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EUROPEAN COMMUNITIES – CUSTOMS CLASSIFICATION
AB-2005-5 Report of the Appellate Body
I. Introduction II. Appeal by the European Communities
III. Other Appeals by Brazil and Thailand
IV. Arguments of the Third Participants
V. Issues Raised in this Appeal VI. Introduction VII. Terms of Reference
VIII. Interpretation of the EC Schedule in the Light of Article 31 of the Vienna Convention
XI. Interpretation of the EC Schedule in the Light of Article 32 of the Vienna Convention
TABLE OF CASES CITED IN THIS REPORT
TABLE OF ABBREVIATIONS USED IN THIS REPORT
WORLD TRADE ORGANIZATION
I. INTRODUCTION 1. The European Communities, as appellant, and Brazil and Thailand, as other appellants, each appeal certain issues of law and legal interpretations developed in the Panel Reports, European Communities – Customs Classification of Frozen Boneless Chicken Cuts (the "Panel Reports").1 The Panel was established to consider complaints by Brazil and Thailand concerning certain measures of the European Communities, pertaining to the classification of frozen boneless salted chicken cuts for tariff treatment.2 2. Brazil and Thailand claimed before the Panel that Commission Regulation (EC) No. 1223/2002 ("EC Regulation 1223/2002") and Commission Decision No. 2003/97/EC ("EC Decision 2003/97/EC") resulted in tariff treatment for frozen boneless salted chicken cuts that is less favourable than that provided for in the European Communities' Schedule LXXX (the "EC Schedule"), in violation of Article II:1(a) and/or Article II:1(b) of the General Agreement on Tariffs and Trade 1994 (the "GATT 1994").3 More particularly, Brazil and Thailand alleged that, through the challenged measures, "the European Communities changed its customs classification so that those products, which had previously been classified under subheading 0210.90.20 and were subject to an ad valorem tariff of 15.4%, are now classified under subheading 0207.41.10 and are subject to a tariff of 102.4€/100kg/net as well as being potentially subject to special safeguard measures pursuant to Article 5 of the Agreement on Agriculture."4 3. Brazil and Thailand also claimed before the Panel that, although Commission Regulation (EC) No. 1871/2003 ("EC Regulation 1871/2003") and Commission Regulation (EC) No. 2344/2003 ("EC Regulation 2344/2003") were not mentioned specifically in their requests for the establishment of a panel5, these Regulations must be considered as part of the challenged measures because they are "closely related" to and based on the same principle of long-term preservation, as set out in the challenged measures.6 Brazil and Thailand also alleged that the specific products at issue were "frozen boneless salted chicken cuts that have been deeply and homogeneously impregnated with salt in all parts with a total salt content of not less than 1.2% by weight", and that the terms of reference are not limited to products with a salt content between 1.2 and 3 per cent.7 4. In the Panel Reports, circulated to Members of the World Trade Organization (the "WTO") on 30 May 2005, the Panel determined that EC Regulations 1871/2003 and 2344/2003 were outside the Panel's terms of reference.8 The Panel further concluded that the specific products at issue in this dispute were "frozen boneless chicken cuts impregnated with salt, with a salt content of 1.2% – 3%" as provided for in the measures under the terms of reference.9 5. The Panel then proceeded to examine whether the measures at issue—EC Regulation 1223/2002 and EC Decision 2003/97/EC—resulted in the imposition of duties and conditions on the products at issue in excess of those provided for in the EC Schedule. The Parties agreed that the import duties levied on the products at issue, when classified under heading 02.07, exceeded 15.4 per cent ad valorem, which is the bound duty rate for products covered by heading 02.10. In view of this agreement, the Panel concluded that, if it were to determine that "the products at issue are covered by the concession contained in heading 02.10 of the EC Schedule rather than the concession contained in heading 02.07, there is no question that the treatment accorded to those products under the measures at issue is less favourable than that provided for in the EC Schedule."10 6. Before the Panel, Brazil and Thailand claimed that the products at issue were not covered by heading 02.07, but rather by heading 02.10, while the European Communities alleged the reverse. Both Brazil and Thailand based their positions on the meaning of the term "salted" in heading 02.10 and submitted that the notion of "long-term preservation" is not included in the meaning of "salted" under that heading. On the contrary, the European Communities claimed that the products at issue were not "salted" because, in order to qualify under heading 02.10 (through salting), the product must have been "deeply and homogenously impregnated with a level of salt sufficient to ensure long-term preservation".11 The Panel found that the critical question in interpreting the EC Schedule is "whether the term 'salted' in the concession contained in heading 02.10 covers the products at issue which, in turn, will entail a determination of whether that concession includes the requirement that salting is for preservation and, more particularly, is for long-term preservation."12 7. Following an analysis under Articles 31 and 32 of the
Vienna Convention on the Law
8. After evaluating the claims of the Parties and interpreting the term "salted" according to the interpretation rules codified in the Vienna Convention, the Panel found, in the light of its above-referenced conclusions, that:
9. The Panel therefore recommended that the Dispute Settlement Body (the "DSB") request the European Communities to bring EC Regulation 1223/2002 and EC Decision 2003/97/EC into conformity with its obligations under the GATT 1994.25 10. On 13 June 2005, the European Communities notified the DSB of its intention to appeal certain issues of law covered in the Panel Reports and certain legal interpretations developed by the Panel, pursuant to paragraph 4 of Article 16 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (the "DSU") and filed a Notice of Appeal26 pursuant to Rule 20 of the Working Procedures for Appellate Review (the "Working Procedures").27 On 20 June 2005, the European Communities filed an appellant's submission.28 On 27 June 2005, both Brazil and Thailand notified the DSB of their intention to appeal certain issues of law covered in the Panel Reports and certain legal interpretations developed by the Panel, pursuant to paragraph 4 of Article 16 of the DSU, and each filed a Notice of Other Appeal29 pursuant to Rule 23(1) of the Working Procedures. On 28 June 2005, Brazil and Thailand each filed an other appellant's submission.30 On 8 July 2005, the European Communities, Brazil, and Thailand each filed an appellee's submission.31 On the same day, China and the United States each filed a third participant's submission.32 11. By letter dated 30 June 2005, Thailand requested authorization from the Appellate Body Division hearing the appeal (the "Division"), pursuant to Rule 18(5) of the Working Procedures, to correct three "clerical errors" in its other appellant's submission. On 4 July 2005, the Division, pursuant to Rule 18(5) of the Working Procedures, invited all participants and third participants to comment on Thailand's request. None of the participants or third participants commented on Thailand's request. On 6 July 2005, the Division authorized Thailand to correct the three clerical errors in its other appellant's submission. 12. On 13 July 2005, the Division hearing the appeal received an amicus curiae brief from the Association of Poultry Processors and Poultry Trade in the European Union Countries (avec).33 The Division does not find it necessary to take the brief into account in resolving the issues raised in this appeal. 13. The oral hearing in this appeal was held on 25 and 26 July 2005. The participants and third participants presented oral arguments and responded to questions posed by the Members of the Division hearing the appeal. II. Appeal by the European Communities
14. The European Communities submits that the Panel erred in its interpretation of heading 02.10 of the EC Schedule in respect of various elements of Article 31 of the Vienna Convention. Specifically, the European Communities alleges that the Panel erred in its consideration of the following: the "ordinary meaning" of the term "salted" found in heading 02.10; the "context" of that term; the "object and purpose" of the WTO Agreement and the GATT 1994; and the alleged "subsequent practice" of the parties concerning classification under heading 02.10.
15. The European Communities agrees with the Panel that the dictionary definitions of the term "salted" include, but are not confined to, the notion of preservation. The European Communities also contends that it is from "the rest of heading 02.10, and the structure of chapter 2"34 of the Harmonized Commodity Description and Coding System of the World Customs Organization ("WCO") (the "Harmonized System") that the term "salted" in that heading derives its meaning as referring to a process of preservation. 16. The European Communities takes issue with the Panel's examination of what the Panel referred to as the "[f]actual context for the consideration of the ordinary meaning".35 The European Communities submits that the analysis of such "factual context" is not relevant to the legal question of the meaning of the term "salted", and that such an analysis is neither supported by the Vienna Convention nor by the academic sources to which the Panel referred.36 Furthermore, several of the Panel's conclusions as to the "factual context" are rendered erroneous as a matter of law in the light of an analysis of the context of the term "salted". 17. The European Communities further claims that certain of the Panel's conclusions in its analysis of the "ordinary meaning" of the term "salted" amount to "an egregious distortion of the facts" and are therefore inconsistent with the Panel's obligations under Article 11 of the DSU.37 First, the European Communities refers to the Panel's finding that "it appears that even small quantities of salt may have a preservative effect".38 In making this statement, the Panel "seriously misrepresent[ed] the technical evidence supplied" by the European Communities' expert.39 The Panel stated that "3% salt may prevent spoilage, albeit for a period of only a few days", whereas what the European Communities' expert had stated was that a level of salt of 3 per cent in a raw and chilled product is too low to prevent spoilage for more than a few days.40 18. Secondly, the European Communities challenges the Panel's finding that certain products under heading 02.10 such as Parma ham, prosciutto, and jamón serrano require further preservation after salting. The European Communities argues that it is not the salt content of these products that makes additional means of preservation necessary and that these additional means of preservation are not required. In support of its contention, the European Communities refers to certain statements made by its expert.41 Thirdly, the European Communities challenges the Panel's finding according to which the European Communities acknowledged that products covered by heading 02.10 of the EC Schedule "may require means of preservation in addition to [salting]" and that this acknowledgement "support[s] ... the view that a product preserved by salt for relatively short periods of time is not necessarily precluded" from falling under heading 02.10.42 The European Communities argues that it did not make such an acknowledgement, but rather that it only pointed out that preservation by salting did not imply that meat could not be "further preserved by other means".43 In the European Communities' view, there is no logical connection between this observation of the European Communities and the Panel's conclusion from it.
19. The European Communities submits that the Panel erred in interpreting the term "salted" when considering the term in its context. First, as regards the terms "salted, in brine, dried, smoked" in heading 02.10, the Panel wrongly found that the term "in brine" excludes the notion of preservation. The Panel found that "brine" is "water containing salt".44 In the European Communities' view, the words "to salt" and "salted"—which the Panel had previously cited correctly—"make it quite clear" that the action of putting a product in brine is intended to preserve the product.45 In support of its argument, the European Communities also refers to heading 08.12 of the Harmonized System, which states that brine is a "preservative solution".46 20. Secondly, the European Communities submits that the Panel erred in failing to take into account what, according to the European Communities, are the "exclusive distinguishing characteristics" of the terms "salted, in brine, dried, smoked" in heading 02.10. The Panel provided no explanation for its conclusion that the dictionary meanings of these terms "are broader than just pertaining to preservation".47 The terms "dried" and "smoked" may have different meanings in different contexts, but, with respect to meat and food, the dictionary definitions point to means of preservation. The Panel failed to identify the "intrinsic notion common to all terms" in heading 02.1048; all four terms in heading 02.10 include the concept of preservation, while only two of them involve the concept of preparation. Moreover, the Panel also disregarded the fact that the four processes referred to in heading 02.10 are the only ones commonly applied to the preservation of meat, and that the group of meats covered by heading 02.10 are the only meats to have this feature in common.49 The European Communities' further points out that meat that has been "subjected to processes" (that is, "prepared") is "generally classified" under Chapter 16 of the Harmonized System; this shows that, there must be "something special" about the products falling under heading 02.10. This special feature, the European Communities submits, relates to the processes applied under heading 02.10, namely, processes resulting in preservation of the meat. 21. Thirdly, the European Communities challenges what it considers to be the Panel's "failure to take account of [the] distinguishing features of heading 02.10 in Chapter 2".50 According to the European Communities, the headings in that Chapter form two categories, based on whether or not the meat has been subjected to the processes listed in heading 02.10. If those processes have been applied, the products fall under heading 02.10, which alone comprises the second category within Chapter 2. If those processes have not been applied, the products fall under one of headings 02.01 through 02.08, which make up the first category within Chapter 2. The European Communities also notes that headings 02.01 through 02.08 refer to the refrigeration of meat, and that heading 02.10 contains no reference to refrigeration. According to the European Communities, this implies that, for the products listed in heading 02.10, "the issue of refrigeration is not a significant consideration".51 22. The European Communities also refers to the Explanatory Note to Chapter 252, which speaks of "fresh" meat, "packed with salt as a temporary preservative during transport". According to the European Communities, the use of the word "temporary" in the Explanatory Note is "implicitly opposed" to permanent salting, with the result that heading 02.10 does not cover meats that are temporarily preserved by salt during transport.53 The Note also makes it clear that the mere presence of some salt does not make a product "salted" for the purposes of heading 02.10. The Note further suggests that not every change in the characteristics of a product, brought about by salting, means that a product falls under heading 02.1054; rather, heading 02.10 refers to the result achieved by preservation. The European Communities also argues that the Panel's finding that the term "salted" does not necessarily require that salting be sufficient for preservation is "legally irrelevant"55; this is so because the Explanatory Note makes it clear that the fact that a preservation technique other than those listed in heading 02.10 might be applied does not alter the classification of that product. 23. In addition, the European Communities argues that the Panel failed to take proper account of the "historical basis" of heading 02.10.56 At the outset, the European Communities considers the Panel's approach to be flawed because the Panel started with the negotiating history of the Harmonized System, rather than with the terms of that instrument. The Panel also "overlooked important elements" of the history of the Harmonized System that "clearly support the notion of preservation as the basis for heading 02.10."57 24. The European Communities disagrees with the Panel that the Geneva Draft Nomenclature of 193758 and the Brussels Nomenclature of 195959 are of "limited relevance" because of the changes in trade patterns and technology since their conclusions.60 The Panel failed to consider the introduction of refrigeration in developed countries as a major technological change. Given the absence of refrigeration in the past, trade in items such as salted, dried, or smoked meat "would not have been possible unless [these products] had been preserved".61 Furthermore, when the Brussels Nomenclature was introduced, the words "[c]ooked or otherwise simply prepared" were moved from the relevant heading of the Geneva Draft Nomenclature to Chapter 16 of the Brussels Nomenclature, suggesting that "there must have been a positive decision to keep the salted ... meats in a distinct category", namely a category characterized by preservation.62 According to the European Communities, when the Harmonized System was introduced, there was no indication that the drafters intended to change the scope of the heading pertaining to "salted, dried or smoked meat".
25. The European Communities claims that the Panel erred in interpreting and applying the concept of "subsequent practice" within the meaning of Article 31(3)(b) of the Vienna Convention. The Panel erroneously "consider[ed] that the unilateral 'practice' of one party could have a bearing on [the interpretation of] a multilaterally agreed text and ... wrongly analyz[ed] the existence of 'practice' at the EC and multilateral level."63 The European Communities appeals the Panel's conclusion that the individual classification decisions of certain port authorities within the European Communities between 1996 and 2002 constitute "subsequent practice" within the meaning of Article 31(3)(b) for the purpose of interpreting heading 02.10 of the EC Schedule.
26. The European Communities challenges the Panel's application of relevant Appellate Body jurisprudence regarding Article 31(3)(b). That jurisprudence emphasizes that, in order to establish the common intentions of the parties, subsequent practice must entail a "concordant, common and consistent" sequence of acts or pronouncements that establishes a discernible pattern, implying the agreement of the parties regarding the interpretation of the treaty.64 The European Communities submits that a key legal issue before the Appellate Body in this proceeding is whether unilateral acts of one WTO Member that have been met with silence by other WTO Members can qualify as "subsequent practice" within the meaning of Article 31(3)(b), for purposes of interpreting WTO law. Such acts, in the European Communities' view, do not represent a concordant and common expression of the parties' understanding of the law.65 27. In this regard, the European Communities submits that a commentary of the International Law Commission (the "ILC"), relied on by the Panel, supports, in fact, the European Communities' point of view. The relevant statement of the ILC indicates that not all signatories must have engaged in a particular practice so as to show that all Members have accepted that practice.66 The European Communities argues that this statement implies that Article 31(3)(b) does not necessarily require, in all circumstances, that all parties to a treaty must have actively engaged in a practice; however, the statement does not support the "directly opposite" view that the practice of one party alone will suffice.67 Under public international law, the type and degree of practice required to establish the "agreement of the parties [to a treaty] regarding its interpretation" must be ascertained on a case-by-case basis.68 To this end, the European Communities relies on the ILC commentary that "the value of subsequent practice varies according[ly] as it shows the common understanding of the parties as to the meaning of the terms"69, a view also reflected by other commentators.70 28. The European Communities refers to the Appellate Body Report in US – Gambling to demonstrate the importance placed by the Appellate Body on the subsequent practice being "concordant" and "common".71 It notes that WTO Members have agreed upon a specific procedure for adopting interpretations of WTO law, namely Article IX:2 of the WTO Agreement. According to the European Communities, this provision warrants a narrow application of Article 31(3)(b) of the Vienna Convention, as exemplified by the Appellate Body finding in Japan – Alcoholic Beverages II; in that dispute, the Appellate Body found that adopted GATT panel reports and WTO panel reports cannot qualify as "subsequent practice".72 Article IX:2 of the WTO Agreement also implies that any practice that is considered for the interpretation of the multilateral trade agreements must take the form of overt acts that are explicitly submitted for the consideration of all WTO Members and adopted by a large majority of the WTO Membership.73 In support of its position, the European Communities notes that the Appellate Body and panels have so far consistently denied the status of "subsequent practice" to all examples of both multilateral and unilateral acts invoked by parties as subsequent practice.74 29. Moreover, the European Communities alleges that the Panel, in its interpretation and application of Article 31(3)(b), failed to take into account the specific context of WTO Members' Schedules and the Harmonized System. The European Communities disagrees with the Panel that, because Schedules are particular to each Member, a Schedule should be interpreted exclusively in accordance with a specific Member's subsequent practice (unless objected to by the other parties). This argument runs contrary to Members' intention that Schedules follow the Harmonized System, absent any clear indication to the contrary. The term "salted" appears in heading 02.10 of the Schedule of all WTO Members and thus should not be defined unilaterally. The European Communities submits that the Panel's finding would undermine the predictability and stability of the multilateral Schedules and the application of the Harmonized System because the Harmonized System confers exclusive authority for interpreting the nomenclature to the Harmonized System Committee and Council.75 The European Communities emphasizes that WTO Members' Schedules form an "integral part" of the GATT 1994, that they reflect rights and obligations of both importing and exporting Members, and that there is no difference between Schedules and other WTO obligations.76 Therefore, no individual Member's practice should be preferred over that of any other Member. 30. The European Communities also notes that the Appellate Body rejected, in EC – Computer Equipment, the notion of "legitimate expectations" in the context of customs classification, as well as the argument that unilateral acts of WTO Members, and lack of reaction thereto, are relevant for purposes of interpreting WTO law.77
31. The European Communities submits that the Panel misapplied the concept of "consistency" of the alleged subsequent practice; the Panel's finding that the alleged practice is "consistent" is based on errors in respect of the object and the "geographic" and "systemic" scope of this practice, as well as its duration.78 The European Communities argues that the Panel interpreted the term "salted" in two multilateral treaties (namely, the Schedules attached to the WTO Agreement and the Harmonized System) on the basis of the "subsequent practice" of only one Member, even though that Member itself had already "disavowed" that practice.79 32. The European Communities submits that the Panel failed to examine the "totality" of the European Communities' legal system in its interpretation of heading 02.10.80 The European Communities notes that the Appellate Body has emphasized the need to consider implementing legislation on customs classification as well as classification practice during the Uruguay Round negotiations, and asserts that a series of contradicting acts would not permit a finding of "consistent practice".81 Accordingly, the Panel should have taken into account relevant jurisprudence of the European Court of Justice (the "ECJ") regarding the scope of heading 02.10 of the European Communities' Combined Nomenclature, a number of Explanatory Notes, and Binding Tariff Information ("BTI") notices relating to heading 02.10, all of which emphasize the notion of preservation under the European Communities' regime for classification of products under heading 02.10. Although the Panel referred to minutes of European Communities' customs committee meetings in 2002, it failed to consider the legislative measures that eventually resulted from those meetings.82 33. The European Communities argues that the Panel should not have limited its examination of the consistency of practice to the treatment of frozen salted chicken cuts with a salt content of between 1.2 and 3 per cent alone. Given that the interpretative issue to be resolved in this dispute is the meaning of the term "salted" in the concession contained in heading 02.10, relevant practice with respect to all kinds of salted meat subject to that heading should have been examined by the Panel. 34. The European Communities also challenges what it considers to be the Panel's failure to take into account relevant export classification practice of Brazil and Thailand. The European Communities contends that the definition in the Harmonized System of "customs tariff nomenclature" is not limited to the purpose of "levying duties of Customs on imported goods" as suggested by the Panel, and that the use of the Harmonized System is required for trade statistics for both imports and exports.83 According to the European Communities, neither Brazil nor Thailand argued that they used a classification system for exports different from the Harmonized System, and the export statistics of Brazil and Thailand, as well as of the United States, demonstrate that these countries accepted that such salted meats fell under heading 02.07.84 35. In addition, the European Communities argues that the jurisprudence of the International Court of Justice demonstrates that subsequent practice is established on the basis of the actions of high-level governmental representatives who have "international obligations" in mind, rather than on the basis of the daily activities of customs officers.85 The European Communities is of the view that the Panel "confused" Article 31(3)(b) with the concept of State responsibility, under which countries may be liable for acts of their officials.86 36. The European Communities also challenges the Panel for basing its finding of "consistency" on classification decisions by European Communities' port authorities during a limited period, namely between 1996 and 2002. The European Communities submits that the Panel failed to examine "consistency over time" and that it should not have relied on customs classification practice that had been corrected and thereby modified.87 If the Appellate Body considers that the classification practice of WTO Members is relevant for the interpretation of heading 02.10, the European Communities concludes that such practice would support its own position with respect to the meaning of the term "salted", namely, as requiring salting for preservation.88
37. The European Communities submits that the Panel incorrectly distinguished between the object and purpose of the treaty and that of individual provisions of the treaty. The European Communities asserts that the Panel should have ascertained the object and purpose of Article II of the GATT 1994, read in conjunction with heading 02.10 of the EC Schedule.89 38. The European Communities also argues that the Panel erred in holding that "concessions made by WTO Members should be interpreted so as to further the general objective of the expansion of trade in goods and the substantial reduction of tariffs".90 The Panel failed to adequately consider that the true object and purpose of Article II of the GATT 1994 is the security and predictability of reciprocal market access arrangements.91 This goal would be undermined if panels were allowed to accord a "bias" towards a reduction in tariffs, and if the concessions in Members' Schedules were to be interpreted on the basis of the subjective views of certain exporting Members alone.92 In the European Communities' view, such a "bias" would be inconsistent with Article 3.2 of the DSU. 39. In addition, the European Communities challenges the Panel's finding that the notion of "long-term preservation" is "uncertain" and thus inconsistent with the objective of security and predictability of tariff concessions.93 The European Communities considers that the terms "long-term preservation" and "preservation" are not intrinsically uncertain, given their use under other headings of the Harmonized System. The European Communities disputes that a customs official will face uncertainty in applying the criterion of long-term preservation; in particular for a customs official with access to tools of analysis, the "highly traditional" products classifiable under heading 02.10 are "recognizable" and "well-known".94 Moreover, the Panel's finding of uncertainty in the notion of "long-term preservation" is vitiated by its failure to apply the same test to the alternative criterion of "preparation", as proposed by Brazil and Thailand. 40. Finally, the European Communities argues that the Panel's own interpretation of heading 02.10 undermines the objective of protecting and preventing circumvention of tariff concessions negotiated and settled in trade negotiations. The Panel ignored the European Communities' argument that heading 02.10 does not have the object and purpose of securing market access arrangements for frozen poultry, and that negotiating parties knew that a product would need to be salted so as to ensure its preservation in order to qualify under heading 02.10.95
41. The European Communities submits that the notion of "circumstances of [a treaty's] conclusion" within the meaning of Article 32 of the Vienna Convention should be interpreted narrowly. Drawing on academic commentators96, the European Communities argues that circumstances of a treaty's conclusion must have directly influenced the common intentions of all parties to the treaty.97 The "multilateral aspect" of the circumstances of a treaty's conclusion has also been emphasized by the Appellate Body, suggesting a "stringent" threshold for using "practice" of Members as supplementary means for interpretation of WTO law.98 In this respect, the European Communities also considers relevant its arguments relating to "subsequent practice", including the need for deference to the formal procedure under Article IX:2 of the WTO Agreement and the need for such practice to demonstrate a high degree of consistency.99 42. The European Communities does not dispute that customs classification law and practice prior to and during negotiations of a treaty may qualify as "circumstances of [a treaty's] conclusion". However, the European Communities asserts that the Panel contravened the explicit guidance of the Appellate Body in EC – Computer Equipment to the effect that the classification practice of the European Communities must not be considered separately from its customs legislation; that classification practice of other WTO Members must also be taken into account; that practice regarding a tariff heading must include the interpretation of that heading "in all circumstances"; and that such practice "must have endured".100 43. The European Communities also challenges the Panel's observations on the timing of the "circumstances". According to the European Communities, a "circumstance" in the form of a "condition relating to a negotiating party" must have been an objective fact, evident to all negotiators at the time, and must be analyzed on a case-by-case basis.101 44. Finally, the European Communities challenges the Panel's concept of "constructive knowledge", whereby all negotiating parties are deemed to have knowledge of a particular act or instrument of a WTO Member once it has been published.102 The European Communities also disagrees with the Panel that an event that is deemed to be known by the participants in the negotiations could have influenced the negotiators and is relevant for the interpretation of a treaty under Article 32. The European Communities argues that "deemed knowledge" cannot substitute the need to demonstrate a "direct link" between a circumstance and the common intentions of the parties.103
45. The European Communities submits that the Panel mischaracterized the law and practice of the European Communities, in particular EC Regulation 535/94, and that this mischaracterization amounts to a distortion of facts contrary to Article 11 of the DSU.104 The European Communities challenges the Panel's use of this law and classification practice on the grounds that there was no trade in the products at issue at the time of the negotiations. The Panel should have considered the "totality" of the European Communities' legal system, including Section Notes, Chapter Notes, relevant Subheading Notes, and Explanatory Notes of the Combined Nomenclature, as well as the classification opinions of the European Communities and judgments of the ECJ.105 46. The European Communities challenges the Panel's interpretation of the ECJ's Gausepohl judgment106 as not being necessarily governed by the principle of "long-term preservation".107 According to the European Communities, the Panel erred in finding that EC Regulation 535/94 "superseded" the long-term preservation criterion in heading 02.10 of the Combined Nomenclature as recognized in the Gausepohl judgment.108 A Commission Regulation cannot override an interpretation given by the ECJ to the Combined Nomenclature, where that Nomenclature is implementing the Harmonized System. The European Communities argues that the Panel also incorrectly "dismissed" relevant Explanatory Notes to the Combined Nomenclature, although these Notes remained relevant for assessing classification practice even after the insertion of the Additional Note to the Combined Nomenclature through EC Regulation 535/94.109 47. The European Communities submits that, if the practice of all participating treaty parties must be taken into account when considering "circumstances of conclusion", this should extend to practice regarding all meat that is "salted, in brine, dried or smoked".110 In this respect, the Panel erred in rejecting a United States' customs classification ruling of 1993 regarding salted beef as evidence that heading 02.10 covers meat salted for preservation. 48. The European Communities is of the view that the Panel failed to determine properly the scope of relevant "circumstances" within the meaning of Article 32 as being those circumstances that could have influenced the common intentions of the parties with respect to heading 02.10 of the EC Schedule.111 The Panel failed to consider that the principle of preservation (as reflected in a United States classification ruling of 1993, and in European Communities' judgments and Explanatory Notes since the early 1980s) "prevailed" throughout the entire duration of the Uruguay Round negotiations in the minds of the negotiators with respect to heading 02.10.112 This practice was "confirmed through trade statistics which showed that only limited trade entered under heading 02.10, whereas the contentious issue was fresh, chilled and frozen [poultry] meat".113 49. The European Communities also argues that the results of tariff negotiations between 1986 and 15 December 1993 could not be altered by unilateral measures of one WTO Member.114 An act taken during the so-called verification period prior to the final adoption of the WTO Agreement could be of relevance, but compelling evidence would be required to prove that the negotiators had taken note of such act. No such evidence exists with respect to EC Regulation 535/94, in particular, because of its complex legal relationship with pre-existing ECJ case-law and Explanatory Notes to the Combined Nomenclature, as well as the absence of any discussion of this Regulation, or the scope of heading 02.10, at any point during the negotiations, the verification period, or thereafter. 50. The European Communities further challenges the Panel's finding that tariff classification laws and practice that do not amount to "subsequent practice" under Article 31(3)(b) may nonetheless be relevant as supplementary means of interpretation under Article 32.115 In the European Communities' view, a "high standard of consistency" would have to be demonstrated for such practice also to be relevant under Article 32.116 In any event, no exporter or Member State of the European Communities has challenged in the European Communities' legal system the measures that "rectified" the "temporary circumvention" of the application of heading 02.10.117 Moreover, neither Brazil nor Thailand has sought a classification ruling from the WCO. 51. Finally, the European Communities disagrees with the Panel that the Panel's conclusions under Article 32 were a "confirmation" of the meaning of heading 02.10 that it had derived from the application of Article 31.118 According to the European Communities, the Panel's conclusions under Article 32 are formally different and have a different scope than those under Article 31, and the Panel used Article 32 not to confirm, but to alter the meaning it had derived from its application of Article 31 of the Vienna Convention.
52. Brazil argues that the "factual context" of the term "salted", as identified by the Panel, is not only relevant, but must be taken into account in interpreting the term "salted" in heading 02.10 of the EC Schedule. In the light of the European Communities' arguments about the nature of "salted" meat products, the Panel had to determine whether the facts involving salted meat in this dispute corresponded to what the Panel had concluded was the ordinary meaning of the term "salted". Although "factual context" is not referred to explicitly in the rules of treaty interpretation as codified in the Vienna Convention, such an analysis is included within a panel's functions as set out in Article 11 of the DSU. Brazil contends that a treaty interpreter must know the facts of a case in order to properly apply the law to that case. 53. Brazil also rejects the European Communities' allegations that the Panel violated Article 11 of the DSU by distorting the available evidence on the record. With respect to the Panel's finding that even small quantities of salt have a preservative effect on meat, Brazil argues that this conclusion was primarily based on technical literature presented by Brazil, rather than on the evidence of the European Communities' expert. According to Brazil, the European Communities is, in effect, questioning the Panel's factual findings, in particular the Panel's appreciation of a given piece of evidence. In any event, the Panel did not misrepresent the statement of the European Communities' expert. 54. With respect to the Panel's finding that certain types of meat falling under heading 02.10 may require additional means of preservation, Brazil maintains that the reasons that such meats require preservation are of "no relevance to the point at issue"119; regardless of whether spoilage is due to the effect of slicing (growth of moulds and yeast), as argued by the European Communities, or due to rancidity, the fact remains that further preservation is required to prevent such spoilage. Finally, contrary to the European Communities' arguments, Brazil asserts that the evidence on the record supports the Panel's finding that a product preserved by salt for relatively short periods of time is not necessarily precluded from qualifying under heading 02.10 of the EC Schedule. Brazil submits that it "seems a fair assessment [of the Panel] that sliced non-refrigerated meat is preserved by salt for a shorter period of time than sliced refrigerated meat".120
55. Brazil rejects all of the European Communities' arguments challenging the Panel's findings regarding the "context" of the term "salted". Brazil argues that the term "in brine" is broader than "preservation", such that, even if "preservation" may be "one of the possible meanings ascribed to the term" "in brine", it is not the exclusive meaning.121 According to Brazil, the fact that heading 08.12 refers to "brine" as a "preservative solution" does not lend support to the European Communities' argument that the term "in brine" exclusively relates to preservation. Brazil refers to the WCO Secretariat's letter to the Panel, which stated that, in the absence of an explicit provision that the term "preserved" has a "certain influence" on heading 02.10, that term has no relevance for the classification of salted meat under heading 02.10.122 56. Brazil furthermore argues that preparation, and not preservation, is the "exclusive distinguishing characteristic common to all terms in heading 02.10".123 Brazil alleges that the terms in heading 02.10 have ordinary meanings other than preservation and that the terms "dried" and "smoked" in relation to food and meat do not exclusively deal with preservation. 57. Next, Brazil argues that the structure of Chapter 2 of the Harmonized System supports Brazil's interpretation that heading 02.10 refers to preparation, rather than preservation. Brazil disagrees with the proposition that refrigeration is the distinguishing feature of headings 02.01 to 02.08. Rather, heading 02.10 is an exception that covers all types of meat that have been salted, put in brine, dried, or smoked. The European Communities is also wrong, according to Brazil, in suggesting that the absence of a reference to refrigeration under heading 02.10 implies that refrigeration is not significant for that heading. Brazil argues that the reason refrigeration is not referred to in heading 02.10 is "because what gives the product its character ... is simply that [this product] has been salted, brined, dried or smoked".124 Brazil also refers to the Explanatory Note to Chapter 2 of the Harmonized System and argues that the reference there to fresh meat "packed with salt as a temporary preservative during transport" does not support the European Communities' position because preparing with salt is different from packing with salt.125 "Preparing" with salt, according to Brazil, entails a process that leaves meat in a state different from its natural state. 58. Finally, Brazil takes issue with the European Communities' arguments regarding the historical basis of heading 02.10. Brazil argues that refrigeration existed, and was provided for, in the 1937 Geneva Draft Nomenclature. Brazil also contends that the European Communities misrepresents the subject of Item 18 of the Geneva Draft Nomenclature. Contrary to the European Communities' arguments, Item 18 does not refer to slightly salted, dried, and smoked meat, but rather to meat that has been "simply prepared". Brazil also disagrees with the European Communities' contention that the phrase "otherwise simply prepared" in Item 18 is of no significance. The fact that cooked meats were included under Item 18—together with salting, putting in brine, drying, and smoking—demonstrates that all such meats were simple preparations, and that Item 18 was not intended for the purpose of preservation. Brazil also contends that the fact that the term "cooked or otherwise simply prepared" was moved from Chapter 2 to Chapter 16 in the Brussels Nomenclature "does not change the fact that [the Harmonized System] Notes to Chapter 16 and [the Harmonized System] Explanatory Notes to Chapter 2 expressly refer to the processes listed in Chapter 2 as 'prepared or preserved'".126
59. Brazil agrees with the Panel's finding that, in the present case, the relevant subsequent practice is the concordant, common and consistent sequence of acts by European Communities' customs authorities, occurring subsequent to the entry into force of the EC Schedule, which establishes the agreement of WTO Members regarding the interpretation of the concession contained in heading 02.10 of the EC Schedule.
60. Brazil submits that the European Communities is incorrect in suggesting that the relevant question before the Appellate Body in this appeal is whether acts of one WTO Member that are met with silence by other WTO Members can qualify as "subsequent practice". Brazil acknowledges that the classification practice of other Members may be relevant in the interpretation of tariff concessions of a certain Member's Schedule; however, given that the European Communities was the only Member that imported frozen salted chicken cuts and had a specific criterion for "salted meat" under heading 02.10 of its Combined Nomenclature, the classification practice of the European Communities is the only relevant practice in this case.127 Brazil also argues that the relevant acts were not objected to because the temporal proximity between the publication of EC Regulation 535/94 and the conclusion of the Uruguay Round resulted in "constructive knowledge".128 61. Brazil submits that the European Communities has confused the requirement that parties be in agreement on the interpretation of a treaty with the subsequent practice that consolidates that agreement. According to Brazil, Article 31(3)(b) of the Vienna Convention does not specify the number of parties that must engage in the relevant practice; rather, the requirement is that the subsequent practice must establish the agreement of the parties, which, in this case, is established as a fact. 62. Brazil submits that the European Communities' understanding of the term "salted" was known to all WTO Members when tariff concessions were negotiated, and was accepted by them when they signed the WTO Agreement; the authority of the Ministerial Conference and the General Council under Article IX:2 of the WTO Agreement to adopt interpretations of that Agreement must be distinguished from the authority of adopted panel reports as considered by the Appellate Body in Japan – Alcoholic Beverages II.129 Brazil finds support in the Appellate Body Report in Chile – Price Band System for its view that a Member's Schedule imposes obligations on the Member who made the concession and not on all Members.130 According to Brazil, the scheduling practice of only one Member may be considered relevant in the interpretation of its tariff concession, as long as that practice amounts to subsequent practice.131 63. Brazil also disputes the European Communities' argument that there is no difference between a WTO Member's Schedule and other WTO obligations. Brazil refers to the Appellate Body Report in EC – Computer Equipment as support for the proposition that, although all Members must agree on the scope of a tariff concession made by one Member, that tariff concession applies only to that one Member that made the concession. Tariff concessions may be identical in some cases, but the obligation under a concession is different from other WTO obligations, because it is unique to the Member that made it.132 In Brazil's view, the European Communities, through EC Regulation 535/94 and the inclusion of Additional Note 7 in the Combined Nomenclature, announced to its negotiating partners in the Uruguay Round the definition and scope of its tariff concession under heading 02.10 of its Schedule. 64. In addition, Brazil disagrees with the European Communities that the Panel's approach to establishing "subsequent practice" is contrary to the WTO Members' intention that Schedules should follow the Harmonized System. Although Schedules should be based on the Harmonized System, they are not identical to it, because the Harmonized System was the starting point, but not necessarily the end result, of the negotiation. Brazil argues that parts of the EC Schedule are based on the Combined Nomenclature, which is, in turn, partly based on the Harmonized System and partly based on the subheadings of the Combined Nomenclature and other provisions. One such provision is Additional Note 7 to the Combined Nomenclature, which provides for a definition of "salted meat" that is unique to the EC Schedule and that does not exist in the Schedule of any other Member.133 According to Brazil, that definition is "aligned with the terms and structure" of the Harmonized System.134 In contrast, the subsequent introduction through the challenged measures of the concept of "preservation" into heading 02.10 modifies and limits the Harmonized System. Brazil submits that the predictability and stability of the multilateral Schedules would be undermined if the term "salted" in heading 02.10 of the EC Schedule were found to relate exclusively to a process that ensures "long-term preservation".135
65. Brazil agrees with the Panel's assessment of "consistency" of the relevant practice.136 Contrary to the European Communities' assertion, the Panel did not fail to consider the European Communities' practice concerning products falling under heading 02.10 other than salted frozen chicken cuts as well as the practice of Brazil, Thailand, China, and the United States relating to heading 02.10. In this regard, Brazil points to the Panel's consideration of a BTI relating to dried salted ham.137 Brazil also asserts that the European Communities failed to provide any other evidence in support of its contention that some customs offices did not classify the products at issue under heading 02.10. 66. Brazil disagrees with the European Communities' submission that "subsequent practice" generally involves government representatives of a higher status than customs officials. The Panel treated correctly the European Communities' classification practice in the light of the Appellate Body's finding in EC – Computer Equipment that it is the customs classification practice of the importing Member that is important in the interpretation of tariff concessions.138 67. Brazil further submits that the Panel did not fail to examine the totality of the European Communities' law and jurisprudence surrounding the interpretation of heading 02.10. Brazil argues that the instruments upon which the European Communities would have the Panel rely largely predate the EC Schedule and cannot be considered as "subsequent practice" within the meaning of Article 31(3)(b) of the Vienna Convention.139 Brazil further notes that minutes of European Communities' customs committee meetings in 2002 indicate that the European Communities deliberately did not include a reference to "long-term preservation" in EC Regulation 535/94. As to consistency over time, Brazil argues that no BTI or any type of supporting material or documentation was produced by the European Communities in support of its argument that classification by its customs authorities was not consistent. Brazil also agrees with the Panel that post-2002 practice does not undermine the Panel's finding that the classification practice by the European Communities between 1996 and 2002 was consistent.140 68. Brazil agrees with the Panel's treatment of the export and import classification practice of Brazil and Thailand.141 Brazil states that export classification practice is less rigorous than import classification practice because, usually, export duties are not assessed and traders, rather than authorities, often undertake the actual classification. Moreover, Brazil has never imported the products at issue and, even if it had done so, it is the practice in the application of heading 02.10 in the EC Schedule that is at issue.142 Brazil also supports the Panel's treatment of the alleged "practice" of other WTO Members relating to heading 02.10. Because the evidence before the Panel was limited and concerned products that are not the same or identical to the products at issue, the Panel could draw no conclusions from that information.143
69. Brazil submits that the Panel did not incorrectly distinguish between the object and purpose of the WTO Agreement and the GATT 1994, on the one hand, and that of the specific heading in the EC Schedule, on the other hand. Brazil argues that the object and purpose of the treaty is the relevant inquiry, and that the tariff concession contained in heading 02.10 of the EC Schedule is part of the terms of that Schedule, which is, in turn, an integral part of the GATT 1994, pursuant to Article II of the GATT 1994. 70. Brazil also submits that the European Communities misconstrues the Panel's finding by arguing that the Panel's interpretation was "bias[ed]" toward the reduction of tariffs, instead of being based on the security and predictability of tariff concessions.144 Brazil points out that the wording of the Panel's reasoning flows from the language in the respective preambles to the WTO Agreement and the GATT 1994. 71. Brazil argues that the notion of "long-term preservation", used by the European Communities to define the meat classifiable under heading 02.10, would introduce a "great deal" of uncertainty, especially if the test to be applied at customs is whether the products are "well-known" or "instantly recognizable".145 Brazil submits that the European Communities presented no binding law or act to the Panel with a clear definition for the notion of "long-term preservation"146, and that the European Communities also failed to indicate where in the Harmonized System the notion of "long-term preservation" in relation to meat was to be found. Brazil also disagrees with the European Communities that negotiating parties knew that a meat product had to be salted for preservation to qualify under heading 02.10; rather, the knowledge of the parties was that heading 02.10 of the EC Schedule related to meat deeply and homogeneously impregnated with a salt content of not less than 1.2 per cent by weight.
72. Brazil proposes that, if the Appellate Body finds that the European Communities' classification practice of the products at issue under heading 02.10 does not amount to "subsequent practice" under Article 31(3)(b), it should consider the classification practice as supplementary means of interpretation under Article 32. Brazil argues that supplementary means of interpretation are not limited to the "preparatory work" of the treaty and the "circumstances of its conclusion", but can include evidence of subsequent practice.147
73. Brazil disagrees with the European Communities that, for "circumstances of [a treaty's] conclusion" to be relevant, they must have directly influenced the common intention of all the parties to the treaty. Brazil refers to the Appellate Body statement in EC – Computer Equipment that customs classification practice of one of the parties may be of relevance and that the importing Member's practice is of "great importance".148 Even though the Appellate Body considered the classification practice of exporting Members to be relevant in that case, the present case is different in this respect because there was no customs classification practice of Brazil, Thailand, or European Communities' customs authorities regarding the products at issue during the Uruguay Round. Furthermore, in the dispute in EC – Computer Equipment, the relevant part of the Combined Nomenclature did not contain a special criterion to define the product at issue; by contrast, in the present case, EC Regulation 535/94 inserted Additional Note 7 in the Combined Nomenclature with a special definition for "salted meat" found in heading 02.10.149 Thus, according to Brazil, in the present case, the classification practice of the importing Member is the most, if not the only, relevant practice. 74. With respect to the Panel's concept of "constructive knowledge", Brazil argues that a "circumstance" need not be evident to all the negotiators at the time of conclusion and finds support for its view in Appellate Body case-law and public international law literature.150 Brazil submits that the BTIs that were found by the Appellate Body to be "circumstances of conclusion" in EC – Computer Equipment could not have been evident to all the negotiators.
75. Brazil submits that the Appellate Body should not, as requested by the European Communities, disregard the customs legislation enacted by the European Communities at the time of the conclusion of the Uruguay Round on the grounds that there was no trade in frozen salted chicken cuts at that time. Brazil contends that legislation defining the products at issue for the purpose of the European Communities' Combined Nomenclature is a relevant "circumstance". 76. In Brazil's view, the Panel correctly interpreted the Dinter and Gausepohl judgments of the ECJ.151 Brazil argues that the Dinter judgment did not deal specifically with the scope of heading 02.10 and provides only general comments regarding Chapter 2 of the Combined Nomenclature, without any direct relevance to this case. Brazil also submits that the Panel adequately dealt with the Gausepohl judgment. In Brazil's view, the ECJ found no support in the Harmonized System for the conclusion that "salting", under heading 02.10, is a process for preserving meat.152 In contrast, EC Regulation 535/94 introduced an objective criterion (deep salt impregnation of 1.2 per cent) for salted meat, and did not refer to "long-term preservation". As to the European Communities' argument that EC Regulation 535/94 cannot change the ECJ's interpretation of a Harmonized System definition, Brazil submits that the ECJ does not have the authority to determine the meaning of the Harmonized System.153 Even if the European Commission took the ECJ's Gausepohl judgment into account in EC Regulation 535/94, that judgment suggests that deep impregnation with 1.2 per cent of salt meets the ECJ's understanding of "long-term preservation".154 77. Brazil disagrees with the European Communities that EC Regulation 535/94 is not relevant as "circumstance" of conclusion because the negotiations on the EC Schedule were concluded prior to the period of verification of the Schedules.155 According to Brazil, the European Communities acknowledges that not all negotiators need to have actual knowledge of an act. Brazil submits that acceptance of the definition of "salted meat" in EC Regulation 535/94 during the process of verification of the Schedules can be deduced from the lack of objections.156 78. Finally, Brazil disagrees with the European Communities that the Panel used Article 32 to alter its conclusion concerning the meaning of the term "salted" that it had arrived at in applying Article 31. According to Brazil, the Panel concluded under Article 31 that the term "salted" in heading 02.10 is a broad term that is not limited to the notion of "long-term preservation"; under Article 32, the Panel confirmed that EC Regulation 535/94 did not provide that salting must be for "long-term preservation".
79. Thailand submits that the Panel properly examined the factual context for the consideration of the ordinary meaning of the term "salted". Thailand refers to the principle under Article 31(1) of the Vienna Convention that "a treaty shall be interpreted in good faith", and claims that, under "factual context", the Panel took into account consequences that "normally" and "reasonably" flow from the text.157 In Thailand's view, if the Panel's analysis of the "ordinary meaning" had eschewed "factual context" and instead had included only dictionary definitions, the result would have been too restrictive and also inconsistent with prior Appellate Body rejections of a mechanical reliance on dictionaries.158 80. Thailand also challenges the European Communities' claim that the Panel failed to make an objective assessment of the facts in accordance with Article 11 of the DSU. Thailand argues that an appellant faces a high hurdle to establish that a panel has committed an "egregious error" in the appreciation of evidence, particularly with respect to scientific evidence.159 Contrary to the allegation of the European Communities, the Panel's conclusions with respect to the ordinary meaning of "salted" were not based on the Panel's appreciation of the European Communities' expert's opinions. Thailand further submits that the European Communities has not established that the Panel failed to make an objective assessment of the scientific evidence. With respect to the Panel's finding that a 3 per cent salt content may prevent spoilage in meat, Thailand argues that the Panel did not make reference to a product with a 3 per cent salt content that is not chilled; rather, the Panel was discussing a meat product that was "raw and chilled". 81. With respect to the European Communities' claim that it is the slicing of the preserved product, and not the salt content, as the Panel found, that makes necessary the use of additional means of preservation under heading 02.10, Thailand submits that the basis for this claim of error is "unclear".160 This is because, before the Panel, the European Communities did not contest the fact that meats such as Parma ham, prosciutto, and jamón serrano require further means of preservation. Thailand further argues that, in making the finding that "a product preserved by salt for relatively short periods of time is not necessarily precluded from qualifying under heading 02.10", the Panel did not rely on evidence by the European Communities' expert alone, but also relied on the European Communities' statements acknowledging this fact.161 Finally, Thailand submits that, even if the Appellate Body were to find that the Panel did not conduct an objective assessment of the facts contested by the European Communities, this would not affect the overall conclusions of the Panel with respect to the ordinary meaning of the term "salted".
82. Thailand argues that the European Communities has failed to establish that the te |
