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Korea - Definitive Safeguard Measure on Imports of Certain Dairy Products

Report of the Panel

(Continued)


4.62 This tradition is equally reflected in the new Agreement on Safeguards.While there was a need to strengthen disciplines and to prevent an abuse of the instrument, it still provides for adequate flexibility.Thus, Article 4.2 does not set forth a closed list of relevant factors, but allows Governments, in assessing injury, to take into account additional criteria of particular relevance for the sector concerned.In the present case, it therefore was possible to look into factors of particular relevance for agriculture, consider specific problems and factors relating to the dairy industry. All of this implies certain choices and therefore discretionary powers in construing and applying the injury test.

4.63 In assessing a safeguard measure, the Panel therefore must merely engage in reviewing the measure and its justification within the discretionary bounds of the Agreement.It clearly must not engage in assessing the situation anew.It must not make an independent ex post determination based upon arguments set forth by the complaining party.Its task is a more limited one.

4.64 This is confirmed by recent panel practice relating to the application of safeguard clauses.In US - Underwear 42, the Panel was equally faced with the issue of assessing its scope and standard of review.It was a matter of finding, based upon Article 11 DSU, an appropriate way between Scylla and Charybdis: between total deference and close scrutiny.The Panel found that total deference to national injury determination could not live up to the standard of Article 11 DSU, while equally rejecting the idea of full review set forth in the Transformers case. 43 Instead, it set forth the task to "assess objectively the review conducted by the national investigating authority", to mean "to review the consistency of a determination by a national investigating authority imposing under the relevant provisions of the relevant WTO legal instruments" (para. 7.12).

4.65 Korea submits that the same standard of examining consistency should also apply to the Agreement on Safeguards.As the role and functions of safeguards are alike in different agreements, the standard of review defined and set forth by this panel should be of guidance in this first case on the Safeguard Agreement alike.It is therefore a matter to examine whether Korea remained within its bounds of discretion and had consistently examined all relevant facts before it at the time of the investigation, and provided an adequate explanation of how the facts before it as a whole supported the determination made.

4.66 Finally, the task of the Panel is further shaped and limited by the burden of proof in this case. While, in US - Underwear, it was for the United States to demonstrate compliance with the safeguard clauses of the Textile Agreement due to the fact that it had been invoked as an exception, the situation is different under the Agreement on Safeguards.Here, it is up to the complaining Party, the European Communities, to demonstrate that the review conducted by the national investigating authority does not live up to the legal requirements set forth by the Agreement and exceeds the bounds of discretion.It is up to it to demonstrate that Korea has acted inconsistently with and therefore in violation of the Safeguard Agreement.

4.67 The objective assessment by the Panel therefore needs to rely upon the facts and arguments put forth by Korea and those submitted by the European Communities.It is only to the extent the Panel concludes that facts, figures and arguments submitted by the European Communities demonstrate that Korea had failed to provide an adequate justification of the measure imposed, i.e., an adequate explanation as to how the facts invoked supported the determination, that a violation could be established.In other words, it will not be appropriate for the Panel to replace with its own figures and arguments the determination made by Korea.

4.68 The arguments put forward by Korea in this case are shaped in accordance with this standard of review and allocation of the burden of proof.It is not a matter of justifying anew the measure imposed.Instead, Korea's arguments demonstrate that the Eruopean Communities fails to provide evidence and arguments which would allow the Panel to conclude that Korea has acted beyond its discretionary powers under the Agreement on Safeguards, and thus inconsistently with its obligations under international law.

4.69 Korea also notes that most jurisdictions provide a significant degree of latitude to investigating authorities to make injury determinations after considering complicated economic facts. For example, the European Communities' courts give a very wide degree of discretion to the European Commission in arriving at similar general economic and trade policy judgements. These courts will only review the Commission's assessment of complex factual issues where:

"the Commission has exceeded the scope of its discretion by a distortion or manifest error of assessment of the facts or by misuse of powers or an abuse of process". 44

4.70 However, if the EC arguments are limited to the quality, depth and breadth of Korea's notification and consultations and are not requiring the Panel to conduct a de novo review of the Korean competent authorities investigation, then Korea is of the view that it has far exceeded the requirements of the Agreement on Safeguards.

(b) Response of the European Communities

4.71 The European Communities respond to Korea's submission as follows:

4.72 Both the European Communities and Korea agree that the appropriate standard is that in Article 11 of the DSU, i.e.,

"an objective assessment of the matter before it, including an objective assessment of the facts of the case and the applicability of and conformity with the relevant covered agreements"

4.73 However opposite conclusions are drawn as to what this means in the present case.

4.74 In its First Written Submission, Korea concluded that this requires 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.

4.75 Korea takes this formulation to mean that it need not seek out all the facts but may content itself with the "facts before it" and that even as regards the facts that it does have before it, it need only provide an "adequate" explanation of how these facts "as a whole" (that is viewed globally, rather than in detail) support its determination.The United States apparently does not draw the same conclusions as Korea from the same test because it comes to the conclusion that it was normally necessary to examine the whole of the defined domestic industry and that if Korea failed to evaluate relevant evidence, its determination would violate Article 4.2(a) of the Agreement on Safeguards.

4.76 The above formulation must be rejected since it results from Article 4.2(a) of the Agreement on Safeguards and the precedents set by the panel reports in US - Shirts and Blouses and US - Underwear 45 that

  • the investigating authority has to seek out and consider "all relevant facts" (and not rely on what is "before it"); and
  • it is necessary, at a minimum, for a serious injury determination under the Agreement on Safeguards to demonstrate that the relevance or otherwise of each of the injury factors listed in Article 4.2(a) of the Agreement on Safeguards was properly analysed unless it is explained for what reason the injury factor may be disregarded. It is true that no injury factor "in isolation" can establish serious injury but that does not excuse a failure to examine them all.

4.77 Korea then argued that "the very function of safeguard clauses implies a considerable degree of discretionary powers to governments in assessing the situation and in determining injury" and that "the matter ... has to be addressed with considerable deference".

4.78 It also claimed that most domestic jurisdictions "provide a significant degree of latitude to investigating authorities to make injury determinations after considering complicated facts" and even quoted a State aid case of the European Court of Justice in support.

4.79 On the first argument brought forward by Korea, the European Communities responded that the discretionary nature of safeguard measures which may have been accepted under GATT 1947 and is evidenced in the low number of disputes, is no longer compatible with the WTO.The Agreement on Safeguards has introduced an obligation to conduct a thorough investigation as a pre-condition for imposing measures and has removed the possibility of compensation during the first three years where the measure is held to be in conformity with the Agreement on Safeguards.In addition the WTO system, characterized by binding dispute settlement, is more based on the principle of legality and less on the principle of diplomacy than the former GATT.

4.80 The European Communities do not agree with the view that the intention of the Agreement on Safeguards was to increase the discretion allowed to Members.The preamble to the Agreement on Safeguards clearly contradicts this view since it recalls the intention of Members to reinforce the disciplines of Article XIX of GATT and to re-establish multilateral control over safeguards.

4.81 The European Communities also reject the attempt to import domestic standards of review of certain jurisdictions into the WTO dispute settlement.

4.82 First, the WTO dispute settlement system serves very different purposes to national administrative law systems.It is not designed to establish whether an investigating authority conducted itself in accordance with its duties but rather to adjudicate on the rights and obligations of Members of the WTO under the WTO Agreements.

4.83 Second, even if any of the principles applied by Member jurisdictions were relevant, the standards of all jurisdictions would have to be treated as equally valid and these standards are far too diverse to allow useful rules to be deduced.Terms such as "de novo" and "manifest error" have specific and often differing meanings in different legal systems and so are probably best avoided as they are susceptible of creating conflicting interpretations between Members.

4.84 Thirdly, the guiding text is Article 11 of the DSU, which requires a standard of objective assessment of the facts.This is the standard and the terminology to be applied by Panels.

4.85 In the present case, the European Communities are not contesting the basic economic data produced by Korea but only its completeness and the conclusions drawn from it.The European Communities submit that the "objective assessment of the facts" referred to in Article 11.DSU cannot be satisfied by verifying what conclusions the investigating authority came to but must include how it came to those conclusions, that is to say its reasoning.

4.86 The European Communities recall that Panel Report Brazil - Milk Powder, also established that it is not sufficient for an authority to refer to the evidence it considered and state its conclusion.In the words of that panel: "It was incumbent upon the investigating authorities to provide a reasoned opinion explaining how such facts and arguments had led to their finding." 46

(c) Rebuttal response of Korea:

4.87 Korea makes the following rebuttal arguments:

4.88 First, as the complainant challenging a safeguard measure under the Agreement on Safeguards, it is for the European Communities to show that the claims it makes against Korea are proven.

4.89 Second, Korea reiterated its previously articulated standard of review in this case, as set in Paragraph 4.74 above and noted that the United States "agrees with Korea's assertions concerning the standard of review in safeguards cases."

4.90 At the second meeting of the panel with the parties Korea further advanced its arguments on the issue of standard of review as follows:

4.91 Based on the EC arguments on the standard of review in its Second Submission Korea believes that the European Communities is either:

(a) seeking to challenge the quality of the investigation undertaken by the Korean competent authorities; or

(b) whether intentionally or inadvertently, confusing the standard of review to be applied by the Panel in reviewing the Korea's investigation, with the standard of investigation applicable to the Korean investigating authority.

4.92 Korea requests the Panel to conclude that the European Communities cannot challenge the quality of the Korean competent authorities' investigation after the closing of the first round of Oral Statements. This results from Korea's belief that the lack of claims under Articles 3 and 4.2(c) of the Agreement on Safeguards implies that the European Communities have not at any time during these proceedings challenged the quality of the investigation performed by Korea's competent authorities.

4.93 Korea submits that the European Communities are confusing the standard of review to be applied to the Panel's deliberations with the standard to be applied to the investigating authority.Korea notes that these are different concepts and require different analysis.

4.94 The EC arguments seek to obscure Korea's simple formulation of Standard of Review.

4.95 First, the European Communities argue that:

"Korea takes this formulation to mean that it need not seek out all the facts but may content itself with the "facts before it" and that even as regards the facts that it does have before it, it need only provide an "adequate" explanation of how these facts "as a whole" (that is viewed globally, rather than in detail) support its determination."

4.96 This attempt to misconstrue Korea's argument must be corrected for the record.Clearly the standard of review articulated by Korea does not excuse the Korean investigating authority from conducting a thorough investigation of the facts.Korea's formulation of the standard of review requires the investigating authority to examine all relevant facts which have been uncovered by the investigation based on the requirements of the Agreement on Safeguards.The OAI Report is an 85 page document setting out numerous factual findings made by the OAI, and its analysis as to whether serious injury had been caused to the domestic industry, and whether this serious injury was caused by increased imports.It should be clear from this document alone that the Korean competent authorities undertook a thorough investigation of the case.

4.97 Second, the European Communities suggest that Korea has implied that the imposition of a safeguard measure is "discretionary".This is a complete misinterpretation of Korea's view of the nature of safeguards.Safeguard measures can only be imposed on the basis of the Agreement on Safeguards and not at the discretion of any national authority.The fundamental point is that the underlying purpose of safeguards imposed on the basis of the Agreement on Safeguards is to provide Members with recourse to emergency short-term measures.This specific purpose necessitates a reviewing body to accord a significant degree of deference to the investigating authority in relation to the factual, legal and economic analysis undertaken.

4.98 Third, the European Communities refer to the panel proceedings in Brazilian Milk Powder, both to challenge Korea's statement on standard of review, and its compliance with Article 4.2(a).Korea agrees with the earlier Panel's statements in relation to the nature and quality of examination that needs to be undertaken by an investigating authority, and is of the view that the Korean competent authorities met that standard in this case.

4.99 In fact, the Brazilian Milk Powder case demonstrates that the Panel should determine Korea's compliance with the Agreement on Safeguards based on the documents of the competent authorities. For the sake of completeness, the European Communities might also have referred the Panel to its own arguments on standard of review in paragraph 32 of that Panel report where it approved of:

"paragraph 335 of the report of the panel on "United States - Softwood Lumber" [which] had stated that "[t]he Panel considered that in reviewing the action of the United States authorities in respect of determining the existence of sufficient evidence to initiate, the Panel was not to conduct a de novo review of the evidence relied upon by the United States authorities or otherwise to substitute its judgement as to the sufficiency of the particular evidence considered by the United States authorities. Rather ... [it] required consideration of whether a reasonable, unprejudiced person could have found, based upon the evidence relied upon by the United States at the time of initiation, that sufficient evidence existed of subsidy, injury and causal link to justify initiation of the investigation". 47

4.100 However, the European Communities clear implication by referring to that Panel is that the quality and nature of the Korean authorities' analysis was similar to that of the Brazilian authorities.The European Communities comparison between three paragraphs of analysis in a two page document 48 does a disservice to the 85 pages of findings and closely reasoned analysis found in the OAI Report and the 17 page April 1 Notification.

4.101 Moreover, the European Communities reference to the Brazilian Milk Powder panel report is misleading.For brevity, Korea noted only two material differences between the Brazilian case and the case under investigation, as these clearly show that there can be no meaningful comparison between the two:

(a) the Panel found that Brazil had not undertaken any investigation whatsoever prior to the imposition of a provisional countervailing duty, therefore it could not have established that the relevant elements necessary for imposition of a duty were present;

(b) the Panel found that although Brazil was required to examine certain injury criteria in establishing material injury, it only referred to one such factor in its published documents.

4.102 Fourth, the European Communities examine Korea's arguments concerning the level of deference shown in national review procedures.However, it misses or overlooks Korea's fundamental point.Korea was not asking the Panel to apply any specific definitions or legal terms when it suggested that a number of judicial systems, including those in the EU and United States, afford national authorities carrying out detailed economic analysis a great deal of discretion.Korea's point is not the precise level of deference provided, but the fact that it is provided at all by courts when reviewing complicated, factual, legal and economic analysis. 49

(d) Rebuttal response of the European Communities

4.103 At the second meeting od the Panel with the parties the European Communities made the following arguments:

4.104 The European Communities are not asking the Panel to redo the investigation, merely to examine the completeness and correctness of what was investigated and to verify the soundness and compatibility with the Agreement on Safeguards of the reasoning of Korea in imposing the measure. In applying this standard of review, the European Communities argue that Korea failed to investigate all the injury factors specifically mentioned in Article 4.2 and has drawn wrong conclusions from the facts which it did establish. In particular Korea failed to investigate profitability and employment of the major part of the domestic industry, the dairy farms and its causality analysis is fatally flawed by the fact that Korea ignored the protection offered the dairy farms and deliberately closed its eyes to the impact of the "milk quality scandal" on white milk consumption, by applying circular reasoning.

4.105 Korea's defence has generally been that it could not investigate certain injury factors because it did not have the data. The European Communities would make two comments: first, it should have obtained the data. The Safeguards Agreement requires an investigation (at a minimum) of all the injury factors listed in Article 4.2 of the Agreement on Safeguards; second, Korea cannot invoke its own failure to investigate in its defence.

4.106 A second line of defence used by Korea is to say that it could not collect the data since there was too much of it or it was too difficult. For example, it states that there are 20 000 dairy farms and it would have been impossible to investigate transaction prices for all of them. The European Communities would reply that the fact that it is difficult to obtain precise information does not mean that no attempt should be made to make an estimate. For example it is difficult to know how much damage is suffered by a person following a personal injury but this does not lead to judges dismissing claims for damage

To continue with What are the appropriate documents to be considered


42 WT/DS24/R, 8 November 1996.

43 New Zealand - Imports of Electrical Transformers from Finland ("Transformers"), BISD 32S/55 (adopted 28 July 1985).

44 See, for example Case C-225/91 Matra v. Commission [1993] ECR I-3203.

45 See, Panel Report in United States - Measure Affecting Imports of Woven Wool Shirts and Blouses from India ("US - Shirts and Blouses"), 6 January 1997, WT/DS33/R; US - Underwear, WT/DS24/6, 8 November 1996.

46 See, Panel Report on Brazil - Imposition of Provisional and Definitive Countervailing Duties on Milk Powder and Certain Types of Milk from the European Economic Community ("Brazilian Milk Powder"), adopted by the Committee on Subsidies and Countervailing Measures on 28 April 1994, SCM/179, and Corr. 1, at para 286.

47 See, Brazil Imposition of provisional and definitive countervailing duties on milk powder and certain types of milk from the EEC, 28 April 1994 (SCM/179).

48 See, Korea Exhibit 17.

49 Again, Korea notes the extremely wide discretion provided to the Commission and Council of Ministers by the European Courts of Justice, and refers the Panel to, for example, the SAM Schiffahrt judgment ([1997] ECR I-4475), where the ECJ notes:

"23. As the case-law has firmly established, in giving the Council the task of adopting this policy a common transport policy, the Treaty has conferred wide legislative powers upon it as regards the adoption of appropriate common rules (judgment in Case 97/78 Schumalla [1978] ECR 2311, paragraph 4).

24. In reviewing the exercise of such powers, the Court cannot substitute its own assessment for that of the Community legislature, but must confine itself to examining whether that latter assessment contains a manifest error or constitutes a misuse of powers, or whether the authority in question did not clearly exceed the bounds of its discretion (judgments in Case C-122/94 Commission v Council [1996] ECR I-881, paragraph 18; C-84/94 United Kingdom v Council [1996] ECR I-5755, paragraph 58; Case C-169/95 Spain v Commission [1997] ECR I-0000, paragraph 34).

25. The Court's case-law also shows that where, as in this case, implementation by the Council of a common policy requires it assess a complex economic situation, its discretion is exercisable not only in relation to the nature and scope of the provisions which are to be adopted but also, to a certain extent, to the findings as to the basic facts, especially in the sense that it is free to base its assessment, if necessary, on findings of a general nature (judgments in Case 166/78 Italy v Council [1979] ECR 2575, paragraph 14; Case 138/79 Roquette Frères v Council [1980] ECR 3333, paragraph 25)."