What's New?
 - Sitemap - Calendar
Trade Agreements - FTAA Process - Trade Issues 

español - français - português
Search


World Trade

Organization

WT/DS126/R
25 June 1999
(99-2217)
Original: English

 

Argentina - Safeguard Measures on Imports of Footwear 

(Continued)

5.414 The European Communities contends that Argentina confirmed that it believed that it was justified to claim "critical circumstances" on the basis of an anticipated situation. The European Communities asserts that Argentina noted that "imports would have continued the growth trend […] if the specific import duties had not been applied"[381] and that "without the specific duties regime, imports would grow even beyond existing levels".[382] According to the European Communities, these statements by Argentina do not seek to discard the European Communities' claim on legal grounds, but instead confirm that what the European Communities has stated is correct, i.e. that Argentina based itself on a hypothetical situation to demonstrate "critical circumstances". The European Communities submits that Article 6 of the Agreement on Safeguards does not allow for such an interpretation, for which Argentina does not put forward any evidence. The European Communities therefore requests the Panel to rule that Argentina violated Article 6 by not demonstrating actual "critical circumstances".

5.415 The European Communities states that the Agreement on Safeguards does not recognise that serious injury or threat of serious injury can be caused by a factor other than increased imports. Since in the present case imports from non-MERCOSUR countries decreased, the imposition of provisional measures was in clear violation of Argentina's obligations. Even if imports from both MERCOSUR countries and non-MERCOSUR countries had been taken into consideration, total imports had still decreasing continuously since 1993 and did not justify the adoption of provisional safeguard measures.

5.416 The European Communities contends that according to Argentine figures mentioned[383] in its notification under Article 12:1(a) of the Agreement on Safeguards, import levels of footwear decreased from 21.78 (million pairs) in 1993, to 19.84 in 1994 and 15.11 in 1995. Since the factors which should have been analysed by Argentina are those prevailing at the time before a safeguard measure would be taken (i.e. a continuous decrease in imports), it is surprising that Argentina decided to impose provisional safeguard measures. Finally, if a safeguard measure is only applied to non-MERCOSUR countries, imports of only non-MERCOSUR countries should have been considered in the analysis.

5.417 Furthermore, the European Communities states, according to Article 6 of the Agreement on Safeguards, there must be clear evidence of serious injury or a threat of injury The European Communities submits that no clear evidence in this respect existed and, thus, the imposition of provisional safeguard measures by Argentina violated this provision.

5.418 In addition, according to the European Communities, the WTO notification document presented by Argentina does not contain any evidence of a causal link between increased imports and the condition of the domestic industry. On the contrary, Argentina stated[384] that the situation of the domestic industry is only "partly" a result of import trends. Therefore, the European Communities submits that the application of safeguard measures in this case was not justified: even the Argentine authorities acknowledge that increased imports could not be the cause of the alleged serious injury.

5.419 The European Communities submits that compliance with the causality requirement is extremely important, since the purpose of a safeguard measure is to allow the domestic industry to adjust to an unforeseeable change in the terms of trade in a particular product. If the condition of the industry is caused by any other factor than imports, such as the natural consolidation of the industry by increasing its productivity or a general economic crisis (the "tequila" effect in 1995, for example), then the serious injury, allegedly suffered by the domestic industry, can not be regarded as being caused by increased imports, and consequently, no safeguard measure can be imposed.

5.420 The European Communities states that Argentina does not appear to have substantially addressed its claims that Argentina had not complied with the other requirements set out in Article 6 Agreement on Safeguards, including the condition that there is "clear evidence that increased imports have caused or are threatening to cause serious injury".

2. Argument of Argentina

5.421 Argentina argues that the CNCE concluded that the absolute and relative increase in imports during the period under investigation was the cause of serious injury to the industry, and that there could be a further increase in imports and deepening of the injury already verified in the absence of safeguard measures (Act No. 338, page 47).

5.422 Argentina observes that the European Communities argues that Argentina based its safeguard measures and its conclusion of the existence of critical circumstances on a "hypothetical" increase in imports. Argentina states that the basis for the conclusion with respect to the threat of serious injury and the existence of critical circumstances lies in the fact that the imports would have continued the growth trend already verified throughout the investigation period if the specific import duties had not been applied. Argentina further states that the European Communities is completely mistaken when it says that serious injury cannot be found coexisting with restrictive measures. Argentina cites a safeguard investigation on footwear conducted by the European Communities in 1988, in which the European Communities reached the same conclusion regarding injury, despite the effects of a quota applied during the review period. "However, the growth of imports from Taiwan has been restrained by the national quota applied during this period to some of the types of footwear which were the subject of the inquiry." This situation is comparable to the circumstance in which an examination of injury is conducted during a period in which an anti-dumping measure or other restriction on imports is being applied.

5.423 Argentina asserts that the Argentine authorities analysed the evidence gathered during the preliminary determination and confirmed the existence of serious injury reflected in the evolution of production and sales, the state of indebtedness and the financing capacity of the enterprises, concluding that these facts constituted "critical circumstances" because they affected the continuity and subsistence of the footwear manufacturers. In the immediate term, these companies faced the risk of new closures of factories and increased unemployment. According to Argentina, the confidential information contained in the file made it possible to confirm the impossibility of refinancing debts contracted by the large enterprises and the difficulty in renewing short-term lines of credit for the small and medium-sized enterprises. In the first half of 1997, there was a high probability that the companies would cease to operate, with consequences difficult to repair.

5.424 The Panel asked Argentina to identify the "critical circumstances", in addition to the absence of minimum specific duties after their repeal on 14 February 1997, justified the imposition of provisional safeguard measures. Argentina responded that in making its determination prior to the opening of the investigation, the CNCE found that at that stage, the vulnerability of the industry due to imports was verified and that the industry was therefore already suffering a serious injury. In its final determination, the CNCE confirmed the existence of this serious injury. Thus, since the final determination confirmed the validity of the preliminary determination, the provisional measure was, in Argentina's view, correctly introduced. The investigation revealed that at the moment the provisional measure was issued, there was clear evidence in the petition and in the preliminary investigation that without the specific duties regime, imports would grow even beyond existing levels which were already causing injury.[385] Similarly, in its preliminary determination of critical circumstances, the Department spoke of "high unemployment, the precarious financial situation of the companies, the fall in their production, and the fall in utilisation of capacity in spite of a decrease in installed capacity during the period under examination, reflected in the decreasing share of that industry in the GDP" due to the increase in imports.[386] Consequently, the Department endorsed, in its recommendations, the application of provisional measures. In other words, Argentina contends, there were critical circumstances.[387]  

VI. Arguments of Third Parties [388] 

A. Brazil, Paraguay and Uruguay

6.1 In order to comply with the Panel's request that the intervention by third parties be as short as possible, the delegations of Brazil, Paraguay and Uruguay decided to present a joint statement conveying their views on certain aspects of the case that is before the Panel.

6.2 Brazil, Paraguay and Uruguay state that it will come as no surprise to the Panel that the issues that they wish to address concern certain aspects of the interpretation given by the European Communities to Article 2.1 and 4 of the Agreement on Safeguards. They want to make sure that their rights under those provisions, as well as their rights under the Agreement on Safeguards and other WTO Agreements are not altered.

6.3 The first element of the European Communities' interpretation on which Brazil, Paraguay and Uruguay wish to comment relates to the issue of whether imports from Members of a customs union, or of a free-trade area, can be included in the determination of serious injury and excluded from the application of the safeguard measure. Brazil, Paraguay and Uruguay maintain that it is clear that the European Communities is not questioning the right, and in their view obligation, of a Member of MERCOSUR to exclude other Members of the customs union from the application of the measure.[389] That is something that the European Communities could not question without questioning itself and its rights under ArticleXXIV of the GATT.

6.4 Brazil, Paraguay and Uruguay assert that what the European Communities is questioning is Argentina's methodology in the investigation, and here, one does not need to go further than the Agreement on Safeguards itself. Brazil, Paraguay and Uruguay believe that Argentina acted in accordance with the provisions of Article 2.1 and with the complementary provisions of Article 4. They find nothing in the text of paragraph 1, or, for that matter, in any other Article of the Agreement on Safeguards, to support the EC contention that Argentina was obliged to exclude imports from Brazil, Paraguay and Uruguay from the investigation. Article 2.1 only refers to "imports". There is no reference regarding the source of imports. Article 4 does not contain, either, any sort of limitation concerning the origin of imports. It only refers to "increased imports".

6.5 Brazil, Paraguay and Uruguay assert that Argentina makes an important point that exceptions and specific situations are explicitly provided for in the text of the Agreement. There is no reason, therefore, for the European Communities, or for this Panel, to create an exceptional provision concerning the conduct of investigations by Members of customs unions that does not exist in the clear terms of the Agreement. Furthermore, Brazil, Paraguay and Uruguay are of the view that Argentina has correctly shown that the European Communities gave little attention to footnote 1 to Article 2.1.

6.6 Brazil, Paraguay and Uruguay note that, as the Panel is aware, Argentina has stated that MERCOSUR does not yet have in place the complete legislation and institutions that would permit it to apply safeguard measures "as a single unit". MERCOSUR is advancing in the matter but, as of today measures still have to be applied on behalf of member States, in accordance with their national legislation.

6.7 Brazil, Paraguay and Uruguay state that the footnote provides that "all the requirements for the determination of serious injury or threat thereof shall be based on the conditions existing in that member State and the measure shall be limited to that member State". There are no specific qualifications to the word "conditions". As Argentina pointed out, all conditions that seem relevant to the investigating authorities have to be taken in to account. They add that what happens after the investigation has been concluded is a separate matter. Other rights and obligations come into effect.

6.8 Brazil, Paraguay and Uruguay argue that Footnote 1 also contains an additional element which recommends the caution to which they referred above. It relates to the relationship between ArticleXIX and paragraph 8 of Article XXIV of GATT. If "nothing prejudges the interpretation" of the above-mentioned GATT provisions, any interpretation that goes beyond the clear terms of Article 2.1 the Safeguards Agreement, whether apparently "logical" or not, should be undertaken with the utmost care.[390]

6.9 Brazil, Paraguay and Uruguay state that there are other elements of the European Communities' interpretation of the Agreement on Safeguards which they do not share, and they also relate both to the way the European Communities reads the terms of the Agreement or creates additional obligations that simply do not exist.

6.10 As an example, which is also related to Article 2.1, Brazil, Paraguay and Uruguay refer to the European Communities' continuing wish to translate the expression "under such conditions" into a price analysis that determines the existence of low priced imports. While they understand that the European Communities would like to transform the Agreement into a reflection of its own internal legislation, they do not share its restrictive reading of the expression "under such conditions". It will be up to each Member, in a specific situation, to determine what are the "conditions" that require the application of a safeguard measure.

6.11 According to Brazil, Paraguay and Uruguay, a second example refers to the analysis of the evolution of investments. While they believe that each Member is free to evaluate relevant factors other than those referred to in Article 4, they do not believe that there is an obligation to evaluate investments, nor that the evaluation is standardised and can only be done in a specific way.

6.12 Brazil, Paraguay and Uruguay note that while they are fully aware that the Panel acts in accordance with its terms of reference, they respectfully submit that the consideration of certain aspects of this case – as normally happens in panel proceedings – may have effects that go beyond the rights and obligations of the parties to this dispute and should be considered in such a light.

B. Indonesia

6.13 Indonesia states that it is a significant exporter of footwear to Argentina. In 1996 and 1997, Indonesia was the third largest supplier of footwear to Argentina, following Brazil and China. (Exhibit IND-1) However, since 1993 Indonesia's export of footwear to Argentina continues to encounter restrictions. Starting in December 1993, specific duties were imposed on Indonesia's imports of footwear in Argentina. Although Argentina withdrew its high specific duties on footwear and reduced its 3 per cent statistical tax after the United States challenged these measures in a WTO dispute in October 1996, in July 1997 Argentina notified the WTO that it had replaced its specific duties with equally restrictive specific duties in the form of a "safeguard measure". Under the current regime of minimum specific duties in the form of a "safeguard measure", import of footwear from Indonesia, and from elsewhere, subject to duties as high as US$12.00 per unit on imports with an average unit value between US$11.00 and US$19.00, the ad valorem equivalents of which exceed 70 per cent in some cases (Exhibit IND-2). The data show that Indonesia's footwear exports to Argentina declined in 1997, both in terms of volume and in value, as compared to 1996 (Exhibit IND-3).

6.14 Indonesia asserts that on 25 July 1997, Argentina submitted to the WTO a notification under Article 12.1(b) of the Safeguards Agreement of a Finding of Serious Injury or Threat Thereof Caused by Increased Imports (G/SG/N/8/ARG/1, dated 21 August 1997). The notification includes the report of the National Foreign Trade Commission. Indonesia is of the view that the decision of the Argentine National Foreign Trade Commission to impose safeguard measures on imported footwear reveals serious inconsistencies with the Government of Argentina's obligations under the WTO Agreement on Safeguards and Article XIX of GATT.[391]

6.15 According to Indonesia, the Commission's decision fails to demonstrate that the domestic industry was suffering from serious injury and fails to prove the requisite causal link between an increase in imports and any serious injury. In reaching its determination of serious injury, or threat thereof, the Commission failed to provide a "detailed analysis of the case" or a "demonstration of the relevance of factors examined", as required by the Agreement on Safeguards. The Commission found that imports were higher in 1995 than in 1991. However, the Commission ignored the import volume for 1996. The Commission failed to consider the trends between 1991 and 1996 in its evaluation of the domestic footwear industry. In fact, by 1996, footwear imports declined nearly 40 per cent from the 1993 levels. [392]

6.16 Indonesia asserts that a thorough review of the entire record shows an increase in domestic sales, an increase in domestic market share by domestic producers, an increase in domestic prices, an increase in exports, and a strong financial condition in the major footwear producers in Argentina. It does not show a decline in production, a rise in unemployment, or other negative indication claimed by the Argentine National Foreign Trade Commission. If the Commission had considered all of the relevant factors based on the full record of evidence, Indonesia argues that it would have found that Argentine footwear industry is not suffering serious injury or the threat thereof.

6.17 Similarly, Indonesia continues, the Commission failed to demonstrate a causal link between serious injury, or threat thereof, and an increase in imports, as stipulated in Article 4.2(b) of the Agreement on Safeguards. Here, again, consideration of the full evidentiary record demonstrates that imports were declining into 1996, were losing market share, and did not cause price suppression. If the domestic footwear industry were injured, the injury was not caused by imports. In addition, the Commission's conjecture that the industry would be threatened with serious injury if WTO-inconsistent specific duties were removed was unfounded and insufficient to meet the definition of "threat of serious injury" set forth in the Agreement on Safeguards.

6.18 Indonesia is very concerned over Argentina's application of the final safeguard measure which, Indonesia argues, also violates Article 2.2 of the Agreement on Safeguards. Argentina improperly excluded from the final safeguard measures imports coming from its MERCOSUR trading partners – the very imports that had the highest volume, the greatest rate of increase, and the lowest average unit values.[393] As a result, Indonesia argues, Argentina limited the application of the final safeguard measure in such a way as to exclude those imports that the Commission found most injurious. Thus, exports from Brazil, Indonesia's largest competitor, are exempted from the safeguard measure even though Argentina took the impact of imports from Brazil into account when assessing the injury. Indeed, according to Indonesia, if the National Foreign Trade Commission had administered the Agreement on Safeguards properly, it would have excluded Brazil and other MERCOSUR imports entirely from the determination of injury.[394]

6.19 Indonesia strongly believes that Argentina's imposition of a safeguard measure on imported footwear is inconsistent with its obligations under the Agreement on Safeguards and Article XIX of GATT. Accordingly, Argentina's safeguard measure on imported footwear should be removed immediately.

C. United States

 1. Introduction

6.20 The United States would like to touch briefly on a number of issues arising out of the submissions of Argentina and the European Communities in this matter. These issues are significant not just for this dispute, but for the conduct of Members in general in the area of safeguards. The United States is addressing these issues here because it has a strong systemic interest in the interpretation of Article XIX of the GATT and the Agreement on Safeguards.

6.21 The United States submits that the safeguard measure which has been applied by Argentina with respect to certain imports of footwear contravenes the requirements of the Agreement on Safeguards. The European Communities has raised a number of procedural and substantive deficiencies in the application of the Argentine safeguard measure; in this statement, the United States will address a number of points with respect to the inconsistency of Argentina’s safeguard measure with Articles 2 and 5 of the Agreement on Safeguards. The United States also brings to the Panel’s attention the recent modification by Argentina of its safeguard measure introducing a “quantitative restriction” on certain footwear imports. This purported modification would appear to be inconsistent with Articles 7 and 12 of the Agreement on Safeguards.

2. Standard of Review

6.22 The United States asserts that it is important that a panel reviewing disputed safeguard measures apply a standard of review that provides for meaningful surveillance to ensure that these measures were investigated and applied in keeping with Members’ obligations under the WTO Agreement. At the same time, however, a panel must recognise that Article 4 of the Agreement on Safeguards specifically assigns responsibility for the investigation and evaluation of relevant factors to the competent investigating authorities. These national competent authorities are in the best position to evaluate the relevant factual evidence. Thus, the role of a panel is not to engage in a de novo review, but rather to ensure that the contested measure comports with the obligations of the applying Member pursuant to Article XIX and the Agreement on Safeguards.

6.23 The United States recalls the panel in United States - Restrictions on Imports of Cotton and Man‑Made Fibre Underwear arrived at a similar determination regarding the standard of review applicable to the Agreement on Textiles and Clothing (ATC). The Underwear panel concluded that its function was not to engage in a de novo review, but rather to examine the consistency of a Member’s actions with its international obligations. (Underwear, at paras. 7.12‑7.13). In that context, the panel decided to make an objective assessment of the written decision of the US authorities embodying their determination and findings; this objective assessment entailed an examination of whether those authorities had examined all relevant facts before them, whether adequate explanation had been provided of how the facts as a whole supported the determination made, and, consequently, whether the determination made was consistent with the international obligations of the United States. (Id., at para. 7.13).

6.24 Similarly, the United States continues, the panel on United States ‑ Measure Affecting Imports of Woven Wool Shirts and Blouses from India followed this standard of review in its assessment of another textile safeguard action by the United States pursuant to the ATC. The panel made a close examination of the written decision of the US authorities; it commented on factors addressed in the written decision, and dealt as well with the decision’s failure to address certain factors, and with the issue of causation. Finally, the panel made an overall assessment of the US determination. However, at no time did the Wool Shirtspanel engage in a de novoreview.

6.25 The United States observes that the findings of these two panels concerning the issue of standard of review were adopted by the DSB without any modification by the Appellate Body.

6.26 According to the United States, the standard articulated above is also the appropriate standard of review for disputes involving the application of the Agreement on Safeguards in the context of safeguard determinations made by national authorities. National authorities are in the best position to evaluate the facts and determine the applicable weight to be accorded to various factors. As the Appellate Body properly noted in EC - Measures Concerning Meat and Meat Products (Hormones), panels “are poorly suited to engage in such review.” ( Id., at para. 117). Moreover, the Appellate Body also noted in Hormones that the role of a panel is to make an objective assessment of the matter in dispute, both as to the facts and the law, as mandated by Article 11 of the DSU. (Id., at para. 118). The United States submits that a panel would be assured of arriving at an “objective assessment” of the matter in dispute if it applied a standard of review, consistent with Underwear and Wool Shirts, that examines whether (1) the domestic authority has examined all relevant facts before it, including the factors listed in Article 4:2(a); (2) adequate explanation has been provided of how the facts as a whole supported the determination made; and (3) consequently, whether the determination made is consistent with the international obligations of the Member.

3. Legal Arguments

 (a) Argentina’s Safeguard Measure Violates Article 2 of the Agreement on Safeguards

6.27 The United States concurs with the European Communities that the CNCE did not demonstrate that a product “is being imported ” into Argentina “in such increased quantities, absolute or relative to domestic production,” as to cause or threaten to cause serious injury, as required by Article 2.1. As noted by the European Communities, the phrase “is being imported” in Article 2.1 deals with current imports, as opposed to imports in years past. In the light of Article 2.1's focus on current imports, the United States submits that the CNCE erred in basing its increased imports finding on import levels at the beginning and end of a 6-year period, without considering the level of imports during the intervening years.[395] The United States agrees with the European Communities that a Member must examine imports during the full period under review to ensure that imports are currently increasing, and that such increase is currently causing or threatening serious injury.

6.28 The United States asserts that while the CNCE found that imports were higher in 1996 than in 1991 in value terms, it did not analyse in its report import data for the intervening years. Those data (as reflected in table 1 in section VII of the CNCE’s report) show that total imports, as measured by value, peaked in 1993 and declined each year thereafter; the table shows that imports in 1996 were lower than in any year except 1991 (see G/SG/N/8/ARG/1, at 21; Exhibit EC‑16). The table also shows that imports, as measured in value, were highest in 1994, and then fell sharply in 1995 and then increased slightly in 1996; imports in 1996 were well below the 1993 level and only slightly above the 1992 level. Information in the CNCE report shows that the ratio of imports to domestic production declined irregularly between 1993 and 1996, from 34 percent to 28 percent (see id., at 26). The CNCE reported but did not evaluate the data for the intervening years, or explain how it concluded, notwithstanding the downward trend in imports, that footwear “is being imported” in such increased quantities as to cause or threaten to cause serious injury to the Argentine footwear industry. The United States does not wish to imply that the CNCE, under these import numbers, was absolutely precluded from finding that a product “is being imported . . . in such increased quantities”. However, the United States agrees with the European Communities that the CNCE report fails to demonstrate, in the face of the CNCE’s own data, the relevance of the factors examined.

6.29 The United States must disagree, however, with the inference in the European Communities’ submission that it was inappropriate for the CNCE to review import data for a 5-6 year period in determining whether imports have increased. Article 2.1 does not specify a time period to be examined, but only requires that the Member find that the product “is being imported” in such increased quantities. In the view of the United States, a period of 5 years would not be inappropriate, since it would allow the competent authority to examine imports over a period of time and put current imports in perspective. A 5-year period also may allow the competent authority to examine fully the factors other than imports that may affect the industry’s performance. The US International Trade Commission, which makes the injury determinations under the US safeguard law, typically examines imports over a period of 5 years. According to the United States, what the CNCE must show, and failed to show, is that, based on an evaluation of the import data before it, a product “is being imported . . . in such increased quantities” as to cause or threaten to cause serious injury to the domestic industry.

6.30 Similarly, the United States disagrees with the European Communities’ assertion that Argentina violated Article 2.1, inter alia, because the CNCE failed to “demonstrate convincingly that imports had gone up sharply over the most recent period . . . .” (emphasis added) Article 2.1 does not specify an amount or degree by which imports must have increased. However, the amount or degree of the increase in the level of imports would be relevant to the question of causation.

6.31 In response to questioning from the Panel concerning the relationship between the footnote to Article 2.1 of the Agreement on Safeguards and the MFN obligation contained in Article 2.2, the United States asserted that Article 2.2 of the Agreement on Safeguards contains a general requirement that safeguard measures be applied to a product on an MFN basis; as a general rule, safeguard measures may not be applied in a manner that discriminates between or among WTO Member countries. The footnote to Article 2.1, on the other hand, references a specific instance where derogation from the MFN principle is permissible – that is, where a customs union or free-trade area is implicated. Furthermore, the footnote to Article 2.1 maintains that "[n]othing in this Agreement prejudges the interpretation of the relationship between Article XIX and paragraph 8 of Article XXIV of GATT". The relationship between the MFN requirement of Article 2.2 and the footnote to Article 2.1 of the Agreement on Safeguards parallels the relationship between the general requirement of MFN treatment under Article I of the GATT, and the provisions of Article XXIV recognising the discriminatory elements inherent in customs unions and free trade areas. Accordingly, the footnote makes clear that nothing in the Agreement on Safeguards prejudices the interpretation of the relationship between the MFN obligation in Article 2.2 and the ability of Members to derogate from that obligation as part of a customs union or free-trade area.


Continue on to: Argentina’s Safeguard Measure Violates Article 2 of the Agreement on Safeguards: 6.32

[381] Infra, para. 5.422 .

[382] Argentina's reply to the Panel. Infra, para. 5.424 .

[383] See Exhibit EC-11, document G/SG/N/6/ARG/1, G/SG/N/7/ARG/1, at page 5.

[384] See Exhibit EC-12, document G/SG/N/6/ARG/1/Suppl.1, G/SG/N/7/ARG/1/Suppl.1, at page 2.

[385] Exhibit ARG-1, Preliminary report of the Department, page 31.

[386] Exhibit ARG-1, Preliminary report of the Department, page 32.

[387] Exhibit ARG-1, Preliminary report of the Department, pages 31-32.

[388] Except as otherwise noted, the footnotes and citations, and the emphasis in the text are as contained in the parties’ submissions.

[389] In response to questioning from the Panel concerning whether Article XXIV:8 of GATT 1994 prohibits the maintenance or introduction of safeguard measures between the member States of a customs union or free-trade area during its formation or after its completion, Brazil, Paraguay and Uruguay responded that it was not a matter of being precluded from imposing WTO safeguards against the other members of MERCOSUR. Argentina has specific rights under Article 2.1 of the Agreement on Safeguards and ArticleXXIV of the GATT 1994. According to Brazil, Paraguay and Uruguay, Argentina also has contractual rights and obligations under the MERCOSUR. They referred the Panel, for example, to the Treaty of Asuncion (L/7370/Add.1), which contains the decision concerning the non-application of safeguards within the customs union as of 31 December 1994. Responding to questioning of the Panel concerning the relationship between the footnote to Article 2.1 of the Agreement on Safeguards and the MFN obligation contained in Article 2.2, Brazil, Paraguay and Uruguay noted, as a preliminary point, that there is no disagreement between the parties to the dispute concerning the fact that the safeguard should not be applied to the members of MERCOSUR and that this should, therefore, not be an issue for the Panel. They added that the footnote to Article 2.1 can be divided into two parts, the first one relating to the two different modalities of application of a safeguard measure by a customs union and to the parameters for such an application; the second part relating to the interpretation of the relationship between Article XIX and paragraph 8 of Article XXIV. According to Brazil, Paraguay and Uruguay, Article 2.2 of the Safeguards Agreement relates to the application of the safeguard. Article 2.1 gives consideration to the fact that a safeguard measure can be applied by a customs union as a whole or on behalf of one of its member countries. Article 2.2 does not address this issue. They underlined that Article 2.2 should not be read in such a way as to invalidate a Member's rights under other WTO provisions, including Article 2.1 and its footnote, and Article 9 of the Agreement on Safeguards.

[390] In response to questioning from the Panel concerning the significance of the placement of footnote1 to Article 2.1 immediately after the word "Member", and whether this could imply that the footnote refers only to those customs unions that are themselves Members of the WTO, Brazil, Paraguay and Uruguay stated that footnote 1 to Article 2 applies equally to all members of the WTO. If that were not the case, they assert, it would defeat the purpose of Article XXIV of the GATT 1994. Moreover, there is no obligation for customs unions to become Members of the WTO in order for Members of the WTO which are members of customs unions to enjoy their rights under the WTO Agreement.

[391] With respect to the relationship between Article XIX of the GATT 1994 and the Agreement on Safeguards concerning "unforeseen developments", Indonesia is of the view that the Agreement on Safeguards was negotiated and agreed to complement the provisions contained in Article XIX of GATT 1994. Therefore, the requirements of Article XIX of GATT 1994 and the Agreement on Safeguards should be applied on a cumulative basis. According to Indonesia, the complementary nature of the Agreement on Safeguards and Article XIX of GATT 1994 is clearly provided for in the second paragraph of the preamble and in Articles 1, 10 and 11(a) and (c) of the Agreement on Safeguards.

[392] In response to questioning by the Panel, Indonesia expressed its view that it would be WTO-inconsistent to judge the introduction of any safeguard measure based exclusively on the trend of imports at the end of the investigation period, even if it is still higher than at the beginning of the investigation period. As required by Article 4.2(a) of the Agreement, in the investigation to determine whether increased imports have caused or are threatening to cause serious injury to a domestic industry, the competent authorities should "evaluate all relevant factors of an objective, and quantifiable nature." If a "reduced" safeguard measure were introduced to the extent necessary to prevent or remedy serious injury and facilitate adjustment within the meaning of Article 5.1, the competent authorities shall not, in determining the appropriate level of such measure, reduce the quantity of imports below the level of a recent period which shall be the average of imports in the last three representative years.

[393] In response to questioning from the Panel, Indonesia clarified that it is of the view that ArticleXXIV:8 of the GATT 1994 prohibits the maintenance or introduction of safeguard measures between the member States of a customs union or free-trade area after its completion and not during its formation. In response to questioning from the Panel concerning the significance of the placement of footnote 1 to Article 2.1 immediately after the word "Member", and whether this could imply that the footnote refers only to those customs unions that are themselves Members of the WTO, Indonesia asserted that the purpose of the placement of footnote 1 to Article 2 immediately following the word "Member" is to explain how and under what condition a customs union that is bound by WTO obligations may apply a safeguard measure as a single unit or on behalf of a member States. In Indonesia's view, the word "Member" in footnote 1 refers only to a customs union that is itself a Member of the WTO.

[394] In response to questioning from the Panel concerning the relationship between the footnote to Article 2.1 and Article 2.2 of the Agreement on Safeguards, Indonesia replied that Article 2.1 stipulates that a Member may apply a safeguard measure to a product only if that Member has determined that a product being imported has caused serious injury, or threat thereof, pursuant to the provisions set out in the Agreement, in particular Article 4 thereof; and Article 2.2 of the Agreement stipulates that a safeguard measure shall be applied to a product being imported irrespective of its source. According to Indonesia, paragraphs 1 and 2 of Article 2 of the Agreement should not be read nor applied separately. A detached reading of these paragraphs would lead to a discrepancy between the object of the determination of injury and the object of application of a safeguard measure. As required by paragraph 2 of Article 2, the safeguard measures imposed shall be applied on an MFN basis. This is to maintain consistency between the determination of injury and the application of a safeguard measure. Consequently if, as required under Article 2.1, a Member has determined that a product being imported from certain countries found to have caused or threatened to cause serious injury to the domestic market, then the safeguard measures imposed in order to prevent or remedy serious injury shall be applied to that product being imported irrespective of its source. According to Indonesia, Article 2.2 prohibits Members from excluding any country from the application of a safeguard measure, specifically those included in the investigation and found to have caused or threatened to cause serious injury to the domestic market.

[395] In response to a question from Argentina concerning the English and Spanish texts of Article 2.1 of the Agreement on Safeguards, the United States asserts that it does not view the English and Spanish texts of Article 2.1 to be inconsistent with each other with regard to the increased imports requirement. The English text implies a retrospective analysis, requiring that a Member determine that a product "is being imported …in such increased quantities…." This means that current imports must be at a higher level than previous imports. Thus, as under the Spanish text, imports must "have increased". Both texts convey the understanding that imports must have increased, and that such increased imports are causing or threatening to cause serious injury to the domestic industry.