Apr 5, 1990

GATT ACTION ON SCREWDRIVER PLANT PANEL REPORT PUT OFF.

GENEVA, APRIL 3 (BY CHAKRAVARTHI RAGHAVAN) -- The GATT Council Tuesday held over action on the report of a GATT panel that ruled against the EEC in a complaint by Japan over EEC levy of anti-dumping duties on products of Japanese "screw-driver" assembly plants, after hearing an EEC critique of the panel report and the panel's own defence.

While Contracting Parties losing a dispute before a panel in recent times often enough argue or reargue their case before the Council, which has to adopt the report and its recommendations, the panel choosing to defend its report is unusual.

A GATT spokesman said that while discussion was deferred to the next meeting, with several delegations wanting time to consider the report, no delegation spoke sympathetically with respect to the Community's criticism of the report.

The panel had sent the report on March 2 to the EEC and Japan, indicating that in the absence of a settlement between the two parties, the report would be circulated to CPs on March 16. But the panel received a letter from the EEC on March 15 commenting on the findings and asking the panel to reconsider its conclusions. After examining the comments in detail, the panel decided no change in its conclusions was warranted and the report was circulated to the CPs on March 22. While the report of the panel had been "leaked" from Tokyo earlier, the EEC subsequently criticised the panel and the report strongly in the media.

At the Council Tuesday, the panel, through one of its members, Timothy Grosser of New Zealand, defended its position in response to the EEC criticism (in the EEC's letter to the panel).

In its report the panel had held that the anti-circumvention duties levied on the products made inside the EEC in the so-called Japanese screw-driver assembly plants, products which had been earlier subject to antidumping duties when imported from Japan, were not customs duties but discriminatory internal charges on imported components and hence violated the GATT Article III requirements for equal treatment between imported and domestic goods.

The suspension of proceedings on the basis of undertakings by the Japanese enterprises to inhibit use of Japanese inputs was also inconsistent with Article III, the panel had said.

As for the provisions of Article XX (d) enabling CPs to deviate from GATT obligations if this was necessary to prevent enterprises evading obligations imposed on them consistent with the General Agreement, the panel ruled that this could cover cases where the enterprises had sought to "evade" the obligation to pay the duty but not actions of enterprises to "avoid" the obligation (such as by importing a substitutable product not subject to the AD action or transferring production to the duty-levying country).

In sharply differing with the panel and complaining against it before the Council, in terms which some participants thought virtually questioned the impartiality of the panel, EEC complained that the panel had not addressed the question of the compatibility of the legislation with the provisions of the GATT in general nor (...) it provided any guidance as to how CPs should deal with the "(...) world problem" of circumvention of ad duties through subsequent establishment of "screw-driver assembly plants and importation of component parts instead of the finished product", the EEC said.

The panel had ruled against the imposition of the duties rather than the anti-circumvention legislation itself, a course of action that Canada an intervenor before the panel had suggested. Japan had challenged both the legislation and the duties. U.S. and Canada have similar so-called anti-circumvention legislation on their statute books, presumably directed against Japan.

Ironically, the measures that the U.S., Canada and the EEC were seeking to take against Japanese investments and behaviour of investors, through anti-circumvention provisions against dumping, are no different from more straightforward investment measures and performance requirements which Third World countries impose on foreign investors to prevent screw-driver assembly operations and which the three want to ban in the Uruguay Round.

The EEC argued that the panel’s finding was based on a "formalistic and narrow interpretation" of GATT rules which seemed contrary to "common sense and established principles of international law", that the panel had chosen to ignore them when it was raised (on March 2, when the panel report was sent to the parties for coments).

In presenting its "concerns and questions" to the Council, the EEC argued that the adoption of panel reports should be more than a "blind rubber stamp" and, in the absence of an appeals procedure against a panel ruling, the Council as a collective body should examine the merits of the report seriously and reach its own conclusions.

The panel’s distinction between a duty or charge "in connection with importation" and internal tax, the EC complained, was based on an "abstract reasoning" and an "extremely narrow interpretation" which did not take account of complexities of customs procedures and collection of duties, often not at the border but later on.

In its interpretation of the scope of action under Article XX (d) the panel had rendered the provisions completely meaningless, by excluding any references to the clear and stated purpose and legitimate policy objective of a regulation, the EEC complained.

The panel seemed to be saying that since GATT did not provide for measures to counter the circumvention of the purpose of GATT norms, such measures could not be validly taken.

This, the EEC claimed, would be contrary to normal canons of treaty interpretations. A gap in the treaty would not also imply that States could not act.

In other comments, the U.S. and Canada said they needed more time to study the report and were not ready to comment on it.

India, Brazil and Pakistan were among those who also wanted more time for further examination but took a "basically positive" view of the report, while Australia, Japan, Korea, Hong Kong and Malaysia (for the Asean) were for immediate adoption of the report.