4.38 According to the European Communities, eminent scholars have expressed their view on this particular aspect. For instance, Professor Robert E. Hudec wrote:

"Section 301 is an intricate maze of mandatory commands in one place and extremely wide loopholes in the other. One needs a wiring diagram to trace whether mandatory commands given in one part will actually reach their final target without passing through at least one discretionary exit point. Even with the aid of such a diagram, one cannot predict actual outcomes".⁵⁷

4.39 The European Communities also indicates that Professor John H. Jackson testified before the Senate Foreign Relations Committee as follows:

"Although there are plausible ways to interpret the statutory provisions of regular Section 301 so as to give the President discretion to act consistently with the Uruguay Round dispute settlement rules, in a few cases, particularly in Section 301(a) (mandatory provision) the interpretations to do this are a bit strained. It would clearly therefore be better if the statute were amended to give the President and the Trade Representative in all cases under the statute the discretion to act in a way consistently with U.S. international obligations".⁵⁸

4.40 According to the European Communities, these comments were prompted also by the consideration that the uncertainty about the possible use by the United States of unilateral measures "inconsistent with the Uruguay Round dispute settlement rules" defeats the purpose pursued by the Uruguay Round participants when they agreed to adopt the DSU: namely to provide security and predictability to the multilateral trading system (Article 3.2 of the DSU). This objective was subsequently confirmed by the Appellate Body in EC – Computer Equipment case (WT/DS62/AB/R, WT/DS67/AB/R, WT/DS68/AB/R) where it affirmed that security and predictability are "an object and purpose of the WTO Agreement, generally, as well as of the GATT 1994".

4.41   In the view of the European Communities, despite these comments and well-advised suggestions of eminent lawyers well versed in international trade law, the statute was adopted without amendment.

4.42 The European Communities notes that this comes as no surprise when considering the legislative history of the 1988 Trade Act which is at the origin in particular of the present draft of Section 301 (Mandatory action). During the hearings before the Senate Committee on Finance, 100^th Congress, 1^st session, Robert Strauss, former Special Trade Representative is quoted in an exchange with Senator Bob Packwood, Chairman of that Committee, as follows:

Sen. Packwood: "Do you think any trade [bill] that we have should require mandatory retaliation?"

Mr. Strauss: "Well, I am a little hesitant to require mandatory retaliation …I hate to make [Section 301] mandatory. I think somewhere in between…[M]ore mandatory is a bum choice of words".

Sen. Packwood: "But not compulsory".⁵⁹

The advice to "make retaliation mandatory but not compulsory" was frequently referred to throughout the debate in the Senate on mandatory retaliation.

4.43 The European Communities thus concludes that everything indicates that the apparent confusion in Sections 301-310 is nothing else than a deliberate policy. In fact, the European Communities is convinced that the United States, by maintaining a legislation on the statute book which on its face and by its intent mandates unilateral determinations and actions in breach of US obligations under the DSU and the GATT, implements a deliberate policy pursuing a double objective, which could be called the "Damocles sword effect".

4.44 The European Communities further states that on the one hand, the very existence of Sections 301-310, with their mixture of clear-cut mandatory provisions inconsistent with the DSU patched together with convoluted exceptions, creates a climate of legal uncertainty that entails by itself immediate and very concrete trade effects.

4.45 The European Communities maintains that in particular, the constant threat of imposition of unilateral measures has an influence on the behaviour and the decisions of the economic operators. In practice, the fact of the filing of a petition or the simple publication of a notice in the Federal Register announcing the initiation of an investigation, within the concrete context of the provisions contained in Sections 301-310 and the publicly known interpretation given by the US administration and the Congress, creates "chilling" trade effects that may range from the slowing down of importation of products to the more radical stoppage of any bilateral trade with the United States in those products. The recent events in the banana dispute, where retaliatory measures stopping the trade of some specific non-banana related products were adopted while the procedure for authorization to suspend concessions within the WTO had not yet been concluded, demonstrate what could happen to practically any trade operator once the unilaterally set deadlines in Sections 301-310 have expired in a given dispute.

4.46   For the European Communities, on the other hand, the present text and intent of Sections 301-310 are used by the United States as a "bargaining" tool in order to extract trade concessions from their trading partners, which they are not bound to make under WTO law, by threatening the violation of commitments the United States has assumed under WTO law. Whatever one may think about the legitimacy of this type of action outside the WTO, this is no longer acceptable in the WTO system, which was established on the basis of multilateralism, equality and law.

4.47   Damocles sword effect is thus very real. The European Communities would refer the Panel not only to its own experience, but also to the cases described in the third party submissions filed by practically all of the most important trading partners of the United States.

4.48   The European Communities contends that Canada, Korea, Hong Kong China, India, Japan and Brazil, all insist on the Damocles sword effects - which they experienced themselves even after the conclusion of the Uruguay Round - and they all concur with the European Communities in indicating to the panel the unacceptable effects of this legislation with regard to the security and predictability of international trade.

4.49   In response, the United States claims that the European Communities, confronted with the need to find a legal basis to justify what is in essence a political case, has been forced to rely on false assumptions, speculation and miscalculations.   Such an approach would be fatal to any complaining party seeking to meet its burden of proof, and this case is no exception.  

4.50   In the view of the United States, the European Communities claims that Sections 301-310 of the Trade Act of 1974 on their face mandate a violation of US WTO obligations.   The European Communities challenges no particular application of this legislation.  Rather, it argues that the legislation by its terms "does not allow the United States to comply with the rules of the DSU and the obligations of GATT 1994" because of time frames in the statute.

4.51   The United States maintains that the terms of Sections 301-310 are readily available and may easily be compared to the requirements of DSU Article 23.   Sections 301-310 do not prevent the United States from following to the letter the requirements of the DSU.   This legislation provides ample discretion to the United States Trade Representative to pursue and comply with multilateral dispute settlement procedures in every instance.  The United States notes that the European Communities cites with approval the conclusion of Professor Hudec that Section 301 includes "extremely wide loopholes", which further reinforces the fact that Section 301 provides for very broad discretion.   The European Communities may not assume that the USTR will exercise this discretion in a WTO-inconsistent manner, nor may the European Communities assume away discretionary elements of the statute in order to make its case.   The European Communities has taken on the task of demonstrating that Sections 301-310 mandate a WTO violation, and it has failed.

4.52   The United States explains that as the European Communities made clear , this case does not call for the P anel to examine whether the actions of either party in connection with the Bananas case were consistent with their WTO obligations.  Nevertheless, the reason this case has been filed is because the European Communities found itself in the position of having failed to comply with DSB rulings and recommendations in that matter.   The EC's reaction to that situation was:   to bring this case.   EC officials publicly and loudly attempted to cast the issue in Bananas as one of US unilateralism, and declared a case against Section 301 the appropriate response.   In other words, the European Communities decided to bring a political case to distract attention from itself.

4.53   The United States argues that notwithstanding its political origins, this case must not be about politics, but about law.  The issue before the Panel is not whether Sections 301-310 of the Trade Act of 1974 are popular or desirable; rather, it is whether the European Communities has demonstrated that this legislation "does not allow" the United States to comply with DSU rules, as the European Communities asserts in its panel request.

4.54   In the view of the United States, the European Communities has brought a political case that is in search of a legal argument.   It is apparent that this search continues.   Having unsuccessfully argued that Sections 301-310 mandate violations of DSU Article 23 based on a comparison of statutory and DSU time frames, the European Communities now argues that DSU time frames are irrelevant.   Indeed, the European Communities appears to argue that the textual obligations set forth in the DSU and WTO Agreement are irrelevant.   In their stead, the European Communities posits a "new legal environment", in which certain discretionary legislation may be treated as mandatory, and may be found to violate an unspecified and non-existent obligation to avoid "uncertainty".  The EC's approach to this case is driven by its desire for a specific result at the expense of sound legal reasoning.  This approach reinforces the fact that its goal is political, and its legal approaches without merit.

4.55   The United States argues that the EC's main objective in, and approach to, this proceeding is illustrated by two statements in the EC's answers to the Panel's questions:

"It is true that Article 23.2(a) of the DSU was drafted with Sections 301-310 of the Trade Act of 1974 in mind.   But this means, of course, that the Uruguay Round participants had also in mind the threat to the security and predictability of the international trade relations created by the text of the Trade Act as it was drafted in the 1988 version.  They had therefore in mind the need to insert in the covered agreements language that would constitute the second leg of what the EC has proposed in its oral statement of 29 June to call the 'Marrakesh deal'.

A law that requires a determination in all cases whether a violation of WTO law has occurred therefore comprises the requirement to determine in certain cases that a violation of WTO law has occurred.  Such a law therefore mandates determinations that are inconsistent with Article 23" .

According to the United States, the first quotation illustrates the EC's view of the purpose of DSU Article 23:   as a tool to attack Sections 301-310.   However, the EC's intention to use DSU Article 23 against Sections 301-310 has been hamstrung by the fact that this legislation does not mandate any violation of DSU Article 23 or any other WTO obligation.  The European Communities itself quotes the conclusions of Professors Jackson and Hudec that, "there are plausible ways to interpret the statutory provisions of regular Section 301 as to give the President discretion to act consistently with the Uruguay Round dispute settlement rules", and that Section 301 includes "extremely wide loopholes".  Under the well-established principle that discretionary legislation is not WTO-inconsistent if it permits WTO-consistent action, Sections 301-310 cannot be found inconsistent with DSU Article 23.  This is because Sections 301-310 provide adequate discretion for the United States to comply with DSU rules and procedures in each and every case.

4.57   The United States is of the view that the EC's response to this situation has been to develop novel and untenable definitions of the term "mandatory", as illustrated by the second quotation, and to create out of whole cloth new WTO obligations centering on "security and predictability" where the text of the WTO Agreement, including the DSU, cannot be stretched to achieve the EC's political objectives.   Apparently unwilling to go so far as Hong Kong and dispense with the distinction between mandatory and discretionary legislation altogether, the European Communities now argues that the Panel should disregard the clear and consistent delineation between discretionary and mandatory measures set forth in each and every GATT and WTO panel report that has dealt with the issue, and instead redefine "mandatory" to include a law which might "in certain cases" be exercised in violation of DSU Article 23.    The European Communities further asks the Panel to find that avoiding "uncertainty" and ensuring "security and predictability" are not only objectives of the WTO and DSU, but are obligations, or else require the Panel to adopt interpretations of DSU Article 23 and WTO Agreement Article XVI:4 that are at odds with the actual text of those provisions.

4.58   The United States states the Panel must reject these requests.   The European Communities has failed to meet its burden in this dispute on either the law or the facts.   The continued applicability of the rule distinguishing mandatory and discretionary legislation is clear, as is the ordinary meaning of the text of DSU Article 23 and WTO Article XVI:4.  It is also clear that Sections 301-310 provide more than adequate discretion to the USTR to comply with DSU Article 23 and other WTO obligations in every case.   Section 304 permits the USTR to base her determinations on adopted panel and Appellate Body findings in every case.   And Section 306 permits, in every case, the USTR to request and receive DSB authorization to suspend concessions in accordance with DSU Article 22.   As Japan correctly notes, "laws are not inconsistent with WTO rules when … discretion [to comply with WTO obligations] is given to administrators under the laws".  Sections 301-310 are thus consistent with DSU Article 23, WTO Agreement Article XVI:4, and GATT 1994 Articles I, II, III, VIII and XI.

4.59   The United States argues that with respect to WTO Agreement Article XVI:4, it is important to recognise that a measure must first violate some other WTO commitment in order to violate Article XVI:4.   The ordinary meaning of the text of this provision makes this clear: "Each Member shall ensure the conformity of its laws, regulations and administrative procedures with its obligations as provided in the annexed Agreements".   If those laws, regulations and administrative procedures conform with the obligations in the annexed agreements, including the DSU, there is no violation of Article XVI:4.  The European Communities may not assume that Sections 301-310 violate the DSU for the purpose of finding a violation of Article XVI:4.

4.60   The United States asserts that in the end, the legal analysis of whether Sections 301-310 are consistent with US WTO obligations must focus on the text of the provisions setting forth those obligations.  It must focus on the language of the Agreement.  Not on objectives, and not on alleged deals so recently invented that their names have to be "proposed".   The rights and obligations of the Members of the World Trade Organization are found in the text of the agreements they negotiated.   The text reflects, better than any paraphrasing by any Member, the objectives and purposes of all Members when they negotiated those agreements.  The Panel's analysis must begin, and end with text .

4.61   The United States argues that the question in this dispute, and the only question, is whether Sections 301-310 command the United States to violate specific WTO obligations found in the text of DSU Article 23, WTO Agreement Article XVI:4 and GATT 1994 Articles I, II, III, VIII and XI.   The answer to this question is no, and the only way the European Communities can achieve its desired political result is to assume bad faith on the part of another WTO Member.   This it may not do.

4.62   The United States further states that if ever there were a case which emphasised the importance of the rule of law, this is that case.   The law is the protector of both the weak and the strong, equally.   It protects the small and the large, equally.   It protects the popular and the unpopular, equally.  While there are cases where the small and weak are grateful for the restraints it places on the powerful, there are others in which the law provides a shelter to the unpopular, whatever its size, when it has done no wrong.   The United States knows that Sections 301-310 are not popular.  But the WTO and the DSU are not a club to be used in a popularity contest against any one Member.   If they are credibly to protect the weak, they must also protect the strong against attacks not on what they have done, but on who they are.   And a  statute does no wrong unless it commands authorities to violate their WTO obligations.

4.63   According to the United States, here at the WTO, the law, the substantive provisions of the WTO Agreement and its annexes, enforced through the provisions of the dispute settlement system, provides security and predictability to all WTO Members.   That security and predictability rests firmly on a mode of legal analysis which focuses first and foremost on the text of the Agreement, because that is what the Members have agreed to.  It is the text which they signed; it is the text which they submitted to their legislatures for approval by the representatives of their people.  The Members brought to the negotiation of the text a number of objectives and purposes, some of which are explicitly listed in the text, and some of which are not.   In either case, however, those objectives and purposes are reflected in the agreement text itself.  There can be no security and predictability in the multilateral trading system if the explicit rules Members have agreed to may be ignored in favour of a mode of analysis driven by a desire to achieve a specific result.  The law must apply equally to all, and in all cases.

4.64   The United States notes that b y its terms of reference, this dispute is not about something the United States has done.  Because of this, it is not proper to speculate about what the United States might do, any more than it would be proper for the United States to bring a case based on speculation that another Member will not act in accordance with its obligations.   The only way that a panel may rule on something that a Member might do in the future is if that Member's law commands it to do it.   It may not be assumed that they will not fulfill their solemn international obligations if they are in a position to do so.  Only when a Member has crossed the line, by enacting a law which does not permit compliance with its international obligations, has it created a situation in which other Members have a legitimate and non-speculative basis for assuming that another Member will not abide by its international obligations.  Only then will those Members find the security and predictability of their trade threatened in a manner distinguishable from the ever-present uncertainty as to whether other Members will fulfill their obligations.

4.65   The United States contends that as has been clear from the outset of this case, Sections 301-310 allow the USTR to comply fully with US obligations under the WTO Agreement and its annexes.  This law does not command the USTR to violate the WTO obligations of the United States.   This law by its mere existence violates none of these obligations.  The EC's transparent efforts to turn this proceeding into a forum for making political attacks on US trade policy only highlight the absolute void at the center of its legal case.    It has none.  This Panel must find that the European Communities has failed to meet its burden of establishing that Sections 301-310 of the Trade Act of 1974 are inconsistent with DSU Article 23, WTO Agreement Article XVI:4 and GATT 1994 Articles I, II, III, VIII and XI, and that Sections 301-310 are therefore not inconsistent with these obligations.

B. WTO Provisions at Issue - DSU Article 23.2(a) and (c)

4.66  The European Communities points out that the parts of Article 23 of the DSU relevant in this proceeding are:

"1. When Members seek the redress of a violation of obligations or other nullification or impairment of benefits under the covered agreements or an impediment to the attainment of any objective of the covered agreements, they shall have recourse to, and abide by, the rules and procedures of this Understanding

2. In such cases, Members shall:

(a) not make a determination to the effect that a violation has occurred, that benefits have been nullified or impaired or that the attainment of any objective of the covered agreements has been impeded, except through recourse to dispute settlement in accordance with the rules and procedures of this Understanding, and shall make any such determination consistent with the findings contained in the panel or Appellate Body report adopted by the DSB or an arbitration award rendered under this Understanding;

…

(c) follow the procedures set forth in Article 22 to determine the level of suspension of concessions or other obligations and obtain DSB authorization in accordance with those procedures before suspending concessions or other obligations under the covered agreements in response to the failure of the Member concerned to implement the recommendations and rulings within that reasonable period of time".

4.67  The European Communities claims that these provisions clearly oblige the United States to refrain from unilaterally determining whether another Member has denied rights or benefits under a WTO agreement to the United States and whether DSB rulings and recommendations have been implemented.  They also leave no doubt that obligations under the GATT and the GATS may be suspended in response to a failure to comply with DSB rulings and recommendations only upon the grant of an authorization by the DSB.

4.68  The United States notes that Article 23.2(a) provides that Members shall:

"not make a determination to the effect that a violation has occurred, that benefits have been nullified or impaired or that the attainment of any objective of the covered agreements has been impeded, except through recourse to dispute settlement in accordance with the rules and procedures of this Understanding, and shall make any such determination consistent with the findings contained in the panel or Appellate Body report adopted by the DSB or an arbitration award rendered under this Understanding".

4.69  The United States argues that thus, for there to be a violation of Article 23.2(a):  (1) there must be a determination that a WTO agreement violation has occurred; and (2) that determination is not consistent with panel or Appellate Body report findings adopted by the DSB or an arbitration award rendered under the DSU.   Because the European Communities has not, as part of this case, alleged that a specific US determination violates Article 23.2(a), the European Communities must show that, under Sections 301-310, the USTR is required to make a violation determination, and to do so in a manner inconsistent with panel or Appellate Body findings adopted by the DSB.

4.70  The United States states that Article 23.2(c) requires Members to "follow the procedures set forth in Article 22 to determine the level of suspension of concessions or other obligations and obtain DSB authorization in accordance with those procedures before suspending concessions or other obligations" when a Member has failed to implement DSB rulings and recommendations.  Again, no actual case involving the suspension of concessions is before this Panel.  It is thus not possible to determine whether the United States in such a concrete case actually complied with the requirements of Article 22.  The only question, then, is whether Section 306(b) commands the USTR not to follow Article 22 procedures or to suspend concessions without DSB authorization.  The United States indicates that it manifestly does not.  Nothing in Section 306(b) or in Section 305(a) prevents the USTR from complying to the letter with Article 22 procedures, including DSB authorization. 

4.71 The European Communities adds that international customary law recognises that a party to a treaty breached by another party may reciprocally suspend proportional obligations under the treaty. ⁶⁰ However, it is also recognised that this right may only be exercised in accordance with any provision in the treaty applicable in the event of a breach. ⁶¹

4.72 The European Communities maintains that Articles XXII and XXIII of the GATT 1947 were such provisions.  Clair Wilcox, a drafter of the Havana Charter for an International Trade Organisation (ITO), from which these provisions derived, explained their rationale as follows:

"We have introduced a new principle in international economic relations. We have asked the nations of the world to confer upon an international organisation the right to limit their power to retaliate.  We have sought to tame retaliation, to discipline it, to keep it within bounds. By subjecting it to the restraints of international control, we have endeavoured to check its spread and growth, to convert it from a weapon of economic warfare to an instrument of international order". ⁶²

4.73  The European Communities states that this idea was forcefully expressed in Article 92 of the Havana Charter:

"Reliance on the Procedures of the Charter

1. The Members undertake that they will not have recourse, in relation to other Members and to the Organisation, to any procedure other than the procedures envisaged in this Charter for complaints and the settlement of differences arising out of its operation.

2. The Members also undertake, without prejudice to any other international agreement, that they will not have recourse to unilateral economic measures of any kind contrary to the provisions of this Charter".

4.74 According to the European Communities, international customary law also recognises that a fundamental change of circumstances not foreseen by the parties to a treaty may, under certain conditions, be invoked as a ground for terminating or withdrawing from the treaty. ⁶³ However, the right of a party to such action may in principle be exercised only with respect to the treaty as a whole. ⁶⁴ International customary law does not entitle a party to a treaty to perform its obligations selectively on the ground that the balance of interest under the treaty has shifted to its disadvantage.

4.75 The European Communities argues that in respect of the GATT 1947, the United States did not consider itself prevented from taking unilateral restrictive trade actions. ⁶⁵ In its view, unilateral measures were justified because the dispute settlement procedures of Article XXIII were based on consensus and the approval of the suspension of obligations in response to another contracting party's failure to observe obligations could therefore be blocked by the defendant party. 

4.76 In the view of the European Communities, the United States also did not consider itself bound by the unconditional most-favoured-nation principle of the GATT 1947 because it enabled contracting parties to obtain the benefit of negotiated market access commitments or new rules even if they had not contributed to the liberalisation efforts or accepted the new rules. 

4.77 According to the European Communities, the United States believed that these features of the GATT 1947 justified resorting to unilateral trade measures inconsistent with the GATT whenever the GATT mechanisms did not produce results meeting its expectations.  In 1989, during a special session of the GATT Council of Representatives on unilateral measures, the United States explained:

"Wherever it could, the United States would challenge unfair practices under the dispute settlement provisions of the General Agreement or the Tokyo Round Codes, but where other contracting parties prevented or impeded that process or blocked efforts to ensure that their practices were covered by multilateral disciplines, the United States would act to protect its interests.  If such action was considered unilateral, it should be nevertheless recognised as perfectly justifiable, responsive action necessitated by the failure of bilateral or multilateral efforts to address a problem.  The way to minimise or avoid unilateralism was to create a credible multilateral system - by strengthening the existing system". ⁶⁶

4.78 The European Communities further argues that the Uruguay Round ended with a considerably strengthened multilateral system:

1. the possibility of blocking the dispute settlement procedures was eliminated;
2. the Uruguay Round results were adopted as a "single undertaking" replacing the GATT 1947. This ensured that, notwithstanding the most-favoured-nation provisions of the GATT 1947, only those countries that accepted the additional obligations were accorded the corresponding rights;
3. as a result, all WTO Members are now bound by agreements similar to the Tokyo Round Codes and the main areas the United States had found missing in the GATT 1947 - protection of intellectual property rights and trade in services - were made subject to enforceable rules.

4.79  The European Communities contends that as a counterpart, the United States accepted the obligations in Article 23 of the DSU, the introductory clause of which reads:

"When Members seek the redress of a violation of obligations or other nullification or impairment of benefits under the covered agreements or an impediment to the attainment of any objective of the covered agreements, they shall have recourse to, and abide by, the rules and procedures of this Understanding".

4.80 The European Communities considers this provision to be one of the cornerstones of the multilateral trading system.  Security and predictability in international trade relations is inconceivable unless each and every WTO Member scrupulously submits all trade disputes to the DSU procedures.

4.81 According to the European Communities, if Members take the law into their own hands and unilaterally impose their own views on their rights under the WTO by threatening or taking measures violating their obligations, they risk provoking spirals of retaliatory actions that would jeopardise the results of half a century of trade negotiations.

TO CONTINUE WITH UNITED STATES – SECTIONS 301-310 OF THE TRADE ACT OF 1974

⁵⁷ Robert E. Hudec, Thinking About the New Section 301: Beyond Good and Evil, in:. Jagdish Bhagwati and Hugh T. Patrick, Editors, Aggressive Unilateralism. America's 301 Trade Policy and the World Trading System (Harvester Wheatsheaf 1990), page 122.

⁵⁸ Senate Committee on Foreign Relations, Hearing on the World Trade Organisation, June 14, 1994 (testimony of Professor John H. Jackson).

⁵⁹ Senate Committee on Finance, 100^th Congress, 1^st session, pt.1, 44-45.

⁶⁰ Vienna Convention on the Law of Treaties, Article 60.1.

⁶¹ Ibid., Article 60.4.

⁶² UN document E/PC/T/A/PV6, page 4.

⁶³ Vienna Convention on the Law of Treaties, Article 62.

⁶⁴ Ibid., Article 44.

⁶⁵ Cf. Statement of Administrative Action, op. cit.

⁶⁶ GATT document C/163 of 16 March 1989, page 4.