4:48 PM May 31, 1995

US YIELDING TO JAPAN ON DISPUTE SETTLEMENT PROCESS

Geneva 31 May (Chakravarthi Raghavan) -- The United States indicated Wednesday that it would hold consultations in Geneva, and by 16 or 17 June, on the Japanese complaint about the US unilateral trade sanctions against imports of luxury cars from Japan in an effort to get more access for US auto-industry into the Japanese market.

The US position came at the meeting of the WTO's Dispute Settlement Body (DSB) which heard in effect a repeat of the Japan and US positions set out at the WTO's Goods Council on Monday, and a number of interventions from other delegates against US unilateralism and hoping the two major trading partners would quickly settle their dispute.

But the US got more support Wednesday from other delegations -- Canada, Asean, Korea and Brazil among others -- about the Japanese market and its openness. The US delegate, Andrew Stohler the second ranking official in the US Trade Mission here, in talking to newsmen as he left the meeting made a pointed reference to, and drew comfort from, this support to the US complaint about the Japanese market, voiced at the DSB as compared to the Monday's discussion on the same issue at the Goods Council.

But some of these interventions and support to the US seemed to proceed on the argument that huge trade surpluses implied the closed nature of the market of the country running such surpluses and thus needing WTO processes and agreements to open the market (whether or not there was any violation of the rules or agreed market-opening commitments).

If this argument were to prevail, the markets of the three or four major industrialized countries are not open to the exports of the developing world and have not been open for over three decades: the developing countries by and large have been running consistently trade deficits with the major industrial economies -- whether on goods trade, services (specially financial) trade or both.

And some of the major Latin American economies including Mexico -- whose trade surpluses (after a quick adjustment) are used by both the IMF and the World Bank and the United States Clinton administration now to suggest that these economies have overcome or on the way to overcome the aftermath of the Mexican "peso crisis" of December last and its "tequilla effect" on the 'emerging markets'-- face closed markets in the US, Europe and Japan.

The US intervention in the DSB was devoted mainly to reject the Japanese argument that the dispute was one of "urgency" and thus attracting the faster time-frame for the settlement of the dispute -- beginning with the time-frame for consultations through the processes for establishing the panels, the hearings and give rulings etc.

Japan Tuesday had rejected the US suggestion for a delay in the "consultations" under Art XXII of the GATT-1994, and had demanded that the US should respond to the request for consultations before the end of this week, and hold the consultations as early as possible and at any rate before 16 June -- when the 30 day period set out in the WTO's Dispute Settlement Understanding will end.

In summing up the DSB discussions, the chairman, Amb. Donald Kenyon of Australia was satisfied that both Japan and the United States were bringing their dispute to the WTO and that he was fully confident that the discussions shows that the system was capable of effectively handling the most difficult and politically sensitive dispute.

The Kenyon remark today was in effect similar to that made by the WTO Director-General Renato Ruggiero, soon after the US Trade Representative Mickey Kantor had notified the WTO that it would "bring" a dispute to the WTO (it has not yet done so) and then a few days later announced the 100% duty on imports of luxury cars from Japan and its taking effect provisionally from 20 of May.

This equating of the Japanese coming to the WTO over US imposition of sanctions in violation of the WTO rules, and the US intention of coming to the WTO with a complaint about the nature of the Japanese market, in effect may be 'pragmatism' but a blow to the concept of the rule-based system and its trade security.

Several delegates, particularly from the developing world, privately agreed that there was little else that Ruggiero or Kenyon could have said, if they had to say something, though it might have been more useful for both to have remained silent following the adage that on some occasions nothing can improve on silence.

The public brawling and sparring between Japan and the US -- their statements and positions ever since the dispute broke out into the open on the dispute, at the WTO and to the media (from their capitals) -- is seen by several observers and delegates of other countries in some respects as 'theatre', aimed at influencing public opinion in their own countries and elsewhere.

Japan, inside the DSB, and outside in remarks to newsmen, insisted that it had made all the concessions it could to the US and there could be no more concessions, while the US insisted that while it has announced the sanctions it would impose (and had told the Customs to withhold clearances of imports at the old duties), it had taken no unilateral actions, that the two sides could still talk and Japan could reach a settlement to obviate the sanctions.

But clearly the two sides are in fact searching for a compromise -- most western media reports talk of a 'face-saving' compromise, though it is not clear whose face is to be saved -- and avoid a bruising fight between themselves.

And if they do reach a compromise, and present it as one in response to the demands from other nations -- even if the compromise be 'transparent' and 'non-discriminatory' as the EU has been repeatedly stressing -- and avoid the dispute going through the WTO's dispute settlement processes, the system would in fact have suffered damage.

Atleast insofar as the US is concerned, and it is the only one so far which has on its trade law a S.301 (but the others threaten to imitate it), it would imply that sanctions could be threatened against others and concessions obtained for its exports going beyond what the countries may have agreed to in their schedules of concessions or in the rules (about opening up to competition from abroad).

Even as it is, the dispute, coming so soon after the ratification of the WTO agreement in good faith by the membership (including the US) and WTO's entry into force, has shown that the eight years of negotiations to set up the WTO rule-based system lacks rules that can prevent illegal trade actions or assure the aggrieved parties in the event of such actions and trade sanctions any immediate relief.

The WTO's Dispute Settlement processes, which was cited by almost every country (justifying the agreement to its domestic public) as ensuring observance of rules, has to run atleast a period of two years, causing trade damage to the country affected before any relief of ruling comes -- and even then can only provide for retaliatory sanctions.

In its intervention in the DSB, Japan Wednesday said that the reason the two sides had been unable to reach an agreement in their dispute was due to the US Government's insistence on expansion and renewal of the parts purchasing plan by the Japanese automobile manufacturers and on setting the future target for the number of Japanese dealers handling foreign imports.

"We could never agree to numerical targets approach and government intervention into private business activities", Amb. Minoru Endo told the DSB.

The US then resorted to unilateral measures and this had led Japan to come to the WTO with its complaint. Japan had no other choice because the issue impinged on the basic principles of international trade embodied in the WTO, he said.

MITI senior official Hisachi Hosakawa referred to the reported remarks of US officials that the US was not asking for numerical targets, and asked the US to repeat the statement at the DSB and clarify that the US had changed its position and had stopped requesting the expansion and renewal of the parts purchasing plans and setting targets for number of dealers handling foreign vehicles in Japan.

In outlining Japan's specific complaint of US unilateral measures violating the WTO, Hosakawa that the 'withholding of liquidation' of imports of Japanese luxury cars by US customs violated the Art I (MFN treatment clause) of the GATT, and was also a defacto restriction on trade in violation of Art XI (quantitative restrictions) and Art XIII. The 100% duty if implemented was a violation of Art I, and Art II the US commitment in its schedule of a 2.5% duty on imports of automobiles. The affirmative determination made on May 10 by the US, under S. 301 of its trade dispute, the withholding of the liquidation by customs and the proposed imposition of 100% duty was violative of Art 23 of the DSU.

All this amounted to nullification and impairment of Japan's rights under Art. XXIII:1 (b).

The dispute was a case of urgency and the two sides should begin consultations as soon as possible before the situation worsened with the implementation of the additional duties and the current violations of the WTO should be redressed immediately.

Hosakawa rejected the US argument that no unilateral measures had been implemented and said the withholding of liquidation at Customs had begun since 20 May -- with just four days prior notice -- whereas the US knew that it took about two weeks on average for ocean shipments to arrive from Japan and thus affected shipments already under way.

This had forced Japanese exporters either to divert cards already shipped and stop those about to be. This damage alone amounted to $108 million while the decision of the Japanese auto-manufacturers to stop manufacturing the luxury cars for exports to the US had caused $98 million damage already.

Stohler, speaking for the US said, the US had accepted the Japanese request for consultations, though they were yet to agree on the date and place for this. The US had suggested the 20 June date for consultations so as not to interfere with the Halifax summit. But in view of Japan's rejection of that suggestion, the US was considering alternative dates. The US however believed that the entire package of auto issues constituted a serious matter and hoped to reach a "mutually acceptable solution" with Japan.

It was not clear from the Stohler statement distributed to the press whether the reference to the place and date of consultations or to the dispute itself.

On the issue of 'urgency', Stohler noted that the 1979 GATT understanding on dispute settlement and the Montreal rules (mid-term accord of the Uruguay Round) provided for special time frames for cases of urgency, no panel had issued a report under these.

Japan's request did not meet the traditional concept of 'urgency'. The Montreal rules spoke of urgency to include perishable goods in route, and the DSU merely spoke of cases of urgency including those relating to perishable goods. Japan's request was not a subject relating to perishable goods and Japan's arguments showed that the urgent procedures should not be used. Invocations of urgency would drastically reduce the time-frame of the DSU for mutually agreed solutions. Japan had said that the dispute raised systemic issues and this itself showed the need for the Parties to the dispute to have the time and opportunity to present their cases to a panel and appellate body for careful consideration rather than a process set out in the urgency procedures.

In other comments, Canada said the 'strong message' out of this dispute was that there was an "unfinished trade agenda" that should be tackled, namely negotiations "to provide rules for market access opportunities for real competition within domestic markets."

Hong Kong, while reiterating the importance of the two sides reaching an amicable solution as quickly as possible, asked the US to clarify and distinguish between the part of its complaint that fell within the WTO scope and that which fell outside. The US S. 301 stressed disputes outside the WTO jurisdiction, but the remedies to redress them seemed to fall within the WTO, Hong Kong said.

The European Union reiterated its position at the Goods Council meeting: any bilateral agreement should be fully transparent and non-discriminatory. The Japanese market was over-regulated and caused difficulties of access. The regulations were being relaxed or removed, but there should be faster progress on it. The EU however disapproved the unilateral trade sanctions taken by the US.

The position against unilateral sanctions, a GATT press officer told the press later, was echoed by other speakers including those from Turkey, Switzerland, Norway, Australia, India, Brazil, Indonesia (for the Asean), Pakistan and South Korea.

Other participants at the meeting said that Canada, Brazil, Asean and South Korea were among those who flagged the issue of trade imbalances and the perception it created of market access problems.

In summing up, Kenyon expressed his satisfaction said that Japan and the US had brought the dispute before the WTO. The Uruguay Round negotiations had gone to great trouble to design a system that would be fair, effective and impartial and he was confident it could effectively handle the most difficult and politically sensitive disputes.

On the process (Japan's request for consultations at the WTO), Kenyon hoped and expected the response from the US would be one that would meet in letter and spirit the DSU.

In other matters, earlier the DSB agreed to Brazil's request for a panel to go into a dispute raised by it over the US regulations on standards for reformulated and conventional gasoline.

The DSB in April has already set up a panel on the same issue relating to a Venezuelan complaint against the US. The Brazilian case would go before the same panel.

Brazil has said that the US actions had resulted in a loss of about eight million dollars worth of its exports to the US market in the first three months of 1995 as compared to 1994. The US regulations, Brazil has contended, violates Art I (MFN clause), Art III (National treatment obligations) of GATT 1994 and the WTO Agreement on Technical Barriers to Trade.

Kenyon also reported to the DSB that the consultations on the choice of seven members for the Appellate Body was continuing and it was hoped to announce a recommendation to the DSB by June.

The choice is being done jointly by a panel consisting of the Chair of the WTO General Council, the DSB, the Councils for Trade in Goods, Services and Trips, and the WTO Director-General.

There are some 30 nominees and each of the nominees were being "interviewed" on their ability to satisfy the three criteria for appointment: "persons of recognized authority, with demonstrated expertise in law, international trade and the subject matter of the covered agreements generally".

A GATT spokesman was unable to respond to newsmen's questions about the qualifications of the panel of six -- in these three areas -- to be able to judge the "demonstrated expertise" of the appellate body members. He however said that the WTO Director-General had legal qualifications.