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Korea - Definitive Safeguard Measure on Imports of Certain Dairy Products

Report of the Panel


2. What are the appropriate documents to be considered by the Panel in evaluating the analysis performed during the investigation?

4.107 The European Communities in their first submission based their arguments concerning the lack of compliance by Korea with its obligations under Articles 2 and 4 50 of the Agreement on Safeguards on the notifications Korea had made to the Committee on Safeguards. This situation led to an inquiry by the Panel to the parties as to what document or documents should be considered by the Panel as evidence of the information used and the analysis performed by Korea's competent authorities in determining the imposition of a safeguard measure. 51

(b) Response of the European Communities

4.108 In response to the panel's question the European Communities argued:

4.109 A safeguard proceeding must be conducted in accordance with open and transparent procedures respecting the rights of defence of the parties, which are the interested economic operators. It is for this purpose that Article 3 of the Agreement on Safeguards requires publication of a report "setting forth their findings and reasoned conclusions reached on all pertinent issues of fact and law".

4.110 The proper forum for discussions between WTO Members concerning the compatibility of safeguard action with the Agreement on Safeguards is however not the national investigating authority or courts, but rather consultations and dispute settlement under the WTO.Accordingly, the European Communities consider that all the information should be found, or at least referred to, in the notifications.It notes in this respect that Article 12.2 requires a Member to include in its notification "all pertinent information." This can be presented in summary form but must cover all issues and must make clear reference to the source of the more detailed information.It is only in this way that the objectives of Article 12 can be achieved.

(c) Response of Korea

4.111 In the response to the Panel's question, Korea argued:

4.112 The Korean administrative process by which a safeguard measure is imposed has a number of stages. 52

4.113 First, an interested party or parties files a petition with the KTC. The KTC reviews the petition to establish whether the petitioner has proper standing under Articles 32, 33 and 40 of the Foreign Trade Act and Articles 64, 65, 66 and 76 of the Enforcement Decree implementing the Act.

4.114 Second, the KTC deliberates the prima facie case to decide whether to initiate an investigation on industrial injury. With the Determination to Initiate an Investigation, the KTC publishes a Public Notice of Investigation in the Korean Official Gazette, Kwanbo, which provides a summary of the determination to proceed. The Notice also contains details of the investigation to be undertaken; the timetable for the various stages, and contact details for the KTC. The initiation also triggers a notification to the WTO Committee on Safeguards, in the form of a notice conforming to G/SG/N/6.

4.115 In this case, the KTC made the Determination to Initiate an Investigation on 17 May 1996 (see Exhibit Korea-3). 53 The Public Notice of Initiation, which actually is a summary of the Determination (Exhibit Korea-3), was published in Kwanbo on 28 May 1996 (see Exhibit Korea-4), and this was the basis for the notification to the WTO Committee on Safeguards, G/SG/N/6/KOR/2 of 1 July 1996.

4.116 Third, the KTC forms an investigation team, normally led by an official from the Office of Administration and Investigation ("OAI").This team undertakes the investigation and is responsible for the formulation of questionnaires, on-the-spot investigations, and the drafting of the interim report.

4.117 Fourth, prior to the finalization of the investigation report, the OAI holds a public hearing at which the findings in the investigation report are discussed with all relevant parties present at the hearing.Copies of the OAI's interim report are available to the interested parties prior to the hearing so that the OAI can take into account observations and comments made by interested parties at the public hearing before finalizing the investigation report. The date of the oral hearing is announced in Kwanbo to maximize transparency of this procedure.

4.118 In this case, the Notice of Public Hearing was published in Kwanbo on 25 July 1996 (see Exhibit Korea-13). The interim report was available from the KTC upon request as from 12 August 1996. The Public Hearing was held on 20 August 1996.

4.119 Fifth, taking into account the above interim stage, the OAI completes its report for final approval by the KTC commissioners. The report includes a detailed analysis of:

(a) the product under investigation;

(b) the domestic industry;

(c) like or directly competing products;

(d) increases in the level of imports;

(e) threat of or actual serious injury to the domestic industry; and

(f) the causal relationship between increased imports and serious injury.

4.120 The KTC deliberates the case for a determination on injury (including causal link) on the basis of the investigation report presented to it from the OAI. The KTC's determination of injury, whether affirmative or negative, is published in Kwanbo with a summary of the investigation result, the decision of injury, further schedules and other administrative information. The KTC's determination on injury also triggers a notification to the WTO Committee on Safeguards, in the form of notice conforming to G/SG/N/8.It is important to note that if the KTC makes a negative determination on injury on the basis of the consideration on increased imports, serious injury, or causation, the case is rejected and no further action is possible.

4.121 In this case, the OAI Report was completed on 23 October 1996, and a Notice published in Kwanbo on 11 November 1996 (see Exhibit Korea-7). 54 The OAI Report was the basis for the notification to the WTO Committee on Safeguards of 2 December 1996, published by the WTO on 6 December 1996 (G/SG/N/8/KOR/1). 55 This Notification stated:

"The Korean Trade Commission has not made a decision to apply a safeguard measure yet.Therefore, there is no information on such a measure at this time. The KTC will recommend to the relevant Minister an appropriate remedial measure within 45 days of the injury determination."

4.122 Sixth, in accordance with Article 34(1) of the Foreign Trade Act and Articles 71, 72 and 76 of the Enforcement Decree of the Foreign Trade Act, the KTC Commissioners then consider the OAI Report and decide on appropriate relief measures for recommendation to the relevant Minister. 56

4.123 In this case, the KTC Commissioners decided on the relief measure, namely the quota, on 2 December 1996, and recommended it on 6 December 1996 to the Minister for Agriculture and Forestry for his deliberation.

4.124 Seventh, taking into account the outcome of "prior consultations" under Article 12.3 of the Agreement on Safeguards, the relevant Minister takes a decision concerning the relevant relief measure.If the Minister uses any additional reasoning not found in the OAI Report, this is provided in the relevant Notice.However, if no additional reasoning is used, then the Minister's determination adopts all relevant elements of the OAI Report.

4.125 In this case, Korea issued another notification to the Committee on Safeguards on 21 January 1997, by G/SG/N/10/KOR/1, published on 27 January 1997.The notification stated:

Pursuant to Article 12.3 of the Agreement on Safeguards, the Republic of Korea will consult with Members having substantial interest in the products covered by the safeguard measure, for the purpose of providing further information. A delegation from Korea will stay in Geneva during the week beginning 3 February 1997 to meet with those Members, before it makes a final decision on the measure by the week beginning 24 February 1997."

4.126 In addition, the letter enclosing the Notification reserved the right of Korea to make further submissions to the Committee concerning the imposition of any relief measures.

4.127 Further, on 31 January 1997, Korea filed a notification with the Committee on Safeguards concerning the application of the proposed safeguard measure to developing countries.This was done in accordance with footnote 2 of Article 9 of the Agreement on Safeguards (see G/SG/N/11/KOR/1 of 21 February 1997, and Exhibit EC-8).

4.128 The Minister of Agriculture and Forestry took his decision on 1 March 1997, and a Notice of the decision was published in Kwanbo on 7 March 1997 (see Exhibit Korea-9).

4.129 On 24 March 1997, Korea notified the Committee on Safeguards of an addendum to G/SG/N/10/KOR/1 (G/SG/N/10/KOR/1/Suppl.1), which was circulated on 1 April 1997.

4.130 Therefore, Korea concludes that the information used and analysis performed is found in the seven stages set out above, including, where relevant, any additional information contained in any of the Notifications made to the Committee on Safeguards.Although it may be possible to conclude that the OAI Report forms the fundamental basis of Korea's determination, it should be clear that the KTC and the relevant Minister together comprise the "competent authorities" and that any decision to impose a safeguard measure must take into account prior consultations.Accordingly, in response to the Panel's question as to where to find "the information used and analysis performed by the national authority of Korea in its determination of its safeguard measure," Korea considers that any "information used or analysis undertaken" at any time subsequent to the issuance of the OAI Report and prior to the Minister's final decision to implement relief measures is also relevant and needs to be considered as part of that decision.

(d) Submission of the European Communities

4.131 In its second submission the European Communities further argued as follows:

4.132 The European Communities have based its attempts to show that Korea's measure was inconsistent with Article XIX of GATT and several provisions of the Agreement on Safeguards. In order to arrive at this conclusion the European Communities based themselves on Korea's 1 April 1997 Notification to the Committee on Safeguards, because it wanted to take into account all the facts and arguments on which the final position of its authorities was based. The European Communities assumed that all those facts and arguments would be reflected in the 1 April Notification in view of Korea's multilateral obligations, at least in summary and with appropriate reference to the relevant parts of other determinations of its competent authorities. Although the European Communities were prepared to accept the 1 April 1997 Notification as the ultimate source of the basis for Korea's determination, even that latest document could not sustain a close scrutiny.

4.133 The European Communities submit that, in any event, no other result is reached by looking at the documents which Korea refers to as its "final determination" or at the KTC's determination of injury. Indeed, in the course of its consultations with Korea the European Communities already challenged the WTO-legality of its intended measures before the 1 April Notification was published.

4.134 This was done on the basis of information available at that stage, which did not include the 1 April Notification but rather the information provided in Korea's documents and the explanations provided by Korea.

4.135 The European Communities further consider that its position as to the appropriate source of the information used and analysis performed by Korea's authorities is confirmed by Korea's replies to the questions of the Panel.

4.136 In its reply to the pertinent question of the Panel, Korea has described the various procedural steps leading to the imposition of the safeguard measure at issue in this dispute.In doing so, it has referred to, inter alia, several documents which were prepared by its competent authorities.It has also pointed out that according to its procedure these documents can be commented upon and revised accordingly, up to and including the draft final determination.

4.137 Furthermore, Korea itself admits that the final document in its procedure was the "Notice" of 7 March 1997 (produced as Exhibit Korea-9).

4.138 That document certainly fails to be "detailed" as required by Article 4.2(c) of the Agreement on Safeguards, be it directly, that is by the information included therein, or by reference, i.e., by the documents which it may refer to.

4.139 In particular, the 7 March Notice, issued after the bilateral consultations with the European Communities had taken place, does not refer to any of the information and aspects raised in those consultations. Thus, if the 7 March Notice and possibly prior documents are the relevant sources, Korea disregarded, inter alia, the information provided in the consultations and without any reason being provided. By contrast, the 1 April Notification does take account of some of the objections made by the European Communities at the consultations.

4.140 Accordingly, the European Communities consider that its reliance on the 1 April Notification was more favourable to Korea.

4.141 Korea is itself admitting that its 1 April Notification was made to inform WTO Members of the details of the relief measures and it intended to be a summary of the "OAI Report" and of the "additional findings" based on prior consultations.Thus, the April Notification is the one (and only) document accounting for those "additional findings".

C. Claim under Article XIX:1(a) of GATT

(a) Claim by the European Communities

4.142 The European Communities claim that Korea violated Article XIX:1(a) of GATT by failing to examine whether the import trends of the products under investigation were the result of unforeseen developments .The European Communities made the following arguments in support of its claim:

4.143 Article XIX:1(a) of GATT stipulates:

"If, as a result of unforeseen developments and of the effect of the obligations incurred by a contracting party under this Agreement, including tariff concessions, any product is being imported into the territory of that contracting party in such increased quantities and under such conditions as to cause or threaten to cause serious injury to domestic producers in that territory of like or directly competitive products, the contracting party shall be free, in respect of such product, and to the extent and for such time as may be necessary to prevent or remedy such injury, to suspend the obligation in whole or in part or to withdraw or modify the concession." (emphasis added)

4.144 It clearly results from the wording of Article XIX:1(a) that in order to allow the imposition of a safeguard measure not any increase in imports is relevant, but only those which result from both "unforeseen developments" and compliance with GATT obligations, including tariff liberalization according to a party's schedules of concessions.

4.145 Tariff concessions and other obligations are listed in Article XIX of GATT as an additional element to "unforeseen developments", so it necessarily follows that liberalization cannot constitute by itself such unforeseen developments. 57 If it were otherwise, a WTO Member would be allowed to withdraw the very benefits which it had undertaken to afford e.g., by entering into tariff commitments as soon as those benefits materialize. This would neither be consistent with good faith interpretation of that provision nor with the liberalization aims pursued by GATT and the WTO Agreement overall. In any event, increased imports of the magnitude at issue in this case as a result of the tariff concessions agreed for SMPP cannot be considered "unforeseen" within the meaning of Article XIX:1(a).

4.146 The European Communities submit that, by failing to address how the increase in imports of milk powder blends and foodstuff preparations was the result of "unforeseen developments", Korea violated the obligations which it assumed under Article XIX:1(a) of GATT.

(b) Response by Korea

4.147 Korea responds to the EC arguments as follows:

4.148 Following unsuccessful negotiations during the Tokyo Round and after years of negotiations during the Uruguay Round, WTO Members finally concluded the Agreement on Safeguards.It was intended to establish a final, complete and balanced system of rules for the imposition of safeguards, which achieved a delicate balance among the different interests of the various groups concerned. Article 1 of the Agreement on Safeguards expressly states that the Agreement on Safeguards «establishes the rules for the application of safeguard measures.» Article 1 does not provide that any different or additional rules provided under Article XIX of GATT must also apply to the application of safeguard measures. 58 Thus, in the view of Korea, the text of the Agreements supports the interpretation that the rules established in the Agreement on Safeguards are now the sole articulation of the rules that must be followed in the application of a safeguard measure 59.Without prejudice to Korea's position that it complied with all of its international obligations in applying the safeguard measure at issue, Korea respectfully requests that the Panel examine this case in accordance with the interpretation of Korea.

To continue with Additional arguments by the European Communities

50 The Panel notes that these two articles refer respectively to the conditions for the imposition of a safeguard measure and to the determination of serious injury or threat thereof necessary to impose such a measure.

51 The Panel recalls that the question was: "Where should the information used and analysis performed by the national authority of Korea in its determination of its safeguard measure be found?"

52 See, Exhibit Korea-12

53 Korea noted that "Public Notice of" should be deleted from the headline of Exhibit Korea-3. The Determination itself was not published in Korea's Official Gazette.

54 It generally takes 2-3 weeks to prepare a notice in cooperation with the Ministry of Administration, which is in charge of the operation of Kwanbo.

55 It took nearly one month for the Notification to arrive at the WTO through diplomatic channels from the KTC.

56 The KTC's recommendation on relief measures is not made public because it is only a recommendation that has no legal effect and that is subject to change by the relevant Minister.

57 This also reflects a generally accepted tenet of economic theory, i.e., that tariff protection can be measured in advance according to specific formulas: see B. Hoekman, M. Kostecki, The Political Economy of the World Trading System, Oxford, 1995, pp. 88, 93.

58 Contrary to Article 1 of the Agreement on Safeguards, Article 10 of the Agreement on Subsidies and Countervailing Measures states that «Members shall take all necessary steps to ensure that the imposition of a countervailing duty . . . is in accordance with the provisions of Article VI of GATT and the terms of this Agreement.»

59 In terms of the General Interpretative Note to Annex 1A of the WTO Agreement, the rules on the Agreement on Safeguards must prevail over the conflicting rules in Article XIX of the GATT.