4 December 1992

Table of Contents

I. INTRODUCTION

II. FACTUAL ASPECTS

III. FINDINGS REQUESTED

IV. PRELIMINARY OBJECTIONS

V. ARGUMENTS OF THE PARTIES

VI. FINDINGS

VII. CONCLUSIONS

ANNEXES

1. In a communication to the Committee on Subsidies and Countervailing Measures ("the Committee") circulated on 17 June 1991 (SCM/115), Norway informed the Committee that on 2 May 1991 consultations had taken place under Article XXIII:1 of the General Agreement between the United States and Norway on the imposition of countervailing duties by the United States on imports of fresh and chilled Atlantic salmon from Norway. This communication stated that it was the understanding of Norway that these consultations were also to be considered as consultations under Article 3:2 of the Agreement on Interpretation and Application of Articles VI, XVI and XXIII of the General Agreement on Tariffs and Trade (hereinafter referred to as "the Agreement"). This understanding was confirmed by the United States in a communication circulated in document SCM/116, dated 17 June 1991.

2. A request by Norway for conciliation under Article 17 of the Agreement was circulated to the Committee on 1 July 1991 (SCM/117). The Committee held a meeting to examine this matter under Article 17:1 of the Agreement on 18 July 1991 (SCM/M/52).

3. On 22 August 1991, Norway requested that the Committee establish a panel in this dispute under Article 17:3 of the Agreement (SCM/123). On 19 September 1991, Norway supplemented its initial request for the establishment of a panel with a list of issues to be examined by the panel (SCM/123/Add.1).

4. At a special meeting held on 26 September 1991, the Committee decided to establish a panel in the matter referred to the Committee by Norway in documents SCM/123 and Add.1. The Committee agreed on the following terms of reference of this Panel:

The Committee authorized its Chairman to decide, in consultation with the parties concerned, on the composition of the Panel. The EEC reserved its right to present its views to the Panel as an interested third party.

5. On 6 November 1991, the Committee was informed by the Chairman in document SCM/129 that the composition of the Panel was as follows:

6. The Panel met with the parties to the dispute on 23-24 January, 5-6 March and 1 October 1992.

7. The Panel submitted its findings and conclusions to the parties on 23 October 1992. ¹

8. The dispute before the Panel concerned the imposition by the United States on 12 April 1991 of a countervailing duty order on imports of fresh and chilled Atlantic salmon from Norway. The imposition of this order followed an affirmative final determination of subsidization by the United States Department of Commerce and an affirmative final determination of injury by the United States International Trade Commission (USITC) with respect to these imports.

9. The countervailing duty investigation which led to the above-noted determinations was initiated by the Department of Commerce on 20 March 1990 after the Department had on 28 February 1990 received a petition for the initiation of an investigation from The Coalition for Fair Atlantic Salmon Trade, comprised of domestic producers of fresh and chilled Atlantic salmon. Also on 20 March 1990 the Department initiated an anti-dumping duty investigation with respect to those imports.

10. As indicated in the public notice of the initiation of this investigation, the product covered by the investigation was the species Atlantic salmon. All other species of salmon were excluded. The notice explains that "Atlantic salmon is a whole or nearly whole fish, typically (but not necessarily) marketed gutted, bled and cleaned, with the head on. The subject merchandise is typically packed in freshwater ice ("chilled"). Excluded from the subject merchandise are fillets, steaks, and other cuts of Atlantic salmon. Also excluded are frozen, canned, smoked or otherwise processed Atlantic salmon" ²

11. On 16 April 1990, the USITC issued a preliminary affirmative determination of injury in the countervailing duty investigation of imports of fresh and chilled Atlantic salmon from Norway. ³ An affirmative preliminary determination of subsidization by the Department of Commerce was published on 29 June 1990. ⁴ As a result of this affirmative preliminary determination, the US Customs Service was instructed by the Department of Commerce to suspend liquidation of all entries of fresh and chilled Atlantic salmon from Norway which were entered, or withdrawn from warehouse, for consumption, on or after 29 June 1990 and to require a cash deposit or bond for all entries of this product equal to NOK 0.77 per kilogramme, corresponding to the estimated net subsidy.

12. An affirmative final countervailing duty determination in this investigation was issued by the Department of Commerce on 25 February 1991. ⁵ The Department found that benefits which constituted subsidies within the meaning of section 701 of the United States Tariff Act 1930, as amended, were being provided to producers and exporters in Norway of fresh and chilled Atlantic salmon under six programmes and determined the estimated net subsidy to be NOK 0.71 per kilogram (2.27 per cent ad valorem) for all producers or exporters in Norway of fresh and chilled Atlantic salmon.

13. As explained in the Federal Register Notice of the final affirmative countervailing duty determination, ⁶ the following programmes were found by the Department of Commerce to confer subsidies: (i) Regional Development Fund Loans and Grants; (ii) National Fishery Bank of Norway Loans; (iii) Regional Capital Tax Incentive; (iv) Reduced Payroll Taxes; (v) Advance Depreciation of Business Assets; and (vi) Government Bank of Agriculture Grants. This Notice contains comments made by interested parties, and responses of the Department to these comments, on a number of aspects of the Department's determination that these programmes conferred countervailable subsidies and of the Department's methodology for determining the amount of the subsidies. Such comments were made inter alia regarding the methodology for calculating the benefits resulting from loans provided under the Regional Development Fund Loans and Grants, the treatment of alleged income tax effects of the reduction of payroll taxes, the question of whether an "upstream subsidy" analysis should be conducted to determine whether subsidies to producers of smolt were passed through to exporters of salmon, and the alleged conformity of the programmes at issue with Norway's obligations under the Agreement.

14. On 2 April 1991, the USITC issued one final determination for the purpose of both the anti-dumping and countervailing duty investigations of imports of fresh and chilled Atlantic salmon from Norway, ⁷ in which it concluded that an industry in the United States was materially injured by reason of imports from Norway of fresh and chilled Atlantic salmon which had been found by the Department of Commerce to be subsidized by the Government of Norway and sold in the United States at less than fair value.

15. Norway requested the Panel to find that the imposition by the United States of the countervailing duty order on imports of fresh and chilled Atlantic salmon from Norway was inconsistent with the obligations of the United States under the Agreement. In particular, Norway requested the Panel to find that:

16. Norway initially requested the Panel to recommend to the Committee that it request the United States to revoke the countervailing duty order on imports of fresh and chilled Atlantic salmon from Norway or otherwise bring it promptly into conformity with the obligations of the United States under the Agreement. At a later stage, Norway requested the Panel to recommend to the Committee to request the United States to revoke the countervailing duty order and reimburse any countervailing duties paid. Norway noted that this request was consistent with previous Panel Reports. ⁸

17. The United States requested the Panel to find that the affirmative final determinations made by the Department of Commerce and the USITC comported with the obligations of the United States under the Agreement. In particular, the United States requested the Panel to find that:

18. The United States also requested the Panel to give a ruling that certain matters raised by Norway were not properly before the Panel (infra, Section IV).

19. At the request of the Panel, the United States presented its views on the merits of each of the issues raised by Norway which it considered were not properly before the Panel. The Panel indicated to the parties that this request to the United States was without prejudice to the Panel's ultimate decision on the preliminary objections of the United States. The United States considered that (i) the initiation of the countervailing duty investigation was in accordance with Article 2:1 of the Agreement, (ii) the Department of Commerce had properly declined to conduct an upstream subsidy investigation, and (iii) the arguments of Norway regarding Article 4:9 of the Agreement were factually incorrect and without a legal basis in the Agreement.

20. The United States requested the Panel to give a preliminary ruling that the matter raised by Norway regarding the standing of the petitioner to request the initiation of an investigation on behalf of the relevant domestic industry was not properly before the Panel because this matter had not been raised in the administrative proceedings before the investigating authorities in the United States, and that the matters raised by Norway regarding the alleged failure of the United States to conduct an "upstream subsidy" analysis and regarding the continued application of the countervailing duty order were not properly before the Panel because they (1) were not within the Panel's terms of reference, and (2) had not been raised during consultations and conciliation preceding the establishment of the Panel.

21. Regarding the matter of the standing of the petitioner, the United States noted the following in support of its view that the failure of the Norwegian respondents to raise this matter before the investigating authorities in the United States precluded Norway from raising this issue in the proceedings before this Panel. The principle that a signatory must raise an issue, and present all facts, evidence and arguments on that issue before the investigating authorities and may not present any facts, evidence or arguments in the first instance to a reviewing body was manifest in the Agreement. The Agreement provided domestic investigating authorities with the exclusive authority to gather and consider evidence and make findings of fact and law concerning subsidization and injury issues (Articles 2, 4, 5, and 6). The determinations of the investigating authorities must be made on the basis of the information before the agency (Article 2:9). The investigating authorities must complete their investigation in one year (Article 2:14). In addition, the investigating authorities must give all interested parties, including the foreign respondents, "a reasonable opportunity, upon request, to see all relevant information" and "to present in writing, and upon justification orally, their views to the investigating authorities" (Article 2:5). Throughout the investigative process, therefore, the Agreement required that all parties have the opportunity to state all their arguments in order to influence the investigating authorities. Unless the investigating authorities had all the facts and information (and arguments as to how to interpret those facts and information) they could not take "final action" consistent with the procedural prerequisites of the Agreement. Accordingly, not only was there no provision in the Agreement for presentations ex post facto to a Panel of facts or arguments which had not been raised before the investigating authorities, but the terms of the Agreement, in fact, precluded this. Such untimely presentation of arguments would prevent the investigating authorities from conducting a full investigation, thus denying those authorities the opportunity to consider all the evidence and arguments and render determinations on that basis. In specific, untimely arguments would also deny the other parties their rights under Article 2:5 to see all relevant information and to present their views to the investigating authorities.

22. The United States argued that the procedural and public policy bases of the requirement that only matters raised in consultation and conciliation could be referred to a panel ⁹ also applied to the requirement to raise matters before the investigating authorities. Other rationales for this requirement were that it preserved the integrity of the administrative process and allowed all parties to the administrative proceeding an opportunity to consider and address the facts and arguments raised by other parties. The requirement prevented a reviewing tribunal from usurping the function of the administrative body which had the expertise to rule on the matter. Another purpose was to avoid duplication of effort and waste of resources by the reviewing tribunal. The public policies behind the doctrine of exhaustion of administrative remedies were virtually identical to the rationales underlying the public international law rule of exhaustion of local remedies. Under that rule, if a country offered a remedy under its local laws and procedures, the local remedy should be pursued before the country could be haled before an international tribunal for denying such a remedy.

23. The United States noted in this context that, while in the proceedings before the Panel Norway had claimed that the Agreement required investigating authorities, before initiating an investigation, to take steps to satisfy themselves that a request for the initiation of an investigation was filed on behalf of the domestic industry affected, in the case at hand neither the Government of Norway nor any of the private Norwegian respondents had ever asked the Department of Commerce to take such "steps" either during the period before the initiation of the countervailing duty investigation or at any time after the initiation of the investigation. Norway, having the right under the Agreement to demand consultations with the United States any time a petition was filed with respect to imports from Norway, could have immediately requested, upon the filing of the petition in this case, that the Department of Commerce take whatever steps Norway believed were necessary for the Department to meet the obligations of the United States under the Agreement. Yet Norway had remained silent. In its notice of the initiation of the countervailing duty investigation, the Department had invited interested parties to bring to its attention any information related to the petitioner's claim that it had filed the petition "on behalf" of the domestic industry. Yet the Government of Norway and the Norwegian respondents (all of whom had been represented by the same counsel) had not responded to this invitation. The Department had in recent years rescinded its initiation of investigations after having determined that the petition in question had not been filed on behalf of the relevant domestic industry in the United States. ¹⁰ However, the Government of Norway and the private Norwegian participants had never once, during nearly a year of investigation and thousands of pages of filings, given any sign, or made any representation, which could have alerted the Department to the concern belatedly expressed by Norway in the proceedings before this Panel. Had any of the Norwegian participants done so, the Department could have addressed the situation.

24. Norway contested that the doctrines of exhaustion of local remedies and of exhaustion of administrative remedies applied to dispute settlement proceedings under the Agreement.

25. With respect to the doctrine of exhaustion of local remedies, Norway submitted the following. First, under public international law, the rule of exhaustion of local remedies applied only to cases of diplomatic protection, as distinguished from cases involving "direct injury" to a state. In dispute settlement proceedings under the Agreement, a signatory was not bringing a claim on behalf of one of its nationals: the cause of action in such proceedings was the "direct injury" to a signatory in the form of nullification or impairment of benefits accruing to that signatory or in the form of the impedance of the achievement of any of the objectives of the Agreement. Second, there was no basis in the text of the Agreement for the application of the doctrine of exhaustion of local remedies. Unlike many other international agreements which included an exhaustion of local remedies requirement, the Agreement did not include such a requirement. Had the signatories intended to include such a requirement (which would have drastically changed the procedural steps delineated in the dispute settlement provisions of the Agreement), they would have done so explicitly. Third, there was no GATT practice recognizing the local remedies doctrine. N° GATT Panel had even hinted that exhaustion of local remedies was required. In fact, as demonstrated by recent Panel Reports, GATT practice was contrary to such a requirement. ¹¹ The Vienna Convention on the Law of Treaties directed in Article 31:3(b) that subsequent practice was to be taken into account when interpreting the provisions of an international agreement. In the case of the General Agreement, such subsequent practice clearly did not require the exhaustion of local remedies. The Vienna Convention did not support the incorporation of unexpressed principles of international law. It did allow parties to rely on supplementary means of treaty interpretation when interpreting ambiguous terms of a treaty. However, it was one thing to use customary international law to interpret ambiguous terms of an international agreement; it was quite another to read into the Agreement such a major modification as the local remedies doctrine. If this principle was to be required, the decision had to come through reflective consideration and negotiation by all signatories at the multilateral level.

26. Norway also submitted that the exhaustion of local remedies requirement was a narrow rule in public international law, applicable only to international adjudication, unless otherwise explicitly directed in an international agreement. There was no customary international law rule which required the exhaustion of local remedies in any other kind of international dispute fora. For example, international arbitration agreements were not subject to the requirement of exhaustion of local remedies. Furthermore, international tribunals which had applied the exhaustion of local remedies doctrine had taken a flexible approach in its application and had required exhaustion only after carefully balancing the practical and political pros and cons of doing so. In particular, public international law made the application of the exhaustion of local remedies dependent on criteria of reasonableness and did not require such exhaustion where local remedies were inadequate and ineffective. ¹² No adequate remedy was available for Norway in the courts of the United States for a breach by the United States of its GATT obligations. US domestic law did "not provide a meaningful legal requirement that GATT law be observed". ¹³ In fact, a US trade statute specifically commanded that no provision of any trade agreement, nor the application of any such provision to any person or circumstance, in conflict with any United States statute, shall be given effect under the laws of the United States. ¹⁴ In addition, many courts in the United States refused to give full legal effect to the General Agreement. ¹⁵ Thus, there were no effective local remedies to exhaust in the United States in case of a breach of the General Agreement by the United States.

TO CONTINUE WITH IMPOSITION OF COUNTERVAILING DUTIES ON IMPORTS OF FRESH AND CHILLED ATLANTIC SALMON FROM NORWAY

¹ See also Annex 4.

² 55 Fed.Reg., 28 March 1990, p.11423.

³ Fresh and Chilled Atlantic Salmon from Norway: Determination of the Commission in Investigation No. 701 TA 302 (Preliminary) under the Tariff Act of 1930, together with the Information obtained in the Investigation, USITC Publication 2272, April 1990.

⁴ 55 Fed.Reg., 29 June 1990, p.26727.

⁵ 56 Fed.Reg., 25 February 1991, pp.7678 7687.

⁶ 56 Fed.Reg., 25 Feburary 1991, pp.7679 7681.

⁷ Fresh and Chilled Atlantic Salmon from Norway: Determination of the Commission in Investigation of the Commission in Investigation No. 701 TA.302 (Final) under the Tariff Act of 1930, together with the Information obtained in the Investigation, USITC Publication 2371, April 1991.

⁸ e.g. "United States Imposition of Anti Dumping Duties on Seamless Stainless Steel Hollow Products from Sweden", ADP/47, paragraph 5.24; "United States Countervailing Duties on fresh, chilled and frozen pork from Canada", DS7/R, BISD 38S/30, paragraph 5.2; "Canada Imposition of countervailing duties on imports of manufacturing beef from the EEC", SCM/85, paragraph 5.6 and "New Zealand Imports of electrical transformers from Finland", BISD 32S/55, paragraph 4.11.

⁹ Infra, paragraph 40.

¹⁰ e.g. Gilmore Steel Corp. v. United States, 585 F. Supp. 670 (CIT 1984), aff'd sub nom. Oregon Steel Mills v. United States, 862 F. 2d 1541 (Fed. Cir. 1988)

¹¹ "United States Imposition of Anti Dumping Duties on Imports of Seamless Stainless Steel Hollow Products from Sweden, ADP/47 and "United States Definition of Industry Concerning Wine and Grape Products, SCM/71, adopted on 28 April 1992.

¹² Norwegian Loans Case, ICJ Reports (1957) p.9.

¹³ Hudec, "The Legal Status of GATT in the Domestic Law of the United States", in: Hilf, Jacobs, Petersmann, (eds.) The European Community and GATT (1986) p.193.

¹⁴ 19 .C. S2504(a) (1983 & Suppl. 1991).

¹⁵ e.g. Algoma Steel Corp. v. United States, 865 F.2d 240 (Fed.Cir. 1989).