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Korea - Definitive Safeguard Measure on Imports of Certain Dairy Products
Report of the Panel
(ii) Absence of claims under Article 4.2(c) of the Agreement on Safeguards
4.24 The European Communities have not made any specific claims or put forward any arguments in relation to Article 4.2(c), and neither its First Submission nor its Oral Statement makes any reference to Article 4.2(c).Further, on both occasions where the European Communities have requested the Panel to make rulings or findings, it has omitted any reference to Article 4.2(c).
4.25 It is virtually impossible to understand what is being argued by asserting that the "relevant factors" and "causal link" have not been fully or correctly considered, yet accepting that the competent authorities promptly published "a detailed analysis on the case as well as the relevance of the factors examined." It is important for the Panel to note that the provisions of Article 4.2(c) detail a stage subsequent to the investigation of increased imports, serious injury and a causal link between the two.The conclusion that the European Communities accept the OAI Report is only strengthened by the EC failure to make any claims in relation to Article 3 which requires a competent authority to publish "a report setting forth their findings and reasoned conclusions reached on all pertinent issues of fact and law."
4.26 Korea points out that Article 4.2(c) of the Agreement on Safeguards cannot be raised at, or subsequent to, the rebuttal stage as an issue between the parties.The decisions by the Appellate Body in India - Patent Protection for Pharmaceutical and Agricultural Chemical Products 25 and Argentina - Measures Affecting Imports of Footwear, Textiles, Apparel and Other Items 26 clearly show that the admission of new arguments at the rebuttal stage would be a substantial violation of due process, and a significant violation of the respondent's ability to defend itself.
4.27 Strict adherence to that procedural requirement is important because the ability to understand and defend oneself against precise and comprehensible claims is vital to any system of law based on due process. 27 The Appellate Body in Argentina - Textiles summarized the two-stage process under the DSU 28 as follows: 29
"Under the Working Procedures in Appendix 3, the complaining party should set out its case in chief, including a full presentation of the facts on the basis of submission of supporting evidence, during the first stage.The second stage is generally designed to permit "rebuttals" by each party of the arguments and evidence submitted by the other parties."
4.28 Therefore, as requested by the European Communities in their First Submission and Oral Statement, Korea requests the Panel to limit its analysis of the EC claims to examining whether "Korea has violated Article XIX:1(a) of the GATT and Articles 2.1, 4.2(a) and (b), 5.1, and 12(1) to (3) of the Agreement on Safeguards."
4.29 Korea is of the view that the EC failure to invoke Article 3 and raise any claims under Article 4.2(c) in either its First Submission or Oral Statement can only be construed as meaning that Articles 4.2(a) and (b) are used as standards of review in relation to the notifications and consultations requirements of Article 12 of the Agreement on Safeguards.Thus, the Panel should only examine whether Korea's notification and consultations under Article 12 of the Agreement on Safeguards were timely and adequate and whether Korea imposed its safeguard measure in accordance with the requirements of Article 5.
4.30 At the second meeting of the panel with the parties, Korea further advanced its arguments regarding the nature of the EC case as follows:
4.31 In Korea's view, the unclear nature of the EC arguments stems from its apparently deliberate strategy of claiming that only the Notifications provided by Korea under Article 12 of the Agreement on Safeguards should be considered to determine whether the Korean safeguard measure is consistent with Article XIX of GATT 1994 and the Agreement on Safeguards. This lack of clarity in the EC arguments is further aggravated by confining its requests to Articles 2.1, 4.2(a), 4.2(b), 5.1 and 12(1) to (3). It does not cite Article 3, and has not made any claims in relation to Article 4.2(c).
4.32 Further, the European Communities expressly disregard the OAI Report, one of the central documents by which to evaluate the compliance of Korea's safeguard measure with the Agreement on Safeguards. Korea refers the Panel to the EC statement in its Rebuttal Submission:
"The European Communities have already explained that the KTC report is not an appropriate source of information to evaluate Korea's compliance with its obligations arising under Article XIX of the GATT 1994 and the Agreement on Safeguards."
4.33 Accordingly, the Panel must consider the implications for the EC case of its failure to invoke Article 3, and its failure to make claims in relation to Article 4.2(c).
4.34 Korea is of the view that failure to invoke Article 3 implies that the European Communities have accepted that:
"The competent authorities publish[ed] a report setting forth their findings and reasoned conclusions reached on all pertinent issues of fact and law."
4.35 Furthermore, failure to make claims under Article 4.2(c) implies that the European Communities have accepted that:
"The competent authorities publish[ed] promptly, in accordance with the provisions of Article 3, a detailed analysis of the case under investigation as well as a demonstration of the relevance of the factors examined."
4.36 Combining the EC decision not to raise Articles 3 and 4.2(c) with its statement in its Rebuttal Submission noted above, Korea then concludes that the European Communities want the Panel to limit its review of the Korean investigation to its notifications under Article 12, and its obligations under Article 5. The EC failure to invoke Article 3 leads one to the conclusion that the European Communities references to serious injury in Article 4.2(a) and to causal link in Article 4.2(b) are used as standards of review in relation to the notification and consultation requirements of Article 12.
4.37 Korea cannot accept and the Panel should not accept that notifications under Article 12 have to include all documentation and analysis undertaken by the Korean competent authorities, including documents and analysis proving compliance with Articles 2, and 4.2(a) and (b). Clearly, Articles 2 and 4 have to be fulfilled by the competent authorities undertaking the investigations of increase in imports, serious injury and a causal link between the two. However, compliance with these requirements has to be judged against how the competent authorities conducted that analysis, and not against how their investigation was notified to Members.
4.38 However, the European Communities does not want to challenge the OAI Report as a relevant document, preferring to concentrate its argumentation to challenging the quality and nature of Korea's notifications under Article 12. The European Communities appear to want to disregard the facts established and analysis undertaken in the 85-page OAI Report, and instead judge Korea's compliance with the Agreement on Safeguards in relation to notifications that were only intended to summarise Korea's investigation.
4.39 In Korea's view, the purpose of Article 12 is to provide WTO Members with a summary of what happened during the investigation, including a summary of relevant facts established and analysis undertaken. The level of information provided should be at least sufficient to permit those Members to enter into meaningful consultations, but Article 12 is not the basis upon which the investigation undertaken by the national authority must be judged. Korea submits that, as with other proceedings, such as antidumping and CVD or safeguard measures in textiles, it is always the governmental measure, and not a communication to the WTO that is under review as to a Member's conformity with the substantive provisions of the agreement in question.
4.40 By way of conclusion, Korea requests the Panel to conclude that the European Communities are only questioning Korea's compliance with Articles 5 and 12 of the Agreement.
(b) Response by the European Communities
4.41 At the second meeting of the panel with the parties, the European Communities replied as follows:
4.42 The European Communities agree with Korea that they are not bringing a complaint under Article 3 of the Agreement on Safeguards, nor is relying upon Article 4.2(c) thereof. Accordingly, it will not address the arguments developed by Korea in the first part of its Second Written Submission. It will only say that the absence of a complaint under Article 3 does not mean that the European Communities have accepted the content of the Investigation Report to be correct. The European Communities are complaining that Korea's measure does not satisfy the substantive conditions for such measures set out in Article XIX GATT 1994 and Articles 2.1, and 4.2 of the Agreement on Safeguards. This should be indication enough that it does not agree with the investigation report.
1. Burden of proof and standard of review
(a) Submission by Korea
4.43 Regarding the issues of burden of proof and standard of review Korea submits the following arguments:
4.44 As a preliminary matter, the Panel should properly assign the burden of proof to the parties. The burden of proof is the fundamental obligation «of each of the parties to a dispute before an international tribunal to prove its claims to the satisfaction of, and in accordance with the rules acceptable to, the tribunal». 30 This fundamental obligation does not shift between the parties during the dispute. 31 To discharge its burden of proof, the party assigned such burden must present conclusive evidence substantiating its claims, i.e., the party that is required to satisfy the burden of proof must present more convincing evidence than the opposing party, and if the evidence is in equipoise, the party required to satisfy the burden of proof must lose. 32
4.45 The party claiming that a Member State exercised its rights inconsistently with the Agreement on Safeguards has the obligation to prove such inconsistency. Therefore, as the Complaining Party asserting claims that Korea acted inconsistently with the Agreement on Safeguards, the European Communities have the burden of proof throughout the course of this proceeding to present conclusive evidence that their claims are true.
(i) Standard of review
4.46 In light of the way the European Communities have presented their arguments in their First Submission, it appears to be necessary for the Panel to confirm the standard of review applicable in this case.Korea suggests that the Panel's role is to examine the Korean safeguard measure to determine whether it was imposed in accordance with Korea's international obligations under the Agreement on Safeguards.In conducting this examination, Korea suggests that the Panel should not engage in a de novo review in which it assumes the role of the investigating authority and seeks to replace its analysis of the facts and law for those of Korea.Nor should the Panel engage in assessing speculative or conclusionary arguments submitted by the European Communities as to whether the measure is appropriate or not. Instead, Korea suggests that the Panel should restrict its analysis to making an objective assessment as to whether Korea reasonably considered all relevant facts and adequately explained how such facts support the determination made.
4.47 In United States - Restrictions on Imports of Cotton and Man-Made Fibre Underwear ("Underwear") 33, Korea recalls the argument of the United States that a panel reviewing a safeguard measure under the special safeguard provisions of the Agreement on Textiles and Clothing ("ATC") should accord considerable deference to the determination by the US authorities. After citing the "Transformers" case where a panel refused to accord total deference to the domestic authority, the Panel stated the following:
"7.12 We see great force in this argument. We do not, however, see our review as a substitute for the proceedings conducted by national investigating authorities or by the TMB. Rather, in our view, the Panel's function should be to assess objectively the review conducted by the national investigating authority, in this case the CITA. We draw particular attention to the fact that a series of panel reports in the anti-dumping and subsidies/countervailing duties context have made it clear that it is not the role of panels to engage in a de novo review. In our view, the same is true for panels operating in the context of the ATC, since they would be called upon, as in the context of cases dealing with anti-dumping and/or subsidies/countervailing duties, to review the consistency of a determination by a national investigating authority imposing a restriction under the relevant provisions of the relevant WTO legal instruments, in this case the ATC. In our view, the task of the Panel is to examine the consistency of the US action with the international obligations of the United States, and not the consistency of the US action with the US domestic statute implementing the international obligations of the United States. Consequently, the ATC constitutes, in our view, the relevant legal framework in this matter.
7.13 We have therefore decided, in accordance with Article 11 of the DSU, to make an objective assessment of the Statement issued by the US authorities on 23 March 1995 (the «March Statement») which, as the parties to the dispute agreed, constitutes the scope of the matter properly before the Panel without, however, engaging in a de novo review. [footnote omitted] In our view, an objective assessment would entail an examination of whether the CITA had examined all relevant facts before it (including facts which might detract from an affirmative determination in accordance with the second sentence of Article 6.2 of the ATC), whether adequate explanation had been provided of how the facts as a whole supported the determination made, and, consequently, whether the determination made was consistent with the international obligations of the United States.[footnote omitted] We note in this respect, that in response to a question by the Panel, the United States argued that the Panel had to examine whether the domestic authorities had based their determination on an examination of factors required by the ATC and whether the basis for the determination was adequately explained. In the US view, such an approach was compatible with the standard of review adopted in the «Fur Felt Hat» case.[footnote omitted] 34
4.48 The Panel in US - Underwear, therefore, expressly rejected that it should engage in a de novo review in examining the US safeguard measure under the ATC. The Panel then articulated a standard of review intended to account for the deference that should be accorded to national authorities in their conduct of a domestic investigation. In applying the standard of review in US - Underwear, however, the Panel interpreted the special safeguard provisions of the ATC as an «exception» to Article 2.4 of the ATC. As such, the Panel imposed on the United States the burden of proof to demonstrate it acted consistently with the ATC. Unlike Article 2.4 of the ATC, the Agreement on Safeguards and the terms contained therein should not be considered as an exception.
4.49 Therefore, consistent with the approach of the Panel in US - Underwear, in examining Korea's obligations in respect of the safeguard measure, Korea suggests that the Panel should restrict its analysis to making an objective assessment of the facts and law as provided under Article 11 of the DSU by examining whether Korea:
(a) examined all relevant facts before it at the time of the investigation; and
(b) provided an adequate explanation of how the facts before it as a whole supported the determination made.
4.50 In the view of Korea, use of the above approach would accord the proper amount of deference to Korea given that the Panel is reviewing a complex administrative investigation conducted by a Member's administering authority.
4.51 The Agreement on Safeguards requires a Member's competent authority to determine whether increased imports caused serious injury to the domestic industry. In assessing serious injury under Article 4.2(a), the competent authority is not required to give any specific weight or significance to any particular criterion.Under Article 4.2(a) of the Agreement, no criterion gives conclusive guidance as to whether serious injury occurred.The Agreement also does not require that each criterion be considered in isolation.Moreover, the Agreement on Safeguards contemplates that the competent authority may use other factors that are more relevant to a particular domestic industry in assessing serious injury.
4.52 The arguments raised by the European Communities in both the consultations under Article 12 of the Agreement on Safeguards and its submissions to the Panel imply that the European Communities are applying a very high (possibly an impossibly high) standard as to how the competent authorities of the Members should be permitted to conduct injury investigations.Korea submits that Members can set their own standards which may exceed those set out in Article 4.2. 35 Each Member State of the Agreement on Safeguards is, however, only obliged to comply with the standard of that Agreement, and not the standards used by other WTO Members.
4.53 Throughout the Uruguay Round, most major trading nations, the European Communities included, recognized and accepted that the agricultural sector presented a number of unique issues requiring specific and detailed consideration, and, where appropriate, the adoption of specific rules.One of the ways in which the unique features of agriculture was recognized and dealt with was the Agreement on Agriculture, and Article 5 of the Agreement which contains a specific, detailed safeguard procedure. 36
4.54 Korea could not invoke the special safeguard provisions of Article 5 of the Agreement on Agriculture in this case.Therefore, to the extent that its domestic industry was being seriously injured by increased imports, Korea had to impose a safeguard measure consistent with the Agreement on Safeguards.
4.55 As the general system of rules for imposing safeguard measures, the Agreement on Safeguards will be applied to a number of different product sectors and, thus, has a degree of flexibility built into its structure and individual terms. 37 Certain injury criteria relevant to industrial or manufactured products may be irrelevant when applied to agricultural products, because those criteria are not objective and quantifiable or because they do not have a bearing on the situation of the particular agricultural industry, i.e., they do not reflect the unique nature of the agricultural sector. 38 If particular criteria are not applicable to a specific agricultural sector, Members should be accorded the flexibility to examine other criteria that take into account the unique or specific nature of the products and industry under examination.Members should also be allowed to take into account criteria which are also relevant to the industry under examination. 39 Provided that relevant criteria have been considered and an adequate explanation as to whether or not they indicate serious injury has been given, the Panel should defer to the Member's determination as to whether the relevant criteria, when considered as a whole, may lead to an affirmative determination of serious injury.
4.56 In the view of Korea, the European Communities do not and cannot discharge their burden of proof simply by disputing the outcome of Korea's examination of the relevant facts or by contending that Korea has to provide an explanation of its analysis and conclusions that goes beyond the requirement to provide an adequate explanation. The European Communities must present conclusive evidence that Korea failed to examine relevant facts or failed to give an adequate explanation as to how the facts as a whole supported its determination. Korea submits that the Panel should conclude that the European Communities have failed to present evidence of this nature and that the European Communities have, therefore, failed to discharge their burden of proof regarding their claims that Korea acted inconsistently with the Agreement on Safeguards.
4.57 At the first meeting of the panel with the parties Korea further advanced its arguments on the issue of standard of review as follows:
4.58 Article 11 of the DSU obliges the Panel to make an objective assessment of the facts of the case and the applicability of and conformity with the relevant covered agreements.In the absence of particular provisions on the standard of review in the Agreement on Safeguards and the GATT, these criteria need to be construed and considered in the light of the purpose and functions of the Agreement on Safeguards, past practices and precedents, and the allocation of the burden of proof.
4.59 By its very nature, the Agreement on Safeguards, as much as Article XIX GATT and other safeguard clauses, assists Governments in entering into trade liberalizing commitments, as they may call upon safeguards should subsequent economic difficulties arise in due course.By its very nature, this Agreement applies to complex and difficult constellations in difficult times.In applying the Agreement, Governments are, of course, bound by its rules and criteria.But they all share a common interest that these rules allow for adequate flexibility in responding to the difficult constellations and difficult times.In other words, the very function of safeguard clauses implies a considerable degree of discretionary powers to Governments in assessing the situation and in determining injury.
4.60 In reviewing safeguard measures imposed by Governments, panels therefore need to focus on whether the Government has exceeded its scope of discretionary powers.Within the bounds of discretionary powers, the matter therefore has to be assessed with considerable deference.
4.61 Such discretion and deference has been accorded to the operation of safeguard clauses in the past.The 150 measures notified under Article XIX GATT 1947 40 and the fact that they have not been challenged in dispute settlement but for two cases 41 proves the point in state practice.
To continue with Standard of review
25 WT/DS50/AB/R (19 December 1997), AB-1995-5.
26 WT/DS56/AB/R (27 March 1997), AB-1998-1.
27 Both Panels and the Appellate Body have ruled that the DSU is such a system (see, for example, Argentina - Measures Affecting Imports of Footwear, Textiles, Apparel and Other Items ("Argentina -Textiles"), paragraph 94).
28 More specifically, as noted by the Appellate Body in Argentina - Textiles, the Working Procedures of the DSU divide the Panel process into two clear sections. The first stage, in which the parties make their case and set out their arguments is set out in paragraphs 4 and 5. These state:
"Before the first substantive meeting of the panel with the parties, the parties to the dispute shall transmit to the panel written submissions in which they present the facts of the case and their arguments.
At its first substantive meeting with the parties, the panel shall ask the party which has brought the complaint to present its case. Subsequently, and still at the same meeting, the party against which the complaint has been brought shall be asked to present its point of view."
The second stage, in which the parties rebut the claims and arguments put forward by the other parties in the first stage, is contained in paragraph 7, which states:
"Formal rebuttals shall be made at a second substantive meeting of the panel. The party complained against shall have the right to take the floor first to be followed by the complaining party. The parties shall submit, prior to that meeting, written rebuttals to the panel."
29 See, Argentina -Textiles at paragraph 79.
30 Mojtaba Kazazi, Burden of Proof and Related Issues, A Study on Evidence Before International Tribunals 30 (Kluwer Law International 1996).
31 Id. at 36; Joost Pauwelyn, Evidence, Proof and Persuasion in WTO Dispute Settlement, Who Bears the Burden?, J.Int'l Econ.L. 1, 232 (1998).
32 Id. at 255 and 258. WTO Panels and the Appellate Body have struggled with the proper articulation of burden of proof and have often confused the burden of proof with the procedural evidentiary concepts of burden of evidence or duty of passing the judge. These latter concepts are not recognized by international tribunals. Moreover, the shifting of a burden of evidence and the creation of "presumptions" by presenting, for example, prima facie evidence only inject more complexity into WTO decision making by raising the questions: What level of evidence constitutes prima facie evidence? What level of evidence is sufficient to rebut the presumption? One commentator suggests that the presumption technique creates the risk that WTO Panels and/or the Appellate Body in exercising their discretion may use this technique, in practice, to support results-oriented findings, i.e., shift the burden to the party that it deems should lose. Id. at 258. The articles referenced above by Pauwelyn and Kazazi provide an detailed discussion of the proper role of the burden of proof in international dispute settlement proceedings.
33 United States - Restrictions on Imports of Cotton and Man-made Fibre Underwear ("US - Underwear"), WT/DS24/6, 8 November 1996.
34 WT/DS24/R (8 November 1996) (Emphasis in original).
35 For example, Article 10 of Regulation 3285/94, the EC's own implementation of the Agreement on Safeguards states:
1. Examination of the trend of imports, of the conditions in which they take place and of serious injury or threat of serious injury to Community producers resulting from such imports shall cover in particular the following factors:
(a) the volume of imports, in particular where there has been a significant increase, either in absolute terms or relative to production or consumption in the Community;
(b) the price of imports, in particular where there has been a significant price undercutting as compared with the price of a like product in the Community;
(c) the consequent impact on Community producers as indicated by trends in certain economic factors such as:
prices (i.e., depression of prices or prevention of price increases which would normally have occurred),
return on capital employed,
factors other than trends in imports which are causing or may have caused injury to the Community producers concerned.
The increase in the proof of injury required by the EC as compared to the Agreement on Safeguards is indeed noted by the European Commission in the Explanatory Memorandum to the proposal for a new Regulation implementing the Agreement (COM(94)414 at page 306) where the Commission notes:
"It should be pointed out, however, that Community legislation already contains precise rules that often go beyond the more general provisions of the Agreement on Safeguards. This is the case, for example, with the strict investigation deadlines and the more detailed list of factors to be considered in determining serious injury and the causal link between such injury and imports."
36 The International Dairy Arrangement also made it clear that agricultural products had specific issues that needed to be addressed.
37 See, for example, the following:
"The General Agreement, and in particular, Articles II and XI on the one hand, and Article XIX on the other, is a balance between the need to provide the stability necessary for decisions relating to investment and international trade and the flexibility necessary for governments to accept international obligations."
Negotiating Group on Safeguards, Drafting History of Article XIX and Its Place in GATT, MTN.GNG/NG9/W/7 (16 September 1987) at 3.
"Some [delegations] pointed out that it was unrealistic to set quantitative standards or automatic criteria for the determination of injury because not all factors were quantifiable and mathematical formulae could not be applied to all sectors of industry."
Negotiating Group on Safeguards, Meeting of 7 and 10 March 1988, MTN.GNG/NG9/5 (22 April 1988) at 5.
"This safeguard authority, or escape clause, serves as a buffer between the more open trading environment required by the trade-liberalizing obligations of the GATT, and the dislocations of domestic workers and firms which sometimes result from increased competition with a wider variety of sources."
Janet A. Nuzum, "The Agreement on Safeguards: U.S. Law Leads Revitalization of the Escape Clause", in The World Trade Organization, The Multilateral Trade Framework For the 21st Century and U.S. Implementing Legislation 407, 408 (Terence P. Stewart ed., 1996).
38 Article 4(2)(a) requires an evaluation of "all relevant factors of an objective and quantifiable nature having a bearing on the situation of that industry" (emphasis added). This appears to permit an investigation which takes into account the specific nature of the industry.
39 In light of the fact that Article 4(2)(b) of the Agreement on Safeguards uses the term «in particular», factors other than those set forth in Article 4(2)(b) may be used to determine injury to a particular sector, such as agriculture.
40 GATT, Analytical Index: Guide to GATT Law and Practice at 539-559 (6th ed 1995).
41 Working Party on Withdrawal by the United States of a Tariff Concession under Article XIX of the General Agreement ("Fur Felt Hat"), GATT/CP.6/SR 19 (adopted 22.10.51); Norway - Restrictions on Imports of Certain Textile Products, BISD 27S/119 (adopted 18 June 1980).