5.91 The United States noted that while export data were generally not as reliable as import data, at the request of the TMB, the US had supplied an export table. Even after using export data to adjust for the overstatement in the market, the figures before the TMB had confirmed the determination made by CITA. After examining the import data, CITA examined output, market share, employment, domestic price and profits and investment information. That information had led CITA to the conclusion that there was a case of serious damage, or actual threat thereof to the US domestic industry. While the United States did not supply data on productivity, inventory, wages and exports, it was not required to do so under Article 6.3 of the ATC. The variables in Article 6.3 of the ATC not directly included in the March Market Statement (productivity, inventories and wages) had been discussed during the TMB examination in oral responses by the United States to questions from TMB members. Costa Rica had omitted any recognition of the express proviso in Article 6.3 of the ATC that:

"none of [these factors] either alone or combined with other factors, can necessarily give decisive guidance."

A similar proviso was also found concerning the additional factors for consideration in Article 6.4 of the ATC. Nevertheless, the United States had provided verbal responses to questions concerning productivity, wages, and inventory to the TMB.

Increase in Imports into the United States

(see also The Counting of Re­imports, paragraphs 5.142-5.149)

5.92 Costa Rica further argued that, in accordance with its obligation to demonstrate the existence of an increase in imports, the United States should have presented specific and relevant factual information on the subject, and then have analyzed it. In this regard, however, the March Market Statement only indicated that imports in this category had increased from 65.5 million dozen in 1992 to 79.9 million dozen in 1993 and 97.3 million dozen in 1994, reflecting increases of 22 per cent in each year with respect to the previous year. The United States had not made any distinction concerning the nature of this trade, nor any analysis thereof, an omission which was particularly serious in this case given the increasing importance of "807 trade" in this category. In fact, over the last six years there had been a substantial change in the United States industry producing cotton and man-made fibre underwear. There had been a shift from producing and assembling the product locally to producing the product components locally, which were then assembled abroad and returned to the same companies in the United States for marketing. This co-production process (see Section II) had enabled the United States industries to retain their market share in the United States.

5.93 Costa Rica questioned whether, in the case of clothing produced on the basis of the co­production process, one was dealing with "imports" or rather with a case of domestic production which, despite assembly in another country, did not for that reason alone cease to be domestic production. In fact, the United States itself had considered imports of cut parts for assembly in the United States as products of the country where the parts were cut. United States exports of cut parts should be considered United States products. Furthermore, when this case was reviewed by the TMB in July 1995, the United States itself had submitted a loose sheet giving alleged export data in this category, in which cut parts subsequently assembled abroad were included as exports, which logically showed that for this industry these were part of domestic production.

5.94 Costa Rica noted that the "807 trade" had risen from 31.8 million dozen in 1992 to 42 million dozen in 1993 and 57 million dozen in 1994, accounting for an ever larger part of trade in category 352/652. This reflected a pattern which, by all indications, would continue and become more pronounced in the future, driven by the investment policies and incentives that the United States maintained in relation to the Caribbean Basin and Mexico.

5.95 In the view of Costa Rica, much of the cited increase in imports did not in fact exist, and therefore the United States did not have the right to use the transitional safeguard. By nevertheless having done so, it violated Article 6.2 of the ATC. However, if it were to be considered that there was in fact an increase in imports of underwear, it was quite clear that if such imports were increasing it was because United States production of the cut pieces, that were subsequently assembled, was increasing in the same proportions. In other words, if ever more underwear was being assembled in other countries it was because in the United States ever more cut pieces for underwear were being produced that need to be assembled, from which it necessarily followed that any industry producing cut pieces for underwear was thriving and therefore did not need to be protected from something that was rather of benefit to it.

5.96 The United States considered that the ATC did not prohibit inclusion of re-imports in imports; on the contrary, Article 6.2 of the ATC directed importing Members to examine increases in "total" imports. The ATC also did not require Members to separate re-imports from total imports. In fact, all textile and apparel re-imports were defined under United States law as foreign articles. The US Bureau of the Census' statistics reflected HTSUS 9802 re-imports as apparel which were cut in the US, exported to be assembled, and then re-imported under HTSUS 9802 as finished garments. HTSUS 9802 re-imports were included in domestic production (cut parts), exports (cut parts), and imports (finished garments). Re-imports must clear customs like any other imported good. Costa Rica had admitted to the TMB that companies producing goods for re-import into the United States were subject to the same laws, fees and taxes as other domestic Costa Rican manufacturers. HTSUS 9802 apparel re-imports into the US received duty reductions to the extent that they incorporated US content.

Application of Safeguard to Individual Member(s)

5.97 Costa Rica argued that in the case of the ATC, since the Agreement allowed the selective and discriminatory application of a safeguard measure, it was necessary to fulfil this second stage which was not normally present in other existing safeguard mechanisms in the multilateral system, precisely in order to be able to identify the Member or Members to which the measure would be applied. Thus, Article 6.4 of the ATC stated that:

"Any measure invoked pursuant to the provisions of this Article shall be applied on a Member-by­Member basis. The Member or Members to whom serious damage, or actual threat thereof, referred to in paragraphs 2 and 3, is attributed, shall be determined on the basis of a sharp and substantial increase in imports, actual or imminent, from such a Member or Members individually, and on the basis of the level of imports as compared with imports from other sources, market share, and import and domestic prices at a comparable stage of commercial transaction: none of these factors, either alone or combined with other factors, can necessarily give decisive guidance ... ".

5.98 In the view of Costa Rica, in the second, attribution stage, the importing Member must demonstrate the fulfilment of two substantive requirements: a sharp and substantial increase in imports, actual or imminent, from such a Member or Members individually; and the causal relationship between this increase and the serious damage or actual threat thereof created by total imports. In accordance with the above provisions, the fulfilment of the three requirements set out in the first stage was an essential pre­condition to be able to go on to the second stage of the demonstration process. Only when, after having fulfilled the requirements of the first stage, and it had also fulfilled the two requirements of the second stage, may the importing Member apply a transitional safeguard to an exporting Member.

Obligation of Demonstration - Fulfilment of Substantive Requirements

5.99 Costa Rica argued that, in order to be able to fulfil the above-mentioned requirements, the ATC imposed on the importing Member an obligation of demonstration. Under Article 6.2 of the ATC, the Member wishing to apply a transitional safeguard was obliged to make a determination prior to adopting the measure. In the determination, the Member had the obligation to demonstrate fulfilment of the substantive requirements laid down in order to be able to establish such a measure. It was noted that while it was the Member's obligation to make the determination, the actual content of the determination was clearly established by Article 6 of the ATC itself: it consisted in demonstrating the existence of the substantive requirements that must be fulfilled in order to adopt a transitional safeguard. It was not a question of stating, alleging or repeating opinions without any grounds, but rather of showing or proving that the factual situation on which the Member wished to take protective action fully met the specified conditions. The burden of proof rested with the Member intending to restrict trade. If the Member took safeguard action without having demonstrated the existence of all the substantive requirements in the two stages as described above - as the United States had done in this case, it was violating the ATC (see also Burden of Proof in Section C).

5.100 This demonstration process which the Member wishing to impose the safeguard must carry out may in turn be divided into two: firstly, the Member must present the specific and relevant information on the facts giving rise to its claim in accordance with Article 6.7 of the ATC; and secondly, it must make an examination of the factors listed in Articles 6.2, 6.3 and 6.4 and of how the conditions it was presenting fell within the substantive criteria laid down by the ATC as necessary requirements to justify the adoption of a safeguard measure. If the information was not presented, the necessary analysis could not be carried out, and consequently there would be a breach of the ATC. In the case under consideration, the United States had failed to demonstrate the existence of the substantive elements of the first stage of the demonstration process, and still less those of the second stage, thereby violating Articles 6.2, 6.3, 6.4 and 6.7.

5.101 The United States stated that it had met all of the substantive requirements of Article 6 of the ATC and that after doing so, met its burden of proof and the transitional safeguard action was justified. It was now up to Costa Rica to show that the United States determination was unreasonable and inconsistent with the requirements of the ATC, in particular Article 6.2, 6.3, 6.4, 6.7 and 6.6(d).

Consultations on Safeguard

5.102 The United States noted that, once the determination had been made, the importing Member must request consultations with the relevant exporting Members. Article 6.7 of the ATC also provided that requests for consultations on proposed safeguard action must be accompanied by "specific and relevant factual information, as up-to-date as possible," particularly factors referenced in Articles 6.3 and 6.4 of the ATC.

5.103 As under the Multifibre Arrangement (MFA) system, during consultations on the application of the safeguard, importing Members must take into account four areas of more favourable treatment as appropriate. One area of more favourable treatment relevant in this matter was that accorded to re-imports included in the determination of serious damage, or actual threat thereof that constituted a significant proportion of an exporting Member's trade. It was not until the consultation stage that the United States was required to give more favourable treatment in accordance with Article 6.6(d) of the ATC. The ATC left the definition of re-imports and the manner of applying more favourable treatment to the importing Member. If the consultations provided for in Article 6.7 of the ATC did not result in a mutual solution, the importing Member must exercise its option to take action to limit the relevant imports within 30 days. Once that action was taken, Article 6 of the ATC required automatic review by the TMB.

Data Required for Consultations and Other Relevant Information

5.104 Costa Rica considered that the "other relevant information" should be understood as information relevant or related to the information specified in the earlier paragraph, which was taken into consideration by the importing Member at the time of making its determination about the market situation and which was available to the exporting Member. The main task of the TMB in this respect was, in accordance with Article 6.10 of the ATC, to examine whether the determination made by the importing Member fit the requirements of the ATC. Thus, the examination was restricted to those elements which the importing Member had taken into consideration in making its determination and of which the exporting Member was duly cognizant at the time. These may be different from the factual elements mentioned in Article 6.7 of the ATC, but they must be related to them. It could not be argued that the TMB could conduct its examination on the basis of information which the importing Member had not taken into consideration at the time of making its determination - because it did not exist, because it was not available or for any other reason - and which the exporting Member did not have an opportunity to examine and refute before the imposition of the restraint. To do otherwise would jeopardize the rights of the exporting Member and would be contrary to the provisions of the ATC.

5.105 Costa Rica recognized that paragraphs 2, 3 and 4 of Article 6 of the ATC did not distinguish between "re­imports" and imports, but used only the latter term. However, they did not consider that this by itself should be taken to mean that "807 trade" should necessarily be regarded as imports. On the contrary, the word "imports" should be analysed in the context of the case in question and the economic rationale of "807 trade", in order to determine whether, in this particular case, "807 trade" could or could not be regarded as imports for the purposes of Articles 6.2, 6.3 and 6.4.

5.106 The United States pointed out that Article 6.7 of the ATC required that the call for consultations must be "accompanied by specific and relevant data, as up­to­date as possible" relating to the factors referred to in Articles 6.3 and 6.4 of the ATC. Like the working party in the "Fur Felt Hat" case, Article 6.7 of the ATC did not require perfect data. The data relied upon by the CITA at the time of its determination in March were in fact as up­to­date as possible, and provided information as close as possible to the reference period. The United States had presented revised and updated data to the TMB in July which only confirmed the correctness of the CITA's analysis in March that transitional safeguard action was appropriate.

5.107 The data to be used in examining whether a determination was consistent with Article 6 of the ATC must be those data actually used by the authorities of the importing Member at the time it made the determination. The relevant data in this case were those required by Article 6.7 of the ATC. Nevertheless, all later updated or supplementary data only corroborated the data in the March Market Statement.

5.108 The United States pointed out that the TMB must review the case, determine whether the safeguard action was justified and make appropriate recommendations to the Members concerned. In addition to the data supplied in accordance with Articles 6.7 and 6.10 of the ATC also allowed the TMB to consider "any other relevant information provided by the Members concerned." Importing Members must notify the Chairman of the TMB, providing relevant factual data at the same time the request for consultations was made. When a restriction was in place, the ATC placed a three-year cap on the duration of safeguard measures applied by Members, unless the product concerned was integrated earlier.

F. SERIOUS DAMAGE OR ACTUAL THREAT THEREOF

5.109 Costa Rica submitted that the second substantive requirement that any Member wishing to acquire the right to take safeguard action must demonstrate was serious damage or actual threat thereof to the domestic industry producing like and/or directly competitive products, as stated in Article 6.2 of the ATC. It was noted that Article 6.2 of the ATC referred to the fulfilment of a requirement that may take one of two forms: it may be that what existed was serious damage to the domestic industry, or it may be that what existed was the actual threat of serious damage to the domestic industry. However, it was also noted that while the requirement was fulfilled by the existence of either of the two conditions, they were precisely two different hypotheses, owing to the time factor. In the case of serious damage, the injury to the domestic industry had already occurred, whereas in the case of actual threat of serious damage the injury to the industry had not yet occurred but there was an imminent and hence actual possibility that it would occur. It was not possible to use the same information and the same type of analysis to prove both that a supposed fact had occurred or that it was about to occur.

5.110 Costa Rica claimed that it was the understanding of the TMB itself that serious damage and actual threat of serious damage were not the same thing, since in this particular case it had concluded that the existence of serious damage had not been found, but it could not reach a consensus on the existence of actual threat of serious damage. If the two conditions were a single hypothesis, the conclusion that one did not exist would necessarily lead to the conclusion that the other did not exist. However, the TMB had not taken this view. The most important consequence of this difference was that the nature of the information submitted and of the analysis made to demonstrate each hypothetical condition was necessarily different, as it was not the same thing to demonstrate that damage had already occurred as to demonstrate that damage might occur. That was why the logical corollary of this difference was that an importing Member could not submit the same information in this connection and carry out the same type of analysis in order to argue indiscriminately that what had existed was damage or threat of damage. At a given point in time - the moment when the call for consultations was made - either one condition existed or the other condition existed. To make an appropriate demonstration thereof the importing Member must at that point in time define what the supposed situation of its industry actually was and make the call, submitting the corresponding information and, if appropriate, adopting the restriction on the basis of the condition it selected.

5.111 Costa Rica stated that correct identification by the importing Member of the supposed claim made in relation to the state of its domestic production was essential in order to comply properly with its demonstration obligation. In the view of Costa Rica, it was only when the TMB had determined that the existence of serious damage had not been proven that the United States changed tack and appeared to assume that it could maintain its restriction on the basis of the purported threat, which had not been alleged or proved previously. The United States affirmed that as the ATC was not worded in the same terms as other WTO Agreements, it was not possible to require the presentation of different information in order to prove serious damage or actual threat of serious damage. However, Costa Rica argued that even though something may not be specifically stated in an agreement, common understanding required it, because it was not possible to use the same information and the same type of analysis to prove both that a supposed fact has occurred or that it is about to occur.

5.112 Costa Rica argued that, in some measure, that was what the United States had done in this process. The great majority of the communications initially sent by the United States in connection with the case, the Statement submitted in March and the adoption of the unilateral restriction in June were all based on the purported existence of serious damage to the United States industry. The United States had begun this case and had adopted this restriction on the basis of the existence of serious damage, and had not considered that a threat existed. That was why the element of actual threat had not even been taken into account. Hence, at the moment when the TMB determined that serious damage did not exist, the United States should have withdrawn the unilateral restriction it had imposed.

5.113 However, the United States had not withdrawn the restriction, but had maintained and even renewed it. Although the United States had not explicitly argued this at any time, it appeared to have assumed that it was authorized to maintain the measure on the basis that the TMB could not reach a consensus on the existence of actual threat of serious damage. In the view of Costa Rica, this reasoning was incorrect and violated Articles 6.2 and 6.3 of the ATC, which specifically required the demonstration that this was the condition, with the presentation and analysis of specific and relevant information concerning the existence of actual threat of serious damage. The fact was that there existed neither serious damage to the United States industry, nor actual threat of serious damage to that industry, which was why, by adopting a restriction without this second requirement being fulfilled, the United States had violated Articles 6.2 and 6.3 of the ATC.

5.114 The United States argued that Article 6.2 of the ATC required that a Member determine that a particular product was being imported into its territory in such increased quantities as to cause "serious damage, or actual threat thereof" to the domestic industry producing like or directly competitive products. Unlike other agreements such as the Agreement on Implementation of Article VI, the ATC did not provide separate requirements for determinations of threat of injury. "Serious damage" or "actual threat" never appeared separately in the text of Article 6 of the ATC; each reference to one of these two different legal concepts was coupled with a reference to the other. Thus, Article 6 of the ATC provided only one standard, with one set of criteria, for determinations of serious damage or actual threat thereof. This standard and these criteria had been employed in the CITA determination of March 1995. Thus, this determination of "serious damage, or actual threat thereof" was fully consistent with Articles 6.2 and 6.3 of the ATC.

5.115 The United States noted that their 27 March 1995 diplomatic note to Costa Rica making the actual call for consultations had referred to "serious damage, or actual threat thereof" to the industry producing underwear in the United States, even if the March Market Statement which accompanied it abbreviated this reference to "serious damage". Furthermore, during consultations with Costa Rica the United States had consistently taken the position that underwear imports from Costa Rica were causing both serious damage and actual threat of serious damage. During TMB deliberations, in July 1995, it was clarified that the reference in the March Statement had included both serious damage and actual threat of serious damage, and the United States had corrected the statement accordingly.

5.116 Costa Rica was of the view that the US diplomatic note of 27 March 1995 was merely a standard form used by the United States for its calls. Even though the note alleged a threat of serious damage, the fact was that the statement attached to it in order to justify the restriction - the March Market Statement ­ did not contain any information or analysis relating to this allegation. Moreover, during the consultations held between the two governments under Article 6 of the ATC, no evidence or analysis of any kind was submitted that might have demonstrated the existence of such a threat. Similarly, there was no mention of the existence of a threat of serious damage as justification for the adoption of a safeguard in the notes which the United States had attached to the various restraint proposals it submitted to the Government of Costa Rica.

5.117 With respect to the status of the TMB finding that serious damage had not been demonstrated, the United States pointed out that they did not agree with the TMB finding and did not at the time it was made; nothing in the ATC made TMB findings or recommendations binding on the parties concerned. As a practical matter in light of the TMB's initial finding the United States had been compelled to shift the focus of its argument to "actual threat" after July 1995, but as a matter of law the ATC did not confer upon the TMB the power to make findings of fact that legally bound Members. Moreover, as noted in relation to the standard of review, the burden of proof was on Costa Rica to produce a prima facie case that the US determination was inconsistent with Articles 6.2 and 6.3 of the ATC; the United States did not have the burden here of proving that its actions had been consistent with the ATC (see also Section V:C). Furthermore, the question to be addressed was not the existence of "serious damage" as such, but whether facts had been advanced which provided convincing evidence that it was unreasonable for CITA to determine that the adverse effects of increased underwear imports on the US domestic underwear industry had amounted to serious damage, or actual threat thereof.

5.118 Costa Rica observed that, in its first review of this case, the TMB had reached the clear conclusion that "serious damage ... had not been demonstrated", as required by Articles 6.2 and 6.3 of the ATC. It was clear that the restriction imposed by the United States infringed the above-mentioned provision because the United States had failed to demonstrate the existence of serious damage to its industry. As the TMB decision in this regard had not been challenged, it had to be understood that both parties had accepted it. Consequently, the discussion as to the supposed existence of serious damage should not be reopened, since it was clear that this was not demonstrated at the time when it should have been demonstrated.

5.119 Costa Rica argued that the United States had also failed to demonstrate the purported actual threat of serious damage. The industry producing clothing classified in category 352/652 was not only not suffering any serious damage but also not suffering any actual threat of serious damage, as required under Article 6 of the ATC. Firstly, the United States itself did not consider that actual threat of serious damage existed in this case. It never argued that this was the case in order to justify the unilateral restriction imposed on Costa Rica. This was shown by the unreliable, erroneous, contradictory and incomplete information it had included in the March Market Statement, which did not serve for making an analysis of whether serious damage existed, and was not even designed to be used as a basis for an alleged actual threat of serious damage. When the United States made the call for consultations, the condition it had in view was that of serious damage and not of actual threat of serious damage. That was why the March Statement did not make any specific reference to the issue of threat, except indirectly in a single sentence of the text. That is also why, when the United States published in the Federal Register the request for public comments concerning these negotiations, it referred only to serious damage, and not to actual threat of serious damage.

5.120 The supposition of actual threat of serious damage became important when the TMB, after having reached the conclusion that the existence of serious damage had not been demonstrated, did not reach a consensus as to the existence of actual threat of serious damage - a strange decision, considering that the hypothetical condition of actual threat was not in itself under consideration - and recommended that the parties hold further consultations bearing this in mind, inter alia. It may be thought that, following the TMB's decision, the only option open to the United States was to try to justify a posteriori the restriction adopted, by now invoking a supposed threat to its underwear-producing industry. However, the fact was that it also failed to establish this justification, even in subsequent months.

5.121 Costa Rica argued that neither the March Market Statement, nor the July Statement, nor any other information furnished by the United States, not even following the imposition of the unilateral restriction, provided evidence or furnished an analysis of the kind required to demonstrate the existence of actual threat. The obligation to demonstrate the actual threat of serious damage had two dimensions. Firstly, it was necessary to demonstrate that an imminent increase in imports existed, on the basis of objective criteria, such as the goods having already been exported and en route; or that they were in port waiting to be shipped; or that they were covered by a contract and would be shipped once production had been completed. A second dimension, closely linked to the first, referred to volume, in the sense that not every possible increase in imports was capable of creating a threat. It followed from the foregoing that it was necessary that the goods should be able to be counted, which in turn was linked with the need for objective criteria to determine the imminence of the imports.

5.122 The United States argued that they were not required by the ATC to choose between serious damage and actual threat in making their determination. The ATC standard allowed Members to assert, at the same time, both serious damage or actual threat. The plain meaning of the standard invoked merely the notion that there could be a determination on the basis of serious damage or actual threat. Neither was exclusive of the other. There was no obligation in other safeguard proceedings that one standard must be alleged instead of the other. The ATC treats them equally, that is, without any special factors to establish a case for one or the other. The simple fact was that Members could allege both based on the same factors. In addition, contrary to the assertion of Costa Rica, it did not follow that if the TMB found that there was no serious damage, and reached no consensus on threat, there was no threat. No consensus on threat was just that. No consensus on that finding, therefore, no finding or decision on threat.

5.123 Upon request of the Panel, the United States argued that they did not take the view that a finding of actual threat of serious damage implied some sort of prospective analysis because there was no provision of this kind in the ATC that would have guided the United States in making its determination. The United States did not split the phrase "serious damage, or actual threat thereof" and was not asking the Panel to do so. The ATC did not provide separate criteria for threat. They maintained that whatever analysis was chosen by the Panel must not add to or diminish the rights and obligations of the parties. They believed that the ATC must be observed and that any interpretation that would re­write the ATC would probably require the re­opening of the Marrakesh Agreement Establishing the WTO.

The March 1995 Market Statement

5.124 Costa Rica considered that the United States could base its restriction only on the March Market Statement which was the statement the United States had notified within the terms of Article 6 of the ATC and on the basis of which consultations had been held. It also provided the basis for the United States' adoption of a unilateral restraint. Thus, it was clear that the March Market Statement alone ought to be examined by the Panel in order to determine whether the restriction applied by the United States complied with Article 6 of the ATC.

5.125 Conversely, Costa Rica was of the view that a finding of actual threat of serious damage implied a prospective analysis. Since the ATC required that the threat be "actual", this implied that the Member wishing to impose this ground could not do so on the basis of conjecture of speculation, but must effectively demonstrate that there was an imminent damaging impact on the industry which was about to occur in the future. Once this specific and relevant information had been presented, the importing Member must carry out a prospective, forward­looking analysis of what could happen to its industry, bearing in mind that what was under examination was the imminence of a situation that had not yet occurred. In the case under consideration, the United States had submitted absolutely no information aimed at seeking to demonstrate the existence of actual threat of serious damage, still less to carry out any kind of analysis to that end. Hence, it was impossible to consider that the unilateral restriction imposed could have been based on the existence of a supposed actual threat.

5.126 Costa Rica contrasted the requirements of Article 6.3 of the ATC with the information included in the March Market Statement. According to Article 6.3 of the ATC, in making a determination of serious damage,

"The Member shall examine the effect of those imports on the state of the particular industry, as reflected in changes in such relevant economic variables as output, productivity, utilization of capacity, inventories, market share, exports, wages, employment, domestic prices, profits and investment; none of which, either alone or combined with other factors, can necessarily give decisive guidance."

5.127 Costa Rica argued that, pursuant to this provision, the United States had to demonstrate the effect of imports from Costa Rica on the state of its underwear producing industry, as reflected in changes in the relevant economic variables. The first stage of this process of demonstration consisted of the presentation of the necessary information to be able subsequently to make an analysis of the information. In this connection, Article 6.7 of the ATC provided that:

"The request for consultations shall be accompanied by specific and relevant factual information, as up-to-date as possible, particularly in regard to: (a) the factors referred to in paragraph 3, on which the Member invoking the action has based its determination of the existence of serious damage or actual threat thereof; ...".

5.128 Given the characteristics of the information in the March Market Statement ­ summarized by Costa Rica in the following table - it was impossible in their view for the United States to fulfil their obligation to demonstrate the existence of serious damage.

5.129 Costa Rica noted that of the 11 factors listed in Article 6.3 of the ATC, the March Market Statement had not included any information concerning four of them; it had included information which the United States itself subsequently considered wrong in the case of three of them (two of which were output and prices); and included information for three factors based on a survey whose coverage, methodology, representativeness, dates etc. were not mentioned - and indeed, on another occasion the United States itself declared that it could not use this type of instrument to collect information in these cases. In these circumstances, the only possible conclusion was that the information submitted by the United States was unreliable, erroneous, contradictory and lacking, and therefore any measure based on it was in breach of Articles 6.2, 6.3 and 6.7 of the ATC.

5.130 Costa Rica argued that the information submitted was unreliable for three reasons: firstly, much of it did not give the source from which it is taken; secondly, where a source was specified, it turned out not to be very serious; and lastly, the best evidence that the information of the March Market Statement was unreliable was that in July the United States itself submitted fresh information that substantially contradicted all the major indicators covered in the March Statement. Then, a few months later the United States again published information that was at variance both with the information produced in July and with the information included in the March Statement.

5.131 Costa Rica recalled that Section III of the March Market Statement was divided into two sections, the first headed "serious damage to the domestic industry" and the second "industry statements". The first of these sections included data on domestic production, market share loss and import penetration, for which the source was given. In the case of the information on employment and man hours it stated that the data were derived from various sources, which were not identified with any degree of precision. It was noted that the industry statements had a questionable source, being

"Based on a survey of individual firms producing cotton and man-made fibre underwear ... the observations are concentrated in the men's underwear sector but also include the even more heavily import-impacted ladies underwear sector."

5.132 In effect, the data on employment, sales, profits, investment, capacity and prices included in the March Market Statement were based on an alleged survey whose coverage, methodology, representativeness, date, etc., were unknown since the Statement was completely silent in this respect. This explained the opinions included in the Statement for which there was so little basis or justification. Clearly, it was impossible to make generalizations of any kind or determine the state of the industry on the basis of a number of opinions from one or two firms - it was recalled that the Statement itself stated that there were 395 establishments producing in this category - for which no grounds or explanations were given and included in a survey whose details were unknown. It was also obvious that this could not constitute any kind of demonstration of the impact of imports on the industry in question, since it did not shed any light on the effect of the increased imports on the variables mentioned.

5.133 Costa Rica did not consider the data based on the alleged survey of individual firms, of which nothing was known, to be serious. The survey referred to the opinions of one or two firms as to capacity utilization, inventories, exports, wages, profits and investment. The submission of information was so important that the United States should have included in its Statement data on at least all the factors set out in Article 6.3 of the ATC and perhaps even on some others; however, it had failed to do so.

5.134 The problem of the March Market Statement was not confined to the lack of information but also to the total absence of any analysis of that information. The United States did not make any kind of analysis of the information, although given the incoherencies of that information, it would have been difficult to do so. This led Costa Rica to the conclusion that with the information submitted, the United States had failed to fulfil its obligation to demonstrate the existence of serious damage to its industry, as required under Articles 6.2 and 6.3 of the ATC, and as the TMB itself had found.

The July 1995 Market Statement

5.135 Costa Rica considered that the reliability of the information was also brought into question by the United States, which published further data in July and again in October 1995, altering the March data substantially. Thus, in July data that differed from the March data were given in essential fields including: (a) number of establishments producing underwear in category 352/652: in March there were 395, but in July there were 302; (b) supposed decline in output: whereas in March output was believed to have declined by 4 per cent between 1992 and 1993 and by a further 4 per cent between 1993 and 1994, in July it was indicated that the first percentage remained the same but that in the second period there was no decline; (c) market size: whereas in March, "807" production was wrongly counted twice, both as domestic production and as imports, in July this market size was "adjusted", introducing significant alterations compared with the March Statement; (d) number of workers employed in the sector: whereas the March Statement stated that 46,377 people worked in the sector in 1992, in July it was stated that that was not the number, but rather 35,191 persons, in other words the March Statement was wrong by 11,000 workers; (e) average price of United States underwear production: whereas in March it was stated that this was $30 per dozen, in July it was "clarified" that this figure had a margin of error of nearly 100 per cent, the price being between $16 and $20 per dozen.

5.136 Costa Rica emphasized that the March Market Statement, on which the consultations had been held and the unilateral restriction imposed in June 1995, had so many errors that all its main parameters were modified in July. Virtually the only section of the March Statement that was not modified was that based on the survey. Furthermore, in October 1995 the Textile and Apparel Office of the United States Department of Commerce had published updated statistics to June 1995 for category 352/652 in which some of the data given in July were "revised" once again, having already been "revised" with respect to the March Statement, and the results obtained were at variance with those submitted earlier. It thus turned out once again that the data for output and market size were different. This lack of reliability of the information submitted by the United States was enough to maintain beyond all doubt that the United States had failed in its primary duty of presenting the necessary information to proceed to carry out an analysis of whether the serious damage it alleged actually existed.

5.137 The July Statement had been used by the United States from July 1995 and up to the establishment of the Panel as an "ex post facto" justification for the restriction applied to Costa Rican trade in this category in June 1995. Nevertheless, Costa Rica had always maintained that the July Statement could not be regarded as the basis for the call, since it was not. The information contained in the July Statement was not that which should be analysed for the purpose of determining whether the restriction adopted by the United States complied with Article 6 of the ATC. In this respect, it was correct to say that this statement had no legal relevance. The July Statement was useful for confirming how erroneous was the information included in the March Statement which formed the basis of the unilateral restriction adopted in June 1995. This Statement - which for the most part was based on the same information that was available in March - was useful as evidence, inasmuch as it showed that the information which served as basis for the adoption of the restriction in question was seriously flawed.

5.138 The United States pointed out that it had a general practice of monitoring and updating textile and apparel production and trade data. The data provided in July only confirmed the correctness of the CITA's analysis in March that transitional safeguard action was appropriate. As regards the updated information provided in October 1995, these were equally irrelevant. The United States pointed out, however, that the October 1995 data still showed a 5.5 per cent decline in underwear production during the January-June 1995 period. Furthermore, more recent published updates in March 1996 showed that underwear production actually declined by 2.8 per cent for the period from 1 October 1994 to 30 September 1995. This and other updated information demonstrated that the situation for US underwear manufacturers progressively deteriorated during 1995.

Analysis of March and July Market Statements

5.139 According to Costa Rica, both the March Market Statement and the July Market Statement, annual shipments amounted to $3.2 billion. However, analysing the data on the basis of which this information had been obtained it found that this figure was not correct. Thus, considering that the amount of annual shipments was obtained by multiplying the volume of clothing produced by the average producer price of the clothing, and making this calculation for 1994, the ensuing result would be $5.06 billion according to the data in the March Statement, while according to the information in the July Statement this figure could be $3.37 billion or $3.03 billion, according to which United States producer price was used. In any case, what was important to stress was that while one section of each of the Statements gave a figure, if the data in the Statement itself were multiplied in order to obtain the same figure a different result was obtained. Clearly, there was an error in the figure of the annual shipments, production data or in the price, which then also significantly affected other data included in the Statement.

5.140 The United States considered that the information provided in the March and July Statements was not contradictory and was consistent with the requirements of Article 6 of the ATC. Costa Rica had asserted that the data available in March 1995 contradicted the updated data the United States had provided to the TMB in July 1995. The March Statement presented by the United States contained data from a variety of official sources, current at that time. Article 6.7 of the ATC provided that when requesting consultations the requesting Member must supply "factual information as up-to-date as possible". The March data had satisfied that requirement, even though some of the information had been preliminary. During consultations and the TMB proceeding, the United States had been asked to provide other and updated information. The TMB had put many questions to the United States for response during the proceeding as well. In the context of the Article 6.10 of the ATC reference that the TMB must consider the earlier statement and "any other relevant information", the United States had provided a revised statement during the July proceeding which was accepted by the TMB.

5.141 The information in the July Statement had not, in the view of the United States contradicted the March Statement, but had only supported it. Since Article 6.7 of the ATC stated that

"the request for consultation shall be accompanied by specific and relevant factual information, as up-to-date as possible, ..." and that "... the information shall be related, as closely as possible, to identifiable segments of production and to the reference period ..."

of the call action, there was no credibility issue with respect to the data presented in March or July. Article 6.7 of the ATC clearly recognized that the data upon which the initial request for consultations was based, would necessarily be imperfect. Article 6.10 of the ATC similarly acknowledged that data would not be as accurate as desired at the time of the call, requiring that the TMB

"have available to it the factual data provided to the Chairman of the TMB, referred to in paragraph 7, as well as any other relevant information provided by the Members concerned".

The latter was clearly designed to include further updated information that was available at the time of TMB review.

The Counting of Re-imports

(see also Increase in Imports, paragraphs 5.92-5.96)

5.142 According to Costa Rica, one of the most serious mistakes in the March Market Statement, was the double counting of "807" production and the problem of the alteration of market size. In its statistics, the United States had rightly included as domestic production the production of pieces that were part of a garment subsequently assembled in another country and then reimported into the United States under tariff heading 9802.00.80. However, it had also included as imports the same pieces once they had been assembled, even though they had already been counted as domestic production. This resulted in an alteration in the size of the market, because the same product was included twice.

5.143 Having been made aware of this problem by the comments addressed to it by Costa Rica, the United States had tried to correct the situation in its July Market Statement, but, according to Costa Rica, in the wrong way. Thus, in July the United States counted "807" production once; but it chose to include "807" production as imports and not as domestic output, which appeared inconsistent as "807" production was domestic production in the sense of manufacture and/or cutting of cloth. Assembly, which was the only part of the process carried out abroad, had a much smaller weight in the final cost of production of underwear, and therefore this "807" production should not have been counted as imports.

5.144 In support of this same approach, although in contradiction with what it had done in the July Statement, when the case was being reviewed by the TMB in July the United States submitted a loose sheet giving the supposed export data in this category, in which it included cut pieces as exports. In other words, whereas in the July Statement the United States counted "807" production as imports, in the export data it provided in the same month it counted it as domestic production. Then, in the data published in October they returned to the March situation, disregarding the entire problem of double counting of "807" production which the July Statement had tried to take into consideration.

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