III FINDINGS REQUESTED

3.1 Costa Rica requested the Panel to find specifically, inter alia, on the following aspects:

1. That as a result of having imposed a new restriction on the trade in cotton and man­made fibre underwear in violation of the provisions of the ATC, the United States was in breach of Article 2 of that Agreement;


2. That the increase in "807 trade" could not be considered to constitute increased imports, within the meaning of Article 6.2 of the ATC;


3. That if, the above notwithstanding, it was considered that these increased imports did fall within the provisions of Article 6.2 of the ATC, the fact was that this showed the US industry manufacturing underwear cut pieces to be in excellent condition and not to be in need of any protection;


4. That serious damage and actual threat of serious damage were two different concepts which, to be demonstrated, required the submission of separate information and a different analysis;


5. That the finding of the TMB to the effect that the United States had not demonstrated serious damage to its underwear-manufacturing industry should be upheld;


6. That, given the unreliable, erroneous, contradictory and incomplete nature of the information submitted by the United States in an attempt to justify its account of the situation of its industry, that country had failed to fulfil its obligation to demonstrate serious damage;


7. That the United States, having changed the ostensible basis for its measure, had nonetheless never submitted the information required or provided the analysis necessary to demonstrate the existence of actual threat of serious damage to its underwear­manufacturing industry;


8. That, even assuming the existence of increased imports and serious damage or actual threat of serious damage, the United States had not demonstrated the existence of a causal link between the two, and indeed that the agreements which it had reached with the other countries called to consultations in this category confirmed the non-existence of such a causal link;


9. That, even supposing that the United States had met the three basic requirements for entitlement to resort to the special transitional safeguard mechanism, it had never submitted the information necessary nor carried out the analysis required to attribute the alleged damage or threat to imports from Costa Rica;


10. That the various factors present in this case and, in particular, the proposals for restraint made by the United States to Costa Rica and the quota levels which it had negotiated with the other countries called to consultations in this category, indicated that what the United States was really seeking was to protect not the underwear-manufacturing industry but rather the branch of the domestic industry which manufactured the cloth used in underwear production;


11. That the ATC did not permit the imposition of a safeguard measure on an imported clothing product in order to protect the cloth used to produce it;


12. That the United States had imposed and renewed the restriction on the basis of the existence of an actual threat of serious damage, despite never having held consultations on the subject;


13. That in June 1995 the United States had imposed a unilateral restriction on Costa Rica, making it retroactive to March of that year, despite the fact that under the ATC it had no authority to do so; and


14. That the United States violated the spirit and the letter of Article 8 of the ATC by refusing, without any justification, to follow the recommendations made by the TMB, in particular, that it should hold consultations with Costa Rica bearing in mind that serious damage had not been demonstrated, that no consensus could be reached on the existence of actual threat of serious damage, that the trade concerned had particular features and that there were equity considerations which should be taken into account, and by failing to submit a report explaining its inability to conform with those recommendations.

3.2 Costa Rica further requested the Panel, on the basis of the above considerations and in view of the fact that the United States had proceeded in violation of the ATC, to find in its report that the Government of the United States should ensure that the unilateral restriction adopted against Costa Rica should comply with the ATC and that in this particular case compliance should be through the immediate withdrawal of the measure. Costa Rica based its request on Article 19.1 of the DSU, which authorized the Panel to specify the appropriate way of applying its recommendations.

3.3 The United States requested the Panel to find that:

• the United States application and maintenance of a safeguard restriction on imports of cotton and man-made fibre underwear from Costa Rica was consistent with Article 6 of the ATC;
  
• the restriction was not inconsistent with Articles 2 and 8 of the ATC; and


• the above measure did not nullify and impair benefits accruing to Costa Rica under the ATC or GATT 1994.
  

3.4 With respect to Costa Rica's request that the Panel find

"in accordance with the terms of reference assigned to it by the DSB, that the United States should withdraw the unilateral restriction imposed on Costa Rica forthwith",

and also to find in its report

"that the United States should proceed to bring its measure into conformity with the ATC, which implies immediately withdrawing it";

the United States considered that the heterogeneity of phrasing left Costa Rica's objective in doubt, but argued that if the request was for a Panel recommendation that specific actions should be taken, or for findings that would amount in effect to such a recommendation, the request was inconsistent with Article 19.1 of the DSU.

3.5 In the view of the United States, the DSU gave WTO panels explicit instructions with respect to the one and only recommendation that properly may be offered if the measures of a Member were found to be inconsistent with its obligations: to bring the measures into conformity with its obligations. The avoidance of granting specific remedies, such as the withdrawal or modification of a measure, was a well­established practice under the GATT, and had been codified in Article 19.1 of the DSU, which provided:

"Where a panel or the Appellate Body concludes that a measure is inconsistent with a covered agreement, it shall recommend that the Member concerned bring the measure into conformity with that agreement."

The Panel need to make no recommendations at all, as the measures at issue were fully consistent with US obligations under the ATC; however, if any recommendation was made, in their view, the Panel was not authorized to make any recommendation other than that provided for in Article 19.1 of the DSU.

3.6 Costa Rica replied that, Article 19.1 of the DSU, contrary to the statement made by the United States, authorized the Panel to specify the appropriate way of applying its recommendations by providing that:

"Where a panel or the Appellate Body concludes that a measure is inconsistent with a covered agreement, it shall recommend that the Member concerned bring the measure into conformity with that agreement. In addition to its recommendations, the panel or Appellate Body may suggest ways in which the Member concerned could implement the recommendations."

* * * * *

Other Issues

3.7 On 21 June 1996, the United States requested the Panel's attention to breaches in confidentiality by Costa Rica concerning proposals made by the United States in consultations, and Costa Rica's use of that information in this proceeding to prejudice the United States case. On 24 June 1996, Costa Rica had responded in the first substantive meeting of the Panel with information concerning disclosures made by the US embassy in San Jose, Costa Rica, concerning US proposals in consultations with Costa Rica. Subsequently, the US had investigated those disclosures and discovered that they were made in response to the numerous press statements in San Jose by journalists and members of the Costa Rican Government. US embassy statements had been made solely in response to this press offensive by Costa Rica.

3.8 Costa Rica emphasized that publication of any article prior to the initiation of the dispute settlement procedure under the DSU, which in any case was at the initiative of the United States as part of their strategy to exert pressure on the Government of Costa Rica, was irrelevant from the point of view of the confidentiality prescribed by Article 4.6 of the DSU because this applied to consultations initiated under the dispute settlement mechanism of the DSU and not to any event that occurred prior to that time. Accordingly, one of the documents referred to by the United States was irrelevant as it was published prior to the initiation of the consultation procedure under the DSU. The other two articles were replies to public declarations by representatives of the United States Government or by the enterprise which the United States was seeking to protect. Moreover, Costa Rica indicated that the fact that Article 4.6 stated that consultations were confidential could not be interpreted as a limitation on the rights of parties at the Panel stage. On the contrary, confidentiality must be understood as referring to parties not involved in the dispute and to the public, but not in any way to the Panel itself. It was not the intention of Article 4.6 to limit the possibilities available to the Panel to be apprised of information on the dispute before it because this would be to the detriment of the procedure itself.

3.9 The United States accepted that since the US embassy was responsible for some of the disclosures, they withdrew the request. This withdrawal was made without prejudice to the other points made concerning Costa Rica's misuse and distortion of information on consultations in this case.

* * * * *

IV THIRD PARTY SUBMISSION: INDIA

4.1 India had indicated their interest in the matter and their desire to participate in the Panel process as an interested third party pursuant to Article 10 of the DSU. Accordingly, India was invited to present their views to the Panel at its first meeting on 25 June 1996. In their submission India reviewed the measure taken by the United States and provided views on various aspects. In particular, India requested the Panel to include in its findings:

(a) that the United States did not have the option of claiming a situation of actual threat of serious damage in July 1995 after having determined in March 1995 that there was a situation of serious damage and having issued the consultation call to Costa Rica on that basis;


(b) that all the data necessary to be provided to Costa Rica in terms of the provisions of Article 6 of ATC had not been provided by the United States and some of the data provided was not compiled objectively and therefore lacked reliability;


(c) that the data available had not indicated that there had been either a situation of serious damage or one of actual threat of serious damage to the domestic industry of the United States, attributable to imports;


(d) that imports from Costa Rica which had been almost entirely from US components supplied by the US industry producing underwear and mostly produced in Costa Rica by units established by US underwear manufacturers could not have contributed to serious damage of actual threat thereof to the same US industry which engaged voluntarily in such co-production activities;


(e) that the US action actually sought to protect the US industry producing fabrics for underwear and not the industry producing underwear and this was inconsistent with the provisions of the Article 6 of the ATC;


(f) that a temporary safeguard action under Article 6 of the ATC had to be pursued by the importing country and reviewed by the TMB entirely on the basis of data that had been available to the importing country at the time they made a determination that there was a situation of serious damage or actual threat thereof;


(g) that the importing country had to choose between the grounds of serious damage and of actual threat of serious damage at the time of determination of the market situation before initiating the safeguard action and the data requirements for these two grounds was different in nature and not in degree;


(h) that there was no provision in the ATC for retroactive restraints; and


(i) that if not endorsed by the TMB after the mandatory review, a safeguard action would not survive.

4.2 With reference to the submission by India, the United States expressed the view that the ATC did not require the importing country to choose between serious damage and actual threat when making its determination and so the United States had relied upon both, and referred to both, in their request for consultations. Also, Article 6.3 of the ATC did not provide any separate criteria for evaluating serious damage on the one hand, and actual threat thereof on the other. The ATC also had no provisions specifically addressing actual threat (unlike the WTO legal provisions concerning anti-dumping duties, countervailing duties, or GATT Article XIX safeguards). India had also referred to "sharp and substantial" and "imminent" increases in their submission. However, in the view of the United States, those standards applied to a determination of attribution under Article 6.4 of the ATC, and were irrelevant to a determination under Article 6.2 of the ATC.

4.3 Costa Rica endorsed and formally incorporated in its submission the arguments and observations contained in the submission made by India and took the view that the Panel should make reference in its written report to the points it had developed and to rule on each of them.

* * * * *

V MAIN ARGUMENTS BY THE PARTIES

A. THE SAFEGUARD ACTION TAKEN BY THE UNITED STATES

Statement of Serious Damage: Category 352/652 (March 1995 Market Statement)

5.1 Costa Rica noted that the March Market Statement of the United States (annexed to this report) had said nothing about the percentage of "807 trade" in the production and import data and made no attempt to analyze the impact of this factor on the trade in this category. Accordingly, there was no way of determining whether domestic production really grew or not; what the actual market share of the United States industry was; and the true ratio of imports to domestic production.

5.2 The United States explained by way of background that their Office of Textiles and Apparel (OTEXA) at the Department of Commerce was responsible for collecting data and producing statements of serious damage or actual threat thereof for consideration by the CITA. In early 1995, the CITA had reviewed the data on total imports of cotton and man-made fibre underwear (category 352/652) into the United States in accordance with Article 6.2 of the ATC. Following the criteria in that Article, the United States had looked at total imports of category 352/652. In so doing, they had found that such imports had surged from 65,507,000 dozen in 1992 to 79,962,000 dozen in 1993. The CITA had found that total imports continued to surge in 1994, reaching 97,375,000 dozen, 22 per cent above the 1993 level and 49 per cent above the 1992 level. These data included re-imports.

5.3 The CITA had estimated that approximately 395 establishments in the United States manufacturing underwear employed about 6 per cent of total US apparel workers, and had annual shipments of $3.2 billion, accounting for approximately 5 per cent of total annual apparel shipments. The concentration of firms in this industry was higher in the men's underwear segment than in the women's segment. In the men's segment, four firms had accounted for over 60 per cent of the shipments. The production of women's underwear was more subject to fashion changes. As a result, production was less standardized, requiring different types of knitting machines and a greater number of workers being employed. There was, however, a large number of smaller producers which generally did not have integrated operations but usually purchased fabrics and then cut and sewed them.

5.4 The CITA had then examined factors listed in Article 6.3 of the ATC, such as US production, market share loss, employment, domestic prices, profits and investment, production capacity and sales. The CITA had found that US production in category 352/652 had declined from 175,542,000 dozen in 1992 to 168,802,000 dozen in 1993, representing a 4 per cent decline. Production had continued to decline in 1994 falling to 126,962,000 dozen during the first 9 months of 1994, four per cent below the January­September 1993 production level. US manufacturers' domestic market share had dropped from 73 per cent in 1992 to 68 per cent in 1993, a decline of 5 percentage points. During the first 9 months of 1994 that share had dropped to 65 percent. As a per cent of US production, imports had increased from 37 per cent in 1992 to 47 per cent in 1993, and had grown by 54 per cent in the first nine months of 1994.

5.5 Costa Rica questioned if the data on employment and man­hours were a special situation linked to increased imports or if they reflected a continuing trend within the industry. It was also observed that no numbers were given for layoffs; there was no causal link made between imports and job losses; and no basis was given for the statements about postponed investment or disinvestment, nor was consideration given to the possibility that these might represent economically rational decisions on the part of the companies concerned and might have no causal relationship at all with the trend or level of imports. The comment was also made that shifting production capacity to other product lines should be regarded as a positive trend, favouring the interests of the United States companies themselves.

5.6 Costa Rica affirmed that the United States had not satisfactorily established the existence of problems affecting employment, sales and profits, investment or capacity in its industry inasmuch as it was not possible to establish clearly the state of the industry on the basis of evidence from one or two enterprises. The United States had not properly established either the facts related to imports, domestic production and market size, especially because of the total absence of any analysis of the question of 807 trade in its March statement.

5.7 The United States also pointed out that the CITA had found that the number of production workers in the US underwear industry had dropped from 46,377 in 1992 to 44,056 in 1994, declining by 5 per cent, resulting in the loss of 2,321 workers. Average annual man-hours worked had dropped from 86.2 million in 1992 to 81.5 million in 1994. Based on a survey of individual firms producing cotton and man-made fibre underwear, the following conditions were reported: individual firms had reported layoffs, import-related plant closings and slowed sales; one firm had reported a decline in sales of 17 per cent in 1994 and a decline in profits by 18 per cent and there was pressure on the bottom line throughout the industry due to rising costs and stiff import competition. The uncertainty due to the increasing imports had caused US companies to postpone investment in this industry. Some companies had also closed plants permanently or shifted production capacity offshore, and additional disinvestment of this nature was contemplated by underwear manufacturing firms. Import prices were very low and placed considerable pressure on domestic producers.

5.8 Costa Rica did not accept that an increase in raw cotton prices had affected the producers of cotton fabric or yarn or the producers of cotton or man­made fibre underwear. As to the price­edge which imports enjoyed over domestically produced goods, there was no indication whether this meant all imports or some imports were produced with lower priced fabric and no justification was given for these assertions. Also, these statements did not take into consideration the fact that most of the growth in "imports" of the products in question was concentrated in those assembled outside the United States from US components. This meant that the domestic industry used the same raw material as the "imports" of products assembled from US components, so that the cotton price increases mentioned should have had no effect at all on import levels.

5.9 The United States, however, argued that competing imports had enjoyed a price edge over domestically produced goods because the imports were produced with lower-priced foreign fabric. As a result of the increased market share in underwear held by imports, average retail prices of underwear in the United States had generally declined during the past two years, at a time when US manufacturers' costs, particularly for raw cotton, had increased substantially. This development had seriously eroded the profitability of US underwear manufacturers. Based on the above factors and in accordance with Articles 6.2 and 6.3 of the ATC, the CITA had determined that there was serious damage, or actual threat thereof, to the US underwear industry. The United States then proceeded to identify Member countries to whom this damage could be attributed, as required by Article 6.4 of the ATC.

Attribution to Exporting Countries

5.10 Costa Rica noted that data on their exports to the US made no reference to the process of production sharing between the two countries, even though all the increase in imports could be attributed precisely to such co­production.

5.11 The United States explained that in applying the criteria in Article 6.4 of the ATC, the CITA had attributed the serious damage, or actual threat thereof, to imports from five WTO member countries ­ Costa Rica, the Dominican Republic, Honduras, Thailand, and Turkey - and to two countries that had not yet become WTO Members - Colombia and El Salvador. Total imports from the five WTO countries had increased from 22,675,508 dozen in 1992 to 40,293,259 dozen in 1994. This increase had represented a collective sharp and substantial increase of 78 per cent. Together, imports from these countries had increased 32 per cent in 1994 over their 1993 level. Imports in 1992 for these countries were 35 per cent of total US imports in cotton and man-made fibre underwear. In 1994, their share had increased to 41 per cent.

5.12 In the case of Costa Rica, the CITA had found that the increase in imports from Costa Rica alone was higher than the level of imports of category 352/652 from at least 85 other countries and had exceeded the levels of six other suppliers whose imports were under quota. Costa Rica was the second largest supplier to the United States. Consistent with the criteria in Article 6.4 of the ATC, the CITA had found that there was a sharp and substantial increase of low-priced imports from Costa Rica, as imports of cotton and man-made fibre underwear had reached 14,423,178 dozen in 1994, a 22 per cent increase above the 1993 level of 11,844,331 dozen and 61 per cent above the 1992 level. Such imports had entered the United States from Costa Rica at an average landed duty-paid value of $9.39 per dozen, 69 per cent below the US producers' average price for the product. The CITA had also found that imports from Costa Rica were equivalent to 8.8 per cent of US production of category 352/652 in the year ending September 1994.

Consultations with Costa Rica

5.13 The United States advised that, based on their findings, the CITA had requested consultations with Costa Rica. In accordance with Article 6.7 of the ATC, the request was accompanied by a statement (the March Market Statement) complying with Articles 6.2, 6.3 and 6.4 of the ATC. Further, as required by Article 6.7 of the ATC, the United States had proposed a level of restraint for underwear imports from Costa Rica which would be at a level not less than the level existing at 12 of the 14 months preceding the month of the request for consultations.

5.14 During the first round of consultations, on 1­2 June 1995, the United States had discussed the basis for its request for consultations and the high level of estimated re-imports in Costa Rican trade, approximately 94 per cent of their total trade of 14,423,178 dozen at the time of the call. Taking its estimates of re-imports from Costa Rica into account, the United States had proposed a specific limit (SL) of 1.25 million dozen to cover the portion of imports not qualifying for more favourable treatment that would have grown to 1,488,770 dozen in the final year of the three-year restraint period specified in the ATC. Re-imports had represented a significant portion of Costa Rica's total underwear exports to the United States. Accordingly, consistent with US policy and its obligation under Article 6.6(d) of the ATC to provide more favourable treatment to such re-imports, the United States had proposed a guaranteed access level (GAL) of 20,000,000 dozen. Costa Rica did not make a counterproposal, but maintained that the request for consultations was unsubstantiated.

5.15 With respect to the first bilateral consultations, Costa Rica said that they had drawn attention to a series of inconsistencies, defects and omissions in the March Market Statement, raising numerous points with a view to questioning the compatibility of the Statement with the parameters established by Article 6 of the ATC and hence showing that the Statement could not serve as a basis for the imposition of a restriction.

5.16 Costa Rica also observed that the remedy being proposed by the United States (21.25 million dozen) consisted of an extra dose (30 per cent or more) of the level they claimed to be attacking (14.4 million dozen). Although 14.4 million dozen was supposed to be causing serious damage, the United States had proposed that trade be restricted to 21.52 million dozen. From that point on, a serious question had arisen as to the objective being pursued by the United States in their attempt to establish new restrictions: was it to protect the underwear manufacturers ­ by guaranteeing them a further increase in imports, or was it to benefit the US makers of the cloth used for manufacturing the product? Without having replied to any of the questions raised by Costa Rica in connection with the March Market Statement, on 22 June 1995 the United States had made a new proposal for the establishment of a quantitative restriction, this time offering 1.3 million dozen SL and 20 million GAL for the period from 1 January 1996 to 31 December 1996, with an increase of 6 per cent on the quota for subsequent periods. Again, Costa Rica rejected this proposal as the United States was still not complying with the requirements of the ATC for the application of a transitional safeguard.

B. REVIEW BY THE TEXTILES MONITORING BODY

Determining Domestic Market Data

5.17 In its review (see paragraphs 2.15 to 2.18), the TMB members had inquired concerning double-counting in the data presented by the United States because in official US data, re-imports had appeared in both imports and production. Such double-counting had resulted in an overstatement of the size of the domestic market. The United States pointed out that the US Census Bureau counted domestic apparel production by collecting data on unassembled garment parts cut in the United States before they were assembled domestically or shipped offshore for assembly. As a result, Census statistics reflected re-imports as apparel which was cut in the US, sent outside the country to be sewn, and then returned under the tariff provision for re-imports as a finished garment. Re-imports were included as domestic output (cut parts), exports (unassembled cut parts), and imports (finished garments).

5.18 Since export quantity data were generally less reliable than import data, the domestic market for textile and apparel categories as derived by the United States for quota purposes, was: production + imports. As the TMB had requested export data, the United States was now defining the domestic market as: production + imports - exports. Consequently, the domestic market was overstated by the amount of the re-imported products, since re-imported products were counted as production (before assembled) and imports (when finished). In an attempt to remove the double-counting from the US market, the United States had subtracted the re-imports from domestic production. Costa Rica had claimed during the TMB proceeding that such overstatement should be resolved by deducting re-imports from import data instead of production data. However, as an exception the general rule, the Harmonized Tariff Schedule identified re-imported textile and apparel articles as foreign goods. Therefore, the re-imports were properly counted in import data. After adjusting for the overstatement of the size of the market, the US producers' share of the domestic market had fallen from 69 per cent in 1992 to 62 per cent in 1993 and to 55 per cent in 1994, a 14 percentage point drop in two years.

5.19 Costa Rica highlighted that in the case of imports of cut pieces for assembly in the United States, the United States Government had been treating the product as originating in the country in which the pieces were cut. Thus, for example, fabric cut in China and then assembled in Costa Rica had been treated as a product of China on entering the United States market. At the same time, the US Census Bureau considered that fabric cut, for example in Alabama for assembly in Costa Rica was United States domestic production. That was why "re-imports" were considered to be domestic production by that US statistical office and why the United States included them as such in its March Statement. However, it was also clear that the United States treated the same garments as "imports" when entered under heading 9802 of its tariff, for the purpose of collecting duty on the value added abroad and preventing the use of the "Made in the United States" label.

5.20 The United States also said that when the TMB had suggested later in the proceeding that the overstatement in the US domestic market should be adjusted by introducing US export data, they had pointed out to the TMB that the data derived from this formula would still be flawed because export data were generally less reliable than import data. Despite its concerns about the validity of the available export data, the United States had supplied the TMB with the requested export data. The introduction of export data had left the import/production ratio unchanged from the ratio in the March Market Statement, demonstrating the same picture of declining domestic production and surging imports. Data showing the value of exports had been first presented because of their greater reliability. Data in quantity terms had also been presented in a revised market calculation. The US producers' share of the domestic market had shown a drop from 70 per cent in 1992 to 63 per cent in 1993 and to 57 per cent in 1994, a 13 percentage point drop in two years.

5.21 Costa Rica recalled that they had asserted on numerous occasions that the requirements of "actual threat of serious damage" had not been evaluated in the March Statement, nor was it included in the publications in the Federal Register nor alleged by the United States in the first four proposals of restriction it presented to Costa Rica.

The July 1995 Market Statement

5.22 Costa Rica considered that the updated data presented by the US was not relevant information intended to develop the information contained in the March Market Statement but was information which openly and expressly contradicted it. The United States was endeavouring to submit completely revised and adjusted information in an attempt to justify the adoption of a restriction which it had already adopted. The introduction of a new statement at that point was unacceptable to Costa Rica inasmuch as the data and determinations contained in the March Market Statement had been those which had served to initiate the consultations, impose a unilateral restriction and provide the grounds for the review by the TMB.

5.23 The United States noted that they had supplied updated data and new relevant information at the July 1995 TMB proceeding. Although not required, these submissions had been provided to the TMB consistent with Article 6.10 of the ATC and as part of the practice of the CITA to bring the data up-to-date, to make them as consistent as possible with the reference period for the March 1995 Market Statement, and to provide further information demonstrating that the finding of serious damage, or actual threat thereof remained justified in light of the additional information continually becoming available. The CITA had based its determinations of serious damage, or actual threat thereof on publicly available information from official US Government sources. There was no need to independently verify this information. The production, import, and market share data on which cases were based were published quarterly by the OTEXA and available to all interested parties. The collection and analysis of this data were part of a longstanding process that had been in place for as long as there had been a comprehensive international textile trade agreement, i.e., since the MFA began in 1974.

5.24 The additional relevant information supplied at the time had concerned trade adjustment assistance for US companies adversely impacted by imports and import prices. All of the information provided at the time of the July TMB session had supported and was consistent with the March 1995 Market Statement and the basic justification for the United States safeguard action with respect to underwear imports from Costa Rica remained fully warranted.

5.25 Costa Rica pointed out that, in the July Market Statement there were 302 establishments in the United States that manufactured garments classified in category 352/652, whereas according to the March Market Statement the number of establishments was 395. The March and July Statements indicated that annual shipments had amounted to $3.2 billion, although the data on which it was based (domestic production and the US producers' average price) were not the same in the two Statements. According to the July Statement, in 1992 employment in the sector was 35,191, falling in 1994 to 33,309. According to the March Statement, employment in the sector was 46,377 in 1992, dropping to 44,056 in 1994. The July Statement did not explain why there should be this difference of about 10,000 between the figures given in the two Statements. Nor did the data for annual man-hours coincide, inasmuch as the July Statement gave a figure of 65.4 million in 1992 falling to 61.6 million in 1994, whereas the corresponding figures in the March Statement were 86.2 million and 81.5 million respectively.

5.26 Costa Rica also noted that the July Market Statement included a section on trade adjustment assistance for United States companies adversely impacted by imports, giving data on the current US federal programmes for assisting industries and workers that had been unfavourably impacted by imports. It was questioned how these programmes could be put forward as additional justification for imposing a quantitative restriction when their purpose was precisely to provide alternatives to the imposition of a restriction on imports. The fourth section of the July Statement which concerned the countries contributing to serious damage described the price difference between US underwear production and underwear production in other countries. It was noted that this section contained a discrepancy between the July and March Statements, namely whereas in March the average United States producers' price was said to be $30 per dozen, the July Statement indicated that that price varied between $16 and $20 per dozen, depending on where the product was assembled. No information had been given to explain the reason for such a substantial error in the March Statement.

5.27 The United States commented that Costa Rica was incorrect in its characterization of the Trade Adjustment Assistance programme as an "alternative" to safeguard action under the ATC. The United States had not created the programme to replace US rights and obligations under the ATC, Section 204, or similar actions under US law and the WTO. As regards the differences in price and other figures between the March and July Statements, the United States noted that even though there were differences in the updated data, the CITA's determination of serious damage or actual threat thereof was still sustainable.

Outcome of the TMB Review

5.28 At the conclusion of its examination, the TMB had decided that the United States had not demonstrated serious damage, but it could not reach consensus on the existence of actual threat of serious damage (G/TMB/R/2). As a result, the TMB had not reached the issue of attribution. The TMB had, however, recommended that the United States, Costa Rica and Honduras consult further,

"with a view to arriving at a mutual understanding, bearing in mind the above, with due consideration to the particular features of this case, as well as equity considerations". (G/TMB/R/2)

5.29 According to Costa Rica, at the new round of consultations as recommended by the TMB, held on 17­18 August 1995, they had asked the United States to clarify the difference between serious damage and actual threat of serious damage and for relevant factual information in support of the latter. They had also urged the United States to explain why, having a market supposedly threatened by the importation of 14.4 million dozen garments from Costa Rica, they had proposed to establish a quantitative restriction which would allow imports of Costa Rican underwear to rise to 33 million dozen. The United States had not offered any explanation, at least at that meeting, which ended without a satisfactory solution having been reached. The two parties then submitted their reports to the TMB for review purposes.

5.30 Costa Rica also pointed out that in October 1995, the OTEXA had published new statistics for the category in question which showed the production situation to be different from that indicated in the March and July Statements. Whereas according to the March Statement production had declined by 4 per cent between 1992 and 1993 and by 4 per cent between 1993 and 1994, the July data indicated that the decline was 4 per cent for the first period and almost non-existent in the second, while according to the October information the percentage decreases were of the order of 1.5 per cent and 2.6 per cent respectively.

5.31 At its meeting on 16­20 October 1995, the TMB received reports from Costa Rica and the United States on the bilateral consultations they had held following the TMB recommendation. It took note of the reports and of the fact that the two parties had not reached a mutual understanding during the consultations. The TMB's discussions confirmed the Body's previous findings in this matter; there being no further requests by the parties involved, the TMB considered its review of the matter completed (G/TMB/R/5).

C. THE STANDARD OF REVIEW AND BURDEN OF PROOF

Standard of Review ­ The "Fur Felt Hat" Case²

5.32 The United States considered that the appropriate standard to apply to the importing country's determination was a standard of reasonableness. Article 6 of the ATC referred to "a determination by a Member," based on weighing of evidence on certain factors. The standard for panel evaluation of such determinations should follow established GATT practice, which was based on the GATT 1947 case concerning the withdrawal by the United States under Article XIX of a tariff concession on women's fur felt hats and hat bodies. In the Fur Felt Hat case, the Czechoslovak Government had sought a determination that the US invocation of Article XIX had been improper, and asserted that the United States had not met certain conditions under Article XIX to take the action, seeking revocation of the measure. The Working Party rejected the Czechoslovak argument and stated:

"...it may be observed that the Working Party naturally could not have the facilities available to the United States authorities for examining interested parties and independent witnesses from the United States hat-making areas, and for forming judgements on the basis of such examination. Further, it is perhaps inevitable that governments should on occasion lend greater weight to the difficulties or fears of their domestic producers than would any international body, and that they may feel it necessary on social grounds, e.g. because of lack of alternative employment in the localities concerned, to afford a high degree of protection to individual industries which in terms of cost of production are not economic. Moreover, the United States is not called upon to prove conclusively that the degree of injury caused or threatened in this case must be regarded as serious; since the question under consideration is whether or not they are in breach of Article XIX, they are entitled to the benefit of any reasonable doubt" ("Fur Felt Hat" case, paragraph 30).

5.33 The United States recalled that the US action involved in the 1951 GATT working party Report had been taken under GATT Article XIX:1, which referred to the factual existence of increased imports under conditions

"such ... as to cause or threaten serious injury to domestic producers ... of like or directly competitive products".

The legal standard, and the facts required to be found, were similar to those involved in the case of transitional safeguards under Article 6.2 of the ATC.

5.34 In October 1950, just before the Fifth Session of the CONTRACTING PARTIES, the United States had announced its intention to withdraw the concession in question under Article XIX. The US Government had entered into consultation with the contracting party with which the concessions had been negotiated and with several contracting parties having a substantial supplying interest. The following month, Czechoslovakia brought a complaint claiming that the action taken did not meet the criteria of Article XIX:1, and sought a determination by the CONTRACTING PARTIES that this action was inconsistent with Article XIX. The complaint was referred to a working party for study. The working party had examined separately each of the conditions for invocation of Article XIX, and presented a report in March 1951 which embodied the findings of the members other than the two parties to the dispute. This report was then adopted at the Sixth Session in 1951. The report had found that the United States had satisfied these conditions.

5.35 The United States suggested that the information used by the "Fur Felt Hat" working party as a basis for its conclusions should be noted, that is GATT notifications, summary records of discussions at the Fifth Session, some additional data submitted at the working party's request, and the report made by the US Tariff Commission in connection with its determination of serious injury. However, in examining whether serious injury and the other conditions in Article XIX:1 existed, the working party chose to rely mainly on the data in the Tariff Commission report. These data were not perfect; for instance, they failed to separate figures on production of men's and women's hat bodies. However, they were the data available at the point in time determined by the working party to be legally relevant in evaluating compliance with Article XIX. As the report stated:

"Since the Working Party was required to consider whether the action taken by the United States in autumn 1950 fulfilled the requirements of Article XIX, the question here to be considered is whether serious injury or a threat thereof to the United States women's hat body industry could be considered to have existed at the time of the United States Tariff Commission investigation on which the United States action was based ...".

5.36 The working party then examined the data and found them inconclusive. It stated that:

"... the United States is not called upon to prove conclusively that the degree of injury caused or threatened in this case must be regarded as serious; since the question under consideration is whether or not they are in breach of Article XIX, they are entitled to the benefit of any reasonable doubt. No facts have been advanced which provide any convincing evidence that it would be unreasonable to regard the adverse effects on the domestic industry concerned as a result of increased imports as amounting to serious injury of a threat thereof; and the facts as a whole certainly tend to show that some degree of adverse effect has been caused or threatened. It must be concluded, therefore, that the Czechoslovak Government has failed to establish that no serious injury has been sustained or threatened."

5.37 The working party members, excluding the two disputants, concluded that they were satisfied that the US authorities had investigated the matter thoroughly on the basis of the data available to them at the time of their inquiry, and had reached in good faith the conclusion that the proposed action fell within the terms of Article XIX. If the working party in its appraisal of the facts naturally gave weight to international factors, and the US authorities would normally give more weight to domestic factors,

"it must be recognized that any view on such a matter must be to a certain extent a matter of economic judgment and that it is natural that governments should on occasion be greatly influenced by social factors, such as local employment problems. It would not be proper to regard the consequent withdrawal of a tariff concession as ipso facto contrary to Article XIX unless the weight attached by the government concerned to such factors was clearly unreasonably great".

Thus, the working party concluded that there was no conclusive evidence that the safeguard measure in question constituted a breach of obligations under the GATT.

Applying the "Fur Felt Hat" Case to the Present Case

5.38 The United States argued that the reasoning of the "Fur Felt Hat" case applied equally to the present case. Both the working party in that case and the present Panel have been charged with determining whether a safeguard action was properly taken at the time that the decision was made. In the case of Article XIX, the working party had examined the information collected by the Tariff Commission in the investigation which was the basis for the decision, and whether the Commission's evaluation of that information had been unreasonable. In the present case, the Panel had been asked to evaluate the consistency of the CITA determination under Article 6.2 of the ATC with the requirements of Articles 6.2 and 6.3 of the ATC. Article 6.2 of the ATC referred to certain facts to be demonstrated "on the basis of a determination by a Member" and Article 6.3 of the ATC required that certain analyses be carried out in making such a determination. Thus, in the view of the United States the focus of the Panel's examination should be not the question of whether serious damage or threat of serious damage exists now, but whether the CITA could reasonably determine that it existed at the time of the CITA determination in March 1995 and whether, after giving the CITA the benefit of any reasonable doubt, Costa Rica had established that no serious damage or threat thereof existed at that time.

5.39 The CITA determination could therefore only be evaluated on the basis of data existing at the time of its original determination. The data presented later to the TMB in fact corroborated the analysis done in March 1995, but they were not legally relevant in evaluating US conformity with Articles 6.2 and 6.3 of the ATC. Article 6.10 of the ATC provided for later refinement of data and for response to TMB requests for additional information, consistent with the TMB spirit of conciliation, compromise and negotiation. However, it was the March data that were legally relevant for evaluating the determination, not the later data. The data recorded in the March Market Statement formed the entire basis of the CITA's determination.

TO CONTINUE WITH USA - RESTRICTIONS ON IMPORTS OF COTTON AND MAN­MADE FIBRE UNDERWEAR

² Report on the Withdrawal by the United States of a Tariff Concession under Article XIX of the General Agreement on Tariffs and Trade Concerning Women's Fur Felt Hats and Hat Bodies, 27 March 1951 - CP/106.