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Korea - Definitive Safeguard Measure on Imports of Certain Dairy Products

Report of the Panel

(Continued)


H. Claims under Article 5.1 of the Agreement on Safeguards

7.97 The European Communities argues that when a WTO Member takes a safeguard measure, it needs to prove that such measure was necessary and therefore should justify its "adequacy" in remedying injury and facilitating adjustment. The European Communities claims that (i) by omitting to give any consideration to adjustment plans, Korea violated Article 5.1, first sentence; (ii) by failing to consider whether types of measure other than a quota would be the most suitable to remedy serious injury or facilitate adjustment, Korea violated Article 5.1, first sentence; and (iii) by failing to show that the level of the quota itself was necessary to remedy serious injury or facilitate adjustment remedy, Korea violated its obligations under Article 5.1, first and second sentences. The European Communities also claims that by not choosing the appropriate three representative years (which should start as of the date of the imposition of the measure), without submitting a "clear justification that a different level was necessary to prevent or remedy the serious injury", Korea violated the provision of Article 5.1, second sentence.

7.98 Korea responds that since Article 5.1 states that "Members should choose measures most suitable for the achievement of these objectives," it complied with this provision, as it considered that the quotas at these levels for that period of 4 years, were the most suitable for remedying the serious injury and facilitating adjustment to the domestic industry in Korea. For Korea, there is no obligation to demonstrate that the type of measure is the most suitable measure to achieve these objectives. Korea adds that the Korean competent authorities did examine whether other types of measures, including tariff-quota, would be more appropriate. For Korea, there is no obligation to demonstrate that the level of such tariff is necessary or appropriate to achieve these objectives. In its view, the wording of the second sentence of Article 5.1 makes it clear that Members must only justify the level of quotas if it is different (i.e., lower) than the average imports during the three most recent representative years. It based its quota level on the average of imports for the three years from July 1993 to June 1996, as it initiated its safeguards investigation in May 1996. The requirement for consideration of three "representative" years was intended to prevent foreign exporters from manipulating quota levels by flooding the market with imports just prior to the decision to impose a safeguard measure. Therefore, Korea considered that the second half of 1996 was not "representative", and it excluded imports from this period in calculating the quota level. Since it chose the appropriate three representative years, Korea argues that it did not have to provide any justification.

7.99 We are of the view that Article 5 of the Agreement on Safeguards establishes certain rules on the application of safeguard measures. In the view of the Panel these rules on the application of a measure come into play only after a decision has been taken to adopt a safeguard measure. The first sentence of Article 5.1 reads: "A Member shall apply safeguard measures only to the extent necessary to prevent or remedy serious injury and to facilitate adjustment." We believe that this provision is not concerned with the decision or even the right of a Member to adopt a safeguard measure. The general authorization for a Member to apply a safeguard measure is found in Article 2.1 of the Agreement on Safeguards, which provides that "[a] Member may apply a safeguard measure" (emphasis added) after that Member has made the injury and causation determination refered to in that article. The use of the verb "may" indicates that the decision whether to apply a measure or not, after the above-mentioned conditions have been evidenced, rests with the Member conducting the investigation. We find that in the context of the discretion authorized by Article 2.1 we cannot conclude that Article 5.1 requires a Member to further justify the necessity of applying a safeguard measure. In consequence the decision by a Member to adopt a safeguard measure once all the required conditions have been determined to exist can not be challenged by another Member under Article 5.1.

7.100 The fact that the Panel finds that, after full compliance with the provisions of Articles 2 and 4 of the Agreement on Safeguards, there is no obligation under Article 5.1 to justify the decision to adopt a safeguard measure does not mean, however, that the first sentence of Article 5.1 only "states a basic principle" 463 or "does not impose a general obligation". 464 The first sentence of Article 5.1 does contain a very specific obligation. This obligation is to apply a measure that is commensurate with the goals of preventing or remedying the serious injury suffered by the domestic industry and of facilitating the adjustment of the domestic industry. Our interpretation of this obligation is bolstered by the last sentence of Article 5.1, which provides that Members "should choose measures most suitable for the achievement" of the objectives of preventing or remedying the serious injury and facilitating adjustment.

7.101 In our view a measure is defined by the following elements: product coverage, form, duration and level. Thus, in order to comply with Article 5.1 a Member must apply a measure which in its totality is no more restrictive than is necessary to prevent or remedy the serious injury and facilitate adjustment. In addition, it must be possible for a Panel to evaluate, in accordance with the applicable standard of review, whether a Member has acted in compliance with Article 5.1. Therefore, the Member applying the measure must provide a reasoned explanation as to how the authorities reached the conclusion that the particular measure in question satisfies all the requirements of Article 5.1. We consider that the obligations of the first sentence of Article 5.1 apply to all safeguard measures in their entirety.

7.102 In the present case the European Communities argues that Korea has not fulfilled its obligations under Article 5.1 with respect to the justification of type and level of the measure at issue. In considering whether Korea has complied with its obligations under Article 5.1, we apply the standard of review set out in paragraphs 1.25 to 1.30. Thus, we need to consider whether the Korean authorities examined all relevant facts before them, whether adequate explanation was 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. In other words, Members are required, in their recommendations or determinations on the application of a safeguard measure, to explain how they considered the facts before them 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. Our task is not to determine for ourselves whether the measure applied by Korea is at a level that is no more restrictive than necessary to remedy the serious injury and facilitate adjustment. Rather, we must evaluate whether in deciding on the type and level of the measure to be applied, the Korean authorities considered relevant information and explained their decision that the measure chosen was no more restrictive than necessary to prevent or remedy serious injury to the Korean dairy industry and to facilitate the industry's adjustment.

7.103 In examining Korea's compliance with Article 5.1 we consider the Determination of Relief Measure, by the Korean Trade Commission dated 2 December 1996 465 to be most relevant, as this document describes the measure adopted by the Korean authorities. 466 It is this document which should, in our view, reflect the Korean authorities' considerations underlying the measure adopted.

7.104 Looking at the Determination of Relief Measure, we find a bare description of the elements of the measure. We note the absence of any discussion or analysis indicating the considerations underlying the choice of the measure adopted and any explanation as to why the Korean authorities concluded that the measure adopted was necessary to remedy the serious injury and facilitate adjustment. There is no reference to the measure, in any of the other determinations before or after the Determination of Relief Measure.

7.105 It appears from the evidence presented by Korea that the Korean authorities were aware of, and may even have considered, measures other than the quantitative restriction adopted. 467 However, these potential measures are merely described in the determination. In our view mere description of the alternative measures considered is insufficient. There must be some discernible reasoning as to why the measure recommended or adopted is preferable to the others, specifically with respect to achieving the objectives of remedying the serious injury and facilitating adjustment.

7.106 Korea's Determination of Relief Measure lists different factors that appear to have been considered in deciding on the adoption of the measure to be applied. However, this is again merely descriptive, as is evident from the following paragraph:

"[b]efore recommending the relief measures, the KTC commissioners agreed that close considerations should be made beforehand for each relief measure on its impacts on the domestic dairy industry, national economy, and bilateral/multilateral trade. In this regard, the KTC examined the information investigated by the OAI, the relevant articles of the multilateral regulations, the opinions of authorities concerned, and the relief measures stipulated in the Foreign Trade Act and the Enforcement Decree of the Act. Based on all these examinations, the KTC reviewed the petitioner's request for relief measures." 468

We do not see any explanation as to whether or how each of these factors shaped the Korean authorities' recommendation on the type, level and duration of the applied measure.

7.107 Indeed the Determination of Relief Measure simply continues:

"The KTC decided to recommend to the Minister of Agriculture and Forestry (MAF) that he permit the following in connection with the import restrictions on the products under investigation[:]

The import restriction on the products under investigation should be implemented for 4 years.

The restricted volume should amount to 15,595 tons (average import volume during the year of 1993 - 1995) in the first year of the total 4 years of relief measures period. From the second year, the yearly 5.7 per cent increase rate (average increase rate of total domestic demand during 1993 - 1995) over the preceeding year's restricted volume should be applied."

This recommendation does not contain any consideration or explanation of why the Korean authorities concluded that the recommended measure was necessary to prevent or remedy serious injury and facilitate the adjustment of the domestic industry.

7.108 We wish to make it clear that we do not interpret Article 5.1 as requiring the consideration of an adjustment plan by the authorities, as the European Communities asserts. 469 The Panel finds no specific requirement that an adjustment plan as such must be requested and considered in the text of the Agreement on Safeguards. Although there are references to industry adjustment in two of its provisions, 470 nothing in the text of the Agreement on Safeguards suggests that consideration of a specific adjustment plan is required before a measure can be adopted. Rather, we believe that the question of adjustment, along with the question of preventing or remedying serious injury, must be a part of the authorities' reasoned explanation of the measure it has chosen to apply. Nonetheless, we note that examination of an adjustment plan, within the context of the application of a safeguard measure, would be strong evidence that the authorities considered whether the measure was commensurate with the objective of preventing or remedying serious injury and facilitating adjustment.

7.109 In response to a question by the Panel, 471 Korea states that Article 5 "does not impose a general obligation on Members to demonstrate that the specific level of quota that they decided to impose as a safeguard measure is necessary to prevent or remedy serious injury and to facilitate adjustment". In our interpretation, Article 5.1 does not require a Member to demonstrate ex posteriori to the Panel that the measure adopted is effectively the most appropriate one. We consider rather, as we mentioned before, that Members are required, in their recommendations or determinations on the application of a safeguard measure, to explain how they considered the facts before them 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. It is such reasoning and explanation concerning the measure adopted, essential to evaluate Korea's compliance with Article 5.1, which we cannot discern in Korea's determination to apply a safeguard measure in the present case.

7.110 Korea argues that "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 [sic] 'necessary'". 472 However, as explained above, we consider that the first sentence of Article 5.1 applies to all elements of a safeguard measure, including the level of any quota. In consequence, even assuming Korea based its quota level on the average imports levels for the last three representative years, this would not suffice to meet the requirements of Article 5.1, as the scope of that Article is greater than just the level of the applied quota. We conclude therefore that Korea's determination of the measure did not meet the requirements of Article 5 of the Agreement on Safeguards.

7.111 The European Communities also claims that Korea violates Article 5.1 because it applied a quota whose level was lower than the average of imports in the last representative three-year period preceeding the application of the measure for which statistics were available. Since we have already found that Korea's application of a measure was not consistent with the provisions of the first sentence of Article 5.1 which we consider to be generally applicable, also when a quantitative restriction based on the average import levels for the last three representative years is used, we do not address the question of whether the quota level was calculated consistently with the second sentence of Article 5.1.

I. Claims under Article 12

1. Incomplete and Untimely Notifications

(a) Arguments of the parties

7.112 The European Communities claims that Korea failed to notify its measure in a timely fashion and with sufficient detail contrary to Article 12.1 and 12.2 of the Safeguards Agreement. The European Communities argues that in view of the limitative character of safeguard measures, their inclusion in the WTO system is accompanied by limits to their use, so that the interests of all the parties may be protected. As regards notifications under Article 12.1(b) and (c), one specific purpose is to offer the Members concerned an opportunity for adequate consultations. Effective exercise of these rights by WTO Members calls for a minimum guaranteed level of information officially transmitted in one of the working languages of the WTO.

7.113 Korea responds that its notifications are consistent with the guidance issued by the Committee on Safeguards and with the Technical Cooperation Handbook on Notification Requirements. For Korea, its notifications provided the European Communities with all pertinent information. In its view, the purpose of the notification pursuant to Article 12 is to provide the Committee on Safeguards with information which is to be disseminated to Members to facilitate meaningful prior consultations under Article 12.3 and, where appropriate, consultations under Article XXII of GATT 1994. This function is implied both by the structure of Article 12, which includes both notification and consultation, and by the final sentence of Article 12.2 which provides that "The Council for Trade in Goods or the Committee on Safeguards may request such additional information as they may consider necessary from the Member proposing to apply or extend the measure." For Korea, if the purpose of Article 12 were to replicate the exacting standards of Article 3 and 4.2(c), the final sentence of Article 12.2 would be redundant.

(b) The notifications under examination

7.114 We asked Korea to clarify for us the sequence of its WTO notifications. In light of its response, we understand that the following notifications were made:

(a) 11 June 1996, G/SG/N/6/KOR/2, circulated on 1 July 1996. Notification of the KTC's decision to initiate an investigation on 17 May 1996. (Circulated as an Article 12.1(a) notification, of the initiation of an investigatory process relating to serious injury or threat thereof and the reasons for it). (See Exhibit EC-1).

(b) 2 December 1996, G/SG/N/8/KOR/1, circulated on 6 December 1996. Notification of the completion of the report by the Office of Administration and Investigation (OAI) that provided the basis for the KTC's determination of injury (on 23 October 1996). 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." This document was circulated as an Article 12.1(b) notification of a finding of serious injury or threat thereof caused by increased imports. (See Exhibit EC-2)

In this case, the KTC 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 consideration. 473 Korea stated that 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.

(c) 21 January 1997, G/SG/N/10/KOR/1, circulated on 27 January 1997, as an Article 12.1(c) notification of a decision to apply or extend a safeguard measure. In the notification Korea invited interested Members for consultations during the week of 3 February 1997, "before it makes a final decision on the measure by the week beginning 24 February 1997." (See Exhibit EC-5)

(d) 31 January 1997, G/SG/N/11/KOR/1 circulated on 21 February 1997. Notification of non-application of the proposed safeguard measure to developing countries. (Footnote 2 of Article 9 of the Agreement on Safeguards). (See Exhibit EC-6)

(e) 24 March 1997, G/SG/N/10/KOR/1/Suppl.1, circulated on 1 April 1997 as a supplemental notification under Article 12.1(c). Notification of the Minister of Agriculture and Forestry's decision of 1 March 1997 to impose a measure. This notification contained an attachment with further detailed information following the 6 February 1997 consultations and the special Committee on Safeguards meeting. (See Exhibit EC-10)

(c) Analysis of Article 12 of the Agreement on Safeguards

7.115 We shall proceed in the following way: First, we will examine the provisions of Article 12 generally in order to determine which WTO Members' actions or measures ought to be notified, the content of these notifications and their timing; Second, we shall examine each of Korea's notifications and assess their compatibility with the requirements of Article 12 of the Agreement on Safeguards.

(i) What actions must be notified

7.116 It is clear that the provisions of Article 12 of the Agreement on Safeguards prevail over the Guidance issued by the Committee on Safeguards 474 (which contains a disclaimer to that effect) and the Technical Cooperation Handbook on Notification Requirements (prepared by the Secretariat but which explicitly states that it "does not constitute a legal interpretation of the notification obligations under the respective agreement(s)"). At issue in this case are the notifications required under Articles 12.1(a), (b) and (c).

7.117 The wording of Article 12 provides that a number of types of actions must be notified to the WTO Committee on Safeguards by Members proposing to use the provisions of the Agreement on Safeguards. Article 12.1 refers to three such actions, by inference Article 12.2-3 refers to a fourth item and Article 12.6 to a fifth item.

7.118 Article 12.1 requires notification to the Committee on Safeguards of (a) the initiation of an "investigatory process relating to serious injury or threat thereof and the reasons for it"; (b) any "findings of serious injury or threat thereof caused by increased imports"; and (c) any "decision to apply or extend a safeguard measure".

7.119 Articles 12.2 and 12.3 set forth the required content of such notifications, and provide as well certain guidance as to the sequence of events to be followed in the notifications and related consultations. These Articles read as follows:

"2. In making the notifications referred to in paragraphs 1(b) and 1(c), the Member proposing to apply or extend a safeguard measure shall provide the Committee on Safeguards with all pertinent information, which shall include evidence of serious injury or threat thereof caused by increased imports, precise description of the product involved and the proposed measure, proposed date of introduction, expected duration and timetable for progressive liberalization...."

"3. A Member proposing to apply or extend a safeguard measure shall provide adequate opportunity for prior consultations with those Members having a substantial interest as exporters of the product concerned, with a view to, inter alia, reviewing the information provided under paragraph 2, exchanging views on the measure and reaching an understanding on ways to achieve the objective set out in paragraph 1 of Article 8."

7.120 Although not explicitly listed in Article 12.1, the wording of Article 12.2 and 12.3 make it clear that any proposed measure must also be notified to the Committee on Safeguards. Article 12.2 provides that the notifications under Article 12.1(b) and 12.1(c) must contain information as to the basis for the serious injury finding, as well as information as to the "proposed" measure to be applied. Article 12.3 requires that the notifying Member provide an adequate opportunity for "prior consultations" with interested Members, that is, consultations prior to the actual application of the measure. Article 12.3 further requires that among the information to be discussed in the consultations is the information already notified under Article 12.1(b) and 12.1(c), i.e., the basis for the serious injury finding, and the details of the measure that the notifying Member proposes to apply. Thus, Article 12.1, 12.2 and 12.3 taken together makes it clear that before a definitive safeguard measure may be applied, the Member proposing to apply it must notify all the pertinent information regarding the proposed measure and the factual basis (the injury finding) for applying it, and must provide an opportunity for consultations with Members whose trade will be affected by the proposed measure. In other words, details of the measure proposed must be notified before it is applied, so that affected Members may consult about it before it takes effect. Therefore, we reject Korea's argument that it was not obliged to notify its proposed measure, but we note that Korea did do so.

7.121 Finally, pursuant to Article 12.6, a provisional measure shall also be notified to the Committee on Safeguards.

To continue with The content of such notifications


463 See para. 12.629, supra.

464 See para. 12.628, supra.

465 Exhibit Korea-8.

466 We recognize that there was a later decision to adjust the level of the measure. However, as this affected only one of the defining elements of the measure, we nonetheless focus on the 2 December 1996 Determination.

467 Other measures that may have been considered include those measures which were proposed by the petitioner (see, Exhibit Korea-8 at pg. 3) and the application of a tariff quota as recommended by Commissioner Jeong Mun-Su in his minority opinion (id. at pg. 4).

468 Id. at pg. 3.

469 See para. 12.611, supra.

470 Articles 5 and 7 of the Agreement on Safeguards.

471 See para. 12.628, supra.

472 See para. 12.671, supra.

473 See para. 8.113, supra.

474 See document G/SG/1.