WORLD TRADE ORGANIZATION

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1 WORLD TRADE ORGANIZATION WT/DS44/R 31 March 1998 ( ) Original: English Japan - Measures Affecting Consumer Photographic Film and Paper Report of the Panel The report of the Panel on Japan - Measures Affecting Consumer Photographic Film and Paper is being circulated to all Members, pursuant to the DSU. The report is being circulated as an unrestricted document from 20 March 1998 pursuant to the Procedures for the Circulation and Derestriction of WTO Documents (WT/L/160/Rev.1). Members are reminded that in accordance with the DSU only parties to the dispute may appeal a panel report, an appeal shall be limited to issues of law covered in the panel report and legal interpretations developed by the panel, and that there shall be no ex parte communications with the panel or Appellate Body concerning matters under consideration by the panel or Appellate Body. Note by the Secretariat: This Panel Report shall be adopted by the Dispute Settlement Body (DSB) within 60 days after the date of its circulation unless a party to the dispute decides to appeal or the DSB decides by consensus not to adopt the report. If the Panel Report is appealed to the

2 Page ii Appellate Body, it shall not be considered for adoption by the DSB until after the completion of the appeal. Information on the current status of the Panel Report is available from the WTO Secretariat.

3 TABLE OF CONTENTS WT/DS44/R Page i PAGE I. PROCEDURAL HISTORY... 1 II. SUMMARY OF FACTUAL ASPECTS... 4 A. THE MARKET FOR PHOTOGRAPHIC FILM AND PAPER IN JAPAN... 4 B. JAPANESE ENTITIES AND MEASURES RELATED TO THE US CLAIMS CABINET DECISION MITI AND RELATED ITEMS... 8 (a) Industrial Structure Council Distribution Committee: Sixth and Seventh Interim Reports... 8 (i) The 1968 Sixth Interim Report... 9 (ii) The 1969 Seventh Interim Report (b) 1969 Survey on Transaction Terms (c) 1970 Guidelines for Rationalizing Terms of Trade for Photographic Film (d) 1971 Basic Plan of the Distribution Systemization Promotion Council (e) 1975 Manual of the Distribution Systemization Development Centre (f) Large Stores Law (g) Japan Development Bank and the Small and Medium-Sized Enterprise Agency JFTC (a) Antimonopoly Law (i) JFTC Rule No. 1 under Article 6 of the Antimonopoly Law (ii) JFTC Notification 34 of 1971 (open lotteries) (iii) JFTC Notification 15 of (b) Premiums Law (i) JFTC Notification of (ii) JFTC Notification 17 of (iii) JFTC Notification 34 of 1973 (origin) (iv) JFTC Notification 3 of (v) JFTC Notification 5 of (c) JFTC guidance (i) 1981 JFTC guidance on dispatched employees (ii) 1983 JFTC guidance on advertising rules COUNCILS AND ASSOCIATIONS (a) Fair Trade Promotion Council (i) 1982 Self-Regulation Measures (dispatch of employees and promotional money) (ii) 1984 Self-Regulating Standards (developing fees) (b) Retailers Council and 1987 Retailers Code (c) Chambers of Commerce and Industry III. SUMMARY OF CLAIMS AND PROCEDURAL OBJECTIONS... 28

4 Page ii A. EVOLUTION OF THE US CLAIMS B. PROCEDURAL OBJECTIONS THE REQUEST FOR CONSULTATIONS AND THE CONSULTATIONS THE REQUEST FOR THE ESTABLISHMENT OF THE PANEL (a) Adequate notice (b) Related measures (c) Nature of the measures IV. SUMMARY OF ARGUMENTS A. DISTRIBUTION "COUNTERMEASURES" B. LARGE STORES LAW C. PROMOTION "COUNTERMEASURES" D. THE COMBINED EFFECT OF THE THREE SETS OF MEASURES V. FACTUAL ARGUMENTS OF THE PARTIES A. DISTRIBUTION "COUNTERMEASURES" OVERVIEW DEVELOPMENT OF THE JAPANESE FILM MARKET NEED FOR PRIMARY WHOLESALERS IN THE JAPANESE FILM MARKET (a) The US allegations about the market situation in the film (b) distribution sector No government obstacles to use or creation of primary wholesalers (c) The role of Nagase and Kodak Japan (d) Single brand distribution does not impede access of imports (e) The market for paper (f) Other film markets THE RESTRUCTURING OF THE JAPANESE FILM DISTRIBUTION SECTOR (a) The origin of MITI's distribution policies in the early 1960s (b) The 1967 Cabinet Decision (c) The 1968 Sixth Interim Report (d) The 1969 Seventh Interim Report and the Distribution Systemization Promotion Council (e) The 1971 Basic Plan (f) Vertical integration (g) Single-brand distribution THE STANDARDIZATION OF TRANSACTION TERMS (a) Introduction (b) 1970 Guidelines (i) Impact of the Guidelines (ii) Timing (c) 1990 Guidelines OTHER DISTRIBUTION "COUNTERMEASURES" (a) JFTC Notification

5 Page iii (b) International contract notification SYSTEMIZATION: PHYSICAL AND INFORMATION LINKS (a) Physical links and the 1975 Manual (b) Information links (c) MITI/SMEA support for systemization POST-1975 DEVELOPMENTS B. LARGE STORES LAW INTRODUCTION LARGE STORES AND IMPORTS (a) Import-friendliness of large stores (b) Large stores and direct sales from manufacturers (c) Large stores and imported film BACKGROUND AND PURPOSE OF THE LARGE STORES LAW PROCEDURES UNDER THE LARGE STORES LAW EVOLUTION OF THE REGULATION OF LARGE STORES (a) Department Stores Law (b) Enactment of the Large Stores Law (c) 1979 Revisions to the Large Stores Law (d) 1982 Administrative measures under the Large Stores Law (e) Restrictions on acquisitions (f) Changes to the law since FORMAL AND INFORMAL ADJUSTMENTS (a) Adjustments under formal procedures (b) Continued effect of local measures (c) Informal procedures under the Large Stores Law (i) "Prior explanations" (ii) "Local explanations" (iii) Large Store Council Review IMPACT OF FLOOR SPACE ADJUSTMENTS AND RESTRICTIONS ON OPERATION ON THE GROWTH OF LARGE STORES C. PROMOTION "COUNTERMEASURES" INTRODUCTION THE LAWS UNDERLYING THE PROMOTION "COUNTERMEASURES" (a) The Antimonopoly Law (b) The Premiums Law (i) Background and objective (ii) Substantive provisions (iii) Enforcement (iv) Exemptions from the Antimonopoly Law INITIAL IMPLEMENTATION OF THE ANTIMONOPOLY AND PREMIUMS LAW GENESIS OF THE PROMOTION "COUNTERMEASURES" POST-KENNEDY ROUND PROMOTION "COUNTERMEASURES" (a) JFTC Notification 17 of 1967 (premiums to businesses) (b) 1967 Cabinet Decision (guidance on fair competition codes) (c) JFTC Notification 34 of 1971 (open lotteries) (d) JFTC Notification 34 of 1973 (country of origin of goods) (e) JFTC Notification 3 of 1977 ("closed" prizes) (f) JFTC Notification 5 of 1977 (premiums to consumers) POST-TOKYO ROUND PROMOTION "COUNTERMEASURES"

6 Page iv (a) JFTC guidance on the use of dispatched employees (b) 1982 Self-Regulating Measures (dispatch of employees) and the Promotion Council (c) JFTC guidance on dumping and loss-leader advertising (d) 1984 Self-Regulating Standards (developing fees) (e) JFTC approval of 1987 Retailers Code and Retailers Council SUBSEQUENT ENFORCEMENT VI. LEGAL ARGUMENTS CONCERNING NON-VIOLATION CLAIMS A. INTRODUCTION TO ARTICLE XXIII:1(b) OF GATT GENERAL PRINCIPLES THE LEGAL TEST UNDER ARTICLE XXIII:1(b) SYSTEMIC IMPLICATIONS FOR WTO DISPUTE SETTLEMENT REMEDIES B. RELEVANT TARIFF CONCESSIONS GENERAL CONSIDERATIONS PAST GATT PANEL REPORTS THE TYPES OF TARIFF NEGOTIATIONS UNDER GATT (a) Article XXVIII (b) Article XXIV: (c) Article XXVIIIbis THE INCORPORATION CLAUSE OF GATT CERTIFICATION OF MODIFICATIONS AND RECTIFICATIONS CONCLUSIONS C. GOVERNMENTAL MEASURES THE LEGAL TEST (a) Administrative guidance (b) Past GATT panel reports (c) Governmental attributability of measures (d) Measures "applied" and measures "in effect" (e) Measures and market structure DISTRIBUTION "COUNTERMEASURES" (a) Attributability to the government (i) 1970 Guidelines: background, publication and followup (ii) 1975 Manual (b) Current effectiveness (i) Reports, surveys, plans and manuals (ii) JDB/SMEA funding and international contract notification (iii) 1967 JFTC Notification (iv) 1967 Cabinet Decision (v) 1970 Guidelines and 1990 Guidelines (vi) Conclusions PROMOTION "COUNTERMEASURES" (a) The Councils and Codes (i) Manufacturers' Council (ii) Wholesalers' Council (iii) Promotion Council (iv) Retailers' Council (v) Federation of Fair Trade Councils

7 Page v (b) Attributability to the government (i) Fair Competition Codes (ii) Fair Trade Councils (iii) Conclusions D. UPSETTING THE COMPETITIVE POSITION OF IMPORTED PRODUCTS THE LEGAL TEST (a) Measures, trade effects and market structure (b) Causal connection (c) Relevance of the time of the tariff concession OVERVIEW OF THE IMPACT OF SPECIFIC MEASURES ON THE COMPETITIVE POSITION OF IMPORTS DISTRIBUTION "COUNTERMEASURES" (a) Evolution of systemization, rationalization and standardization of distribution policies (b) Objectives underlying the introduction of transaction terms (c) Competitive position of imported products (i) 1970 Guidelines and transaction terms (ii) 1970 Guidelines and progressive rebates (iii) 1970 Guidelines and single-brand distribution (iv) Other distribution measures (v) Black and white film and paper (d) Causal connection between distribution measures and competitive position of imports (i) Introduction of transaction terms (ii) Introduction of single-brand distribution (iii) Governmental endorsement of private actions (iv) Downstream standardization (v) Uniformity and standardization (e) Financing for rationalization, systemization and standardization (i) JDB funding for joint distribution facilities (ii) SMEA loans to photoprocessing laboratories (f) Electronic information links (g) Current competitive position of imports (i) Primary and secondary wholesale channels (ii) Current market structure in the distribution system (iii) Vertically integrated distribution system (iv) Alternative distribution policies (h) Change in distribution policies (i) 1990 Guidelines (ii) Business Reform Law RESTRICTIONS ON LARGE RETAIL STORES (a) General overview of the allegations (b) Effect of the Large Stores Law on imported products (c) Causal connection (d) Change in policies or continued restrictions of large stores (e) Conclusions PROMOTION "COUNTERMEASURES" (a) General overview (b) JFTC Notifications under the Premiums Law (i) Competitive position of imports (ii) Objectives underlying the promotion

8 Page vi "countermeasures" (iii) Causal connection (iv) Change in policies (c) Fair Trade Councils and Fair Competition Codes (i) Promotion Council (ii) Retailers' Council (iii) Coverage of photographic materials (d) Conclusions E. REASONABLE ANTICIPATION THE LEGAL TEST SPECIFIC NEGOTIATING ROUNDS ON TARIFF CONCESSIONS (a) General overview (b) Kennedy Round (i) Distribution "countermeasures" (ii) Restrictions on large stores (iii) Promotion "countermeasures" (c) Tokyo Round (i) Distribution "countermeasures" (ii) Restrictions on large stores (iii) Promotion "countermeasures" (d) Uruguay Round (i) Distribution "countermeasures" (ii) Restrictions on large stores (iii) Promotion "countermeasures" F. THE COMBINED EFFECT OF THE THREE SETS OF MEASURES VII. LEGAL ARGUMENTS CONCERNING VIOLATION CLAIMS A. ARTICLE III OF GATT INTRODUCTION ARTICLE III: ARTICLE III: (a) "Laws, regulations or requirements" within the scope of Article III: (i) The legal test (ii) Japan's "administrative guidance" in the light of (iii) GATT precedents Are specific distribution measures "laws, regulations and requirements"? (iv) Measures "no longer in effect" (b) "Less favourable treatment" in the meaning of Article III: (i) The legal test (ii) "Less favourable treatment" based on product origin or product characteristics (iii) Impact on competitive conditions for imported film and paper (iv) Causal connection (c) Causation of market structure by governmental measures or private practices (d) Conclusions B. ARTICLE X OF GATT

9 Page vii 1. INTRODUCTION THE LEGAL TEST (a) "Laws, regulations, judicial decisions or administrative rulings" MEASURES TAKEN IN THE CONTEXT OF THE PREMIUMS LAW (a) Premiums Law enforcement actions (b) Actions under "Fair Competition Codes" (c) Requests for information and disclosure of confidential information MEASURES TAKEN IN THE CONTEXT OF THE LARGE STORES LAW (a) MITI's "prior explanation" procedures (b) "Local explanation" procedures (c) Specific examples: The MCA and JFTC studies (d) Administrative rulings "made effective" (e) "Affecting the sale or distribution of imports" CONCLUSIONS VIII. ARGUMENTS OF THIRD PARTIES A. THE EUROPEAN COMMUNITIES FACTUAL ASPECTS LEGAL ASPECTS ARGUMENTS IN REPLY BY JAPAN B. MEXICO IX. INTERIM REVIEW X. FINDINGS A. PRELIMINARY ISSUES SPECIFICITY OF THE "MEASURES" IDENTIFIED IN THE PANEL REQUEST (a) Article 6.2 and the request for establishment of the Panel (b) Analysis of Article (c) The eight "measures" in light of Article SUMMARY B. CLAIMS OF THE PARTIES C. SEQUENCE OF CLAIMS TO BE ADDRESSED D. BURDEN OF PROOF E. ARTICLE XXIII:1(B) - NON-VIOLATION NULLIFICATION OR IMPAIRMENT OVERVIEW OF THE NON-VIOLATION REMEDY THREE REQUIRED ELEMENTS (a) Application of a measure (i) General considerations (ii) Governmental versus private actions (iii) Measure versus continuing effect

10 Page viii (iv) Summary (b) Benefit accruing under the GATT (i) Benefits under successive Rounds (ii) Legitimate expectations of a benefit (c) Nullification or impairment of benefit: causality DISTRIBUTION "MEASURES" (a) General (b) 1967 Cabinet Decision (c) 1967 JFTC Notification 17 on premiums to businesses (d) 1968 Sixth Interim Report (e) 1969 Seventh Interim Report (f) 1969 Survey Report on Transaction Terms (g) 1970 Guidelines for Rationalizing Terms of Trade for Photographic Film (h) 1971 Basic Plan for the Systemization of Distribution (i) 1975 Manual for Systemization of Distribution by Industry: Camera and Film (j) Concluding observations on distribution "measures" RESTRICTIONS ON LARGE RETAIL STORES PROMOTION "MEASURES" (a) 1967 Cabinet Decision (b) 1967 JFTC Notification 17 on premiums to business (c) 1977 JFTC Notification 5 on premium offers to consumers (d) 1981 JFTC Guidance on Dispatched Employees (e) 1982 Self-Regulating Measures on Fairness In Trade and Establishment of the Fair Trade Promotion Council (f) 1984 Self-Regulating Standards (g) 1987 The Retailers Fair Competition Code and the Retailers Council (h) Concluding observations on promotion "measures" COMBINED EFFECTS F. ARTICLE III:4 - NATIONAL TREATMENT IN RESPECT OF LAWS, REGULATIONS AND REQUIREMENTS (a) Laws, regulations or requirements (b) No less favourable treatment G. ARTICLE X:1 - PUBLICATION OF ADMINISTRATIVE RULINGS OF GENERAL APPLICATION GENERAL CONSIDERATIONS ON THE LEGAL TEST UNDER ARTICLE X: "MEASURES" TAKEN IN THE CONTEXT OF THE PREMIUMS LAW (a) Premiums Law enforcement actions (b) Actions under "Fair Competition Codes" "MEASURES" TAKEN IN THE CONTEXT OF THE LARGE STORES LAW H. CONCLUSIONS XI. ANNEX ON TRANSLATION PROBLEMS A. LIST OF TRANSLATION ISSUES APPENDIX TO TRANSLATION ISSUE

11 Page ix 2. APPENDIX TO TRANSLATION ISSUE B. RESPONSES BY THE TRANSLATION EXPERTS