WORLD TRADE WT/DS62/R
WT/DS67/R
WT/DS68/R
ORGANIZATION5February 1998
(98-0277)
Original: English
European Communities -Customs Classification
ofCertain Computer Equipment
Report ofthePanel
Thereport ofthePanel onEuropean Communities -Customs Classification ofCertain Computer
Equipment isbeing circulated toallMembers, pursuant totheDSU. Thereport isbeing circulated
asanunrestricted document from5February 1998pursuant totheProcedures fortheCirculation and
Derestriction ofWTO Documents (WT/L/160/Rev.1). Members arereminded thatinaccordance with
theDSU onlyparties tothedispute mayappeal apanel report, anappeal shallbelimited toissues
oflawcovered inthepanel report andlegalinterpretations developed bythepanel, andthatthereshall
benoexpartecommunications withthepanel orAppellate Body concerning matters under consideration
bythepanel orAppellate Body.
NotebytheSecretariat: ThisPanel Report shallbeadopted bytheDispute Settlement Body (DSB) within 60daysafterthedateofitscirculation
unless aparty tothedispute decides toappeal ortheDSBdecides byconsensus nottoadopt thereport. IfthePanel Report isappealed
totheAppellate Body, itshallnotbeconsidered foradoption bytheDSBuntilafterthecompletion oftheappeal. Information onthecurrent
status ofthePanel Report isavailable from theWTO Secretariat.WT/DS62/R
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TABLE OFCONTENTS
Page
I. INTRODUCTION ....................................... 1
II. FACTUAL ASPECTS ................................... 2
A. Product description ................................. 2
1. Local Area Network equipment ..................... 2
2. Personal computers withmultimedia capabilities .......... 3
B. Tariff concessions contained inEC-Schedule LXXX relating toitems
under tariff headings 84.71, 84.73, 85.17, 85.21 and85.28 ........ 4
C. Classification determinations intheEC,Ireland andtheUnited Kingdom 4
1. Commission Regulations ......................... 4
(a) Classification procedure intheEC.............. 4
(b) Commission Regulation (EC) No.1165/95 onLAN
adapter cards. ........................... 6
2. Binding Tariff Information ....................... 6
(a) Definition andevolution within theEC........... 6
(b) Withdrawal andre-issuance ofBTIs bytheIreland
Revenue Commission concerning LAN equipment .... 7
3. Customs determination bytheUKHMCustoms andExcise
concerning LAN equipment. ....................... 7
4. UKVAT andDuties Tribunal ruling onPCTVs .......... 8
III. CLAIMS OFTHE PARTIES ................................ 9
IV. ISSUES REGARDING THE SCOPE OFTHE CLAIM ................ 10
A. Product coverage ................................... 10
1. LAN equipment ............................... 10
2. Personal computers withmultimedia capability ........... 11
B. Measures atissue ................................. 12
C. Status ofdefending parties ............................. 13
V. MAIN ARGUMENTS .................................... 14
A. Scope oftheconcession .............................. 16
1. dutytreatment ofnewproducts orproducts
affected byHarmonized System (HS)changes ............ 16
2. "products described" ........................... 18
3. treatment accorded atthetimetheconcession
wasnegotiated ............................... 19
(a) "treatment ...provided for"and
"treatment ...contemplated" .................. 19
(b) "treatment ...contemplated" and
"treatment accorded "...................... 21WT/DS62/R
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(c) atthetimetheconcession wasnegotiated .......... 22
B. Tariff treatment ofproducts ............................ 22
1. LAN equipment .............................. 22
(a) Negotiating History ....................... 22
(b) Imports ofProducts ....................... 26
(i) BTIs andNational Classification ........... 28
(ii) Trade Flows ....................... 35
2. Personal computers withmultimedia capability ........... 37
C. Nullification andimpairment ........................... 40
VI THIRD PARTIES SUBMISSIONS ............................ 41
A. India .......................................... 41
B. Japan .......................................... 41
C. Korea .......................................... 43
D. Singapore ....................................... 46
VII. INTERIM REVIEW ...................................... 53
VIII. FINDINGS ............................................ 56
A. Claims oftheParties ................................ 56
B. Issues regarding theScope oftheClaim ..................... 58
1. Product Coverage .............................. 58
2. Scope oftheMeasures ........................... 60
3. Status ofIreland andtheUnited Kingdom ............... 61
C. General Interpretative Issue ............................. 61
D. LAN Equipment .................................... 64
1. Textual Analysis .............................. 65
2. Actual Tariff Treatment andLegitimate Expectations ........ 65
(a) Evaluation oftheEvidence ofActual Tariff Treatment .. 65
(b) Legitimate Expectations ..................... 68
(i) Requirement ofClarification .............. 69
(ii) TheUnited States 'OwnReclassification ...... 71
3. Conclusion ................................ 72
E. Multimedia PCs ................................ 73
1. Textual Analysis .............................. 73
2. Legitimate Expectations .......................... 73
3. Other Means ofInterpretation ...................... 74
F. Nullification orImpairment ............................. 74
IX. CONCLUSIONS ........................................ 75
ANNEXES ................................................ 76
Annex 1: Tariff concessions contained inEC-Schedule LXXX relating toitems
under tariff headings 84.71, 84.73, 85.17, 85.21 and85.28 ........ 76
Annex 2: Commission Regulation (EC) 1165/95 ..................... 81
Annex 3: UKVAT andDuties Tribunal ruling onPCTVs ................ 85WT/DS62/R
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Annex 4: Summary tableofevidence submitted bytheUnited States ......... 97
Annex 5: ITAclassification ..................................105
Annex 6: Summary tableofevidence submitted bytheEC...............107
Annex 7: Trade data .......................................113WT/DS62/R
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I. INTRODUCTION
1.1 On8November1996,theUnitedStatesrequestedconsultationswiththeEuropeanCommunities
(EC) pursuant toArticle 4oftheUnderstanding onRules andProcedures Governing theSettlement
ofDisputes (DSU) andArticle XXII:1 oftheGeneral Agreement onTariffs andTrade 1994
(GATT 1994) regarding tariff reclassification bythecustoms authorities oftheECandtheirmember
StatesofLocalAreaNetwork(LAN)equipmentandpersonalcomputers(PCs)withmultimediacapability
(WT/DS62/1).
1.2 Korea andCanada requested, incommunications dated 22and25November 1996, respectively
(WT/DS62/2 andWT/DS62/3), tobejoined intheconsultations, pursuant toparagraph 11ofArticle 4
oftheDSU.
1.3 Consultations wereheldbetween theUnited States andtheECon23January 1997, withKorea
andCanada participating. Theconsultations didnotresult inaresolution ofthedispute. Asaresult,
inacommunicationdated11February1997(WT/DS62/4),theUnitedStatesrequestedtheestablishment
ofaPanel. Accordingly, theDispute Settlement Body (DSB) atitsmeeting of25February 1997
established apanel withthefollowing terms ofreference:
"Toexamine, inthelightoftherelevant provisions ofthecovered agreements citedbythe
United States indocument WT/DS62/4, thematter referred totheDSBbytheUnited States
inthatdocument andtomake such findings aswillassist theDSB inmaking the
recommendations oringiving therulings provided forinthose agreements".
1.4 TheUnited States, incommunications dated 14February 1997(WT/DS67/1 andWT/DS68/1),
requested consultations withtheUnited Kingdom andIreland. These requests were made pursuant
toArticle 4oftheDSUandArticle XXII:1 oftheGATT 1994andconcerned thetariffreclassification
bythecustomsauthoritiesoftheUnitedKingdomofLANequipmentandPCswithmultimediacapability,
andthetariff reclassification bythecustoms authorities ofIreland ofLAN equipment.
1.5 Korea requested inacommunication dated 28February 1997 (WT/DS67/2) tojoininthe
consultations requested bytheUnited States withtheUnited Kingdom.
1.6 On24February 1997, theUnited Kingdom andIreland responded byreferring theUnited States
toaletter ofthesame date,inwhich theEuropean Communities officially informed theUnited States
thattherequested consultations would notbeentered into. AstheUnited Kingdom aswellasIreland
haddeclined toenter intoconsultations, theUnited States, incommunications dated 7March 1997,
proceeded directly torequest theestablishment oftwoPanels; onetoexamine themeasures taken by
theUnited Kingdom (WT/DS67/3), andtheother toexamine themeasures taken byIreland
(WT/DS68/2).
1.7 Atitsmeeting of20March 1997, theDSBagreed tomodify, attherequest oftheparties to
thedispute, theterms ofreference ofthePanel established atitsmeeting on25February 1997sothat
thepanel requests bytheUnited States contained indocuments WT/DS67/3 andWT/DS68/2 would
beincorporated intothemandate ofthealready existing Panel.
1.8 Themodified terms ofreference ofthePanel areasfollows:
"Toexamine, inlightoftherelevant provisions intheGATT 1994, thematters referred to
theDSBbytheUnited States indocuments WT/DS62/4, WT/DS67/3 andWT/DS68/2, andWT/DS62/R
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tomake suchfindings aswillassist theDSBinmaking therecommendations oringiving the
rulings provided forinthatagreement".
1.9 Inlightofthisdecision, theDSBagreed nottoestablish separate panels pursuant totherequests
submitted bytheUnited States andcirculated asdocuments WT/DS67/3 andWT/DS68/2.
1.10 TheDSB alsotook note thattheparties hadagreed thatthe"panel established on
25February 1997, withtheterms ofreference asmodified atthepresent meeting, willbeableto
consider, andruleupon, anymatter thatmight have beenconsidered ifseparate panels hadbeen
established inresponse tothose panel requests".
1.11 Furthermore, theDSBtooknote"thatthemodification oftheterms ofreference ofthepanel
established on25February 1997iswithout prejudice totheinterpretation oftheEuropean Communities
anditsmember States oftheprovisions ofArticle 4,paragraph 3oftheDSU, withregard tothe30-day
period referred tointhesecond sentence ofthatparagraph".
1.12 Theparties tothedispute agreed on18April 1997tothefollowing composition ofthePanel:
Chairman: Mr.Crawford Falconer
Members: Mr.Ernesto deLaGuardia
Mr.Carlos Antonio daRocha Paranhos
India, Japan, Korea andSingapore reserved theirrights asthirdparties tothedispute.
II. FACTUAL ASPECTS
A. Product Description
1. Local Area Network equipment1
2.1 ALANisaninterconnection ofanumber ofcomputers andcomputer peripherals (forexample,
printers, input units, memory units, etc.)using acabling system. These cables physically interconnect
alltheindividual devices toenable themtocommunicate through thetransmission ofdata. Theprincipal
types ofLANs areEthernet ,Token Ring andFibre Distributed Data Interface (FDDI). ALAN
isdistinguished from other types ofdatanetworks inthatthecommunication isusually limited toa
discrete areasuchasasingle office building, awarehouse oracampus.
2.2 Inorder forPCstoparticipate inaLAN, theymustbeconnected toeachother. Thisconnection
hastraditionally beenmade viaanadapter, which isinserted inthePC.Anadapter cardornetwork
card isasmall electronic cardgenerally incorporated intothePCwithin anetwork. Itconverts,
processes andformats datafortransmission within thecomputing environment oroutside ofthenetwork
thereby acting astheinterface between multiple systems thatmayemploy different technologies.
2.3 IftheLANbecomesbigger(forexample,largernumberofPCsareconcernedorlargerdistances
tobecovered), more components areneeded toconnect thedifferent elements oftheLAN. Examples
1Thisdescription ofcertain LAN equipment hasbeen given using information provided bytheECandthe
UnitedStates.ItisunderstoodthattheproductsdescribeddonotpresentanexhaustivelistofallLANcomponents.WT/DS62/R
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ofsuchcomponents areahub(orconcentrator). With ahuballthePCsintheLAN haveawireor
cable leading fromtheLAN adapter cardtoashared hub. Thecomputers connected tothehub"see"
allthepackets2sentoverthenetwork. However, onlytheintended recipient PC"recognizes" the
destination address, which triggers ittoprocess theincoming packet. Inthisarrangement, onlyone
computer intheLAN cantransmit dataatatime. Hubs mayalsoactasnetwork managers, bycollecting
information about thestatus ofeachnetwork portandactivating orshutting down aportwhere necessary.
2.4 Computers sharing asingle hubarereferred toasaLAN segment .Segments canbeconnected
toother segments bymeans ofadevice called abridge .Abridge hands datafrom onesegment to
thenext, andaffords security within anetwork assegments arepartitioned fromoneanother, thereby
permitting restricted access toindividual segments where necessary. Inatypical LAN bridge
architecture, anumber ofnetworks orsegments willbebridged toeachothercreating acircle ofbridges,
oneofwhich actsasaninactive back-up which willactivate or"boot" onfailure ofanexisting active
bridge.
2.5 Arouter isanother device usedtolinksegments within alocalareanetwork ortolinkmore
thanonelocal areanetwork. Unlike thebridge, itisaware ofexact destination addresses within a
network andcanoptimize theroute bywhich thedataistobedelivered within thenetwork. Itsegments
anetwork inthesame manner asabridge, filters data,offers security, andprotects datafrom"traffic
jams".
2.6 Another waytoorganize aLAN istouseLAN switches. Asnoted above, thelimitation of
using ahubisthatonlyonecomputer cantransmit dataatatime. Withaswitch, packets aredirected
onlytotheirintended destination andtherefore thesystem candirect packets fromseveral sources to
several destinations atonetime.
2.7 Arepeater isadevice thatregenerates datawhich isbeing routed fromonepartofthecomputer
network toanother. Therepeater receives, builds andpasses onthesignal within aLAN, sothatit
canstillbe"heard" bythetimeitreaches itsdestination.
2.8 Anetwork mayuseavariety ofmedia tolinkupthevarious unitsoperating ontheLAN, for
example optical fibre converter, thick orthincoaxial cable, shielded orunshielded twisted pair
cable.Media interface modules (MIMs) areusedtoallow these different media tobeconnected
intoonenetwork. Amultistation access unitormulti media access center isaunitcombining a
repeater module andanumber ofmedia interface modules.
2. Personal computers withmultimedia capabilities3
2.9 From theirinception, computers havehadtheability toprocess dataintheform ofdigital,
video andaudio media. However, factors suchascost, memory capacity andspeed rendered it
impractical toincorporate these types offunctions intomostearly PCmodels. Inthelate1980s and
early 1990s, continuing technological developments enabled PCstoprocess digital datastreams more
effectivelyandefficiently,resultingintheappearanceofpersonalcomputerswithmultimediacapabilities.
Such equipment, which mayinclude alarge capacity datastorage unitsuchasaCD-ROM drive, is
2Specialized software formats datainto"packets", which canthenbesentfrom onePCtoanother. Theformatted
datawillinclude asource address, adestination address andcontrol information which isused bythenetwork
todirect packet through thenetwork.
3Thedescription hasbeen given using information provided bytheECandtheUnited States.WT/DS62/R
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abletousecomputingtechnologytoproducesounds,imagesorvideo,andmayhavespecializedcircuitry
(i.e.aTVtuner card) which allows thecomputer toconvert atelevision reception signal intoadigital
datastream fordisplay onthecomputer 'smonitor.
B. Tariff concessions contained inECSchedule -LXXX relating toitems under tariff headings
84.71, 84.73, 85.17, 85.21 and85.28
2.10 Schedule LXXX provides thatthebaserateon"automatic dataprocessing machines andunits"
under HSheading 84.71 willbereduced from4.9percenttoafinalbound rateofeither 2.5percent
ordutyfreedepending ontheproduct. For"parts andaccessories ofmachines under 84.71" covered
byHSheading 84.73, andmore particularly electronic assemblies, thebaserateof4percentisto
bereduced to2percent. Inthecaseofpartsandaccessories ofsuchmachines other thanelectronic
assemblies, thebaserateof4percentwillbereduced todutyfree. Inthecaseof"electrical apparatus
forlinetelephony ortelegraphy" under HSheading 85.17, thebaserateof7.5percentistobereduced
to3.6percentordutyfree,andthebaserateof4.6percentto3.6percentor3percent. Forproducts
under HSheading 85.21 concerning video recording orreproducing apparatus, noreduction isenvisaged
andtheboundratesareeitherdutyfree,8percentor14percent.Heading85.28pertainingtotelevision
receivers havebound ratesof8percentand14percentwithnoreduction envisaged onanyitemwith
theexception ofblack andwhite orother monochrome television receivers which willhavetheirbase
rateof14percentreduced to2percent. Regarding thestaging ofthese tariff reductions, according
totheMarrakesh Protocol totheGATT 1994, "...Thetariffreductions agreed uponbyeachMember
shallbeimplemented infiveequal ratereductions, except asmaybeotherwise specified inaMember 's
Schedule." Thefirstsuchreduction wastobemade effective upon theentry intoforce oftheWTO
Agreement andeachsuccessive reduction istobemade effective on1January ofeachfollowing year.4
C. Classification determinations intheEC, Ireland andtheUnited Kingdom
1. Commission Regulations
(a) Classification procedure intheEC
2.11 TheEuropean Communities form acustoms union.5Accordingly, onimports from third
countries, aCommon Customs Tariff (CCT) isapplied.6While theCCT isadopted centrally bythe
EC,themember States 'customs authorities areinvolved forthepurpose ofadministration. When
goods arrive attheCommunity frontier forcustoms clearance, thecustoms authorities ofthemember
4SeeAnnex 1.Additionally, anoteon"Implementation ofConcessions" inSection II(Other Products) of
PartI(Most-Favoured-Nation Tariff) ofSchedule LXXX reads asfollows: "Should theUSnotimplement its
concessions under theconditions setoutinNote 2toChapter 84andNote 12toChapter 85initsschedule, the
ECreserves theright todothesame withrespect totheconcessions indicated inthisschedule forthefollowing
headings: ...Chapter 85;85.17.10.00; 85.17.20.00; 85.17.30.00; 85.17.40.00: 85.17.81.10; 85.17.81.90;
85.17.82.00; 85.17.90.90; Ex1New, Ex2New; 85.17.90.91; Ex1New, Ex2New; 85.17.90.90, Ex1New,
Ex2New;...".Consequently,theapplieddutyrateintheEuropeanCommunitiesfortheseproductsunderheading
85,17 hasbeen 7.5percentsince 1995.
5Articles 12to17oftheTreaty Establishing theEuropean Communities.
6Articles 18to29oftheTreaty Establishing theEuropean Communities.WT/DS62/R
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State through which thegoods areimported intheECterritory apply theCCT determined forthat
year.7Thecustoms authorities check which heading oftheCNtheimporter hasmentioned onthe
declaration forms andapply thecorresponding dutyoftheCCT. Itispossible that,asmayoccur
inanycustoms administration, customs authorities indifferent member States classify aproduct
differently, which could leadtodifferent duties being applied. Itwasindicated that,forthisreason,
theEChasputintoplace mechanisms inorder todetect andremedy anysuchdivergent practices.8
2.12 When divergences onaclassification matter have been detected, theTariff andStatistical
Nomenclature Section (TSNS) oftheCustoms Code Committee which iscomposed ofrepresentatives
ofthemember States andchaired byrepresentatives oftheCommission9,examines theissueandadvises
onwhatitviews thecorrect classification tobe.TheCommittee mayexamine amatter referred to
itbyitsChairman either ontheChairman 'sinitiative orattherequest ofarepresentative ofamember
State. Following theopinion oftheCommittee, theCommission mayadopt aRegulation concerning
theclassification ofgoods. Where theCommission doesnotagree withtheCommittee 'sopinion, or
where noopinion isdelivered within thetime-limit setoutbyitsChairman, theCommission presents
itsproposal totheCouncil, which takes adecision through aqualified majority. Aclassification
Regulation, adopted either bytheCommission ortheCouncil isbinding initsentirety anddirectly
applicable inallmember States oftheEuropean Communities.
2.13 Itisalsopossible thatwhere anindividual believes thatacustoms decision isbased onan
incorrect classification ofgoods, thecustoms decision maybeattacked before thenational tribunals
andcourts ofthemember Stateinquestion. Ifthenational tribunal orcourt considers itunclear how
theproduct should beclassified, itmayreferthecasetotheEuropean Court ofJustice (ECJ).10As
suchtheECJcanclarify classification issues initscaselaw.
7"The Commission shall adopt each yearbymeans ofaRegulation acomplete version ofthecombined
nomenclaturetogetherwiththecorrespondingautonomousandconventionalratesofdutyoftheCommonCustoms
Tariff, asitresults from measures adopted bytheCouncil orbytheCommission. ThesaidRegulation shall
bepublished notlaterthan31October intheOfficial Journal oftheEuropean Communities anditshall apply
from 1January ofthefollowing year." (Article 12ofCouncil Regulation (EEC) No.2658/87, OJ1987 L256/1).
8Inparticular, theEChascreated adatabasecontaining allBinding Tariff Information (BTI -seesection
2(a)for"Definition andEvolution ofBTIs within theEC") issued within theEC. Customs authorities must
consult thisdatabasebefore issuing anewBTIinorder tomake surethattheyareaware oftheclassification
practices ascontained intheBTIs ofallother customs authorities intheEC. Iftheydiscover inthedatabase
thattheirownclassificationpracticediffersfromthatofanyothercustomsauthorityintheECforasimilarproduct,
theymust consult withsuchother customs authority. Ifthecustoms authorities directly concerned cannot agree
onacommon approach, theinternal co-ordination process oftheECissetinmotion.
9Article 7ofCouncil Regulation 2658/87, OJ1987 L256/1.
10Article 177oftheTreaty Establishing theEuropean Communities.WT/DS62/R
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(b) Commission Regulation (EC) No1165/9511onLAN Adapter Cards
2.14 On23May1995, theCommission oftheECadopted Regulation (EC) No.1165/95 which
classified LANadapter cards under theCombined Nomenclature (CN)Code128517.8290 which covers:
"Electrical apparatus forlinetelephony orlinetelegraphy, including such apparatus for
carrier-current linesystems:
-Other apparatus
--Telegraphic
---other"
2.15 Thestated intention ofthisRegulation wastoensure thathenceforth LAN adapter cards were
classified inHSheading 8517.8290 infaceofthefactthatcertain member States hadissued Binding
Tariff Information13under aheading other thantheoneconsidered appropriate forthisproduct. The
Regulation states thatanadapter card isfor"incorporation incable linked digital automatic
data-processing (ADP) machines enabling theexchange ofdataoveralocalareanetwork (LAN) without
using amodem. Withsuchacard, anADP-machine canbeusedasaninput-output device foranother
machine oracentral processing unit. Thecardconstitutes aprinted circuit ofasizeofabout 10x21 cm
incorporating integrated circuits andactive andpassive components. Itisfittedwitharowofpincontacts
corresponding toanexpansion slotintheADP-machine withanattachment totheconnection cable
oftheLAN andlightemitting diodes (LEDs)".
2. Binding Tariff Information (BTI)
(a) Definition andevolution within theEC
2.16 Anatural orlegalperson wishing toknow howgoods planned forexport orimport areclassified
bythenational customs authorities ofthemember State through which thegoods willenter theEC
market, mayrequest aBTI.ABTIconstitutes acommitment oftherelevant customs authorities vis-à-vis
theindividual applicant onhowtheywillreadthenomenclature andclassify thegoods described in
therequest forcustoms purposes.
2.17 Prior to1991, BTIs onlyexisted, onthebasis ofnational law,inGermany andcould only
beobtained andusedforcustoms clearance there. Thispractice wasextended Community-wide with
thestated rationale ofencouraging import andexport tradebyfacilitating theconclusion ofmedium-and
long-term contracts foridentical goods onthebasisofreliable customs information. Thiswasintroduced
intheECbyCouncil Regulation No.1715/90 withrulesforimplementation contained inCommission
Regulations Nos. 3796/90 and2674/92. Thefirsttwoofthese Regulations entered intoforce on
1January 1991, andonthebasis ofthese provisions, BTIs could beobtained from acustoms office
inaparticular member State, butcould notbeusedforcustoms clearance inthecustoms offices of
11SeeAnnex 2.
12TheEC'sCombined Nomenclature (CN) Code provided forinCouncil Regulation (EEC) 2658/87 of23
July1987, isbased ontheHarmonized Commodity Description andCoding System. TheHarmonized System
(HS) wasestablished bytheInternational Convention ontheHarmonized Commodity Description andCoding
System on14June1983, andtheECadhered tothisConvention on7April 1987, bymeans ofaCouncil Decision
87/369. Itentered intoforce intheECon1January 1988.
13Seesection 2(a)ofthistextfor"Definition andEvolution ofBTIs within theEC".WT/DS62/R
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amember Stateother thantheonewhose customs authorities hadissued theBTI. On1January 1993,
Commission Regulation No.2674/92 which stipulated forthefirsttimethatBTIsissued bythecustoms
authorities ofoneECmember Statewerebinding oncustoms authorities ofallotherECmember States,
cameintoforce. These ruleshavenowbeenconsolidated inCouncil Regulation No.2913/92 containing
theCommunity Customs Code andbyCommission Regulation No.2454/93 containing implementing
provisions fortheCommunity Customs Code. These implementing provisions entered intoforce on
1January 1994 asprovided inArticle 915ofCommission Regulation 2454/93.
(b) Withdrawal andre-issuance ofBTIsbytheIreland Revenue Commission concerning
LAN equipment
2.18 Byletter of28April 1995, theIreland Revenue Commission withdrew BTIsithadissued on
11August 1993 toacompany Cabletron Systems LTD, inwhich ithadclassified units ofbridges,
routers, hubs, repeaters, media interface module andmulti media access centre inCN
heading 8471.99.10000, dutiable at4.9percent. Simultaneously, itissued newBTIsclassifying these
products under 8517.8290, dutiable at7.5percent. Intheirletter toCabletron, theIrishauthorities
hadstated thatthisaction hadbeentaken following discussions bytheTariff andStatistical Nomenclature
Section(mechanicalsector)oftheCustomsCodeCommittee(NomenclatureCommittee)oftheEuropean
Union ontheclassification ofnetworking equipment andtheissuance ofCommission Regulation (EC)
1638/94 which classified adapters andtransceivers inCNheading 85.17. Theletter alsoindicated
thatdiscussion hadbeentaking place attheNomenclature Committee ontheclassification ofnetwork
cards, thatagreement hadbeenreached thatthese products should beclassified atCNheading 85.17,
thataclassification regulation wasbeing drafted andthattheIrishauthorities would beamending
Cabletron 'sBTIsfornetwork cards assoonastheclassification regulation waspublished. After the
publication ofRegulation 1165/95, theIrishauthorities withdrew Cabletron 'sBTIsforLAN adapter
cards thathadbeenclassified atCNheading 84.71. TheIrishauthorities simultaneously issued BTIs
forthese products inCNheading 85.17.
3. Customs determination bytheUKHMCustoms andExcise concerning LAN equipment
2.19 On23March 1992, theUKHMCustoms andExcise issued aletter stating thatLAN adapter
cards would beclassified under heading 8471.9910.900.14Itfurther specified that"This decision does
notconstitute Binding Tariff Information (BTI) within themeaning ofRegulation (EEC) 1715/90. On
28July1993, UKHMCustoms andExcise issued another letter specifying thatLAN boards and
repeaters imported inboard form were dutiable at4percentunder CNcode 84.73 ("Parts and
accessories ofthemachines ofheading 84.71"); repeaters imported incomplete unitsweretobedutiable
at4.9percent, under classification 8471.9910.900.
2.20 On5April 1994, theUKHMCustoms andExcise issued aletter which reversed thedecision
contained initsletterofMarch 1992. Itindicated thatareview hadbeenundertaken oftheclassification
ofnetworking equipment andonthebasisofthisreview, ithadconcluded thatallnetworking equipment
including Local Area, Wide Area, Token Ring, Ethernet networks were"appropriately classified as
datatransmission apparatus inheading 8517". Thereason provided wasthatapparatus which accepted
dataandtransmitted ittoalocalorremote sitewasperforming adatatransmission function, which
mettheterms ofheading 85.17, covering electrical apparatus forlinetelephony orlinetelegraphy
which included apparatus forcarrier current linesystems. Itconsidered heading 85.17 tobemore
specific thanheading 84.71, which covered unitsofanautomatic dataprocessing machine. Additionally,
14Although notindicated intheletter, theproduct wasdutiable at4.9percent.WT/DS62/R
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thefinalparagraph ofChapter 84,note515oftheHarmonized System16directed thatheading 84.71
didnotcover machines incorporating orworking inconjunction withanautomatic dataprocessing
machine andperforming aspecific function. TheUKHMCustoms andExcise further stated thatin
itsletter dated 23March 1992, ithadclassified LAN adapter cards under heading 8471.9910.900,
butto"...note thatallfuture importations/exportations ofthese products willbeunder
heading 8517.82900, dutyrate7.5percent".
2.21 Inanother letter alsodated 5April 1994, theUKHMCustoms andExcise provided thesame
aforementioned explanations before referring toitsletter dated 28July1993, inwhich ithadclassified
LAN Boards, Repeaters, Token RingandEthernet Products under headings 84.71/84.73 andnoting
"...that allfuture importations/exportations ofthese products willbeunder heading 8517.8290, duty
rate7.5percent...".
4. UKVAT andDuties Tribunal ruling onPCTVs17
2.22 On17April 1996, theUKVAT andDuties Tribunal upheld acustoms administration
determination classifying asa"television receiver" under heading 85.28 amultimedia PC.
2.23 Theappeal wastaken byInternational Computer LTD (ICL) against adecision oftheUK
Customs andExcise Commissioners astothetariffclassification forimport customs dutyofaFujitsu
ICL"PCTV". Thetribunal stated thatthisPCTV "isbothamultimedia personal computer anda
fullfunction colour television set,integrated within thesame unitandusing thesame screen". ICL
contended thatthemachine should beclassified under heading 84.71 entitled "Automatic dataprocessing
machines", which carried adutyrateonimportation of4.4percent. TheCommissioners haddecided
thatitfellunder heading 85.28 -"Television receivers", which carried arateofdutyonimportation
of14percent. ICLcontended thatthePCTV 'sprincipal function and/or itsessential character was
thatofapersonal computer. TheCommissioners maintained thatitwasnotpossible todetermine a
principal function; so,when presented withtwotariffheadings which equally deserved consideration,
theywould classify thePCTV under thatheading which occurred lastinnumerical order, namely 85.28
"Television receivers".
15Note 5ofChapter 84oftheHS:"(A)Forthepurposes ofheading No.84.71, theexpression "automatic
dataprocessingmachines"means:(a)Digitalmachines,capableof(1)storingtheprocessingprogramorprograms
andatleastthedataimmediately necessary fortheexecution oftheprogram; (2)being freely programmed in
accordance withtherequirements oftheuser; (3)performing arithmetical computations specified bytheuser;
and(4)executing,withouthumanintervention,aprocessingprogramwhichrequiresthemtomodifytheirexecution,
bylogical decision during theprocessing run;(b)Analogue machines capable ofsimulating mathematical models
andcomprising atleast; analogue elements, control elements andprogramming elements; (c)Hybrid machines
consisting ofeither adigital machine withanalogue elements orananalogue machine withdigital elements .(B)
Automatic dataprocessing machines maybeintheform ofsystems consisting ofavariable number ofseparately-housed
units. Aunitistoberegarded asbeing apartofthecomplete system ifitmeets allthefollowing conditions:
(a)itisconnectable tothecentral processing uniteither directly orthrough oneormore units; (b)itisspecifically
designed aspartofsuchasystem (itmust, inparticular, unless itisapower supply unit, beabletoaccept or
deliver datainaform (code orsignals) which canbeusedbythesystem). Such units presented separately are
alsotobeclassified inheading No.84.71. Heading No.84.71 doesnotcover machines incorporating orworking
inconjunction withanautomatic dataprocessing machine andperforming aspecific function. Such machines
areclassified intheheadings appropriate totheir respective functions or,failing that, inresidual headings".
16Seefootnote 12.
17SeeAnnex 3.WT/DS62/R
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2.24 Thetribunal dismissed theappeal. Itdidnotfinditpossible todetermine theprincipal function
ofthePCTV. Thetribunal alsofound itdoubtful thatthe"essential character" criterion wasapplicable
inclassifying amachine suchasthePCTV. Even ifthatcriterion wasapplicable, thetribunal was
notpersuaded thattheautomatic dataprocessing machine wasthecomponent which gavethePCTV
itsessential character. According tothetribunal, thePCTV was"anewkindofhybrid machine which
wasbothaPCandaTV," andneither ofwhich gaveititsessential character.
III. CLAIMS OFTHE PARTIES
3.1 TheUnited States requested thePanel tofindthat:
- theEC'sreclassification ofLAN adapter cards under Regulation (EC) 1165/95 resulted in
treatment ofthose products lessfavourable thanthatprovided forinPartIofSchedule LXXX
andtherefore wasinconsistent withobligations under GATT Article II;
- theEC'sreclassificationofothertypesofLANequipmentresultedintreatmentofthoseproducts
lessfavourable thanthatprovided forinPartIofSchedule LXXX andtherefore wasinconsistent
withobligations under GATT Article II;
- theEC'sreclassificationofmultimediapersonalcomputersresultedintreatmentofthoseproducts
lessfavourable thanthatprovided forinPartIofSchedule LXXX andtherefore wasinconsistent
withobligations under GATT Article II;
- theUnited Kingdom 'sreclassification ofLANequipment resulted intreatment ofthoseproducts
lessfavourable thanthatprovided forinPartIofEC'sSchedule ofconcessions andtherefore
wasinconsistent withobligations under GATT Article II;
- theUnited Kingdom 'sreclassification ofmultimedia personal computers resulted intreatment
ofthose products lessfavourable thanthatprovided forinPartIofEC'sSchedule ofconcessions
andtherefore wasinconsistent withobligations under GATT Article II;
- Ireland 'sreclassification ofLAN equipment resulted intreatment ofthose products less
favourable thanthatprovided forinPartIofEC'sSchedule ofconcessions andtherefore was
inconsistent withobligations under GATT Article II;
- theabove measures nullified orimpaired thevalue ofconcessions accruing totheUnited States
under theGATT 1994.
3.2 TheUnited States alsorequested thatthePanel specify which ofthese parties wasresponsible
totheUnited States forthisnullification orimpairment andthatthePanel recommend thattheEC,
Ireland andtheUnited Kingdom bring thetreatment oftheseproducts intoconformity withobligations
under GATT 1994.
3.3 TheEuropean Communities requested thePanel toreject theUSclaims intheirentirety.
More specifically:
- theECrequested thePanel toreject theUSclaims against Ireland andtheUnited Kingdom.
Asthese member States hadnotengaged inanytariff bindings vis-à-vis theUnited States or
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Article II,norhadtheynullified orimpaired thevalue ofconcessions accruing tothe
United States under theGATT 1994;
- moreover, theECrequested thePanel toreject theUSclaims against theEC,astheEChad
fornoneoftheproducts concerned committed itselftoapply thedutyratebound forcomputers
during theUruguay Round. TheEChadnotreclassified theproducts concerned, resulting
intreatment ofthose products lessfavourable thanthatprovided forinitsSchedule. TheEC
hadconsequently notviolated anyobligations under GATT Article II,norhaditnullified or
impaired thevalue ofconcessions accruing totheUnited States under theGATT 1994.
IV. ISSUES REGARDING THE SCOPE OFTHE CLAIM
A. Product Coverage
1. LAN equipment
4.1 TheEuropean Communities noted thatasestablished byanearlier panel "Prior tothe
commencement ofthePanel'sexamination, ...theproduct coverage mustbeclearly understood and
agreed between theparties tothedispute".18However, thiswasnotthesituation inthepresent case.
TheUnited States, ascomplainant hadfailed todefine clearly LAN products subject tothedispute,
withtheexception ofLAN adapter cards. Initsfirstsubmission, theUnited States hadindicated that
products specifically involved inthesetariffdisputes were: repeaters, bridges, routers, hubs, adapters
ornetwork cards, optical fibreconverters, media interface modules andmultistation access units or
multi media access centers. Initspleadings during thefirstsubstantive meeting ofthePanel, the
United States hadstated inverygeneral terms thatoneofthemeasures attacked was"thechange in
treatment andresulting increases intariffs applied tootherLANequipment, including repeaters, bridges,
routers, hubs, optical fibreconverters, media interface modules, andmulti station access units". In
itsresponses tothequestions bythePanel onthismatter, theUnited States hadpresented anenumeration
ofLAN components, including thistimeLAN adapter cards, LAN controllers, LAN repeaters, LAN
interface unitsandbridges, LAN concentrators, LAN switches, LAN hubsandLAN routers. With
regard tocontrollers andswitches theECnoted thatthese items werenotincluded intheoriginal US
claim. Moreover, theUnited States appeared tohavedropped equipment which ithadoriginally
designated asLAN equipment, notably optical fibre converters andmulti media access centres.
Therefore, intheEC'sview, theonlyproducts relating toLAN equipment thatweresubject todispute
were LAN adapter cards. With regard toallother LAN equipment, theUnited States hadfailed to
identify withsufficient precision andconsistency which items wereconcerned byitsoriginal complaint.
4.2 TheUnited States asserted thatithadspecified thattheproducts atissuewereLAN equipment,
bothLAN adapter cards andother LAN equipment. There wasnothing vague about theconsultation
orpanel requests bytheUnited States inthisrespect: thetermusedinthetradewasLAN equipment.
Those products wereclassifiable as"automatic dataprocessing equipment" intheSchedule maintained
bytheEC,Ireland andtheUnited Kingdom. TheUnited States hadprovided further detail when
requested bythePanel19,buttheanswer could have been tenpages longorhundred pages long,
18PanelReportonEEC-QuantitativeRestrictionsagainstImportsofCertainProductsfromHongKong,adopted
on12July1983, BISD 30S/129, para. 30.
19USresponse tothePanel 'squestion: "...violation oftariff commitments under Schedule LXXX ...has
taken place withrespect toallLAN equipment. Sometimes referred toas"modules,""LAN boards," or"LAN
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depending onthelevelofdetail desired. Buttheanswer would nothavebeenmore complete, because
theterms"LANequipment","LANadaptercards"and"otherLANequipment"weremeaningfulphrases
inthetrade.
2. Personal computers withmultimedia capability
4.3 TheEuropean Communities stated thatwithregard toPCTVs, thescope oftheUSclaim
wasevenmore confusing. TheUnited States hadstated ondifferent occasions thattheclaim concerned
"personal computers", "personal computers withmultimedia capability" and"allpersonal computers
thetarifftreatment ofwhich hadbeenimpaired relative tothetreatment suchproducts received during
therelevant period". Atthesame timetheUnited States hadstated thatitscomplaint was"provoked"
bytheUKtribunal decision of1996 intheICLcaseandhadcontinued tosuggest thatitsclaim was
limited tothespecific typeofPCTV dealtwithinthatcase. Asaresult, theECsubmitted thatthe
onlyitemsubject tothedispute wasthePCTV implicated inthe1996 judgement.
4.4 TheUnited States argued thatitsought restoration oftheconcession negotiated during the
UruguayRoundforthosepersonalcomputersforwhichtarifftreatmenthadbeenimpaired.Thisincluded
multimedia PCswithtelevision capability. Italsoincluded abroader range ofpersonal computers,
suchasthose which utilized storage devices based onlaser-reading technology (i.e., CD-ROMs) and
those which alsohadattendant audio orvideo capabilities. These weretheproducts which hadbeen
subjected toduties inexcess ofthetariff commitments made bytheECanditsmember States under
heading 84.71. Thepersonal computers involved inthisdispute were dealt withinECRegulation
No.1153/97, issued on24June1997andwhich hadentered intoforce on1July1997. Thatregulation
amended theECtariffschedule toreflect atariffrateof3.8percentapplicable tocomputers "capable
ofreceivingandprocessingtelevision,telecommunication,audioandvideosignals,"andof10.5percent
applicable tocomputers "capable ofreceiving andprocessing television signals buthaving noother
specific subsidiary functions".20
19(...continued)
cards," thisproduct areaincludes thefollowing general categories: -LAN adapter cards, including butnotlimited
toLAN adapter cards andLAN network cards ofalltypes, including those forToken Ring, Ethernet andFDDI
systems; -LAN controllers, including butnotlimited todiskcontrollers, memory controllers, cluster controllers
(including remote control units), storage system controllers, device drivers, andsimilar controller units; -LAN
repeaters,includingbutnotlimitedtoframerelaydevices,multistationaccessunitsandmediainterfacemodules;-
LAN interface units andbridges, including butnotlimited toaccess servers (analogous tocomputer network
servers), LAN extenders (lowendLAN access devices), media interface modules, multi station access units and
network computers; LAN concentrators; LAN switches; LAN hubs, including hublets; andLAN routers,
including terminal servers nototherwise described asrouters".
20Initsresponse tothequestions posed bythePanel atthefirstsubstantive meeting, theUnited States had
stated that,inMarch 1997, theEChadsubmitted totheWTO adocument specifying howtheappropriate duty
treatment tocarry outtheinformation Technology Agreement ("ITA") would beprovided initsWTO schedule
ofconcessions,pursuanttoparagraph2oftheMinisterialDeclarationonTradeinInformationTechnologyProducts.
Thisnotification concerning theEC'sITAimplementation indicated that,asofthe1July1997 implementation
datefortheITA, theECanditsmember States would apply tariffs tothese products inexcess ofthe1997 bound
rateforcomputers provided inSchedule LXXX. However, asthedetails ofITAimplementation bytheECand
itsmember States were notknown totheUnited States atthetimeofitsresponse, itwasnotclear whether this
implementation would eliminate theviolation oftariff commitments bytheEC,anditsmember States. Inits
second submission, theUnited States hadindicated thattheEChadon24June 1997 issued itsregulation
implementing itsITAcommitments -Regulation No.1153/97. Asaresult, theEC'sCommon Customs Tariff
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4.5 TheEuropean Communities asserted thattheUnited States wastrying toexpand thescope
ofthedispute, bymentioning forthefirsttimeinitssecond written submission, ECRegulation
No.1153/97 issued on24June1997, which wasunacceptable.
B. Measures atissue
4.6 TheEuropean Communities stated thattheUnited States hadneglected toindicate foreach
oftheitems mentioned initslist,howtheECwassupposed tohaveviolated itstariff commitments.
Theonlyproducts forwhich theUnited States hadidentified violating measure werewithrespect to
LAN adapter cards andthePCTV implicated inthe1996 UKjudgement; soinitsview, those were
theonlyproducts subject tothisdispute.
4.7 TheUnited States asserted that(i)on23May 1995, ECCommission Regulation (EC)
No.1165/95 mandated reclassification ofLAN adapter cards toheading 85.17. Itbecame binding
onallmember States; (ii)In1995and1996, following adoption ofRegulation No.1165/95, theIrish
Revenue Commission withdrew earlier BTIsonvarious types ofLAN equipment andissued aseries
ofnewrulings reclassifying them astelecommunications apparatus under heading 85.17. TheUK
likewise reversed previously issued written determinations confirming treatment ofLAN equipment
under headings 84.71 and84.73. InthewakeofRegulation No.1165/95, customs authorities inseveral
other member States, including France, Belgium andLuxembourg alsoreclassified other types ofLAN
equipment under heading 85.1721;(iii)since 1996 UKcustoms authorities hadreclassified certain
personal computers toheading 85.28. Specifically, theUnited Kingdom hadreclassified andcontinued
toclassify, certain personal computers as"television receivers" under CNheading 85.28 astheywere
capableofreceivingandprocessingtelevisionsignals.TheUnitedStatesalsoarguedthattheamendment
ofAnnex 1toCouncil Regulation (EEC) 2658/87 onthetariff andstatistical nomenclature andon
theCommon Customs Tariff through theissuance ofRegulation No.1153/97, confirmed thattheEC
anditsmember States hadincreased thetariffratesapplicable tocomputers withmultimedia capability,
andconfirmed thatthese products were specifically provided forinheading 84.71.
4.8 Insummary, thereclassification ofLAN adapter cards andother LAN equipment as
"telecommunications apparatus" hadresulted inanincrease intheapplicable tariffto7.5percentfrom
thecurrent applicable bound rateof2percentunder heading 84.71. Reclassification ofpersonal
computers as"television receivers" hadresulted inanincrease intheapplicable tariff to14percent,
from thecurrent bound rateof3.5percentforpersonal computers under heading 84.71.
20(...continued)
nowexplicitly reflected thattariffs were being applied tocomputers withmultimedia capability provided forin
heading 84.71 atrates higher thantheconcession rates agreed tobytheECanditsmember States during the
Uruguay Round.
21TheUSalsowished topoint outthataftertheECpublished theLAN adapter cardregulation inMay1995,
theUnited States hadexpressed itsconcerns totheEC. Ina7December 1995 letter, theECCommissioner
SirLeon Brittan hadresponded toAmbassador Kantor that"...Theproduct inquestion isvariously called a
network orLAN card. These aretheadapter cards permitting exchange ofdataoveralocal areanetwork without
using amodem. Some Member States in1994 were classifying these items under heading 8473, asparts of
automatic data-processing machines, while others (andindeed themajority) wereclassifying them under heading
8517, aselectrical apparatus forlinetelephony orlinetelegraphy performing aspecific function ...".Responding
toaletter from Ambassador Kantor astotheclassification of"additional LAN equipment including bridges,
routers andother products", SirLeon Brittan wrote inaletter dated 28March 1996 that"there isnocurrent
decision orplanned action toclassify theproducts youmention astelecoms apparatus." Healsonoted thathe
intended "tofollow classification proposals closely since theyarenotjustatechnical matter".WT/DS62/R
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C. Status ofdefending parties
4.9 TheEuropean Communities argued thattheUnited States hadnotalways beenclearabout
whotheparties tothepresent dispute were. While thePanel wasestablished ontheunderstanding
thattheECreplies would address alltheclaims made bytheUnited States against Ireland andthe
United Kingdom, there were indications thattheUnited States considered these twomember States
tobesomehow parties tothedispute, which wasnotthecase, intheviewoftheEC.
4.10 Since thelate1950s andtheearly1960s, withtheinception oftheECtherehadbeenatransfer
ofsovereignty fromtheECmember States totheEC,inparticular intheareaofcustoms tariffs and
associated measures. Forthisreason, ECmember States 'individual schedules oftariff concessions
hadbeenwithdrawn intheGATT andreplaced bya(single) ECSchedule oftariff concessions. This
happened mostrecently attheoccasion oftheaccession ofAustria, Finland andSweden atthebeginning
of1995 under theaegis oftheWTO. When compared totheSchedule ofcommitments inthearea
ofservices, which hadasaheading "European Communities andtheirmember States", itbecame clear
thatinthepresent ECSchedule oftariffconcessions, which hadasaheading "European Communities",
suchtariffconcessions werebound intheGATT 1994(likeintheGATT 1947) exclusively atthelevel
oftheECandnotatthelevel ofindividual member States. Thiswasentirely compatible with
Article XI:1oftheWTO Agreement which wasnegotiated infullknowledge oftheabove andwhich
didnotrequire ECmember States tosubmit individual schedules oftariff concessions. TheECwas
anoriginal WTO Member, initsownright.
4.11 Inaddition, theECrecalled theunderstanding reached inthepresent dispute bythejointletter
of20March 1997addressed totheChairman oftheDSB, Ambassador Wade Armstrong, which stated
that"..anyargument thattheUnited States maywishtoputforward relating tothetariff treatment
actually applied bytheUKorIrishauthorities, orrelated toclassification decisions thatliebehind
suchtariff treatment, canbeputforward tothePanel established on25February 1997 (with terms
ofreference modified), and...theEuropean Communities willaddress anysuchpoint intheirreplies
totheUSsubmissions". Moreover, itwasagreed inthatletter thatthePanel already established against
theECwould alsodealwiththeclaims raised bytheUnited States indocuments WT/DS67/3 and
WT/DS68/2 withregard toIreland andtheUnited Kingdom, respectively.
4.12 TheUnited States claimed thatthepresent dispute wasdirected against WTO Members in
addition totheEC,asIreland andtheUnited Kingdom were defending parties inthisdispute.
Consultation requests hadfirstbeenaddressed toeachMember pursuant toArticle 4oftheDSU, and
subsequently, requests fortheestablishment ofapanel. Indeed, theUnited States wasforced toask
forconsultations andestablishment ofapanel withrespect toIreland andtheUnited Kingdom because
itwastoldduring consultations withtheECthatthere wasnocentralized ECcustoms authority and
thattheCommunity could notcontrol theclassification practices ofmember Statecustoms authorities.
4.13 ThePanel'sterms ofreference were clear inthattheyincorporated three dispute settlement
matters --onewithrespect tothemeasures oftheEC,another withrespect tothemeasures ofthe
United Kingdom, andthethirdwithrespect tothemeasures ofIreland. Ifthere hadbeenonlyone
matter before thePanel (i.e.,thatwithrespect totheCommunities), thentheDSBwould haveadopted
terms ofreference concerning asingle matter. Theunderstanding enshrined inthejointletter of
20March 1997dealtwithformrather thansubstance. TheEuropean Commission hadwished toavoid
theestablishment ofthreeseparate panels. TheUnited States hadwished topursue itsrights pursuant
toeachofthethree panel requests andwished toavoid certain procedural delays. TheUnited States
had,infact,traded itsrighttorequest three separate panels forthecertainty thattheexisting panel
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thattheUnited States would notbeprejudiced inasingle panel initschoice ofarguments. TheEC,
Ireland andtheUnited Kingdom wereMembers oftheWTO. Asindependent Members, Ireland and
theUnited Kingdom hidbehind noother Member. Nothing inthetextoftheGATT 1994ortheDSU
limited thescope ofapplication oftheprovisions ofthesetwoagreements withrespect toeither Member
astoitsstatus inadispute brought under these agreements.
4.14 Moreover, theCommission appeared tosuggest thatatransfer ofsovereignty within theinternal
legalframework oftheEChadresulted infewer rights andobligations being allotted tothemember
States. Thatmight bethecaseintheinternal legalframework oftheCommunities, butthatframework
wasnotatissue inthisdispute. What wasatissue weretheWTO rights oftheUnited States andthe
WTO obligations oftheEC,Ireland andtheUnited Kingdom. Assuch, theobligations ofIreland
andtheUnited Kingdom under Article II:1ofGATT 1994 andtheconcessions reflected inthetariff
schedule forthecustoms union ofwhich Ireland andtheUnited Kingdom wereconstituents, werein
dispute. TheUnited States sought nothing more orlessthanthebenefit ofthebargain ithadstruck
intheUruguay Round. Thatbargain wasreflected in,interalia,those tariff concessions. Whether
theEuropean Commission negotiated thetariffconcessions onbehalf ofthemember States wasbeside
thepoint. Thelegally relevant factwasthataSchedule ofTariff Concessions hadbeenannexed with
respect toIreland andtheUnited Kingdom.
4.15 TheEuropean Communities disagreed withtheUSallegation thatthetransfer ofsovereignty
between ECmember States andtheECwasirrelevant ontheexternal plane. TheEChadbound a
tariff schedule ofitsowninGATT 1994 andwasanoriginal Member oftheWTO. Thisindicated
thatthetransfer ofsovereignty hadbeenrecognized byMembers, andthattheECwasmore thana
simple customs union. TheECwasready toassume itsinternational obligations, butwasnotready
toallow anattack onitsconstitution intheWTO.
V. MAIN ARGUMENTS
5.1 TheUnited States claimed thatthetariff concession granted onheading 84.71 inthe
EC-Schedule LXXX legally benefited andapplied withrespect toLANequipment andmultimedia PCs.
Theimposition ofhigher duties bytheEC,Ireland andtheUnited Kingdom ontheseproducts benefiting
fromthisconcession through reclassification actions wastherefore inconsistent withtheirobligations
under Article II:1ofGATT 1994.
5.2 TheEuropean Communities disagreed withtheUSassertion thatthese products hadbeen
reclassified. Thiswasbecause theEChadnever committed itself norcould itbeconstrued tohave
given theimpression thatitwould classify LAN equipment andPCswithmultimedia capabilities under
heading 84.71 andapply thecorresponding duty.22Accordingly, theUScomplaint could notbe
22TheECargued thatithadalways considered LAN equipment tobeclassified under heading 85.17, due
toitsdatatransmission function. When considering PCswith“multimedia capabilities ”,onehadtolookatthe
overall situation. When applying theclassification rules toindividual cases, theEChaddetermined thatthese
products essentially fellintofourcategories. Onetypewould betheproduct classified inheading 85.21 dueto
itscapabilityofreproducingvideoimages(thisproductwasnolongerproduced).Anothertypewouldbeclassifiable
under heading 85.28 because ofitstelevision capabilities. Yetanother category would beforproducts witha
fullrange ofmultimedia functions (i.e.TV,telecommunications, audio andvideo) which fellwithin heading
85.43. Allother PCseither without orwith more limited multimedia functions fellunder heading 84.71.
Additionally,theparticularequipmentimplicatedinthe1996ICLcasewasneverclassifiedasacomputer;therefore
itcould nothavebeen "reclassified" bytheUKcustoms authorities. Inthiscasetheimporter hadvisibly given
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interpreted inanyother waythanasanattempt torevise thenegotiating record oftheUruguay Round.
However, theresult oftheUruguay Round could notbeputintoquestion nowbefore thePanel. Indeed,
Article 3.2oftheUnderstanding onRules andProcedures Governing theSettlement ofDisputes (DSU)
provided that:".....Recommendations andrulings bytheDSBcannot addtoordiminish therights
andobligations provided inthecovered agreement". India, Japan, Korea andSingapore, whointervened
asthirdparties, seemed tohaveblindly adopted theallegations oftheUS,inparticular thestatement
thattheECduring theUruguay Round, uniformly classified theproducts concerned ascomputers.
However, theydidnotbring anyproof tothisclaim either.23
5.3 TheUnited States wished tonotethatthisdispute didnotconcern reclassification assuch,
andthattheWTOAgreementincludednolegalprovisionsconcerningwhereproductsshouldbeclassified
forcustomspurposes.Rather,thisdisputeconcernedtarifftreatment,andinparticularthedutyincreases
onLAN equipment andcertain personal computers intheEC,Ireland andtheUnited Kingdom. For
thisreason, theUnited States wasoftheviewthattheoriginal titleassigned tothisdispute wasincorrect.
TheUnited States hadrequested thatthetitleofthePanel'sreport onthese disputes becorrected to
read"European Communities, Ireland andtheUnited Kingdom -Increases inTariffs onCertain
Computer Equipment".
5.4 TheEuropean Communities stated thattheUSwish tochange thetitleofthedispute, as
reflected initssecond submission, indicated thatithadchanged itsmind onwhatthedispute wasall
about. TheECdisagreed withthisattempt toredirect thedispute against newparties atthepresent
stage oftheprocedure astheUnited States nowseemed toinsinuate thattheEC,Ireland andthe
United Kingdom were somehow collectively responsible forthesituation complained about, aswas
apparent fromtheuseoftheword "and" inthesuggested redrafting ofthetitleofthedispute. Itwould,
anyhow, beextraordinary ifthetitleofthedispute wasamended inthecourse oftheprocedure, and
there wasnotjustification whatsoever forthatinthepresent case.
22(...continued)
upanyhope foramore favourable judgement upon appeal, because theimporter hadallowed thejudgement
oftheUKcourttobecomefinalbynotappealingitdomesticallywithintherelevanttimelimit.Itappearedinstead,
thatthePanel wasnowbeing requested toactasasortofanappellate body onadomestic court ruling handed
down inanindividual case. Totheknowledge oftheEC,challenging adomestic court ruling asa"measure"
under theWTO wasanovel wayofattempting toobtain amore favourable ruling inanindividual case. Even
ifitwere truethatthedomestic court hadfailed toclassify theimported product inamanner allowing proper
tariff treatment, which theECsubmitted ithadnot,theECconsidered thatArticle II:5which would beapplicable
insuchcircumstances would pre-empt thePanel from simply overturning thedomestic court ruling byadenovo
examination ofthecase. Rather, Article II:5provided fortheneedtocompensate forthelossintariff concessions
thatmight ensue. Additionally, astheUnited States itself hadrecognized, theequipment implicated inthiscase
wasaTaiwanese manufacture involving aJapanese company. Theclassification ofthisparticular product by
definition didnotconcern theUnited States, anddidnotprejudge theclassification ofother USproducts which
might have different characteristics.
TheUnited States noted thattheECwasadmitting thatitwastreating some multimedia computers as
dutiable under headings other than84.71 (andathigher dutyrates). AsforArticle II:5,theUnited States had
dulybrought thereclassification-related impairment oftariff concessions ontheproducts atissue directly tothe
attention oftheEC,andhadrequested informal consultations byletter on2May1996. On4Juneand23July
1996, theUnited States andtheEChadheldbilateral consultations, which didnotresolve thematter. The
United States hadsubsequently brought itsconcerns directly totheattention oftheUnited Kingdom andIreland,
bothofwhich haddeclined todiscuss thematter withtheUnited States.
23SeealsoSection VIon"Third Parties Submissions."WT/DS62/R
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A. Scope oftheconcession
1. Duty treatment ofnewproducts orproducts affected byHarmonized System (HS)24changes
5.5 TheUnited States claimed thatthepractice oftheGATT withregard tothetreatment ofnew
products orproducts affected byHSchanges wasinstructive ininterpreting thescope ofaconcession
thatwasdescribedgenerally,butforwhichtherewasnorecordofanydiscussionoragreementdescribing
theproduct scope inexhaustive detail. Inbothinstances, there would notnecessarily havebeenany
discussion ofwhether aparticular product orvariation ofaproduct should beincluded inthescope
ofaconcession. Asestablished bytheGramophone Records case, thepractice insuchinstances was
toresolve silence infavour ofdeeming theneworundiscussed product tobecovered bytheexisting
concession. Thiscaseconcerned Germany 'scomplaint25thatGreece hadraised thetariffonlong-playing
gramophone records tolevels above itsbound ratesforgramophone records. Greece considered that
"long playing" records wereanewitemandtherefore notcovered bythe"records" binding because
theycontained ahigher volume ofrecordings, werelighter thanconventional records, andweremade
ofadifferent material. TheGroup ofExperts which examined Germany 'scomplaint reported that
the"Group agreed thatthepractice generally followed inclassifying newproducts wastoapply the
tariffitem, ifoneexisted, thatspecified theproducts byname, or,ifnosuchitemexisted, toassimilate
thenewproducts toexisting items inaccordance withtheprinciples established bythenational tariff
legislation." TheGroup alsoobserved thatwhen Greece granted theconcession onrecords, ithad
notattached anyqualification tothedescription oftheproduct. TheGroup wasoftheopinion that
"long-playing" records were covered bythedescription of"gramophone records" intheconcession
andtherefore therateofdutytobeapplied tothose records wasthatbound under thatitemintheGreek
schedule.26
5.6 Another caseworth noting inthiscontext waswhen theECproposed tomodify itsbinding
onitem9211.A.II, "sound reproducers," inorder toraisethedutyondigital audio discplayers (DADS)
in1983.27Thewithdrawal wastobemade onapreemptive basis when trade inthisproduct wasstill
atlowlevels. TheECproposal wascontroversial andtriggered aseries ofdiscussions intheGATT
Council andtheCommittee onTariff Concessions. During these discussions, eventheECdidnot
argue thatthelackofanyreference toDADS intheECtariff schedule, since theywerenewproducts,
meant thatDADs were unbound. Eventually, thisissue wastaken upintheNegotiating Group on
GATT Articles andresulted intheprovisions ofparagraph 4oftheUnderstanding ontheInterpretation
ofArticle XXVIII oftheGATT 1994.
5.7 TheUnited States pointed outthatwhile there wasnoobligation under theGATT tofollow
anyparticular system forclassifying goods, areclassification subsequent tothemaking ofaconcession
24Seefootnote 12.
25Greek Increase inBound Duties ,complaint L/575, S.R. 11/12, pages 115and116.
26Report bytheGroup ofExperts onGreek Increase inBound Duty,9November 1956, L/580.
27NotificationinSECRET/296andAdd.1withrespectto"soundreproducerswithlaseropticalreadingsystem",
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under GATT mustnotviolate thebasiccommitment regarding thatconcession.28Tariff changes resulting
from reclassification andtheirGATT legalimplications were alsothoroughly discussed intheearly
1980s, during preparations fortheintroduction oftheHSnomenclature. Itwasclear then, asitis
now, thatchanges innomenclature orclassification which altered thebound treatment ofaproduct
were inconsistent withaMember 'sobligations under Article II:1ofGATT 1994. Implementation
oftheHSbecame amassive Article XXVIII exercise innegotiating compensation fortheimpairment
oftariffs consequential tochanges innomenclature. These considerations haveapplied onacontinual
basis withrespect totheimplementation ofHSrevisions adopted bytheWCO. TheGATT 1947
CONTRACTINGPARTIESdecidedthatimplementationofsuchchanges"shallnotinvolveanyalteration
inthescope ofconcessions noranyincrease inbound ratesofdutyunless theirmaintenance results
inundue complexity inthenational tariffs. Insuchcases thecontracting parties concerned shallinform
theother contracting parties ofthetechnical difficulties inquestion, e.g.whyithasnotbeenpossible
tocreate anewsubheading tomaintain theexisting concession onaproduct orproducts transferred
from within oneHS6-digit subheading toanother".29
5.8 IfaMember could raise duties atwillonneworundiscussed product variations through
reclassification, itwould notneed toinvoke Article XXVIII. Norwould itneed toprovide any
compensation ifitwished tomake apreemptive withdrawal ofthesortproposed bytheECin1983
forDADS. Paragraph 4oftheUnderstanding ontheInterpretation ofArticle XXVIII would bereduced
toinutility. Thelinkbetween Article IIandArticle XXVIII wasrecognized bytencountries thatmade
thecompromise proposal fortheUnderstanding, when theyremarked thatArticle II:1(a) "isdesigned
toprovide security forthefuture andcreates apresumption thattheconditions governing access at
thetimeofnegotiations willbemaintained".30
5.9 TheEuropean Communities responded thattheabove citedcaseoftheGramophone Records
didnotsupport theUScomplaint atall.Thiscasewasdifferent fromthepresent caseinthatitdealt
withnewproducts. Thecurrent UScomplaint waslimited toproducts which already existed during
theUruguay Round. Thus, thequestion which needed tobeaddressed waswhich dutyratehadbeen
bound fortheproducts concerned andnotunder which heading thisequipment should beclassified.
5.10 NorwastheECalleging inanywaythatWTO Members could somehow undotariffbindings
byreclassifying products atwill,without following theprocedures ofArticle XXVIII ofGATT 1994,
andthereby unravelling theresults of50years oftariff liberalization. Onthecontrary, evenincases
ofareclassification asaconsequence ofanagreement intheWCO, theECmaintained thetarifftreatment
originally agreed uponinthetariff negotiations. Forexample, theECusedtoclassify power supply
unitsforcomputers under thetariffclassification heading forcomputers (8471.99). Assuchthebound
dutyrateforthisproduct was3.9percentin199531andwould havebeen2percentin1996.32However,
28Panel Report onSpain -Tariff Treatment ofUnroasted Coffee ,adopted on11June 1981, BISD 28S/102,
para. 4.4andn.1.SeeTAR/M/4, Committee onTariff Concessions, Minutes ofMeeting, 31July1981, atpara.
7.14.
29DecisiononGattConcessionsundertheHarmonizedCommodityDescriptionandCodingSystem,Procedures
toImplement Changes intheHarmonized System ,8October 1991, BISD 39S/300, para.1.
30MTN.GNG/NG7/W/59, proposal byArgentina, Canada, Colombia, Czechoslovakia Hong Kong, Hungary,
Korea, Mexico, New Zealand andSingapore circulated on3November 1989, page 3.
31Seetheannex toECRegulation 1395/95.WT/DS62/R
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following adecision oftheHSCommittee, power supply unitswerereclassified under heading 8504.40.
Thetariffratenormally applying tothisheading was4.8percentin1996. YettheECcreated aseparate
subheading, 8504.4030 withtherateof2percentinorder tomaintain theconcession ithadnegotiated
intheWTO.
2. "products described"
5.11 TheUnited States claimed thattheproducts atissuewerewithin thescope oftheECconcession
onitem84.71. Article II:1(b) required thatthe"products described" inaMember 'sSchedule which
were theproducts ofterritories ofother Members "shall...be exempt from ordinary customs duties
inexcess ofthose setforth andprovided therein.". Theordinary meaning of"describe" was"to
statethecharacteristicsof...".ThenegotiatinghistoryofArticleIIconfirmedthatthedraftersdeliberately
chose thegeneral term "described" inpreference tothenarrower term "enumerated".33TheEC-
Schedule LXXX provided aconcession onitem84.71 comprising automatic dataprocessing machines
andunitsthereof. Thecharacteristics ofLAN equipment andofpersonal computers withmultimedia
capability corresponded, intheUnited States 'view, tothose stated inthistariff concession on84.71,
andtheirparts within thescope oftheconcession on84.73.
5.12 Moreover, thisfacthadbeenconfirmed bytheWorld Customs Organization (WCO). The
WCO HSCommittee atitseighteenth session inNovember 1996, haddecided thataPCwithtelevision
andaudio capabilities wasproperly classified asanautomatic dataprocessing machine inHSChapter 84
atsub-heading 8471.49. Inaccordance withArticle 8oftheInternational Convention ontheHarmonized
Commodity Description andCoding System theclassification decision wasdeemed accepted bythe
Council on1February 1997, asnoreservation wasentered onthisdecision during thetwo-month period
allowed under theConvention. TheCommittee alsodecided atitseighteenth Session todraftanopinion
which embodied thisdecision forinclusion intheCompendium ofClassification Opinions. Thistext34
wasadopted bytheCommittee atitsnineteenth Session inApril 1997. Unless aWCO member made
areservation andsought tohavethetextoftheopinion reconsidered bytheCommittee, thistextwould
bedeemed tobeaccepted bytheCouncil asof1July1997, andwould beincluded inthenextsetof
amendments totheCompendium ofClassification Opinions. TheWCO HSCommittee alsoatits
nineteenth Session inApril 1997, voted ontheproper classification ofcertain LANequipment including
routers, cluster controllers, hubs, multistation access units andoptical fibre converters. The
overwhelming majority ofHSCommittee members agreed thattheseproducts wereproperly classified
under heading 84.71. While theUnited States wasoftheviewthatthiscasewasnotabout classification,
theWCO decisions confirmed thattheUnited States wasjustified inexpecting theproducts atissue
tobeclassifiable under heading 84.71 andsubject tothebound dutyratepertaining tothatheading.
32(...continued)
32Seetheannex toECRegulation 3009/95.
33EPCT/TAC/PV/23, pages 18and19.
34"8471.49 Multimedia personal computer consisting ofthree separately housed units: a14inch(35
cm)colour television receiver (display) withadigital processing unit, akeyboard (input unit), andaninfra-red
remote control device. Theunitcomprises aprocessor (60486DX2), amemory (4MBRAM), adiskette drive
(1.44 MB), aharddisk(350MB), aCD-ROM drive, acolour monitor television receiver, non-interlaced in
PCmode andinterlaced inTVmode, andstereophonic loudspeakers. Thesystem plays audio andsoftware CDs
andrecords digital audio files. Thedifferent functions (PC,television orsoundstack) areselected byusing either
atrackball incorporated inakeyboard, thekeyboard itself ortheinfra-red remote control device. Thesystem
alsoplays audio andsoftware CDsandrecords digital audio files." (Annex K/14 toDoc.41.100E (HSC/19/Apr.97).WT/DS62/R
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5.13 TheEuropean Communities failed toseehowthesedraftopinions dated 1996/97 could confirm
thattheproducts subject tothedispute wereclassified under 8471in1993/94. Ifanything, therecent
draftamendment merely showed thatuntilrecently ithadbeendisputed howtheproducts concerned
should beclassified. Otherwise theHSwould notneedtobeamended. InanycasetheEC,had
introduced reservations inrespect ofbothclassification opinions (i.e.thePCTVs andcertain LAN
equipment) on26June1997. But,evenifthedraftopinions astheystood nowweretobecome final,
theECconsidered thatitwould notaffect thepresent case, because thecasewasabout dutytreatment
andnotabout product classification. Adecision oftheWCO could notaffect thebalance ofconcessions
oftherespective parties agreed uponduring theUruguay Round. Tariff negotiations wereabout tariffs,
notabout customs classification. Customs classification, thus,wasonlythebackground forsuchtariff
negotiations, butnotitssubject matter. Ifitwere different, tariff negotiations would becarried out
intheframework oftheWCO andnotintheWTO. Itwaspossible tohavedivergent views between
participants intariff negotiations concerning theclassification ofcertain products, butthatquestion
should beaddressed intheWCO. Furthermore, theECnoted thatintheWTO Agreement onRules
ofOrigin reference wasmade tothefuture elaboration ofarrangements concerning the"settlement
ofdisputes relating tocustoms classification".35Such anarrangement hadnotyetbeenconsidered,
whichwasanotherreasonwhythisPanelshouldabstainfrompronouncingitselfoncustomsclassification
issues.
3. treatment accorded atthetimetheconcession wasnegotiated
(a) "treatment ...provided for"and"treatment ...contemplated"
5.14 TheUnited States argued thatinterpreting Article II:1initscontext, including Article II:5,
the"treatment...provided for"inatariffconcession included the"treatment...contemplated" when the
concession wasmade. Under GATT Article II:1(a), eachWTO Member hadtoaccord tothecommerce
oftheother Members "treatment nolessfavourable thanthatprovided forintheappropriate Partof
theappropriate Schedule annexed tothisAgreement." Thereference to"treatment....provided for"
inArticle II:1(a) didnotmean "classification specifically provided for." Suchaninterpretation would
mean thatinallcases where aWTO Member hadnotspecifically provided inaconcession thata
particularproductwouldbegivenaspecifictariffclassification,thatMembercouldreclassifytheproduct
atwilltoahigher-duty tariffposition andapply higher tariffs. Thereference to"treatment...provided
for"hadtobeinterpreted inthelightofitscontext andtheobject andpurpose ofArticle II.Thecontext
ofArticle II:1included Article II:5.
5.15 Article II:5provided that"Ifanycontracting party considers thataproduct isnotreceiving
from another contracting party thetreatment which thefirstcontracting party believes tohavebeen
contemplated byaconcession provided forintheappropriate Schedule annexed tothisAgreement,
itshall bring thematter directly totheattention oftheother contracting party. ..."Thus, the
"treatment...provided for"wastobeunderstood asthe"treatment...contemplated" byaconcession.
Article II:5didnotrequire thetreatment tohavebeendiscussed orexpressly agreed. Theordinary
meaning of"contemplate" inthiscontext was"toexpect". Thetreatment inquestion hadtobethe
treatment bytheimporting Member which wascontemplated atthetime. Thus, thetreatment provided
byaconcession wasthetreatment reasonably expected bythetrading partners oftheMember making
theconcession.
35Article 9.4oftheAgreement onRules ofOrigin.WT/DS62/R
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5.16 TheEuropean Communities noted thatinreferring to"reasonable expectations" withregard
tothetariff treatment ofcertain computer equipment, theUnited States hadusedlanguage thatwas
borrowed frompanel reports dealing withArticle XXIII:1(b) ofGATT 1994, theso-called non-violation
cases. ButtheUnited States hadnever raised formally thematter ofArticle XXIII:1(b) intheprocedure,
norduring consultations. AtthesametimetheUnited States appeared toallege thattheEChadviolated
itsobligations under Article II:1ofGATT 1994, which indicated bycontrast thattheclaim appeared
tobebased onArticle XXIII:1(a) ofGATT 1994.
5.17 TheUnited States hadjustified useofthislanguage byreferring toArticle II:5ofGATT 1994,
inparticular byquoting thewords "...the firstcontracting party believes tohavebeencontemplated
byaconcession provided forintheappropriate schedule....". From theEC'spoint ofview, this
explanationwasinconsistentwiththeclaimthattheEChadallegedlyviolatedArticleII:1ofGATT1994.
Theconsequence oftheinvocation ofArticle II:5could onlybethatthere should benegotiations on
howtoresolve thedivergence ofviews depending onthesubjective beliefs oftheinterested Members,
rather thantherelevant exporting industry. Nowhere inArticle II:5wasthere anindication thatthe
belief, which theUnited States translated by"reasonable expectations", could replace theobjective
determination ofanexisting agreement onatariff binding ofaparticular product.
5.18 TheUnited States claimed thatthisdispute wasabout theviolation oftheobligations ofthe
EC,Ireland andtheUnited Kingdom under Article II:1oftheGATT 1994 andthenullification or
impairment ofbenefits arising fromthose violations. However, itwasworth recalling thatoneofthe
precepts developed under GATT 1947wasthatrulesanddisciplines governing themultilateral trading
system served toprotect legitimate expectations ofMembers astothecompetitive relationship between
theirproducts andthose oftheother Members. AstheSuperfund panel hadpointed out,suchrules
anddisciplines "...arenotonlytoprotect current trade butalsotocreate thepredictability needed
toplanfuture trade".36Theprotection oflegitimate expectations wascentral tocreating security and
predictability inthemultilateral trading system, forgovernments andfortrade itself. Furthermore,
theNewsprint casehadmade clearthat"reasonable expectation" wasenforceable under Article II:1.
Reasonable wasnotbased oncertainty orabsolute clarity. Itwasthetreatment thataMember "believes
tohavebeencontemplated byaconcession", asthatphrase appeared inArticle II:5.This1984Newsprint
panel caseconcerned anECregulation ontheduty-free tariff ratequota fornewsprint. TheEChad
agreed togivefullyduty-free access totheEFTA countries fornewsprint andhadreduced theMFN
tariff ratequota fornewsprint (bound at1.5million tonnes) bysubtracting anamount corresponding
toEFTA access (1million tonnes) TheECclaimed thatitwasnotimpairing thebinding onnewsprint,
butthePanel found thattheECwas,forthefollowing reasons: "...under long-standing GATT practice,
evenpurely formal changes inthetariff schedule ofacontracting party.... havebeenconsidered to
require renegotiations. ...Ingranting theconcession in1973, theEChadnotmade itsubject toany
qualification orreservation inthesense ofArticle II:1(b) although atthetimetheconcession wasmade,
itwasknown thatagreement hadalready beenreached thattheEFTA countries would obtain full
duty-free access totheCommunity market fornewsprint from 1January 1984 onward. ThePanel
therefore found thatalthough intheformal sense theEChadnotmodified itsGATT concession, it
hadinfactchanged itsGATT commitment unilaterally, bylimiting itsduty-free tariffquota form.f.n.
suppliers for1984 to500,000 tonnes".37ThePanel hadconcluded that"....the EC,inunilaterally
establishing for1984 aduty-free quota of500,000 tonnes, hadnotacted inconformity withtheir
obligations under Article IIoftheGATT. ThePanel shared theviewexpressed before itrelating to
36Panel Report onUnited States -Taxes onPetroleum andCertain Imported Substances ,adopted on17June
1987, BISD 34S/136, para. 5.2.2.
37Panel Report onNewsprint ,adopted on20November 1984, BISD 31S/114, para. 50.WT/DS62/R
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thefundamental importance ofthesecurity andpredictability ofGATT tariffbindings, aprinciple which
constitutes acentral obligation inthesystem oftheGeneral Agreement".38
(b) "treatment ...contemplated" and"treatment accorded "
5.19 TheUnited States claimed thatintheabsence ofexplicit provision inaSchedule orspecific
discussions during negotiations, the"treatment ...contemplated" could beinferred fromthe"treatment
accorded" atthetimetheconcession wasnegotiated. Inother words, thelatter provided abasis for
interpreting theproduct scope andthenature ofthe"treatment... provided for". Under Article II,
Members were freetospecify theterms of,andanyconditions orqualifications on,theconcessions
theymake. TheMember making theconcession might specify explicitly thetreatment itintended or
theexact product composition oftheconcession. Those who hadmade theconcessions in
Schedule LXXX didnotdoso.Infact,Schedule LXXX could haveprovided thattheconcessions
therein would besubject toreclassification atwillorcould haveprovided explicitly thatthetrading
partners oftheEC,Ireland andtheUnited Kingdom werenotguaranteed acontinuation ofthetreatment
known tobeprovided during thenegotiations. Nosuchqualification orreservation appeared in
Schedule LXXX. Norwere there anyreservations forparticular types ofcomputer orcomputer
equipment. Hence, theparties which werebound bySchedule LXXX hadagreed tocontinue toprovide
thetreatment contemplated bytheirtrading partners atthetimethebargain wasstruck.
5.20 TheEuropean Communities stated thattheUnited States hadcreated confusion byitsstatement
that"theproduct scope ofaconcession", andthusthe"treatment ...contemplated" could bedetermined
fromthetreatment actually accorded atthetimethattheconcession wasnegotiated. Suchanapproach,
iffollowed, would mean thatadecision byalocalcustoms authority foraparticular consignment would
amount toanewtariff binding under Article IIoftheGATT which wasabsurd. Information bylocal
customs offices orevenbynational customs authorities toindividual importers ontheclassification
ofindividual consignments orgoods identified byname (brand andmodel) could notbecome the
equivalent ofatariff binding since atariff binding referred toacategory ofproducts identified ina
generic waybytheproduct description intherelevant tariff lineofthecustoms tariff. Such tariff
bindings needed tobeagreed during tariff negotiations, asprovided forunder therelevant provisions
oftheGATT 1994(particularly Article XXVIII bis). Itmight bepossible toinferatariff binding for
acategory ofproducts corresponding totheproduct description inagiven tarifflinefromcircumstances
thatwere notlaiddown inwritten records ofthenegotiations, buttheparty invoking suchspecial
circumstances would havetobeartheburden ofproof fortheexistence ofsuchcircumstances. Itwould
certainly benecessary, inorder tomeetthisburden ofproof, toshow thatnegotiators hadknowledge
ofthecircumstances andthattheywererelevant toacategory ofproducts coming under aparticular
tariff lineandnotforindividual imports alone.
5.21 TheUnited States saidthattheEChadconceded thatatariff binding could beinferred for
agroup ofproducts corresponding totheproduct description inagiven tariff line,onthebasis of
circumstances outside thewritten negotiating record. However, theECargument thatnegotiators must
havehadknowledge ofthese circumstances andthecircumstances musthavebeenrelevant toagroup
ofproducts under aparticular tariffline,andnotforindividuals alone, wascalculated todeprive BTIs
andother member Stateclassification actions ofanysignificance. Itwasimportant tonote, however,
thatanimporter whohadobtained aBTIforgoods ofaparticular typecould usetheBTItoimport
thesame goods throughout theEC. Inaddition, theimporter would know that,nomatter whatthe
ultimate ECmarket fortheproduct, itcould beentered through thecountry thatissued theBTIatthe
38Ibid., para. 52.WT/DS62/R
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ratespecified intheBTI. Other importers ofidentical orsimilar products might alsoexpect those
products toreceive thesame tariff treatment.39
(c) atthetimetheconcession wasnegotiated
5.22 TheUnited States saidthatthe"time" ortimeperiod relevant todefining therights and
obligations withrespect totheEC'stariffcommitments ontheproducts atissuebegan inMarch 1990
when theUnited States tabled theoffer/request fortheelectronics sectoral proposal. Therelevant time
period closed intwostages, firstandprimarily withtheUruguay Round on15December 1993
(MTN.TNC/40). Themore limited second stage closed attheendofverification oftariff schedules,
which tookplace fromFebruary 1994through 31March 1994. Assubstantive tariffnegotiations closed
on15December 1993, changes intreatment during theverification oftariffschedules wereonlyrelevant
todefining rights andobligations withrespect totariff concessions totheextent thattheparty making
suchchanges brought them totheattention ofitsnegotiating partners.
5.23 TheEuropean Communities wereoftheviewthatthestarting basefortheUruguay Round
wasestablished inthe"Procedures fortheNegotiations".40TheUruguay Round tariff negotiations
wereheldonthebasis oftheHSnomenclature andhadlasted untilthecompletion oftheverification
process thatenabled participants toraise anyproblems theyhadwithregard tothereflection of
concessions negotiated inproposed schedules. Thisprocess ended inMarch 1994withthefinalization
oftheverification process.
5.24 TheUnited States agreed withtheECthatthestarting point fortherelevant period was
established inthetextagreed toon30January 1990on"Procedures fortheNegotiations". TheUruguay
Round tariff negotiations were heldonthisbasis, andended inMarch 1994 withthefinalization of
theverification process. TheUStrading conditions werereflected notonlyinthetabling ofthefirst
"zero-for-zero" request/offer butinitspreparation.
5.25 TheUnited States recalled that,attheclose ofsubstantive tariff negotiations, thedelegations
hadagreed that"noadjustments entailing awithdrawal ofanoffer orelements ofoffers would be
permitted" from thenforward (MTN.TNC/W/131). Asalsoagreed, theyhadsubmitted theirdraft
finalschedules totheSecretariat by14February 1994. Between 14February and31March 1994,
theparticipants hadengaged intheverification process, toensure thatthefinalschedules accurately
reflected thenegotiated concessions agreed uponbytheparticipants. Inadherence tothedeadlines agreed
upon, theUnited States, theECandtheother participants hadcompleted verification bytheendof
March 1994. On15April 1994, thecontracting parties hadsigned theFinalActoftheUruguay Round,
atwhich timetheirschedules ofconcessions were annexed totheMarrakesh Protocol.
B. Tariff treatment ofproducts
1. LAN equipment
(a) Negotiating History
5.26 TheUnitedStatesclaimedthatinclusionofLANequipmentwithinheading84.71wassupported
bynegotiating history. Ifaparty hadmade andmaintained anoffer ofcoverage foraspecific item
39Additional discussion onthismatter istobefound inparagraphs 5.43 to5.62.
40Procedures fortheNegotiations ,MTN.GNG/NG1/17 of1February 1990.WT/DS62/R
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identified aswithin aparticular tariff heading, thenthatparty could beassumed tohave induced
reasonable reliance byitstrading partners onthatoffer; thetrading partners concerned could reasonably
expect thattheconcession would include thoseitems; andunless thefinalconcession explicitly provided
otherwise, itcould beinferred thatthefinalconcession wasintended toinclude thatitemattherate
applicable tothetariff heading inquestion. Thesame wastrueifaparty hadreceived arequest for
aspecific itemidentified aswithin aparticular tariffheading andhadnotobjected thattherequest was
wrongly targeted. Inthepresent case, theUS"zero-for-zero" request/offer of15March 1990 had
proposed elimination ofduties bytheUnited States anditstrading partners, including theEC,with
respect toalonglistofproducts, including electronic articles inHSchapters 84,85and90.Singapore ’s
June1990 request made totheECrequested dutyreductions on"microcomputers desktoptype" and
"microcomputers other" (both 8471.20), aswellas"control units", "adaptor units", "gateways" and
"concentrators ormultiplexers" (all8471.99), and"printed circuit boards assembled" (8473.30). In
otherwords, Singapore hadsubmitted arequest totheECfortariffreduction onLANequipment within
heading 84.71 andtheEChadnotobjected tothatclassification ofLAN equipment atthattime. Thus,
theEC'sownconduct showed thatitintended toinclude LAN equipment under theconcession rate
forheading 84.71.
5.27 Furthermore, representatives oftheUScomputer industry hadclosely monitored theUruguay
Round negotiations, andhadregularly raised theirconcerns withtheUnited States Trade Representative
(USTR) andmembers oftheUSCongress. During thistime, theydidnotraiseanyconcerns with
respect toEC’sclassification anddutytreatment ofLAN equipment andpersonal computers with
multimedia capability. They assumed, inlightofthefactthatthisissue wasnotraised bytheEC,
thatheadings 84.71 and84.73 would continue tocover LAN equipment products. Theindustry 'sonly
concern wasthattheEC’sreduction intariffs onthose headings would beinsufficient, asreflected
inaletteron10November 1993toAmbassador Kantor fromtheUSComputer andBusiness Equipment
Manufacturers Association (CBEMA). Reviewing thetariffheadings ofinterest toCBEMA members,
theletter noted that"there is...enormous trade inthenextlevelofvalue-added, the"stuffed circuit
board" (small boards aresometimes called cards), or"electronic assembly" orsometimes called in
Europe the"PCB" (for"printed circuit board"). There isawide variety ofPCB'sorelectronic
assemblies, mostofwhich areclassified in[heading 8473] ascomputer parts: memory boards, graphics
accelerator boards, LAN cards." Intheletter, CBEMA wentontocriticize aproposal floated bythe
ECtodivide HSheading 8473 intotwoitems, "electronic assemblies," withnodutyreduction, and
"other," subject tozeroduties. Theproposal would beinadequate, CBEMA said,because "other"
computer partsconsisted ofplastic cases andmetal chassis, which hadlowornonexistent trade, and
"electronic assemblies" consisted of"PCBs orstuffed circuit boards" withsubstantial trade. Essentially,
thesignificance ofthisletter wasthatinthefaceofdramatic differences intariffratesdepending upon
theclassification oftheproducts --adifference of3.5percentand14percentinsome cases --the
industry advisors werenoticeably silent onthetreatment ofLAN equipment inreacting totheECoffer.
Yettheycommented specifically ontheoffers ofother products. Sotheindustry 'sunderstanding of
tariff treatment wasbased, inturnonthetreatment theirexports hadactually received, asevidenced
inpartbytheBTIs andbytheirattestations thattheUnited States submitted tosupport itsclaims.41
TheUSgovernment, inturn, during theUruguay Round negotiations hadreasonably relied onthe
experience ofitsexporters andtraders inactually exporting these products totheECunder Chapter
84andreasonably expected thatthese products would continue toreceive treatment bytheECas
computers, computer units orcomputer parts under Chapter 84.
41SeeAnnex 4.WT/DS62/R
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5.28 TheEuropean Communities stated thatduring theUruguay Round, boththeECandthe
United States hadmade numerous tariffconcessions invarious areas. However, noneoftheproducts
atissue were discussed byname. Nospecific binding wasmade foranyoftheindividual products
atissue. Only thetariff headings inquestion were bound. Singapore 'srequest onheading 84.71
inwhich itidentified byname "gateways, "concentrators" and"multiplexer", didnotconstitute any
evidence thattheEChadaccepted thatitsconcessions oncomputers would cover these components.
First Singapore 'sproduct listing under heading 84.71 wasderived from Singapore 'sowntariff
classification, andsecondly subsequently tothispreliminary tariff request, Singapore sentarevised
tariff request totheECon10October 1990.42Significantly intherevised list,"gateways",
"concentrators" and"multiplexers" were notmentioned anymore under thetariff heading 84.71.
Singapore hadnotsubmitted anyevidence thattheECinthemeantime, orafterwards, hadaccepted
togrant thetariff treatment accorded tocomputers tothese products. Onthecontrary, theEChad
clearly classified multiplexers, forinstance, astelecom equipment ina1992Regulation43,wellbefore
theendoftheUruguay Round. IfSingapore hadanyexpectations left,thisRegulation certainly must
haveputanendtothem. Forthesereasons, Singapore could notlegitimately claim tohaveestablished
thattheECindicated orraised expectations during theUruguay Round, thatLAN equipment would
becovered bythetariffconcession oncomputers. Inanyevent, anyexpectations raised bythisbilateral
correspondence inthemind ofSingapore could notbeconferred ontheUnited States.
5.29 TheEC,additionally alleged, contrary totheUnited States, thatAmerican industry wasaware
ofthisproblem.TheAmericanElectronicsAssociation(AEA),whichrepresentedthecomputerindustry,
hadscheduled ameeting withCommission officials on25February 1994inorder todiscuss anumber
ofissues including classification differences inmember States withrespect toanumber ofproducts
including LAN interface. Tariff headings tobediscussed inthiscontext included 85.17, 84.71 and
84.73. Sowhen asking forthemeeting, theAEA (andcertainly some oftheirmembers manufacturing
LAN) were aware thatLAN equipment wasnotclassified inauniform manner within theEC.
5.30 TheUnited States responded thatduring negotiations ithadnotinquired specifically intothe
treatment ofthese products, asthere wasnoreason todoubt thatthese products would continue to
betreated asdutiable under heading 84.71. TheEConitspartdidnotprovide anynotice toUS
negotiators during thenegotiations ofanydoubts thattheECormember Stateauthorities might have
hadconcerning theproper classification ordutyrateapplicable tothese products. And, ofcourse,
given thetariff treatment applied atthetime, there would havebeennological reason fortheECto
doso.Moreover, tariff negotiators dealing withthousands oftariff linescould nothavediscussed the
precise product composition ofeachlinewithout taking anadditional tenyears tocomplete theUruguay
Round. Thus, theEC’sposition would throw intouncertainty practically every tariff concession the
ECoranyofitstrading partners made intheUruguay Round. AsfortheAEA meeting, the
42Thisletter contained thefollowing:
"Dear Paul,
Iamwriting withreference tomyletter of22Junewherein Iforwarded toyouSingapore 's
preliminary request listforthetariff negotiations.
Following bilateral discussions withyourmarket access negotiators, Singapore hasrevised its
request list. Iamenclosing therevised Singapore tariff request listtoEEC. Itwould beappreciated ifyou
could transmit ittotheappropriate authorities. Ihope thatthese requests would beconsidered favourably.
Yours sincerely, [signature]"
43ECRegulation 396/92 of18February 1992, OJ1992 L44/9.WT/DS62/R
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United States hadmade inquiries, andwasunable toconfirm whether ameeting had,infact,taken
place inFebruary 1994 orbefore theendoftheUruguay Round.
5.31 TheUnited States questioned whether theargument thatnospecific binding wasmade forany
oftheproducts atissuebecause theywerenotdiscussed byname during theUruguay Round andonly
thetariffheadings inquestion werebound meant thatiftherewasno"specific binding" fortheseproducts
under Chapter 84,thentheywerebound under Chapter 85,andifso,whythere, given theevidence
suggesting otherwise? Andifnot,were theythentobeconsidered unbound? Theimplications of
suchanargument weredisturbing when considered inrelation totheUruguay Round tariffconcessions,
andevenmore soforTokyo Round andKennedy Round concessions. Although theUnited States
hadnegotiated intheUruguay Round onarequest/offer basis, some participants intheRound had
negotiated byusing atariff reduction formula. TheUS-EC negotiation onChapter 84provided an
example ofhowtwogroups ofbusynegotiators dealing withbillions ofdollars oftrade andhundreds
oftariff linesrelied onacontinuation ofthestatus quo. Discussion ofspecific product coverage was
evenlesslikely when allnegotiators usedaformula approach totariff reduction, aswasthecasein
theTokyo Round andtheKennedy Round. WastheECarguing thatwhenever theformula approach
wasutilized, theheadings were bound buttheproducts within theheadings were not,andifsoan
importingcountrycouldreclassifysuchproductsatwillintohigher-dutyheadingswithnodutytoprovide
compensation? Ifso,notonlywasthebalance established byallprevious negotiating rounds upset,
butallfuture negotiations would require afundamentally different, andmore time-consuming and
complicated, approach.
5.32 TheEuropean Communities stated thattheallegation raised bytheUnited States, thatthe
EC'sposition wasthattheproducts subject tothedispute wereunbound under theEC-Schedule LXXX,
wasabsurd. Itsrealposition wasthatthese products were notbound withcomputers under tariff
heading 84.71, butwerebound withelectric machinery under therelevant tariff headings ofchapter
85oftheECschedule.
5.33 Itwaspossible thattheECandtheUSnegotiators didnothavethesame understanding on
what precisely were theproducts towhich theirtariff negotiations related. Infact,noparty tothe
negotiations raised theissuethatcustoms dutytreatment ofLAN equipment differed fromonecountry
toanother. Thismeant thatdifferent concessions were negotiated byvarious parties forthesame
products. TheUSnegotiators might finditdifficult toadmit nowthattheirunderstanding ofthetariff
classification intheECoftheproducts theytalkabout nowwaserroneous; however, theyonlyhad
themselvestoblame.TheyshouldhavecomeforwardandrequestedclarificationfromtheECnegotiators
iftheywerenotsurewhere theseproducts should beclassified intheECespecially sincetheythemselves
hadreclassified these products onlyshortly beforehand; afactwhich wasconveniently omitted by
theUnited States. During theUruguay Round, theUnited States hadconsidered LAN equipment to
becovered bycategory 85.17, butin1992onitsowninitiative theUnited States hadreclassified LAN
equipment under heading 84.71; so,infact,thereclassifying party wastheUnited States andnotthe
EC.Moreover, theUnited States, afterhaving reclassified LANequipment itself, in1992fromtelecom
equipment tocomputers, didnotacknowledge orinform trading partners ofthisfact,nordiditamend
itsoffer/request totheECduring theUruguay Round. Canada wasanother example ofareclassifying
Member.DuringtheNAFTAnegotiations,thepartiestothisagreementhadadmittedthatitwasdifficult
toclassify LAN equipment, andtheyhadagreed toconsult onthisissue andtoendeavour toagree,
nolaterthan1January 1994, ontheclassification ofsuchgoods ineachParty'stariff schedule.44
Following thisagreement andnotearlier thanMay1995, Canada modified itsclassification practice
44Annex 308.3 toNAFTA.WT/DS62/R
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andbegan toclassify LAN equipment from thenonunder heading 84.71. InaCustoms Notice of
24May1995, theCanadian Department ofRevenue observed that:"Although valid statements can
bemade forclassification under heading No.85.17, theDepartment hasdecided toadopt aharmonized
NAFTA classification position forLAN apparatus under heading No.84.71"45
5.34 TheUnited States argued thatthefirstimportant point tonotewasthattheclassification by
theUnited States ofimported goods under theTariff Schedules oftheUnited States Annotated orthe
Harmonized Tariff Schedule oftheUnited States didnotaffect thereasonable expectation ofthe
United States thattheEC,theUnited Kingdom andIreland would provide thetarifftreatment toLAN
equipment according totheconcessions intheECSchedule forautomatic dataprocessing equipment
orparts thereof. Itwasunaware ofanyassumptions about theclassification decisions taken byEC,
UKorIrishcustoms authorities based uponthedecisions oftheUnited States under itstariffschedule.
Such assumptions would have been wholly speculative, atbest. Furthermore, theimpact ofUS
classification ofsuchgoods onitsGATT tariff bindings wasnotapparent, astheUnited States had
negotiated during therelevant period inthecontext oftheNorth American FreeTrade Agreement an
understanding tomove toMFN duty-free treatment ofimported automatic dataprocessing equipment.
5.35 TheEuropean Communities stated thatthechange inclassification orreclassification bythe
United States in1992 andCanada in1995 wasimportant enough tobementioned because itshowed
thatclassificationofLANequipmentwasunsettledduringtheUruguayround.Theseexamplesillustrated
thattheUnited States hadnoparticular reason toexpect thattheECwould classify LAN equipment
ascomputers. Theyalsohelped toputtheinitially inconsistent classifications ofsome national customs
authorities intheECintobetter perspective. Classification ofthisequipment wasindeed adifficult
exercise foreverybody. Thisshould haveforewarned ECtrading partners nottodrawhastyconclusions
from tariff treatment inindividual cases which theyfound favourable. Furthermore, therecent
negotiations ontheInformation Technology Agreement showed again themany diversities between
WTO trading partners inclassifying LAN equipment. Forinstance, twoofthethirdparties tothis
dispute, Japan andKorea, were stillclassifying some LAN equipment astelecom equipment.46
(b) Imports ofproducts
5.36 TheUnited States claimed thatimports oftheproducts atissueintotheECweretreated under
Chapter 84during theUruguay Round. Thistreatment could bedetermined through examining trade
figures andother datasuchasinvoices. Inconjunction withactual treatment, classification rulings
bytheimporting country provided particularly compelling evidence oftheactual product scope ofa
particular tariff heading.
5.37 TheEuropean Communities noted thatasindicated before, tarifftreatment wasdifferent from
custom classification. Thefactofclassifying aproduct under acertain tariff heading wasseparate
from theagreement Members might havereached onthetariff treatment forparticular items during
multilateral tariff negotiations. Atariff binding could notbeinferred from individual classification
decisions bylocalcustoms authorities onindividual consignments. Ifasaresult ofsuchindividual
classification decisions, animporter obtained more favourable tariff treatment thanthatforeseen in
thetariff schedule, thisrepresented awindfall benefit forthatcompany anddidnothaveaneffect on
therights andobligations heldbyWTO Members.
45Canadian Customs Notice No.963of24May 1995, page 4.
46SeeAnnex 5.WT/DS62/R
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5.38 TheUnited States argued thattheclassification actions bytheimporting member States of
theECwereclearly relevant indetermining suchtreatment. Such actions demonstrated where trade
wasexpected toanddid,flow. They provided particularly compelling evidence thatspecific products
fellwithin theproduct scope ofaparticular tariffheading, andthattheauthorities intheECwereaware
ofthatproduct scope. Inparticular, thetreatment accorded toLAN equipment under BTIsandother
member Stateclassification actions prior to1993 wasespecially compelling given theabsence ofany
EC-wide classification regulations ontheseproducts orevenamechanism toobtain BTIswithEC-wide
applicability. Nolegitimate objection could beraised thattheclassification ofgoods imported consistent
withsucharuling wasfraudulent ormistaken.
5.39 TheEuropean Communities responded thatitwasclearthattheECwasnotbound vis-à-vis
itstrading partners byanyactions ofnational authorities which wereinconsistent withtheEC'sposition,
butwhich might havebenefited certain individuals. Likewise theECwould notclaim toderive any
rights against theUSgovernment, forinstance, ifalocalUScustoms office mistakenly levied duties
onECimports thatwere lower thanthose negotiated andbound bytheUnited States intheWTO.
5.40 TheUnited States argued thattheanalogy wasmisplaced ontheground thatECmember States
werethemselves WTO Members, asalready mentioned. Moreover, thesituation inthepresent dispute
hadspecial features because theactual treatment ofanyproduct intheECdepended onactions bythe
customs authorities ofeachECmember State.
5.41 Atthesame time, theUnited States wished tonotethatsufficiency ofevidence suchasBTIs
should notbetheissue inthiscase. Itjustsohappened thatUSexporters oftheproducts subject to
thisdispute sought BTIsbefore exporting theirproducts andthose BTIsdemonstrated treatment during
theUruguay Round asautomatic dataprocessing equipment. Butwhatiftheyhadnot?What ifthere
hadbeennodocument fromUKandIrishcustoms officials articulating tarifftreatment? Inthenormal
course oftrade USexporters sentproducts toEurope, claimed tariff treatment under headings 84.71
and84.73 (forparts) and,intheabsence ofreview bycustoms authorities, paidtheduties owed. The
paper trailthere would nothaveinvolved apiece ofpaper from thecustoms authorities themselves.
What then? Legally, itwould havenoeffect onthestrength oftheUSclaim. Trade intheproduct,
andthemere factofcustoms treatment should beenough. ThatwasnotjusttheUSview, butalso
theviewoftheEuropean Commission, assetoutinan"Aide-Mémoire" asfarbackasin1981when
theEChadwished todrawtheattention oftheUSauthorities tothetariffreclassification byUScustoms
service oftireprotection chains. These products hadbeenclassified under TSUS no.652.24 through
652.33, butinOctober 1979, theUSCustoms Service considered thisclassification aserroneous and
proposed toclassify these chains under TSUno.652.35, resulting inanincrease oftheapplied duty.
TheCommission hadindicated thatitwas"...of theopinion thatthereclassification under TSUS
no.652.35, bearing amuch higher dutyratethantheconcessional rates(forTSUS nos.652.24 through
652.33) isinconsistent withtheobligations oftheUSunder theGATT. Furthermore, theCommission
considers that,evenifitcould bemaintained thatthearticles inquestion hadbeenerroneously classified
under TSUS no.652.24 through 652.33, thefactthatoveraperiod ofmany years (including theperiod
during which therelevant tariff concession wasnegotiated) these articles were treated asbelonging
tothese headings would besufficient initself toestablish theconcessional rights oftheECtoa
continuation ofthetariff treatment promised inrespect oftheclassification forthese articles".47
5.42 TheEuropean Communities noted thatthe"Aide Mémoire" referred tobytheUnited States
wasdated 22May1981, which wasalmost sixteen years ago.Itwaswritten inacompletely different
47European Commission Aide-Mémoire, 22May 1981.WT/DS62/R
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context andrelated todifferent products, andtherefore could notberelevant tothepresent case.
Moreover, thebackground tothesituation wasunknown. Additionally, inthat"Aide-Mémoire" the
EChadreferred toanacknowledgement bytheUSState Department that"forsome cases brought
up,theCommunity might havesome GATT rights". Inthepresent dispute, thiswasnotthecase;
theECwasnotacknowledging thattheUnited States hadanyWTO rights.
(i) BTIs andnational classification
5.43 TheUnited States claimed thatclassification actions bymember States provided evidence that
these products weretreated uniformly under Chapter 84during theUruguay Round. Infact, prior
totheconclusion oftheUruguay Round, andgoing backasfaras1988, many ECmember States,
including atleastIreland, theUnited Kingdom, France, Belgium andLuxembourg, treated imports
fromtheUnited States ofLANadapter cards andotherLANequipment ascomputer equipment, dutiable
attheratesapplicable toproducts falling under heading 8471. Additionally, priortotheimplementation
oftheEuropean Commission ’sLAN adapter cardRegulation, other member States, including the
Netherlands andDenmark, alsoissued BTIstreating LAN equipment under Chapter 84.Theexisting
treatment inthese member States prior to1994 formed thebasis fortheUnited States ’expectations
during theUruguay Round negotiations.
5.44 Tosupport thisclaim, inaddition totheBTIsissued byIreland48,andclassification decisions
bytheUK49Customs andExcise, inwhich certain LAN equipment products subject todispute were
classified under 84.71, theUnited States hadalsoproduced letters fromfouroftheleading USexporters
ofLAN equipment toEurope50attesting tothefactthatalloftheirLAN equipment exported toIreland
andtheUnited Kingdom between 1991 and1994 wasclassified bycustoms authorities under 84.71
or84.73. Oneofthem distributed itsproducts through itsprimary warehousing facility inIreland.
Another distributed through asubsidiary intheUnited Kingdom. Thefourcompanies which submitted
theletters represented over75percentofLAN equipment export fromtheUnited States totheEC.
TheUnited States hadalsosubmitted fourBTIsissued bytheDutch51customs authorities,eight BTIs
issued bytheFrench52customs authorities andfourBTIsbytheDanish53authorities during theperiod
from October 1993 toJanuary 1995 inwhich LAN equipment wasdetermined tobedutiable under
heading 84.71 or84.73. Furthermore, aslateasJune1995, France hadasserted atameeting ofthe
European Commission Customs CodeCommittee54thatonly"realtelecommunication equipment" could
beclassified under 85.17. USexporters ofLAN equipment hadalsoverified thatrouters imported
intoBelgium55in1995 were classified under 8471.9910, andatleastonemanufacturer ofcomputer
products hadimported routers intoLuxembourg under theheading 84.71 in1993 and1994.
48SeeAnnex 4,Table 1,Nos. 13-44.
49SeeAnnex 4,Table 2,Nos. 1-3.
50SeeAnnex 4,Table 3,Nos. 6-9.
51SeeAnnex 4,Table 1,Nos. 45-48.
52SeeAnnex 4,Table 1,Nos. 5-12.
53SeeAnnex 4,Table 1,Nos. 1-4.
54SeeAnnex 4,Table 3,No.5.
55SeeAnnex 4,Table 3,No.1.WT/DS62/R
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5.45 Inaddition totheEC-12, atleasttwoofthethree countries thatacceded totheECin1995
provided tariff treatment forLAN equipment under heading 84.71 prior toaccession. BothFinland
andSweden56,atthetimehadbound theirtariffs under theUruguay Round andprior toaccession to
theEChadtreated LAN equipment asADPequipment under heading 84.71. Under Finland 'sUruguay
Round Schedule oftariff concessions, LAN equipment under heading 84.71 wasbound ataflatrate
of0.9percent. Under Sweden 'sUruguay Round schedule oftariff concessions, LAN equipment,
under heading 8471.9910, wasstaged from abaserateof3.8percentin1995 toadutyfreebound
ratein1999 (other products under heading 84.71 were staged from 3.8percentto1.9percent).
5.46 TheEuropean Communities noted that,contrary towhattheUnited States alleged, theEC
member States didnottreatthese products uniformly under Chapter 84during theUruguay Round.
Significantly, intheECthere hadbeenatendency since theearly 1990s toclassify more andmore
components, which could beusedinLAN andother kindofnetworks (e.g.telephone networks), as
telecom equipment. Thequestion ofproper classification ofLAN equipment waslitigated early on,
inGermany. There, thecustoms authorities issued, already in1989, BTIs classifying LAN under
heading 85.17. These rulings wereupheld bytheGerman Federal TaxCourt in1991.57Subsequently
theGerman customs authorities dulycontinued toissueBTIsforLAN equipment under heading 85.17.
Forexample, in1992, theGerman customs authorities hadissued aBTIforLAN adapter cards under
85.1758;theDutch customs authorities hadalsoissued BTIs classifying LAN equipment under
heading 85.1759,asdidtheUK60andFrench61customs authorities.
5.47 Itwasalsotruethatcustoms authorities insome member States hadinitially considered LAN
equipment tofallunder heading 84.71, forexample Ireland hadissued BTIs classifying some LAN
equipment under heading 84.71. However, theECwished torecall thattheimpact ofaBTIwaslimited.
Itcould onlybeinvoked bytheindividual towhom itwasaddressed andwastemporary andrestricted
tothespecific typeofproduct itcovered; itsvalidity waslimited intimeandaBTIdidnotguarantee
thattheclassification ofthegoods wascorrect andcould berelied uponbytheindividual inthefuture.
BTIsdidnotrepresent classification decisions oftheEC.Assuch, BTIscreated norights orlegitimate
expectations forgovernments inthecontext ofWTO. Thus, theCommunity Customs Code provided
explicitly thataBTIceased tobevalid where anECregulation wasadopted andtheinformation no
longer conformed tothelawlaiddown thereby orwhere theBTIwasincompatible withajudgement
oftheECJ.
5.48 Forthese reasons, theBTIs issued bytheIrishCustoms authorities could nothavecreated
rights andexpectations fortheUnited States about future classifications ordutytreatment bytheEC.
Especially, inthatparticular case,asthese BTIswereallissued onthesamedaybyonecustoms office
toonesingle company. Itwasnotasifthese BTIsreflected aconsistent practice oftheIrishcustoms
authorities. With respect totheUnited Kingdom, reference wasmade toafewletters from customs
56SeeAnnex 4,Table 3,Nos. 3and4.
57SeeAnnex 6,Table 2,No.1.
58SeeAnnex 6,Table 1,No.4.
59SeeAnnex 6,Table 1,Nos. 5-34.
60SeeAnnex 6,Table 1,Nos. 35-44.
61SeeAnnex 6,Table 1,Nos. 1-3.WT/DS62/R
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authorities anditwasevenunclear towhom theywereaddressed. AsfarasFrance andBelgium were
concernedtheUnitedStateshadproducedinitiallyimportersinvoicestosupportitsallegation.However,
thesedocuments weredated 1995and1996andweretherefore beyond therelevant period. Also, there
wasnoindication thatthese documents concerned LAN equipment; theyonlyreferred to"computer
parts". Finally, asfarastheECcould determine, these invoices reflected onlyself-certification by
importers, andnodecision bycustoms authorities. Regarding France, inparticular, theunofficial report
oftheEC'sNomenclature Committee meeting produced bytheUnited States, reflected anopinion
which theFrench representative wassupposed tohaveexpressed during themeeting; itdidnotestablish
thattheFrench customs authorities actually classified LANequipment under heading 84.71. TheFrench
BTIswhich hadbeensubmitted werealsoissued after1993 which indicated thattheycould nothave
formed thebasisofreasonable expectations bytheUnited States thattariff treatment wasgoing tobe
thatcovered by84.71. With respect totheNetherlands, theUnited States hadsubmitted merely one
"original" BTIissued bythecompetent Dutch authorities. Moreover thisoriginal contained nostamp
orother means ofcertification Inanyevent according totheEnglish translation, therulings datefrom
1995, which wasaftertheconclusion oftheUruguay Round andcould certainly nothavecreated
reasonable expectations fortheUnited States during those negotiations. Withregard toDenmark, the
United States hadproduced five"original" BTIs which wereunidentifiable. Nodatewasmentioned
intheEnglish translations oridentifiable inthe"original rulings". With respect toLuxembourg, no
document hadevenbeensubmitted regarding theclassification practice ofitscustoms authorities.
TheUnited States hadalsoclaimed thatFinland andSweden atthetimetheyhadbound theirtariffs
under theUruguay Round, which wasprior totheiraccession totheEC,hadtreated LAN equipment
under heading 84.71. Thismight wellbetruebutwasirrelevant. Asalready explained, when countries
accededtotheEC,theywithdrewtheirindividualschedules.AnewscheduleoftheenlargedCommunity
wasthennegotiated withtheECtrading partners. TheECandtheUnited States hadalready agreed
ontheECconcessions under thisnewschedule, andtherefore noreasonable expectations could be
based onthewithdrawn individual schedules ofFinland andSweden.
5.49 Withreference totheletters which theUnited States hadsubmitted fromthefourleading US
companies exporting LAN equipment totheEC,theECpointed outthatintheevidence submitted
tothePanel bytheEC,theEChadincluded aBTIissued tooneofthose companies in1993 bythe
UKHMCustoms andExcise, which classified arouter under tariff heading 85.17.62Thisseemed
tocontradict theclaim bythatcompany thatallitsexport ofLAN equipment totheUnited Kingdom
wasclassified under 84.71 during therelevant period. Thissituation created serious doubt astothe
reliability ofthestatement made bythatcompany thatallitsexport ofLAN equipment toIreland and
theUnited Kingdom wasclassified under Chapter 84.
5.50 What hadbeendemonstrated bytheabove information wasthefactthatthere wasnouniform
classification63intheECmember States withrespect toLAN equipment during theUruguay Round
62SeeAnnex 4,Table 3,No.8andAnnex 6,Table 1,No.41.
63TheaimandpurposeoftherelevantEClawinthecontextofthepresentcasewastoensurethatnoconflicting
BTIsbeissued forthesame product, norevenforsimilar products. Thatdidnotmean thatsuchsituations would
never ariseinpractice. TheEChadputinplace adatabaseinorder toavoid suchsituations asmuch ashumanly
possible. However, suchundesirable things didhappen occasionally inpractice. Inthiscontext itwasimportant
toremember thattheECcustoms authorities were dealing daily withhundreds ofapplications ineleven different
official languages. Misunderstandings oreven fraudulent behaviour were areality under such circumstances
(Importers were required toindicate whether theyhave knowledge oftheexistence ofaBTIfortheproduct for
which theyaresubmitting aBTIapplication (cf.Article 6para. 4lit.j.ofCommission Regulation No.2454/93).
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period. Although, theprocess ofunifying theviews onclassification ofLAN equipment hadtaken
time, theECapplying theHSinterpretation ruleshadconsistently taken theviewthatcomponents of
datatransmitting networks ingeneral andLAN inparticular should beclassified under 85.17 onthe
basisthatitsprincipalfunctionisthecommunication/transmissionofdata.Thiswasreflectedinanumber
ofRegulations issued onthismatter starting from1992. In1992, theEChadissued aRegulation which
classified amultiplexer under heading 85.17, describing amultiplexer as"anelectronic multiplexing
appliance initsownhousing which enables multiple link-ups tobemade between thedifferent connection
points ofacomputer network.64InMarch 1994, theEChadissued another Classification Regulation
inwhich itclassified modems astelecom equipment under 85.17.65Afewweeks later, itdecided that
heading 85.17 should equally apply toadapters andtransceivers.66Finally, theCommission hadadopted
on23May1995 aRegulation noting interaliathattheproper classification ofLAN adapter cards
was85.17.67
5.51 Inview ofalloftheabove, theUnited States should nothave formed any"reasonable
expectations" astothetreatment accorded totheproducts subject tothedispute.
5.52 TheUnited States disagreed withtheECargument thattheBTIsissued bycustoms authorities
fromNetherlands, Denmark andFrance after1993wereirrelevant. These BTIswererelevant because
theyreflected previous practice (i.e.during theUruguay Round) bythese countries. According to
theexperience ofUSexporters, these member States hadcontinued totreatimports oftherelevant
LANequipmentascomputerpartsandunitsunderheadings84.71and84.73until1995-1996.Following
theEC’spublication oftheadapter cardregulation, these andother member States began reclassifying
LAN adapter cards andother LAN equipment. Insome instances, customs authorities alsobegan in
1995 tomake theunwarranted demand thatimporters payadditional duties forpastLAN equipment
imports based onthedifference between the84.71 or84.73 rateandthe85.17 rate. Forexample,
inAugust 1995, theLuxembourg customs authorities sentinvoices toimporters seeking toreopen their
dutyliabilityandcollectforshipmentssinceJanuary1993thedifferencebetweenthe3.6percentactually
charged under heading 84.71 andthe7.5percentapplicable under 85.17. Asanother example, a
company whose LAN equipment hadentered theUnited Kingdom on11May1995asADPmachines
under heading 84.71, received ademand noteforthedifference induties on7June1996, when the
63(...continued)
There wasadelicate balance tobedrawn between athorough andefficient implementation ofECcustoms law
inindividualcasesandasmoothhandlingofongoingtradeoperationsbycustomsauthorities.Customsformalities
intheEChadtoallow forthethorough implementation ofallcustoms rules, butwasnottobecome anobstacle
fortrade. Theonlyalternative tothepresent decentralized organization ofcustoms services would betohave
afully centralized customs service withspecialized offices forparticular products. TheECdidnotbelieve that
suchachange would beintheinterest ofthetrading community. Alsotoberecalled wasthefactthatsomething
which wasnotprovided forinlaworwhich wasprohibited bylawdidnotmean thatitdidnotexist. Theft was
presumably prohibited bylaweverywhere intheworld. Thepromulgation andimplementation oftherelevant
legal provisions didunfortunately notmean thattheft hadbeen eradicated andnolonger existed, however,
thoroughly thelawwasapplied inindividual countries.
64Regulation 396/92, opcit.
65Regulation 754/94 of30March 1994, OJ1994 L89/2.
66Regulation 1638/94 of5July1994, OJ1994 L172/5.
67Commission Regulation 1165/95, OJ1995 L117/15.WT/DS62/R
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United Kingdom reclassified these products. Inthisnote, theUKcustoms authority asked thehigher
tariff rateontheimports oftheproducts forthepastyear.
5.53 TheEChadsuggested thatUSexpectations should instead havebeenformed based upon a
1991decision bytheGerman Bundesfinanzhof affirming BTIsissued byGerman customs authorities
toanon-US firm(Transtec) in1989. Thereference totheTranstec ruling wasirrelevant asthisruling
hadnoauthority outside ofGermany anddidnotjustify tariff treatment lessfavourable thanor
inconsistent withtheECUruguay Round bindings negotiated forheading 8471. Under EClaw,national
court rulings concerning theclassification ofproducts werenotbinding onthecustoms authorities of
othermember States. Inaddition, thelegalbasisoftheTranstec decision wasreversed inalaterdecision
bytheECJ. InthecaseofSiemens Nixdorf, ECJCaseC-11/93, theECJhadruled infavour ofbroad
product coverage under heading 84.71.68Insodoing, theECJhadrejected therationale relied on
bytheTranstec court. IntheTranstec case,theBundesfinanzhof hadruledthatcertain computer network
equipment were classifiable astelecommunications equipment based upon thecourt’sinterpretation
oftheterm"specific function" inNote 5toChapter 84oftheHS.69IntheGerman court’sview,
classificationunderheading84.71wasprecludedwheretheequipmentinquestionwasviewedbycustoms
authorities ashaving a"specific function" (datatransmission) which wasdistinct from"dataprocessing."
InSiemens-Nixdorf, theECJhadrejected thisreasoning, andinstead interpreted Note5tomean that
"anyunitwhich isconnected tothecentral processing unitofadata-processing system andwhich is
abletoaccept ordeliver datainaform --codeorsignals --which canbeusedbythesystem isto
beregarded asbeing apartofthecomplete system ofanautomatic dataprocessing machine andclassified
under heading 8471".70
5.54 TheEChadalsoclaimed thatproducts classified bytheRegulations referred tobytheEC
signalled atendency intheECtoclassify LAN components under 85.17 which should havewarned
theUnited States; however, theseproducts wereoutside thescope ofthisdispute. TheEChadincluded
multiplexers andmodems initsdescription ofLAN equipment, suggesting thatthese, too,wereLAN
products, which wasnotthecase. Modems werecombined modulators-demodulators, which operated
toconvert asignal inorder toachieve compatibility inatelecommunications environment. Modems
hadbeenhistorically classified andaccorded tariff treatment astelecommunications apparatus bythe
ECandother UStrading partners. Likewise multiplexers werenotLAN products. "Multiplexing"
wasatechnique forinterleaving point-to-point telecommunications callscoming fromdifferent sources
andgoing todifferent destinations butpassing through common telecommunications trunk lines. The
mostsimple waytodescribe thiswasthemethod bywhich one"dials" acallonthetelephone orfacsimile
machine. Without multiplexers, eachdestination (eg.atelephone) would havetobeindividually
connected toeachother'sendpoint, rather thanthrough common trunk lines. Suchmultiplexing did
notoperate inaLAN environment. InaLAN, alldataandprocessing information wasautomatically
68SeeAnnex 4,Table 3,No.10.
69Seefootnote 15.
70Thereasoning oftheECJinSiemens-Nixdorf wasconsistent withtheOpinion oftheAdvocate General
andtheposition oftheEuropean Commission. TheECJissued itsdecision onMay 19,1994. However, the
Advocate General andtheEuropean Commission provided their views, withwhich theECJconcurred, well
before thatdate. TheAdvocate General delivered hisopinion onJanuary 27,1994, afterreceiving andreviewing
theviews oftheparties. TheAdvocate General wrote thathewasadopting theviews expressed bytheEuropean
Commission, thatNote 5toChapter 84oftheCombined Nomenclature should beinterpreted asmeaning that
“separately housed units which areintegral parts ofadata-processing system come under heading 8471, ifby
virtue oftheir design, theyarenotsuitable forusing except aspartofadata-processing system. ”WT/DS62/R
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passed toallactive interfaces orstations thatwereconnected. Onlythose interfaces orstations which
recognized themselves asbeing intended destinations would copythetransmitted datafromtheirphysical
interface totheirprocessing engines.
5.55 Additionally, these Regulations wereissued aftertherelevant negotiating period. Specifically
theEChadciteditsclassification Regulation onLAN adapters issued inJune1994. TheUnited States
noted thatgiven thattheEChadissued therelevant Regulation several months afterithadbound its
tariffintheUruguay Round, theEChadnolegitimate basistorelyontheadapter regulation asevidence
oftheUnited States 'expectations during theUruguay Round regarding tariff treatment ofthose or
other LAN products.
5.56 TheBTIs submitted bytheECfrom3(France, Netherlands andtheUnited Kingdom) of15
member States overafouryeartime-period concerning anumber ofnarrowly-defined products from
specific producers didnot,asclaimed bytheEC,constitute evidence thattheEChadchanged its
collective opinion oftheclassification ofallnetworking equipment. TheUKBTI71effective
December 1993 related toa“statistical timedivision multiplexer, ”which wasaproduct outside the
scope ofthisdispute. SixUKBTIs72wereeffective asfrom February 1994, i.e.onlyaftertheclose
ofsubstantivetariffnegotiationsandtheirexistencewasnotdrawntotheattentionofUStariffnegotiators
during theverification process. ADutch BTI73appeared alsotorelate toamultiplexer. OneFrench
BTI74referring toa“multiprotocol terminal server forserver/mainframe exchanges ”which wasrelated
toafront-end controller formainframe computers, wasnotrelevant totheproducts atissue.
5.57 Thequestion raised bytheECabout theapparent contradiction between theBTIissued by
theUKcustoms classifying arouter under 85.17, andtheexporting UScompany 'sclaim inaletter
thatallitsexports ofLAN equipment hadalways beenclassified byUKcustoms under 84.71 didnot
castanydoubts about thereliability ofthecompany 'sclaim. Theexplanation wasasfollows: the
company 'sUKoffice hadusedthe84.71 classification foritsimport entries untiltheUKcustoms had
issued theBTIof11October 1993forcertain router products. Thecompany hadinstructed itscustoms
broker toinitiate protest procedures, andhadcorresponded withtheUKCustoms onthismatter until
thecompany 'sprotest about theclassification ofthisproduct under 85.17 hadbeenfinally rejected
on5May1994. Moreover, because thiscompany usedthemethod ofdistribution75,whereby itwas
71UK55700: SeeAnnex 6,Table 1,No.42.
72UK57112, UK57127, UK57128, UK57141, UK57142, UK57110: SeeAnnex 6,Table 1,Nos: 35,36,
37,38,39and40.
73NL199109209450089-0: SeeAnnex 6,Table 1,No.10.
74FR06190199102248: SeeAnnex 6,Table 1,No.3.
75Product distribution intheECmaytakeplace inmany ways, buttwoscenarios arethemost frequent.
First, ifproducts aredistributed onaFree-on-Board (FOB) Plant basis, theECcustomer takes possession of
thegoods attheforeign manufacturer ’splant andisresponsible forallsubsequent distribution activities, including
transportation, customs clearance, andsubsequent delivery toanenduserintheEC;inthisscenario there may
bemanyentrypoints.Inthesecondlikelyscenario,aforeignmultinationalretainstitletothegoodsandundertakes
these activities itself. Toprovide thecustomer withthelowest landed costandmaximum flexibility, distribution
isoften donethrough acentralized location. Redistribution toendcustomers maybedonepostcustoms clearance
where thegoods areinfreecirculation, orinbond using aT1transit document which enables thegoods tobe
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nottheimporter,ithadreliedoninformationfromitscustomerswhoweretheimportersthatthecommon
treatment ofthisequipment intheECwasunder 84.71 during thissame period.
5.58 Thepoint worth noting wasthattheUnited States hadproduced asmany BTIsfromasmany
member States where networking equipment wasclassified under heading 84.71 or84.73. Itwould
appear thatthisconsideration begged thequestion ofwhateffect actions byonemember State’scustoms
authorities might haveonexpectations withregard totreatment under concessions foranother member
State. While actions attheCommunity levelmight affect expectations regarding market access with
respect totrade intoallmember States, thetreatment ofaproduct byGreece, forinstance, could not
bedeemed toaffect theexpectations ofanexporter withrespect tothetreatment contemplated forits
exports totheUnited Kingdom orforitsexports totheentire Community. Ifso,thentheconcessions
oftheCommunity andofthemember States wereallfundamentally unreliable, andtheCommunity,
alone among WTO Members, wasplaced intheunique position inwhich thetreatment accorded by
theCommunity, andeachofitsmember States, could bereduced totheleastcommon denominator
ofthetreatment byanyofitsmember States. Suchaninterpretation should notbeaccorded toArticle II
ortothese concessions. Moreover, since theEC’strading partners knew thatexporters could enter
goods inonemember State andthenshipthem freeofdutytoanyother member State, theyshould
beabletorelyonthemost favourable treatment provided inanymember State. TheUnited States
noted theparallel totheinterpretation thathadbeengiven toGATT Article IIIindisputes concerning
measures ofprovinces orstates intheUnited States andCanada; pastGATT panels hadheldthat
Article IIIrequired treatment ofimported products nolessfavourable thanthetreatment accorded to
themost-favoured domestic product.76
5.59 TheEuropean Communities stated thattheECconsidered theprincipal function ofLAN
equipment tobethetransmission ofdatabetween computers. Thus thecommunication function was
paramount. Thepurpose ofprocessing databytheLAN equipment wastoenable thatdatatobe
communicated. Some modems were peripheral devices thatpermitted apersonal computer,
minicomputer, ormainframe, toreceive andtransmit data indigital format across voice
telecommunication lines. Thus, theirfunction wasnotunlike thatofarouter. Some multiplexers also
fellwithin thedefinition ofLAN equipment. InaUSruling of21March 1989 (NY837606), sixteen
lineintelligent multiplexers described asnetworking boards, which weretobeinstalled inamainframe
computer chassis andwhich appeared tobededicated tothetransmission ofsignals representing symbols
anddata,wereclassified under HSheading 8517.82. Later, following thereclassification decision of
LAN equipment bytheUnited States in1992, aproduct known asstatistical multiplexers wasclassified
inHSheading 8471.80 inaruling of13February 1996 (NYA80132). Themultiplexers inquestion
were designed toprovide interconnection between dumb terminals and/or desk-top processors with
centrally located minicomputers inbothLAN andWAN applications. Moreover, Singapore, inits
submission, hadidentified amultiplexer asLAN equipment.77Inconclusion, ifthisdispute wasabout
companies, including anumber oftheexporters ofLAN equipment, aretransitioning tothelatter distribution
strategy (Information provided bytheUnited States).
76Panel Report onUnited States -Measures Affecting Alcoholic andMalt Beverages ,adopted on19June
1992, BISD 39S/206, para. 5.17; Panel Report onCanada -Import, Distribution andSaleofCertain Alcoholic
Drinks byProvincial Marketing Agencies ,adopted on18February 1992, BISD 39S/27, notetopara. 5.4;see
Analytical Index/Guide toGATT LawandPractice (1995 ed.), page. 130.
77Itstated thefollowing: "Significantly, Singapore 'srequest on8471.99 identified byname examples of
LAN equipment covered bytherequest namely: 'gateways ','concentrators 'and'multiplexers '".WT/DS62/R
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LAN equipment other thanLAN adapter cards, which theECcontested, itnecessarily alsoincluded
certain modems andmultiplexers.
5.60 Inthisconnection, itwasalsoimportant tonotethattheBTIsissued byFrance, theNetherlands
andtheUnited Kingdom submitted bytheECwere relevant. They were notasasserted bythe
United States dealing withproducts outside thescope ofthisissue. They, infact,dealt withthose
types ofLAN equipment which werecomplete inthattheywereimported intheirownhousing and
included routers, bridges, hubs, servers andmultiplexers used incomputer networks fordata
transmission. They were notlimited toconnecting computers within alocal areanetwork butwere
alsousedforcommunication between networks. Forexample, routers controlled theflowofinformation
between thedifferent LANs thatmade upthelarger wide-area networks (WAN).
5.61 Furthermore, theECJruling inthesiemens Nixdorf casehadnotundermined theruling of
theGerman Bundesfinanzhof of1991. IntheGerman case, theproduct atissue related toLAN
components, including aLAN adapter device. IntheSiemens-Nixdorf case, theproduct atissuewas
avideo monitor thatcould onlyreceive signals from adataprocessing machine. Thetwoproducts
weretherefore completely different andtheirfunctions didnotcorrespond inanyway. TheGerman
court casestillstood andwasnotonlyrelevant forGermany, astheUnited States wrongly alleged,
since products imported intoGermany participated inthefreecirculation ofgoods intheentire EC.
5.62 Finally, theECwished toemphasize thathowmany individual classifications hadbeenmade
inonedirection rather thanintheother could certainly notbeconsidered decisive since atbestthe
classification practice could onlybecharacterized asinconsistent. How under these circumstances
theUSnegotiators could have derived certainty about anagreed tariff treatment oreven simple
expectations fromindividual classification decisions while theywerenegotiating tariffconcessions with
theECasawhole wasextremely unclear; theECcould notbeheldbound bysuchunjustified
expectations.
(ii) Trade Flows
5.63 TheUnited States claimed thattrade datademonstrated thattheECanditsmember States
treated imports oftheseproducts under Chapter 84.Thedataanddocuments containing tradestatistics
relied onduring thenegotiations demonstrated thatthere werelarge andincreasing trade flows ofthe
products atissue within tariff heading 84.71. TheEC’strading partners hadarighttorelyonthis
well-known treatment inbargaining fortariff concessions andtoassume thatsuchtreatment would
continue intheabsence ofanystatement tothecontrary bytheEC. Thecalculations submitted by
theECinthe1993 negotiations tojustify thevalue ofitsUruguay Round tariff offer confirmed the
reasonableness oftheUSexpectation inthisregard. These dataindicated thatUS-originating imports
intotheECofproducts treated asautomatic dataprocessing products under Chapter 84closely tracked
USexports ofcomputers, computer peripherals andcomputer parts. Trade flowtrends confirmed
theUSclaim that,intheaftermath oftheUruguay Round, theECchanged thetariff treatment ofthe
products atissue from thatwhich wasnegotiated. Thus, while USexports ofLAN equipment, as
reported ontheShipper 'sExport Declarations under expected heading 8471.99 continued torisein
1994and1995, theEC'stradedataindicated thattheproducts asclassified asdutiable under thatheading
sharply declined in1995. Atthesame time, theEC'sreported imports ofproducts dutiable as
telecommunicationsequipmentunder8517.82increasedinanamountdisproportionatetotheUSexporters
reported exports ofproducts theyexpected tobetreated under thatheading.78
78SeeAnnex 7.WT/DS62/R
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5.64 Furthermore, interpretation oftrade flows inrelation totheheadings inaparticular schedule
hadtotakeintoaccount theagreed context ofthetariff negotiations intheUruguay Round. The
Mid-term Review decision ofMinisters onTariffs adopted attheMontreal Ministerial Meeting of
December1988providedexplicitly:"Participantshaveagreedthatinthenegotiationoftariffconcessions,
current nomenclatures should beemployed... ."79Thus, theparticipants hadagreed thatthetariff
negotiations would takeplace onthebasis ofthetariff treatment thatwasoperative during the
negotiations.
5.65 TheEuropean Communities stated thatwithregard tothearguments putforward bythe
United States ontrade figures, ECimport figures from theUnited States for8471.99 didnotshow
thattheyhad“sharply declined in1995”.Indeed thevolume ofimports from theUStrade under
heading8471.99hadremainedfairlyconstantsince1990;thisconstancywasalsoreflectedinECimports
from theUnited States fortheproducts under 84.71. However, forallproducts falling under 85.17
therehadbeensince1990growth inimports fromtheUnited States. Thiswasduetotheeverincreasing
useoftelephone andtelecommunications equipment. LAN equipment wasinvolved inthatgrowth but
didnotaccount forallofit.While exporters might havesaidthattheproducts theyhadshipped to
theECunder 84.71 wereLAN equipment, theECdidnotknow whether, inallsuchcases, theproducts
were declared asLAN equipment orjustdeclared ascomputers orcomputer products. Apart from
this,thefollowing elements alsohadtobeconsidered:
- Itwaspossible thatcertain companies incertain cases hadreceived windfall benefits through
BTIswhich enabled themtoobtain alower dutytreatment forspecific LAN products inanother
heading, e.g.84.71/84.73.
- Inother cases, aswasalready mentioned, importers might nothavespecifically mentioned
LAN equipment when declaring products under 84.71/84.73. Indeed theevidence supplied
tothePanel’squestions bytheUnited States showed thattheproducts inquestion weredeclared
ascomputer partsunder HSheading 84.73 ("accessoires d’ordinateurs" and"onderdelen voor
computers")80andnotasLAN equipment.
- Itwasquitepossible, nottosaylikely, thatcertain exporters wereregarding allproducts they
hadshipped under 84.71 tobeLAN equipment. Indeed, thestatements submitted bythe
United States wereambiguous, ifnotincorrect. When products wereshipped theyweredeclared
according totheexporting country ’sclassification ofaparticular product, andintheperiod
referredto,theUnitedStateshadclassifiedtheseproductsundertariffheading84.71.However,
when products wereimported intoathirdcountry, theyshould bedeclared inaccordance with
theclassification asdetermined bytheimporting country. When theUnited States andtheEC
disagreed onaparticular classification ofanECproduct, theUnited States didnotgrant tariff
treatment under theheading supported bytheECbutunder theheading theythemselves found
appropriate. Oneexample ofthis,which hadalready beenmentioned, wastheUScompany
which hadclaimed thatallitsLAN equipment exported during acertain timeperiod tothe
United Kingdom hadbeenclassified byUKcustoms authorities under 84.71. But,infacta
BTIissued bytheUKcustoms during thattime-period tothesame company hadclassified
theproduct under tariff heading 85.17. Moreover, itshould beremembered thatinorder
79MTN.TNC/7(MIN); alsoreferenced intheagreed textonProcedures fortheNegotiations ,opcit.,para.
5:“Participants have agreed thatinthenegotiation ontariff concessions, current nomenclatures should be
employed ...”.
80SeeAnnex 4,Table 3,Nos. 1and2.WT/DS62/R
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tofacilitate trade, ECcustoms officials onlyverified asmall proportion ofimports andthe
accompanying declarations.
2. Personal Computers withmultimedia capability
5.66 TheUnited States claimed thatPCswithmultimedia capability weretreated asproducts under
Chapter 84during theUruguay Round. TheEChadadmitted thatpersonal computers atissue inthis
dispute,includingthosecapableofreceivingandprocessingtelevisionsignals,existedandweremarketed
priorto1994. When theEChadbound itstariffs inearly1994, ithadtreated allPCs,including those
withmultimedia capability, asautomatic dataprocessing machines asprovided forunder heading 84.71.
InnegotiatingitsUruguayRoundconcessions,theEChadnotmadeanyreservationsunderheading84.71
foranyparticular typeofpersonal computer.
5.67 TheEuropean Communities responded thatasmore andmore functionalities hadbeenadded
toPCs, ithadbecome more common torefertosuchPCsasPCswithmultimedia capabilities. At
thesametimeclassification ofsuchproducts hadbecome much more difficult because itwasnecessary
todetermine whether theproduct wasaPCwithmultimedia capabilities oramultimedia machine with
computing facilities.
5.68 However, neither during norattheendoftheUruguay Round, could theUnited States have
hadreasonable expectations thattheECwould classify PCTVs orother multimedia equipment under
tariffheading 84.71 andapply thecorresponding dutyrate.Infact,theUnited States hadnotproduced
anydocumentation showing thattheEChadindeed classified allcomputers withmultimedia capabilities
under heading 84.71 during theUruguay Round. Moreover, on30March 1994, ECRegulation 754/9481
wasissued which classified "Compact DiscInteractive System" (CDI System) made bytheDutch
company Philips under tariff heading 85.21, "video apparatus." ThisRegulation putthetrading
communityonnoticeconcerningtreatmentof"multimediaequipment".AsfarasPCTVswereconcerned,
theUnited States should havehadevenfewer reasonable expectations thattheECwould apply the
tariff concession regarding heading 84.71. Themere factthatimporters were abletoclear certain
shipments ofthese products under heading 84.71 was,byitself, irrelevant. Asalready mentioned,
customs clearance intheECdepended onself-certification forover90percentofimports inorder
tokeeptrade flowing, andimporters derived norights fromtheirownmisstatements. Neither should
theUSgovernment.
5.69 TheUnited States stated thattheabsence ofrulings ontreatment suggested (1)aconsensus
amongimportersthatclassificationwasobviouslyundertariffheading84.71and(2)ageneralacceptance
ofthatviewbycustoms officials whohadample opportunity toengage importers indiscussion atlocal
ports andthrough othermeans. Long-standing trading practices confirmed thisconclusion. Theprocess
ofcustoms entry andimportation wasinfactdesigned towork without written rulings: tobe
self-executing based ontheplaintextoftheHarmonized System, theguidance oftheNotes toChapters
intheHarmonized System, andtheadvice provided bythetextoftheExplanatory Notes. Animporter
withanewproduct normally began byundertaking aclassification analysis based onthese sources,
aswellasanypertinent available written rulings. Knowledgeable importers didthisallthetime, relying
ontheirownexpertise. Iftheanalysis resulted inanobvious classification, theimporter didnotseek
advance advice from customs authorities intheform ofwritten rulings. Contrary totheEC’s
suggestions, suchadvance written advice wasnotrequired. Indeed, ifitwere, thenormal course of
international tradewould beseriously disrupted byarequirement which nocompetent customs authority
81Commission Regulation 754/94, OJ1994 L89/2, product 5.WT/DS62/R
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wasstaffed toimplement within commercially acceptable timelimits. Instead, theimporter started
importing themerchandise, using theclassification thatitsanalysis indicated wascorrect. Thiswas
particularly thecasewhere thechange inaproduct wasevolutionary.
5.70 TheUnited States argued thatoneshould notbemisled bytheEC'sclaim thatonly10percent
ofshipments were physically inspected, which suggested thatonly10percentofshipments were
classified correctly. TheECandmember States hadtheirownclassification experts inmajor product
areas, suchasADP equipment. They readthetrade press, keptupwithtechnological change, and
applied theirknowledge ofcustoms classification principles andtheHSsources tonewproducts. They
werenothesitant toaskquestions orevendemand written presentations iftheyhadquestions. Ifcustoms
authorities intheEChadindeed inspected 10percentofshipments, itwasveryunlikely thatthey
would nothaveinspected multimedia-capable computers; iftheyhadnotaccepted thattheappropriate
tariff treatment wasthatunder heading 84.71, theywould havetreated them assubject toadifferent
heading.
5.71 Thesystem hadtowork thisway, andwasdescribed intheKyoto Convention towhich the
ECandthemember States wereparties. Importers hadanaffirmative obligation toclassify products
correctly, whether ornottheproducts were physically inspected. Thefactthatthere were noEC
reclassification ofmultimedia-capable computers during theUruguay Round inthefaceofsubstantial
trade indicated thatimporters were doing their jobs, customs authorities were satisfied withtheir
classifications, andcustoms authorities agreed thatthese products were properly dutiable under
heading 84.71.
5.72 Furthermore, theCDISystem towhich theEChadreferred wasoutside theproduct scope
ofthepresent dispute, asitwasnotacomputer. TheECasserted thatthisproduct had"computing
capabilities", however, thisassertion wasmisleading. Although theuserhadanarray ofavailable
choices, atitsmost basic leveltheCDISystem could onlybe“programmed ”toperform inafinite
number ofways, likeamicrowave ovenoraVCR. Those, too,hadvarious computing functions,
butwerenotcomputers. TheEC’starifftreatment ofmicrowave ovens andVCRs could notreasonably
berelied uponasthemeasure oftheEC’starifftreatment ofpersonal computers. Norcould theEC’s
treatment oftheCDIunitbereasonably relied uponbytheUnited States anditsexporters ofcomputers
asanindicatoroftheEC’sfuturetreatmentofcomputers,includingcomputerswithmultimediacapacity.
5.73 During consultations inthiscase, theEChadindicated thatpersonal computers capable of
receiving andprocessing television signals weretreated bytheUnited Kingdom alone among theEC
member States asdutiable under heading 85.28, andthatthiswasinconsistent withECpractice.82
TheEChadsince stated thatsuchstatements were "erroneous." Subsequently, theECstated that
"PCTV ’shavealways beenclassified intheECin85.28." Thisinconsistency intheECposition
illustrated whytheUnited States hadfound itnecessary toseekclarification concerning thetreatment
bytheUnited Kingdom andtheECofalltypes ofmultimedia computers.
5.74 Withtheissuance ofECRegulation 1153/97, theECCommission hadnowadmitted thatsuch
computers--aswellasallcomputers"capableofreceivingandprocessingtelevision,telecommunication,
audio andvideo signals" --were properly treated as"automatic dataprocessing machines andunits
thereof" inheading 84.71. ThisRegulation which became effective on1July1997 amended theEC
Common Tariff Nomenclature andtheCommon Customs Tariff. ItwasaRegulation which wasadopted
82Information Fiche which intheUSsubmission wasattached toa13March 1997 letter from R.E. Abbott,
Head ofthePermanent Delegation oftheEuropean Commission totheInternational Organizations inGeneva,
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toimplement ECcommitments under theInformation Technology Agreement (ITA) reached atthe
Singapore Ministerial Conference. TheITAwasintended "toachieve maximum freedom ofworld
trade ininformation technology products" through thereduction andultimate elimination ofcustoms
duties oninformation technology products. However, theRegulation blatantly imposed tariffs at
higher-than-concession ratesoncomputers provided forintheconcession onheading 84.7183.
5.75 TheEuropean Communities wished topoint outthatRegulation 754/94 which classified the
CDISystem under 85.21 hadalsoclassified theCommodore Dynamic Total Vision System84,which
wasaproduct referred tobytheUnited States asacomputer withmultimedia capacity, under 85.21.
Therefore, thisRegulation should haveputthetrading community onnotice concerning treatment of
"multimedia equipment" intheEC.
5.76 With respect tothe"erroneous statement", referred tobytheUnited States, itwascontained
inan"information fiche", forameeting. Thiswasaninformal document, which hadnolegalvalue
andcould notbeconsidered aformal ECposition statement. Itwasprepared within ashort deadline
andithadnotbeenpossible toconsult withalltheCommission services involved inthematter. In
fact,thestatement should haveread“Asregards theclassification ofPCTVs, thegeneral practice in
theEUisthatthesefallunder heading 85.28" instead of"84.71". Itwasamistake anddidnotrepresent
inconsistencies onthepartoftheEC.
5.77 Onthelastpoint, Regulation 1153/97 which wasadopted inorder toimplement theresults
oftheITAwas,intheviewoftheECandasalready noted, atoddswiththescope ofwhatthisdispute
wasabout; itwasanewAgreement negotiated aftertheUruguay Round. Following thedecision in
theWCO ontheclassification ofamultimedia personal computer, theEChadhadtoadapt its
nomenclature inaccordance withthesubstance ofthatruling which effectively moved thePCTV from
HSheading 85.28 to84.71.85OntheUSassertion thattheRegulation "blatantly imposed tariffs at
higher-than-concession ratesoncomputers provided forintheconcession onheading 84.71", theEC
hadalways heldthatPCTVs should receive tariff treatment which wasoriginally provided forunder
85.28. Theideabeing thatevenifthere wasareclassification, forinstance because ofdiscussions
attheWCO, itshould notaffect thetariff treatment. Thisapproach hadalsobeentaken bytheGATT
withregard totheintroduction oftheHS,andwasreflected inadecision taken bytheGATT Council
83Other information submitted bytheUnited States concerning multimedia computers included: achart and
catalogues describing models ofmultimedia personal computers onthemarket in1992 and1993; report ofthe
57thmeeting oftheTariff andStatistical Nomenclature Section oftheECCustoms Code Committee, heldon
29-30 June 1995; flash sheet dated February 1996 regarding multimedia PCs, andaletter regarding thesame
fromtheUKDepartmentofTradeandIndustrydated27March1996;aEuropeanCommissiondocumententitled
"InformationNotewithregardtoClassificationofMultimediaandRelatedProducts";minutesofthe14March1996
meeting oftheWTO Committee onMarket Access (G/MA/M/5); andtrade dataonmultimedia PCssubmitted
inresponse tothePanel 'squestions.
84TheECclaimed thattheRegulation classifying theCommodore Dynamic Total Vision (CDTV) product
(item 4inRegulation 754/94) established theprinciple thateven though apiece ofequipment wascapable of
computing, other functionalities might beadded, thusbringing theequipment intoanother product category in
theHSnomenclature. Also, atthetimewhen Commission Regulation (EC) No.754/94 wasadopted, theCDTV
wasanexceptional product compared withthestandard typeofPCsimported under HSheading 8471 and
presumably declared under thatheading ascomputers.
85TheEC,under theWCO process, made areservation forthereason toseekclarity withregard totheterm
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which stated that:"The main principle tobeobserved inconnexion withtheintroduction ofthe
Harmonized System innational tariffs isthatexisting bindings should bemaintained unchanged. The
alteration ofexisting bindings should onlybeenvisaged where theirmaintenance would result inundue
complexity inthenational tariffs andshould notinvolve asignificant orarbitrary increase incustoms
duties collected onaparticular product".86Infact,Article IIobliged Members togivetarifftreatment
notlessfavourable thanthatwhich derived from tariff negotiations.
C. Nullification andImpairment
5.78 TheUnited States claimed thattheEC-Schedule LXXX provided tariff concessions forHS
heading 84.71, "automatic data-processing machines andunits thereof". These concessions were
negotiatedandagreedtoduringtheUruguayRound,afterintensivenegotiationsbetweentheUnitedStates
andtheEConbehalf oftheECmember States initially within thecontext oftheUSzero-for-zero
initiative within theelectronics sector. There wasnodiscussion, during thistime-period, between the
ECandtheUnited States oftreating LAN equipment andPCswithmultimedia capability asanything
other thancomputers, computer units orcomputer parts subject tothetariffs applicable under tariff
heading 8471 and84.73. These products were, alsoduring thisperiod oftime, already marketed,
traded andlegally imported intomember States oftheECunder headings 84.71 and84.73, as
demonstrated byBTIsand/or written classification determinations ofmember Statecustoms authorities
andbyother evidence. Asaresult, theUnited States wasjustified inreasonably expecting theproducts
atissue being provided thetreatment foreseen under therelevant tariff headings ofchapter 84ofthe
ECSchedule LXXX. Byclassifying theseproducts totariffheadings carrying higher dutyrateswhich
were inexcess oftherates provided forinSchedule LXXX under therelevant tariff headings of
chapter 84,theEC,Ireland andtheUKhadviolated theirobligations under Article II:1,andasaresult
these measures hadnullified orimpaired thevalue ofconcessions accruing totheUnited States under
theGATT 1994.
5.79 TheEuropean Communities argued thattheUnited States didnothavealegitimate basis to
claim "reasonable expectations". Onthecontrary, allthathadbeen revealed withtheBTIs and
classification actions ofECmember states'customs authorities submitted tothePanel wasthatduring
theUruguay Round there wasnouniform treatment, within theECmember states forthese products,
andthatifanyone re-classified LAN equipment during thisperiod oftimeitwastheUnited States
andnottheEC.Thissituation demonstrated theuncertainty thatexisted withrespect totheclassification
ofthese products within theECmember states andEC'strading partners andtherefore theclaim of
"reasonable expectations" could notbejustified. Moreover, theUnited States hadnotbeenableto
establish theexistence ofameeting oftheminds ofthenegotiators constituting anagreement atany
moment inthecourse oftheUruguay Round tariffnegotiations concerning thetarifftreatment ofthese
products. Inviewoftheabove, theclassification actions oftheEC,Ireland andtheUnited Kingdom
should beviewed ashaving beenintended torectify asituation ofdivergences within theECmember
states regarding thetreatment oftheseproducts, andnotoneofreclassification. Furthermore, itshould
benoted thatwhile thecustoms authorities ofECmember States might haveclassified these products
differently, thereby according different dutytreatment tothesame products, theECitselfhadalways
heldtheviewthatthese products should beclassified under therelevant tariff headings ofchapter 85
astheprimary function ofthese products wasdatatransmission andnotdataprocessing. Inview
ofalloftheabove, theactions bytheEC,Ireland andtheUnited Kingdom could nothavenullified
orimpaired thevalue ofconcessions accruing totheUnited States under theGATT 1994.
86GATT Concessions under theHarmonized Commodity Description andCoding System ,adopted on
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VI. THIRD PARTIES SUBMISSIONS
A. India
6.1 Indiarequested thePanel tofindthattheEC'sclassification ofLANequipment under Regulation
(EC)1165/95,hadresultedinthetreatmentofthoseproductsbecominglessfavourablethanthatprovided
forinPartIofSchedule LXXX andtherefore wasinconsistent withobligations under Article IIof
GATT 1994.
6.2 Indiaexported approximately Rs.1billion worth ofLAN equipment totheECin1995-1996.87
Inaddition tothissubstantial trade interest, India wasinterested inthesystemic issues raised bythis
dispute. Inparticular, India wasconcerned withthepossibility thataMember might avoid itsspecific
obligations related totariffrateconcessions under Article IIthrough thereclassification ofbound items.
Inexamining thismatter, emphasis hadtobeplaced onthe"fundamental importance ofthesecurity
andpredictability ofGATT tariff bindings", aprinciple which constituted acentral obligation inthe
system oftheGeneral Agreement, asmentioned in1984 Panel Report onNewsprint .88
6.3 On27April 1997, anoverwhelming majority ofthemembers oftheWCO HSCommittee
voted toclassify LAN equipment, under heading 84.71. Notwithstanding thisdecision, theEChad
notadopted anymeasures bringing itsmember States intoconformity withthisdecision. Aswasclear
from thisdecision, itwasIndia'sunderstanding thattheproducts subject tothisdispute should be
classified under heading 84.71.
6.4 Onecould conclude from these factsthatintheUruguay Round tariff negotiations, other
MembersincludingdevelopingcountryMemberslikeIndia,whowerebeginningtoexportsuchproducts
totheEC,hadreason tobelieve thattheEChadagreed tobindLAN equipment asaproduct under
theheading 84.71. Thus theECanditsmember States were under obligation toprovide thetariff
treatment granted atthetimeoftheUruguay Round toLAN equipment based ontheprovisions under
Article IIofGATT 1994.
B. Japan
6.5 Japan argued thatonthetechnical side, aswasclear from thedecision oftheWCO HS
Committee andashadalways beenJapan'sunderstanding, thattheproducts subject tothisdispute should
beclassified under tariff heading 84.71. Atitseighteenth Session oftheHarmonized System (HS)
Committee oftheWCO heldinNovember 1996, theCommittee haddecided toclassify "PCTV"
multimedia PCsunder tariff heading 84.71 asaresult ofavote. Atitsnineteenth Session heldin
April 1997, theHSCommittee hadvoted toclassify LAN equipment, especially (1)communications
controllers orrouter, (2)cluster controllers, (3)multistation access unitand(4)optical fibreconverter
under heading 84.71. Notwithstanding these decisions, theEChadnotadopted anymeasure tobring
itsmember States intoconformity withthese decisions. While, theWTO Agreement imposed no
obligationonMemberstofollowanyspecificnomenclatureincludingtheHS,thescopeoftheconcession
foratariff lineintheEC'sSchedule which wasbased ontheHSnomenclature, hadtobeconsidered
orinterpreted, unless otherwise specified intheSchedule, inlightoftherelated HSdocuments, including
thetextoftheHSnomenclature andNotes toChapters. However, there wasnosuchspecification
87Statistics ofForeign Trade ofIndia (1995-96).
88Panel Report onNewsprint ,opcit.,para. 52.WT/DS62/R
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orqualification concerning theproduct coverage fortheheading 84.71 or85.28 intheEC'sschedule.
Moreover, inactual practice theEChadapplied thesametariffrateasthebound rateonLANequipment
andPCTVs under theheading 84.71, before reclassification actions bytheEC,Ireland andthe
United Kingdom.
6.6 From thisfactual background, itcould beconcluded thatduring theUruguay Round tariff
negotiations, other Members hadreason tobelieve thattheEChadagreed tobindLAN equipment
andPCTVs as"automatic dataprocessing machines" under theheading 84.71. Thus, theECandits
member States were under theobligation toprovide thetariff treatment granted atthetimeofthe
Uruguay Round toLAN equipment andmultimedia PCsbased ontheprovisions ofArticle IIof
GATT1994.Instead,theEC,IrelandandtheUnitedKingdomhadunilaterally,throughreclassification,
imposed higher tariff ratesthanthose bound during Uruguay Round without initiating theprocedures
setforthinArticleXXVIIIofGATT1994.Wherevertheseproductswereclassified,thethreedefending
parties should havemaintained thevalue oftariff concessions at3.9percentonLAN equipment and
multimedia PCs,which theEChadcommitted tointheUruguay Round. Thethree defending parties
hadtherefore violated theirobligations under Article IIofGATT 1994.
6.7 TheEChadargued thattheEChadexclusive prerogative todecide ontheclassification of
products under particular tariff headings, andthattheapplication ofparticular tariff ratestocertain
products bythecustoms authorities ofitsmember States should notbethebasis forexpectations
regarding tariffconcessions; therefore theCommission Regulation (EC)1165/95 hadnotreclassified
LAN adapter cards norresulted inanincrease intariff rate. Infact,inJapan'sview, intheabsence
ofclear announcements orrules toshow thattheECwould classify those products under the
heading 85.17 or85.28, itwould benatural forcountries outside theECwhen engaging intariff
negotiations tobasethemselves onthereality atthattime. IftheECwished toargue otherwise, it
should havebeenfortheECtobeartheburden ofproof. Japan hadnotfound convincing evidence
tothateffect inthesubmission bytheEC.Inother words, theEChadnotbeenabletoproduce sufficient
evidence toshow thatthecountries outside theECshould haveanticipated suchincreases intariffrates
aftertheUruguay Round.
6.8 Thisparticular issue wassystemic inthatitcould beaproblem withregard tonotonlythe
products indispute nowbutalsotootherproducts. Astechnology progressed, anumber ofnewproducts
would becoming intothemarket. Whenever newnegotiations tookplacewithregard tothose products,
thesame issue would inevitably come out.Itwould thenbedifficult tonegotiate tariff concessions
onthose items onwhich theECdidnothaveuniform classification ontariff headings. Moreover,
iftheECwasallowed tochange thetariff ratesafterthetariff negotiations inthename ofproper and
uniform classification, itwould disturb thedelicate balance ofinterests formulated bythetariff
negotiations.
6.9 Itwasinthiscontext thatJapan requested thePanel tofindthattheunilateral increase oftariff
ratesasaresult oftheECreclassification, orclassification, ofLAN adapter cards anditsmember
States 'reclassification ofother types ofLAN equipment andPCTVs were inconsistent withtheir
obligations under Article IIofGATT 1994.WT/DS62/R
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C. Korea89
6.10 Korea argued thatasaWTO Member, Korea hadreasonable expectation during theUruguay
Round thatLANadapter cards andotherLANequipment would continue tobetreated asADPmachines
andunitsthereof under tariff heading 84.71, andthattheywould notbereclassified under acustoms
heading withahigher import duty. Inaddition, Korea hadreasonably expected thatmultimedia PCs
would remain under tariffheading 84.71 andnotbechanged totariffheading 85.28. Systemic problems
which stemmed from thepropensity toclassify technologically innovative multi-purpose orhybrid
products under tariff headings carrying higher dutyratesshould beresolved pursuant tothedecisions
rendered byinternational standard setting bodies suchastheWCO.
6.11 During theUruguay Round, Korea hadevery reason toexpect thattheECwould classify LAN
adapter cards andotherLANequipment asADPmachines andunitsthereof, aspertariffheading 84.71,
notastelecommunications apparatus under category 85.17. Moreover, Korea hadreasonably expected
thatmultimedia PCswould beclassified under tariff heading 84.71, notunder heading 85.28.
6.12 Korea noted thattheEChadclaimed initsfirstwritten submission thatthefundamental point
ofthecurrent dispute wasthe"scope ofthebindings negotiated intheUruguay Round". TheEChad
contended thatbecause itdidnotnegotiate specific concessions onthecustoms duties applicable to
LAN ormultimedia equipment, Korea andother WTO Members could nothavederived reasonable
expectation thattheseproducts would beclassified under tariffheading 84.71. However, certain salient
aspects oftheEC’sclassification practices, notably theissuance ofBTIs bythecustoms authorities
ofmember States, hadledtotheconclusion thatKorea andother WTO Members could havereasonably
expected thattheECwould treatLAN equipment andmultimedia PCsasADP machines andunits
thereof. These practices included thefactthat:
- "The EChasnocentralized administration oftheCommon Customs Tariff, butinvolved the
member States ’customs authorities forthepurpose ofadministration";
- "Itmayoccur, inparticular when itisnotobvious inwhich heading agiven product should
beclassified, thatcustoms authorities indifferent member States classify thatproduct differently
andconsequently apply different duties."
- "Prior toDecember 1993, when substantive Uruguay Round negotiations wereconcluded, there
wasnoclassification regulation onLAN equipment withanEC-wide applicability thathad
beenadopted andimplemented bytheECCommission orbytheCouncil. Norhadtherebeen
aruling bytheEuropean Court ofJustice ontheclassification decision ofLAN equipment".
6.13 Inshort, theclassification ofLAN equipment waslefttothecustoms authorities oftheEC
member States prior totheconclusion oftheUruguay Round negotiations. Based onthefactual
information provided inthefirstwritten submission oftheEC,itcould beinferred thatthepractices
ofthemember States ’customs authorities constituted theonlysource foridentifying "classification
rules andpractices atthetimeoftheUruguay Round".
6.14 Toshow thatthereasonable expectation derived bytheUnited States andother WTO Members
fromBTIswasmisplaced, theEChadalluded bywayofexamples tovarious contradictory BTIsissued
89Ontheprocedural background, Korea initssubmission hadalsoindicated thaton2December 1996, the
EChadrequested theconsulting parties todelay theproceedings untilafter thecompletion oftheInformation
Technology Agreement, anditwassoagreed.WT/DS62/R
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bymember States during theUruguay Round negotiations. Thecustoms authorities ofGermany and
theNetherlands hadrendered BTIswhich classified LANequipment under tariffheading 85.17, whereas
theBTIs issued bythecustoms authorities oftheUnited Kingdom andIreland hadclassified LAN
equipment under 84.71. Atthesame time, theEChadattempted tomitigate thesignificance ofBTIs
asasource ofreasonable expectation regarding theclassification ofaproduct byciting Article 12.5
oftheCommunity Customs Code which provided that"aBTIceases tobevalidwhere anECregulation
isadopted andtheinformation nolonger conforms tothelawlaiddown thereby, orwhere theBTI
isincompatible withajudgement oftheEuropean Court ofJustice." Contrary totheEC’sassertion,
thatprovision appeared toendorse theroleofBTIs tosupplement theabsence ofCommunity-wide
rulesgoverning thepractical classification ofavariety ofproducts. TheEC’sfirstwritten submission
failed topoint outanyalternative source ofconcrete reference, other thantheBTIs, regarding the
practices ofsome ofitsmember States, suchastheUnited Kingdom andIreland, governing the
classification ofLAN equipment during theUruguay Round negotiations. Because there werenoEC
regulations orjudgments oftheECJwhich specified theclassification ofLAN equipment, Korea was
oftheopinion thattheBTIs provided thebestavailable source forexporters toidentify thepractices
oftherelevant countries. Noexplicit reference appeared tohavebeenmade during theUruguay Round
tariff negotiations. TheECstated that"none oftheproducts atissue were discussed byname." In
theabsence ofanyspecific exceptions orexplicit reservations onthepartoftheEC,participating
countries totheUruguay Round tariff negotiations hadnochoice buttoexpect thatthethenexisting
classification would continue tobeapplied.
6.15 More significantly, aswasstated bytheUnited States, theEC’sUruguay Round concessions
were setforth inSchedule LXXX. Article IIoftheGATT 1994 obliged contracting parties toapply
theestablished ratesofduties which appeared intheirrespective schedules. Theimposition ofaduty
higher thantheratesappearing intheschedule would nullify orimpair thevalue oftheconcessions
accruing toother WTO Members. AtthetimeoftheUruguay Round negotiations, andprior toits
conclusion, theEChadtreated LAN equipment asADP machines andunits thereof under tariff
heading 84.71 andsuchproducts wereindeed imported under thatcategory. After thefinalization of
theUruguay Round tariff concessions, theECbegan toapply thehigher rateofdutyunder tariff
heading 85.17 asmandated byRegulation (EC) No.1165/95.
6.16 AnoteworthypointmadebytheUnitedStateswasthatbetween14Februaryand31March1994,
participants hadengaged inaverification process toconfirm thatnegotiated concessions wereaccurately
reflected inthefinalschedules. Despite thefactthattheECwasaware thatitstrading partners relied
onBTIrulings andcommunications inthenegotiations which indicated thatLAN equipment would
betreated asADPmachines under heading 8471, theEChadnottaken anystepstodefine ADPmachines
toexclude LAN equipment. ItwasonlyaftertheUruguay Round negotiations thattheECandseveral
ofitsmember States hadstarted tocategorize LAN equipment under tariff heading 85.17.
6.17 Inviewofthetreatment ofLANequipment under tariffheading 84.71 atthetimeoftheUruguay
Round negotiations andtheEC’scommitment inSchedule LXXX, theECcould notrefute theclaim
thatithadcommitted itself toapply thedutyratebound forcomputer equipment toLAN equipment.
Participating countries could reasonably expect thattheECwould continue toclassify LAN equipment
under tariff heading 84.71 andapply thecorresponding tariff setforthinSchedule LXXX. However,
such reasonable expectation wasnullified andimpaired bytheapplication ofRegulation (EC)
No.1165/95 toLAN adapter cards andbythesubsequent reclassification ofother LAN equipment
from tariff heading 84.71 to85.17.
6.18 Withrespect toPCTVs, itwascommon intoday’sinternational marketplace foranumber of
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analready existing product. Unless newheadings werecreated andnewtariff ratesnegotiated, there
wasnoother waytoclassify thenew,multi-functional products buttorelyontheheadings ofexisting
products, whose functions were reflected closely orremotely inthenew, multi-functional product.
Given thedifferent dutyratesfortheexisting products towhich anewproduct might berelated, there
wasapossibility thattheWTO Members might attempt to“shoparound ”toapply thehighest possible
dutyratestothenew, multi-functional products.
6.19 Allowing WTO Members toclassify new,multi-functional products under theheading ofthe
related existing product withthehighest possible dutyrateswithout appropriate justification, would
undermine thevalue oftheconcessions negotiated andcommitted tobyWTO Members. Ifpersonal
computers withtelevision capabilities replaced conventional PCsandthenewbreed ofPCsweredutiable
under thehigh-duty heading oftelevision receivers, theconcessions made forpersonal computers would
become substantially affected andreduced invalue. When tariff negotiations wereconducted, itwas
reasonable toassume thattheexisting product containing simple functions could bereplaced byanew
generation ofmulti-functional products. Asscience andtechnology progressed, suchresults were
inevitable, especially inthefieldofgoods involving hightechnology.
6.20 Bydefinition,multi-functionalproductscarriedoutmultiplefunctions.Therefore,itwasdifficult,
ifnotimpossible, todetermine theappropriate classification ofmulti-functional devices solely onthe
basis offunctions, aswasargued bytheEC.It,therefore, became essential toscrutinize theend-use
anddetermine which existing products werereplaced bythenewmulti-functional goods inthelargest
quantity. Itwasunlikely thatconsumers purchased PCTVs fortheexclusive purpose ofusing them
asordinary television receivers, without regard totheirotherapplications. Furthermore, itwasobserved
thatthisdevice worked solely inconjunction withacomputer (automatic dataprocessing machine).
6.21 Onewayofidentifying anappropriate classification fornewmulti-functional products was
through examination anddecision bytheWCO. AstheEChadadmitted, theHSCommittee ofthe
WCO hadadopted adraftamendment totheCompendium ofClassification Opinions withregard to
PCTVs infavour oftariffheading 84.71. Thismeant thattheEChadnotcome upwithajustification,
evenintheformofaninterim decision under theWCO, foritsreclassification ofPCTVs under ahigher
tariff heading. Apart fromthis,theEChadfailed tosuggest initsfirstsubmission anyjustification
forthereclassification.
6.22 Based ontheabove stated observations, Korea challenged theEC’sclassification ofautomatic
dataprocessing machines withtelevision capabilities under tariff heading 85.28 asanactwhich
undermined anddevalued theconcession onproducts under tariff heading 84.71 ascontained inthe
ECSchedule. TheEChadfailed tojustify itsclassification ofthese newmulti-functional products
under theheading oftherelated existing products withahigher tariff rate. Unless theECwasable
tojustify suchclassification, Korea wasoftheopinion thattheEC’sclassification ofcomputers with
television capabilities resulted intreatment ofthose products lessfavourable thanthatprovided for
inPartIofSchedule LXXX.
6.23 Forthereasons described above, theRepublic ofKorea requested thePanel tofindthatthe
EC’sreclassification ofLAN adapter cards under theRegulation (EC)No.1165/95 andthatofother
LAN equipment andcomputers withtelevision capabilities through measures taken byseveral ofits
member States were inconsistent withitsobligations under Article IIofGATT 1994.WT/DS62/R
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D. Singapore
6.24 Singapore argued thatduring theUruguay Round negotiations, andpriortofinalization ofthese
tariff concessions, certain ECmember States classified LAN equipment under tariff heading 84.71,
asevidenced bynumerous BTIsandother written rulings. Inaddition, theEChadclearnotice from
theinception ofthenegotiations thatitstrading partners, including Singapore, hadnegotiated with
theunderstanding thattheECoffers onADP units included LAN equipment. Through various
procedures, thedefending parties subsequently classified LANequipment, including LANadapter cards,
intotariffheading 85.17 astelecommunication apparatus. Thisclassification resulted intheimposition
ofcustoms duties onLAN equipment imports inexcess ofthebound ratecommitments forADPunits
under Schedule LXXX.
6.25 IntermsoftradeinterestSingaporeexportedapproximatelyS$2billionworthofLANequipment,
including LAN adapter cards, totheECbetween May1996, theeffective dateofthereclassification,
andDecember 1996. Inaddition tothissubstantial trade interest, Singapore wasinterested inthe
systemic issues raised bythisdispute. Inparticular, Singapore wasconcerned withthepossibility that
Members might avoid specific obligations related totariff rateconcessions under Article IIthrough
thereclassification ofbound items. Inexamining thismatter, emphasis hadtobeplaced onthe
"fundamental importance ofthesecurity andpredictability ofGATT tariffbindings, aprinciple which
constitutes acentral obligation inthesystem oftheGeneral Agreement".90
6.26 TheEC'sreclassification ofLAN computer equipment violated EC'stariffconcessions under
Article IIofGATT 1994. GATT Article II:1(b) provided that"The products described inPartIof
theSchedule relating toanycontracting party, which aretheproducts ofterritories ofother contracting
parties, shall, ontheirimportation intotheterritory towhich theSchedule relates, andsubject tothe
terms, conditions orqualifications setforthinthatSchedule, beexempt fromordinary customs duties
inexcess ofthose setforth andprovided therein." Under Article II:7ofGATT 1994, theannexed
concession schedules wereanintegral partoftheAgreement. TheECconcessions onADP unitsthat
wereatissue inthismatter appeared inSchedule LXXX ofGATT 1994. Article II.1(b) wasviolated
bytariff classifications, including reclassification, thatresulted inincreased duties onbound items.
Thiswasreflected intheAgreement itself under Article II.5,which contemplated compensatory
adjustment incaseswhere internal classification decisions effectively prevented contracting parties from
according agreed-to tariff concessions.91Inshort, itwassettled that"[i]f...there isadivergence
between anational customs tariff ofacontracting party toGATT anditsschedule, theinternational
obligations ofthatcountry arethose described initsschedule ofconcessions".92
6.27 Thedispute onGreek Increase inBound Dutyconfirmed thatcontracting parties should not
avoid theirArticle IIobligations byreclassifying bound items. Inthatdispute, aGATT Group ofExperts
examined Germany 'scomplaint thatGreece hadraised itstariffonlong-playing gramophone records,
90Panel Report onNewsprint ,opcit.,para. 52.
91AsoneGATT scholar hasnoted: "Areclassification subsequent tothemaking ofaGATT concession
could ...beaviolation ofthebasic commitment regarding thatconcession. ...Paragraph 5ofArticle IIrecognizes
thepossibility thatreclassification ofgoods canviolate aGATT concession andprovides forconsultation and
renegotiation insuch cases.", Jackson, John H.,World Trade andtheLawofGATT, 1969, p.212.
92SeeNote bytheSecretariat onTariff Reclassification dated 27April 1981, Committee onTariff
Concessions, TAR/W/19, para. 1.WT/DS62/R
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despite thefactthat"gramophone records" were bound intheGreek schedule.93Greece contended
thattheintroduction oflater-developed, long-playing records made ofdifferent material constituted
anewitemnotsubject totheearlier binding. Thereviewing Group agreed withGermany thatthe
disputed records werecovered bythedescription of"gramophone records" inthebound itemandfound
thatGreece hadviolated itsArticle IIobligations.94
6.28 Asdemonstratedbelow,thedefendingpartiesinthisdisputehadsimilarlyusedtariffclassification
authority inviolation oftheirArticle II.1(b) commitments. Inreclassifying LAN equipment fromthe
controlling categories covering ADP units, thedefending parties applied customs duties inexcess of
thebound ratesspecified forsuchproducts intheEC'sconcession schedule. Inthepresent matter,
atthetimetheECtariffbindings werenegotiated, substantial volumes ofLAN equipment werebeing
imported intoandclassified byECmember States inthecategories covering automatic dataprocessors
andunits. Asdocumented intheUSsubmission dated 14May1997, suchpractice waswidespread
andhighlighted bywritten BTIs andletter rulings bycertain ECmember States.95Accordingly, the
EChadclearknowledge ofthepractice. TheEC,however, contended thatit"never committed itself
norcould itbeconstrued tohavegiven theimpression thatitwould classify LAN ...equipment with
computerequipmentunderheading84.71andapplythecorrespondingdutytotheproductsconcerned".96
Suchanassertion wasplainly incorrect. Aspointed outintheUSsubmission, thedocuments exchanged
intheconcession negotiations clearly indicated thattheparties viewed theEC'sADP units/tariff
heading 84.71 concession asencompassing LAN equipment.
6.29 TheUSassertion wasconfirmed bynegotiating documents exchanged bySingapore andthe
EC.Inparticular, initsoriginal concession request directed totheECinJune1990, Singapore had
requested theECtoreduce tariffs onsubheading 8471.99 from 4.9percenttozero. Significantly,
Singapore 'srequest on8471.99 identified byname examples ofLANequipment covered bytherequest,
namely"gateways,""concentrators"and"multiplexers."Throughsuchanexchange,theEChadreceived
express notice ofSingapore 'sexpectation thatanyeventual ECtariffconcessions onADPunitsintariff
heading 84.71 would specifically include LAN equipment. Thenegotiations proceeded onthisbasis
andtheECnever expressed anyreservations withincluding LANequipment among theproducts subject
toitsconcessions onADPunits/tariff heading 84.71. Consequently, Singapore hadreasonably expected
suchtreatment. Thus, contrary totheEC'sassertions, itstrading partners hadrelied notonlyonEC
rulings classifying LAN equipment inADP categories, butoncommunications inthenegotiations
indicating theunderstanding thatLAN equipment would becovered bytheEC'sADP concessions.
Withfullknowledge ofsuchanunderstanding, theEChadnotmade anyreservations onLANequipment
orotherwise attempted todefine itsADPconcession inamanner thatwould notinclude LANequipment.
Asdemonstrated intheUSsubmission, theEChadnotgiven anyindication ofanycontrary perception
untilaftertheagreement wasfinalized.
93Greek Increase inBound Duties ,complaint opcit., pages 115and116.
94Report bytheGroup ofExperts onGreek Increase inBound Duty,opcit., pages 168to170.
95Pursuant tosuchrulings, certain ECmember States applied therates forADP units andparts toimports
ofLAN equipment from numerous sources.
96EC'sfirstsubmission, 4June 1997, para.9.WT/DS62/R
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6.30 Thescope ofatariff concession hadtobeinterpreted based onthecircumstances known at
thetimethebinding wasnegotiated. Forexample, inthePanel onNewsprint97theEChadmade an
Article IIbinding thatprovided duty-free access to1.5million tonnes ofnewsprint peryear, andthen
afterwards hadunilaterally reduced thequantity by1million tonnes, which corresponded totheamount
ofduty-free access granted toEFTA partners under aseparate agreement. Finding thattheEChad
notacted inconformity withArticle IIcommitments, thePanel hademphasized thattheEChadmade
noreservation onits1.5million tonnes MFN commitment eventhough "itwasknown thatagreement
hadalready beenreached thattheEFTA countries would obtain fullduty-free access totheCommunity
market ...".98Similarly, inthepresent matter, theECwasaware oftheunderstanding byitstrading
partners thatLAN equipment wasencompassed within thetariff negotiations onADP equipment. In
viewofthese circumstances, theEC'sfailure toapply toLAN equipment thebound ratesforADP
units constituted aplain violation ofitsArticle II.1(b) commitment.
6.31 TheEC'sviolationofitsArticleII.1(b)commitmentconstitutedaprimafaciecaseofnullification
andimpairment under Article XXIII.1(a). Inaddition, eveniftheEChadnotdirectly abrogated its
Article IIcommitment, itsfailure toaccord LAN equipment thebound ratesforADP unitsnullified
orimpaired thevalue ofitscommitment under Article XXIII.1(b). TheEChadnotrebutted theUS
contention thattheEC'strade partners hadgood reason tobelieve, based oninformation exchanged
inthenegotiations, thattheEC'sconcession onADP units/tariff heading 84.71 would apply toLAN
equipment. Anysuchrebuttal would notbetenable given theexplicit references toLAN equipment
inSingapore 'sconcession request submitted totheEC. Such documentation demonstrated thatthe
EC'strading partners hadreasonably expected thattheEC'sheading 84.71 bindings covered LAN
equipment.
6.32 Theconcept ofnullification andimpairment wasinextricably linked totheexpectations formed
byparties during thenegotiation process. Itwaswell-established thatArticle XXIII.1(b) violations
occurred where actions subsequent toundertaking aGATT commitment resulted inthefrustration of
reasonable expectations. Forinstance, inTreatment byGermany ofImports ofSardines99,thePanel
hadconsidered Norway 'scomplaint thatGermany hadnullified benefits accruing toNorway when
Germany hadreduced tariffs oncertain sardines imported fromothercountries tolevels thatwerelower
thantariff bindings thatGermany hadpreviously committed tooncompetitive sardines ofatype
principally imported fromNorway. Although Germany hadtechnically adhered toitsbound rateon
imports fromNorway, thePanel haddetermined thatGermany hadimpaired theintended benefits of
thecommitment bysubsequently according more favourable dutytreatment toimports ofcompetitive
sardines shipped byother countries. Asstated bythePanel, Germany 'sactions "could notreasonably
havebeenanticipated" atthetimeofthenegotiations andNorway "hadreason toassume during these
negotiations" thatitsexports would notbelessfavourably treated thanother countries 'exports.100
97Panel Report onNewsprint ,opcit.
98Ibid., para. 50.
99Panel Report onTreatment byGermany ofImports ofSardines ,adopted on31October 1952, BISD 1S/53.
100Ibid., para.16. See,alsoReport onTheAustralian Subsidy onAmmonium Sulphate ,Report adopted on
3April 1950, page188,BISD Volume II,May1952, (finding thatalthough noviolation occurred, contracting
party "had reason toassume, during these negotiations that....");andReports Relating totheReview ofthe
Agreement, Quantitative Restrictions ,adopted on2,4and5March 1955, BISD 3S/170, para. 63(contracting
partiescouldnotresorttowithdrawalofconcessionsorsuspensionofobligations,"unlesstheeffectsofthemeasure
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6.33 Similarly, Singapore hadvalid reasons forexpecting thattheADP binding under negotiation
would apply toLAN equipment. Having explicitly referred tovarious types ofLAN equipment in
itsADP concession request, which prompted noobjection from theEC,Singapore hadnoreason to
assume thattheECwould resist applying itsADP binding toLAN equipment. TheEC'ssubsequent
unilateral action nullified thebenefits Singapore hadreasonably expected thatitwould derive from
theconcession.
6.34 Furthermore,theWCO'sHSCommitteehadrecentlydecidedthatLANequipmentwasproperly
classifiable inheading 84.71 oftheHS.101TheHSCommittee hadspecifically declined toadopt the
position advanced thatheading 85.17 wastheappropriate category.102Given thatthelanguage interpreted
bytheHSCommittee wasidentical totheEC'sdescription initsconcession schedule forheading 84.71,
thedecision confirmed thattheEChadnovalid basis forincreasing thebound ratesonADP units
onimports ofLAN equipment.103Thedecision alsoprovided additional corroboration ofthe
reasonableness ofECtrading partners 'expectations thattheirLANequipment exports would becovered
bysuchbound rates. TheEChadsuggested thattheHSCommittee decision wasintended solely to
establish theappropriate HSclassification forfuture imports. Itignored thatthelanguage interpreted
bytheHSCommittee wasthesame language appearing intheEC'sHSnomenclature andintheEC's
concession schedule atthetimeofthenegotiations andafterwards. TheHSCommittee decision did
notpurport tomodify thelanguage oralterpriorHSCommittee 'sinterpretation. Instead, itinterpreted
longstanding HSprovisions thatwere incorporated within theparties 'nomenclature throughout the
course oftheGATT concession negotiations. Assuch, thedecision demonstrated thattheEC'strading
partners hadreasonably expected theADP bindings tocover LAN equipment.
6.35 TheECsubmission emphasized thattheHSCommittee 'sdecision was"notyetfinal" andnoted
thatreservations could bemade totheWCO by1July1997. Significantly, theEChadnotsuggested
thattherewasanychancethattheHSCommittee'sdecisionwouldnotbeadoptedonsubstantivegrounds,
norcould theyhave, given theoverwhelming majority ofmembers whowereinfavour ofthedecision.
TheECinstead appeared tobereferring totherules ofHSConvention thatpermitted anymember
from lodging reservations toprevent theCouncil 'sadoption oftheHSCommittee 'sdecisions as
Classification Opinions. However, thecurrent legalstatus ofthedecision didnotnegate thefactthat
theHSCommittee hadfullyconsidered thematter andformally determined thatLAN equipment was
classifiable intariff heading 84.71. Again, suchdetermination hadconfirmed thesound foundation
wasconsidered ...").
101Decisions oftheHarmonized System Committee, Annex H/1toDoc.41.100E (HSC/19/Apr.97) .
102TheHSCommittee 'sdecision willbeembodied inaClassification Opinion, which willbedeemed tobe
approved bytheWCO unless aparty specifically requests thatthematter bereferred totheCouncil. See
International Convention ontheHarmonized Commodity andCoding System, Article 8.2.
103Ininterpreting thescope ofatariff concession, "theproduct description ...istheessential element for
delimitating thecoverage oftheconcession." TheECSchedule LXXX identified allproducts subject tobound
rates by(1)tariff itemnumbers correlating withtheHarmonized System; and(2)anarrative description based
onthelanguage ofthecorresponding HSheadings. DuetotheEC'selection, thescope ofitstariff concessions
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ofexpectations thatLAN equipment would betreated bytheECasADP units under itsconcession
schedule.104
6.36 Itshould alsobenoted thatoneprincipal function oftheHSCommittee andpredecessor bodies
wastoensure uniform classification under common nomenclatures toprotect tariff bindings under
Article II.Many countries hadadopted theHSspecifically asameans toenhance protection ofArticle II
tariff concessions through greater tariff classification uniformity.105Thisenthusiasm wasshared by
GATT: "[F]rom aGATT point ofview adoption oftheHarmonized System would ensure greater
uniformity among countries incustoms classification andthusagreater ability forcountries tomonitor
andprotect thevalue oftariffconcessions ...".106These GATT expectations wereseriously undermined
bytheEC'sinsistence onautonomously interpreting thescope ofcommon product descriptions in
concession schedules andharmonized tariff nomenclature. Theprevailing views oftheinternational
organization thatdeveloped theuniform product descriptions, andinwhom interpretative authority
wasentrusted, should notbesoeasily dismissed.
6.37 Thereclassification bythedefending parties could notbejustified under thegeneral rationale
thatGATT contracting parties werenotobligated tofollow anyparticular system forclassifying goods.
Member countries 'authority overtheirownnational customs tariffs hadbeennoted bycertain panels
examining theArticle Iconsistency oftariff differentiation through theaddition ofsubcategories in
tariffnomenclatures.107Eachpanel hadplainly cautioned thatclassification authority mustbeexercised
inconformity withGATT obligations. ThePanel intheUnroasted Coffee dispute noted, inparticular,
thatreclassification wasappropriate "provided thatareclassification subsequent tothemaking ofa
104Under WCO 'sinternal rules, anysingle member could havemade areservation thatwould haveprevented
theHSC from issuing itsdecision. TheECdidnotlodge anyreservation andfully participated intheHS
Committee proceedings, making athorough presentation ofitsviews. Further, theECacknowledged (par. 97
ofEC'sfirstsubmission) thattheintended effect oftheHSCommittee proceedings inwhich theyparticipated
wastoensure uniform classification ofLAN equipment inHeading 84.71. Based onthisacknowledgement and
theEC'sextensive participation, theEC'strading partners hadbeen ledtoreasonably expect EC'scompliance
withtheHSCommittee 'sdecision. Otherwise, individual members could abuse theHSCommittee 'sprocedures
byhaving theirpositions fullyconsidered, andthenescape theconsequences oftheCommittee 'sfullydeliberated
decisions bywithholding reservations untilthelastminute after their positions hadbeen rejected. Toprevent
suchtypeofabuse, CCC members hadagreed thatcompliance withHSCommittee decisions wasa"moral"
obligation. SeeReport totheCustoms Cooperation Council oftheFifth Session oftheHarmonized System
Committee, CCC Doc. No.35.960, 12April 1990.
105Thiswasinfactoneoftheprimary benefits envisioned bythecomplainant inthismatter. "Adoption
bytheUnited States oftheHarmonized System would, therefore, serve toprotect thevalue oftariff concessions
granted theUnited States." SeeInterim Report ontheHarmonized Commodity Description andCoding System,
USITC Pub. 1106 at31-32, November 1980.
106Decision onGATT Concessions under theHarmonized Commodity Description andCoding System ,op
cit.,para. 1.2.Consistent withthis,theArticle 7.1(e)oftheHSConvention indicates thatoneofthefunctions
oftheHSCommittee istofurnish guidance onclassification ofspecific goods under theHSsystem to
"intergovernmental orother international organizations," including GATT. Thus, while GATT envisioned that
nomenclature harmonization would protect tariff concessions, theWCO 'sroleistofurnish advice ontheHS
classification ofspecific goods foruseinGATT proceedings.
107Panel Report onSpain -Tariff Treatment ofUnroasted Coffee ,opcit.,para4.4;andPanel Report on
Canada/Japan: Tariff onImports ofSpruce, Pine, Fir(SPF) Dimension Lumber ,adopted on19July1989, BISD
36S/167, para. 5.9. Thegoods insuch disputes were notsubject tobound tariffs under Article II.WT/DS62/R
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tariff concession under theGATT would notbeaviolation ofthebasic commitment regarding that
concession (Article II:V)".108Consequently, apartycould notvalidly relyontheauthority overnational
tariffs toreclassify goods tocircumvent bound tariffs.109
6.38 Inconclusion,thedefendingpartieshadcircumventedtheprescribedrequirementsandprocedures
forensuring thattariff reclassification conformed toArticle IIconcessions. Thetransition totheHS
nomenclature wasclosely controlled andmonitored byGATT toensure thatnomenclature conversions
conformed with contracting parties 'existing tariff concessions under GATT Article IIandthe
requirements ofArticle XXVIII. Intheconversion, the"main principle tobeobserved inconnection
withtheintroduction oftheHarmonized System innational tariffs isthatexisting bindings should be
maintained unchanged".110Thecontracting parties hadagreed todetailed requirements andprocedures
designed toensure orderly notification, challenge opportunities, determinations ofwhether anyArticle II
concessionshadbeenviolatedorimpaired,andanynecessarynegotiationsoncompensation.111Additional
procedures wereadopted in1991 toensure adherence toArticle IItariff concessions when countries
implemented HSnomenclature amendments adopted bytheCCC.112Suchactivity largely reaffirmed
(andstreamlined procedures forimplementing) pre-existing obligations toformally revise concession
schedules when adopting anynomenclature changes innational customs tariffs.113
108Spain -Tariff Treatment ofUnroasted Coffee ,opcit.,para. 4.4,n.1. TheSPFPanel stated thatitmust
be"borne inmind that[tariff] differentiations maylendthemselves toabuse, insofar astheymayserve to
circumscribe tariff advantages ...."opcit.,para. 5.9.
109Thiswasparticularly trueofparties, suchastheEC,thathave adopted theHarmonized System. While
HScontracting parties havediscretion toestablish subdivisions beyond thesix-digit HSCode, theywereobligated
to"usealltheheadings andsubheadings oftheHarmonized System without addition ormodification, together
withtheirrelated numerical codes". Articles 3.1(a)(i) and3(3)oftheHSConvention. Thus, theHSwaspurposely
structured toleave noroom forclassifying goods outside thecontrolling 6-digit HSsubheadings.
110Decision onGATT Concessions Under theHarmonized Commodity Description andCoding System ,op
cit.,para. 2.1;seealsotheGATT Ministerial Decision onTariffs, adopted 29November 1982, referring to
contracting parties 'agreement that,ifHSnomenclature isadopted, "...thegeneral level ofbenefits provided
byGATT concessions must bemaintained ...."BISD 29S/18, para. 2.
111Tothisend,theparties agreed torequirements specifying (1)information tobeprovided totheGATT
Secretariat byeachcountry adopting theHS;(2)rules tobeusedforconversion ofdutyrates when combining
headings orparts ofheadings; and(3)procedures governing renegotiations under Article XXVIII. "GATT
Concessions under theHarmonized Commodity Description andCoding System", BISD 30S/17, supra .
112SeeDecision onProcedures toImplement Changes intheHarmonized System ,adopted on8October 1991,
BISD 39S/300-301. Members whochange theirnomenclatures based onCCC HSamendments arerequired to
formally submit proposed changes totheir tariff concession schedules forallnomenclature revisions, whether
ornotsuchchanges alterthescope ofArticle IIconcessions. Ibid., paras. 2(a)and2(b). Such proposals are
subject toobjections andchallenges byother members, aswellasnegotiation orconsultation requirements under
Article XXVIII. Ibid., paras. 4to6.
113See,e.g., Decision onProcedures forRectification andModification ofSchedules ,adopted 26March
1980, BISD 27S/25, para. 2:Changes intheauthentic texts ofSchedules shall bemade when amendments or
rearrangements which donotalterthescope ofaconcession areintroduced innational customs tariffs inrespect
ofbound items. Such changes andother rectifications ofapurely formal character shall bemade bymeans of
Certifications. Ifnoobjection ismade totheSecretariat within three months, theproposed change tothetariff
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6.39 During thisprocess, theGATT Committee onTariff Concessions hadconfirmed thatthe
described protections andsafeguards applied toreclassification decisions, aswellasnomenclature
amendments.114Thecontracting parties hadagreed, inparticular, thattheserequirements applied where
thereclassification wasoccasioned byefforts tocorrect aperceived erroneous classification practice115,
theexact situation here. Notably, theECitselfwasattheforefront ofthesuccessful initiative toextend
Article IIcompliance procedures toreclassification decisions.116Suchextension wasadirect response
totheECandother parties 'concerns thatcertain countries were avoiding Article IIcompliance
requirements byreinterpreting existing tariff provisions inlieuofamending thetariff nomenclature.
6.40 Inthepresent matter, thedefending parties effected reclassification unilaterally without giving
therequisite notice andwithout seeking thenecessary GATT approval. Thedefending parties hadalso
failed tocomply withthemandatory requirement tosubmit forapproval proposed amendments to
concession schedules thatreflected thealtered tariff treatment accorded tothegoods. Such
non-compliance appeared contrary totheEC'shistorical positions which aggressively advocated that
contracting parties effected product reclassification infullconformity withArticle IIandArticle XXVIII
requirements. Forinstance, theEChaddefended itsowntariff reclassification practices under these
Articles, andhadopenly questioned adherence byother contracting parties.117
6.41 Initssubmission of4June1997, theEChadnotcontended thatithadcomplied withthe
procedural requirements or,forthatmatter, evenacknowledged theexistence ofsuchrequirements.
Instead, theEChadargued thattheUnited States should haveraised thematter onitsowninitiative
during theconcession negotiations.118Asdemonstrated above, however, theparty making Article II
concessions hadtheaffirmative obligation togivetherequisite notice through formal GATT procedures
whenitalteredeffectivedutyratesthroughreclassification.119Inanyevent,asdiscussedabove,Singapore
infacthadtaken theinitiative when thenegotiations hadcommenced byspecifically referring tovarious
types ofLAN equipment initsconcession request forADP units under tariff heading 84.71.
Consequently, theECwasaware thattrading partners suchasSingapore hadnegotiated withthe
understanding thattheECoffers onADPunitsincluded LANequipment. Accordingly, thePanel should
System Nomenclature," TAR/W/55/Add. 1,p.2-3,paras. 5-7."[U]nder longstanding GATT practice, even
purely formal changes inthetariff schedule ofacontracting party, which maynotaffect theGATT rights of
other countries, suchastheconversion ofaspecific toanadvalorem dutywithout anincrease intheprotective
effect ofthetariff rateinquestion, havebeenconsidered torequire renegotiations." Panel Report onNewsprint ,
opcit., para. 50.
114SeeNote bytheSecretariat onTariff Reclassification ,opcit,paras. 6(iii), 8and14.
115Ibid., para. 6(iii).
116SeeTAR/M/3 dated 10March 1981, Minutes ofMeeting, Committee onTariff Concessions, pages 11
and12,para. 5.2.
117Ibid., para. 5.2(theECrepresentative "was wondering whether, through thesecretariat, itwould not
bepossible toknow whatwere thelegal possibilities available invarious countries inorder tobeabletomaintain
obligations under GATT inreclassification cases.")
118See,e.g., para. 92.Even ifEC'spartners anticipated future events andraised theissue during the
negotiations, suchconsultations would nothaverelieved theECfrom itsobligation tofollow therequisite GATT
requirementswhenitlatermandatedthatECmemb erstatesincreasetheeffectivedutyratesonthedisputeditems.
119Anyobligations offellow contracting parties aretriggered onlyupon thereceipt ofsuchformal notice.WT/DS62/R
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reject theEC'sattempt toshiftitsburden tootherMembers, anditsattempt toalteritsbinding obligation
thatithadcommitted toduring thecourse ofthenegotiations.
6.42 Asaconclusion, during thetariffconcession negotiations, Singapore andtheEC'sothertrading
partners hadevery reason tobelieve thattheEC'sconcessions onADPunitsincluded LAN equipment.
Singapore 'soriginal request totheECforheading 8471concessions explicitly referred tovarious types
ofLAN equipment, andtheEChadnever indicated anyreservations oropposition. Thereasonableness
ofECtradingpartners'expectationswassubsequentlycorroboratedbytheHSCommittee'sdetermination
thattariffheading 84.71 wasthecontrolling HScategory forLAN equipment. Thelanguage interpreted
bytheHSCommittee wasidentical tothelanguage appearing intariff heading 84.71 oftheEC'sHS
nomenclature andthelanguage intheEC'sADP tariff concession. Consequently, theEC's
reclassification ofLAN equipment andresulting imposition ofduties atratesthatexceeded thebound
ratesforADPunitshadviolated Article IIobligations, andnullified orimpaired thevalue ofthebenefits
ECtrading partners hadreasonably expected toreceive.
VII. INTERIM REVIEW
7.1 On21October 1997, theEuropean Communities andtheUnited States requested thePanel
toreview, inaccordance withArticle 15.2oftheDSU, theinterim report thathadbeenissued tothe
parties on7October 1997. TheEuropean Communities alsorequested thePanel toholdafurther
meeting withtheparties todiscuss thepoints raised initswritten comments. ThePanel metwiththe
parties on12November 1997, reviewed theentire range ofarguments presented bytheEuropean
Communities andtheUnited States, andfinalized itsreport, taking intoaccount thespecific aspects
ofthese arguments itconsidered toberelevant.
7.2 Regarding paragraph 7.8oftheinterim report (now paragraph 8.8ofthefinalreport), the
European Communities recalled thatithadargued thatawidedefinition ofLAN equipment necessarily
included certain modems andmultiplexers (seeparagraph 5.59) andthatSingapore hadalsoargued
before thePanel thatmultiplexers wereLANequipment (seeparagraphs 5.26and6.30). TheEuropean
Communities questioned howthePanel could justify theexclusion ofmultiplexers, since thePanel
hadmade findings thatapplied to"allLAN equipment". TheEuropean Communities submitted that
multiplexers should beconsidered LAN equipment. Forthesamereason, theEuropean Communities
requested thatthePanel reconsider therelevance oftheBTIs issued bytheNetherlands (see
paragraph 8.40). Given thelargenumber ofBTIsissued bytheNetherlands (Annex 6,Table 1,Nos5
to34),theEuropean Communities argued, thisreconsideration oftheDutch BTIsshould leadthePanel
totheconclusion thatthere wasenough evidence ontheECsidetorebut theevidence submitted by
theUnited States inthisdispute.
7.3 ThePanel noted thatfootnote 124made itclear thatmultiplexers were outside thescope of
thePanel'sexamination. ThePanel recalled thattheUnited States --thecomplainant inthisdispute
--stated thattarifftreatment ofmultiplexers wasnotpartofitsclaims. ThePanel hadfound theUnited
States 'technical explanation inparagraph 5.54 toprovide reasonable grounds toconclude that
multiplexers should notbeconsidered tobeLAN equipment. TheEuropean Communities asserted
otherwise (seeparagraph 5.59), butprovided norationale foritsposition except theUnited States '
ownclassification practice, which wasnotrelevant inthiscaseinthePanel'sview(seeparagraph 7.5
below). Accordingly, thePanel didnotaccept theEuropean Communities 'request onthispoint, and
decided toretain paragraph 8.8asitoriginally appeared asparagraph 7.8oftheinterim report.
Correspondingly, there wasnoreason, inthePanel'sview, toreconsider therelevance oftheDutch
BTIs.WT/DS62/R
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7.4 TheEuropean Communities noted thatinparagraph 7.23 oftheinterim report (now
paragraph 8.23ofthefinalreport) thePanel found that"themeaning ofaparticular expression ina
tariffschedulecannotbedeterminedinisolationfromitscontext".Itfurthernotedthatinparagraph7.26
oftheinterim report (now paragraph 8.26ofthefinalreport) thePanel stated that"itisclearly the
casethatmostdescriptions aretobetreated withtheutmost caretomaintain theirintegrity precisely
because, onitsface, theynormally constitute themost concrete, tangible andreliable evidence of
commitments made". TheEuropean Communities argued thatthePanel failed toexplain howitcould
interpret theimporting country 'stariffschedule incontext while omitting anyreference totherelevant
customs legislation oftheimporting country withregard totheinterpretation ofthetariffnomenclature,
which isderived fromtheHarmonized System. TheEuropean Communities further pointed outthat
ithadsubmitted tothePanel alltherelevant interpretative notes (seefootnote 15)aswellastheEC
legislation referring totheissuance andthelegal value oftheBTIs. ThePanel, according tothe
European Communities, should have taken intoaccount these legal elements ininterpreting
Schedule LXXX andindoing soshould havecome totheconclusion thatSchedule LXXX doesnot
require theEuropean Communities togrant LAN equipment atarifftreatment thatisbelow thebound
dutyratefortelecommunication apparatus.
7.5 After carefully examining thisargument bytheEuropean Communities, thePanel remained
oftheviewthattheEuropean Communities failed toaccord imports ofLAN equipment treatment no
lessfavourable thanthatprovided forunder Schedule LXXX. First, thePanel noted thatthebothparties
considered thisdispute asacaseabout dutytreatment, notabout product classification. Indeed, the
EuropeanCommunitiesitself(seeparagraph5.13)statedthat"thisPanelshouldabstainfrompronouncing
itselfoncustoms classification issues". Inthisrespect, theEuropean Communities wasinagreement
withtheUnited States, which stated "thiscasewasnotabout classification" (seeparagraph 5.12, see
alsoparagraph 5.3).ThePanel adopted itsinterpretative approach accordingly. Furthermore, inmaking
itsfinding, thePanel considered thatBTIs were relevant totheformation oflegitimate expectations
totheextent thattheyindicate actual tariff treatment oftheproducts concerned. Indealing withthe
matter, thelegalstatus ofBTIswithin theEuropean Communities wasfullytaken intoaccount bythe
Panel, butwhether ornotBTIs werelegally binding under theEClaw,inthePanel'sview, didnot
materially affect theconclusion thattheyconstituted evidence ofactual tarifftreatment. Consequently,
thePanel decided toreject theEuropean Communities 'request onthispoint.
7.6 TheEuropean Communities argued thatthePanel'sfindings inparagraphs 7.36, 7.41and7.55
oftheinterim report (now paragraphs 8.36, 8.41and8.55, respectively) regarding thetarifftreatment
ofLANequipment intheEuropean Communities werenotreconcilable withthefactthat"TheAmerican
Electronics Association (AEA), which represented thecomputer industry, hadscheduled ameeting
withCommission officials on25February 1994 inorder todiscuss anumber ofissues including
classification difference inmember States withrespect toanumber ofproducts including LANinterface"
(paragraph 5.29). According totheEuropean Communities, theexistence ofthescheduled meeting
clearly indicated thattheUSindustry wasfully aware ofthedifficulties inclassification ofLAN
equipment andthatsome imports ofLAN products were classified astelecommunication apparatus
bysome ECcustoms authorities, including those located intheUnited Kingdom. TheEuropean
Communities further argued thattariff commitments werenegotiated bygovernment officials, notby
theindustry. Ittherefore failed tounderstand howitcould beheldresponsible forthealleged failure
bytheUSindustry toproperly brieftheUSGovernment during theUruguay Round about thedifferences
inclassification within theEuropean Communities.
7.7 ThePanel wasnotpersuaded bythisargument. TheAEA meeting withECofficials might
havebeenscheduled, butitwasnotclearwhether orwhen itactually tookplace (seeparagraph 5.30).
TheEuropean Communities didnotputforward more detailed explanation regarding thatmeeting thanWT/DS62/R
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iscontained inparagraph 5.29. InthePanel'sview, itwasimpossible toinferfromthisinformation
alone thattheUSindustry which exported LAN equipment toIreland andtheUnited Kingdom was
fullyaware ofthedifficulties inclassification ofLANequipment andthatsomeimports ofLANproducts
were classified astelecommunication apparatus inIreland ortheUnited Kingdom during the
Uruguay Round. Moreover, inthePanel'sview, thePanel hadnotattributed totheEuropean
Communities anyfailure bytheUSindustry tobrieftheUSGovernment. Rather, itwasthematter
ofwhether theEuropean Communities boretheresponsibility forcreating theexpectations thatLAN
equipment would betreated asADP machines, orwhether there wassufficient evidence toindicate
"amanifest anomaly" (seeparagraph 8.44) which theUnited States should have been aware of.
Consequently, thePanel didnotfinditnecessary tochange itsfindings inparagraphs 8.41and8.55.
However, inorder toclarify itsposition further, thePanel decided toexpand footnote 152.
7.8 TheEuropean Communities further argued that,inviewoftheagreement between theparties
thattherelevant period forthisdispute wasfromJanuary 1990 toMarch 1994 (seeparagraph 5.24),
itfailed tounderstand howthefinding inparagraph 7.41oftheinterim report (now paragraph 8.41
ofthefinalreport) could bebased onanobjective appreciation offactsastheyappeared fromthefile.
According totheEuropean Communities, apartfromtheclassification carried outbyother ECcustoms
authorities (e.g.Germany) theBTIissued bytheUKcustoms authorities toCISCO showed thatithad
notbeenpossible fortheUSindustry tohaveagenuine understanding during therelevant period that
allLAN equipment would beclassified asADP machines. Moreover, theEuropean Communities
argued, thisevidence showed thatCISCO, when submitting itsletter referred toinAnnex 4,Table 3,
No.8wasnottelling thetruth(seeparagraph 5.49).
7.9 ThePanel noted thatwhen itmade thefinding inparagraph 8.41, itwasfullyaware thatthe
BTIissued toCISCO hadbecome effective within therelevant period, butinitsview, thefactthat
theevent occurred attheveryendoftheperiod asasingle incidence alsohadtobegiven dueweight
(seealsofootnote 152). Italsotookintoaccount theapparent contradiction between theBTIandthe
CISCO letter totheUSGovernment. However, bearing inmind theplausibility oftheexplanation
given bytheUnited States (seeparagraph 5.57), thisdidnotitself constitute asufficient basis tocast
doubt ontheveracity ofotheraspects oftheCISCO letter. NorhadtheEuropean Communities provided
anyother evidence todoso.These elements didnotaffect thePanel'sconclusion thatthecounter-
evidence wasnotsufficient torebut thepresumption thatUSclaim wastrue.
7.10 Regarding paragraph 7.44oftheinterim report (now paragraph 8.44ofthefinalreport), the
European Communities returned toitsargument inparagraph 5.48regarding therelevance ofDanish
andDutch BTIsduetothedatesoftheirissuance andstated thattheseBTIscould notserve assufficient
evidence tosupport thatthecustoms authorities ofDenmark andtheNetherlands wereclassifying LAN
equipment asADP machines during therelevant period.
7.11 ThePanel noted thatparagraph 7.37oftheinterim report (now paragraph 8.37ofthefinal
report) hadbeendrafted withthisissue directly inmind, anddidnotfinditnecessary tochange its
findings onthispoint: i.e.regarding itsviewthatthose BTIs provided supplementary support tothe
USclaim. However, inorder toclarify itsposition further, thePanel modified thelanguage asused
inparagraph 8.44ofthefinalreport.
7.12 Regarding paragraph 7.56oftheinterim report (now paragraph 8.56ofthefinalreport), the
European Communities pointed outthattheUnited States itself hadreclassified during thecourse of
theUruguay Round, namely in1992, LAN equipment from telecommunication apparatus toADP
machines andthatthisreclassification hadhappened aftertheUnited States hadmade its"zero-for-zero"
request/offer of15March 1990, which included electronic articles inHSchapters 84,85and90(seeWT/DS62/R
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paragraph 5.26). TheEuropean Communities alsonoted thatduring thenegotiations oftheNorth
American FreeTrade Agreement, theparties tothatagreement hadadmitted thatitwasdifficult to
classify LAN equipment andtheyhadagreed toconsult onthisissue andtoendeavour toagree no
laterthan1January 1994 ontheclassification ofsuchgoods ineachparty'stariff schedule (see
paragraph 5.33). TheEuropean Communities further recalled thataftertheconclusion oftheUruguay
Round, theHSCommittee oftheWorld Customs Organization hadtoexamine theproper classification
ofcertain LAN equipment (seeparagraph 5.12). Finally, theEuropean Communities stated thateven
some thirdparties tothisdispute, namely Japan andKorea, werecurrently classifying some orallLAN
equipment astelecommunication apparatus (seeparagraph 5.35).
7.13 Referring toparagraph 7.49oftheinterim report (now paragraph 8.49ofthefinalreport),
theEuropean Communities maintained thatthefactsmentioned intheprevious paragraph clearly showed
thattherehadbeen, andtoacertain extent stillwas"amanifest anomaly" because oftheextraordinary
difficulty concerning thecorrect classification ofLAN equipment. Italsoshowed, according tothe
European Communities, thequestion ofprecise classification ofLAN equipment intheECschedule
could notpossibly haveinfluenced thewayinwhich theUnited States conducted theUruguay Round
tariff negotiations since theUnited States '"zero-for-zero" request/offer wassubmitted before itsown
reclassification ofLAN equipment, i.e.without prejudice toclassification details. TheEuropean
Communities asked thePanel totakethese elements intoaccount andtherefore come toadifferent
conclusion.
7.14 ThePanel agreed withtheEuropean Communities thattheseelements hadindeed beenpresented
before thePanel, andaccordingly modified andexpanded therelevant paragraphs initsfindings.
However, forreasons explained inparagraphs 8.58and8.59ofthefinalreport, itdidnotagree with
theEuropean Communities thatitshould come toadifferent conclusion.
7.15 TheUnited States requested thatthefirstsentence offootnote 167bedeleted asunnecessary
andpotentially misleading. Thatsentence, according totheUnited States, could bemisinterpreted
tosuggestthatproductionofBTIs,customsrulingsoractualinvoiceswasessentialtoshowingaviolation
ofArticle II:1ofGATT 1994. TheUnited States argued thatitcould notpredict whattypes ofevidence
ofactual tarifftreatment might existinafuture dispute between different parties, withdifferent domestic
legalsystems, concerning different concessions. According totheUnited States, itwould beunwise
forthisPanel toimply thatthese three types ofevidence were inherently superior toallother types
ofevidenceorweretheonlytypesofevidencerelevantinanycase.TheEuropeanCommunitiesobjected
tothedeletion ofthesentence.
7.16 InthePanel'sview, there would benodanger ofmisinterpretation assuggested bytheUnited
States. However, inorder toclarify itsviews onevidence inthisregard, thePanel introduced certain
modifications tothesentence.
7.17 TheUnited States alsomade other drafting suggestions concerning thedescription ofits
arguments, some ofwhich thePanel accepted andintroduced initsfinalreport. These changes are
reflected inparagraphs 2.9,5.52, 8.2,8.13, 8.14and8.65, andfootnotes 4and83ofthefinalreport.
VIII. FINDINGS
A. Claims oftheParties
8.1 Thefactsleadingtothisdisputecanbesummarizedasfollows.AttheconclusionoftheUruguay
Round, theEuropean Communities bound itstariff rateonproducts described as"automatic dataWT/DS62/R
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processing machines andunits thereof; magnetic oroptical readers, machines fortranscribing data
ontodatamedia incoded form andmachines forprocessing suchdata, notelsewhere specified or
included" (hereinafter referred toas"ADP machines") under heading 84.71 at2.5percent--orzero
percentonsome products --(tobereduced from thebaserateof4.9percent) initsSchedule of
Concessions andCommitments annexed totheMarrakesh Protocol totheGeneral Agreement onTariffs
andTrade 1994(Schedule LXXX). Thebound ratesofdutyon"parts andaccessories ofthemachines
ofheading No8471" under heading 84.73 was2.0percent. Thebound ratesofdutyon"electrical
apparatus forlinetelephony orlinetelegraphy, including suchapparatus forcarrier current linesystems"
(hereinafterreferredtoas"telecommunicationapparatus")underheading85.17werevaried,butgenerally
higher thanthose onADP machines (3.0to3.6percent, tobereduced from thebaserateof4.6to
7.5percent). Thebound rateofdutyon"television receivers (including video monitors andvideo
projectors)" under heading 85.28 was14.0percent.119
8.2 AccordingtotheUnitedStates,thecustomsauthoritiesintheEuropeanCommunities,particularly
those ofIreland andtheUnited Kingdom, generally treated LAN equipment asADP machines during
theUruguay Round andforsome timeafteritsconclusion. InMay1995, theCommission adopted
Regulation (EC) 1165/95 classifying LAN adapter cards astelecommunication apparatus under
heading 85.17.120Following theadoption ofthisregulation, according totheUnited States, thecustoms
authorities intheEuropean Communities including those ofIreland andtheUnited Kingdom started
treating LAN adapter cards astelecommunication apparatus asmandated bytheregulation, andalso
started classifying other LAN equipment astelecommunication apparatus.
8.3 InApril 1996, atribunal intheUnited Kingdom upheld acustoms administration determination
classifying aproduct known asPCTV (acombination ofpersonal computer andcolour television set,
integrated inthesame unit)asatelevision receiver under heading 85.28.121
8.4 InJune1997, theCommission adopted Regulation (EC) 1153/97, classifying allpersonal
computers (hereinafter "PCs") asADP machines, butapplying higher rates ofduty(asmuch as
14percent) onthose withmultimedia capability.
8.5 TheUnited States claims asfollows:
(a) TheEuropean Communities 'reclassification ofLAN adapter cards under Regulation
(EC) 1165/95 hasresulted intreatment ofthose products lessfavourable thanthat
provided forinPartIofSchedule LXXX andtherefore isinconsistent withtheEuropean
Communities 'obligations under Article II:1oftheGeneral Agreement onTariffs and
Trade 1994 (hereinafter "GATT 1994");
(b) TheEuropean Communities 'reclassification ofother types ofLAN equipment has
resulted intreatment ofthose products lessfavourable thanthatprovided forinPartI
ofSchedule LXXX andtherefore isinconsistent withtheEuropean Communities '
obligations under Article II:1ofGATT 1994;
119Foramore detailed description ofthese products andtheirbound rates, seeAnnex 1.Regarding products
under heading 85.17, seealsofootnote 4.
120Annex 2.
121Annex 3.WT/DS62/R
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(c) TheEuropeanCommunities'reclassificationofmultimediaPCshasresultedintreatment
ofthose products lessfavourable thanthatprovided forinPartIofSchedule LXXX
andtherefore isinconsistent with theEuropean Communities 'obligations under
Article II:1ofGATT 1994;
(d) TheUnited Kingdom 'sreclassification ofLAN equipment hasresulted intreatment
ofthose products lessfavourable thanthatprovided forinPartIofSchedule LXXX
andtherefore isinconsistent withtheUnited Kingdom 'sobligations under Article II:1
ofGATT 1994;
(e) TheUnited Kingdom 'sreclassification ofmultimedia PCshasresulted intreatment
ofthose products lessfavourable thanthatprovided forinPartIofSchedule LXXX
andtherefore isinconsistent withtheUnited Kingdom 'sobligations under Article II:1
ofGATT 1994;
(f) Ireland 'sreclassification ofLANequipment hasresulted intreatment ofthose products
lessfavourable thanthatprovided forinPartIofSchedule LXXX andtherefore is
inconsistent with Ireland 'sobligations under Article II:1ofGATT 1994; and
(g) Theabove measures havenullified orimpaired thevalue ofconcessions accruing to
theUnited States under GATT 1994.
8.6 TheEuropean Communities rejects these claims forthefollowing reasons:
(h) TheUnited States 'claims against Ireland andtheUnited Kingdom (i.e., (d),(e)and
(f)above) should berejected because these member States didnotengage inanytariff
bindings vis-à-vis theUnited States oranyother country andcould notbeconsidered
tohaveviolated anyobligations under Article IIofGATT 1994; and
(i) TheUnited States 'claims against theEuropean Communities (i.e., (a),(b)and(c)
above) should berejected because theEuropean Communities didnotreclassify the
products concerned, resulting intreatment ofthose products lessfavourable thanthat
provided forinitstariff schedule. TheEuropean Communities hasnotviolated any
ofitsobligations under Article IIofGATT 1994, norhasitnullified orimpaired the
value ofconcessions accruing totheUnited States under GATT 1994.
B. Issues Regarding theScope oftheClaim
8.7 Before examining thesubstantive aspects ofthecase, weneedtoruleonthree preliminary
issues raised bytheEuropean Communities regarding thescope oftheUnited States 'claim. These
aretheissues relating toproduct coverage, scope ofthemeasures andthestatus ofIreland andthe
United Kingdom inthisdispute.
1. Product Coverage
8.8 TheEuropean Communities argues thattheUnited States hasfailed todefine clearly "LAN
equipment" subject tothedispute withtheexception ofLAN adapter cards, andsuggests thatalltheWT/DS62/R
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claims onLAN equipment other thanLAN adapter cards should bedismissed.122TheUnited States
argues thatitsdefinition ofLAN equipment isclear.123Inresponse toaquestion fromthePanel, the
United States hassubmitted thattheterm"LAN equipment" means allLAN equipment including LAN
adapter cards, LAN controllers, LAN repeaters, LAN interface units andbridges, LAN extenders,
LAN concentrators, LAN switches, LAN hubsandLAN routers.124
8.9 WenotethattheEuropean Communities cites, insupport ofitsposition, thepanel report on
"EEC -Quantitative Restrictions against Imports ofCertain Products fromHong Kong", which made
thefollowing observation:
"The Panel considered thatjustastheterms ofreference mustbeagreed between theparties
prior tothecommencement ofthePanel'sexamination, similarly theproduct coverage must
beclearly understood andagreed between theparties tothedispute. ThePanel considered
thattoallow theinclusion ofanadditional product itemabout which oneparty hadnotbeen
formally advised priortothecommencement ofproceedings would betointroduce anelement
ofinequity."125
Inourview, however, thepresent caseshould bedistinguished fromtheQuantitative Restrictions case
citedbytheEuropean Communities inthatnonewproduct wasadded bytheUnited States inthecourse
oftheproceedings. Thedefinition bytheUnited States intheprevious paragraph isanelucidation of
theproduct coverage already specified intheUnited States 'requests fortheestablishment ofapanel
onthismatter (WT/DS62/4, WT/DS67/3 andWT/DS68/2). Consequently, wefindthatthedefinition
issufficiently specific forthepurposes ofourconsideration ofthisdispute andreject theEuropean
Communities 'suggestion.
8.10 TheEuropean Communities alsoargues thatthescope oftheUnited States 'claim onmultimedia
PCsisunclear. According totheEuropean Communities, theonlyitemwhich canbeconsidered to
bethesubject ofthisdispute settlement proceeding isthePCTV implicated inthe1996 judgement
ofaUnited Kingdom tribunal, andtheEuropean Communities suggests thattherestoftheUnited States '
claim onmultimedia PCsshould bedismissed.126Inresponse toaquestion bythePanel, theUnited
States hassubmitted thatitsclaim includes abroad range ofpersonal computers withmultimedia
capabilitysuchasthosewhichutilizestoragedevicesbasedonlaser-readingtechnology(i.e.,CD-ROMs)
andthose which haveattendant audio andvideo capabilities.127Again, noting thattheUnited States '
reference to"PCs withmultimedia capability" initspanel requests (WT/DS62/4, WT/DS67/3 and
122Seeparagraph 4.1.
123Seeparagraph 4.2.
124Seefootnote 19oramore precise description ofthese products. According totheUnited States, modems
andmultiplexersarenotincludedinthisdefinition.Seeparagraph5.54.Evidenceontheseproductsisnotaccep ted
bythePanel asproof regarding thetariff treatment ofLAN equipment.
125Panel Report onEEC- Quantitative Restrictions against Imports ofCertain Products from Hong Kong ,
opcit.,para. 30.
126Seeparagraph 4.3.
127Seeparagraph 4.4.WT/DS62/R
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WT/DS68/2) covers alltheseproducts, wefindthatthisdefinition issufficiently specific forthepurposes
ofourconsideration ofthisdispute andreject theEuropean Communities 'suggestion.
8.11 Forthereasons stated above, wereject theEuropean Communities 'argument andfindthat
allLANequipmentandpersonalcomputerswithmultimediacapability,asspecifiedbytheUnitedStates,
arethesubject ofthisdispute.
2. Scope oftheMeasures
8.12 TheEuropean Communities argues thattheUnited States hasfailed toidentify measures where
tariffcommitmentshaveallegedlybeenviolated,exceptRegulation(EC)1165/95regardingLANadapter
cards andtheabove-mentioned UKtribunal judgement regarding PCTVs. TheUnited States argues
thatinadditiontothesetwomeasures,practicesofthecustomsauthoritiesinIreland,theUnitedKingdom
andother member States regarding LAN equipment, aswellastheUKcustoms authorities 'practice
regarding multimedia PCs,areincluded within thescope ofthisdispute.128Although theUnited States '
formulation ofitsclaims appears toemphasize the"reclassification" aspect ofthedispute, thesubstance
ofthepresent caseistheactual tariff treatment bycustoms authorities intheEuropean Communities
andtheevaluation ofthattreatment inlightofthetariffcommitments inSchedule LXXX. Bothparties
have presented their arguments onthisbasis.129Viewed from thisperspective, wefindthatthe
United States hassufficiently identified themeasures subject tothedispute, which concerns tariff
treatment ofLANequipment andmultimedia PCsbycustoms authorities intheEuropean Communities.
8.13 Separately, theUnited States refers toRegulation (EC)1153/97, which entered intoforce on
1July1997, asitself imposing tariffs athigher-than-concession ratesunder heading 84.71.130The
European Communities objects toitsinclusion forconsideration bythePanel.131
8.14 Regarding Regulation (EC)1153/97, wenotethattheregulation wasissued on24June1997,
almost fourmonths aftertheestablishment ofthisPanel on25February 1997. Ithasbeentheconsistent
practice ofprevious panels nottoexamine measures introduced aftertheestablishment ofthepanels.132
Weseenoreasons todepart from thispractice inthepresent case. TheUnited States argues that
Regulation (EC)1153/97 "confirms" theexisting measures. Itdoesnothowever explain howandwhy
thisamounts to"confirmation".133Accordingly, wedonotexamine theconformity ofRegulation (EC)
1153/97 withGATT 1994 inthisreport.
128Seeparagraph 4.8. Seealsoparagraph 8.5.
129Seeparagraphs 5.3(arguments bytheUnited States) and5.13(arguments bytheEuropean Communities).
130Seeparagraph 5.74.
131Seeparagraph 4.6.
132Panel Report onUruguayan Recourse toArticle XXIII ,adopted on16November 1962, BISD 11S/95,
para. 18;Panel Report onUnited States -Section 337oftheTariff Actof1930,adopted on7November 1989,
BISD 36S/345, para. 5.2.
133Seeparagraph 4.8.WT/DS62/R
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3. Status ofIreland andtheUnited Kingdom
8.15 TheUnited States hasrequested thatthePanel specify which ofthedefending parties (the
European Communities, Ireland andtheUnited Kingdom) areresponsible forthealleged nullification
orimpairment ofitsbenefits under GATT 1994.134TheEuropean Communities claims thatIreland
andtheUnited Kingdom arenotparties tothisdispute.
8.16 Theterms ofreference ofthisPanel clearly mandates ustoexamine "thematters referred to
theDSB bytheUnited States indocuments WT/DS62/4, WT/DS67/3 andWT/DS68/2". The
respondents inthese documents aretheEuropean Communities, theUnited Kingdom andIreland,
respectively. However, aswestated earlier, whatisatissueinthisdispute istariff treatment ofLAN
equipment andmultimedia PCsbycustoms authorities intheEuropean Communities.135Since the
European Communities, Ireland andtheUnited Kingdom areallbound bytheirtariff commitments
under Schedule LXXX, ourexamination willfocus, inthefirstinstance, onwhether customs authorities
intheEuropean Communities, including those located inIreland andtheUnited Kingdom, haveor
havenotdeviated fromtheobligations assumed under thatSchedule. Accordingly, wewillrevert to
thisissue inlightoftheconclusions ofthatexamination.
8.17 Asarelated matter, theUnited States hasrequested thatthetitleofthereport ofthisPanel
bechanged toread"European Communities, Ireland andtheUnited Kingdom -Increases inTariffs
onCertain Computer Equipment".136TheEuropean Communities doesnotagree tothischange.137
Given thatthereport isaconsolidated response totheUnited States 'requests contained indocuments
WT/DS62/4, WT/DS67/3 andWT/DS68/2, thechange inthetitlemight havebeenacceptable ifit
hadbeenagreed upon bytheparties tothedispute when theyreached anagreement ontheterms of
reference ofthisPanel. However, theUnited States requested thischange attheveryendofthesecond
substantive meeting, which inourviewwasrather lateintheprocess. Considering thatthecurrent
titleofthisreport, readtogether withthethree document symbols (WT/DS62/R, WT/DS67/R and
WT/DS68/R) itcarries, doesnotleadtoanyconfusion ormisunderstanding regarding thesubstance
ofthisdispute andthat,more generally, itisdesirable forthetitleofadispute toremain unchanged
throughouttheprocess(fromconsultationstoimplementation),werejecttherequestbytheUnitedStates.
Insodoing, wealsonotethatthetitleofaparticular dispute isgiven forthesakeofconvenience in
reference andinnowayaffects thesubstantive rights andobligations oftheparties tothedispute.
C. General Interpretative Issue
8.18 Asindicated earlier, thesubstance ofthisdispute iswhether thetariff treatment ofLAN
equipment andmultimedia PCsbythecustoms authorities intheEuropean Communities hasbeenin
compliance withthetariff concessions contained inSchedule LXXX. Thepertinent provision in
GATT 1994 isArticle II:1,which reads inrelevant parts asfollows:
134Seeparagraph 3.2.
135Seeparagraph 8.12.
136Seeparagraph 5.3.
137Seeparagraph 5.4.WT/DS62/R
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"(a) Each Member shallaccord tothecommerce oftheother Members treatment noless
favourable thanthatprovided forintheappropriate Partoftheappropriate Schedule annexed
tothisAgreement.
"(b) Theproducts described inPartIoftheSchedule relating toanyMember, which are
theproducts ofterritories ofother Members, shall, ontheirimportation intotheterritory to
which theSchedule relates, andsubject totheterms, conditions orqualifications setforth in
thatSchedule, beexempt fromordinary customs duties inexcess ofthose setforthandprovided
therein. Suchproducts shallalsobeexempt fromallotherduties orcharges ofanykindimposed
onorinconnection withtheimportation inexcess ofthose imposed onthedateofthis
Agreement orthose directly andmandatorily required tobeimposed thereafter bylegislation
inforce intheimporting territory onthatdate."
Thespecific question facing thisPanel iswhether customs authorities intheEuropean Communities
accorded tarifftreatment tocertain products lessfavourable thanwhatisdescribed inPartIofitstariff
schedule --Schedule LXXX. Whether LANequipment ormultimedia PCsareproperly classified under
acertain tariff heading isnotanissuebefore thisPanel because thequestion oftheirclassification per
sehasnotbeen raised bytheUnited States. Itshould alsobeemphasized thattheobject ofour
examination islimited toSchedule LXXX. Wehavenointention ofpassing ajudgement regarding
inwhich tariff category acertain product mustbeclassified. Such aquestion isoutside theterms of
reference ofthisPanel.
8.19 Thus, itisnecessary tointerpret Schedule LXXX initsrelation toArticle II:1ofGATT 1994.
Asnoted earlier, Schedule LXXX isannexed totheMarrakesh Protocol, which inturnforms partof
GATT 1994. Assuch, itisanintegral partoftheWTO Agreement, subject to"customary rules of
interpretation ofpublic international law"(Article 3.2oftheDSU).
8.20 Article 31ofthe1969 Vienna Convention ontheLawofTreaties (hereinafter referred toas
"Vienna Convention") setsoutthegeneral rules oftreaty interpretation asfollows:
"1. Atreaty shallbeinterpreted ingood faithinaccordance withtheordinary meaning
tobegiven totheterms ofthetreaty intheircontext andinthelightofitsobject andpurpose.
"2. Thecontext forthepurpose oftheinterpretation ofatreaty shallcomprise, inaddition
tothetext,including itspreamble andannexes:
(a) anyagreement relating tothetreaty which wasmade between alltheparties in
connexion withtheconclusion ofthetreaty;
(b) anyinstrument which wasmade byoneormore parties inconnexion with the
conclusion ofthetreaty andaccepted bytheother parties asaninstrument related to
thetreaty.
"3. There shallbetaken intoaccount, together withthecontext:
(a) anysubsequent agreement between theparties regarding theinterpretation ofthetreaty
ortheapplication ofitsprovisions;
(b) anysubsequent practice intheapplication ofthetreaty which establishes theagreement
oftheparties regarding itsinterpretation;WT/DS62/R
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(c) anyrelevant rulesofinternational lawapplicable intherelations between theparties.
4. Aspecial meaning shall begiven toaterm ifitisestablished thattheparties so
intended."
8.21 Article 32oftheVienna Convention further provides:
"Recourse maybehadtosupplementary means ofinterpretation, including thepreparatory
work ofthetreaty andthecircumstances ofitsconclusion, inorder toconfirm themeaning
resulting fromtheapplication ofArticle 31,ortodetermine themeaning when theinterpretation
according toArticle 31:
(a) leaves themeaning ambiguous orobscure; or
(b) leads toaresult which ismanifestly absurd orunreasonable."
8.22 Wewillfollow theserulesofinterpretation indetermining whether thetarifftreatment ofLAN
equipment andmultimedia PCs isinconformity with thetariff commitments contained in
Schedule LXXX. Thepurpose ofinterpretation is,asisthecasewithanytreaty text,toascertain what
aparticular expression intheSchedule means.
8.23 Themeaning ofaparticular expression inatariff schedule cannot bedetermined inisolation
fromitscontext. Ithastobeinterpreted inthecontext ofArticle IIofGATT 1994--aprovision that
gives therationale forthespecification ofproducts anddutyratesintariff schedules inthefirstplace:
i.e.,theyconstitute abinding commitment arising outofanegotiation. Itshould benoted inthisregard
thattheprotection oflegitimate expectations inrespect oftariff treatment ofabound itemisoneof
themost important functions ofArticle II.Thepanel onOilseeds stated asfollows:
"...ThePanel considered thatthemain value ofatariff concession isthatitprovides an
assurance ofbetter market access through improved price competition. Contracting parties
negotiate tariffconcessions primarily toobtain thatadvantage. Theymusttherefore beassumed
tobasetheirtariffnegotiations ontheexpectation thattheprice effect ofthetariff concessions
willnotbesystematically offset. Ifnorightofredress weregiven totheminsuchacasethey
would bereluctant tomake tariff concessions andtheGeneral Agreement would nolonger
beuseful asalegalframework forincorporating theresults oftrade negotiations..."138
ThefactthattheOilseeds panel report concerns anon-violation complaint doesnotaffect thevalidity
ofthisreasoning incases where anactual violation oftariffcommitments isalleged. Ifanything, such
adirect violation would involve asituation where expectations concerning tariffconcessions wereeven
more firmly grounded.
8.24 Theimportance oflegitimate expectations ininterpretation oftariff commitments canbe
confirmed bythetextofArticle IIitself. Article II:5provides asfollows (emphasis added):
"IfanyMember considers thataproduct isnotreceiving fromanother Member thetreatment
which thefirstMember believes tohavebeencontemplated byaconcession provided forin
138PanelReportonEuropeanEconomicCommunity-PaymentsandSubsidiesPaidtoProcessorsandProducers
ofOilseeds andRelated Animal-Feed Proteins ,adopted on25January 1990, BISD 37S/86, para. 148.WT/DS62/R
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theappropriate Schedule annexed tothisAgreement, itshallbring thematter directly tothe
attention oftheother Member. Ifthelatter agrees thatthetreatment contemplated wasthat
claimed bythefirstMember, butdeclares thatsuchtreatment cannot beaccorded because a
court orother proper authority hasruled totheeffect thattheproduct involved cannot be
classified under thetariff lawsofsuchMember soastopermit thetreatment contemplated
inthisAgreement, thetwoMembers, together withanyotherMembers substantially interested,
shallenter promptly intofurther negotiations withaview toacompensatory adjustment of
thematter."
Although Article II:5isaprovision forthespecial bilateral procedure regarding tariff classification,
notdirectly atissue inthiscase, theexistence ofthisprovision confirms thatlegitimate expectations
areavitalelement intheinterpretation ofArticle IIandtariff schedules.
8.25 Thisconclusion isalsosupported bytheobject andpurpose oftheWTO Agreement andthose
ofGATT 1994. Thesecurity andpredictability of"thereciprocal andmutually advantageous
arrangements directed tothesubstantial reduction oftariffs andother barriers totrade" (expression
common inthepreambles tothetwoagreements) cannot bemaintained without protection ofsuch
legitimate expectations. Thisisconsistent withtheprinciple ofgoodfaithinterpretation under Article 31
oftheVienna Convention. Itshould berecalled thatthepanel report onUnderwear stated asfollows:
"[T]he relevant provisions [oftheAgreement onTextiles andClothing] havetobeinterpreted
ingoodfaith. Based uponthewording, thecontext andtheoverall purpose oftheAgreement,
exporting Members can...legitimately expect thatmarket access andinvestments made would
notbefrustrated byimporting Members taking improper recourse tosuchaction."139
8.26 Inourview, itmay, asamatter offact,bethecasethatinnearly allinstances, theordinary
meaning oftheterms oftheactual description inatariff schedule accurately reflects andexhausts the
content ofthelegitimate expectations. Itisclearly thecasethatmost descriptions aretobetreated
withtheutmost caretomaintain theirintegrity precisely because, ontheirface,theynormally constitute
themostconcrete, tangible andreliable evidence ofcommitments made. Inourview, however, this
cannot bethecaseapriori foralltariff commitments. Itmustremain possible, atleastinprinciple,
thatparties havelegitimately formed expectations based onother particular supplementary factors.
8.27 TodenythisaprioriwouldbetoreducethenatureandmeaningofcommitmentsunderArticleII
toapurely formal andmechanical taskofnoting descriptions inschedules. Thiswould betorobsuch
commitments ofthereality ofthecontext inwhich theyclearly occur inArticle II.
8.28 Ininterpreting Schedule LXXX, wewillaccordingly undertake interaliaanevaluation ofwhat,
asamatter offact,theUnited States wasentitled toexpect legitimately regarding theactual tariff
treatment ofLAN equipment andmultimedia PCsintheEuropean Communities.
D. LAN Equipment
8.29 TheUnited States claims thatLAN equipment should havebeenaccorded thetariff treatment
ofADP machines orparts thereof under heading 84.71 orheading 84.73 inSchedule LXXX. The
European Communities claims thatitstreatment ofLAN equipment astelecommunication apparatus
139PanelReportonUnitedStates-RestrictionsonImportsofCottonandMan-madeFibreUnderwear,adopted
on25February 1997, WT/DS24/R, para. 7.20. SeealsoPanel Report onIndia -Patent Protection for
Pharmaceutical andAgricultural Chemical Products ",WT/DS50/R, para. 7.18.WT/DS62/R
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under heading 85.17 ofSchedule LXXX isjustified andthatitisentitled tolevytherateofdutyunder
thatheading accordingly. Thus, weneedtodetermine theproper interpretation ofSchedule LXXX
regarding LAN equipment. Asnoted earlier, thegeneral question ofwhere LAN equipment should
beclassified inatariff nomenclature isbeyond ourmandate. Ourfinding isspecific toobligations
under Schedule LXXX, andshould notbetaken asanything going beyond that.
1. Textual Analysis
8.30 Following therules oftheVienna Convention140,westart from thetextual analysis.
Schedule LXXX doesnotspecifically refertoLAN equipment. Itgenerally refers to"automatic data
processing machines andunits thereof; magnetic oroptical readers, machines fortranscribing data
ontodatamedia incoded form andmachines forprocessing suchdata, notelsewhere specified or
included" under heading 84.71 and"parts andaccessories ofmachines ofheading No8471" under
heading 84.73. Inviewofthedataprocessing capacities ofLAN equipment, onemight conclude that
anytypeofLAN equipment isanADPmachine orpartthereof. However, ifoneemphasizes thefact
thatLAN equipment isusedforcommunication among various computer devices andtheexpression
"notelsewhere specified", onecould alsoargue thatLAN equipment isan"electrical apparatus for
linetelephony orlinetelegraphy, including suchapparatus forcarrier current linesystems" under
heading 85.17.
8.31 Thus, forthepurposes ofArticle II:1,itisimpossible todetermine whether LAN equipment
should beregarded asanADP machine purely onthebasisoftheordinary meaning oftheterms used
inSchedule LXXX taken inisolation. However, asnoted above, themeaning oftheterm"ADP
machines" inthiscontext maybedetermined inlightofthelegitimate expectations ofanexporting
Member.141
2. Actual Tariff Treatment andLegitimate Expectations
8.32 TheUnitedStatesclaimsthatitisentitledtotarifftreatmentofLANequipmentasADPmachines
orpartsthereof because customs authorities intheEuropean Communities, particularly those inIreland
andtheUnited Kingdom, actually treated LAN equipment thatwaywhen thetariff concession was
being negotiated, thereby effectively creating legitimate expectations onthepartoftheUnited States
thatsuchtariff treatment would continue. TheEuropean Communities claims thattheECmember
States didnotinfacttreatthese products uniformly during theUruguay Round andtherefore thatthe
United States wasnotentitled tosuchexpectations.
8.33 Inaddressing thisissue, weconsider itnecessary (a)toweigh theevidence submitted byboth
parties regarding theactual tariff treatment ofLAN equipment intheEuropean Communities and,if
theresult supports theUSclaim, (b)todetermine whether theactual tariff treatment entitles the
United States tolegitimate expectations inthisregard.
(a) Evaluation oftheEvidence ofActual Tariff Treatment
8.34 IntheShirts andBlouses case, theAppellate Body made thefollowing observation:
140Seeparagraph 8.20.
141Seeparagraphs 8.23-8.28.WT/DS62/R
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"[W]e finditdifficult, indeed, toseehowanysystem ofjudicial settlement could work ifit
incorporated theproposition thatthemere assertion ofaclaim might amount toproof. Itis,
thus, hardly surprising thatvarious international tribunals, including theInternational Court
ofJustice, havegenerally andconsistently accepted andapplied therulethattheparty who
asserts afact,whether theclaimant ortherespondent, isresponsible forproviding proof thereof.
Also, itisagenerally-accepted canon ofevidence incivillaw,common lawand,infact,most
jurisdictions, thattheburden ofproof restsupontheparty, whether complaining ordefending,
whoasserts theaffirmative ofaparticular claim ordefence. Ifthatparty adduces evidence
sufficient toraiseapresumption thatwhatisclaimed istrue,theburden thenshifts totheother
party, whowillfailunless itadduces sufficient evidence torebut thepresumption."142
8.35 Accordingly, wefirstexamine evidence produced bytheUnited States todetermine whether
ithassuccessfully raised apresumption thatitsclaim ontheactual tarifftreatment ofLAN equipment
intheEuropean Communities istrue.
8.36 Tosupport itsclaim, theUnited States hassubmitted Binding Tariff Information (BTI) issued
byIreland143andletters from theUKCustoms andExcise144,which treated certain LAN equipment
asADP machines during theUruguay Round. Ithasalsoproduced letters from fouroftheleading
USexporters ofLANequipment toEurope attesting tothefactthatalloftheirLANequipment exported
toIreland andtheUnited Kingdom --which weretheirmajor market --between 1991 and1994 had
beentreated asADP machines.145TheUSindustry appears tohavebeensatisfied withthistariff
treatment atthattime, anddidnotvoice anyconcerns inthisregard totheUSGovernment during
theUruguay Round.
8.37 Moreover,theBTIssubmittedbytheUnitedStatesregardingothermemberStatesfurthersupport
itsposition.146They indicate thatevenaftertheconclusion oftheUruguay Round tariff negotiations,
customs authorities inDenmark, France andtheNetherlands treated LANequipment asADPmachines.
InthecaseofFrance, astatement byaFrench customs official atameeting oftheEuropean
Commission 'sCustoms Code Committee isalsocitedassupport ofthisclaim.147Although theUnited
States cannot --anddoesnot--claim thatthese BTIs formed thebasis ofitsexpectations because of
thetiming oftheirissuance, theylendsupplementary support totheUSclaim onhowLAN equipment
wastreated intheEuropean Communities during theUruguay Round inasmuch asthereisnoevidence
tosuggest thatthese BTIs were aparticular departure from theprevailing practice inthese member
States.
8.38 WealsonoteUSexport datashowing thatUSexports ofLAN equipment (classified under
USX 847199 and847330) totheEuropean Communities continued toriseaftertheUruguay Round,
142Appellate Body Report onUnited States -Measure Affecting Imports ofWoven Wool Shirts andBlouses
from India,adopted on23May 1997, WT/DS33/AB/R, p.14(footnotes omitted).
143Annex 4,Table 1.
144Annex 4,Table 2.
145Annex 4,Table 3.Seealsoparagraph 5.44.
146Annex 4,Table 1.
147Seeparagraph 5.44.WT/DS62/R
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while ECimport statistics, which formerly moved inthesamedirection asUSexport statistics, indicate
adecline intheimports of"other ADP machines" (under CN847199) from theUnited States anda
simultaneous increase intheimports oftelecommunication apparatus (under CN851782) in1995.148
These statistics areaggregated atalevelthatmakes itdifficult todraw specific conclusions inrespect
ofthetariff treatment ofLAN equipment. Thisevidence does, however, indirectly support theUS
argument inasmuch asitisconsistent withtheeffects thatwould beanticipated ifthere wasachange
intariff treatment intheEuropean Communities aftertheUruguay Round.
8.39 Inlightoftheevidence described inthepreceding paragraphs, weconclude thattheUnited
States hasadduced evidence sufficient toraiseapresumption thatitsclaim thatLAN equipment was
treated asADP machines intheEuropean Communities during theUruguay Round istrue.
8.40 Following theAppellate Body report onShirts andBlouses149,theburden nowshifts tothe
European Communities. Torebut thepresumption raised bytheUnited States, theEuropean
Communities hasproduced documents which indicate thatLAN equipment hadbeen treated as
telecommunication apparatus byother customs authorities intheEuropean Communities. InGermany,
thecustoms authorities treated certain LANequipment astelecommunication apparatus already in1989,
apractice upheld bytheGerman Federal TaxCourt (Bundesfinanzhof) in1991.150TheEuropean
Communities hasalsoproduced BTIsissued bytheDutch, French, German andUKcustoms authorities
treating certain LAN equipment astelecommunication apparatus151,although aclose examination of
these BTIs reveals thatthose from theNetherlands pertain toeither multiplexers, which areoutside
thescope ofourexamination, ormore generic networking equipment, which mayormaynotfallunder
thedefinition ofLAN equipment usedinthisreport.
8.41 Theonly direct counter-evidence against theUSclaim onpractices inIreland andthe
UnitedKingdomisaDecember1993BTIissuedbytheUKcustomsauthority(HMCustomsandExcise)
tooneoftheUScompanies (CISCO), classifying onetype ofLAN equipment (routers) as
telecommunication apparatus.152Since itbecame effective onlyaweek orsobefore theconclusion
oftheUruguay Round negotiations, itisnotinourviewsufficient torebut theabove presumption,
which wasraised bymore extensive andgeneral evidence, thatLAN equipment wasgenerally treated
asADP machines inIreland andtheUnited Kingdom during theUruguay Round.
148Annex 7.
149Seeparagraph 8.34.
150Seeparagraph 5.46.
151Annex 6,Table 1.
152Seeparagraph 8.32. Wedonotconsider other BTIs issued bytheHMCustoms andExcise submitted
bytheEuropean Communities (Annex 6,Table 1)toberelevant because theybecame valid aftertheconclusion
ofsubstantivetariffnegotiationsoftheUruguayRound.Inthisconnection,wefinditnoteworthythattheEuropean
Communities didnotproduce anyBritish orIrish BTIs issued prior toDecember 1993 tosupport itscaseon
thisimportant issue. TheEuropean Communities suggests thatthefactthatAmerican Electronics Association
hadscheduled ameeting withCommission officials on25February 1994 inorder todiscuss anumber ofissues
including classification difference inmember States withrespect toanumber ofproducts including LAN interface
isanother indication ofthenon-uniform treatment ofLAN equipment within theEuropean Communities. See
paragraph 5.29. However, inourview, theinformation wastoovague andindirect torebut thepresumption
mentioned above, even totheextent thatitwasunclear thatthemeeting hadactually taken place.WT/DS62/R
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8.42 Regarding France, theEuropean Communities hassubmitted conflicting BTIs(i.e., onesthat
classify LAN equipment astelecommunication apparatus) issued aftertheconclusion oftheUruguay
Round. Thus, inlightofourreasoning inparagraph 8.37, itwould bereasonable toconclude atleast
thatthepractice wasnotuniform inFrance during theUruguay Round.
8.43 Germany appears tohaveconsistently treated LANequipment astelecommunication apparatus.
Asnoted above, a1991 Bundesfinanzhof ruling affirmed BTIs treating LAN equipment as
telecommunication apparatus, although theBTIs involved inthatcasewereissued toanon-US firm
andcould nothaveformed anybasis forUSexpectations. Inaddition, theEuropean Communities
hassubmittedoneGermanBTI,issuedin1992,treatingLANequipmentastelecommunicationapparatus.
8.44 Inourview,theevidenceproducedbytheEuropeanCommunitiesdoesnotrebutthepresumption
raised bytheUnited States concerning theaccuracy ofitsclaim regarding theactual tariff treatment
ofLAN equipment during theUruguay Round. Theevidence concerning Ireland andthe
United Kingdom, which arethelargest export market intheEuropean Communities fortheUSindustry,
aswellasthesupplementary evidence concerning Denmark andtheNetherlands, supports theUS
position, leaving Germany astheonlymember State withpractices tothecontrary.
(b) Legitimate Expectations
8.45 Wenowturntotheexamination ofwhether theactual tarifftreatment ofLANequipment entitles
theUnited States tolegitimate expectations inthisregard sufficient toestablish itsclaim ofaviolation
ofArticle IIofGATT 1994 bytheEuropean Communities. Inourview, anexporting Member 's
legitimate expectations regarding tariff commitments arenormally based, ataminimum, onthe
assumption thattheactual tarifftreatment accorded toaparticular product atthetimeofthenegotiation
willbecontinued unless suchtreatment ismanifestly anomalous orthereisinformation readily available
totheexporting Member thatclearly indicates thecontrary. Theexistence ofsuchexpectations in
tariff negotiations canbeseeninthefactthatnegotiators normally useactual trade datatocalculate
theeffect of"requests" and"offers", andtoevaluate theresulting tariff reductions interms of
trade-weighted average.153Inother words, theywork onthegeneral assumption thattheactual tariff
treatment accorded toaparticular product astraded istherelevant itemforthepurposes ofnegotiations.
8.46 Inthepresent case, inviewoftheprevailing practice intheEuropean Communities during
theUruguayRound,theUnitedStateswouldappeartohavealegitimateexpectationthatLANequipment
would continue tobeaccorded tariff treatment asADP machines intheEuropean Communities.
Certainly, suchtreatment could notbecharacterized asmanifestly anomalous.154Wasthereinformation
readily available totheUnited States thatindicated thattheactual tariff treatment ofLAN equipment
would notbecontinued?
8.47 Inthisregard, theEuropean Communities challenges thelegitimacy oftheUnited States '
expectations bysaying: "TheUSnegotiators mayfinditdifficult toadmit nowthattheirunderstanding
153Forinstance, when theMinisters agreed inMontreal in1988 ona"substantial reduction ...withatarget
amount foroverall reductions atleast asambitious asthatachieved bytheformula participants intheTokyo
Round" (MTN.TNC/11), itwasgenerally understood tomean more than33percentreduction intrade-weighted
average forindustrial products. Forhowthisfigure wascalculated, seeGeneral Agreement onTariffs andTrade,
TheTokyo Round ofMultilateral Trade Negotiations: Report bytheDirector-General ofGATT (Geneva,
April 1979), p.120.
154Seeparagraphs 8.30-8.31.WT/DS62/R
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ofthetariffclassification intheECoftheproducts theytalkabout nowwaserroneous; however, they
onlyhavethemselves toblame. They should havecome forward andrequested clarification fromthe
ECnegotiators iftheywerenotsurewhere these products should beclassified intheECespecially
sincetheythemselves hadreclassified theseproducts onlyshortly beforehand".155There aretwodistinct
issues inthisargument: (i)Were theUSnegotiators required toclarify where LAN equipment was
tobeclassified inthedraftSchedule LXXX during thenegotiations?; and(ii)Does theUnited States '
ownreclassification ofLAN equipment from telecommunication apparatus toADP machines affect
thelegitimacy oftheUnited States 'expectations? Weexamine these issues inturn.
(i) Requirement ofClarification
8.48 TheEuropean Communities argues thattheUnited States should haveclarified, during the
negotiations, where LAN equipment would beclassified. Thequestion hereiswhether theexporting
Member hasanyinherent obligation toseekclarification when ithasbeenotherwise given abasis to
expect thatactual tariff treatment bytheimporting Member willbemaintained.
8.49 Inourview, torequire exporting parties innegotiations toeffectively work ontheassumption
that,absent amanifest anomaly, explicit andparticular clarification should besought atanitem-by-item
levelwould runfundamentally counter totheobject andpurpose oftariff negotiations (which inturn
form thecontext forArticle IIandtariff schedules). Ononelevel, itwould bothriskanerosion of
theconfidence upon which itisnecessary forparties torelyintheconduct oftariff negotiations, as
wellasraising logistic difficulties which would make theactual management ofthem particularly
onerous. More fundamentally, sucharequirement would riskpresumptively raising systemic doubt
anduncertainty about theexact nature andscope oftheactual tariff concessions themselves. Such
aninherent tendency cannot bereconciled withoneofthemajor objectives oftheWTO, fromwhich
tariff negotiations pursuant to,interalia,Articles XXVIII andXXVIII bisofGATT 1994 draw their
purpose, viz:"reciprocal andmutually advantageous arrangements directed tothesubstantial reduction
oftariffs" (anexpression common tothepreambles oftheWTO Agreement andGATT 1994). Any
interpretation ofArticle IIwhich would beprone tohavethepractical effect ofmoregenerally facilitating
theoccasions upon which Members mayapply ahigher rateofdutyand/or undermine thestability
ofconcessions made (other than,ofcourse, circumstances under which suchaction isexplicitly provided
forpursuant torelevant provisions oftheWTO Agreement would runcounter tothisobjective).
8.50 Wealsonoteinthiscontextthatatariffcommitmentisaninstrumentinthehandsofanimporting
Member which inherently serves theimporting Member 's"protection needs anditsrequirements for
thepurposes oftariff andtrade negotiations".156Theexporting party iswellaware ofthatfact,and
maytherefore reasonably expect --absent something explicit tothecontrary --thattheimporting party,
inmaking aparticular commitment hastaken those needs andrequirements already intoaccount as
matters overwhich ithascompetence andcontrol. Itisforthisreason thatitbehooves theimporting
party, astheeffective bearer ofitsrights andresponsibilities, tocorrectly identify products andrelevant
duties initstariff schedules, including suchlimitations ormodifications asitintends toapply.
155Seeparagraph 5.33.
156Panel Report onJapan -Tariff onImports ofSpruce, Pine, Fir(SPF) Dimension Lumber ,opcit.,para.
5.9. Although thisreport affirms Japan 'sclassification ofparticular items asapractice meeting these needs
andrequirements, thePanel Report onSpain -Tariff Treatment ofUnroasted Coffee ,opcit.,--which found
Spain 'sclassification practice tobeinconsistent withGATT 1947 onother grounds --states thatsuchapractice
issubject tothecondition "thatareclassification subsequent tothemaking ofaconcession under theGATT would
notbeaviolation ofthebasic commitment regarding thatconcession" (para. 4.4,footnote 1).WT/DS62/R
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8.51 Weconsider thatthisreasoning issupported bypastcases. In1956, Germany complained
thattheGreek Government hadincreased thedutyongramophone records, which hadbeenbound
attheAnnecy andTorquay rounds oftariff negotiations. TheGroup ofExperts thatexamined the
casestated asfollows:
"TheGreek representative saidthathisGovernment hadleftunaltered thespecific dutyasbound
inSchedule XXV onitem137,e,3.What theyhaddonewastoimpose adutywhich, with
surtax, amounted to70percentadvalorem on'long-playing 'records (331/3and45revolutions
perminute). HisGovernment explained thisaction onthegrounds thatsuchrecords didnot
existatthetimetheGreek Government granted theabove concession, thattheycontained a
volume ofrecordings uptofivetimes thatoftheoldrecords, thattheywere lighter than
conventional records, thattheyweremade ofdifferent material, andthat,therefore, asanew
product, theywere notcovered bytheitembound atAnnecy andTorquay. TheGreek
representative further pointed outthatcountries which impose advalorem duties ongramophone
records were, because ofthehigher value oflong-playing records, collecting substantially higher
duties inmonetary terms.
...
"The Group agreed thatthepractice generally followed inclassifying newproducts wasto
apply thetariff item, ifoneexisted, thatspecified theproducts byname, or,ifnosuchitem
existed, toassimilate thenewproducts toexisting items inaccordance withtheprinciples
established bythenational tariff legislation. Itwasnoted thatwhen thisitemwasnegotiated
theparties concerned didnotplace anyqualification upon thewords 'gramophone record '.
"The Group consequently reports totheCONTRACTING PARTIES itsfinding that
'long-playing 'records (under 78revolutions perminute) arecovered bythedescription ofitem
137,e,3bound inSchedule XXV (Annecy andTorquay) and,therefore, therateofdutyto
beapplied tolong-playing records isthatbound intheschedules under thatitem. Astheaction
taken bytheGreek Government involves amodification inabound rate,itistheopinion of
theGroup thattheGreek Government should haveresorted totheprocedures provided inthe
Agreement forsuchmodification."157
Despite thefactthat"long-playing" records didnotexistatthetimeoftheAnnecy orTorquay rounds,
thegroup concluded thatGreece wasbound byitscommitment ongramophone records because itdid
notplace anyqualification ontheterm"gramophone records" during thenegotiations. Theonusof
clarifying (inthiscase"limiting") thescope ofthetariffconcession wasputonthesideoftheimporting
Member.
8.52 TheEuropean Communities claims thattheGramophone Records caseisnotrelevant tothe
present dispute because thecasedealtwithnewproducts, while theUScomplaint inthepresent dispute
islimited toproducts which already existed during theUruguay Round.158Wedisagree. Iftheproduct
hadexisted atthetimeofthenegotiation, itwould, ifanything, havebeeneasier fortheimporting
Member toqualify thescope ofitstariff commitments regarding thatproduct, asitwould noteven
haverecourse totheargument thatsubsequent novelty wasinvolved. Consequently, thereasoning
157Greek Increase inBound Duty,complaint, opcit.
158Seeparagraph 5.9.WT/DS62/R
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regarding therequirement torespect theintegrity ofthecommitment without qualification would seem
tohaveevenmore force.
8.53 Similarly, inresponse toaCanadian claim thattheEuropean Communities hadfortheyear1984
opened animport quota fornewsprint ofonly500,000 tonnes instead ofthebound quota of1,500,000
tonnes asdescribed initstariff schedule andthatthisaction wasinconsistent withtheEuropean
Communities 'obligations under Article IIofGATT 1947, thepanel onNewsprint stated asfollows:
"The Panel could notshare theargument advanced bytheEuropean Communities thattheir
action didnotconstitute achange intheir GATT tariff commitment. Itnoted thatunder
long-standing GATT practice, evenpurely formal changes inthetariffschedule ofacontracting
party, which maynotaffect theGATT rights ofother countries, suchastheconversion of
aspecific toanadvalorem dutywithout anincrease intheprotective effect ofthetariff rate
inquestion, havebeenconsidered torequire renegotiations. Bythesametoken, theEuropean
Communities action would, inthePanel'sview, haverequired theEuropean Communities to
conduct suchnegotiations. ThePanel alsonoted thatingranting theconcession in1973, the
European Communities hadnotmade itsubject toanyqualification orreservation inthesense
ofArticle II:1(b) although atthetimetheconcession wasmade, itwasknown thatagreement
hadalready beenreached thattheEFTA countries would obtain fullduty-free access tothe
Community market fornewsprint from 1January 1984 onward. ThePanel therefore found
thatalthough intheformal sense theEuropean Communities hadnotmodified itsGATT
concession, ithadinfactchanged itsGATT commitment unilaterally, bylimiting itsduty-free
tariff quota form.f.n. suppliers for1984 to500,000 tonnes."159
8.54 Inourview, thereasoning applied inthese cases isconsistent with thatsetforth in
paragraphs 8.49and8.50above. Theyconfirm thattheonusofclarifying tariffcommitment isgenerally
placed ontheimporting Member. Intheabsence ofanysuchlimitation bytheimporting Member,
thebenefits oftheconcession accrue totheexporting Member(s).
8.55 Inlightoftheabove, wefindthattheEuropean Communities cannot place theburden of
clarification ontheUnited States incaseswhere ithascreated, through itsownpractice, theexpectations
regarding thecontinuation oftheactual tarifftreatment prevailing atthetimeofthetariffnegotiations.
Itwould notbereasonable toexpect theUSGovernment toseekclarification when ithadnotheard
anycomplaints fromitsexporters, whowereapparently satisfied withthecurrent tariff treatment of
LAN equipment intheirmajor export market --Ireland andtheUnited Kingdom. Wehavefound
noevidence tosuggest thatsuchtreatment wasmanifestly anomalous orthatthere wasinformation
readily available thatclearly indicated thatthetreatment would notbecontinued.
(ii) TheUnited States 'OwnReclassification
8.56 TheEuropean Communities further argues thatsincetheUnited States itselfhadclassified LAN
equipment astelecommunication apparatus initstariffschedule until1992, itcould nothavelegitimately
expected thattheEuropean Communities would treatLAN equipment asADP machines.160Italso
argues thatthedifficulty ofclassifying LAN equipment wasrecognized inthenegotiations oftheNorth
American FreeTrade Agreement andthatitwasnotuntil1995thatCanada reclassified LANequipment
159Panel Report onNewsprint ,opcit.,para.50.
160Seeparagraph 5.26.WT/DS62/R
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asADP machines.161Itfurther argues thatJapan andKorea, which arethirdparties tothisdispute,
stillclassify some orallLAN equipment astelecommunication apparatus.162
8.57 Furthermore, theEuropean Communities points outthatitwasnotuntilApril 1997 thatthe
Harmonized System (HS) Committee oftheWorld Customs Organization (WCO) decided onthe
classification ofLAN equipment, indicating thedifficulty oftariff classification ofthisproduct.163
8.58 Wearenotpersuaded bythese arguments. Thesubject matter ofthisdispute istheECtariff
schedule (Schedule LXXX). How thelikeorsimilar product istreated intheUStariff schedule
(Schedule XX)orinanyother Member 'sschedule isnotrelevant totheUSexpectations regarding
thetariff treatment initsexport market. Regarding theEuropean Communities 'argument onthe
difficulty ofclassification, wewould recall thatbothparties areoftheviewthatthisisnotadispute
about customs classification itself; rather itconcerns theactual tariff treatment bycustoms authorities
intheEuropean Communities.
8.59 Thatbeing said,totheextent thattheevolution ofUSclassification practice hasrelevance at
all,itfails,inourview, tosupport theEuropean Communities 'argument. Insofar astheUnited States
andtheUSindustry hadbeensatisfied withthetreatment ofLAN equipment asADP machines inthe
European Communities, theclassification change bytheUnited States in1992(from telecommunication
apparatus toADPmachines) would havebeenperceived asamove intherightdirection. Rather than
giving anyreasons foroccasioning USuncertainty about thenature ofactual tariff treatment ofLAN
equipment intheEuropean Communities, itwould, ifanything, havesignified thattheUnited States
hadmore reason thanevertobelieve thatsuchactual tarifftreatment would continue. Certainly, neither
theUSGovernment northeUSindustry would havehadanyreason tobealarmed. Thus, wefind
thattheUnited States 'ownreclassification ofLAN equipment doesnotaffect thelegitimacy ofthe
USexpectations.
3. Conclusion
8.60 WefindthattheUnited States wasentitled tolegitimate expectations thatLANequipment would
continue tobeaccorded tariff treatment asADP machines intheEuropean Communities, based on
theactual tarifftreatment during theUruguay Round, particularly inIreland andtheUnited Kingdom
(which were themajor export market forUSproducts). Wefurther findthattheUnited States was
notrequired toclarify thescope oftheEuropean Communities 'tariffconcessions onLAN equipment
andthattheUnited States 'ownreclassification ofLAN equipment in1992 wasnotrelevant tothe
formation ofitslegitimate expectations regarding theEuropean Communities 'tariff treatment ofthe
likeorsimilar product.
8.61 Itisclearfrom evidence thatthese legitimate expectations werefrustrated bythesubsequent
change intheclassification practice intheEuropean Communities, including through thereclassification
ofLAN adapter cards under Regulation (EC) 1165/95.
8.62 WethusfindthatLAN equipment should haveobtained thetariff treatment afforded toADP
machinesinScheduleLXXXandthattheEuropeanCommunitieshasviolatedArticleII:1ofGATT1994
161Seeparagraph 5.33.
162Seeparagraph 5.35.
163Seeparagraph 5.12.WT/DS62/R
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byfailing toaccord imports ofLAN equipment from theUnited States treatment nolessfavourable
thanthatprovided forunder heading 84.71 orheading 84.73, asthecasemaybe,inPartIof
Schedule LXXX.
E. Multimedia PCs
8.63 TheUnited States claims thatpersonal computers withmultimedia capability should havebeen
accorded thetarifftreatment asADPmachines within themeaning ofSchedule LXXX. TheEuropean
Communities claims thattheUnited States could nothavehadlegitimate expectations thattheEuropean
Communities would classify PCTVs orother multimedia equipment under tariff heading 84.71 and
apply thecorresponding dutyrate.
1. Textual Analysis
8.64 Ourstarting point again isthetextual analysis. Weneednotreproduce thedefinition ofADP
machines under heading 84.71 inSchedule LXXX. Wesimply notethat,asinthecaseofLAN
equipment, certain types ofmultimedia PCscanberegarded, based ontheordinary meaning ofthe
terms usedinthatSchedule, either asADP machines under heading 84.71 orastelevision receivers
under heading 85.28 depending onwhether theyareseenas"computers thatcanreceive television
signals" oras"television receivers thatcanalsofunction ascomputers".164Thetextual analysis of
Schedule LXXX alone doesnotleadtoaclear solution oftheproblem.
2. Legitimate Expectations
8.65 TheUnited States claims thatitisentitled tothelegitimate expectations thatmultimedia PCs
would beaccorded thetarifftreatment asADP machines within themeaning ofSchedule LXXX. We
recall inthiscontext theAppellate Body'sobservation regarding whatamounts toproof.165Wealso
notethattheUnited States 'assertion that"PCs withmultimedia capability were treated asproducts
under Chapter 84during theUruguay Round"166isnotsubstantiated byanyevidence asregards actual
tariff treatment.167Theonlyevidence produced bytheUnited States inthisregard isajudgement by
aUKcourt onPCTVs, ruling thattheyareproperly classified under heading 85.28 astelevision
receivers.168Wefailtoseehowthisjudgement supports theUSposition without anyshowing ofthe
previous practices intheEuropean Communities orintheUnited Kingdom. ItistruethatRegulation
164Itshould beemphasized once again thatitisnotourtasktodetermine where multimedia PCsshould be
classified inatariff nomenclature.
165Seeparagraph 8.34.
166Seeparagraph 5.66.
167Unlike thecaseofLAN equipment, theUnited States hasnotproduced anyevidence ofrecord onactual
tariff treatment, e.g., BTIs, customs rulings oractual invoices. Paragraphs 5.69to5.71aretheUSreplies to
thefollowing question bythePanel: "How doyourespond totheECargument that'theUnited States didnot
produce anydocument showing thattheECdidindeed classify allcomputers withmultimedia capabilities under
heading 84.71 during theUruguay Round '?Doyouhaveanyspecific documentation regarding theactual tariff
treatment ofcomputers withmultimedia capabilities onimportation during theperiod covered bytheUruguay
Round?".
168Annex 3.WT/DS62/R
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(EC)1153/97classifiesallcomputers"capableofreceivingandprocessingtelevision,telecommunication,
audio andvideo signals" under heading 84.71, butthisregulation became effective inJuly1997. Since
theregulation wasadopted inparttoreflect a1996 decision bytheHSCommittee oftheWCO, it
cannot beviewed asevidence oftheECpractice during theUruguay Round.
8.66 Insummary,regardingmultimediaPCs,theUnitedStateshasfailedtoadduceevidencesufficient
toraise apresumption thatthese products were infacttreated asADP machines intheEuropean
Communities during theUruguay Round. Thus, weareunable todecide thecaseonthebasis of
legitimate expectations aswedidwithrespect toLAN equipment.
3. Other Means ofInterpretation
8.67 Theanalysis ofthecontext, object orpurpose ofSchedule LXXX, GATT 1994 ortheWTO
Agreement --apartfromthose relating tolegitimate expectations --doesnotclarify thesituation. Nor
dowefindanyclear guidance insubsequent agreements orpractices. Moreover, recourse tothe
supplementarymeansoftreatyinterpretation169isnothelpfulbecauseneitherpartyhasproducedsufficient
evidence thereof. Wearetherefore unable toreach apositive conclusion thatmultimedia PCsshould
havebeentreated asADP machines within themeaning ofSchedule LXXX.
8.68 Inconclusion, based ontheevidence submitted bytheparties thatisadmissible under theterms
ofreference ofthisPanel, wedonotfindthattheEuropean Communities hasviolated Article II:1
ofGATT 1994 regarding thetariff treatment ofmultimedia PCs.
F. Nullification orImpairment
8.69 WenotetheclaimbytheUnitedStatesthatthevalueofconcessionsaccruingtotheUnitedStates
hasbeennullified orimpaired bytheapplication ofthemeasures identified under item(a)through
(f)ofparagraph 8.5.
8.70 Inviewofourfinding thatthetariff treatment ofLAN equipment bycustoms authorities in
theEuropean Communities violated Article II:1ofGATT 1994 (USclaims under item(a)and(b)of
paragraph 8.5),wefindthatitisnotnecessary toexamine thisadditional claim withrespect toLAN
equipment, except tonotethattheinfringement ofGATT rulesisconsidered prima facietoconstitute
acaseofnullification orimpairment under Article 3.8oftheDSU.
8.71 Regarding thetariff treatment ofmultimedia PCs,wenotethatwehavenotfound aviolation
ofGATT rules onthepartoftheEuropean Communities. WealsonotethattheUnited States has
notattempted toestablish nullification orimpairment ofthevalue ofconcessions accruing toitinrespect
ofmultimedia PCs, except through itsclaim ontheviolation oftariff bindings bytheEuropean
Communities.
8.72 Finally,withrespecttoLANequipment,sincewefindaviolationofArticleII:1bytheEuropean
Communities, itisunnecessary toruleontheUSclaims under item(d)and(f)ofparagraph 8.5.With
respect tomultimedia PCs, wedidnotfindanyevidence ofaviolation (USclaims under (c)and(e)
ofparagraph 8.5). Therefore, wedonotfinditnecessary tomake aspecific finding ontherequest
bytheUnited States referred toinparagraph 8.15regarding either product category.
169Seeparagraph 8.21.WT/DS62/R
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IX. CONCLUSIONS
9.1 Inlightofthefindings above, thePanel finds thattheEuropean Communities, byfailing to
accord imports ofLANequipment fromtheUnited States treatment nolessfavourable thanthatprovided
forunder heading 84.71 orheading 84.73, asthecasemaybe,inPartIofSchedule LXXX, acted
inconsistently withtherequirements ofArticle II:1ofGATT 1994.
9.2 ThePanel recommends thattheDispute Settlement Body request theEuropean Communities
tobring itstarifftreatment ofLAN equipment intoconformity withitsobligations under GATT 1994.WT/DS62/R
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Tariff Concessions contained inECSchedule -LXXX relating toitems under tariff headings 84.71, 84.73, 85.17, 85.21 and85.28
Tariff item
numberDescription ofproducts Baserateofduty Bound rateof
dutyInitial
negotiating rightOther duties and
chargesRemarks
1 2 3 4 5 6 7
8471 Automatic dataprocessing machines andunitsthereof;
magnetic oroptical readers, machines fortranscribing
dataontodatamedia incoded form andmachines for
processing such data, notelsewhere specified or
included:
8471.10 -Analogue orhybrid automatic dataprocessing
machines:
8471.10.10 --For useincivilaircraft 0.0 0.0
8471.10.90 --Other 4.9 2.5
8471.20 -Digital automatic data processing machines,
containing inthesame housing atleast acentral
processing unitandaninput andoutput unit, whether
ornotcombined:
8471.20.10 --For useincivilaircraft 0.0 0.0
--Other:
8471.20.40 ---With arandom access memory (RAM) with a
capacity notexceeding 64kilobytes4.9 2.5
8471.20.50 ---With arandom access memory (RAM) with a
capacity exceeding 64kilobytes butnotexceeding 256
kilobytes4.9 2.5
8471.20.60 ---With arandom access memory (RAM) with a
capacity exceeding 256kilobytes butnotexceeding 512
kilobytes4.9 2.5
8471.20.90 ---With arandom access memory (RAM) with a
capacity exceeding 512kilobytes4.9 2.5
-Other:
8471.91 --Digital processing units, whether ornotpresented
withtherestofasystem, which maycontain inthe
same housing oneortwoofthefollowing types ofunit
:storage units, input units, output units:
8471.91.10 ---For useincivilaircraft 0.0 0.0
---Other
8471.91.40 ----With arandom access memory (RAM) with a
capacity notexceeding 64kilobytes4.9 2.5WT/DS62/R
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Page77Tariff item
numberDescription ofproducts Baserateofduty Bound rateof
dutyInitial
negotiating rightOther duties and
chargesRemarks
1 2 3 4 5 6 7
8471.91.50 ----With arandom access memory (RAM) with a
capacity exceeding 64kilobytes butnotexceeding 256
kilobytes4.9 2.5
8471.91.60 ----With arandom access memory (RAM) with a
capacity exceeding 256kilobytes butnotexceeding 512
kilobytes4.9 2.5
8471.91.90 ----With arandom access memory (RAM) with a
capacity exceeding 512kilobytes4.9 2.5
8471.92 --Input oroutput units, whether ornotpresented with
therestofasystem andwhether ornotcontaining
storage units inthesame housing:
8471.92.10 ---For useincivilaircraft 0.0 0.0
8471.92.90 ---Other 4.9 0.0
8471.93 --Storage units, whether ornotpresented withtherest
ofasystem:
8471.93.10 ---For useincivilaircraft 0.0 0.0
---Other:
8471.93.40 ----Central storage units 4.9 0.0
----Other:
8471.93.50 -----Disk storage units 4.9 0.0
8471.93.60 -----Magnetic tapestorage units 4.9 0.0
8471.93.90 -----Other 4.9 0.0
8471.99 --Other:
8471.99.10 ---Peripheral units 4.9 0.0
8471.99.30 ---Punches, verifiers andcalculators 4.9 0.0
8471.99.90 ---Other 4.9 0.0
8473 Parts andaccessories (other than covers, carrying
cases andthelike)suitable forusesolely orprincipally
withmachines ofheadings Nos8469 to8472:
8473.10.00 -Parts andaccessories ofthemachines ofheading
No8469:
EX1-NEW --Electronic assemblies 4.0 3.0
EX2-NEW --Other 4.0 0.0
-Parts andaccessories ofthemachines ofheading
No8470:
8473.21.00 --Oftheelectronic calculating machines ofsubheading
No8470 10,8470 21or8470 29:
EX1-NEW ---Electronic assemblies 6.3 3.0
EX2-NEW ---Other 6.3 0.0WT/DS62/R
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Page78Tariff item
numberDescription ofproducts Baserateofduty Bound rateof
dutyInitial
negotiating rightOther duties and
chargesRemarks
1 2 3 4 5 6 7
8473.29.00 --Other:
EX1-NEW ---Electronic assemblies 4.0 3.0
EX2-NEW ---Other 4.0 0.0
8473.30.00 -Parts andaccessories ofthemachines ofheading
No8471:
EX1-NEW --Electronic assemblies 4.0 2.0 Concessiontobe
implemented over8years
EX2-NEW --Other 4.0 0.0
8473.40.00 -Parts andaccessories ofthemachines ofheading
No8472:
EX1-NEW --Electronic assemblies 4.0 3.0
EX2-NEW --Other 4.0 0.0
8517 Electrical apparatus forline telephony orline
telegraphy, including suchapparatus forcarrier-current
linesystems:
8517.10.00 -Telephone sets 7.5 0.0
8517.20.00 -Teleprinters 7.5 3.6
8517.30.00 -Telephonic ortelegraphic switching apparatus 7.5 3.6
8517.40.00 -Other apparatus, forcarrier-current linesystems 4.6 3.6
-Other apparatus:
8517.81 --Telephonic:
8517.81.10 ---Entry-phone systems 7.5 3.6
8517.81.90 ---Other 7.5 3.6
8517.82.00 --Telegraphic 7.5 3.6
8517.90 -Parts:
8517.90.10 --Ofapparatus ofsubheading 8517 4000:
EX1-NEW ---Electronics assemblies andsub-assemblies 4.6 3.0
EX2-NEW ---Other 4.6 3.0
--Other:
8517.90.91 ---Of telephonic apparatus:
EX1-NEW ----Electronics assemblies andsub-assemblies 7.5 3.0
EX2-NEW ----Other 7.5 3.0
8517.90.99 ---Of telegraphic apparatus
EX1-NEW ----Electronics assemblies andsub-assemblies 7.5 3.0
EX2-NEW ----Other 7.5 3.0
8521 Video recording orreproducing apparatus:
8521.10 -Magnetic tape-type:WT/DS62/R
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Page79Tariff item
numberDescription ofproducts Baserateofduty Bound rateof
dutyInitial
negotiating rightOther duties and
chargesRemarks
1 2 3 4 5 6 7
8521.10.10 --For useincivilaircraft 0.0 0.0
--Other:
---Of awidth notexceeding 1,3cmandallowing
recording orreproduction atatapespeed notexceeding
50mmpersecond:
8521.10.31 ----Within thesame housing abuilt-in television
camera14.0 14.0
8521.10.39 ----Other 14.0 14.0
8521.10.90 ---Other 8.0 8.0
8521.90.00 -Other 14.0 14.0
8528 Television receivers (including video monitors and
video projectors), whether orincorporating radio-
broadcast receivers orsound orvideo recording of
reproducing apparatus:
8528.10 -Colour:
--Videorecordingorreproducingapparatus
incorporating avideo tuner:
---Using magnetic tapeonreelsorincassettes:
8528.10.11 ----Of awidth notexceeding 1,3cmandallowing
recording orreproduction atatapespeed notexceeding
50mmpersecond14.0 14.0
8528.10.19 ----Other 8.0 8.0
8528.10.30 ---Other 14.0 14.0
8528.10.40 --Television projection equipment 14.0 14.0
8528.10.50 --Apparatus incorporating avideophonic recorder or
reproducer14.0 14.0
8528.10.60 --Video monitors 14.0 14.0
--Other:
---With integral tube, withadiagonal measurement of
thescreen:
8528.10.71 ----Not exceeding 42cm 14.0 14.0
8528.10.73 ----Exceeding 42cmbutnotexceeding 52cm 14.0 14.0
8528.10.79 ----Exceeding 52cm 14.0 14.0
---Other:
8528.10.91 ----Video tuners 14.0 14.0
8528.10.99 ----Other 14.0 14.0
8528.20 -Black andwhite orother monochrome:
--With integral tube:
8528.20.10 ---Video monitors 14.0 14.0WT/DS62/R
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Page80Tariff item
numberDescription ofproducts Baserateofduty Bound rateof
dutyInitial
negotiating rightOther duties and
chargesRemarks
1 2 3 4 5 6 7
---Other, withadiagonal measurement ofthescreen:
8528.20.71 ----Not exceeding 42cm 14.0 2.0
8528.20.73 ----Exceeding 42cmbutnotexceeding 52cm 14.0 2.0
8528.20.79 ----Exceeding 52cm 14.0 2.0
8528.20.90 --Other 14.0 2.0
Source: European Communities -Schedule LXXX.
Note: "The tariff reductions agreed upon byeachMember shallbeimplemented infiveequal ratereductions, except asmaybeotherwise specified inaMember 'sSchedule. Thefirst
suchreduction shallbemade effective onthedateofentry intoforce oftheWTO Agreement, eachsuccessive reduction shallbemade effective on1January ofeachofthefollowing
years, andthefinalrateshallbecome effective nolaterthanthedatefouryears afterthedateofentry intoforce oftheWTO Agreement, except asmaybeotherwise specified
intheMember 'sSchedule." (Marrakesh Protocol totheGeneral Agreement onTariffs andTrade 1994, paragraph 2)WT/DS62/R
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ANNEX 2
Commission Regulation (EC) No.1165/95
of23May1995
concerning theclassification ofcertain goods inthecombined nomenclature
THE COMMISSION OFTHE EUROPEAN COMMUNITIES,
Having regard totheTreaty establishing theEuropean Community,
Having regard toCouncil Regulation (EEC) No.2658/87170onthetariff andstatistical nomenclature
andontheCommon Customs Tariff, aslastamended byCommission Regulation (EC)No.3115/94171,
andinparticular Article 9,
Whereas inorder toensure uniform application ofthecombined nomenclature annexed tothesaid
Regulation, itisnecessary toadopt measures concerning theclassification ofthegoods referred to
intheAnnex tothisRegulation;
Whereas Regulation (EEC) No.2658/87 hassetdown thegeneral rules fortheinterpretation ofthe
combined nomenclature andthose rulesalsoapply toanyother nomenclature which iswholly orpartly
based onitorwhich addsanyadditional subdivision toitandwhich isestablished byspecific Community
provisions, withaviewtotheapplication oftariff andother measures relating totrade ingoods;
Whereas, pursuant tothesaidgeneral rules, thegoods described incolumn 1ofthetableannexed to
thepresent Regulation mustbeclassified under theappropriate CNcodes indicated incolumn 2,by
virtue ofthereasons setoutincolumn 3;
Whereas itisacceptance thatbinding tariff information issued bythecustoms authorities ofMember
States inrespect oftheclassification ofgoods inthecombined nomenclature andwhich donotconform
totherights established bythisRegulation, cancontinue tobeinvoked, under theprovisions in
Article 12(6) ofCouncil Regulation (EEC) No.2913/92 establishing theCommunity Customs Code172,
foraperiod ofthree months bytheholder;
Whereas thetariffandstatistical nomenclature section oftheCustoms Code Committee hasnotdelivered
anopinion withthetimelimitsetbyitschairman asregards products Nos. 4and7intheannexed
table;
Whereas themeasures provided forinthisRegulation areinaccordance withtheopinion ofthetariff
andstatistical nomenclature section oftheCustoms Code Committee asregards products Nos.1,3,
5and6intheannexed table,
170OJNo.L256, 7/9/1987, p.1.
171OJNo.L345, 31/12/94, p.1.
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HAS ADOPTED THIS REGULATION:
Article 1
Thegoods described incolumn 1oftheannexed table arenowclassified within thecombined
nomenclature under theappropriate CNcodes indicated incolumn 2ofthesaidtable.
Article 2
Binding tariff information issued bythecustoms authorities ofMember States which donotconform
totherights established bythisRegulation cancontinue tobeinvoked under theprovisions of
Article 12(6) ofRegulation (EEC) No.2913/92 foraperiod ofthree months.
Article 3
ThisRegulation shallenter intoforce onthe21stdayfollowing itspublication intheOfficial Journal
oftheEuropean Communities.
ThisRegulation shallbebinding initsentirety anddirectly applicable inallMember States.
Done atBrussels, 23May1995.
FortheCommission
Mario MONTI
Member oftheCommissionWT/DS62/R
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ANNEX
Description ofgoods Classification
CNcodeReason
(1) (2) (3)
1.Anornamental article (luminous fountain or"running
tap"), putupunassembled inapacking forretail sale.
Assembled, thevarious plastic components (abase
about 15cm.diameter, incorporating alighting
system andanelectric motor withapower-supply
cable, andequipped withaswitch, three basins,
various pipeconnections, atap,asmall figure ofa
dancer, artificial flowers andfoliage, etc.)form one
orother ofthearticles depicted(*)(height between 30
cm.and40cm.)
(*)Seephotograph3926 4000 Classification isdetermined bytheprovisions
ofGeneral Rules 1and6fortheinterpretation
ofthecombined nomenclature andbythe
wording ofCNcodes 3926 and3926 4000
2.Slippers consisting ofatextile upper andanouter sole
ofplastic (approximately onecentimetre thick), the
outside ofwhich isentirely covered byaverythin
layer oftextile material, withpoorwearing properties,
stuck along theedges6404 1910 Classification isdetermined bytheprovisions
ofGeneral Rules 1and6fortheinterpretation
ofthecombined nomenclature, note4(b)to
Chapter 64andbythewording ofCNcodes
6404, 6404 19and6404 1910
3.Anautomated cartridge system inacasing consisting,
essentially, of:
(a)oneormore library storage modules (each containing
cartridge storage cellsandamicroprocessor controlled
robot andhaving oneormore attached cartridge drive
frames andcontrol units); and
(b)alibrary management unitwithintegral software
(which actsasthelinkbetween thelibrary storage
modules andoneormore central processing units).
Thissystem isspecifically designed fortheautomatic
loading, processing, storage andunloading of
magnetic tapecartridges forautomatic dataprocessing
purposes8471 9910 Classification isdetermined bytheprovisions
ofGeneral Rules 1and6fortheinterpretation
ofthecombined nomenclature, bynote5Bto
Chapter 84andbythewording ofCNcodes
8471, 8471 99and8471 9910
4.Anadapter cardforincorporation incable linked
digital automatic data-processing (ADP) machines
enabling theexchange ofdataoveralocal area
network (LAN) without using amodem.
With suchacard, anADP-machine canbeusedasan
input-output device foranother machine oracentral
processing unit.
Thecardconstitutes aprinted circuit ofasizeof
about 10x21cm.incorporating integrated circuits
andactive andpassive components.
Itisfitted witharowofpincontacts corresponding to
anexpansion slotintheADP-machine, withan
attachment totheconnection cable oftheLAN and
lightemitting diodes (LEDs).8517 8290 Classification isdetermined bytheprovisions
ofGeneral Rules 1and6fortheinterpretation
ofthecombined nomenclature, bynote5to
Chapter 84andbythewording ofCNcodes
8517, 8517 82and8517 8290
5.Aminiature electro-acoustic receiver (earphone) ina
housing whose exterior dimensions donotexceed
7x7x5mm.
Thereceiver comprises amagnet, acoilanda
diaphragm toreceive electrical signals which cause
thediaphragm tovibrate thusproducing audible
sound.
Thereceiver maybeusedtogether withanamplifier
asahearing aid.8518 3090 Classification isdetermined bytheprovisions
ofGeneral Rules 1and6fortheinterpretation
ofthecombined nomenclature, bynote2(a)to
Chapter 90andbythewording ofCNcodes
8518, 8518 30and8518 3090WT/DS62/R
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Description ofgoods Classification
CNcodeReason
(1) (2) (3)
6.Alasercopier comprising mainly adevice for
scanning (scanner), adigital image processing device
andaprinting device (laser printer), contained ina
housing.
Thescanning device usesanoptical system, consisting
ofalamp, mirrors, lenses andphotocells toscanthe
original image linebyline.
Thecopies areproduced electrostatically viaadrum
onthelaserprinter using theindirect process. The
lasercopier hasseveral additional features foraltering
theoriginal image, e.g.reduction, enlargement,
shading.9009 1200 Classification isdetermined bytheprovisions
ofGeneral Rules 1and6fortheinterpretation
ofthecombined nomenclature andbythe
wording ofCNcodes 9009 and9009 1200
7.Little starandheart shapes inavariety ofcolours
(red, green andshiny silver) andmulticoloured
granules, thesizeofpinheads, made from plastic
film, andusedtodecorate e.g.atable onwhich food
foracarnival celebration, children 'sparty orAdvent
festivity isserved. Thedecorative effect isachieved
bysprinkling theproducts.9505 9000 Classification isdetermined bytheprovisions
ofGeneral Rules 1and6fortheinterpretation
ofthecombined nomenclature andbythe
wording ofCNcodes 9505 and9505 9000WT/DS62/R
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ANNEX 3
CUSTOMS DUTIES -classification -combined nomenclature -rulesofinterpretation -"PCTV"
whetheracompositemachinewitha"principalfunction"asanAutomaticDataProcessingMachine
orcomposite goods given its"essential character" bytheADPM components soclassified under
heading 84.71 "ADPMs" orwhether itfailstobeclassified bydefault under heading 85.28
"Television Receivers" -Council Reg.2658/87 Annex 1,GIRs1.3(b)&(c)
LONDON TRIBUNAL CENTRE
INTERNATIONAL COMPUTERS LIMITED
Appellant
-and-
THE COMMISSIONERS OFCUSTOMS AND EXCISE
Respondents
Tribunal: MR.R.K. MILLER CB(Chairman)
MRS. S.SADEQUE M.Phil. MSc
Sitting inpublic at15-19 Bedford Avenue, London WC1 onThursday, 18January andFriday,
19January 1996
Mrs. P.A.Hamilton ofCoopers andLybrand fortheAppellant
Mr.Hugh Davies, counsel instructed bytheSolicitor forCustoms andExcise fortherespondents.
CROWN COPYRIGHT 1996WT/DS62/R
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DECISION
Thisappeal byInternational Computers Ltd.("ICL") isagainst adecision oftheCommissioners
onreview astothetariff classification forimport customs dutyofamachine known asthe"PCTV".
Themachine hasafulltitle"theFujitsu ICLPCTV", Fujitsu being themajor shareholder inICL.
Itisaninnovative product. Themachine isbothamultimedia personal computer andafullfunction
colour television set,integrated within thesame unitandusing thesame screen.
Itiscommon ground thatthemachine failstobeclassified inoneoftwoheadings. ICLcontends
thatitshould beclassified under heading 84.71 oftheCommunity Customs Code -"Automatic data
processing machines", which carry arateofdutyonimportation of4.4percent. TheCommissioners
decided thatitfallsunder heading 85.28 -"Television receivers", which carry arateofdutyon
importation of14percent. Thedispute turns upon thewayinwhich therulesgoverning howgoods
aretobeclassified aretobeapplied. ICLcontends thatthePCTV 's"principal function" and/or its
"essential character" isthatofapersonal computer. TheCommissioners maintain thatitisnotpossible
todetermine aprincipal function; so,presented with twotariff headings which equally merit
consideration, onemustclassify thePCTV under thatheading which occurs lastinnumerical order,
namely 85.28 "Television receivers".
Weheard oralevidence from Mr.Sidney Burton, Development Manager fortheAdvanced
Technology Group ofICL,whodesigned themachine: Mr.Justin Matthew Houghton Clarke, Market
Development Manager forconsumer products within ICL; andProfessor Robert Spence, Professor
ofInformation Engineering atImperial College. These witnesses wereallcalled byMrs. Hamilton,
whopresented thecaseforICL. Nowitnesses werecalled onbehalf oftheCommissioners, whowere
represented byMr.Hugh Davies. Mr.Burton demonstrated themachine incourt. Wewere not,
however, abletoseeitinoperation asaTVbecause ofthelackofaproper aerial onthetribunal 's
premises. Mrs. Hamilton alsoputbefore thetribunal abundle ofdocuments. Itwasnotanagreed
bundle butwasusedasaworking bundle forbothsides.
Thegoodstowhichthedisputeddecisionreferswereimportedbetween1Mayand31July1995
byDesign toDistribution Ltd., awholly owned subsidiary ofICLfrom Taiwan where themachines
aremanufactured.
ICLhasdesignedarangeofmultimediapersonalcomputers("PCs")knownastheFujitsuIndiana
range. Multimedia PCsarecomputer systems which canincorporate anumber ofmedia functions,
suchasCD-ROM, CDaudio, PCgenerated sound, Joystick forgames etc.,inaddition tothenormal
personal computer functions. ThePCTV ispartofthatrange andisanintegrated single unitdesigned
foruseinthehome. Thefinish oftheunitischarcoal-grey tobemore inkeeping with, forexample,
normal Hi-Fi equipment andisintended tobeusedinastudy orteenager 'sbedroom. Itintegrates
amultimedia personal computer witharemote controlled television facility. Itisthusafullyfunctioning
PCandafullyfunctioning fullscreen analogue TV.Itissupplied packaged inonebox,which contains
aMain Pack, withthePCTV system unitasthefirstitem, andanAccessories Pack, ofwhich thefirst
itemisthekeyboard withbuilt-in trackball (theequivalent ofa"mouse").
TheAccessories Pack alsocontains thePCTV software andMicrosoft software, withtheir
documentation packs, andtheremote control andpower cable.
Ithasasingle power cable and,although themachine contains twopower supplies, there is
asingle on/off switch. ThePCTV, theveryfirsttimeitisswitched onandprovided thekeyboardWT/DS62/R
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Page87
isconnected, turns onasaTV,thePCneeding timetoload. Thereafter thePCisfullycapable from
thetimeitisswitched on.
ThePCTV comes witha66MHz 486DX2 processor 350MBharddisk, 4MBRAM, and
double speed CD-ROM drive, integrated TVtuner withTeletext andNicam Stereo, theintegrated
trackball onthekeyboard, 14"SVGA display, 0.28mm dotpitch, Local busgraphics, 1MBVRAM,
16-bit stereo sound; andsoftware, MSDOS 6.22, Windows 3.11, MSWorks CD,ICLTheDen
pre-installed and,onCDROM, Wing Commander Privateer. MSEncarta, PuttPuttJoins Parade
andPGA Tour Golf.
BoththePCandTVfunctions canbeoperated bytheremote control unit. Itisanormal remote
control unitwhich canbeusedtochange TVchannels andtouseTeletext. Butitisunique inhaving
anextra button which willoperate themouse using directional arrows andbybeing "clicked".
TheICLsoftware applications canbeaccessed through "The Den" orbygoing instead direct
toWindows. TheDenisanICLapplication consisting ofarecognisable front endtoWindows, to
make iteasier fornovices tousethePCTV. Once theuserislogged inheispresented withagraphic
representation ofaroom fulloffamiliar looking objects suchasaCDplayer, games cupboard, clock,
calendar andfiling cabinet which actas"hotspots". Bymoving thecursor ontoahotspot a"prompt
box" appears which explains thefunction. Clicking ontoa"hotspot" activates thefunction.
TheSoundStack isacomprehensive electronic CDplayer, recorder andmixer, forplaying
audio CDs, MIDI filesandrecording toharddisk.
TheTVisautomatically tuned inwhen thePCTV isswitched onforthefirsttime. Thereafter,
itcanbereturned using theTVChannel controller. Thissoftware willautomatically identify, name
channels andplace them inlogical order. Allcable andsatellite channels canbepicked up.Selected
channels canbebarred byparents sothataccess byunauthorised users isprevented untilapassword
isentered.
TheICLapplication software alsoincludes a"Live Mag" teletext "magazine" which stores
selected teletext pages inanelectronic filewhich aresaved ontheharddiskandupdated automatically.
Since thepixels onaVGA screen aresmaller andthedegree ofresolution required todisplay
images generated byaPCevenatthelowest VGA frequency istwice thefrequency of15,625 KHz
fixed forallworld wide TVstandards, atelevision cathode raytubeisnotphysically capable of
displaying theimages generated byaPCnoristhetelevision electronics capable ofhandling thePC
display. ButaPCcathode raytubeandelectronics canhaveasasubset ofitsspecification thenecessary
mode toallow theTVimage tobedisplayed andwithapicture quality which issharper thanonan
equivalent portable TV.
Specifically, thePCTV hasbeendesigned asastandard Extended VGA monitor sub-system
using acathode raytubeandelectronics todisplay allthecommon Extended VGA modes butwith
anadditional15.625KHzmodeforthedisplayofimagessuchasTV,VCR,Satelliteandgamescontrols.
These TVstyleimages areproduced byatelevision card(aprinted circuit board) using TVindustry
standard components toreceive terrestrial broadcast signals oranycomposite video source andconvert
themtostandard TVsignals forthecathode raytubeelectronics todisplay. Thusthemonitor supports
VGA resolutions upto1024x768pixels: theTVmode supports the625line/50 HzPAL1andPAL
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Theaudio design ofthePCTV isacombination ofthestandard sound capabilities found in
allmultimedia PC'sandwhich arenormally achieved byadding aPCindustry standard sound card
containing those functions. ThisPCindustry function hasbeenincorporated intothePCTV bymaking
thepower amplifier partoftheTVprinted circuit board sothattheTVrelated sounds canberouted
through thecommon amplifier aswellasthePCgenerated sounds. HiFiquality stereo sound is
delivered through 12WPhillips Acoustic Horn Technology speakers, which arebuiltintothesystem
unit,inbothPCandTVmodes.
Themachine doesnotcontain aVCR. Ithasthecapacity toplaybacksignals from aVCR,
although itmight bemore usual tousealarger screen TVforthis,saythemain household setinthe
sitting room. TheTVfacility onthePCTV being seenbyICLasproviding asecondary TVset.
Theimported value ofthePCTV is1500US$ofwhich theTVprinted circuit board represents
avalue of120US$.
ThePCTV wasdesigned toexploit aperceived market opportunity forpersonal computers
specifically tobeusedinthehome. Itisnotdesigned tobenetworked. Itistargeted primarily at
people insocial categories A,B,andC,withschool agechildren andalsoatother highincome groups,
e.g.students.
Itissoldthrough anumber ofwellknown retail outlets, some ofwhom alsosellTVsets,and
through some retail buying chains. Shops display thePCTV withcomputers inthatpartoftheshop
andretailadvertisements, forexample incomputer magazines, butalsoinotheradvertisements, include
itwithmulti-media andother PCs.
ICLcommissioned research fromanindependent research organisation tofindoutwhowould
belikely tobuyaPCTV, where itwould beused, whowould make thedecisions about buying itand
howcomputer literate theywere. Theresults were usedindevising itsadvertising campaigns.
Themarketing material andtheguidance produced, forexample forsales staffintheretail
outlets, varies, asonewould expect, inpresenting thefeatures andadvantages ofthePCTV tothe
particular audience atwhich thatmaterial isaimed. Consistently, however, itispresented asafully
integrated PCandTV,whereas sometimes itisthefullyfunctional TVwhich isemphasized andat
others itisitsqualities asamulti-media PCwhich isputfirst.
InProfessor Spence 'sopinion thePCTV interms ofitstechnical functionality isextremely
rich.Heidentified thosefunctions asincluding (a)programmability, (b)interactivity, (c)multi-modality
(i.e.image, sound andtext), (d)thestorage ofdataandprograms, (e)therepresentation ofinternally
generated data, (f)thepresentation ofsuchdata, (g)theperformance, viaaloudspeaker, ofstored
sound from aCD,(h)thepresentation ofexternally generated data(i.e.theTVprogrammes). Of
those technical functions, hesaid,onlyonecanbedescribed asa"TVset".
Thecathode raytube, which could wellgivethemachine theappearance ofbeing aTVset
atfirstglance, simply takes datasignals anddisplays themingraphical form. Itdoesthatequally for
datacreated bythecomputer anddataproduced fromtheelectronics which capture abroadcast signal
andturnitintodatathatcanbepresented insound andvision.
Professor Spence alsoexamined theprincipal function ofthePCTV interms, asheputit,of
itsempowerment ofhuman achievement inthecognitive andperceptual sense. Inthishecontrasted
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Theonehedescribed asbeing asa"simple, passive one-way experience" andtheother a"rich, active
andinteractive experience", thedifference between them being "staggering".
Allthisledhimtotheopinion thattheprincipal function ofthePCTV wasitsADP function.
Thatwasalsoinhisviewitsessential character, theessence ofthemachine being apersonal computer
notwithstanding itsability topresent TVprogrammes.
TheCombinedNomenclature,uponwhichtheCommunityCustomsTariffisbased,isreproduced
intheannual revision ofAnnex 1toCouncil Regulation (EEC) No.2658/87 of23rdJuly1987 on
thetariff andstatistical nomenclature andontheCommon Customs Tariff. Section 1ofPart1sets
outunder Athegeneral rulesfortheinterpretation ofthecombined nomenclature (the"GIRs"). The
GIRs laydown theprinciples which govern theclassification ofgoods inthecombined nomenclature
(or"CN").
Rule1states:
"The titles ofsections, chapters andsub-chapters areprovided foreaseofreference only:
forlegalpurposes, classification shallbedetermined according totheterms ofheadings and
anyrelative section orchapter notes and,provided suchheadings ornotes donototherwise
require, according tothefollowing provisions:"
From thisitappears thatthetitlesofsections etc.havenolegalbearing onclassification, that
mustbedetermined according totheterms oftheheadings andanyrelevant section orchapter notes,
anditisonlywhere those headings ornotes donototherwise require -inotherwords theyareparamount
andthusthefirstconsideration indetermining classification -thatclassification maybedetermined,
where appropriate, according totheprovisions oftherules which follow.
Ofthose following rules, Rule3onlywasreferred toinargument. Rule3states:
"When byapplication ofrule2(b)orforanyother reason, goods areprima facie
classifiable under twoormore headings, classification shallbeeffected asfollows:
(a)Theheading which provides themost specific description shall
bepreferred toheadings providing amore general description.
However, when twoormore headings eachrefertopartonlyofthe
materials orsubstances contained inmixed orcomposite goods orto
partonlyoftheitems inasetputupforretail sale,those headings
aretoberegarded asequally specific inrelation tothose goods, even
ifoneofthem gives amore complete orprecise description ofthe
goods.
(b)Mixtures, composite goods consisting ofdifferent materials ormade up
ofdifferent components, andgoods putupinsetsforretail sale,which cannot
beclassified byreference to3(a),shallbeclassified asiftheyconsisted ofthe
material orcomponent which gives themtheiressential character insofaras
thiscriterion isapplicable.
(c)When goods cannot beclassified byreference to3(a)or3(b),they
shallbeclassified under theheading which occurs lastinnumerical
order among those which equally merit consideration."WT/DS62/R
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Itiscommon ground thatthePCTV fallswithin Section XVIoftheCN. Itisalsocommon
ground thattheapplicable Section Note isSection Note 3which states:
"Unless thecontext otherwise requires, composite machines consisting oftwoormore
machines fitted together toformawhole andother machines adapted forthepurpose
ofperforming twoormore complementary oralternative functions aretobeclassified
asifconsisting onlyofthatcomponent orasbeing thatmachine which performs the
principal function."
"Machine" forthese purposes "means anymachine, machinery, plant, equipment, apparatus
orappliance citedintheheadings ofChapter 84or85."-seeSection Note 5.
Mrs.Hamilton forICLsubmits thatthePCTV isa"composite machine" andthatits"principal
function" isthatofanAutomatic DataProcessing Machine ("ADPM") falling under heading No.84.71.
Chapter Note 5toChapter 84states -
"(A)Forthepurposes ofheading No.84.71, theexpression "automatic dataprocessing
machines" means:
(a)Digital machines, capable of(1)storing theprocessing program
orprograms andatleastthedataimmediately necessary forexecution
oftheprogram; (2)being freely programmed inaccordance withthe
requirements oftheuser; (3)performing arithmetical computations
specified bytheuser; and,(4)executing, without human intervention,
aprocessing program which requires themtomodify theirexecution,
bylogical decision during theprocessing run;
(b)Analogue machines capable ofsimulating mathematical models
andcomprising atleast: analogue elements, control elements and
programming elements;
(c)Hybrid machines consisting ofeither adigital machine with
analogue elements orananalogue machine withdigital elements."
Mrs. Hamilton alsoreferred towhat arecommonly called "HSENs", thatistosaythe
Explanatory Notes oftheCustoms Co-operation Council. The"HS" or"Harmonized System", which
isitself short fortheInternational Convention ontheHarmonized Commodity andCoding System,
isadministered under theauspices oftheCustoms Co-operation Council. Astherecitals toCouncil
Regulation (EEC) No.2658/87 show, theEuropean Community isasignatory totheConvention and
theCombined Nomenclature oftheCommon Customs Tariff oftheCommunity hadto"beestablished
onthebasis oftheHarmonized System".
Thatbeing thecase,theHSENs, whilst nothaving legalforce, nevertheless maybeconsidered
asavaluable aidtotheinterpretation oftheprovisions ofthetariff although theymaynotaltertheir
proper meaning. Seethejudgment oftheEuropean Court ofJustice inDevelop Dr.Eisbein v.
Hauptzollamt Stuttgart-West Case C-35/93 (1993) ECR1-2655: inparticular paragraph 21ofthat
judgment, andthedecision ofthistribunal inTretec UKLimited v.Customs andExcise Commissioners
(1995) CaseNo.C2.Wegratefully accept andadopt thereasoning atparagraphs 24to28ofthedecision
withwhich werespectfully agree.WT/DS62/R
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HSEN (V1)toSection XVI Note 3states -(sofarasishererelevant) -
"Ingeneral, multi-function machines areclassified according totheprincipal function
ofthemachine:
Multi-function machines are,forexample, machine tools forworking metal using
interchangeable tools, which enable themtocarry outdifferent machining operations
(e.g.milling, boring, lapping).
Where itisnotpossible todetermine theprincipal function, andwhere, asprovided
inNote 3totheSection, thecontext doesnototherwise require, itisnecessary toapply
General Interpretative Rule3(c):suchisthecase, forexample, inrespect ofmulti-
function machines potentially classifiable inseveral oftheheadings 84.25 to84.30,
inseveral oftheheadings 84.58 to84.63 orinseveral oftheheadings 84.69 to84.72.
Composite machines consisting oftwoormore machines orappliances ofdifferent
kinds, fitted together toform awhole, consecutively orsimultaneously performing
separate functions which aregenerally complementary andaredescribed indifferent
headings ofSection XVI, arealsoclassified according totheprincipal function ofthe
composite machine.
Thefollowing areexamples ofsuchcomposite machines: printing machines witha
subsidiary machine forholding thepaper (heading 84.43); acardboard boxmaking
machine combined withanauxiliary machine forprinting aname orsimple design
(heading 84.41); industrial furnaces combined withlifting orhandling machinery
(heading 84.17 or85.14); cigarette making machinery combined withsubsidiary
packaging machinery (Heading 84.78).
Forthepurposes oftheabove provisions, machines ofdifferent kinds aretaken tobe
fitted together toform awhole when incorporated oneintheother ormounted one
ontheother; ormounted onacommon baseorframe orinacommon housing.
Assemblies ofmachines should notbetaken tobefitted together toformawhole unless
themachines aredesigned tobepermanently attached either toeachother ortoa
common base, frame, housing etc.Thisexcludes assemblies which areofatemporary
nature orarenotnormally builtasacomposite machine.....
Note3toSection XVIneednotbeinvoked when thecomposite machine iscovered
assuchbyaparticular heading, forexample, some types ofairconditioning machines
(heading 84.15).....
InMrs.Hamilton 'ssubmission theprincipal function ofthePCTV asa"composite machine"
isasanAutomatic DataProcessing Machine. Shecontended thatprincipal function canbededuced
from thefollowing areas: Design; Development Strategy; Manufacture; Cost; Marketing;
Advertising; Retailing; Price; Packaging andpresentation; Technical andactive functionality.
Further andinthealternative shesubmitted thatthePCTV iswithin thedefinition of"composite
goods" inGIR3(b). Aswillhavebeenseen, where suchgoods cannot beclassified byreference to
GIR3(a), GIR3(b)laysdown thatthey"shall beclassified asiftheyconsisted ofthematerial or
component which gives themtheiressential character insofarasthiscriterion isapplicable". (emphasis
added).WT/DS62/R
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Sherelied upon HSEN (IX)toGIR3(b). Thisstates:
"(IX) Forthepurposes ofthisRule, composite goods made upofdifferent components
shallbetaken tomean notonlythose inwhich thecomponents areattached toeach
other toformapractically inseparable whole butalsothose withseparate components,
providedthesecomponentsareadaptedonetotheotherandaremutuallycomplementary
andthattogether theyformawhole which would notnormally beoffered forsalein
separate parts.
Examples ofthelatter category ofgoods are:
(1)Ashtrays consisting ofastand incorporating aremovable ashbowl.
(2)Household spice racks consisting ofaspecially designed frame (usually ofwood)
andanappropriate number ofempty spice jarsofsuitable shape andsize.
Asageneral rule,thecomponents ofthese composite goods areputupinacommon
packing".
TheHSEN (VI)toGIR3(b)saysthatthis"second method" relates onlyto(i)Mixtures,
(ii)Composite goods consisting ofdifferent materials, (iii)Composite goods consisting ofdifferent
components, (iv)Goods putupinsetsforretail sale. Itapplies onlyifRule3(a)fails.
HSEN (VII) toGIR3(b)saysthatinallthose cases thegoods aretobeclassified asifthey
consistedofthematerialorcomponentwhichgivesthemtheiressentialcharacter,insofarasthiscriterion
isapplicable.
HSEN (VIII) toGIR3(b)thenstates:
"The factor which determines essential character willvaryasbetween different kinds
ofgoods. Itmay, forexample, bedetermined bythenature ofthematerial or
component, itsbulk, quantity, weight orvalue, or,bytheroleofaconstituent material
inrelation totheuseofthegoods".
Mrs.Hamilton submitted thatthesame evidence andcriteria assherelied upon toestablish
the"principal function" ofthePCTV wererelevant andestablished thatitwastheADPM component
which gaveitits"essential character".
Approaching thedetermination oftheappropriate classification bythatroute, Section Note
3toSection XVIrequires thePCTV tobeclassified under 84.71 "Automatic DataProcessing Machines"
because, ifMrs. Hamilton isright, thatisits"principal function". GIR1applies andthatisanend
ofthematter. GIR3doesnotcome intothepicture because theterms oftheheadings andofthesection
notetoSection XVI"dootherwise require" andtheyareparamount.
But,ifitisnotpossible todetermine itsprincipal function asacomposite machine, sothat
thePCTV isprima facieclassifiable under twoormoreheadings, onedoesgotoGIR3,andinparticular
GIR3(b), andlooks forthematerial orcomponent which gives thePCTV as"composite goods" its
essential character ifthatcriterion isapplicable.
Itisonlywhenthatfails,andMrs.Hamiltonmaintainsthatcriterionisapplicableanddetermines
theclassification ofthePCTV asanADPM, thatGIR3(c)canoperate, astheCommissioners sayWT/DS62/R
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thatithastobeoperated, toclassify thePCTV under 85.28 "Television Receivers" as"theheading
which occurs lastinnumerical order among those which equally merit consideration".
Mr.Davies putattheforefront ofhissubmissions onbehalf oftheCommissioners thatthere
arewider principles governing classification ofgoods identified inthecaselawoftheEuropean Court
ofJustice. First, there istheprinciple oflegalcertainty atthepoint ofcustoms clearance. Thus "the
preference is,intheinterests oflegalcertainty andeaseofverification, tohaverecourse tocriteria
forclassification based ontheobjective characteristics andproperties, asdefined inthewording of
theheadings oftheCommon Customs Tariff andofthenotes tothesections andchapters, which can
beascertained atthepoint ofcustoms clearance" -paragraph 18ofthejudgment inthe
Develop Dr.Eisbein case(supra) .Healsoreferred tothecourt'sjudgments inCase No.C-233/88
GifsVandeKolkDouane Expediteur BVvInspecteur derInvoerrechten enAccijnsen (1990) ECR1-265;
paras 12and16;andCaseNo.200/84 Erika Daiber v.Hauptzollamt Reutlingen (1985) ECR 3363;
para13.Second, there istheobjective ofsecuring uniformity intheinterpretation andapplication
oftheHarmonized System relating, inparticular, totheapplication ofthenomenclature. Mr.Davies
pointedtotheinstitutionalisedandpermanentmechanismsetuptothisendundertheBrusselsConvention
(which continues under theHarmonized System) asexplained intheOpinion oftheAdvocate General
(Tesauro) intheVandeKolkcase(supra) at(1990) ECR-1 atpp.273-5.
Mr.Davies submitted thatthereisnooneheading which adequately classifies thePCTV. The
classifications intheTariff inevitably lagbehind theadvances intechnology.
Inhissubmission theroute totheclassification ofthePCTV isthrough GIR1tothetextsof
theheadings andrelative section andchapter notes. ADPMs within heading 84.71 arenarrowly defined;
theydonotequate withpersonal computers and,astheHSEN tothatheading explains, thatheading
doesnotcover parts ofthepersonal computer working inconjunction withanADPM andhaving a
specific function. Note 3toSection XVIapplies theprincipal function testbothto"composite machines
consisting oftwoormore machines fitted together toform awhole", thedescription contended for
bytheappellant, and"other machines adapted forthepurpose ofperforming twoormore alternative
functions", astheCommissioners haveregarded thePCTV. Either wayclassification isonthebasis
oftreating themachine "asifconsisting onlyofthatcomponent orasbeing thatmachine which performs
theprincipal function".
Mr.Davies contended thatitwasnotpossible inrelation tothePCTV todiscern thecomponent
ormachine which performs theprincipal function, thatistosayacomponent ormachine falling within
aheading oftheTariff. TheCommissioners onreview hadidentified inrelation tothePCTV four
classifications intheTariff based onfunction: 84.71 ADPMs; 85.19 "Other sound reproducing
apparatus"; 85.21 "Video recording orreproducing apparatus"; and85.28 "Television Receivers".
None ofthese functions objectively considered could, inhissubmission, besaidtobetheprincipal
one. Thesubjective testsputforward byMrs. Hamilton are,inhisview, manifestly undesirable:
theproper approach tofunction istodetermine whatthemachine does.
Where, ashemaintained isthecasewiththePCTV, itisnotpossible todetermine theprincipal
function, HSEN (VI)toSection Note 3explains thatitisnecessary toapply GIR3(c),thisbeing a
case"where thecontext doesnototherwise require". TheHSEN doesnotalterthewording ofthe
headings andnotes butisentirely consistent withthem inpromoting certainty andconsistency and
uniformity ininterpretation. TheHSEN, which contains nothing torequire adifferent approach for
composite machines where itisnotpossible todetermine aprincipal function, thenmakes thepoint
ofentry intoGIR3specifically rule3(c)-i.e.thelastinthehierarchical structure ofthatrulewhich
applies onlyifrules 3(a)and3(b)failinclassification (seeHSEN (1)toGIR3)-and3(c)providesWT/DS62/R
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forthemachine tobeclassified under theheading which appears lastinnumerical order among those
which equally merit consideration.
Thatprovided asomewhat crude classification butonewhich hadthemerit ofproducing
consistency andeaseofverification.
Ifhewaswrong onthat,andGIR3(b)didcome intothepicture, Mr.Davies observed that
itisverydifficult conceptually tothink ofdetermining thatcomponent which gives thePCTV as
"composite goods" its"essential character" when, bydefinition, ithasnotbeenpossible todetermine
thecomponent which performs theprincipal function. Butitwasequally impossible todetermine
objectively whatcomponent gives thePCTV its"essential character". ThePCTV isbothaPCand
atelevision set.
Mr.Davies introduced, bywayofillustration ofasimilar result bythecorrect application
oftherules,CommissionRegulation(EEC)No.754/94of30thMarch1994concerningtheclassification
ofcertain goods inthecombined nomenclature. Thatregulation, asshown bytherecitals, wasmade
having regard toArticle 9ofCouncil Regulation (EEC) No.2658/87 establishing theCN. Italso
recites that"...pursuant tothe[general rulesofinterpretation setdown inthatCouncil Regulation],
thegoods described inthecolumn 1ofthetableannexed tothePresent Regulation mustbeclassified
under theappropriate CNcodes indicated incolumn 2,byvirtue ofthereasons setoutincolumn 3".
Products 4and5inthetablearebothclassified under heading 85219000"Video recording
orreproducing apparatus, whether ornotincorporating avideo tuner", sub-heading "other" andfor
thefollowing reasons:
"Classification isdetermined bytheprovisions ofGeneral Rules 1,3(c)and6forthe
interpretationofthecombinednomenclature,Note5toChapter84tothecombinednomenclature
aswellasthetextsofCNcodes 8521and85219000."
General Rule6applies therules inGIR1atsub-heading levels.
Thedescription ofproduct 4refers toitas"Amulti-media interactive system inasingle
housing ...capable ofreproducing onamonitor, loudspeakers orheadphones, audio, graphics text
andvideo datarecorded oncompact disc". Aninfra-red remote control forms partofthesystem and
through "theaddition ofother accessories (e.g.diskdrive, keyboard andmouse) itmaybeusedas
apersonal computer". Thelistofcomponents shows aprinted circuit board, including adigital
processing unit(CPU, 1MB RAM and512KBROM), agraphics component, avideo component,
asound component withownCDaudio unit,andaCDROM.
Thefulldescription ofproduct 5is:
"5.ACDinteractive system inasingle housing forthereproduction ofdigitally recorded
pictures andsound fortelevision bymeans ofalaseroptical reading system. Itissupplied
withamouse andinfra-red remote control unit.
Itcontains acontrol unitthatprocesses signals fromtheplaying unit,fromtheremote control
orfrom themouse unit,tothetelevision display andloudspeaker unit,enabling interaction
withpicture andsound".WT/DS62/R
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Thequestion forustodecide firstisthuswhether thePCTV canbeclassified under aheading
inSection XVIoftheCombined Nomenclature applying Section Note3because thatheading describes
themachine which performs theprincipal function. Itseems tousthatMr.Davies wasrighttostress
thatonehastofocus ontheheadings. Section Note5,indefining theexpression "machine" makes
thatabundantly clear. AlsoChapter Note 5A,asMr.Davies pointed out,defines an"ADPM" for
thepurpose ofheading 84.71 inaveryspecific way; onecannot approach thequestion thatwehave
todecide by,asitwere, treating thePCTV asifwhat isnotaTVisallan"ADPM" within
heading 84.71. Whilst weaccept thatwhatMr.Burton didwasinhiswords toputaTVontopof
aPC,itismisleading forourpresent purpose torefertothePCelement ofthePCTV asifitequated
withan"ADPM" asdefined. This, asweseeit,lessens thevalue ofProfessor Spence 'sevidence
interesting though thatcontribution was.
Although there isadifference between theparties astowhich limbitfallsunder, there isno
dispute atthispoint intheargument thatwehavetolookforthatmachine orcomponent -thatisto
saycomponent machine -ofthePCTV which performs theprincipal function. Thetestisnotsomuch
whatitisusedforbutwhatdoesitdo.
Inourjudgement itisnotpossible inthese terms andgiven theapproach which weare
constrained toadopt todetermine theprincipal function ofthePCTV. Although Mrs. Hamilton was
righttopoint outthatthecases intheEuropean Court ofJustice relied onbyMr.Davies show that
there arelimits tothese principles, theobjectives oflegalcertainty, uniformity ofinterpretation and
easeofverification atthepoint ofcustoms clearance areveryimportant. Much ofthematter relied
upon byMrs. Hamilton isinouropinion fartoosubjective toserve ascriteria fordetermining what
isamachine 'sprincipal function. ThePCTV functions equally asahighquality TVandasastate
oftheartPC.
Itisperhaps worth noting, although itdoesnotform thebasis forourdecision, thatHSEN
(VI)toSection Note3indescribing composite machines classified according totheirprincipal function
(and, agreeing withMrs. Hamilton, inourjudgement thePCTV isa"composite machine" andnot
another, multi-function machine, forthepurposes ofSection Note3)gives examples ofwhere there
isclearly aprincipal function forthecomposite machine andthefunction oftheother machines within
thecomposite machine areequally clearly auxiliary orsubsidiary. Viewed objectively theTVfunction
ofthePCTV isnotanauxiliary orsubsidiary function ofanADPM.
Itisalsocommon ground thatifitisnotpossible todetermine theprincipal function oneis
thrown backintoGIR3.Itisalsocommon ground thatGIR3provides ahierarchical approach and
thatthefirstsub-rule (a)doesnotapply. Thedispute isastothepoint ofentry, GIR3(b)orGIR3(c).
Ifonegoesstraight to3(c),theCommissioners onthebasis ofourjudgement sofarhaveapplied the
correct classification.
Mr.Davies contends thatthePCTV isamulti-function machine andthatinexplaining
Section Note 3HSEN (VI),asweunderstand theargument, shows thattheterms ofthatSection Note
require thepoint ofentry tobeGIR3(c)andtheconclusion must bethesame evenifthePCTV is
toberegarded instead asbeing acomposite machine.
Wereject thatargument. HSEN (VI)quite plainly isdealing withmulti-function machines
separately fromcomposite machines. Wehavealsodetermined thatthePCTV isnotamulti-function
machine, bywhich ismeant, intheterms ofSection Note3,"other" -thatisincontrast to"composite
machines consisting oftwoormore machines fitted together toform awhole" -"machines adapted
forthepurpose ofperforming twoormore complementary functions". HSEN (VI)gives asexamplesWT/DS62/R
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ofmulti-function machines -"tools forworking metal using interchangeable tools, which enable them
tocarry outdifferent machinery operations (e.g.milling, boring, lapping)". Itdescribes "composite
machines" as"consisting oftwoormore machines orappliances ofdifferent kinds, fitted together to
form awhole, consecutively orsimultaneously performing separate functions, which aregenerally
complementary andaredescribed indifferent headings ofSection XVI...".
Making thenecessary transition from mechanical machines ascontemplated intheHSEN to
theelectronic machines before us,inouropinion a"composite machine" bestdescribes thePCTV.
Italsoseems tousthatMrs. Hamilton wasrighttosubmit thattheabsence ofareference to
GIR3(c)inHSEN (VI)where itdeals withcomposite machines isnotaccidental. Thekindof
multi-function machine contemplated, atleastthekindofmachine referred tointheexample, seems
tobeonewhere itisveryunlikely thatitwillbepossible todetermine aprincipal function letalone
thatmachine which gives ititsessential character. Thelatter maybepossible inrespect ofacomposite
machine, although, aswehavesaid, going bytheexamples itwillbeverymuch more likely tobe
abletodetermine aprincipal function. Itisalso,however, notdifficult toseehowinrelation tothe
examples given ofcomposite machines onecould reasonably saythatthemachine performing the
principal function alsogives themachine itsessential character.
WethusturntoGIR3(b)which applies the"essential character" test"insofarasthiscriterion
isapplicable". Weareprepared toaccept thatthePCTV canfairly bedescribed ascoming within
thedescription "Composite goods consisting ofdifferent components" inHSEN (VI)toGIR3(b)and
asfurther explained inHSEN (IX)tothatRule(although thePCTV isalongwayremoved fromthe
examples there given).
HSEN (VIII) toGIR3(b)admits ofanumber offactors which mayberelevant indetermining
theessential character ofcomposite goods, some ofwhich maywellnotassist inproviding easeof
verificationbutallofwhicharesusceptibletoobjectiveevaluation.Althoughthesefactoradmit,perhaps,
more ofthematters which Mrs. Hamilton relied upon, there isstillforce inMr.Davies 'submission
that,when onehaspassed thepoint ofbeing abletodetermine thecomponent which performs the
principal function ofcomposite goods, inthiscaseacomposite machine, itisverydifficult conceptually
thentosetabout determining whatcomponent machine gives ititsessential character.
Forthose reasons wedoubt whether thatcriterion isapplicable inclassifying amachine such
asthePCTV. But,evenifitis,wearenotpersuaded, having carefully reviewed alltheevidence,
thatitistheADPM, assuch, which gives thePCTV itsessential character. Itis,asMr.Davies
submitted, anewkindofhybrid machine which isbothaPCandaTV,andneither gives ititsessential
character.
Theappeal willaccordingly bedismissed.
Thisdoesappear tobeacasewhere theunderstandable desire oftheimporter tohavegoods
classified asaccurately aspossible, preferably ofcourse inaheading which relates totheitemasa
whole, comes intoconflict withtheobjectives oftheHarmonized System andCommon Tariff in
providing uniformity ofinterpretation, thatconflict arising because rapid advances intechnology with
which theCNcannot keeppaceproduces newmachines different inkindevenifcombining machines
andfunctions which were historically separate.
Theparties areatliberty toapply tothetribunal forafurther deliberation iftheyareunable
toagree about costs.
R.K. Miller CB
ChairmanWT/DS62/R
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Page97ANNEX 4-SUMMARY TABLE OFEVIDENCE SUBMITTED BYTHE UNITED STATES
TABLE 1
SUMMARY OFBTIS ISSUED BYECMEMBER STATES
No. Member State Competent
Customs
AuthorityHolder Total
noof
BTIsBTIreference number Summarized
Product
DescriptionDate of
ApplicationDate of
startof
validityClassification
DENMARK NA*NA 4
1. DK47068 Adapter unittobeinstalled in
digital dataprocessors
(Standard PC)sothatthese will
beabletoexchange coded data
through alocal network and
function asin-andoutput units
foranother connected PCor
central unitNA 30/11/94 8473.3010
2. DK47069 Adapter unittobeinstalled in
digital dataprocessors
(Standard PC)sothatthese will
beabletoexchange coded data
through alocal network and
function asin-andoutput units
foranother connected PCor
central unitNA 1/12/94 8473.3010
3. DK47070 Adapter unittobeinstalled in
digital dataprocessors
(Standard PC)sothatthese will
beabletoexchange coded data
through alocal network and
function asin-andoutput units
foranother connected PCor
central unit.NA 1/12/94 8473.3010
*NA: notavailableWT/DS62/R
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Page98No. Member State Competent
Customs
AuthorityHolder Total
noof
BTIsBTIreference number Summarized
Product
DescriptionDate of
ApplicationDate of
startof
validityClassification
4. DK47071 Adapter unittobeinstalled in
digital dataprocessors
(Standard PC)sothatthese will
beabletoexchange coded data
through alocal network and
function asin-andoutput units
foranother connected PCor
central unit.NA 6/12/94 8473.3010
FRANCE Direction
Générale des
Douanes et
Droits
Indirects8
5. NA FR16190199401777 Cartes modules électroniques
destinées àêtremontées dansle
châssis d'unconcentrateur pour
réseau ETHERNET.16/8/94 20/9/94 8473.30109002
6. NA FR16190199401776 Châssis deconcentrateurs
destiné àreçevoir descartes
modules électroniqes pour
réseau ETHERNET.16/8/94 20/9/94 8473 309000900
7. NA FR16190199400755 Pontrouteur permettant
l'interconnexion deréseaux
locaux d'entreprise (Ethernet,
Token Ring, FFDI) qui
utilisent desprotocoles
différents decommande dela
liaison logique.31/3/94 9/5/94 8471.9910.00
8. NA FR16190199301442 Pontdistant ETHERNET se
présentant souslaforme d'un
boîtier fermé incluant un
logiciel interne.24/9/93 21/10/93 8471 99100000K
9. NA FR16190199500062 Unité périphérique d'adaptation
seconnectant directement surle
Réseau ETHERNET ou
TOKEN RING, seprésentant
souslaforme d'unboîtier.19/12/94 13/1/95 8471 99100000KWT/DS62/R
WT/DS67/R
WT/DS68/R
Page99No. Member State Competent
Customs
AuthorityHolder Total
noof
BTIsBTIreference number Summarized
Product
DescriptionDate of
ApplicationDate of
startof
validityClassification
10. BTFrance SA FR16190199401349 Equipements destinés àservir
denoeuds duréseau dela
gamme tymnet. .2/6/94 29/6/94 8471 99100000K
11. BTFrance SA FR16190199401911 Compresseur dedonnées
numériques permettant la
transmission delavoixpar
paquet àhaute vitesse en
minimisant lecôutdes
télécommunications.9/9/94 23/12/94 8471 99100000K
12. BTFrance SA FR16190199401350 Equipements destinés àservir
denoeuds duréseau dela
gamme tymnet.2/6/94 4/7/94 8471 99100000K
IRELAND IrishCustoms
andExcise
BranchCabletron
Systems Ltd.32 28/4/93 12/7/93 8471 9910000
13. IE93N4-14-2310-01-05 Desktop Network (DNI)
Interface Cards
14. IE93N4-14-2310-02-05 Desktop Network (DNI)
Interface Cards
15. IE93N4-14-2310-03-05 Desktop Network (DNI)
Interface Cards
16. IE93N4-14-2313-01-05 Token Ring Standalone Passive
Concentrator
17. IE93N4-14-2313-02-05 Standalone Hubs
18. IE93N4-14-2313-03-05 Multi Media Access Centre
19. IE93N4-14-2313-04-05 Standalone 24-port
20. IE93N4-14-2313-05-05 Multi Media Access Centre
Hubs
21. IE93N4-14-2314-01-07 Ethernet-to-ethernet local
bridges
22. IE93N4-14-2314-02-07 Remote Bridge
23. IE93N4-14-2314-03-07 Intelligent repeater Bridging
ModuleWT/DS62/R
WT/DS67/R
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Page100No. Member State Competent
Customs
AuthorityHolder Total
noof
BTIsBTIreference number Summarized
Product
DescriptionDate of
ApplicationDate of
startof
validityClassification
24. IE93N4-14-2314-04-07 Ethernet Management Module
25. IE93N4-14-2314-05-07 Multi-Protocol Router/Bridge
(CRM-R)
26. IE93N4-14-2314-06-07 Multi-Protocol Router/Bridge
(CRM-L)
27. IE93N4-14-2314-07-07 Local TalktoEthernet
Router/Repeater Module
28. IE93N4-14-2315-01-03 Ethernet Local Repeater
29. IE93N4-14-2315-02-03 Fibre Optic Repeater
30. IE93N4-14-2315-03-03 Multiport Receivers
31. IE93N4-14-2316-01-14 Intelligent Repeater Modules
32. IE93N4-14-2316-02-14 Coaxial Repeater Module
33. IE93N4-14-2316-03-14 Fibre Optic Modules
34. IE93N4-14-2316-04-14 Twisted PairMedia Interface
Modules
35. IE93N4-14-2316-05-14 Media Interface Modules ina
Local Area Network
36. IE93N4-14-2316-06-14 Ethernet Terminal Server
Modules
37. IE93N4-14-2316-07-14 Multiport Transceiver Media
Interface Module
38. IE93N4-14-2316-08-14 Token Ring Management
Module
39. IE93N4-14-2316-09-14 Token Ring Media Interface
Modules
40. IE93N4-14-2316-10-14 Active Repeater Media
Interface Modules
41. IE93N4-14-2316-11-14 Token Ring Media Filter
42. IE93N4-14-2316-12-14 Interface ModulesWT/DS62/R
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Page101No. Member State Competent
Customs
AuthorityHolder Total
noof
BTIsBTIreference number Summarized
Product
DescriptionDate of
ApplicationDate of
startof
validityClassification
43. IE93N4-14-2316-13-14 Concentrator Modules
44. IE93N4-14-2316-14-14 Distributed Network Server
Module
NETHER-
LANDSNA NA 4
45. NL51446 A16-bits ISAbusEthernet
LAN adapter intheform ofa
computer built-in card.NA 25/4/95 8473.3010
46. NL51447 A16-bits ISAbusEthernet
LAN adapter intheform ofa
computer built-in card.NA 25/4/95 8473.3010
47. NL51455 ALAN adapter cardinthe
form ofacomputer built-in
cardNA 25/4/95 8473.3010
48. NL51456 A16-bits Arenet Ethernet LAN
cardintheform ofacomputer
built-in cardNA 25/4/95 8473.3010WT/DS62/R
WT/DS67/R
WT/DS68/R
Page102TABLE 2
OTHER CLASSIFICATION DECISIONS BYECMEMBER STATES
No. Member
StateCompetent
Customs
AuthorityDirected
towardsForm Reference Number Summarized
Product
DescriptionDate of
ApplicationClassification
UNITED
KINGDOM
1. HMCustoms
andExciseNA letter Ref.TC11/92 LAN adapter cards 20/3/92 8471 9910900
2. HMCustoms
andExciseNA letter Ref.SO1/1358/92 28/7/93
22types ofEthernet LAN
boards8473 3010 090
12types oftoken ringLAN
boards8473 3010090
6types ofrepeaters imported
incomplete units8471 9910900
5types ofrepeaters imported
inBoard form8473 3010090
3. HMCustoms
andExciseNA letter Ref.CDO8/740/87 19/2/1988
Multiport repeater 8471 9990090
Local repeater 8471 9990090WT/DS62/R
WT/DS67/R
WT/DS68/R
Page103TABLE 3
OTHER TYPES OFEVIDENCE
No. Form Place/occasion Date Product Description Classification
1. Belgium: Shipping
Invoice- 19/9/95 "onderdelen voorcomputers" 8473 3010
2. France:
Shipping Invoice- 21/2/96 "accessoires ordinateurs" 8473.3010
3. Statement bythe
representative of
Sweden57thmeeting ofthetariff and
statistical nomenclature section ofthe
Customs Code Committee29-30/6/95 LAN equipment Prior toaccession, under tariff
heading 84.71
4. Statement bythe
representative of
Finland77thmeeting ofthetariff and
statistical nomenclature section ofthe
Customs Code Committee.18/4/96 LAN equipment Prior toaccession, under tariff
heading 84.71
5. Statement bythe
representative of
France57thmeeting ofthetariff and
statistical nomenclature section ofthe
Customs Code Committee29-30/6/95 LAN bridges, routers, hubs, repeaters,
media interface modules, andmultimedia
access centreTariff heading 84.71
6. Letter from 3Com Providing information requested by
Director ofCustoms Affairs, USTR8/7/97 LAN equipment andunits thereof exported
toUKbetween 1991 and1994Under tariff headings 84.71 and
84.73, respectively.
7. Letter from Bay
NetworksProviding information requested by
Director ofCustoms Affairs, USTR9/7/97 LAN equipment andunits thereof exported
toUKandIreland since 1992.Under tariff headings 84.71 and
84.73, respectively.
8. Letter from Cisco
SystemsProviding information requested by
Director ofCustoms Affairs, USTR9/7/97 LAN products exported during 1991 to
1994 totheUKandIreland.Under Chapter 84.
9. Letter from Cabletron
SystemsProviding information requested by
Director ofCustoms Affairs, USTR3/7/97 LAN products shipped during 1990 and
1994 totheUKand1992 and1994 to
IrelandTreated under tariff heading 84.71.WT/DS62/R
WT/DS67/R
WT/DS68/R
Page104No. Form Place/occasion Date Product Description Classification
10. European Court of
Justice ruling (ECJ
caseC-11/93)Siemens Nixdorf Informations system
andtheHauptozollamt (principal
customs office) Augsburg.19/5/94 Colour Monitors Ruled thatcolour monitors capable of
accepting asignal onlyfrom the
central processing unitofan
automatic data-processing machine
andnotcapable ofreproducing a
colour image from acomposite video
signal were tobeclassified under
heading 8471 oftheCombined
Nomenclature oftheCommon
Customs Tariff.WT/DS62/R
WT/DS67/R
WT/DS68/R
Page105
ANNEX 5-ITACLASSIFICATION*
Network equipment intheITA
Network equipment: Local AreaNetwork (LAN) andWide AreaNetwork (WAN)
apparatus, including those products dedicated forusesolely orprincipally topermit the
interconnection ofautomatic dataprocessing machines andunitsthereof foranetwork that
isusedprimarily forthesharing ofresources suchascentral processor units, datastorage
devices andinput oroutput units-including adaptors, hubs, in-line repeaters, converters,
concentrators, bridges androuters, andprinted circuit assemblies forphysical incorporation
intoautomatic dataprocessing machines andunits thereof.
Participant Tariff Classification
Australia 847160, 847180, 847330, 85175010, 85175090
Canada 84711000, 84713000, 84714100, 84714910, 84714920, 84714931, 84714932,
84714933, 84714934, 84714935, 84714936, 84714939, 84714941, 84714942,
84714949, 84714951, 84714952, 84714959, 84714961, 84714969, 84714971,
84714972, 84714979, 84715000, 84716010, 84716021, 84716022, 84716023,
84716024, 84716025, 84716026, 84716029, 84716031, 84716032, 84716039,
84716050, 84716090, 84717010, 84717090, 84718010, 84718091, 84718099,
84719010, 84719090, 84733010, 84713021, 84713022, 84713023, 84713091,
84713099
Costa Rica 8473
Estonia 847150, 847160, 851750
EC 84715090, 84716090, 85175090
Hong Kong China 84718000
Iceland 847150, 847160, 847180, 847330, 851750
India 847190, 847330
Indonesia 847190
Japan 847180, 847330, 851750
Korea 851750
Macao 84715000, 84716000, 84718000, 84733000, 85175010, 85175020, 85175030,
85175090
Malaysia ex847150000, ex847160000, ex847170000, ex847180000
NewZealand 847160, 847180, 847330, 851750
Norway 8471500, 8471600, 8471800, 8517800
Romania 84715090, 84716090, 85175090
Separate Customs Territory
ofTaiwan, Penghu, Kinmen
&Matzo84715000, 84716010, 84716020, 84716030, 84716090, 84718000, 84733010,
84733021, 84733029
Singapore 847150
Switzerland 85175000, 85178000, 85179010, 85179090
Thailand 847150, 847180
Turkey 84715090, 84716090, 85175090WT/DS62/R
WT/DS67/R
WT/DS68/R
Page106
Participant Tariff Classification
USA 84718010, 84714960
Poland 847150900, 847160900, 851750900
Israel 84715090, 84716090, 85175000
Czech Republic 84715090, 84716090, 85175090
Slovak Republic 84715090, 84716090, 85175090
Panama 84719200, 84719300, 84719900, 84733000, 85044010, 85174000, 85366900,
85442000
Philippines 847110, 847130, 847141, 847149, 847150, 847160, 847170, 847180, 847190,
851750
ElSalvador 84714900, 84718000
*Table submitted bytheEC.WT/DS62/R
WT/DS67/R
WT/DS68/R
Page107ANNEX 6-SUMMARY TABLE OFEVIDENCE SUBMITTED BYTHE EC
TABLE 1
SUMMARY OFBTIs ISSUED BYECMEMBER STATES
No. Member state Competent
Customs
AuthorityHolder Total no
ofBTIsBTIreference number Summarized
Product DescriptionDate of
ApplicationDate of
startof
validityClassification
FRANCE Direction
Générale des
douanes et
droits
indirects.NA*3
1. FR16190199401918 "Routeur d'accès danslesréseaux de
typeEthernet permettant dediriger
l'information versdessiteséloignés
vialeréseau public commuté, et
vice-versa".9/9/94 27/9/94 -
18/6/968517 4000 0009 S
2. FR16270199402539 "Routeur multiprotocole permettant
d'interconnecter deréseaux
ETHERNET ouIEEE 802.3."3/10/94 28/11/94 -
18/6/968517 4000 0009 S
3. FR06190199102248 "Serveur determinal multiprotocoles
pourleséchanges
terminaux/ordinateur central."1/10/91 3/2/92 -12/3/96 8517 4000 9009 C
4. GERMANY Oberfinanz
Direction
MunchenNA 1 DE/B/01242/92/02 01 Token ringadapter. 2/8/92 18/1/92 851782000000
NETHER-
LANDSBelasting-
dienstNA 30
5. NL199109209450089-0 Apparatus, capable ofmaking
multiple connections between
different components ofacomputer
network.19/9/91 31/1/92 -17/1/97 8517 8200 90000
*NA: notavailableWT/DS62/R
WT/DS67/R
WT/DS68/R
Page108No. Member state Competent
Customs
AuthorityHolder Total no
ofBTIsBTIreference number Summarized
Product DescriptionDate of
ApplicationDate of
startof
validityClassification
6. NL199109209450091-0 Apparatus, capable ofmaking
multiple connections between
different components ofacomputer
network.19/9/91 31/1/92 -17/1/97 85178200 90000
7. NL199109209450115-0 Apparatus, capable ofmaking
multiple connections between
different components ofacomputer
network.19/9/91 31/1/92 -17/1/97 85178200 90000
8. NL199109209450114-0 Apparatus, capable ofmaking
multiple connections between
different components ofacomputer
network.19/9/91 31/1/92 -17/1/97 85178200 90000
9. NL199109209450090-0 Apparatus, capable ofmaking
multiple connections between
different components ofacomputer
network.19/9/91 31/1/92 -17/1/97 85178200 90000
10. NL199109209450089-0 Apparatus, capable ofmaking
multiple connections between
different components ofacomputer
network.19/9/91 31/1/92 -17/1/97 85178200 90000
11. NL199109209450113-0 Apparatus, capable ofmaking
multiple connections between
different components ofacomputer
network.19/9/91 31/1/92 -17/1/97 85178200 90000
12. NL199204239450098-0 Apparatus inaseparate housing
intended toamplify ortotransform
signals oncertain points ofa
network.23/4/92 7/9/92 -17/1/97 85178200 90000
13. NL199204239450099-0 Apparatus inaseparate housing
intended tointerconnect sub-networks
intoonenetwork ortoincrease the
effective scope ofanetwork.23/4/92 7/9/92 -
17/1/9785178200 90000
14. NL199109209450092-0 Apparatus, capable ofmaking
multiple connections between
different components ofacomputer
network.19/9/91 31/1/92 -17/1/97 85178200 90000WT/DS62/R
WT/DS67/R
WT/DS68/R
Page109No. Member state Competent
Customs
AuthorityHolder Total no
ofBTIsBTIreference number Summarized
Product DescriptionDate of
ApplicationDate of
startof
validityClassification
15. NL199307219450116-0 Apparatus (integrated switching
system) capable ofmaking multiple
connections between different
components ofacomputer-network
andbetween networks.6/7/93 7/9/93 -
17/1/9785178290
16. NL199307219450115-0 Apparatus (integrated switching
system) capable ofmaking multiple
connections between different
components ofacomputer-network
andbetween networks.6/7/93 7/9/93 -
17/1/9785178290
17. NL199307219450114-0 Apparatus capable ofmaking multiple
connections between different
components ofacomputer-network
andbetween networks.6/7/93 7/9/93 -
17/1/9785178290
18. NL199307219450113-0 Apparatus (x25datacommunication
network system) intended tomake
multiple connections between
different components ofacomputer
network.6/7/93 7/9/93 -
17/1/9785178290
19. NL199307249450123-0 Electronic multiplex apparatus ina
housing.14/7/93 23/11/93 -
17/1/978517829000000
20. NL199307249450122-0 Electronic apparatus consisting ofa
system housing, power supply, a
processor cardandthree connection
cards forethernet ortoken ring
connections.14/7/93 23/11/93 -
17/1/978517829000000
21. NL199307249450121-0 Electronic apparatus consisting ofa
system housing, power supply, a
processor cardandaconnection card.14/7/93 23/11/93 -
17/1/978517829000000
22. NL199307249450120-0 Electronic apparatus consisting ofa
system housing, power supply,
connection card, fortoken ringand
FDDI.14/7/93 23/11/93 -
17/1/978517829000000
23. NL199307249450119-0 Network steering unit. 14/7/93 6/12/93 - 8517829000000WT/DS62/R
WT/DS67/R
WT/DS68/R
Page110No. Member state Competent
Customs
AuthorityHolder Total no
ofBTIsBTIreference number Summarized
Product DescriptionDate of
ApplicationDate of
startof
validityClassification
24. NL199302089450020-0 Apparatus inaseparate housing
intended toamplify ortotransform
signals onacertain points ofa
network.8/2/93 19/2/93 -
17/7/978517829000000
25. NL199302089450040-0 Apparatus capable ofmaking multiple
connections between different
components ofacomputer network.8/2/93 19/2/93 -
17/7/978517829000000
26. NL199302089450039-0 Apparatus capable ofmaking multiple
connections between different
components ofacomputer network.8/2/93 19/2/93 -
17/7/978517829000000
27. NL199302089450038-0 Apparatus capable ofmaking multiple
connections between different
components ofacomputer network.8/2/93 19/2/93 -
17/7/978517829000000
28. NL199302089450037-0 Apparatus capable ofmaking multiple
connections between different
components ofacomputer network.8/2/93 19/2/93 -
17/7/978517829000000
29. NL199302089450036-0 Apparatus capable ofmaking multiple
connections between different
components ofacomputer network.8/2/93 19/2/93 -
17/7/978517829000000
30. NL199302089450035-0 Apparatus capable ofmaking multiple
connections between different
components ofacomputer network.8/2/93 19/2/93 -
17/7/978517829000000
31. NL199302089450034-0 Apparatus capable ofmaking multiple
connections between different
components ofacomputer network.8/2/93 19/2/93 -
17/7/978517829000000
32. NL199302089450021-0 Apparatus inaseparate housing
intended tointerconnect sub-networks
intoonenetwork ortoincrease the
effective scope ofanetwork8/2/93 19/2/93 -
17/7/978517829000000
33. NL199308069450129-0 Network steering unittosteerfrom 4
to8channels.5/8/93 3/1/94 -
17/1/978517829
34. NL199308069450128-0 Network steering unittosupport a
maximum ofa4LAN/WAN
interfaces5/8/93 3/1/94 -
17/1/9785178290WT/DS62/R
WT/DS67/R
WT/DS68/R
Page111No. Member state Competent
Customs
AuthorityHolder Total no
ofBTIsBTIreference number Summarized
Product DescriptionDate of
ApplicationDate of
startof
validityClassification
UNITED
KINGDOMHMCustoms
andExciseNA 10
35. UK57112 ILAN. Auniversal router that
provides internetworking between
LANs andwide areanetworks
(WANs)24/11/93 17/2/94 -
21/2/968517 8290 000
36. UK57127 Microcom bridge router 6000 series. 27/1/94 17/2/94 -21/2/96 8517 8290 000
37. UK57128 Microannex NCSs. 4/2/94 17/2/94 -16/2/96 8517 8290 000
38. UK57141 Access/one remote multiprotocol
bridge/router.7/12/93 18/2/94 -
16/2/968517 8290 000
39. UK57142 ASM 6301 Access/one remote
ethernet bridge.7/12/93 18/2/94 -16/2/96 8517 8290 000
40. UK57110 Crossbow FX6600. Thisisa
network cabling hubthatsupports up
to14LANs24/11/93 17/2/94 -21/2/96 8517 8290 000
41. UK55711 CISCO routers 11/10/93 6/12/93 -
16/2/968517 8290 000
42. UK55700 Intelligent Network Processors 15/10/93 6/12/93 -16/2/96 8517 8290 000
43. UK55704 Modulus series. Thisisafamily of
datacommunication products. This
hasavariety ofproducts which
include multiplexers, processors,
bridges, padsetc15/10/93 6/12/93 -16/2/96 8517 8290 000
44. UK57108 Magnum 100-Multprotocol time-
division multiplexer.24/11/93 17/2/94 -21/2/96 8517 8290 000WT/DS62/R
WT/DS67/R
WT/DS68/R
Page112TABLE 2
OTHER CLASSIFICATION DECISIONS BYECMEMBER STATES
No. Member State Competent
Customs
AuthorityDirected
towardsForm Reference Number Summarized
Product
DescriptionDate of
ApplicationClassification
1. GERMANY Bundesfinanzhof Transtec Judgement NA Multiplexers, bridge, server and
three different repeaters17/9/91 85.17WT/DS62/R
WT/DS67/R
WT/DS68/R
Page113
ANNEX 7
TRADE DATA*
Heading URBase 1994 1995 1996
CN851782 57,175 337,605 494,853 notavailable
CN847199 1,244,068 1,385,569 731,533 notavailable
CN847330 2,848,716 3,602,702 3,464,127 notavailable
USX 847199 417,696 1,071,967 1,407,577 4,361,160
USX 851782 15,825 24,189 51,962 568,463
USX 847330 4,308,369 5,126,879 6,592,151 6,810,744
Notes:
(1) FullyearEUimport dataarenotreleased untillateinthefollowing year. Some member States
areslowinreporting suchdatatoEUROSTAT.
(2) Headings 847199 and851782 donotexistinthe1996 revision totheHarmonized System.
Productspreviouslyenteringunderheading847199nowenterunder847180,847190or847149;
products thatpreviously entered under heading 851782 nowenter under 851721, 851750 and
851780. Thefigures cited above forUSexports in847199 and851782 represent thetotal
ofthenewheadings.
*Table submitted bytheUnited States.