(Continued)

V. Article XIX of the GATT 1994 and "Unforeseen Developments"

76. The European Communities appeals the Panel's conclusion "that safeguard investigations conducted and safeguard measures imposed after the entry into force of the WTO agreements which meet the requirements of the new Safeguards Agreement satisfy the requirements of Article XIX of GATT."⁶¹ The European Communities appeals as well the Panel's consequent refusal to rule on the European Communities' Article XIX claim, and asks the Appellate Body to reverse the legal interpretations and findings of the Panel made in support of this conclusion, notably the "fundamental error" made by the Panel when it referred to the "express omission of the criterion of unforeseen developments" in the Agreement on Safeguards.⁶² The European Communities argues that the requirement of increased imports resulting from "unforeseen developments" is a fundamental characteristic of a safeguard measure because it lies at the beginning of a "logical continuum" of events justifying the invocation of a safeguard measure.⁶³ The European Communities requests the Appellate Body to find, on the basis of uncontested facts in the Panel Report, that Argentina did not comply with the requirement in Article XIX:1(a) of the GATT 1994 that safeguard measures may only be taken when the alleged increase in imports is "a result of unforeseen developments".⁶⁴

77. In concluding that safeguard investigations and safeguard measures imposed after the entry into force of the Agreement on Safeguards which meet the requirements of that Agreement also thereby "satisfy" the requirements of Article XIX of the GATT 1994, the Panel made the following observations about the relationship between Article XIX of the GATT 1994 and the Agreement on Safeguards:

� the application of safeguard measures in the meaning of Article XIX requires - since the entry into force of the Safeguards Agreement - conformity with the requirements and conditions of the latter agreement. Although all the provisions of Article XIX of
GATT continue to legally co-exist with the Safeguards Agreement in the framework of the single undertaking of the Uruguay Round agreements, any implementation of safeguard measures in the meaning of Article XIX presupposes the application of and thus compliance with the provisions of the Safeguards Agreement.⁶⁵

�

� While the Safeguards Agreement does not supersede or replace Article XIX, which continues to remain in force as part of the GATT, the original conditions contained in Article XIX have to be read in the light of the subsequently negotiated and much more specific provisions of the Safeguards Agreement. Those provisions of the Safeguards Agreement place the original rule of Article XIX within the entire package of the new WTO legal system and make it operational in practice.⁶⁶

�

� Given the reasoning developed by the panel and the Appellate Body in the Brazil - Desiccated Coconut case, it is our view that Article XIX of GATT and the Safeguards Agreement must a fortiori be read as representing an inseparable package of rights and disciplines which have to be considered in conjunction. Therefore, we conclude that Article XIX of GATT cannot be understood to represent the total rights and obligations of WTO Members, but that rather the Safeguards Agreement as applying the disciplines of Article XIX of GATT, reflects the latest statement of WTO Members concerning their rights and obligations concerning safeguards. Thus the Safeguards Agreement should be understood as defining, clarifying, and in some cases modifying the whole package of rights and obligations of Members with respect to safeguard measures as they currently exist. By the same token, and in the light of the principle of effective treaty interpretation, the express omission of the criterion of unforeseen developments in the new agreement (which otherwise transposes, reflects and refines in great detail the essential conditions for the imposition of safeguard measures provided for in Article XIX of GATT) must, in our view, have meaning.⁶⁷

�

� it is our conclusion that safeguard investigations conducted and safeguard measures imposed after the entry into force of the WTO agreements which meet the requirements of the new Safeguards Agreement satisfy the requirements of Article XIX of GATT. Therefore, we see no basis to address the EC's claims under Article XIX of GATT separately and in isolation from those under the Safeguards Agreement.⁶⁸

78. In addressing this issue, we will examine, first, whether the Panel is correct in its conclusion about the relationship between the Agreement on Safeguards and Article XIX of the GATT 1994, and, second, whether the clause - "as a result of unforeseen developments and of the effect of the obligations incurred by a Member under this Agreement, including tariff concessions � " in Article XIX:1(a) of the GATT 1994 continues to have any meaning and legal effect.

79. With respect to the relationship between the Agreement on Safeguards and Article XIX of the GATT 1994, we begin with Article II of the WTO Agreement. Paragraph 2 of that Article stipulates:

The agreements and associated legal instruments included in Annexes 1, 2 and 3 (hereinafter referred to as "Multilateral Trade Agreements") are integral parts of this Agreement, binding on all Members. (emphasis added)

Paragraph 4 of that Article provides:

The General Agreement on Tariffs and Trade 1994 as specified in Annex 1A (hereinafter referred to as "GATT 1994") is legally distinct from the General Agreement on Tariffs and Trade, dated 30 October 1947 � (hereinafter referred to as "GATT 1947"). (emphasis added)

80. We note that the GATT 1994 is the first agreement that appears in Annex 1A to the WTO Agreement, and that it consists of: the provisions of the GATT 1947, as rectified, amended or modified by the terms of legal instruments that entered into force before the entry into force of the WTO Agreement; the provisions of certain legal instruments, such as protocols and certifications, decisions on waivers and other decisions of the CONTRACTING PARTIES to the GATT 1947, that entered into force under the GATT 1947 before the entry into force of the WTO Agreement; certain Uruguay Round Understandings relating to specific GATT articles; and the Marrakesh Protocol to the GATT 1994 containing Members' Schedules of Concessions.⁶⁹

81. Thus, the GATT 1994 is not the GATT 1947. It is "legally distinct" from the GATT 1947. The GATT 1994 and the Agreement on Safeguards are both Multilateral Agreements on Trade in Goods contained in Annex 1A of the WTO Agreement, and, as such, are both "integral parts" of the same treaty, the WTO Agreement, that are "binding on all Members".⁷⁰ Therefore, the provisions of Article XIX of the GATT 1994 and the provisions of the Agreement on Safeguards are all provisions of one treaty, the WTO Agreement. They entered into force as part of that treaty at the same time. They apply equally and are equally binding on all WTO Members. And, as these provisions relate to the same thing, namely the application by Members of safeguard measures, the Panel was correct in saying that "Article XIX of GATT and the Safeguards Agreement must a fortiori be read as representing an inseparable package of rights and disciplines which have to be considered in conjunction."⁷¹ Yet a treaty interpreter must read all applicable provisions of a treaty in a way that gives meaning to all of them, harmoniously.⁷² And, an appropriate reading of this "inseparable package of rights and disciplines" must, accordingly, be one that gives meaning to all the relevant provisions of these two equally binding agreements.

82. The drafters of the WTO Agreement addressed this issue specifically. The precise nature of the relationship between Article XIX of the GATT 1994 and the Agreement on Safeguards within the WTO Agreement is described in Articles 1 and 11.1(a) of the Agreement on Safeguards as follows:

Article 1

General Provision

This Agreement establishes rules for the application of safeguard measures which shall be understood to mean those measures provided for in Article XIX of GATT 1994. (emphasis added)

Article 11

Prohibition and Elimination of Certain Measures

1. (a) A Member shall not take or seek any emergency action on imports of particular products as set forth in Article XIX of GATT 1994 unless such action conforms with the provisions of that Article applied in accordance with this Agreement. (emphasis added)

83. We see nothing in the language of either Article 1 or Article 11.1(a) of the Agreement on Safeguards that suggests an intention by the Uruguay Round negotiators to subsume the requirements of Article XIX of the GATT 1994 within the Agreement on Safeguards and thus to render those requirements no longer applicable. Article 1 states that the purpose of the Agreement on Safeguards is to establish "rules for the application of safeguard measures which shall be understood to mean those measures provided for in Article XIX of GATT 1994." (emphasis added) This suggests that Article XIX continues in full force and effect, and, in fact, establishes certain prerequisites for the imposition of safeguard measures. Furthermore, in Article 11.1(a), the ordinary meaning of the language "unless such action conforms with the provisions of that Article applied in accordance with this Agreement" (emphasis added) clearly is that any safeguard action must conform with
the provisions of Article XIX of the GATT 1994 as well as with the provisions of the Agreement on Safeguards. Neither of these provisions states that any safeguard action taken after the entry into force of the WTO Agreement need only conform with the provisions of the Agreement on Safeguards.⁷³

84. Thus, we conclude that any safeguard measure⁷⁴ imposed after the entry into force of the WTO Agreement must comply with the provisions of both the Agreement on Safeguards and Article XIX of the GATT 1994.

85. As a consequence, we must examine the claims of the European Communities under Article XIX of the GATT 1994, and, specifically, its claim on appeal that the clause - "as a result of unforeseen developments and of the effect of the obligations incurred by a Member under this Agreement, including tariff concessions � " - in Article XIX:1(a) of the GATT 1994 is a requirement that must be satisfied in order for a safeguard measure to be imposed.

86. The provisions of Article XIX:1(a) of the GATT 1994 and Article 2.1 of the Agreement on Safeguards, which together set out the conditions for applying a safeguard measure under the WTO Agreement, read as follows:

GATT 1994

Article XIX

Emergency Action on Imports of Particular Products

1. (a) If, as a result of unforeseen developments and of the effect of the obligations incurred by a Member under this Agreement, including tariff concessions, any product is being imported into the territory of that Member in such increased quantities and under such conditions as to cause or threaten serious injury to domestic producers in that territory of like or directly competitive products, the Member shall be free, in respect of such product, and to the extent and for such time as may be necessary to prevent or remedy such injury, to suspend the obligation in whole or in part or to withdraw or modify the concession. (emphasis added)

Agreement on Safeguards

Article 2

Conditions

1. A Member may apply a safeguard measure to a product only if that Member has determined, pursuant to the provisions set out below, that such product is being imported into its territory in such increased quantities, absolute or relative to domestic production, and under such conditions as to cause or threaten to cause serious injury to the domestic industry that produces like or directly competitive products. (footnote omitted)

87. In comparing the language of Article XIX:1(a) of the GATT 1994 and Article 2.1 of the Agreement on Safeguards, we observe that although much of the language in the two provisions is very similar, and, in fact, identical, the initial clause in Article XIX:1(a) - "as a result of unforeseen developments and of the effect of the obligations incurred by a Member under this Agreement, including tariff concessions � " - does not appear in Article 2.1 of the Agreement on Safeguards. After making this same observation, the Panel concluded that the "unforeseen developments" clause was "expressly omitted" by the Uruguay Round negotiators. And, although the Panel conceded at one point in its reasoning that Article XIX and the Agreement on Safeguards "legally co-exist"⁷⁵ as part of the WTO Agreement, the Panel concluded from this supposedly "express omission" that the "omitted" phrase has no meaning.

88. We believe that, with this conclusion, the Panel failed to give meaning and legal effect to all the relevant terms of the WTO Agreement, contrary to the principle of effectiveness (ut res magis valeat quam pereat) in the interpretation of treaties.⁷⁶ The Panel states that the "express omission of the criterion of unforeseen developments" in Article XIX:1(a) from the Agreement on Safeguards "must, in our view, have meaning."⁷⁷ On the contrary, in our view, if they had intended to expressly omit this clause, the Uruguay Round negotiators would and could have said so in the Agreement on Safeguards. They did not.

89. Furthermore, it is clear from Articles 1 and 11.1(a) of the Agreement on Safeguards that the Uruguay Round negotiators did not intend that the Agreement on Safeguards would entirely replace Article XIX. Instead, the ordinary meaning of Articles 1 and 11.1(a) of the Agreement on Safeguards confirms that the intention of the negotiators was that the provisions of Article XIX of the GATT 1994 and of the Agreement on Safeguards would apply cumulatively, except to the extent of a conflict between specific provisions.⁷⁸ We do not see this as an issue involving a conflict between specific provisions of two Multilateral Agreements on Trade in Goods. Thus, we are obliged to apply the provisions of Article 2.1 of the Agreement on Safeguards and Article XIX:1(a) of the GATT 1994 cumulatively, in order to give meaning, by giving legal effect, to all the applicable provisions relating to safeguard measures.

90. Having concluded that the clause - "as a result of unforeseen developments and of the effect of the obligations incurred by a Member under this Agreement, including tariff concessions � " - in Article XIX:1(a) of the GATT 1994 does have meaning, we are obliged by virtue of that conclusion to consider what that meaning is. Toward this end, we refer again to the language of Article XIX:1(a), in its entirety:

If, as a result of unforeseen developments and of the effect of the obligations incurred by a Member under this Agreement, including tariff concessions, any product is being imported into the territory of that Member in such increased quantities and under such conditions as to cause or threaten serious injury to domestic producers in that territory of like or directly competitive products, the Member shall be free, in respect of such product, and to the extent and for such time as may be necessary to prevent or remedy such injury, to suspend the obligation in whole or in part or to withdraw or modify the concession. (emphasis added)

91. To determine the meaning of the clause - "as a result of unforeseen developments and of the effect of the obligations incurred by a Member under this Agreement, including tariff concessions � " - in sub-paragraph (a) of Article XIX:1, we must examine these words in their ordinary meaning, in their context and in light of the object and purpose of Article XIX.⁷⁹ We look first to the ordinary meaning of these words. As to the meaning of "unforeseen developments", we note that the dictionary definition of "unforeseen", particularly as it relates to the word "developments", is synonymous with "unexpected".⁸⁰ "Unforeseeable", on the other hand, is defined in the dictionaries as meaning "unpredictable" or "incapable of being foreseen, foretold or anticipated".⁸¹ Thus, it seems to us that the ordinary meaning of the phrase "as a result of unforeseen developments" requires that the developments which led to a product being imported in such increased quantities and under such conditions as to cause or threaten to cause serious injury to domestic producers must have been "unexpected". With respect to the phrase "of the effect of the obligations incurred by a Member under this Agreement, including tariff concessions � ", we believe that this phrase simply means that it must be demonstrated, as a matter of fact, that the importing Member has incurred obligations under the GATT 1994, including tariff concessions. Here, we note that the Schedules annexed to the GATT 1994 are made an integral part of Part I of that Agreement, pursuant to paragraph 7 of Article II of the GATT 1994. Therefore, any concession or commitment in a Member's Schedule is subject to the obligations contained in Article II of the GATT 1994.

92. When we examine this clause - "as a result of unforeseen developments and of the effect of the obligations incurred by a Member under this Agreement, including tariff concessions � " - in its immediate context in Article XIX:1(a), we see that it relates directly to the second clause in that paragraph - "If, � , any product is being imported into the territory of that Member in such increased quantities and under such conditions as to cause or threaten serious injury to domestic producers in that territory of like or directly competitive products �". The latter, or second, clause in Article XIX:1(a) contains the three conditions for the application of safeguard measures. These conditions, which are reiterated in Article 2.1 of the Agreement on Safeguards,⁸² are that: (1) a product is being imported "in such quantities and under such conditions"; (2) "as to cause"; (3) serious injury or the threat of serious injury to domestic producers. The first clause in Article XIX:1(a) - "as a result of unforeseen developments and of the obligations incurred by a Member under the Agreement, including tariff concessions � " - is a dependent clause which, in our view, is linked grammatically to the verb phrase "is being imported" in the second clause of that paragraph. Although we do not view the first clause in Article XIX:1(a) as establishing independent conditions for the application of a safeguard measure, additional to the conditions set forth in the second clause of that paragraph, we do believe that the first clause describes certain circumstances which must be demonstrated as a matter of fact in order for a safeguard measure to be applied consistently with the provisions of Article XIX of the GATT 1994. In this sense, we believe that there is a logical connection between the circumstances described in the first clause - "as a result of unforeseen developments and of the effect of the obligations incurred by a Member under this Agreement, including tariff concessions � " - and the conditions set forth in the second clause of Article XIX:1(a) for the imposition of a safeguard measure.

93. Our reading is supported by the context of these provisions. As part of the context of paragraph 1(a) of Article XIX, we note that the title of Article XIX is: "Emergency Action on Imports of Particular Products". The words "emergency action" also appear in Article 11.1(a) of the Agreement on Safeguards. We note once again, that Article XIX:1(a) requires that a product be imported "in such increased quantities and under such conditions as to cause or threaten serious injury to domestic producers". (emphasis added) Clearly, this is not the language of ordinary events in routine commerce. In our view, the text of Article XIX:1(a) of the GATT 1994, read in its ordinary meaning and in its context, demonstrates that safeguard measures were intended by the drafters of the GATT to be matters out of the ordinary, to be matters of urgency, to be, in short, "emergency actions." And, such "emergency actions" are to be invoked only in situations when, as a result of obligations incurred under the GATT 1994, a Member finds itself confronted with developments it had not "foreseen" or "expected" when it incurred that obligation. The remedy that Article XIX:1(a) allows in this situation is temporarily to "suspend the obligation in whole or in part or to withdraw or modify the concession". Thus, Article XIX is clearly, and in every way, an extraordinary remedy.

94. This reading of these phrases is also confirmed by the object and purpose of Article XIX of the GATT 1994. The object and purpose of Article XIX is, quite simply, to allow a Member to re-adjust temporarily the balance in the level of concessions between that Member and other exporting Members when it is faced with "unexpected" and, thus, "unforeseen" circumstances which lead to the product "being imported" in "such increased quantities and under such conditions as to cause or threaten serious injury to domestic producers of like or directly competitive products". In perceiving and applying this object and purpose to the interpretation of this provision of the WTO Agreement, it is essential to keep in mind that a safeguard action is a "fair" trade remedy. The application of a safeguard measure does not depend upon "unfair" trade actions, as is the case with anti-dumping or countervailing measures. Thus, the import restrictions that are imposed on products of exporting Members when a safeguard action is taken must be seen, as we have said, as extraordinary. And, when construing the prerequisites for taking such actions, their extraordinary nature must be taken into account.

95. Our reading of these prerequisites does precisely this, by making certain that all the relevant provisions of the Agreement on Safeguards and Article XIX of the GATT 1994 relating to safeguard measures are given their full meaning and their full legal effect. Our reading, too, is consistent with the desire expressed by the Uruguay Round negotiators in the Preamble to the Agreement on Safeguards "to clarify and reinforce the disciplines of GATT 1994, and specifically those of its Article XIX �, to re-establish multilateral control over safeguards and eliminate measures that escape such control �".⁸³ In furthering this statement of the object and purpose of the Agreement on Safeguards, it must always be remembered that safeguard measures result in the temporary suspension of concessions or withdrawal of obligations, such as those in Article II and Article XI of the GATT 1994, which are fundamental to the WTO Agreement. As such, safeguard measures may be applied only when all the provisions of the Agreement on Safeguards and Article XIX of the GATT 1994 are clearly demonstrated.

96. In addition, we note that our reading of the clause - "as a result of unforeseen developments and of the effect of the obligations incurred by a Member under this Agreement, including tariff concessions � " - in Article XIX:1(a) is also consistent with the one GATT 1947 case that involved Article XIX, the so-called "Hatters' Fur" case.⁸⁴ Members of the Working Party in that case, in 1951, stated:

� "unforeseen developments" should be interpreted to mean developments occurring after the negotiation of the relevant tariff concession which it would not be reasonable to expect that the negotiators of the country making the concession could and should have foreseen at the time when the concession was negotiated.⁸⁵

97. In the light of all of this, we do not agree with the Panel that any safeguard investigations conducted or safeguard measures imposed after the entry into force of the WTO Agreement "which meet the requirements of the new Safeguards Agreement satisfy the requirements of Article XIX of GATT." (emphasis added) Therefore, we reverse the Panel's conclusion in paragraph 8.69 of the Panel Report that safeguard measures imposed after entry into force of the WTO Agreement which meet the requirements of the Agreement on Safeguards necessarily "satisfy" the requirements of Article XIX of the GATT 1994, as well as the Panel's finding that the Uruguay Round negotiators "expressly omitted" the clause - "as a result of unforeseen developments and of the effect of the obligations incurred by a Member under this Agreement, including tariff concessions � " - from Article 2 of the Agreement on Safeguards.

98. As will be seen, in the final section of this Report, we uphold the conclusions of the Panel that Argentina's investigation in this case was inconsistent with the requirements of Articles 2 and 4 of the Agreement on Safeguards. As a consequence, there is no legal basis for the safeguard measures imposed by Argentina. For this reason, we do not believe that it is necessary to complete the analysis of the Panel relating to the claim made by the European Communities under Article XIX of the GATT 1994 by ruling on whether the Argentine authorities have, in their investigation, demonstrated that the increased imports in this case occurred "as a result of unforeseen developments and of the effect of the obligations incurred by a Member under this Agreement, including tariff concessions � ".

VI. Imposition of Safeguard Measures by a Member of a Customs Union

99. Argentina claims on appeal that the Panel misinterpreted footnote 1 to Article 2.1 of the Agreement on Safeguards and erred by "imposing an obligation" on a member of a customs union to apply any safeguard measure on other members of that customs union whenever imports from all sources are taken into account in a safeguards investigation.

100. The Panel described the issue before it as follows:

� the essential question is whether Argentina was permitted under the Safeguards Agreement to take MERCOSUR imports into account in the analysis of injury factors and of a causal link between increased imports and the alleged (threat of) serious injury, and was at the same time permitted to exclude MERCOSUR countries from the application of the safeguard measure imposed.⁸⁶

101. Article 2 of the Agreement on Safeguards provides as follows:

Conditions

1. A Member¹ may apply a safeguard measure to a product only if that Member has determined, pursuant to the provisions set out below, that such product is being imported into its territory in such increased quantities, absolute or relative to domestic production, and under such conditions as to cause or threaten to cause serious injury to the domestic industry that produces like or directly competitive products.

2. Safeguard measures shall be applied to a product being imported irrespective of its source.

---

1 A customs union may apply a safeguard measure as a single unit or on behalf of a member State. When a customs union applies a safeguard measure as a single unit, all the requirements for the determination of serious injury or threat thereof under this Agreement shall be based on the conditions existing in the customs union as a whole. When a safeguard measure is applied on behalf of a member State, all the requirements for the determination of serious injury or threat thereof shall be based on the conditions existing in that member State and the measure shall be limited to that member State. Nothing in this Agreement prejudges the interpretation of the relationship between Article XIX and paragraph 8 of Article XXIV of GATT 1994.

102. The Panel examined the ordinary meaning of footnote 1 to Article 2.1, and stated that "in the case of measures imposed by a customs union there are two options for imposing safeguard measures, i.e., (i) as a single unit or (ii) on behalf of a member State."⁸⁷ (emphasis added) The Panel assumed that it was dealing with a safeguard measure imposed by a customs union "on behalf of a member State" within the meaning of the first and third sentences of footnote 1, and concluded that the "footnote does not concern to whom but rather by whom a safeguard measure may be applied."⁸⁸ The Panel then proceeded to examine the context of Article 2.1 and the footnote thereto. The Panel declared this context to be Article 2.2, which provides that "[s]afeguard measures shall be applied to a product being imported irrespective of its source."⁸⁹ The Panel then stated that:

The ordinary meaning of Article 2.2 would appear to imply that, as a result of a member-State-specific investigation, safeguard measures have to be imposed on a non-discriminatory basis against products from all sources of supply, regardless of whether they originate from within or from outside of the customs union.⁹⁰

103. On the basis of this reasoning, the Panel stated its interpretation that:

� the two options offered by the footnote to Article 2.1 read in conjunction with Article 2.2 imply a parallelism between the scope of a safeguard investigation and the scope of the application of safeguard measures. Thus, in the light of the context of the footnote to Article 2.1, a member-state-specific investigation in which serious injury or threat thereof is found based on imports from all sources could only lead to the imposition of safeguard measures on a MFN-basis against all sources of intra-regional as well as extra-regional supply of a customs union.⁹¹

The Panel concluded, on the basis of its reasoning relating to Article 2, that "a member-state-specific investigation that finds serious injury or threat thereof caused by imports from all sources cannot serve as a basis for imposing a safeguard measure on imports only from third-country sources of supply."⁹²

104. The Panel then turned its attention to Article XXIV of the GATT 1994, in response to an argument by Argentina that Article XXIV of the GATT 1994 and certain MERCOSUR regulations prohibited Argentina from imposing safeguard measures on other MERCOSUR countries. After a lengthy analysis of Article XXIV:8 of the GATT 1994, the Panel stated:

� we do not agree with the argument that in the case before us Argentina is prevented by Article XXIV:8 of GATT from applying safeguard measures to all sources of supply, i.e., third countries as well as other member States of MERCOSUR.⁹³

105. Finally, the Panel concluded as follows:

� in the light of Article 2 of the Safeguards Agreement and Article XXIV of GATT, we conclude that in the case of a customs union the imposition of a safeguard measure only on third-country sources of supply cannot be justified on the basis of a member-state-specific investigation that finds serious injury or threat thereof caused by imports from all sources of supply from within and outside a customs union.⁹⁴

106. We question the Panel's implicit assumption that footnote 1 to Article 2.1 of the Agreement on Safeguards applies to the facts of this case. The ordinary meaning of the first sentence of footnote 1 appears to us to be that the footnote only applies when a customs union applies a safeguard measure "as a single unit or on behalf of a member State".⁹⁵ On the facts of this case, Argentina applied the safeguard measures at issue after an investigation by Argentine authorities of the effects of imports from all sources on the Argentine domestic industry.

107. MERCOSUR did not apply these safeguard measures, either as a single unit or on behalf of Argentina.⁹⁶ When the safeguard measures at issue in this case were adopted by the government of Argentina, the transitional provisions in Chapter XII of the Regulation on the Application of Safeguard Measures to Imports from Non-Members of MERCOSUR (the "Regulation"), approved by Common Market Decision No. 17/96, were in effect among the State Parties of MERCOSUR.⁹⁷ According to these transitional provisions, the investigation procedure for the adoption of safeguard measures was to be conducted by the competent authorities of the State Party in question, applying relevant national legislation.⁹⁸

108. Therefore, at the time the safeguard measures at issue in this case were imposed by the Government of Argentina, these measures were not applied by MERCOSUR "on behalf of" Argentina, but rather, they were applied by Argentina. It is Argentina that is a Member of the WTO for the purposes of Article 2 of the Agreement on Safeguards, and it is Argentina that applied the safeguard measures after conducting an investigation of products being imported into its territory and the effects of those imports on its domestic industry. For these reasons, we do not believe that footnote 1 to Article 2.1 applies to the safeguard measures imposed by Argentina in this case. As a result, we find that the Panel erred in assuming that footnote 1 applied, and we, therefore, reverse the legal reasoning and findings of the Panel relating to footnote 1 to Article 2.1 of the Agreement on Safeguards.

109. Having found that footnote 1 to Article 2.1 is not applicable in this case, we also are not persuaded that an analysis of Article XXIV of the GATT 1994 was relevant to the specific issue that was before the Panel. This issue, as the Panel itself observed, is whether Argentina, after including imports from all sources in its investigation of "increased imports" of footwear products into its territory and the consequent effects of such imports on its domestic footwear industry, was justified in excluding other MERCOSUR member States from the application of the safeguard measures. In our Report in Turkey - Restrictions on Imports of Textile and Clothing Products, we stated that under certain conditions, "Article XXIV may justify a measure which is inconsistent with certain other GATT provisions."⁹⁹ We indicated, however, that this defence is available only when it is demonstrated by the Member imposing the measure that "the measure at issue is introduced upon the formation of a customs union that fully meets the requirements of sub-paragraphs 8(a) and 5(a) of Article XXIV" and "that the formation of that customs union would be prevented if it were not allowed to introduce the measure at issue."¹⁰⁰

110. In this case, we note that Argentina did not argue before the Panel that Article XXIV of the GATT 1994 provided it with a defence to a finding of violation of a provision of the GATT 1994. As Argentina did not argue that Article XXIV provided it with a defence against a finding of violation of a provision of the GATT 1994, and as the Panel did not consider whether the safeguard measures at issue were introduced upon the formation of a customs union that fully meets the requirements of sub-paragraphs 8(a) and 5(a) of Article XXIV, we believe that the Panel erred in deciding that an examination of Article XXIV:8 of the GATT 1994 was relevant to its analysis of whether the safeguard measures at issue in this case were consistent with the provisions of Articles 2 and 4 of the Agreement on Safeguards. Accordingly, as we have found that the Panel's analysis of Article XXIV of the GATT 1994 was not relevant in this case, we reverse the Panel's legal findings and conclusions relating to Article XXIV of the GATT 1994.¹⁰¹

111. We now turn to examine whether the Panel was correct in its interpretation that there is an implied "parallelism between the scope of a safeguard investigation and the scope of the application of safeguard measures."¹⁰² Article 2.1 provides that:

A Member may apply a safeguard measures � only if that Member has determined � that such product is being imported into its territory in such increased quantities � and under such conditions as to cause or threaten to cause serious injury to the domestic industry � (emphasis added)

Article 4.1(c) defines "domestic industry" as meaning "the producers as a whole of the like or directly competitive products operating within the territory of a Member �". (emphasis added) Taken together, the provisions of Articles 2.1 and 4.1(c) of the Agreement on Safeguards demonstrate that a Member of the WTO may only apply a safeguard measure after that Member has determined that a product is being imported into its territory in such increased quantities and under such conditions as to cause or threaten to cause serious injury to its domestic industry within its territory. According to Articles 2.1 and 4.1(c), therefore, all of the relevant aspects of a safeguard investigation must be conducted by the Member that ultimately applies the safeguard measure, on the basis of increased imports entering its territory and causing or threatening to cause serious injury to the domestic industry within its territory.

112. While Articles 2.1 and 4.1(c) set out the conditions for imposing a safeguard measure and the requirements for the scope of a safeguard investigation, these provisions do not resolve the matter of
the scope of application of a safeguard measure. In that context, Article 2.2 of the Agreement on Safeguards provides:

Safeguard measures shall be applied to a product being imported irrespective of its source.

As we have noted, in this case, Argentina applied the safeguard measures at issue after conducting an investigation of products being imported into Argentine territory and the effects of those imports on Argentina's domestic industry. In applying safeguard measures on the basis of this investigation in this case, Argentina was also required under Article 2.2 to apply those measures to imports from all sources, including from other MERCOSUR member States.

113. On the basis of this reasoning, and on the facts of this case, we find that Argentina's investigation, which evaluated whether serious injury or the threat thereof was caused by imports from all sources, could only lead to the imposition of safeguard measures on imports from all sources. Therefore, we conclude that Argentina's investigation, in this case, cannot serve as a basis for excluding imports from other MERCOSUR member States from the application of the safeguard measures.

114. For all the above reasons, we reverse the Panel's legal findings and conclusions relating to footnote 1 to Article 2.1 of the Agreement on Safeguards and Article XXIV of the GATT 1994. We conclude that Argentina, on the facts of this case, cannot justify the imposition of its safeguard measures only on non-MERCOSUR third country sources of supply on the basis of an investigation that found serious injury or threat thereof caused by imports from all sources, including imports from other MERCOSUR member States. However, as we have stated, we do not agree that the Panel was dealing, on the facts of this case, with a safeguard measure applied by a customs union on behalf of a member State. And we wish to underscore that, as the issue is not raised in this appeal, we make no ruling on whether, as a general principle, a member of a customs union can exclude other members of that customs union from the application of a safeguard measure.