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World Trade

Organization

WT/DS152/R
22 December 1999
(99-5454)
Original: English

 

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

Report of the Panel

(Continued)


(d) President's discretion

4.1000 The European Communities notes that the President has never given the USTR any general direction to impose trade sanctions only in accordance with the United States' obligations under international law nor has he ever instructed the USTR in specific cases to do so.

4.1001  The United States recalls that the European Communities notes that 1988 amendments to Section 301 transferred from the President to the USTR the authority to determine whether agreement violations have occurred and what US action to take in response. However, the European Communities ignores the discretion retained by the USTR in making these determinations, as well as the continued discretion of the President to intervene under the terms of the statute.  Indeed, the authors of the very article which the European Communities cites for Section 301's legislative history concluded that the transfer of authority was an "important symbolic statement" but that

"the change is unlikely to be particularly significant.  The Trade Representative still serves at the pleasure of the President, and therefore is unlikely to take actions of which the President disapproves".497

4.1002  The United States argues that a fourth reason Section 306(b) does not violate Section 23.2(c) relates to the EC's disregard for the discretion granted the President under Section 301(a)(1) to condition – or cancel – any decision to take action.  Section 301(a)(1) states that action taken pursuant to that provision is "subject to the specific direction, if any, of the President regarding any such action".498 The President may thus dictate the timing of the action, the conditions under which the action will be given effect, or whether the action will be taken at all.  Thus, the President may, like the USTR herself, specify that action be conditioned upon DSB approval, or not be taken at all.  The United States notes that there is no limitation in the language of Sections 301-310 on how the President may exercise this discretion.

4.1003  The United States recalls that in its discussion of Section 306(b), the European Communities refers to this Presidential discretion, where it states that the President has never given the USTR "any general direction to impose trade sanctions only in accordance with the United States' obligations under international law, nor has he ever instructed the USTR in specific cases to do so". Aside from the fact that this statement assumes that the President would have found it necessary to offer such direction to the USTR, this statement does not change the fact that the President is completely free to provide such direction.  Again, to meet its burden, the European Communities must demonstrate that the President could not exercise the discretion provided for in the statute to direct a WTO-consistent result; it is not sufficient to assert that the President has not felt the need to do so in the past.499

4.1004  The United States considers that the European Communities attempts to dismiss Presidential discretion under Section 301 by claiming that such an interpretation is permitted under the principle set forth in two panel proceedings, United States – Measures Affecting Alcoholic and Malt Beverages500 and India – Patent Protection for Pharmaceutical and Agricultural Chemical Products.501 However, as is clear from the excerpts quoted by the European Communities, the principle which these cases emphasize is that the non-application or non-enforcement of mandatory legislation which otherwise violates trade agreement rules does not excuse that violation. 502 Non-application or non-enforcement is not at issue in this case.  Before one reaches the question of whether mandatory legislation is not being applied or enforced, one must first determine that the legislation is mandatory.  The European Communities has failed to do, notwithstanding its bald assertions that Sections 301-310 "explicitly stipulat[e]" or "mandate" WTO-inconsistent determinations and actions.

4.1005  In the US view, the European Communities in particular focuses on the India - Patents (US) panel report in support of its claim that the "legal uncertainty" at issue in that case is somehow present here.  However, that case involved a question whether, under Indian law, an administrative practice could legally take precedence over a law which on its face mandated actions in violation of WTO obligations.503 That is quite a different matter from the question of whether discretionary language in the statute itself renders it non-mandatory. 

4.1006  According to the United States, the European Communities can point to no principle of US domestic law which would permit the European Communities to excise language from a statute to suit its convenience, or to examine a statute's meaning based only on selected clauses.  The discretion accorded both the USTR and the President under Sections 301-310 ensures that the United States government may fully comply with its WTO obligations under all circumstances.  The European Communities has therefore failed to meet its burden of demonstrating that Sections 306 (b) and 305(a) "do not allow" the European Communities to meet these obligations.

4.1007  Finally, with regard to the "illustration" of the operation of Sections 306(b) and 305(a) which the European Communities purports to provide, the United States reiterates that the EC challenge to Sections 301-310 is to the statute itself, and not to the application of those provisions in any particular case.504 The European Communities explicitly acknowledges that its complaint does not address the US measures taken in the context of the EC's failure to comply with DSB recommendations in the Bananas case, and that those measures are the subject of a separate dispute. The United States fully intends in the context of that dispute to rebut any EC claims that the United States did not act in accordance with its WTO obligations. 505

4.1008  The United States also confirms that the US President can exercise the discretion granted under Section 301(a)(1) not to take action and under Section 305(a)(1) to direct the USTR not to implement action taken under Section 301, based upon the fact DSB recommendations have not yet been adopted or that the DSB has not yet authorized the suspension of concession.

4.1009  In response to the Panel's question as to whether any "specific directions" have been given so far by the US President under Sections 301 (a)(1) or 305 (a)(1), the United States states that no such specific directions have to date been given, but the specific directions may include a direction to the USTR not to take action.

5. GATT claim

4.1010 The European Communities claims that Section 301(c)(1)(b) allows the USTR to target either goods or services when determining the actions to be taken in response to a unilaterally determined failure to implement DSB recommendations. However, according to Article 22.3 of the DSU, the United States must suspend concessions or other obligations with respect to goods, in disputes involving trade in goods, except when this is not practical or effective. This implies that, in disputes involving trade in goods, Sections 306(b) and 305(a) require the USTR to unilaterally impose measures as a consequence of a unilaterally determined failure to implement DSB recommendations that violate basic provisions of the GATT 1994, among them Articles I, II, III, VIII and XI.

4.1011  The European Communities explains that Section 301(c) authorizes the USTR to "suspend, withdraw, or prevent the application of, benefits of trade agreement concessions", and "impose duties or other import restrictions on the goods of, and … services of such foreign country for such time as the Trade Representative determines appropriate".506 To the knowledge of the Communities, the USTR has not yet made use of the possibility to impose duties or restrictions on services. If the act, policy or practice of the foreign country violates the criteria for duty-free treatment under the United States' Generalised System of Preferences, the Caribbean Basin Economic Recovery Act or the Andean Trade Preference Act, the USTR is also authorized to withdraw, limit or suspend such treatment.

4.1012  The European Communities argues that in the case of WTO Members, other than the beneficiaries of these preference schemes, the imposition of duties or restrictions on the goods or services under Section 301(c) is bound to be inconsistent with the United States obligations under the GATT and the General Agreement on Trade in Services (GATS), in particular the most-favoured-nation provisions of these agreements. Only an authorization by the DSB in accordance with Article 22 of the DSU could possibly justify such measures. However, there is no provision in the Trade Act of 1974 that makes the retaliatory action of the USTR dependent on the authorization of the DSB.

4.1013  The European Communities maintains that given that Sections 304(a)(2)(A) and 306(b), as amended, require the United States to resort to retaliatory trade action within certain time limits irrespective of the result of WTO dispute settlement procedures, the actions taken in the area of trade in goods and not authorized pursuant to Article 3.7 and 22 of the DSU will necessarily be in violation of US obligations under one or more of the following GATT obligations: the Most-Favoured Nation clause (Article I, GATT 1994), the tariff bindings undertaken by the United States (Article II, GATT 1994), the National Treatment clause (Article III, GATT 1994), the obligation not to collect excessive charges (Article VIII, GATT 1994) and the prohibition of quantitative restrictions (Article XI, GATT 1994).

4.1014  The United States responds that as in its other claims in this dispute, the European Communities cites discretionary language in Sections 301-310 and then claims it "implies" mandatory action inconsistent with US obligations. In this case, the European Communities states in perfunctory fashion that Section 301(c)(1)(b) "allows the USTR to target either goods or services" and then assumes that this means that USTR must suspend concessions in a manner inconsistent with Article 22.3. The European Communities asserts that this discretion "implies that" Sections 306(b) and 305(a) "require" the USTR to violate GATT Articles I, II, III, VIII and XI.

4.1015  In the view of the United States, for the reasons described in the preceding sections, the USTR and the President have the discretion not to take any action under Section 306(b) or to take only those actions authorized in accordance with adopted panel findings or arbitral awards. The EC's claims with respect to the USTR's discretionary authority in the selection of retaliation targets in no way suggests that any provision of Sections 301-310 requires the USTR to suspend concessions, or to suspend concessions in a manner inconsistent with any WTO obligation.

4.1016  The United States further argues that having looked at the text of Article 23.2(a) and (c), the United States would logically look at the text of GATT Articles I, II, III, VIII and XI. However, the European Communities itself never even refers to the text of these provisions, and there is thus little for the United States to rebut. The European Communities never does more than assert that Sections 304(a)(2)(A) and 306(b) "necessarily" violate these provisions. The EC's only reasoning is that "certain time limits" create this result. Even if the European Communities were entitled to make the incorrect assumption that the statute commands "retaliatory trade action" and that Section 305 is not available to delay such action until receipt of DSB authorization, the European Communities has failed to offer any legal argumentation as to how Sections 304(a)(2)(A) and 306(b) are inconsistent with any of these provisions. Indeed, the European Communities only states that Section 306(b) violates "one or more of these [GATT 1994] provisions".  The European Communities thus cannot even say which of these provisions has been violated, let alone how.  The European Communities may not establish its prima facie case on the basis of mere assertions such as these.  With regard to Article 23.1, as well, the European Communities has failed to attempt to make its case, let alone to establish it.  Nothing in Sections 301-310 commands that the USTR not abide by the rules and procedures of the DSU in seeking redress of WTO violations.

4.1017  The United States further points out that any actions taken pursuant to Section 301(c)(1)(B) on an MFN basis involving a service sector not subject to a GATS commitment would not be WTO-inconsistent.   Likewise, an MFN-based increase in an unbound tariff, or an applied tariff that is under the bound rate, would not violate GATT 1994.   Moreover, action taken pursuant to Section 301(c)(1)(D) would not be WTO-inconsistent.  This provision provides for mutually satisfactory agreements and compensation agreements, which are clearly contemplated in DSU Articles 3.7 and 22.2.    Finally, the United States refers to the fact that neither Section 305 nor any other provision of Sections 301-310 requires the USTR to suspend concessions without receiving DSB approval.  Thus, one cannot conclude that the actions set forth in Section 301(c) are inherently inconsistent with US WTO obligations.

V. THIRD PARTY ARGUMENTS

A. Brazil

1. Introduction

5.1  Brazil welcomes the opportunity to present its views to the panel requested by the EUROPEAN COMMUNITIES to examine Chapter 1 of Title III (Sections 301-310) of the US Trade Act of 1974, as amended.

5.2  Brazil indicates that its interest in this case derives from the possible effects of this legislation on its rights and obligations as a Member of the WTO, as well as from its wider interest in the integrity of the multilateral trading system itself.

5.3  In Brazil's view, the European Communities makes exception to the operation of Section 306 in the dispute on the implementation of recommended changes to the EC's banana regime. The European Communities, however, has made it clear that it did not request this panel to rule on the measures taken in connection with that specific dispute, but rather on the compatibility of US law as such with US obligations under the WTO Agreements.

5.4  Brazil also takes the view that a law that is inconsistent with the obligations of a Member under the WTO Agreements can be challenged under the dispute settlement procedures. The issue before the panel is not the application of Sections 301-310 in a particular instance, but rather the need to bring the law into conformity with relevant WTO provisions, as provided in Article XVI:4 of the WTO Agreement.

5.5  Brazil recalls that the European Communities bases its claims on three premises:

  1. WTO agreements cannot provide security and predictability unless Members settle all their trade disputes in accordance with the procedures of the DSU
  2. WTO agreements cannot provide security and predictability unless Members bring their law into conformity with their obligations under those agreements; and
  3. The United States failed to bring Sections 301-310 into conformity with its obligations under the WTO agreements.

5.6  According to Brazil, to these grounds of action, the European Communities applies relevant provisions of the WTO Agreements, supplemented by the legal history and experience under the GATT 1947.507

5.7  Brazil also notes that the European Communities concludes that Sections 302(a)(2)(A), 305(a) and 306(b) are inconsistent with Article 23 of the DSU because they require the USTR to make unilateral determinations to the effect that a violation has occurred and to act upon such determination, without regard to the rules and procedures of the DSU. It further concludes that Section 306(b) of the Trade Act of 1974 is inconsistent with Articles I, II, III, VIII and XI of the GATT 1994 because, in the case of disputes involving trade in goods, it requires the USTR to impose duties, fees or restrictions that violate one or more of these provisions. Finally, the European Communities considers that, by failing to bring the Trade Act of 1974 into conformity with those provisions of the WTO Agreements, the US acted inconsistently with Article XVI:4 of the WTO Agreement.

 

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


497 Judith Hippler Bello and Alan F. Holmer, The Heart of the 1988 Trade Act: A Legislative History of the Amendments to Section 301, 25 Stanford J. Int'l Law 1, 9-10 (1988).  The authors were the USTR General Counsel and Deputy USTR at the time the article was written, and had been deeply involved in the development of the provisions.

498 Section 301(a)(1), 19 U.S.C. � 2411(a)(1).  Section 305(a)(1) also refers to the fact that action under Section 301 is "subject to the specific direction, if any, of the President regarding any such action".  Section 305(a)(1), 19 U.S.C. � 2415(a)(1).

499 Panel Report on US – Tobacco, op. cit., para. 123.

500 Panel Report on US – Malt Beverages, op. cit.

501 Panel Report on India – Patents (US), as modified by Appellate Body Report on India – Patents (US), op. cit.

502 In Panel Report on US – Malt Beverages, op. cit., for example, the panel explained,

"Even if Massachusetts may not currently  be using its police powers to enforce this mandatory legislation, the measure continues to be mandatory legislation which may influence the decisions of economic operators.  Hence, a non-enforcement of a mandatory law in respect of imported products does not ensure that imported beer and wine are not treated less favourably than like domestic products to which the law does not apply".

Ibid., para. 5.60. (emphasis added)

503 See India - Patents (US), op. cit., paras. 7.35-7.37.

504 See WT/DS152/11.

505 Having said this, the United States comments on the quotation from a USTR notice of October 22, 1998, quoted by the European Communities.  That quotation includes the statement "in the event of an affirmative determination", indicating that the Trade Representative continued to have discretion not to determine to propose any action.  Further, while the statement included a description of the 30-day deadline in Section 305(a)(1), the language of that provision – and of Section 305(a)(2) – is the best evidence of its contents.

506 Section 301(c), 19 U.S.C. �2411(c).

507 Brazil refers to the GATT acquis, as defined by the Appellate Body in Japan – Alcoholic Beverages II, op. cit., p. 14