of a composite
machine, although, as we have said, going by the examples it will be very much more likely to be
able to determine a principal function. It is also, however, not difficult to see how in relation to the
examples given of composite machines one could reasonably say that the machine performing the
principal function also gives the machine its essential character.
We thus turn to GIR 3(b) which applies the "essential character" test "in so far as this criterion
is applicable". We are prepared to accept that the PCTV can fairly be described as coming within
the description "Composite goods consisting of different components" in HSEN (VI) to GIR 3(b) and
as further explained in HSEN (IX) to that Rule (although the PCTV is a long way removed from the
examples there given).
HSEN (VIII) to GIR 3(b) admits of a number of factors which may be relevant in determining
the essential character of composite goods, some of which may well not assist in providing ease of
verification but all of which are susceptible to objective evaluation. Although these factor admit, perhaps,
more of the matters which Mrs. Hamilton relied upon, there is still force in Mr. Davies' submission
that, when one has passed the point of being able to determine the component which performs the
principal function of composite goods, in this case a composite machine, it is very difficult conceptually
then to set about determining what component machine gives it its essential character.
For those reasons we doubt whether that criterion is applicable in classifying a machine such
as the PCTV. But, even if it is, we are not persuaded, having carefully reviewed all the evidence,
that it is the ADPM, as such, which gives the PCTV its essential character. It is, as Mr. Davies
submitted, a new kind of hybrid machine which is both a PC and a TV, and neither gives it its essential
character.
The appeal will accordingly be dismissed.
This does appear to be a case where the understandable desire of the importer to have goods
classified as accurately as possible, preferably of course in a heading which relates to the item as a
whole, comes into conflict with the objectives of the Harmonized System and Common Tariff in
providing uniformity of interpretation, that conflict arising because rapid advances in technology with
which the CN cannot keep pace produces new machines different in kind even if combining machines
and functions which were historically separate.
The parties are at liberty to apply to the tribunal for a further deliberation if they are unable
to agree about costs.
R.K. Miller CB
Chairman

ANNEX 4 - SUMMARY TABLE OF EVIDENCE SUBMITTED BY THE UNITED STATES
TABLE 1
SUMMARY OF BTIS ISSUED BY EC MEMBER STATES
No. Member State Competent
Customs
Authority
Holder Total
no of
BTIs
BTI reference number Summarized
Product
Description
Date of
Application
Date of
start of
validity
Classification
DENMARK NA* NA 4
1. DK 47068 Adapter unit to be installed in
digital data processors
(Standard PC) so that these will
be able to exchange coded data
through a local network and
function as in- and output units
for another connected PC or
central unit
NA 30/11/94 8473.3010
2. DK 47069 Adapter unit to be installed in
digital data processors
(Standard PC) so that these will
be able to exchange coded data
through a local network and
function as in- and output units
for another connected PC or
central unit
NA 1/12/94 8473.3010
3. DK 47070 Adapter unit to be installed in
digital data processors
(Standard PC) so that these will
be able to exchange coded data
through a local network and
function as in- and output units
for another connected PC or
central unit.
NA 1/12/94 8473.3010
*NA: not available

No. Member State Competent
Customs
Authority
Holder Total
no of
BTIs
BTI reference number Summarized
Product
Description
Date of
Application
Date of
start of
validity
Classification
4. DK 47071 Adapter unit to be installed in
digital data processors
(Standard PC) so that these will
be able to exchange coded data
through a local network and
function as in- and output units
for another connected PC or
central unit.
NA 6/12/94 8473.3010
FRANCE Direction
Générale des
Douanes et
Droits
Indirects
8
5. NA FR 16190199401777 Cartes modules électroniques
réseau ETHERNET.
16/8/94 20/9/94 8473.30109002
6. NA FR 16190199401776 Châssis de concentrateurs
modules électroniqes pour
réseau ETHERNET.
16/8/94 20/9/94 8473 309000900
7. NA FR 16190199400755 Pont routeur permettant
l'interconnexion de réseaux
locaux d'entreprise (Ethernet,
Token Ring, FFDI) qui
utilisent des protocoles
liaison logique.
31/3/94 9/5/94 8471.9910.00
8. NA FR 16190199301442 Pont distant ETHERNET se
boîtier fermé incluant un
logiciel interne.
24/9/93 21/10/93 8471 99 100000K
9. NA FR 16190199500062 Unité périphérique d'adaptation
Réseau ETHERNET ou
TOKEN RING, se présentant
19/12/94 13/1/95 8471 99 100000K

No. Member State Competent
Customs
Authority
Holder Total
no of
BTIs
BTI reference number Summarized
Product
Description
Date of
Application
Date of
start of
validity
Classification
10. BT France SA FR 16190199401349 Equipements destinés à servir
gamme tymnet. .
2/6/94 29/6/94 8471 99 100000K
11. BT France SA FR 16190199401911 Compresseur de données
numériques permettant la
paquet à haute vitesse en
minimisant le côut des
télécommunications.
9/9/94 23/12/94 8471 99 100000K
12. BT France SA FR 16190199401350 Equipements destinés à servir
gamme tymnet.
2/6/94 4/7/94 8471 99 100000K
IRELAND Irish Customs
and Excise
Branch
Cabletron
Systems Ltd.
32 28/4/93 12/7/93 8471 99 10000
13. IE 93N4-14-2310-01-05 Desktop Network (DNI)
Interface Cards
14. IE 93N4-14-2310-02-05 Desktop Network (DNI)
Interface Cards
15. IE 93N4-14-2310-03-05 Desktop Network (DNI)
Interface Cards
16. IE 93N4-14-2313-01-05 Token Ring Standalone Passive
Concentrator
17. IE 93N4-14-2313-02-05 Standalone Hubs
18. IE 93N4-14-2313-03-05 Multi Media Access Centre
19. IE 93N4-14-2313-04-05 Standalone 24-port
20. IE 93N4-14-2313-05-05 Multi Media Access Centre
Hubs
21. IE 93N4-14-2314-01-07 Ethernet-to-ethernet local
bridges
22. IE 93N4-14-2314-02-07 Remote Bridge
23. IE 93N4-14-2314-03-07 Intelligent repeater Bridging
Module

No. Member State Competent
Customs
Authority
Holder Total
no of
BTIs
BTI reference number Summarized
Product
Description
Date of
Application
Date of
start of
validity
Classification
24. IE 93N4-14-2314-04-07 Ethernet Management Module
25. IE 93N4-14-2314-05-07 Multi-Protocol Router/Bridge
(CRM-R)
26. IE 93N4-14-2314-06-07 Multi-Protocol Router/Bridge
(CRM-L)
27. IE 93N4-14-2314-07-07 Local Talk to Ethernet
Router/Repeater Module
28. IE 93N4-14-2315-01-03 Ethernet Local Repeater
29. IE 93N4-14-2315-02-03 Fibre Optic Repeater
30. IE 93N4-14-2315-03-03 Multiport Receivers
31. IE 93N4-14-2316-01-14 Intelligent Repeater Modules
32. IE 93N4-14-2316-02-14 Coaxial Repeater Module
33. IE 93N4-14-2316-03-14 Fibre Optic Modules
34. IE 93N4-14-2316-04-14 Twisted Pair Media Interface
Modules
35. IE 93N4-14-2316-05-14 Media Interface Modules in a
Local Area Network
36. IE 93N4-14-2316-06-14 Ethernet Terminal Server
Modules
37. IE 93N4-14-2316-07-14 Multiport Transceiver Media
Interface Module
38. IE 93N4-14-2316-08-14 Token Ring Management
Module
39. IE 93N4-14-2316-09-14 Token Ring Media Interface
Modules
40. IE 93N4-14-2316-10-14 Active Repeater Media
Interface Modules
41. IE 93N4-14-2316-11-14 Token Ring Media Filter
42. IE 93N4-14-2316-12-14 Interface Modules

No. Member State Competent
Customs
Authority
Holder Total
no of
BTIs
BTI reference number Summarized
Product
Description
Date of
Application
Date of
start of
validity
Classification
43. IE 93N4-14-2316-13-14 Concentrator Modules
44. IE 93N4-14-2316-14-14 Distributed Network Server
Module
NETHER-
LANDS
NA NA 4
45. NL 51446 A 16-bits ISA bus Ethernet
LAN adapter in the form of a
computer built-in card.
NA 25/4/95 8473.3010
46. NL 51447 A 16-bits ISA bus Ethernet
LAN adapter in the form of a
computer built-in card.
NA 25/4/95 8473.3010
47. NL 51455 A LAN adapter card in the
form of a computer built-in
card
NA 25/4/95 8473.3010
48. NL 51456 A 16-bits Arenet Ethernet LAN
card in the form of a computer
built-in card
NA 25/4/95 8473.3010

TABLE 2
OTHER CLASSIFICATION DECISIONS BY EC MEMBER STATES
No. Member
State
Competent
Customs
Authority
Directed
towards
Form Reference Number Summarized
Product
Description
Date of
Application
Classification
UNITED
KINGDOM
1. HM Customs
and Excise
NA letter Ref. TC11/92 LAN adapter cards 20/3/92 8471 99 10 900
2. HM Customs
and Excise
NA letter Ref. SO1/1358/92 28/7/93
22 types of Ethernet LAN
boards
8473 3010 0 90
12 types of token ring LAN
boards
8473 301 0090
6 types of repeaters imported
in complete units
8471 99 10900
5 types of repeaters imported
in Board form
8473 301 0090
3. HM Customs
and Excise
NA letter Ref. CDO8/740/87 19/2/1988
Multiport repeater 8471 999 0090
Local repeater 8471 999 0090

TABLE 3
OTHER TYPES OF EVIDENCE
No. Form Place/occasion Date Product Description Classification
1. Belgium: Shipping
Invoice
- 19/9/95 "onderdelen voor computers" 8473 3010
2. France:
Shipping Invoice
- 21/2/96 "accessoires ordinateurs" 8473.3010
3. Statement by the
representative of
Sweden
57th meeting of the tariff and
statistical nomenclature section of the
Customs Code Committee
29-30/6/95 LAN equipment Prior to accession, under tariff
heading 84.71
4. Statement by the
representative of
Finland
77th meeting of the tariff and
statistical nomenclature section of the
Customs Code Committee.
18/4 /96 LAN equipment Prior to accession, under tariff
heading 84.71
5. Statement by the
representative of
France
57th meeting of the tariff and
statistical nomenclature section of the
Customs Code Committee
29-30/6/95 LAN bridges, routers, hubs, repeaters,
media interface modules, and multimedia
access centre
Tariff heading 84.71
6. Letter from 3Com Providing information requested by
Director of Customs Affairs, USTR
8/7/97 LAN equipment and units thereof exported
to UK between 1991 and 1994
Under tariff headings 84.71 and
84.73, respectively.
7. Letter from Bay
Networks
Providing information requested by
Director of Customs Affairs, USTR
9/7/97 LAN equipment and units thereof exported
to UK and Ireland since 1992.
Under tariff headings 84.71 and
84.73, respectively.
8. Letter from Cisco
Systems
Providing information requested by
Director of Customs Affairs, USTR
9/7/97 LAN products exported during 1991 to
1994 to the UK and Ireland.
Under Chapter 84.
9. Letter from Cabletron
Systems
Providing information requested by
Director of Customs Affairs, USTR
3/7/97 LAN products shipped during 1990 and
1994 to the UK and 1992 and 1994 to
Ireland
Treated under tariff heading 84.71.

No. Form Place/occasion Date Product Description Classification
10. European Court of
Justice ruling (ECJ
case C-11/93)
Siemens Nixdorf Informations system
and the Hauptozollamt (principal
customs office) Augsburg.
19/5/94 Colour Monitors Ruled that colour monitors capable of
accepting a signal only from the
central processing unit of an
automatic data-processing machine
and not capable of reproducing a
colour image from a composite video
signal were to be classified under
heading 8471 of the Combined
Nomenclature of the Common
Customs Tariff.

ANNEX 5 - ITA CLASSIFICATION*
Network equipment in the ITA
Network equipment: Local Area Network (LAN) and Wide Area Network (WAN)
apparatus, including those products dedicated for use solely or principally to permit the
interconnection of automatic data processing machines and units thereof for a network that
is used primarily for the sharing of resources such as central processor units, data storage
devices and input or output units - including adaptors, hubs, in-line repeaters, converters,
concentrators, bridgesand routers,and printedcircuitassemblies for physicalincorporation
into automatic data processing machines and units thereof.
Participant Tariff Classification
Australia 847160, 847180, 847330, 85175010, 85175090
Canada 84711000, 84713000, 84714100, 84714910, 84714920, 84714931, 84714932,
84714933, 84714934, 84714935, 84714936, 84714939, 84714941, 84714942,
84714949, 84714951, 84714952, 84714959, 84714961, 84714969, 84714971,
84714972, 84714979, 84715000, 84716010, 84716021, 84716022, 84716023,
84716024, 84716025, 84716026, 84716029, 84716031, 84716032, 84716039,
84716050, 84716090, 84717010, 84717090, 84718010, 84718091, 84718099,
84719010, 84719090, 84733010, 84713021, 84713022, 84713023, 84713091,
84713099
Costa Rica 8473
Estonia 847150, 847160, 851750
EC 84715090, 84716090, 85175090
Hong Kong China 84718000
Iceland 847150, 847160, 847180, 847330, 851750
India 847190, 847330
Indonesia 847190
Japan 847180, 847330, 851750
Korea 851750
Macao 84715000, 84716000, 84718000, 84733000, 85175010, 85175020, 85175030,
85175090
Malaysia ex847150000, ex847160000, ex847170000, ex847180000
New Zealand 847160, 847180, 847330, 851750
Norway 8471500, 8471600, 8471800, 8517800
Romania 84715090, 84716090, 85175090
Separate Customs Territory
of Taiwan, Penghu, Kinmen
& Matzo
84715000, 84716010, 84716020, 84716030, 84716090, 84718000, 84733010,
84733021, 84733029
Singapore 847150
Switzerland 85175000, 85178000, 85179010, 85179090
Thailand 847150, 847180
Turkey 84715090, 84716090, 85175090

Participant Tariff Classification
USA 84718010, 84714960
Poland 847150900, 847160900, 851750900
Israel 84715090, 84716090, 85175000
Czech Republic 84715090, 84716090, 85175090
Slovak Republic 84715090, 84716090, 85175090
Panama 84719200, 84719300, 84719900, 84733000, 85044010, 85174000, 85366900,
85442000
Philippines 847110, 847130, 847141, 847149, 847150, 847160, 847170, 847180, 847190,
851750
El Salvador 84714900, 84718000
*Table submitted by the EC.

ANNEX 6 - SUMMARY TABLE OF EVIDENCE SUBMITTED BY THE EC
TABLE 1
SUMMARY OF BTIs ISSUED BY EC MEMBER STATES
No. Member state Competent
Customs
Authority
Holder Total no
of BTIs
BTI reference number Summarized
Product Description
Date of
Application
Date of
start of
validity
Classification
FRANCE Direction
Générale des
douanes et
droits
indirects.
NA* 3
type Ethernet permettant de diriger
l'information vers des sites éloignés
via le réseau public commuté, et
vice-versa".
9/9/94 27/9/94 -
18/6/96
8517 4000 0009 S
2. FR 16270199402539 "Routeur multiprotocole permettant
d'interconnecter de réseaux
ETHERNET ou IEEE 802.3."
3/10/94 28/11/94 -
18/6/96
8517 4000 0009 S
3. FR 06190199102248 "Serveur de terminal multiprotocoles
pour les échanges
terminaux/ordinateur central."
1/10/91 3/2/92 - 12/3/96 8517 4000 9009 C
4. GERMANY Oberfinanz
Direction
Munchen
NA 1 DE/B/01242/92/02 01 Token ring adapter. 2/8/92 18/1/92 851782000000
NETHER-
LANDS
Belasting-
dienst
NA 30
5. NL 199109209450089-0 Apparatus, capable of making
multiple connections between
different components of a computer
network.
19/9/91 31/1/92 - 17/1/97 8517 8200 90000
*NA: not available

No. Member state Competent
Customs
Authority
Holder Total no
of BTIs
BTI reference number Summarized
Product Description
Date of
Application
Date of
start of
validity
Classification
6. NL 199109209450091-0 Apparatus, capable of making
multiple connections between
different components of a computer
network.
19/9/91 31/1/92 - 17/1/97 85178200 90000
7. NL 199109209450115-0 Apparatus, capable of making
multiple connections between
different components of a computer
network.
19/9/91 31/1/92 - 17/1/97 85178200 90000
8. NL 199109209450114-0 Apparatus, capable of making
multiple connections between
different components of a computer
network.
19/9/91 31/1/92 - 17/1/97 85178200 90000
9. NL199109209450090-0 Apparatus, capable of making
multiple connections between
different components of a computer
network.
19/9/91 31/1/92 - 17/1/97 85178200 90000
10. NL 199109209450089-0 Apparatus, capable of making
multiple connections between
different components of a computer
network.
19/9/91 31/1/92 - 17/1/97 85178200 90000
11. NL 199109209450113-0 Apparatus, capable of making
multiple connections between
different components of a computer
network.
19/9/91 31/1/92 - 17/1/97 85178200 90000
12. NL 199204239450098-0 Apparatus in a separate housing
intended to amplify or to transform
signals on certain points of a
network.
23/4/92 7/9/92 - 17/1/97 85178200 90000
13. NL 199204239450099-0 Apparatus in a separate housing
intended to interconnect sub-networks
into one network or to increase the
effective scope of a network.
23/4/92 7/9/92 -
17/1/97
85178200 90000
14. NL 199109209450092-0 Apparatus, capable of making
multiple connections between
different components of a computer
network.
19/9/91 31/1/92 - 17/1/97 85178200 90000

No. Member state Competent
Customs
Authority
Holder Total no
of BTIs
BTI reference number Summarized
Product Description
Date of
Application
Date of
start of
validity
Classification
15. NL 199307219450116-0 Apparatus (integrated switching
system) capable of making multiple
connections between different
components of a computer-network
and between networks.
6/7/93 7/9/93 -
17/1/97
85178290
16. NL 199307219450115-0 Apparatus (integrated switching
system) capable of making multiple
connections between different
components of a computer-network
and between networks.
6/7/93 7/9/93 -
17/1/97
85178290
17. NL 199307219450114-0 Apparatus capable of making multiple
connections between different
components of a computer-network
and between networks.
6/7/93 7/9/93 -
17/1/97
85178290
18. NL 199307219450113-0 Apparatus (x 25 data communication
network system) intended to make
multiple connections between
different components of a computer
network.
6/7/93 7/9/93 -
17/1/97
85178290
19. NL 199307249450123-0 Electronic multiplex apparatus in a
housing.
14/7/93 23/11/93 -
17/1/97
8517829000000
20. NL 199307249450122-0 Electronic apparatus consisting of a
system housing, power supply, a
processor card and three connection
cards for ethernet or token ring
connections.
14/7/93 23/11/93 -
17/1/97
8517829000000
21. NL 199307249450121-0 Electronic apparatus consisting of a
system housing, power supply, a
processor card and a connection card.
14/7/93 23/11/93 -
17/1/97
8517829000000
22. NL 199307249450120-0 Electronic apparatus consisting of a
system housing, power supply,
connection card, for token ring and
FDDI.
14/7/93 23/11/93 -
17/1/97
8517829000000
23. NL 199307249450119-0 Network steering unit. 14/7/93 6/12/93 - 8517829000000

No. Member state Competent
Customs
Authority
Holder Total no
of BTIs
BTI reference number Summarized
Product Description
Date of
Application
Date of
start of
validity
Classification
24. NL 199302089450020-0 Apparatus in a separate housing
intended to amplify or to transform
signals on a certain points of a
network.
8/2/93 19/2/93 -
17/7/97
8517829000000
25. NL199302089450040-0 Apparatus capable of making multiple
connections between different
components of a computer network.
8/2/93 19/2/93 -
17/7/97
8517829000000
26. NL 199302089450039-0 Apparatus capable of making multiple
connections between different
components of a computer network.
8/2/93 19/2/93 -
17/7/97
8517829000000
27. NL 199302089450038-0 Apparatus capable of making multiple
connections between different
components of a computer network.
8/2/93 19/2/93 -
17/7/97
8517829000000
28. NL 199302089450037-0 Apparatus capable of making multiple
connections between different
components of a computer network.
8/2/93 19/2/93 -
17/7/97
8517829000000
29. NL 199302089450036-0 Apparatus capable of making multiple
connections between different
components of a computer network.
8/2/93 19/2/93 -
17/7/97
8517829000000
30. NL 199302089450035-0 Apparatus capable of making multiple
connections between different
components of a computer network.
8/2/93 19/2/93 -
17/7/97
8517829000000
31. NL 199302089450034-0 Apparatus capable of making multiple
connections between different
components of a computer network.
8/2/93 19/2/93 -
17/7/97
8517829000000
32. NL 199302089450021-0 Apparatus in a separate housing
intended to interconnect sub-networks
into one network or to increase the
effective scope of a network
8/2/93 19/2/93 -
17/7/97
8517829000000
33. NL 199308069450129-0 Network steering unit to steer from 4
to 8 channels.
5/8/93 3/1/94 -
17/1/97
8517829
34. NL 199308069450128-0 Network steering unit to support a
maximum of a 4 LAN/WAN
interfaces
5/8/93 3/1/94 -
17/1/97
85178290

No. Member state Competent
Customs
Authority
Holder Total no
of BTIs
BTI reference number Summarized
Product Description
Date of
Application
Date of
start of
validity
Classification
UNITED
KINGDOM
HM Customs
and Excise
NA 10
35. UK 57112 ILAN. A universal router that
provides internetworking between
LANs and wide area networks
(WANs)
24/11/93 17/2/94 -
21/2/96
8517 8290 000
36. UK 57127 Microcom bridge router 6000 series. 27/1/94 17/2/94 -21/2/96 8517 8290 000
37. UK 57128 Microannex NCSs. 4/2/94 17/2/94 -16/2/96 8517 8290 000
38. UK 57141 Access/one remote multiprotocol
bridge/router.
7/12/93 18/2/94 -
16/2/96
8517 8290 000
39. UK 57142 ASM 6301 Access/one remote
ethernet bridge.
7/12/93 18/2/94 - 16/2/96 8517 8290 000
40. UK 57110 Crossbow FX 6600. This is a
network cabling hub that supports up
to 14 LANs
24/11/93 17/2/94 - 21/2/96 8517 8290 000
41. UK 55711 CISCO routers 11/10/93 6/12/93 -
16/2/96
8517 8290 000
42. UK 55700 Intelligent Network Processors 15/10/93 6/12/93 - 16/2/96 8517 8290 000
43. UK 55704 Modulus series. This is a family of
data communication products. This
has a variety of products which
include multiplexers, processors,
bridges, pads etc
15/10/93 6/12/93 - 16/2/96 8517 8290 000
44. UK 57108 Magnum 100 - Multprotocol time-
division multiplexer.
24/11/93 17/2/94 - 21/2/96 8517 8290 000

TABLE 2
OTHER CLASSIFICATION DECISIONS BY EC MEMBER STATES
No. Member State Competent
Customs
Authority
Directed
towards
Form Reference Number Summarized
Product
Description
Date of
Application
Classification
1. GERMANY Bundesfinanzhof Transtec Judgement NA Multiplexers, bridge, server and
three different repeaters
17/9/91 85.17

ANNEX 7
TRADE DATA*
Heading UR Base 1994 1995 1996
CN 851782 57,175 337,605 494,853 not available
CN 847199 1,244,068 1,385,569 731,533 not available
CN 847330 2,848,716 3,602,702 3,464,127 not available
USX 847199 417,696 1,071,967 1,407,577 4,361,160
USX 851782 15,825 24,189 51,962 568,463
USX 847330 4,308,369 5,126,879 6,592,151 6,810,744
Notes:
(1) Full year EU import data are not released until late in the following year. Some member States
are slow in reporting such data to EUROSTAT.
(2) Headings 847199 and 851782 do not exist in the 1996 revision to the Harmonized System.
Products previously entering under heading 847199 now enter under 847180, 847190 or 847149;
products that previously entered under heading 851782 now enter under 851721, 851750 and
851780. The figures cited above for US exports in 847199 and 851782 represent the total
of the new headings.
*Table submitted by the United States.