World Trade

Organization

Argentina - Safeguard Measures on Imports of Footwear 

5.81 According to Argentina, the footnote to Article 2.1 expressly states that there is no agreement between the parties concerning the way in which to conduct the analysis of injury in the case of a safeguard measure applied by a customs union on behalf of a Member States, and the Panel may neither comment nor prejudge matters that are not covered by the GATT/WTO disciplines.

5.82 Argentina maintains that the European Communities has no backing for its "methodology"[96], which has no basis either in the language of the agreements or in customary practice. Article 31.2 of the Vienna Convention on the Law of Treaties specifically states that the context for the interpretation of a treaty includes its text. Nothing in the text of the Agreement on Safeguards explicitly requires application of the methodology suggested by the European Communities. In fact, the text itself shows that an analysis of the circumstances must be made with respect to imports, with no indication of any limitations except for footnote 1, on which there is no agreement among Members regarding the application of the measures in question and Article XXIV. The only specific requirements concerning analysis of injury itself are in Articles 2 and 4. No article defines or limits the concept of "imports" in any way.

5.83 Argentina argues that where the Agreement on Safeguards seeks to make an exception or regulate a particular situation, it does so explicitly, for example, in the provision on excluding developing countries from the application of safeguard measures. When the negotiators of the WTO Agreements wished to exclude or include a rule or exception, they did so explicitly. This is the case for developing countries, which are included in the analysis of the impact of injury and then excluded if they meet the requirements of Article 9 of the Agreement on Safeguards. In response to an EC question, Argentina stated that even though Article 9 permits the possibility of excepting developing countries from a measure, the imports of those countries are always included in the investigation of injury. Consequently, there is no reason for making any exception in respect of the methodology for conducting the overall analysis of injury when the Agreement is silent on the matter.

(b) The criterion supported by the European Communities

5.84 Argentina points out that the European Communities' argument is not based on a criterion of legality but a criterion of "logic".[97] Obligations under the WTO Agreement do not stem from a simple concept of "logic" but from a logic based on multilaterally agreed disciplines that necessarily reflect a balance of interests reached through negotiation. In the opinion of certain Members of the WTO, some of the disciplines negotiated may lack economic logic or be inconsistent with other disciplines (the discussions in the Working Group on the Interaction between Trade and Competition Policy are an example).

5.85 Argentina states that it has, for example, drawn attention to the harmful and distorting effect of subsidies on the efficient allocation of resources at the global level. The Cairns Group has been quite outspoken in the negotiations on agriculture, but there is a "peace clause". According to Argentina, the European Communities' protection structure is an example of "the outcome of negotiations" as against logic. Each discipline is negotiated in a global context of conflicting interests and the result is embodied in agreements, in which it is sometimes difficult to see the economic logic. The system cannot correct the alleged lack of economic logic in the agreements via the dispute settlement mechanism. The provisions of agreements, even if they lack economic logic, are being and must be observed "dura Lex sed Lex". In turn, however, requiring observance of the agreements does not mean that they can generate obligations that have not been agreed multilaterally by the Members, through the mechanisms available under public international law. In other words, the content of a "covered agreement", under which disputes can be resolved through the DSB, encompasses everything and only everything on which the Members of the WTO have collectively agreed.

5.86 Argentina states that one cannot read into the text of a treaty anything that the treaty itself does not spell out, still less in cases where a treaty explicitly states that there is no common interpretation or that the scope of the relationship between two provisions cannot be prejudged. There is only an obligation on the parties if the common intention of the parties is set out in a text that can be interpreted literally and consistently with its purpose and object. This principle is clearly confirmed in the rulings of the Appellate Body.[98]

5.87 In Argentina’s view, if one were to follow the reasoning which emerges, for example, from the European Communities' reply to Panel questioning …"If, already prior to the initiation of the investigation, it is known that the scope of the safeguard measure will exclude certain countries, then imports from these countries should necessarily be excluded from the determinations"… one would start by determining the "target of the safeguard measure" and subsequently begin to conduct the corresponding injury, thereby altering the sequence of the text of the Agreement on Safeguards. This text establishes first the obligation to determine the increase in imports (Article 2) and then to analyse the determining factors for the verification of injury (Article 4.2(a)), to establish the causal relationship (Article 4.2(b)) and then, finally, to define the measure (Article 5.1).

5.88 Argentina alleges that since the European Communities recognises that Argentina has the right to conduct the investigation as it did, the European Communities' problems would seem to be with the measure itself, and it should therefore be questioning the measure under Article 5.1. Argentina does not think that it is appropriate to adduce the existence of an obligation that Article 2.1 does not provide for and that the practice of GATT and WTO Members never endorsed, particularly when the problem raised by the European Communities would not appear to be one of methodology of the investigation, but of the measure applied as a consequence of such methodology. In fact, Argentina argues, the European Communities reduces the scope of its own questioning on failing to find support in Article2.1 by recognising that what Argentina has done is "failed to construct a safeguard measure that addressed the imports that were causing the injury".[99] This must be the only reason for which the EC pleadings separate the claims relating to injury from the measure itself.

(c) Applicable provision: Meaning of the text 

(i) Application to the claim by the European Communities

5.89 Argentina, noting the European Communities’ statement that it does not challenge the exclusion of MERCOSUR from the scope of the measure as such[100] (which in Argentina’s view the European Communities could hardly do, ignoring one of the Community's constant practices since the creation of the GATT). Argentina disagrees with the European Communities’ argument that such exclusion necessarily entails the obligation to exclude MERCOSUR imports from the analysis of "serious injury", "increased imports", and "causality", required by Article 2.1.

5.90 Argentina submits that, first, Article 2.1 refers to the "conditions" under which goods are imported and which have to be analysed for the purposes of applying the safeguard measure. The imports must have increased ("han aumentado" in the past tense in the Spanish text, "is being imported" in the present continuous tense in the English text, according to Article 2.1) "in such increased quantities", "absolute or relative to domestic production" (there must be an increase), "under such conditions" (not any type of imports), as to "cause or threaten to cause serious injury".

5.91 In Argentina's view, these requirements, literally all of them, refer to the "Conditions" laid down in Article 2.1 for application of the measure, but NONE of them mentions the investigation as such. None of these provisions prescribes who is to investigate, how to investigate, how to collect information, what basis to use, etc. Article 2.1 itself states "… if that Member has determined, pursuant to the provisions set out below …". The provisions below in the Agreement are the way in which the investigation should be conducted in Article 3 and the other substantive conditions laid down in Articles 4 et seq. of the Agreement on Safeguards.

5.92 Argentina contends that, as far as the investigation is concerned, the European Communities has not claimed that, by including MERCOSUR in the analysis, Argentina failed to respect Article 3, which specifically prescribes the terms of the investigation ("pursuant to procedures previously established").

ii) Literal interpretation of Article 2.1 and footnote 1

5.93 Argentina states that the European Communities, in describing the elements of the alleged non-compliance with Article 2.1, strangely enough excludes a reference to the footnote, which in fact describes the way in which the "Conditions" set out in Article 2.1 must be analysed in the case of a safeguard applied by a customs union (on behalf of a member State in this particular case). That is, the European Communities states "Article 2.1, Agreement on Safeguards (footnote omitted) reads as follows".[101] According to Argentina, this omission of the footnote is not unintentional or a mistake. It is in fact necessary in order to avoid the discussion of the key element in determining whether or not Argentina erred in verifying the injury requirements, taking into account imports from MERCOSUR.

5.94 Argentina submits that Article 2.1 concerns "Conditions" for application of a safeguard measure, whereas footnote1 to this Article clarifies the situation in the case of customs unions. The footnote specifies how a customs union should act in such cases and at the same time preserves the rights both of the customs union and of the other Members of the WTO. Argentina asserts that, among the obligations set out in the footnote that are relevant to this dispute, the third sentence is important:

"When a safeguard measure is applied on behalf of a member State, 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" (emphasis added by Argentina).

5.95 According to Argentina, the footnote simply clarifies the scope of the general obligation contained in Article 2.1 to verify the existence of the "Conditions" concerning imports when a customs union applies a safeguard measure on behalf of a member State.[102] The text is crystal clear in imposing the obligation that all the requirements for determining injury shall be based on the conditions existing in that member State. The footnote does not provide that intra-zone imports should be excluded nor does it say, for example, whether, in order to determine the threat of injury, estimated imports resulting from the possible convergence of a tariff in the adaptation regime (the transitional stage in the establishment of a customs union) should be taken into account.

5.96 Argentina maintains that the conditions of footwear imports in Argentina have a MERCOSUR component that cannot be ignored.[103] If one accepts the European Communities' interpretation, this would mean failing to comply with the requirement to verify all of the "Conditions", as required for customs unions in the footnote itself. Argentina argues that the footnote does not specify which "conditions" must be taken into account. It does not establish a threshold which triggers the obligation. The obligation has effect de jure and applies to all the conditions that must be analysed when a measure is imposed by a customs union on behalf of a member State.

5.97 Argentina poses as an example the United States, one of the major users of safeguard measures, which analyses injury considering imports on a global basis (as Section 202 is a global safeguards law, the ITC considers imports of any origin when determining which imports have increased). The United States then examines which members of NAFTA should be excluded. This investigation is conducted separately from the global analysis of injury and decisions are based on Section 311(a) of the NAFTA Implementation Act. If the International Trade Commission decides that a member of NAFTA should be excluded, the determination of global injury will result in measures that do not apply to the member or members of NAFTA. In the Wheat Gluten case, the United States excluded Canada from the measures, citing the requirement to apply the NAFTA, even though Canada had been the third largest supplier of wheat gluten to the United States over the whole period of the investigation. (The United States verified that imports from Canada had decreased.)Related to this case and in the light of the level of Canadian wheat gluten exports to the United States, it is not understandable why the European Communities affirms (para. ) that Canadian exports did not cause injury. Argentina asks which were the EC criteria to arrive at this conclusion, and which percentage related to total imports constitutes a threshold acceptable to exclude a partner of a free trade zone from a measure.

5.98 Argentina states that when the European Communities made use of the retortion option afforded by Article 8.2 of the Agreement on Safeguards (G/L/251, G/SG/N/12/EEC/1), it did not calculate the possible increase in exports from Canada as a result of the favourable effects of Canada's exclusion from application of the measure, which led to a loss of the European Communities' market share in the United States. According to Argentina, if the European Communities followed its own "logic", it should have asked the United States why they attributed injury to their third largest supplier yet excluded it from the measure. They did not contest this point in the Committee on Safeguards, however, nor did they take this injury into account for the purposes of the proposed retortion. These are double standards which are more demanding for developing countries applying safeguards than the standards imposed among developed countries.

5.99 Argentina also wonders how it is possible to be so demanding and impose a requirement not contained in the Agreement when, for example, it is EC practice to extend anti-dumping measures in force to new countries which join the Community, as reflected in the Note on the meeting of the Committee on Regional Trade Agreements.[104]

5.100 For Argentina, it is neither compatible with the text nor the object and purpose of the Agreement on Safeguards (Article 2.1 and the footnote) "to require" a form of evaluation of the "conditions" of imports which Article 2.1 of the Agreement on Safeguards does not contain, when the European Communities' practice in applying another agreement on rules (anti-dumping) is to extend the measure without any investigation, or, in the case of safeguards, to grant "more favourable treatment" to developed partners in its investigations.

(iii) Object and purpose of the footnote

5.101 Argentina submits that the object and purpose of the footnote can only be to create the least possible distortion to trade flows and at the same time to eliminate the restrictions on intra-zone trade and help the customs union, or one of its members, to use a legitimate tool such as safeguards. For Argentina, the footnote will create the least possible distortion of trade since in principle a safeguard measure will have a lesser effect on global trade flows if it is applied by a member State and not by a customs union as a single entity. For Argentina, the objective of the footnote is to eliminate restrictions on intra-zone trade (and safeguards would be restrictions on intra-zone trade) precisely because Article XIX was specifically excluded from the list in Article XXIV.8(a)(i). According to Argentina, if a customs union were obliged to apply a safeguard measure to imports from other members of the union, this would be contrary to the objective of Article XXIV, namely that "duties and other restrictive regulations of commerce … are eliminated with respect to substantially all the trade … ".

5.102 In response to questioning by the Panel concerning whether Article XXIV:8 of the GATT prohibits the maintenance or introduction of safeguard measures between the member States of a customs union or free-trade area, Argentina replies that Article XXIV:8 does not prohibit the maintenance or introduction of safeguard measures, but, in conjunction with the footnote to Article2.1, it clearly permits members of a customs union to exempt their partners from the application of a safeguard measure. Argentina underlines that under Article XXIV:8, the obligations arising from the MERCOSUR agreements, which establish a common trade policy instrument in respect of safeguards (CMC decision 17/96), require Argentina not to apply safeguard measures to its partners in the customs union.[105] Argentina explains that, in the case of a customs union, subparagraphs 8(a)(i) and (ii) of Article XXIV indicate that the application of safeguard measures must be carried out by the customs union as such or on behalf of one of its member States, in keeping with the provisions of the WTO Agreement on Safeguards. A customs union such as MERCOSUR, which has agreed on the adoption of a common trade policy instrument in respect of safeguards against imports from third countries (CMC decision17/96), does not maintain any safeguard measures on trade between its member States. And indeed, this is consistent with Article XXIV:8(a). Argentina asserts that the elimination of the restriction (in this case a safeguard), for which the required time-period differs according to the integration process concerned, is operative as from the moment at which the customs union is constituted. There would be no reason for the elimination of the restriction to be authorised only at the end of the period since it is the elimination itself that the Article authorises, leaving it up to the Members to decide on the timing in accordance with the progress achieved in establishing the customs union.

5.103 Argentina states that in December 1996, the Council of Ministers of MERCOSUR adopted Decision 17/96 establishing the Common Regulation on the Application of Safeguard Measures to Imports from Non-Members of MERCOSUR.[106] Under the transitional provisions of these Regulations, until 31 December 1998 each State Party shall apply its domestic legislation with respect to safeguards, and if it applies a measure shall so inform the pro-tempore Presidency of MERCOSUR so that it may notify the WTO Committee on Safeguards. The same provision also stipulates that such measures as may be taken by a State party to MERCOSUR shall be adopted on behalf of MERCOSUR and shall not apply to imports of the other States party. Argentina points out that by Decision 19/98 of the Common Market Council (December 1998) it was decided to extend the period of validity of the transitional provisions until 31 December 1999.

5.104 In response to questioning by the Panel concerning the significance of the fact that footnote 1 to Article 2 immediately follows the word "Member", Argentina states, first, the footnote does not refer to Article 2 as a whole, but is a footnote to Article 2.1. If it referred to Article 2 as a whole, the note would have been placed either after the title "Article 2" or after the word "conditions" identifying the article. Moreover, Argentina asserts, the placement of the footnote, originally following the words "contracting parties" in drafts of the Uruguay Round text (as pointed out by the United States in its replies to the Panel)[107], was necessary because the text applied only to the contracting parties of the GATT, and the European Communities were never a contracting party.

5.105 Argentina states that customs unions are presented to the WTO through a decision by the WTO Member countries that form part of them, and once they have been examined in the light of Article XXIV of the GATT and Article V of the GATS, the WTO General Council concludes that they are not in opposition to those provisions. Argentina asserts that MERCOSUR has been a customs union since 1 January 1995, when it adopted a common external tariff, and was presented as such to the WTO, which initiated the process of examination on the basis of Article XXIV of the GATT. This process is currently in its final stage. The countries making up the MERCOSUR Customs Union are Argentina, Brazil, Paraguay and Uruguay. MERCOSUR has its Common Regulations on Safeguards in Relation to Third Countries (Decision CMC 17/96), notified to the WTO in the context of the Working Party on MERCOSUR set up in the framework of the Committee on Regional Trade Agreements and the Committee on Safeguards. Argentina points out that in the Committee on Safeguards, Argentina provided details of the MERCOSUR review process in the Committee on Regional Trade Agreements, where it answered specific questions concerning the common safeguards regime. The Common Regulations on Safeguards establish a period of transition for the full entry into force of all of its provisions and establish that during that period, investigations will be conducted by the authorities of the State Party, in which case the measures are applied by the Customs Union on behalf of that State Party. Thus, Argentina asserts, it is odd that the European Communities should qualify the MERCOSUR phenomenon as a "curiosity" and the Customs Union as a "nascent" process.[108]

5.106 Argentina disagrees with the European Communities that neither one of the Argentine Resolutions 226/97 and 987/97 (the only ones at issue in this case) mentions DecisionCMC 17/96. Article 8 of Resolution 987/97 specifically indicates that the meeting of the MERCOSUR CMC in December 1997 was to consider the measure in the light of the Common Regulations on Safeguards approved by that Decision.

5.107 Argentina contends that to interpret the footnote to Article 2.1 as applying only to customs unions that are Members per se of the WTO would be to deprive the third sentence of the footnote, which states that nothing in the agreement prejudges the interpretation of the relationship between Article XIX and paragraph 8 of Article XXIV of GATT, of its effectiveness. The specific reference to Article XXIV makes it clear that the customs unions referred to in the footnote are not only those that are Members of the WTO per se, since Article XXIV does not apply only to customs unions that are Members of the WTO. Argentina notes that Article XXIV, paragraph 8 does not draw any distinction between customs unions that are "WTO Members" and those that are "WTO non-members", but defines a customs union as the substitution of a single customs territory for two or more customs territories, so that duties and other restrictive regulations of commerce are eliminated with respect to substantially all trade between the constituent territories of the union. MERCOSUR fits the definition of Article XXIV, paragraph8, and therefore constitutes a customs union under WTO rules.

(iv) Effectiveness of the footnote

5.108 Argentina submits that if one were to accept the European Communities' interpretation, this would prevent a Member of the WTO from availing itself of the right given by Article XXIV and at the same time complying with the obligation in the footnote to take into account the conditions under which the goods are imported. Furthermore, if one were to accept the European Communities' interpretation, the second requirement which the European Communities' submission seeks to impose unilaterally on the agreement ("largest percentage") would deprive the footnote of its effectiveness as there might be a sought-after increase in imports when a customs union is established, an increase that must be calculated in each case, while at the same time the existence of imports from outside the zone which cause or threaten to cause injury can be verified.

(v) Scope of the obligation contained in the footnote

5.109 Argentina submits that even if its interpretation is deemed to be incorrect, in the case of customs unions all these considerations on the scope of the disciplines are governed by the last sentence of the footnote to Article 2 of the Agreement on Safeguards:

"Nothing in this Agreement prejudges the interpretation of the relationship between Article XIX and paragraph 8 of Article XXIV of GATT 1994."

According to Argentina, this text specifies the extent to which there is a "common" determination on the part of the Members of the WTO "to be bound by the terms of a treaty" (in the sense of the Vienna Convention on the Law of Treaties). On this basis, any obligation that is added unilaterally or by means of interpretation cannot in any way be considered as forming part of the "covered agreements" within the meaning of Article 1.1 of the DSU.

(vi) Meaning of the phrase "and the measure shall be limited to that member State" in the second sentence of the footnote

5.110 In response to questioning by the Panel regarding the meaning of the phrase "and the measure shall be limited to that Member states" in the second sentence of the footnote to Article 2.1, Argentina notes that the phrase must be read with the full sentence: "When a safeguard measure is applied (i.e. when the customs union applies a safeguard measure) on behalf of a member State, all of 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." According to Argentina, it is by reading the sentence in full and considering its place in the context of the footnote to Article 2.1 that its meaning and correct interpretation can be determined. The sentence refers to the situation which could arise when a customs union applies a safeguard measure on the basis of conditions investigated within a member State.

5.111 In other words, according to Argentina, the sentence specifically refers to the fact that a safeguard measure can only be applied in the territory of a member State in which serious injury or threat thereof has been determined. In the case at issue, for example, since it was the conditions in Argentina that were investigated, the safeguard measure could not have been adopted by MERCOSUR in respect of all of the footwear imports into the MERCOSUR customs union, but only for imports entering Argentina, the member of the customs union in which serious injury was determined. Thus, in Argentina's view, the safeguard measure imposed by MERCOSUR on behalf of Argentina is perfectly consistent with the sentence of Article 2.1 mentioned by the Panel since it applies only to footwear imports entering the Argentine market, and not those entering MERCOSUR as a whole. If one of the member States has carried out an investigation in accordance with the Agreement on Safeguards, has proved that the conditions set forth in Article 2.1 have been met and has shown that there is serious injury to the domestic industry or a threat thereof in accordance with Article 4 of the Agreement on Safeguards, a decision can be made to apply a safeguard measure on behalf of that member State.

5.112 In answer to a panel question concerning the basis for the statement in Act 338 that “in the absence of minimum specific duties or protective measures there would be at least an equal flow of imports from the rest of the world into the Argentine Republic” in the light of inter alia the tariff differential between MERCOSUR and non-MERCOSUR goods, Argentina states that the Commission decided to investigate total imports, differentiating between those originating in MERCOSUR and those from the rest of the world. Argentina submits that a good deal of the former are the result of imperfect substitution of imports from the rest of the world consequent upon the diversion of trade created by the DIEM. Therefore, it is reasonable to consider them on equal terms for injury analysis purposes since in the absence of DIEM or protective measures there would be at least an equal flow of imports from the rest of the world into the Argentine Republic. Argentina further indicates that although import duties are different for trade within MERCOSUR than for imports from outside MERCOSUR, this difference does not alter the established fact that the levels of imports of all origins were increasing and both would have continued to increase, as happened with imports from MERCOSUR, if the specific duties had not been imposed. The logical conclusion was that the increases would have continued in the absence of the DIEMs, and the increase in imports from MERCOSUR was simply a further confirmation of this conclusion.

3. Response of the European Communities

5.113 The European Communities submits that the footnote to Article 2.1 of the Agreement on Safeguards is not applicable and, in any case, does not have the meaning given to it by Argentina. The footnote is not applicable because it relates to the application of a safeguard measure by a "customs union". Argentina is of course part of a nascent customs union, MERCOSUR. However, it is not MERCOSUR which took the measure the subject of this case but Argentina. It is not MERCOSUR which conducted the investigation, it was Argentina. Some of the notifications were made by MERCOSUR Members but this seems more of a curiosity than anything else and it is in any event Argentina which is defendant in the present case, not MERCOSUR or the other notifying Members. In fact, Argentina has acknowledged that MERCOSUR is not able to apply for the time being safeguard measures in the absence of legislation and procedures to do so. This was confirmed by the joint oral statement of Brazil, Paraguay and Uruguay.[109]

5.114 In any event, the European Communities submits, the footnote does not have the meaning Argentina claims. Footnote 2 of Article 2.1 can be divided into three parts: first, where a customs union applies a safeguard measure as a single unit; second, where a safeguard measure is applied on behalf of a member State; and third, a statement regarding the relationship between Article XIX and paragraph 8 of Article XXIV of GATT. The European Communities states that the first part of the footnote is clearly not relevant for this case, and Argentina has not claimed that it is. This part deals with safeguard measures taken by a customs union as a single unit, on the basis of the conditions existing in the customs union as a whole: injury and causation have to be determined on the basis of the increase in imported products from outside the customs union. The situation of the relevant industry within the entire territory of the customs union has to be analysed. The second part deals with the situation where a safeguard measure is taken for one of the members of a customs union. In that case, according to the text, injury and causation have to be determined on the basis of the situation existing in that member and the situation of the relevant industry within the territory of the member has to be analysed.

5.115 Therefore, the European Communities continues, the object and purpose of the first two parts of the footnote are clear from the text: when a measure is taken for the customs union as a whole, the injury determination should be done on the basis of the conditions relevant for the entire territory of a customs union; when the measure is taken for a single member, this determination should be done on the basis of the conditions present in the territory of the member. In other words, no safeguard measure can be taken for the customs union as a whole if the conditions only concern one of its members. Alternatively, no member can take a safeguard measure by itself if the conditions were investigated for the customs union as a whole. For the European Communities, that is what the first and second part of the footnote do, and nothing more. The European Communities observes that the text of the footnote contains no similar exception as was allowed in Article 9 of the Agreement on Safeguards.

5.116 Finally, the European Communities states, the third part of the footnote makes clear that the text of the Agreement on Safeguards cannot prejudge the interpretation of the relationship between Article XIX and paragraph 8 of Article XXIV of GATT. In other words, the question of whether the Agreement on Safeguards would necessarily "eliminate" duties and other restrictive regulations of commerce between the constituent territories of the customs union, as set out in Article XXIV, is left open. The European Communities states that the historic explanation of this phrase is to be found in the disagreement which existed amongst GATT members at the time of the negotiation of the Agreement on Safeguards with respect to whether or not Article XXIV GATT would allow a member of a customs union or a free trade area to exclude the other members of such preferential trade regime from the application of the safeguard measures. The negotiated solution to this question was to maintain the status quo, i.e. the Agreement on Safeguards does not, on its own, provide new or additional elements to solve this interpretative question. The European Communities does not address this issue in the present dispute. It leaves this question open, in line with the text of the third part of the footnote. The European Communities does not challenge – as such – the exclusion of MERCOSUR imports of footwear from the scope of the safeguard measure. However, nothing in the third part of the footnote says anything about an exception which would allow an approach which includes imports from members of the customs union in the investigation while excluding those members from the safeguard measure. It is this inconsistency which the European Communities cannot agree to and which it asks the Panel to condemn.

5.117 The European Communities points out that Argentina presents this issue in its first submission as a question of "methodology" ("methodology is the appropriate term because it indicates greater discretionary power on the part of the national authorities"). The European Communities disagrees with Argentina that this issue is a question of "methodology", which necessarily would allow for wide discretionary practices by WTO Members: it is a matter of correct legal interpretation of the meaning of the phrase "being imported in such increased quantities so as to cause serious injury" set out in Article 2.1 of the Agreement on Safeguards. It cannot vary at the discretion of Members.

5.118 The European Communities asserts that in order to interpret this phrase, it should be read in its context. The immediate context in which this phrase is placed is Article 2.1 of the Agreement on Safeguards, which sets out the requirements which should be fulfilled before "[a] Member may apply a safeguard measure to a product." This provision underlines the inherent link between the requirements (including increased imports) and the measure itself: the importance with which the requirements present themselves determine the scope of the safeguard measure. This link is also confirmed by another provision, which equally forms part of the context of the phrase "being imported in such increased quantities so as to cause serious injury": Article 5.1 of the Agreement on Safeguards. The European Communities asserts that the United States states correctly that, "in order for a safeguard measure to be effective, and to comport with Article 5:1, it must affect the imports that are causing the injury."

5.119 In this respect, the European Communities accepts the US position[110] that Argentina was free to investigate all imports into its territory, so as to have full information on the different sources from which the product entered. However, Argentina should subsequently have refrained from using the import statistics from MERCOSUR countries for its determination that the product was "being imported in such increased quantities", while knowing beforehand that the scope of the safeguard measure could not include imports from MERCOSUR countries.

5.120 According to the European Communities, a similar reasoning applies to the legal interpretation of the terms "requirements" and "conditions" in the second part of the footnote to Article 2.1 of the Agreement on Safeguards, even though the European Communities does not recognise that the footnote in the present case is relevant. The second part of this footnote reads:

"When a safeguard measure is applied on behalf of a member State, 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."

The European Communities submits that these two terms equally refer (inter alia) to the phrase "being imported in such increased quantities so as to cause serious injury "[111], so that the above-mentioned interpretation applies.

5.121 The European Communities takes issue with a comment made in the joint oral statement during the first substantive Panel meeting by Brazil, Paraguay and Uruguay in this respect. According to these countries, "what happens after the investigation has been concluded is a separate matter. Other rights and obligations come into effect."[112] (emphasis added) The European Communities does not see the reason why a clear distinction should be made between the investigation (and in particular the determination that imports have increased) and the scope of the measure. In the European Communities' view the matter is not separate, but is inherently linked, as argued before.