(b) Context

4.652 The same conclusion is compelled by the interpretation of the provision in its context. First, the term "necessary" is reiterated in the second sentence of Article 5.1, which constitutes the most immediate "context" of the first sentence. Repetition of a term which is binding by its ordinary meaning confirms that use of that term is not accidental or inaccurate, and instead represents a deliberate choice of the drafters. Second, the same term is used elsewhere in the WTO system - notably in provisions derogating from the liberalization principle embodied therein - with the same binding meaning. Article XIX itself embodies virtually identical language and authorizes safeguard measures "to the extent and for such time as may be necessary to prevent or remedy serious injury". Furthermore, Article XX of GATT allows measures to be taken if e.g., "(a) necessary to protect public morals", "(b) necessary to protect human health".

4.653 Comparison with other WTO Agreements regulating trade defence measures also shows that when the drafters have wanted to be permissive as to the maximum level allowed for one of such measures they have used much less strong language. Article 9 of the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 ("the Anti-Dumping Agreement"), provides on the one hand, that anti-dumping duties can never exceed the dumping margin. By contrast, it further stipulates that:

This provision shows that the drafters of the WTO Agreement have chosen a much softer language when intending to express an absence of obligation. It also shows that there is a difference in the regime adopted for dumping measures and for safeguard measures, which is otherwise logical having regard to the different situation - unfair trade practices, fair trade - which dumping and safeguard measures are respectively aimed to remedy.

(c) Purpose

4.654 The purpose of the "necessity" requirement is to avoid that measures, which are recognized as "limitative and deprivational in character or tenor and impact upon Member Countries and their rights and privileges and upon private persons and their acts", ³¹⁹ not be abused. In the light of that characterization, in US - Underwear, the Appellate Body drew the conclusion that an importing Member should not be allowed "an enhanced ability to restrict the entry into its territory of goods in the exportation of which no unfair trade such as dumping or fraud or deception of origin is alleged or proven" ³²⁰ by taking safeguard action beyond the strict limits laid down in the relevant WTO provisions, if that action would result in "excluding more goods from the territory of the importing Member." ³²¹ As already noted, the aim of the Agreement on Safeguards is to "clarify and strengthen" and to "re-establish multilateral control" over safeguards ³²² rather than to broaden the authorization to apply them.

4.655 That the safeguard measure at issue in this dispute was not "necessary" to remedy serious injury flows from the fact that there was no such injury, and certainly not serious injury resulting from the imports of SMPP. Furthermore, irrespective of whether a country is always obliged to introduce a structural adjustment plan together with a safeguard measure, in this particular case Korea did, by its own admission, introduce the Dairy Industry Plan "to facilitate adequate adjustment in the Korean dairy sector", but did not show the necessity of the measure to attain the adjustment objective. There was no mention of the link between the measure and the adjustment objective within the broader framework of actions taken in this connection. Accordingly, the European Communities reiterate their conclusion that Korea did not show that the measure it adopted was "necessary", thereby violating Article 5.1 of the Agreement on Safeguards.

(ii) The necessity requirement is strengthened in Article 5.1, second sentence in respect of safeguard measures taking the form of quantitative restrictions

4.656 As Korea itself admits, by virtue of the second sentence of Article 5.1 a necessity requirement is imposed in respect of safeguard measures taking the form of quantitative restrictions. Article 5.1 of the Agreement on Safeguards is clearly intended to avoid a quota being set at a level unrelated to historical import flows prior to its imposition, which would prove particularly disruptive for exporters: in other words, a quota which would afford an importing country "an enhanced ability to restrict the entry into its territory of goods in the exportation of which no unfair trade such as dumping or fraud or deception of origin is alleged to be proven" ³²³

4.657 The prohibitive, rather than permissive, language of the provision limits in principle the minimum quota level to the average of the last three representative years the Agreement on Safeguards and establishes a presumption that for quotas such level is the maximum restriction which would be justifiable as "necessary" within the meaning of its Article 5.1: "such a measure shall not reduce the quantity of imports below the level of a recent period". It is only if the Member seeking to apply a safeguard measure in the form of a quota is able to show that a quota level based on those data is not sufficient to remedy the serious injury in a specific case that a lower quota may be imposed, and then only if "clear justification" is provided. Therefore, the second sentence of Article 5.1 embodies an "enhanced requirement" of necessity when Members want to impose a safeguard measure in the form of a quantitative restriction.

4.658 That in principle a quota level below the three representative years is not (never) "necessary" does not entail at all, and indeed is quite the opposite of, saying that whichever quota is in compliance with that threshold is automatically "necessary" and authorized. First, because the first sentence of Article 5.1, which is binding, has general scope (that is, applies to all measures). Second, because if it could be admitted that a quota in accordance with the three-year threshold is "automatically" necessary without demonstration (as suggested by Korea), one would arrive at the unreasonable and absurd result that "necessity" must be shown in respect of a tariff measure, or any measure other than quota, and not for a quota. Of course, Korea can arrive at this unreasonable and false conclusion because it starts from a wrong premise (i.e., that the first sentence does not impose any obligation on WTO Members).

(iii) Korea has imposed a quantitative restriction at a level which is below the average laid down in Article 5.1, second sentence, without "clear justification"

4.659 The European Communities maintain that the "three most recent years for which statistics are available" are to be assessed relative to the moment when the quantitative measure is imposed. Because Article 5.1 of the Agreement on Safeguards regulates the "application" of safeguard measures, i.e., the moment when measures are taken, it is appropriate to consider that moment to assess the relevant three years retrospectively.Furthermore, that sentence uses the term "recent period" in connection with the reference to imposition of the measure. It is otherwise logical that calculation of the level of a measure follows the decision to adopt a measure.

4.660 On the contrary, there is no reference, in the second sentence of Article 5.1, to the initiation of the proceeding. It is clear that referring to that moment could allow the importing country to purposefully choose the initiation time of an investigation. As to availability of data, February 1997 data for all 1996 were available - a fact that is evidenced by Exhibit EC-20 and that Korea has not challenged.

4.661 As to representativity of the data, imports of the second semester of 1996 could not be excluded on grounds of non-representativity, certainly not on the criterion invoked by Korea because there is no "manipulation" by exporters in the sense (massive, or "abnormal" raise in imports) given by Korea to the term. The increase in imports from 1995 to 1996 is lower than the increase from 1994 to 1995, yet Korea had no difficulty in considering "representative" both 1994 and 1995.

4.662 In any event, Korea took into account data relating to a period (June 1996) subsequent to the initiation of the investigation ³²⁴, and itself contradicts the criterion which it now proposes.The possible attempts of the exporters to increase exports ahead of the adoption of safeguard measures either are presumed to materialize with opening, or are not. Moreover, in US - Underwear the Appellate Body, after having referred to the binding character inherent in the word "necessity", as lack of alternatives available to the importing country, concluded that the need to prevent or deal with a "flood of imports", invoked by the United States to justify retroactive application of its measure, could have been dealt with by measures alternative to such a supplementary restriction - for example with the adoption of urgency measures. The European Communities note that analogous measures are equally available under the Agreement on Safeguards. ³²⁵

4.663 The European Communities maintain that full 1996 data were more "representative" ³²⁶ than the second semester of 1993, relied upon by Korea, and notes that there is no trace of explanation about representativity in the Notice of 7 March 1997, by which Korea finally imposed the safeguard measure at issue in this dispute. ³²⁷ Therefore, even as regards the representativity of the data used to calculate the quota, Korea's measure did not meet Article 5.1 requirements and should be found to be in violation thereof.

(iv) Korea has not shown that the measures were the "most suitable" for the achievement of their objectives

4.664 Regarding the "suitability" of the measure chosen, in the EC view Korea arrives at the final reduction of its Article 5.1 obligations, by denying the binding character of this requirement without any reasoning. At the same time, Korea again refers to the OAI Report in support of its position.The European Communities assert that the OAI Report is not an appropriate source of information to evaluate Korea's compliance with its obligations arising under Article XIX of GATT and the Agreement on Safeguards. In connection with this specific requirement it would add that, just as for the other requirements imposed by Article 5.1 of the Agreement on Safeguards, there is no explanation of Korea's choice to impose a quantitative measure in the only document which followed the 1 April Notification to the Committee on Safeguards, and by which Korea definitively imposed the measure. As Korea changed the reference period for calculating the quota as compared to what it had announced in January 1997, and did not refer to any other documents as possible sources of explanation in its Notice, it did not come to a definitive reasoning in this respect. This further confirms that its measure is inconsistent with the requirements of Article 5.1. The EC considers that it is not sufficient for the investigation authorities to note the arguments and conclude. They must state its reasons. In particular, it is not sufficient and legitimate to examine only the measures requested by a petitioner in order to comply with the requirement to choose the "most suitable measure" pursuant to Article 5.1, third sentence of the Agreement on Safeguards. This represents an undue weakening of that requirement and would leave the decision within the hands of the very industry seeking safeguard protection.

(f) Rebuttal arguments made by Korea

4.665 Korea makes the following rebuttal arguments:

4.666 In its Report, the OAI concluded with a section on remedies.This section, after setting out in full the provisions of Articles 8 and 12 of the Agreement on Safeguardsstated:

4.667 The KTC Commissioners then examined and rejected the relief measures requested by the petitioner. In rejecting the alternatives suggested by the petitioner, and instead recommending to the Minister of Agriculture and Forestry a quota at a level based on the three most recent representative years for which statistics were available ³²⁹, the KTC stated that:

4.668 The Korean authorities also examined whether a tariff-quota would be more appropriate and what the appropriate duration for the application of the measure should be. ³³¹ Based on its examination, the KTC recommended that the appropriate duration of the measure was four years and that the measure should be in the form of a quantitative restriction in the amount not exceeding the average of the import levels for the three most recent representative years for which statistics were available. ³³²

4.669 The first notification by Korea, which referred to the nature of the safeguard measure, set out the following amounts ³³³:

Following prior consultations in Geneva on 4 and 5 February 1997, between Korea on the one hand, and the European Communities, Australia and New Zealand on the other, Korea decided to increase the level of its quota as an act of good faith intended to provide some level of concessions to its trading partners.In its final Notification under Article 12.1(c) of the Agreement on Safeguards ³³⁴, Korea set out the following quota amounts:

This represents an average increase of over 5,000 tonnes in the level of the quota in each of the four years of the safeguard measure, and a total of 21,659 tonnes more imports than originally proposed in accordance with the provisions of Article 5.

4.670 Korea recalled its answers to the Panel's questions regarding the nature of the safeguard measure and the level of quota if a quota is chosen, which can be found at paragraphs 4.634 and 12.628

4.671 In Korea's view, provided the level of quota was equivalent to or not less than the average of the import levels for the three most recent representative years for which statistics were available, the Korean authorities were not required to show that the nature of the measure, or its level, were "necessary".

(g) Additional arguments by the European Communities made at the second meeting of the Panel with the parties

4.672 At the second meeting of the panel with the parties, the European Communities further advanced their arguments under Article 5.1 as follows:

(i) Both the first and the second sentence of Article 5.1 impose obligations on Members, having regard to their wording, context and object and purpose

4.673 The European Communities assert that Korea has provided no explanation for its interpretation that the first sentence of Article 5.1. is non-binding, except to say that the first sentence does not include "objective criteria that may be used to calculate the level of tariff, tariff quota, or quota that would 'remedy' serious injury or 'facilitate adjustment." It is hard to see from where Korea has drawn this criterion to decide whether the language of the first sentence is binding or not. In any event, in the first sentence of Article 5.1, too reference to injury and adjustment is made, and therefore a threshold is set to determine the level of protection allowed. Also, several other "'necessity' clauses" exist both in GATT and in the other WTO Agreements. The binding character of those clauses is not questioned even in the absence of precise or objective or objective criteria which might be used to calculate the level of tariffs as Korea maintains.

4.674 The European Communities recalled their arguments set out in paragraphs 4.650- 12.655 above.

4.675 In the EC view what Korea should have assessed, and did not, is whether the measure chosen was really necessary. The only reference to this issue is in the passage of Exhibit Korea-8 ("Determination of a Relief Measure by the Korean Trade Commission", which is the KTC's Recommendation of relief measures to the Ministry of Agriculture) quoted by Korea in reply to a question of the Panel: [w]hile it was determined that the domestic industry has been suffering from serious injury caused by increased imports, the injury has not been relieved even by the continuing efforts of the relevant authorities and the petitioner. In this regard, it is agreed that the appropriate relief measures should be taken to resolve the problem".

4.676 As regards Exhibit Korea-8 in particular, the European Communities would observe the following. First, it is, by its nature, an interim, preparatory document, not a final one. It is not final, as shown by the fact that the measures were eventually changed after the consultations with other WTO Members. Second, it is not a decision, but merely a recommendation to the final decision-making authority, notably the MAF, to take a given safeguard measure. Looking at the content of Exhibit Korea-8, it simply states a conclusion as to the necessity of a measure, certainly does not show the necessity. For instance, which efforts were ever undertaken to solve the difficulties in an alternative way remains unclear.

(ii) The second sentence of Article 5.1 imposes a specific obligation in respect of quantitative measures

4.677 The three-year period used by Korea was not the most recent available: as of February 1997, all import data for 1996 were published in Korea's Statistical Yearbook of Foreign Trade (Exhibit EC-20). Presumably, those data were available to the Korean authorities as internal information even in advance of publication. In any event, the European Communities recall that it was precisely in February 1997 that a new calculation of the quota level was performed, following the bilateral consultations under Article 12.3 of the Agreement on Safeguards.

4.678 The data used by Korea were less representative because they included a period where the product at issue was under import restrictions for Balance-of-Payment reasons, which is a temporary and exceptional measure and is not a normal tariff restriction. On the other hand, the import data for the second semester of 1996 were not, as Korea argues, affected by exporters' attempt to export massively in advance of the imposition of the measure. Indeed the import increase from 1995 to 1996 was lower than, for instance, between 1994 and 1995, the data of which Korea had no difficulty to retain as representative.

(iii) The third sentence of Article 5.1 requires that the "most suitable measure" be selected

4.679 The European Communities note that Korea, while referring extensively to the OAI Report, which in the EC view does not represent Korea's final position on the measures, reports that its Korean authorities considered a certain amount of information and certain sources of information (notably information investigated by the OAI, multilateral regulations, opinions of authorities concerned, measures mentioned in its domestic legislation) when deciding the measure, and that they concluded in a certain way. The European Communities consider that it is not sufficient for the authorities to note the arguments and conclude. They must state reasons. In particular, it is not sufficient and legitimate to examine only the measures requested by a petitioner in order to comply with the requirement to choose the "most suitable measure" pursuant to Article 5.1, third sentence of the Agreement on Safeguards. This represents an undue weakening of that requirement and would leave the decision within the hands of the very industry seeking safeguard protection.

(h) Additional arguments by Korea made at the second meeting of the Panel with the parties

4.680 At the second meeting of the panel with the parties, Korea further advanced its arguments under Article 5.1 as follows:

4.681 Korea is of the view that there is a requirement on the investigating authority under Article 5.1 to investigate whether a quota or some other safeguard measure is the most appropriate method of offsetting the serious injury caused by the increased imports.In this case, this obligation was discharged by the KTC Commissioners. ³³⁵ As to the level of any quota decided upon, Korea reiterates that under Article 5.1 where a Member intends to impose a quota at a level equivalent to or higher than the level of imports during the three most recent representative years for which statistics are available, then it is not required to justify that level of quota.However, should a Member seek to impose a lower level, then, but only then is a justification required as to why that lower level was necessary.

4.682 The European Communities suggest that Korea is trying: "to unduly reduce the scope of its obligations under the WTO Agreements, and thus the rights arising thereunder to the European Communities." In order to defend its position, Korea has to rebut the EC incorrect assertions.It is inherent in the nature of disputes that the assertion of rights by one party affects the obligations of the other party or parties.It is simply not helpful for the European Communities to argue that by raising a defence, Korea is seeking to deny the EC rights.

4.683 Finally, Korea notes the rather curious reasoning used by the European Communities where they state that:

The European Communities appear to be saying no more than that if serious injury is found, then the safeguard measure was necessary.As the Korean authorities established serious injury, and set the level of quota at or above the level of imports in relation to the three most recent representative years for which statistics were available, this rather curious statement is redundant.

To continue with Claims under Article 12 of the Agreement on Safeguard

³¹⁹ See, Appellate Body Report in US - Underwear, 10 February 1997, WT/DS24/AB/R, p. 9 (emphasis added).

³²⁰ Id.

³²¹ Id. (emphasis added).

³²²See, Preamble of the Agreement on Safeguards, second last para., whereby Members "[recognize] the importance of structural adjustment and the need to enhance rather than limit competition in international markets".

³²³ See, Appellate Body Report in US - Underwear, 10 February 1997, WT/DS24/AB/R, p. 9.

³²⁴ See, WTO Doc. G/SG/N/6/KOR/2, 1 July 1996 (Exhibit EC-1)

³²⁵ See, Article 6 of the Agreement, reading: "In critical circumstances where delay would cause damage which would be difficult to repair, a Member may take a provisional safeguard measure pursuant to a preliminary determination that there is clear evidence that increased imports have caused or threaten to cause serious injury." To be noted that Article 6.11 of the Agreement on Textiles and Clothing is drafted in extremely similar conditions: "11. In highly unusual circumstances, where delay would cause damage which would be difficult to repair, [safeguard] action under paragraph 10 may be taken provisionally on the conditions that the request for consultations and notification to the TMB shall be effected within no more than five working days after taking the action"

³²⁶ The EC agrees with Korea's reply to a question of the Panel, that "representative" does not necessarily means "fully liberalized", it rather means "not abnormal". For example, customs tariffs resulting from bindings are not "extraordinary" restrictions in the WTO system, therefore it seems clear that their presence would not deny representativity of a given period. On the contrary, measures taken for Balance-of-Payment reasons are clearly exceptional measures and may possibly have a more uncertain impact.

³²⁷ See, Exhibit EC-9, corresponding to Exhibit-Korea-9.

³²⁸ OAI Report at 74.

³²⁹ Id.

³³⁰ Id. at 3-4.

³³¹ Id. at 4-5.

³³² Id. at 4.

³³³ G/SG/N/10/KOR/1 (27 January 1997)

³³⁴ G/SG/N/10/KOR/1/Suppl. 1 (1 April 1997), section 2,

³³⁵ See, Exhibit Korea-8.