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WORLD TRADE

ORGANIZATION

WT/DS22/R
17 October 1996
(96-4287)
Original: English

BRAZIL - MEASURES AFFECTING DESICCATED COCONUT

Report of the Panel

The report of the Panel on Brazil - Measures Affecting Desiccated Coconut is being circulated to all Members, pursuant to the DSU. The report is being circulated as an unrestricted document from 14 October 1996 pursuant to the procedures for the Circulation and Derestriction of WTO Documents (WT/L/160/Rev.1). Members are reminded that in accordance with the DSU only parties to the dispute may appeal a panel report, an appeal shall be limited to issues of law covered in the panel report and legal interpretations developed by the panel, and that there shall be no ex parte communications with the panel or Appellate Body concerning matters under consideration by the panel or Appellate Body.


Table of Contents

    I. INTRODUCTION
    II. FACTUAL ASPECTS
    III. FINDINGS AND RECOMMENDATIONS REQUESTED BY THE PARTIES
    IV. MAIN ARGUMENTS OF THE PARTIES
      A. Preliminary Arguments
        1. Applicable Law
          (a) Principles of International Law
            (i) Article 28 of the Vienna Convention
            (ii) Other provisions of the Vienna Convention
          (b) Article 32.3 of the SCM Agreement
          (c) Transition Decisions of the Tokyo Round SCM Committee
          (d) Right to choose legal basis for claims
          (e) Interpretation of Article VI of GATT 1994
          (f) Application of the Agreement on Agriculture
        2. Terms of Reference
          (a) Articles I and II of GATT 1994
          (b) Failure to revoke and reimburse
          (c) Failure to consult
          (d) Injury and the Agreement on Agriculture
        3. Burden of Proof
        4. Scope of the Panel's Examination of Brazil's Decision
        5. Translation of DTIC Opinion 006/95
      B. Failure to Consult
      C. Subsidy Issues
        1. Reliance on Best Information Available
        2. Existence of Subsidies
        3. Downstream subsidy analysis
          (a) The Pork Panel
          (b) Commercial availability issue
        4. Calculation issues
          (a) Constructed price
          (b) Costs and yields of hybrid and tall trees
      D. Injury Issues
        1. Like Product
        2. Material Injury
        3. Causation
          (a) Volume
          (b) Price
          (c) Impact of Imports and Other Factors
      E. Agreement on Agriculture
    V. ARGUMENTS PRESENTED BY THIRD PARTIES
      A. Canada
      B. European Communities
      C. Indonesia
      D. Sri Lanka
      E. United States
    VI. FINDINGS
      A. Applicable Law
        1. Applicability of GATT 1994
          (a) Applicability of the SCM Agreement
          (b) Separability of Article VI of GATT 1994 and the SCM Agreement
            (i) Textual analysis
            (ii) Object and Purpose
            (iii) GATT precedents
            (iv) Transition to the WTO System and the consequences of a finding of non-separability
        2. Applicability of the Agreement on Agriculture
      B. Failure to Consult
      C. Translation of DTIC Opinion 006/95
    VII. CONCLUDING REMARKS
    VIII. CONCLUSIONS
    ANNEX 1
    ANNEX 2
    ANNEX 3

I. INTRODUCTION

1. On 27 November 1995, the Philippines requested consultations with Brazil under Article XXIII:1 of the General Agreement on Tariffs and Trade 1994 ("GATT 1994") concerning the countervailing duty imposed by Brazil on imports of desiccated coconut from the Philippines. (WT/DS22/1/Rev.1).

2. On 8 December 1995, Brazil replied that it was prepared to enter into consultations with the Philippines as long as it was mutually understood that those consultations would be undertaken exclusively under the 1979 Agreement on Interpretation and Application of Articles VI, XVI and XXIII of the General Agreement on Tariffs and Trade ("Tokyo Round SCM Code"), under the auspices of which Brazil conducted the coconut subsidies investigations and imposed the countervailing duties.

3. On 13 December 1995, the Philippines replied that Brazil's response constituted a refusal of the request for consultations under Article XXIII:1.

4. Taking the view that Brazil had failed to enter into consultations within the period provided for in the Understanding on Rules and Procedures Governing the Settlement of Disputes ("DSU"), the Philippines, on 17 January 1996, requested the establishment of a Panel with standard terms of reference, pursuant to Article XXIII:2 of GATT 1994 and Articles 4.3 and 6 of the DSU. (WT/DS22/2).

5. At Brazil's request, a copy of document SCM/193, on the issue of the countervailing duties in question, was circulated to the Dispute Settlement Body ("DSB"). In that document, Brazil stated its view that the Tokyo Round SCM Code was the only legal framework applicable to the dispute. Brazil also indicated its understanding that the DSB was not the appropriate forum for the discussion on the dispute with the Philippines, and that document SCM/193 was circulated for information purposes only and without prejudice to its rights under the Tokyo Round SCM Code and to its position on the applicable law. (WT/DS22/3, attached as Annex 1).

6. At the 31 January 1996 meeting of the DSB, the Philippines stated that, for reasons mutually agreed to, the Philippines had not objected to postponing consideration of its request for establishment of a panel, but would make a statement at the next meeting of the DSB when this request would be considered. Brazil noted that its arguments concerning the dispute were explained in document WT/DS22/3, and that it invited the Philippines for consultations on the question of the applicable law before any further steps were taken toward establishment of a panel. The DSB agreed to revert to the matter at its next meeting. (WT/DSB/M/10).

7. Continuing to take the view that Brazil had failed to enter into consultations within the period provided for in the DSU, the Philippines, on 5 February 1996, again requested the establishment of a Panel with standard terms of reference, pursuant to Article XXIII:2 of GATT 1994 and Articles 4.3 and 6 of the DSU. (WT/DS22/5, attached as Annex 2).

8. At its meeting of 21 February 1996, the DSB considered the Philippines' request for establishment of a panel. Both the Philippines and Brazil stated their views on the matter of the countervailing duties imposed by Brazil on imports of desiccated coconut from the Philippines, and the question of the law applicable to the dispute. The representatives of Indonesia, speaking on behalf of ASEAN countries, and Sri Lanka, supported the Philippines' request for establishment of a panel. Brazil considered it premature to establish a panel at that meeting, and the DSB agreed to revert to the matter at its next meeting. (WT/DSB/M/11, attached as Annex 3).

9. At its meeting of 5 March 1996, pursuant to the Philippines' request and with Brazil's acceptance, the DSB established a Panel to examine the matter. The Philippines requested that the Panel be established with standard terms of reference. Brazil requested consultations on the terms of reference. The DSB authorized the Chairman to draw up terms of reference in consultation with the parties, in accordance with Article 7.3 of the DSU.

10. On 22 March 1996 the parties agreed that the Panel would have the following terms of reference:

"To examine, in the light of the relevant provisions in GATT 1994 and the Agreement on Agriculture, the matter referred to the DSB by the Philippines in document WT/DS22/5, taking into account the submission made by Brazil in document WT/DS22/3 and the record of discussions at the meeting of the DSB on 21 February 1996, and to make such findings as will assist the DSB in making the recommendations or in giving the rulings provided for in those agreements". (WT/DS22/6).

11. On 16 April 1996, the Panel was constituted with the following composition:

Chairman:Mr. Maamoun Abdel-Fattah
Members:Mr. Zdenek Jung
Mr. Joseph Weiler

12. Canada, the European Community, Indonesia, Malaysia, Sri Lanka and the United States reserved their rights as third parties to the dispute. Malaysia later withdrew as a third party.

II. FACTUAL ASPECTS

13. This dispute concerns countervailing duties imposed by Brazil on imports of desiccated coconut from the Philippines. On 21 June 1994, based on a request for an investigation by the domestic industry filed on 17 January 1994, Brazil initiated an investigation regarding allegedly subsidized imports of desiccated coconut and coconut milk from the Philippines, Côte d'Ivoire, Indonesia, Malaysia, and Sri Lanka. On 23 March 1995, Brazil imposed provisional duties on imports of desiccated coconut from the Philippines, Côte d'Ivoire, Indonesia, and Sri Lanka, and on imports of coconut milk from Sri Lanka. 1 On 18 August 1995, Brazil issued Interministerial Ordinance No. 11 (the "Ordinance"), pursuant to which it imposed a countervailing duty in the amount of 121.5 per cent on imports of desiccated coconut from the Philippines. 2

14. Brazil investigated eight Philippine programmes which allegedly conferred subsidies on coconut fruit. 3 However, Brazil considered that it was unable, based on the information obtained from the Philippines, to determine the amount of the subsidy conferred on coconut fruit by each programme. Brazil also concluded that desiccated coconut indirectly benefitted from the subsidy provided to coconut fruit. Brazil determined the amount of the subsidy conferred on desiccated coconut by comparing the price of subsidized desiccated coconut, based on the price actually paid for coconut fruit, and a constructed unsubsidized price, based on what it considered to be the constructed unsubsidized price for coconut fruit. Brazil considered that the difference between the prices equalled the subsidy amount that affected the price of desiccated coconut.

15. Brazil further found that the subsidized imports, on a cumulated basis, caused material injury to the Brazilian industry.

III. FINDINGS AND RECOMMENDATIONS REQUESTED BY THE PARTIES

16. The Philippines requests the Panel to make the following rulings, findings, and recommendations:

"(a) That the Panel find that the Ordinance imposing a countervailing duty of 121.5 per cent on desiccated coconut from the Philippines for a period of five years from 18 August 1995 is inconsistent with Brazil’s obligations under Articles I and II, and is not justified by Article VI:3 and VI:6(a) of GATT 1994.

"(b) That the Panel find that Brazil's failure to revoke the Ordinance and to reimburse any duties paid under it, notwithstanding the representations of the Philippines, was inconsistent with its obligations under Article VI:3 and 6(a) of GATT 1994.

"(c) That the Panel recommend that Brazil bring the above measure into conformity with its obligations under GATT 1994.

"(d) That Brazil's refusal to hold consultations under Article XXIII:1 of GATT 1994 on its measures affecting desiccated coconuts was inconsistent with Brazil's obligation under that Article and Article 4:1, 2 and 3 of the Understanding on Rules and Procedures Governing the Settlement of Disputes.

"(e) In the event the Panel were to find that the countervailing duty imposed by Brazil was consistent with Articles I and II of GATT 1994 or justified by Article VI of GATT 1994, the Philippines requests that the Panel find that the imposition of the countervailing duty and its subsequent non-revocation were inconsistent with Article 13 of the Agreement on Agriculture, and recommend that Brazil bring the measure referred to above into conformity with its obligations under the Agreement on Agriculture".

17. Brazil asks the Panel to make the following findings:

(a) That the only obligations applicable to this dispute are those in the Tokyo Round SCM Code, and that potential violations of that Code cannot be addressed by this Panel.

(b) That Brazil's injury finding, its obligations under Articles I and II of GATT 1994, its obligations under the Agreement on Agriculture, and its alleged failure to consult are not within the terms of reference of the Panel, and arguments concerning those matters should be excluded from the proceeding.

(c) That the Philippines failed to demonstrate that the requirements for the exemption it claims under the Agreement on Agriculture were met.

(d) In the event the Panel reaches the substance of Brazil's determination, that Brazil's actions were fully consistent with its obligations under Article VI of GATT 1994.

IV. MAIN ARGUMENTS OF THE PARTIES

A. Preliminary Arguments

18. Brazil requested that, as an initial matter, the Panel make a preliminary ruling on the questions of applicable law and the scope of the terms of reference. Brazil argued that both issues are procedural in nature, not substantive, and that a speedy resolution would greatly promote the efficiency of the panel process by permitting the Panel and the parties to focus on the substantive issues. Brazil asserted that there was precedent under GATT 1947 for such early rulings on procedural issues, referring, inter alia, to EC - Imposition of Anti-Dumping Duties on Imports of Cotton Yarn from Brazil, ADP/137 (adopted 30 October 1995) ("Cotton Yarn"), para. 4, in which the Panel issued an early ruling concerning which claims were covered by the terms of reference. 4

19. Brazil viewed the first question as fundamental: what obligations to consider in determining whether Brazil's actions were consistent with its multilateral obligations. Brazil had maintained from the start of the consultation process that since the subsidy investigation was conducted under the auspices of the Tokyo Round SCM Code, it should be judged in relation to Brazil's obligations under that Code, by a panel established under that Code. In Brazil's view, because the answer to the question affected both which issues would be briefed and whether the Panel should consider the dispute, this issue merited immediate decision.

20. The second issue also concerned a procedural matter - whether certain claims raised by the Philippines in its first submission to the Panel were properly within the terms of reference of this Panel. Brazil alleged that the Philippines' claims concerning Brazil's injury finding, Articles I and II of GATT 1994, the WTO Agreement on Agriculture, and Brazil's alleged refusal to consult, as well as most of the requested findings and recommendations, were not within the terms of reference of this Panel and urged the Panel to issue an immediate ruling to that effect in order to avoid the necessity of arguing irrelevant points.

1. Applicable Law

21. The Philippines invoked the provisions of Articles I, II, and VI of GATT 1994 and Article 13 of the Agreement on Agriculture. The Philippines did not invoke the provisions of the Tokyo Round SCM Code or the Agreement on Subsidies and Countervailing Measures (the "SCM Agreement").

22. Brazil argued that the Philippines may not invoke any provisions of GATT 1994 or the Agreement on Agriculture in this dispute. Brazil contended that only the provisions of the Tokyo Round SCM Code are applicable to this matter, and that the Philippines is entitled only to dispute settlement under the provisions of that Code. Brazil further argued that the Tokyo Round SCM Code is not a covered agreement under Article 1.1 of the DSU, and that the Panel may therefore not apply that Code in this dispute.

(a) Principles of International Law

(i) Article 28 of the Vienna Convention

23. Brazil argued that customary rules of public international law do not permit the retroactive application of treaty obligations. Brazil pointed out that the investigation at issue in this dispute was initiated in 1994, at which time the Tokyo Round SCM Code, and Brazilian law which incorporated the requirements of that Code, were in effect. Brazil had no obligations under GATT 1994 or the WTO Agreement at that time, because those agreements did not enter into force until 1 January 1995. Article 28 of the Vienna Convention on the Law of Treaties ("Vienna Convention") states that a treaty does not "bind a party in relation to any action or fact which took place or any situation which ceased to exist before the date of entry into force of that treaty with respect to that party". Brazil took the position that the relevant act at issue in this dispute was the initiation and subsequent conduct of a countervailing duty investigation, which began on 21 June 1994, before the date of entry into force of the WTO Agreement and GATT 1994 on 1 January 1995. Therefore, GATT 1994 could not bind Brazil with respect to this investigation.

24. Brazil argued that in the context of the current dispute, an act could mean the investigation which must be considered to have taken place at the time of initiation. Brazil proposed several reasons for such an interpretation. First, the right to challenge a countervailing duty investigation arises at the time of the initiation. 5 Second, the investigation must review facts that already exist. In this dispute, Brazil looked at subsidies to Philippine coconut growers in the period May 1993 through April 1994 to determine whether imports from the Philippines were subsidized. Third, in Brazil's view, the conduct of the investigation, what information was considered and the basis for the determination, were at issue in this dispute. Such procedural rules could not change during the course of the investigation. Had the Members intended to change the rules for investigations initiated prior to 1 January 1995, they would not have included Article 32:3 in the SCM Agreement.

25. The Philippines argued that Brazil's reliance on Article 28 of the Vienna Convention was misguided because the act in question in this dispute was the imposition of the countervailing measure on 18 August 1995, after the WTO Agreement was in force between the parties. It was at this point that the Philippines suffered nullification of its rights under the WTO Agreements, specifically GATT 1994. According to the Philippines, the only act that Brazil undertook and completed prior to the entry into force of the WTO Agreements was the initiation of the investigation. All other significant acts, e.g. the imposition of provisional measures, the conclusion of the investigation, the order imposing the final countervailing duty, and the levying of the final countervailing duties, occurred after the WTO Agreements came into force. Of these four acts, the Philippines was contesting only the imposition and levying of the countervailing duty. The Philippines emphasized that the countervailing duty did not merely continue after the effective date of the WTO Agreements, but was in fact imposed after that date. In the Philippines' view, relating the imposition of the duty to the date of the application for countervailing duty was a chronological fiction. The Philippines argued that Brazil, in effect, sought to convert the pre-WTO initiation of the investigation into a protective umbrella, similar to a grandfather clause, that would shield measures imposed after the entry into force of the WTO from the application of WTO norms. In the Philippines' view, there was a wide gap between the initiation of Brazil's investigation before the entry into force of the WTO and the imposition of the final countervailing measure. Article 28 of the Vienna Convention does not provide an umbrella to shield this kind of gap - any shield against retroactive application applied only until the entry into force of the new treaty.

26. The Philippines argued that general principles of international law, as codified in the Vienna Convention, require that even pre-existing measures must be reviewed in light of new obligations imposed by a new agreement. Therefore, in the Philippines' view, even if Brazil's investigation had been concluded and the countervailing measure had been imposed before the entry into force of the WTO Agreement, Brazil's continued implementation of such a pre-existing measure would have to be reviewed and examined in light of its obligations under GATT 1994. Because in fact Brazil's investigation ended and the countervailing duty was imposed after the entry into force of the WTO Agreement, the Philippines maintained that GATT 1994 and the Agreement on Agriculture are applicable.

27. Moreover, the Philippines noted that Brazil, in response to a question from the Philippines, had admitted that the WTO Agreements presumably apply to the actual collection of duties after 18 August 1995. In the Philippines' view, the practical effect of applying the WTO Agreements to continued collection of the duties was the application of the WTO Agreements to the imposition of the measures. In this regard, the Philippines referred to the decision of the Appellate Body in United States - Standards for Reformulated and Conventional Gasoline. 6 The Philippines considered that the Appellate Body had examined the United States' rule-making process, which took place prior to the effective date of the WTO Agreements, in assessing the validity of the United States' standards for reformulated and conventional gasoline at issue in that dispute, which standards were themselves imposed prior to the effective date of the WTO Agreements. In the Philippines' view, this demonstrated that the Panel could consider events prior to the entry into force of the WTO Agreements in evaluating the consistency of a measure with those Agreements. Moreover, the Philippines noted that, in response to a question from the Philippines, Brazil denied neither the fact nor the propriety of the Appellate Body's consideration of the rule making process in Reformulated Gasoline.

28. Brazil, on the other hand, maintained that the decision in Reformulated Gasoline did not support the Philippine position. In Brazil's view, in that case Venezuela and Brazil had challenged the continued maintenance of discriminatory standards by the United States after the entry into force of the WTO, but not the rule-making process that had led to the imposition of those standards. Thus, in terms of the current case, the analogous challenge would be to the continued imposition of duties, not the investigation and decision to impose duties. Moreover, Brazil noted that unlike the current case, there was no mechanism for a review of the United States' standards under domestic law in the Reformulated Gasoline situation, whereas in this case, the Philippines had the ability under the SCM Agreement and Brazilian law to request a review of the continued imposition of countervailing measures, under the standards of the SCM Agreement.

29. The Philippines argued that the Panel's decision in U.S. - Countervailing Duties on Non-Rubber Footwear from Brazil (adopted 13 June 1995), SCM/94, paras. 4.5 and 4.10 ("Non-Rubber Footwear"), recognized that general principles of international law required that pre-existing measures must be reviewed in light of new obligations imposed by a new agreement. The Philippines argued that in Non-Rubber Footwear the Panel concluded that the continued imposition of countervailing measures first imposed by the United States prior to the entry into force of the Tokyo Round SCM Code was subject to the Code's requirement of an injury test. The Philippines maintained that applying the logic of that decision to this case required that Brazil's countervailing measures be subject to the requirements of GATT 1994.

30. Brazil contended that the Panel decision in Non-Rubber Footwear did not support the Philippines' argument. Even assuming arguendo that the report had precedential or interpretive value, in Brazil's view, the Panel had concluded that any obligation under the Tokyo Round SCM Code would be met by conducting a review in conformity with the new obligations at the request of an interested party. 7 Non-Rubber Footwear, paras. 4.4 and 4.6. Brazil pointed out that Brazilian law and Article 21 of the SCM Agreement permit reviews upon request. Under Brazilian law, such a review would be conducted in accordance with Brazil's obligations under the SCM Agreement. Brazil noted that the Philippines had not requested such a review. 8

31. In addition, Brazil contended that Non-Rubber Footwear states that Article 28 of the Vienna Convention prevents applying the new treaty to the pre-existing act, i.e., the actual investigation, and only permits its application to the continuing implementation. 9 Brazil distinguished between the investigation and findings made that led to imposition of final countervailing duties, and the continued collection of duties. According to Brazil, the findings made in the investigation could only be challenged under the rules then applicable - the Tokyo Round SCM Code. Moreover, Brazil noted that it did not argue that the WTO and its covered agreements do not apply to the continued collection of the duties, only that those obligations do not apply to the conduct of the investigation and the determinations made as part of that investigation. The continued collection of the duty constitutes a "situation" within the meaning of Article 28. Thus, since that situation has continued after entry into force of the WTO, the collection of duties is subject to the WTO Agreements, and the Philippines can seek a review to ensure that the continued collection is consistent with the WTO rules.

32. Brazil referred to the decision of the Permanent Court of International Justice in Phosphates in Morocco ("Phosphates") as providing guidance on the meaning of the concept of retroactive application addressed in Article 28. In that case, there is a lengthy discussion of whether the "situation" was subject to the Agreement at issue or whether it occurred prior to that Agreement. The majority opinion notes:

"The situations and facts which form the subject of the limitation ratione temporis have to be considered from the point of view both of their date in relation to the date of ratification and of their connection with the birth of the dispute. Situations or facts subsequent to the ratification could serve to found the Court's compulsory jurisdiction only if it was with regard to them that the dispute arose. ... it is necessary always to bear in mind the will of the State which only accepted the compulsory jurisdiction within specified limits, and consequently only intended to submit to that jurisdiction disputes having actually arisen from situations or facts subsequent to its acceptance. But it would be impossible to admit the existence of such a relationship between a dispute and subsequent factors which either presume the existence or are merely the confirmation or development of earlier situations or facts constituting the real cause of the dispute". 10

In that dispute the Italian government had raised a complaint against the French government over the "monopolization" of the phosphate trade as a result of a regime created in 1920, prior to the ratification in 1931 of the Agreement under which the complaint was brought. The Court found that the act underlying the dispute was the regime creating the cartel that led to monopolization. Therefore, even though this monopolization continued after 1931, it was because of an act initiated prior to that date, and therefore could not be brought under the Agreement. In Brazil's view, this decision established the international law principle reflected in Article 28 of the Vienna Convention. Similar to the situation in the Phosphates case, the WTO Members only intended to be subject to WTO obligations after the date of entry into force, as evidenced by the creation of a date of entry into force for the WTO Agreement, rather than having it enter into force as soon as a sufficient number of countries had ratified them.

33. The Philippines argued that the decision in Phosphates did not support Brazil's definition of retroactive application. In the Philippines' view, the Court in that case had simply held that it had no jurisdiction over disputes involving alleged international law violations that originated in definitive acts that occurred before the parties ratified the instruments through which they submitted to the Court's compulsory jurisdiction. In that case, the acts were a 1920 law and a 1925 administrative decision issued prior to ratification of the Court's compulsory jurisdiction agreement. However, the Court ruled that "situations or facts subsequent to the ratification could serve to found the Court's compulsory jurisdiction. ... if it was with regard to them that the dispute arose". Phosphates at 18. Moreover, the date of the act underlying a dispute was determined with reference to the "definitive act" that resulted in the alleged violation. In the Philippines' view, in this case, the relevant act was the imposition of the final countervailing duty, which occurred after the WTO Agreements came into effect.

34. The Philippines, moreover, viewed the right to a review under Brazilian law as limited, and thus not an effective remedy. The Philippines noted that under Brazilian law, a review would not take place for at least one year after imposition of the measures, and even then, a change in circumstances or a new fact was required for initiation of a review. Moreover, such a review would only address the continued imposition of the measures, not the original imposition.

35. Brazil asserted that Decree No. 93,962 (22 January 1987) permitted reviews upon request beginning one year after the imposition of countervailing duties. The current law, Decree No. 1751 (19 December 1995), permits reviews upon request beginning one year after imposition of duties. In exceptional cases a review may be initiated sooner upon the request of the exporting government or on Brazil's own initiative. Brazil also noted that this was consistent with the practice of other Members, for example the United States and the European Union.

36. The Philippines asserted that, while Article 32.3 of the SCM provides a party the option to seek a review of the continuation of a measure (but not the original imposition), the initiation of such review is not mandatory, and in any event would only address the continued imposition of the measure, not its original imposition. Moreover, referring to the report of the Panel in United States - Imposition of Countervailing Duties on Imports of Fresh and Chilled Atlantic Salmon from Norway ("Salmon"), SCM/153 (adopted 24 April 1994), paras. 218-220, the Philippines argued that there was no requirement in any WTO Agreement that a party first seek a review from the country imposing a measure before resorting to multilateral dispute resolution. If the Philippines were limited to seeking a review during this transitional period, instead of being able to resort immediately to the dispute settlement mechanism of the WTO, it would be subjected to delay and continued trade losses, effectively nullifying its rights of free trade under the WTO. The Philippines, in its view, was entitled to resort to WTO dispute resolution proceedings in order to invoke WTO norms against Brazil's countervailing measures.

(ii) Other provisions of the Vienna Convention

37. The Philippines also referred to Article 30:3 of the Vienna Convention, which provides that where there are successive treaties relating to the same subject-matter among the same parties, "the earlier treaty applies only to the extent that its provisions are compatible with those of the later treaty", and argued that, between the Philippines and Brazil, the WTO Agreement and GATT 1994, as the subsequent treaty, override the Tokyo Round SCM Code.

38. Brazil argued that Article 30.3 of the Vienna Convention did not require that the applicable law in this dispute be GATT 1994. Even assuming the WTO Agreement applied in this case as the successive treaty, the portion of that treaty relating to the same subject matter as the Tokyo Round SCM Code is the SCM Agreement. Article 32.3 of the SCM Agreement provides that "the provisions of this Agreement shall apply to investigations, and reviews of existing measures, initiated pursuant to applications made on or after the date of entry into force for a Member of the WTO Agreement". Thus, in Brazil's view, since the investigation at issue here was initiated pursuant to an application made before the date of entry into force of the WTO Agreement, the SCM Agreement does not apply.

39. The Philippines referred to Articles 18, 26, and 31 of the Vienna Convention as indicating the fundamental principle in international law that parties to a treaty must act consistent with the treaty's objectives. Signatories bind themselves fully to all substantive obligations of the treaty and must refrain from acts which defeat the object and purpose of the treaty. In the Philippines' view, this requirement existed before the new treaty entered into force, and applied even more strongly after the new treaty entered into force. Therefore, the WTO Agreement must be interpreted in accordance with the ordinary meaning to be given to the terms of the treaty in their proper context and in light of its object and purpose. In the Philippines' view, it was not reasonable to infer that the negotiators of the WTO Agreements intended an interpretation of the Agreements that would suspend the rights of WTO Members for two years (while the transitional decisions regarding the Tokyo Round SCM Code were in effect), preventing them from seeking dispute settlement under the WTO Agreements, by limiting them to either dispute settlement under the Tokyo Round SCM Code or a review under the domestic law of the Member imposing the measure, of a measure imposed eight months after the WTO Agreements entered into force.

40. Brazil contested the Philippines' argument that Brazil's interpretation suspends WTO Members' rights for two years. Brazil maintained that the Philippines misstated the purpose of Article 18 of the Vienna Convention in arguing that it creates a duty to ensure that all actions prior to entry into force of the WTO Agreements were consistent with Brazil's obligations under those Agreements. In Brazil's view, Article 18 reflects an obligation to act in good faith and not to act in such a way as to make it more difficult or impossible for any party to the treaty to meet its obligations. The imposition of countervailing duties based on pre-existing obligations does not make it impossible for any party to the WTO Agreement to meet its obligations. Moreover, in Brazil's view, the interpretation of Article 18 proposed by the Philippines would conflict with the requirement of Article 28 of the Vienna Convention that a treaty not be applied retroactively unless the parties agreed to such retroactive application. For the Panel to accept the Philippine interpretation would mean that the conduct of all investigations begun prior to 1 January 1995 is subject to WTO review under Article VI of GATT 1994. Brazil considered it unlikely that such a major step would have been contemplated by the negotiators without an express provision in the text.

41. Brazil noted that under Article 32.3 of the SCM Agreement, WTO Members have immediate rights with respect to any countervailing duty investigation or review initiated based on an application filed on or after 1 January 1995. In addition, Members have the right to challenge the conduct of a countervailing duty investigation at any time in the investigation proceeding; they do not have to wait until the investigation is completed. WTO Members also have the right to request the national authorities to review any pre-1995 investigation, which review would be subject to WTO obligations and could be challenged under the DSU. Further, the transition decisions of the Tokyo Round SCM Committee give the signatories to the Tokyo Round SCM Code, including the Philippines, the right through 31 December 1996 to challenge an investigation initiated prior to 1 January 1995, under the procedures of the Tokyo Round SCM Code.

(b) Article 32.3 of the SCM Agreement

42. Brazil argued that Article VI of GATT 1994 must be considered in conjunction with the SCM Agreement. Article II:2 of the Marrakesh Agreement Establishing the World Trade Organization (the "Marrakesh Agreement") states that the "agreements and associated legal instruments", including the SCM Agreement and GATT 1994, are integral parts of the Marrakesh Agreement. Moreover, Article 10 of the SCM Agreement states that "Members shall take all necessary steps to ensure that the imposition of a countervailing duty ... is in accordance with the provisions of Article VI of GATT 1994 and the terms of this Agreement ... " (emphasis added). Thus, in Brazil's view, Article II:2 of the Marrakesh Agreement and Article 10 of the SCM Agreement contemplate that Article VI of GATT 1994 and the SCM Agreement must be considered together. Brazil asserted that, considered together, Article 32.3 states explicitly that they do not apply to investigations begun before 1 January 1995. In Brazil's view, this was a necessary corollary of the integrated nature of the WTO. Otherwise, a Panel could interpret an article of GATT 1994 in a manner different than the detailed WTO Agreement on the same subject matter.

TO CONTINUE WITH BRAZIL - MEASURES AFFECTING DESICCATED COCONUT


1 Interministerial Decree No. 113 (23 March 1995).

2 Interministerial Ordinance No. 11 (18 August 1995). Imports of desiccated coconut from the other countries under investigation were also found to be subsidized, as well as imports of coconut milk from Sri Lanka. Those aspects of the determination are not before the Panel.

3 The eight programmes investigated were:

1) the Programme under Presidential Decree No. 582/74,
2) the National Coconut Productivity Programme, and its successors, the Expanded National Coconut Intercropping Programme and the Farm Assistance and Livelihood project,
3) the Small Coconut Farm Development Project,
4) the Agrarian Reform Programme,
5) the Country Economic Development Programme,
6) the Small Coconut Farmer Organizations,
7) Income Tax Exemptions and Credits, Deductions, and other Tax Benefits, and
8) The Coconut Replanting Programme and Programme of Additional Incentives to Accelerate the Coconut Production Programme.

4 In this regard, Brazil also referred to the Panel decisions in United States - Measures Affecting Alcoholic and Malt Beverages, DS23/R (adopted 19 June 1992) BISD 39S/206, United States - Denial of Most-Favoured-Nation Treatment as to Non-Rubber Footwear from Brazil, DS18/R (adopted 19 June 1992) BISD 39S/129, ("Non-Rubber Footwear MFN"), and Report of Korea - Restrictions on Imports of Beef, L/6503, L/6504, L/6505 (adopted 7 November 1989) BISD 36S/268, 202, 234, respectively.

5 In this regard, Brazil referred to the decision of the Panel in United States - Measures Affecting Imports of Softwood Lumber from Canada, SCM/162 (adopted 27-28 October 1993) BISD 40S/358.

6 WT/DS2/R (29 January 1996), WT/DS2/AB/R (22 April 1996) (both adopted 20 May 1996) ("Reformulated Gasoline").

7 Brazil observed that the Panel report also indicates that the obligation at issue in that case, an injury finding, was not a new obligation, but rather a pre-existing obligation under Article VI of GATT 1947. Non-Rubber Footwear, para. 4.10

8 Brazil argued that the Panel report in Non-Rubber Footwear indicates that until a request for review is made, there can be no violation, referring to the following language:

"If, however, the signatory subject to the pre-existing countervailing duty were to choose not to invoke its right as of that date but made its request at a later date, again there was nothing in Article VI or in its subsequent interpretation in the Code to imply that any earlier date than the date of the request would be relevant for an injury determination and possible revocation of countervailing duties".

Non-Rubber Footwear, para. 4.6.

9 Non-Rubber Footwear, para. 4.5.

10 Phosphates in Morocco, Permanent Court of International Justice (14 June 1938) at 18.