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WT/DS165/AB/R11 December 2000
(00-5330)
  Original: English

UNITED STATES - IMPORT MEASURES ON CERTAIN PRODUCTS 
FROM THE EUROPEAN COMMUNITIES



AB-2000-9


Report of the Appellate Body


(Continuation)

II. Arguments of the Participants

A. Claims of Error by the European Communities - Appellant

1. The Measure at Issue

8. The European Communities submits that the measure at issue in this dispute, to which the Panel refers as the 3 March Measure, included not only an increase in bonding requirements imposed on a list of products imported from the European Communities, but also an increase in the duty liability incurred upon the importation of the listed products. The European Communities considers that an increase in bonding requirements is, by necessity, based on an increase in the underlying customs duties, since a bonding requirement is ancillary to, and cannot be legally separated from, the underlying primary obligation.

9. According to the European Communities, there is no difference, in law or in fact, between a "contingent" increase in duty liability that is operated with the uncertain prospect of a return to bound rates at some later occasion, and an unqualified increase in duty liability. The European Communities argues that nothing changed in real terms for the products which remained on the reduced list published on 19 April 1999: their legal situation remained the same as before that date in that they were subject to an increased duty liability, with the only difference being that it was no longer called a "contingent" one.

10. The European Communities disagrees with the Panel's finding that the 19 April action, i.e., the imposition of 100 per cent duties, was not included in the Panel's terms of reference. The European Communities contends that the 19 April action and the 3 March Measure are not legally distinct measures and that, in fact, the 19 April action is a continuation of the 3 March Measure, and, therefore, falls within the terms of reference of the Panel. The European Communities submits that its request for the establishment of a panel referred specifically to the 19 April action.

11. Finally, the European Communities contends that, in addition to the incorrect and artificial distinction the Panel makes between the 3 March Measure, and its confirmation on 19 April 1999, the Panel also erred in finding that "the 3 March Measure is no longer in existence".

2. The Mandate of Arbitrators Appointed Under Article 22.6 of the DSU

12. The European Communities submits that the Panel erroneously considered that the WTO-consistency of an implementing measure can be determined in arbitration proceedings under Article 22.6 of the DSU. In the view of the European Communities, the reasoning of the Panel creates basic systemic problems which severely affect the carefully balanced results of the Uruguay Round.

13. The European Communities submits that the text of Article 22.7 charges the arbitrator with one main task, and two more possible tasks. The main task is to determine whether the level of the suspension of concessions or other obligations is equivalent to the level of nullification or impairment. The arbitrator may also determine whether the proposed suspension of concessions or other obligations is allowed under the covered agreements, and whether the principles and procedures set out in Article 22.3 of the DSU have been followed.

14. The European Communities asserts that the Panel's reading of the relevant procedural provisions of the DSU entirely ignores the fundamental difference between the role of the parties to a dispute in a panel procedure to determine the WTO-consistency of a contested measure, and the role of the parties in an arbitration procedure under Article 22.6 of the DSU. The European Communities also argues that the Member requesting an arbitration procedure under Article 22.6 would have its rights of defence seriously undermined if it had to develop a fully fledged defence of the WTO-consistency of its measure. Further, the European Communities notes that there can be no appeal from an Article 22.6 arbitrator's decision. The European Communities also submits that panel and Appellate Body procedures provide for the active participation of third parties, unlike arbitration proceedings. The European Communities also notes that decisions of arbitrators are not subject to adoption by the DSB. The European Communities, therefore, submits that Article 22.6 arbitration proceedings ensure none of these procedural rights and guarantees, and the Panel's interpretation should be reversed.

15. The European Communities also considers that the interpretation by the Panel of the terms "these dispute settlement procedures, including wherever possible resort to the original panel", in Article 21.5 of the DSU, is incorrect. According to the European Communities, a panel procedure is the ordinary "dispute settlement procedure" in the sense of Article 21.5. In the view of the European Communities, it is apparent that the terms "including wherever possible resort to the original panel" constitute nothing other than an adjustment of the ordinary panel procedure.

3. The Effect of DSB Authorization to Suspend Concessions or Other Obligations

16. The European Communities submits that the Panel incorrectly considered that, as a general rule, once a Member imposes DSB-authorized suspension of concessions or other obligations, that Member's measure is ipso facto WTO-compatible because it has received DSB authorization. According to the European Communities, DSB authorization is a necessary, but not sufficient, condition to legally implement the suspension of concessions or other obligations.

B. Arguments of the United States - Appellee

1. The Measure at Issue

17. The United States submits that the Panel was correct in finding, as a factual matter, that the 3 March Measure consisted only of increased bonding requirements legally distinct from the 19 April action, which imposed increased customs duties. The United States contends that, while this factual finding is beyond the scope of appellate review, it is amply supported by the evidence of the actual legal status of the 3 March Measure under United States law. 

18. The United States asserts that, on 4 March 1999, the European Communities requested consultations with respect to the 3 March Measure. On that date, the United States had not yet taken the 19 April action. According to the United States, the 19 April action could, therefore, not have been the measure identified in either the request for consultations, or in the subsequent request for the establishment of a panel. As a result, the 19 April action could not have been within the terms of reference of the Panel.

19. The United States submits that, in arguing that WTO law does not distinguish between an increase in "contingent" duty liability and an increase in actual duty liability, the European Communities incorrectly assumes, with no evidence in United States law or regulation, that the 3 March Measure increased the actual duties, and that the only changes made on 19 April 1999 were to remove duty liabilities already imposed. Moreover, the European Communities assumes, with no basis in United States law or regulation, that "contingent liability" exists under United States law.

20. Finally, the United States submits that, before the Panel, it explained that the increased bonding requirements of 3 March 1999 were removed for entries of merchandise which were not to be included on the 19 April 1999 list within a few days of the arbitrators' decision of 9 April 1999, and were removed on 19 April 1999 for all remaining products. The United States, therefore, submits that the Panel's statement that the 3 March Measure "is no longer in existence" is correct.

2. The Mandate of Arbitrators Appointed Under Article 22.6 of the DSU


21. The United States contends that the Panel need not, and should not, have reached the issue of the relationship between Articles 21.5 and 22 of the DSU. Firstly, the United States points out that Members of the WTO broadly recognize that this relationship requires clarification. The United States considers that it is for the membership of the WTO to provide such clarification. Secondly, the United States argues that the Panel need not have reached the issue of the relationship because this issue is not implicated by the measure at issue, nor by the Panel's analysis of how a violation of Article 21.5 is established.

22. The United States submits, however, that, while the Panel need not, and should not, have reached the issue of the relationship between Articles 21.5 and 22, it ultimately reached the correct substantive conclusion, namely, that an Article 22.6 arbitrator can determine the WTO-consistency of an implementing measure in determining the equivalent level of suspension of concessions or other obligations.

23. The United States asserts that an analysis of the text of Article 22 supports the Panel's finding. The text of Article 22.2 contains no reference to either Articles 21 or 23 of the DSU. Had the drafters intended to make the suspension of concessions or other obligations conditional upon the completion of another proceeding, they "would not have written the text of Article 22 to refer all deadlines under Article 22 back to the end of the 'reasonable period of time' for implementation" provided for in Article 21.3 of the DSU.14 

24. The United States submits that Article 21.5 does not qualify the phrase "these dispute procedures", with the exception of providing for resort to the original panelists, wherever possible, and establishing an upper limit of 90 days for proceedings. There is, thus, no basis for excluding any dispute settlement procedure that could be used to determine the WTO-consistency of an implementing measure.

25. The United States argues that, if, as the European Communities suggests, Article 21.5 requires that "ordinary" dispute settlement procedures apply, except as specifically provided in Article 21.5, this would lead to the absurd result that "referral to the panel" under Article 21.5 would have to be preceded by consultations, adding an additional 60 days to the process. Even without consideration of this additional time, the 90-day time-frame provided for in Article 21.5 would render inoperative the negative consensus rule in Articles 22.6 and 22.7 of the DSU, if Article 21.5 were read to require separate proceedings under Article 21.5 before a WTO Member could invoke Article 22.

26. The United States argues that the European Communities' arguments on "procedural rights and guarantees", that is, its arguments relating to burden of proof, notice requirements and third party rights, are policy, and not legal, arguments. In making these arguments, the European Communities objects to the text as it stands, and does not explain how the Panel read that text incorrectly.

3. The Effect of DSB Authorization to Suspend Concessions or Other Obligations

27. The United States submits that the Panel's statement on this point, like other of its statements and conclusions on the mandate of arbitrators appointed under Article 22.6, was not germane to the dispute at hand. Accordingly, the United States submits that it was not necessary for the Panel to reach the issue of the WTO-consistency of DSB-authorized measures suspending the application of concessions or other obligations. The United States argues, however, that the decision to authorize the suspension of concessions or other obligations is within the sole authority of the DSB, and it is, therefore, impossible to draw any conclusion other than that a suspension of concessions or other obligations which has been authorized by the DSB is WTO-consistent.

C. Claims of Error by the United States - Appellant

1. Articles II:1(a) and II:1(b), first sentence, of the GATT 1994

28. The United States appeals the Panel's finding that the increased bonding requirements are inconsistent with Articles II:1(a) and II:1(b), first sentence, of the GATT 1994. According to the United States, the Panel made its finding based, not on the conclusion that the bonding requirements themselves breached the obligations in question, but because the duties they might be called upon to enforce, if imposed, would breach those obligations.

29. The United States argues that this approach is inconsistent with the Panel's duty to base its analysis of a measure's WTO-consistency on the measure itself, and not to attribute to that measure the effects or breaches of another measure. Article II:1(a) requires each Member to provide treatment no less favourable than that provided for in its tariff Schedule. Article II:1(b), first sentence, exempts products listed in a Member's Schedule from "ordinary customs duties in excess of those set forth and provided therein," while the second sentence exempts such products from "other duties or charges". The additional bonding requirements in this dispute did not themselves impose additional duties even if, as the Panel concluded, they imposed additional costs.

30. The United States submits that the GATT panel reports cited by the Panel either do not support the Panel's position, or else provide no reasoning to support that position.15 The United States submits that the Panel quoted a statement by the panel in United States - Section 337, but ignored the context of that statement and the nature of the analysis which followed it. In the view of the United States, the analysis in the panel report in EEC - Minimum Import Prices cannot be read to support the conclusion that a breach by a measure may be attributed to the measures enforcing it. With respect to the panel report in EEC - Animal Feed Proteins, the United States argues that the panel in that case provides no persuasive reasoning in support of its conclusion, and the Panel in this dispute should not have followed it.

2. Articles 23.2(a), 3.7 and 21.5 of the DSU

(a) Article 23.2(a) of the DSU

31. The United States submits that the Panel erred in finding that the 3 March Measure was inconsistent with Article 23.2(a) of the DSU, both because the European Communities neither requested nor argued for this finding, and failed to meet its burden of establishing a violation of this provision, and because the Panel based its finding on the erroneous conclusion that a "determination", within the meaning of Article 23.2(a), may be inferred from other actions.

32. The United States argues that the European Communities did not refer to Article 23.2(a) "outside of … passing references".16 At no point in its statements or submissions did the European Communities ever request the Panel to make a finding with respect to Article 23.2(a). Throughout its submissions, the European Communities argued and presented a case only with respect to Articles 23.1 and 23.2(c).

33. The United States submits that, while the simple fact that the European Communities did not make a claim under Article 23.2(a) is sufficient for the Appellate Body to reverse the Panel's finding because the Panel relieved the European Communities of its burden in this dispute, the Appellate Body also should conclude that the Panel's finding under Article 23.2(a) should be rejected because of the inadequacy of the European Communities' panel request, and the prejudice to the United States which resulted.

34. The United States submits that the Appellate Body should also reverse the Panel's finding because the Panel relied on the erroneous conclusion that a "determination" within the meaning of Article 23.2(a) may be inferred from other actions. The United States considers that the Panel wrongly interpreted the term "determination". The United States submits that a "determination" is a formal decision that is made explicitly, as a result of a domestic legal process, and one which has some legal status.

(b) Article 3.7 of the DSU

35. The United States submits that the Panel erred in finding that the 3 March Measure was inconsistent with Article 3.7 of the DSU. The Panel improperly relieved the European Communities of its burden of establishing a violation of Article 3.7, because the European Communities neither requested nor argued for this finding. Furthermore, the United States argues that, even if the European Communities had argued that the 3 March Measure was inconsistent with Article 3.7, it is not clear how it could have demonstrated a violation, since the last sentence of Article 3.7 contains no obligation which might be breached. The United States considers that the last sentence of Article 3.7 is merely descriptive and does not contain an obligation, in the sense of providing that a Member "shall" or "shall not" undertake any action.

(c) Article 21.5 of the DSU

36. The United States submits that the Appellate Body should reverse the Panel's finding that the 3 March Measure is inconsistent with Article 21.5 because this finding is based on argumentation not presented by the European Communities, and on the Panel's erroneous conclusion that the 3 March Measure is inconsistent with Article 23.2(a) of the DSU.

D. Arguments of the European Communities - Appellee

1. Articles II:1(a) and II:1(b), first sentence, of the GATT 1994


37. The European Communities agrees with the United States that the Panel erred when it found that the increased bonding requirements are inconsistent with Article II:1(a) and (b), first sentence, simply because they enforce a measure which is inconsistent with those provisions. The European Communities submits that it did not claim that the bonding requirements "as such" are inconsistent with those provisions on that ground.

38. The European Communities submits that the error appealed by the United States stems from the Panel's mischaracterization of the 3 March Measure as consisting merely of an increase in the generally applicable bonding requirements. The Panel failed to recognize that such increase was only an ancillary measure to enforce the main decision taken by the United States on 3 March 1999, that is, the "contingent" increase of customs duties on listed products to 100 per cent ad valorem.

39. The European Communities asserts that, had the Panel properly characterized the 3 March Measure as also including that duty increase, it would necessarily have come to the conclusion that, as claimed by the European Communities, the duty increase is in breach of Article II:1 (a) and (b), first sentence, whereas the increased bonding requirements "as such" are inconsistent with Article II:1 (b), second sentence of the GATT 1994.

 
Continuation:  2. Articles 23.2(a), 3.7 and 21.5 of the DSU

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14. United States' appellee's submission, para. 48.

15. Panel Report, United States - Section 337 of the Tariff Act of 1930 ("United States - Section 337"), adopted 7 November 1989, BISD, 365/345; Panel Report, EEC - Measures on Animal Feed Proteins ("EEC - Animal Feed Proteins"), adopted 14 March 1978, BISD, 255/49; Panel Report, EEC - Programme of Minimum Import Prices, Licences and Surety Deposits for Certain Processed Fruits and Vegetables ("EEC - Minimum Import Prices"), adopted 18 October 1978, BISD, 255/68.

16. United States' appellant's submission, para. 38.