3.26 Brazil requested the Panel to find that the collection by the United States of cash deposits and countervailing duties in excess of the cash deposits violated Article 5 of the Code where a negative determination of injury had been made. Brazil noted that the Code provided for only two types of countervailing duties: definitive duties imposed pursuant to Article 4, or provisional duties deposited pursuant to Article 5. In order to collect definitive duties, Article 4 required a signatory to make a final affirmative determination of subsidy and a determination that the subsidy was causing injury. In the absence of an injury determination, duties deposited on entries of non-rubber footwear after 4 January 1980, could not be definitive duties. Brazil further noted that provisional measures were those estimated duties posted after a preliminary or final finding of subsidy but before the final determination of injury. In this case, the final subsidy determination had been rendered before 1980 but as of 1 January 1980, Brazil had had a right to an injury determination for these entries and, effective 4 January, the United States had required importers to post estimated countervailing duties on all such entries. The United States had not made its final determination of no injury until May 1983. Brazil therefore considered that the duties posted on entries after 4 January 1980 had to, by definition, be provisional measures.

3.27 Brazil referred to Article 5:1 of the Code which provided that "provisional measures shall not be applied unless the authorities concerned judge that they are necessary to prevent injury being caused during the period of investigation." It also noted that Article 5:8 expressly required the reimbursement of provisional measures where the determination of material injury was negative. Since the USITC had determined that imports of non-rubber footwear from Brazil were not causing material injury to an industry in the United States, the use of provisional measures and the intention to collect definitive duties for imports covered by the provisional measures between 4 January 1980 through 28 October 1981 violated Article 5:1 and 5:8 of the Code.

3.28 Brazil also considered that the announcement by the DOC not only to retain the cash deposits on estimated countervailing duties on imports of non-rubber footwear from Brazil in calendar years 1980 and 1981, but also to impose liability in an additional amount, notwithstanding a final negative injury finding by the USITC, was directly contrary to Article 5:8 of the Code. Brazil pointed out that even in cases where an affirmative injury determination was rendered, Article 5:6 of the Code provided that if the definitive countervailing duty was higher than the amount guaranteed by the cash deposit or bond, the difference should not be collected. This provision was designed to reduce the uncertainty created when importers did not know, at the time of entry, the definitive amount of duties they would be required to pay. When provisional measures were applied in a manner that was consistent with the Code, importers did know, at the time of entry, at least the maximum potential amount of duty liability they could be required to pay, and could plan accordingly. In other words, the uncertainty was limited to the question of whether their ultimate duty liability would be decreased from the estimated duty imposed at the time of entry. The collection of countervailing duties in excess of the amount of the estimated duty would violate the provisions of Article 5:6 of the Code. Specifically, the United States had announced plans to impose duties of an amount which exceeded by 7.84 percentage points the amount of the provisional measures imposed on goods exported between 1 January 1980 and 31 December 1980 and by 5.04 percentage points on goods entered between 1 January 1981 and 28 October 1981. The fact that this action had taken place in the context of a determination of no material injury had made the violation even more egregious.

3.29 Brazil noted, furthermore, that the United States had recognized the provisional nature of the duties deposited on entries of non-rubber footwear from Brazil and its obligations under Article 5 of the Code by refunding the duties deposited between 29 October 1981 and 21 June 1983. The nature of the duties deposited prior to 29 October 1981, were no different from those refunded after 29 October 1981 either under the General Agreement or US law. All of those estimated duties were deposited pursuant to the same suspension of liquidation effective on 4 January 1980. By arbitrarily refusing to refund the provisional duties deposited between 4 January 1980 through 28 October 1981, however, the United States violated its obligations under Article 5 of the Code.

3.30 The United States considered Brazil's contention that Article 5 of the Code applied to the countervailing duties in dispute seemed to rest on basic misunderstanding of US countervailing duty procedures and law in relation to the Code. Article 5 of the Code concerned provisional measures, such as a cash deposit or bond, that could be required between a preliminary affirmative finding of subsidy and injury and a final finding. The US measures imposed in 1974 and implemented with respect to Brazil's footwear entered after January 1980, had not been provisional measures under Article 5 of the Code, as alleged by Brazil, but had involved the collection of final countervailing duties pursuant to a valid countervailing duty order. While the order had been issued under GATT Article VI and the Protocol of Provisional Application, it was, if anything, analogous to an action under Article 4 of the Code. The Code provided that once a countervailing duty was imposed it might not be levied in excess of the amount of the subsidy found to exist. The duty in question was imposed on 12 September 1974. Before 1980 the US practice had been to calculate the amount of the duty at the time of the investigation and then simply to liquidate each entry at that rate. This had been a prospective method which continued to be used by some other Code signatories. In the TAA, however, the United States had made major changes in its countervailing duty procedures to conform to the Code. One change had been to switch from prospective assessment of duty to a system of administrative reviews during which the definitive amount of duties for the period under review would be calculated ex post to reflect precisely the amount of subsidies actually bestowed on imports of the product during that period. Pending the final results of a review, liquidation of an entry was suspended while estimated duties were collected or secured by a cash deposit or bond. The goal of the review was to ensure that the duties actually assessed reflected the true margin of subsidization for each period reviewed. This ex post calculation was much more precise than the use of past levels of subsidization to determine duties on future entries. Both methods arguably met the Code obligation that the countervailing duty finally imposed should not exceed the amount of subsidy but the United States believed that its method was the more accurate of the two.

3.31 The United States could not agree with the Brazilian claim that the entry into force of the Code had converted the non-rubber footwear order from a final decision under Article VI of the General Agreement (and Article 4 of the Code) into an "investigation" in progress under Article 5 of the Code and, therefore, interim duties collected by the US authorities during the period of suspension of liquidation represented "provisional measures". Article 19:5 of the Code omitted any reference to pre-existing countervailing duty orders and did not undercut their validity. Nor did it place any obligation on signatories to apply amendments and changes resulting from the Code retroactively to pre-existing orders. It followed that the order was valid and that the circumstance had not been affected by the Code's entry into force. The duties were, therefore, final duties, corresponding to measures under Article 4 of the Code, and were not provisional measures. This fact had not been changed because the method used to assess their definitive amount had been based on ex post rather than ex ante calculation.

4.1 The Panel recalled that the basic facts underlying this dispute were the following: the United States had imposed a countervailing duty order on entries of non-rubber footwear from Brazil in 1974 without an injury determination in accordance with the existing legislation clause of the GATT Protocol of Provisional Application; on 1 January 1980 the Code entered into force for both the United States and Brazil; in October 1981 Brazil requested the United States to undertake an injury review; in May 1983 the United States made a negative injury finding, with revocation of the countervailing duty order effective from the date of Brazil's request in 1981, but with duties to be collected on entries prior to that date.

4.2 The Panel considered the dispute between the parties regarding the United States' obligations under the Code to provide an injury determination for its countervailing duty order on entries of non-rubber footwear from Brazil issued before the Code entered into force for these two parties. At the centre of the dispute was whether the United States had an obligation to provide an injury determination with respect to all countervailing duties collected on imports from signatories after entry into force of the Code. Brazil contended that the United States, as a Code signatory, was under an obligation, effective 1 January 1980, to provide an injury determination and that, given the subsequent negative determination of injury in this case, the collection of countervailing duties between 4 January 1980 and 28 October 1981 violated Article VI:6(a) of the General Agreement and Articles 1 and 4 of the Code. The United States denied that it had any obligation to provide an injury determination with regard to its pre-existing countervailing duty orders and further argued that even if such an obligation existed, it had been satisfied by the procedure available to Brazil in this case.

4.3 The Panel noted that the circumstance of a pre-existing countervailing duty order was not specifically addressed in the Code, and therefore considered that it should examine the relevant provisions of Article VI of the General Agreement before proceeding to examine how the provisions of the Code related to this issue. The Panel considered that the provisions regarding the application of countervailing duties under Article VI of the General Agreement constituted an integral part of rights and obligations of signatories under the Code. The Panel therefore was of the view that the Code had to be read together with the relevant provisions of Article VI of the General Agreement. This view was based on the provisions of the Preamble to the Code ("Desiring to apply fully and to interpret the provisions of Articles VI ...") including footnote 2, and on operative provisions of the Code, in particular Articles 1 and 19:1. This view was further supported by the provision of Article 19:2(c) according to which a non-contracting party could not accede to the Code unless it agreed with the signatories on special terms of accession.³ It was therefore clear that the drafters of the Code did not intend to have different categories of signatories with different rights and obligations unless such different terms had been specifically agreed. Consequently, a contracting party, by accepting without reservation the Code, accepted, in its relations with the Code's signatories, all relevant provisions of the General Agreement and these provisions constituted an integral part of its rights and obligations under the Code. The Code confirmed general principles of Article VI of the General Agreement with respect to countervailing measures and established a number of procedural requirements regarding the interpretation and application of Article VI as between signatories. The Panel therefore considered that it needed to examine the rights and obligations of signatories resulting from the Code's implementation of Article VI:6(a) of the General Agreement.

4.4 In conducting this examination, the Panel noted the following: Article VI:6(a) of the General Agreement provided that "[n]o contracting party shall levy any anti-dumping or countervailing duty on the importation of any product of the territory of another contracting party unless it determines that the effect of the dumping or subsidization, as the case may be, is such as to cause or threaten material injury ...". Article VI:6(a) did not stipulate how this principle should be fulfilled, i.e. whether this determination should be on a shipment-by-shipment basis or for all subsequent imports. In particular, the term "levy" had not been defined. However, the Panel noted that the CONTRACTING PARTIES, in a report adopted on 27 May 1960, agreed that although the ideal method of fulfilling this principle would be to make an injury determination in respect of each single importation of the product concerned, this was clearly impracticable and that a pre-selection system seemed to be the most satisfactory (BISD 9S/194, paragraphs 8-9 in the light of paragraph 31). The Panel considered that the adoption of this report endorsed the pre-selection system as a procedure implementing Article VI:6(a) but it did not change the basic rights and obligations resulting from Article VI:6(a), regarding the imposition of countervailing duties on products imported from other contracting parties. The use of the pre-selection system⁴ was a practical solution under which an investigation to determine the existence of injury had to take place and countervailing duties could be imposed only if there were an affirmative finding. Subsequently, countervailing duties could be levied on each single importation without each time making a new determination. However, the fact that Article VI:6(a) required an injury determination to levy duties, combined with the fact that it had been implemented by the pre-selection system, made it necessary to introduce a review mechanism under which countervailing duties, once imposed, had to be reviewed if the circumstances justifying their imposition had changed. In other words, the continuing obligation regarding determination of injury was implemented through periodic reviews. Such a review was conducted either on the initiative of the investigating authority or upon request by an interested party.⁵ The Panel also noted that because of the fact that countervailing duties were already in place, any such review could only be prospective in nature, in that it determined whether subsequent importations would be causing injury if the duties were removed. This approach had been codified in injury review provisions of the Anti-Dumping Codes (1967 and 1979) and in Article 4:9 of the Code.

4.5 The Panel recalled that Article VI:6(a) of the General Agreement required a contracting party not to levy a countervailing duty on the importation of goods unless there had been an injury determination and that this requirement imposed an ongoing obligation throughout the life of the decision to impose such a duty. This ongoing obligation also applied in cases where the pre-existing decisions to impose countervailing duties without injury determinations subsequently became subject to Article VI:6(a). There was nothing in the General Agreement that would automatically invalidate these pre-existing decisions but, in the Panel's view, the further implementation of such decisions had to be done with due regard to the ongoing obligation under Article VI:6(a). Consequently, the existence of a valid decision on the one hand, and the entry into effect of a new obligation on the other, required that this decision be re-examined in the light of this new obligation. This interpretation was confirmed by the general principles of international law governing the application of treaties as codified in the Vienna Convention on the Law of Treaties. Under Article 28 of that Convention new treaty provisions did not bind parties in relation to any act or fact which had taken place before the date of entry into force of the treaty. However, the treaty provisions did bind parties in relation to a situation which had arisen from a previous act (decision to impose countervailing duties) which situation (levying of countervailing duties) continued to exist.

4.6 In general terms, the Panel considered that the obligation regarding injury determination of a Code signatory with respect to pre-existing decisions to impose countervailing duties would be satisfied as long as the signatory subject to such a decision had a right to an injury examination as of entry into force, through the Code, of the Article VI:6(a) obligations. If such an examination were to be made on the initiative of the investigating authorities, it would have to cover the period starting on that date; if there were a finding of no injury it would have to apply as of that date. However, the Panel noted that nothing in Article VI excluded another procedure for the injury examination, i.e. an examination upon request. Indeed, as noted in paragraph 4 above, such a procedure had been used under the pre-selection system to implement the continuing obligation regarding the determination of injury. This procedure could, therefore, be used provided the right to an injury examination as of the date of entry into force were observed. To this effect, the Panel considered that the examination procedure would comply with obligations under Article VI:6(a) as long as the request for an examination could be made as of the date of entry into force of the Article VI obligations for the parties concerned and, if a finding of no injury were made, countervailing duties could be revoked as of the date of the request. If, however, the signatory subject to the pre-existing countervailing duty decision were to choose not to invoke its right as of that date but made its request at a later date, again there was nothing in Article VI or in its subsequent interpretation in the Code to imply that any earlier date than the date of the request would be relevant for an injury determination and possible revocation of countervailing duties.

4.7 The Panel noted that the interpretation and application of Article VI through the use of the pre-selection system had been codified in the 1967 Anti-Dumping Code and subsequently in the relevant MTN Codes. In particular, a distinction had been introduced in the Code between "levy" and "imposition" of a countervailing duty.⁶ The term "levy" had been defined in the Code to mean the definitive or final legal assessment or collection of a duty or tax (Article 4, footnote 14). The term "imposition", although not expressly defined, had been consistently used in the Code (and the 1967 and 1979 Anti-Dumping Codes) in the sense of a decision, following the conduct of an investigation, to collect from a specific date a countervailing (respectively anti-dumping) duty on an imported product.⁷ The Panel noted that in general Article 1 of the Code stipulated that the imposition of a countervailing duty had to be in accordance with the provisions of Article VI of the General Agreement and, as explained above (paragraph 5), Article VI:6(a) established an ongoing obligation regarding injury determination throughout the life of a decision to impose a countervailing duty. The Panel therefore considered that the Code, in particular its distinction between "imposition" and "levy" and the subsequent injury review, reflected the pre-existing interpretation and practical application of Article VI of the General Agreement.

4.8 In further considering the text of the Code itself, the Panel noted that Article 19:5(a) of the Code required a signatory to take all necessary steps to ensure, not later than the date of entry into force of the Code for it, "the conformity of its laws, regulations and administrative procedures" with the provisions of the Code. The fact that in the Code there was no specific reference to pre-existing orders or to any special transitional procedure for such orders which were in force on 1 January 1980 supported the conclusion that the drafters did not intend to restrict respective rights and obligations resulting from Article VI:6(a) of the General Agreement and to require Code signatories to subject these orders to an injury examination automatically as of 1 January 1980.

4.9 The Panel noted that the sequence of events under the Code for a countervailing duty case was as follows:

(a) initiation of an investigation;

(b) preliminary determination of the existence of a subsidy and of injury caused thereby, provisional measures if taken;

(c) determination of the existence of a subsidy and of injury caused thereby;

(d) imposition of countervailing duties;

(e) levying (collection) of countervailing duties (the amount of which may be determined ex ante or ex post);

(f) review under Article 4:9 of the need for continued imposition of the duty.

Applying the above sequence to the case before it, the Panel noted that the Code entered into force at the point covered by point (e) above. At that time, countervailing duties on non-rubber footwear from Brazil were being levied pursuant to a decision taken by the United States in 1974 under section 303 of the Tariff Act of 1930, covered by the existing legislation clause of the Protocol of Provisional Application. The Panel concluded that there was nothing arising from the Code that would require retroactive application. Accordingly, the Panel concurred with Brazil and the United States that the 1974 countervailing duty order was not invalidated on 1 January 1980. The Panel considered that these definitive duties could continue to be levied but, because of the entry into force of the Code between the United States and Brazil, imports of non-rubber footwear from Brazil became eligible for a finding as to whether its subsidization was causing injury. This could not be an injury determination in the sense of Article 4:4 (imposition of final duties as a result of an investigation under Article 2) since the countervailing duty had already been imposed in 1974, but could only be an examination of injury resulting from the US obligation derived under the Code from Article VI:6(a) of the General Agreement (see paragraphs 4.3-4.6 above).

4.10 The Panel therefore considered that the requirements of Article 4:9 applied, mutatis mutandis, to a case under the Code where a countervailing duty imposed without an injury determination, subsequently became subject to the Code's provisions and therefore eligible for an injury determination. In this regard, the Code had not created any new obligations but only codified the existing interpretation of Article VI which had been generally implemented through the use of the pre-selection system, including an injury review mechanism. The Panel further noted the requirement of Article 19:1 of the Code that "[n]o specific action against a subsidy of another signatory can be taken except in accordance with the provisions of the General Agreement, as interpreted by this Agreement". In addition, international law as codified in the Vienna Convention on the Law of Treaties supported the conclusion that the Code required signatories to provide the opportunity for an injury examination with respect to pre-existing countervailing duty decisions. Applying Article 28 of the Vienna Convention to the case before the Panel, the existence of a valid countervailing duty decision would be a pre-existing "act or fact" and the continued levying of countervailing duties after entry into force of the Code would be the continuing "situation". Thus, a signatory's further implementation of a pre-existing decision to impose countervailing duties would have to be undertaken with due regard for the provisions of Article VI:6(a) of the General Agreement, as interpreted by the Code.

4.11 In relation to the countervailing duty order concerning imports of non-rubber footwear from Brazil, which had not previously benefited from the injury test, the Panel concluded that the United States was, as of 1 January 1980, under an obligation to extend to Brazil a procedure for determining whether the subsidization in question would be causing injury if the countervailing duties were eliminated. In the Panel's view the US legislation implementing the Code (in particular section 104(b) of the TAA) effectively provided Brazil with a procedure for the examination of injury and the possible subsequent revocation of the pre-existing countervailing duty order as of the date of the request.^8-9 The Panel concluded that the approach taken in this case was consistent with US obligations under the Code as derived from Article VI:6(a) of the General Agreement because Brazil's request could have been made on 1 January 1980 and, in the case of a negative injury determination, the countervailing duty order could have been revoked as of the date of the request. Brazil chose not to invoke its rights on 1 January 1980 but submitted its request at a later date. The Panel recalled its views presented in paragraph 6 above that if the signatory subject to the pre-existing countervailing duty decision were to choose not to invoke its right as of 1 January 1980 but made its request at a later date, there was nothing in Article VI or in its subsequent interpretation in the Code to imply that any earlier date than the date of the request would be relevant for an injury determination and possible revocation of countervailing duties.

4.12 The Panel recalled the additional argument by Brazil that the United States was obligated to revoke its countervailing duty order as of the suspension of liquidation ordered on 4 January 1980 rather than as of the date of the notification of the DOC by the USITC of Brazil's request for an injury review (29 October 1981). The Panel considered that the act of suspension of liquidation was of no particular relevance under the provisions of the Code. This issue was a matter related to the conformity of US administrative procedures with US law. The Panel therefore decided that under its terms of reference it would not be appropriate to examine this matter further.

4.13 The Panel finally examined the argument by Brazil that the collection by the US of cash deposits and countervailing duties in excess of the 1 per cent cash deposit violated Article 5 of the Code where a negative determination of injury had been made. Brazil maintained that because the 1974 imposition of countervailing duties became eligible for an injury determination upon entry into force of the Code, the duties levied after 1974 imposition of countervailing duties became eligible for an injury determination upon entry into force of the Code, the duties levied after 1 January 1980 had to be in the nature of provisional duties. As previously noted, the Panel was of the view that the final countervailing duty order imposed in 1974 continued to be in force after 1 January 1980 and was not invalidated by the acceptance of the Code by the United States at that date. The duties assessed by the United States after the entry into force of the Code therefore continued to be definitive, rather than provisional, duties and consequently there was, in the view of the Panel, no basis for the application of Article 5.

4.14 For the foregoing reasons, the Panel concluded that the collection of countervailing duties by the United States on entries of non-rubber footwear from Brazil between 4 January 1980 and 28 October 1981 was consistent with the United States' obligations under the Code.

³The Panel noted that the purpose or aims of the negotiations on terms would be to secure an overall parity of rights and obligations as between Parties to the Code which were contracting parties to the GATT and those that were not (MTN/P/5, paragraphs 4 and 9).

⁴According to a study by the GATT secretariat, presented to the CONTRACTING PARTIES at the Twelfth Session in November 1957 (see Anti-Dumping and Countervailing Duties, GATT, Geneva, July 1958) covering eight contracting parties which, at the time, made use of their anti-dumping and countervailing duty provisions, six contracting parties used the pre-selection system.

⁵See, for example, Report adopted by the CONTRACTING PARTIES (BISD 8S/151, paragraph 23) and the drafting history of the 1967 Anti-Dumping Code, in particular the UK proposal in Spec(65)86, section J and the subsequent discussion in TN.64/NTB/W/2/Rev.1, and TN/NTB/W/10 and addenda.

⁶The Panel noted that the 1967 and 1979 Anti-Dumping Codes also made a distinction between "imposition" and "collection".

⁷This meaning was discernible from the usage of this term in the Code, in particular in Articles 2:1, 4, 5:3 and 5:4.

⁸The Panel noted that under section 104(b)(3) the effective date was the date of the notification of the DOC by the USITC rather than the date of the receipt of the request by the USITC. The Panel further noted that in this case there was a small discrepancy of two days between these two dates and considered that such a discrepancy could be tolerated as resulting from necessary administrative procedures.

⁹The Panel noted that the US legislation had been submitted to the Committee on Subsidies and Countervailing Measures for examination, in the course of which section 104(b) had not been contested. The Panel also noted that a number of signatories, including Brazil, had availed themselves of this provision without contesting it in the Committee at that time. However, the Panel considered that the past practice of the parties was not dispositive of their rights and obligations. Neither was it the Panel's intention, in making the above observations, to pass judgement on the conformity of the US law or section 104(b) thereof with the Code.