5:40 AM Jun 1, 1995

JAPAN VS US BECOMING WTO VS US?

Geneva 31 May (Chakravarthi Raghavan) -- The European Union and Australia have separately expressed their wish to join in the Japan-United States consultations at the WTO over the US sanctions on imports of Japanese luxury cars on the ground of their own "substantive trade interest" in ensuring strict observance of WTO rules against unilateral determinations and sanctions.

The requests have been addressed to the United States, under Art 4:11 of the WTO's Dispute Settlement Understanding (DSU). Copies have been sent to Japan which has sought Art XXII:1 of GATT 1994 consultations with the United States and to the WTO Director-General and the Dispute Settlement Body (DSB) which oversees and administers the DSU.

Whether the US will accede to the request is not clear, but several trade diplomats hazarded the view that the request may be turned down, forcing the EU and Australia to raise their own disputes.

At the DSB Wednesday morning, the United States had indicated that it would before the end of this week, as pressed by Japan, respond to Japan's request for consultations and set a time and place.

Japan has insisted on the consultations being held in Geneva under the WTO and to be held as early as possible, but any event before the 30-day period stipulated in the DSU.

Under Art 4:11 of the DSU, whenever a Member considers that it has a substantial trade interest in consultations being held between two Members on a trade dispute under the agreements covered by the WTO, it may notify the consulting members and the DSB of its desire to be joined in the consultations. Such a notification has to be made within 10 days of the circulation of the original request for consultations.

The two-page Japanese request was made to the United States on 17 May, but was circulated by the WTO secretariat to the membership on 22 May.

This provision enables other WTO members with "substantial trade interest" in the consultations between two disputants to request and join in the consultation process that could lead to an agreement for ending the dispute or set the stage for the establishment of WTO panel.

The Member seeking to join in the consultation is entitled to do so provided the Member to which the request has been addressed agrees that "the claim of substantial trade interest" is well-founded.

If the request is not accepted, the Member seeking to join the consultations, would be free to request such consultations directly in terms of the relevant Articles of the agreement - in this case Art XXII:1 of the GATT 1994.

While media reports, and even official statements at the WTO, including by the WTO Director-General, have been generally talking in terms of the US-Japan auto dispute, and the United States had given the WTO what it calls a "pre-filing notification" about its complaints over the Japanese market, the complaint that the WTO is seized of now is about the US unilateral trade sanctions announced by the US on 16 May and provisionally effective from 20 May.

The US action against Japan has been made under its domestic law -- S.301 and S.304 of the US Omnibus Trade Act of 1974.

Under these provisions of its law, on 10 May, the US administration first made a determination of Japan's "unfair" trade practices and on 16 May announced a list of products that could be the subject of increased tariffs -- the range of Japanese made luxury cars imported into the US.

The 16 May announcement of a 100 percent tariff subject to a final determination on 28 May was coupled with a provisional levy as of 20 May. From that date, technically, the US Customs was asked to withhold 'liquidation of entries of the listed products'.

This meant that the actual determination of the customs duty payable would be made only after the final determination by the US administration, forcing importers wishing to clear the imports from Customs to deposit the provisional 100% duty. Failing that, they would have been forced to pay demurrage to the Customs for storing them.

The EU request, in a letter from the EU Commission's Amb. Jean-Pierre Leng, said the European Communities had a "substantial trade interest in the strict observance" of the WTO trade rules concerning the strengthening of the multilateral system, as laid down in Art 23 of the DSU which had been invoked in the consultation request of Japan.

"These rules," the EU said, "are essential for the good functioning of the multilateral trading system and for the dispute settlement procedures under the WTO".

In these terms, not merely the EU and Australia, but every member of the WTO, and certainly all those against whom the US has been holding out the possible threat of S.301 actions have an interest in ensuring that this issue is determined one way or another at the WTO by its dispute settlement processes, and the issue of US unilateralism not get confused with, perhaps legitimate, demands of other trading partners about Japanese market and behaviour of private operators there.

They have an interest even to ensure a ruling that WTO rules don't cover this last at present, and the rules of competition -- being promoted and pushed by the US, the WTO head and others, are balanced and cover also the restrictive business practices of the corporations that use the rules of competition and market access under the WTO to stifle and end domestic enterprises of countries.

If the dispute were only to be dealt with as one between the US and Japan, or even one involving also the EU and Australia, others could express an interest and present their views to a panel, but will have no locus standi to take it up in appeal on points of law before the WTO Appellate body.

The US has been holding out the possibility of S.301 determinations -- whether in terms of market openings in goods, services including financial services or intellectual property rights, and making demands going well beyond their WTO obligations -- against most of the major developing countries.

The US administration and the Congress never made a secret of their intention to "walk on two legs", though in different directions unlike in the Chinese proverb: use multilateral rules when it suits the US, and bilateral pressures and threats of sanctions when multilateral rules won't help the US.

One of the major premises behind the WTO -- a premise widely used by policy-makers and governments of major developing countries to sign on, despite the severe limitations the new rules would place on their economic development and growth -- has been that the WTO system is rule-based and makes illegal the US unilateralism of S.301.

The specific language to make it illegal was not pressed and put into the WTO or its DSU, but all the key and leading negotiators at that time made clear publicly that in fact the US would have no legal right to use S.301 threats to impose sanctions violating the rights of other trading partners either in the area of goods, services or intellectual property rights and that no conceivable 'trade sanction' under S.301 could be made outside these three areas and rights.

In the heated debates before the US Congress finally adopted the legislation to implement the WTO accords, the administration insisted that the US S.301 rights had not been abridged, that the American people had the right to use and invoke their domestic laws.

USTR Mickey Kantor though had conceded that if the US did use this law and imposed restrictions on the trade of others, the other countries could take the US to the WTO and could get a ruling.

But it is up to the Congress and the administration to accept the ruling or ask the other party to go ahead and withdraw some equivalent concessions, he had told the Congress.

Negotiators and trade diplomats at Geneva from other countries at that time suggested that this was all for 'domestic consumption' in the US and should be ignored. They maintained this line even after the socalled 'Dole clause' compromise -- namely the US naming a judicial panel of its own to look into rulings against it, and exercising the option of withdrawal if three rulings went against the US and was considered by its panel to be unfair rulings.

That the US administration has proceeded on that path is not thus a surprise. But what does surprise many is the way some socalled free trade theory advocates have cheered this.

In an interview in the Swiss German language daily Basler Zeitung, Jagdish Bhagwati, an US national of Indian origin and leading trade policy academic -- whose candidature for the WTO top job was sponsored last year by many leading academics -- has been quoted by the paper's US correspondent as saying (in a reference to the actions announced by Kantor): "The (US) strategy is brilliant. I admire this guy... Instead of putting the Japanese government under pressure, Washington is aiming directly at Japanese firms. This is a new strategy..."