Report of the Appellate Body

(Continued)

B. Claims of Error by Thailand � Other Appellant

1. Terms of Reference

(a) Measures within the Terms of Reference

113. Thailand submits that the Panel erred in its conclusion that EC Regulations 1871/2003 and 2344/2003 (the "subsequent measures") were outside the Panel's terms of reference. Thailand's panel request was broad enough to include the two subsequent measures within the Panel's terms of reference, because the panel request referred to the "classification" of the product at issue, which is "a broader concept" than the two regulations listed in the panel request.²¹⁷ Similar to the two measures explicitly included in the panel request, the subsequent measures have the effect of classifying the product at issue under heading 02.07, rather than heading 02.10, and, thereby, result in less favourable treatment for the product than that provided for in the EC Schedule.²¹⁸ According to Thailand, had the Panel properly applied the standards applicable under Article 6.2 of the DSU, it should have concluded that Thailand's panel request was "broad" enough to cover the subsequent measures as well.²¹⁹

114. Thailand rejects the Panel's argument that Thailand's panel request was not broad enough because it did not include the phrase "as amended", as used in the dispute in  Chile � Price Band System²²⁰; applying such a "mechanical test" of whether a panel request contains generic or expansive language would provide WTO Members "with counterproductive incentives to be vague in their panel requests".²²¹ Thailand argues that EC Regulations 1871/2003 and 2344/2003 have the same effect as the instruments specifically referred to in Thailand's panel request. Thailand refers to the Appellate Body's finding in  Chile � Price Band System, where the Appellate Body considered relevant that the regulatory changes at issue "did not change the essence of the measure".²²²

115. Thailand contends that the inclusion of the two subsequent European Communities' measures would not frustrate the due process objective of Article 6.2 of the DSU. The European Communities was provided adequate notice of the nature of Thailand's case and of the measures being challenged, such that the European Communities was not impaired in its ability to defend itself on the measures at issue. The third parties were also aware of the nature of Thailand's case, such that their interests equally were not prejudiced. Moreover, Thailand argues that the Panel should have included EC Regulations 1871/2003 and 2344/2003 in its terms of reference to enable a prompt and positive solution to the present dispute because treating the two measures as separate from the original measures could have a negative impact on the European Communities' implementation of the Panel's ruling.

(b) Products within the Terms of Reference

116. Thailand submits that the Panel erred in finding that the products at issue were limited to chicken cuts with a salt content of 1.2 to 3 per cent. According to Thailand, the Panel erred in holding that Article 6.2 does not require a definition of the products within the terms of reference. Pursuant to Article 7.1 of the DSU, a panel's terms of reference contain the requirement to "examine the matter referred to the DSB" by a complainant; as a result, in the past, the Appellate Body "has generally followed the description of the product contained in the [panel] request".²²³ Thailand contends that, to the extent the Panel believed that it was not required to consider all of the products referred to in the panel request, the Panel erred as a matter of law.

117. Furthermore, in Thailand's view, the Panel erred in its definition of the products at issue. Thailand's panel request did not describe any upper-limit for the salt content of the chicken cuts for which classification was at issue. According to Thailand, the Panel's ruling leads to the "anomalous situation" where the Panel has found that chicken cuts with a salt content of between 1.2 and 3 per cent are to be classified as "salted" meat under heading 02.10, but has not found that chicken cuts with a salt content greater than 3 per cent must be similarly classified.²²⁴ According to Thailand, the Panel erroneously held that the scope of the measures at issue defined the scope of the products at issue. The Appellate Body's findings in  EC � Computer Equipment suggest that the Panel should have looked first to the products at issue and then used that definition to identify the measures at issue.

2. Interpretation of the EC Schedule in the Light of Article 31 of the Vienna Convention

118. Thailand submits that the Panel erred in interpreting certain relevant aspects of the Harmonized System. First, according to Thailand, the Panel assumed that all Harmonized System Notes�Section Notes, Chapter Notes, Heading and Subheading Notes�referred to by the parties are Explanatory Notes and, therefore, are not part of the Harmonized System and are non-binding. Thailand considers that the Panel erred in its legal characterization of the Chapter Note to Chapter 16 as an Explanatory Note and, therefore, in its conclusion that the Chapter Note to Chapter 16 does not form part of the Harmonized System and is non-binding. The Panel's conclusion is "clearly incorrect" and results in undermining the weight to be given to the content of the Chapter Note to Chapter 16 for the interpretation of the term "salted" in heading 02.10.²²⁵

119. Secondly, in Thailand's view, the Explanatory Notes to Chapter 2 and to heading 02.10, when read together with the Chapter Note to Chapter 16, "clearly indicate" that preparation determines classification under heading 02.10.²²⁶ The Panel erred in not drawing a clear conclusion that these Notes confirm that the processes listed in heading 02.10 refer to preparation. Chapter 2 covers meat that is fresh, chilled, frozen, and salted, in brine, dried, or smoked, and, as such, is prepared or preserved. Fresh meat is not prepared or preserved; meat that is chilled or frozen is preserved. This implies that meat that is salted, in brine, dried, or smoked must be prepared. Thailand disagrees with the Panel that the terms "preparation" and "preservation" are not "mutually exclusive"²²⁷ because this finding fails to give proper meaning to all the terms of the treaty and renders the term "prepared" in the Chapter Note to Chapter 16 "inutile".²²⁸ Even if there were a degree of overlap between the notions of "preparation" and "preservation", it would still be correct to say that it is "preparation" that characterizes heading 02.10.

120. Thirdly, Thailand argues that the Panel erred in its consideration of General Rule 3. Thailand disagrees with the Panel's finding that the parties to the dispute "concur[red] that the condition for [the] application [of General Rule 3] has not been fulfilled".²²⁹ Thailand submits that the reason it did not consider that the products at issue could be  prima facie  classifiable under two headings was that it considered the products at issue to fall under heading 02.10 only; the European Communities, in contrast, considered that the products fell under heading 02.07 only. According to Thailand, "[t]he fact that opposing parties put forward different views about the correct classification of the products at issue indicates that the product at issue was prima facie classifiable under two headings".²³⁰ Furthermore, the fact that the European Communities itself, at various periods, classified the products at issue under both heading 02.07 and heading 02.10, and that the European Communities' Customs Code Committee also indicated that the products were classifiable under each of these two headings, should have indicated to the Panel that it had sufficient grounds for resorting to the application of General Rule 3.

C. Arguments of the European Communities � Appellee

1. Terms of Reference

(a) Measures within the Terms of Reference

121. The European Communities requests that the Appellate Body reject Brazil's and Thailand's appeals regarding the Panel's terms of reference. The European Communities argues that the approach used by Brazil and Thailand, permitting the addition of measures on the condition that the general effect of those measures is similar to the ones identified in the panel requests, is "clearly at odds with the DSU and WTO jurisprudence", and would "lead to the Panel's terms of reference waxing and waning throughout a dispute settlement proceeding".²³¹ Terms of reference are limited to measures that existed at the time of the establishment of a panel, and Article 7.1 of the DSU assumes that the specific measures will have been identified in the panel request. The exceptions to this principle include amendments of an identified measure, under the conditions that the measure is "essentially the same" after the amendment and the terms of reference are sufficiently broad to cover the issue.²³² The reliance of Brazil and Thailand on Articles 3.4 and 3.7 of the DSU suggests that broad objectives of the DSU would override the specific rules of Article 6.2 of the DSU, an approach with which the European Communities disagrees. In any event, the inclusion of all legal measures that are considered to have a similar effect is not indispensable to securing a positive solution to the dispute.

122. In the European Communities' view, the "'essence' test" refers to modifications of the same measure, rather than to measures that are different but have broadly the same effect as measures identified in the panel request.²³³ Moreover, the European Communities argues that the subsequent measures are "different in nature" from the measures identified in the panel requests and are "not 'in essence the same'".²³⁴ The subsequent measures have a broader scope than the measures identified in the panel requests, because the subsequent measures refer not only to chicken cuts, but to any kind of meat. Furthermore, the measures identified in the panel requests have not been amended by the subsequent measures and "remain valid".²³⁵ Finally, the measures differ in their legal implications; the two measures identified in the panel requests "simply designate the appropriate classification for a particular product"; in contrast, EC Regulation 1871/2003 "reconfirms a basic criterion�long-term preservation�on which to interpret heading 02.10".²³⁶

123. In addition, the European Communities argues that, to extend the scope of a panel's jurisdiction, a set of "stringent conditions" must be fulfilled.²³⁷ It is not sufficient to establish that the due process rights of the defendant have not been prejudiced. The European Communities points out that, due to the "dilatory way" in which Brazil and Thailand made their claim concerning the terms of reference, namely, at a time when the panel proceedings were more than half completed, the European Communities' due process rights were not respected.²³⁸ Also, third parties were denied their due process rights, because it was only after the last opportunity for third parties to express their views that Brazil and Thailand first made claims concerning the Panel's terms of reference.

(b) Products within the Terms of Reference

124. The European Communities contends that Brazil's and Thailand's allegations of error concerning the products at issue are "closely intertwined" with their allegations of error concerning the measures at issue.²³⁹ The European Communities also fails to see how the question of the products at issue affects, and is relevant for, the questions of legal interpretation before the Panel and the Appellate Body, as a matter independent of the measures that were identified. The European Communities agrees with the Panel that its terms of reference are defined by the measures identified in the panel requests; it is, however, "unclear" to the European Communities as to why the Panel decided nevertheless to define the products at issue.²⁴⁰ The Panel's statement that the products at issue "are the specific products affected by the findings and recommendations" made by the Panel in its Reports is erroneous, because the Panel incorrectly interpreted heading 02.10 of the EC Schedule, which, in the European Communities' view, applies to all meats falling under Chapter 2. As a result, the Panel's findings and recommendations "inevitably affect a far larger range of products" than those mentioned in the specific measures at issue.²⁴¹

125. The European Communities further submits that the Appellate Body made its finding in EC � Computer Equipment�that it may be necessary to identify the product in order to identify the specific measures at issue�in a context where actions of individual customs offices were challenged; thus, in that dispute, the identification of the product was "key to identifying the measures at issue".²⁴² According to the European Communities, the product at issue is not relevant "in and of itself" under Article 6.2; rather, it may be relevant only to help identify the "specific measures at issue".²⁴³

2. Interpretation of the EC Schedule in the Light of Articles 31 and 32 of the Vienna Convention

126. The European Communities agrees with the Panel's conclusions that the Explanatory Notes to the Harmonized System are not conclusive with respect to whether the notion of "preparation" or the notion of "preservation" characterizes heading 02.10. The European Communities agrees with Thailand that the Panel did not "explicitly recogniz[e]" that the Chapter Note to Chapter 16 of the Harmonized System is binding, but argues that the Panel made no comment on the weight it attached to the various Notes.²⁴⁴ As a result, it is not obvious how attaching more weight to the Note could have led the Panel to a different conclusion.

127. The European Communities also cautions that the Notes to the Harmonized System should be used "only to attempt to elucidate the text which is being interpreted [and not be] treated as though they are the terms of the treaty being interpreted".²⁴⁵ Furthermore, the European Communities submits that there are several meats falling under Chapter 2 other than those that are "salted, in brine, dried or smoked" to which the word "prepared" can be applied. An analysis of the Harmonized System reveals "numerous examples" of the word "preparation" being used as a broad term in relation to various food products.²⁴⁶

128. With respect to General Rule 3, the European Communities contends that the processes of interpretation set out in Articles 31 and 32 of the  Vienna Convention  lead to the conclusion that the term "salted" in heading 02.10 does not cover products that have not been salted for preservation. Nevertheless, even if this were not the case, it is "far from clear" that the General Rules can be applied to interpret the scope of the term "salted".²⁴⁷ The European Communities rejects the argument that products are  prima facie  classifiable under two or more headings whenever there is a dispute about classification; it also contests that it considered the products at issue to be classifiable under two headings. Whether the condition for the application of General Rule 3 is fulfilled cannot depend on the views of one party, but must be assessed objectively.

129. In the European Communities' view, application of General Rule 3(a) leads to a resolution of the matter. Heading 02.07 contains the "most specific description" because it refers to "poultry", which is more specific than the term "meat" in heading 02.10. The European Communities disagrees with the alternative argument, presented in the letter of the WCO Secretariat to the Panel, that it may be the processing (that is, freezing and salting) that determines the classification in the present case. According to the European Communities, there is no reason why "salting" should be regarded as more specific than "freezing".²⁴⁸ The only "clear indication" that can be deduced from General Rule 3(a) is that "poultry" is more specific than "meat".²⁴⁹ Consequently, it is unnecessary to apply General Rule 3(c). In any case, General Rule 3(c) raises an "important issue of principle", because the European Communities questions whether a finding that a product falls under two or more headings "can be made after a correct application of the Vienna Convention".²⁵⁰ Should either the Panel or the Appellate Body make such a finding of "non  liquet", this would imply that Brazil and Thailand have failed to make their case, such that a finding against them would have to be made. The European Communities adds that General Rule 3(c) should be seen as "a rule intended for classification of particular consignments", rather than for the interpretation of a tariff concession as required in the present dispute.²⁵¹

130. With respect to the Geneva Draft Nomenclature of 1937, the European Communities argues that this document may be relevant to the interpretation of the Harmonized System only as "supplementary means" under Article 32 of the Vienna Convention, and not as "context" under Article 31. The European Communities also agrees with the Panel's finding that "the evolution of the terms and structure of Chapter 2 of the [Harmonized System] does not definitively indicate whether or not the predecessor to heading 02.10 of the [Harmonized System] was characterized by the notion of 'preparation' and/or 'preservation'".²⁵² According to the European Communities, the distinction between fresh/chilled meat and frozen meat under that Draft Nomenclature was made at the low "tertiary level"²⁵³ and was introduced only by those countries that wished to apply this distinction, while other countries chose not to do so.²⁵⁴ The "real lesson" from the Geneva Draft Nomenclature is that "meats that have been subjected to traditional preserving methods should be brought together and given common treatment".²⁵⁵ In the transition from the Brussels Nomenclature to the Harmonized System, these products were "kept together", while "cooked and otherwise prepared" meats were taken out of this category and placed elsewhere.²⁵⁶

IV. Arguments of the Third Participants

A. China

131. China disagrees with the argument of the European Communities that "the provision at issue, the object and purpose of which must be ascertained, is Article II of the GATT 1994 read in conjunction with the specific concession at issue, here, heading 02.10 of the EC Schedule."²⁵⁷ China notes that Article 31(1) of the Vienna Convention requires interpretation of a treaty "in the light of  its  object and purpose"²⁵⁸; this implies determining the object and purpose of the treaty  as a whole  rather than its individual provisions.

132. China accepts that an interpretation of heading 02.10 of the EC Schedule would include considering the meaning of the relevant terms in the light of their object and purpose. According to China, the concessions contained in the EC Schedule are treaty terms of the WTO Agreement  and the GATT 1994, and these treaties are the relevant sources for ascertaining the object and purpose. China agrees with the Panel that the relevant object and purpose is the security and predictability of the reciprocal and mutually advantageous arrangements manifested in the form of concessions.²⁵⁹

133. Moreover, China supports the Panel's finding that the inclusion of a "long-term preservation" criterion in the interpretation of the term "salted", in the concession contained in heading 02.10 of the EC Schedule, could undermine the object and purpose of the security and predictability of the WTO Agreement  and the GATT 1994.²⁶⁰ China disagrees with the European Communities' argument that "preservation" is a predictable criterion and considers it inconsistent with the European Communities' acknowledgment that EC Regulation 1223/2002 and EC Decision 2003/97/EC do not apply a criterion of "long-term preservation".²⁶¹ In this regard, China notes that the European Communities stated that if a product has been "frozen" within the meaning of heading 02.07, it will still be classifiable under heading 02.10 of the EC Schedule as a "salted" product, provided that the salting is for "long-term preservation" within the meaning of these measures.²⁶² In addition, China considers that the European Communities' reliance on the use of terms such as "long-term use" and "provisionally preserved" in other parts of the Harmonized System is misplaced, and that such terms do not assist in the interpretation of heading 02.10 in the light of the object and purpose of the  WTO Agreement  and the GATT 1994.²⁶³

134. China agrees with the Panel that a customs officer would have practical difficulties in applying the criterion of "long-term preservation".²⁶⁴ There is no clear definition of "long-term preservation" and no specific guidelines for customs officers. China illustrates the uncertainty of the criterion with two examples. First, products that have been salted for purposes other than long-term preservation, and frozen for long-term preservation, could be attributable to both salting and freezing, because a customs officer would have difficulties in ascertaining the purpose of these processes for a particular product. Secondly, China posits that long-term preservation of certain products might only be possible by a  combination of both salting and freezing, which again would cause difficulties for a customs officer to classify the product.

135. China supports the Panel's findings relating to "circumstances of conclusion" within the meaning of Article 32 of the Vienna Convention. China believes that the Panel did not mischaracterize the law of the European Communities in finding that EC Regulation 535/94 superseded the criterion of long-term preservation governing the scope of heading 02.10 as confirmed in the ECJ's  Gausepohl  judgment.²⁶⁵ According to China, the European Communities' argument that EC Regulation 535/94 did not change the existing ECJ interpretation of the term "salted" in heading 02.10 is untenable because of the European Communities' subsequent inclusion of
Additional Note 7 in the Combined Nomenclature and the European Communities' issuance of certain BTIs.²⁶⁶ Moreover, China submits that the temporal proximity of the publication and entry into force of EC  Regulation  535/94 to the conclusion of the Uruguay Round supports the view that EC Regulation 535/94, indeed, set forth the classification criterion relevant for the EC Schedule and established the common intentions of the negotiating parties.²⁶⁷

B. United States

136. The United States submits that the description of the term "salted" meat in EC Regulation 535/94 is what the European Communities had accepted, before the conclusion of its Schedule in the Uruguay Round, as being the ordinary meaning of the term according to Article 31(1) of the  Vienna Convention.²⁶⁸ This description�which was inserted into the Combined Nomenclature�provided that the term "salted" meat referred to meat "deeply and homogenously impregnated with salt in all parts, having a total salt content of not less than 1.2% by weight".²⁶⁹ The United States points out that EC Regulation 535/94 was issued prior to the completion of the process of verification of the EC Schedule during the Uruguay Round.²⁷⁰

137. Alternatively, the United States agrees with the Panel's approach of considering EC Regulation 535/94 as part of the "circumstances of [the] conclusion" of the WTO Agreement in accordance with Article 32 of the Vienna Convention.²⁷¹ The United States refers to the Appellate Body Report in EC � Computer Equipment, where the Appellate Body stated that a Member's classification practice and customs legislation at the time of tariff negotiations are relevant as "circumstances of [the] conclusion" of the WTO Agreement.²⁷² In this light, if the meaning of the term "salted" in heading 02.10 of the EC Schedule is ambiguous or obscure, EC Regulation 535/94 �issued during the Uruguay Round and relating to that term�should be used as a "circumstance" in interpreting its meaning.²⁷³

138. Furthermore, the United States contends that the European Communities' reference to a single ruling by United States' customs authorities cannot amount to United States' "practice" on customs classification of the products at issue.²⁷⁴ The United States emphasizes that the product at issue in the United States' customs ruling of November 1993 was fresh and frozen meat to which 3 per cent of salt had been added "similar to fresh beef sprinkled and packed in salt", whereas the products at issue in this case are described as "deeply and evenly impregnated with salt".²⁷⁵ These descriptions demonstrate that the two products are not similar. Therefore, the United States disagrees with the European Communities that these products are "identical in all material respects", and that the United States has a practice of classifying under heading 02.10 only products that are preserved by salt.²⁷⁶

139. The United States agrees with the Panel that a provision in a treaty must be interpreted in the light of the treaty's "object and purpose", not in the light of the "object and purpose" of that particular provision.²⁷⁷ The word "its" before "object and purpose" in Article 31(1) of the Vienna Convention refers to the singular "treaty" rather than to the plural "terms" of the treaty.²⁷⁸ Furthermore, according to the United States, the Appellate Body reports referred to by the European Communities do not support the European Communities' position.²⁷⁹ The United States asserts that the European Communities may have confused the meaning of the term "object and purpose" under Article 31(1) with the question of what is a particular treaty provision's purpose.²⁸⁰ The United States explains that any provision has a "purpose", but such "purpose" can be found only by determining the meaning of the provision, which in turn is determined by interpreting the provision based on the customary rules of interpretation found in Articles 31 and 32.²⁸¹ The United States argues that identifying  a priori  some "purpose" of a provision and then interpreting the text on the basis of that "purpose" would not be in accordance with customary international law and would give parties to a dispute the possibility of ascertaining "purposes" that suit their particular policy objectives.²⁸²

140. Finally, the United States agrees with the European Communities description of the general analytical approach that a WTO panel should take to municipal law. WTO panels may need to determine the meaning of municipal law in order to decide whether a Member is complying with its WTO obligations.²⁸³ In order to determine the meaning of a particular municipal law of a Member it is necessary to examine the status and meaning of that measure within the municipal legal system itself.²⁸⁴ In  US � Carbon Steel, the Appellate Body explained that, to make an objective assessment of the meaning of a municipal law, it is important to look at "the consistent application of such laws, the pronouncements of domestic courts on the meaning of such laws, the opinions of legal experts and the writings of recognized scholars."²⁸⁵ In this light, the United States submits that an objective assessment of the meaning of a measure requires a case-by-case analysis which looks at the rules of the municipal system in their totality and studies the operation and actual status of the measure within such legal system.²⁸⁶

V. Issues Raised in this Appeal

141. The following issues are raised in this appeal:

(a) regarding the terms of reference:

(i) with respect to the specific measures at issue in this dispute,
whether the Panel erred in finding that Commission Regulation (EC)
No. 1871/2003 ("EC Regulation 1871/2003") and Commission Regulation (EC) No. 2344/2003 ("EC Regulation 2344/2003") are outside the Panel's terms of reference;

(ii) with respect to the specific products at issue in this dispute, whether the Panel erred in finding that the Panel' terms of reference were limited to frozen boneless chicken cuts impregnated with salt, with a salt content of 1.2 to 3 per cent;

(b) whether the Panel erred in finding that frozen boneless chicken cuts impregnated with salt, with a salt content of 1.2 to 3 per cent (the specific products at issue), are covered by the tariff commitment under heading 02.10 of the European Communities' Schedule LXXX (the "EC Schedule");

(c) whether, in coming to the conclusion under (b), the Panel erred in interpreting the term "salted" in the tariff commitment under heading 02.10 of the EC Schedule, and more specifically, in applying the rules of treaty interpretation codified in Articles 31 and 32 of the Vienna Convention on the Law of Treaties (the "Vienna Convention"), the Panel erred:

(i) by taking into account what the Panel referred to as the "factual context for the consideration of the ordinary meaning" of the term "salted";

(ii) in respect of context:

- by finding that an examination of the terms contained in heading 02.10 of the EC Schedule other than "salted" does not clarify the ordinary meaning of the term "salted";

- by finding that the terms and structure of Chapter 2²⁸⁷  and their evolution, the Explanatory Note to heading 02.10 and that to Chapter 2, and the Note to Chapter 16 of the Harmonized Commodity Description and Coding System of the World Customs Organization ("WCO") (the "Harmonized System"), do not clarify the meaning of the term "salted" in heading 02.10 of the EC Schedule;

- by characterizing the Note to Chapter 16 of the Harmonized System as an Explanatory Note that is not binding, rather than as a Chapter Note that forms part of the Harmonized System and is therefore binding; and

- by finding that General Rule 3 of the World Customs Organization's General Rules for the Interpretation of the Harmonized System (the "General Rules") is not applicable in this case because the products at issue are not prima facie classifiable under two or more headings of the Harmonized System²⁸⁸;

(iii) in respect of "object and purpose":

- by finding that an interpretation of the term "salted" in heading 02.10 of the EC Schedule, as including the criterion of preservation, could undermine the object and purpose of security and predictability in market access arrangements, which underlie both the Marrakesh Agreement Establishing the World Trade Organization (the "WTO Agreement ") and the General Agreement on Tariffs and Trade 1994 (the "GATT 1994");

(iv) in respect of "subsequent practice":

- in its interpretation of the concept of "subsequent practice" within the meaning of Article 31(3)(b) of the Vienna Convention;

- by finding that the European Communities' practice of classifying the products at issue under heading 02.10 of the EC Schedule between 1996 and 2002 amounts to "subsequent practice" within the meaning of Article 31(3)(b); and

- in its analysis of "consistency" of practice at the European Communities and multilateral levels; and

(v) in respect of "circumstances of the conclusion of a treaty":

- in its interpretation of the concept of "circumstances of conclusion" within the meaning of Article 32 of the Vienna Convention;

- by limiting the analysis of "circumstances" to the "prevailing situation in the European Communities" and failing to consider the prevailing situation internationally;

- by developing and applying the notion of "constructive knowledge"; and

- by misinterpreting relevant customs classification practice, legislation and jurisprudence of the European Communities; and

(d) whether the Panel complied with its obligations under Article 11 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (the "DSU") in making its conclusions under Article 31 with respect to "factual context" and under Article 32 of the Vienna Convention with respect to "circumstances of the conclusion of a treaty".

VI. Introduction

142. The present dispute concerns the question whether certain European Communities' measures pertaining to the classification of imported frozen and salted chicken cuts result in treatment for those chicken cuts that is less favourable than that provided for in the EC Schedule, in violation of Article II of the GATT 1994. The EC Schedule contains two tariff commitments relevant to this dispute, namely, under heading 02.07, concerning "meat and edible offal, of the poultry of heading No. 0105, fresh, chilled or frozen"²⁸⁹, and under heading 02.10, concerning "meat and edible meat offal, salted, in brine, dried or smoked". In March 1994, the European Communities adopted Commission Regulation (EC) No. 535/94 ("EC Regulation 535/94"). This Commission Regulation amended Annex I of Commission Regulation (EEC) No. 2658/87, inserting an Additional Note to the European Communities' Combined Nomenclature.²⁹⁰ The effect of this Note was that the term "salted" "means meat or edible meat offal which has been deeply and homogenously impregnated with salt in all parts, having a total salt content no less than 1.2% by weight." In 1983, the European Court of Justice (the "ECJ"), in the  Dinter  judgment²⁹¹, had addressed the question whether turkey meat seasoned with salt and pepper was properly classified under Chapter 2 or, instead, Chapter 16 of the European Communities' Combined Nomenclature. In 1993, the ECJ, in the Gausepohl  judgment²⁹², addressed the question under which circumstances salted bovine meat would be considered "salted" within the meaning of heading 02.10 of the European Communities' Combined Nomenclature.²⁹³

143. Following EC Regulation 535/94, between 1996 and 2002, various customs offices of the European Communities classified the products at issue in this dispute�namely, "frozen boneless chicken cuts impregnated with salt, with a salt content of 1.2% � 3%"²⁹⁴�as "salted" meat under heading 02.10. In 2002, by means of Commission Regulation (EC) No. 1223/2002 ("EC Regulation 1223/2002"), the Commission of the European Communities determined that frozen boneless chicken cuts with a salt content of 1.2 to 1.9 per cent were to be classified as "frozen" meat under heading 02.07 and, thus, not under heading 02.10. In 2003, by Commission Decision No. 2003/97/EC ("EC Decision 2003/97/EC"), the Commission directed the Federal Republic of Germany to withdraw certain Binding Tariff Information ("BTIs")²⁹⁵, which classified frozen boneless chicken cuts with a salt content of 1.9 to 3 per cent as "salted" meat, by stating that the products covered by those BTIs were properly classified as "frozen" meat under heading 02.07. In October 2003, the European Communities enacted EC Regulation 1871/2003, according to which the term "salted", under heading 02.10, "mean[s] meat and edible meat offal deeply and homogeneously impregnated with salt in all parts and having a total salt content of not less than 1.2% by weight, provided it is the salting which ensures long-term preservation."²⁹⁶ This provision was also reflected in EC Regulation 2344/2003 with respect to the European Communities' Combined Nomenclature. Thailand commenced exporting frozen salted chicken to the European Communities in 1996, and Brazil started doing so in 1998.²⁹⁷ More details concerning the factual background to this dispute are provided in paragraphs 2.18-2.41 of the Panel Reports.

144. Before the Panel, Brazil and Thailand alleged that, through EC Regulation 1223/2002 and EC Decision 2003/97/EC, "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."²⁹⁸

145. The ultimate question before us in this dispute is whether the measures at issue are consistent with the obligations of the European Communities under Article II:1(a) and Article II:1(b) of the GATT 1994. More specifically, the question is whether the measures at issue result in treatment of the products at issue�namely, "frozen boneless chicken cuts impregnated with salt, with a salt content of 1.2% � 3%"²⁹⁹�that is less favourable than that provided for under heading 02.10 of the EC Schedule, because these measures subject the products at issue to duties that are in excess of those provided for in the EC Schedule and, potentially, to special safeguard measures. Resolving this question requires us to interpret heading 02.10 of the EC Schedule, which, like all the Schedules of the Members of the World Trade Organization ("WTO"), is an integral part of the GATT 1994 as well as of the WTO Agreement, by virtue of Article II:7 of the GATT 1994.³⁰⁰

146. It is not in dispute in this case that, if the products at issue are covered by the tariff commitment contained in heading 02.07 of the EC Schedule, and not by the one contained in heading 02.10 of the EC Schedule, the tariff treatment accorded to the products at issue, under the European Communities' measures challenged by Brazil and Thailand, would be less favourable than that provided for in the EC Schedule and that, accordingly, such treatment would be inconsistent with the European Communities' obligations under Articles II:1(a) and II:1(b) of the GATT 1994.³⁰¹

147. The critical issue in this dispute is the meaning of the term "salted" in heading 02.10 of the EC Schedule. Relying on the customary rules of interpretation codified in Articles 31 and 32 of the Vienna Convention, the Panel first examined the ordinary meaning of the term "salted", including its "factual context". Thereafter, the Panel undertook an interpretation of that term in the light of its context; relevant subsequent practice; "object and purpose" of the WTO Agreement and the GATT 1994; and finally, the circumstances of the conclusion of the  WTO Agreement. The Panel concluded, in essence, that the products at issue fell under heading 02.10 of the EC Schedule and that the European Communities had provided, through the challenged measures, treatment less favourable than that provided for in the EC Schedule. The European Communities challenges the Panel's interpretative approach and all of the Panel's conclusions concerning the interpretation of the term "salted" in heading 02.10 of the EC Schedule.³⁰² Brazil and Thailand each appeals certain aspects of the Panel's interpretation of that term, and, furthermore, both appeal the Panel's findings concerning the measures and the products falling within the Panel's terms of reference.

148. In our analysis, we first address Brazil's and Thailand's claims concerning the Panel's terms of reference. We next examine the Panel's interpretation of the term "salted" in heading 02.10 of the EC Schedule; in so doing, first, we examine the European Communities' appeal concerning the Panel's finding on the ordinary meaning of the term "salted", including its "factual context". Secondly, we review the Panel's interpretation of that term in its context, considering the arguments raised by the European Communities as well as by Brazil and Thailand. Thirdly, we review the Panel's interpretation of the term "salted" in the light of the object and purpose of the WTO Agreement and the GATT 1994. Finally, we address the Panel's analysis under Article 32 of the Vienna Convention as to the "circumstances of [the] conclusion" of the treaty. Fourthly, we examine the Panel's findings concerning "subsequent practice".

VII. Terms of Reference

149. We begin with the appeals concerning the Panel's finding on the  measures  covered by its terms of reference.

A. Measures Within the Terms of Reference

150. There is no dispute in this case that the following two measures are within the Panel's terms of reference: EC Regulation 1223/2002 and EC Decision 2003/97/EC.³⁰³ The first measure, EC Regulation 1223/2002, provides that "boneless chicken cuts, frozen and impregnated with salt in all parts [with] a salt content by weight of 1.2% to 1.9%" shall be classified under subheading 0207.41.10 of the European Communities' Combined Nomenclature. The second measure, EC Decision 2003/97/EC, is a decision of the European Communities' Commission directed to the Federal Republic of Germany, requiring the withdrawal of 66 BTI notices issued by the German customs authority that classified frozen chicken cuts with a salt content between 1.9 and 3 per cent as "salted" meat under heading 02.10 of the EC Schedule. For convenience, we will refer to these two measures within the Panel's terms of reference as the "two original measures".

151. Before the Panel, Brazil and Thailand argued that two  subsequent  measures also fell within the Panel's terms of reference, namely, EC Regulations 1871/2003 and 2344/2003.³⁰⁴ We will refer to these two measures as the "two subsequent measures". The first of these measures, EC Regulation 1871/2003, amends Additional Note 7 to Chapter 2 of the European Communities' Combined Nomenclature�originally introduced into the Combined Nomenclature by EC Regulation 535/94�by adding, at the end of the Note, the phrase "provided it is the salting which ensures long-term preservation". As a result, the amended Additional Note 7 reads as follows:

For the purposes of heading 0210, the term "...salted..." mean[s] meat and edible meat offal deeply and homogenously impregnated with salt in all parts and having a total salt content of not less than 1.2% by weight, provided it is the salting which ensures long-term preservation.³⁰⁵ (emphasis added)

152. The second measure, EC Regulation 2344/2003, states, inter alia, that the amendment to Additional Note 7, inserted into the old Combined Nomenclature, is also inserted into the new Combined Nomenclature, adopted by Commission Regulation (EC) No. 1789/2003.³⁰⁶

153. The Panel rejected the claims of Brazil and Thailand, finding that the two subsequent measures did not fall within its terms of reference. The Panel relied on previous Appellate Body Reports dealing with amendments to measures identified in the panel request, indicating that, in order for a panel's terms of reference to include such amendments, the terms of reference "must be broad enough".³⁰⁷ The Panel stated that Brazil's and Thailand's respective panel requests were "much more narrowly drafted" than the "broadly worded" panel requests at issue in previous cases³⁰⁸, where the panels had found that measures not identified specifically in the panel requests were nevertheless within their terms of reference. As a result, the Panel concluded that both Brazil's and Thailand's panel requests were "not broad enough to include"³⁰⁹ the subsequent measures.

154. On appeal, Brazil and Thailand argue that the measures challenged are not merely the measures identified in their respective panel requests but, rather, those that change in classification and tariff treatment of frozen salted chicken cuts. Thus, the violation alleged by Brazil and Thailand was that such change in classification and tariff treatment resulted in the products being accorded less favourable treatment than that provided under heading 02.10 of the EC Schedule. Relying on the Appellate Body Report in  Chile � Price Band System, Brazil and Thailand argue that the two subsequent measures are "in essence the same"³¹⁰ as the two original measures and have the "same effect" as the two original measures in that they result in the same violation as the two original measures.³¹¹

155. The text of Article 6.2 of the DSU provides in relevant part:

The request for the establishment of a panel shall be made in writing. It shall indicate whether consultations were held, identify the specific measures at issue and provide a brief summary of the legal basis of the complaint sufficient to present the problem clearly.

Article 6.2 of the DSU has two main requirements relevant to this dispute, namely, the identification of the specific measures at issue and the provision of a  brief summary of the legal basis of the complaint (or the  claims).³¹² Together, they constitute the "matter referred to the DSB", which forms the basis for a panel's terms of reference under Article 7.1 of the DSU.³¹³ The Appellate Body has observed previously that the need for precision in panel requests flows from the two essential purposes of the terms of reference, namely, to define the "scope of the dispute" and to serve the "due process objective of notifying the parties and third parties of the nature of a complainant's case."³¹⁴ In our view, the clear identification of the specific measures at the outset is central to define the scope of the dispute to be addressed by a panel.

156. The term "specific measures at issue" in Article 6.2 suggests that, as a general rule, the measures included in a panel's terms of reference must be measures that are in existence at the time of the establishment of the panel.³¹⁵ However, measures enacted subsequent to the establishment of the panel may, in certain limited circumstances, fall within a panel's terms of reference. Indeed, the Appellate Body addressed such a circumstance in Chile � Price Band System.³¹⁶ Recognizing the requirement that a panel request must identify the "specific measures at issue" under Article 6.2, the Appellate Body examined in that case the relationship between the original measure and the subsequent amendment to that measure, and found that:

... Chile's price band system remains essentially the same after the enactment of Law 19.772. The measure is not, in its essence, any different because of that Amendment. Therefore, we conclude that the measure before us in this appeal includes Law 19.772, because that law amends Chile's price band system without changing its essence.³¹⁷ (original emphasis)

157. Thus, the Appellate Body found that, where an original measure had merely been amended by a subsequent measure and the amendment did not, in any way, change the essence of the original measure, the measure in its amended form could constitute the "specific measure[] at issue" identified in the panel request.³¹⁸

158. In our view, the case before us is characterized by circumstances different from those in Chile � Price Band System. The two subsequent measures in this dispute make no explicit reference to the two original measures, which continue to remain in force. Moreover, the two subsequent measures have legal implications different from those of the two original measures: the first of the original measures�EC Regulation 1223/2002�specifies a certain classification for a particular product�namely, frozen boneless chicken cuts with a salt content of 1.2 to 1.9 per cent�and the second�EC Decision 2003/97/EC�requires the withdrawal of BTIs providing for a different classification of a product considered to be a similar product�namely, frozen boneless chicken cuts with a salt content of 1.9 to 3 per cent. In contrast, the two subsequent measures amend the European Communities' Combined Nomenclature and cover all types of salted meat falling under heading 02.10 of the Combined Nomenclature³¹⁹, whereas the two original measures are limited to frozen boneless salted chicken cuts.

159. We are, therefore, not persuaded that the two subsequent measures in this case can be considered as amendments to the two original measures�as were the measures at issue in Chile � Price Band System�or that the two sets of measures are, in essence, the same.³²⁰

160. Brazil and Thailand also argue that the two subsequent measures fall within the Panel's terms of reference, because they have the "same effect" and bring about the same result as the two original measures, namely the (re)classification of the products at issue. Even assuming that Brazil and Thailand are correct that the two subsequent measures have the "same effect" as the two original measures insofar as frozen boneless chicken cuts are concerned, we fail to see a legal basis for applying such a test. In our view, the notion of measures having the "same effect" is too vague and could undermine the requirement of specificity and the due process objective enshrined in Article 6.2.³²¹

161. Brazil and Thailand also refer to Articles 3.4 and 3.7 of the DSU and argue that the principle of "satisfactory settlement of the matter" and of "secur[ing] a positive solution to the dispute" supports the inclusion of the two subsequent measures in the Panel's terms of reference in this case. We agree that a positive and effective resolution of a dispute is one of the key objectives of the WTO dispute settlement system.³²² However, this objective cannot be pursued at the expense of complying with the specific requirements and obligations of Article 6.2. Moreover, in this case, we believe that the non-inclusion of the two subsequent measures in the Panel's terms of reference would not hinder a positive resolution of this dispute.

162. For these reasons, we  uphold  the Panel's finding, in paragraph 7.37 of the Panel Reports, that the Panel's terms of reference do not include EC Regulations 1871/2003 and 2344/2003.

B. Products Within the Terms of Reference

163. As regards the question of the specific products within its terms of reference, the Panel concluded that the measures within its terms of reference "determine the products that are within [its] terms of reference", and that, therefore, the products at issue are "frozen boneless chicken cuts impregnated with salt, with a salt content of 1.2% � 3%"³²³  and are not "frozen boneless salted chicken cuts that have been deeply and homogenously impregnated with salt in all parts with a total salt content of not less than 1.2%", as claimed by Brazil and Thailand.³²⁴

164. Brazil and Thailand appeal from this finding and argue that, although Article 6.2 of the DSU does not explicitly require that the products at issue be identified in the panel request, in the past, the Appellate Body has relied on the product description contained in the panel request to determine the scope of the measure at issue. Moreover, if the products at issue are in fact described in the panel request, then those products constitute the products within the panel's terms of reference. Brazil and Thailand refer to the Appellate Body's finding in  EC � Computer Equipment as support for their view that, "in order to identify 'the specific measures at issue', it may ... be necessary to identify the products subject to the measures in dispute".³²⁵ Brazil also emphasizes that the "rationale" for the applicable tariff classification of the products at issue, explicitly set out in the two measures found by the Panel to be within its terms of reference, is not the specific salt content, but the principle of preservation.³²⁶ Hence, the measures at issue are not limited to frozen boneless chicken cuts impregnated with salt, with a salt content of 1.2 to 3 per cent.

165. We are not persuaded by these arguments. Article 6.2 of the DSU does not refer to the identification of the products at issue; rather, it refers to the identification of the specific measures at issue. Article 6.2 contemplates that the identification of the products at issue must flow from the specific measures identified in the panel request. Therefore, the identification of the product at issue is generally not a separate and distinct element of a panel's terms of reference; rather, it is a consequence of the scope of application of the specific measures at issue. In other words, it is the measure at issue that generally will define the  product at issue.

166. At the same time, we acknowledge that the Appellate Body held, in EC � Computer Equipment,  that, with respect to certain WTO obligations, in order to identify the specific measures at issue, it may be necessary also to identify the products at issue.³²⁷ In that case, however, the measures at issue were individual classification decisions by customs authorities in the European Communities, rather than legislative or regulatory measures of general application as in this case. The Appellate Body held:

... that "measures" within the meaning of Article 6.2 of the DSU are not only measures of general application, i.e., normative rules, but also can be the application of tariffs by customs authorities. Since the request for the establishment of a panel explicitly refers to the application of tariffs on LAN equipment and PCs with multimedia capability by customs authorities in the European Communities, we agree with the Panel that the measures in dispute were properly identified in accordance with the requirements of Article 6.2 of the DSU.³²⁸ (footnote omitted)

167. We believe that, in circumstances in which a series of decisions of customs authorities are under challenge, it may be necessary to identify the products at issue in order to distinguish the contested measures (for example, individual classification decisions by customs authorities) from other measures (different individual classification decisions by customs authorities). By contrast, in the present dispute, the contested measures are not individual classification decisions by customs authorities but, rather, (i) a generally applicable legal instrument (EC Regulation 1223/2002), as well as (ii) a decision requiring a Member State of the European Communities to withdraw a series of BTIs (EC Decision 2003/97/EC). These two measures define the products to which they apply, namely frozen boneless chicken cuts with a salt content of 1.2 to 1.9 per cent, and frozen boneless chicken cuts with a salt content of 1.9 to 3 per cent, respectively. Thus, it is evident that these products, which are explicitly mentioned in the specific measures identified in the panel requests, are the ones at issue in the present dispute.

168. We note Brazil's argument that the criterion of "preservation" set out in the European Communities' measures applies also to frozen boneless chicken cuts with a salt content above 3 per cent.³²⁹ This fact is not disputed by the European Communities. It cannot, therefore, be excluded in the abstract that, pursuant to the "preservation" criterion, the European Communities might classify chicken meat products with a salt content above 3 per cent in the same manner as meat products with a salt content between 1.2 and 3 per cent.³³⁰ However, given that no measures applicable to meat products with a salt content above 3 per cent were identified in the panel requests, there is no basis for findings by the Panel or by the Appellate Body that this dispute covers also frozen boneless chicken cuts with a salt content above 3 per cent.

169. In the light of the above, we  uphold  the Panel's finding, in paragraph 7.37 of the Panel Reports, that the products covered by the Panel's terms of reference are those covered by the specific measures at issue, namely, frozen boneless chicken cuts impregnated with salt, with a salt content of 1.2 to 3 per cent.

VIII. Interpretation of the EC Schedule in the Light of Article 31 of the Vienna Convention

A. The Ordinary Meaning of the Term "Salted" in Heading 02.10 of the EC Schedule

170. The European Communities appeals the Panel's interpretation of the term "salted" in heading 02.10 of the EC Schedule.

171. The Panel began its analysis by stating that it would seek to ascertain the ordinary meaning of the term "salted" in heading 02.10 of the EC Schedule pursuant to Article 31(1) of the Vienna Convention. The Panel stated that it would consider "the remaining relevant terms in that concession"�namely, "in brine", "dried", and "smoked"�as context under Article 31(2) of the Vienna Convention.³³¹ The Panel furthermore noted that Brazil and Thailand did not consider that "the result of the interpretative exercise will differ depending upon whether the terms other than 'salted' in heading 02.10 are assessed as part of the ordinary meaning under Article 31(1) of the Vienna Convention or as context under Article 31(2)."³³²

172. The Panel divided its analysis of the "ordinary meaning", pursuant to Article 31(1) of the Vienna Convention, into two parts. First, the Panel examined the "ordinary meaning of the term 'salted' in subheading 0210.90.20 of the EC Schedule"³³³; in this part of its analysis, the Panel examined, exclusively, dictionary definitions of the term "to salt", finding that "the ordinary meaning of the term 'salted' includes to season, to add salt, to flavour with salt, to treat, to cure or to preserve".³³⁴ Secondly, in a section entitled "Factual context for the consideration of the ordinary meaning"³³⁵, the Panel examined three aspects, namely, the "products covered by the concession contained in heading 02.10"³³⁶; the "flavour, texture, [and] other physical properties"³³⁷ of the products; and "preservation".³³⁸

173. The Panel concluded that "in essence, the ordinary meaning of the term 'salted' when considered in its factual context indicates that the character of a product has been altered through the addition of salt."³³⁹ The Panel further found that "there is nothing in the range of meanings comprising the ordinary meaning of the term 'salted' that indicates that chicken to which salt has been added is not covered by the concession contained in heading 02.10 of the EC Schedule."³⁴⁰ At the same time, the Panel held that the ordinary meaning of the term "salted" was not dispositive of the question whether or not the specific products at issue were covered by the concession in heading 02.10.

1. Analysis of the Ordinary Meaning and "Factual Context" of the Term "Salted"

174. On appeal, the European Communities argues that the analysis of "ordinary meaning" under the  Vienna Convention does not contemplate an analysis of the "factual context" of a treaty term and that the "factual context", as identified by the Panel, is "not relevant" for determining the ordinary meaning of the term "salted".³⁴¹ The European Communities contends that the Panel, under the heading "factual context", took into account elements that are not to be taken into account for purposes of ascertaining the ordinary meaning of a treaty term.

175. We recall that Article 31(1) of the Vienna Convention stipulates that:

A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.

The Appellate Body has observed that dictionaries are a "useful starting point"³⁴² for the analysis of "ordinary meaning" of a treaty term, but they are not necessarily dispositive. The ordinary meaning of a treaty term must be ascertained according to the particular circumstances of each case. Importantly, the ordinary meaning of a treaty term must be seen in the light of the intention of the parties "as expressed in the words used by them against the light of the surrounding circumstances".³⁴³

176. Having said this, we would agree with the European Communities that there is no reference in the Vienna Convention to "factual context" as a separate analytical step under Article 31. Nevertheless, we do not believe that the Panel was incorrect to consider elements such as the "products covered by the concession contained in heading 02.10", "flavour, texture, [and] other physical properties" of the products falling under heading 02.10, and "preservation" when interpreting the term "salted" as it appears in heading 02.10. The Panel's consideration of these elements under "ordinary meaning" of the term "salted" complemented its analysis of the dictionary definitions of that term. In any event, even if we were to agree with the European Communities that these elements are not to be considered under "ordinary meaning", they certainly could be considered under "context". Interpretation pursuant to the customary rules codified in Article 31 of the Vienna Convention is ultimately a holistic exercise that should not be mechanically subdivided into rigid components. Considering particular surrounding circumstances under the rubric of "ordinary meaning" or "in the light of its context" would not, in our view, change the outcome of treaty interpretation. Therefore, we find no error in the Panel's interpretive approach.

2. The European Communities' Claim under Article 11 of the DSU

177. Having addressed the issue of "factual context", we turn to the European Communities' claims under Article 11 of the DSU. The European Communities submits that "a number of the Panel's conclusions amount to an egregious distortion of the facts before the Panel, clearly inconsistent with Article 11 [of the] DSU".³⁴⁴ In this respect, the European Communities challenges three statements made by the Panel in the context of its analysis of the "factual context" of the term "salted" in heading 02.10 of the EC Schedule.

178. The first of these conclusions is the Panel's statement that "it appears that even small quantities of salt may have a preservative effect".³⁴⁵ The European Communities argues that the Panel "seriously misrepresent[ed] the technical evidence supplied by [one of the experts]".³⁴⁶

179. The European Communities emphasizes that its expert referred to chicken in a "raw and  chilled  state"³⁴⁷ and that his statement does not support what the European Communities views as the Panel's conclusion that "3% salt, without chilling, would prevent spoilage for a period of a few days".³⁴⁸

180. On a careful reading of the Panel Reports, we are of the view that the Panel did not find that "3% salt, without chilling, would prevent spoilage for a period of a few days." In the phrase "3% salt may prevent spoilage, albeit for a period of only a few days", the Panel does not state explicitly whether this proposition refers to chilled or unchilled meat; however, in the immediately preceding sentence, the Panel reproduces a statement by the European Communities' expert that explicitly refers to "raw and chilled" meat. As a result, we read the Panel's conclusion to refer to the same type of meat as described by the expert, that is, "raw and chilled" meat. We do not, therefore, agree with the European Communities that the Panel acted inconsistently with its obligations under Article 11 of the DSU in concluding that "it appears that even small quantities of salt may have a preservative effect".³⁴⁹

181. The second statement of the Panel with which the European Communities takes issue is the following, concerning variable salt content and additional means of preservation:

The variable salt content and period of preservation that is, in our view, permissible on the basis of the ordinary meaning of the concession contained in heading 02.10 when read in its factual context would seem to explain, at least in part, why certain products that the European Communities categorizes under heading 02.10 such as parma ham, prosciutto and jam�n serrano may require additional means of preservation.³⁵⁰

The European Communities points out that "it is not the salt content of these products which means that additional means of preservation may be used", but that "additional means of preservation" are not required for those products.³⁵¹ The European Communities refers to certain statements by the European Communities' expert³⁵²  and argues that, in making the above-referred factual statement, the Panel went beyond the bounds of its discretion under Article 11 of the DSU and made findings that are contradicted by the uncontested evidence before it.

182. Thirdly, the European Communities challenges the Panel's statement that the European Communities acknowledged that products under heading 02.10 may require means of preservation in addition to salting, and that this circumstance supported the view that a product preserved by salt for relatively short periods of time is not necessarily precluded from qualifying under heading 02.10.³⁵³ The European Communities argues that, contrary to the Panel's statement, what the European Communities acknowledged was that "preservation by salting, etc., did not imply that meat could not be further preserved by other means."³⁵⁴ The European Communities recalls scientific evidence before the Panel that "preserved meat might be refrigerated or packaged because of the steps, such as slicing, which had been taken to prepare it for retail sale."³⁵⁵ According to the European Communities, there is no logical connection between these observations and the Panel's conclusion 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."³⁵⁶

183. We understand the Panel to have concluded that "there is nothing to suggest that products preserved by salt for relatively short periods of time are precluded from qualifying under ... heading 02.10".³⁵⁷ In order to confirm this conclusion, the Panel looked at certain products that the European Communities classifies under heading 02.10.³⁵⁸ In doing so, the Panel stated that these products "may require means of preservation in addition to [salting]", which the European Communities acknowledged as much, and that this fact was "explain[ed]" by the "variable salt content and period of preservation".³⁵⁹

184. We observe that the Panel refers to the "European Communities' acknowledgement that products covered by heading 02.10 may require means of preservation in addition to that effected through the addition of salt";³⁶⁰ however, the European Communities expressly stated that it "does not agree with Thailand that [Parma ham, prosciutto, and jam�n serrano] require additional means of preservation".³⁶¹ In fact, the European Communities speaks of "meat that has been preserved for the long-term (by salting, drying, etc.)" and that is, subsequently, "further preserved (by chilling or even freezing) ... so that it may be preserved  for an even longer term".³⁶² Hence, we agree with the European Communities that the Panel's reasoning does not accurately reflect all of the European Communities' statements before it.

185. Secondly, the Panel's reasoning appears to be based on an implicit similarity between the products at issue, on the one hand�that is, frozen and salted chicken cuts�and products such as Parma ham, prosciutto, and jam�n serrano, on the other hand. However, according to the evidence on the Panel record, in their unfrozen state, these two groups of products are rather different in terms of how quickly they are affected by spoilage.³⁶³ The Panel's statements do not sufficiently explain how the issue of "additional means of preservation" supports the proposition that "product[s] preserved by salt for relatively short periods of time [are] not necessarily precluded from qualifying under heading 02.10 of the EC Schedule."³⁶⁴

186. We observe that the Panel statements challenged by the European Communities were made in addition  to, and as  support  for, a conclusion that the Panel had reached  previously, on the basis of distinct and separate considerations. The statements contested by the European Communities contain some inconsequential inaccuracies, which do not, in our view, undermine the remainder of the Panel's analysis of what the Panel referred to as the "factual context". Overall, we therefore do not find that the Panel acted inconsistently with its obligations under Article 11 of the DSU.

3. Conclusion Concerning the Ordinary Meaning

187. In the light of the above considerations, we see no reason to disturb the Panel's conclusion concerning the ordinary meaning of the term "salted", in paragraph 7.150 of the Panel Reports, that "in essence, the ordinary meaning of the term 'salted' when considered in its factual context indicates that the character of a product has been altered through the addition of salt"³⁶⁵; and, in paragraph 7.151 of the Panel Reports, that "there is nothing in the range of meanings comprising the ordinary meaning of the term 'salted' that indicates that chicken to which salt has been added is not covered by the concession contained in heading 02.10 of the EC Schedule."

B. "Context"

188. Having considered the Panel's interpretation of the ordinary meaning of the term "salted" in heading 02.10 of the EC Schedule, we now turn to the Panel's interpretation of that term in its context. We will first recapitulate the Panel's findings and the arguments on appeal before providing our analysis of the relevant issues.

189. In interpreting the term "salted" in its context, pursuant to Article 31(2) of the Vienna Convention, the Panel considered "the terms of relevant aspects of the EC Schedule", namely, the "other terms" contained in heading 02.10 of the EC Schedule, the structure of Chapter 2 of the EC Schedule, as well as "other parts of the EC Schedule".³⁶⁶ The Panel then proceeded to consider whether there are any other agreements or instruments that qualify as "context" under Article 31(2) of the Vienna Convention; in that category, the Panel examined the Harmonized System³⁶⁷ as well as the Schedules of WTO Members other than the European Communities. The Panel concluded, overall, that its analysis of the "context" of the term "salted" did not "add[] to [the] conclusions that [it had already drawn] regarding the ordinary meaning of the term 'salted'", and that the context of that term did not "indicate that [the] concession [in heading 02.10 of the EC Schedule] is necessarily characterized by the notion of long-term preservation".³⁶⁸

190. The European Communities, on the one hand, and Brazil and Thailand, on the other hand, appeal from this finding, as well as aspects of the Panel's reasoning concerning the context of the term "salted". In essence, the European Communities argues that various elements of the context of the term "salted" indicate that the term is characterized by the notion of "preservation".³⁶⁹ The European Communities also argues that, contrary to the Panel's finding, the structure of Chapter 2 of the Harmonized System "makes it clear" that the term "salted" refers to "preservation".³⁷⁰ In contrast, Brazil and Thailand argue that these same contextual elements show clearly that the term "salted" is characterized by the notion of "preparation".³⁷¹

191. In addressing these arguments, we will first define what constitutes "context". Subsequently, we will analyze the meaning of the term "salted" in its context.

1. What Constitutes Context for Interpreting the Term "Salted" in Heading 02.10 of the EC Schedule?

192. At the outset, we recall the customary rules of treaty interpretation codified in Articles 31(1), 31(2), and 31(3) of the Vienna Convention:

General rule of interpretation

1. A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.

2. The context for the purpose of the interpretation of a treaty shall comprise, in addition to the text, including its preamble and annexes:

(a) any agreement relating to the treaty which was made between all the parties in connection with the conclusion of the treaty;

(b) any instrument which was made by one or more parties in connection with the conclusion of the treaty and accepted by the other parties as an instrument related to the treaty.

3. There shall be taken into account, together with the context:

(a) any subsequent agreement between the parties regarding the interpretation of the treaty or the application of its provisions;

(b) any subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation;

(c) any relevant rules of international law applicable in the relations between the parties. (emphasis added)

193. It is clear from these provisions that the context of the term "salted" in heading 02.10 consists of the immediate, as well as the broader, context of that term. The immediate context is the other terms of the product description contained in heading 02.10 of the EC Schedule. The broader context includes the other headings in Chapter 2 of the EC Schedule, as well as other WTO Member Schedules.

194. The Panel addressed the question whether the Harmonized System³⁷² constituted "context" for interpreting the term "salted" in heading 02.10 of the EC Schedule. In that respect, Brazil argued that the Harmonized System constituted "context" within the meaning of Article 31(2)(b) of the Vienna Convention; Thailand contended that the Harmonized System qualified as context under Article 31(1) or under Article 31(3)(c); the European Communities held the view that the Harmonized System was a "relevant rule of international law", within the meaning of Article 31(3)(c).³⁷³ The Panel did not definitively decide which position was correct, opining that "the outcome of the interpretative exercise [would not] depend[ ] upon whether [the Panel] classif[ies] the [Harmonized System] as 'context'" under Articles 31(1), 31(2)(b), or 31(3)(c) of the Vienna Convention. The Panel decided to treat the Harmonized System "as if it qualifies as 'context' under Article 31(2)".³⁷⁴ Before the Appellate Body, in response to questioning at the oral hearing, all participants, and the United States, as third participant, agreed that the Harmonized System was relevant for interpretation of the terms of the EC Schedule. The participants took the view that the Harmonized System was context for purposes of interpreting the terms of the EC Schedule or a "relevant rule[] of international law applicable in the relations between the parties" that should be "taken into account, together with the context", pursuant to Article 31(3)(c) of the Vienna Convention.³⁷⁵ The United States, as third participant, was of the view that the Harmonized System was a "supplementary means of interpretation", within the meaning of Article 32 of the  Vienna Convention.³⁷⁶

195. The Harmonized System is not, formally, part of the WTO Agreement, as it has not been incorporated, in whole or in part, into that Agreement. Nevertheless, the concept of "context", under Article 31, is not limited to the treaty text�namely, the WTO Agreement�but may also extend to "any agreement relating to the treaty which was made between all the parties in connection with the conclusion of the treaty", within the meaning of Article 31(2)(a) of the Vienna Convention, and to "any instrument which was made by one or more parties in connection with the conclusion of the treaty and accepted by the other parties as an instrument related to the treaty", within the meaning of Article 31(2)(b) of the Vienna Convention. Moreover, should the criteria in Article 31(3)(c) be fulfilled, the Harmonized System may qualify as a "relevant rule[] of international law applicable in the relations between the parties".

196. The Panel noted that the membership of the Harmonized System is "extremely broad" and includes the "vast majority of WTO Members".³⁷⁷ The Panel also pointed out, and no participant to this proceeding contested, that "the [Harmonized System] was used as a basis for the preparation of the Uruguay Round GATT schedules".³⁷⁸ The Appellate Body made a similar observation in EC � Computer Equipment, a report on which the Panel relied.³⁷⁹

197. We note that, in 1983, the GATT Contracting Parties took a Decision setting out guidelines and "special procedures" to facilitate the "wide adoption of the Harmonized System"³⁸⁰; later, in 1991, they took a Decision on Procedures to Implement Changes in the Harmonized System.³⁸¹ The close link between the Harmonized System and the WTO agreements is also clear. A number of WTO agreements that resulted from the Uruguay Round negotiations use the Harmonized System for specific purposes; the Agreement on Rules of Origin (in Article 9), the Agreement on Subsidies and Countervailing Measures (in Article 27), and the Agreement on Textiles and Clothing (in Article 2 and the Annex thereto) refer to the Harmonized System for purposes of defining product coverage of the agreement or the products subject to particular provisions of the agreement.

198. This close link to the Harmonized System is particularly true for agricultural products.³⁸² Annex 1 to the  Agreement on Agriculture, which forms an integral part of that Agreement³⁸³, defines the product coverage of that Agreement by reference to headings of the Harmonized System, both at the level of whole chapters and at the four-digit level in respect of specific products. Moreover, it is undisputed that the Uruguay Round tariff negotiations for agricultural products were held on the basis of the Harmonized System and that all WTO Members have followed the Harmonized System in their Schedules to the GATT 1994 with respect to agricultural products.

199. The above circumstances confirm that, prior to, during, as well as after the Uruguay Round negotiations, there was broad consensus among the GATT Contracting Parties to  use  the Harmonized System as the basis for their WTO Schedules, notably with respect to agricultural products. In our view, this consensus constitutes an "agreement" between WTO Members "relating to" the  WTO Agreement  that was "made in connection with the conclusion of" that Agreement, within the meaning of Article 31(2)(a) of the Vienna Convention. As such, this agreement is "context" under Article 31(2)(a) for the purpose of interpreting the WTO agreements, of which the EC Schedule is an integral part. In this light, we consider that the Harmonized System is relevant for purposes of interpreting tariff commitments in the WTO Members' Schedules.³⁸⁴

200. We now turn to determine the meaning of the term "salted" in the light of the context provided by WTO law and the Harmonized System.

2. The Meaning of the Term "Salted" in Heading 02.10 of the EC Schedule, Considered in its Context

201. We recall that, in considering the meaning of the term "salted" in heading 02.10 of the EC Schedule in its context, the Panel first looked at the "other terms contained in heading 02.10 of the EC Schedule", namely "in brine", "dried", and "smoked". The Panel found it "difficult to identify a notion [�either preparation or preservation�] that characterizes all the terms in the concession contained in heading 02.10 of the EC Schedule".³⁸⁵ The Panel also stated that the structure of Chapter 2 of the EC Schedule "does not provide any insights regarding the question of whether 'preservation' and/or 'preparation', if either, characterize Chapter 2 and, more particularly, the concession contained in heading 02.10 of the EC Schedule".³⁸⁶ The Panel referred as well to certain aspects of the Harmonized System and found that "inferences cannot be drawn from [the use of the word 'preservation' in] headings 08.12 and 08.14 with respect to the meaning of the term 'salted'".³⁸⁷ In regard to the General Rules for the Interpretation of the Harmonized System, the Panel assumed that General Rule 3�applicable to situations in which "goods are, prima facie, classifiable under two or more headings"�was not applicable to the dispute before it.³⁸⁸ Nor could the Panel find useful guidance from a consideration of other WTO Members' Schedules.

202. Before commencing our analysis, we observe that the participants to the present dispute put forward two competing concepts as being "intrinsic" and "central" to all the processes mentioned in heading 02.10, namely, on the one hand, that of "preparation" of meat and, on the other hand, that of "preservation" of meat.³⁸⁹ The European Communities argues that the four processes in heading 02.10 ("salted", "in brine", "dried", and "smoked") are characterized, and have always been characterized, by the notion of "preservation", while Brazil and Thailand argue that these processes are characterized solely by the notion of "preparation".

203. No participant provides a clear-cut definition of "preparation" or "preservation", or of the demarcation between the two concepts.³⁹⁰ The European Communities uses both the terms "preservation" and "long-term preservation". The Panel understood the European Communities to mean by the term "preservation" or "long-term preservation" that it is preservation of meat for "many or several months".³⁹¹ In response to questioning at the oral hearing, the European Communities stated that these two terms are to be understood as referring to one and the same concept, and that they are interchangeable. The European Communities argues that "preparation ... is something lesser than preservation"³⁹², that "preservation is ... a kind of preparation"³⁹³, and that "preservation" is for a much longer period than temporary preservation for the purposes of transport³⁹⁴; however, the European Communities has not indicated for what specific period of time a product would have to be preserved in order to satisfy the criterion of "preservation".³⁹⁵

204. In turn, Brazil and Thailand have not provided a clear definition of "preparation" and how "preparation" is to be distinguished from "preservation". According to Brazil, "some types and degrees of preparation may preserve some products" and "preparation" and "preservation" may "overlap³⁹⁶; for Thailand, the two concepts are mutually exclusive for the purposes of heading 02.10. Thailand submits, in the alternative, that "the fact that some types of preparation may incidentally also result in the preservation of [a] product does not undermine the notion that it is the preparation of that product that determines its essential character".³⁹⁷

205. Thus, the central question before us, as it was before the Panel³⁹⁸, is whether a product must have been "preserved" by one of the processes referred to in heading 02.10 in order to fall within the scope of that heading. The concept of "preservation", as advanced by the European Communities, implies that the application of the processes in heading 02.10, by itself,  must have the effect of placing the meat in a state of "preservation" for a certain period of time�not specified precisely by the European Communities�but, in any event, for a period exceeding the time of transportation.³⁹⁹ The European Communities also stated that "[w]hether the meat is salted for the purpose of preservation depends in particular on the level of salt content"⁴⁰⁰ and that, for the products at issue, the salt content must be "much higher" than 3 per cent.⁴⁰¹

206. In contrast, the concept of "preparation", as proposed by Brazil and Thailand, suggests that meat must only have been subject to one or more of the processes listed in heading 02.10, such that its character has been altered from its natural state, and that the notion of "preservation" by one of these processes is not a requirement under that heading.⁴⁰²

207. We recall that the Panel concluded that "in essence, the ordinary meaning of the term 'salted' ... indicates that the character of a product has been altered through the addition of salt".⁴⁰³ We agree with this conclusion of the Panel, which is not in appeal.

208. Thus, the question before us can be subdivided into the following two questions: (i) does the term "salted" in heading 02.10, when considered in its context, indicate that meat to which salt has been added (such that the character of the product has been altered) is to be considered as "salted", even if such salting does  not  place such meat in a state of "preservation"? or (ii) must the salting be such as to place the meat in a state of "preservation"? In our view, a positive answer to the first question would mean that heading 02.10 is found to  include "salted" meat that  has not  been "salted" sufficiently to be placed in a state of "preservation", as well as  meat that  has  been "salted" to place it in a state of "preservation". In contrast, a positive answer to the second question suggests a reading of heading 02.10 that includes only meat that has been placed in a state of "preservation" by salting, and excludes other "salted" meat.⁴⁰⁴

209. Therefore, we need to determine whether the context of the term "salted"�or other elements of the customary rules of treaty interpretation�require or permit a reading of the term "salted" in heading 02.10 of the EC Schedule more narrowly than the ordinary meaning of that term suggests; that is to say, that the customary rules of treaty interpretation other than "ordinary meaning" indicate that "salting" under heading 02.10 contemplates exclusively the notion of "preservation".

(a) The Terms of Heading 02.10 Other than "Salted"

210. With these considerations in mind, we turn to the terms other than "salted" in heading 02.10 of the EC Schedule.

211. We share the European Communities' disagreement with the Panel's interpretation of the term "in brine". The Panel held that the notion of "preservation" does not appear in the dictionary definitions of "in brine". However, we note that the dictionary definition of the term "brine" is "water saturated or strongly impregnated with salt; salt water".⁴⁰⁵ Given that the concept "preservation", as stated by the Panel, appears in the dictionary definition for the term "salted"⁴⁰⁶, the term "brine" must include the concept of preservation. We, therefore, are of the view that the term "in brine" does contemplate "preservation".

212. At the same time, we are not convinced that the terms "dried, in brine and smoked" refer exclusively  to the concept of "preservation". We note that the dictionary meaning of the term "to dry" is, in relevant part, "to remove the moisture from by wiping, evaporation, draining; preserve (food, etc.) by the removal of its natural moisture"⁴⁰⁷; in turn, the dictionary meaning of the term "to smoke" is to "dry or cure (meat, fish, etc.) by exposure to smoke".⁴⁰⁸ The ordinary meanings of these terms suggest that the relevant processes can be applied to meat in various ways and degrees of intensity, thereby producing different effects on the meat, effects that may or may not place the meat in a state of "preservation".⁴⁰⁹ Nor are we persuaded by the European Communities' argument that the terms "dried" and "smoked", in the present context, "concern [exclusively] means to preserve".⁴¹⁰ It is clear from the evidence on the record that, while the processes mentioned in heading 02.10�"salted, dried, in brine and smoked"�may include the notion of "preservation", these processes are also used extensively to confer special characteristics on meat products.⁴¹¹ Similar reasoning may also be valid with respect to the term "smoked".

213. We, therefore, do not agree with the European Communities that the terms of heading 02.10 of the EC Schedule other than "salted", considered alone or together, suggest that the term "salted" must be read as referring  exclusively  to products that have a level of salt content sufficient to ensure "preservation" by salting.

(b) The Structure of Chapter 2 of the EC Schedule and the Harmonized System and the Relevant Notes Thereto

214. We now turn to consider whether the structure of Chapter 2 of the EC Schedule and the Harmonized System support a reading of heading 02.10 as referring exclusively to processes of "preservation". We note that, among the headings of Chapter 2 other than heading 02.10, heading 02.07⁴¹²  is of particular relevance, given that the European Communities argues that the products at issue are properly classified under that heading. We recall that, pursuant to the principle of effective treaty interpretation, it is the task of the treaty interpreter to give meaning to all the terms of the treaty.⁴¹³ We will examine whether such a reading can be derived from the relevant Notes to the Harmonized System; the Notes of relevance in this context are the Chapter Note to Chapter 16⁴¹⁴, the Explanatory Note to Chapter 2⁴¹⁵, and the Explanatory Note to heading 02.10.⁴¹⁶

215. The European Communities argues that the headings of Chapter 2 fall into two categories that are distinguished by whether the meat has or has not been subjected to the processes listed in heading 02.10. If these processes have been applied, the products fall into the first category, namely, heading 02.10; if these processes have not been applied, the products fall under one of headings 02.01 through 02.08, all of which fall into the other category.⁴¹⁷

216. The Panel found that "there may be a host of reasons that, individually and/or in combination, could explain the unique formulation used in heading 02.10."⁴¹⁸ The Panel concluded that the structure of Chapter 2 did not provide "any insights regarding the question of whether 'preservation' and/or 'preparation' ... characterize ... heading 02.10 of the EC Schedule".⁴¹⁹

217. We note that heading 02.10 does not make reference to refrigeration. By contrast, other headings of Chapter 2�that is, headings 02.01 to 02.09�refer to freezing and chilling. The European Communities argues that (i) this circumstance implies that refrigeration is of "little or no importance" for heading 02.10, and that (ii) the reason for this is that these products are "preserved" by the processes mentioned in heading 02.10.⁴²⁰ The European Communities uses this argument to support its view that heading 02.10 covers exclusively  meats that have been "preserved" by the processes referred to in that heading.

218. We agree with the participants that the reason heading 02.10 does not refer to refrigeration is that refrigeration is of "little or no importance" for that heading.⁴²¹ In our view, whether a product has been frozen or not will not influence whether that product falls under heading 02.10. At the same time, we do not agree with the European Communities that the fact that heading 02.10 does not refer to refrigeration leads to the conclusion that meat falling under heading 02.10 must, necessarily, have been  preserved  by one of the processes referred to in that heading and that, as a result, heading 02.10 covers  exclusively  meats that have been "preserved" by the processes referred to in that heading. In other words, it does not follow from the absence of refrigeration in the text of heading 02.10 that the processes referred to in heading 02.10 must  necessarily  place the meat in a state of "preservation". Furthermore, as we explain below, the Chapter Note to Chapter 16 and the Explanatory Note to heading 02.10 confirm that Chapter 2 covers both preserved and prepared products.

219. We turn next to consider certain Chapter and Explanatory Notes to the Harmonized System that also form part of the context for purposes of interpreting terms in the EC Schedule.⁴²²

220. The Panel referred to the Explanatory Note to heading 02.10 of the Harmonized System, which provides:

This heading applies to all kinds of meat and edible meat offal which have been  prepared as described in the heading, other than pig fat, free of lean meat, and poultry fat, not rendered or otherwise extracted (heading 02.09)[.] (emphasis added)

221. The Panel also considered the Chapter Note to Chapter 16⁴²³, which excludes from Chapter 16⁴²⁴ products that are "prepared or preserved" by the processes specified, inter alia, in Chapter 2.⁴²⁵

222. The Panel then went on to find that, although the above Notes "may suggest that the processes referred to in heading 02.10 are processes for the 'preparation' of meat", the Notes were not "particularly helpful for [the Panel's] purposes".⁴²⁶ Specifically, the Panel was not certain whether the concepts of "preparation" and "preservation" were "mutually exclusive" in the context of heading 02.10.⁴²⁷ The Panel therefore concluded that:

[the] Notes to the [Harmonized System] do not clarify the ordinary meaning of the term "salted" in the concession contained in heading 02.10 of the EC Schedule [and] do not indicate that that concession is necessarily characterized by the notion of long-term preservation.⁴²⁸

223. The European Communities, on the one hand, and Brazil and Thailand, on the other hand, appeal this finding. The European Communities argues that the Panel failed to consider another relevant Note�namely, the Explanatory Note to Chapter 2�and that a correct consideration of this Note supports the view that heading 02.10 is characterized by the notion of "preservation". In contrast, Brazil and Thailand argue that the Explanatory Note to Chapter 2 and that to heading 02.10, read together with the Chapter Note to Chapter 16, indicate that "preparation", instead of "preservation", determines the classification under heading 02.10. Thailand also argues that the Panel erred in its legal characterization of the Chapter Note to Chapter 16 as an Explanatory Note.⁴²⁹ All of these claims concern the same Chapter Note and Explanatory Notes, and thus we will address them together.

224. At the outset, we agree with Thailand that the Panel incorrectly characterized the Note to Chapter 16 as an "Explanatory Note", rather than as a "Chapter Note".⁴³⁰ We also agree with the general proposition that the Chapter Notes to the Harmonized System, which are binding, may have greater probative value than the Explanatory Notes to the Harmonized System, which are non-binding.⁴³¹ However, we do not believe that the inaccurate characterization of the Note "undermin[es]" the Panel's overall analysis of the Notes to the Harmonized System⁴³², as claimed by Thailand. Indeed, Thailand has not explained how the Panel's analysis would have been different had the Panel correctly characterized the Note at issue as a "Chapter Note".⁴³³ Nor is it clear to us how the Panel's conclusion with respect to the term "salted" in heading 02.10 would have changed by assigning greater weight to the Chapter Note to Chapter 16.

225. We also agree with Brazil and Thailand that the Explanatory Note to heading 02.10�which refers to meat that has been "prepared", but does not mention "preserved"�suggests that heading 02.10 is characterized by the notion of "preparation". Brazil and Thailand argue that products subject to one of the processes referred to in heading 02.10, but not necessarily placed in a state of "preservation" by application of these processes, would fall under heading 02.10. Such a conclusion, therefore, would preclude a reading of the term "salted" as suggested by the European Communities, namely, as referring exclusively to meat that has been "salted" so as to place the meat in a state of "preservation". The reading suggested by Brazil and Thailand would appear to be supported by the fact that other Notes to the Harmonized System (most importantly, the Chapter Note to Chapter 16) use the terms "prepared", "preserved", and "preservation",⁴³⁴ suggesting that the use of the term "prepared" alone, without reference to "preserved", in the Explanatory Note to heading 02.10, is not inadvertent.

226. At the same time, we also observe that the Notes to the Harmonized System do not provide a definition of the terms "preparation" or "preservation". Nor do the Notes suggest that the two terms could not operate in combination and that they are mutually exclusive. The terms "preparation" and "preservation" do not encompass all products falling under Chapter 2, because "fresh" meat cannot be characterized as "prepared" meat. Moreover, the Harmonized System contains, in other sections, references to "preparation" and "preservation" in the text of the headings, as opposed to only in the Notes.⁴³⁵ It seems to us that, where the Harmonized System considers that these terms control the definition of the scope of a heading, it will use them expressly. In our view, the terms "preparation" and "preservation", when found in the Explanatory Notes rather than in the text of the heading, need not be read as dispositive and necessarily mutually exclusive.

227. Turning to the content of the Explanatory Note to Chapter 2, we are of the view that the Panel should have taken into account explicitly this Note. We observe that the Note provides that meat that has been "packed with salt as a temporary preservative during transport" qualifies as "fresh meat" (under heading 02.07⁴³⁶). The Note suggests that mere presence of salt does  not  imply that the meat falls under heading 02.10 as "salted" meat.⁴³⁷

228. However, the fact that, pursuant to that Note, meat "packed with salt as a temporary preservative during transport" is considered "fresh" (under heading 02.07), rather than as "salted" meat (under heading 02.10), does not lead to the conclusion suggested by the European Communities, namely, that the term "salted" refers exclusively to meat that has been "preserved" by salting. Hence, we are of the view that the Explanatory Note to Chapter 2 is not conclusive with respect to the question whether the term "salted", in heading 02.10, refers  exclusively  to meat that has been "preserved" by salting and does not include meat merely "prepared" by salting.

229. As a result, we conclude that the Harmonized System and the relevant Chapter and Explanatory Notes thereto do not support the view that heading 02.10 is characterised  exclusively by the concept of preservation. Furthermore, the term "salted" in heading 02.10, when considered in its context, suggests that meat to which salt has been added, so that its character has been altered, will be "salted" within the meaning of heading 02.10, even if such salting does not place such meat in a state of "preservation". Heading 02.10 of the Harmonized System, read in its context, suggests that it is neither limited to, nor excludes, meat that is "prepared" by salting or that has been "preserved" by salting. Specifically, for resolving this dispute, heading 02.10 does not contain a  requirement  that salting must, by itself, ensure "preservation".

230. Before the Panel, the question arose as to the permissibility of using the criterion of preservation in Members' Schedules. In this respect, we note that the WCO, in a letter to the Panel, stated that "[w]hen goods are classified in the Harmonized System, it is always done on the basis of the objective characteristics of the product at the time of importation."⁴³⁸ We believe, therefore, that it is possible to apply the criterion of "preservation", provided that is discernible as an objective characteristic at the time of the importation of the product. In this context, we note that there are instances in the Harmonized System where the criterion of "provisional preservation" is used, suggesting that the criterion of "preservation" is not intrinsically objectionable under the Harmonized System.⁴³⁹ As a result, we are of the view that the Harmonized System does not, in principle, rule out the concept of "preservation" under the term "salted" in heading 02.10.⁴⁴⁰ The question whether the tariff commitment in heading 02.10 the EC Schedule is characterized exclusively by the concept of "preservation" is a separate question which we address below. In that respect, we observe that, within the parameters required by the Harmonized System, Members have certain flexibility to structure and negotiate further specifications in their particular tariff commitments.

3. Rule 3 of the General Rules for the Interpretation of the Harmonized System

231. We now turn to consider the General Rules for the Interpretation of the Harmonized System (the "General Rules"). We recall that the Panel found that:

... all the parties appear to be in agreement that a textual and contextual analysis of the relevant headings indicates that the products at issue in this dispute are not prima facie classifiable under two or more headings. Accordingly, we will proceed on the same assumption with the result that we will not apply General Rule 3. Given our conclusion that General Rule 3 is inapplicable, we do not consider it necessary to address the various arguments that have been advanced by the parties regarding that Rule.⁴⁴¹

232. Brazil and Thailand appeal this finding. Both argue that the Panel incorrectly found that the parties were in agreement that General Rule 3 was inapplicable in this case. Brazil also requests that the Appellate Body complete the analysis and find that the products at issue are classifiable under heading 02.10 by virtue of General Rule 3(a) or by virtue of General Rule 3(c).⁴⁴²

233. We note that the General Rules are, by their very name, rules for the interpretation of the Harmonized System. Specifically, General Rule 3 deals with the question of classification in circumstances in which goods are  prima facie  "classifiable" under two or more headings.

234. We recall that the task of the Panel, as well as of the Appellate Body upon appeal, is to determine whether the European Communities has acted consistently with Article II:1(a) and with Article II:1(b) of the GATT 1994 with respect to the products at issue. Therefore, in our view, the primary task of the Panel, as well as of the Appellate Body, is to determine the meaning and scope of the concession contained in heading 02.10 of the EC Schedule. In our view, it is only after properly determining the meaning and scope of the tariff commitment in heading 02.10 that the question whether the products at issue are  prima facie  classifiable under two or more headings can arise. General Rule 3 is relevant in this case only for the second step, namely, under which heading a product is properly classified.⁴⁴³ It is therefore not necessary for us to consider, at this stage, General Rule 3.

4. Conclusion Concerning "Context"

235. We, therefore,  uphold  the Panel's finding, in paragraphs 7.245 and 7.331(c) of the Panel Reports, that the context of the term "salted" in the tariff commitment under heading 02.10 of the EC Schedule "indicates that that concession is not necessarily characterized by the notion of long-term preservation". In the light of our findings in paragraphs 229-230, we will continue our examination to determine whether there has been an agreement between the European Communities and the other treaty parties on the inclusion of the concept of "preservation" in heading 02.10 of the EC Schedule.

To continue with  IX.Object and Purpose

Return to  Index

217 Thailand's other appellant's submission, para.24.

218 Ibid., para.26.

219 Ibid., para.28.

220 Ibid., para.29.

221 Ibid.

222 Ibid. (referring to Appellate Body Report, Chile � Price Band System, para.136, in turn quoting Appellate Body Report, Brazil � Aircraft, para. 132). Thailand also refers to the Appellate Body and panel findings in Argentina � Footwear (EC) and Dominican Republic � Import and Sale of Cigarettes in support of its argument. (Ibid., paras. 30-38)

223 Thailand's other appellant's submission, para. 56.

224 Ibid., para. 59.

225 Thailand's other appellant's submission, para. 71.

226 Ibid., heading III.C.2.

227 Ibid., para. 77 (referring to Panel Reports, para. 7.223).

228 Ibid., para. 81.

229 Ibid., para. 87 (referring to Panel Reports, para. 7.227).

230 Thailand's other appellant's submission, para. 87.

231 European Communities' appellee's submission, para. 14.

232 Ibid., para. 20 (referring to Appellate Body Report, Chile � Price Band System, para. 136, in turn quoting Appellate Body Report, Brazil � Aircraft, para. 132).

233 European Communities' appellee's submission, para.28.

234 Ibid., para.36.

235 Ibid., para.41.

236 Ibid., para.42.

237 Ibid., para.45.

238 Ibid.

239 Ibid., para.52.

240 European Communities' appellee's submission, para.54.

241 Ibid.

242 Ibid., para.61.

243 Ibid.

244 Ibid., para.72.

245 Ibid., para.76.

246 European Communities' appellee's submission, para.84.

247 Ibid., para.90.

248 Ibid., para.99.

249 Ibid., para.100.

250 Ibid., para.93.

251 Ibid.

252 Panel Reports, para. 7.205.

253 The European Communities argues that the Geneva Draft Nomenclature divided products at three levels, the lowest of which was called the "tertiary level". (European Communities' appellee's submission, para.108)

254 Ibid., para.108.

255 Ibid., para.114.

256 Ibid.

257 China's third participant's submission, para.5 (quoting European Communities' appellant's submission, para.182).

258 Ibid., para. 6. (emphasis added by China)

259 China's third participant's submission, para.13 (referring to Panel Reports, para.7.320).

260 Ibid., para.27 (referring to Panel Reports, para.7.323).

261 Ibid., para.15 (referring to European Communities' appellant submission, para.197).

262 Ibid., footnote19 to para.24 (referring to Panel Reports, para.7.322, in turn citing European Communities' responses to Questions 49 and 70 posed by the Panel; and European Communities' statement at the second Panel meeting, paras.9 and 14-15).

263 Ibid., paras.18-19.

264 Panel Reports, para.7.322.

265 China's third participant's submission, para.28.

266 Ibid., para.31.

267 Ibid., para.35.

268 United States' third participant submission, paras.1(a) and 5.

269 Ibid., para.5.

270 Ibid., para.6.

271 Ibid., para.1(a).

272 United States' third participant submission, para.6 (quoting Appellate Body Report, EC� Computer Equipment, paras.92 and 94).

273 Ibid., para.6.

274 Ibid., para.1(b).

275 Ibid., para.9.

276 Ibid.

277 Ibid., para.1(c).

278 Ibid., para.12.

279 Ibid., para.13 (referring to the European Communities' reliance on the Appellate Body Reports in Chile � Price Band System and (arguably) US � Line Pipe (not EC � Tube or Pipe Fittings) in European Communities' appellant's submission, para. 180).

280 Ibid., para.14.

281 United States' third participant submission, para.14.

282 Ibid.

283 Ibid., para.17.

284 Ibid., para.1(b).

285 Ibid., para.18 (quoting Appellate Body Report, US � Carbon Steel, para.157).

286 Ibid., paras.17 and 19.

287 Chapter 2 of the Harmonized Commodity Description and Coding System is attached as Annex IV to this Report.

288 In the event that the Appellate Body reverses the Panel's decision not to apply General Rule 3, Brazil requests the Appellate Body to complete the legal analysis and to conclude that the application of General Rule3 leads to the classification of the products at issue under heading02.10 of the ECSchedule. (Brazil's Notice of Other Appeal (attached as Annex II to this Report), penultimate paragraph)

289 The precise tariff commitment is contained in subheading 0207.41.10 of the EC Schedule.

290 This was Additional Note 8, later re-numbered as Additional Note 7.

291 Supra, footnote 151.

292 Supra, footnote 106.

293 The European Communities has also referred to two European Communities' Explanatory Notes as relevant pieces of European Communities' legislation. In 1981, an Explanatory Note was inserted into the European Communities' Common Customs Tariff, according to which the term "salted", in relation to swine meat, referred to meat that had been "preserved, by deep dry salting or pickling in brine without any other supplementary treatment such as drying or smoking". (Exhibit EC-11 submitted by the European Communities to the Panel) Another Explanatory Note, from 1983, referring to "dried or smoked" swine meat, stated that "[h]ams, shoulders and parts thereof which have been partially dehydrated, but the actual preservation of which is ensured by freezing or deep-freezing" fell within the tariff heading relating to "frozen 'hams, shoulders or cuts thereof, with bone in'". (Exhibit EC-13 submitted by the European Communities to the Panel)

294 Panel Reports, para.7.36.

295 We understand that a BTI provides advance binding information to the importer of how a given customs office will classify a particular product.

296 Article 1 of EC Regulation 1871/2003. (emphasis added) EC Regulation 1871/2003 amended Additional Note 7 to the European Communities' Combined Nomenclature, which had been introduced by
EC Regulation 535/94.

297 European Communities' appellant's submission, para. 47. Brazil and Thailand have not contested this assertion.

298 Panel Reports, para.7.3.

299 Ibid. para.7.36.

300 Appellate Body Report, EC � Computer Equipment, para.84.

301 Panel Reports, para. 7.75.

302 More specifically, whether this term in heading 02.10 implies that salting ensures, by itself, preservation or long-term preservation of meat.

303 EC Regulation 1223/2002, adopted on 8 July 2002, was published in the Official Journal of the European Communities on 9 July 2002, and entered into force on the twentieth day following its publication. ECDecision 2003/97/EC was adopted on 31 January 2003, and was published on 12 February 2003.

304 EC Regulation 1871/2003 was published on 23 October 2003 and entered into force on the twentieth day following its publication. EC Regulation 2344/2003 was published on 30 December 2003 and entered into force on 1 January 2004. Brazil's and Thailand's requests for the establishment of a panel were made on 22September 2003 and 28 October 2003, respectively.

305 According to the European Communities, the purpose of this Regulation was to:

... confirm and clarify that the correct interpretation of the term "salted" in heading02.10 was salting in order to ensure the preservation of the product. This regulation was considered necessary to avoid customs officials or traders reading the additional note in isolation from the headings as consistently interpreted by the European Court of Justice and the Commission.