7:48 AM May 24, 1995

JAPAN-US DISPUTE BEFORE GOODS COUNCIL & DSB

Geneva 25 May (Chakravarthi Raghavan) -- Japan and the United States are bringing their trade dispute in the automobile sector to the World Trade Organization next week -- with the issue figuring on the agenda of the WTO's Goods Council meeting on 29 May and the Dispute Settlement Body meeting on 31 May.

Both Japan and the United States have inscribed the issues on the agendas for the meetings of the two bodies and both will be making statements which one trade official said would be for 'propaganda' -- since no action will be possible at either forum at this point.

Japan has inscribed the item as on "Auto and Auto Parts Issues: United States unilateral measures", while the United States has put a separate item "Japan's Automotive Barriers and Restrictive Practices: Communication From the United States".

The discussion in the Goods Council (chaired by Amb. Endo of Japan), involving the US unilateral trade sanctions against Japan, and the US complaints about the Japanese auto and autoparts market, will be separate from the processes under way in terms of the WTO's Dispute Settlement Body.

The United States has announced a punitive 100% duty on imports of Japanese luxury cars into the US, and a provisional duty is effective as of 20 May.

On 17 May, Japan asked for consultations with the US on the trade sanctions and the 100 percent tariff as a matter of urgency.

In terms of Art. 4:3 of the Dispute Settlement Understanding (DSU), the US has to accede to that request within ten days, i.e. by 26 May, failing which Japan has the right to straight away ask for the appointment of a panel to look into the dispute.

As of 24 May, Japanese sources said they have received no answer from the United States -- neither on holding the consultations nor on whether the United States accepts the 'urgency', even though on Monday the US Commerce Secretary Ron Brown seemed to concede at a press conference in Geneva that the issue was 'urgent'.

According to some western media reports, some question is being raised on the US side whether the 10-day period is to be calendar days or working days. Trade diplomats however say they are not aware of any GATT/WTO rule, decision or precedent that 'days' should mean 'working days', while another trade official said such an interpretation would completely upset the time-limitations and assurances of quick settlement in the DSU.

And while the United States on 10 May sent what it called a "pre-filing notification" to the WTO Director-General of its own intent to invoke dispute settlement mechanisms of the WTO, as of 24 May, Japanese sources said, they have received no request for consultation, a necessary first step for any dispute.

With the US provisional duty already biting, and given the US stated hope that the sanctions or threat would force Japan (and its auto-makers) to yield between now and the June Halifax G-7 Summit and the actual final determination expected on 28 June, the US may feel no urgency to push the dispute settlement process.

The two meetings, and the agenda items, would serve the US purpose of mounting pressure on Japan and hope that the industry, if not the government, will cave in.

On the Japanese side, though they don't expect any decision at the two bodies now, it is an opportunity to put forward officially at the WTO their case -- which they have been privately presenting to key delegations since about three or four weeks -- and perhaps hope enough delegations would express concerns about the US unilateralism and 'sanctions-now-judgement-later' approach.

If the US does agree latest by Monday to the consultations and these are in fact held but don't resolve the dispute within 20 days, Japan can request the establishment of a panel, at the next meeting of the DSB which has to be convened within 15 days of a request (and with 10 days advance notice to be given for inscribing the agenda item). The establishment of a panel would be automatic in any event at the next meeting of the DSB.

The merits of the dispute -- whether or not Japan's market is open and whether the US inability to penetrate that market is due to Japanese restrictive practices or the US auto-industry failures to atleast undertake the kind of market promotion efforts that the Europeans and the Australians appear to have done -- are issues that a panel may pronounce itself on, perhaps by end of the year or early in 1996.

Till then, the US duties will apply.

Japan may press the panel for a preliminary ruling about the unilateral sanctions (as a violation of the DSU -- Articles 4 and 23).

But whether any dispute panel, and the WTO Appellate Body, will be willing to take on the United States and decide this preliminary issue quickly, is a very open question, but one that would test even more the credibility of the inter-governmental system.

Article 23 of the DSU specifically requires members seeking redress of a violation of obligations or other nullification or impairment of benefits to do so by having recourse to and abiding by the rules and procedures of the DSU and prohibits them from making a determination that a violation has occurred or benefits have been nullified except through recourse to the DSU and further requires them to follow the DSU procedures about reasonable periods for the Member losing the case to implement it and the procedures for imposing retaliation measures.

The US Trade Secretary Mickey Kantor, and the Commerce Secretary Ron Brown, in publicly disputing criticisms of its unilateralism and violation have been somewhat disingenuously arguing that the US was only committed to use the WTO for issues covered by the WTO, and was entitled to follow its own domestic law in other areas.

But whether the complaint about Japanese restrictive practices is or is not covered by the WTO agreements and objectives, there could be little doubt that any duty on imports above the 'bound' duty for these products in the US schedule, and the 100% duty, even provisional, on imports from Japan but not other sources, and the conditions enabling such discrimination, is covered by the GATT 1994, and the US action is a clear violation of Articles II and I of the GATT 1994.

The US has also attempted to twit the EU over its complaints, by pointing to the EC voluntary quotas and other local-content requirements visavis auto imports from Japan into the EU.

These and other such 'grey area' measures are covered by the disciplines of Art 11 of the WTO Agreement on Safeguards. Any such existing measures have to be notified to the WTO by 30 June of this year (and until then the full extent of US or other country measures would not be known) and phased out or brought into conformity with the WTO and GATT 1994 within four years, and with each WTO member entitled to have "one" such grey area measure until 31 December 1999.

The EU's ability to use this last extended date provision is limited to the EU-Japan agreement in the automobile sector (passenger cars, off road vehicles, light trucks up to five tonnes, and the same vehicles in wholly knocked-down form.

As for EU member-states 'local content' use requirements on Japanese plants inside the EU, these are subject to the disciplines of the TRIMs agreement which requires all such measures to be notified to the WTO Goods Council within 90 days, and eliminate the prohibited measures within five years.

The US demand on Japanese auto manufacturers (with the government being asked to underwrite it) that they should use more (and specified percentages) of US autoparts for cars made in Japan, as well as in Japanese "transplants" -- meaning Japanese wholly or partly owned manufacturing operations in the US or third countries -- is one that will be illegal from day one of such an agreement, not being a pre-existing arrangement to be phased out within five years.

But as one Third World trade official put it, one part of this power-game -- and the WTO system is a power-based system, notwithstanding claims to its rule-base -- is in seeing how far one can assert and enforce rules and/or ask the other party to retaliate.

But another part is in the domain of propaganda and lining up the public opinion -- a game in which, with its dominance of news and tv and radio channels, the US has an edge but one which, may be, Japan and Europe could challenge, but none in the developing world.

"This is why we are all hoping Japan would stand firm and take the issue through the WTO process to make the US resile," the official said speaking on a non-attributable basis.

"None of us have the capacity to do so, and if Japan does not, the system is lost even before it begins to crawl. Hence the publicly voiced EU concerns. Anyone, whether the WTO head or any other official, trying to promote talks and find compromise solutions to the dispute on the basis of Japan agreeing to some demands, would in fact be destroying the system."