EUROPEAN COMMUNITIES - CUSTOMS CLASSIFICATION
OF CERTAIN COMPUTER EQUIPMENT

AB-1998-2

Report of the Appellate Body

(continued)

VI. Clarification of the Scope of Tariff Concessions

100. The last issue raised by the European Communities in this appeal is whether the Panel erred in placing the onus of clarifying the scope of a tariff concession during a multilateral tariff negotiation, held under the auspices of the GATT/WTO, solely on the importing Member.

101. In paragraph 8.60 of the Panel Report, the Panel concluded that:

We find that the United States was entitled to legitimate expectations that LAN equipment would continue to be accorded tariff treatment as ADP machines in the European Communities, based on the actual tariff treatment during the Uruguay Round, particularly in Ireland and the United Kingdom ... We further find that the United States was not required to clarify the scope of the European Communities' tariff concessions on LAN equipment ... (emphasis added)

Prior to this conclusion, the Panel stated the following:

... we find that the European Communities cannot place the burden of clarification on the United States in cases where it has created, through its own practice, the expectations regarding the continuation of the actual tariff treatment prevailing at the time of the tariff negotiations. It would not be reasonable to expect the US Government to seek clarification when it had not heard any complaints from its exporters, who were apparently satisfied with the current tariff treatment of LAN equipment in their major export market -- Ireland and the United Kingdom.⁹⁵

102. The European Communities appeals these findings, and argues that:

... the Panel erred where it considered that, in any case, the onus of clarifying the scope of a tariff concession during a multilateral tariff negotiation ... shall necessarily be put on the side of the importing Member. By doing so, the Panel has created and applied a new rule on the burden of proof in the dispute settlement procedure which is outside its terms of reference and is beyond the powers of a panel.⁹⁶

103. We do not agree that the Panel has created and applied a new rule on the burden of proof. The rules on the burden of proof are those which we clarified in United States - Shirts and Blouses. ⁹⁷

104. The Panel's findings in paragraphs 8.55 and 8.60 on the "requirement of clarification" are linked to the Panel's reliance on "legitimate expectations" as a means of interpretation of the tariff concessions in Schedule LXXX. They serve to complete and buttress the Panel's conclusion that "the United States was entitled to legitimate expectations that LAN equipment would continue to be accorded tariff treatment as ADP machines in the European Communities".⁹⁸

105. We note that the Panel's findings in paragraphs 8.55 and 8.60 on the "requirement of clarification" were, in fact, the Panel's response to the question whether:

... the exporting Member has any inherent obligation to seek clarification when it has been otherwise given a basis to expect that actual tariff treatment by the importing Member will be maintained.⁹⁹

106. We also note the Panel's references¹⁰¹ to the panel report in Panel on Newsprint and the report by the Group of Experts in Greek Increase in Bound Duty.¹⁰⁰ In both of these reports, the conclusions on the obligations of the importing contracting party under Article II:1 of the GATT 1994 were reached on the basis of the ordinary meaning of the wording of the respective Schedules. These reports also assume that the tariff concessions made by the importing contracting party would have had to be limited by "conditions or qualifications" if they were to be interpreted restrictively. That the Panel reads these two reports in this way is evident from the Panel's concluding remark that "these cases ... confirm that the onus of clarifying tariff commitment is generally placed on the importing Member" (emphasis added).¹⁰²

107. However, the case before us raises a different problem. The question here is whether the European Communities has committed itself to treat LAN equipment as ADP machines under headings 84.71 or 84.73, rather than as telecommunications equipment under heading 85.17 of Schedule LXXX. We do not believe that the "requirement of clarification", as discussed by the Panel, is relevant to this question.

108. The Panel also based its conclusions on the "requirement of clarification" on a certain perception of the nature of tariff commitments. The Panel stated:

... that a tariff commitment is an instrument in the hands of an importing Member which inherently serves the importing Member's "protection needs and its requirements for the purposes of tariff and trade negotiations". ... It is for this reason that it behooves the importing party, as the effective bearer of its rights and responsibilities, to correctly identify products and relevant duties in its tariff schedules, including such limitations or modifications as it intends to apply.¹⁰³

109. We do not share this perception of the nature of tariff commitments. Tariff negotiations are a process of reciprocal demands and concessions, of "give and take". It is only normal that importing Members define their offers (and their ensuing obligations) in terms which suit their needs. On the other hand, exporting Members have to ensure that their corresponding rights are described in such a manner in the Schedules of importing Members that their export interests, as agreed in the negotiations, are guaranteed. There was a special arrangement made for this in the Uruguay Round. For this purpose, a process of verification of tariff schedules took place from 15 February through 25 March 1994, which allowed Uruguay Round participants to check and control, through consultations with their negotiating partners, the scope and definition of tariff concessions.¹⁰⁴ Indeed, the fact that Members' Schedules are an integral part of the GATT 1994 indicates that, while each Schedule represents the tariff commitments made by one Member, they represent a common agreement among all Members.

110. For the reasons stated above, we conclude that the Panel erred in finding that "the United States was not required to clarify the scope of the European Communities' tariff concessions on LAN equipment".¹⁰⁵ We consider that any clarification of the scope of tariff concessions that may be required during the negotiations is a task for all interested parties.

VII. Conclusions

111. For the reasons set out in this Report, the Appellate Body:

(a) upholds the finding of the Panel that the request of the United States for the establishment of a panel met the requirements of Article 6.2 of the DSU;

(b) reverses the findings of the Panel that the United States was entitled to "legitimate expectations" that LAN equipment would be accorded tariff treatment as ADP machines in the European Communities and, therefore, that the European Communities acted inconsistently with the requirements of Article II:1 of the GATT 1994 by failing to accord imports of LAN equipment from the United States treatment no less favourable than that provided for in Schedule LXXX; and

(c) reverses the ancillary finding of the Panel that the United States was not required to clarify the scope of the European Communities' tariff concessions on LAN equipment.
 

Signed in the original at Geneva this 19th day of May 1998 by:

_________________________
Christopher Beeby
Presiding Member

_________________________                                            _________________________
Claus-Dieter Ehlermann                                                                      Julio Lacarte-Muró
            Member                                                                                                    Member

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95. Panel Report, para. 8.55.

96. Notice of Appeal of the European Communities, para. 4.

97. Adopted 23 May 1997, WT/DS33/AB/R, p. 14. See also, Appellate Body Report, EC Measures Concerning Meat and Meat Products (Hormones), adopted 13 February 1998, WT/DS26/AB/R, WT/DS48/AB/R, paras. 97-109.

98. Panel Report, para. 8.60.

99. Panel Report, para. 8.48.

100. See Panel Report, paras. 8.51-8.54.

101. L/580, 9 November 1956. We note that while the panel report in Panel on Newsprint was adopted by the CONTRACTING PARTIES, the report by the Group of Experts in Greek Increase in Bound Duty was not.

102. Panel Report, para. 8.54.

103. Panel Report, para. 8.50.

104. MTN.TNC/W/131, 21 January 1994. See also Marrakesh Protocol to the General Agreement on Tariffs and Trade 1994, para. 3.

105. Panel Report, para. 8.60.

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