3. Legal Arguments

5.304  Korea states that it generally concurs with the arguments made by the European Communities. Nevertheless, and without prejudice to any additional available arguments that Sections 301-310 are inconsistent with GATT 1994, the DSU, and/or other Uruguay Round instruments, in this independent submission Korea only emphasizes two particularly troubling aspects of Sections 301-310.

5.305  Korea first emphasises that threats of retaliation manifested by publication of a retaliation list and suspension of liquidation under Sections 301-310 themselves violate Articles I and XIII of GATT 1994. The publication of a retaliation list by USTR�whether the list calls for increased tariffs or quantitative restrictions�clearly affects the competitive relationship between the targeted products and similar products from all other countries.

5.306  Korea argues that it has long been recognized that GATT/WTO disciplines serve to protect the expectations of the parties as to the competitive relationship between their products and those of the other parties; "[t]he protection of legitimate expectations of Members regarding the conditions of competition is a well-established GATT principle".⁵⁹⁴ Accordingly, several provisions of GATT 1994 guard against measures by one WTO Member that have a detrimental effect on the competitiveness of imported products.

5.307  Korea points out that among these provisions pertinent to the present dispute is Article I of GATT 1994, which provides that:

"With respect to customs duties and charges of any kind imposed on or in connection with importation or exportation or imposed on the international transfer of payments for imports and exports, � any advantage, favour, privilege or immunity granted by any contracting party to any product originating in or destined for any other country shall be accorded immediately and unconditionally to the like product originating in or destined for the territories of all other contracting parties".

This most-favoured-nation requirement has been read to invalidate measures that upset the expectations of WTO Members concerning the competitiveness of their products vis-�-vis the products of other Members. It was on this basis that the panel considering measures by Ontario, Canada affecting the sale of gold coins determined that those measures denied coins imported from South Africa both national treatment (Article III) and most-favoured-nation treatment.⁵⁹⁵

5.308  Korea further notes that in a similar vein, Article XIII of GATT 1994 provides, with respect to quantitative restrictions, that: "No prohibition or restriction shall be applied by any contracting party on the importation of any product of the territory of any other contracting party �, unless the importation of the like product of all third countries � is similarly prohibited or restricted". Like the requirement of most-favoured-nation treatment, this provision aims to prevent measures that competitively disadvantage the products of one WTO Member vis-�-vis other Members where quantitative restrictions are involved.⁵⁹⁶

5.309  Korea argues that the publication of a retaliation list by USTR � whether the list calls for increased tariffs or quantitative restrictions � clearly affects the competitive relationship between the targeted products and similar products from all other countries. Targeting particular imported products for retaliation can have several effects on trade in those products. Faced with the risk of higher duties or restricted supplies, importers will often choose to shift their orders to producers in other countries immediately, thus eliminating the possibility that they will have to pay an exorbitant duty when the ordered goods actually arrive. On the other hand, in cases where ordered goods may be imported promptly, importers actually might increase their purchases of targeted goods in an effort to increase inventories before the threatened retaliation goes into effect, thus harming imports from non-target countries. (For this reason, products with short lead-times between order and importation are probably not good candidates for USTR retaliation lists.) A third possibility is that importers will immediately increase prices in anticipation of future cost increases or shortages caused by implementation of the retaliation list. In any of these cases, the mere publication of a retaliation list changes the competitive relationship between the targeted products from the target country and all competing products. Accordingly, publication of a retaliation list violates Article I of GATT 1994, and, when the proposed retaliatory measures include quantitative restrictions, Article XIII of GATT 1994. Moreover, as is explained below, the USTR is required to publish a retaliation list within 30 days of the adoption of the panel or Appellate Body report or within 18 months from the date on which the USTR's investigation was initiated, whichever is earlier. USTR is also required to publish retaliation lists within 30 days of the expiration of the reasonable period of time for implementation provided under the DSU.

5.310  No matter where in the process they come, the effect of these measures on smaller countries like Korea is magnified by the overwhelming size of the United States' economy and by the relative insignificance to the United States of trade with any one small economy. This pervasive inequality of bargaining power is one thing that the GATT/WTO dispute settlement system was designed to ameliorate. However, in addition to disrupting the worldwide balance of trade for all WTO Members, threats of retaliatory action outside the GATT/WTO framework further magnify this disproportion to the special disadvantage of smaller countries.

5.311  Korea secondly stresses that Sections 301-310 mandate measures that violate Articles 21 and 23 of the DSU. It should be noted, as the European Communities convincingly establish in their first submission, that legislation requiring governmental action inconsistent with a WTO Member's obligations under the Uruguay Round instruments constitutes a measure that can be brought to a WTO dispute-resolution body even if the authority granted under that legislation has not yet been exercised in a manner inconsistent with GATT 1994 or any related agreement.⁵⁹⁷ Sections 301-310 mandate action by the USTR that cannot be reconciled with the United States' obligations under Articles 21 and 23 of the DSU, thus Sections 301-310 themselves violate the DSU. It is no defense to the present challenge to the US law that the USTR might comply with DSU procedures by ignoring the requirements of Sections 301-310.⁵⁹⁸

5.312  Korea argues that Sections 301-310 not only authorize the GATT-inconsistent measure of publishing a retaliation list, the statute mandates that the USTR take these actions unilaterally within 30 days of a panel or Appellate Body report being adopted. Specifically, Section 304(a)(2)(A)(i) requires the USTR not only to determine unilaterally whether another country is violating the WTO rights of the United States⁵⁹⁹ but also, if such a violation is found, to determine what she proposes to do about it by "30 days after the date on which the dispute settlement procedure is concluded". According to Section 304(c), this determination must be published in the Federal Register. And even before she makes this determination, the USTR must generally "provide an opportunity (after giving not less than 30 days notice thereof) for the presentation of views by interested persons, including a public hearing if requested by any interested person".⁶⁰⁰ Thus, the USTR must formulate and publicize a threat of retaliation at the very latest within 30 days of the date of adoption of a panel or Appellate Body report. In formulating her threat, the USTR may choose among retaliatory measures, including the decision to:

"(A) suspend, withdraw, or prevent the application of, benefits of trade agreement concessions �; [or] (B) impose duties or other import restrictions on the goods of, and, notwithstanding any other provision of law, fees or restrictions on the services of, such foreign country for such time as the Trade Representative determines appropriate".⁶⁰¹

5.313  Korea contends that under the timetable in Section 304(a)(2), this mandatory announcement of retaliatory measures comes, at the latest, on the last day for a Member adjudged by a panel or the Appellate Body not to be in compliance with its GATT/WTO obligations to "inform the DSB of its intentions in respect of implementation of the recommendations and rulings of the DSB".⁶⁰² If the USTR is satisfied with the opposing Member's stated "intentions in respect of implementation", she will of course not need to announce any retaliation, but if she is not so satisfied, she must, under Section 304(a)(2)(A)(i), announce retaliatory measures. This requirement forces the USTR to act contrary to Article 21.5, which requires resort to the dispute settlement procedures of the DSU whenever there is a disagreement as to "the consistency with a covered agreement of measures taken to comply with recommendations and rulings" of a panel or the Appellate Body. Inasmuch as Article 21.5 allows 90 days (or possibly longer) for such a proceeding, the USTR finds herself in the position of being required by a provision of United States law to effectively retaliate against the noncompliant Member three months (or more) before a DSU panel has had a chance to rule on whether the remedial measures proposed by the noncompliant Member are or are not satisfactory. To be sure, implementation of the threatened measures can then be held in abeyance for up to 180 days,⁶⁰³ but the threat has already been made, and, as elaborated above, much damage has already been done.

5.314  Korea further argues that Article 21.5 proceedings may also arise at the conclusion of the agreed reasonable period for a noncompliant Member to implement the recommendations of a panel or Appellate Body report. The USTR may have been satisfied with the proposed implementation in the period immediately following the adoption of the panel or Appellate Body report, but it may become clear by the end of the implementation period that the implementing Member has not lived up to its promises. In such a case, under the DSU, arbitration under Article 21.5 is the next step. But Sections 301-310 do not allow the USTR to wait for Article 21.5 proceedings to conclude before determining and announcing retaliatory action. Section 306(b)(2) requires that:

"If the measure or agreement referred to in subsection (a) concerns the implementation of a recommendation made pursuant to dispute settlement proceedings under the World Trade Organization, and the Trade Representative considers that the foreign country has failed to implement it, the Trade Representative shall make the determination in paragraph (1) [respecting further retaliatory action] no later than 30 days after the expiration of the reasonable period of time provided for such implementation under paragraph 21 of the Understanding on Rules and Procedures Governing the Settlement of Disputes �".⁶⁰⁴

As with the determination of a violation, governed by the schedule in Section 304(a)(2), the determination of unsatisfactory implementation contemplated by Section 306(b)(2) must be published in the Federal Register,⁶⁰⁵ and the USTR must provide public notice and an opportunity for comment thereon.⁶⁰⁶ These provisions ensure that the scope and content of any retaliation list will be well known long before the list is formally implemented.

5.315  Korea alleges that the timing requirements of Sections 304 and 306 thus squarely conflict with Article 21.5 of the DSU, which sets forth a detailed procedure for handling disputes relating to implementation. Sections 304 and 306 require unilateral threats of retaliation at times when Article 21.5 provides for a multilateral arbitration process:

"Where there is disagreement as to the existence or consistency with a covered agreement of measures taken to comply with the recommendations and rulings such dispute shall be decided through recourse to these dispute settlement procedures, including wherever possible resort to the original panel.  The panel shall circulate its report within 90 days after the date of referral of the matter to it.  When the panel considers that it cannot provide its report within this time frame, it shall inform the DSB in writing of the reasons for the delay together with an estimate of the period within which it will submit its report".

Thus, if the United States objects to the manner in which another WTO Member is proposing to implement the recommendations contained in a panel or Appellate Body report, the DSU requires that the United States have recourse to 90 days (or more) of arbitration before taking any further action, including specific threats of retaliation.

5.316  Korea argues that the United States unaccountably takes issue with this obvious interpretation of Article 21.5, denying "that WTO Members are required to pursue a panel under Article 21.5 whenever implementation is at issue". Indeed, the United States argues that "the DSB implicitly rejected this argument" by authorizing US retaliation in the Bananas dispute based only on the decision of Article 22.6 arbitrators.

5.317  In the view of Korea, this argument suffers from several serious flaws. In the first place, it is inconsistent with the United States' own prior interpretation of Article 21.5 as the vehicle for resolving implementation disputes. In the Statement of Administrative Action accompanying transmission of the Uruguay Round agreements to the United States Congress for approval, President Clinton indicated that:

"Current GATT procedures do not provide a method for resolving disagreements over implementation of the report's recommendations. Paragraph 5 of Article 21 addresses this problem by providing that such disputes will be decided under DSU procedures. Wherever possible, the panel convened to consider the disagreement will be the one that reviewed the original complaint. Panels normally must issue decisions in these cases within 90 days of referral".⁶⁰⁷

5.318 Korea moreover states that the document cited by the United States, a Compilation of Comments on the DSU by WTO Members,⁶⁰⁸ discloses no dissent from this fundamental understanding of Article 21.5; although several Members make suggestions about how to strengthen or improve Article 21.5, there seems to be no dispute that Article 21.5 prescribes the process for handling disputes about implementation.

5.319  Korea also points out that the US argument runs against the statement made by the Chairman of the DSB at the January 29, 1999 meeting. The DSB chairman stated that "the solution to the banana matter would be totally without prejudice to future cases and to the question of how to resolve the systemic issue of the relationship between Article 21.5 and 22 of the DSU".⁶⁰⁹ Similarly, the panel in the Bananas case did not hold that recourse to Article 21.5 procedures was optional any time a Member viewed measures proposed by a noncompliant party as inconsistent with a covered agreement. The decision in Bananas concerning Article 21.5 was quite explicitly limited to the unique situation presented in that case.

"In the special circumstances of this case . . . it is necessary to find a logical way forward that ensures a multilateral decision, subject to DSB scrutiny, of the level of suspension of concessions".⁶¹⁰

The special circumstances of the EC � Bananas III case were that the United States did not object to the EC's compliance measures until the "reasonable period" had expired, thus making it impossible for the United States to comply with Article 21.5 while at the same time completing its Article 22 proceeding concerning suspension of concessions within the time specified in Article 22.6. These circumstances will not be present in all cases and cannot be present in cases, such as those described above, in which effective retaliation must occur long before the expiration of the "reasonable period".

5.320  Korea also stresses that finally, and most importantly, the interpretation now advocated by the United States would have the impermissible effect of reading Article 21.5 out of the DSU altogether. If this Article does not govern "[w]here there is disagreement as to the existence or consistency with a covered agreement of measures taken to comply with the recommendations and rulings" of a panel or Appellate Body report, what possible effect could it have? If, as the United States contends, the panel in the Bananas dispute intimated that Article 21.5 need not serve this function, the panel was simply wrong and need not be followed by this Panel.⁶¹¹ Such an interpretation of the DSU cannot be reconciled with the most fundamental principles of treaty interpretation as codified in the Vienna Convention on the Law of Treaties. Article 31 of that treaty teaches that "A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose". The ordinary meaning of 21.5 is that it prescribes 90 days of arbitration in the event of a dispute over implementation. An interpretation that denies this plain meaning�and in the process renders the entire clause superfluous and meaningless�as does the position the United States advocates, cannot be called a "good faith" interpretation.

5.321  In the view of Korea, rather, in the DSU, WTO Members have agreed upon a mechanism for resolving disputes about implementation of panel or Appellate Body recommendations. Article 21.5 is that mechanism. Sections 301-310, and in particular Sections 304 and 306, outline timetables that mandate the USTR to announce retaliatory measures in the event of an implementation dispute before the procedures contemplated by Article 21.5 can possibly be completed. Thus, Sections 301-310 deny to the United States' trading partners, including Korea and the European Communities, the benefits of DSU Article 21.5.

5.322  Korea further goes on to state that Article 23.1 of the Dispute Settlement Understanding obligates the United States to "have recourse to, and abide by, the rules and procedures of this Understanding" in "seek[ing] 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". As elaborated above, Sections 301-310 require the USTR to act inconsistently with DSU procedures. By requiring the USTR to decide upon and publicize unilateral retaliatory action before there has been time to conclude the arbitration contemplated in DSU Article 21.5, the aggressive timetable set forth in Sections 301-310, and in particular Sections 304 and 306, prevents the USTR from living up to the United States' promise. This aspect of Sections 301-310 is clearly inconsistent with Article 23.1 of the DSU, and the United States should be required to amend its law accordingly.

4. Conclusion

5.323  Korea concludes that for the foregoing reasons, it respectfully requests this Panel to determine that unilateral threats of retaliation under Sections 301-310 of the United States Trade Act of 1974 deny Korea and other WTO Members the benefits of Articles I and XIII of GATT 1994 and Article 21 of the DSU, and violate Article 23 of the DSU.

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

⁵⁸⁸ 19 U.S.C. � 2414(a)(2).

⁵⁸⁹ See ibid. � 2416(b)(2).

⁵⁹⁰ United States Trade Representative, 1995 Trade Policy Agenda and 1994 Annual Report 96 (1994), cited in Bhala, op. cit. note 2, at 1096 and footnote 1.

⁵⁹¹ Jagdish Bhagwati, The World Trading System at Risk 53 (1991).

⁵⁹² See e.g. Regime for the Importation, Sale and Distribution of Bananas:  Notice of United States Suspension of Tariff Concessions, 64 Fed. Reg. 19,209 (1999) (liquidation suspended with respect to entries of selected European products as of March 2, 1999, even though arbitrators' final decision on damages not adopted by DSB until April 19, 1999).

⁵⁹³ See 19 Code of Federal Regulations � 159.1 (1999).

⁵⁹⁴ Panel Report on India—Patent (US), op. cit., para. 7.20.  See also Ernst-Ulrich Petersmann, The Dispute Settlement System of the World Trade Organization and the Evolution of the GATT Dispute Settlement System since 1948, 31 Common Market L. Rev. ___, 1178-79 (1994).  Cf. Panel Report on US –  Superfund, op. cit., para. 5.2.2 (applying principle in connection with Article III national treatment obligation).

⁵⁹⁵ Panel Report on Canada – Measures Affecting the Sale of Gold Coins, L/5863, 17 September 1985, para. 70.

⁵⁹⁶ Korea refers to Panel Report on India –  Patents (US), op. cit., para. 7.20; Panel Report on US – Superfund, op. cit., para. 5.2.2; Panel Report on US – Section 337, op. cit., para. 5.13.

⁵⁹⁷ Korea refers to Panel Report on US - Superfund, op. cit., para. 5.2.2; Panel Report on US – Malt Beverages, op. cit., pages 281-282 and 289-90; and Panel Report on India – Patents (US), para. 7.35.

⁵⁹⁸ Korea cites Panel Report on US – Malt Beverages, op. cit., as recognising at 290 that "[e]ven 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"  Also, Korea cites Panel Report on India—Patents (US), at para. 7.35.

⁵⁹⁹ Korea cites the EC argument that the provisions of DSU Article 23 "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".

⁶⁰⁰ Section 304(b)(1)A), codified at 19 U.S.C. � 2414(b)(1)(A).

⁶⁰¹ Section 301(c), codified at 19 U.S.C. � 2411(c).

⁶⁰² DSU, Article  21.3.

⁶⁰³ Section 305(a)(2)(A), codified at 19 U.S.C. � 2415(a)(2)(A).

⁶⁰⁴ 19 U.S.C. � 2416(b)(2).  Korea notes that Section 305(a) requires that the actions described in this determination be implemented within 30 days unless "the Trade Representative determines that substantial progress is being made, or that delay is necessary or desirable to obtain United States rights or satisfactory solution with respect to the acts, policies, or practices that are the subject of the action".  19 U.S.C. � 2415(a).

⁶⁰⁵ Section 304(c), codified at 19 U.S.C. 2414(c).

⁶⁰⁶ Section 304(b), codified at 19 U.S.C. � 2414(b).

⁶⁰⁷ Message from The President of the United States transmitting The Uruguay Round Trade Agreements, Texts of Agreements Implementing Bill, Statement of Administrative Action and Required Supporting Statements, September 27, 1994, at 1016.

⁶⁰⁸ Review of the DSU, Note by the Secretariat, Compilation of Comments Submitted by Members—Rev. 3 of 12 December 1998, cited by the United States.

⁶⁰⁹ Minutes of DSB Meeting of 25, 28 and 29 January and 1 February 1999, WT/DSB/M/54, p. 31.

⁶¹⁰ Arbitration under Article 22.6 of the DSU in European Communities - Regime for the Importation, Sale and Distribution of Bananas, dated 19 April 1999 (WT/DS27/ARB), para. 4.15. (emphasis added).

⁶¹¹ Panel Report on India – Patents (US), op. cit., para. 7.30 ("[P]anels are not bound by previous decisions of panels or the Appellate Body even if the subject matter is the same".).