European Communities − Tariff Treatment of Certain Information Technology Products
DS/375, 376, 377
First Written Submission
by the European Communities
Geneva, 2 April 2009
EC – Tariff Treatment of Certain Information Technology Products First Written Submission DS375, 376, 377 by the European Communities ______________________________________________________________________
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TABLE OF CONTENTS
I. INTRODUCTION ........................................................................................................ 1
II. THE INFORMATION TECHNOLOGY AGREEMENT ("ITA") .................................... 3
A. The content of the ITA .................................................................................. 4
1. Ministerial Declaration..................................................................... 4 2. Annex ............................................................................................... 4 3. Attachments A and B........................................................................ 5 4. Conclusion........................................................................................ 6
B. The negotiation of the ITA............................................................................ 7
C. Subsequent developments ............................................................................. 9
1. CITA................................................................................................. 9 2. ITA II................................................................................................ 9
III. THE CLAIM ON "FLAT PANEL DISPLAY DEVICES" (FPD) UNDER ARTICLE II OF THE GATT 1994 .................................................................................................... 10
A. Introduction ................................................................................................ 10
B. Lack of prima facie case............................................................................. 10
1. The lack of definition of the products subject to dispute ............... 11 2. The complainants have failed to identify the relevant obligations in
the EC Schedule with sufficient clarity.......................................... 17 3. The duties, if otherwise applicable in respect of a given product,
have been suspended ...................................................................... 21 4. The non-application of the disputed criteria would not necessarily
lead to a violation of Article II of the GATT 1994 ........................ 21
C. Multifunctional LCD monitors ................................................................... 24
1. Introduction .................................................................................... 24 2. The birth of the modern multifunctional LCD monitor.................. 26 3. The measures .................................................................................. 30 4. Ordinary meaning of the relevant tariff terms................................ 32
(a) Heading 8471 60 90 ........................................................... 32 (b) The narrative product definition......................................... 33
5. Context ........................................................................................... 38 (a) The context provided by the other EC commitments and
product definitions pursuant to the ITA ............................. 39 (b) The Schedules of other ITA parties.................................... 47 (c) The Harmonized System .................................................... 49 (d) The consequences of the judgment of the European Court of
Justice in C-376/07 Kamino ............................................... 56 6. Object and purpose......................................................................... 59 7. Other relevant means of interpretation........................................... 60
(a) Specific classification practice of the United States .......... 60
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(b) Practice of ITA parties in 1997-1999 ................................. 61 (c) Negotiations for ITA II....................................................... 63 (d) Negotiating history ............................................................. 64
D. Conclusion.................................................................................................. 67
IV. THE CLAIM ON SET TOP BOXES WHICH HAVE A COMMUNICATION FUNCTION (STBC) UNDER ARTICLE II GATT 1994 ............................................................. 67
A. Preliminary remarks................................................................................... 67
1. The complainants have failed to explain/establish what constitutes the EC concession .......................................................................... 67
2. Complainants' claim suffers from serious errors ............................ 70 (a) There is no commitment on "set top boxes with a
communication function" ................................................... 70 (b) The product descriptions provided by the complainants are
inaccurate, irrelevant and misleading................................. 71 (c) How to read the complainants' arguments.......................... 73
B. The narrative description in the EC Schedule............................................ 73
1. Ordinary meaning of the narrative description............................... 74 (a) The text in the EC Schedule ............................................... 74 (b) The surrounding circumstances.......................................... 76
i) Set top boxes available on the market in 1996 ...................................77 ii) Descriptions used during the negotiations ..........................................78
2. Context – the tariff lines of 1997.................................................... 83 (a) Immediate context – tariff lines in EC Schedule................ 83 (b) Broader context – schedules of other ITA Parties.............. 84
3. Subsequent developments, including subsequent practice............. 86 (a) Practice of ITA parties in 1997-1999 ................................. 86 (b) The developments in 2000 ................................................. 87
4. Conclusion...................................................................................... 88
C. The measure(s) at issue respect the EC commitment ................................. 89
1. Argument........................................................................................ 89 (a) The complainants misinterpret the narrative description to
include other products than STBCs.................................... 90 i) Set top boxes incorporating a hard drive or DVD recorder ................90 ii) Set top boxes "using certain types of modems"..................................92
(b) The complainants misunderstand the EC classification ..... 93 i) CN codes referred to in the EC Schedule and the tariff treatment in the
CN ......................................................................................................94 ii) EC classifies correctly ........................................................................95
2. Conclusions .................................................................................... 97
V. THE CLAIM ON SET TOP BOXES WHICH HAVE A COMMUNICATION FUNCTION (STBC) UNDER ARTICLE X GATT 1994 .............................................................. 98
A. Article X:1 GATT 1994............................................................................... 98
1. Legal status, adoption and publication of Explanatory notes......... 98 (a) Status of the Explanatory notes (CN EN) .......................... 98 (b) Procedure of adoption of CN EN ....................................... 99
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(c) Publication........................................................................ 102 2. Adoption and publication of the Explanatory notes challenged by
the complainants........................................................................... 102 3. Challenged CN EN were published in full accordance with Article
X:1 GATT 1994 ........................................................................... 104
B. Unadopted CN EN do not and cannot violate Article X:2 GATT 1994 ... 106
1. Explanatory notes and classification decisions made by national authorities of the Member States.................................................. 106
2. The legal status of votes in the CCCE.......................................... 107 3. BTIs issued while the draft CN EN were discussed in the CCCE 110
VI. CLAIM CONCERNING CERTAIN "MULTIFUNCTIONAL MACHINES" (MFMS) UNDER ARTICLE II OF THE GATT 1994 ............................................................. 112
A. Background .............................................................................................. 112
1. The products at issue .................................................................... 112 2. The measures at issue ................................................................... 116 3. The relevant tariff concessions..................................................... 118 4. The issue....................................................................................... 119 5. The Kip judgement ....................................................................... 120
B. ADP MFMs............................................................................................... 121
1. Digital copying is a form of photocopying .................................. 121 (a) Ordinary meaning............................................................. 122 (b) Context provided by other positions of the EC Schedule and
of the HS96....................................................................... 125 (c) Explanatory Note to HS96 9009 ...................................... 126 (d) Practice of the European Communities and other Members
with respect to the classification of digital photocopiers . 127 i) The European Communities .............................................................127 ii) The United States .............................................................................129 iii) Other countries – Discussions within the WCO ...............................131
(e) Negotiating history of the ITA ......................................... 131 (f) The ITA II ........................................................................ 132 (g) The HS 2007..................................................................... 133 (h) Preliminary conclusion..................................................... 134
2. ADP MFMs fall outside the concession for subheading 8471 60, unless it can be shown that their copying function is secondary . 134 (a) Note 5(B) to Chapter 84 ................................................... 135 (b) Other contextual elements ................................................ 138 (c) Object and purpose........................................................... 140 (d) The negotiating history of the ITA................................... 140 (e) The classification practice of the European Communities141 (f) Preliminary conclusion..................................................... 142
3. ADP MFMs with an equivalent copying function fall within the scope of the concession for CN 9009 12 pursuant to GIR 3 ........ 142
4. Conclusion.................................................................................... 144
C. Non-ADP MFMs....................................................................................... 145
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VII. CONCLUSION........................................................................................................ 148
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TABLE OF REPORTS CITED
China – Auto Parts Panel Report, China – Measures Affecting Imports of Automobile Parts, WT/DS339/R, WT/DS340/R, WT/DS342/R, adopted December 2008, as modified by the Appellate Body Report, WT/DS315
China – Auto Parts Appellate Body Report, China – Measures Affecting Imports of Automobile Parts, WT/DS339/AB/R, WT/DS340/AB/R, WT/DS342/AB/R, adopted 11 December 2006
EC – Chicken Cuts Appellate Body Report, European Communities - Customs Classification of Frozen Boneless Chicken Cuts, WT/DS269/AB/R, WT/DS286/AB/R, adopted 27 September 2005
EC – Computer Equipment Panel Report, European Communities – Customs Classification of certain Computer Equipment, WT/DS62/R, WT/DS67/R, WT/DS68/R, adopted 22 June 1998, as modified by the Appellate Body Report, WT/DS62/AB/R, WT/DS67/AB/R, WT/DS68/AB/R, DSR 1998:V, 1891
EC – Computer Equipment Appellate Body Report, European Communities – Customs Classification of Certain Computer Equipment, WT/DS62/AB/R, WT/DS67/AB/R, WT/DS68/AB/R, adopted 22 June 1998
EC – Selected Customs Matters
Panel Report, European Communities – Selected Customs Matters, WT/DS315/R, adopted 11 December 2006, as modified by the Appellate Body Report, WT/DS315/AB/R
Greece – Phonograph Records Group of Experts Report, Greece - Increase in Bound Duty, L/580, 9 November 1956, unadopted.
US – 1916 Act
Appellate Body Report, United States – Anti-Dumping Act of 1916, WT/DS136/AB/R, WT/DS162/AB/R, adopted 26 September 2000
US - Continued Zeroing Appellate Body Report, United States – Continued Existence and Application of Zeroing Methodology, WT/DS350/AB/R, adopted 19 February 2009
US – OCTG Sunset Reviews
Appellate Body Report, United States – Sunset Reviews of Anti-Dumping Measures on Oil Country Tubular Goods from Argentina, WT/DS268/AB/R, adopted 17 December 2004
US - Section 301 Panel Report, United States – Sections 301-310 of the Trade Act of 1974, WT/DS152/R, adopted 27 January 2000
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ABBREVIATIONS ADP Automatic Data-processing machine
BTI Binding Tariff Information
CCT Common Customs Tariff
CCCE Customs Code Committee
CITA Committee of Participants on the Expansion of Trade in Information Technology Products
CN Combined Nomenclature
CNEN, CN EN Explanatory Notes to the Combined Nomenclature
Commission European Commission
CRT Cathode-Ray Tube
DSB Dispute Settlement Body
DSU Understanding on Rules and Procedures Governing the Settlement of Disputes
DVR Digital Video Recorder
EC European Communities
ECJ European Court of Justice
FPD Flat Panel Displays
GATT 1994 General Agreement on Tariffs and Trade 1994
DVI Digital Visual Interface
GIR General Interpretative Rule(s)
HDTV High-Definition Televisions
HS Harmonized Commodity Description and Coding System
HSEN Harmonized System Explanatory Notes
ITA Information Technology Agreement
LCD Liquid Crystal Display
MFM Multifunctional Digital Machine
OLED Organic Light Emitting Diode
PVR Personal Video Recorder
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PoI Points of Information
PoS Points of Sale
QUAD Group comprised of the European Communities, the United States, Japan and Canada
STBs Set-Top Boxes
STBCs Set-Top Boxes which have a Communication Function
TPKM Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu
US United States of America
VESA Video Electronics Standards Association
VGA Video Graphics Array
Vienna Convention Vienna Convention on the Law of Treaties
WCO World Customs Organization
WTO World Trade Organization
EC – Tariff Treatment of Certain Information Technology Products First Written Submission DS375, 376, 377 by the European Communities ______________________________________________________________________
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I. INTRODUCTION
1. This submission sets out the response of the European Communities to the
allegations contained in the complainants' first submissions filed on 5 March 2009.
2. Section II of this submission summarises the content of the Information
Technology Agreement (ITA) and its negotiating history, as well as some
subsequent developments. Against this background, Sections III, IV and VI
respond to the complainants' claims to the effect that the European Communities
has breached Article II of the GATT 1994 by giving tariff treatment less
favourable than that provided in the EC Schedule of concessions with respect to
imports of certain categories of products. Specifically, Section III addresses the
complainants' claims under Article II GATT 1994 relating to certain "flat panel
display devices" (FPD); Section IV those concerning certain "set top boxes"
(STB); and section VI those relating to certain "multifunctional machines"
(MFM). Section V provides the EC rebuttal to the claim that certain actions
concerning STBs breach Article X of the GATT 1994.
3. The present dispute is mainly about whether certain products are within the scope
of the tariff concessions made by the European Communities pursuant to the ITA,
as the complainants have alleged, or rather within the scope of other concessions
included in the EC Schedule, which do not provide for duty free treatment. As will
be shown in this submission, the complainants' claims stem from a
misinterpretation of the relevant terms of the EC Schedule.
4. The complainants are, of course, entitled to disagree with the European
Communities on the interpretation of certain terms of the EC Schedule and to
submit such disagreement to this Panel. It is regrettable, however, that in doing so
the complainants have deemed it necessary to call into question the good faith of
the European Communities by suggesting that the European Communities is
seeking to undermine the ITA and to evade the tariff concessions which it has
made pursuant to that agreement.
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5. Specifically, one of the complainants has alleged that this dispute arose and came
before the Panel since the EC took "actions … to methodically dismantle tariff
commitments … made as a part of the ITA."1 Furthermore, the complainants have
alleged on several occasions that, as soon as the ITA was concluded, the European
Communities set out to "reclassify" the products concerned by this dispute.2 As
will be shown in this submission, these insidious allegations are entirely without
foundation.
6. Contrary to what the complainants may want to imply, the ITA is not "their
project". It was, in fact, the European Communities which played a seminal role in
developing the idea of an agreement on liberalization of trade in IT products. As is
well known, the very first impetus to launch discussions on negotiation of an
agreement liberalizing trade in IT products came to birth at the EU-US summit in
December 1995 between Prime-Minister González of Spain, representing the
Presidency of the European Union, President Santer, of the Commission of the
European Communities, and President Clinton, of the United States.3 From then
on, the discussion extended and it was eventually the Quad ministers (European
Communities, United States, Japan, Canada) at their meeting in April 1996 in
Japan who urged the negotiators of their countries to move forward on a new
agreement.4 The European Communities therefore stays behind the success of the
ITA and the liberalization which the ITA has brought just as much as the
complainants.
7. Throughout negotiations leading to the ITA the European Communities
endeavoured for a comprehensive agreement, which would secure the expansion
of world trade in information technology products. The EC hoped that the
Agreement would not only eliminate tariffs on all IT products, which the parties
1 See first written submission of the United States, para. 1. Emphasis added. 2 See e.g. first written submission of the United States, paras 2, 3, 4, 25, 26, 27, 38, 39, 48, 59, 60, 67,
76, 79, 108, 118, 127, 134, 149; First written submission of Japan, paras 27, 28, 228, 241; first written submission of TPKM paras 188, 191, 291, 297, 304, 366, 381, 487, 488, 493, 495.
3 Exhibit EC-1, Communication from the United States, WTO document G/MA/W/8 of 4 October
1996, first page, last paragraph. 4 Exhibit EC-1, Communication from the United States, WTO document G/MA/W/8 of 4 October
1996, first page, last paragraph.
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would agree to cover, but that it would also tackle Non Tariff Barriers, which
adversely affect the expansion of trade in IT products. Substantive provisions on
Non Tariff Barriers, along with many products the EC would have liked to seen
covered, however, did not find its way into the agreement.
8. What resulted from the negotiations was therefore indeed a landmark agreement,
but also a balanced compromise. Had the ITA been the all-encompassing
landscape agreement for IT the complainants are trying to portray it to be, there
would have been no need for the ITA parties to sit back at the negotiating table
only months after the agreement entered into force.
9. Mechanisms to broaden the coverage and address Non-Tariff Barriers were built
into the Agreement itself, but have failed to deliver. This is regretful, but it is not
attributable to the European Communities. The EC has offered on many occasions
to use the mechanisms foreseen in the ITA to update it through multi-lateral
negotiations. These offers have been met by scepticism as to the suitableness and
capacity of negotiations to deliver a solution. Despite now being faced with
litigation, the EC remains truthful to its commitment to achieve maximum freedom
of world trade in IT products and is aware of the challenges that the rapidly
evolving technologies pose to the ITA with respect to this goal. It was in this vein
that the EC submitted, as recently as 15 September 2008, its proposal to start
negotiations for an ITA review.
10. The product coverage of the ITA is a result of a delicate balance struck by way of
negotiation. The appropriate avenue to extend this product coverage beyond the
extent of what is provided for in the ITA is by means of negotiation, as the ITA
explicitly provides for. This is the reason for the EC's negotiation proposal.
II. THE INFORMATION TECHNOLOGY AGREEMENT ("ITA")
11. As is apparent from their Panel request and first written submissions, the
complainants share the view that ITA is highly relevant for the present dispute.
Regrettably, the complainants never explain what the ITA is really about, and
focus instead on a few selected provisions or excerpts thereof. In this section, the
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European Communities therefore attempts to provide what has been left out of the
discussion: namely a global and comprehensive view of the ITA and its
functioning.
A. The content of the ITA
12. The ITA consists of three parts: (i) the Ministerial Declaration, (ii) the Annex to it
and (iii) Attachments A and B to the Annex. Any attempt to determine the object
and purpose of the ITA therefore has to take account of all these three parts.
1. Ministerial Declaration
13. The Ministerial Declaration contains a couple of important principles. It declares
that each party's trade regime should evolve in a manner that enhances market
access opportunities (point 1) and it refers to the Annex setting out modalities
pursuant to which each party shall bind and eliminate customs duties (point 2).
Point 2 also distinguishes between products classified/classifiable in headings
listed in Attachment A to the Annex and products specified in Attachment B to the
Annex.
2. Annex
14. The Annex to ITA, entitled "Modalities and Product Coverage" contains a detailed
procedure for the incorporation of Attachments A and B into the binding
Schedules of the parties to ITA (point 2 of the Annex). This procedure involved a
number of important steps, including (i) a result-oriented obligation for a
participant to modify, where necessary, its national legislation for products in
Attachment A and to attach to its Schedule an annex including all products in
Attachment B and their HS or national classification (point 2(b) of the Annex)
and (ii) notify these documents to WTO for a certification (point 2 chapeau).
15. The Annex to ITA also shows that the parties were well aware of the rapidly
advancing nature of the IT industry. The Agreement's language, while ambitious at
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the time it was drafted, was not expected to cover every new product that may
come along in the rapidly developing, converging information technology sector.
The ITA therefore also provided a mechanism for its updating and framework for
resolving the ambiguities that convergence and rapid development were expected
to bring to customs classification in this sector.
16. The mechanism envisioned by the negotiators for updating the product coverage of
the ITA in the light of inter alia technological development is set forth in
paragraph 3 to the Annex to the ITA. Pursuant to that provision,
[p]articipants shall meet periodically …. to review the product coverage … with a view to agreeing, by consensus, whether in the light of technological developments, experience in applying tariff concessions, or changes to HS nomenclature, the Attachments should be modified to include additional products.
17. Furthermore, with regard to product classification within the HS nomenclature
Paragraph 5 of the Annex to the ITA prescribes that the
[p]articipants shall meet as often as necessary … to consider any divergence among them in classifying information technology products, beginning with the products specified in Attachment B. (…).
3. Attachments A and B
18. The two Attachments specify often in exceptional technical detail the product
coverage of the ITA. Attachment A to the Annex specifies the products by a
heading or subheading of HS 1996. This method was used for those products with
respect to which there were no known disagreements on tariff classification under
HS 1996. In contrast, Attachment B defines the covered products by their
narrative description. This method was used for products on the classification of
which the participants could not, at least immediately, agree but did not oppose
their inclusion.
19. Attachments A and B to the ITA merit some additional observations. Attachment
A includes on some occasions entire HS96 headings (see e.g. heading 8534). More
often than not, however, attachment A includes only certain HS96 subheadings (6
digit level) within one heading (see, e.g. subheading 8520 20). Similarly, the
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product descriptions in Attachment B are sometimes deliberately broad (cf. for
instance, the description of computers:
[T]the agreement covers such automatic data processing machines whether or not they are able to receive and process with the assistance of central processing unit telephony signals, television signals or other analogue or digitally processed audio or video signals.
20. Other times, the products are described very narrowly (cf., for instance, the
description of "Monitors") to exclude certain products such as televisions. This
confirms what was said above with respect to the negotiating history. The ITA, not
unlike other international agreements, was a result of difficult negotiations and
many compromises and, for that reason, it was not intended to be over-inclusive
and dynamic. To the contrary, borderlines between what is covered and what is not
were sometimes drawn within HS headings or even within individual products (cf.,
for instance, "Printed circuit assemblies" or "Flat panel display devices" of which
only those which are for products covered by the ITA are entitled to ITA
treatment). This must carefully be taken into account when interpreting the scope
of concessions resulting from this agreement.
4. Conclusion
21. From the operational perspective, the ITA consists of a number of interrelated
parts: 1) highly detailed lists on product coverage, 2) procedures for the
implementation of the commitments on product coverage into national legislation,
3) procedures for the verification/certification of the commitments implemented
into the national legislation by WTO and 4) procedures for the removal of
classification divergences and updating/expanding of the product coverage in light
of technological developments by consensus of all participants.
22. To capture the object and purpose of the ITA, all these parts have to be interpreted
in such a way that all of them are given meaning and none of them is rendered
ineffective. A focus solely on a part of the ITA (like point 1 of the Ministerial
Declaration or a narrative description of a product in Attachment B, respectively)
would ignore other related provisions (like points 3 and 5 of the Annex or the
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procedure of verification and certification of point 2, respectively). Yet, this is
what the complainants are doing in the present case. In particular, the
complainants seem to forget that the certification of schedules by WTO members
has completed the process envisioned in the ITA for its implementation. With the
certification, the ITA obligations were transformed into binding Schedules. As
will be discussed below in sections dealing with the individual products, this
approach of the complainants raises questions about the solidity of the
assumptions that the complainants advance as legal bases for their claims against
the EC.
B. The negotiation of the ITA
23. After the green light received from the Quad ministers5, the parties began to
negotiate the ITA. In practice this was done first on the basis of exchanges of the
so-called "landscape papers" and comments on these papers among the parties, in
particular, the European Communities, the United States and Japan.
24. While these papers focused to a large extent solely on the listing of products, they
also included a few guiding principles at their beginning. For instance, the US
"landscape 1" paper of 12 March 1996 contained a list of products introduced by
the following statement: 6
"(…) The following list is an attempt to illustrate the diversity and depth of the landscape of the ITA, with a focus on current product offerings. This preliminary list was prepared to stimulate discussion on establishing product coverage for the ITA. Specific products may need to be added within the general categories, and more precise definition of the products and product categories will be required. A more specific list should emerge from further discussions. (…)". (emphasis added)
25. The US Product Landscape papers of 28 March 19967 and of 14 July 19968
contain already a significantly more developed and detailed product list. The
5 See section I above. 6 Exhibit EC-2, US "landscape 1" paper of 12 March 1996. 7 Exhibit EC-3, "Step two: landscape for the Information Technology Agreement with product
descriptions". 8 Exhibit EC-4, US Product Landscape paper of 14 July 1996.
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introductory statement to the second of these papers also sheds light on how the
United States saw the operation of the ITA and the updating of its product
coverage:
The Information Technology sector has been and continues to be hallmarked by rapid advances of technology. Consequently, the process for developing ITA product coverage has been based on defining a positive list of specific products in commercial terms, rather than the initial work being done through traditional tariff nomenclature – although the latter will ultimately be used to implement and administer the ITA. The product landscape provides an effective working basis for negotiation of product coverage so that certainty can be more easily attained.
The ITA will include a mechanism to provide periodic review of the agreed product coverage in light of technological developments, as well as a mechanism to ensure certainty of product coverage and uniformity of tariff classification." (emphasis added)
26. Subsequently the negotiations moved into a more detailed phase recorded in non-
papers and technical working documents. Through these documents of which there
are sometimes different versions even during the same day, one can detect the
detailed word by word negotiations in particular in respect of the narrative product
definitions in attachment B. The three narrative descriptions relevant for this case
namely "flat panel display (devices)…", "monitors" and "set-top-boxes…" were
subject to a number of detailed changes in the course of the negotiations during
these crucial last two months. In this respect it is also important to note that the
negotiations advanced at different times in respect of different product
descriptions. These changes will be demonstrated in the product specific sections.
27. In sum, it can be said that the difficulties which the parties encountered in
delineating and agreeing on the product scope are well illustrated by the fact that
the discussions on product coverage lasted for more than 7 months, from March
1996 till December 1996. In contrast, the preparation and development of the
operative text of the ITA itself took less than a month – the text was to a large part
effectively developed within a few days on the margins of the Ministerial
conference in Singapore. Overall, the negotiating history illustrates well that the
scope of the product coverage is one of the central issues of the ITA and that the
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ITA as a whole is about the product coverage and ways in which that product
coverage can (or cannot) be expanded to benefit from liberalized market access.
C. Subsequent developments
1. CITA
28. In the Implementing Decision to the ITA, the participants entrusted the newly
created Committee of Participants on the Expansion of Trade in Information
Technology Products ("CITA") with the conduct of the procedures of paragraph 3
and 5 of the Annex to the ITA.9 The participants also reconfirmed in the
Implementing Decision that the Annex to the ITA, including the attachments to it,
is an "integral part" of the ITA.10
2. ITA II
29. The ambitious yet still clearly carefully circumscribed product coverage of the
ITA made the Quad ministers to submit already in May 1997 (i.e., a few months
after the conclusion of the ITA), a proposal for the negotiation of a new agreement
(so called ITA-II) further expanding the coverage of IT products subject to
liberalization.11 Unfortunately these negotiations have not yet been concluded,
even though countries have put forward detailed lists of products which they
wished to be covered in the new agreement – including some of the products
subject to the present dispute.
9 Paragraph 3 of the Implementing Decision, WTO document G/L/160, 2 April 1997. Exhibit EC-5;
See also paragraphs 7 and 8 thereof. 10 Paragraph 11 of the Implementing Decision, WTO document G/L/160, 2 April 1997. Exhibit EC-5. 11 Exhibit EC-6, WTO, Dictionary of Trade Policy Terms, Fourth Ed., W. Goode, Cambridge University
Press, 2003, page 179.
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III. THE CLAIM ON "FLAT PANEL DISPLAY DEVICES" (FPD) UNDER ARTICLE II OF THE GATT 1994
A. Introduction
30. In their Panel request the complainants identified their claim as follows:
As a result, customs authorities of EC member States have been applying a 14% duty to certain flat panel displays, instead of providing duty-free treatment as required by the EC Schedule. The United States, Japan, and the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu consider that their commerce has been accorded treatment less favourable than that provided in the EC Schedule, and that ordinary customs duties, or other duties and charges, in excess of those set forth in the EC Schedule have been applied to certain flat panel displays, inconsistent with the obligations of the EC and its member States under Articles II:1(a) and II:1(b) of the GATT 1994. While the EC has temporarily suspended the collection of duties on some flat panel displays pursuant to Council Regulation (EC) No 493/2005 of 31 March 2005 and Council Regulation (EC) No 301/2007 of 22 March 2007, it fails to accord tariff treatment that is no less favourable than that provided for in the EC Schedule.
31. Thus, in order to succeed with their claim, the complainants will have to
demonstrate that the European Communities is, in respect of "certain flat panel
displays", applying ordinary customs duties in excess of those set forth in the EC
Schedule. They will have to demonstrate that this necessarily follows from the
application of the measures identified in the Panel request. In other words, the
complainants will have to identify those "flat panel displays" subject to this
dispute in order for the Panel to adjudicate whether the EC measures identified
result in the application of ordinary customs duties in excess of those set forth in
the EC Schedule. They also will have to identify the obligation they allege the
European Communities has breached.
B. Lack of prima facie case
32. The European Communities is of the view that the complainants have failed to
make a prima facie case for at least four different reasons, namely they have
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– failed to identify the product or products at issue in sufficient detail for the European Communities to defend itself and for the Panel to rule on the dispute in the absence of rebuttal;
– failed to identify with the necessary clarity the obligation the
European Communities is allegedly in breach; – failed to demonstrate that the European Communities would be
applying ordinary customs duties in excess of those set forth in the EC Schedule because the European Communities does not apply duties on products the European Communities assumes could fall within the scope of the dispute;
– only identified certain specific elements in the disputed EC
measures that could not, even if all the arguments of the complainants would be accepted, necessarily lead to a violation of Article II of the GATT 1994.
33. In any event, the case the complainants have brought cannot extend to
challenging the EC measures as such.
1. The lack of definition of the products subject to dispute
34. The scope of the claim as worded in the request for the establishment of the
Panel in relation to the measures challenged is limited to "certain flat panel
displays" without defining the products in more detail. However, the
complainants acknowledge that the EC has suspended the collection of duties on
"some flat panel displays" without, again, defining them in more detail.
35. In their first written submissions, TPKM and Japan attempt to define the scope of
the challenge and the products subject to it slightly further.
36. TPKM defines the products subject to the dispute as follows
FPDs are display devices capable of receiving signals from automatic data-processing (“ADP”) machines only or from both ADP machines and other sources. They are lighter and much thinner than traditional displays because they do not contain cathode ray tubes. FPDs use various different technologies such as Liquid Crystal Display (“LCD”), Electro Luminescence, Plasma, Vacuum-Fluorescence or Organic Light Emitting Diode (“OLED”) among others.12
12 First written submission of TPKM, para 11.
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The FPDs concerned in this dispute have sizes varying from very small to very large and various technical specifications in terms of brightness, aspect ratio and resolution. They normally have a variety of connectors from the traditional VGA connector to Digital Video Interface (“DVI”), among other connectors. Although not limited to such types of FPDs, the FPD types most affected by the EC measures are LCD displays with a DVI connector.13
The common element to all FPDs concerned is that they can only be used with ADP machines, or with ADP machines and other apparatus. The FPDs concerned are generally used in connection with ADP machines or as part of computer networks in office, industrial or home environments as well as at Points of Information (“PoI”) or Points of Sale (“PoS”).14 (emphasis added)
37. Therefore, according to TPKM the product(s) concerned are "display devices
capable of receiving signals from automatic data-processing (“ADP”) machines
only or from both ADP machines and other sources"; "have sizes varying from
very small to very large and various technical specifications in terms of
brightness, aspect ratio and resolution"; "the FPD types most affected by the EC
measures are LCD displays with a DVI connector" although not limited to such
types. Beyond these characterisations, TPKM does not provide more detailed
explanation of the products concerned. The European Communities notes,
however, that TPKM's legal argument is developed solely in relation to flat panel
displays using Liquid Crystal technology ("LCD monitors"). TPKM is also of the
view that the European Communities is in breach of its obligations irrespective
of whether a flat panel display/monitor can only be used with ADP machines or
when it can also be used with other apparatus i.e. when the monitor is
multifunctional.
38. On this basis the European Communities understands that despite stating in the
introduction that the challenge is not limited to monitors using LCD technology,
TPKM has decided to limit the challenge to such monitors. On the other hand the
challenge is not limited to multifunctional monitors but covers all LCD monitors
13 First written submission of TPKM, para 12. 14 First written submission of TPKM , para 14. It should also be noted that notions of "Points of
Information or Point of Sale" are not developed or covered by the legal argument.
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that can be used with an ADP machine including those that can only be used with
an ADP machine.
39. Japan defines the products at issue as follows:
this dispute … covers “flat panel display devices,” including the liquid crystal display ("LCD") type commonly referred to, in numerous EC and other documents, as “LCD monitors.” This submission focuses on LCD monitors with a "digital visual interface" or DVI, which permits them to display the information from an ADP machine (typically, products commonly known as a computer) – whether or not they can display information from other units. It should be noted, however, that the scope of this dispute comprises flat panel display devices “for” ADP machines. LCD monitors with DVI are the most common type of such devices. With respect to other types of flat panel display devices than LCD monitors with DVI, Japan supports the arguments of U.S. and TPKM that the EC measures limiting the scope of heading 84.71 to those devices that can display information only from an ADP machine are inconsistent with the EC’s obligations under Articles II:1 (a) and II:1 (b) of GATT 1994.15
Exhibit JPN-15 to this first submission provides a list of specific products that Japan believes illustrates the types of LCD monitors that are subject to classification by the EC Commission under heading 85.28. This Exhibit also provides brochures that describe each of these products. This list is illustrative, not comprehensive.16 (emphasis added)
40. Thus, Japan continues to be vague on defining its challenge. Although there is
some hesitation as to whether or not flat panel display devices other than
monitors using LCD technology are within the scope of Japan's claim, it would
seem to the European Communities that Japan limits its claim to such monitors
because it does not develop its argumentation on other technologies or devices.
Furthermore, Japan appears to limit its claim to those LCD monitors with Digital
Visual Interface (DVI). It is not clear, however, whether or not Japan's additional
reference to monitors "for" ADP machines enlarges or narrows down the scope
of its claim. In the absence of clarity, the European Communities assumes that
the scope of Japan's claim is limited to LCD monitors with DVI irrespective of
any other technical specification, such as size, resolution, aspect ratio, the
15 First written submission of Japan, para 216. 16 First written submission of Japan, para 218.
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inclusion of a tuner etc. However, the European Communities recognises that
Japan is the only complainant that has attempted to define the products at issue
with a concrete illustration in JPN-15. Japan also explicitly covers LCD monitors
"whether or not they can display information from other units" i.e. monitors that
can only be used with ADP machines or when they can also be used with other
apparatus i.e. when the monitor is multifunctional.
41. The United States does not define the products subject to this dispute in any
relevant detail. Chapter III.D.1 of its first written submission is entitled "The
products at issue". However, that chapter is merely a description of monitor and
display technology generally. Yet, the United States concedes that only "certain
flat panel displays" are included in the EC concessions pursuant to the ITA.17
This in itself is not challenged by the United States. Thereafter the US
submission refers variably to many different notions such as "LCD monitors"18,
"LCD flat panel display devices"19 "LCD monitors with a DVI", "LCD monitors
'for' a computer"20, "LCD monitors that are 'for' ITA products"21, "LCD computer
monitor, whether or not equipped with DVI and whether or not solely capable of
being used with a computer"22, just to cite a few. The only common nominator of
these notions is that they are limited to monitors using LCD technology. The
European Communities can only generally assume that the United States targets
(more or less) the same monitors as TPKM and Japan seem to include in their
claim.
42. It should also be noted that the case of the complainants rests on the assumption
that the notion of "flat panel display devices (including LCD […] ) for products
falling within [the ITA], and parts thereof" is synonymous
17 First written submission of the United States, paras 55 to 56. 18 See e.g. first written submission of the United States, paras 56, 59, 61, 135, 137. 19 See e.g. first written submission of the United States, para 58. 20 See e.g. first written submission of the United States, para 132. 21 See e.g. first written submission of the United States, para 133. 22 See e.g. first written submission of the United States, para 137.
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• to "computer monitors"23 or
• "display devices capable of receiving signals from automatic data-processing
("ADP") machines only or from both ADP machines and other sources"24 or
• necessarily covers "LCD monitors with a DVI"25.
43. Except for once, TPKM even uses the incorrect notion "flat panel displays" and
not "flat panel display devices". Conveniently all the complainants avoid
mentioning that the notion of ADP "monitors" is explicitly covered as a separate
product in Attachment B of the ITA and the Schedule of the European
Communities pursuant thereto. And yet, they claim that the case is about ADP
monitors.
44. The suggestion that "flat panel display devices (including LCD … for products
falling within [the ITA], and parts thereof" is synonymous to computer monitors
is, on its face, incorrect. The notion explicitly refers to many products mentioned
in the ITA and covered by the Schedule of the European Communities pursuant
to the ITA.
45. Furthermore, the parties to the ITA have never been able to agree whether or not
the notion of "flat panel display devices […]" even refers only to finished
products. Indeed, the Committee of Participants on the Expansion of Trade in
Information Technology Products has debated for many years whether or not
"flat panel display devices (including LCD […] ) for products falling within [the
ITA], and parts thereof" covers finished products, semi-finished products or
both.26
46. On the basis of the numerous hesitations and inaccuracies in describing the
products at issue, it would appear to the European Communities that the
23 First written submission of the United States, para 2. 24 First written submission of TPKM, paras 2 and 11. 25 First written submission of Japan, e.g. para 220. 26 WTO document G/IT/W/20; Classification divergences; Exhibit EC-7.
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complainants have realized how the radical changes in monitor technology from
the time the ITA was negotiated have made it exceptionally difficult to define a
monitor in order to place it in the relevant legal framework. In essence, the
emergence of an entirely new product in the beginning of this decade, the
multifunctional LCD monitor27, which can usually display even television
signals, fundamentally challenges the established legal categorisations that
underpin the Schedules of WTO members, the Harmonized System and the ITA.
In truth, it is this phenomenon driven by new rapidly evolving technologies in an
age of multimedia convergence that is behind this dispute, not any
reclassification of old products as the complainants would like to have it.
47. In the light of the foregoing considerations and in the absence of further
definition of the product(s) subject to this dispute, the European Communities
considers that the complainants have failed to present a prima facie case.
48. However, the Panel might consider that some products have been identified with
sufficient clarity for the European Communities to defend itself and for the Panel
to adjudicate the case in the absence of rebuttal. In this respect it could be argued
that the complainants have identified with sufficient detail those products listed
in two of the measures subject to this dispute, namely item 4 in the annex to
regulation 634/2005 and items 2, 3 and 4 in regulation 2171/2005. Thus, to the
extent the Panel considers that the complainants' description of the measures is
sufficient for a prima facie case, the European Communities is of the view that
the analysis must be limited to these four specific products identified by the
complainants, together with the one LCD monitor in item 1 to the annex of
regulation 2171/2005 the complainants have preferred to ignore. Indeed, as the
Appellate Body found in EC – Chicken Cuts
the identification of the products at issue must flow from the specific measures identified in the panel request. […] [It] is the measure at issue that generally will define the product at issue.28
27 "Samsung LCD Monitor, quick start guide"; Exhibit EC-8. 28 Appellate Body Report, EC – Chicken Cuts, para 165. Emphasis in the original.
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49. All these five products have in common the capability of being used both as
video monitors and as ADP monitors. Because there is no dispute between the
parties that a monitor that is capable to accept a signal only from the central
processing unit of an ADP machine is to be classified in heading CN 8471 60 90
as an output unit of an ADP machine and therefore subject to no ordinary
customs duties, the European Communities considers that the actual dispute is
necessarily limited to multifunctional LCD monitors. However, since the
complainants appear to have included also LCD monitors that can accept a signal
only from the central processing unit of an ADP machine within the scope of
their claim, the European Communities requests the Panel to find that the
European Communities is, in respect of such monitors, not in breach of its
obligations under Article II:1(a) and II:1(b) without the need to present further
arguments.
2. The complainants have failed to identify the relevant obligations in the EC Schedule with sufficient clarity
50. In their Panel request the complainants state that
their commerce has been accorded treatment less favourable than that provided in the EC Schedules, and that ordinary customs duties, or other duties and charges, in excess of those set forth in the EC Schedules have been applied to certain flat panel displays (…).(emphasis added)
51. However, in their first written submissions the complainants fail to identify the
precise concession that is allegedly breached both in terms of its substantive
content and where precisely it is provided for in the Schedule of the European
Communities. This is not just a formal defect but pertains crucially to the legal
analysis that is to be conducted.
52. For instance, the US begins its legal argument with the text of the ITA as such
combined with the headnote in the part of the EC Schedule that lists the products
that are also listed in Attachment B to the ITA. In the very next paragraph, the
US refers to "the ordinary meaning in context of the terms in the EC's Schedule
(…)" without explaining at all what and where precisely is the text that contains
a given ordinary meaning that is to be interpreted on the basis of a context that
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itself is not identified at all. The confusion is only made worse when in the very
same paragraph the US argument returns back to the wording of the ITA itself
when stating "[in] the ITA, the parenthetical following the terms (…)".29
53. Japan in turn seems first to emphasise the headnote "referencing the list of
specific products in Attachment B to the ITA, as part of [ECs] Schedule
LXXX".30 Later, the argument is predominantly based on the language of the
ITA itself. However, Japan does attempt to define the precise concessions as
follows:
By specifically making Attachment B to the ITA part of its concessions in Schedule LXXX, the EC has effectively made the descriptions of the products in Attachment B equivalent to the language contained in the headings set forth in Attachment A. The descriptions in Attachment B, in other words, are part of the concessions which must be examined pari passu with the language set forth in the headings.31
54. With the greatest of respect, the European Communities does not understand
where Japan considers the relevant concession to be. Does Japan mean that the
headings next to the product descriptions in the list of the products pursuant to
Attachment B in the EC Schedule are part of the concession or not? Is it the text
of the ITA itself that is incorporated by reference into the concessions or is it the
language in the EC Schedule itself that makes up the concession? What does
"equivalent" mean? What exactly does Japan mean when it states that the
descriptions in Attachment B (of ITA presumably) must be examined "pari
passu" with the language set forth in the headings? Which headings is Japan
referring to? Those next to the product descriptions or in the EC Schedule that
follow the HS96 nomenclature or in Attachment A of the ITA itself?
55. TPKM is somewhat more precise. It states that
29 First written submission of the United States, paras 120 and 121. 30 First written submission of Japan, para 252. 31 First written submission of Japan, para 264.
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The concession for “flat panel display devices (including LCD, Electro Luminescence, Plasma, Vacuum-Fluorescence and other technologies) for products falling within this agreement, and parts thereof” has been included by the EC in its Schedule in order to implement the commitment undertaken in Attachment B to the ITA.* Since the word “agreement” in Attachment B means the ITA itself, the term “agreement” in the EC Schedule should also refer to the ITA. Therefore, the term “for products falling within this agreement” could be rephrased as “for products falling within the ITA”.32 (footnote omitted)
56. Thus, it seems that for the TPKM the concessions are in the EC Schedule and not
in the text of the ITA itself through incorporation by reference. However, TPKM
ignores that the EC Schedule also contains a list of HS/CN codes. It is silent on
whether or not they are part of the concessions. In a footnote, however, TPKM
claims that "in comparison to the wording included in Attachment B to the ITA,
the EC added the words “device” and “vacuum-fluorescence” in its Schedule"33.
This is simply untrue as those words were incorporated into the final text of the
ITA following a pertinent remark made by Switzerland.34 Indeed, TPKM's own
Schedule uses those same words. TPKM also finds it appropriate to 'rephrase' the
wording in the EC concessions it has identified as subject to the case.
57. In sum, the complainants appear to use the terms set forth in the EC Schedule
and the ITA almost interchangeably without providing a justification for such an
approach. All three complainants are at least partially basing themselves on the
terms of the so-called "headnote" in the EC Schedule for Attachment B. The
complainants do not, however, explain what the headnote means for the rest of
the EC Schedule, including the HS/CN codes that were notified to the WTO
under paragraph 2 of the Annex to the ITA and subsequently agreed by
consensus and certified by all WTO Members including the complainants
themselves.
58. As a consequence, the tariff concession which is alleged to have been breached
in the present case becomes a moving target subject to any and every
32 First written submission of the TPKM, para 240. 33 Footnote 146 of the first written submission of the TPKM. 34 See more in detail, section III.C.7(d) below.
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interpretation put forward by the complainants. The complainants pick and
choose the relevant textual elements, from the ITA itself, the headnote, the
Schedule of the EC that follows the nomenclature of the HS96, the Schedule of
the EC that lists the narrative product definitions and sometimes even the HS/CN
codes next to the product definitions. Sometimes a given alleged position in the
EC Schedule or in the ITA itself provides for the actual text of the concessions
while in other parts the same text might be context for the concession that
actually is elsewhere.
59. It is systemically very important to know where the complainants consider that
the EC concession actually is as opposed to what might provide context for its
interpretation. It is not sufficient to claim that "somewhere there", either in the
EC Schedule or in the ITA itself incorporated into the EC Schedule allegedly by
reference, or both, there is a concession the European Communities has
breached. And it is not for the European Communities to try to second guess
itself what it is alleged to possibly having breached.
60. The European Communities does not wish to play any litigation tricks here. This
is systemically important for the WTO membership as a whole because
depending on the identification of the precise concession, the ITA and/or its
incorporation into the Schedules of all parties thereto, the substantive obligations
are either identical to all parties, or certain differences were allowed between the
parties when the concessions were made. If the concessions are in the ITA itself,
those concessions must be given an identical interpretation. If, on the other hand,
the concessions are in the EC Schedule and identified with a given HS/CN code,
then WTO Members have agreed that some differences were an inherent part of
the concessions made pursuant to Attachment B to the ITA. Indeed, no Schedule
certified including the concessions made pursuant to Attachment B is identical
because of the differences in classification.
61. Later in this submission the European Communities will try to rebut the
arguments of the complainants as they have presented their claim. However, the
European Communities emphasises that its ability to defend itself is seriously
compromised because of the lack of clarity on the precise concession that is
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alleged to having been breached. In the view of the European Communities this
is another reason why the complainants have failed to present a prima facie case.
3. The duties, if otherwise applicable in respect of a given product, have been suspended
62. The complainants acknowledge that the EC has since 1st January 2005 suspended
duties on most products falling within the scope of headings 8528 21 and 8528
22, which in addition to 8471 60 90 are the other headings relevant in this
dispute except for the relevant headings for televisions 8528 12 and 8528 13.
This duty suspension has recently been prolonged and extended to additional
monitors.35
63. Even if one assumes that a product would in an individual case be erroneously
classified between the two relevant headings, the applicable tariff would still be
zero and no breach of Article II of the 1994 would occur. Since the complainants
have not even genuinely attempted to demonstrate that products not subject to the
tariff suspension are necessarily within the scope of the dispute, they have failed
to present a prima facie case.
4. The non-application of the disputed criteria would not necessarily lead to a violation of Article II of the GATT 1994
64. To the extent the European Communities understands the scope of the claim
brought by the complainants, it rests on the assumption that two specific criteria
are erroneously used as justification by the European Communities in tariff
classification of LCD monitors. On this basis, and this basis alone, the
complainants consider that the European Communities is necessarily in breach of
its obligations under Article II of the GATT 1994.
65. Japan and the United States consider that the mere presence of a DVI connector
makes an LCD monitor necessarily an ADP monitor and thus necessarily subject
35 Council Regulation (EC) No 179/2009 of 5 March 2009 amending Annex I to Regulation (EEC) No
2658/87 on the tariff and statistical nomenclature and on the Common Customs Tariff. Official Journal of the European Union, 7.3.2009, L 63/1. Exhibit EC-9.
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to duty-free treatment.36 However, the US and Japan provide no basis in law or in
fact that would allow the Panel to reach such a conclusion in the absence of
rebuttal. The mere fact that the DVI connector has originated rather from the
computer side of industry proves nothing in law particularly during the age of
convergence of the IT and multimedia consumer electronics industries. The very
need to have an interface such as DVI was to be able to display digital video
signals. As demonstrated by the documentation submitted by the complainants on
the development of the DVI, it makes use of VESA specifications. VESA stands
for Video Electronics Standards Association.37 In the Schedule of the EC and in
the HS nomenclature it is video monitors and TVs that have as function the
ability to accept and process video signals. Furthermore, many modern LCD
televisions also include a DVI connector.38 Therefore, the argument that the mere
existence of the DVI interface makes an LCD monitor an ADP monitor must be
incorrect.
66. TPKM and the United States also consider that the EC necessarily imposes duties
on the basis of the mere fact that a monitor "might" be used with something other
than a computer or that it is merely "capable" of being connected to a non-ADP
machine.39Indeed, TPKM explicitly defines the task of the Panel as deciding
whether the EC can limit the scope of the FDPs covered by the concession to those that can only be used with an ADP machine.40
67. Although it is true that the EC has, on the basis of the very clear language of the
first sentence of point 1) of Explanatory Note I(D) to heading 8471 HS9641, paid
36 First written submission of Japan, e.g. para 270; First written submission of the United States, e.g.
para 131. 37 See Exhibit US-35, at pages 6, 8 and 60. 38 See e.g. http://www4.shopping.com visited on 27 and 30 March 2009; Exhibit EC-10. 39 First written submission of the United States, e.g. para 132; First written submission of TPKM, e.g.
paras 220 and 306 40 First written submission of TPKM, para 220. 41 The relevant sentence states: "Display units of automatic data processing machines are capable of
accepting a signal only from the central processing unit of an automatic data processing machine and are therefore not able to reproduce a colour image from a composite video signal whose waveform conforms to a broadcast standard (NTSC, SECAM, PAL, D-MAC, etc.)." Exhibit EC-11.
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specific attention to whether or not a monitor is "capable of accepting a signal
only from the central processing unit of an automatic data processing machine",
the assertion made by the US and TPKM that the EC would have applied this
rule as rigidly as they suggest is factually incorrect. In their submissions the
complainants fail to recognise that item 1 in the annex to regulation 2171/2005
subject to this dispute unambiguously states that
The product is also capable of reproducing both video and sound signals. Nevertheless, in view of its size and its limited capability of receiving signals from a source other than an automatic data-processing machine via a card without video processing features, it is considered to be of a kind solely or principally used in an automatic data-processing system. (emphasis added)
68. Thus, contrary to what the complainants assert, the European Communities has
very explicitly classified an LCD monitor capable of reproducing video signals
from a source other than an ADP machine in the heading for ADP monitors and
therefore subject to zero duty. Consequently, it is simply untrue that the EC
would necessarily and in all cases "limit the scope of the FPDs covered by the
concession to those that can only be used with an ADP machine"42.
69. The European Communities understands that in the view of the complainants the
two criteria they challenge should not be used at all in the tariff classification of
multifunctional LCD monitors. The European Communities also understands that
the claim by the complainants is that if these two criteria are not used, the LCD
monitors presumably at issue in this case would never be subject to ordinary
customs duties. However, in truth the complainants have not even attempted to
demonstrate that in the absence of the application of the two disputed criteria,
there would be no discretion involved and the result would be mandated by the
relevant rules.43 Furthermore, since the complainants take distance from the
Harmonized System, they ignore that the two criteria at stake are expressly
provided for by the HS96.
42 First written submission of TPKM, para 220. 43 On the mandatory – discretionary distinction in WTO law and the need to set out "as such" challenges
with particular diligence, see e.g. Appellate Body Reports in US – 1916 Act, paras 84-102 and US – OCTG Sunset Reviews, paras 172-173.
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70. Consequently, by presenting a case that is manifestly not based on correct facts
and by not providing the Panel with all the relevant information to rule on the
case in the absence of a rebuttal, the complainants have failed to present a prima
facie case. In any event, the claim cannot extend to challenging the measures of
the European Communities as such.
C. Multifunctional LCD monitors
1. Introduction
71. In this section the European Communities will rebut the specific legal arguments
of the complainants. This is done to the extent the European Communities is able
to understand the scope and extent of the claim in spite of the inaccuracies and
omissions examined above.
72. In order for the Panel to fully understand the factual circumstances of this case it
is first necessary to rebut some of the factual assertions made by the
complainants with regard to the history of the multifunctional LCD monitor
presumably subject to this case. The complainants have essentially asserted that
the multifunctional LCD monitor existed at the time of the establishment of the
EC concessions at issue following the conclusion of the ITA. The suggestion is
that the concessions were made in full knowledge of the existence of
multifunctional LCD monitors and that such monitors would fall within the scope
of the concessions.
73. The European Communities will demonstrate that these factual assertions are, at
the very least, highly misleading because the relevant technology has been
subject to major developments particularly in the early parts of this decade, that
is, some five to six years after the conclusion of the ITA.
74. As a result, there is a new product, the multifunctional LCD monitor, that
emerged following what is often referred to as the convergence of the IT and
multimedia consumer electronics industries where previously separate industries
and products have merged because of significant technological developments.
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This has created a major legal challenge because this development cuts right in
between the commitments taken and those explicitly not taken pursuant to the
ITA: there is an obligation to grant duty free treatment to genuine ADP monitors
as defined in the concessions while this is explicitly not the case for video
monitors and televisions. Thus, how to treat monitors that can be used both as
ADP monitors and as video monitors and/or TVs?
75. The position of the European Communities has been clear for years: the inclusion
of a new product must be negotiated; it cannot be assumed to be covered by the
concessions just because it happens to also perform similar functions as a product
that is covered by the concessions. And this negotiation procedure is precisely
what the ITA foresees explicitly.
76. A monitor that can be used today as the output unit of an ADP machine is
fundamentally different from ADP monitors that were used and defined in 1996
when the ITA was negotiated and included into the scope of the agreement. And
conversely, the video monitors and televisions that were present in 1996 and
explicitly excluded from the scope of the concessions are fundamentally different
from the video monitors and televisions of today. This is an entirely new reality
not foreseen in 1996 and must thus be subject to arms length negotiations.
However, the complainants prefer litigation and that is why this case is before the
Panel.
77. It is important to stress that the European Communities very explicitly is not
applying any protectionist measures. Indeed, not even the complainants are
suggesting that. For years now no import duties have been applied on monitors
that can reasonably be expected to be used also as computer monitors. The duties
on many video monitors have been suspended and this duty suspension has
recently even been enlarged in scope. In doing so the European Communities has
been foregoing millions of euros worth of customs duties explicitly in order to
promote trade.
78. Following the rebuttal of the factual assertions made by the complainants the
European Communities will provide some important precisions on the measures
before the Panel due to some inaccuracies and omissions in the first written
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submission of the complainants. Thereafter the European Communities will
examine the legal arguments of the complainants.
79. To the extent the European Communities is able to understand the claim, the
complainants are invoking at least two terms or positions in the EC Schedule
that, according to them, cover the products at issue in this dispute. The main
focus of their case is on the term "flat panel display devices (including LCD,
Electro Luminescence, Plasma, Vacuum-Fluorescence and other technologies)
for products falling within this agreement, and parts thereof" that is the result of
the EC incorporating Attachment B of the ITA into its Schedule. This is not a
term used by the Harmonised System. It is a specific term pursuant to the ITA.
80. "Alternatively"44 or "independently"45 or "in addition"46, the complainants invoke
the tariff term "input or output units, whether or not containing storage units in
the same housing – other – other" in tariff line 8471 60 90 (HS 96). This is
clearly a secondary line of argument.
81. However, the complainants are not very clear on how they see the interplay
between these allegedly separate commitments in the EC Schedule and/or in the
ITA as allegedly incorporated into the EC Schedule.
2. The birth of the modern multifunctional LCD monitor
82. The key factual assumption by the complainants is that the multifunctional LCD
monitor, capable of both serving as an ADP monitor and the monitor for other
devices, such as video and DVD players, game machines etc., and thus also
capable of displaying digital video signals, existed in the mid 1990's when the
ITA was negotiated.
83. The United States and Japan make the following statements:
44 First written submission of Japan, para 295. 45 First written submission of TPKM, para 309. 46 First written submission of the United States, para 135.
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The first serious attempts at developing the active matrix technology used in LCDs for computer displays occurred in the early 1970s, and LCD technology began to be commercialized in the 1980s.* LCD FPDs were thus well-known and an increasingly important part of the market during the mid-1990s, when the ITA was being negotiated.47
At the time the negotiations for the ITA were taking place, it was well known that flat-panel displays – including LCD devices – were becoming a significant factor in the market for display devices for computers and computer systems. Indeed, this presence is precisely why the competing U.S. industry filed an antidumping petition in 1990 and triggered an outcry from the major computer companies who saw their important supply channels being disrupted. The commercial presence of LCD devices is, moreover, precisely why the concessions themselves mentioned flat panel devices "including LCDs".48
84. From the mere existence and commercialisation of LCD technology in general
the US and Japan jump to the conclusion that those multifunctional LCD
monitors presumably subject to this case existed at the time the concessions were
negotiated and were thus taken into account when the concessions were made.
85. TPKM does not make such factual assertions. Instead, it considers that
products which fall under the general description of the concessions are obviously covered by the concession even though the specific technology or features did not yet exist at the time the ITA was drafted.49
86. However, this is a legal argument and needs no rebuttal in this section that
concentrates on the factual premise of the complainants' case. Nevertheless, the
European Communities is pleased to note that TPKM is prepared to argue the
very complex legal issues involved in this case without attempting to rewrite
history.
87. It is not in dispute that the specific interface in the heart of the complainants' case
did not exist at the time the concessions were negotiated. Indeed, the
47 First written submission of the United States, para 52. Footnote omitted. 48 First written submission of Japan, para 277. 49 First written submission of TPKM, para 27.
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complainants admit that the DVI interface was developed two-three years later.50
However, this is only a small part of the picture.
88. LCD monitors faced major technological challenges still in the early part of this
decade. One of the key difficulties related to the unsatisfactory motion picture
quality in active matrix type LCD monitor and display applications. Writing in
2001, T. Kurita stated that
It is well known that motion images are blurred when they are displayed on AM-LCDs. Such blurring is an artefact on picture quality and is a serious problem hindering the use of AM-LCDs as a television display. The cause of the motion blur is generally considered to be the slow response time of liquid crystal. However, the more significant cause of the blur is the displaying method of AM-LCDs, or hold-type displaying.*51
89. He concluded his scientific paper with the following remarks
The mechanism of motion blur caused by hold-type displaying or the sustained light of AM-LCDs was illustrated. Moving picture quality of AM-LCDs was subjectively evaluated with simulations using a special CRT. As a result, it was clarified that the motion blur caused by hold-type displaying is a serious and fundamental deterioration of picture quality on AM-LCDs. (…) It is hoped that AM-LCDs which have good moving image quality utilizing one of the improvement methods proposed in this paper will appear in the market.52
90. These concerns related to the development of LCD video monitors and LCD
televisions. Indeed, the only evidence the complainants have brought forward on
the history of the products at issue is provided by the US and concerns also only
the development of LCD televisions – products that are explicitly excluded from
the scope of the ITA.53 Japan provides no evidence while TPKM does not even
50 First written submission of Japan, para 275. 51 Taiichiro Kurita, Moving Picture Quality Improvement for Hold-type AM-LCDs, p. 986, Exhibit EC-
12. 52 Taiichiro Kurita, Moving Picture Quality Improvement for Hold-type AM-LCDs, p. 989, Exhibit EC-
12. See also e.g. T.Yamamoto, Y. Aono and M. Tsumura, Guiding Principles for High Quality Motion Picture in AMLCDs Applicable to TV Monitors, p. 456, Exhibit EC-13.
53 Exhibit US-32. It is clear from the article cited by the US that there were only some prototypes of
LCD televisions at the relevant time, which in addition were very small in size. The suggestion on p. 495 that "the 14-in display development vaulted the LCD industry to major league status (…) A true LCD industry was born (…)" presumably in the early 1990's, does not correspond with the overwhelming evidence that LCD TV and video monitor applications overcame serious technological
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claim that the monitors at issue existed at the time. However, the necessary
implication of the history concerning LCD televisions is that if LCD video
monitors and televisions did not exist as a viable commercial and technological
reality at the time the concessions were made, there could, a fortiori, be no
multifunctional LCD monitors either. As recognised for instance on p. 8 of
Exhibit US-78 dating from 2005
It is no longer a question of whether LCDs will be accepted as a viable display alternative, but rather how long it will take for LCDs to be the only alternative.
Apple pioneered the move to LCD technology in 2001 with an award-winning line of all-digital active-matrix flat-panel displays, which provide the following advantages (…) .
91. Although the statement that "Apple pioneered the move to LCD technology in
2001" might be a somewhat broad and optimistic statement made on commercial
grounds, Exhibit US-78 is just another demonstration of the fact that the
multifunctional LCD monitor did not exist when the concessions were
negotiated. The technological breakthrough in the early part of this decade has
clearly surprised even the technological experts.
92. Consequently, the assertions made by the complainants according to which the
European Communities "reclassified" LCD monitors with a DVI interface
somewhere between 2004 and 2005 is, to say the least, misleading. What the
European Communities (and the complainants too54) were faced with was the
birth of a new product that does not fit well with the established legal
categorisations: the multifunctional LCD monitor. This new product that falls
right in between the established legal categories of the EC Schedule was a
considerable challenge to customs officials. In the absence of a specific heading
for multifunctional monitors, such monitors, depending on the specific
characteristics, had to be classified in one of the existing tariff headings for
customs purposes.
challenges on their ability to process digital video signals only in the beginning of the new millennium.
54 See more in detail section III.C.7 on the classification practice of the complainants.
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3. The measures
93. In the Panel request, the complainants have identified five different measures as
"measures at issue":
• Council Regulation (EC) No. 493/2005 of 16 March 2005;
• Commission Regulation (EC) No. 634/2005 of 26 April 2005;
• Commission Regulation (EC) No. 2171/2005 of 23 December 2005;
• Council Regulation (EEC) No. 2658/87 of 23 July 1987 on the tariff and statistical nomenclature and on the Common Customs Tariff, including all annexes thereto, as amended;55 and
• Explanatory Notes to the Combined Nomenclature of the European Communities, 2008/C 133/01 (May 30 2008), alone or in combination with Council Regulation (EEC) No. 2658/87 of 23 July 1987.
94. Regulation 493/2005 suspending the application of duties on certain video
monitors expired on 31 December 2008. It has been replaced by Council
regulation 179/200956. In accordance with its Article 2, regulation 179/2009
applies from 1 January 2009. It suspends the application of customs duties on
certain flat panel video monitors up to the size of 22 inches for colour video
monitors having inter alia as aspect ratio 1:1, 4:3, 5:4 or 16:10. It also suspends
the duties for black and white or other monochrome LCD monitors up to the size
30,5 inches equipped inter alia with a DVI or VGA connector. The product
scope is wider than its predecessor regulation 493/2005 cited by the
complainants in their panel request.
95. Regulations 634/2005 and 2171/2005 provided inter alia for the classification of
certain LCD monitors within the CN codes 8471 60 80 and 8528 21 90 as the CN
codes existed at the time in the light of HS 2002. Codes 8471 60 80 and 8528 21
90 have been replaced in 2007 by codes 8528 41 00 and 8528 59 90. The codes
as they existed at the time no longer exist. As a result, the above mentioned
classification regulations have effectively lost their relevance and the European
55 Including amendments adopted pursuant to Commission Regulation No. 1214/2007 of 20 September
2007. 56 Exhibit EC – 9.
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Communities is in the process of repealing or replacing them as appropriate for
reasons of legal certainty. However, the LCD monitors in the annexes are the
only products the complainants have identified with sufficient clarity.
96. Council regulation 2658/87 as amended provides for the current version of the
CCT. Reflecting the HS 2007, it includes the following relevant subheadings
including the applicable duty headings:
CN subheading Description Conventional Rate of
duty (%)
8528 Monitors and projectors, not incorporating television reception apparatus; reception apparatus for television, whether or not incorporating radio-broadcast receivers or sound or video recording or reproducing apparatus:
- Cathode-ray tube monitors: 8528 41 00 - - Of a kind solely or principally used in an automatic data-
processing system of heading 8471 Free
8528 49 - - Other 8528 49 10 - - - Black and white or other monochrome 14 - - - Colour: 8528 49 35 - - - - With a screen width/height ratio less than 1,5 14 - - - - Other: 8528 49 91 - - - - - With scanning parameters not exceeding 625 lines 14 - Other monitors: 8528 51 00 - - Of a kind solely or principally used in an automatic data-
processing system of heading 8471 Free
8528 59 - - Other: 8528 59 10 - - - Black and white or other monochrome 14 8528 59 90 - - - Colour 14 *** - Reception apparatus for television, whether or not
incorporating radio-broadcast receivers or sound or video recording or reproducing apparatus:
*** 8528 72 - - Other, colour: - - - Other: - - - - With integral tube: - - - - - With a screen width/height ratio less than 1,5, with a
diagonal measurement of the screen:
8528 72 31 - - - - - - Not exceeding 42 cm 14 8528 72 33 - - - - - - Exceeding 42 cm but not exceeding 52 cm 14 8528 72 35 - - - - - - Exceeding 52 cm but not exceeding 72 cm 14 8528 72 39 - - - - - - Exceeding 72 cm 14 - - - - - Other - - - - - - With scanning parameters not exceeding 625 lines, with a
diagonal measurement of the screen:
8528 72 51 - - - - - - - Not exceeding 75 cm 14 8528 72 59 - - - - - - - Exceeding 75 cm 14 8528 72 75 - - - - - - With scanning parameters exceeding 625 lines 14
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- - - - Other: 8528 72 91 - - - - - With a screen width/height ratio of less than 1,5 14 8528 72 99 - - - - - Other 14 8528 73 00 - - Other, black and white or other monochrome 2
97. As is clear from the above table, monitors "of a kind solely or principally used in
an automatic data-processing system of heading 8471" are free of duty. Other
monitors and televisions carry a duty ranging from 2 to 14 % ad valorem.
However, as described above, the application on duties on most video monitors
has been suspended.
98. Finally, the complainants have identified also Explanatory Notes to the
Combined Nomenclature of the European Communities, 2008/C 133/01 (May 30
2008), "alone or in combination with Council Regulation (EEC) No. 2658/87 of
23 July 1987". It should, however, be underlined that Explanatory Notes are not
legally binding in the EC legal order.57 Explanatory Notes are not "like a
regulation" as the complainants' describe them.58 To the extent there is a conflict
between the wording of the headings and the Explanatory Notes, the latter will be
inapplicable.59
4. Ordinary meaning of the relevant tariff terms
(a) Heading 8471 60 90
99. The complainants invoke EC concession in respect of tariff heading 8471 60 90
"-Input or output units, whether or not containing storage units in the same
housing – Other; ---Other". This is the tariff heading used at the time for inter
alia monitors of ADP machines and follows the HS 96 nomenclature.
100. The European Communities does not dispute that a genuine ADP monitor would
fall within the scope of the ordinary meaning of this heading and would, on the
57 See e.g. case C-376/07 Kamino, Exhibit TPKM-52, paragraphs 47 to 49. 58 See e.g. first written submission of Japan, para 28. 59 See also Panel Report, EC – Selected Customs Matters, footnote 638.
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basis of the concessions made, be entitled to duty free treatment without further
argumentation. However, a wholly different question is whether a given
multifunctional LCD monitor falls within the scope of the concession.
Nevertheless, to the extent an LCD monitor would qualify as an ADP monitor
under tariff heading 8471 60 90 the applicable tariff under the EC concessions
would be zero.
101. Therefore, there is no need to examine the arguments of the complainants in
respect of the ordinary meaning of the tariff term "Input or output units, whether
or not containing storage units in the same housing – Other - - Other". ADP
monitors undoubtedly fall within this heading, but this says very little about
whether the different kinds of multifunctional LCD monitors subject to this
dispute fall within the ordinary meaning of the heading. Such monitors may fulfil
also the ordinary meaning of video monitors under headings 8528 21 and 8528
22 or, in some cases, reception apparatus for television, whether or not
incorporating radio-broadcast receivers or sound or video recording or
reproducing apparatus under headings 8528 12 and 8528 13.
(b) The narrative product definition
102. The complainants also claim that a product definition identified in the narrative
product description list pursuant to Attachment B of the EC Schedule requires
the European Communities to grant zero duty to multifunctional LCD monitors
although, as explained above, the identification of the precise concession is very
unclear. The relevant product description reads as follows:
Flat panel display devices (including LCD, Electro Luminescence, Plasma, Vacuum-Fluorescence and other technologies) for products falling within this agreement, and parts thereof.
103. The arguments of the complainants relating to the ordinary meaning of this term
vary considerably. The United States simply jumps to the conclusion that
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Based on the ordinary meaning in context of the terms in the EC's Schedule, LCD monitors are "flat panel display devices … for products falling within this agreement." A flat panel display device is
"[a] video display with a shallow physical depth, based on technology other than the CRT (cathode-ray tube). Such displays are typically used in laptop computers. Common types of flat-panel displays are the electroluminescent display, the gas discharge display, and the LCD display."*
In the ITA, the parenthetical following the terms "flat panel display devices" specifically identifies LCD flat panel display devices* as one example of a flat panel display device. Computers ("automatic data processing machines") are among the "products falling within" the ITA.* LCD monitors "for" computers are therefore among the devices covered by the EC's commitment with respect to flat panel display devices. Therefore, under the headnote, the EC and its member States are obliged to accord duty-free treatment to flat panel display devices for ITA products, and in particular LCD monitors, wherever they are classified.60
104. No genuine argumentation is provided to support this conclusion. The United
States does not even try to examine the ordinary meaning of the term. The
ordinary meaning of the relevant term is entirely mixed up with vague fact-like
statements and ostensible contextual assertions without any structured legal
analysis. The only evidence brought forward is a definition from Microsoft
Computer Dictionary that dates from 2002 i.e. five-six years after the
commitment on product coverage was made and around or just after the birth of
the multifunctional LCD monitor described above. However, the European
Communities takes note with interest that the definition provided in 2002 refers
to a video display typically used in laptop computers, not a computer monitor or
display used in personal desk-top computers.
105. Japan's argumentation on the ordinary meaning of the tariff term is slightly more
developed but equally seriously confuses purely textual arguments with
contextual arguments. Paragraph 266 contains the clearest leap in Japan's logic.
That paragraph begins with a sentence that provides the premise of the
subsequent analysis:
60 First written submission of the United States, para 121. Emphasis in the original, footnotes omitted.
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There is equally no dispute that LCD monitors are 'flat panel display devices' for display of data from an ADP machine'.
106. This is not correct. It is very much in dispute in this case whether "LCD
monitors" generally are "flat panel display devices … for products falling within
this agreement …" within the meaning of the EC Schedule and the ITA. There is
even more a dispute as to what precise kind of LCD monitors might be "flat panel
display devices …" within the meaning of the EC Schedule and the ITA
assuming that LCD monitors used with ADP machines are covered by the
relevant concessions in the first place. The fait accompli agreement Japan is
attempting to establish must therefore be based on a misunderstanding. However,
these issues relate more to the contextual analysis below so will not be examined
here in more detail.
107. The only argument by Japan that relates to the ordinary meaning of the tariff
term concerns the word "for". The Unites States and TPKM also emphasise the
importance of the word "for" albeit TPKM under its contextual analysis while the
US refers to the word "for" in various parts of its submission.
108. According to Japan it follows from the ordinary meaning of the word "for",
which it admits has e.g. in the Oxford English Dictionary over 20 definitions,
that
a device can equally be "for products covered by the agreement" and "for" products not covered by the agreement. The fact that the device is "for" the latter does not preclude the possibility that it is "for" the former.
Moreover, it is noteworthy that the "for" in the phrase in question appears without any modifier or restriction. The lack of a modifier confirms the word is being used without any modifier or restriction. There is no limiting language in this product description – nothing that would require the flat panel display device to receive output "solely" from an ADP machine.61
109. On this basis Japan concludes that "[t]he ordinary meaning of this key phrase in
the EC concession thus demonstrates that LCD monitors with a DVI fall within
the scope of this EC concession, should be accorded duty-free treatment".
61 First written submission of Japan, paras 268-269.
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110. TPKM in turn makes reference to a number of dictionary definitions, both
general and specific to technical matters. All the definitions in technical
dictionaries are from this decade and some are on-line thus adapted regularly to
technical development. The oldest reference is to the same Microsoft Computer
Dictionary from 2002 as examined above in relation to the US. These definitions
provide very little insight into the ordinary meaning of a commitment made in
1996 in view of the intervening technological developments. Thus, the
conclusion TPKM draws is necessarily overly broad and tainted by the
intervening technological developments.
111. Having said that, the European Communities can partially agree with what
TPKM suggests in paragraph 233 of its first written submission:
The definitions provided by these technical dictionaries indicate that a flat panel display device is a thin display screen employing plasma, LCDs and other technologies for use with computers or other apparatus.62
112. Although this definition appears to rightly include also semi-finished products
when it refers to "thin display screen" it is also too wide because it ignores the
limiting words "for products falling within this agreement, and parts thereof" in
the relevant product description. However, this again is more appropriately
examined within the section relating to the context of the term.
113. In the view of the European Communities, to the extent the complainants even
address the ordinary meaning of the term "flat panel display devices … for
products falling within this agreement …", they are missing some very important
points. First, the term "flat panel display devices" is in the plural and does not
provide further guidance than some examples of the relevant technology. There
are different kinds of flat panel display devices, many of which have nothing to
do with ADP machines (for example, flat panel display devices for car radios or
entertainment displays in airplanes). Therefore, the term in question cannot be
synonymous with computer flat panel monitors as the complainants wish to
frame the issue.
62 First written submission of TPKM, para 233. Emphasis added.
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114. Another important observation is that the qualification "for products falling
within this agreement, and parts thereof" necessarily means that not all flat panel
display devices, whatever meaning is given to the notion otherwise, can fall
within the scope of the concessions. It does not follow from the use of particular
technology that the product falls within the scope of the agreement. The often
loose language of the complainants referring to just any "LCD monitors"
generally must therefore be incorrect on the face of the ordinary meaning of the
term.
115. However, it should also be noted that the term refers to "products falling within
this agreement and parts thereof", again in the plural. The ordinary meaning of
the term is therefore of very limited importance because it explicitly refers to
many other products covered by the agreement and necessitates thus a contextual
analysis to be understood.
116. It is very important to understand that the fact that the definition had to cover a
variety of products neutralises any argument that could be drawn in either
direction from the ordinary meaning of the word "for" examined in isolation.
Therefore, the ordinary meaning of the word "for" could denote just as well "only
for", "mainly for" or "also for". Of course it is the latter that the complainants
claim is the correct interpretation. To decide which one of these alternatives is
the correct one necessitates, however, a contextual analysis taking also into
account the object and purpose of the concessions and, if necessary, the relevant
supplementary means of interpretation.
117. Finally, the Appellate Body has considered that
Dictionaries are a "useful starting point"* for the analysis of "ordinary meaning" of a treaty term, but they are not necessarily dispositive. The ordinary meaning of a treaty term must be ascertained according to the particular circumstances of each case. Importantly, the ordinary meaning of a treaty term must be seen in the light of the intention of the parties "as expressed in the words used by them against the light of the surrounding circumstances".63
63 Appellate Body Report, EC – Chicken Cuts, para 175.
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118. As demonstrated by the European Communities, the multifunctional LCD
monitor did not exist at the time of negotiating the concessions. This casts
important light to the surrounding circumstances under which the concessions
were made in view of the exceptionally detailed technical language used in the
narrative product definitions in attachment B to the ITA and the subsequent tariff
concessions made in view of the headings identified next to the product
descriptions in the certified Schedules. The importance of these surrounding
circumstances for the purposes of interpreting the tariff concession will be
further strengthened through the contextual analysis of the concessions.
5. Context
119. In EC – Chicken cuts, the Appellate Body provided the following guidance on
the use of context within the meaning of the Vienna Convention:
It is clear from these provisions that the context of the term "salted" in heading 02.10 consists of the immediate, as well as the broader, context of that term. The immediate context is the other terms of the product description contained in heading 02.10 of the EC Schedule. The broader context includes the other headings in Chapter 2 of the EC Schedule, as well as other WTO Member Schedules.64
120. The Appellate Body has equally confirmed that the Harmonised System provides
important context for the interpretation of the relevant tariff terms in the
Schedules of WTO members65.
121. The European Communities does not consider it particularly important to
distinguish between immediate and broader context in this case because of the
particularities of the commitments and because the complainants have not
identified the precise commitments. Thus, it is unclear what is context for what.
The Appellate Body has also recently stated that "treaty interpretation is an
integrated operation, where interpretative rules or principles must be understood
and applied as connected and mutually reinforcing components of a holistic
64 Appellate Body Report, EC – Chicken Cuts, para 193. 65 See e.g. Appellate Body Report, EC - Chicken Cuts, para 199; Appellate Body Report, China – Auto
Parts, para 149.
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exercise".66 However, the European Communities will distinguish between the
context provided by the other (presumed) concessions and product definitions
pursuant to the ITA, the context provided by the Schedules of other ITA parties
and the context provided by the HS96.
(a) The context provided by the other EC commitments and product definitions pursuant to the ITA
122. In accordance with Paragraph 2 of the Annex to the ITA, the European
Communities notified to the WTO in 1997 altogether 14 eight digit CN codes
next to the product description "Flat panel display devices (including LCD,
Electro Luminescence, Plasma, Vacuum-Fluorescence and other technologies)
for products falling within this agreement, and parts thereof". The codes
identified all carry a zero duty in the Schedule that is structured following the
Harmonised System nomenclature. In other words, the specific numerical
headings in the EC Schedule that correspond to the headings identified next to
the narrative product definition carry a zero duty. This Schedule was agreed by
consensus and subsequently certified and represents now a common agreement
among all WTO Members.
123. Indeed, as confirmed by the Appellate Body in EC – Computer Equipment and
EC – Chicken Cuts
... 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.67
66 Appellate Body Report, US - Continued Zeroing, para 268; see also Appellate Body Report, EC -
Chicken Cuts, para. 176, where the Appellate Body pointed out that "interpretation pursuant to the customary rules codified in Article 31 of the Vienna Convention is ultimately a holistic exercise that should not be mechanically subdivided into rigid components"; and Panel Report, US - Section 301, para 7.22, where the panel stated that "the elements referred to in Article 31 –text, context and object-and-purpose as well as good faith – are to be viewed as one holistic rule of interpretation rather than a sequence of separate tests to be applied in a hierarchical order".
67 Appellate Body Report, EC – Computer Equipment, para 109; Appellate Body Report, EC – Chicken
Cuts, para 265.
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124. All WTO Members therefore agree that these 14 codes reflect the understanding
on the relevant EC commitments in respect of "flat panel display devices (…)".
They are the following:
– 8471 60 90: Automatic data-processing machines and units thereof; magnetic or optical readers, machines for transcribing data onto data media in coded form and machines for processing such data, not elsewhere specified or included; - Input or output units, whether or not containing storage units in the same housing; -- Other; --- Other
– 8473 30 10: Parts and accessories (other than covers, carrying cases and
the like) suitable for use solely or principally with machines of heading Nos 8469 to 8472; - Parts and accessories of the machines of heading No 8471 -- Electronic assemblies
– 8473 30 90: Parts and accessories (other than covers, carrying cases and
the like) suitable for use solely or principally with machines of heading Nos 8469 to 8472; - Parts and accessories of the machines of heading No 8471; -- Other
– 8531 20 30: Electric sound or visual signalling apparatus (for example,
bells, sirens, indicator panels, burglar or fire alarms), other than those of heading No 8512 or 8530 - Indicator panels incorporating liquid crystal devices (LCD) or light emitting diodes (LED); --Other; --- Incorporating light emitting diodes (LED)
– 8531 20 51: Electric sound or visual signalling apparatus (for example,
bells, sirens, indicator panels, burglar or fire alarms), other than those of heading No 8512 or 8530 - Indicator panels incorporating liquid crystal devices (LCD) or light emitting diodes (LED); --Other; --- Incorporating liquid crystal devices (LCD); ---- Incorporating active matrix liquid crystal devices (LCD); ----- Colour
– 8531 20 59: Electric sound or visual signalling apparatus (for example,
bells, sirens, indicator panels, burglar or fire alarms), other than those of heading No 8512 or 8530 - Indicator panels incorporating liquid crystal devices (LCD) or light emitting diodes (LED); --Other; --- Incorporating liquid crystal devices (LCD); ---- Incorporating active matrix liquid crystal devices (LCD); ----- Black and white or other monochrome
– 8531 20 80: Electric sound or visual signalling apparatus (for example,
bells, sirens, indicator panels, burglar or fire alarms), other than those of heading No 8512 or 8530 - Indicator panels incorporating liquid crystal devices (LCD) or light emitting diodes (LED); -- Other; --- Incorporating liquid crystal devices (LCD); ---- Other
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– 8531 80 30: Electric sound or visual signalling apparatus (for example, bells, sirens, indicator panels, burglar or fire alarms), other than those of heading No 8512 or 8530; - Other apparatus; -- Other; ---Flat panel display devices
– 8531 90 10: Electric sound or visual signalling apparatus (for example,
bells, sirens, indicator panels, burglar or fire alarms), other than those of heading No 8512 or 8530; - Parts; -- Of apparatus of subheading No 8531 20
– 8531 90 30: Electric sound or visual signalling apparatus (for example,
bells, sirens, indicator panels, burglar or fire alarms), other than those of heading No 8512 or 8530; - Parts; -- Of apparatus of subheading 8531 80 30
– 9013 80 11: Liquid crystal devices not constituting articles provided for
more specifically in other headings; lasers, other than laser diodes; other optical appliances and instruments, not specified or included elsewhere in this Chapter; - Other devices, appliances and instruments; -- Liquid crystal devices; --- Active matrix liquid crystal devices; ---- Colour
– 9013 80 19: Liquid crystal devices not constituting articles provided for
more specifically in other headings; lasers, other than laser diodes; other optical appliances and instruments, not specified or included elsewhere in this Chapter; - Other devices, appliances and instruments; -- Liquid crystal devices; --- Active matrix liquid crystal devices; ---- Black and white or other monochrome
– 9013 80 30: Liquid crystal devices not constituting articles provided for
more specifically in other headings; lasers, other than laser diodes; other optical appliances and instruments, not specified or included elsewhere in this Chapter; - Other devices, appliances and instruments; -- Liquid crystal devices; --- Other
– 9013 90 10: Liquid crystal devices not constituting articles provided for
more specifically in other headings; lasers, other than laser diodes; other optical appliances and instruments, not specified or included elsewhere in this Chapter; - Parts and accessories; -- For liquid crystal devices (LCD)
125. As this list demonstrates the notion "flat panel display devices (…)" covers many
different headings which in turn cover many different products. It should also be
noted from the outset that the list does not include HS96 headings 8528 12 and
13 and/or 8528 21 and 22 i.e. televisions and video monitors.
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126. Of these 14 CN headings only 8471 60 90: Automatic data-processing machines
and units thereof (…); -- Other; --- Other, is relevant for the product(s) in
question because that is where the complainants claim all multifunctional LCD
monitors belong in the EC Schedule that follows the HS96 nomenclature. As
already examined above, this is the relevant CN code inter alia for ADP
monitors and is not subject to the application of ordinary customs duties.
127. By identifying code 8471 60 90 next to "flat panel display devices (…)" the
European Communities committed to applying no duties on such devices to the
extent some of them would be considered to fall within this tariff heading.
However, the same code 8471 60 90 was also identified next to four other
narrative product definitions, namely "Network equipment (…)", "Monitors:
(…)", Plotters whether input or output units (…)" and "Projection type flat panel
display units (…)".
128. These product definitions provide context for the scope and meaning of the
commitment to apply heading 8471 60 90 in relation to certain "flat panel display
devices (…)" although among them by far the most important contextual
relevance is provided by the definition of "monitors" that reads as follows:
Monitors: display units of automatic data processing machines with a cathode ray tube with a dot screen pitch smaller than 0,4 mm not capable of receiving and processing television signals or other analogue or digitally processed audio or video signals without assistance of a central processing unit of a computer as defined in this agreement. The agreement does not, therefore, cover televisions, including high definition televisions. (emphasis added)
129. This product description and the tariff heading identified next thereto reflect the
commitment of the European Communities in respect of ADP monitors.
Although the complainants agree that the other products in the EC Schedule
pursuant to Attachment B provide important context for the interpretation of the
concession relating to "flat panel display devices (…)", it is striking that they do
not even mention the product "monitor" in their submissions. And yet, they
define the case as concerning LCD monitors that are connectable to an ADP
machine.
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130. It might be that the complainants are of the view that the reference to CRT
technology in the definition of "monitors" means that the definition should have
no relevance for the interpretation of "flat panel display devices (…)". However,
the identification of the technology in the definition of "monitors" is only logical
because that is the technology ADP monitors and televisions used at the time
when the concessions were made as explained in more detail above.
131. Therefore, it is not clear to the European Communities whether the complainants
wish to interpret the exclusion of video monitors and televisions to be limited to
only those functioning with the CRT technology. The logical conclusion of this
position would be that televisions or video monitors using other technology, i.e.
most of video monitors and televisions of today, would have already fallen
within the scope of the commitments as and when they became a technological
and commercial reality. That would be a very radical position and the European
Communities cannot stress more how fundamental the consequences of such a
position would be - both systemically and with respect to the specific product
exclusions. The ITA participants never agreed to cover televisions and video
monitors and that is very clear from the definition of "monitors". And it would
seem that neither did the complainants with the possible exception of Japan with
regard to video monitors68. Therefore, subject to this caveat concerning Japan's
commitments on video monitors, the European Communities assumes that the
complainants are in fact not claiming that televisions and video monitors are
covered by the relevant concessions if the LCD technology is used.
132. The specific exclusion of televisions and video monitors under the commitment
on ADP monitors provides important context for interpreting the scope and
extent of the EC concessions with regard to "flat panel display devices (…)".
Televisions and other monitors or display units able to receive and process
television signals or other analogue or digitally processed audio or video signals
with the assistance of or directly from another product than a central processing
unit of a computer are explicitly excluded from the scope of the commitments to
eliminate customs duties on certain products.
68 See section III.C.7(b).
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133. In the EC Schedule following the HS96 nomenclature such products fall in
particular under heading 8528 "Reception apparatus for television, whether or
not incorporating radio-broadcast receivers or sound or video recording or
reproducing apparatus; video monitors and video projectors", and in particular
headings (at the six digit level)
– 8528 12: - Reception apparatus for television, whether or not incorporating radio-broadcast receivers or sound or video recording or reproducing apparatus; -- Colour
– 8528 13: - Reception apparatus for television, whether or not
incorporating radio-broadcast receivers or sound or video recording or reproducing apparatus; -- Black and white or other monochrome
– 8528 21: - Video monitors; --Colour – 8528 22: - Video monitors; -- Black and white or other monochrome
134. Therefore, in respect of the specific multifunctional LCD monitors the European
Communities understands to be the subject of this case, the key question is
whether a given LCD monitor falls within the scope of heading 8471 60 90 or
one of the headings of Chapter 85 identified above as detailed further in the
Schedule of the European Communities. The argument that the identification of
the residual subheading 9013 "clearly shows that the EC intended to include all
forms of FPDs in the scope of the concessions concerning 'flat panel display
devices'"69 is wrong on its face because it ignores that in order to consider the
residual heading it is necessary to first exclude the applicability of other headings
including heading 8528. Furthermore, heading 9013 clearly covers parts of LCD
display devices (for products covered by the agreement).
135. The arguments Japan, and to some extent TPKM, draw from the definitions of
"network equipment" and "projection type flat panel display units (…)" are less
clear. It would seem that Japan attempts to draw an a contrario argument from
the use of the words "solely or principally" in the definition of network
equipment. In other words, the fact that the definition of "flat panel display
devices (…)" does not use the words "solely or principally for products falling
69 See first written submission of TPKM, paras 279 – 280.
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within this agreement" but rather uses the word "for" demonstrates in their view
that the definition was intended to be wide.
136. However, Japan's argument misses the important point that the definition of "flat
panel display devices (…)" explicitly refers to a number of different products that
"fall within this agreement". Thus, any suggested width the word "for" brings
into the definition rather implies the number of products rather than whether or
not a given flat panel display could have multiple usage including in respect of
products not falling within the scope of ITA. If anything, the word "for" would in
this context rather imply that a given flat panel display is always only for a
product that falls within the scope of the agreement. In any event, the word "for"
does not necessarily exclude "solely or principally" in relation to a specific
product and most certainly does not mean that it would include products not
falling within the scope of the agreement.
137. Both Japan and TPKM also refer to the definition of "projection type flat panel
display units". They argue that the word "can" in the definition explicitly
contemplates dual or multiple usages and that on this basis multiple usage must
have also been foreseen for "flat panel display devices (…)". Again the argument
fails to recognize that the definition of "projection type flat panel display" refers
to a specific product, not a group of very different products. Furthermore, a
projection type flat panel display unit is a product that falls within the ITA. Thus,
it is foreseen that a flat panel display device may be integrated into a projection
type flat panel display unit. If such a unit thereafter "can" display information
from an ADP unit, it falls within the scope of the concessions. However, this
does not mean that a flat panel display device that is integrated into a video
monitor or a television that can also display information from an ADP unit would
fall within the scope of the agreement. On the contrary, they would remain
outside the scope of the agreement because of the very clear exclusion.
138. These arguments demonstrate the uneasiness of the attempts of the complainants
to try and distinguish between a "tariff treatment" and a "tariff classification"
case. The European Communities fails to see how it could be demonstrated that
the European Communities has violated its tariff commitments without first
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identifying the product at issue in the Schedule of the European Communities i.e.
classifying it into the correct heading. As the panel found in China – Auto Parts
classification of a good into the proper tariff heading is an essential first step for assessing the appropriate tariff duty on the product.70
139. To the extent the European Communities understands the arguments of the
complainants correctly, the only argument they advance in this respect is the
language in the headnote to the product description pursuant to Attachment B to
the ITA and allegedly incorporated into the Schedule of the EC. Thus, the words
"wherever classified" together with a given narrative product description are in
their view an overarching principle that prevails over any tariff result that
follows from classifying a product within the EC Schedule and despite of the
specific CN headings identified next to the product description in the EC
Schedule. Thus, even if all WTO members and in particular those party to the
ITA have agreed by consensus to certify the EC Schedule implementing the ITA
including the specific CN/HS codes next to the product descriptions, the latter
would prevail even when, following classification, a given product would fall
within a dutiable heading i.e. a different CN heading from those incorporated
into the EC Schedule.
140. However, assuming that the EC understands the complainants' position to be that
there is a systemic predominance of the narrative product definitions over the
actual detailed commitments identified with the specific CN headings next to the
product definition, the product would still need to be classified as being covered
by one of the product descriptions, albeit not always with the assistance of the
logic contained in the Harmonized System. And the complainants have failed in
their attempt to demonstrate so.
141. However, before turning to the HS96 as context71, the European Communities
will briefly examine the context provided by the Schedules of other ITA parties.
70 Panel Report, China – Auto Parts, para 7.449. 71 See e.g. Appellate Body Report, EC - Chicken Cuts, para 199; Appellate Body Report, China – Auto
Parts, para 149.
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(b) The Schedules of other ITA parties
142. The European Communities explained above how the CN/HS codes it submitted
as part of its Schedule implementing the ITA reflects the EC's understanding and
commitments in respect of the product "flat panel display devices (…)".
Therefore, the European Communities will also examine the Schedules of other
WTO members that are parties to the ITA in order to see how they have
classified "flat panel display devices (…) falling within [the ITA] (…)".
143. The following table summarizes the classification (at six digit level) of the "flat
panel display devices falling within [the ITA] (…)" by the ITA parties in 1997.
This overview is based on the modifications made pursuant to the ITA to the
Schedules of ITA parties and notified to the WTO under paragraph 2 of the
Annex to ITA:72
Classification of "Flat panel display devices (including LCD, Electro Luminescence, Plasma, Vacuum-
Fluorescence and other technologies) for products falling within this agreement and parts thereof" by ITA
participants in 1997
Sub-heading Number of participants
classifying in that subheading
Main parties to the dispute
842490 1 -
847149 7 US
847160 24 EC, JA, TPKM, US
847310 1 -
847321 1 -
847329 1 -
847330 23 JA, US
847340 1 -
72 WTO document G/IT/2/Add.1 of 17 October 1997; Exhibit EC-14.
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847350 1 -
851790 1 -
852290 1 -
852821 3 JA
852822 3 JA
852990 3 JA
853120 27 EC, JA, TPKM, US
853180 15 EC, US
853190 26 EC, JA, TPKM, US
854389 6 US
854390 8 US
854890 1 -
901320 4 JA
901380 22 EC, JA, TPKM, US
901390 22 EC, JA, TPKM, US
901790 1 -
144. This table provides very useful indication on what the parties to the ITA
understood in 1997 i.e. when the commitments were made and approved by
consensus as foreseen by paragraph 2 of the annex to the ITA. The most relevant
sub-headings for the claim on LCD monitors are 8471.60 that covers inter alia
ADP monitors ("output units" of an ADP) and 8528.21 and 8528.22 that cover
"video monitors". No ITA party has identified the relevant sub-headings for
televisions i.e. 8528.12 and 8528.13. Of the complainants only Japan has
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considered that "flat panel display devices (…)" cover video monitors and only
Iceland and Macao share Japan's position.
145. The table also demonstrates that, provided the complainants' position on the
predominance of the product description is correct, a number of WTO and ITA
members have either made commitments without there being an obligation
pursuant to the ITA and/or there are a number of WTO breaches because of the
differences in classification. Ultimately almost all parties would either have
made unnecessary commitments and/or be in breach of their obligations in
respect of some product descriptions.
(c) The Harmonized System
146. The complainants largely ignore the Harmonized System in their submissions
although they do, when it suits their argument, pick and choose from some
relevant elements of the HS9673. The European Communities can, however,
agree with one point made by the complainants. It is the Harmonized System of
1996 that is relevant for this case because that is the version in force at the time
the concessions were made.
147. Before examining precisely how the HS96 provides context for the interpretation
of the EC concessions in relation to multifunctional LCD monitors, the European
Communities will first describe the relevant structure, rules and notes of HS96.
148. Under Article 3(1) of the HS Convention, each Contracting Party undertakes to
ensure that its customs tariff and statistical nomenclatures are in conformity with
the Harmonised System introduced by that convention, to use all the headings
and subheadings of the HS without addition or modification, together with their
related numerical codes, and to follow the numerical sequence of that system.
The same provision provides that the Contracting Party must apply the General
Rules for the interpretation of the HS and all the Section, Chapter and
73 For instance, TPKM insists that the Panel should essentially ignore GIR 3(c) in its analysis. See para
128 of the first written submission of TPKM. Japan and the US in turn emphasise Chapter notes 5(B) and (C) to chapter 84. See Japan's first written submission, paras 317 to 335 and the first written submission of the US, paras 138 to 139.
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Subheading notes of the HS, and not modify their scope. Under Article 9 of the
HS convention, the Contracting Parties do not assume by this Convention any
obligation in relation to rates of customs duty.
149. The General Rules for the interpretation of the HS9674 state inter alia:
Classification of goods in the nomenclature shall be governed by the following principles:
1. The titles of sections, chapters and sub-chapters are provided for ease of reference only; for legal purposes, classification shall be determined according to the terms of the headings and any relative section or chapter notes and, provided such headings or notes do not otherwise require, according to the following provisions.
…
3. When by application of Rule 2 (b) or for any other reason, goods are prima facie, classifiable under two or more headings, classification shall be effected as follows:
(a) The heading which provides the most specific description shall be preferred to headings providing a more general description. However, when two or more headings each refer to part only of the materials or substances contained in mixed or composite goods or to part only of the items in a set put up for retail sale, those headings are to be regarded as equally specific in relation to those goods, even if one of them gives a more complete or precise description of the goods.
(b) Mixtures, composite goods consisting of different materials or made up of different components and goods put up in sets for retail sale, which cannot be classified by reference to 3 (a), shall be classified as if they consisted of the material or component which gives them their essential character, insofar as this criterion is applicable.
(c) When goods cannot be classified by reference to 3 (a) or 3 (b), they shall be classified under the heading which occurs last in numerical order among those which equally merit consideration.
…
74 The Harmonised Commodity Description and Coding System, Second Edition (1996); Exhibit EC-15.
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6. For legal purposes, the classification of goods in the subheadings of a heading shall be determined according to the terms of those subheadings and any related subheading notes and, mutatis mutandis, to the above rules, on the understanding that only subheadings at the same level are comparable. For the purposes of this rule the relative section and chapter notes also apply, unless the context requires otherwise.’
150. Section XVI of the HS96 contains Chapters 84 and 85. The first includes nuclear
reactors, boilers, machinery and mechanical appliances, and parts thereof.
Among such products are automatic data-processing machines. The second
concerns machinery and mechanical appliances; electrical equipment; parts
thereof; sound recorders and reproducers, television image and sound recorders
and reproducers, and parts and accessories of such articles. It includes inter alia
televisions and video monitors.75
151. Section Note 3 to Section XVI provides that
Unless the context otherwise requires, composite machines consisting of two or more machines fitted together to form a whole and other machines adapted for the purpose of performing two or more complementary or alternative functions are to be classified as if consisting only of that component or as being that machine which performs the principal function.76(emphasis added)
152. According to Explanatory Note VI to Section Note 3
In general, multi-function machines are classified according to the principal function of the machine.
…
Where it is not possible to determine the principal function, and where, as provided in Note 3 to the Section, the context does not otherwise require, it is necessary to apply General Interpretative Rule 3 (c); such is the case, for example, in respect of multi-function machines potentially classifiable in several of the headings 84.25 to 84.30, in several of the headings 84.58 to 84.63 or in several of the headings 84.69 to 84.72.77 (emphasis added)
…
75 Exhibit EC-15. 76 Exhibit EC-15. 77 Explanatory notes to Section XVI HS96; Exhibit EC-16.
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153. Chapter 84 contains inter alia the heading 8471 that includes "Automatic data
processing machines and units thereof". Furthermore, subheading 8471 60 covers
"Input or output units, whether or not containing storage units in the same
housing".78
154. Chapter 85 in turn contains inter alia the heading 8528 "Reception apparatus for
television, whether or not incorporating radio-broadcast receivers or sound or
video recording or reproducing apparatus; video monitors and video projectors".
The relevant subheadings are 8528 12 and 8528 13 for "Reception apparatus for
television (…)" and 8528 21 and 8528 22 for "Video monitors".79
155. Under Note 5 to Chapter 84:
‘…
(B) Automatic data-processing machines may be in the form of systems consisting of a variable number of separate units. Subject to paragraph E below, a unit is to be regarded as being a part of a complete system if it meets all of the following conditions:
(a) it is of a kind solely or principally used in an automatic data-processing system;
(b) it is connectable to the central processing unit either directly or through one or more other units; and
(c) it is able to accept or deliver data in a form (codes or signals) which can be used by the system.
(C) Separately presented units of an automatic data-processing machine are to be classified in heading No 8471.
…
(E) Machines performing a specific function other than data processing and incorporating or working in conjunction with an automatic data-processing machine are to be classified in the headings appropriate to their respective functions or, failing that, in residual headings.’80 (emphasis added)
156. The Explanatory Notes concerning heading 8471 of the HS96 state as follows:
78 Exhibit EC-15. 79 Exhibit EC-15. 80 Exhibit EC-15.
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‘I.– Automatic data-processing machines and units thereof
…
D.– Separately presented units
This heading also cover separately presented units of data processing systems. These may be in the form of units having a separate housing and designed to be connected, for example, by cables to other machines on a system, or in the form of units not having a separate housing and designed to be inserted into a machine (e.g., insertion onto the main board of a central processing unit). Constituent units are those defined in Parts (A) and (B) above as being parts of a complete system
Among the constituent units included are display units of automatic data-processing machines which provide a graphical representation of the data processed. They differ from the video monitors and television receivers of heading 8528 in several ways, including the following:
(1) Display units of automatic data-processing machines are capable of accepting a signal only from the central processing unit of an automatic data-processing machine and are therefore not able to reproduce a colour image from a composite video signal whose waveform conforms to a broadcast standard (NTSC, SECAM, PAL, D-MAC etc.). They are fitted with connectors characteristic of data-processing systems (e.g. RS-232C interface, DIN or SUB-D connectors) and do not have an audio circuit. They are controlled by special adaptors (e.g. monochrome or graphics adaptors) which are integrated in the central processing unit of the data-processing machine.
(2) These display units are characterised by low magnetic field emissions. Their display pitch starts at 0.41 mm for medium resolution and gets smaller as the resolution increases.
(3) In order to accommodate the presentation of small yet well-defined images, display units of this heading utilise smaller dot (pixel) sizes and greater convergence standards than those applicable to video monitors and television receivers of heading 8528. (Convergence is the ability of the electron gun(s) to excite a single spot on the face of the cathode-ray tube without disturbing any of the adjoining spots.)
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(4) In these display units, the video frequency (bandwidth), which is the measurement determining how many dots can be transmitted per second to form the image, is generally 15 MHz or greater. Whereas, in the case of video monitors of heading 8528, the bandwidth is generally no greater than 6 MHz. The horizontal scanning frequency of these display units varies according to the standards for various display modes, generally from 15 kHz to over 155 kHz. Many are capable of multiple horizontal scanning frequencies. The horizontal scanning frequency of the video monitors of heading 8528 is fixed, usually 15.6 or 15.7 kHz depending on the applicable television standard. Moreover, the display units of automatic data-processing machines do not operate in conformity with national or international broadcast frequency standards for public broadcasting or with frequency standards for closed-circuit television.
(5) Display units covered by this heading frequently incorporate tilt and swivel adjusting mechanisms, glare-free surfaces, flicker-free display, and other ergonomic design characteristics to facilitate prolonged periods of viewing at close proximity to the unit.
…81 (emphasis added)
157. The Explanatory Notes concerning heading 8528 of the HS96 in turn state as
follows:
This heading covers television receivers (including video monitors and video projectors), whether or not incorporating radio-broadcasting receivers or sound or video recording or reproducing apparatus.
This heading includes:
(1) Television receivers of the kind used in the home (table models, consoles, etc.) including coin-operated televisions sets.
…
81 Exhibit EC-11.
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(6) Video monitors which are receivers connected directly to the video camera or recorder by means of co-axial cables, so that all the radio-frequency circuits are eliminated. They are used by television companies or for closed-circuit television (airports, railway stations, steel plants, hospitals, etc.). These apparatus consist essentially of devices which can generate a point of light and display it on a screen synchronously with the source signals. They incorporate one or more video amplifiers with which the intensity of the point can be varied. They can, moreover, have separate inputs for red (R), green (G) and blue (B), or be coded in accordance with a particular standard (NTSC, SECAM, PAL, D-MAC, etc.). For reception of coded signals, the monitor must be equipped with a decoding device covering (the separation of) the R, G and B signals. The most common means of image reconstitution is the cathode-ray tube, for direct vision, or a projector with up to three projection cathode-ray tubes; however, other monitors achieve the same objective by different means (e.g., liquid crystal screens, diffraction of light rays on to a film of oil).
Video monitors of this heading should not be confused with the display units of automatic data-processing machines described in the Explanatory Note to heading 8471.82
158. As becomes clear in particular from the Explanatory Notes to headings 8471 and
8528, the European Communities has simply been applying the criteria contained
therein to distinguish between display units of ADP machines and video
monitors. At the time relevant to the case, the language of the Explanatory Note
to heading 8471 with regard to "separately presented units" such as "display units
of automatic data-processing machines" stated that display units of ADP
machines were "capable of accepting a signal only from the central processing
unit of an automatic data-processing machine and [were] therefore not able to
reproduce a colour image from a composite video signal whose waveform
conforms to a broadcast standard (NTSC, SECAM, PAL, D-MAC etc.)". Such
display units were equally "fitted with connectors characteristic of data-
processing systems (e.g. RS-232C interface, DIN or SUB-D connectors)". These
are precisely the two criteria the complainants claim the European Communities
should not have applied.
159. Furthermore, even if one were to ignore the language of the HS96 Explanatory
Notes to heading 8471, it would in most cases be necessary to have recourse to
82 Explanatory Notes to Heading 8528 HS96; Exhibit EC-17.
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the application of GIR 3(c) because in most individual cases it is impossible to
identify the principal function of a given monitor as foreseen in HS96 Section
Note 3 to Section XVI. As a result, the relevant monitor would be classified in
one of the subheadings in heading 8528 because that "occurs last in numerical
order among those which equally merit consideration". Indeed, as will be shown
later, this is precisely how the United States classifies such monitors.
(d) The consequences of the judgment of the European Court of Justice in C-376/07 Kamino
160. On 19 February 2009 the European Court of Justice gave its judgment in case C-
376/07 "Kamino".83 Only TPKM recognises the existence of this judgment,
without, however, describing its relevance to this case in any greater detail. The
United States and Japan ignore the existence of the judgment.
161. In Kamino the ECJ was asked to interpret the CN and an EC regulation that
addressed the tariff classification of multifunctional monitors using Plasma
technology. However, the products at issue in the case used LCD technology that
is relevant to this dispute. The relevant facts of the case occurred in August 2004
i.e. at the time of HS2002.
162. The ECJ addressed both of the core issues the complainants have identified in
their submissions, namely the relevance of specific sockets or connectors in the
monitor and the criterion of being capable of accepting a signal only from the
central processing unit of an automatic data processing machine.
163. Among the key findings of the Court are the following:
– The classification of monitors such as those at issue in the main proceedings in subheading 8471 60 90, as units of the kind used ‘principally’ in an automatic data-processing system within the meaning of Note 5(B)(a) to Chapter 84 of the CN is not precluded on the sole ground that they are capable of displaying signals coming both from an automatic data-processing machine and from other sources.84
83 Exhibit TPKM-52. 84 Exhibit TPKM-52, para 51.
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– The monitors used principally in an automatic data-processing system
can be identified not only by the fact that they are fitted with standard sockets for connection to data-processing systems, but also by other technical characteristics, in particular by the fact that they are intended to be viewed close up, that they cannot display television signals, that they have low magnetic field emissions, that their display pitch starts at 0.41 mm for medium resolution and gets smaller as the resolution increases, that their bandwidth is 15 MHz or greater and that the dimension of the pixels on the screen is smaller than for video monitors in heading 8528, whereas the convergence of the former is greater than that of the latter. Consequently, the answer to the second question referred is that, in order to determine whether monitors such as those at issue in the main proceedings are units of a kind used principally in an automatic data-processing system, the national authorities, including the courts, must refer to the indications given in the Explanatory Notes relating to heading 8471 of the HS, in particular to points 1 to 5 of Part One, Chapter I(D), relating to display units of automatic data-processing machines. 85
164. Consequently, as a matter of current EC law as interpreted by the ECJ, the
classification of monitors using LCD technology as units of the kind used
‘principally’ in an automatic data-processing system is not precluded on the sole
ground that they are capable of displaying signals coming both from an
automatic data-processing machine and from other sources as claimed by the
complainants.
165. In fact it never was precluded as rigidly as the complainants assert in view of
item 1 of regulation 2171/2005. However, any possible ambiguity that there was
in this respect has now been clarified by the ECJ. It is also noteworthy that in
order to reach its conclusion the ECJ essentially had to consider that there is a
textual conflict between the HS2002 Explanatory Notes to heading 8471 and the
HS2002 Note 5(B)(a) to chapter 84. The ECJ resolved this textual conflict on the
basis of the hierarchy of Notes in the CN and the HS.
166. Neither is the fact that an LCD monitor is fitted with a DVI connector alone
decisive on the tariff classification as claimed by the complainants although the
ECJ uphold the relevance of the criterion. To decide whether a given monitor is
85 Exhibit TPKM-52, paras 60 to 61. Emphasis added.
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or is not used ‘principally’ in an automatic data-processing system requires
inherently a case-by-case analysis on the basis of objective technical
characteristics as laid down in the Explanatory Notes relating to heading 8471 of
the HS, in particular in points 1 to 5 of Part One, Chapter I(D) albeit excluding
the application of the element the Court found inapplicable. Ultimately it may be
necessary to have recourse to GIR 3(c) because the principal function cannot be
identified, although the ECJ was not called to address this specific question in
Kamino.
167. However, the European Communities recognises that there is a difference
between the relative weight given to these criteria in the CNEN to heading 8528
41 00 and 8528 51 0086, and in regulations 634/200587 and 2171/200588 as
compared with the relative weight given by the ECJ to these criteria. It is clear
that the justification is in most cases too rigid and needs to be reviewed. Indeed,
the regulations were already prior to the judgment in Kamino subject to a
standard review procedure due to the change from HS2002 to HS2007. This
procedure will result in their repeal or, where appropriate, amendment as soon as
possible. However, the shortcomings in justification by no means necessarily
mean that the classification of the relevant individual product was incorrect and,
even less, lead to the imposition of duties because of the duty suspension on
video monitors.
168. With regard to the Explanatory Notes to the CN identified as a separate measure
by the complainants, it is clear that the Court's judgment takes precedence over
any ambiguity there might be on the basis of the text of the CNEN.89 However, in
order to ensure legal certainty the European Communities has already initiated a
86 Exhibit US-49, Exhibit JPN-18 and Exhibit TPKM-23. 87 Exhibit US-46, Exhibit JPN-16, Exhibit TPKM-19 88 Exhibit US-15, Exhibit JPN-17, Exhibit TPKM-20. 89 See paragraph 47 of the judgment, where the ECJ confirms the established case law according to
which "(…) it is settled case-law that the Explanatory Notes drafted by the Commission, in respect of the CN, and those adopted by the WCO, in respect of the HS, are an important aid for interpreting the scope of the various tariff headings but do not have legally binding force (…)."
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review process for identifying whether some adjustments to the notes may be
needed.
169. Finally, the European Communities cannot exclude that the relative weight given
to the two criteria identified by the complainants would have in some instances
lead to incorrect CN tariff classifications when Member States' customs
authorities have enforced the CN. However, because of the tariff suspension, the
likelihood of customs duties having been unduly levied under EC law is very
small. Indeed, the complainants have not identified such instances. Most of the
BTIs submitted as exhibits concern monitors such as the "Apple Cinema
Monitors"90 that in the view of the European Communities are of the kind where
at the very least GIR 3(c) would lead to their classification as video monitors
under EC law as in force today. To the extent they would not benefit from the
tariff suspension, the application of customs duties is entirely justified both as a
matter of EC law and as a matter of WTO law.
6. Object and purpose
170. The European Communities notes that the United States has submitted no
specific arguments based on the object and purpose of the WTO Agreement,
while Japan's and TPKM's arguments under this heading are, to a very large
extent, based on the alleged objectives of the ITA. As explained above, the ITA
does provide important context for the interpretation of the concessions at issue.
Furthermore, the object and purpose of the ITA can be relevant for the
interpretation of the ITA itself. But it would be mistaken to substitute the object
and purpose of the ITA to those of the WTO Agreement. In any event, as shown
above, Japan's and TPKM's arguments rely exclusively on a few phrases of the
ITA taken out of context and misrepresent the ITA's true objectives.
90 The European Communities regrets that the word "Cinema" is systematically deleted from the English
translation of the BTI's provided as Exhibit US-50. The sizes of the monitors in the translations are also not always correct. Furthermore, the European Communities fails to see the relevance for this case of BTIs that concern products such as "colour plasma display monitors with a screen size 32 to 61-inch diagonal" in Exhibit TPKM-54. If anything, such BTIs are a demonstration of the difficulties customs officials faced when the first flat panel displays entered the market in the early parts of the decade.
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171. As made clear by the Appellate Body in EC – Chicken Cuts91, there is no
interpretative principle whereby tariff concessions must be broadly construed in
order to promote the expansion of trade between Members. While the preamble
to the WTO Agreement cites the expansion of trade among the objectives of the
WTO Agreement, this objective is to be achieved through "mutually
advantageous" arrangements. Furthermore, another object and purpose of the
WTO Agreement is to ensure the "security and predictability" of tariff
concessions.
172. Japan and TPKM have sought to distinguish the present case by arguing that all
the parties to the ITA have agreed to exchange the same concessions, so that an
expansive interpretation of those concessions would be to everybody's
advantage. However, this argument overlooks that the concessions made
pursuant to the ITA benefit all WTO Members and not just the parties to the ITA.
Furthermore, not all ITA concessions are of equal interest to each party to the
ITA. Furthermore, the Complainants' analysis is short sighted: an overbroad
interpretation of the ITA concessions would inhibit further concessions within
the ITA framework.
173. Finally, the Complainants have failed to demonstrate that their interpretation of
the concessions at issue results in greater predictability and security than the
interpretation made by the European Communities.
7. Other relevant means of interpretation
(a) Specific classification practice of the United States
174. US customs service has issued a publication entitled "What Every Member of the
Trade Community Should Know About: Classification of Flat Panel Displays".92
This publication demonstrates that the United States has essentially been faced
with the same difficulties of classification as in the European Communities
91 See e.g. Appellate Body Report, EC – Chicken Cuts, para 243. 92 Exhibit EC-18
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during the time of the technological breakthrough relating to multifunctional
LCD monitors. As illustrated by the explanations on p. 4 and 5, the approach has
been to limit classification as ADP monitors only to certain sizes and pixel size
configurations.
175. The classification difficulties in the United States have continued. For instance,
on December 15, 2006 the Commercial and Trade Facilitation Division, US
Customs and Border Protection, ruled that a number of different multifunctional
LCD monitors were to be classified as video monitors pursuant to GIR 3(c).93 In
view of the monitors subject to the ruling ranging inter alia from 15 inch to 24
inch, with or without a TV tuner, DVI and/or S-Video etc connectors, VESA
compliant etc. the ruling is particularly illustrative of the fact that the United
States is classifying the kind of monitors the European Communities understands
to be relevant to this case as video monitors or televisions and not as output units
of an ADP machine.
(b) Practice of ITA parties in 1997-1999
176. In July 1999, the WTO Secretariat updated the document referred to in the
previous section to provide latest information on classification divergences.94The
document included participants that had joined the ITA since the issuance of the
previous document and incorporated any change that had been implemented by
the participants as a result of rectifications and/or modifications. The following
table summarizes the situation in 1999:
Classification of "Flat panel display devices (including LCD, Electro Luminescence, Plasma, Vacuum-
Fluorescence and other technologies) for products falling within this agreement, and parts thereof" by ITA
participants in 1999
Sub-heading Number of participants Main parties to the dispute
93 Ruling of the Commercial and Trade Facilitation Division, US Customs and Border Protection;
December 15, 2006. Exhibit EC-19 94 WTO document G/IT/2/Add.1/Rev.1 of 29 July 1999. Exhibit EC-20.
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classifying in that subheading
8424 90 1 -
8471 49 7 US
8471 60 28 EC, JA, TPKM, US
8473 10 1 -
8473 21 1 -
8473 29 1 -
8473 30 27 EC, JA, US
8473 40 1 -
8473 50 1 -
8517 90 1 -
8522 90 1 -
8528 21 3 JA
8528 22 3 JA
8529 90 3 JA
8531 20 32 EC, JA, TPKM, US
8531 80 18 EC, US
8531 90 29 EC, JA, TPKM, US
8541 90 1 -
8543 89 6 US
8543 90 8 US
8548 90 1 -
9013 20 4 JA
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9013 80 26 EC, JA, TPKM, US
9013 90 26 EC, JA, TPKM, US
9017 90 1 -
177. The changes to the previous situation in 1997 are minor but qualitatively
important as they demonstrate a tendency towards an increasing agreement on
classification. With the exception of sub-heading 8541 90, which Mauritius has
identified as falling within the scope of the definition, all changes concern those
sub-headings that already were identified by most participants in 1997. In other
words, the number of participants identifying sub-headings 8471 60, 8473 30,
8531 20, 8531 80, 8531 90, 9013 80 and 9013 90 had increased while all the
other headings where the number of participants was below 10 and often only
one or a few remained stable. Still no participants identified the relevant sub-
headings for televisions and only Japan, Iceland and Macao continued to identify
video monitors as falling within the scope of the product definition of "flat panel
display devices (…)". The continued important classification differences between
the complainants are also noteworthy.
(c) Negotiations for ITA II
178. The parties to the ITA have been engaged in a process that aims at adapting the
ITA and its product coverage inter alia in view of technological developments.
In this process the negotiating proposals illustrate their respective positions on
the existing product coverage of the ITA and the commitments made pursuant
thereto.
179. In this respect it is interesting to note that Japan has proposed the inclusion of the
so called "multimedia monitor" into the new product coverage.95 Although in its
negotiating proposals Japan has considered that in its view such monitors were
95 Japan's proposal for product coverage under ITA II of 30 December 1997; Exhibit EC-21.
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already covered by the ITA, it does not explain on what basis such multimedia
monitors could possibly be covered by the existing commitments. It is very
difficult to see how Japan could have considered that multimedia monitors were
already covered by the ITA because the exclusion of such monitors in
Attachment B was so explicit. It is also illustrative that the proposed monitor was
using the cathode ray tube technology. If the proposition of the complainants that
multifunctional LCD monitors existed and were about to replace the CRT
technology at the time when the concessions were made was true, it is difficult to
understand why Japan was trying to negotiate the inclusion of a product that was
on its way to become redundant.
180. Furthermore, in the proposals for the enlargement of the product coverage,
participants have explicitly listed television receivers and video monitors as a
product to be covered in the future list of product coverage.96
(d) Negotiating history
181. Finally, and to the extent not already relevant for describing the surrounding
circumstances when the concessions were made, the European Communities
would like to point out to the negotiating history of the ITA i.e. the negotiations
that lead to the final text of the agreement prior to the application of the
"modalities" procedure under paragraphs 2 of the annex to the ITA and
certification of Schedules.
182. The first landscape papers submitted by the US identified inter alia
Displays designed for use with computers, sometimes referred to as computer monitors regardless of the size of the display area (however measured, large or small) and whether or not using a CRT or some flat screen technology such as AMLCD, EL, gas plasma, or one of the emerging technologies such as field emission displays. Touch sensitive displays for use as combined input/output units with computers are also covered.97
96 See e.g. Singapore's proposed additions to product coverage in WTO document G/IT/SPEC/9 of 12
January 1998. Exhibit EC-22. 97 Facsimile communication of 28 March 1996 from the US authorities. Exhibit EC-3.
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183. Subsequently the definition became more general: "displays, designed for use
with computers, sometimes referred to as computer monitors".98
184. By the time it became clear that there was a need to have a two-list approach, the
QUAD technical working documents distinguished between "flat panel displays
(including LCD, Electro Luminescence, Plasma and other technologies) for ADP
output devices" and "monitors for computers". Both were included in the draft B
list. However, the definition of the latter was still entirely open. Flat panel
displays were clearly intended to be a semi-finished product for ADP output
devices.99
185. Later in November 1996 reference was made to "flat panel displays (including
LCD….) for ADP output devices and telecommunication products"100. The
definition still clearly referred to semi-finished products but the coverage had
been widened to cover in addition to "ADP output devices" also
"telecommunication products". Thus, it had been recognised in the negotiations
that flat panel displays were used in several products and in different sectors of
the relevant industries. The definition of "monitors for computers" was still open.
Some days later the definition had changed to "Flat panel displays (including
LCD … ) and parts thereof as specified within their specific 4 digit HS heading
for products covered by this agreement"101. This suggests that the negotiations
had revealed that even more products might be using flat panel display
technology and needed therefore to be covered by the definition. The definition
was still arguably covering only semi-finished products. The definition of
monitors for computers was still open. On the same day in the afternoon the
definition came close to its final version: "Flat panel displays (including LCD,
Electro Luminescence, Plasma and other technologies) for products covered by
98 Facsimile communication of 16 April 1996 from the US authorities. Exhibit EC-23. 99 Technical Working Document QUAD Countries for consideration with regard to coverage of an
Information Technology Agreement, 1 November 1996; Exhibit EC-24. 100 Technical Working Document with comments by QUAD Countries with regard to coverage of an
Information Technology Agreement, 19 November 1996, 10:02; Exhibit EC-25 101 Technical Working Document with comments by QUAD Countries with regard to coverage of an
Information Technology Agreement, 25 November 1996, 12:58; Exhibit EC-26.
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this agreement and including parts thereof". The definition of "monitors for
computers" continued to be open.102
186. The definition of "monitors" seems to appear for the first time only in the
proposal of 10 December 1996 (at 16:20) "with regard to coverage of an
Information Technology Agreement" i.e. just before the final agreement.103 In
this document, the definition of "flat panel displays" has remained essentially
identical to the one in the negotiating documents two weeks earlier suggesting
thus a stabilisation of the definition. Indeed, as is clear from Exhibit US-1, the
definition of "flat panel displays (…)" in the agreement is identical to the
definition contained in the 10.12.1996 document. However, on the basis of a
request by Switzerland104 the final definition included the word "devices" so that
the agreed definition became: "flat panel display devices (including LCD, Electro
Luminescence, Plasma and other technologies) for products covered by this
agreement, and parts thereof" although it seems that the text in the final
agreement has never been formally rectified. It would, however, seem
uncontested that the word "devices" is part of the final agreement even if TPKM
appears to take an issue with this despite using the same language in its own
Schedule as in the EC's Schedule.
187. However, the meaning of the adding of the word "devices" for the interpretation
is much less clear and has continued to raise debates in the ITA committee as to
whether the definition covers finished products and/or semi-finished
products.105It might be that the adding of the word "devices" was a spill-over
effect from the reference to CRT technology in the definition of "monitors" and
that through the adding of the word "devices" it was arguable that also those
genuine ADP monitors that used flat panel technology could come within the
102 Technical Working Document with comments by QUAD Countries with regard to coverage of an
Information Technology Agreement, 25 November 1996, 16:31. Exhibit EC-27. 103 Proposal with regard to coverage of an Information Technology Agreement, 10 December, 1996,
16:20. Exhibit EC-28. 104 Trade in Information Technology Products: Result of Bilateral Consultations, Communication from
Switzerland, Geneva, 21 January 1997; Exhibit EC-29. 105 Exhibit EC-7.
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scope of the ITA although the request from Switzerland would appear to suggest
a more technical explanation. Nevertheless, this is why the European
Communities made the concession to identify also the CN heading 8471 60 90
next to "flat panel display devices (…)".
188. In the view of the European Communities there is one very clear conclusion that
can be drawn from the negotiating history: at no stage was it intended to cover
any kind of monitors other than those specifically "for computers". The
negotiating history demonstrates that the interpretation suggested by the
complainants on the basis of the word "for" is untenable and cannot comprise of
monitors that are principally "for" other products even if they could also be used
for computers particularly if the other products are explicitly excluded by the
definition on "monitors".
D. Conclusion
189. In the light of the foregoing considerations, the European Communities considers
that
• The complainants' have failed to present a prima facie case
• To the extent the Panel considers the complainants have presented a prima
facie case, the claim does not extend to an "as such" claim, and in any event,
• The European Communities is not in breach of its obligations under Article II:1(a) and II:1(b) of the GATT 1994.
IV. THE CLAIM ON SET TOP BOXES WHICH HAVE A COMMUNICATION FUNCTION (STBC) UNDER ARTICLE II GATT 1994
A. Preliminary remarks
1. The complainants have failed to explain/establish what constitutes the EC concession
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190. The complainants argue that the EC applies "duties to STBs with a communication
function … at rates in excess of those set forth in the EC Schedules, inconsistent
with Articles II:1(a) and (b) of the GATT 1994."106 At the same time, however,
they fail to explain what constitutes the EC concession and where it is provided
for.
191. For instance, the US argues that "the EC is obliged to accord duty-free treatment
to set top boxes with a communication function – as defined in Attachment B of
the ITA – wherever they are classified".107 This would seem to suggest that the US
takes the view that the EC commitment is actually provided for in the ITA.
However, a few paragraphs later, the US asserts that "[T]he EC Schedule provides
a definition of a 'set top box with a communication function.' "108 And the US also
adds: "This definition is reflected in ITA Attachment B."109
192. Along the same lines, Japan submits that "[T]he EC Schedules provide a definition
of 'set top boxes which have a communication function". This definition is
reflected in ITA Attachment B."110 A few lines later, Japan asserts that "this
dispute is about the coverage of the phrase 'set top boxes which have a
communication function' as set forth in the ITA and in the EC's Schedule".111
193. Similarly, TPKM also asserts that "this dispute is about the coverage of the phrase
'set top boxes which have a communication function' as set forth in the ITA and in
the EC's Schedule".112 When interpreting the ordinary meaning of that phrase,
TPKM takes at one point the view that the phrase is defined in the EC Schedule.113
106 See first written submission of the United States, para. 169. To the same effect, see first written
submission of Japan, paras. 367 and 372, first written submission of TKPM, paras. 359 – 361 and 380.
107 See first written submission of the United States, para. 88. 108 See first written submission of the United States, para. 88. 109 See first written submission of the United States, para. 88. Italics added. 110 See first written submission of Japan, para. 373. 111 See first written submission of Japan, para. 374. 112 See first written submission of TPKM, para. 383. 113 See first written submission of TPKM, para. 384.
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A few paragraphs later, TPKM interprets that phrase by pointing out that "in
Attachment B to ITA the words 'Set top boxes which have a communication
function' are marked in bold, as opposed to the rest of the concession at stake".114
These words are not marked in bold in the EC Schedule.115
194. In sum, the complainants appear to use the terms set forth in the EC Schedule and
the ITA almost interchangeably, while failing to explain the reason for such an
approach. All the three complainants are basing themselves on the terms of the so-
called "headnote" in the EC Schedule.116 Remarkably, however, the complainants
do not explain what the headnote means for the rest of the EC Schedule, including
the codes that were notified to WTO under paragraph 2 of the Annex to the ITA
and certified by WTO Members, including the complainants themselves.
195. As a consequence, the tariff concession which is at issue in the present case
becomes a moving target subject to any and every interpretation put forward by
the complainants. Depending on their momentaneous feeling of whether the EC
tariff concession is set forth in the ITA or in the EC Schedule (or in both?), the
complainants pick and choose what textual elements set out the actual concession
and – equally at whim – distinguish them from those they consider merely as
context (or something else) relevant for their interpretation and those that can, in
their view, be ignored altogether.
196. Given the lack of clarity on what is in the view of the complainants the basis for
their claim, the EC will address in the following discussion the claim in the way
put forward by the complainants, namely as that resting solely on the narrative
description of the product at issue in the EC Schedule and/or ITA. That does not
mean, however, that the EC necessarily agrees with the proposition that the EC
tariff concession is set forth both in the EC Schedule and the ITA and that it is
affected by the "headnote" in the way the complainants assert.
114 See first written submission of TPKM, para. 407. 115 They are not marked in bold in the Schedules of any of the complainants, including TPKM, either. 116 See, first written submission of the United States, para. 87 ; first written submission of Japan, para.
51, first written submission of TKPM, paras. 359.
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2. Complainants' claim suffers from serious errors
(a) There is no commitment on "set top boxes with a communication function"
197. The United States argues that the "EC is obliged to maintain the tariff treatment
contemplated by the [EC] Schedule for any device meeting the description of a 'set
top box with a communication function' ".117 In the view of the US, the EC has
"acted inconsistently with Article II:1(b) by imposing ordinary customs duties on
'set top boxes with a communication function' in excess of the bound rate
established in their Schedule."118
198. Japan argues that "[A]ll set-top boxes with a communications function should be
duty free under the concessions made by the EC. (…) The EC measures have
imposed duties that are inconsistent with EC tariff concessions and are therefore
inconsistent with Articles II:1(a) and II:1(b) of GATT 1994."119
199. TPKM argues that "its commerce has been accorded treatment less favourable than
that provided in the EC Schedule, and that ordinary customs duties, or other duties
and charges, in excess of those set forth in the EC Schedule have been applied to
STBs with a communication function, inconsistent with the obligations of the EC
… under Articles II:1(a) and II:1(b) of the GATT 1994."120
200. Contrary to what the complainants argue (see quotes from their submissions
above), neither the ITA nor the EC Schedule refers to a product referred to by the
complainants as a "set top box with a communication function".121 The EC's
commitment is made with respect to "[S]et top boxes which have a communication
117 See first written submission of the United States, para. 108. Italics added. 118 See first written submission of the United States, para. 111. Italics added. 119 See first written submission of Japan, para. 414. Italics added. 120 See first written submission of TPKM, para. 358. Italics added. 121 Italics added.
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function".122 This difference in the narrative description of the product at issue is
ignored by all three complainants.
201. Leaving aside for a moment the question of whether this difference is significant
or not (as will be demonstrated further below, in the view of the EC this difference
is significant, in particular if taken together with the remaining textual elements of
the EC commitment and their proper context), an analysis of a commitment in
light of the Vienna Convention must, at a minimum, be based on a full, correct and
unaltered text of that commitment. This has not happened in the present case.
(b) The product descriptions provided by the complainants are inaccurate, irrelevant and misleading
202. Two of the complainants submitted to the Panel materials from various sources
describing and, occasionally, "defining"123, what the "product at issue" is.124 While
these materials are to a large extent the same for the two complainants, they do not
provide the same description of the product at issue. Rather, their product
descriptions tend to select and emphasize different technical elements discussed in
these exhibits. The third complainant did not submit any such external material
and instead provided its own, entirely unsupported description of the product.125
203. The fact that three complainants, who jointly filed their Panel request, and are
guided by the same objective, nonetheless put forward before the Panel three
different technical descriptions of the product at issue reflects the nature of the
problem which the EC has with these descriptions. They lack any authority, are
susceptible to subjective modifications and fail to identify conclusively the
products at issue.
122 Italics added. 123 Cf. first written submission of the United States, para. 42, footnotes 46 and 47 or Exhibit JPN-11
(providing the same materials as the US in Exhibits US-22 to US-24 and entitled "Excerpts from Definitional Materials").
124 See, for instance, first written submission of the United States, para. 42, first written submission of
Japan, paras. 344 – 345. 125 See first written submission of TPKM, paras. 15 – 16.
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204. To illustrate, the US, for instance, uses Exhibit US-22 (a download from the
internet) which fails to identify both the source/author and – perhaps even more
importantly – the date or at least a year in which the text was drafted. Yet, the time
period in which a text allegedly describing the product at issue was drafted is of
course significant, particularly in the context of the rapidly developing IT industry.
Similar concerns pertain to Exhibit US-23. Exhibit US-24 happens to be identified
in that respect, but, equally as in the case of the preceding exhibits, a reader is left
at wondering why this material should be significant (or more significant than
others). Further, it is particularly noteworthy that while it is the STBCs which are
at issue in this case, the word "Internet" does not appear at all in Exhibit US-24.
The US resolves this by completing the description of the product at issue with a
language from another exhibit (US-25), which is a book published in 2001, i.e.
five years after the publication of the dictionary the excerpt from which the US
provided as Exhibit US-24).
205. In the EC view, such a description of the products at issue is not a product
description, let alone a "definition". It is a "mélange". But that is not the principal
reason for which the EC questions it. Indeed, the purpose of this section is not to
emphasize a simple complaint by the EC about the lack of rigor and objectivity
with which a product description for the purpose of the present dispute settlement
was developed by the complainants. Rather, it serves to highlight another, more
fundamental problem. By joining and combining descriptive elements from
various sources and, importantly, time periods, the complainants avoided
addressing any differences between the product existing at the time of the
conclusion of the ITA (and when the EC made its bindings) and the product of
today which is under dispute. Had they done so, it would have become apparent
that a product which had certain features and characteristics at the time of the
conclusion of the ITA is not the product the treatment of which is complained
about by the complainants.
206. In response to the above comments the complainants will likely say that the ITA
was written in a way to accommodate technical developments of the products, so
one does not even need to refer to them. If the complainants were really convinced
that the EC commitment flowing from the ITA is open-ended and accumulates any
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new product, they would not have needed to avoid addressing this important
factual issue.
(c) How to read the complainants' arguments
207. For the above reasons, the EC urges the Panel to read the complainants' arguments
regarding the alleged violation of Article II GATT 1994 with respect to STBCs
with particular care. Little by little, by using a language other than that set forth in
the EC Schedule, by developing in curious ways new product definitions and by
many other approaches which the EC will highlight in the following sections, the
discussion and legal argument put forward by the complainants moves away from
the facts, evidence and law to assumptions and allegations.
B. The narrative description in the EC Schedule
208. All the three complainants agree that this dispute depends on the interpretation of
the narrative description of certain set top boxes contained in the EC Schedule and
the ITA.126 As the EC will show below, the complainants misinterpret the content
of the description. If interpreted correctly, the narrative description does not
support their claim. To the contrary, it makes clear that the EC acts in accordance
with its commitments under Articles II:1(a) and (b) GATT 1994.
209. The narrative description of the product at issue is part of an international
agreement (namely, the GATT 1994). In addition, the narrative description itself
stems from an international agreement, i.e. the ITA. For these reasons, the EC
interprets this term in accordance with the rules of interpretation under
international law, i.e., the Vienna Convention.
126 See, for instance, first written submission of the United States, paras. 87 and 92; first written
submission of Japan, para. 414, first written submission of TKPM, paras. 456 – 457.
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1. Ordinary meaning of the narrative description
(a) The text in the EC Schedule
210. In the relevant part of the certified EC Schedule incorporating the ITA,127 the
following text is included under the heading "Description":
Set top boxes which have a communication function: a microprocessor-based device incorporating a modem for gaining access to the Internet, and having a function of interactive information exchange
211. It is the entire above text which describes the product at issue. It has to be
therefore examined as such, in its entirety, and not artificially divided in pieces in
the assumption that they can replace the entire language of the description. Indeed,
if the drafters considered it worthwhile to include such a lengthy text to describe
the product at issue, a treaty interpreter cannot choose to ignore it.
212. The text of the product description is divided into two parts, whereby the second
part is introduced by a colon. The use of the colon is significant. It implies that the
text which follows after the colon is used to identify or explain (define) the text
before the colon.128 This is highly significant, since it implies that a treaty
interpreter cannot read the two parts in an absolute separation.
213. In this case, it is the "set top boxes which have a communication function" which
are identified after the colon. They are identified as "devices", but, naturally, not
any kind of devices. These devices must be 1) "microprocessor-based", 2) be
"incorporating a modem for gaining access to the Internet" and 3) be "having a
function of interactive information exchange" to qualify.
214. Based on the above, the elements (1) to (3) are to be seen as definitional elements,
i.e., elements constituting the principal characteristics allowing to define the
127 See Exhibit US-7. TPKM provides as Exhibit TPKM-2 a copy of the EC Schedule without the actual
pages listing the narrative description of the product at issue. Japan does not provide an exhibit showing the description.
128 Cf. The Oxford English Grammar, Sidney Greenbaum, 1996, pages 523-525, Webster's Handy
Grammar, Usage & Punctuation, Random House, 2001, 2nd ed., pages 245-247 (Exhibit EC-30).
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product at issue. Since the product is defined by these elements, it cannot endlessly
assume other additional features and technical elements while remaining a "set top
box which has a communication function".129
215. This understanding is also supported by the use of the word "which". "Which" has
a number of dictionary meanings depending on the context in which that word is
introduced. In the phrase "set top boxes which have a communication function"
the word "which" is introduced as a relative noun. As such, the "which" performs
the role of "[I]ntroducing a clause defining or restricting the antecedent, esp. a
clause essential to the identification of the antecedent".130
216. Hence, the use of the word "which" defines or restricts the meaning of the
antecedent, i.e. the term "set top boxes". This has to be taken into account with the
rest of the phrase, which, as explained above, is a definition. Together, these two
elements send a signal to the treaty interpreter that in the above phrase with a
colon, not all set top boxes are defined, but merely certain (kinds of) set top boxes.
217. The complainants conveniently omit to include the structure of the narrative
description, the colon and the term "which" in their considerations. Instead, they
focus on developing an interpretation which would support their understanding
that the EC commitment is with respect to "set top box with a communication
function". Such a phrase may have a distinct content, however. A brief review of
the dictionary meaning of that term reveals why this is so. The word "with" in such
a phrase is defined as "[D]enoting association or accompaniment".131 More
specific definitions include that of "[A]ccompanied by; having (a person or thing)
as an addition or accompaniment."132 The use of the word "with" therefore
strengthens the complainants' argument that any set top box, as long as it has a
communication function in addition to many others, is covered by the ITA.
129 The complainants also agree that the narrative description of STBCs is a definition. See, for instance,
first written submission of the United States, paras. 92 and 95, first written submission of Japan, para. 79, first written submission of TPKM, para. 384.
130 Cf. The New Shorter Oxford English Dictionary, 1993, page 3667 (Exhibit EC-31). 131 The New Shorter Oxford English Dictionary, 1993 (Exhibit EC-32), page 3703. 132 The New Shorter Oxford English Dictionary, 1993 (Exhibit EC-32), page 3703.
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218. As follows from the preceding explanations, such an interpretation cannot be
followed. It would mean nothing else than saying that a set top box which has a
communication function is the communication function. The absurdity of the
complainants' view can be described by the following equation:
STB + communication function = (1) + (2) + (3)
where (1) + (2) + (3) would be the defining elements (or, rather to say, to follow
the term used by complainants, the "attributes") of the communication function.
Hence, in such a case the definition contained in the ITA product description
would be a definition of a "communication function", rather than that of a set top
box which has a communication function.
(b) The surrounding circumstances
219. In the EC – Chicken Cuts case, the Appellate Body provided the following
guidance:133
The Appellate Body has observed that dictionaries are a "useful starting point" for the analysis of "ordinary meaning" of a treaty term, but they are not necessarily dispositive. The ordinary meaning of a treaty term must be ascertained according to the particular circumstances of each case. Importantly, the ordinary meaning of a treaty term must be seen in the light of the intention of the parties "as expressed in the words used by them against the light of the surrounding circumstances".343
343 Lord McNair, The Law of Treaties (Oxford Clarendon Press, 1961), p. 365.
220. For convenience, the EC adds a short excerpt from Lord McNair's book cited by
the Appellate Body, "The Law of Treaties", which in a very straightforward
manner discusses the importance of the surrounding circumstances for a correct
interpretation of treaty terms.134
133 Appellate Body Report, EC – Chicken Cuts, para 175, first footnote omitted. 134 Lord McNair, The Law of Treaties (Oxford Clarendon Press, 1961), pages 364 – 369 (Exhibit EC-
33).
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i) Set top boxes available on the market in 1996
221. The STBs existing in 1996 can be generally divided into two main categories.
First, there were the "traditional" STBs, the main purpose of which was to allow
the viewing of TV, in particular digital TV on analog TV devices (e.g., through
satellite). As access was often restricted to paying customers (those with a
decoder), these set top boxes were often used for Pay-TV.
222. Second, a new category of set top boxes entered the scene in 1995-1996. They
allowed interactive communication and access on the Internet. These products
were sometimes abbreviated as "Internet on TV", a name which aptly described
their function.135 The idea behind these products was to allow the wider masses of
consumers, in particular those for whom it was too difficult or to expensive to use
a PC, to access internet via a device they used conveniently every day – the TV
(instead of a PC). This was deemed at the time to start almost a new era – as some
commentators enthusiastically observed, the spirit of the time was "Out with
decoder boxes, in with [Internet] On TV Licenses (…)".136
223. Nonetheless, despite the initial enthusiasm of 1996, most of these products did not
receive a sufficiently favourable market response and later (after 1997)
disappeared from the market. The only really successful project of this kind was
based on the so-called "WebTV", a 1996 project of Microsoft using set top boxes
manufactured by Sony and Philips.137 One commentator described this product as
follows (in 1998):138
One way in which Internet use may spread to everybody in society is by means of developing more user-friendly platforms designed to access the Net. (…) … Web TV (http://webtv.net), a set-top box that enables the viewing of World Wide Web pages and the use of other Internet resources such as e-mail on a television set – [is] the only alternative that has made any sort of impact. This set-top box came to
135 See Exhibit EC-34 contains a contemporaneous report about one such product. 136 Exhibit EC-35. 137 "Microsoft and WebTV Networks to Collaborate on Internet Television Browsing for the Masses" -
Microsoft's press release of 30 September 1996 (Exhibit EC-36). 138 Media Policy, D. McQuail and K. Siune (editors), 1998, p. 91 (Exhibit EC-37).
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the market in the USA towards the end of 1996; a similar device called NetStation was launched in the UK in July 1997. This type of Internet set-top box simply plugs into any television set and necessitates a telephone line coming into the home. On first use, the set-top box automatically dials the nearest Internet service provider (ISP) which is connected with the manufacturing company of the set-top box and gives the user the option of opening an account with the ISP. Once an account has been opened the user can then connect to the Internet for a monthly fee of just under 20 US dollars (in the case of WebTV). Use of the set-top box requires no computer skills and is operated by means of a remote control; the cost of the set-top box amounts to about 20 per cent of the average computer. An optional keyboard (for sending e-mail) can also be purchased. Survey figures from the USA differ as to how successful Web TV is, or will be in the future. Internet set-top boxes are likely to be introduced in Europe during 1998; BSkyB is expected to offer Internet satellite access on TV as part of its digital satellite service to be launched in 1997-8.
224. For convenience, the EC also provides a product manual to the 1996 Sony WebTV
product.139
ii) Descriptions used during the negotiations
225. In this section, the EC discusses the surrounding circumstances as demonstrated
by the product descriptions used during the negotiations shortly prior to the
conclusion of the agreement.
226. As described in Section II.B of this submission, the negotiations of the ITA were
primarily focused on the product coverage, i.e. on defining the list of products
which would or would not be covered by the new agreement.
227. Set top boxes were introduced relatively late in the negotiations. According to the
records available to the EC, the first mention of set top boxes was in the so-called
non-paper of 4 October 1996.140 This non-paper included a negative list of "items
predominantly designed for consumer use", which were not supposed to be
covered by the ITA. This negative list included certain STBs (those with a decoder
or decoder and a TV receiver). Satellite receivers were excluded as well.
139 Exhibit EC-38. 140 Exhibit EC-39.
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228. The ITA non-paper of 18 October 1996 includes two lists (a negative and a
positive one) which served as predecessors for the later Attachment B.141 The EC
reproduces excerpts from them below:142
141 Exhibit EC-40. 142 Underlining added by the EC for convenience.
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229. As apparent from the above excerpts, while the negative list continued to include
the item "Set top boxes (decoder and TV receiver or decoder only)", the positive
list included an item called "Set top boxes for connecting to Internet". It further
appears from the document that it was Japan which requested the inclusion of this
– at that time rather unknown – product to the ITA. According to the document,
Japan was also supposed to "define the scope" of the product to be covered.
230. Consequently, on 23 October 1996 Japan sent a rather comprehensive document in
which it provided more information on the set top boxes which it requested to be
covered by the ITA.143 The cover note of that document included the following
language: "Here are descriptions of items which Japan has proposed to be included
143 Fax regarding the ITA products from MITI (Japan) to EC and US, 23 October 1996 (Exhibit EC-41).
In this document Japan provided additional information also with respect to other newly developed products which Japan wanted to be covered by the ITA, such as the "Game Machines which have a communication function" and "Internet Television" (see discussion below).
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in ITA".144 As can be seen from the document, in the part devoted to "Set top
boxes which have communication function" Japan provided a comprehensive set
of information on the WebTV set top boxes.145 The descriptions provided by Japan
made clear that the purpose of this new product was to "bring[ing] high-quality,
economical Internet access to the television consumer audience." It was also
described as "a television-based Internet solution … to accessing and browsing the
Internet".146
231. Subsequently, the ITA non-paper of 31 October 1996147 included a product
description of "Set-top boxes which have communication function".148
Descriptions of two other products which also may be of interest, namely of
"Game Machines which have a communication function"149 and "Internet
television"150, were also included. The item "Set top boxes (decoder and TV
receiver or decoder only)" continued to be included in the negative list.
232. In the Technical Working Document of 1 November 1996,151 the three products
discussed above, namely "Set-top boxes which have communication function",
Game Machines and "Internet television", continued to be included. Interestingly
enough, however, while the descriptions (definitions) of the three products did not
change, the name of the Game Machines was modified from "Game Machines
which have a communication function" to "Game Machines with communication
function" (italics added).
144 Exhibit EC-41, page 25. 145 For a discussion of Web TV products see also the preceding section. 146 Exhibit EC-41, page 25. 147 Exhibit EC-42. 148 These devices were defined as "[A] device, equipped with CPU and modem function, which has a
function of interactive information exchange". 149 These devices were defined as "Game machines equipped with CPU and modem function, which adds
a function of interactive information exchange to television set when connected to it". 150 These devices were defined as "A television set, equipped with CPU and modem function inside,
which has a function of interactive information exchange". 151 Exhibit EC-24.
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233. Finally, the EC adds the Technical Working Document (with Comments by the
Quad) of 25 November 1996.152 This document continues to contain the names
and product descriptions of the "Game Machines with communication function"
and of "Internet television" discussed above. More importantly, it contains yet
another, slightly developed definition of the "Set top boxes which have
communication function". As the handwritten notes scribbled by the EC delegation
at the exhibited document during the negotiations suggest, this definition was
subject to comments by other parties, including the proposal to change the phrase
"which have communication function" to "with communication function".
Needless to say, the latter proposal was not incorporated into the final text of the
ITA.
234. Before concluding this section, the EC would like to note that it is well aware that
multilateral negotiations are a very dynamic process in which it is usually quite
difficult to capture the collective will of the negotiators in any given document.
For this reason, the EC has not presented the above documents necessarily to offer
arguments based specifically on one or other product description which was used
at a given time. Such a discussion with the complainants would inevitably lead to
an endless spiral of exchanges, with each party presenting yet another series of
negotiating documents shedding slightly different light on the process. It is not the
intention of the EC to overburden the Panel with such exchanges.
235. The EC is of the view, however, that the above documents demonstrate well the
existence of the following circumstances in light of which one has to read the
description of "set top boxes which have a communication function":
• Certain types/categories of set top boxes (WebTV-like) were included in the ITA while other types/categories were clearly intended to be excluded. In other words, the dividing line between the covered and non-covered items has been drawn, in the case of set top boxes, across and within one product category.
• The individual words in the product descriptions really matter, as they were the subject of considerable back and forth and comments by the parties.
152 Exhibit EC-27.
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236. The above observations have to be kept in mind when interpreting the ordinary
meaning of the product description in the EC Schedule.
2. Context – the tariff lines of 1997
237. In the EC – Chicken Cuts case the Appellate Body provided the following
guidance on the use of "context" in the sense of the Vienna Convention:153
It is clear from these provisions that the context of the term "salted" in heading 02.10 consists of the immediate, as well as the broader, context of that term. The immediate context is the other terms of the product description contained in heading 02.10 of the EC Schedule. The broader context includes the other headings in Chapter 2 of the EC Schedule, as well as other WTO Member Schedules.
238. Accordingly, the EC focuses in this section on both the immediate and broader
context.
(a) Immediate context – tariff lines in EC Schedule
239. In accordance with Paragraph 2 of the Annex to the ITA, in 1997 the EC notified
to the WTO three eight digit CN codes next to the product description of "set top
boxes which have a communication function". In this section, the EC discusses
briefly what kinds of products were classifiable under those tariff lines. The EC
does not suggest that these tariff lines modify the narrative description of the
product at issue. However, even if one considers that it is solely the narrative
description which constitutes the EC's concession, these codes do, at a minimum,
shed light on what sort of products the EC understood to be covered by the
narrative description.154
240. The 1997 codes included in the EC Schedule were as follows:
153 Appellate Body Report, EC – Chicken Cuts, para 193. Italics added. 154 This logic would not necessarily be applicable in the same way the other way round (i.e., narrative
description informing the content of the classification codes): a customs code can have a broader coverage than a narrative description. This would have to be determined ad hoc.
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• 8517 50 90: Electrical apparatus for line telephony or line telegraphy... -- Other apparatus, for carrier-current line systems or for digital line systems... -- Other
• 8517 80 90: Electrical apparatus for line telephony or line telegraphy... -- Other apparatus ... -- Other
• 8525 20 99: Transmission apparatus for radio-telephony, radio-telegraphy, radio-broadcasting or television... -- Transmission apparatus incorporating reception apparatus... --- Other
241. A common feature of these codes is that they all pertain to modem devices.
Heading 8517 concerns set top boxes incorporating wired modems, heading 8525
includes set top boxes incorporating wireless modems. The notification of these
tariff lines thus reflected the EC's understanding of the kind of STB subject to the
ITA: a set top box for access to Internet (using a modem connected to a telephone
line). Importantly, the EC did not notify any other codes next to the description of
the STBC, in particular not any code of heading 8521 (where set top boxes which
function as recorders are classified by the EC) or heading 8528 (where set top
boxes with an incorporated tuner are classified by the EC). It should be pointed out
that also attachment A to the ITA does not contain any reference to those two
headings.
(b) Broader context – schedules of other ITA Parties
242. In the previous section, the EC explained how the codes which it submitted as part
of its Schedule implementing the ITA reflect the EC's understanding of the product
"set top boxes which have a communication function" at the time. In a similar
manner, the EC now examines the schedules of other WTO Members (ITA
participants) to see how they classified the STBCs at the time.
243. The following table summarizes the classification (at six digit level) of the "set top
boxes which have a communication function" by the ITA participants in 1997.
This overview was based on the modifications made by ITA to their schedules and
notified to WTO under paragraph 2 of the Annex to ITA: 155
155 WTO document G/IT/2/Add.1 of 17 October 1997 (Exhibit EC-14). The "mainstream" classification
is highlighted in grey.
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Classification of "set top boxes which have a communication function" by ITA participants in 1997
Sub-heading Number of participants classifying in that subheading
Main parties to the dispute
8471.41 2 -
8471.90 1 -
8517.50 25 EC, TPKM, US
8517.80 12 EC, JA
8525.10 3 US
8525.20 14 EC, JA, TPKM
8528.12 3 US
8543.89 1 -
244. The information in the above table provides a very valuable indication of what the
parties to the ITA understood in 1997 (i.e., when they notified their amended
schedules of commitments to WTO) under the product description "set top boxes
which have a communication function". As the table suggests, there were certain
classification divergences among the parties. However, because the classification
approach and practice of the majority of the ITA participants is clearly more
relevant than the approach of one, two or three participants, the importance of
those divergences should not be exaggerated. With the overwhelming majority of
ITA participants classifying the STBCs in 8517 50, 8517 80 or 8525 20, those
divergences can be considered as nothing else but exceptions confirming the rule.
245. To summarize: if the proposition that the codes notified next to the product
description of STBCs reflect the understanding of that product (by the party which
notified those codes) is correct, then the above table confirms that that the EC's
understanding of the product was shared by an overwhelming majority of the ITA
parties.
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3. Subsequent developments, including subsequent practice
(a) Practice of ITA parties in 1997-1999
246. In July 1999, the WTO Secretariat updated the document referred to in the
previous section to provide the latest information on classification divergences.156
Specifically, it included participants that had joined the ITA since the issuance of
the original document and incorporated any change that had been implemented by
the participants as a result of rectifications or modifications. The following table
summarizes this updated information:157
Classification of "set top boxes which have a communication function" by ITA participants from 1997 to 1999
Sub-heading Number of participants classifying in that subheading
Main parties to the dispute
8471.41 2 -
8471.90 1 -
8517.50 31 EC, TPKM, US
8517.80 14 EC, JA
8525.10 3 US
8525.20 17 EC, JA, TPKM
8528.12 3 US
8543.89 1 -
247. The EC is of the view that this information confirms the conclusions reached in the
previous section.
156 G/IT/2/Add.1/Rev.1 (Exhibit EC-20). 157 The "mainstream" classification is highlighted in grey.
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(b) The developments in 2000
248. In the EC view, set top boxes which were equipped with a tuner were not initially
supposed to be covered by the ITA. The presence of a tuner changes the nature of
the apparatus and requires a classification in heading 8528, even if the product
additionally incorporates a modem or other elements mentioned in narrative
description. It follows from the above discussion that the ITA was not about such
set top boxes.158
249. Nonetheless, in 2000 the US approached the EC bilaterally and insisted that the
above set top boxes with a tuner should receive the ITA treatment. Following a
detailed discussion of this issue among CITA customs experts in June 2000
(customs experts from interested ITA parties were meeting informally in 1999 and
2000 under the auspices of the CITA to facilitate the process provided for in
paragraph 5 of the Annex to ITA),159 the EC notified to WTO that it would grant
ITA treatment also to set top boxes it classified in CN code 8528 12 91.160 The
EC's notification specified that the EC would classify in this code products
described as follows:
Apparatus with a microprocessor-based device incorporating a modem for gaining access to the Internet, and having a function of interactive information exchange, capable of receiving television signals ("Set-top boxes with a communication function")161
250. Only two other contracting parties to the ITA (Japan and Turkey) joined the EC in
such a move.162 This means that there was no broader consensus among the ITA
parties on this new classification. One reason for this may be that this step was not
158 This follows both from the discussion of the narrative description of the product as well as from the
fact that in 1997, only 3 ITA participants (US, Iceland and Macao) notified code 8528.12 as that covering STBCs.
159 WTO document G/IT/14 of 6 September 2000 (Exhibit EC-48), page 26. 160 See WTO document G/MA/TAR/RS/74 (Exhibit EC-47). 161 Italics added. 162 WTO document G/IT/14 of 6 September 2000, page 26 (Exhibit EC-48).
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only a step towards the removal of classification divergences but effectively an
extension of a duty-free treatment to a new product.163
251. It is also important to note that this notification cannot be interpreted to mean that
the ITA definition has been relaxed or abandoned.164 To the contrary. It is correct
that as a result of the notification the EC extended on its own motion the treatment
available so far only for products meeting exactly the ITA definition to another
and well defined category of products, even though these products were
significantly different from those set forth in the ITA definition and, legally
speaking, not covered by it. However, such an extension of duty-free treatment
was only possible on the basis of a consensus (agreement) by the EC as the party
making the notification and (effectively) enlarging its commitment.
252. To summarize, the modification of the EC Schedule with respect to STBCs in
2000 and the process leading to it confirmed that the definition of the STBCs as
set forth in the ITA and the EC Schedule was not considered to be elastic and
open-ended.
4. Conclusion
253. It follows from the above discussion that, to the extent the narrative description of
STBCs included in the ITA and the EC Schedule constitutes the EC concession,
that concession was made with respect to a certain specific category of set top
boxes and not all or any products called or referred to as "set top boxes" fulfilling
certain minimum requirements. In other words, there was an understanding that
the narrative description covered only certain category of set top boxes, while
other set top boxes (certain technologies) were not covered by the narrative
description.
254. As discussed below, this starkly contrasts with the interpretation that is relied upon
by the complainants in support of their claim.
163 To this effect, see also the remarks on this issue by India, WTO document G/IT/14 of 6 September
2000, page 26 and page 3 (para 7) (Exhibit EC-48). 164 See also the record of discussions in the WTO document G/IT/14, page 26, item 203 (Exhibit EC-48).
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C. The measure(s) at issue respect the EC commitment
1. Argument
255. The complainants identify two categories of set top boxes which in their view are
not accorded the tariff treatment provided for in the EC concession:
• set-top boxes with a communication function which incorporate a hard
disk or DVD drive165 and
• set top boxes with a communication function which use certain types of
modems to communicate.166
256. Japan and TPKM specify that the STBs that the EC classifies in the following CN
codes should in their view be granted 0% duty:167
• STBs classifiable under CN 8521 90 00 as “Video recording or reproducing apparatus, whether or not incorporating a video tuner – other” – subject to a customs duty of 13.9 percent.
• STBs classifiable under CN 8528 71 19 as “Reception apparatus for
television, whether or not incorporating radio-broadcast receivers or sound or video recording or reproducing apparatus - Not designed to incorporate a video display or screen – Video tuners – Other” – subject to a customs duty of 14 percent.
• STBs classifiable under CN 8528 71 90 as “Reception apparatus for
television, whether or not incorporating radio-broadcast receivers or sound or video recording or reproducing apparatus - Not designed to incorporate a video display or screen – Other” – subject to a customs duty of 14 percent.
257. In making their claims, the complainants make a number of fundamental errors
described below.
165 See, for instance, first written submission of the United States, title to Section IV.A.2(a), paras. 90-
97. 166 See, for instance, first written submission of the United States, title to Section IV.A.2(b), paras. 98-
105. 167 See, first written submission of Japan, para. 354, first written submission of TPKM, paras. 363.
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(a) The complainants misinterpret the narrative description to include other products than STBCs
i) Set top boxes incorporating a hard drive or DVD recorder
258. The complainants argue that the narrative description means that any STB, as long
as it contains three "attributes" (namely, (1) it is a microprocessor-based device,
(2) incorporating a modem for gaining access to the Internet and (3) having a
function of interactive information exchange)168 is an STBC as defined in the EC
Schedule and the ITA. It does not matter whether the product at issue has any
other functions or incorporates any other devices "in addition to"169 the three
"attributes". In other words, despite calling the narrative description a
"definition",170 the complainants essentially view the narrative description of the
STBCs as setting forth minimal requirements: once present, an apparatus qualifies
for a duty free treatment, regardless of what else the apparatus contains. A set top
box which performs 1% communication function and 99% other functions, or 1%
of which is constituted by the above three "attributes" and 99% by other technical
elements (a hard disk, a DVD recorder, etc.), is in the view of the complainants a
set top box covered by the ITA and the EC commitment. This approach merits a
number of comments.
259. First, such an interpretation is as absurd as it is illogical. It would mean that one
does not consider the objective characteristics of a product, i.e., the technological
elements present in the set top box. To the contrary, anything can be put into a set
top box and, as long as it fits inside together with the above three elements, it is
supposed to be a set top box covered by the EC commitment. Needless to say,
such an interpretation of a commitment must be wrong. If not for anything else (in
particular the real scope of the narrative description discussed by the EC in the
preceding sections), then simply because such a commitment would not be a
168 See, first written submission of the United States, paras. 92 and 97. 169 See, for instance, first written submission of the United States, para. 95, first written submission of
Japan, paras. 370 and 382, first written submission of TKPM, paras. 394 – 395. 170 See above.
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concession but an open-ended bianco cheque. But, again, even if one would accept
the theory of the open-ended commitment in principle, that theory would not be
applicable in the present case, since, as described above, the narrative description
pertains only to a certain type of set top boxes within the general category of that
product.
260. Second, the absurdity of this approach becomes visible when one considers some
specific examples of products which the complainants want to have covered by the
definition of "set top boxes which have a communication function". While the
complainants avoid identifying any of these products in their submissions, the EC
has been able to identify some of them from the confidential versions of the
BTIs171 submitted by the complainants before the Panel.172 Instead of describing
these products at length, the EC invites the Panel to consider Exhibit EC-44 which
provides, as an example, product manuals of one of the products referred to by the
complainants.173 Even a cursory review of the exhibit reveals that the products
referred to by the complainants are often no longer even considered as set top
boxes: their main features and functionality make them a completely different
product – a "digital video recorder" (DVR) or "personal video recorder" (PVR).
Exhibit EC-45 provides an explanation of those products.174
261. The DVRs and PVRs referred to by the complainants are in stark contrast with
products which were considered by the drafters of the ITA and which continue to
fulfil their role of "set top boxes which have a communication function" till
today.175
171 Exhibit US-28 contains a basic version of the BTIs which is publicly available. Based on the
information provided in those BTIs, the EC was able to gather a full confidential version of these BTIs (i.e. the version which, in addition to the information reflected in the document provided by the US contains also the name of the affected economic operator and the commercial name of imported product at issue).
172 Exhibit US-28. 173 This product is identified in the confidential version of one of the BTIs the public version of which
was included in Exhibit US-28. The confidential version of this BTI is provided as Exhibit EC-43. 174 Exhibit EC-45. 175 Philips Magnavox MAT965A1 (Exhibit EC-46).
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262. Likewise, the PVRs and DVRs are also different from the set top boxes with a
communication function which the EC classifies in code 8528 71 13 which it
notified to WTO in 2000. Set top boxes classifiable in 8528 71 13 contain –
besides being equipped with a communication function – a rather important
technical element, a video tuner for the reception of television signals. The PVRs
and VCRs may contain a tuner as well, possibly they may be even equipped with
the communication function, but their main and decisive feature is the recording
functionality.
263. It follows from the above discussion that the narrative description of the STBCs
cannot be interpreted to include products like PVRs or VCRs.
ii) Set top boxes "using certain types of modems"
264. Despite the fact that that they place so much emphasis on the narrative description
of the product at issue, the complainants seem to forget that description when
arguing that the EC does not grant correct treatment to STBs "using a certain type
of modem".
265. The EC classifies in heading 8528 71 19 (i.e., outside the duty-free heading 8528
71 13176) set top boxes which connect to Internet via ISDN, W-LAN or Ethernet
devices. The reason for this classification (and consequent tariff treatment) is that,
contrary to what the complainants are suggesting, ISDN/W-LAN/Ethernet devices
are not "modems". ISDN is for connection to a telephone line but it uses a
technology different from that of a modem allowing for a faster transfer. W-LAN
and Ethernet are also excluded as they are not modems but devices for a
connection to an internal network (rather than to outside telephonic grid) and
therefore to an external modem.177
176 See also the discussion in the next section. 177 As is also reflected in the panel report in EC- Computer Equipment, a LAN is an interconnection of a
number of computers and computer peripherals (for example, printers, input units, memory units, etc.) using a cabling system. These cables physically interconnect all the individual devices to enable them to communicate through the transmission of data. In turn the principal types of LANs are Ethernet, Token Ring and Fibre Distributed Data Interface (FDDI). A LAN, including an Ethernet, is distinguished from other types of data networks in that the communication is usually limited to a
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266. This conclusion is not affected by the US arguments.178 The US correctly cites to
dictionary definitions of "modulate" and "demodulate" (Exhibit US-70) but
mistakenly drives from these the conclusion that any kind of digital-to-analog
converter constitutes a modem. This proposition, if accepted, would lead to the
absurd situation where any device that converts signals would be a modem. For
example a television or an MP3/MP4 player would be considered as a modem.
267. To summarize, the set top boxes that are at issue here are not entitled to the ITA
treatment because they do not fulfil the narrative description referred to by the
complainants, and not because the EC would deny that they allow a connection to
the Internet. If the complainants wish to include these kinds of products in the
ITA, then it can be done by the means of consensus (as envisioned in point 3 of the
Annex to the ITA) and not by litigation trying to extend the narrative description
beyond its limits.
268. Similarly, set top boxes which perform the function of a reception apparatus for
television but which do not incorporate a video tuner (such as "IP-streaming
boxes") are not entitled to ITA treatment, because they do not incorporate a
modem but connect to the Internet through, for example, an Ethernet interface.
Therefore, they do not match the narrative description. Additionally, these set top
boxes of course do not fall under code 8528 12 91 (8528 71 13) which the EC
notified to WTO in 2000.
(b) The complainants misunderstand the EC classification
269. The complainants base their claims under Article II GATT 1994 on the premise
that it is the narrative description of the product at issue in the EC Schedule which
the EC does not respect. The CN codes which the EC notified to WTO alongside
the narrative description, or other codes which were part of Attachment A to ITA,
discrete area such as a single office building, a warehouse or a campus. See Panel Report, EC – Computer Equipment, para 2.1.
178 See first written submission of the United States, para. 101.
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do not, in the view of the complainants, matter for the question of whether the EC
is violating its commitment. Indeed, for instance, the US says:179
(…) even when the addition of functions or technologies such as a hard drive results in reclassification within the EC CN, the EC is obliged to maintain the tariff treatment contemplated by the Schedule for any device meeting the description of a "set top box with a communication function".
270. Nowhere in its submission does the US or other complainants advance arguments
suggesting that the EC violates Articles II:1(a) and (b) GATT 1994 by
misclassification, i.e., by mistakenly (contrary to HS 96 and the interpretative rules
to it) classifying certain set top boxes in codes other than those referred to its
Schedule.180
271. Nonetheless, the EC considers it worthwhile to explain to the Panel that it is of the
view that it is classifying the products at issue correctly. This is also because it is
of course through the CN codes that the EC implements its obligations flowing
from its Schedule, including those taken pursuant to the ITA. The EC submits that
that is the only possible approach to such implementation (in particular if the ITA
and the Schedule say what the complainants argue), since a reliance solely on the
narrative descriptions like those in the ITA would not be feasible in practice.
i) CN codes referred to in the EC Schedule and the tariff treatment in the CN
272. In 1997 the EC notified the following CN tariff lines involved for the STBs subject
to ITA: 8517 50 90, 8517 80 90 and 8525 20 99. In 2000, the EC added code
8528.12.91. In addition, in a different part of the EC Schedule subheadings 8517
50, 8517 80 and 8525 20 were made subject to ITA treatment in their entirety.
273. With the CN 2007, CN code 8517 50 90 was replaced by CN codes 8517.61.00
and 8517.62.00. The CN codes 8517 61 00 and 8517 62 00 are duty-free (as was
8517 50 90).
179 See first written submission of the United States, para. 108. 180 See first written submission of the United States, paras. 87-111, first written submission of Japan,
para. 367-414, first written submission of TPKM, paras. 375 – 457.
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274. Likewise, with the CN 2007 the CN code 8517 80 90 was replaced by CN codes
8517 61 00, 8517 62 00 and 8517 69 90. The codes 8517 61 00, 8517 62 00 and
8517 69 90 are duty-free (as was 8517 50 90).
275. Similarly, CN code 8525 20 99 (replaced in CN 2006 by CN code 8525 20 80)
was replaced in CN 2007 by the following CN codes: 8517 12 00, 8517 61 00,
8517 62 00, 8517 69 90 and 8525 60 00. All these codes are duty-free.
276. With the CN 2007, CN code 8528 12 91, notified by the EC to WTO in 2000, was
replaced by CN codes 8528 71 13. CN Code 8528 71 13 is duty-free (as was
8528.12.91).
277. Likewise, the entire HS subheadings 8517 50, 8517 80 and 8525 20, which were
part of Attachment A to the ITA and which were replaced by HS subheadings
8517 62, 8517 69 and 8525 60 in HS 2007, are duty free.
ii) EC classifies correctly
278. Based on their references to the CN EN, the complainants seem to raise an issue
solely with CN code 8528 71 13 (the successor for the code 8528 12 91).181 The
EC classifies certain products which do not fall within that code in CN codes 8521
90 00, 8528 71 19 and 8528 71 90. None of those codes was notified to WTO and
all of them are subject to duty.
279. In accordance with rulings of the ECJ and the WCO approach reflected also in the
Appellate Body case law, when classifying any product, the EC considers the
"objective characteristics of the product in question when presented for
classification at the border".182
280. Once the objective characteristics are determined, the EC classifies the product in
accordance with GIRs 1 – 6. Hence, the EC first considers the terms of the
headings and any relative chapter and section notes.
181 See first written submission of the United States, para. 47. 182 Appellate Body Report, EC – Chicken Cuts, para. 246 (see also para. 230).
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281. If a product has the objective characteristics of a video recording or reproducing
apparatus, it is to be classified in heading 8521. The presence of a hard disc for
recording purposes can be a very significant element in such a consideration, but
even this element is not taken in isolation of the other elements present in the
product. The classification is based on the consideration of all the objective
characteristics, not on an arbitrary "pick and choose" of one of them. The
complainants' suggestion that it is "merely due to the presence of a hard disk" that
the EC classifies products in a certain way is incorrect.183
282. If the product fulfils the objective characteristics of a reception apparatus for
television, it is to be classified in heading 8528, more specifically in the sub-
heading 8528 71. This sub-heading further distinguishes between video tuners and
other apparatuses. Set-top boxes with a tuner and with a communication function
are classified in 8528 71 13. This code has been specifically created in 2000.184 If
the set top boxes at issue have a tuner but otherwise do not fulfil the ITA
definition, they cannot be classified in this code. For instance, if they do not have a
communication function or otherwise do not fulfil the requirements of the ITA
definition (e.g., they do not have an incorporated modem), they are classified in
code 8528 71 19. Finally, set top boxes which fall within 8528 71 (i.e., they are
reception apparatuses for TV) but not incorporating a tuner fall under code 8528
71 90 (such as, for instance, so called IP streaming boxes).
283. If a classification is not possible from the consideration of the terms of the
headings and any relative section or chapter notes, classification has to be
determined pursuant to other rules of interpretation, such as GIR3.
284. It follows from the above that the EC classifies correctly and, as a result, cannot be
seen as violating its WTO obligations on the grounds of misclassification. If the
complainants nonetheless consider that the EC misclassifies, they have to yet make
their case. If they decide to do so, and considering that the EC classifies on the
basis of objective characteristics of the products, they cannot merely point to one
183 See first written submission of the United States, para. 95. 184 See Section IV.B.3(b) above.
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technical element out of many in a product – they have to make their case with
respect to the totality of the objective characteristics of a given existing product,
and not merely to an abstract category of products delineated by certain minimal
attributes.
2. Conclusions
285. In this submission, the EC demonstrated, first, that the narrative description of the
product at issue in the EC Schedule and the ITA does not support the claim made
by the complainants. To the extent that narrative description constitutes the EC
concession, that concession is not open-ended. In contrast to the situation in the
Greece – Phonograph Records case which the complainants point to, the narrative
description of set top boxes in the EC Schedule and the ITA is qualified and
pertains to STBCs only – not to DVRs, PVRs or any other kind of product. If
relevant at all, therefore, that case supports, rather than contradicts, the EC
position.185
286. Second, the EC's customs classification, through which the EC implements the
ITA, is, in accordance with the guidance provided by the ECJ, WCO and the
Appellate Body, based on objective characteristics of a product at the time of
importation. Importantly, this approach to classification does not mean that one
selects a single characteristic and ignores all the other. To the contrary, the EC
considers the totality of the characteristics to make a classification decision. The
complainants are therefore wrong in arguing that the EC excludes certain STBs
from the ITA treatment "merely due to the presence of a hard disk". It is rather
because those products, based on a consideration of all their characteristics,
perform other functions than that covered by the ITA description and the EC
Schedule, that the EC classifies them in a certain way.
287. Third, the above conclusions lead the EC to another and final consideration. By
interpreting the narrative description as setting forth minimum requirements, the
185 In that case the Contracting parties specifically considered, as part of their reasoning, whether or not
the expression "gramophone record" in the Greek Schedule was qualified.
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complainants avoided presenting any evidence showing that in any given case, the
EC incorrectly considered the totality of the product as a whole and that it
incorrectly concluded that it was not entitled to ITA treatment. Nonetheless, since
the narrative description is about a certain type of products and not about
minimum requirements, the complainants have yet to show that in any given case
the EC acted inconsistently with its obligations. This is a highly significant
observation, because it pertains both to the complainants' failure to identify
conclusively the products at issue as well as to their lack of showing that the EC
violates Articles II:1(a) and (b) GATT 1994 "as such and as applied".186
V. THE CLAIM ON SET TOP BOXES WHICH HAVE A COMMUNICATION FUNCTION (STBC) UNDER ARTICLE X GATT 1994
A. Article X:1 GATT 1994
1. Legal status, adoption and publication of Explanatory notes
(a) Status of the Explanatory notes (CN EN)
288. The legal basis which allows the European Commission to issue Explanatory notes
to the Combined Nomenclature (CN EN) is set forth in Article 9(1)(a) of
Regulation 2658/87, as amended.187
289. It is a well known and settled issue within the EC legal system that while the
Explanatory notes to the Combined Nomenclature (CN EN) may be considered as
186 Cf. first written submission of the United States, para. 169, sub (3). 187 Council Regulation (EEC) No. 2658/87 of 23 July 1987 on the tariff and statistical nomenclature and
on the Common Customs Tariff, OJ L 256, 7.9.1987, p.1. The US and TPKM provide as exhibits (US-13 and TPKM-5, respectively) the initial version of this regulation as adopted more than 20 years ago (i.e., without any amendments). The regulation has been amended subsequently several times, however, including in parts relating to the so-called "comitology" (see discussion below) which are relevant to the issues raised by complainants under Art. X GATT. The EC therefore provides an updated and consolidated version of the Regulation (without annexes) which reflects all the amendments pertinent to the case at hand, including the amendment by Council Regulation (EC) No 254/2000 of 31 January 2000. Exhibit EC-49.
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"an important aid for interpreting" the CN, they do not have a legally binding
force" and "cannot alter" the CN.188 This has also been reflected in WTO case
law.189
290. Further explanations on the legal status of adopted and published CN EN are
provided in the next section dealing with the complainants' claim under Article
X:2 GATT 1994 as they pertain to issues raised by the complainants in that
context.
(b) Procedure of adoption of CN EN
291. As provided in Articles 9(1)(a) and 10(1) of Regulation 2658/87, as amended, CN
EN are adopted by the Commission under the "management procedure" referred to
in Article 10(2) of that Regulation. This procedure is set out in Articles 4 and 7 of
the so-called "Comitology decision".190
292. Under this procedure, there are at least three steps leading to the adoption of a
measure. First, the Commission submits a draft of the measure(s) that it intends to
take to a committee (as discussed below, in the present case this is the Customs
Code Committee) composed of representatives of the EC Member States. As a
second step, the committee as a whole (rather than the individual Member States)
delivers an opinion on the draft measures. This is done by the means of voting. In
accordance with Article 4(2) of the Comitology decision, an opinion is considered
as delivered only if the votes of Member States voting for or against the proposal
reach a qualified majority191. Third, as a next step, the draft measure which it has
been voted on "returns" to the Commission. If a committee delivered a favourable
opinion on the draft measure (qualified majority for the proposal), the Commission
188 ECJ, Case C-229/06, Sunshine Deutschland Handelsgesellschaft, [2007] ECR I-3251, para 27.
Exhibit EC-50. 189 Panel Report, EC – Selected Customs Matters, para. 7.350, footnote 638. 190 Council decision of 29 June 1999 laying down the procedures for the exercise of implementing
powers conferred on the Commission (1999/468/EC), Exhibit EC-51. 191 The votes of the Member States are weighed as provided for in the EC Treaty. After 1 January 2007,
following the last enlargement, the qualified majority constitutes 255 votes out of a total of 345.
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services prepare a draft act for an adoption by the Commission (more precisely,
the College of Commissioners192). Once the act has been adopted by the
Commission, it is sent for publication (see further below).
293. It is the Commission which adopts the act also in circumstances when the
committee does not deliver an opinion (no qualified majority for or against) or
delivers a non-favourable opinion (i.e., qualified majority against) on the draft
measure. In the latter case, the Commission must communicate the draft measures
forthwith to the Council. In that event the Commission may defer adoption for a
period not exceeding 3 months. During that period the Council can, acting by
qualified majority, take a different decision.193
294. As it flows from the above, the presentation of the draft measure to the committee
and the voting on the proposal by the committee is an important and necessary step
in the procedure leading to the ultimate adoption of a measure by the Commission.
However, it is no more than a step in the procedure.
295. To summarize, a committee in the management procedure does not adopt any
measures. It does not have a legal power to do so. Clearly, the committee votes on
the draft measures, but the vote is not "adopting" or "approving" the measure (as
the complainants mistakenly suggest), it simply serves to deliver an opinion on the
draft measure. This opinion is a signal for the Commission about the position of
the Member States with respect to the measure under consideration. As explained
above, the Commission can adopt a measure even in the face of a non-favourable
opinion by a management committee.
192 It has to be distinguished between the Commission as an institution consisting of some 40
directorates-general and services and the Commission in the sense of a body of 27 Commissioners, one of which is the President (currently Mr. José M. Barroso). This body, sometimes referred to as a "college", adopts acts on behalf of the Commission (or delegates this power for certain specifically defined acts to one of the Commissioners). Hence, it is always (also in this submission) the Commission in the sense of the College which is referred to in case the adoption of a legal act is at issue. In contrast, it is one of the directorates-general of the Commission (DG Taxud) which submits measures to and follows discussions in the Customs Code Committee. (For additional information on the work and functioning of the Commission, see also http://ec.europa.eu/atwork/basicfacts/index_en.htm#comm.)
193 Articles 4(3) and 4(4) of the Comitology decision.
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296. In the case at hand, the draft CN EN have been submitted by the Commission
services to a management committee in charge of customs matters – the Customs
Code Committee (CCCE).194 As other committees, also the CCCE has its rules of
procedure which it follows during its meetings.195 For instance, the rules of
procedure of the Customs Code Committee explicitly provide for the possibility of
a change in the draft measure submitted for an opinion. In such a case, the
Commission may postpone the vote on the draft measure to a later meeting.196
297. To avoid any confusion, it is useful to add, as a side remark, that the opinions of
the CCCE discussed above, i.e. the opinions delivered within the framework of a
management procedure and allowing a later adoption of a measure by the
Commission, are to be distinguished from the opinions which the CCCE itself
adopts on the basis of Article 8 of Regulation 2658/87 in examining matters
concerning the CN. These kinds of opinions (delivered in the form of statements)
do not have legally binding force but may be considered as a valid aid to
interpretation of the CN.197 These statements are not, however, at issue in the
present case.
298. Finally, it should be mentioned that the CCCE functions also as a forum for
discussion and exchange of views between the Commission and national customs
administrations of the Member States. As set forth in Article 249 of the
Community Customs Code, the CCCE "may examine any question concerning
customs legislation which is raised by its chairman, either on his own initiative or
at the request of a Member State representative".198
194 Specifically, its Tariff and Statistical Nomenclature Section. For a discussion of the CCCE, see
generally also Panel Report, EC – Selected Customs Matters, para. 7.160. 195 See Art. 247a of the Community Customs Code (Exhibit US-19). 196 Article 6 of the Rules of procedure of the Customs Code Committee on 5 December 2001 (Exhibit
EC-52). These were the procedural rules in effect until 1 March 2009, i.e. at the CCCE's meetings referred to by the complainants. The newly adopted version of the rules does not change the procedural provisions discussed in this submission.
197 ECJ, Joined Cases 69 and 70/76, Dietmayer, [1977] ECR 231 (Exhibit EC-53), para 4. 198 Article 249, Exhibit US-19.
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(c) Publication
299. Since the opinions of the Customs Code Committee delivered in the management
procedure are not measures but only stages in the legislative procedure, they are
not published in the Official Journal. Nonetheless, to allow for maximum
transparency on the activities of the EC institutions, they are made available in the
reports containing the minutes of the meetings of the CCCE. These reports are
available on the Comitology website usually within 3 weeks after a meeting. These
are also the reports which are relied on by the complainants in the present dispute
to demonstrate the existence of "measures" adopted by the CCCE. In contrast to
the opinions of the Committee, the CN EN, once adopted by the Commission
(College), are published in the Official Journal of the European Union.
2. Adoption and publication of the Explanatory notes challenged by the complainants
300. As explained above, CCCE serves inter alia as a forum for exchange of views and
discussing issues pertaining to customs classification. The reports of the CCCE's
meetings indicate that in this capacity the CCCE discussed various issues
pertaining to the classification of set top boxes at some of its meetings in 2005.199
301. Following on these discussions, in May 2006 the Commission submitted to the
CCCE document TAXUD/0667/2006 (for discussion, not for a vote).200 This
document was a preliminary draft of a number of interrelated CN EN, including
those on code 8528.12.91 (worded as "set top boxes with communication
function"). The Commission was seeking the input and opinions of the Member
States on the classification of the products concerned.
302. A revised version of the draft CN EN (document TAXUD/0667/2006 Rev 2)201,
reflecting the comments of the Member States, was presented to the CCCE for a
199 Cf. also first written submission of TKPM, paras. 450-451. 200 Summary Report of the 395th meeting of the Committee (Exhibit US-74, page 8). 201 Exhibit EC-54.
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vote in October 2006.202 At this moment the management procedure, described in
the preceding section, commenced. Document TAXUD/0667/2006 Rev 2
contained a draft measure consisting of 4 components, i.e. interrelated draft CN
EN, namely those on customs codes 8528.12.20 (first draft EN), 8528.12.90 to
8528.12.95 (second draft EN), 8528.12.91 (third draft EN) and 8528.12.98 (fourth
draft EN). The CCCE delivered a favourable opinion on 3 of those 4 interrelated
CN. With respect to the first draft EN, which concerned the classification of
"certain set top boxes incorporating a hard disk", the Member States provided their
views and some requested more information and debate on this issue. The vote on
this part of document TAXUD/0667/2006 Rev 2 was postponed.203
303. Subsequently, in light of some of the comments made, the Commission services
decided to amend the draft CN EN concerning the set top boxes with a hard disk
and submit it to CCCE for a vote in April 2007, together with a modification of the
draft CN on code 8528 12 91 voted on by the CCCE in October 2006.204 The
CCCE voted on the draft measure and delivered no opinion.205 Member States also
made comments on these elements of the draft measure.
304. Based on the discussion, the Commission decided to make further amendments in
document TAXUD/0667/2006 Rev 2. The main purpose of these changes was to
extend the duty free treatment also to so-called walled garden type set top boxes
which could connect only to a limited number of Internet addresses.206 This
revised text of the measure was submitted to CCCE for a vote in February 2008.207
The CCCE delivered no opinion.208
202 Summary Report of the 407th meeting of the Committee (Exhibit TPKM-30). 203 Ibidem. 204 Summary Report of the 420th meeting of the Committee (Exhibit TPKM-31). The minor modification
was necessitated by the fact that CN code 8528.19.91 was replaced by codes 8528.71.13 and 8528.7190 as of 1 January 2007.
205 Ibidem. 206 Summary Report of the 442nd meeting of the Committee (Exhibit TPKM-59). 207 Ibidem. 208 Ibidem.
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305. With this vote by the CCCE on the last revised part of the draft measure, i.e., a
"package" of the 4 interrelated CN EN regarding the classification of set top
boxes, the management procedure on the draft measure was completed and the
Commission services could submit the measure for adoption to the Commission
(College). Consequently, a draft act was prepared and the CN EN were adopted on
29 April 2008 by Mr. Verheugen (Vice-President of the Commission) signing the
act on behalf of the Commission (College).209 Following the adoption, they were
translated into the 22 languages of the European Union and promptly published on
7 May 2008 in the Official Journal of the European Union.210
3. Challenged CN EN were published in full accordance with Article X:1 GATT 1994
306. The US based its claim on the following premise: the CN EN at issue "were
approved by the … Customs Code Committee … in October 2006 and May 2007,
respectively. Yet the EC failed to publish amendments in its official journal until
May 2008, over a year after the amendments had been approved."211 TPKM
advances a similar claim, albeit arguing that the CN EN were adopted in April
2007.212
307. As described above, the premise of the complainants is factually and legally
wrong. First, it is factually and legally incorrect to say that the CN EN were
published over a year after their adoption. As described in the preceding section,
contrary to what the complainants say, the CCCE does not "adopt" or "approve"
anything in the management procedure. The complainants acknowledge this, in
fact, in the initial parts of their submissions in which they describe the functioning
209 Exhibit EC-55. 210 Exhibit TPKM-28. 211 See first written submission of the United States, para. 112. 212 See first written submission of TPKM, para. 469.
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of the EC customs law.213 By arguing something different in the sections dealing
with their claim, they are manifestly contradicting themselves.
308. Second, what happened was that various parts of the interrelated text of the CN
EN were revised several times following their first discussion in the CCCE in May
2006 and, during the process of redrafting and revision, voted upon several times
by the CCCE (October 2006, April 2007 and February 2008). In this way, the draft
developed into a coherent text reflecting the discussion. Once the text was entirely
stabilized and all the parts of the draft measure voted upon, the Commission
services proposed the text to the Commission for adoption. The CN EN were
adopted at the end of April 2008. Thereafter, the CN EN were promptly published
on 7 May 2008.
309. It follows from the above that the complainants' claim on Article X:1 GATT 1994
must be refused by the Panel in its entirety. The complainants confuse a vote by
the CCCE in the management procedure with the CN EN adopted by the
Commission. To the extent the applicants indeed challenge the CN EN adopted by
the Commission on 29 April 2008 and published on 7 May 2008, and to the extent
that CN EN indeed constitutes a "law, regulation, judicial decision or
administrative ruling of general application" in the sense of Article X:1 GATT
1994, the EC is of the view that the applicants did not make a prima facie case,
since all the facts described above make clear that the CN EN were published
promptly and in accordance with the requirements of Article X:1 GATT 1994.
310. Based on the above explanations, the EC is of the view that the Panel does not
need to consider or rule on the issue of whether adopted and published CN EN
constitute "law, regulation, judicial decision or administrative ruling of general
application" in the sense of Article X:1 GATT 1994. If the Panel nonetheless
considered this necessary, the EC submits that the CN EN do not constitute "law,
regulation, judicial decision or administrative ruling of general application" in the
sense of Article X:1 GATT 1994. This is, in particular, because of the factual
213 See first written submission of the United States, para. 39 (saying that CN ENs were "adopted by the
Commission, after consulting with the Customs Code Committee …"), first written submission of TPKM, para. 54 (saying that the "CNEN are adopted by the EC Commission which must seek the opinion of the Customs Code Committee in accordance with the management procedure").
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features of the CN EN described above, such as their non-binding nature combined
with their essentially and inherently informative character.
B. Unadopted CN EN do not and cannot violate Article X:2 GATT 1994
311. The factual and legal explanations provided in the preceding sections shed light on
the complainant's claim under Article X:2 GATT 1994. Taken into account those
explanations, what the complainants are arguing is not that the challenged CN EN
(adopted on 29 April 2008) violate Article X:2 GATT 1994 because they were
enforced before their publication on 7 May 2008. In reality, they argue that the CN
EN violated Article X:2 GATT 1994 because they were enforced before their
adoption (and subsequent publication). Before addressing that issue, it appears
useful to recall what status and effect in the EC customs law do Explanatory notes
have even if they are duly adopted and published.
1. Explanatory notes and classification decisions made by national authorities of the Member States
312. As the EC explained above, it is a well known and settled issue within the EC
legal system that while the Explanatory notes to the Combined Nomenclature (CN
EN) may be considered as "an important aid for interpreting" the CN, they do not
have a legally binding force" and "cannot alter" the CN.214 This is also explicitly
accepted by the complainants. TPKM described this as follows:215
It is however important to emphasise that the ECJ's ruling that CNEN are not "legally binding" refers to the fact that such CNEN cannot alter the meaning of the provisions of the CCT.
313. This means that a conflict of norms can never arise between the CN and a CN EN.
The CN always takes precedence, as it is the legally binding instrument.216 Hence,
214 ECJ, Case C-229/06, Sunshine Deutschland Handelsgesellschaft, [2007] ECR I-3251 (Exhibit EC-
50), para 27. 215 See first written submission of TPKM, para. 55. 216 See, for instance, Exhibit EC-50 or ECJ, Case C-35/93 Develop Dr Eisbein [1994] ECR I-2655.
(Exhibit EC-56).
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the US is incorrect on the facts when it says that "[L]ike a regulation, a CNEN can
result in reclassification of products to a different tariff line in the CN …".217
(Besides, the US also contradicts its co-complainant, TPKM.218)
314. As a side note, it appears useful to explain that a regulation on CN classification is,
just as any other regulation in the sense of Article 249, second paragraph, of the
EC Treaty, a legally binding instrument applicable throughout the EC. It is, in fact,
one of the means through which the EC conducts its lawmaking.
315. Hence, the Member States, when classifying imported goods, have to base their
classification on the CN and the interpretative rules therein (GIR 1-6) and not on a
CN EN. While it may happen that some Member States refer in their BTIs to a CN
EN, this is not necessary. If some Member States refer to a CN EN, this is done
merely to inform the economic operator that with respect to its product, the
Commission has already conducted the interpretative exercise and taken a non-
binding view that the CN should be interpreted in a particular way. Naturally,
nothing prevents an economic operator to challenge a classification decision made
by national customs authorities of the Member States, if it is of the opinion that
they – perhaps in the light of a CN EN – interpreted the CN incorrectly. This issue
would be then brought before the national courts. Should the courts of Member
States have in such a case doubts as to whether a CN EN constitutes a correct
interpretation of the CN, they would raise this issue with the ECJ.219
2. The legal status of votes in the CCCE
316. In the preceding section, the EC described the legal status and effect of CN EN
that had been duly adopted and published. It follows that the legal status and effect
of draft CN EN, which were merely voted upon, cannot exceed that of adopted and
published CN EN. Therefore, without considering any further arguments by the
217 See first written submission of the United States, para. 39, last sentence. 218 See first written submission of TPKM, para. 55. 219 See, for instance, ECJ, Case C-259/97, Clees, [1998] ECR I-8127 (Exhibit EC-57), para. 8.
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complainants, one can already conclude that the statement by the United States
that "[B]ased on the as-yet unpublished measure, member States began issuing
BTIs resulting in the imposition of duties on STBs"220 is not and cannot be correct.
317. In this light, it appears that the complainants are rather trying to convince the
Panel that it is the votes and discussions in the CCCE made in the context of the
management procedure which constitute a measure in the sense of Article X:2
GATT 1994. This line of thought cannot be followed. The EC addresses each of
the arguments advanced by the complainants in turn.
318. First, the US mistakenly points to the BTI Guidelines (Exhibit US-18) to support
its theory.221 However, the statement quoted by the US from the BTI Guidelines
applies to a "legal measure", i.e. a measure with a binding legal force – a
classification regulation (see above), and not to a CN EN.222 The relationship of
adopted (and published) CN EN and the BTIs is addressed elsewhere in the BTI
Guidelines223 and does not support the US theory.224
319. Second, the US attempts to suggest that the chairperson of the CCCE stated during
the 413th CCCE's meeting, in response to an immediate question from a Member
State, that Member States should follow the BTI Guidelines even in cases of
measures which were merely voted upon.225 First of all, that statement does not
say what the US argues it says: it is an impromptu statement made in response to
an impromptu question (which itself was not well formulated, as it failed to refer
to a pending adoption of the measure by the Commission) and should not be
therefore taken out of that context. In that context, the EC understands the
220 See first written submission of the United States, para. 117. Italics added. 221 See first written submission of the United States, para. 116. 222 Exhibit US-18, point 11, first bullet point (page 18). 223 Exhibit US-19, point 11, second bullet point (page 18). 224 TPKM seems to have referred to the same points referred to by the US, in this respect the EC
explanation provided above naturally also applies to any arguments advanced along the same lines by TPKM (see first written submission of TPKM, paras. 61 and 373).
225 See first written submission of the United States, para. 117. See also first written submission of the
TPKM, paras. 373 and 453, discussing the same issue.
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statement to say that the Member States should follow the BTI Guidelines, nothing
more, nothing less. As explained above, the BTI Guidelines are simply not
applicable to a draft CN EN before adoption. Second, even if the statement said
what the US asserts, a statement by one person during a discussion in the CCCE
does not create a "law, regulation, judicial decision or administrative ruling of
general application" in the EC. If it did, then there would not be a need for the
management procedure, the Commission, or the CCCE at all. 226
320. Third, it is also important to distinguish the kind of statement referred to in the
previous paragraph from a statement made under Article 8 of Regulation 2658/87
(these statements are also sometimes referred to as opinions, which are adopted
outside the management procedure, as discussed above). The latter statement is a
statement made by the CCCE as a whole.227 While the complainants seem to
understand the difference between on the one hand, statements made during a
discussion without any legal value and, on the other hand, opinions/statements
adopted under Article 8 of Regulation 2658/87, they fail to recognize it in their
arguments with respect to the measures at issue. In other words, despite the fact
that in the initial sections of their submissions they acknowledge this difference228
(with the US explicitly taking the view that the statement made by the chairman at
the 433rd CCCE referred to statements/opinions under Article 8 of Regulation
2658/87229), they refer to them later in their submissions as if they were the steps
made under the management procedure and leading to the adoption of the CN
EN.230
226 A real situation in which a Member State pursues a classification different from that followed by other
MS, discussed at the CCCE and even called for by the Chairman of the CCCE is also aptly described by the complainants themselves in the context of the claim on flat panel displays. See first written submission of the United States, para. 60 (on the same issue, see also first written submission of Japan, para. 242).
227 See first written submission of TPKM, para. 56. The EC does not examine the question of whether a statement of the CCCE made under Art. 8 of regulation 2658/87 could constitute a "law, regulation, judicial decision or administrative ruling of general application" in the sense of Art. X:1 GATT, as such a statement is not at issue here.
228 See first written submission of TPKM, para. 56, first written submission of the United States, para.
40. 229 See first written submission of the United States, para. 40. 230 See first written submission of TPKM, para. 473 (footnote 230), first written submission of the
United States, para. 116 (footnote 158).
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3. BTIs issued while the draft CN EN were discussed in the CCCE
321. To support their claims that the EC violated Article X:2 GATT 1994, the
complainants refer to BTIs issued by the national customs authorities of the
Member States. The US provides the following list of BTIs (the EC presents them
in the order in which they appear in Exhibit US-28, i.e. chronological order,
together with other events which the EC considers significant denoted by an
arrow):
1) DEM-3358-05-1 (Germany, August 11, 2005)
2) BED.T.245.774 (Belgium, March 23, 2006)
3) DEM/3971/06-1 (Germany, June 13, 2006)
4) DEM/4638/06-1 (Germany, July 24, 2006)
October 2006: CCCE votes on the first part of CN EN
5) FR-E4-2007-002839R1 (France, July 11, 2007)
6) FR-E4-2007-001251 (France, July 11, 2007)
7) FR-E4-2007-00261 (France, July 11, 2007)
8) BED.T. 248.255 (Belgium, January 23, 2008)
9) CZ05-0187-2008 (Czech Republic, April 23, 2008)
April/May 2008: CN EN are adopted and published in the Official Journal
10) NLRTD-2008-000713 (Netherlands, May 20, 2008)
11) NLRTD-2008-000714 (Netherlands, May 20, 2008)
12) BGBG/2008/000072 (Bulgaria, May 26, 2008)
13) CZ05-0478-2008 (Czech Republic, June 10, 2008) 231
231 TPKM submitted in support of its claim only the BTIs listed above sub #5 to #7. See first written
submission of TPKM, para. 472 (footnote 229).
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322. A cursory review of the above list reveals that the last 4 BTIs (sub #10 to #13)
were adopted after the adopted CN EN were published in the Official Journal.
They do not, therefore, support the claim on Article X:2 GATT 1994.
323. This leaves us with the BTIs #1 to #9. Before going any further, it is useful to
recall that, as explained in the preceding section, Member States cannot and do not
base their classification decisions on CN EN (as that is not a legally binding
instrument). The Member States base their classification decisions on CN and the
interpretative rules thereto. Hence, if a Member State refers in a BTI to a CN EN
in addition to the legal basis in the CN, it is for information purposes only.
Accordingly, all the BTIs sub #10 to #12 (again, these are the BTIs issued after the
publication of the CN EN) refer to the GIRs and the text of the appropriate CN
codes. One of them (#13) additionally refers to the CN EN.
324. Out of the BTIs listed sub #1 to #9, only the BTIs listed in #5 to #9 were issued
after the CCCE voted for the first time on the draft CN EN. All BTIs listed in #5
to #9 contain, as a legal justification of their classification, a reference to the
appropriate GIRs and texts of the relevant CN codes. Additionally, BTIs listed in
#5, #6, #7 and #9 contain in the heading "Classification Justification" a reference
to the draft and unadopted CN EN (one national customs authority even refers to
these as a "decision" of the CCCE). This does not change the conclusion that it is
the GIR and the CN codes (always listed in the first place in the heading) that
provide the legal basis for the justification (and that the reference to draft CN EN
is for information only). Any other interpretation would be contrary to the rulings
of the ECJ, which all the Member States are required to follow, and would
therefore be open to an immediate challenge before the ECJ. It can be concluded
that the BTIs listed in #5 to #9 therefore do not support the complainants' claim.
325. We are left with BTIs listed in #1 to #4. These BTIs all refer to the respective
GIRs and wording of the relevant CN codes as the justification for the
classifications. The complainants criticize these BTIs and give them as evidence of
the measures at issue. Yet, the very fact that these four BTIs were issued before
the very first vote by the CCCE on the first part of the draft CN EN (and the BTIs
listed sub #1 and #2 were issued even before the first discussion of the draft CN
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EN in May 2006 (!) 232) confirms what the EC explained above: that the CN EN
(and even less so any votes in the CCCE) do not have the quality of classification-
changing measures which the complainants argue they have. A classification by
the national authorities of the Member States is always based solely on the CN.
326. Finally, to the extent the complainants would argue, despite the above
explanations, that votes or discussions in the CCCE created some sort of
"established and uniform practice", the EC respectfully submits that the BTIs
listed in #1 to #4 are a perfect confirmation of the fact that simply no practice, yet
the "established and uniform practice" in the sense of Article X:2 GATT 1994,
was created as a result of any such discussion or a vote.
327. It follows that the complainants (US, TPKM) did not establish a violation of
Article X:2 GATT 1994.
VI. CLAIM CONCERNING CERTAIN "MULTIFUNCTIONAL MACHINES" (MFMS) UNDER ARTICLE II OF THE GATT 1994
A. Background
1. The products at issue
328. This claim concerns the tariff treatment given by the European Communities to
imports of certain Multifunctional Machines (MFM). In their joint Panel request,
the complainants have defined the notion of MFM as follows:
Machines which perform two or more of the functions of printing, copying or facsimile transmission, capable of connecting to an automatic data processing machine or to a network (including devices commercially known as MFPs (multifunctional printers), other "input or output units" of "automatic data processing machines" and facsimile machines).233
232 See discussion above. 233 Panel request, WTO doc. WT/DS375/8, WT/DS376/8, WT/DS377/6, 19 August 2008, at footnote 15.
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329. In their first written submissions, the complainants234 have specified that the
products at issue comprise two different subcategories of MFMs:
MFMs which are connectable, either directly or indirectly, to an ADP machine (hereinafter, "ADP MFMs");235
MFMs which are not connectable to an ADP machine and use a phone line to perform a facsimile transmission function (hereinafter, "non ADP MFMs").
330. Contrary to the complainants' assertions, MFMs are not a "technologically
advanced version of printers".236 MFMs are best described as the result of a
process of technological convergence, whereby different devices, each with a
specific function (photocopiers, printers and/or facsimile machines), have been
merged into a single machine capable of performing simultaneously various
functions.
331. MFMs became commercially available in the early 1990s and were already well-
known by the time when the ITA was negotiated and concluded. Nevertheless,
they remained a relatively new product, which was still far from achieving its
present ubiquity at offices and homes.
332. Many manufacturers of MFMs were, and continue to be, manufacturers of stand-
alone photocopiers and have developed their range of MFMs from a photocopier
basis.237 Indeed, in essence, all that it takes to develop an MFM from a digital
234 See first written submission of Japan, paras. 17-21; first written submission of TPKM, paras. 17-20
and 483; and first written submission of the United States, paras. 5-7. 235 The complainants assert that these MFMs include devices "commercially known as multifunctional
printers, MFP". (See e.g. first written submission of the United States, para. 6). Although this term is used sometimes in the trade, it is inaccurate and, furthermore, ambiguous. The acronym MFP may stand as well for "multifunctional products" and "multifunctional peripherals". Many manufacturers do not use the term "multifunctional printer" or the acronym MFP at all and, instead, refer to the machines at issue by using a wide variety of other terms, such as "all-in-one" (AIO), "multifunctional digital systems" (MDS), "multifunction centers" (MFC) or "multifunction units" (MFU). For these reasons, the European Communities will refrain from using the term "multifunctional printer" and the acronym MFP in this submission.
236 First written submission of Japan, para. 17. See also the first written submission of the United States,
para. 5. 237 See e.g. Wikipedia, Multifunction printer, where it is explained that "most SOHO [Small
Office/Home Office Use] MFPs have their history in low end black and white photocopiers, and the print engine is based around this type of technology". Similarly, according to the same entry, "most
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photocopier is to embed into the same housing a so-called "print controller"238 (i.e.
a computer board which allows the machine to receive and process data from an
ADP machine) and a modem for sending and receiving faxes.
333. Major manufacturers, such as Ricoh and Canon, describe their range of MFMs as
being "copier-based", while Kyocera-Mita uses the term "copycentric".239
Furthermore, many manufacturers of MFMs market some of their machines in a
copy-only version, with the printing and fax functions being offered as options.240
The price of the copy-only version may represent as much as 90 per cent of the
price of the multifunctional version.241
334. The essential components of an ADP MFM with the functions of copying, printing
and facsimile transmission are:
a print engine;242
a scanning device;
a modem; and
a print controller.
335. In turn, the essential components of a non-ADP MFM with the functions of
copying and facsimile transmission are:
Office MFPs have their history in mid range photocopiers (both colour and black and white), and the print engine is therefore based around this type of technology." (Exhibit EC – 58).
238 On the important role performed by the print controller, see Tomas Harris, How Laser Printers Work,
Exhibit US – 86. 239 Exhibit EC – 59. 240 See e.g. the range of black and white copiers offered by Xerox in Exhibit EC – 60. 241 See e.g. the prices quoted for a sample of models in the US website of Xerox (Exhibit EC – 61). See
also a comparison of the retail prices for a sample of Ricoh and Minolta models quoted in the website of one of the main UK retailers (Exhibit EC – 62).
242 Print engines are generally of two types: laser print engines and ink jet print engines. MFMs with an
ink jet print engine fall within CN 8443 31 99 and receive duty free treatment.
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a print engine;
a scanning device; and
a modem.
336. It must be emphasised that a print engine is not the same as a printer. The print
engine is but one of the components of a printer, albeit a necessary one, the other
essential component being the print controller. The print engine, however, is also a
necessary component of all stand-alone digital photocopiers and of all stand-alone
facsimile machines. In an MFM, the same print engine is used for performing
various functions, including copying, printing data received from an ADP machine
and printing incoming facsimile messages.
337. Although the copying function (i.e. the instant reproduction of an original
document) involves the use of a print engine, it is distinct from the function of
printing data received from an ADP machine. That copying is a distinct function
from printing is evidenced by the fact that MFMs with a copying function co-exist
side-by-side in the market with stand-alone digital copiers, which are not
connectable to an ADP machine and do not have a printing function243, and with
single-function printers, which do not have a copying function.244
338. The difference between the copying and printing functions of an MFM is
unambiguously recognised by all the manufacturers of MFMs, as attested by the
brochures and other commercial materials supplied by the complainants, where the
copying function is described and promoted as a separate and distinct function
from printing. Furthermore, the difference between printing and copying is
immediately apparent to all the users of MFMs.
243 See e.g. the brochure of Xerox 's 'CopyCentre C20', a stand-alone copier which is also available in a
copier/printer version, the 'WorkCentre M20/M20i (Exhibit EC – 63). 244 See e.g. the brochure of Xerox's 'Phaser 3250' (Exhibit EC – 64).
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2. The measures at issue
339. In the Panel request the complainants have cited four different measures as being
the "measures at issue":
Council Regulation (EEC) No. 2658/87 of 23 July 1987 on the tariff and statistical nomenclature and on the Common Customs Tariff, including all annexes thereto, as amended;
Commission Regulation (EC) No. 517/1999;245
Commission Regulation (EC) No. 400/2006;246 and
The statement of the Customs Code Committee, Tariff and Statistical Nomenclature Section, contained in the Report of Conclusions of its 360th Meeting.247
340. Commission regulations 517/1999 and 400/2006 provided for the classification of
certain MFMs under the code CN 9009 12 00. Likewise, the CCCE statement
records the CCCE's view that certain MFMs should be classified under the code
CN 9009 12 00.
341. The code CN 9009 12 00 was removed from the CCT with effect from 1 January
2007, as part of the implementation by the European Communities of the HS 2007.
As a result, the above mentioned classification regulations and the CCCE
statement became effectively inapplicable from that date and remained so as of the
date of establishment of this Panel.
342. In view of the above, the European Communities considers that the only measure
at issue in this dispute is the current version of the CCT. The other measures cited
245 Commission Regulation (EC) No. 517/1999 of 9 March 1999, concerning the classification of certain
goods in the Combined Nomenclature, OJ L 61, 10.03.1999, pp. 23-24. See e.g. Exhibit TPKM-35. 246 Commission Regulation (EC) No. 400/2006 of 8 March 2006, concerning the classification of certain
goods in the Combined Nomenclature, OJ L 70, 9.03.2006, pp. 9-11. See e.g. Exhibit TPKM-36. 247 Customs Code Committee – Tariff and Statistical Nomenclature Section, Report of the Conclusions of
the 360th meeting of the Committee, TAXUD/555/2005-EN, Annex VII (March 2005). See e.g. Exhibit TPKM-32.
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by the complainants may still be relevant only as evidence of the European
Communities' past classification practice.
343. Reflecting the HS 2007, the current CCT includes a new subheading specifically
for MFMs (CN 8443 31). The structure of this subheading and the applicable duty
rates are as follows:
- Other printers, copying machines and facsimile machines, whether or not combined: Duty rate 8443.31 -- Machines which perform two or more of the functions of printing, copying or facsimile
transmission, capable of connecting to an automatic data-processing machine or to a network
8443.31.10 --- Machines performing the functions of copying and facsimile transmission, whether or not with a printing function, with a copying speed not exceeding 12 monochrome pages per minute
0
--- Other: 8443.31.91 ---- Machine performing a copying function by scanning the original and printing the copies by
means of an electrostatic print engine 6
8443.31.99 ---- Other 0
344. As shown in the above table, the European Communities only imposes customs
duties on imports of the MFMs falling within CN 8443 31 91. The European
Communities understands, therefore, that the complainants' claim is limited to the
tariff treatment given to imports of MFMs falling within that code.
345. CN 8443 31 91 does not cover the following types of MFMs, all of which can be
imported duty free:
MFMs without a copying function (covered by CN 8443 31 99);
MFMs performing a copying function without an electrostatic print engine (e.g. those with an ink jet engine) (covered by CN 8443 31 99); and
MFMs performing the functions of copying and facsimile transmission, whether or not with a printing function, with a copying speed not exceeding 12 monochrome pages per minute (covered by CN 8443 31 10).
346. CN 8443 31 91 does not cover single-function facsimile transmission machines
either. These machines fall within CN 8443 32 30 and can be imported duty free.
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3. The relevant tariff concessions
347. The complainants allege that the tariff treatment accorded to imports of MFMs
falling within CN 8443 31 91 is less favourable than that provided in the Schedule
of concessions of the European Communities for the various CN codes of HS
subheading 8471 60 and for the code CN 8517 21 00.
348. The tariff concessions cited by the complainants provide the following:
HS96 Description Base rate Bound
rate Imple mentation
Present Concession established
INR Concession First incur- porated in a GATT Schedule
Earlier INRs
ODCs
8471 Automatic data-processing machines and units thereof; magnetic or optical readers, machines for transcribing data onto data media in coded form and machines for processing such data, not elsewhere specified or included
8471 60 - Input or output units, whether or not containing storage units in the same housing
8471 60 10 -- For use in civil aircraft 0.0 0.0 1997 WT/Let 0.0 -- Other 8471 60 40 --- Printers 2 0.0 1999 WT/Let 0.0 8471 60 50 --- Keyboards 2 0.0 1999 WT/Let 0.0 8471 60 90 --- Other 2 0.0 1999 WT/Let 0.0 8517 Electrical apparatus for line
telephony or line telegraphy, including line telephone sets with cordless handsets and telecommunication apparatus for carrier- current line systems or for digital line systems; videophones
(…) - Facsimile machines and
teleprinters
8517 21 00 -- Facsimile machines 7.5 0.0 2000 WT/Let 0.0
349. The European Communities made the above concessions pursuant to Attachment
A of the ITA.
350. The above concessions refer to the CN codes in force when they were made and
reproduce textually the wording of those codes, which in turn reproduce the
wording of the HS96 subheadings 8471 60 and 8517 21.
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351. As will be explained below, the European Communities considers that the ADP
MFMs at issue in this section do not, as a general rule, fall within the above
concessions, but instead within the concession for the code CN 9009 12 00, which
was not covered by the ITA.
352. The Schedule of the European Communities provides the following concessions
for the heading 9009:
Tariff Item
number Description of products Base rate Bound rate
(%) Implemen- tation
Present Concession established
INR Concession First Incorporated in a GATT Schedule
Earlier INRs
ODCs
9009 Photocopying apparatus
incorporating an optical system or of the contact type and thermo-copying apparatus:
- Electrostatic photocopying apparatus:
9009.11.00 -- Operating by reproducing the original image directly onto the copy (direct process)
6.5 0 2000 WT/Let 0.0
9009.12.00 -- Operating by reproducing the original image via an intermediate onto the copy (indirect process)
6
- Other photocopying apparatus 9009.21.00 -- Incorporating an optical
system 6.5 0 2000 WT/Let 0.0
9009.90 - Parts and accessories 9009.90.10 -- Of electrostatic photocopying
apparatus or other photocopying apparatus incorporating an optical system
6.5 0 2000 WT/Let 0.0
9009.90.90 -- Other 0 2000
353. Like the concessions invoked by the complainants, the above concessions refer to
the CN codes in force when they were made and reproduce the wording of those
codes, which in turn reproduce literally the wording of the HS96.
4. The issue
354. It is beyond dispute that the tariff treatment given by the European Communities
to imports of MFMs falling within CN 8443 31 91 (a 6 % duty rate) is in excess of
that provided in the EC Schedule of concessions for the various CN codes of
subheading 8741 60 00 and for code CN 8517 21 00 (duty free).
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355. It is also uncontroversial that the tariff treatment given to imports of the MFMs
falling with CN 8443 31 91 (a 6 % duty rate) is fully consistent with the bound
rate provided in the EC Schedule for the code CN 9009 12 00 (also a 6 % rate).
356. Therefore, in essence, the issue to be decided by the Panel is whether the MFMs
currently covered by the code CN 8443 31 91 fall within the concessions provided
in the EC Schedule for the various CN codes of subheading 8741 60 00 and for the
code CN 8517 21 00 or, instead, within the concession for the code CN 9009 12
00.
5. The Kip judgement
357. On 11 December 2008 the ECJ issued its judgement in the Joined Cases C-362/07
(Kip Europa SA and others) and C-363/07 (Hewlett Packard International SARL),
following two references for a preliminary ruling under Article 234 of the EC
Treaty made by a French court concerning the customs classification of certain
MFMs.248
358. The essential question raised in both cases was whether MFMs capable of
performing one or more data processing functions, such as printing or scanning, in
addition to a copying function, had to be classified for customs purposes as
"output units for automatic data processing machines" under subheading 8471 60
or as "photocopying apparatus" under code CN 9009 12 00.
359. The ECJ rejected the Commission's position that the products at issue could never
be classified under subheading 8471 60 pursuant to Note 5 (E) to Chapter 84. The
ECJ, nevertheless, found that, pursuant to Note 5(B)(a) to Chapter 84, the
products at issue could not be classified directly under subheading 8471 60 unless
it was shown that the copying function was "secondary" in relation to the functions
involving the use of an ADP. If the copying function was "equivalent", the
products had to be classified in accordance with GIR 3.
248 ECJ, Joined Cases C-362/07, Kip Europe and Others, and Hewlett Packard International, not
reported yet, para. 46. (Exhibit TPKM – 63).
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360. The position expressed by the European Communities in section VI.B is based on
the clarifications provided by the ECJ in the Kip case.
B. ADP MFMs
361. The complainants contend that the MFMs at issue in this section are covered by
the concession for subheading 8471 60 and should, therefore, be accorded duty
free treatment.
362. As will be shown below, this claim is unfounded for the following reasons:
363. First, the complainants' claim is premised on the mistaken view that 'digital
copying' is not a form of 'photocopying', with the consequence that MFMs with a
digital copying function can never be covered by the concession for subheading
9009 12.
364. Second, the complainants disregard that, pursuant to Note 5(B)(a) to Chapter 84 of
the HS96, the MFMs at issue fall outside the concession for the subheading 8471
60, unless it can be shown that their copying function is secondary in relation to
their functions involving the use of an ADP system.
365. Last, where the copying function of the MFMs at issue is equivalent to the ADP
functions, they fall within the scope of the concession for the subheading 9009 12,
in accordance with GIR 3 of the HS96.
1. Digital copying is a form of photocopying
366. Digital copying is a technological development of photocopying. While there are
obvious technological differences between traditional, analogue, photocopiers and
digital photocopiers, the terms of the concession for the subheading 9009 12
encompass both types of photocopying.
367. As shown below, this interpretation follows from the ordinary meaning of the
terms of the concession for subheading 9009 12 (i.e. "photocopying apparatus
incorporating an optical system" and "operating by reproducing the original image
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via an intermediate onto the copy (indirect process)"), read in the context provided
by other relevant positions of the EC schedule and the HS96. Moreover, this
interpretation is supported by the classification practice of the European
Communities and other Members, including the United States, as well as by the
negotiating history of the ITA and of the ITA II
(a) Ordinary meaning
♦ Photocopying apparatus
368. The term 'photo', from the Greek φώς (phos), means 'light'. The use of light is
indeed the defining characteristic of all photocopiers. This feature distinguishes
photocopiers from other types of copying machines, such as the thermo-copying
apparatus of HS96 9009 30, which use heat, or the duplicating machines of HS96
8472 10, which rely on purely mechanical means.
369. The above is confirmed by the various dictionary definitions cited by the
complainants249 and reproduced below for ease of reference:
The New Shorter Oxford Dictionary defines “photocopier” as: “1. An electrical machine for producing immediate, often full-size paper copies of text or graphic matter by a process usu. involving the electrical or chemical action of light”.250
The Merriam-Webster online dictionary defines “photocopy” as: “noun. A copy of usually printed material made with a process in which an image is formed by the action of light usually on an electrically charged surface”.251
The Sci-Tech Dictionary defines “photocopying process” as: “any of the means by which a copy is created on a sensitized surface (generally paper, film, or metal plate) by the action of radiant energy”.252
249 First written submission of Japan, para. 105. First written submission of TPKM, paras. 570-574. 250 The New Shorter Oxford English Dictionary, 1993 (4th edition), p. 2193. 251 http://www.merriam-webster.com/dictionary. 252 The McGraw-Hill Dictionary of Scientific and Technical Terms, 1994, 5th edition, p. 1494.
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370. As summarised by TPKM, "in the light of the above-mentioned definitions, the
photocopying process refers to a process whereby a copy is being produced by the
action of light on a photo-sensitive surface".253 Contrary to TPMK's assertions,
however, this definition of "photocopying" is equally apt to describe both analogue
and digital photocopying.
371. Analogue photocopiers use a source of light to project an image of the original
document onto the photo-sensitive surface of an electrostatic drum. In a digital
photocopier, a source of light projects the image of the original document onto the
photo-sensitive surface of a scanning device254, which converts it into electrical
signals. Those signals are then used to guide another source of light (a laser beam),
which recreates the image onto another photo-sensitive surface (the electrostatic
drum). From that point onwards, both types of photocopiers operate in the same
way.255
372. Thus, the essential difference between analogue photocopying and digital
photocopying is that the latter process involves an additional intermediate step,
whereby the image is digitalised before being reconstituted on an electrostatic
drum. But this difference does not bring digital photocopiers outside the scope of
HS96 9009 12. First, as explained, digital copying is based on the action of light,
which is the essential feature of all photocopying processes. Second, as discussed
below, that tariff position also covers expressly the machines that use an "indirect
process". Digital photocopying may be described as being more 'indirect' than
analogue photocopying, but it is still an "indirect process".
253 First written submission of TPKM, para. 574. 254 The type of sensor most commonly used in digital photocopiers is a "Charged-coupled device"
(CCD). For a description of how a CCD, including those contained in a digital photocopier, operates, see Jeff Tyson, How Scanners Work (Exhibit EC - 65).
255 For a graphic description of the way in which each type of photocopiers operates see the diagrams in
pp. 19/2 and 19/3 of the "Explanatory Note on the products proposed by Japan", dated 20 April 1998, submitted by Japan to the CITA (Exhibit EC – 66).
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♦ Electrostatic
373. Some MFMs do not use an electrostatic engine for making copies, but instead an
ink jet printer. Nevertheless, the European Communities understands that the
complainants' claim is concerned exclusively with the MFMs falling within CN
8443 31 91. By its own terms, this position covers only MFMs with an
electrostatic engine.256
♦ Indirect process
374. The heading HS96 9009 draws a distinction between the photocopiers using a
"direct process" and those using an "indirect process". The former term refers to
those machines which operate "by reproducing the original image directly onto the
copy".257 In turn, the second term alludes to those machines which reproduce the
image "via an intermediate".258 That 'intermediate' may consist of an electrostatic
drum alone, as in the case of analogue photocopiers, or of various devices
operating together (e.g. a scanning device, a laser beam and an electrostatic drum),
as in the case of the digital photocopiers using a laser printer.
♦ The commercial and common usage of the term "photocopying"
375. In addition to the technical meaning of 'photocopying', it is relevant to consider
also the usage of that term made in the trade, as well as by the general public. As
shown by the sample of materials included in Exhibits EC-67 and EC-68, the
terms 'copier' and 'photocopier' are used often in commercial literature and in the
general media to designate indistinctly both analogue and digital photocopiers.
Furthermore, those materials also show that, in practice, the term 'digital' is used
frequently to qualify the term 'photocopier'.
256 As mentioned above, MFMs with an ink jet print engine fall within CN 8443 31 99 and receive duty
free treatment. 257 See the HS[96] subheading 9009 11. 258 See the HS[96] subheading 9009 12.
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(b) Context provided by other positions of the EC Schedule and of the HS96
376. The complainants have argued that digital photocopiers do not "belong" into
Chapter 90 of the HS96 because they do not use "optical technology".259 But, as
explained above, in a digital photocopier the image is projected onto the photo-
sensitive surface of a scanning device. This is done by using an optical system
consisting of lamps, lenses and mirrors.260
377. Furthermore, HS 9009 also includes photocopiers without an optical system,
namely the photocopiers "of the contact type" mentioned in HS96 9009 22. Thus,
the presence of an optical system is not dispositive for the characterization of a
machine as a photocopier, let alone for its classification within Chapter 90 of the
HS96. It becomes relevant only in deciding which, among the different sub-
headings of HS96 9009, is the most pertinent.
378. As explained above, MFMs with a digital copying function co-exist in the market
with stand-alone digital photocopiers. Even on the complainants' overbroad
interpretation of HS96 8471, stand-alone digital photocopiers could not be
classified under that heading, because they are not connectable to an ADP
machine. At the same time, the complainants' unduly narrow interpretation of the
term 'photocopying' excludes these machines from HS96 9009. As a consequence,
on the complainants' interpretation, stand-alone digital photocopiers would have to
be classified under subheading HS96 8472 90 ("other"), a residual subheading
within a residual heading covering
Other office machines (for example, hectograph or stencil duplicating machines, addressing machines, automatic banknote dispensers, in-sorting machines, coin-counting or wrapping machines, pencil sharpening machines, perforating machines or stapling machines).261
259 First written submission of Japan, paras. 125-129; first written submission of the United States, para.
97; first written submission of TPKM, para. 598. 260 See e.g. Jeff Tyson, How Scanners Work (Exhibit EC – 65). Furthermore, the laser print engine
includes another optical system. See Tomas Harris, How Laser Printers Work, Exhibit US – 86. 261 The European Communities understands that, indeed, between 2002 and the introduction of the HS
2007, it was the practice of the US customs authorities to classify non-ADP MFMs with a copying function under the heading 8472, unless the fax function was deemed the "principal" one for the
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379. Clearly, however, a digital photocopier has much more in common with an
analogue photocopier, in terms of both technology and uses, than with any of the
machines covered by HS96 8472.
380. Furthermore, given the central role played by copying machines in most offices, as
well as the fact that digital copying machines were already well-known by 1996, it
seems that, had the drafters of the HS96 intended to cover them with subheading
8472 90, rather than with subheading 9009 12, they would not have failed to
mention them in the enumeration of items of subheading 8472 90, just like they
did with other much less common office machines, such as "hectograph or stencil
duplicating machines".
(c) Explanatory Note to HS96 9009
381. Unlike chapter and heading notes and GIR, Explanatory Notes are not part of the
HS and are merely advisory in nature. The probative value of the Explanatory
Note to the HS96 heading 9009 cited by the complainants262 is further diminished
by the fact that it was drafted well before digital copiers came into existence.263
382. In any event, the Explanatory Note to the HS96 heading 9009 lends support to the
interpretation of that heading made by the European Communities, rather than to
the complainants'. The opening paragraph of Section A of the note states the
following with respect to "photocopying apparatus incorporating an optical
system":
purposes of Note 3 to Section XVI of the HS96. See e.g. the headquarter rulings HQ 963680, HQ 965478, HQ 965527, HQ 965636, HQ 965679, HQ 965680, HQ 965681, HQ 965682, HQ 965697, all of 30 August 2002 (Exhibit EC – 69).
262 First written submission of Japan, paras. 162-164; first written submission of TPKM, paras. 616-620. 263 The Explanatory Note to the HS96 heading 9009 reproduces the wording of the Explanatory Note to
the heading 9009 of the 1988 version of the Harmonised System, which in turn was based upon the Explanatory Notes to the heading 9010 of the Brussels Nomenclature, going back as far as 1966 (See Exhibit EC – 71).
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These apparatus incorporate an optical system (comprising mainly a light source, a condenser, lenses, mirrors, prism or an array of optical fibres) which projects the optical image of an original document on to a light-sensitive surface and components for the developing and printing of the image
383. Digital photocopiers meet each and every element of the above description. First,
as already explained, in a digital copier the optical image of a document is
projected on to a "light-sensitive surface": the CCD array. Second, as also
explained, this is done by means of an "optical system". Last, it is beyond dispute
that digital copiers include "components for the developing and printing of the
image".
384. The Explanatory Note goes on to describe in further detail some of the specific
types of machines that are "included" in the "group" of photocopying apparatus
with an optical system. But this is done only by way of illustration. The
enumeration does not purport to be exhaustive and does not exclude the possibility
that there may be other types of photocopying apparatus belonging to the same
"group". From the fact that the Explanatory Note does not refer expressly to digital
photocopiers it cannot be inferred that such machines are not photocopying
apparatus with an optical system. If the Explanatory Note does not mention digital
photocopiers, it is for the simple reason that those photocopiers did not exist at the
time when the Explanatory Note was drafted.
(d) Practice of the European Communities and other Members with respect to the classification of digital photocopiers
i) The European Communities
385. The EC authorities have consistently taken the view that digital copying is a form
of photocopying within the meaning of HS96 9009.
386. As early as 23 May 1995, the Commission issued Regulation 1165/95264,
providing for the classification under CN 9009 12 00 of an MFM with a digital
264 Commission Regulation (EC) No 1165/95, of 23 May 1995, concerning the classification of certain
goods in the combined nomenclature, OJ L 117/15 of 24.5.95 (Exhibit EC – 70.)
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copying function. The complainants, however, have deliberately ignored this
classification regulation in their submissions, no doubt because it contradicts their
unsupported assertions that the European Communities started to "reclassify"
MFMs upon the conclusion of the ITA.
387. In its judgement of 9 October 1997 in the Rank Xerox case, the ECJ upheld in
unequivocal terms the Commission's position that digital copying is a form of
photocopying.265 The relevant passages of the judgement read as follows:
19. In that connection, Rank Xerox contends that the Xerox 3010 and Xerox 3010 Editor cannot be regarded as optical reproduction systems since, by contrast with traditional photocopying apparatuses, they convert the image into digital data.
20. That argument cannot be upheld.
21. As the Commission rightly points out, heading 9009 includes, in addition to photocopiers incorporating an optical system and of the direct reproduction type, those which incorporate an intermediate for reproduction by the indirect process. In this case, reproduction by the indirect process is effected by converting the image into digital data.
388. On 9 March 1999, the Commission adopted Regulation 517/99266, which classified
under CN 9009 12 00 an ADP MFM with a digital copying function. Commission
Regulation 400/2006, of 8 March 2006, again classified an ADP MFM with a
digital copying function under CN 9009 12 00267.
389. As explained above, in its judgement of 11 December 2008 in the Kip case268, the
ECJ ruled that the ADP MFMs at issue in this section must be classified under
heading 8471 if the digital copying function is secondary in relation to those
functions which involve the use of an ADP system. Nevertheless, this judgement
leaves unaffected the ECJ's earlier finding in Rank Xerox that digital copying is a
form of photocopying. Indeed, in Kip the ECJ also found that if the copying
265 Judgement of the ECJ of 9 October 1997,C-67/95, Rank Xerox, ECR I-5401 (Exhibit TPKM - 63). 266 See e.g. Exhibit TPKM - 35. 267 See e.g. Exhibit TPKM - 36. 268 See e.g. Exhibit TPKM - 63.
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function is of equivalent importance, the MFMs at issue must be classified in
accordance with GIR 3(b). According to the ECJ, if that rule cannot be applied, the
MFMs at issue must be classified under heading 9009 in accordance with GIR
3(c). The classification under heading 9009 would not be possible under any
circumstances if digital copying were not a form of photocopying.
ii) The United States
390. In contrast with their EC counterparts, the US customs authorities have changed
on several occasions their views with regard to the proper classification of digital
photocopiers and of MFMs with a digital copying function.
391. There is evidence that, until as recently as 2002, the US customs authorities
considered that the ADP MFMs at issue in this section were prima facie
classifiable under the headings 9009, as photocopiers; 8517, as fax machines; and
8471, as printers.
392. Further, until at least 1994, the US customs authorities were of the view that the
MFMs at issue had to be classified as photocopiers under HS96 9009 12, in
accordance with GIR 3(c).269
393. In a headquarter ruling of 17 January 1996, the US customs authorities reversed
this position and held that the MFMs at issue had to be classified as printers under
subheading 8471 60 pursuant to GIR 3(b), because the printing components
conferred their "essential character" to the product.270
269 See rulings NY 892321, of 8 December 1993; and NY 897540, of 9 May 1994 (Exhibit EC – 72). 270 See ruling HQ 958348, of 17 January 1996 (Exhibit EC – 73). Following this ruling, many other
rulings classified MFMs with a digital copying function under HTS 8471.60 pursuant to GIR 3(b). The application of GIR 3(b) presupposes necessarily that the US customs remained of the view that the MFMs at issue were prima facie classifiable under HTS 9009.12. See e.g. the rulings NY A88887, of 31 October 1996; NY B87181, of 2 July 1997; NY B89972, of 2 October 1997; NY C81666, of 19 November 1997; NY C83939, of 5 February 1998; NY D80267, of 20 July 1998; NY D80821, of 7 August 1998; NY D85157, of 24 November 1998; NY D85921, of 18 December 1998; NY D87961, of 25 February 1999; NY D88682; of 3 March 1999; NY D88835, of 10 March 1999; NY E80009, of 1 April 1999; NY E80011, of 5 April 1999; NY F80927, of 27 December 1999 (Exhibit EC – 74).
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394. Nonetheless, until 2002 the US authorities remained of the view that digital
copying was a form of photocopying and continued to classify stand-alone digital
photocopiers under HS96 9009 12. By way of example, in a ruling issued on 23
July 1997271, the US customs authorities classified under heading 9009 certain
components for a digital copier. The US authorities justified this finding as
follows:272
The A2-97 digital copier operates in a slightly different manner from traditional "light lens" copiers. In the A2-97 copier, the original document to be copied is directed onto the platen, and exposed to light. The reflected image of the original is then transferred by mirrors through the lens and onto the CCD array. The electronic control module then manages the copying process from that point, by signaling the ROS within the imager, along with other aspects of the copying process. The image is then subjected to an electrostatic field, transferred to plain paper and fused in the customary manner. The sole distinction between the digital copier and the conventional "light lens" copier is that the image of the original document is not reflected onto the photoreceptor directly from a mirror, but is instead digitized, using the charge-couple devices and the ROS units, before being transmitted (by a laser), onto the photoreceptor. Noting the Explanatory Notes to the HTS and the definition of "optical" systems, the model A2-97 digital copier would thus appear to incorporate an optical system.
395. In a series of headquarter rulings of 30 August 2002, the US customs authorities
modified once again their interpretation and came to the conclusion that digital
copying was not a form of photocopying and that MFMs with a digital copying
function were excluded from the scope of the HS96 heading 9009.273
396. Thus, in sum, the United States did not adopt the interpretation of HS96 9009 12
on which it bases its claim in this dispute until nearly six years after the conclusion
of the ITA. How ironical then that the United States accuses the European
Communities of "reclassifying" the products at issue.
271 Ruling NY B87634, of 23 July 1997 (Exhibit EC – 75). 272 Underlining supplied. 273 Ruling HQ 963680, of 30 August 2002; HQ 965697, of 30 August 2002; HQ 965527, of 30 August
2002 (Exhibit EC – 69).
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iii) Other countries – Discussions within the WCO
397. As recalled in detail by the complainants274, the issue of the proper classification
under the HS96 of both digital photocopiers and MFMs with a digital copying
function was the subject of lengthy and inconclusive debates within the WCO
between 1998 and 2003.
398. Like the European Communities, many other WCO members were firmly of the
view that these products had to be classified under HS96 9009 12. In the end, the
WCO membership was equally divided on this issue, which made it impossible to
reach any decision. In view of this unprecedented situation, it was agreed to
address the issue in the context of the then ongoing revision of the HS.
399. The discussions within the WCO evidence that the interpretation of the HS96 put
forward by the complainants in this dispute was not shared by many other WTO
Members, either between 1998 and 2003 or, it may be assumed, at the time when
the tariff concessions at issue were made. Having failed to convince a majority of
WCO members after six years of debates, the complainants are now seeking to
impose their views by resorting to dispute settlement in the WTO.275
(e) Negotiating history of the ITA
400. Ironically, by bringing this dispute the complainants are seeking to achieve a result
which had been proposed with insistence by the European Communities
throughout the ITA negotiations and adamantly rejected by the United States.
401. As explained above, the initial stage of the ITA negotiations was conducted on the
basis of a series of papers prepared by the United States laying down the "product
274 See e.g. first written submission of TPKM, paras. 522-527. 275 The complainants have referred in this context to certain "comments" made by the WCO Secretariat
in the framework of a meeting of the WCO HS Committee. (See e.g., first written submission of TPKM, para. 524). The European Communities recalls that, under the HS Convention, the WCO Secretariat has no authority to make interpretations of the HS. The "comments" in question have no legal status under the HS Convention and no interpretative value for this dispute. Furthermore, the "comments" advanced by the WCO Secretariat are deeply flawed and were fiercely criticised by many WCO members (including, for example India and Brazil) on grounds relating to technical issues which are beyond the expertise of the WCO Secretariat.
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landscapes" for the agreement, on which the other 'Quad' members provided
comments. The successive US landscape papers did not include any products
falling within the HS96 heading 9009.
402. The European Communities, supported by Japan, requested that the ITA cover the
heading 9009 in its entirety, including, therefore, photocopying apparatus of the
subheading 9009 12. Furthermore, in making this request the European
Communities signalled clearly that it considered that this position covered digital
copiers.276
403. The EC requests, nevertheless, met strong opposition from the United States.277
Eventually, the United States agreed to the inclusion in the ITA of subheadings
9009 11, 9009 21, and 9009 90, but not of subheadings 9009 12, 9009 22 and 9009
30. Had the United States acceded to the EC requests to include subheading 9009
12, both digital copiers and MFMs with a digital copying function would be
entitled now to receive duty free treatment from all ITA parties.
(f) The ITA II
404. On 30 December 1997, Japan made an official submission to the CITA in which it
proposed to add certain products to the ITA278, including all the products falling
within HS96 9009 12.
405. In an "Explanatory Note on the products proposed by Japan" dated 20 April
1998279, Japan observed that the products covered by subheading HS96 9009 12
276 This is reflected in various negotiating documents circulated among the 'Quad' negotiators, which
described certain products included in heading 9009 as being "digital". See e.g. the document of 10 December 1996 entitled "Proposal with regard to coverage of an Information technology Agreement" at p. 8 (Exhibit EC – 28) and the document of 11 December 1996, entitled "Situation with regard to product coverage of an Information Technology Agreement", at p.8 (Exhibit EC – 76).
277 The US opposition is reflected in the negotiating documents circulated among the Quad negotiators.
See e.g. the document of 25 November 1996 entitled "Technical Working Document with comments by Quad with regard to coverage of an Information Technology Agreement" (Exhibits EC – 26 and 27).
278 WTO document G/IT/SPEC/7, of 12 January 1998 (Exhibit EC – 21). 279 Exhibit EC – 66.
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… can be divided into 2 categories based on the recognizing method of the image. One is digital copying machine which recognizes the original image as digital code. The other is analogue copying machine which transfers the original image into optical image (analogue system).
406. The above indicates that, on the date of the Explanatory Note, Japan was of the
view that digital copiers were photocopiers. It suggests as well that, prior to the
conclusion of the ITA and until as late as April 1998, the Japanese customs
authorities were classifying under HS96 9009 12 all digital copiers as well as,
possibly, all or at least some MFMs with a digital copying function.
(g) The HS 2007
407. The concessions at issue in this dispute were made on the basis of the HS96. For
this reason, subsequent versions of the HS are not relevant for the interpretation of
those concessions, contrary to the submissions made by some of the
complainants.280
408. This is particularly true in the case of the changes to the heading 8443 brought by
the HS 2007. As recalled above, the WCO members were unable, after several
years of discussions, to reach an agreement on the proper classification of digital
copiers and MFMs with digital copying function under the HS96. The creation of
the new subheadings 8443 31, 8443 32 and 8443 39, as well as the related changes
elsewhere in the HS (such as the removal of the heading 9009 or the redrafting of
Note 5 (D) to Chapter 84) were the result of a hard-fought compromise, involving
concessions by both sides. In view of this, it would be inappropriate to rely on the
wording of those subheadings (let alone on the Explanatory Notes to those
subheadings) in order to redraw retrospectively the scope of concessions made at a
280 See first written submission of Japan, paras. 165-171 and first written submission of TPKM, paras.
636-647. The European Communities, nevertheless, notes TPKM's uneasiness about relying on an instrument which it did not use in making its own WTO concessions pursuant to the ITA and to which TPKM is not even a party. The European Communities also notes that, apparently, the Unites States does not agree with the other complainants' reliance on the HS 2007.
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time where no WTO member could have had any inkling of the changes in
question.281
(h) Preliminary conclusion
409. For the reasons set out in this section, the European Communities submits that
digital copying is a form of photocopying and that the ADP MFMs with a digital
copying function at issue in this section are prima facie classifiable within HS96
9009 12.
2. ADP MFMs fall outside the concession for subheading 8471 60, unless it can be shown that their copying function is secondary
410. On the basis of a cursory examination of a few dictionary definitions, the
complainants reach the conclusion that the concession for the subheading 8471 60
covers each and every conceivable kind of MFM which may be connected to a
computer, irrespective of the nature and relative importance of its functions.
281 At any rate, the European Communities notes that, contrary to Japan's and TPKM's contention, from
the mere fact that the subheadings 8443 31, 8443 32 and 8443 39 distinguish between 'connectable' and 'non-connectable' MFMs it does not follow logically that all connectable MFMs were previously classified under HS96 8471. Indeed, since the purpose of creating new positions under the heading 8443 was precisely to resolve a dispute arising from the lack of clarity of the criteria used in the HS96, it is to be expected that the new positions in the HS 2007 will use different criteria.
The European Communities also observes that, on the other hand, the new wording added to 8443
draws a distinction between "printers" and MFMs including a printing function. This distinction would be superfluous if, as argued by the complainants, all ADP MFMs were "printers" (see e.g. first written submission of TPKM, para. 549).
As regards the new wording of Note 5(D) to Chapter 84, the European Communities would point out
that the reference to copying machines and MFMs seeks to dispel any possible remaining doubts with regard to their classification. Since heading 9009 was entirely deleted, it was neither necessary nor possible to insert equivalent language excluding expressly from its scope digital copying machines or MFMs with a copying function.
Finally, the European Communities would draw the Panel's attention to the fact that, crucially, the
description of "photocopier" in the Explanatory Note to heading 8343 requires that the optical image of the original document be projected into the photo-sensitive surface "for each copy". No such requirement is included in the Explanatory Note to HS96 9009, which confirms that it is by no means inherent in the ordinary meaning of 'photocopier'.
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411. As discussed below, this interpretation is incorrect because it fails to take properly
into account Note 5(B) to Chapter 84 of the HS96. Pursuant to that note, the
MFMs at issue cannot be classified under HS96 8471 60, unless it can be shown,
on a case-by-case basis, that the copying function of each particular kind of MFM
is secondary in relation to its ADP functions. This view is supported by other
contextual elements and by the negotiating history of the ITA and is consistent
with the classification practice of the European Communities.
(a) Note 5(B) to Chapter 84
412. Contrary to the suggestions advanced by some of the complainants282, Chapter
Notes to the HS are not subsidiary means of interpretation, to which a panel may
decide to have recourse only if it regards as unclear the "ordinary meaning" of a
concession or in order to "confirm" that meaning. Chapter Notes are an integral
part of the HS and have the same legal status and interpretative value as the
wording of the headings and subheadings of the HS. They are part of the
"context"283 and, as such, must always be taken into account for the purposes of
interpreting the concessions included in a Member's schedule of concessions. All
the more so where, as in the present case, the terms of the concession at issue
reproduce textually the wording of the HS96.
413. The pertinence of Note 5(B) for the interpretation of subheading 8471 60 is
beyond question, because that note addresses specifically that subheading. It
provides the following:
Automatic data processing machines may be in the form of systems consisting of a variable number of separate units. Subject to paragraph (E) below, a unit is to be regarded as being a part of a complete system if it meets all of the following conditions:
(a) It is of a kind solely or principally used in an automatic data processing system;
282 See e.g. first written submission of Japan, paras. 145-146. 283 Appellate Body Report, EC - Chicken Cuts, paras. 199 and 219.
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(b) It is connectable to the central processing unit either directly or through one or more other units; and
(c) It is able to accept or deliver data in a form (codes or signals) which can be used by the system”.
414. It follows from Note 5(B) that a "unit" may not be regarded as being part of an
ADP system and, hence, as covered by HS96 8471 60, unless it meets each of the
three conditions specified therein.
415. It is uncontroversial that all the MFMs at issue in this section meet conditions b)
and c). On the other hand, whether or not they meet also condition a) will depend
on the nature and the relative importance of the functions performed by each
particular kind of MFM.
416. As readily admitted by Japan, the "digital copying function works independently
from an ADP".284 (Indeed, so much so that the digital copying function of an
MFM could continue to be operated even if the MFM were disconnected from the
ADP.)285 Therefore, in so far as an MFM is used for copying, it cannot be
considered to be "used in an automatic data processing system".
417. It follows that, as ruled by the ECJ in the Kip case286, the MFMs at issue in this
section fall outside the scope of heading HS96 8471, unless it can be shown that
their copying function is "secondary" in relation to those functions which involve
the use of the ADP system, such as printing.
418. In order to assess whether the copying function of an MFM is secondary in
relation to the ADP functions it is necessary to conduct a case-by-case
examination of the objective characteristics of each kind of MFM. In its Kip
judgement the ECJ noted that the relevant criteria for this purpose may include the
"print and reproduction speeds, the existence of an automatic page feeder for
284 First written submission of Japan, footnote 76. 285 It must be recalled, once again, that ADP MFMs with a digital copying function co-exist in the market
with stand-alone digital copiers that are not connectable to an ADP machine. The copying function operates in identical manner in both cases.
286 ECJ, Joined Cases C-362/07, Kip Europe and Others, and Hewlett Packard International, not
reported yet, para. 46. (Exhibit TPKM – 63).
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originals to be photocopied or the number of paper feeder trays".287 This
enumeration, however, does not purport to be exhaustive and other objective
characteristics of the MFMs may be relevant as well.
419. On the other hand, the actual use given to the products is not relevant because, as
confirmed by the Appellate Body in EC - Chicken Cuts,
in characterizing a product for the purposes of tariff classification, it is necessary to look exclusively at the 'objective characteristics' of the product in question when presented for classification at the border.288
420. Japan289 and TPMK290 (but not the United States) have argued that Note 5(B)(a) is
not relevant for the classification of the MFMs at issue by virtue of Note 5(D),
which provides that
printers, keyboards, X-Y co-ordinate input devices and disk storage units which satisfy the conditions of paragraphs B(b) and B(c) above, are in all cases to be classified as units of heading No. 84.71.
421. However, it is obvious that MFMs are not mere 'printers', because, in addition to
printing, they also perform other functions, which may be of equivalent or even
higher importance. Therefore, MFMs are not covered by Note 5(D). By positing
that MFMs are 'printers' for the purposes of Note 5(D), Japan and TPKM are
anticipating the outcome of the classification enquiry, of which Note 5(D) is but
one of the analytical steps. Furthermore, the negotiating history of Note 5(D)
confirms that that note was not meant to address multi-functional machines, such
as those at issue, but rather single-function printers which may print indistinctly
data received from an ADP machine and from a different office machine, such as a
word processor.291
287 ECJ, Joined Cases C-362/07, Kip Europe and Others, and Hewlett Packard International, not
reported yet, para. 46. (Exhibit TPKM – 63). 288 Appellate Body Report, EC - Chicken Cuts, para. 246. 289 First written submission of Japan, paras. 151-152. 290 First written submission of TPKM, para. 609. 291 See WCO, Annex I to Doc. 36.250 E (RSC/3/Sept. 90), at points 27-29 and 66-67 (Exhibit EC – 77).
See also the Explanatory Note to heading 84.69 of the HS96 (Exhibit EC – 78).
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422. TPKM argues subsidiarily that all MFMs comply with Note 5(B)(a).292 But it does
so in a rather perfunctory manner, by citing the simplistic ground that MFMs
perform two ADP functions (printing and scanning) against just one non-ADP
function (copying). TPKM's maths overlook that the scanning function may be
purely instrumental to the copying function and not use the ADP system. Also,
TPKM does not take into account that the MFMs at issue may perform as well a
facsimile transmission function, which does not necessarily use the ADP system.
Even more crucially, however, TPKM's quantitative approach fails to take into
account the level of performance of each function.
(b) Other contextual elements
423. TPKM and Japan (but not the United States) have advanced a series of contrived
contextual arguments, purportedly derived from the EC Schedule of concessions
and the HS, which the European Communities considers to be manifestly
misguided.
424. First, Japan and TPKM imply that the concession for subheading 8471 60 must be
broadly interpreted because heading 8471 includes a residual ("others")
subheading and covers a wider range of products than the heading 9009.293
However, it is obvious that the presence of an "others" subheading within the
heading 8471 cannot have the effect of expanding the coverage of that heading
beyond its own terms. Moreover, from the fact that heading 8471 covers a wider
range of products than heading 9009, it does not follow that the terms of each
subheading of heading 8471, and in particular those of subheading 8471 60, should
be interpreted in a broader fashion than the terms of subheading 9009 12. Both
subheadings must be construed according to the same interpretative rules. It may
be added that, if anything, the fact that subheading 9009 12 was more "specific",
292 First written submission of TPKM, para. 605. 293 First written submission of TPKM, paras. 588-594; first written submission of Japan, paras.131-143.
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as claimed by the complainants, would plead in favour of giving preference to the
classification of the products at issue under that position.294
425. In a similar vein, TPKM also argues that Chapter 90 of the HS is more "specific"
than chapters 84 and 85 and should therefore be "restrictively interpreted".295 The
European Communities is not aware of any provision or rule of interpretation of
the HS that would support TPKM's approach. Quite to the contrary, Note to 1 (m)
to Section XVI of the HS provides expressly that Section XVI "does not cover
articles of Chapter 90". This note suggests, at a minimum, that the drafters of the
HS were aware of possible overlaps between Chapters 84 and 85, on the one hand,
and Chapter 90, on the other hand, and intended to resolve them by giving
preference to the latter and not to the former.
426. Last, TPKM contends that the concession for subheading 8471 60 should be
broadly interpreted because Attachment A to the ITA covers the entire heading
8471.296 As a preliminary remark, it should be recalled that if the ITA does not
cover also the entire heading 9009 it is only because one of the complainants'
strong opposition.297 Furthermore, while the ITA does not cover subheading 9009
12, the EC Schedule does include a concession also for that subheading. The
interpretation of the product scope of a concession cannot be made dependant
upon the level of the rate bound by each Member at a given moment in time. Many
WTO members which are not parties to the ITA have made tariff concessions that
refer to the HS96 subheadings 8471 60 and 9009 12 and reproduce literally their
wording. Yet, on TPKM's theory, the product scope of those concessions would
have to be interpreted differently (i.e. more narrowly) than that of the concessions
made by the European Communities for the same subheadings, despite the fact
that they have been defined in identical terms. Moreover, the scope of those
concessions would have to be re-interpreted if those Members became parties to
294 GIR 3(a) reflects the classification principle whereby the more specific position prevails over the
more general. 295 First written submission of TPKM, para. 596. 296 First written submission of TPKM, paras. 599-602. 297 See above section VI.B.1(e).
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the ITA or if the level of the bound duty rate was reduced for other reasons. This
result would hardly be compatible with the objective of ensuring the "security and
predictability" of tariff concessions, which is one of the recognised objects and
purposes of the WTO Agreement and the GATT 1994.
(c) Object and purpose
427. The arguments made under this heading by the complainants are very similar to
those submitted by them in connection with their claims relating to the FPDs. The
European Communities, therefore, refers the Panel to its earlier rebuttal of those
arguments.298
(d) The negotiating history of the ITA
428. The products at issue, even if still relatively new in the market, were already well-
known by the time when the ITA was negotiated and concluded. Had the
negotiators of the ITA intended to cover them, one could expect to find some trace
of such intention in the successive "landscape papers" where the United States
sought to describe the potential universe of products to be covered by the
agreement. Yet, none of those papers made any reference to the products at issue.
429. The "Landscape 1", of 12 March 1996299, mentioned "input/output units", as well
as "printers units suitable for computers". But it did not refer to any devices with a
digital copying function or, more generally, to any MFMs.
430. The "Landscape 2", of 28 March 1996300, set out a much more detailed description
of the products to be covered. Yet, again, it made no reference to the MFMs at
issue in this section. This omission is even more significant in view of the fact that
this document included a detailed enumeration of devices included within the item
298 See above section III.C.6. 299 Exhibit EC-2. 300 Exhibit EC-3.
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"printer units for use with a computer".301 An updated version of the "Landscape
2" dated 14 July 2006 did not contain either any reference to the MFMs at issue.302
(e) The classification practice of the European Communities
431. The United States303 and TPKM304 (but not Japan) have alleged that the European
Communities classified the MFMs at issue in this section under subheading 8471
60 prior to the conclusion of the ITA, but immediately thereafter began to
"reclassify" them into subheading 9009 12.
432. This is a serious accusation, made with the apparent purpose of calling into
question the good faith of the European Communities in implementing the ITA.
Yet the United States cites no evidence in support of its assertions. For its part,
TPKM bases its allegations on just three BTIs providing for the classification of
the product concerned under subheading 8471 60. Moreover, two of those BTIs305
were issued in August 1997, i.e. nine months after the ITA Ministerial declaration,
and concern ADP MFMs with an ink jet print engine.306
433. As mentioned above, as early as May 1995 the Commission issued a classification
regulation providing for the classification of an MFM with a digital copying
function under the subheading 9009 12.307 Furthermore, there is evidence in the
301 The enumeration includes (a) laser printers; (b) laser printers capable of printing more than 20 ppm;
(c) light bar electronic printers; (d) Ink jet printers; (e) thermal transfer printers; (f) Ionographic printers; (g) Daisy wheel, dot matrix, other impact printers and other printer technology, old and emerging in the future.
302 Exhibit EC-4. 303 First written submission of the United States, para. 83. 304 First written submission of TPKM, para. 495. 305 BTIs UK 119109 and UK 119108. 306 Photocopying apparatus with an ink jet print engine, and hence MFMs with a copying function using
that type of print engine, do not fall within HS96 9009 12 but instead within HS96 subheading 9009 21, which was covered by the ITA. In the current version of the CCT, ADP MFMs with an ink jet printer fall within CN 8443 31 99 and receive duty free treatment.
307 Commission Regulation (EC) No 1165/95, of 23 May 1995, concerning the classification of certain
goods in the combined nomenclature, OJ L 117/15 of 24.5.95 (Exhibit EC – 70).
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form of other BTIs that imports of ADP MFMs were generally classified into that
position prior to the ITA.308 It cannot be excluded that imports of ADP MFMs may
occasionally have been classified by some local customs offices under a different
heading prior to the conclusion of the ITA. Unlike the complainants, the European
Communities does not pretend that the classification of ADP MFMs is
straightforward. The protracted discussions within the WCO and the ever changing
classification practice of the United States attest to the difficulties involved. In
view of this, the existence of some initial divergences between different local
customs offices would be hardly surprising, despite the early guidance provided by
Regulation 1165/95. Against this background, Commission Regulation 517/99309
did not, contrary to the complainants' assertions, seek to "reclassify" the MFMs at
issue, but rather to confirm the generally followed interpretation and prevent
further divergences.
(f) Preliminary conclusion
434. For the above reasons, the European Communities submits that the MFMs at issue
in this section fall outside the scope of the concession for the subheading 8471 60,
unless it can be shown, on a case-by-case basis, that the copying function is
secondary in relation to the ADP functions.
3. ADP MFMs with an equivalent copying function fall within the scope of the concession for CN 9009 12 pursuant to GIR 3
435. When the copying function of the MFMs at issue in this section is not secondary in
relation to their ADP functions, they are prima facie classifiable under the HS96
headings 8471 and 9009 (and under the heading 8517 as well, if the MFM has also
a fax function). It becomes necessary, therefore, to classify such MFMs in
accordance with GIR 3, which provides that
308 See e.g. the BTIs GB 61762, of 13 July 1994; GB 62735, of 15 August 1994; GB 79327, of 16 May
1996; and NL 199610225680135-0, of 30 October 1996 (Exhibit EC-79). 309 See e.g. Exhibit TPKM - 35.
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3. When, by application of rule 2(b) or for any other reason, goods are prima facie classifiable under two or more headings, classification shall be effected as follows:
(a) the heading which provides the most specific description shall be preferred to headings providing a more general description. However, when two or more headings each refer to part only of the materials or substances contained in a mixed or composite goods or to part only of the items in a set up for retail sale, those headings are to be regarded as equally specific in relation to those goods, even if one of them gives a more complete or precise description of the goods.
(b) Mixtures, composite goods consisting of different materials or made up of different components, and goods put up in sets for retail sale, which cannot be classified by reference to 3(a), shall be classified as if they consisted of the material or component which gives them their essential character, in so far as this criterion is applicable.
(c) when goods cannot be classified by reference to 3(a) or (b), they shall be classified under the heading which occurs last in numerical order among those which equally merit consideration.
436. GIR 3(a) is not applicable in this case pursuant to its second sentence.
437. The application of GIR 3(b) involves a two step analysis. First, it must be
determined which of the components of an MFM confers its "essential character"
to the MFM. Second, it must be established what is the proper classification for
that component.
438. As noted by the complainants, the laser print engine is the largest and most
valuable component of an MFM and is used to operate most of its functions
(printing, copying and receiving faxes). Therefore, in so far as any of the
components of an ADP MFM can be deemed to confer its "essential character" to
that product, it is the print engine.
439. However, it must be stressed, once again, that a print engine is not the same as a
printer. A print engine is a necessary component of all printers. But it is also a
necessary component of all stand-alone digital copiers and of all stand-alone
facsimile machines. If imported separately, a print engine would have to be
classified under HS96 9009 12 or 9009 90 if it were intended for use with a
photocopier; under HS96 8471 60 or 8473 30, if it were for use with a printer; or
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under 8517 21 or 8517 90, if it were for use with a fax machine.310 If the print
engine were intended for use with an MFM, its classification would give rise to the
same difficulties as the classification of the MFM itself.
440. As it is not possible to determine the proper classification of a print engine
intended for use in a MFM, it follows that GIR 3(b) cannot be applied for
classifying the MFMs at issue in this section.
441. Since GIR 3(b) cannot be applied, it is necessary to resort to GIR 3(c). The
heading for photocopiers (9009) occurs in the HS96 after the headings for printers
(8471) and fax machines (8517). Therefore, in accordance with GIR 3(c), the
MFMs at issue must be classified under HS96 9009 and, more specifically, within
the subheading 9009 12.
4. Conclusion
442. The MFMs at issue in this section are covered by the concession for the
subheading 8471 60 where it is determined, on the basis of a case-by-case
examination of the objective characteristics of each kind of machine, that the
copying function is secondary to the ADP functions.
443. On the other hand, where the copying function is at least equivalent to the ADP
functions, the MFMs at issue in this section are covered by the concession for the
subheading 9009 12 and, consequently, are not entitled to duty free treatment.
444. The current version of the CCT already provides duty free treatment for certain
ADP MFMs in which the copying function may be deemed secondary, namely
those with a fax function and copying speed of less than 12 monochrome pages per
310 If the print engine can be deemed to have already the "essential character" of the photocopier, printer
or fax machine into which it is to be assembled, it would have to be classified under HS 9009 12, 8471 60 or 8517 21, respectively, pursuant to GIR 2(a), which provides in relevant part that:
Any reference in a heading to an article shall be taken to include a reference to that article incomplete or unfinished, provided that, as presented, the incomplete or unfinished article has the essential character of the complete or finished article. […]
In case GIR 2(a) was deemed inapplicable, a print engine for use in a photocopier, a printer or a fax machine, would have to classified as a part under HS96 9009 90, 8473 30 or 8517 90, respectively.
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minute (Cf. CN 8443 31 10). Nevertheless, in the light of the criteria enounced by
the ECJ in the Kip case, there may be other ADP MFMs in which the copying
function must be deemed secondary and which should, therefore, be accorded duty
free treatment. The Commission is currently examining this matter with the
assistance of the CCC with a view to amending, as appropriate, the CCT in the
light of the Kip judgement.
C. Non-ADP MFMs
445. In essence, the complainants claim that imports of MFMs which are not
connectable to a computer and which have a function of facsimile transmission are
covered by the concession for the subheading 8517 21 and should be accorded
duty free treatment.
446. The complainants' submissions focus exclusively on the fact that the non-ADP
MFMs at issue in this section have a facsimile transmission function and gloss
over the crucial fact that, in addition, they have also a copying function. Indeed, if
the machines at issue did not have a copying function, they would be entitled to
duty free treatment under the CCT.311
447. The complainants assert that the non-ADP MFMs at issue in this section are "often
commercially known as facsimile machines".312 But this is not always so.
Furthermore, as confirmed by the Appellate Body, products must be classified
according to their objective characteristics at the time of importation.313 The
subjective characterization of a product made by its manufacturer or by its
importers is not dispositive of its classification for tariff purposes. All the more so
311 It is recalled that, pursuant to the ITA, the European Communities does provide duty free treatment to
imports of single-function facsimile transmission machines, which are covered by CN 8443 32 20. In addition, the European Communities also grants duty free treatment to imports of non-ADP MFMs without a copying function (covered by CN 8443 31 99); or with a copying speed of less than 12 monochrome pages per minute (covered by CN 8443 31 10); or which do not use an electrostatic print engine for making copies (covered by CN 8443 31 99).
312 See e.g. first written submission of Japan, para. 20. 313 Appellate Body Report, EC - Chicken Cuts, para. 246.
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when, as in the present case, they have an obvious interest in describing their
products as 'facsimile machines' in order to avoid the payment of customs duties.
448. It should be noted, furthermore, that the copying performance of the non-ADP
MFMs at issue in this section may be comparable to that of some stand-alone
digital copiers.314
449. Since the non-ADP MFMs at issue in this section have both a copying function
and a facsimile transmission function, they are prima facie classifiable under the
concessions for both HS96 8517 21 and 9009 12.
450. The complainants have given no reason why the concession for the subheading
8517 21 should always prevail over the concession for the subheading 9009 12.315
Instead, they argue that the non-ADP MFMs at issue do not fall within the
subheading 9009 12 because digital copying is not a form of photocopying. But, as
explained above, this premise is incorrect.316
451. Given that MFMs at issue are prima facie covered by the concessions for both
HS96 8517 21 and 9009 12, and in the absence of any relevant HS96 chapter or
heading notes, it becomes necessary to resort to GIR 3. For the reasons explained
above, GIR 3(b) cannot be applied. Therefore, the MFMs at issue must be
314 See e.g. the specifications of the two Ricoh machines included in Exhibit EC – 80. It will be noted, in
particular, that the copying speed of the single-function digital copier Afficio MP1500 (15 ppm) is slightly lower than that of the MFM 1180l/F111 (16 ppm) and only slightly above that of the MFMs included by Japan in the Exhibit JPN - 13 (14 ppm).
315 The view that MFMs with both a copying and a fax function, and which are not connectable to a
computer, must be classified always under HS96 8517 21 cannot be reconciled with the US own classification practice prior to the introduction of the HS 2007. See e.g. the headquarter rulings HQ 963680, HQ 965478, HQ 965527, HQ 965636, HQ 965679, HQ 965680, HQ 965681, HQ 965682, HQ 965697, all of 30 August 2002 (Exhibit EC – 69), where the US customs authorities took the view that the machines concerned, which had both a copying and fax function, were to be classified under subheading 8471 90 because the fax function was less important. The European Communities understands that, prior to 30 August 2002, when the US customs authorities ruled that digital copying was not a form of photocopying (see above Section VI.B.1(d)ii), the MFMs at issue in this section would have been classified under HS96 9009 12, had the copying function been found to confer the "essential character" to the product.
316 Furthermore, the complainants' argument, even if correct, would not dispose entirely of the issue.
Assuming that digital copying was not a form of photocopying, the MFMs at issue in this section would be prima classifiable under both HS96 8517 21 and HS 8472 90 (see above section VI.B.1(b)). It would then become necessary to determine which of the functions is the "principal" one for the purposes of Note 3 to Section XVI of the HS96.
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classified in accordance with GIR 3(c). Since the subheading 9009 12 occurs later
than the subheading 8517 21 in the HS96, it must be concluded that the non-ADP
MFMs at issue fall within the scope of the concession for the former subheading.
452. Even though, for the above reasons, the European Communities is not bound by its
Schedule of concessions to provide duty free treatment for imports of any of the
non-ADP MFMs at issue in this section, it does provide such treatment for some of
them, namely those falling within CN 8443 31 10 (i.e. "Machines performing the
functions of copying and facsimile transmission, whether or not with a printing
function, with a copying speed not exceeding 12 monochrome pages per minute").
453. Contrary to the complainants' assertions, the copying speed criterion provided in
CN 8443 31 10 was not first introduced by the CCC at its 360th meeting317 or by
the CCT for 2007318. It was already taken into account in the Commission
regulations 2184/97319 and 517/99320, which classified under CN 8517 21 00
certain MFMs with a copying speed of 2 to 3 ppm and 4 ppm, respectively. The
Code CN 8443 31 10 of the current CCT is less restrictive than these two
classification regulations in that the copying speed is raised to 12 ppm.
454. At any rate, for the reasons explained above, the European Communities is not
required under its Schedule of concessions to grant duty free treatment to imports
of any of the non-ADP MFMs at issue in this section. Accordingly, the use of a
copying speed criterion for extending unilaterally duty free treatment to some of
those MFMs cannot, in any event, constitute a breach of Article II of the GATT
1994.
317 See e.g. first written submission of Japan, para. 57. 318 See e.g., first written submission of Japan, para. 59. Japan purports to provide evidence to the effect
that, prior to 2007, MFMs with a copying speed of less than 12 ppm were classified under CN 8517 21 00 in Exhibit JPN -7. See first submission of Japan, para. 187. However, the BTIs included in that exhibit provide for classification under CN 9009 12 00 and prove the opposite.
319 Commission Regulation (EC) No 2184/97, of 3 November 1997, concerning the classification of
certain goods in the combined nomenclature, OJ L 299/7. (Provided by TPKM as Exhibit TPKM-64). See point 3 of the Annex.
320 Commission Regulation (EC) No 517/199, of 9 March 1999, concerning the classification of certain
goods in the Combined Nomenclature, OJ L 61/23 (provided by TPKM as Exhibit TPKM-35). See point 1 of the Annex.
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VII. CONCLUSION
455. In the light of the foregoing considerations, the European Communities
respectfully requests the Panel to reject the claims made by the complainants.
EC – Tariff Treatment of Certain Information Technology Products First Written Submission DS375, 376, 377 by the European Communities ______________________________________________________________________
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LIST OF EXHIBITS
EC-1 Communication from the United States, WTO document G/MA/W/8 of 4
October 1996 EC-2 US "landscape 1" paper of 12 March 1996 EC-3 Step two: landscape for the Information Technology Agreement with product
descriptions EC-4 US Product Landscape paper of 14 July 1996 EC-5 The ITA Implementing Decision, WTO document G/L/160, 2 April 1997 EC-6 WTO, Dictionary of Trade Policy Terms, Fourth Ed., W. Goode, Cambridge
University Press, 2003, page 179 EC-7 WTO document G/IT/W/20; Classification divergences EC-8 Samsung LCD Monitor, quick start guide EC-9 Council Regulation (EC) No 179/2009 of 5 March 2009 amending Annex I to
Regulation (EEC) No 2658/87 on the tariff and statistical nomenclature and on the Common Customs Tariff. Official Journal of the European Union, 7.3.2009, L 63/1.
EC-10 http://www4.shopping.com/xPF-ViewSonic-VX2233WM; visited on 27 and 30 March 2009
EC-11 Explanatory Note I(D) to heading 8471 HS96 EC-12 Taiichiro Kurita, “Moving Picture Quality Improvement for Hold-type AM-
LCDs,” SID International Symposium Digest of Technical Papers, Volume 32, 986 – 989 (2001).
EC-13 T. Yamamoto, Y. Aono and M. Tsumura, “Guiding Principles for High Quality Motion Picture in AMLCDs Applicable to TV Monitors,” SID International Symposium Digest of Technical Papers, Volume 31, 456 – 459 (2000).
EC-14 WTO document G/IT/2/Add.1 of 17 October 1997 EC-15 The Harmonised Commodity Description and Coding System, Second
Edition (1996) in relevant parts; Exhibit EC-MH9. EC-16 Explanatory Notes to Section XVI, HS96 EC-17 Explanatory Note to heading 8528, HS96 EC-18 US Customs; What Every Member of the Trade Community Should Know
About: Classification of Flat Panel Displays; March 2001 EC-19 Ruling of the Commercial and Trade Facilitation Division, US Customs and
Border Protection; December 15, 2006. EC-20 WTO document G/IT/2/Add.1/Rev. 1 of 29 July 1999 EC-21 Japan's proposal for product coverage under ITA II of 30 December 1997 EC-22 Singapore's proposed additions to product coverage; WTO document
G/IT/SPEC/9 of 12 January 1998 EC-23 Facsimile communication of 16 April 1996 from the US authorities. EC-24 Technical Working Document QUAD Countries for consideration with regard
to coverage of an Information Technology Agreement, 1 November 1996 EC-25 Technical Working Document with comments by QUAD Countries with
regard to coverage of an Information Technology Agreement, 19 November 1996, 10:02
EC – Tariff Treatment of Certain Information Technology Products First Written Submission DS375, 376, 377 by the European Communities ______________________________________________________________________
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EC-26 Technical Working Document with comments by QUAD Countries with regard to coverage of an Information Technology Agreement, 25 November 1996, 12:58
EC-27 Technical Working Document with comments by QUAD Countries with regard to coverage of an Information Technology Agreement, 25 November 1996, 16:31
EC-28 Proposal with regard to coverage of an Information Technology Agreement, 10 December, 1996, 16:20.
EC-29 Trade in Information Technology Products: Result of Bilateral Consultations, Communication from Switzerland, Geneva, 21 January 1997
EC-30 The Oxford English Grammar, Sidney Greenbaum, 1996, pages 523-525; Webster's Handy Grammar, Usage & Punctuation, Random House, 2001, 2nd ed., pages 245-247
EC-31 The New Shorter Oxford English Dictionary, 1993, page 3667 EC-32 The New Shorter Oxford English Dictionary, 1993, pages 3703-3704 EC-33 Lord McNair, The Law of Treaties (Oxford Clarendon Press, 1961), pages
364 – 369 EC-34 Article: Internet on TV satisfies consumers EC-35 Article: Out wide decoder boxes, in with On TV licenses at Viewcall EC-36 Microsoft and WebTV Networks to Collaborate on Internet Television
Browsing for the Masses" - Microsoft's press release of 30 September 1996 EC-37 Media Policy, D. McQuail and K. Siune (editors), 1998, p. 91 EC-38 1996 Sony WebTV Product Manual EC-39 ITA Non-paper of 4 October 1996 EC-40 ITA Non-paper of 18 October 1996 EC-41 Fax regarding the ITA products from MITI (Japan) to EC and US, 23 October
1996 EC-42 ITA Non-paper of 31 October 1996 EC-43 Confidential version of a BTI provided by complainants EC-44 Product Guides EC-45 Explanation of PVRs and DVRs EC-46 Philips Magnavox MAT965A1 EC-47 WTO document G/MA/TAR/RS/74 EC-48 WTO document G/IT/14, pages 1-3 and 26-29 EC-49 Council Regulation (EEC) No. 2658/87 of 23 July 1987 on the tariff and
statistical nomenclature and on the Common Customs Tariff, OJ L 256, 7.9.1987, as amended by Council Regulation (EC) No 254/2000 of 31 January 2000 (Consolidated version)
EC-50 Case C-229/06, Sunshine Deutschland Handelsgesellschaft, [2007] ECR I-3251
EC-51 Council decision of 29 June 1999 laying down the procedures for the exercise of implementing powers conferred on the Commission (1999/468/EC)
EC-52 Rules of procedure of the Customs Code Committee on 5 December 2001 EC-53 Joined Cases 69 and 70/76, Dietmayer, [1977] ECR 231 EC-54 Document TAXUD/0667/2006 Rev 2 EC-55 Adoption of CN EN on 29 April 2008 EC-56 C-35/93 Develop Dr Eisbein [1994] ECR I-2655 EC-57 Case C-259/97, Clees, [1998] ECR I-8127
EC – Tariff Treatment of Certain Information Technology Products First Written Submission DS375, 376, 377 by the European Communities ______________________________________________________________________
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EC-58 Wikipedia, Multifunctional printer
EC-59 Sample of advertising materials from the websites of the manufacturers Canon, Ricoh and Kyocera-Mita
EC-60 Range of copiers of the brand Xerox
EC-61 Comparison between the prices of the 'copy-only' version and the 'multifunctional' version of a sample of models of the brand Xerox offered at the US website of Xerox
EC-62 Comparison between the prices of the 'copy-only' version and the 'multifunctional' version of a sample of models of the brands Ricoh and Konica-Minolta offered at the website of the UK retailer Top 4 Office.
EC-63 Brochure of the Xerox models 'Copycentre C20' and 'Workcentre M20/M20i'
EC-64 Brochure of the Xerox model 'Phaser 3250'
EC-65 Jeff Tyson, How Scanners work, in Howstuffworks.com
EC-66 "Explanatory Note on the products proposed by Japan", 20 April 1998
EC-67 Sample of advertising materials illustrating the use of the term 'photocopier'
EC-68 Sample of press articles illustrating the use of the term 'photocopier'
EC-69 US classification rulings HQ 963680, HQ 965478, HQ 965527, HQ 965636, HQ 965679, HQ 965680, HQ 965681, HQ 965682, and HQ 965697
EC-70 Commission Regulation (EC) No 1165/95, of 23 May 1995, concerning the classification of certain goods in the combined nomenclature
EC-71 Explanatory notes to the heading 9009 of the Harmonised System 1988 and to the heading 9010 of the Brussels Nomenclature
EC-72 US classification rulings NY 892321 and NY 897540
EC-73 US classification ruling HQ 958348
EC-74 US classification rulings NY A88887; NY B87181; NY B89972; NY C81666; NY C83939; NY D80267; NY D80821; NY D85157; NY D85921; NY D87961; NY D88682; NY D88835; NY E80009; NY E80011; NY F80927.
EC-75 US classification ruling NY B87634
EC-76 "Situation with regard to product coverage of an Information Technology Agreement", 11 December 1996
EC-77 Customs Co-operation Council, Report on the Third Session of the Harmonised System Review Sub-Committee, 36.250 E, 16 January 1991
EC-78 Explanatory Note to HS96 heading 8469
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EC-79 BTIs for ADP MFMs
EC-80 Specifications of the Ricoh models 'Afficio MP 1500' and 'Fax 1180l/F11'
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