Document Sample
					                          BRUSSELS MONITOR
              A Weekly Review of EU Trade Policy Developments Affecting Japan
                                                                                                                         28 November 2008
                               IN THIS ISSUE

  I.      WTO Watch
          WTO to further scrutinise US Commerce Department’s use of “zeroing” methodology

  II. European Union: Trade
   A. EU proposes renegotiation of tariffs agreement for evolving information technology
   B. Multi-shaped fruits and vegetables to regain foothold in EU shops

  III. EC Competition
       Commission issue report on competition concerns in the pharmaceutical industry

  IV.     European Union: Regulatory
          European Parliament moves to tighten rules on toy safety

  V.      Dumping Watch
          Change of address – bed linen

  VI.    The Week Ahead
   A.     Council
   B.     Parliament
  C.     OECD

Brussels Monitor is a product of the Japan Fair Trade Center in cooperation with the international trade practice of the Belgium law firm of Van
Bael & Bellis. All questions concerning its content should be addressed to:

                                                               Van Bael & Bellis
                                                               Avenue Louise 165
                                                            B-1050 Brussels, Belgium
                                                              TEL: 32-2-647-7350
                                                              FAX: 32-2-640-6499


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 I.      WTO Watch

 WTO to further scrutinise US Commerce Department’s use of “zeroing” methodology

 On 25 November 2008, Brazil lodged a request for WTO consultations with the US over the
 implementation by the US Department of Commerce (“USDOC”) of the controversial “zeroing”
 methodology in an administrative review of a US order imposing anti-dumping duties on imported
 Brazilian orange juice. Brazil is arguing that the application by the US authorities of the zeroing
 calculation method resulted in the finding of an allegedly artificially inflated margin of dumping, in
 breach of the rules laid down in the WTO Anti-Dumping Agreement requiring a “fair comparison”
 between the export price and the normal value of the product concerned.

 The dispute may be referred for panel adjudication where the two sides fail to resolve their
 differences over the next 60 days. This case follows a series of more than a dozen disputes
 challenging the use of zeroing methodology by the US authorities. While WTO panels have
 occasionally backed some forms of zeroing, the WTO’s Appellate Body has consistently ruled
 against it and has effectively condemned its use in all types of anti-dumping action (i.e., original
 investigations, periodic and sunset reviews and new shipper reviews).

 On a related matter, in an appeal circulated to WTO Members on 21 November 2008, the US said it
 would challenge the findings of a WTO panel’s definitive ruling in a complaint filed by the EU
 against the use of zeroing by the USDOC in various anti-dumping proceedings targeting EU
 exporters. This US counter-appeal comes just two weeks after the EU filed its own appeal against
 several of the panel’s findings, in which it alleged that the ruling (published on 1 October 2008), left
 “unresolved” several important issues of systemic nature. Further, “the panel dismissed without
 proper reasoning certain important EU arguments, including the position that antidumping duties are
 measures which can be challenged pursuant to WTO dispute settlement proceedings. As the panel’s
 reasoning was weak on several points, and in certain respects at odds with established jurisprudence
 of the Appellate Body, the EU expects the Appellate Body to reverse the panel’s findings which were

 Brussels also argued that the panel dismissed “without proper reasoning” the EU argument that the
 original US antidumping order on a product from a certain country and all the subsequent annual
 reviews are part of the same “duty”, which should therefore be treated as a single measure and be
 subject to WTO litigation as such. In this respect, the Commission stated that “the effect of the duty
 as a measure would be that of bringing the future use of US zeroing procedures in each case within
 the scope of the panel’s findings, and would as such represent a powerful tool against the abuse of
 trade defence instruments. It would dissuade the United States from conducting annual reviews of a
 duty and then arguing that such reviews have superseded the challenged measure, thereby requiring a
 new WTO complaint”.

 For its part, the US claims that the panel’s conclusion that USDOC violated Article VI:2 GATT and
 Article 9.3 of the Anti-Dumping Agreement by applying so-called “simple” zeroing in some 29
 disputed periodic reviews and eight sunset reviews is “in error and is based on erroneous findings of
 law and related legal interpretations”. In addition, the US raises in its appeal an argument of a
 procedural nature challenging the panel’s finding that 14 periodic and sunset reviews identified in the
 EU’s panel request but not in the EU’s consultations request actually fell under the panel’s terms of
 reference. In the view of the US, under WTO dispute settlement rules such measures may not be
 reviewed by the panel unless they were already specifically identified in prior consultations.

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 II.     European Union: Trade

 A.      EU proposes renegotiation of tariffs agreement for evolving information technology

 The electronics industry is likely to be interested in the latest developments in relation to the dispute
 between the EU and US (among others) over the WTO Information Technology Agreement (ITA). A
 favourable outcome, and the possibility of renegotiating the Agreement itself, could result in a wider
 scope of electrical and electronic products benefiting from zero tariffs, both in the EU and in other
 ITA-participating countries.

 The Agreement, which entered into force in 1997 with initially only 29 participants, eliminates
 import tariffs on some 180 IT products in the participating countries. The number of participants has
 grown to 70, representing about 97% of world trade in IT products. Signatories include Japan, Hong
 Kong, China, Korea, Taiwan, India, Indonesia, Singapore and Malaysia. The products thus far
 covered comprise, among others, semiconductors, computers, electronic calculators, telephones, fax
 machines, other types of telecommunications equipment and a variety of components.

 In order to alleviate the dispute and deal with the main issues – to its mind constructively – the EU
 recently issued a proposal calling for immediate negotiations on updating and expanding the ITA.
 The EU proposal seeks to include such negotiations in the framework of the Doha round of trade
 talks. In putting forth its proposal, the EU has claimed that the current Agreement has “reached its
 limits”, recommending that signatories should consider expanding the product coverage, especially in
 order to take account of evolving technologies and convergence, and increasing the number of

 Perhaps in light of the ongoing dispute, on 31 October 2008 the EU’s proposal was coolly received,
 with the US stating that it neither supported nor opposed it, but that the EU’s initiative was
 “premature”. Other countries demonstrating qualms over the proposal were Singapore (on behalf of
 the Association of Southeast Asian Nations), Japan, China, Taiwan and Costa Rica. Two European
 countries, Croatia and Norway, supported the EU proposal.

 The EU proposal came out shortly before the US, Japan and Taiwan secured a WTO dispute
 settlement panel which is to rule on their claims that the EU has failed to live up to its commitments
 under the current ITA. The EU undertook to grant duty-free treatment for certain information
 technology products, namely flat panel displays (“FPDs”), set top boxes (“STBs”) with a
 communication function and “multifunctional digital machines” (“MFMs”). However, the US, Japan
 and Taiwan all allege that, as a result of the application of certain measures, the EU actually imposes
 duties on those products in breach of its WTO obligations. A group of key Asian exporting nations,
 namely China, Singapore, Thailand and the Philippines, requested a seat in the consultations, citing
 their substantial trade interest in the matter.

 The EU, for its part, has long argued that the IT products which the US, Japan and Taiwan claim
 should be given favourable treatment are substantially different from those subject to the 1997
 agreement. The EU asserts that, as technology evolves, it is inappropriate to force new types of
 products into older categories in order to continue to make the current ITA relevant. Thus, says the
 EU, the ITA should be renegotiated so as to clarify its application to current technology; its ongoing
 dispute at the WTO is proof of the fact that such negotiations are urgently needed, and should
 henceforth become a part of the current Doha round of negotiations.

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 While US officials have not ruled out including talks on the ITA within the Doha round, their stance
 appears to suggest that it might be preferable to wait for the conclusions of the dispute panel before
 engaging in renegotiations. Costa Rica has countered that there is no need to renegotiate the entire
 agreement to include new products, as the ITA already contains a mechanism for expanding the
 agreement to include new products.

 B.      Multi-shaped fruits and vegetables to regain foothold in EU shops

 A European Commission announcement of 12 November 2008 has hailed “the return of the curvy
 cucumber” as a victory for Europe’s agriculturalists and consumers, with marketing standards that
 have hitherto stipulated specific shapes and sizes for fruits and vegetables set to be repealed for good.
 The Commission’s proposals to once and for all put an end to these marketing standards cover 26
 types of fruits and vegetables. Member States voted to “consign to history” these standards, which
 prohibited farmers from selling wonky or misshapen produce.

 Mariann Fischer Boel, the EU’s Danish Commissioner for agriculture and rural development
 commented that the proposals’ acceptance mark “a new dawn for the curvy cucumber and the
 knobbly carrot” and that “consumers should be able to choose from the widest range of products
 possible. It makes no sense to throw perfectly good products away, just because they are the wrong

 The positive vote from the Member States means that the marketing standards prohibiting oddly-
 shaped produce will be buried for 26 items. Sellers of foodstuffs, especially of agricultural produce,
 should take careful note of these, as this new development could signal significant and novel
 marketing opportunities in this sector. The 26 items are: apricots, artichokes, asparagus, aubergines,
 avocadoes, beans, Brussels sprouts, carrots, cauliflowers, cherries, courgettes, cucumbers, cultivated
 mushrooms, garlic, hazelnuts in shell, headed cabbage, leeks, melons, onions, peas, plums, ribbed
 celery, spinach, walnuts in shell, water melons, and witloof/chicory.

 There will still remain a number of fruits and vegetables subject to the marketing standards. These
 are the ever-popular apples, citrus fruit, kiwi fruit, lettuces, peaches, nectarines, pears, strawberries,
 sweet peppers, table grapes and tomatoes. However, even for these items the Commission’s
 proposals dilute the requirements: Member States have the option of exempting these ten types of
 product, as long as they are sold to the public with appropriate labelling.

 This should mean for agri-businesses that while (for example) apples and pears that are not of
 traditional shapes may still be sold to outlets, they will need to bear a label that keeps them distinct,
 e.g., “product intended for processing”.

 Axing the unnecessary rules for common food items which have nothing to do with health and safety
 has been generally welcomed EU-wide. Nonetheless, sceptics have questioned whether the major
 supermarket outlets – those that ultimately dictate what goes on to shop shelves – will accept oddly-
 shaped produce from farmers and wholesalers. Traders may still be faced with opposition from
 retailers, who may continue to want only traditional and pretty shapes on their grocery shelves.

 The Commission will formally adopt its proposed changes, which will then be implemented as from
 1 July 2009.

Page 4 of 9
 III.    EC Competition

 Commission issue report on competition concerns in the pharmaceutical industry

 On 28 November 2008, the European Commission published its preliminary report on its ongoing
 inquiry into possible competition concerns in the pharmaceutical sector. The Commission opened the
 sector inquiry with a round of surprise inspections at the offices of pharmaceuticals companies in
 January 2008, claiming that the inquiry was related to anecdotal and statistical evidence showing that
 the level of innovation in the sector had dropped, giving rise to suspicion that competition in the
 sector had been restricted or distorted.

 While the preliminary report does not explicitly find any competition violations, it gives clues as to
 the types of acts which the Commission might, in the future, subject to infringement proceedings. In
 particular, the report focuses on two primary forms of competition which, it suggests, might have
 been distorted.

 First, the report highlights the potential problems with respect to competition between so-called
 “originators” (i.e., pharmaceutical undertakings which engage in research and development in order
 to produce patentable drugs) and generics (i.e., undertakings which produce lower-cost versions of
 drugs after the term of patent protection for that drug has ended). The Commission has found that
 certain behaviour on the part of orginators may be designed to delay the entry of generic
 manufacturers onto the market. While, of course, a certain amount of protection must be given to
 originators in order to allow them to recoup the costs of research and development and, as a result, to
 promote innovation, the Commission suggests that orginators may be going too far when they engage
 in patent strategies which bear little or no relation to the actual patentability of drugs and which are
 instead solely designed to create legal uncertainty and delay generic-entry. Furthermore, the
 Commission hints that certain types of settlement agreements, e.g., those entered into to settle patent
 litigation brought by originators against generics in which the originator transfers either cash or a
 license to the generic (so-called “reverse payment” settlements), may be a thinly veiled agreement
 not to compete.

 Second, the report identifies particular behaviours which might be problematic with respect to
 competition between originators. In this regard, the Commission’s main focus is on patenting
 strategies which are designed to prevent innovation by competitors rather than to capitalise on one’s
 own innovation. The report cites several different ways in which these so-called “defensive patent
 strategies” might be designed, though typically all of them involve an undertaking obtaining a patent
 which allows them to block research and development by a competitor. The Commission also hints
 that it suspects that much of the resulting litigation and the resulting settlement agreements may be
 hindering competition, or at least may be signs of anti-competitive behaviour.

 As noted above, sector inquiries such as this one need not necessarily result in any infringement
 proceedings, though they frequently do, and one can frequently divine the Commission’s future
 enforcement priorities and policy interpretations from reports such as the present preliminary report.
 For instance, the report’s focus on the potentially negative aspects of patent enforcement with little
 mention of the potentially positive aspects of vigorous intellectual property protection could suggest
 that the Commission is moving even further in the direction of proscribing the legitimate uses of
 intellectual property rights. This would, indeed, be an expected extension of the Commission’s recent
 practice, including its decisions in the Microsoft and Astra Zeneca cases, both of which can be seen

Page 5 of 9
 as diminishing the strength of intellectual property rights. Such a path could, of course, have effects
 on a broader swath of sectors and have the unfortunate effect of removing incentives to innovate.

 IV.     European Union: Regulatory

 European Parliament moves to tighten rules on toy safety

 On 6 November 2008, the European Parliament’s Committee on the Internal Market and Consumer
 Protection announced that it has adopted a report on the draft revision of the Toy Safety Directive.
 The report, which comments on the proposals for around 500 amendments to the Toy Safety
 Directive put forward by the European Commission earlier this year, was voted through unanimously
 in the Committee.

 The summer 2007 recalls of toys from China were uppermost in certain Committee members’ minds,
 with the Chairperson, Arlene McCarthy, stating that “recalls must be a last resort. This law needs to
 set tough standards to ensure dangerous toys never make it on to the shop shelves”. Chinese products
 continue to be in the eye of the storm with the Chairperson elaborating that:

 “[The adoption of the report] is a key step in [the] campaign to raise safety standards and protect our
 children from dangerous and toxic toy imports […] [the] current toy safety law is 20 years old and
 does not deal with the new risks and threats. In particular it does not tackle the risks with imported
 toys given that 95% of UK toys and 80% of toys EU-wide are imported from China.”

 The list of products not to be regarded as toys, set out in an Annex to the draft Directive, has been
 expanded by the Committee. Thus, it is proposed that children’s books made of cardboard and/or
 paper which do not contain any additional elements such as plastic toys or sound features should not
 be regarded as toys for the purposes of the draft Directive.

 The Committee has also amended the Commission’s proposal to make importers responsible for
 ensuring toys that they bring into the EU are safe. Toy manufacturers would be obliged to compile a
 complete technical dossier for each toy and to carry out a safety assessment prior to marketing it.
 Both manufacturers and importers will be required to keep technical documentation and an EC
 declaration of conformity for a period of ten years after a toy has been placed on the market in the

 The Committee has also moved to toughen the rules on age limits when dealing with choking and
 suffocation risks to ensure no toys with small parts are given to small children. Toys for children
 under 36 months will need to meet higher safety standards. Where toys which are labelled as “not for
 use by children under three years of age”, but are clearly intended for use by such children (e.g., a
 rattle), such a claim will not be allowed.

 Belgian MEP Marianne Thyssen, the Committee member responsible for the report, stated that while
 “the Commission has already put forward a lot of safety rules, […] we felt there were areas where
 clarifications and stricter regulation were needed.” Accordingly, the Committee has also backed
 stricter rules on certain substances, for example, a ban on the use of heavy metals such as arsenic,
 cadmium, chromium (VI), lead, mercury and organic tin. Restrictions on substances that are
 carcinogenic, mutagenic or toxic for reproduction (CMRs) were also tightened with Committee
 members supporting a near-complete ban.

Page 6 of 9
 However, the Committee’s report also suggests that some provisions put forward by the Commission
 should be eased, for example, by relaxing a proposed blanket ban on all allergenic fragrances, traces
 of which must not exceed a certain limit, instead suggesting an expansion of the list of banned
 substances. The Committee argued that a limited number of such substances should be allowed in
 educational toys designed to develop the senses, such as “olfactory, gustative and cosmetic games.”

 Additional measures which Committee members have backed include subjecting safety warnings and
 toy manuals to stricter rules, while websites that sell toys would also need to publish warnings. The
 MEPs have also tightened rules to reduce the choking hazard from toys that come with food (e.g.,
 toys contained in chocolate eggs). Ms. Thyssen has stated that toys that are not packaged separately
 but instead are inserted in food or sweets will be banned, while those that are packaged separately
 should be big enough not to get stuck in a child’s throat.

 The Committee’s report is due to be voted on by the whole Parliament on 16 December 2008 just
 prior to the festive season. However, the full report is still to be circulated, as the Parliamentary
 Committee has announced that it intends to hold negotiations with the Council and Commission to
 fast-track an agreement at first reading to get the law on the statue books as quickly as possible. This
 may mean that the report will not come before the full Parliament until January 2008.

 The Committee has stated that it is aiming to have a final proposal adopted before the European
 Parliamentary elections next June.

 V.      Dumping Watch

  Change of address – bed linen

 On 27 November 2008, the Official Journal published a notice concerning the anti-dumping
 measures in force in respect of imports into the Community of cotton-type bed linen originating in

 The product concerned is bed linen of cotton fibres, pure or mixed with man-made fibres or flax (flax
 not being the dominant fibre), bleached, dyed or printed, currently classifiable within CN codes ex
 6302 21 00, ex 6302 22 90, ex 6302 31 10, ex 6302 31 90 and ex 6302 32 90. Bed linen includes bed
 sheets (fitted or flat), duvet covers and pillow covers, packaged for sale either separately or in sets.

 It is recalled that imports of cotton-type bed linen, originating in Pakistan are subject to a definitive
 anti-dumping duty imposed by Regulation 397/2004. A.B. Exports (PVT) Ltd, a company located in
 Pakistan, whose exports to the Community of cotton-type bed linen are subject to an individual anti-
 dumping duty rate of 5.8%, has informed the Commission that on 5 March 2008, it changed its
 address. The company has argued that the change of address does not affect the right of the company
 to benefit from the individual duty rate applied to the company under its previous address. The
 company submitted sufficient evidence to establish that the change of their registered address was
 due to closure of a city office and a transfer of its activity to an existing production facility of the

 The Commission has examined the information supplied and concluded that the change of address in
 no way affects the findings of Regulation 397/2004. Therefore, the reference, in the Annex of
 Regulation 397/2004 to the previous address should be read as a reference to a new address.

Page 7 of 9
 VI.     The Week Ahead

 A.      Council

 •       1-2 December 2008: Competitiveness Council (Internal market, Industry and Research)

 •       2 December 2008: EcoFin Council (Brussels)

 •       4-5 December 2008: Environment Council (Brussels)

 •       7 December 2008: Council (energy) dinner

 B.      Parliament

 •       3-4 December 2008: European Parliament plenary session (Brussels)

 C.      OECD

 •       1-12 December 2008: United Nations Climate Change Conference (COP14) with
         participation of the Secretary-General. Poznan, Poland.

 •       1 December 2008: Seminar on Post-Earthquake Reconstruction of Public Facilities, organised
         by the Education Directorate and the Centre for Co-operation with Non-Members. Participation
         of the Secretary-General. Presentation of the Chinese translation of the publication: "Keeping
         Schools Safe in Earthquakes".

 •       1-2 December 2008: Financing and Pricing Water: the roles of government policies, the private
         sector and civil society, meeting organised in the framework of the OECD Global Forum on
         Sustainable Development, with participation of the Secretary-General. News conference.

 •       1-2 December 2008: Careers and Mobility of Doctorate Holders, conference organised by
         the Directorate for Science, Technology and Industry. This is followed by a technical meeting
         on careers of doctorate holders on 2 December. Brussels, Belgium.

 •       2-3 December 2008: Latin American Round Table on Corporate Governance. Mexico City,

 •       3 December 2008: Publication of OECD Economic Survey of Sweden. 1-3 p.m. seminar open
         to the media and chaired by Swedish finance minister Anders Borg with Robert Ford, OECD
         Economics Department. Stockholm, Sweden.

 •       3 December 2008: The International Panorama, conference organised by Telefónica on the role
         of businesses and the European Union, and the benefits for society as a whole. Participation of
         the Secretary-General. Brussels, Belgium.

Page 8 of 9
 •       3-5 December 2008: Forum on African Public Debt Management and Forum on Public Debt
         Management and Emerging Government Securities Markets will be held back-to-back,
         organised by the Directorate for Financial and Enterprise Affairs.

 •       5 December 2008: OECD statistics news release: Composite Leading Indicators and
         Standardised Unemployment Rates.


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