(c) Additional arguments by the European Communities made at the first meeting of the Panel with the parties

4.149 The European Communities responded to Korea's Argument by asserting that:

4.150 Korea relied on a very selective - and interpolated - quotation of Article 1. Thus, the original Article 1, reading "This Agreement establishes rules for the application of safeguard measures which shall be understood to mean those measures provided for in Article XIX of GATT" becomes "This Agreement establishes the rules for the application of safeguard measures", with the rest of the provision eloquently omitted.(emphasis added )

4.151 By doing so Korea simply refuses to face the fact that GATT was incorporated in the WTO system in its entirety. From the very inception of the new WTO system panels have recognized that the fragmentation of the multilateral trading system resulting from the independent co-existence of GATT 1947 and the so-called "side-agreements" is definitively over. ⁶⁰ Most recently, in Guatemala - Anti-Dumping Investigation Regarding Portland Cement from Mexico, ⁶¹ the Appellate Body made clear in respect of dispute settlement provisions that "[a] special or additional provision should only be found to prevail over a provision of the DSU in a situation where adherence to the one provision will lead to a violation of the other provision, that is, in the case of a conflict between them". "[i]t is only where the provisions of the DSU and the special or additional rules and procedures of the covered agreement cannot be read as complementing each other that the special or additional provisions are to prevail" (emphasis in original)

4.152 It is precisely in those very same terms that the interpretative note to Annex IA to the WTO Agreement provides that: "In the event of a conflict between a provision of the General Agreement on Tariffs and Trade 1994 and a provision of another agreement in Annex IA ... , the provision of the other Agreement shall prevail to the extent of the conflict." (emphasis added).

4.153 The European Communities failed to see how Article XIX:1(a), to the extent that it requires that the increase in imports must result from "unforeseen developments", could be said to be in conflict with the provisions of the Agreement on Safeguards. Clearly, the drafters of Article XIX had difficulties too, since they cumulated these requirements.

4.154 Furthermore, derogating from Article XIX is certainly not one of the aims of the Agreement on Safeguards. That agreement rather aims to "clarify and reinforce the disciplines of GATT and specifically those of Article XIX ... to re-establish control over safeguards and eliminate measures that escape such control" and recognizes that "for these purposes a comprehensive agreement, applicable to all Members and based on the basic principles of GATT, is called for".(emphasis in original)

4.155 In response to a question by the Panel ⁶², the European Communities further clarified their arguments:

4.156 The European Communities consider that the requirement in Article XIX that safeguard measures only be taken in the event of "unforeseen developments" remains applicable even if not repeated in the Agreement on Safeguards.

4.157 Article 1 of that Agreement provides that "This Agreement establishes rules for the application of safeguard measures which shall be understood to mean those measures provided for in Article XIX of GATT".

4.158 It is clear from the omission of the definite Article before the word "rules" in this provision that the Agreement on Safeguards is not intended to be the exclusive source of safeguard rules.

4.159 It is true that Article 2 of the Agreement on Safeguards does not repeat the requirement of unforeseen developments but this can be explained by the intention of the Agreement on Safeguards to provide procedures for investigations.Unlike increased imports, other conditions, injury and causation, the existence of unforeseen circumstances is something within the knowledge of governments and does not require investigation involving economic operators.It is of interest to note that the requirement that the increased imports result from trade liberalization is also not mentioned in the Agreement on Safeguards (liberalization is also of course a matter within the knowledge of governments).Both these factors either exist or do not and do not need an investigation to be established. As is clearly stated in the preamble, the purpose of the Agreement on Safeguards was to clarify and reinforce the disciplines of Article XIX of GATT.The requirements of unforeseen developments and indeed the consequences of trade liberalization were not requirements which the contracting parties considered needed to be clarified and reinforced.

4.160 Article 11.1(a) of the Agreement on Safeguards expressly requires that safeguard action conform both to Article XIX GATT and to the Agreement on Safeguards.This is especially so in view of the fact that GATT and the Agreement on Safeguards are both contained in Annex 1A of the WTO Agreement and the General Interpretative Note to the WTO Agreement provides that the provisions of an agreement such as the Agreement on Safeguards should prevail over the GATT in the event of conflict and to the extent of the conflict.The European Communities see no conflict between Article XIX GATT and the Agreement on Safeguards.

4.161 In response to a request from the Panel that it clarify its interpretation of the Brazil - Dessicated Coconut case refered to in paragraph 4.151 above, the European Communities responded as follows:

4.162 The European Communities have referred to the Brazil - Dessicated Coconut case in reply to the position taken by Korea on the issue of the "applicable law". Korea has argued 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", to the exclusion of Article XIX of GATT, because Article 1 of the Agreement on Safeguards does not provide that any different or additional rule under Article XIX of GATT must also apply.

4.163 The European Communities disagree with Korea and consider that the Brazil - Dessicated Coconut Panel Report, upheld by the Appellate Body, supports its view that such an express provision is not required, but rather that GATT and the Agreement on Safeguards:

4.164 The Brazil - Dessicated Coconut Panel also stated:

4.165 The European Communities concur with the conclusion, drawn by the United States from this passage, that the "new package" made up by the Agreement on Safeguards and Article XIX of GATT is different from Article XIX of GATT 1947.

4.166 The European Communities however disagree with the additional conclusion drawn by the United States as a third party in this dispute that after the entry into force of the Agreement on Safeguards "those provisions of Article XIX that remain in force are incorporated into the Agreement on Safeguards" and that the requirement that "unforeseen developments" must have caused an increase in imports is no longer applicable. With this statement the United States seem to be attempting to reduce the "package" to the provisions of only one part, the Agreement on Safeguards. This is the opposite of what the Appellate Body meant when it agreed that the GATT provision and the specific agreement needed to be treated as an "inseparable package".

4.167 The European Communities added that, on the status of GATT in the WTO system, the Brazil - Dessicated Coconut Panel considered:

4.168 On the other hand, the European Communities recall that in that case the Panel did not have to decide on the precise content of the "new package", that is, on whether and to what extent the GATT provision at issue (Article VI) had been modified as a result of the relevant Agreement in Annex 1 A (the Agreement on Subsidies and Countervailing Measures). In fact, the Panel concluded for the inapplicability of the whole relevant "package" to the case before it. ⁶⁶

(d) Additional arguments by Korea made at the first meeting of the Panel with the parties

4.169 In response to a question by the Panel ⁶⁷, Korea further clarified its arguments as follows:

4.170 Article XIX:1(a) of GATT 1947 provided that Contracting Parties could apply safeguard measures in response to "unforeseen developments" resulting in increased imports that threatened or caused serious injury to domestic producers of like or directly competitive products.GATT includes the text of GATT 1947, including Article XIX. The Agreement on Safeguards, however, does not include the condition of "unforeseen developments."

4.171 WTO dispute settlement panels and the Appellate Body have established that the language of GATT and the WTO Agreements should be interpreted in accordance with the rules of interpretation set forth in the Vienna Convention on the Law of Treaties ⁶⁸ ("Vienna Convention"). These rules require an examination of the ordinary meaning of the words of a treaty, read in their context and in the light of the object and purpose of the treaty involved. ⁶⁹

4.172 Accordingly, in its interpretation of the Agreement on Safeguards and Article XIX, Korea first addresses the respective texts. After having established the meaning of the texts in their context, Korea discusses the object and purpose of the provisions at issue. In light of the disagreement between the parties to this dispute, Korea also analyses supplemental sources of interpretation in accordance with the Vienna Convention in order to clarify the meaning of the texts and the object and purpose of the provisions at issue. ⁷⁰

4.173 Korea submits that the legal relationship between the Agreement on Safeguards and Article XIX is based on the text of Articles 1 and 11.1(a) of the Agreement on Safeguards. Article 1 states that:

4.174 Article 11.1(a) of the Agreement on Safeguards states that

4.175 Thus, Articles 1 and 11.1(a) of the Agreement on Safeguards clearly and conclusively establish that safeguard measures originally provided for in Article XIX may only be applied in accordance with the rules established under the Agreement on Safeguards.

4.176 Pursuant to the express terms of Article 11.1(a), the Agreement on Safeguards and Article XIX must be read together, and applied in accordance with the provisions of the Agreement on Safeguards. ⁷¹ The Appellate Body has established that, taken together, provisions of the GATT and the WTO Agreements create a new "package of rights." ⁷² Accordingly, Korea submits that the provisions of Article XIX have been defined, clarified, and modified according to the new "package of rights" applicable under the Agreement on Safeguards.

4.177 Korea submits that conflicts between the provisions of Article XIX and the Agreement on Safeguards must be resolved according to the General Interpretative note to Annex 1A to the WTO Agreements (the "Interpretative Note"), which provides:

4.178 The provisions of the Agreement on Safeguards, therefore, prevail to the extent of conflict with Article XIX.

4.179 Pursuant to Article 11.1(a), safeguard measures must be applied in accordance with the Agreement on Safeguards. The "unforeseen developments" condition cannot be applied in accordance with the Agreement on Safeguards, because such condition is not specified in the Agreement. Article XIX, on the other hand, does require "unforeseen developments." This conflict ⁷³ must be resolved according to the Interpretative Note, which requires that the Agreement on Safeguards must prevail to the extent of conflict with Article XIX.

4.180 Because the "unforeseen developments" condition of Article XIX does not conform with the provisions of the Agreement on Safeguards, Members are not required to consider such condition when taking or seeking the emergency actions on imports of particular products set forth in Article XIX of GATT.

4.181 In addition to the rule set forth in Article 11.1(a), Article 2 of the Agreement on Safeguards provides that "[a] Member may apply a safeguard measure to a product only if that Member has determined, pursuant to the provisions set forth below..." that the applicable criteria have been established (emphasis added). The "provisions below" of the Agreement on Safeguards do not include the "unforeseen developments" condition. Moreover, Article 2 continues to reiterate every provision of Article XIX:1(a) except those regarding "unforeseen developments" and "obligations incurred by a contracting party under [GATT], including tariff concessions." Thus, the language of Article 2 of the Agreement on Safeguards mandates the interpretation that the condition of "unforeseen developments" is not included in the new "package of rights" in effect under WTO law.

4.182 Korea considers that its interpretation of the WTO safeguards regime reflects the object and purpose of the Agreement on Safeguards together with Article XIX. The preamble to the Agreement on Safeguards includes the following as its object and purpose:

• to improve and strengthen the international trading system based on GATT; and
• to clarify and reinforce the disciplines of GATT, and specifically those of its Article XIX..., to re-establish multilateral control over safeguards and eliminate measures that escape such control.

4.183 Korea considers that its interpretation of the Agreement on Safeguards and Article XIX is also consistent with the object and purpose of the WTO Agreements as a whole. The Appellate Body has noted that "[t]he authors of the new WTO regime intended to put an end to the fragmentation that had characterized the previous system." This intent is evident in the preamble to the WTO Agreement, which states, in pertinent part:

4.184 Thus, the object and purpose of the provisions at issue, and of the WTO Agreements generally, is to introduce changes to the GATT regime that improve and strengthen the multilateral trading system.

4.185 The object and purpose of the provisions at issue is further illustrated by practice of the parties under Article XIX and the Agreement on Safeguards. ⁷⁴ Practice under Article XIX confirms that the GATT Contracting Parties did not consider that the condition of "unforeseen developments" was required. For example, as early as 1951, the United States did not apply the "unforeseen developments" condition in determining whether to impose safeguard measures. ⁷⁵

4.186 Significantly, the lack of subsequent practice under Article XIX reflects the view held by many Contracting Parties that Article XIX's provisions were unrealistic and unusable. The proliferation of "grey area" measures since the inception of GATT 1947 is widely attributed to Contracting Parties' perception that the political and economic reality attendant to safeguard measures could not be accommodated under Article XIX.

4.187 Even if it is considered that "unforeseen developments" were required under GATT 1947, but were simply not complied with, practice by the parties confirms that "unforeseen developments" are not required under the Agreement on Safeguards. Safeguards practice subsequent to the WTO Agreements' entry into force is generally limited to Members' implementation of laws and regulations consistent with the Agreement on Safeguards, especially since the instant case is the first dispute to be brought under the Agreement on Safeguards. According to the notifications of legislation submitted to the Committee on Safeguards pursuant to Article 12.6 of the Agreement on Safeguards, the laws and regulations of the parties and third party to this dispute do not include the condition of "unforeseen developments ⁷⁶"

4.188 Under the presumption that these WTO Members have implemented the measures required under the Agreement on Safeguards in good faith, Korea submits that the absence of the "unforeseen developments" condition indicates that such condition in their domestic legislation is not considered to exist under the Agreement on Safeguards.

4.189 The object and purpose of the Agreement on Safeguards, as illustrated by the parties' practice, is to improve and strengthen the multilateral trading system by introducing effective means for applying safeguard measures. This object and purpose would be completely undermined by the inclusion of the "unforeseen developments" condition.

4.190 Korea considers that the relevant texts clearly do not require the condition of "unforeseen developments." To the extent that the texts are deemed ambiguous or unreasonable, however, Korea notes that preparatory work to the Agreement on Safeguards reinforces the negotiators' intent that the condition of "unforeseen developments" does not apply under the Agreement on Safeguards. ⁷⁷

4.191 The preparatory work to the Agreement on Safeguards provides additional guidance on the meaning of the texts and the object and purpose of the relevant agreements. In addition, Korea considers that the EC imposition of the "unforeseen developments" condition on Korea, but not on itself, would lead to a manifestly absurd and unreasonable result. ⁷⁸ which is not tolerated under the Vienna Convention rules, and should be rejected by the Panel.

4.192 In reviewing the preparatory work to the Agreement on Safeguards, Korea first looks to the language of the disputed provision. As indicated above, the Agreement on Safeguards reiterates every provision of Article XIX:1(a) except those regarding "unforeseen developments" and "obligations incurred by a contracting party under [GATT], including tariff concessions." The Agreement on Safeguards' negotiating drafts also reflect that the negotiators considered, and rejected, the "unforeseen developments" requirement. ⁷⁹

4.193 Several authors provide insight on the relationship of the Agreement on Safeguards and Article XIX under the new WTO safeguards regime. Professor Thiébaut Flory has opined that Article XIX "functioned for many years in a defective manner - moreover the Community has only triggered the safeguard clause under Article XIX twenty times since the beginning of the 1980's. This very low number of inquiries displays the defective nature of the functioning of the safeguard clause under Article XIX of the General Agreement of 1947...." ⁸⁰ In the context of safeguard negotiations during the Uruguay Round, Pierre Didier has observed with respect to the "unexpected, sudden, and large" conditions contemplated by the negotiating group on safeguards, that "both the US and EU rejected this terminology as being too difficult to apply." ⁸¹

4.194 Regarding the outcome of the Uruguay Round negotiations, Marco Bronckers notes that "exporting interests have also lost on a couple of points in the agreement, for example: - the triggering condition of injury no longer needs to be attributable to 'unforeseen developments' or to 'GATT obligations...." ⁸² In addition, Janet A. Nuzum, former Commissioner of the US International Trade Commission, has noted the change from Article XIX's requirements that the Agreement on Safeguards does not require "unforeseeable developments and of the effect of obligations incurred by a contracting party under [GATT] including tariff concessions...." ⁸³ Finally, Edmond McGovern has expressed the view that "[t]he requirements in Article XIX:1 that the injury should occur "as a result of unforeseen developments and of the effect of obligations incurred... under this Agreement" were not repeated in the 1994 Agreement because they were no longer of practical significance." ⁸⁴ Thus, learned commentary on the matter in dispute also leads to the conclusion that the "unforeseen developments" condition required under the "defective" Article XIX does not apply under the Agreement on Safeguards.

4.195 Korea submits that the new "package of rights" in effect under the Agreement on Safeguards and Article XIX of GATT does not include the condition of "unforeseen developments."

To continue with Rebuttal arguments made by the European Communities

⁶⁰ See, the Panel Report in Brazil - Dessicated Coconut, WT/DS22/R, 17 October 1996. e.g., paras 227, 242.

⁶¹ WT/DS60/AB/R, 2 November 1998.

⁶² The Panel recalls that the question was: "Please comment and discuss the legal relationship between the provisions of the Agreement on Safeguards and those of Article XIX of GATT, in particular with reference to 'unforeseen developments'."

⁶³ Panel Report, para 227, recalled in Appellate Body Report, p. 14 (emphasis added). The Panel concluded for the non-separability of Article VI of GATT and the SCM Agreement in para 257 of its Report.

⁶⁴ Panel Report, para 246; Appellate Body Report, p. 16 (emphasis in original).

⁶⁵ "For example, the SCM Agreement does not replicate or elaborate on Article VI:5 of GATT, which proscribes the imposition of both an anti-dumping and a countervailing duty to compensate for the same situation of dumping and export subsidization, nor does it address the issue of countervailing action on behalf of a third country as provided for in Article VI:6(b) and (c) of GATT. If the SCM Agreement were considered to supersede Article VI of GATT altogether with respect to countervailing measures, these provisions would lose all force and effect. Such a result could not have been intended." (Panel Report, para 227).

⁶⁶ Panel Report, paras 231, 257.

⁶⁷ The Panel recalls that the question was: "Please comment and discuss the legal relationship between the provisions of the Agreement on Safeguards and those of Article XIX of GATT, in particular with reference to 'unforeseen developments'."

⁶⁸ Done at Vienna, 23 May 1969, 1155 U.N.T.S. 33; 8 International Legal Materials 679.

⁶⁹ See, the Appellate Body Report in the United States - Import Prohibition of Certain Shrimp and Shrimp Products ("United States - Shrimp-Turtle"), WT/DS58/AB/R, footnote 82 and accompanying text, citing United States - Standard for Conventional and Reformulated Gasoline, ("United States - Gasoline") adopted 20 May 1996, WT/DS2/AB/R, p. 17; Japan - Taxes on Alcoholic Beverages, ("Japan - Alcoholic Beverages") adopted 1 November 1996, WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, pp. 10-12; India - Patent Protection for Pharmaceutical and Agricultural Chemical Products, adopted 16 January 1998, WT/DS50/AB/R, paragraphs. 45-46; Argentina - Measures Affecting Imports of Footwear, Textiles, Apparel and Other Items, adopted 13 February 1998, WT/DS56/AB/R, paragraph. 47; and European Communities - Customs Classification of Certain Computer Equipment, adopted 22 June 1998, WT/DS62/AB/R, WT/DS67/AB/R, WT/DS68/AB/R, paragraph. 85.

⁷⁰ See, United States - Shrimp, Appellate Body Report, Section VI.A, stating that "[w]here the meaning imparted by the text itself is equivocal or inconclusive, or where confirmation of the correctness of the reading of the text itself is desired, light from the object and purpose of the treaty as a whole may usefully be sought." I. Sinclair, The Vienna Convention on the Law of Treaties, 2nd ed. (Manchester University Press, 1984), pp. 130-131.

⁷¹ Although it may consider that the application of Article 11.1(a) may be inconvenient for its purposes, the EC cannot simply ignore its legal effect. As the Appellate Body has noted on two occasions "one of the corollaries of the 'general rule of interpretation' in the Vienna Convention is that interpretation must give meaning and effect to all terms of the treaty. An interpreter is not free to adopt a reading that would result in reducing whole clauses or paragraphs of a treaty to redundancy or inutility." Appellate Body Report, Japan - Alcoholic Beverages, pp. 11-12, citing Appellate Body Report, United States - Gasoline, p.23.

⁷² See, Brazil - Measures Affecting Desiccated Coconut, WT/DS22/AB/R, adopted 21 February 1997, p.16, where the Appellate Body stated that "[t]he SCM Agreements do not merely impose additional substantive and procedural obligations on a potential user of countervailing measures. Rather, the SCM Agreements and Article VI together define, clarify and in some cases modify the whole package of rights and obligations of a potential user of countervailing measures." (Emphasis added.)

⁷³ In Korea's view the EC attempts to avoid "conflict" between the provisions of the agreements by comparing Article XIX:1(a) to Article 2 of the Agreement on Safeguards, which can, on their face, be read complementary to each other. The conflict that brings the Interpretative Note into application, however, is between Article XIX:1(a) and Article 11:1(a) of the Agreement on Safeguards, which requires that safeguard measures be applied according to the Agreement on Safeguards (that does not include the "unforeseen developments" condition).

⁷⁴ Article 31, Paragraph 3 of the Vienna Convention provides that in interpreting a treaty, "[t]here shall be taken into account, together with the context:... (b) any subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation[.]"

⁷⁵ In 1951, the US Congress passed the Trade Agreements Extension Act, which eliminated the "unforeseen conditions" requirement from US safeguards law.

⁷⁶ The European Communities - G/SG/N/1/EEC/1; the Republic of Korea - G/SG/N/1/KOR/1; the United States of America - G/SG/N/1/USA/1. Since the entry into force of the Agreement on Safeguards, the United States has conducted the following safeguards investigations, in which "unforeseen developments" were not considered: Broom Corn Brooms, Inv. Nos. TA-201-65 and NAFTA 302-1, USITC Pub. 2984 (Aug. 1996); Fresh Tomatoes and Bell Peppers, Inv. No. TA-201-66, USITC Pub. 2985 (Aug. 1996); and Wheat Gluten, Inv. No. TA-201-67, USITC Pub. 3088 (March 1998).

⁷⁷ For an example of the Appellate Body's recourse to treaty preparatory materials, see United States - Shrimp-Turtle Appellate Body Report, footnote 152, and accompanying text.

⁷⁸ Similarly, the Oral Statement of the United States notes that requiring the "unforeseen developments" condition would lead to yet another unreasonable result. In particular, the United States opines that

In this regard, Korea takes note of the United States' comment that the modification of Article XIX to delete the condition of "unforeseen developments" was "necessary in order to reflect actual practice." Oral Statement of the United States, p. 6, n8. (See, also discussion of safeguards practice under GATT at note [7], supra.)

⁷⁹ See, MTN.GNG/NG9/W/25, 27 June 1989; MTN.GNG/NG9/W/25/Rev.1, 15 January 1990; MTN.GNG/NG9/W/25/Rev.2, 13 July 1990; MTN.GNG/NG9/W/25/Rev.3, 31 October 1990; MTN.GNG/NG9/19, paragraph A.3.

⁸⁰ The Agreement on Safeguards in The Uruguay Round Results, A European Lawyers' Perspective (European Interuniversity Press 1996), pp. 265-66. In support of his opinion, Prof. Flory cites to an extensive list of GATT/WTO publicists, including: T. Flory, Le GATT, driot international et commerce mondial (LGDJ, 1968); J. Jackson, World Trade and the Law of GATT (The Bobbs-Merrill Company, 1969); J. Jackson, The World Trading System (MIT, 1989); M.C.E.J. Bronckers, Selective Safeguard Measures in Multilateral Trade Relations (Kluwer Law and Taxation, 1985); Edmond McGovern, International Trade Regulation (Globefield Press, 1985), pp. 291-310.

⁸¹ Pierre Didier, Les principaux accords de l'OMC et leur transposition dans la Communauté Européanne (Bruyland, 1997) pp.271-272.

⁸² Marco C.E.J. Bronckers, Voluntary Export Restraints and the GATT Agreement on Safeguards, in The Uruguay Round Results, A European Lawyers' Perspective (European Interuniversity Press 1996).

⁸³ The Agreement on Safeguards, U.S. Law Leads Revitalization of the Escape Clause, in World Trade Organization, the Multilateral Framework for the 21st Century and U.S. Implementing Legislation (American Bar Association, 1996) p. 413.

⁸⁴ International Trade Regulation (Globefield Press, 1998 update) p. 10.21-2.