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C. The EC claim that section 304 is inconsistent with Article 23.2(a) of the DSU
1. Claims and Arguments of the Parties
7.29 The EC claims that Section 304 mandates the USTR to make a "unilateral" determination on whether another WTO Member has violated US rights under the WTO. The EC submits that this determination by the USTR has to be made within 18 months after the initiation of an investigation under Section 302, a date that normally coincides with the request for consultations under the DSU. According to the EC, DSU procedures can, however, be assumed to take 19 ½ months. The EC submits that, as a result of the 18 months deadline, the determination under Section 304 is required even if the DSB has not yet adopted a report with findings on the matter, contrary to Article 23.2(a) of the DSU.
7.30 The US responds that nothing in Section 304 compels the USTR to make a specific determination that US rights have been denied in the absence of panel or Appellate Body findings, adopted by the DSB. In its second submission, the US goes even further and submits that since Section 304 determinations have to be made on the basis of WTO dispute settlement proceedings pursuant to Section 304 (a)(1), a determination that US rights have been denied before the adoption of DSB findings is precluded. According to the US, Section 304 only requires the USTR to "determine whether" not to determine that US rights have been denied. In the US view, the USTR has the discretion to determine that no violation has occurred, that no violation has been confirmed by the DSB, that a violation will be confirmed on the date the DSB adopts panel or Appellate Body findings or that the ongoing investigation must terminate. The US also argues that the relevant period for DSU procedures to be completed from the request for consultations to the adoption of reports by the DSB is not 19 ½ months, as claimed by the EC, but 16 months and 20 days.
2. Preliminary Panel Findings in respect of the Statutory Language of Section 304
7.31 As regards the statutory language of Section 304, we consider it sufficient to make the following findings based upon examination of the text itself, the evidence and arguments submitted to us in this respect as well as interpretation, where applicable, of the relevant provisions of the WTO.
Section 304 (a) requires the USTR to determine whether US rights are being denied within 18 months. It does not require the USTR to determine that US rights are being denied at the 18 months deadline. The criteria referred to in Section 304 (a) on which the USTR has to base its determination "the investigation initiated under section 302 and the consultations (and the proceedings, if applicable) under section 303" allow the USTR to exercise wide discretion in all cases concerning the actual content of the determination he or she has to make.
As will be seen below, however, this discretion does not necessarily absolve Section 304 from a breach of the DSU.Fourth, as a matter of fact, we find that even though the USTR is not obligated, under any circumstance, to make a Section 304 determination of inconsistency prior to exhaustion of DSU proceedings, it is not precluded by the statutory language of Section 304 itself from making such a determination.649 We find that the broad discretion given to the USTR allows him or her to do exactly what the statutory language suggests: to determine whether US rights have been denied, i.e. to determine that they have not been denied but also to determine that they have been denied.650
7.32 In conclusion, the statutory language of Section 304 mandates the USTR in certain cases to make a unilateral determination on whether US rights have been denied even before the adoption by the DSB of its findings on the matter. However, the statutory language of Section 304 neither mandates the USTR to make a determination of inconsistency nor precludes him or her from making such a determination.
7.33 Critically, the statutory language of Section 304 reserves to the USTR when exercising his or her mandatory duty after 18 months, the right to make a unilateral determination of inconsistency even prior to exhaustion of DSU proceedings.
3. The Statutory Language of Section 304 and Member Obligations under Article 23 of the DSU
7.34 The statutory language of Section 304 reserves, then, to the USTR when exercising his or her mandatory duty after 18 months, the right to make a unilateral determination of inconsistency even prior to exhaustion of DSU proceedings. As noted, it does not impose on the USTR the duty to make such a determination. What is at issue, then, is whether given, on the one hand, the duty in some cases to make a unilateral determination prior to exhaustion of multilateral proceedings and, on the other hand, the full discretion as to the content of that determination Section 304 violates, in and of itself rather than with reference to any particular instance of its application, the obligations assumed by Members under Article 23.2(a) of the DSU. We must, thus, turn to the interpretation of Article 23 of the DSU.
(a) The dual nature of obligations under Article 23 of the DSU
7.35 Article 23 of the DSU deals, as its title indicates, with the "Strengthening of the Multilateral System". Its overall design is to prevent WTO Members from unilaterally resolving their disputes in respect of WTO rights and obligations. It does so by obligating Members to follow the multilateral rules and procedures of the DSU.
7.36 Article 23.1 provides as follows:
7.37 Article 23.2 specifies three elements that need to be respected as part of the multilateral DSU dispute settlement process. It provides as follows:
7.38 On this basis, we conclude as follows:
7.39 Article 23.2 clearly, thus, prohibits specific instances of unilateral conduct by WTO Members when they seek redress for WTO inconsistencies in any given dispute. This is, in our view, the first type of obligations covered under Article 23.
7.40 It is not, however, our task in these proceedings to assess the WTO conformity of specific determinations made under Section 304 in a given dispute but to determine, instead, whether Section 304 as such violates Article 23 of the DSU. This leads us to the second type of obligations covered under Article 23.
7.41 As a general proposition, GATT acquis, confirmed in Article XVI:4 of the WTO Agreement and recent WTO panel reports, make abundantly clear that legislation as such, independently from its application in specific cases, may breach GATT/WTO obligations:
The three types of measures explicitly made subject to the obligations imposed in the WTO agreements "laws, regulations and administrative procedures" are measures that are applicable generally; not measures taken necessarily in a specific case or dispute. Article XVI:4, though not expanding the material obligations under WTO agreements, expands the type of measures made subject to these obligations.652Recent WTO panel reports confirm, too, that legislation as such, independently from its application in a specific case, can be inconsistent with WTO rules.653
7.42 Legislation may thus breach WTO obligations. This must be true, too, in respect of Article 23 of the DSU. This is so, in our view, not only because of the above-mentioned case law and Article XVI:4, but also because of the very nature of obligations under Article 23.
7.43 Article 23.1 is not concerned only with specific instances of violation. It prescribes a general duty of a dual nature. First, it imposes on all Members to "have recourse to" the multilateral process set out in the DSU when they seek the redress of a WTO inconsistency. In these circumstances, Members have to have recourse to the DSU dispute settlement system to the exclusion of any other system, in particular a system of unilateral enforcement of WTO rights and obligations. This, what one could call "exclusive dispute resolution clause", is an important new element of Members' rights and obligations under the DSU. Second, Article 23.1 also prescribes that Members, when they have recourse to the dispute settlement system in the DSU, have to "abide by" the rules and procedures set out in the DSU. This second obligation under Article 23.1 is of a confirmatory nature: when having recourse to the DSU Members must abide by all DSU rules and procedures.
7.44 Turning to the second paragraph under Article 23, Article 23.2 which, on its face, addresses conduct in specific disputes starts with the words "[i]n such cases". It is, thus, explicitly linked to, and has to be read together with and subject to, Article 23.1.
7.45 Indeed, two of the three prohibitions mentioned in Article 23.2 Article 23.2(b) and (c) are but egregious examples of conduct that contradicts the rules and procedures of the DSU which, under the obligation in Article 23.1 to "abide by the rules and procedures" of the DSU, Members are obligated to follow.654 These rules and procedures clearly cover much more than the ones specifically mentioned in Article 23.2.655 There is a great deal more State conduct which can violate the general obligation in Article 23.1 to have recourse to, and abide by, the rules and procedures of the DSU than the instances especially singled out in Article 23.2.656
7.46 Article 23 interdicts, thus, more than action in specific disputes, it also provides discipline for the general process WTO Members must follow when seeking redress of WTO inconsistencies. A violation of the explicit provisions of Article 23 can, therefore, be of two different kinds. It can be caused
(b) Legislation which violates Article 23 of the DSU
7.47 What kind of legislation would constitute a violation of Article 23?
7.48 Surely, to give an extreme example, legislation mandating the making of a determination of inconsistency as soon as a WTO panel has issued its report without awaiting the result of a possible appeal and the adoption of DSB recommendations would violate Article 23.2(a).
7.49 How, then, should we evaluate Section 304 the statutory language of which mandates in some cases the making of a determination prior to exhaustion of DSU proceedings and which reserves to the USTR the right when exercising this mandatory duty to make a unilateral determination of inconsistency?
7.50 We first find that if the USTR were to exercise, in a specific dispute, the right thus reserved for him or her in the statutory language of Section 304 and make a determination of inconsistency, the US conduct would meet the different elements required for an individual breach under Article 23.2(a).657 However, Section 304 does not mandate the USTR to make a determination of inconsistency in violation of Article 23 in each and every specific dispute; it merely sets out in the statutory language itself that the USTR has the power and right to do so. The question here is whether this constitutes a breach of the second type of obligations under Article 23, namely a breach by measures of general applicability such as a general law.
7.51 The parties focused much of their arguments on the kind of legislation which could be found to be inconsistent with WTO obligations. The US submitted forcefully that only legislation mandating a WTO inconsistency or precluding WTO consistency, can, as such, violate WTO provisions. This was at the very heart of the US defence. On this US reading it followed that since Section 304 never mandates a specific determination of inconsistency prior to exhaustion of DSU proceeding nor, in the US view, precludes the US from acting consistently with its WTO obligations in all circumstances, the legislation, in and of itself could not be in violation of Article 23.2(a) of the DSU.
7.52 The EC submitted with equal force that also certain types of legislation under which a WTO inconsistent conduct is not mandated but is allowed, could violate WTO obligations. The EC considered that Section 304 is of such a nature.
7.53 Despite the centrality of this issue in the submissions of both parties, we believe that resolving the dispute as to which type of legislation, in abstract, is capable of violating WTO obligations is not germane to the resolution of the type of claims before us. In our view the appropriate method in cases such as this is to examine with care the nature of the WTO obligation at issue and to evaluate the Measure in question in the light of such examination. The question is then whether, on the correct interpretation of the specific WTO obligation at issue, only mandatory or also discretionary national laws are prohibited. We do not accept the legal logic that there has to be one fast and hard rule covering all domestic legislation. After all, is it so implausible that the framers of the WTO Agreement, in their wisdom, would have crafted some obligations which would render illegal even discretionary legislation and crafted other obligations prohibiting only mandatory legislation?658 Whether or not Section 304 violates Article 23 depends, thus, first and foremost on the precise obligations contained in Article 23.
7.54 We can express this view in a different way:
we would still disagree with the US that the combination of (a) and (b) necessarily renders Section 304 compatible with Article 23, since Article 23 may prohibit legislation with certain discretionary elements and therefore the very fact of having in the legislation such discretion could, in effect, preclude WTO consistency. In other words, rejecting, as we have, the presumption implicit in the US argument that no WTO provision ever prohibits discretionary legislation does not imply a reversal of the classical test in the pre-existing jurisprudence that only legislation mandating a WTO inconsistency or precluding WTO consistency, could, as such, violate WTO provisions.659 Indeed that is the very test we shall apply in our analysis. It simply does not follow from this test, as sometimes has been argued, that legislation with discretion could never violate the WTO. If, for example, it is found that the specific obligations in Article 23 prohibit a certain type of legislative discretion, the existence of such discretion in the statutory language of Section 304 would presumptively preclude WTO consistency.
7.55 What, then, does such an examination of Article 23 yield?
7.56 We have already found that under the statutory provisions of Section 304 each time the USTR exercises the mandatory duty to make a determination, the statutory language gives him or her discretion and reserves to him or her the right to make a determination of inconsistency even in cases where DSU proceedings have not been exhausted.
7.57 In our view, the ordinary meaning of the provisions of Article 23, even when read in abstract, supports the position that this aspect of Section 304 constitutes a prima facie violation of DSU rules and procedures. This interpretation of Article 23 is amply confirmed when we consider, as is our duty under the Vienna Convention, the good faith provision in the general rule of interpretation in Article 31 of that Convention, and when we evaluate the terms of Article 23 not in abstract, but in their context and in the light of the DSU's and the WTO's object and purpose.
TO CONTINUE WITH UNITED STATES SECTIONS 301-310 OF THE TRADE ACT OF 1974
643 For purposes of this dispute, we assume that the 18 months time-limit is the earlier of the two time-limits mentioned in Section 304, i.e. falls before the lapse of "30 days after the date on which the dispute settlement procedure is concluded".
644 The US agrees that it cannot postpone the making of this determination. In respect of Japan Measures Affecting Agricultural Products ("Japan Agricultural Products"), adopted 19 March 1999, WT/DS76/AB/R and India Patents (US), for example, the US answering Panel Question 24 a) (as reflected in para. 4.586 of this Report) stated that "the United States did not make formal Section 304 determinations by the 18-month anniversary, but should have" (emphasis added).
645 Article 4.7 of the DSU, for example, provides for a minimum period of 60 days for consultations, unless there is agreement to the contrary or urgency in accordance with Article 4.8.
646 Article 12.8 refers to six months "as a general rule" for the timeframe between panel composition and issuance of the final report to the parties. Article 12.9 provides that "[i]n no case should the period from the establishment of the panel to the circulation of the report to the Members exceed nine months" (emphasis added). Article 17.5 states that "[a]s a general rule, the proceedings [of the Appellate Body] shall not exceed 60 days". It adds, however, that "[i]n no case shall the proceedings exceed 90 days". However, even this seemingly compulsory deadline has been passed in three cases so far (United States Restrictions on Imports of Cotton and Man-Made Fibre Underwear, WT/DS24/AB/R, 91 days; European Communities Measures Concerning Meat and Meat Products (Hormones) ("EC Hormones"), WT/DS26/AB/R and DS48/AB/R, 114 days; and US Shrimp, op. cit., 91 days). Finally, Article 20 refers to 9 months 12 months in case of an appeal "as a general rule" for the period between panel establishment and adoption of report(s) by the DSB.
647 When we refer hereafter to the exhaustion of DSU proceedings, we mean the date of adoption by the DSB of panel and, as the case may be, Appellate Body reports on the matter.
648 In 17 cases out of the 26 cases which so far led to DSB recommendations, more than 18 months lapsed between the request for consultations and the adoption of reports. Eleven of these 17 cases were brought by the US either as the sole complainant or a co-complainant: European Communities Regime for the Importation, Sale and Distribution of Bananas ("EC - Bananas III", WT/DS27), EC Hormones (op. cit.), Japan Measures Affecting Consumer Photographic Film and Paper (WT/DS44), India Patents (US) (op. cit.), European Communities/United Kingdom/Ireland Customs Classification of Certain Computer Equipment (WT/DS62, 67 and 68), Indonesia Certain Measures Affecting the Automobile Industry (WT/DS54, 55, 59 and 64), Japan Agricultural Products (op. cit.), Korea Taxes on Alcoholic Beverages (WT/DS75 and 84), Australia Subsidies Provided to Producers and Exporters of Automobile Leather (WT/DS106), India Quantitative Restrictions on Imports of Agricultural, Textile and Industrial Products (WT/DS90) and Canada Measures Affecting the Importation of Milk and the Exportation of Dairy Products (WT/DS103, US complaint and WT/DS113, complaint by New Zealand). The six other cases were: US Shrimp (op. cit.), Australia Measures Affecting the Importation of Salmon (WT/DS18), Guatemala Anti-Dumping Investigation Regarding Portland Cement from Mexico (WT/DS60), US Anti-Dumping Duty on Dynamic Random Access Memory Semiconductors (DRAMS) of one Megabit or above from Korea (WT/DS99), Brazil- Export Financing Programme for Aircraft (WT/DS46) and Canada- Measures Affecting the Export of Civilian Aircraft ("Canada Aircraft", WT/DS70).
649 The US argued in its second submission that the USTR is precluded from making such a determination of inconsistency. To the extent this US argument is based on the statutory language of Section 304 alone, we reject the argument for the reasons given in this Report.
650 Section 304 (a) refers to WTO "proceedings, if applicable" as a basis of the determination to be made. This statutory language is not sufficiently precise to construe it as curtailing the USTR's discretion to make a determination of inconsistency before the adoption of findings by the DSB. The reference to "proceedings" as a basis for the determination allows WTO proceedings to be taken into account but does not, in our view, preclude a determination of inconsistency before the final outcome of WTO proceedings, i.e. before the adoption of DSB recommendations. We note that whereas the first time-limit under Section 304 (a)(2) explicitly refers to the conclusion of dispute settlement procedures ("30 days after the date on which the dispute settlement procedure is concluded"), the second time-limit does not refer to any proceedings, let alone to the completion of WTO proceedings ("18 months after the date on which the investigation is initiated"). Section 304 (a)(2) mandates the making of a determination "the earlier of" these two time-limits. We note, finally, that the US itself had first argued that Section 304 does not "compel" the making of a determination of inconsistency which seems to imply that although not compelled, the USTR is permitted to make such a determination. Only in its second submission did the US argue that the USTR is actually "precluded" from making such determination.
651 See, for example, Panel Reports on United States Taxes on Petroleum and Certain Imported Substances ("US Superfund"), adopted 17 June 1987, BISD 34S/136, para. 5.2.2 (where the legislation imposing the tax discrimination only had to be applied by the tax authorities at the end of the year after the panel examined the matter) and United States Measures Affecting Alcoholic and Malt Beverages ("US Malt Beverages"), adopted 19 June 1992, BISD 39S/206, paras. 5.39, 5.57, 5.60 and 5.66 (where the legislation imposing the discrimination was, for example, not being enforced by the authorities). See also Panel Reports on EEC Regulation on Imports of Parts and Components ("EEC Parts and Components"), adopted 16 May 1990, BISD 37S/132, paras. 5.25-5.26, Thailand Restrictions on Importation of and Internal Taxes on Cigarettes ("Thai Cigarettes"), adopted 7 November 1990, BISD 37S/200, para. 84 and United States Measures Affecting the Importation, Internal Sale and Use of Tobacco ("US Tobacco"), adopted 4 October 1994, BISD 41S/131, para. 118.
652 Article XVI:4 goes a step further than Article 27 of the Vienna Convention. Article 27 of the Vienna Convention provides that "[a] party may not invoke the provisions of its internal law as justification for its failure to perform a treaty". Article XVI:4, in contrast, not only precludes pleading conflicting internal law as a justification for WTO inconsistencies, but requires WTO Members actually to ensure the conformity of internal law with its WTO obligations.
653 Panel Reports on Argentina Measures Affecting Imports of Footwear, Textiles, Apparel and Other Items ("Argentina Textiles and Apparel (US)"), WT/DS56/R (complaint by US), adopted 22 April 1998, paras. 6.45-47 (see also Appellate Body Report, WT/DS56/AB/R, paras. 48-55); Canada Aircraft, op. cit., paras. 9.124 and 9.208, Turkey Restrictions on Imports of Textile and Clothing Products, WT/DS34/R, circulated to Members on 31 May 1999 (appealed on other grounds), para. 9.37.
654 Article 23.2(a), in contrast, prohibiting Members from making certain determinations, is not covered elsewhere in the DSU.
655 One could refer, for example, to the requirement to request consultations pursuant to Article 4 of the DSU before requesting a panel under Article 6.
656 Not notifying mutually agreed solutions to the DSB as required in Article 3.6 of the DSU or not abiding by the requirements for a request for consultations or a panel as elaborated in Articles 4 and 6 are some other examples of conduct that would be contrary to DSU rules and procedures but is not mentioned specifically in Article 23.2.
657 We consider that if the USTR were to exercise, in a specific dispute, the right reserved to him or her under the statutory language of Section 304 to make a determination of inconsistency before exhaustion of DSU procedures, the US conduct would meet the different elements required for a breach of Article 23.2(a) in a specific instance. This conclusion is of crucial importance since it shows that the statutory language of Section 304 reserves the right to the USTR to breach at least the first type of obligations in Article 23.2(a) in a specific instance. Four elements must be satisfied for a specific act in a particular dispute to breach Article 23.2(a):
Applying these four elements to the specific determination allowed under the statutory language of Section 304, namely a determination of inconsistency before exhaustion of DSU procedures we note, first, the parties' agreement that all Section 304 determinations are made in cases where the US is seeking the redress of WTO inconsistencies, in the sense of the first element outlined above. We agree. Obviously, when pursuing a matter of US rights under the WTO through Section 302 investigations, WTO consultations and procedures, and making a decision on whether US rights under the WTO are being denied under Section 304, the US is seeking redress of what it considers to be WTO inconsistencies.
Both parties also agree that determinations under Section 304 meet the second of the four elements, a determination in the sense of Article 23.2(a). We agree. Some of the relevant dictionary meanings of the word "determination" in the context of Article 23.2(a) are: "the settlement of a suit or controversy by the authoritative decision of a judge or arbiter; a settlement or decision so made, an authoritative opinion the action of coming to a decision; the result of this; a fixed intention" (The New Shorter Oxford English Dictionary, Ed. Brown, L., Clarendon Press, Oxford, Vol. 1, p. 651). Without there being a need precisely to define what a "determination" in the sense of Article 23.2(a) is, we consider that given its ordinary meaning a "determination" implies a high degree of firmness or immutability, i.e. a more or less final decision by a Member in respect of the WTO consistency of a measure taken by another Member.
Given that Article 23.2(a) only deals with "determinations" in case a Member is seeking redress of WTO inconsistencies, we are of the view that a "determination" can only occur subsequent to a Member having decided that, in its preliminary view, there may be a WTO inconsistency, i.e. only once that Member has decided to seek redress of such inconsistency. Mere opinions or views expressed before that stage is reached, are not intended to be covered by Article 23.2(a). However, once a Member does bring a case under the DSU, in particular once it requests the establishment of a panel, one can assume that this preliminary stage has been passed and the threshold of a "determination" met. Such reading of the term "determination" is confirmed by the exception provided for "determinations" made "through recourse to dispute settlement in accordance with" the DSU, an exception that explicitly allows for the "determination" implicit in pursuing a case before a panel. In any event, what is decisive under Article 23.2(a) is not so much whether an act constitutes a "determination" in our view, a more or less formal requirement that needs broad reading -- but whether it is consistent with DSU rules and procedures, the fourth element discussed below.
On that basis, we find that USTR determinations under Section 304 made subsequent to internal investigations, WTO consultations and proceedings, if applicable; and, in the case of determinations of inconsistency, automatically and as a conditio since qua non leading to a decision on action under Section 301 meet the threshold of firmness and immutability required for a "determination" under Article 23.2(a).
The third element under Article 23.2(a) as applied to the specific determination under examination is also satisfied. We recall that this determination would be one finding that US rights under the WTO have been denied, i.e. 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", thus meeting the third element under Article 23.2(a).
The fourth element under Article 23.2(a) is likewise satisfied. We recall that the specific determination under examination here would be one made before DSB findings on the matter have been adopted. It would thus not be made "through recourse to dispute settlement in accordance with the rules and procedures of [the DSU]" nor made "consistent with the findings contained in the panel or Appellate Body report adopted by the DSB". Indeed, such determination made before exhaustion of DSU procedures, would not be required, referred to or relevant for any of the steps or procedures in the DSU. On the contrary, it would be a determination that, at face value, prejudices and could even contradict the outcome of DSU procedures. Moreover, any such determination could not be consistent with DSB findings, since no such findings would, as yet, be adopted.
In conclusion, if the USTR were to exercise, in a specific dispute, the right reserved for it in Section 304 to make a determination of inconsistency before exhaustion of DSU procedures, the US conduct would meet all four elements required for a breach of Article 23.2(a).
658 Imagine, for example, legislation providing that all imports, including those from WTO Members, would be subjected to a customs inspection and that the administration would enjoy the right, at its discretion, to impose on all such goods tariffs in excess of those allowed under the schedule of tariff concessions of the Member concerned. Would the fact that under such legislation the national administration would not be mandated to impose tariffs in excess of the WTO obligation, in and of itself exonerate the legislation in question? Would such a conclusion not depend on a careful examination of the obligations contained in specific WTO provisions, say, Article II of GATT and specific schedule of concessions?
See paras. 4.173
ff. and 7.51 of