JAPAN INSISTS ON CONSULTATIONS UNDER WTO IN GENEVA

8:09 AM May 29, 1995

JAPAN INSISTS ON CONSULTATIONS UNDER WTO IN GENEVA
Geneva 29 May (Chakravarthi Raghavan) -- Japan insisted Monday on its right to have "consultations" with the United States under Art. XXII of the GATT 1994, as soon as possible, on the US unilateral sanctions against imports of Japanese luxury cars, and said the consultations should be held in Geneva under the WTO.

At a meeting of the WTO's Council for Trade in Goods, where Japan and the United States each presented their side of the case, the EU, Australia, India and the Asean made clear unmistakeable their opposition to the US unilateralism and their concerns over its effect on the multilateral system.

The EU Commission's Amb. Jean-Pierre Leng told newsmen outside that the EU had condemned the US unilateral actions, even as they recognized that there were problems about the Japanese market for automobiles and autoparts. But the US unilateral action was a very bad precedent for the WTO and the multilateral trading system and its dispute settlement procedures, Leng said.

While the EU, like others, wanted the two major trading partners to settle the dispute, the EU was also anxious that whatever agreement was reached should be "transparent" and "non-discriminatory".

"We are considering how to ensure this, but haven't decided on the course of action," Leng said.

Other EU sources said that the European Union was planning to join the consultations in the dispute and/or bring up its own complaint so that the two governments or the industries of the US and Japan do not enter into an agreement that is against the interests of other suppliers.

Australia, India, and Indonesia (for the Asean) who intervened in the Goods Council meeting said they could not support the unilateralism and felt the dispute (and how the WTO handled it) would have serious implications for the multilateral trading system.

India also made the additional point that while it encouraged the US and Japan to settle the dispute bilaterally, whatever agreement they reached should be consistent with the letter and spirit of the WTO and the GATT 1994 (which no longer allowed 'grey area' measures).

Japan, on May 17, had sought consultations with the US on the dispute and the US announcement of trade sanctions under S.301, as a matter of 'urgency' which under the WTO dispute settlement rules requires a reply within ten days.

On Friday last, the US rejected the Japanese request for consultations as a matter of urgency, interpreted the Japanese request as one for resuming the US-Japan bilateral talks (broken off by Japan after the announcement of sanctions) on opening the Japanese automotive sector and offered to hold it in Washington on June 20-21.

Under the WTO's dispute settlement procedures, the consultations sought by Japan has to be held within 30 days -- i.e. before June 16 -- even if the US were not to accept it was a case of urgency.

The Washington statement of the US Trade Representative Micky Kantor had suggested that the US had suggested the dates of 20-21 so as not to allow this dispute to upset the overall G-7 Summit agenda.

Hosakawa and other Japanese trade officials made clear in Geneva Monday that if the consultations in good faith (as required by the WTO's Art 4:3 of the DSU), Japan would be entitled to seek and get a panel established by the WTO to adjudicate the dispute.

In lengthy statements and responses before the Goods Council both Japan and the United States explained their cases, with one Third World ambassador, speaking on condition of anonymity, and in terms of the Bosnian situation (where the Bosnian Serbs are holding UN blue helmets hostage against NATO bombing) described the WTO situation as one in which "the multilateral system has been made hostage".

Hosakawa explained the negotiations between the two sides on the automobile and autoparts trade and said the US side in terms of autoparts purchases wanted the Japanese manufacturers to expand their "voluntary" parts purchasing plans and the Japanese government to support this. Japan, he said, had rejected this approach to managed trade. In terms of the Japanese 'transplants' in the US (Japanese subsidiaries making automobiles in the US), the US demand amounted to a "local content" requirement which was GATT illegal.

This issue was not negotiable between the two governments, Hosakawa said and, as a result, the US Government had announced on 16 May unilateral sanctions -- a punitive 100 percent tariff on certain models of luxury cars imported from Japan -- with the duty to be finally determined on 28 June. But as of 20 May, the US customs was withholding 'liquidation' of entries on imports (holding up final duty liability determination for customs clearance).

The US actions violated both Art I, most-favoured-nation treatment, and Art II prohibitions against exceeding of the bound duty. The US actions of the customs withholding liquidation and the concrete threat of prohibitive tariffs violated WTO obligations. The purpose of the measure was to inflict pain on Japanese manufacturers and pressure them into making concessions. The US action also violated Art 23 of the DSU, which specifically prohibited unilateral actions.

At the same time, the US had also said it would be filing a complaint in the WTO about continued discrimination against US products in the Japanese market and had expressed the view that the two approaches (its own unilateral sanctions) and invoking the WTO dispute settlement could go along consistently.

Hosakawa told the goods council: "One the one hand, based on S. 301, the US government is resorting to unilateral measures inconsistent with the WTO Agreement; on the other hand, it has announced it will seek remedies under the WTO. This 'sentence now, trial later' approach being used by the US government ignores all fundamental notions of procedural fairness and logic."

Japan believed it was a case of urgency and that the two sides should start consultations as soon as possible, before the situation worsens with the imposition of punitive tariffs.

"If unilateral threats and measures work, other countries will begin to follow this model and will begin to contemplate their own unilateral measures and victims will emerge.

"But the US Government has taken the position that this case is not a 'case of urgency'. This 'hit and run' strategy could have a fatal effect on the multilateral trading system and totally undermine the credibility of the new dispute settlement mechanism," Hosakawa added.

Referring to the USTR's announcement in Washington Friday that the Japanese government had indicated it is anxious to meet as soon possible to resume negotiations on the Japanese automotive market, Hosakawa accused Washington of distorting the Japanese position.

Seeking WTO membership's support for expeditious resolution of the dispute, Hosakawa said: "What the Government of Japan is seeking is consultations under Art XXII:2. The US Government proposal to have consultations on June 20-21 in Washington goes beyond the standard 30 days period. The Government of Japan cannot accept this proposal both in terms of timing and the place."

In a reference to the views of the EU and others that they would have an interest in joining the consultations, Hosakawa reminded everyone that the request for consultation should be notified before 31 May.

Andrew Stohler for the United States said that while the US did not agree this was a matter of urgency, it had agreed to hold consultations and hoped that the dates proposed by the US would be acceptable.

Stohler told newsmen outside that though the dates proposed went beyond the 30 day limit, it was only one or two days more and hoped Japan would agree to it, as also to hold the consultations in Washington which would be more convenient for the US. Stohler complained in the Goods Council that Japan seemed intent on arguing the case also in other fora like the OECD which was inappropriate if Japan wanted to use the WTO dispute settlement process.

The US official told newsmen that the issue of proposed US actions could not be judged separate from the state of the Japanese market.

The EU's Amb. Leng said the EU strongly condemned the way the US was dealing with the problem, even though the EU agreed the Japanese market was not open and that there were considerable amount of administrative regulations and markets which made it difficult for outsiders to enter the market. Japan, he said, had started to deregulate, but its pace should be faster.

The EU wanted the dispute to be resolved amicably between the two major trading nations. But whatever agreement, whether between the two governments or the two industrial sectors and enterprises, was reached should be transparent and non-discriminatory.

Asked about the 'urgency', Leng told newsmen that the EU though it should be dealt with as soon as possible. But if there was no consensus, and it was clear that the US was not agreeable, the matter should still be decided quickly.

Several delegation sources later said that there was a "lacuna" on the question of "urgency". At one stage during the negotiation of the DSU there was a suggestion that the 'urgency' should be settled by agreement between two parties. But there was reservations from others, with the result that the rule now did not define what was criteria for 'urgency', and not even what 'perishable' goods to be dealt with as a matter of urgency were.

The issue is coming up again before the Dispute Settlement Body, at its meeting on Wednesday, and of the WTO General Council on the same day. But any formal action at the WTO, in referring the dispute to a panel for adjudication is not possible before third week of June.