First Written Submission by the European...

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


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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.


12

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.


13

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.


14

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.


15

• 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.


16

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.


17

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


18

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.


19

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.


20

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


21

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.


22

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.


23

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.


24

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.


25

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


26

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.


27

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.


28

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


29

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.


30

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.


31

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


32

- - - - 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.


33

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


34

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.


35

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.


36

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.


37

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.


38

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.


39

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.


40

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)


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


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


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


41

– 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


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


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


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


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


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.


42

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.


43

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).


44

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.


45

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


46

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.


47

(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.


48

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


49

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.


50

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.


51

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.


52

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.


53

‘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.)


54

(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.


55

(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.


56

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.


57

– 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.


58

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 (…)."


59

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.


60

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


61

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.


62

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


63

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.


64

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.


65

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.


66

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.


67

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


68

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.


69

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.


70

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.


71

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.


72

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


73

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.


74

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).


75

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.


76

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).


77

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).

http://webtv.net/


78

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).


81

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


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


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


93

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.


99

"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.

http://ec.europa.eu/atwork/basicfacts/index_en.htm#comm


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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.


105

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").


106

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.


108

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.

http://en.wikipedia.org/wiki/Greek_language

http://www.merriam-webster.com/dictionary


123

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


126

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).


127

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.


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


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).


138

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.


143

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


144

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.


145

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.


146

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.


147

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.


148

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.


1

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

http://www4.shopping.com/xPF-ViewSonic-VX2233WM


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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


3

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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