VII. FINDINGS

A. Claims of The Parties

7.1   The claims of the parties may be summarised as follows.

7.2   The EC claims that by adopting, maintaining on its statute book and applying Sections 301-310 of the 1974 Trade Act after the entry into force of the Uruguay Round Agreements, the US has breached the historical deal that was struck in Marrakech between the US and the other Uruguay Round participants.  According to the EC, this deal consists of a trade-off between, on the one hand, the practical certainty of adoption by the Dispute Settlement Body ("DSB") of panel and Appellate Body reports and of authorization for Members to suspend concessions – in the EC's view, an explicit US request – and, on the other hand, the complete and definitive abandoning by the US of its long-standing policy of unilateral action.  The EC submits that the second leg of this deal, which is, in its view, the core of the present Panel procedure, has been enshrined in the following WTO provisions:  Articles 3, 21, 22 and, most importantly, 23 of the DSU and Article XVI:4 of the WTO Agreement.

7.3   The EC claims, more particularly, that

1. inconsistently with Article 23.2(a) of the DSU:
   • Section 304 (a)(2)(A) requires the US Trade Representative ("USTR") to determine whether another Member denies US rights or benefits under a WTO agreement irrespective of whether the DSB adopted a panel or Appellate Body finding on the matter; and
   • Section 306 (b) requires the USTR to determine whether a recommendation of the DSB has been implemented irrespective of whether proceedings on this issue under Article 21.5 of the DSU have been completed;
2. inconsistently with Article 23.2(c) of the DSU:
   • Section 306 (b) requires the USTR to determine what further action to take under Section 301 in case of a failure to implement DSB recommendations; and
   • Section 305 (a) requires the USTR to implement that action,

and this in both instances, irrespective of whether the procedures set forth in Articles 21.5 and 22 of the DSU have been completed; and

3. Section 306 (b) is inconsistent with Articles I, II, III, VIII and XI of 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.

7.4  The EC submits that Sections 301-310, on their face, mandate unilateral action by the US authorities in breach of Article 23 of the DSU and consequently of Articles I, II, III, VIII and XI of the GATT 1994.  According to the EC, this is true both under the former GATT 1947 standards concerning mandatory versus discretionary legislation and the present standards under the GATT 1994 and the WTO Agreement which the EC considers the relevant sources of law applicable after the entry into force of the WTO agreements. The EC arguments on the issue of the standards applicable to determine whether legislation is genuinely discretionary are contained in the descriptive part of this Report.⁶²⁹ 

7.5   In addition, the EC argues that Sections 301-310 -- even if they could be interpreted to permit the USTR to avoid WTO-inconsistent determinations and actions -- cannot be regarded as a sound legal basis for the implementation of the US obligations under the WTO.  For the EC, the lack of this "sound legal basis" produces a situation of threat and legal uncertainty against other WTO Members and their economic operators that fundamentally undermines the "security and predictability" of the multilateral trading system.

7.6  The EC submits, furthermore, that Sections 301-310 are not in conformity with US obligations under the WTO since they are an expression of a deliberate policy creating a pattern of executive action which is biased against WTO-conformity.   According to the EC, even if Sections 301-310 could be interpreted to provide the USTR with a legal basis for the implementation of US obligations under the WTO, they could not be considered to be in conformity with WTO law within the meaning of Article XVI.4 of the WTO Agreement.

7.7  On these grounds, the EC requests us to rule that the US, by failing to bring the Trade Act of 1974 into conformity with the requirements of Article 23 of the DSU and Articles I, II, III, VIII and XI of the GATT 1994, acted inconsistently with its obligations under those provisions and under Article XVI:4 of the WTO Agreement and thereby nullifies or impairs benefits accruing to the EC under the DSU, GATT 1994 and the WTO Agreement. 

7.8  The EC, finally, asks us to recommend that the DSB request the US to bring its Trade Act of 1974 into conformity with its obligations under the DSU, GATT 1994 and the WTO Agreement.

7.9  The US responds that the EC has brought a political case that is in search of a legal argument.  It submits that the EC is not entitled to prevail in this dispute on the basis of a series of assumptions adverse to the US, assumptions both with respect to the decisions the USTR can make under Sections 301-310 and with respect to panel, Appellate Body and DSB meeting schedules.  According to the US, Sections 301-310 permit the US to comply with DSU rules and procedures in every case:   Section 304 permits the USTR to base his or her determinations on adopted panel and Appellate Body findings in every case; and Sections 305 and 306 permit the USTR, in every case, to request and receive DSB authorization to suspend concessions in accordance with Article 22 of the DSU.  The US concludes that it fully meets its WTO obligations in this respect.

B. Preliminaries

1. Relevant Provisions of the WTO and of Sections 301-310 of the US trade Act^JHW1

7.10  In Annex I of this Report we reproduce for the convenience of the reader the provisions of Sections 301-310 as they were submitted to us in Exhibit 1 to the US submissions, as well as those provisions of the WTO to which frequent reference is made in this Report.

2. The Panel's Mandate

7.11  The political sensitivity of this case is self-evident.  In its submissions, the US itself volunteered that Sections 301-310 are an unpopular piece of legislation.  In addition to the EC, twelve of the sixteen third parties expressed highly critical views of this legislation.⁶³⁰

7.12  Our function in this case is judicial.  In accordance with Article 11 of the DSU, it is our duty to "make an objective assessment of the facts of the case and the applicability of and conformity with the relevant covered agreements, and make such other findings as will assist the DSB in making the recommendations or in giving the rulings provided for in the covered agreements".⁶³¹

7.13  The mandate we have been given in this dispute is limited to the specific EC claims set out in Section VII.A above.  We are not asked to make an overall assessment of the compatibility of Sections 301-310 with the WTO agreements.  It is not our task to examine any aspects of Sections 301-310 outside the EC claims.  We are, in particular, not called upon to examine the WTO compatibility of US actions taken in individual cases in which Sections 301-310 have been applied.  Likewise, we have not been asked to address the WTO consistency of those provisions in Section 301-310 relating to determinations and actions taken by the USTR that do not concern the enforcement of US rights under the WTO Agreement, including the provisions authorizing the USTR to make a determination as to whether or not a matter falls outside the scope of the WTO agreements.⁶³²

3. Fact Finding: Rules on Burden of Proof and Interpretation of Domestic Legislation

(a) Burden of Proof – General

7.14  Part of our task in accordance with Article 11 of the DSU is to make factual findings.  We are guided in this matter, as well as others, by the jurisprudence of the Appellate Body.  In accordance with this jurisprudence, both parties agreed that it is for the EC, as the complaining party, to present arguments and evidence sufficient to establish a prima facie case in respect of the various elements of its claims regarding the inconsistency of Sections 301-310 with US obligations under the WTO.  Once the EC has done so, it is for the US to rebut that prima facie case.  Since, in this case, both parties have submitted extensive facts and arguments in respect of the EC claims, our task will essentially be to balance all evidence on record and decide whether the EC, as party bearing the original burden of proof, has convinced us of the validity of its claims.  In case of uncertainty, i.e. in case all the evidence and arguments remain in equipoise, we have to give the benefit of the doubt to the US as defending party.

7.15  We note, in addition, that the party that alleges a specific fact – be it the EC or the US – has the burden to prove it.  In other words, it has to establish a prima facie case that the fact exists.  Following the principles set out in the previous paragraph, this prima facie case will stand unless sufficiently rebutted by the other party.

7.16  The factual findings in this Report were reached applying these principles.  Of course, when it comes to deciding on the correct interpretation of the covered agreements a panel will be aided by the arguments of the parties but not bound by them; its decisions on such matters must be in accord with the rules of treaty interpretation applicable to the WTO.

(b) Examination of Domestic Legislation

7.17  In respect of the examination of domestic law by WTO panels, both parties referred to the India – Patents (US) case.  There the Appellate Body stated that "[i]t is clear that an examination of the relevant aspects of Indian municipal law … is essential to determining whether India has complied with its obligations under Article 70.8(a) [of the TRIPS Agreement].  There was simply no way for the Panel to make this determination without engaging in an examination of Indian law".⁶³³

7.18  In this case, too, we have to examine aspects of municipal law, namely Sections 301-310 of the US Trade Act of 1974.  Our mandate is to examine Sections 301-310 solely for the purpose of determining whether the US meets its WTO obligations.  In doing so, we do not, as noted by the Appellate Body in India – Patents (US),⁶³⁴ interpret US law "as such", the way we would, say, interpret provisions of the covered agreements.  We are, instead, called upon to establish the meaning of Sections 301-310 as factual elements and to check whether these factual elements constitute conduct by the US contrary to its WTO obligations.  The rules on burden of proof for the establishment of facts referred to above also apply in this respect.⁶³⁵

7.19  It follows that in making factual findings concerning the meaning of Sections 301-310 we are not bound to accept the interpretation presented by the US.  That said, any Member can reasonably expect that considerable deference be given to its views on the meaning of its own law. 

7.20  We note, finally, that terms used both in Sections 301-310 and in WTO provisions, do not necessarily have the same meaning.  For example, the word "determination" need not always have the same meaning in Sections 304 and 306 as it has in Article 23.2(a) of the DSU.  Thus, conduct not meeting, say,  the threshold of a "determination" under Sections 304 and 306, is not by this fact alone precluded from meeting the threshold of a "determination" under Article 23.2(a) of the DSU.  By contrast, the fact that a certain act is characterized as a "determination" under domestic legislation, does not necessarily mean that it must be construed as a determination under the covered agreements.⁶³⁶

4. Rules of Treaty Interpretation

7.21  Evaluating the conformity of Sections 301-310 with US obligations under the WTO requires interpretation of several provisions of the covered agreements.  Article 3.2 of the DSU directs panels to clarify WTO provisions "in accordance with customary rules of interpretation of public international law".  Articles 31 and 32 of the Vienna Convention on the Law of Treaties ("Vienna Convention") have attained the status of rules of customary international law.  In recent years, the jurisprudence of the Appellate Body and WTO panels has become one of the richest sources from which to receive guidance on their application.  The principal provision of the Vienna Convention in this respect provides as follows:

"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".⁶³⁷

7.22  Text, context and object-and-purpose correspond to well established textual, systemic and teleological methodologies of treaty interpretation, all of which typically come into play when interpreting complex provisions in multilateral treaties. For pragmatic reasons the normal usage, and we will follow this usage, is to start the interpretation from the ordinary meaning of the "raw" text of the relevant treaty provisions and then seek to construe it in its context and in the light of the treaty's object and purpose. However, the elements referred to in Article 31 – text, context and object-and-purpose as well as good faith – are to be viewed as one holistic rule of interpretation rather than a sequence of separate tests to be applied in a hierarchical order. Context and object-and-purpose may often appear simply to confirm an interpretation seemingly derived from the "raw" text. In reality it is always some context, even if unstated, that determines which meaning is to be taken as "ordinary" and frequently it is impossible to give meaning, even "ordinary meaning", without looking also at object-and-purpose.⁶³⁸ As noted by the Appellate Body:  "Article 31 of the Vienna Convention provides that the words of the treaty form the foundation for the interpretive process:   'interpretation must be based  above all upon the text of the treaty'".  It adds, however, that "[t]he provisions of the treaty are to be given their ordinary meaning in their context.  The object and purpose of the treaty are also to be taken into account in determining the meaning of its provisions".⁶³⁹

5. General Description of the Operation of Sections 301-310

7.23  It is difficult to appreciate the claims and counterclaims of the parties without a general understanding of the operation of Sections 301-310.  Consequently, in Annex II we provide a brief overview as an aid to the readers of this Report.  This overview is of a non-binding nature and does not have the status of a factual finding by this Panel. It was prepared following consultations with the parties as part of the descriptive part of this Report.

6. The Measure in Question and the Panel's General Methodology

7.24  Our mandate in this case is to evaluate the conformity of Sections 301-310 with the relevant WTO provisions as outlined in the terms of reference.  When evaluating the conformity of national law with WTO obligations in accordance with Article XVI:4 of the WTO Agreement⁶⁴⁰ account must be taken of the wide-ranging diversity in the legal systems of the Members.  Conformity can be ensured in different ways in different legal systems.  It is the end result that counts, not the manner in which it is achieved.   Only by understanding and respecting the specificities of each Member's legal system, can a correct evaluation of conformity be established.

7.25  Sections 301-310 display some features, common in several jurisdictions, that are typical of much modern complex economic and regulatory legislation.  Frequently the Legislator itself does not seek to control, through statute, all covered conduct.  Instead it delegates to pre-existing or specially created administrative agencies or other public authorities, regulatory and supervisory tasks which are to be administered according to certain criteria and within discretionary limits set out by the Legislator.  The discretion can be wide or narrow according to the will of the Legislator.  Sections 301-310 are part of such a legislative scheme.

7.26  In evaluating the conformity of Sections 301-310 with the relevant WTO provisions we must, thus, be cognizant of this multi-layered character of the national law under consideration which includes statutory language as well as other institutional and administrative elements.⁶⁴¹ For convenience we will hereafter refer to Sections 301-310 comprising all of these elements as "the Measure in question".

7.27  The elements of this type of national law are, as is the case here, often inseparable and should not be read independently from each other when evaluating the overall conformity of the law with WTO obligations.  For example, even though the statutory language granting specific powers to a government agency may be prima facie consistent with WTO rules, the agency responsible, within the discretion given to it, may adopt internal criteria or administrative procedures inconsistent with WTO obligations which would, as a result, render the overall law in violation.⁶⁴² The opposite may be equally true: though the statutory language as such may be prima facie inconsistent, such inconsistency may be lawfully removed upon examination of other administrative or institutional elements of the same law.

7.28  Accordingly, in examining the relevant provisions of Sections 301-310 we first look at the statutory language itself, severed from all other elements of the law. We then look at the other elements of Sections 301-310 which, in our view, constitute an integral part of the Measure in question and make our final evaluation based on all elements taken together.