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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)

 

V. The Measure at Issue

60. The Panel found that the measure at issue in this dispute is the "increased bonding requirements as of 3 March on EC listed products"22 , and called this the 3 March Measure. The Panel found that this measure is "no longer in existence"23. The Panel also found that the 19 April action, i.e., the imposition of 100 per cent duties on certain designated products imported from the European Communities, is a measure that is legally distinct from the 3 March Measure, and that the 19 April action, therefore, does not fall within the terms of reference of the Panel24. The European Communities appeals these findings of the Panel.

61. The Panel was established by the DSB on 16 June 1999.25 In accordance with Article 7.1 of the DSU, the Panel had the following standard terms of reference:

To examine, in the light of the relevant provisions of the covered agreements cited by the European Communities in document WT/DS165/8, the matter referred to the DSB by the European Communities in that document and to make such findings as will assist the DSB in making the recommendations or in giving the rulings provided for in those agreements.26 

62. With respect to the measure at issue in this dispute, we note that the request for the establishment of a panel submitted by the European Communities refers to:

… the US decision, effective as of 3 March 1999, to withhold liquidation on imports from the EC of a list of products, together valued at $520 million on an annual basis, and to impose a contingent liability for 100% duties on each individual importation of affected products as of this date (annex 1). This measure includes administrative provisions that foresee, among other things, the posting of a bond to cover the full potential liability.

This measure has deprived EC imports into the US of the products in question of the right to a duty not in excess of the rate bound in the US Schedule. Moreover, by requiring the deposit of a bond, US Customs effectively already imposed 100% duties on each individual importation as of 3 March 1999, the return of which was uncertain, depending on future US decisions. …27 (emphasis added)


63. With respect to these "future US decisions", the European Communities stated in the panel request:

When the US received WTO authorisation on 19 April 1999 to suspend concessions as of that date on EC imports of products with an annual value of only $191.4 million, a more limited list of products was selected from the previous list (annex 2). At the same time, the US confirmed, despite the prospective nature of the WTO authorisation, the liability for 100% duty on the products on the list in annex 2 that had entered the US for consumption with effect from 3 March 1999.28 

64. The "US decision, effective as of 3 March 1999", to which the panel request refers, is contained in a memorandum, dated 4 March 1999, from Mr. Philip Metzger, Director, Trade Compliance Division, United States Customs Service, to the Customs Area and Port Directors and CMC Directors, regarding "European Sanctions" (the "Metzger Memorandum")29 , as clarified by a memorandum dated 16 March 1999.30 The Metzger Memorandum provided:

Effective for all merchandise classifiable under the Harmonized Tariff Schedule (HTS) subheadings listed below, entered, or withdrawn from warehouse, for consumption, on or after March 3, 1999, and produced in the listed countries, Area and Port Directors must require a Single Transaction Bond (STB) equal to the entered value of the merchandise. The only exception to this requirement is, at the discretion of the Port Director, the importer of record may use a continuous bond equal to 10 per cent of the total of the entered value of the covered merchandise imported by the importer for the preceding year. Ports should process increased continuous bonds immediately.

No entry shall be scheduled to liquidate earlier than the 314th day, thereby ensuring the withholding of liquidation as requested by USTR. …31 

65. It follows from the Metzger Memorandum that the "US decision, effective as of 3 March 1999", to which the panel request refers, concerned a change in bonding requirements and the withholding of liquidation on imports of certain products from the European Communities.

66. With respect to the withholding of liquidation, the Metzger Memorandum instructed United States customs authorities to withhold liquidation until at least the 314th day after entry of the designated products. The United States argued before the Panel that this was, in fact, already the usual practice of the Customs Service and, therefore, did not constitute a change in treatment.32 The Panel did not view the withholding of liquidation as part of the measure at issue in this dispute.33 

67. With respect to the change in bonding requirements, the Metzger Memorandum, as clarified by the memorandum dated 16 March 1999, instructed the United States customs authorities to change the bonding requirements with respect to certain designated products imported from the European Communities. The customs authorities were instructed to demand a single transaction bond equal to the entered value of the designated imports, or to add to the continuous bond an amount equal to 10 per cent of the entered value of the designated products imported by an importer during the previous year.34 The Panel found that the change relating to continuous bonds led to increased bonding requirements.35 It is this aspect of the "US decision, effective as of 3 March 1999" that is in contention in this dispute. The Panel, therefore, found that "[t]he measure in the present dispute is increased bonding requirements as of 3 March on EC listed imports."36 

68. As the request for the establishment of a panel by the European Communities refers to the "US decision, effective as of 3 March 1999" as the measure in dispute, and, as the contentious aspect of this decision is the increase in bonding requirements, we agree with the Panel's finding that the measure at issue in this dispute is the 3 March Measure, which is the "increased bonding requirements" that were imposed as a result of the Metzger Memorandum on designated products imported from the European Communities.

69. We note that, in its request for the establishment of a panel, the European Communities, after describing the "US decision, effective as of 3 March 1999" with respect to which the establishment of a panel was requested, refers to the fact that, after this "US decision" was taken, the United States received WTO authorization on 19 April 1999 to suspend concessions and, at the same time, "confirmed … the liability for 100% duty on the products on the list in annex 2 that had entered the US for consumption with effect from 3 March 1999."37 Undeniably, the panel request by the European Communities does refer to the 19 April action. Yet it is not possible for us to conclude on the basis of this reference alone that the measure at issue in this dispute is not only the 3 March Measure, but also the 19 April action. Therefore, it is not possible for us to conclude, on this basis alone, that the 19 April action is within the Panel's terms of reference.

70. Furthermore, we note that, in our Report in Brazil - Export Financing Programme for Aircraft, we stated that:

Articles 4 and 6 of the DSU … set forth a process by which a complaining party must request consultations, and consultations must be held, before a matter may be referred to the DSB for the establishment of a panel.38 

The European Communities' request for consultations of 4 March 1999 did not, of course, refer to the action taken by the United States on 19 April 1999, because that action had not yet been taken at the time. At the oral hearing in this appeal, in response to questioning by the Division, the European Communities acknowledged that the 19 April action, as such, was not formally the subject of the consultations held on 21 April 1999. We, therefore, consider that the 19 April action is also, for that reason, not a measure at issue in this dispute and does not fall within the Panel's terms of reference.

71. We note the European Communities' contention, before the Panel as well as before us, that the 3 March Measure, in fact, includes not only an increase in bonding requirements, but also the imposition of a "contingent" liability for duties of 100 per cent on a specific list of products imported from the European Communities.39 The European Communities argues that the 19 April action, which provides for the imposition of 100 per cent duties on a reduced list of products imported from the European Communities, is not legally distinct from the 3 March Measure, but rather is a "confirmation" of the 3 March Measure.40 The European Communities sees the increase in bonding requirements effected on 3 March 1999 as inextricably linked with the imposition of 100 per cent duties on 19 April 1999. According to the European Communities, the 3 March Measure "is the basic measure by which the United States imposed sanctions on EC imports ... while the 19 April action is merely partly the confirmation, partly a withdrawal of a pre-existing measure."41 According to the European Communities, "[t]he legal situation did not change" for products from the European Communities that were maintained on the second list "by the 19 April 1999 confirmation of the increase in duty liability for those items".42 (emphasis added)

72. The action taken by the United States customs authorities as of 3 March 1999 is set out in the Metzger Memorandum.43 The action taken by the United States on 19 April 1999 is described in the notice of the United States Trade Representative on "United States suspension of tariff concessions", dated 19 April 1999 and published in the Federal Register (the "USTR Notice")44. The USTR Notice stated that:

The United States Trade Representative (USTR) has decided to suspend the application of tariff concessions and to impose a 100% ad valorem rate of duty on the articles described in the Annex to this notice …

The USTR has determined that, effective April 19, 1999, a 100% ad valorem rate of duty shall be applied to the articles described in the Annex to this notice … and that are entered … on or after March 3, 1999.

73. It cannot be disputed that the 3 March Measure and the 19 April action are related actions of the government of the United States, in as much as both measures were taken by the United States to redress what it saw as the failure of the European Communities to implement the recommendations and rulings of the DSB in the European Communities - Bananas dispute. We note that the official USTR press release of 3 March 1999 announcing the 3 March Measure and the letter from Mr. Peter Scher, Special Trade Negotiator of the USTR for Agriculture, to Mr. Raymond W. Kelly, Commissioner of the United States Customs Service, dated 3 March 1999, stated, respectively, that the 3 March Measure "imposes contingent liability for 100 per cent duties" and that the 3 March Measure was intended "to preserve [the United States'] right to impose 100 percent duties as of March 3, pending the release of the arbitrators' final decision".45 However, these and other statements made by USTR officials do not, in and of themselves, allow us to conclude that the 3 March Measure and the 19 April action are not legally distinct measures. In order to determine the legal relationship between these two measures, we must examine, on the basis of factual findings of the Panel, what the United States actually did on 3 March 1999 and 19 April 1999, irrespective of how the United States described its actions publicly at the time.

74. As noted above, what the United States did on 3 March 1999 is set forth in the Metzger Memorandum; what it did on 19 April 1999 is described in the USTR Notice on "United States suspension of tariff concessions". On the basis of the Metzger Memorandum and the USTR Notice, it is clear that there are a number of differences between the 3 March Measure and the 19 April action. The most important of these differences is that the 3 March Measure provides for increased bonding requirements for certain designated products imported from the European Communities, while the 19 April action provides for the imposition of 100 per cent duties on some, but not all, of the designated products that were previously subject to the increased bonding requirements.46 

75. Moreover, the 3 March Measure was a measure taken by the United States Customs Service and, as explicitly stated in the Metzger Memorandum, a measure taken on the basis of Section 113.13 of the Code of Federal Regulations (the "CFR"), Volume 19. The authority granted to the United States Customs Service under this provision of the CFR does not include the authority to increase customs duties. In contrast, the decision on 19 April 1999 to impose 100 per cent duties on certain designated products imported from the European Communities was an action by the USTR and, as explicitly stated in the USTR Notice dated 19 April 1999 47, an action taken pursuant to the authority granted to the USTR under Section 301 of the Trade Act of 1974.48 This alone need not necessarily make the 3 March Measure and the 19 April action separate and legally distinct measures. It is perfectly possible for more than one governmental agency to be involved in taking a single measure. However, in our view, in this case, the fact that two separate agencies of the United States government acted separately on two separate occasions, and pursuant to two distinctly separate legal authorities, tends to reinforce the notion that the 3 March Measure and the 19 April action were two separate and legally distinct measures.

76. Furthermore, and more significantly, we note that nothing in the 3 March Measure in any way required the United States to impose 100 per cent duties on 19 April 1999. This measure was taken pursuant to Section 113.13 of the CFR. We note that there is nothing in this particular regulation that requires that increased bonding be accompanied by increased customs duties. Nor does Section 113.13 permit customs authorities to increase customs duties, irrespective of whether bonding requirements are increased or not.

77. We also note that the 3 March Measure was not in any way a prerequisite for the imposition of 100 per cent duties on 19 April 1999. The 19 April action was taken by the USTR under authority found in Section 301 of the Trade Act of 1974. We note that there is nothing in Section 301 that in any way requires an increase in customs duties to be preceded or accompanied by any change in bonding requirements. Moreover, we think it significant that there is no perceptible correlation between the amount of the increase in bonding requirements implemented on 3 March 1999 and the 100 per cent customs duties provided for by the 19 April action. The increase in bonding requirements implemented on 3 March 1999 was not calculated on the basis of the imposition of 100 per cent duties, but was fixed at an amount equal to 10 per cent of the entered value of the designated products in the preceding year.49 All this, in our view, reinforces the legal distinctiveness of what the United States did on 3 March and what it did on 19 April 1999.

78. The European Communities has stressed, and we are mindful that, when the United States decided on 19 April 1999 to impose 100 per cent duties on certain designated products from the European Communities, that decision applied retroactively to those designated products imported on or after 3 March 1999. However, this retroactive application of duties as of 3 March 1999 does not mean that the United States had already decided, as a matter of law, on 3 March 1999, to impose 100 per cent duties. As we have just explained, under Section 301 of the Trade Act of 1974, the United States could just as easily have imposed the increased duties retroactively to 3 March 1999 without having increased the bonding requirements on 3 March 1999. Thus, unlike the European Communities, we do not see this element of retroactivity as necessarily leading to the conclusion that the 3 March Measure and the 19 April action are one and the same.

79. Reinforcing this view is the fact that, as the United States explained to the Panel:

… the increased 3 March bonding requirements were removed for entries of merchandise not to be included on the April 19 list within a few days of the Article 22.6 Arbitrator's April 6 report, and were removed on April 19 for all remaining products.50 

Thus, as of 19 April 1999, imports of the products from the European Communities on which 100 per cent duties are imposed were subject once again to the normal United States bonding requirements.

80. In the "Conclusions and Recommendations" section of the Panel Report, the Panel, on the one hand, found that "the 3 March Measure is no longer in existence"51 and, on the other hand, recommended "that the Dispute Settlement Body request the United States to bring its measure into conformity with its obligations under the WTO Agreement."52 We note that the European Communities appeals the Panel's finding that "the 3 March Measure is no longer in existence". As we have discussed, the European Communities contends that the 3 March Measure includes the imposition of the 100 per cent duties currently applied to certain designated products imported from the European Communities. For the reasons we have stated, we disagree.

81. We note, though, that there is an obvious inconsistency between the finding of the Panel that "the 3 March Measure is no longer in existence" and the subsequent recommendation of the Panel that the DSB request that the United States bring its 3 March Measure into conformity with its WTO obligations. The Panel erred in recommending that the DSB request the United States to bring into conformity with its WTO obligations a measure which the Panel has found no longer exists.

82. For all these reasons, we conclude that the Panel correctly found that the measure at issue in this dispute is the 3 March Measure, which is the "increased bonding requirements as of 3 March on EC listed products"53 , that this measure is no longer in existence, that the 19 April action is a legally distinct measure from the 3 March Measure and that the 19 April action is not within the terms of reference of the Panel.

 
Continuation:  VI. The Mandate of Arbitrators Appointed Under Article 22.6 of the DSU

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22. Ibid., para. 6.21.

23. Ibid., para. 7.1.

24. Ibid., para. 6.89 and 6.128.

25. WT/DS165/9, 18 October 1999 and WT/DS165/9/Corr.1, 5 November 1999.

26. Ibid.

27. WT/DS165/8, 11 May 1999.

28. Ibid

29. Panel Report, para. 6.29.

30. Ibid., para. 6.30. This memorandum, entitled "Clarification of Bond Requirements for European Sanctions", was also sent to Customs Area and Port Directors and CMC Directors by Mr. Philip Metzger.

31. The memorandum dated 16 March 1999, which clarified the Metzger Memorandum, stated:

If the importer of record provides a statement at the time of entry (release) certifying that it has reviewed its continuous bond and has added to it an amount equal to 10 percent of the total of the entered value imported by the importer for the preceding year of the merchandise presently subject to the sanctions, the Port Director will accept the continuous bond.

32. See first written submission of the United States, para. 34, and the United States' responses to questions of the Panel and parties (13 January 2000), para. 11. The European Communities did not challenge this assertion.

33. Panel Report, para. 6.21.

34. Ibid., paras. 2.24-2.25 and 6.29-6.30.

35.Panel Report, para. 6.51. With respect to single transaction bonds, the Panel noted that the change in the bonding requirements did not lead to an increase in bonding requirements.

36. Ibid., para. 6.21.

37. WT/DS165/8, 11 May 1999.

38. WT/DS46/AB/R, adopted 20 August 1999, para. 131.

39. European Communities' appellant's submission, para. 17. This list of products is contained in the Metzger Memorandum.

40. The 19 April 1999 list of products is contained in the USTR Notice, dated 19 April 1999. The reduced coverage of the list was the result of the Decision of the Arbitrators, circulated 9 April 1999, that the appropriate level of suspension of concessions or other obligations was $191.4 million, rather than $520 million, the level proposed by the United States.

41. European Communities' appellant's submission, para. 38.

42. Ibid., para. 26.

43. See supra, paras. 64-65.

44. 64 Fed. Reg. 19,209 (1999).

45. Panel Report, para. 2.23.

46. For the difference in product coverage between the 3 March Measure and the 19 April action, see supra, footnotes 39 and 40 of this Report

47. 64 Fed. Reg. 19,210 (1999).

48. 19 U.S.C. § 2411.

49. Panel Report, para. 6.47.

50. United States' appellee's submission, para. 23, referring to United States' second written submission, para. 11 and the United States' responses to questions by the Panel (8 February 2000), para. 21.

51. Panel Report, para. 7.1.

52. Ibid., para. 7.3.

53. Panel Report, para. 6.21