98/354/EC: Commission Decision of 19 May 1998 adopted pursuant to Council Regulation (EC) No 3286/94 concerning obstacles to trade represented by Japanese practices in respect of imports of leather (notified under document number C (1998) 1373)
Date: 1998-05-19
Institutions: European Commission
Subjects: Japan, export restriction, international trade, leather, market protection, trade regulations

3. 6. 98

EN

Official Journal of the European Communities

L 159/65

COMMISSION DECISION

of 19 May 1998

adopted pursuant to Council Regulation (EC) No 3286/94 concerning obstacles to
trade represented by Japanese practices in respect of imports of leather

(notified under document number C (1998) 1373)

(98/354/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European
Community,

Having regard to Council Regulation (EC) No 3286/94 of
22 December 1994 laying down Community procedures
in the field of the common commercial policy in order to
ensure the exercise of
the Community’s rights under
international trade rules, in particular those established
under the auspices of
the World Trade Organisation
(WTO) (1), as amended by Regulation (EC) No 356/95 (2),
and in particular Articles 13 and 14 thereof,

After consulting the Advisory Committee,

Whereas:

(1)

(2)

(3)

A. PROCEDURE

On 24 February 1997 the Commission received a
complaint pursuant to Article 4 of Council Regula-
tion (EC) No 3286/94, regarding Japanese practices
in relation to trade in leather. The complaint was
lodged by Cotance, the Confederation of National
Associations of Tanners and Dressers of the Euro-
pean Union. The products concerned were leather
in the piece of bovine or equine animals tanned
and ready to finish and/or dyed, coloured, stamped
or embossed, whether or not split and leather in
the piece of ovine or caprine animals, tanned and
dyed, coloured or embossed.

any such leather

Cotance contended that it was almost impossible to
export
from the European
Community to Japan on account of the combined
effect of the following obstacles to trade: the way in
such leather was
which the tariff quotas
managed which,
it was alleged, prevented their
exhaustion, subsidisation of the Japanese leather
industry and the restrictive business practices of
Japanese importers and traders.

for

The complaint adduced sufficient evidence to
justify initiating a procedure pursuant to Regula-
tion (EC) No 3286/94. On 9 April 1997 the
Commission therefore initiated an examination

procedure (3) which resulted in its conducting an
in-depth investigation, from the legal and factual
standpoints, of the conditions under which leather
is imported into Japan. On completion of that
investigation, the Commission finds as follows:

B. OBSTACLES TO TRADE

(a) Management of the tariff quotas

the said products are subject

In 1986 Japan established three tariff quotas for
imports of finished leather in the piece of bovine
or equine animals (first and second quotas) and of
ovine or caprine animals (third quota), under which
imports of
to a
reduced rate of duty. In 1997 this reduced rate
stood at between 13,9 % and 18,5 % while the rate
for non-quota imports was 48,8 %, i.e. clearly a
deterrent level. Although the level of the three
quotas, fixed each year by the Diet, is low, they are
regularly under-utilised despite the very consider-
able interest of Community tanners in the Jap-
anese market.

the tariff quotas,

The Commission has established that management
of the licensing system, under which goods may be
imported under
is extremely
complex. The quantities allocated to traditional
importers are calculated on the basis of
their
previous import operations and a flat-rate ceiling is
fixed for new importers. This system would appear
open to criticism in a number of respects.

In the first place, the quantity allocated to tradi-
tional importers is not increased (cid:190) or is increased
only to a very limited extent (cid:190) from one year to
the next and new importers are allocated only a
very small quantity even though the quotas are not
exhausted at the end of the year.

Secondly, licences are sometimes issued for quant-
ities that are of no real economic interest and the
very short period of validity of certain licences,
issued at the end of the year, is not such as would
enable them to be used to their optimum extent.
The validity of unused licences may not be
extended from one year to the next.

(4)

(5)

(6)

(7)

(1) OJ L 349, 31. 12. 1994, p. 71.
(2) OJ L 41, 23. 2. 1995, p. 3.

(3) OJ C 110, 9. 4. 1997, p. 2.

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Official Journal of the European Communities

3. 6. 98

(8)

(9)

applications

licences under

the
for
Thirdly,
‘general' quota, which accounts for 95 % of the
total quota, must be submitted on one day only , at
the beginning of the year. This requirement does
not seem reasonable.

Lastly, certain features of the administration of the
system, such as the criteria governing recognition
tend to deter foreign
as a traditional
companies from establishing an office in Japan in
order
i.e. without
resorting to the services of Japanese intermediaries.

leather directly,

to import

importer,

(10)

The Commission concludes from the above that
the system for issuing import licences under the
three tariff quotas open for leather is more complex
than necessary and is such as to constitute indirect
protection for domestic leather in Japan.

(11) On the basis of these considerations, the Commis-
sion finds that compliance of the system for issuing
import licences with Article 1(6) and Article 3(5)(g),
(h), (i) and (j) of the Agreement on import licensing
procedures, annexed to the Marrakech Agreement
Establishing the WTO, is open to challenge.

(b) Subsidies

(12)

(13)

the

subsidies

to improve

The Commission has also established that
the
Japanese Government has, for many years, granted
substantial
regions
referred to as ‘Dowa'. The budget earmarked for
1996 was JPY 126 000 million. These subsidies,
which have not been notified to the WTO, may be
regarded as specific in so far as they are granted
only to certain enterprises established in territory
under the jurisdiction of the Japanese Government
and there is no neutral or horizontal criterion
determining entitlement
to them. The parts of
Japanese territory where the said enterprises are
located appear to be precisely those where the
Japanese tanneries have traditionally been estab-
lished.

There is also a programme of subsidies to the
leather industry, notified by Japan under Article
XVI of the 1994 GATT and Article 25 of the
Agreement on Subsidies and Countervailing Meas-
ures, which totalled slightly more than JPY 300
million in 1996. Lastly, there is also a guarantee
fund covering loans to the leather industries, which
yields interest amounting to JPY 300 million per
annum.

(14)

(15)

It appears that the total value of these different
programmes is likely to reach the ad valorem
threshold of 5 % of sales of leather finished in the
Dowa regions, which entails a presumption of
serious prejudice to Community interests pursuant
to Articles 5 and 6 of the Agreement on Subsidies
and Countervailing Measures, annexed to the
Marrakech Agreement Establishing the World
Trade Organisation. The Commission concludes
to
these subsidies are actionable pursuant
that
Article 7 of the Agreement on Subsidies and Coun-
tervailing Measures on account of their effects on
Community interests.

some further

The conclusions of
the Commission have been
established on the basis of the facts available. In
these circumstances,
information
might be necessary in order to confirm the analysis
of adverse trade effects caused to the interests of the
Community by the subsidies which have been
identified. Where appropriate, this information will
be
settlement
procedure through recourse to Annex V of the
Agreement on Subsidies and Countervailing Meas-
ures.

obtained

dispute

during

the

(c) Business practices of Japanese importers

(16)

Restrictive business practices on the part of Jap-
anese importers and traders have not been proven
so that that obstacle to trade cannot be accepted as
established.

C. ADVERSE TRADE EFFECTS

(17)

(18)

(19)

The system for managing import licences under
the tariff quotas is a source of uncertainty for
exporters, who are unable to plan increases in their
sales in Japan, and this uncertainty acts as a
deterent to making any real effort to penetrate the
market. Furthermore, it increases considerably the
Community tanneries’ export costs which are, in
any event, abnormally high.

The subsidies granted to the Japanese industry
artifically maintain the competitiveness of Japanese
tanners within a market
is already highly
protected in other respects. This makes it even
more difficult for Community tanners to penetrate
the Japanese market.

that

The result is that Community exports of finished
leather to Japan are lower than what may reason-
ably be expected in a market of this size. Only
roughly 1,7 % of Community exports, in terms of
to which the
volume or value, of

the leather

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Official Journal of the European Communities

L 159/67

(24)

lishing the WTO constitutes
whereby the Community can assert its rights.

the sole means

The Commission will therefore request that Japan
enter into international consultations under the
to
WTO dispute settlement procedure pursuant
Article 6 of the Agreement on Import Licensing
procedures and Articles 7 and 30 of the Agreement
on Subsidies and Countervailing Measures,

HAS DECIDED AS FOLLOWS:

Article 1

leather

1. Management of the three tariff quotas opened for
imports of
into Japan and the effects on
Community interests of the subsidies granted to the Jap-
anese leather
industry by the Japanese Government
constitute ‘obstacles to trade' within the meaning of
Article 2 of Regulation (EC) No 3286/94.

The European Community takes action against
2.
Japan pursuant
to the Understanding on Rules and
Procedures Governing the Settlement of Disputes and any
the Marrakech Agreement
other relevant provision of
Establishing the World Trade Organisation with regard to
the obstacles to trade identified in Article 1(1).

Article 2

This Decision shall be applicable from the date of its
publication in the Official Journal of the European
Communities.

Done at Brussels, 19 May 1998.

For the Commission

Leon BRITTAN

Vice-President

significant

complaint relates is intended for Japan. These diffi-
culties in securing access to the Japanese market
have
on a
Community industry which is highly dependent on
the only
exports to the industrialised countries,
markets
in a position to purchase substantial
quantities of luxury leather.

adverse

effects

trade

D. THE COMMUNITY INTEREST

(20)

It is in the Community’s interest to act on account
of
effects
suffered by tanners in a number of Member States.

abovementioned adverse

trade

the

(21) Moreover, following the adoption in 1984 of the
report of the GATT panel on the measures applied
by Japan to imports of leather (1), the Community
expected that Japan would bring about a genuine
improvement in the conditions governing access to
that market. In so far as that objective has not been
fully attained,
in the Community’s
interest to act in order to rectify this situation.

it appears

(22)

(23)

E. CONCLUSIONS AND MEASURES TO BE

TAKEN

The investigation has established that the current
Japanese arrangements do not make it possible to
of
increase Community
significantly
leather to Japan. A substantial improvement in the
conditions governing access to this market would
require that significant changes first be made to the
system for managing licences and the subsidy
programmes.

exports

It is clear from the different replies received from
the Japanese authorities that they have no inten-
tion of making the expected changes. In these
circumstances, recourse to the dispute settlement
procedures under the Marrakech Agreement Estab-

(1) Panel on the measures applied by Japan to imports of leather;

panel report adopted on 15 and 16 May 1984 (L/5623).