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Report of the Appellate Body
WORLD TRADE ORGANIZATION
I. Introduction: Factual
Background and Statement of the Appeal
This is an appeal by Costa Rica
from certain issues of law and legal interpretations set out in
the Panel Report, United States - Restrictions on Imports of
Cotton and Man-made Fibre Underwear1 (the "Panel
Report"). That Panel (the "Panel") had been established
to consider a complaint by Costa Rica relating to a transitional
safeguard measure imposed by the United States on imports of cotton
and man-made fibre underwear from Costa Rica under Article 6 of
the Agreement on Textiles and Clothing ("ATC").2
The factual background essential
to understanding this appeal, may be sketched quickly.
On 27 March 1995, the United
States requested consultations with Costa Rica on trade in cotton
and man-made underwear under Article 6.7 of the ATC. At
the same time, the United States provided Costa Rica with a "Statement
of Serious Damage", dated March 1995 (the "March Statement"),
on the basis of which the United States proposed the introduction
of a restraint on imports of underwear from Costa Rica. Notice
of the request for consultations, the proposed restraint and the
proposed restraint level was published in the United States Federal
Register on 21 April 1995. The consultations were held but the
United States and Costa Rica failed to negotiate a mutually acceptable
settlement during these consultations. The United States then
invoked Article 6.10 of the ATC, and introduced a transitional
safeguard measure in respect of cotton and man-made fibre underwear
imports from Costa Rica on 23 June 1995. The measure was, by
its terms, to be valid for a period of 12 months, effective as
of 27 March 1995 (i.e., the date of the request for consultations).
At the same time, the United
States referred the matter to the Textiles Monitoring Body (the
"TMB"). The TMB found that the United States had failed
to demonstrate serious damage to the United States domestic industry.
However, the TMB did not reach a consensus on the existence of
an actual threat of serious damage. The TMB similarly failed
to make any findings on the effective date of application of the
United States restraint. Accordingly, the TMB recommended that
the United States and Costa Rica hold further consultations with
a view to resolving the matter. In the absence of any settlement,
the parties reverted to the TMB, which confirmed its earlier findings
and considered its review of the matter completed. Although further
consultations took place between the United States and Costa Rica
in November 1995, no agreement was reached. In December 1995,
therefore, Costa Rica invoked the dispute settlement provisions
of the Understanding on Rules and Procedures Governing the
Settlement of Disputes (the "DSU").
A panel was established to examine
this matter on 5 March 1996. On 27 March 1996, the United States
renewed the transitional safeguard measure for a second period
of 12 months. In due time, after the full course of written submissions
and hearings and the Interim Review, the Panel rendered its Report.
The Panel Report was circulated
to Members of the World Trade Organization (the "WTO")
on 8 November 1996. It contains the following conclusions:
(ii) the United States violated
its obligations under Article 6.6(d) of the ATC by not
granting the more favourable treatment to Costa Rican re-imports
contemplated by that sub-paragraph;4
(iii) the United States violated
its obligations under Article 2.4 of the ATC by imposing
a restriction in a manner inconsistent with its obligations under
Article 6 of the ATC;5 and
(iv) the United States
violated its obligations under Article X:2 of the General Agreement
on Tariffs and Trade 1994 (the "General Agreement")
and Article 6.10 of the ATC by setting the start of
the restraint period on the date of the request for consultations,
rather than the subsequent date of publication of information
about the restraint.6
The Panel recommended that the
Dispute Settlement Body request the United States to bring the
measure challenged by Costa Rica into compliance with the United
States' obligations under the ATC. The Panel stated that
such compliance can best be achieved, and further nullification
and impairment of benefits accruing to Costa Rica under the
ATC best avoided, by "prompt removal of the measure
inconsistent with the obligations of the United States".
The Panel further suggested that the United States bring the
measure challenged by Costa Rica into compliance with United States'
obligations under the ATC by "immediately withdrawing
the restriction imposed by the measure".7
On 11 November 1996, Costa Rica
notified the Dispute Settlement Body8 of the WTO of its decision
to appeal certain issues of law covered in the Panel Report and
legal interpretations developed by the Panel, pursuant to paragraph
4 of Article 16 of the DSU. On the same day, Costa Rica
filed a Notice of Appeal with the Appellate Body, pursuant to
Rule 20 of the Working Procedures for Appellate Review
(the "Working Procedures").9 Costa Rica
filed its appellant's submission on 21 November 1996.10 On
6 December 1996, the United States filed an appellee's submission.11
That same day, India submitted a third participant's submission.12
No other submissions by either the United States or Costa
Rica, whether qua appellant or qua appellee, were
made. The complete record of the Panel proceedings was duly transmitted
to the Appellate Body.13
The oral hearing contemplated
by Rule 27 of the Working Procedures was held on 16 December
1996. At the hearing, oral arguments were made respectively by
the participants and the third participant. Questions were put
to them by the Division. All of these questions were answered
orally. The participants and third participant did not take advantage
of an invitation by the Division to submit posthearing memoranda.
On 18 December 1996, the United States submitted a written clarification
and amplification of its oral response to one of the Division's
questions. The next day, Costa Rica responded in writing to the
United States' clarification.
II. The Basic Contentions
of the Participants and the Third Participant
1. The Claims of Error by Appellant
Costa Rica appeals only from
the Panel's conclusions relating to the permissible effective
date of application of the United States' transitional safeguard
It is claimed by Costa Rica
that the Panel erred in finding that the United States' restraint
measure could have legal effect between the date of publication
of the notice of consultations (between the United States and
several countries, including Costa Rica) in the Federal Register
(i.e., 21 April 1995) and the date of the application of that
measure (i.e. 23 June 1995). The restriction was "introduced"
on 23 June 1995 for a period of 12 months starting on 27 March
1995, i.e., starting on the day the United States requested the
several Members concerned for consultations under Article 6.7
of the ATC. Invoking Article 2.4 of the ATC, Costa
Rica argues that new restrictions may be imposed in the textiles
sector only under either (i) the ATC or (ii) the "relevant"
provisions of the General Agreement. More specifically,
a transitional safeguard measure may be imposed only if it meets
the requirements of (i) Articles XI14 and XIII of the General
Agreement, or of (ii) Article 6 of the ATC. Since,
Costa Rica argues, Article XIII:3(b) of the General Agreement
generally prohibits the backdating of import quotas, a backdated
transitional safeguard measure restricting imports would be permissible
only if it is expressly authorized by Article 6 of the ATC,
and this, Article 6 does not. Costa Rica accordingly concludes
that such a safeguard measure cannot impose a backdated quota.
(a) Concerning Article XIII
of the General Agreement
Costa Rica contends that Article
XIII:3(b) of the General Agreement sets out a general prohibition
against the retroactive application of import quotas and allows
backdating of such quotas only in the circumstances expressly
provided for, i.e., in respect of goods en route to the
importing country at the time public notice of the restraint is
given. To Costa Rica, the reasoning of the panel in the 1989
Chilean Apples case15 applies as well in the present
case, because there, as here, the import quota became effective
before the publication of the restraint. Article XIII:3(b) requires
"public notice of the total quantity --- of the product or
products which will be permitted to be imported during a specific
future period". It is urged by Costa Rica that the notice
published in the Federal Register on 21 April 1995 does not satisfy
the requirements of Article XIII:3(b), since the publication of
a contingent notice, which provides merely for the possibility
of a restraint rather than the actual establishment or adoption
of a safeguard measure, fails to bring about the legal certainty
and predictability sought by Article XIII:3(b). The Panel erred,
Costa Rica concludes, in finding in effect that the United States'
backdated restraint substantially complies with the requisites
of Article XIII:3(b).
(b) Concerning Article X
of the General Agreement
It is further in effect claimed
by Costa Rica that even the limited backdating of the United States'
restraint measure approved as permissible by the Panel, i.e,.
to 21 April 1995 (the date when the request for consultations
was published in the Federal Register) rather than to 27 March
1995, (the date when consultations were in fact requested and
initiated), cannot be justified by Article X of the General
Agreement. In Costa Rica's view, any backdating that could
result from application of Article X would be precluded by the
"conflict clause" of the General Interpretative Note
to Annex IA of the Marrakesh Agreement Establishing the
World Trade Organization (the "WTO Agreement"):16
the provisions of Article 6 of the ATC which do not
provide for backdating must prevail over Article X of the General
Agreement. A procedural argument is also made by Costa Rica in
noting that the parties to the present dispute had not raised
the application of Article X before the Panel. Costa Rica thus
concludes that the Panel had erred in applying Article X of the
(c) Concerning Article 6
of the ATC
Costa Rica states that Article
6 of the ATC is "silent" on the question of backdated
transitional safeguard measures, and that certain considerations
concerning Article 6 prevent an interpretation of the provisions
thereof which would permit any backdating. To permit, Costa Rica
argues firstly, WTO Members to impose restraints within the 30-day
post-consultation "window" which become effective at
some point outside (whether before or after) that 30-day period,
could lead to circumvention of an important requirement or objective
of Article 6.10 of the ATC: that an importing country
must take a definitive or final decision during the 30-day period
on whether or not to impose a proposed restraint at all.
Next, Costa Rica underscores
the absence in Article 6.10 of the ATC of a clause equivalent
to that found in Article 3:5(i) of the Arrangement Regarding
International Trade in Textiles which became effective on
1 January 1974 and which is widely known as the Multifibre
Arrangement (the "MFA"). Article 3:5(i)
of the MFA expressly permitted the importing country imposing
a restraint measure to backdate the effectivity of such measure
"beginning on the day when the request [for consultations]
was received by the participating exporting country or countries",
where no agreement is reached after a period of 60 days from receipt
of the request for consultations. It is urged by Costa Rica that
the absence of equivalent wording in Article 6.10 of the ATC
was deliberate and should not be remedied by the expansive interpretation
of Article 6.10 adopted by the Panel. Along the same vein, Costa
Rica notes the absence in Article 6.10 of the ATC of wording
similar or comparable to the provisions expressly allowing retroactive
application of provisional restraint measures under Article 10
of the Agreement on Implementation of Article VI of the GATT
1994 (the "Anti-Dumping Agreement") and under
Article 20 of the Agreement on Subsidies and Countervailing
Measures (the "SCM Agreement"). According
to Costa Rica, had the drafters of the ATC wanted to provide
for retroactive safeguard restraints, they would have done so
Costa Rica also rejects the
Panel's statements concerning the possibility of speculative trade
being caused by the request of the importing country for consultations
required in Article 6.7 of the ATC. Since no evidence
had been presented to the Panel on the matter, appellant Costa
Rica denies that the Panel made a factual finding establishing
the general prevalence of speculative trade. While acknowledging
that a speculative "flood of imports" could arise in
unusual and critical circumstances, appellant denies that such
speculative trade could or had arisen in the present case and
contends that, in any event, the appropriate remedy for such speculation
is to be found in Article 6.11 of the ATC, not in Article
Finally, Costa Rica contends,
the "highly exceptional nature" of an Article 6 transitional
safeguard mechanism should be taken into account in interpreting
that Article of the ATC. No other WTO provision allows
the imposition of "selective" (i.e. discriminatory,
country-specific), Member-by-Member, restrictive measures against
fair trade upon the ground that such trade is causing or threatens
to cause serious damage to the importing Member's domestic industry.
Accordingly, Costa Rica notes, Article 6.1 of the ATC
directs that a transitional safeguard should be applied "as
sparingly as possible". In the appellant's view, the Panel
had failed to consider the exceptional nature of the ATC
transitional safeguard mechanism.
2. The Arguments of Appellee
The Appellee contends that the
Panel correctly found that the United States would have acted
consistently with Article 6.10 of the ATC in applying a
transitional safeguard measure against Costa Rican underwear on
21 April 1995, the date of publication in the Federal Register
of the request for consultations. A basic contention of the United
States is that no provisions of the ATC or of the General
Agreement prohibits the setting as the "initial date"
of a transitional safeguard measure (i.e. the date from which
imports may be "counted" against the quota imposed),
of the date of the public notice announcing the request for consultations.
The second principal argument of the Appellee is that the Panel
correctly distinguished Chilean Apples by stressing that
the 21 April 1995 notice was published before the measure was
imposed on 23 June 1995.
(a) Concerning Article 6.10
of the ATC
The United States claims that
the text of Article 6.10 of the ATC is "silent"
on the initial date of a transitional safeguard measure and that,
accordingly, the ordinary meaning of Article 6.10 does not prevent
a Member from setting the date of the public notice announcing
the request for consultations as the "initial date"
of a safeguard measure. In its view, the term "apply"
contained in Article 6.10 refers to the date on which goods counted
under the restraint may be "embargoed", and does not
bear upon the "initial date" of the restraint.
The United States argues that,
in the absence of guidance from the language of Article 6.10 of
the ATC, the Panel had appropriate recourse to the provisions
of Articles X:2 of the General Agreement. That recourse
is sustained by the principle of effectiveness in treaty interpretation,
in view of the "important factual finding" of the Panel
that "there would be a flood of imports" after publication
of the request for consultations if a transitional safeguard measure
could become effective only as of its date of application. In
the view of the Appellee, the Panel's interpretation renders Article
6.10 of the ATC an "_effective ¢
component of the transitional safeguard mechanism of Article 6
of the ATC", in line with the requirement of Article
6.1 that transitional safeguard measures should be applied "consistently
--- with the effective implementation of the integration process"
under the ATC. The United States further suggests that
Article 6.11 of the ATC pointed to by Costa Rica is an
"extraordinary remedy" not intended to address the "flood
of imports" that typically follows publication of the request
for consultations. To the United States, the Appellant's effort
to dispute the "factual finding" of the Panel falls
outside the proper scope of this appeal, in view of the provisions
of Article 17.6 of the DSU.
Clearly regarding them as part
of the context of Article 6.10, the United States refers to Articles 6.2,
6.3 and 6.4 of the ATC the requisites of which must be
complied with by an importing country making the determination
of serious damage on the basis of which consultations with particular
exporting countries are requested under Article 6.7. The United
States contends that, considering the "rigorous analysis"
to which such a determination is subjected, for purposes of WTO
dispute settlement, that determination is "in the nature
of a final determination". Therefore, the United States
submits, it is "appropriate" for a Member making such
a "final determination" to be able to count imports
as within a restraint from the date of public announcement of
that determination of serious damage.
Upon the other hand, the Appellee
dismisses Appellant's suggestion that the Anti-Dumping Agreement
and the SCM Agreement form part of the context of Article
6.10 of the ATC, upon the ground that those two Agreements
are different from the ATC. The Appellee also rejects
the inference which the Appellant would draw from the absence
in Article 6.10 of the ATC of language equivalent to the
express permission for backdating a restraint measure under Article
3.5(i) of the MFA. The United States states that there
was no debate on this point during the negotiations of the ATC.
(b) Concerning Article XIII:3(b)
of the General Agreement
The United States, turning to
Costa Rica's arguments relating to Article XIII:3(b), supports
the Panel's decision to distinguish Chilean Apples17
on its facts. It also traverses Costa Rica's claim that Article
XIII:3(b) was infringed because the United States gave public
notice merely of the initiation of a procedure which could possibly
lead to the imposition of a restraint measure, rather than of
the imposition of the restraint measure itself. The principal
contention of the Appellee here is that the wording of Article
XIII:3(b) recognizes the possibility that the quota announced
in the original public notice may change, and does not prohibit
notice of future quotas that may be subject to a contingency,
such as the contingency that consultations may not be successful
and the proposed restraint may in fact be adopted.
3. The Arguments of the Third Participant India
The Third Participant endorses
all of the arguments submitted by Costa Rica, providing additional
statements on a number of particular points. For example, India
argues that a plain reading of Article 6.10 of the ATC
precludes the imposition of transitional safeguard measures either
before or after the 30-day post-consultation period. According
to India, the absence of a provision permitting retroactive transitional
safeguard measures, of the sort envisaged by Article 3:5(i) of
the MFA, is deliberate. In addition, the argument is submitted
that Article XIII of the General Agreement and Article
6.10 of the ATC should be interpreted consistently with
each other, such that Members should not be allowed to announce
the possibility of trade action ex ante and actually apply
any resultant measure ex post. The Third Participant also
recalls the right of WTO Members to apply provisional safeguard
measures under Article 6.11 of the ATC, noting that the
United States chose not to invoke that provision in the present
case. Finally, India emphasizes the exceptional nature of the
ATC transitional safeguard mechanism recognized in Article
6.1 of the ATC itself, noting that Article 6 of the
ATC allows Members to impose quantitative restrictions
in a manner inconsistent with Article XI of the General Agreement
and on a selective, "Member-by-Member" basis.
III. The Issues Raised in
We must note at the outset the
narrowness of the present appeal. Costa Rica appeals from only
one finding of the Panel: the finding allowing the backdating
of the transitional safeguard measure here involved to the date
of publication in the Federal Register of the request for consultations
with, inter alia, Costa Rica. At the same time, Costa
Rica questions certain legal interpretations adopted by the Panel
in the course of reaching that finding.
The United States has not appealed
from any of the findings of the Panel, either by filing an Appellant's
submission under Rule 23(1) of the Working Procedures or
by bringing a separate appeal under Rule 23(4) of the same Procedures.
In its submissions, written and oral, as Appellee, the United
States endorses the Panel's finding from which Costa Rica appeals,
as well as the legal interpretations adopted by the Panel in the
process of making that finding. Thus, Costa Rica is the only
Appellant in AB-1996-3.
On the basis of the written
submissions and oral statements made by the participants and the
third participant, this appeal may be said to raise the following
2. Whether or not Article XIII:3(b),
General Agreement, is applicable to a transitional safeguard
measure taken under Article 6, ATC; and
3. Whether or not Article X:2,
General Agreement, is applicable to a transitional safeguard
measure taken under Article 6, ATC.
IV. The Issue of Backdating
the Effectivity of a Transitional Safeguard Measure taken under
Article 6.10 of the ATC
The Agreement on Textiles
and Clothing, one of the Multilateral Trade Agreements in
Annex 1A of the WTO Agreement, sets out provisions
to be applied by WTO Members during a 10-year transition period
leading to the integration of the textiles and clothing sector
into the regime of the General Agreement. The Members
have recognized that, during this transition period, it may become
necessary "to apply a specific transitional safeguard mechanism"
to textile and clothing products not yet integrated into the General
Agreement. A transitional safeguard mechanism is in essence
a measure establishing, for a certain period of time, a quantitative
restraint on the importation of specified categories of goods
from an identified Member or Members. Many legal and operating
aspects of this mechanism are defined and regulated in varying
degrees of detail by Article 6 of the ATC.
In its Report, the Panel formulated
the particular issue we are here addressing in the following manner:
Apparently taking its assumed
premise literally - i.e. that Article 6.10 "is silent
about the initial date from which the restraint period should
be conducted ..." and describing the issue as "a technical
question regarding the opening date of a quota period",19
the Panel went outside the four corners of the ATC. Proceeding
to the provisions of the General Agreement, the Panel then
took Article X:2 thereof as its applicable and controlling text.
The Panel held that the United States' safeguard restraint measure
was "a measure of general application" within the meaning
of Article X:2,20 and concluded;
While we agree with the Panel,
as pointed out below,22 that the United States' restraint
measure here involved is appropriately regarded as "a measure
of general application" for purposes of Article X:2
of the General Agreement, we are unable to share and affirm
the above conclusion of the Panel.
We must focus upon Article 6.10
of the ATC which needs to be quoted in full:
10. If, however, after the expiry of the period of 60 days from the date on which the r
The first thing which must be
noted about Article 6.10 of the ATC is that its terms make
no express reference to backdating the effectivity of a safeguard
restraint measure to some date prior to the promulgation or imposition
of such measure. To this extent, we agree with the Panel that
Article 6.10 ATC is silent on the question of backdating
a safeguard restraint measure. We do not, however, believe
that Article 6.10 does not substantively address that issue.
To the contrary, we believe it does and that the answer to this
question is to be found within Article 6.10 itself - its text
and context considered in the light of the objective
and purpose of Article 6 and the ATC.
Under the express terms of Article
6.10, the importing Member which "propose[s] to take safeguard
action" may, "after the expiry of the period of 60
days" from the date of receipt of the request for consultations
without agreement having been reached, "apply the restraint
(measure)" "within 30 days following the 60-day
period for consultations ...". As we understand it, "apply"
when used as here in respect of a governmental measure - whether
a statute or an administrative regulation - means, in ordinary
acceptation, putting such measure into operation. To apply a
measure is to make it effective with respect to things or events
or acts falling within its scope. Put in a slightly different
way, a government functionary who evaluates and characterizes
things, events or acts in terms of the requirements set out in
a restraint measure, is "applying" or "implementing"
or "enforcing" that measure.
It is essential to note that,
under the express terms of Article 6.10, ATC, the restraint
measure may be "applied" only "after the expiry
of the period of 60 days" for consultations, without success,
and only within the "window" of 30 days immediately
following the 60-day period.23 Accordingly, we believe that,
in the absence of an express authorization in Article 6.10, ATC,
to backdate the effectivity of a safeguard restraint measure,
a presumption arises from the very text of Article 6.10 that such
a measure may be applied only prospectively. This presumption
appears to us entirely appropriate in respect of measures which
are limitative or deprivational in character or tenor and impact
upon Member countries and their rights or privileges and upon
private persons and their acts.
We turn to the context of Article
6.10 of the ATC. That context includes, of course, the
whole of Article 6.
Article 6.1, ATC offers
some reflected light on the question of backdating a restraint.
Article 6.1 reads, in pertinent part:
Article 6.1 directs that transitional
safeguard measures be applied "as sparingly as possible"
on the one hand and, on the other, applied "consistently
with the provisions of [Article 6] and the effective implementation
of the integration process under [the ATC]".
It appears to the Appellate Body that to inject into Article 6.10
an authorization for backdating the effectivity of a restraint
measure will encourage return to the practice of backdating restraint
measures which appears to have been widespread under the regime
of the MFA, a regime which has now ended, as discussed
below, with the advent of the ATC. Such an introjection
would moreover loosen up the carefully negotiated language of
Article 6.10, which reflects an equally carefully drawn balance
of rights and obligations of Members, by allowing the importing
Member an enhanced ability to restrict the entry into its territory
of goods in the exportation of which no unfair trade practice
such as dumping or fraud or deception as to origin, is alleged
or proven. For retroactive application of a restraint measure
effectively enables the importing Member to exclude more goods
by enforcing the quota measure earlier rather than later.
It further appears to us that
to read Article 6.10 as somehow authorizing the backdating, as
a matter of course, of the effectivity or operation of a restraint
measure, will tend to diminish the utility and significance of
prior consultations with the identified exporting Member or Members.
Article 6.7 of the ATC provides for those consultations
in very substantial detail. Thus, Article 6.7 requires that the
request for consultations be accompanied by specific, relevant
and up-to-date information on the factors which led the importing
Member to make a determination of "serious damage" (listed
in Article 6.3) and the factors which led to the unilateral attribution
of such damage to an identified exporting Member or Members (referred
to in Article 6.4). One clear objective of requiring a 60-day
period for consultations is to give such Member or Members a real
and fair, not merely pro forma, opportunity to rebut or
moderate those factors. The requirement of consultations is thus
grounded on, among other things, due process considerations;
that requirement should be protected from erosion or attenuation
by a treaty interpreter. It is, again, noteworthy that Article
6.7 refers repeatedly to the Member "proposing
to take safeguard action", or who "proposes to
invoke the safeguard action" and to the level at which imports
of the goods specified "are proposed to be restrained".
The common, day-to-day, implication which arises from this language
is clear to us: the restraint is to be applied in the future,
after the consultations, should these prove fruitless and
the proposed measure not withdrawn. The principle of effectiveness
in treaty interpretation24 sustains this implication.
We turn to another element of
the context of Article 6.10 of the ATC: the prior existence
and demise, as it were, of the MFA. Article 3(5)(i) of
the MFA provided as follows:
It is recognized by Appellant
and Appellee and the Third Participant, and the Panel as well,
that Article 3(5)(i) of the MFA expressly permitted backdating
of the effectivity of a restraint measure to the date of the importing
Member's call for consultations.25 The above underscored
clause of Article 3(5)(i), MFA, however, disappeared with
the supersession of the MFA by the new ATC; no
comparable clause was carried over into Article 6.10 of the ATC.26
The Panel did not draw any operable inference from the disappearance
of the MFA clause.27 Appellant Costa Rica urges that
the absence of an equivalent clause in Article 6.10 of the ATC
means that backdating of a restraint measure may no longer be
resorted to under Article 6.10, ATC. Appellee United States,
in contrast, insists that such backdating is nevertheless available
under the regime of the ATC.
We believe the disappearance
in the ATC of the earlier MFA express provision
for backdating the operative effect of a restraint measure, strongly
reinforces the presumption that such retroactive application is
no longer permissable. This is the commonplace inference that
is properly drawn from such disappearance. We are not entitled
to assume that that disappearance was merely accidental or an
inadvertent oversight on the part of either harassed negotiators
or inattentive draftsmen. That no official record may exist of
discussions or statements of delegations on this particular point
is, of course, no basis for making such an assumption. At the
oral hearing, the United States stated that since 1974, for over
20 years, all importing countries had "counted" imports
in the textile area against quotas imposed by restraints from
the date of the request for consultations. While that may well
have been the practice of many importing countries, it was, of
course, the practice under the MFA. Two considerations
bear upon this matter. Firstly, assuming, arguendo only,
that the WTO Members had wanted to keep that practice, it is very
difficult to understand why the treaty basis for such practice
was not maintained but was instead wiped out. Secondly, it has
not been suggested that such a widely followed practice has arisen
under Article 6.10 of the ATC notwithstanding
the absence of the MFA backdating clause. At any rate,
it is much too early for practice to have arisen under the ATC
regime which commenced only on 1 January 1995.
2. The Problem of a Speculative
"Flood of Imports" upon Notice of a Call for Consultations
The United States claims that
the Panel made an "important factual finding" that there
would always or "typically" be a "flood of imports"
after an announcement of a call for consultations between the
importing Member proposing to impose a safeguard restraint measure
and the identified exporting Member or Members. It is emphasized
that the announcement of a possible restraint measure generates
a powerful incentive to maximize exports before the restraint
can go into effect. The thrust of the United States' argument
is that authority to backdate a restraint measure is essential
if the importing Member is effectively to protect itself from
such speculative surges of imports. Article 6.10 of the ATC,
in the United States' view, must be considered as impliedly granting
such authority if that paragraph is to be an "effective component"
of the transitional safeguard mechanism of the ATC.
We have been unable to locate such a broad-ranging "factual finding" in the Panel's Report.
At the same time, we must recognize
that in the world of international trade and commerce as we know
it, a speculative "flood of imports" could in
fact materialize, in a particular case, upon public announcement
of consultations. We cannot exclude a priori the possibility
of such a situation arising. Whether or not, in a specific given
case, a "flood of imports" would actually follow publication
of a call for consultations relating to a proposed restraint measure
will, in our view, depend upon any number of variable factors.
Such factors would include, for instance, the particular kind
of textile or clothing item involved, the "high fashion",
high-value or alternatively the fungible, low-value nature of
the goods subjected to a quota, the seasonality of demand for
such items, the length of production time, the presence or absence
of abnormally high inventories of such goods in the exporting
country, and so forth. Another kind of factor which may bear
upon the possibility of a "flood of imports", is the
level of the minimum or floor quota guaranteed to the exporting
Member[s] by Articles 6.7 and 6.8, ATC, and public awareness
of such guaranteed quota level within the importing and exporting
It appears to us that the above
is basically all that the Panel sought to convey in its brief
statement on the matter:
Turning to the legal contention
made by the United States concerning the necessity for authority
to backdate a restraint measure to prevent or deal with "a
flood of imports", that contention may be seen to assume
that no other recourse is available to the importing country should
speculative "flooding" of imports pose a clear and imminent
threat or actually come about in a particular situation.
We do not believe it is necessary
to make such an assumption.
When and to the extent that
a speculative "flood of imports" turns out, in a particular
situation, to be a real and serious problem engaging the legitimate
interests of the Member proposing a safeguard measure, we consider
that recourse may be had to Article 6.11 of the ATC. Article
6.11 authorizes the importing Member, "in highly unusual
and critical circumstances, where delay would cause damage which
would be difficult to repair", to impose and apply immediately,
albeit provisionally, the restraint measure authorized under Article
6.10. The request for consultations and the notification to the
Textile Monitoring Board must, however, be issued within five
working days after the taking of provisional action. In other
words, the requirements of Article 6.10 must nevertheless be observed.
Action under Article 6.11 of the ATC is not in lieu of,
and does not supersede, action taken or begun under Article 6.10,
ATC. Provisional action under Article 6.11 is folded into
action under Article 6.10. Considering that Article 6.11
permits the provisional imposition of a restraint measure even
before consultations, a fortiori it would permit
such imposition after consultations have in fact begun,
so long as the requisites of both Articles 6.10 and 6.11 are met
or continue to be met.
The standards established in
Article 6.11 - "highly unusual and critical circumstances,
where delay would cause damage which would be difficult to repair"
- are obviously not susceptible of specific quantitative description.
The appreciation of when such circumstances may reasonably be
regarded as having arisen, can only be done in concrete cases
and on a case-to-case basis. Such appreciation would have to
take into account that the standards and requisites of Articles
6.10 and 6.11 are to be read together against the background consideration
that the ATC constitutes a temporary and transitional regime
with complete integration of the textile and clothing sector into
the General Agreement as the final goal.29
The conclusion we have arrived
at, in respect of the issue of permissibility of backdating, is
that the giving of retroactive effect to a safeguard restraint
measure is no longer permissible under the regime of Article 6
of the ATC and is in fact prohibited under Article 6.10
of that Agreement. The presumption of prospective effect
only, has not been overturned; it is a proposition not simply
presumptively correct but one requiring our assent. We believe,
accordingly, and so hold, that the Panel erred in ruling that
Article 6.10 of the ATC had nothing to say on the issue
of backdating and that such backdating to 21 April 1995, the date
of publication of the call for consultations, was permissible
under Article X:2 of the General Agreement. The importing
Member is, however, not defenceless against a speculative "flood
of imports" where it is confronted with the circumstances
contemplated in Article 6.11. Its appropriate recourse is, in
other words, to action under Article 6.11 of the ATC, complying
in the process with the requirements of Article 6.10 and Article
V. The Issue of Applicability
of Article XIII:3(b), General Agreement, to a
Transitional Safeguard Measure taken under Article 6.10, ATC
In the written and oral submissions
before the Appellate Body, the issue of applicability of Article
XIII:3(b) of the General Agreement to the restraint measure
here at stake, was much discussed by Appellant Costa Rica. The
Appellee United States also dealt with this issue, though with
Considering the conclusion we
have above reached in respect of the first issue, there is no
necessity for dealing with this second issue at any length. Had
we concluded that under Article 6.10, ATC, backdating the
effectivity of a restraint measure remained permissible, it would
have been necessary to determine whether a different result would
be compelled by Article XIII(3)(b) of the General Agreement
and, in particular, the meaning and applicability of the words
"the Contracting Party applying the restrictions shall give
public notice of the total quantity or value of the product or
products which will be permitted to be imported during a specified
future period ...". In any case, there is nothing in this
provision which runs counter to our conclusion that backdating
is prohibited under Article 6.10 of the ATC.
VI. The Issue of Applicability
of Article X:2 of the General Agreement, to a
Transitional Safeguard Measure taken under Article 6.10, ATC
Article X, General Agreement,
provides in part:
Publication and Administration
of Trade Regulations
2. No measure of general
application taken by any contracting party effecting an advance
in a rate of duty or other charge on imports under an established
and uniform practice, or imposing a new or more burdensome
requirement, restriction or prohibition on imports,
or on the transfer of payments therefor, shall be enforced before
such measure has been officially published. (Emphases added)
The Panel found that the safeguard
restraint measure imposed by the United States is "a measure
of general application" within the contemplation of Article
X:2. We agree with this finding. While the restraint measure
was addressed to particular, i.e. named, exporting Members, including
Appellant Costa Rica, as contemplated by Article 6.4, ATC,
we note that the measure did not try to become specific as to
the individual persons or entities engaged in exporting the specified
textile or clothing items to the importing Member and hence affected
by the proposed restraint.
Article X:2, General Agreement,
may be seen to embody a principle of fundamental importance that
of promoting full disclosure of governmental acts affecting Members
and private persons and enterprises, whether of domestic or foreign
nationality. The relevant policy principle is widely known as
the principle of transparency and has obviously due process dimensions.
The essential implication is that Members and other persons affected,
or likely to be affected, by governmental measures imposing restraints,
requirements and other burdens, should have a reasonable opportunity
to acquire authentic information about such measures and accordingly
to protect and adjust their activities or alternatively to seek
modification of such measures. We believe that the Panel here
gave to Article X:2, General Agreement, an interpretation
that is appropriately protective of the basic principle there
At the same time, we are bound
to observe that Article X:2 of the General Agreement, does
not speak to, and hence does not resolve, the issue of permissibility
of giving retroactive effect to a safeguard restraint measure.
The presumption of prospective effect only does, of course, relate
to the basic principles of transparency and due process, being
grounded on, among other things, these principles. But prior publication
is required for all measures falling within the scope of Article
X:2, not just ATC safeguard restraint measures sought to
be applied retrospectively. Prior publication may be an autonomous
condition for giving effect at all to a restraint measure. Where
no authority exists to give retroactive effect to a restrictive
governmental measure, that deficiency is not cured by publishing
the measure sometime before its actual application. The necessary
authorization is not supplied by Article X:2 of the General
Our finding, therefore, that
the safeguard restraint measure here involved is properly regarded
as "a measure of general application" under Article
X:2 does not conflict with, and does not affect our conclusion
under the first issue above that backdating the effectivity of
a restraint measure is prohibited by Article 6.10 of the ATC.
VII. Findings and Conclusions
For the reasons set out in the
preceding sections of this Report, the Appellate Body has reached
the following conclusion:
The foregoing legal conclusion
modifies the conclusions of the Panel as set out in paragraph 7.69
of its Report. The Appellate Body's conclusion leaves intact the
conclusions of the Panel that were not the subject of appeal.
The Appellate Body recommends that the Dispute Settlement Body request the United States to bring its measure restricting Costa Rican exports of cotton and man-made fibre underwear, category 352/652, 60 Federal Register 32653, into conformity with its obligations under the ATC.
Signed in the original at Geneva this 5th day of February 1997 by:
2 Establishment of an Import Limit for Certain Cotton and Man-Made Fibre Textile Products Produced or Manufactured in Costa Rica, 60 Federal Register 32653, 23 June 1995.
3 Panel Report, paras. 7.52 and 7.55.
4 Panel Report, para. 7.59.
5 Panel Report, para. 7.71.
6 Panel Report, para. 7.69.
7 Panel Report, para. 8.3.
9 WT/AB/WP/1, 15 February 1996.
10 Pursuant to Rule 21(1) of the Working Procedures.
11 Pursuant to Rule 23(3) of the Working Procedures.
12 Pursuant to Rule 24 of the Working Procedures.
13 Pursuant to Rule 25 of the Working Procedures.
14 Costa Rica, however, did not submit any arguments in respect of Article XI, General Agreement.
15 European Economic Community - Restrictions on Imports of Dessert Apples: Complaint by Chile, BISD 36S/93, adopted 22 June 1989, p. 132. See also European Economic Community - Restrictions on Imports of Apples: Complaint by the United States, BISD 36S/135, adopted 22 June 1989, p. 166.
16 The text of the General interpretative note for Annex 1A reads:
17 Supra, footnote 15.
18 Panel Report, para. 7.62.
19 Id., para. 7.63.
20 Id., para. 7.65.
21 Id., para. 7.69.
22 Infra, p. 23.
23 Under Article 6.5, ATC, the maximum period of validity of a determination of "serious damage or actual threat thereof", for purposes of application of an ATC-consistent restraint measure, is 90 days after the date of initial notification of such damage. After the 90-day period, a new determination of "serious damage or actual threat thereof" will have to be made if no restraint measure had been imposed.
24 See Report of the Appellate Body, "United States - Standards for Reformulated and Conventional Gasoline", AB-1996-1, (adopted 20 May 1996) p. 23; and Report of the Appellate Body, "Japan - Taxes on Alcoholic Beverages", AB-1996-2 (adopted 1 November 1996), p. 12.
25 Simply as a matter of comparative texts, it may be noted that like Article 6.10 of the ATC, Article XIX of the General Agreement and the Agreement on Safeguards do not contain any language expressly permitting backdating of the effectivity of a safeguard restraint measure taken thereunder with respect to categories of goods already integrated into the General Agreement. In contrast, it may also be noted that both Article 10(2) of the Anti-dumping Agreement and Article 20(2) of the SCM Agreement expressly authorize, under certain conditions, the retroactive levying of anti-dumping and countervailing duties for the period when provisional measures were in force.
26 With the demise of the MFA, its place has been taken with respect to WTO Members, firstly, in respect of textile and clothing items not yet integrated into the General Agreement, by the ATC. Secondly, in respect of items already integrated into the General Agreement, the MFA safeguard measure is displaced by Article XIX of the General Agreement and the Agreement on Safeguards.
27 We have noted in page 12 that the Panel "conclude[d] that the prevalent practice under the MFA of setting the initial date of a restraint period as the date of request for consultations cannot be maintained under the ATC". Immediately thereafter, however, the Panel held that backdating could be resorted to (in 1995, under the ATC) provided that the date of initial effectivity is not earlier than the date of publication of the call for consultations. (Panel Report, para. 7.69) This ruling appears at odds with the Panel's own immediately preceding conclusion.
28 Panel Report, para. 7.68.
29 The standard found in Article 6.11, ATC, may be compared textually with the counterpart language in Article XIX:2, General Agreement, and Article 6 of the Agreement on Safeguards: "in critical circumstances, where delay would cause damage which it would be difficult to repair ...". This language presently applies to all goods already integrated into the General Agreement and will apply, at the end of the transitional period, to goods currently not yet so integrated.