May 6, 1988

SEMI-CONDUCTOR PANEL REPORT ADOPTED, BUT ...

GENEVA MAY 4 (IFDA/CHAKRAVARTHI RAGHAVAN)— The GATT council adopted Wednesday the report of a panel that ruled against Japan in a dispute over the EEC on the one hand and Japan and the U.S. on the other involving the efforts of the latter two to cartelise and organise the world market for semiconductors.

But the panel's ruling against Japan based on a finding of violation of one of the articles and ignoring other aspects, the adoption of the report, and the interpretations sought to be placed on it by Japan and the U.S., left some questions open on some larger issues of international trade, and its cartelisation.

The U.S. and Japan are the largest producers and exporters of EPROM’s (erasable programmable read only memory) and drams (dynamic random access memory) chips, both used in manufacture of various electronic equipments.

In June 1985, various U.S. enterprises filed complaints in U.S. alleging Japanese restrictions on access to its domestic market, and dumping in the U.S. and third markets.

The U.S. initiated proceedings against Japan, but the two sides settled the matter through bilateral accords in September 1986.

Under the accord, Japan agreed to encourage expanded sales of foreign produced chips in Japan by giving practical assistance and impressing Japanese users on need to take advantage of the new situation.

Japan undertook to monitor costs and prices of a list of semiconductor prices in order to prevent dumping, and to enforce this through Japanese laws and regulations.

Japan also undertook to monitor costs and prices on exports to 16 third country markets (where the U.S. complained Japanese exports were being dumped and thus edging out U.S. exports).

. The EEC’s complaint was that the arrangement was 'an unacceptable interference' in the trade of countries not parties to the U.S.-Japan agreement, and was particularly prejudicial since the two were dominant suppliers.

The EEC argued that third country monitoring by Japan was contrary to article VI, relating to anti-dumping, and article XI on elimination of QRS (on imports and exports), and was deliberately intended to raise prices.

Also, the access provisions were discriminatory and favoured the U.S., and there was lack of transparency.

A number of other countries also intervened before the panel - Australia, Canada, Hong Kong, Singapore and Brazil. Of these, Australia specifically charged the U.S. and Japan with attempts at cartelizing the market to push up prices through regulation of supplies.

The last related to the Japanese government advice to its producers about the expected market demand and supply, and need for the producers to keep these in mind.

In an earlier panel ruling against Japan, the peculiarities of the Japanese society and its operation on basis of consensus was taken--into account, and panels had held that in that context even an advice from the government had the same effect as a regulation in influencing producers, importers and exporters. In that dispute it was the Japanese government that took the position that its advice was as good as a government 'measure'.

The current panel held that a number of elements and actions taken together "constituted a coherent system restricting the sale for export of monitored semi-conductors at prices below company-specific costs to markets other than the U.S.", and this was inconsistent with article XI.

The practices and actions it referred to were:

--"The requests not to export semiconductors at prices below company-specific costs to contracting parties other than the U.S. which the Japanese government addressed to Japanese producers and exporters of semi-conductors,

--"The statutory requirement for exporters to submit information on export prices and the systematic monitoring of company and product-specific costs and export prices by the government, and

--"The use of supply and demand forecasts to impress on manufacturers the need to align their production to appropriate levels".

The panel said the GATT contracting parties should recommend that Japan bring its measures relating to sale for export of semi-conductors to CPS other than the U.S. into conformity with GATT.

The panel said the evidence submitted did not demonstrate that Japanese measures to improve access to its markets discriminated in favour of products originating in the U.S.

On the important issue of Japan taking actions to prevent 'dumping' in third markets, the panel gave no ruling as such, but the way it stated the issue left it open to differing interpretations.

The general agreement does not prohibit dumping as such, but only discourages it and lays down the basis for 'imparting countries' to impose anti-dumping duties to offset its effects.

In effect, the EEC and other intervening countries took this position before the panel and argued that it was not for Japan to 'find' dumping by its exporters in third markets or take actions to prevent exports at 'dumped' prices, but only for importing countries and on the basis that it caused injury to their own producers.

On this issue, the panel referred to the Japanese contention that its actions were justified in that it was taking actions to prevent 'dumping', and noted that article vi enabled an importing country to take actions against Jumping causing 'material injury' to an established industry, but was silent on actions by an exporting country.

This, by implication, suggested that the panel agreed with the view that only importing countries could take anti-dumping actions.

But the panel did not give a specific ruling, noting that it was already holding against Japan on the ground its actions violated article XI and restricting on QRS.

In agreeing to the adoption of the report, Japan placed its own interpretations and said it would actions on this basis.

The Japanese ambassador, Yashia Hatano said his reading of the report was that exporting countries could take actions to prevent dumping - a view that others disputed. Hatano also disagreed with the panel's view that Japanese government forecasts of supplies and demand amounted to export restrictions.

If the panel report was adopted, Hatano said, his government would take appropriate measures as soon as possible to bring its existing measures relating to third country market monitoring into conformity with GATT.

As regards the panel's conclusions about the existing of a coherent system restricting exports inconsistent with GATT, and on the basis of the interpretation outlined by him, the government of Japan would ensure that its measures did not constitute a trade restriction inconsistent with GATT, Hatano added.

In other remarks, before adoption of the report, the EEC said the report was clear that Japanese actions on third country markets were a violation.

The U.S. for its part was satisfied that actions taken by Japan over its complaints of market access had been vindicated as legitimate and non-discriminatory, and that the panel had given no findings on the issue of dumping in third markets or the bilateral arrangements on it, but only on the Japanese method of implementing.

However, after the panel report was adapted, Hong Kong said that the interpretation of a panel report adopted by the council was a prerogative of the council and not of any one individual contracting party. All contracting parties had an interest in seeing that the recommendations were fully implemented.

Australia, for its part, interpreted the panel's findings to mean that actions on imports of dumped Japanese semi-conductors in Australia rested with the government of Australia, and not with Japan as an exporting country or U.S. as a third party.

Australia left open the possibility that any international arrangements on this without its consent could breach Australia’s laws dealing with trade practices.

Singapore made a similar statement, and found it unfortunate that the panel had come to no conclusion on the arrangements between the U.S. and Japan, but only on Japan’s implementation.

The community too agreed with the view that no one CP could interpret the adopted panel report in is own way.

In other actions, the council put off any decision on a European community request for GATT authorisation to retaliate against the U.S. for its non-implementation of the panel ruling on the U.S. super-fund tax, imposing discriminatory levies on imported petroleum and products and similar domestic products.

The EEC has said that it estimated damage caused to its exports to be of the order of seven million dollars, and wanted authorisation to levy duties on U.S. petroleum products that would provide compensation of about six million dollars.

The U.S. in principle was agreeable to the naming of a working party to go into this a normal GATT procedure.

However, Canada, Mexico and Nigeria intervened to suggest that the important thing was to persuade the U.S. to take actions to implement the panel report, and the EEC move could prove a distraction.

Mexico and Nigeria also noted that the concept of 'retaliations and 'withdrawal of concessions' was a remedy not available or useful to affected third world contracting parties, and GATT council should hence concentrate an getting its recommendations implemented.

At the suggestion of the council chairman, further decision was put off to the next meeting of the council in mid June.