5.4 Categorization as customs duties (Article II:1(b)) or internal taxes (Article III:2). The Panel noted that Japan argued that the anticircumvention duties could be considered to be either duties imposed on or in connection with importation within the meaning of Article II:1(b) or internal taxes within the meaning of Article III:2. The EEC considered that the duties do not fall under Article III:2. The Panel recalled that the distinction between import duties and internal charges is of fundamental importance because the General Agreement regulates ordinary customs duties, other import charges and internal taxes differently: the imposition of "ordinary customs duties" for the purpose of protection is allowed unless they exceed tariff bindings; all other duties or charges of any kind imposed on or in connection with importation are in principle prohibited in respect of bound items (Article II:1(b)). By contrast, internal taxes that discriminate against imported products are prohibited, whether or not the items concerned are bound (Article III:2). The Panel therefore first examined whether the duties constitute customs or other duties imposed on or in connection with importation falling under Article II:1(b) or internal taxes falling under Article III:2.

5.5 The Panel noted that the anti-circumvention duties are levied, according to Article 13:10(a), "on products that are introduced into the commerce of the Community after having been assembled or produced in the Community". The duties are thus imposed, as the EEC explained before the Panel, not on imported parts or materials but on the finished products assembled or produced in the EEC. They are not imposed conditional upon the importation of a product or at the time or point of importation. The EEC considers that the anti-circumvention duties should, nevertheless, be regarded as customs duties imposed "in connection with importation" within the meaning of Article II:1(b). The main arguments the EEC advanced in support of this view were: firstly, that the purpose of these duties was to eliminate circumvention of anti-dumping duties on finished products and that their nature was identical to the nature of the anti-dumping duties they were intended to enforce; and secondly, that the duties were collected by the customs authorities under procedures identical to those applied for the collection of customs duties, formed part of the resources of the EEC in the same way as customs duties and related to parts and materials which were not considered to be "in free circulation" within the EEC.

5.6 In the light of the above facts and arguments, the Panel first examined whether the policy purpose of a charge is relevant to determining the issue of whether the charge is imposed in "connection with importation" within the meaning of Article II:1(b). The text of Articles I, II, III and the Note to Article III refers to charges "imposed on importation", "collected ... at the time or point of importation" and applied "to an imported product and to the like domestic product". The relevant fact, according to the text of these provisions, is not the policy purpose attributed to the charge but rather whether the charge is due on importation or at the time or point of importation or whether it is collected internally. This reading of Articles II and III is supported by their drafting history and by previous panel reports (e.g. BISD 1S/60; 25S/49, 67). A recent panel report which has examined the provisions of the General Agreement governing tax adjustments applied to goods entering into international trade (among them Articles II and III) stated that

The Panel further noted that the policy purpose of charges is frequently difficult to determine objectively. Many charges could be regarded as serving both internal purposes and purposes related to the importation of goods. Only at the expense of creating substantial legal uncertainty could the policy purpose of a charge be considered to be relevant in determining whether the charge falls under Article II:1(b) or Article III:2. The Panel therefore concluded that the policy purpose of the charge is not relevant to determining the issue of whether the charge is imposed in "connection with importation" within the meaning of Article II:1(b).

5.7 The Panel proceeded to examine whether the mere description or categorization of a charge under the domestic law of a contracting party is relevant to determining the issue of whether it is subject to requirements of Article II or those of Article III:2. The Panel noted that if the description or categorization of a charge under the domestic law of a contracting party were to provide the required "connection with importation", contracting parties could determine themselves which of these provisions would apply to their charges. They could in particular impose charges on products after their importation simply by assigning the collection of these charges to their customs administration and allocating the revenue generated to their customs revenue. With such an interpretation the basic objective underlying Articles II and III, namely that discrimination against products from other contracting parties should only take the form of ordinary customs duties imposed on or in connection with importation and not the form of internal taxes, could not be achieved. The same reasoning applies to the description or categorization of the product subject to a charge. The fact that the EEC treats imported parts and materials subject to anti-circumvention duties as not being "in free circulation" therefore cannot, in the view of the Panel, support the conclusion that the anti-circumvention duties are being levied "in connection with importation" within the meaning of Article II:1(b).

5.8 In the light of the above, the Panel found that the anti-circumvention duties are not levied "on or in connection with importation" within the meaning of Article II:1(b), and consequently do not constitute customs duties within the meaning of that provision.

5.9 Article III:2. The Panel proceeded to examine the anti-circumvention duties in the light of Article III:2, first sentence, according to which

The Panel noted that, in the cases in which anti-circumvention duties had been applied, the EEC followed sub-paragraph (c) of the anti-circumvention provision, according to which "the amount of duty collected shall be proportional to that resulting from the application of the rate of the anti-dumping duty applicable to the exporter of the complete products on the c.i.f. value of the parts or materials imported". The Panel further noted that like parts and materials of domestic origin are not subject to any corresponding charge. The Panel therefore found that the anti-circumvention duties on the finished products subject imported parts and materials indirectly to an internal charge in excess of that applied to like domestic products and that they are consequently contrary to Article III:2, first sentence.

5.10 Having found that the anti-circumvention duties are inconsistent with Article III:2, first sentence, the Panel saw no need for examining whether the anti-circumvention duties are also inconsistent with the obligations of the EEC under Article III:2, second sentence, and Article I:1. The Panel proceeded to examine the question of whether the inconsistency of the duties with Article III:2, first sentence, can be justified under the exception in the General Agreement invoked by the EEC.

5.11 Article VI. The Panel noted that, in the proceedings before the Panel, the EEC had not defended the anti-circumvention duties as anti-dumping duties within the meaning of Article VI of the General Agreement but as measures designed to prevent what it considered to be circumvention of anti-dumping duties through the importation and subsequent assembly of parts and components. The legal basis of these measures, in the view of the EEC, was Article XX(d) of the General Agreement which permits contracting parties to take measures necessary to secure compliance with laws or regulations which are not inconsistent with the General Agreement. The Panel further noted that the United States, as an interested third party, had argued that Article VI of the General Agreement provided to a certain extent a legal basis for measures to prevent what it considered to be circumvention of anti-dumping duties. At one point in the proceedings the EEC stated that, if the Panel were to find that the anti-circumvention duties were justifiable under Article VI, "it would not disagree" with such an approach (supra paragraph 3.76). However, the EEC presented no arguments in support of a justification of its measures under Article VI; on the contrary, in the subsequent proceedings the EEC continued to present various arguments to the effect that measures under Article 13:10 were "necessary" within the meaning of Article XX(d) because Article VI did not provide a basis for the application of measures to prevent circumvention of anti-dumping duties (supra paragraphs 3.86-89). In conformity with the practice of panels not to examine exceptions under the General Agreement which have not been invoked by the contracting party complained against (see, e.g. BISD 31S/74) and not to examine issues brought only by third parties (cf. L/6514, page 15 and the references therein), the Panel decided not to examine whether the anti-circumvention duties could be justified under Article VI of the General Agreement.

5.12 Article XX(d). The Panel proceeded to examine whether Article XX(d), which the EEC did invoke, can justify the imposition of the anti-circumvention duties. The Panel noted that the relevant part of Article XX(d) provides that

...

The Panel noted that Article XX refers to "measures" in its introductory sentence and to "laws and regulations" in sub-paragraph (d). The Panel considered that the "measure" referred to in Article XX is the measure requiring justification under Article XX and that, therefore, the imposition of anti-circumvention duties inconsistent with Article III:2 is the "measure" in the present case. It further considered that the "laws or regulations" to be examined under sub-paragraph (d) are the laws or regulations the contracting party invoking Article XX(d) claims to secure compliance with, in the present case the Council Regulations Nos. 2176/84 and 2423/88 (except for the anti-circumvention provision) and the individual Council regulations imposing definitive anti-dumping duties on finished products from Japan.

5.13 The Panel then considered whether Council Regulations Nos. 2176/84 and 2423/88 (except for the anti-circumvention provision) and the individual EEC anti-dumping regulations imposing definitive anti-dumping duties on finished products imported from Japan could be considered as laws or regulations "which are not inconsistent" with the provisions of the General Agreement. The Panel recalled Japan's doubts as to whether these laws and regulations are "not inconsistent" with the provisions of the General Agreement. However, the Panel noted that its terms of reference and the submissions by both parties have been limited to the anti-circumvention provision and its application. The Panel therefore decided to assume that, for the purposes of its proceeding, Council Regulations Nos. 2176/84 and 2423/88, with the exception of the anti-circumvention provision, and the individual EEC regulations imposing definitive anti-dumping duties on imports from Japan are "laws or regulations which are not inconsistent with the provisions of this Agreement" in terms of Article XX(d). The Panel emphasizes that this assumption applies only to its proceeding and is consequently without prejudice to any examination of these regulations in any other dispute settlement proceeding.

5.14 The Panel noted that, in order for a measure to be covered by Article XX(d), it must "secure compliance with" laws or regulations that are not inconsistent with the General Agreement. The Panel therefore proceeded to examine the question of whether the imposition of anti-circumvention duties inconsistent with Article III:2 is a measure "to secure compliance with" the EEC's general anti-dumping regulations and the individual regulations imposing definitive anti-dumping duties. The essential argument of Japan on this point was that Article XX(d) permits contracting parties to take only measures to enforce the obligations provided for in the laws or regulations consistent with the General Agreement. The only part of the EEC's anti-dumping regulations that requires enforcement is the part establishing the obligation to pay anti-dumping duties. The anti-circumvention duties do not serve to secure the payment of these duties and can therefore in the view of Japan not be considered to be securing compliance with the EEC's anti-dumping regulations. The essential argument of the EEC was that the terms "to secure compliance with" should be interpreted more broadly to cover not only the enforcement of laws and regulations per se but also the prevention of actions which have the effect of undermining the objectives of laws and regulations. In the view of the EEC, the anti-circumvention duties, being levied only in narrowly defined circumstances in which the objectives of the EEC's anti-dumping regulations are clearly being undermined, therefore secure compliance with these regulations within the meaning of Article XX(d).

5.15 The Panel concluded from the above that the interpretative issue before it was: Does the qualification "to secure compliance with laws or regulations" mean that the measure must prevent actions inconsistent with the obligations set out in laws or regulations, or does it support a more expansive interpretation according to which it would also cover a measure which prevents actions that are consistent with laws or regulations but undermine their objectives?

5.16 The Panel first examined this interpretative issue in the light of the text of Article XX(d). The Panel noted that this provision does not refer to objectives of laws or regulations but only to laws or regulations. This suggests that Article XX(d) merely covers measures to secure compliance with laws and regulations as such and not with their objectives. The examples of the laws and regulations indicated in Article XX(d), namely "those relating to customs enforcement, the enforcement of monopolies ..., the protection of patents ... and the prevention of deceptive practices" (emphasis added) also suggest that Article XX(d) covers only measures designed to prevent actions that would be illegal under the laws or regulations. This conclusion is further supported by the fact that the provision corresponding to Article XX(d) in the 1946 Suggested Charter for an International Trade Organization used the terms "to induce compliance with" while Article XX(d) of the General Agreement uses the stricter language "to secure compliance with" (emphasis added).

5.17 The Panel then examined the alternative interpretations in the light of the purpose of Article XX(d) and found the following. If the qualification "to secure compliance with laws and regulations" is interpreted to mean "to enforce obligations under laws and regulations", the main function of Article XX(d) would be to permit contracting parties to act inconsistently with the General Agreement whenever such inconsistency is necessary to ensure that the obligations which the contracting parties may impose consistently with the General Agreement under their laws or regulations are effectively enforced. If the qualification "to secure compliance with laws and regulations" is interpreted to mean "to ensure the attainment of the objectives of the laws and regulations", the function of Article XX(d) would be substantially broader. Whenever the objective of a law consistent with the General Agreement cannot be attained by enforcing the obligations under that law, the imposition of further obligations inconsistent with the General Agreement could then be justified under Article XX(d) on the grounds that this secures compliance with the objectives of that law. This cannot, in the view of the Panel, be the purpose of Article XX(d): Each of the exceptions in the General Agreement - such as Articles VI, XII or XIX - recognizes the legitimacy of a policy objective but at the same time sets out conditions as to the obligations which may be imposed to secure the attainment of that objective. These conditions would no longer be effective if it were possible to justify under Article XX(d) the enforcement of obligations that may not be imposed consistently with these exceptions on the grounds that the objective recognized to be legitimate by the exception cannot be attained within the framework of the conditions set out in the exception.

5.18 For the reasons indicated in the preceding paragraphs, the Panel found that Article XX(d) covers only measures related to the enforcement of obligations under laws or regulations consistent with the General Agreement. The Panel noted that the general anti-dumping Regulation of the EEC does not establish obligations that require enforcement; it merely establishes a legal framework for the authorities of the EEC. Only the individual regulations imposing definitive anti-dumping duties give rise to obligations that require enforcement, namely the obligation to pay a specified amount of anti-dumping duties. The Panel noted that the anti-circumvention duties do not serve to enforce the payment of anti-dumping duties. The Panel could, therefore, not establish that the anti-circumvention duties "secure compliance with" obligations under the EEC's anti-dumping regulations. The Panel concluded for these reasons that the duties could not be justified under Article XX(d).

5.19 Article III:4. The Panel proceeded to examine whether, as contended by Japan, the acceptance of undertakings to limit the use of imported parts and materials constituted a "requirement" that accords treatment to imported products less favourable than that accorded to domestic products contrary to Article III:4.

5.20 The Panel recalled that, during the period June 1987 to October 1988, eleven undertakings by parties related to or associated with Japanese manufactures had been accepted by the EEC in investigations under the anti-circumvention provision and that, according to the relevant Commission decisions published in the Official Journal of the European Communities, these undertakings related, inter alia, to changes in the sourcing of parts and materials used in assembly or production operations in the Community. The Panel noted that there is no obligation under the EEC's anti-dumping Regulation to offer parts undertakings, to accept suggestions by the EEC Commission to offer such undertakings and to maintain the parts undertakings given. However, the consequence of not offering an undertaking, or of withdrawing an existing undertaking, can be the continuation of procedures that may lead to the imposition of the anti-circumvention duties. Article 10 of Regulation No. 2324/88 states that "where an undertaking has been withdrawn or where the Commission has reason to believe that it has been violated ... it may ... apply ... antidumping ... duties forthwith on the basis of the facts established before the acceptance of the undertaking".

5.21 The Panel noted that Article III:4 refers to "all laws, regulations or requirements affecting (the) internal sale, offering for sale, purchase, transportation, distribution or use". The Panel considered that the comprehensive coverage of "all laws, regulations or requirements affecting" (emphasis added) the internal sale, etc. of imported products suggests that not only requirements which an enterprise is legally bound to carry out, such as those examined by the "FIRA Panel" (BISD 30S/140, 158), but also those which an enterprise voluntarily accepts in order to obtain an advantage from the government constitute "requirements" within the meaning of that provision. The Panel noted that the EEC made the grant of an advantage, namely the suspension of proceedings under the anti-circumvention provision, dependent on undertakings to limit the use of parts or materials of Japanese origin without imposing similar limitations on the use of like products of EEC or other origin, hence dependent on undertakings to accord treatment to imported products less favourable than that accorded to like products of national origin in respect of their internal use. The Panel therefore concluded that the decisions of the EEC to suspend proceedings under Article 13:10 conditional on undertakings by enterprises in the EEC to limit the use of parts or materials originating in Japan in their assembly or production operations are inconsistent with Article III:4.

5.22 Having found the acceptance by the EEC of parts undertakings limiting the use of imported parts and components to be inconsistent with Article III:4, the Panel saw no need for examining whether the acceptance of such undertakings is also inconsistent with Article I:1 of the General Agreement.

5.23 Article VI. The Panel recalled that the EEC had, in the course of the Panel proceeding, not invoked Article VI as a justification of its anti-circumvention duties (see paragraph 5.11 above). As the EEC had also not invoked Article VI as a justification of its parts undertakings, the Panel decided not to examine whether the acceptance of undertakings inconsistent with Article III:4 of the General Agreement could be justified under Article VI.

5.24 Article XX(d). The Panel recalled its finding that the imposition of anti-circumvention duties inconsistent with Article III:2 could not be justified under Article XX(d) because the duties did not "secure compliance with" the EEC's anti-dumping regulations within the meaning of that provision (see above paragraph 5.18). The Panel found that this implies that the acceptance of parts undertakings, which functioned as a substitute for the anti-circumvention duties, could likewise not be considered to "secure compliance with" the EEC's anti-dumping regulations.

5.25 Japan considers not only the measures taken under the anticircumvention provision but also the provision itself to be violating the EEC's obligations under the General Agreement. Japan therefore asked the Panel to recommend to the CONTRACTING PARTIES that they request the EEC not only to revoke the measures taken under the provision but also to withdraw the provision itself. The Panel therefore examined whether the mere existence of the anti-circumvention provision is inconsistent with the General Agreement. The Panel noted that the anti-circumvention provision does not mandate the imposition of duties or other measures by the EEC Commission and Council; it merely authorizes the Commission and the Council to take certain actions. Under the provisions of the General Agreement which Japan claims to have been violated by the EEC contracting parties are to avoid certain measures; but these provisions do not establish the obligation to avoid legislation under which the executive authorities may possibly impose such measures. The Panel further noted that it has been recognized in a previous panel report adopted by the CONTRACTING PARTIES that legislation mandatorily requiring the executive authority to impose internal taxes discriminating against imported products is inconsistent with Article III:2 whether or not an occasion for its actual application has as yet arisen (BISD 34S/160), but that legislation merely giving the executive authorities the possibility to act inconsistently with Article III:2 cannot, by itself, constitute a violation of that provision (BISD 34S/160, 164). At issue in that case was, inter alia, a provision in the Superfund Act of the United States which directs the United States tax authorities to impose a tax on certain chemical substances but allows these authorities not to impose the tax provided they issue certain regulations. The panel which examined that case noted that the levying of the tax would be inconsistent with Article III:2 and that the regulations eliminating the need to impose that tax had not yet been issued. The panel then concluded:

5.26 In the light of the above the Panel found that the mere existence of the anti-circumvention provision in the EEC's anti-dumping Regulation is not inconsistent with the EEC's obligations under the General Agreement. Although it would, from the perspective of the overall objectives of the General Agreement, be desirable if the EEC were to withdraw the anti-circumvention provision, the EEC would meet its obligations under the General Agreement if it were to cease to apply the provision in respect of contracting parties.

5.27 The Panel considered the argument of Japan that, in the administration of the anti-circumvention provision, the EEC violated its obligations under Article X:1 and X:3 of the General Agreement, in particular in respect of the criteria for the acceptance of undertakings and the methodology for determining the origin of imported parts and components. Given that the Panel found the anti-circumvention duties and the acceptance of parts undertakings to be inconsistent with Article III:2 and 4, and not justifiable under Article XX(d), and that any further imposition of such duties or acceptance of related undertakings would therefore be inconsistent with the General Agreement, the issue of whether the administration of the anti-circumvention provision is consistent with Article X is no longer relevant.

5.28 The Panel was aware that a number of participants in the ongoing multilateral trade negotiations consider that the increased internationalization of production processes has led to certain problems in the administration of their anti-dumping laws, and that these issues are presently the subject of these negotiations. The Panel would like to underline that its task was limited to an examination of the measures taken by the EEC in the light of the existing provisions of the General Agreement invoked by the parties to the dispute.

6.1 The duties imposed by the EEC under Article 13:10 of Council Regulations Nos. 2176/84 and 2423/88 on products assembled or produced within the EEC by enterprises related to Japanese manufacturers of products subject to anti-dumping duties are inconsistent with Article III:2, first sentence, and are not justified by Article XX(d) of the General Agreement.

6.2 The decisions of the EEC to suspend proceedings under Article 13:10 conditional on undertakings by enterprises in the EEC to limit the use of parts or materials originating in Japan in their assembly or production operations are inconsistent with Article III:4 and not justified by Article XX(d) of the General Agreement.

6.3 The Panel recommends that the CONTRACTING PARTIES request the EEC to bring its application of Article 13:10 into conformity with its obligations under the General Agreement.

2. Electronic weighing scales
Date of initiation	Exporters concerned	Related Assemblers	Initial Results	Subsequent Procedure
1 September 1987 (OJ, No. C235/3)	TEC	TEC KEYLARD (NL)	Termination of investigation on 18 April 1988; 40 percent non-Japanese parts value achieved (OJ, No. L101/28)	-
1 September 1987 (OJ, No. C235/3)	TEC	TEC (UK)	Duty extended on 18 April 1988; 93 percent Japanese parts value (OJ, No. L101/1)	Undertaking accepted in July 1988 and duty withdrawn in September 1988 (OJ, No. L189/27 and L244/1)

3. Hydraulic Excavators
Date of initiation	Exporters concerned	Related Assemblers	Initial Results	Subsequent Procedure
23 October 1987 (OJ, No. C285/4)	KOMATSU	KOMATSU (UK)	Termination of investigation on 18 April 1988; 40 percent non-Japanese parts value achieved (OJ, No. L101/24)	-

Undertaking accepted on 16 November 1988 and duty withdrawn on 19 December 1988 (OJ, No. L355/66 and L355/1)

4. Plain paper photocopiers
Date of initiation	Exporters concerned	Related Assemblers	Initial Results	Subsequent Procedure
17 February 1988 (OJ, No. C44/3)	Canon	Canon Bretagne (FR)	Undertaking accepted on 17 October 1988; 63 percent Japanese parts value during reference period (OJ, No. L248/60)	-
17 February 1988 (OJ, No. C44/3)	Canon	Canon Giessen (FRG)	Termination of investigation on 17 October 1988; 40 percent non-Japanese parts value during reference period (OJ, No. L248/60)	-
17 February 1988 (OJ, No. C44/3)	Canon	Olivetti-Canon (I)	Termination of investigation on 17 October 1988; 40 percent non-Japanese parts value during reference period (OJ, No. L248/60)	-
17 February 1988 (OJ, No. C44/3)	Konica	Konica Business Machine Manufacturing (D)	Duty extended on 17 October 1988; 99 percent Japanese parts value (OJ, No. L248/36)	Undertaking accepted on 23 December 1988 and duty withdrawn on 13 February 1989 (OJ, No. L43/54 and L43/1)
17 February 1988 (OJ, No. C44/3)	Matsushita	Matsushita Business Machine Europe (D)	Duty extended on 17 October 1988; 98 percent Japanese parts value (OJ, No. L248/36)
17 February 1988 (OJ, No. C44/3) and 1 December 1988 (OJ, No. C306/8)	Sharp	Sharp Manufacturing (UK)	Acceptance of undertaking on 28 April 1989; 60 percent Japanese parts value (OJ, No. L126/38)	-
17 February 1988 (OJ, No. C44/3)	Toshiba	Toshiba Systems (FR)	Duty extended on 17 October 1988; 70 percent Japanese parts value (OJ, No. L284/36)	Undertaking accepted on 16 November 1988 and duty withdrawn on 19 December 1988 (OJ, No. L355/66 and L355/1)
17 February 1988 (OJ, No. C44/3)	Minolta Dr Eisbein (FRG)	Firma Develop	Undertaking accepted on 17 October 1988; 94 percent Japanese parts value during period of investigation (OJ, No. L248/60)	-
17 February 1988 (OJ, No. C44/3)	Ricoh	Ricoh Products (UK)	Undertaking accepted on 17 October 1988; 87 per cent Japanese parts value during period of investigation (OJ, No. L248/60)	-
4 May 1989 (OJ, No. C113/6)	Ricoh	Ricoh Industries (FR)	-	-

Termination of investigation on 20 January 1989; 40 percent non-Japanese parts value during reference period (OJ, No. L25/90)

5. Ball Bearings
Date of initiation	Exporters concerned	Related Assemblers	Initial Results	Subsequent Procedure
8 June 1988 (OJ, No. C150/4)	Nippon Seiko KK	NSK Bearings (Europe) (UK)	Termination of investigation on 20 January 1989; 40 percent non-Japanese parts value during reference period (OJ, No. L25/90)	-
8 June 1988 (OJ, No. C150/4)	NTN Toyo Bearing	NTN Kugellager Fabrik (FRG)	-

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