GATT PANEL TO LOOK INTO U.S.-JAPAN CHIPS AGREEMENT.

Apr 22, 1987

GATT PANEL TO LOOK INTO U.S.-JAPAN CHIPS AGREEMENT.

GENEVA APRIL 15 (IFDA/CHAKRAVARTHI RAGHAVAN) -- The GATT Council agreed Wednesday to the establishment of a panel to look into the July 1986 agreement between the U.S. and Japan on Japanese exports and pricing of semi-conductors to the U.S. and third country markets.

While Japan and the U.S. agreed to the EEC demand for a panel, the latest dispute between Japan and U.S. over Japan's alleged failure to carry out the terms of the agreement and the U.S. threat of retaliatory import tariffs on some Japanese products was raised by Japan under any other business.

Japan said that if the U.S. went ahead and imposed the penal duties in violation of U.S. GATT obligations, Japan would seek "consultations" under GATT Article XXIII, the first step to raise a dispute and seek adjudication.

Among other matters that came up Wednesday, Brazil served notice that it would raise a discussion at the next meeting over the implementation of schemes of generalised system of preferences (GSP). This was interpreted as aimed at discussing changes in U.S. laws and GSP schemes, and recent decisions withdrawing GSP benefits for a large number of Brazilian exports to the U.S. market.

While negotiated in UNCTAD, and introduced as so-called "autonomous" non-contractual decisions by industrialised GATT Contracting Parties, the GSP was sanctioned and legalized by GATT through the "enabling clause of 1979", which incorporated the Tokyo Round MTNS into the framework of the GATT.

The U.S.-Japan agreement was concluded in July 1986, when the U.S. manufacturers complained that Japanese manufacturers were exporting chips to the U.S. and third country markets at "dumped" prices.

Under the agreement the U.S. required Japanese enterprises no to engage in "dumping", either in U.S. or third country markets. The Japanese government also undertook to monitor the implementation of the scheme.

In GATT "dumping" in exports is sale at a price less than the comparable price, in the ordinary course of trade, for like products intended for consumption on the domestic market.

In the subsequent U.S.-Japan controversies over Japanese violation of the agreement, it has now come out that in fact the semi-conductors are available in the Japanese domestic market at prices much lower than the minimum export prices, purportedly stipulated in the agreement, and that third parties are buying in the Japanese domestic market and undercutting Japanese exporters in third markets like Hong Kong or South Korea.

This appears to clearly show that the U.S.-Japanese agreement is in reality a cartel-type arrangement between the two countries which dominate the supply of semi-conductors, essential components for a number of electronic and computer equipments. At the least such an agreement would appear to be a price-fixing one, and a "grey-area" measure not consistent with GATT.

The EEC had raised the dispute before the Council sometime ago, tut at the last meeting of the Council both the U.S. and Japan had blocked the setting up of the panel.

At the Council meeting Wednesday, the EEC would appear to have maintained its request for a panel.

Japan would appear to have continued to insist that it did not believe the EEC had any justification for its dispute, but was agreeable to the panel, provided the request was jointly accepted by Japan and the U.S.

U.S. delegate, Amb. Samuels, reportedly also argued against the EEC complaints, on the ground that it related to a "strictly bilateral agreement", but was agreeable to the naming of a panel provided "the U.S. is also in the dock, along with the government of Japan".

The panel, Council Chairman Amb. Alan Oxley of Australia announced, would examine, in the light of the relevant GATT provisions, the matters referred to the CPS by the EEC relating to the trade by Japan in semi-conductors "in the context of the arrangements between Japan and the U.S.", and to make such findings, including findings on "nullification and impairment" (of benefits accruing to the EEC under GATT), that would assist the CPS to make their recommendations or give rulings under Article XXIII.

The Chairman of the Council said the naming of the panel and its terms of reference was on the "understanding" that given the special nature of the matters to be examined - aspects of the arrangements between Japan and the U.S. - both in its procedures and work the panel would provide adequate opportunity for the U.S. to participate in the work of the panel.

Later, the Japanese delegate, Amb. Yoshio Hantano raised under "any other business" the U.S. announcement of unilateral measures on certain Japanese exports as a retaliation for purported Japanese failure to live up to the semiconductors agreement.

The U.S. announced these measures on march 27, and they are to be effective from April 17, a list of possible Japanese electronic products on which 100 percent ad valorem tariffs are to be imposed have been notified in the U.S. Federal register.

The threatened U.S. actions, GATT delegations say, is a clear violation of the General Agreement which permits such retaliatory action, only when the Contracting Parties (or the GATT Council) authorise it.

The U.S. in effect is choosing to take the unilateral (and clearly illegal) actions, rather than go through the cumbersome and time-consuming GATT adjudicatory processes over an agreement of questionable validity and consistency with GATT. The U.S. is thus is placing on Japan the onus of going to GATT or coming to terms directly with the U.S.

In raising the issue, Hantano said the U.S. unilateral measures would be in clear violation of GATT article one (for MFN treatment) and article II (relating to schedule of "bound" tariffs), and would nullify or impair benefits accruing to Japan.

If they were put into effect, Japan would request consultations with U.S. under XXIII (1) of GATT, and seek a satisfactory adjustment of the matter.

U.S. delegate, Amb. Samuels replied that the measures complained of were only "measures under consideration" and that consultations with Japan over the issue were continuing.

The U.S. would not agree that the measures would be inconsistent with U.S. GATT obligations, but Japan had the right to request consultations and the U.S. would treat the request "with the seriousness it deserves".

In other matters before the Council, Nicaragua referred to the report of the panel over its complaint against the U.S. for the trade embargo. Nicaraguan delegate raised the issue in the context of finding some way of dealing with the various questions raised in the panel report, including the use of the security provisions in article XXI of GATT.

The chairman of the Council advised that consultations were still continuing on how to deal with the panel report.

On the issue of "China's status as a Contracting Party", the Council was informed that the terms of reference of the working party was yet to be settled and the Council chairman would continue his consultations.

China has said that it wants to "resume" its membership, and a GATT working party is to look into it and recommend the terms and conditions for this.

The consultations have been over the legal basis for the actions of the working party, and its terms of reference.

According to GATT sources there have been differences between China and the U.S. and EEC on this issue. The U.S. and EEC are insisting that while they would have no quarrel with China's desire "to resume" rather than "to accede", the working party's terms of reference should stipulate in detail all the GATT provisions relating to "accession", including the requirement for approval by two-thirds majority vote of GATT CPS.