TWN Info Service on WTO and Trade Issues (Sept17/02)
8 September 2017
Third World Network
  
Brazil's measures on taxation and charges held WTO-illegal
Pubished in SUNS #8525 dated 4 September 2017

Geneva, 31 Aug (Kanaga Raja) - A dispute panel at the World Trade Organisation (WTO) has ruled that several programmes covering the ICT and automobile sectors put in place by Brazil that are claimed to include amongst others tax breaks and local-content requirements are inconsistent with Brazil's obligations under the WTO.

Separate disputes were brought by the European Union (DS472) and Japan (DS497) against Brazil, with both the panels being composed of the same Panellists and later following a harmonised procedure.

In a 417-page ruling issued on Wednesday, the Panel found that, to the extent that Brazil has acted in a manner inconsistent with the provisions of the GATT 1994, TRIMs Agreement, and SCM Agreement, it has nullified or impaired benefits accruing to the European Union and Japan under those agreements.

To the extent that those aspects of the challenged programmes are WTO-inconsistent, the Panel recommended that Brazil bring the challenged measures into conformity with its obligations under the covered agreements.

Pursuant to Article 4.7 of the SCM Agreement, the Panel recommended that Brazil withdraw the identified subsidies without delay.

Taking into account the procedures that may be required to implement its recommendation on the one hand, and the requirement that Brazil withdraw its subsidies "without delay" on the other, the Panel recommended that Brazil shall withdraw the subsidies (identified in paragraphs 8.5(e), 8.6(e), and 8.7, and 8.16(f), 8.17(f) and 8.18 of the Panel report) within 90 days.

The EU, Japan and Brazil can appeal any of the Panel's findings within 60 days.

THE MEASURES AT ISSUE

On 31 October 2014, the European Union requested the establishment of a panel in its dispute with Brazil, and at its meeting on 17 December 2014, a panel was established by the Dispute Settlement Body (DSB).

Separately, on 17 September 2015, Japan requested the establishment of a panel in its dispute with Brazil, and a panel was established by the DSB at its meeting on 28 September 2015.

Both panels were composed of the same panellists.

In its ruling issued on Wednesday 30 August, the Panel noted that the parties to the dispute seem to agree on the basic functioning of the tax system in Brazil and most of the aspects of the concerned tax programmes including their defining measures, but disagree with respect to the WTO-consistency of those measures.

According to the Panel report, the measures at issue concern mainly the following Brazilian Federal taxes and contributions:

a. IPI (Imposto sobre Produtos Industrializados - Tax on Industrialised Products);

b. PIS/PASEP (Programa de Integracao Social - Social Integration Programme/Programa de Formacao do Patrimonio do Servidor Publico - Civil Service Asset Formation Programme);

c. PIS/PASEP-Importation (Programa de Integracao Social e de Formacao do Patrimonio do Servidor Publico incidente na Importacao de Produtos Estrangeiros ou Servicos - Social Integration and Civil Service Asset Formation Programmes applicable to Imports of Foreign Goods or Services);

d. COFINS (Contribuicao para o Financiamento da Seguridade Social - Contribution to Social Security Financing);

e. COFINS-Importation (Contribuicao para o Financiamento da Seguridade Social incidentes sobre a importacao de bens e servicos - Contribution to Social Security Financing applicable to Imports of Goods or Services); and

f. CIDE (Contribuicao sobre Intervencao no Dominio Economico - Contribution of Intervention in the Economic Domain).

According to the Panel report, the claims brought by the European Union and Japan concern certain tax treatment established under the following programmes:

a. The Informatics programme;

b. The programme of Incentives for the Semiconductors Sector (Programa de Incentivos ao Setor de Semicondutores), hereinafter the PADIS programme;

c. The programme of Support for the Technological Development of the Industry of Digital TV Equipment (Programa de Apoio ao Desenvolvimento Tecnologico da Industria de Equipamentos para TV Digital), hereinafter the PATVD programme;

d. The programme for Digital Inclusion (Inclusao Digital), hereinafter the Digital Inclusion programme;

e. The programme of Incentive to the Technological Innovation and Densification of the Automotive Supply Chain (Programa de Incentivo a Inovacao Tecnologica e Adensamento da Cadeia Produtiva de Veiculos Automotores), hereinafter the INOVAR-AUTO programme;

f. The regime for predominantly exporting companies, hereinafter the PEC programme; and

g. The Special Regime for the Purchase of Capital Goods for Exporting Enterprises (Regime Especial de Aquisicao de Bens de Capital para Empresas Exportadoras), hereinafter the RECAP programme.

These programmes relate to information technology goods; semiconductors and information displays; digital television transmission equipment; certain digital consumer goods produced in Brazil; certain motor vehicles; raw materials, intermediate goods and packaging materials purchased by predominantly exporting companies; and new machinery, tools, apparatuses, instruments and equipment for incorporation into tangible fixed assets by predominantly exporting companies.

According to the Panel, the complaining parties challenge the WTO-consistency of specific aspects of seven distinct "programmes" comprised of multiple laws, decrees, implementing orders (Portarias) and other legal instruments.

Four of these programmes, namely the Informatics, PADIS, PATVD and Digital Inclusion programmes, bear substantial similarities to one another, not only in that all four programmes are related to the information communication technology (ICT) sector, but also in the design and the way they operate. A fifth programme, the INOVAR-AUTO programme, pertains to the automotive sector.

The Panel said although the complaining parties invoke the same provisions of the covered agreements in respect of the INOVAR-AUTO programme as they do in respect of the ICT programmes, the INOVAR-AUTO programme differs from the ICT programmes not only in terms of its sectoral coverage (the automotive industry), but also in terms of its design and operation.

Finally, the complaining parties raise export subsidies claims against two additional programmes - the PEC and RECAP programmes.

Specifically with respect to the four ICT programmes (the Informatics, PADIS, PATVD and Digital Inclusion programmes) as well as the INOVAR-AUTO programme, the complaining parties claim that these programmes:

a. Introduce tax and regulatory discrimination in favour of domestic finished and intermediate products, and against imported finished and intermediate like products, inconsistently with Article III:2 and III:4 of the GATT 1994;

b. Introduce regulatory discrimination against imported inputs, in the form of incentives to use domestic products over imported like products (so-called local content requirements), inconsistently with Article III:4 and III:5 of the GATT 1994;

c. Constitute trade-related investment measures (TRIMs) that are inconsistent with Article III of the GATT 1994, including conditions that require the purchase or use of products from any domestic source, and therefore consequently inconsistent with Article 2.1 of the TRIMs Agreement; and

d. Constitute prohibited subsidies contingent upon the use of domestic over imported goods, inconsistently with Article 3.1(b) of the SCM Agreement.

These claims, said the Panel, under the various provisions of Article III of the GATT 1994, Article 2.1 of the TRIMs Agreement, and Article 3.1(b) of the SCM Agreement, deal (at least in part) with product discrimination in respect of imported products vis-a-vis domestic like products. Thus, the subject matter of these claims overlap to some extent, it noted.

The Panel highlighted two general defences raised by Brazil in respect of the complaining parties' claims of discrimination (specifically Article III:2, III:4, and III:5 of the GATT 1994, Article 2.1 of the TRIMs Agreement, Article 3.1(b) of the SCM Agreement) for the ICT-related programmes (i.e. the Informatics, PADIS, PATVD and Digital Inclusion programmes) and the INOVAR-AUTO programme.

First, Brazil submits that Article III of the GATT 1994 does not apply to the challenged measures because the disciplines of Article III govern discrimination on products, whereas the challenged programmes are not product- related but rather impose process and production-step requirements. Similarly, the disciplines of Article 2 of the TRIMs Agreement and Article 3 of the SCM Agreement relate to products, and are therefore equally inapplicable to the measures at issue.

Brazil's second general defence is that the challenged measures constitute "payments of subsidies exclusively to domestic producers" within the meaning of Article III:8(b) of the GATT 1994, and, therefore are exempt from the disciplines of paragraphs 2, 4 and 5 of Article III of the GATT 1994. In Brazil's view this would also exclude the challenged programmes from the scope of Article 2 of the TRIMs Agreement.

Brazil argues that Article III of the GATT 1994, Article 2.1 of the TRIMs Agreement, and Article 3.1(b) of the SCM Agreement, relate to differences in the treatment of imported and domestic products based on the origin of the relevant products. In the view of Brazil, the measures at issue concern only pre-market obligations regarding production and investment in research and development (R&D) by producers.

According to Brazil, "[n]othing in the plain text of these provisions authorizes [an] interpretation that different treatment related to factors other than origin and unrelated to the use of products or to percentages of domestically produced inputs is covered by those provisions." Brazil therefore argues that the challenged measures are not within the scope of these provisions.

In the view of the complaining parties, it is irrelevant whether the measures are imposed on producers or production-steps, and not directly on products in the market itself.

The European Union notes that the "key element" to determine whether the measures are within the scope of the relevant provisions is whether the measures modify the conditions of competition to the detriment of imported products, relative to domestic like products, and cites jurisprudence that it considers to support the view "that measures affecting the equality of the conditions of competition between domestic and imported products cannot be limited to measures directly regulating products or imposing market requirements."

Japan further argues that "if merely being directed towards particular producers or pertaining to production processes cured any WTO-inconsistency, then circumvention of WTO disciplines would be trivially easy."

In the Panel's view, the plain text of Article III of the GATT 1994 is sufficient to refute Brazil's argument.

Article III:1, containing the overarching national treatment obligation that is then elaborated in the remaining paragraphs of Article III, is phrased in broad and inclusive language, referring to, and covering among other things, "internal taxes and other internal charges, and laws, regulations and requirements affecting the internal sale, offering for sale, purchase, transportation, distribution or use of products". Article III:4 contains similar language, also referring to all laws, regulations and requirements affecting [...] internal sale, offering for sale, purchase, transportation, distribution or use" of imported and domestic like products.

This broad language cannot be seen as limited to measures directed at products only once they are in the market, as Brazil argues. Additionally, said the Panel, there is a long line of jurisprudence confirming this view of Article III, extending back to the GATT era.

Brazil's general defence is categorical: that all measures directed at producers (so-called "pre-market" measures) are for that reason alone (and without regard to their actual or potential discriminatory market effects) entirely exempt from Article III. However, in previous disputes such measures have been found to be inconsistent with Article III.

In the Panel's view, whether a particular measure is a "pre-market" requirement is not determinative of whether or not the measure is within the scope of the SCM Agreement. Indeed, Brazil's interpretation would enable Members to circumvent their obligations under the SCM Agreement.

The Panel concluded that Article III of the GATT 1994 is not per se inapplicable to certain measures, in particular "pre-market" measures directed at producers. For the same reasons, the Panel concluded that the TRIMs Agreement and the SCM Agreement are not per se inapplicable to such measures.

In respect of the INOVAR-AUTO programme, Brazil argues there is no inconsistency with any provisions of the GATT 1994 or the TRIMs Agreement.

Brazil also argues that, in the event the Panel does make any findings of inconsistency in respect of Article III of the GATT 1994, such inconsistency is nevertheless justified under sub-paragraph (b) of Article XX, which refers to measures "necessary to protect human, animal or plant life or health", and sub-paragraph (g) of Article XX, which refers to measures "relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption".

BRAZIL'S DEFENCE UNDER ENABLING CLAUSE AND SEPARATE OPINION

The Panel addressed Brazil's defence under the 1979 Decision on Differential and More Favourable Treatment, Reciprocity, and Fuller Participation of Developing Countries (the Enabling Clause).

At the outset, the Panel noted that a number of the issues raised by the parties in respect of the Enabling Clause pertain to notification of measures adopted pursuant to the Enabling Clause.

The Panel said that it is aware that there are ongoing and important debates between WTO Members in the Committee on Trade and Development, and the Committee on Regional Trade Agreements, regarding the legal requirements relating to notification under the Enabling Clause.

Brazil contends that, in the event the Panel finds any inconsistency with Article I:1 of the GATT 1994 in respect of Argentina, Mexico and Uruguay, such differential and more favourable treatment is nonetheless justified under both paragraph 2(b) and 2(c) of the Enabling Clause.

Paragraph 2 (of the Enabling Clause) sets out the scope of application of the Enabling Clause, enumerating four specific types of "differential and more favourable treatment" that may be justified pursuant to the Enabling Clause.

Brazil asserts that this differential and more favourable treatment was notified to the WTO, as required under paragraph 4(a) of the Enabling Clause, and satisfies the substantive requirements in paragraph 3 of the Enabling Clause.

Brazil also argues that the European Union and Japan had the burden of invoking the Enabling Clause in their panel requests and since they did not do so, they cannot challenge the right of Brazil to invoke paragraph 2(b) and 2(c) of the Enabling Clause to justify the inconsistency of the INOVAR-AUTO programme with Article I:1 of the GATT 1994.

Brazil asserts that the tax reductions accorded to motor vehicles from Argentina, Mexico and Uruguay, and found to be inconsistent with Article I:1 of the GATT 1994, are justified under paragraph 2(b) of the Enabling Clause. Brazil asserts that this differential and more favourable treatment was notified to the WTO, as required under paragraph 4(a) of the Enabling Clause, and satisfies the substantive requirements in paragraph 3 of the Enabling Clause.

The Panel considered that a notification of an RTA (Regional Trade Agreement) adopted under paragraph 2(c) of the Enabling Clause, even if valid, is not sufficient to serve as a notification of a PTA (Preferential Trade Arrangement) adopted under paragraph 2(b) of the Enabling Clause. There was no notification made under 4(a) to support a justification under paragraph 2(b), it noted.

The Panel therefore concluded that Brazil has not demonstrated that any arrangement providing for the differential and more favourable treatment at issue was notified to the WTO as adopted pursuant to paragraph 2(b).

In light of its finding that no relevant arrangement was notified, the Panel concluded that there was no burden on the complaining parties to invoke paragraph 2(b) of the Enabling Clause in their panel requests.

The Panel therefore concluded that the tax reductions accorded to imported products from Argentina, Mexico and Uruguay and found to be inconsistent under Article I:1 of the GATT 1994 are not justified under paragraph 2(b) of the Enabling Clause.

The Panel also concluded that the tax reductions accorded to imported products from Argentina, Mexico and Uruguay and found to be inconsistent under Article I:1 of the GATT 1994 are not justified under paragraph 2(c) of the Enabling Clause.

The Panel noted that one Panellist disagrees with the Panel's findings in paragraphs 7.1112 to 7.1115 of the Panel report (in relation to the Treaty of Montevideo).

This Panellist noted that ECA (Economic Complementation Agreement) No. 55, between MERCOSUR and Mexico, indicates that its objective is to "lay the foundations for the establishment of free trade in the motor vehicle sector and to promote the productive integration and complementation of their respective motor vehicle sectors".

This Panellist is aware that the definition of "free trade" in ECA No. 55 is limited to tariff reductions, and that the term "tariff" is defined in ECA No. 55 as concerning taxes or charges "in connection with importation of goods". Nevertheless, ECA No. 55 clearly indicates that certain preferences will be granted to motor vehicles imported into Brazil from Mexico.

Similar reasoning applies to the 38th Additional Protocol to ECA No. 14, in respect of Argentina and Brazil, which indicates that "automotive goods shall be placed on the market between the parties with a 100% preferential tariff (0% of ad valorem tariff within the area) provided that the origin requirements and the conditions laid down in the Agreements have been met", indicating the existence of tariff preferences on motor vehicles imported into Brazil from Argentina.

Likewise, the 68th Additional Protocol to ECA No. 2, between Uruguay and Brazil, indicates that "motor vehicle products shall be sold between the Parties with 100% (one hundred) preference (0% (zero) "ad valorem" intra- zone tariff), whenever they meet the requirements of origin and the conditions set out in this Agreement." This indicates the existence of tariff preferences on motor vehicles imported into Brazil from Uruguay.

In the view of this Panellist, such references in these agreements to tariff preferences are sufficient to put Members on notice that, at a minimum, motor vehicles imported into Brazil from Mexico, Argentina and Uruguay will be treated differently to motor vehicles imported into Brazil from other Members.

Furthermore, the Treaty of Montevideo explicitly refers to "regional economic integration", and provides for "partial agreements" for this purpose. Therefore, it is reasonable for Members to assume that such preferences would not be limited to fiscal measures applied at the border, but could potentially include internal fiscal measures. Thus, on the basis of the tariff preferences clearly and explicitly indicated in these agreements, and in light of the provisions of the Treaty of Montevideo, Members could be presumed to be informed that motor vehicles imported into Brazil from Mexico, Argentina and Uruguay may be subject to a differential tax burden.

This Panellist therefore disagreed with the Panel's conclusion on this issue (in paragraph 7.1119 of Panel report), and considers that the ECAs are indeed substantively sufficient to satisfy the notification obligation in paragraph 4(a) of the Enabling Clause.

This Panellist considers that the European Union and Japan were sufficiently on notice that the Enabling Clause might be invoked by Brazil, a signatory to those ECAs, as a defence to a claim under Article I:1 of the GATT 1994, in respect of preferences granted to the signatories to those ECAs.

In light of the considerations above, this Panellist concluded that the European Union and Japan were under an obligation to include the relevant provisions of the Enabling Clause within their respective panel requests. In the view of this Panellist, the failure of the complaining parties to include the Enabling Clause in their panel requests means that their claims under Article I:1 of the GATT 1994 are outside the Panel's terms of reference.

OVERALL FINDINGS AND CONCLUSIONS

On the complaint by the European Union, with respect to Brazil's assertion that Implementing Order 257/2014 is outside the Panel's terms of reference, the Panel concluded that the rules on calculation of presumed tax credits under the INOVAR-AUTO programme, as contained in Implementing Order 257/2014, are within the Panel's terms of reference.

With respect to whether Article III of the GATT 1994, the TRIMs Agreement, and the SCM Agreement, are not applicable to measures that regulate pre-market production steps, the Panel concluded that Article III of the GATT 1994, the TRIMs Agreement, and the SCM Agreement, are not per se inapplicable to such measures, in particular "pre-market" measures directed at producers.

With respect to whether Article III of the GATT 1994 and the TRIMs Agreement are not applicable to the challenged measures, or aspects of the challenged measures, because they are payments of subsidies exclusively to domestic producers, pursuant to Article III:8(b) of the GATT 1994, the Panel concluded that measures in the form of subsidies provided exclusively to domestic producers are not for that reason alone exempt from the disciplines of Article III of the GATT 1994 or Article 2.1 of the TRIMs Agreement.

With respect to whether the incentivised products that are the subject of certain challenged measures are "domestic products" for the purposes of Article III of the GATT 1994, Article 2.1 of the TRIMs Agreement, and Article 3.1(b) of the SCM Agreement, the Panel concluded that the incentivized products are Brazilian domestic products.

With respect to the European Union's claims in respect of the Informatics, PADIS, PATVD and Digital Inclusion programmes, the Panel concluded that:

a. The production-step requirements under the Informatics, PADIS, PATVD, and Digital Inclusion programme; and the requirement for products to obtain the status of "developed" in Brazil, under the Informatics, PATVD and Digital Inclusion programmes; result in imported products being subject to internal taxes in excess of those applied to like domestic products, inconsistently with Article III:2, first sentence, of the GATT 1994;

b. The production-step requirements under the Informatics, PADIS, PATVD, and Digital Inclusion programme, and the requirement for products to obtain the status of "developed" in Brazil, under the Informatics, PATVD and Digital Inclusion programmes; the aspect of the mechanism for the calculation of the amount of resources required to be invested in R&D under the Informatics and PADIS programmes relating to the deductible part; and the lower administrative burden on companies purchasing domestic incentivised intermediate products under the Informatics and PADIS programmes; accord to imported products treatment less favourable than that accorded to like domestic products, inconsistently with Article III:4 of the GATT 1994;

c. It is not necessary to make findings with respect to the complaining parties' claims under Article III:5 of the GATT 1994 in order to secure a positive solution to this dispute, and the Panel therefore exercised judicial economy with respect to these claims;

d. The Informatics, Digital Inclusion, PATVD and PADIS programmes constitute trade-related investment measures, and the aspects of these programmes found to be inconsistent with Article III:2 and III:4 of the GATT 1994 are also inconsistent with Article 2.1 of the TRIMs Agreement;

e. The tax exemptions, reductions and suspensions granted under the Informatics, PADIS, PATVD and Digital Inclusion programmes are subsidies within the meaning of Article 1.1 of the SCM Agreement which are contingent upon the use of domestic over imported goods within the meaning of Article 3.1(b) of the SCM Agreement, and thus are prohibited subsidies, inconsistent with Articles 3.1(b) and 3.2 of the SCM Agreement;

[The Panel clarified that it has concluded that the subsidies at issue are prohibited because, based on the specific facts of this dispute, these subsidies are contingent upon the use of domestic over imported goods. However, the Panel said it is not saying with this that Brazil, or any other WTO Member, is not allowed to grant subsidies exclusively to their domestic producers with the aim of fostering the development of their industries.

[In sum, said the Panel, the SCM Agreement leaves policy space for WTO Members - particularly developing Members - to devise WTO-consistent programmes to grant subsidies exclusively to their domestic producers, to foster, through those subsidies, the development of their industries and to pursue other policy goals.]

f. Those aspects of the PATVD programme found to be inconsistent with the GATT 1994 and the TRIMs Agreement are not justified under Article XX(a) of the GATT 1994.

With respect to the European Union's claims in respect of the INOVAR-AUTO programme, the Panel concluded that:

a. Certain aspects of the accreditation process, the system of rules on accrual and calculation of presumed tax credits, and the rules on the use of presumed tax credits resulting from expenditure on strategic inputs and tools in Brazil, result in imported products being subject to internal taxes in excess of those applied to like domestic products, inconsistently with Article III:2 of the GATT 1994;

b. Certain aspects of the accreditation process, the system of rules on accrual and calculation of presumed tax credits, and the rules on the use of presumed tax credits resulting from expenditure on strategic inputs and tools in Brazil; the accreditation requirement to perform a minimum number of manufacturing steps in Brazil; that aspect of the rules on accrual of presumed IPI tax credits pertaining to expenditure in strategic inputs and tools; and those aspects of the accreditation requirements to invest in R&D in Brazil and make expenditures on engineering, basic industrial technology and capacity-building of suppliers in Brazil, pertaining to the purchase of Brazilian laboratory equipment; accord less favourable treatment to imported products than that accorded to like domestic products, inconsistently with Article III:4 of the GATT 1994;

c. It is not necessary to make findings with respect to the complaining parties' claims under Article III:5 of the GATT 1994 in order to secure a positive solution to this dispute, and the Panel therefore exercised judicial economy with respect to these claims;

d. The INOVAR-AUTO programme constitutes a trade-related investment measure, and those aspects of the programme found to be inconsistent with Article III:2 and III:4 of the GATT 1994 are also inconsistent with Article 2.1 of the TRIMs Agreement;

e. The tax reductions through presumed tax credits granted under the INOVAR-AUTO programme are subsidies within the meaning of Article 1.1 of the SCM Agreement and contingent upon the use of domestic over imported goods within the meaning of Article 3.1(b) of the SCM Agreement, and thus are prohibited subsidies, inconsistent with Article 3.1(b) and 3.2 of the SCM Agreement;

f. Those aspects of the INOVAR-AUTO programme found to be inconsistent with the GATT 1994 and the TRIMs Agreement are not justified under Article XX(b) or XX(g) of the GATT 1994;

g. The tax reductions accorded to imported products from MERCOSUR members and Mexico under the INOVAR-AUTO programme are advantages granted by Brazil to products originating in those countries, which are not accorded immediately and unconditionally to like products originating in other WTO Members, inconsistently with Article I:1 of the GATT 1994;

h. The complaining parties were not under a burden to invoke the Enabling Clause in their panel requests, and their claims under Article I:1 of the GATT 1994 are therefore within the Panel's terms of reference; and

i. The tax reductions accorded to imported products from Argentina, Mexico and Uruguay and found to be inconsistent under Article I:1 of the GATT 1994 are not justified under paragraph 2(b) or 2(c) of the Enabling Clause.

With respect to the European Union's claims under Article 3.1(a) of the SCM Agreement, in respect of the PEC and RECAP programmes, the Panel concluded that the tax suspensions granted under the PEC and RECAP programmes are subsidies within the meaning of Article 1.1 of the SCM Agreement and contingent upon export performance within the meaning of Article 3.1(a) of the SCM Agreement, and thus are prohibited subsidies, inconsistent with Articles 3.1(a) and 3.2 of the SCM Agreement.

The Panel made similar findings with respect to Japan's complaint.

With respect to Japan's claims in respect of the Informatics, PADIS, PATVD and Digital Inclusion programmes, the Panel concluded that it is not necessary to make findings with respect to Japan's claims under Article III:2, second sentence, of the GATT 1994, and the Panel therefore exercised judicial economy with respect to these claims.

With respect to Japan's claims in respect of the INOVAR-AUTO programme, the Panel concluded that it is not necessary to make findings with respect to Japan's claims under Article III:2, second sentence, of the GATT 1994, and the Panel therefore exercised judicial economy with respect to these claims.