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Korea - Definitive Safeguard Measure on Imports of Certain Dairy Products
Report of the Panel
3. Submission of the OAI Report
7.16 In its first submission Korea refers to a report of the Korean Trade Commission (OAI Report) 409 of which it submitted only a version in the Korean language. At the outset of the first substantive meeting of the Panel with the parties, the Panel stated that it was disappointed that Korea had filed only a Korean language version of the OAI Report. Although the Panel understood the difficulties involved with the translation of the investigation report, the Panel suggested to Korea that should it wish to refer to the OAI Report in support of its allegations, Korea should file a version of the report in one of the official languages of the WTO. Korea raised doubts as to whether the OAI report was relevant since in Korea's view the EC limited its complaints to the quality and depth of Korea's notification under Article 12. The Panel was not addressing the issue whether it was for Korea to submit such OAI Report but simply that any submission of evidence had to be done in one of the official languages of the WTO.
7.17 At the end of the first meeting of the Panel, Korea informed the Panel that it would need an additional period beyond what was scheduled for answers and rebuttals to submit an English version of the OAI Report. 410
7.18 The Panel informed Korea that if it intended to submit any piece of evidence, including the OAI Report, it should do so by 20 November 1998, that is, the deadline given to the parties to answer the questions posed to them during the first substantive meeting of the Panel. In this way parties would be able to submit full and useful rebuttals before the second meeting of the Panel. On 20 November 1998, Korea submitted, together with its answers to the questions submitted to it, an English version of the OAI Report, as Exhibit Korea-6.
7.19 We based our ruling on paragraph 5 of the Additional Rules of Procedure, adopted by the Panel pursuant to Article 12.1 of the DSU, which provides that:
"5. Parties shall submit all factual evidence to the Panel no later than during the first substantive meeting, except with respect to evidence necessary for purposes of rebuttals submissions or answers to questions. ... "
7.20 We also consider that this is in line with the two stage approach advocated by the Appellate Body in Argentina - Measures Affecting Imports of Footwear, Textiles, Apparel and Other Items. 411
4. The absence of a claim by the European Communities under Article 3 of the Agreement on Safeguards
7.21 In its second submission, Korea argues that because the European Communities did not raise any claim under Article 3 or Article 4.2(c), the European Communities must be deemed to accept that the "competent authorities" in Korea have published: "a report setting forth their findings and reasoned conclusions reached on all pertinent issues of fact and law" (Article 3.1, final sentence). For Korea, since the European Communities has failed to invoke Article 3 of the Agreement on Safeguards, and has failed to raise claims under Article 4.2(c) of that Agreement, the European Communities is, therefore, only challenging the quality and depth of Korea's notifications under Article 12 of the Agreement on Safeguards. The European Communities agrees with Korea that it is not bringing a complaint under Article 3 of the Agreement on Safeguards, nor is it relying upon Article 4.2(c) thereof. For the European Communities this does not affect its right to challenge the substance of the OAI Report.
7.22 We agree with the European Communities that the absence of a claim under Article 3 of the Agreement on Safeguards means at most that the European Communities agrees that the report is WTO compatible for the purpose of Article 3.1 of the Agreement on Safeguards. The European Communities has the right to raise more specific claims under Article 4 of the Agreement on Safeguards and has done so. We consider that if a Member wants to challenge the WTO compatibility of the manner in which an "injury" determination was performed, or the choice of an appropriate measure to be imposed, this Member does not have to challenge the publication of the final report as such.
B. Burden of Proof
7.23 Korea alleges that the burden of proof is on the European Communities and adds that this burden "does not shift between the parties during the dispute". The European Communities does not submit any argument on the burden of proof.
7.24 In the context of the present dispute, which is concerned with the assessment of the WTO compatibility of a safeguard measure imposed by a national authority, we consider that it is for the European Communities to submit a prima facie case of violation of the Agreement on Safeguards, namely, to demonstrate that the Korean safeguard measures are not justified by reference to Articles 2, 4, 5 and 12 of the Agreement on Safeguards. 412 We recall in this regard the statement of the Appellate Body in EC - Hormones 413 that "... a prima facie case is one which, in the absence of effective refutation by the defending party, requires a panel, as a matter of law, to rule in favour of the complaining party presenting the prima facie case". It is therefore for Korea to provide an "effective refutation" of the European Communities' case. In the present case, it is for Korea to effectively refute the European Communities' evidence and arguments, by submitting its own evidence and arguments in support of its assertions that, at the time of its determination, Korea did respect the requirements of the Agreement on Safeguards. 414 As a matter of law the burden of proof rests with the European Communities, as complainant, and does not shift during the panel process. As a matter of process before the Panel, the European Communities will submit its arguments and evidence and Korea will respond to rebut the EC claims. At the end of this process, it is for the Panel to weigh and assess the evidence and arguments submitted by both parties in order to reach conclusions as to whether the EC claims are well-founded.
7.25 In the present case, after considering the extensive submissions of both parties, we must weigh the evidence submitted by each of them and assess the value of their legal arguments in view of the provisions of the Agreement on Safeguards to determine whether the European Communities' claims are well-founded.
C. Standard of Review
7.26 We note there are no specific provisions on standard of review in the Agreement on Safeguards. We consider, therefore, in line with the prescription of the Appellate Body in the EC - Hormones dispute, that in the absence of a specific standard of review for the relevant WTO multilateral trade agreement, the provisions of Article 11 of the DSU are applicable 415.
7.27 Article 11 of the DSU provides that "... a panel should make 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...".
7.28 Korea asks the Panel not to enter into a de novo review of its national authorities' determination to impose a safeguard measure. For Korea, the standard of review of Article 11 implies that the function of the Panel is to assess whether Korea (i) examined the relevant facts before it at the time of the investigation; and (ii) provided an adequate explanation of how the facts before it as a whole supported the determination made. Korea adds that a certain deference or latitude should be left to the national authorities.
7.29 The European Communities agrees that the standard is that established in Article 11 of the DSU and that the Panel should not perform a de novo assessment. In this context, the European Communities claims that it is not contesting the basic economic data produced by Korea but only their completeness and the conclusions drawn from them. The European Communities submits 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 also include "how" it came to those conclusions, that is to say the national authority must provide a reasoned opinion explaining how such factors and arguments have led to its findings.
7.30 We consider that for the Panel to adopt a policy of total deference to the findings of the national authorities could not ensure an "objective assessment" as foreseen by Article 11 of the DSU. This conclusion is supported, in our view, by previous panel reports that have dealt with this issue 416. However, we do not see our review as a substitute for the proceedings conducted by national investigating authorities. Rather, we consider that the Panel's function is to assess objectively the review conducted by the national investigating authority, in this case the KTC. For us, an objective assessment entails an examination of whether the KTC had examined all facts in its possession or which it should have obtained in accordance with Article 4.2 of the Agreement on Safeguards (including facts which might detract from an affirmative determination in accordance with the last sentence of Article 4.2 of the Agreement on Safeguards), whether adequate explanation had been provided of how the facts as a whole supported the determination made, and, consequently, whether the determination made was consistent with the international obligations of Korea. Finally, we consider that the Panel should examine the analysis performed by the national authorities at the time of the investigation on the basis of the various national authorities' determinations and the evidence it had collected. In this case, this evidence is found mainly in the Report by the Office of Administrative Investigation ("OAI Report") and the subsequent determinations by the relevant Korean authorities 417. We note that the European Communities has initially relied on the notifications to the Committee on Safeguards to establish its claims. We are of the view that such notifications are not necessarily complete evidence of what the Korean national authorities actually did. Rather, the full reflection of the Korean investigation can only be found in the investigation report or the final determination by the Minister 418, and not (as argued by the European Communities at the first meeting of the Panel) in the notifications to the Committee on Safeguards. In its rebuttals and at the second meeting of the Panel with the parties, the European Communities, in support of its allegations, made reference to the OAI Report as well.
7.31 We consider, further, that Members are required, in their recommendations or determinations on the application of a safeguard measure, to explain how they considered the facts in their possession or which they should have obtained in accordance with Article 4.2 of the Agreement on Safeguards and why they concluded, at the time of the decision, that the measure to be applied was necessary to remedy the serious injury and facilitate the adjustment of the industry. This is not to say that the Panel interprets the Agreement on Safeguards as imposing on the importing Member any specific method either for collecting data or for considering and weighing all the relevant economic factors upon which the importing Member will decide whether there is need for a safeguard restraint. 419 Korea remains free to choose an appropriate method of assessing whether the state of its domestic industry was caused by imports of SMPP, or by other factors, but it must be in a position to demonstrate that it did address the relevant issues. We also consider that this standard of review is in line with GATT/WTO practice.
D. General principles of interpretation
7.32 In its examination of the Agreement on Safeguards, the Panel is bound by the principles of interpretation of public international law (Article 3.2 of the DSU) which include Articles 31 and 32 of the Vienna Convention on the Law of Treaties. As provided in these articles and as applied by panels and the Appellate Body, we shall interpret the provisions of the Agreement on Safeguards on the basis of the ordinary meaning of the terms of its provisions in their context, in the light of the object and purpose of the Agreement on Safeguards, the GATT 1994 and the WTO Agreement. We note also Article XVI:1 of the WTO Agreement which provides that "... the WTO shall be guided by the decisions, procedures and customary practices followed by Contracting Parties to GATT 1947 and the bodies established in the framework of GATT 1947".
E. Claims under Article XIX of GATT
7.33 The European Communities initially makes two claims under Article XIX of GATT 1994. In its first submission it claims that Korea failed to examine whether the import trends of the products under investigation were the result of "unforeseen developments" as provided for in Article XIX:1(a). Korea responds that the text of the Agreement on Safeguards supports the interpretation that the provisions therein established are now the sole articulation of the rules that must be followed in the application of a safeguard measure. In its first submission the European Communities also argues that Korea failed to comply with its obligations under Article XIX:1(a) of GATT and Article 2 of the Agreement on Safeguards, to address whether the "conditions" under which importation of the products being investigated were of such a nature as to cause serious injury to the domestic industry producing like or directly competitive products. In its second submission, the European Communities argues that failing to examine under which conditions these increased imports occurred and in particular the prices at which the products were imported is a violation of the provisions of Article 2.1 of the Agreement on Safeguards (and the European Communities made no further reference to Article XIX:1(a) of GATT). Therefore, we shall examine the European Communities' claim that Korea failed to examine under which conditions these importations occurred only in relation to its claims under Article 2 of the Agreement on Safeguards.
7.34 The claim of the European Communities regarding "unforeseen developments" under Article XIX of GATT, the wording of which is not repeated in the Agreement on Safeguards, necessitates that we examine the relationship between the provisions of Article XIX of GATT and those of the Agreement on Safeguards.
7.35 The parties debated at length whether there is a conflict between the provisions of Article XIX of GATT and those of the Agreement on Safeguards and how the Panel should interpret the relationship between the terms of Article XIX:1 of GATT and the different terms used in Article 2.1 of the Agreement on Safeguards. 420
7.36 Essentially, Korea argues that there is such a conflict, which should be resolved in favour of the exclusive application of the Agreement on Safeguards. The European Communities submits that all WTO obligations are generally cumulative. For the European Communities, the provisions of Article XIX of GATT, which are still fully applicable because there is no conflict between the provisions of the first paragraph of Article XIX and Article 2.1 of the Agreement on Safeguards, impose in addition to those of the Agreement on Safeguards, a condition that the increase of imports must be "the result of unforeseen developments".
7.37 We recall that the terms of a treaty must be interpreted with reference to their ordinary meaning taken in their context and in light of the object and purpose of the agreements examined. We also recall the principle of "effective interpretation" whereby all terms must be given their full meaning and must be interpreted with each other to avoid inconsistencies or "inutility" 421.
7.38 It is now well established that the WTO Agreement is a "Single Undertaking" and therefore all WTO obligations are generally cumulative and Members must comply with all of them simultaneously unless there is a formal "conflict" between them. 422 In the absence of conflict, there remain, however, difficult issues of interpretation for the reader to reconcile various provisions of a treaty as extensive as the WTO Agreement. 423
7.39 We consider that the terms and prescriptions of Article XIX:1 of GATT are still generally applicable, as we are of the view that there is no conflict between the provisions of the Article XIX:1 of GATT and those of Article 2.1 of the Agreement on Safeguards. Our conclusion is based on our interpretation of the ordinary meaning of the terms of Article XIX:1 of GATT.
7.40 The first paragraph of Article XIX of GATT reads as follows:
Emergency Action on Imports of Particular Products
"1. (a) 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 Member in such increased quantities and under such conditions as to cause or threaten serious injury to domestic producers in that territory of like or directly competitive products, the Member 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."
Article 2.1 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 out below, that such product is being imported into its territory in such increased quantities, absolute or relative to domestic production, and under such conditions as to cause or threaten to cause serious injury to the domestic industry that produces like or directly competitive products."
7.41 We recall that the purpose of Article XIX was (and still is) to allow an importing Member to deviate temporarily from its obligations under Articles II and XI of GATT (i.e. to suspend its concessions or other obligations) in situations of increased imports causing serious injury to the relevant domestic industry. We consider that the first paragraph of Article XIX provides only for that: an importing Member is "free", in situations where "any product is being imported into the territory of that Member in such increased quantities and under such conditions as to cause or threaten serious injury to domestic producers in that territory of like or directly competitive products" to deviate temporarily from Articles II and XI of GATT.
7.42 We consider that the prior section of the sentence, "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..." does not add conditions for any measure to be applied pursuant to Article XIX but rather serves as an explanation of why an Article XIX measure may be needed, taking into account the fact that at the time (1947) the CONTRACTING PARTIES had just agreed (for the first time) on multilateral tariff bindings and on a general prohibition against quotas.
7.43 For us, the ordinary meaning of the terms "as a result of unforeseen developments and of the effect of the obligations incurred by a contracting party under this Agreement" leads us to conclude that this proposition only describes generally the situations where the binding nature of the obligations contained in Articles II and XI of GATT may need to be set aside (for a certain period). In other words, this sentence could read "If, notwithstanding this new set of rules that we have just agreed upon... which imply that a contracting party cannot use quotas (XI) or breach its bindings (II), one contracting party is faced with increased imports that are causing serious injury, that contracting party shall be free to suspend the obligation in whole or in part (XI) or to withdraw or modify the concession (II)."
7.44 The reference to "unforeseen developments" was probably considered necessary as negotiators had just ended a negotiating exercise which was based on expectations of trade increases (therefore foreseen developments) and where some quantitative restrictions were grand-fathered. We think that this reference to "unforeseen circumstances " must be interpreted within its context, namely in view of the rest of this proposition which provides that "... the effect of the obligations incurred by a contracting party under this Agreement ". These latter terms can only refer to the binding nature of the GATT prohibitions against breach of tariff concessions and the prohibition against quotas, as it would not be logical to conclude that a Trade Minister would have negotiated a particular concession if it could have been foreseen that such a concession would result in increased imports, that, in turn, would seriously injure an industry in the country granting the concession.
7.45 In other words, the proposition "as a result of unforeseen developments and of the effect of the obligations incurred by a contracting party under this Agreement" does not address the conditions for Article XIX measures to be applied but rather explains why a provision such as Article XIX may be needed. For us, the object of this section of the first sentence of paragraph 1 of Article XIX cannot be anything else but a statement (of what we would now consider to be obvious) that because of the binding nature of the GATT obligations and concessions, tariffs and other obligations negotiated on the basis of trade expectations may need to be changed temporarily in light of actual unforeseen developments. Thus, the phrase "unforeseen circumstances" does not specify anything additional as to the conditions under which measures pursuant to Article XIX may be applied.
7.46 This interpretation is compatible with the object and purpose of GATT which was to ensure some certainty and predictability in tariff bindings and other GATT obligations. Our interpretation of these provisions of Article XIX:1 of GATT is confirmed by the practice of the contracting parties 424 over some 48 years and the adoption of the new Agreement on Safeguards. 425
7.47 The adoption of the Agreement on Safeguards without this phrase "as a result of unforeseen developments and of the effect of the obligations incurred by a contracting party under this Agreement " is logical. It was not necessary to refer to this context which had by then evolved. Members had since understood the GATT system of binding obligations. In support of this interpretation, we recall that in Brazil - Dessicated Coconut the Appellate Body made clear that some of the Annex 1A agreements represent an elaboration or evolution of the provisions of GATT 1994. Because Members had understood that this reference to "unforeseen developments" did not add to the rest of the paragraph (but rather described its context), there was no need to insert it explicitly in the Agreement on Safeguards.
7.48 Consequently, we reject the specific claim of the European Communities that Korea was wrong in failing to examine whether the import trends of the products under investigation were the result of "unforeseen developments" contrary to Article XIX:1(a), as we consider that Article XIX of GATT does not contain such a requirement.
To continue with Violation of Article 2.1 of the Agreement
409 In its 2 December 1996 notification, G/SG/N/8/KOR/1, circulated on 6 December 1996 Korea stated that the term "OAI Report" is equivalent to the "KTC Report". Therefore, in our findings we shall refer to the report of the KTC's investigation as the "OAI Report".
410 In response, the European Communities complained that it appeared to it that Korea had had ex parte communications with the Panel during which, according to the European Communities, the Panel had authorized Korea to submit an English version of the OAI Report after the rebuttals. The Panel immediately informed the parties that no members of the Panel (nor any one from the Secretariat) had communicated with Korea on this issue. The only reference to the filing of the OAI Report was contained in the transmission letter that Korea sent to the Panel with its first submission and which was copied to the parties. The latter part of this letter reads as follows: "Given the time constraint, Korea was unable to produce an official English version of the investigation report of the Korea Trade Commission. Only the original version (Korean version) is attached herewith. Korea will submit the English version as expeditiously as possible." Clearly there had been no ex-parte communication.
411 See Appellate Body Report in Argentina - Measures Affecting Imports of Footwear, Textiles, Apparel and Other Items, WT/DS57/AB/R, adopted on 22 April 1998, para. 79 ("Argentina - Measures Affecting Apparel").
412 See Appellate Body Report in Australia - Measures Affecting Importation of Salmon, adopted on 6 November 1998, WT/DS18/AB/R, ("Australia - Salmon"), paras. 257-261.
413 Appellate Body Report on European Communities - Measures Concerning Meat and Meat Products ("EC - Hormones"), adopted on 13 February 1998, WT/DS26 and 48/AB/R, para. 104.
414 We note that this was the conclusion reached by the Panel in US - Shirts and Blouses (adopted on 27 May 1997, WT/DS33/R) para. 6.8: "... it was for India to submit a prima facie case of violation of the ATC, namely, that the restriction imposed by the United States did not respect the provisions of Articles 2.4 and 6 of the ATC. It was then for the United States to convince the Panel that, at the time of its determination, it had respected the requirements of Article 6 of the ATC." This was confirmed by the Appellate Body.
415 EC - Hormones, Appellate Body Report, para. 116.
416 We recall that in United States - Restrictions on Imports of Cotton and Man-made Fibre Underwear ("US - Underwear"), (adopted on 25 February 1997, WT/24/R), paras. 7.53-54, a case dealing with a safeguard action under the ATC, the panel reached the conclusions that the standard of review was that established in Article 11 of the DSU and commented on the implications of such standard of review for safeguard measures. See also the Panel Report in Brazil - Countervailing Duty Proceeding Concerning Imports of Milk Powder from the European Community, adopted on 28 April 1994, SCM/179: "It was incumbent upon the investigating authorities to provide a reasoned opinion explaining how such facts and arguments had led to their finding.", para. 286.
417 Evidence of what the Korean authorities did can also be found in the present case in: The Determination to Initiate an Investigation (17 May 1996, Exhibit Korea-3 and Exhibit Korea-4), Public Notice of Decision on Injury by the KTC (11 November 1996, Exhibit Korea-7), Public Notice of Implementation of Relief Measure by the Ministry of Commerce, Industry and Energy (7 March 1997, Exhibit Korea-9).
418 See Section VIII.5(c), supra.
419 We note that a similar conclusion was reached by the Panel in US - Shirts and Blouses, para. 7.52.
420 We refer to the European Communities' arguments and Korea's arguments in Section IX of this Panel Report.
421 The principle of effective interpretation or "l'effet utile" or in latin ut res magis valeat quam pereat reflects the general rule of interpretation which requires that a treaty be interpreted to give meaning and effect to all the terms of the treaty. For instance one provision should not be given an interpretation that will result in nullifying the effect of another provision of the same treaty. For a discussion of this principle, see Yearbook of the International Law Commission, 1966, Vol II A/CN.4/SER.A/1966/Add.1 page 219 and following. See also E.g., Corfu Channel Case (1949) I.C.J. Reports, p.24 (International Court of Justice); Territorial Dispute Case (Libyan Arab Jamahiriya v. Chad) (1994) I.C.J. Reports, p. 23 (International Court of Justice); Oppenheim's International Law (9th ed., Jennings and Watts eds., 1992), Volume 1, 1280-1281; P. Dallier and A. Pellet, Droit International Public, 5è ed. (1994) para. 17.2); D. Carreau, Droit International, (1994) para. 369. See for instance the statement of the Appellate Body in United States - Standards for Reformulated and Conventional Gasoline, adopted on 20 May 1996, WT/DS2/AB/R :"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"; also the Appellate Body Report on Japan - Taxes, page 12; Appellate Body Report on US - Underwear, adopted on 25 February 1997, WT/DS24/AB/R, page 16.
422 The principle of interpretation against conflict has been confirmed by the Appellate Body in Canada - Certain Measures Concerning Periodicals, adopted on 30 July 1997, WT/DS31/AB/R, ("Canada Periodicals"), page 19; in EC -Bananas, paras 219-222; in Guatemala - Cement, para.65; and by the panel in Indonesia - Certain Measures Affecting the Automobile Industry, adopted 23 July 1998, WT/DS54, 55, 59 and 64/R (not appealed) ("Indonesia - Autos"), para. 14.28. For a definition of conflict, see for instance the Appellate Body statement in Guatemala - Cement, para. 65 or the Panel Report on Indonesia - Autos, para. 14.28.
423 See for instance the Panel and Appellate Body Reports in Brazil - Measures Affecting Desiccated Coconut, adopted on 20 March 1997, WT/DS22/R and WT/DS22/AB/R, ("Brazil - Desiccated Coconut") where it was concluded that although there is no strict conflict between them the provisions of Article VI of GATT must be reconciled with those of Article 32.3 and 32.4 of the SCM Agreement.
424 Article XVI:1 of the Marrakesh Agreement Establishing the WTO.
425 In 1951, the Working Party on "Withdrawal by the United States of a Tariff Concession under Article XIX", (except for the United States), agreed that unforeseen developments referred to events occurring after the negotiation of the relevant tariffs and, although the Working Party considered that this phrase contained a criterion to be respected, it rendered satisfaction of this criterion automatic, since it would not be reasonable to expect a contracting party to foresee that imports would cause serious injury to its domestic industry. Working Party on Withdrawal by the United States of a Tariff Concession under Article XIX of the General Agreement ("Fur Felt Hat"), GATT/CP.6/SR 19 (adopted 22.10.51).