UNITED STATES - DEFINITIVE SAFEGUARD MEASURES
 ON IMPORTS OF WHEAT GLUTEN FROM THE
 EUROPEAN COMMUNITIES
 
 
 
 AB-2000-10
 
 

Report of the Appellate Body

(continued)

3. Articles 8 and 12 of the Agreement on Safeguards

21. The European Communities urges the Appellate Body to uphold the findings of the Panel that the United States did not act consistently with Articles 8 and 12 of the Agreement on Safeguards. According to the European Communities, the Panel rightly interpreted Article 12 as requiring that all of the procedural steps, findings and decisions set out therein must be made at a date that allows other Members to request consultations, to seek additional information, and to hold meaningful discussions. The United States failed to notify each event listed in Article 12.1 of the Agreement on Safeguards in a timely manner. In addition, the notification made by the United States under Article 12.1(b) was not a notification of a "proposed measure" because its title (and therefore its legal basis) was "Article 12.1(b) notification upon making a finding of serious injury or threat thereof " and it contained only non-binding recommendations of the USITC. Articles 8 and 12.3 of the Agreement on Safeguards impose a heavy burden regarding consultations and negotiations on a Member proposing to alter unilaterally the balance of negotiated concessions. The European Communities emphasizes that, in this case, the United States acted inconsistently with these provisions because it failed to offer any meaningful opportunity for consultations.

C. Claims of Error by the European Communities - Appellant

1. Article 4.2(a) of the Agreement on Safeguards

22. The European Communities challenges the Panel's interpretation of Articles 4.2(a) and 4.2(b) of the Agreement on Safeguards and, in particular, its finding that, in a safeguards investigation, the competent authorities are only required to evaluate factors that are "clearly raised … as relevant by the interested parties".²⁵ (emphasis in original) The European Communities, therefore, requests the Appellate Body to find that the Panel erred in its interpretation of the substantive requirements of Articles 4.2(a) and 4.2(b) of the Agreement on Safeguards and to declare, on the basis of the uncontested facts and clear record in the Panel Report, that the United States violated Articles 4.2(a) and 4.2(b) of the Agreement on Safeguards because the USITC Report contained no analysis of the protein content of wheat. According to the European Communities, this is the single, most important, factor determining the price of wheat gluten.

23. In the view of the European Communities, the ordinary meaning of Article 4.2(a) is that the competent authorities must gather, search, inquire into, generate and examine systematically all the relevant facts that are available - not only those presented to them by interested parties. It would be difficult for the competent authorities to fulfill their obligation under Article 4.2(b) to ensure that imports, taken alone, have caused serious injury, if those authorities were only obliged to evaluate "other factors" raised by interested parties. The European Communities considers that Articles 4.2(c) and 3.1 of the Agreement on Safeguards provide additional context to support its conclusion that the competent authorities are under an obligation to investigate all relevant factors, and notes that such a conclusion accords with the findings of a recent panel in the context of anti-dumping.²⁶ 

2. Article 11 of the DSU

24. The European Communities argues that the Panel erred in its interpretation and application of Article 11 of the DSU. The Appellate Body has established that, pursuant to Article 11 of the DSU, the Panel was obliged to examine all the relevant facts and evidence, and to assess whether the USITC provided a reasoned or adequate explanation of how the facts supported the determinations that were made. The Panel, however, applied an inappropriate standard of deference, and failed to provide an adequate and reasonable explanation for its findings. The European Communities asserts that the "Panel failed in this case to make an 'objective' factual and legal assessment of all relevant evidence, because it failed to provide an adequate and reasonable explanation for its findings".²⁷ The European Communities provides several specific illustrations of the lack of a "sufficient basis" for the findings made.

25. First, the European Communities contends that the Panel erred in endorsing the USITC treatment of "productivity" when the Panel's assessment was based on "data" that could not be verified, and on "statements" made by the competent authorities whose "acts" were under review. In the view of the European Communities, the Panel should have concluded that the United States failed to evaluate overall industry productivity as required by Article 4.2(a) of the Agreement on Safeguards.

26. Second, the European Communities argues that the Panel violated Article 11 of the DSU in its review of the USITC determinations on profits and losses. The Panel did not review the financial data nor the allocation methodologies allegedly used by the producers, as these were all part of the confidential information that the United States declined to submit to the Panel. The Panel's assessment was not "objective" because it was based on "indications" given by the USITC and "clarifications" added by the United States, as well as on the Panel's refusal to "doubt the veracity" of the USITC findings or to "call into question" the scrutiny given by the USITC to data that the Panel never received.²⁸ The European Communities emphasizes that if the Panel had correctly assessed the facts, it would have reached the conclusion that the USITC had not adequately analysed "profits and losses" in accordance with Article 4.2(a) of the Agreement on Safeguards.

27. Third, the European Communities alleges that the Panel erred in not finding that the USITC Report was deficient because, in its causation analysis, the USITC failed to consider the protein content of wheat as a "relevant factor", even though the European Communities' exporters submitted evidence of the relevance of this factor to the USITC, the USITC itself acknowledged the importance of the protein content of wheat, and the Panel had evidence before it of the high correlation between the protein content of wheat and the price of wheat gluten.

28. The European Communities alleges finally that the Panel acted inconsistently with its obligations under Article 11 of the DSU in failing to draw adverse inferences from the refusal of the United States to provide the Panel with information redacted from the USITC Report and other information requested by the European Communities and the Panel. The European Communities requests the Appellate Body to reverse the findings that resulted from such errors, in particular, the Panel's findings that the United States acted consistently with Articles 2.1 and 4 of the Agreement on Safeguards in redacting certain confidential information from the USITC Report, and in determining the existence of imports in "increased quantities" and serious injury. For the European Communities, the Panel erred in according significance to the argument of the United States that Article 3.2 of the Agreement on Safeguards allows it to withhold information from the Panel. The Panel's failure to obtain the information withheld by the United States on the basis of its allegedly confidential nature, coupled with its failure to draw the necessary adverse inferences from the refusal of the United States, amounted to an error of law.

3. Judicial Economy

29. The European Communities asks the Appellate Body to reverse the Panel's exercise of judicial economy in declining to rule on the claim made under Article XIX:1(a) of the GATT 1994. The European Communities argues, on the basis of the Appellate Body Reports in Argentina - Footwear Safeguards and Korea - Definitive Safeguard Measure on Imports of Certain Dairy Products ("Korea - Dairy Safeguard ")²⁹ , that a safeguard investigation must include an investigation of "unforeseen developments". In this case, the USITC Report contains no analysis or demonstration of "unforeseen developments". The European Communities concludes that the Panel erred in declining to rule on the Article XIX:1(a) claim, and that the Appellate Body should itself rule on that claim, because, in this case - in contrast to Argentina - Footwear Safeguards - the Panel found that the United States' determinations of imports in "increased quantities" and "serious injury" were not inconsistent with Articles 2.1 and 4.2 of the Agreement on Safeguards.

30. The European Communities also requests the Appellate Body to reverse the Panel's exercise of judicial economy in declining to rule on the claims made under Article I of the GATT 1994 and Article 5.1 of the Agreement on Safeguards, and to go on to determine, on the basis of the uncontested facts in the record, that the United States acted inconsistently with these provisions. The Panel's failure to rule on the claim under Article 5.1 of the Agreement on Safeguards means that the United States "could simply repeat the serious injury determination and … proceed to apply the measure in the same way."³⁰ 

D. Arguments of the United States - Appellee

1. Article 4.2(a) of the Agreement on Safeguards

31. The United States urges the Appellate Body to reject the European Communities' appeal on the factors that the competent authorities must assess in their safeguard investigation. According to the United States, the Panel correctly determined that the only information pertinent to a panel's assessment of whether the competent authorities adequately evaluated relevant factors under Article 4.2 of the Agreement on Safeguards is information those authorities considered in the course of their investigation. The European Communities, in contrast, argues that the Panel should have relied on information that was not before the USITC. However, the Agreement on Safeguards assigns the task of carrying out investigations to competent authorities. Thus, for the United States, a panel examining the "facts of the case" under Article 11 of the DSU must examine and assess what the competent authorities did in the course of their investigation, not seek to establish additional facts on whether increased imports may or may not have caused serious injury to the domestic industry.

32. According to the United States, the position of the European Communities would undermine the investigative process set out in the Agreement on Safeguards, including important procedural protections built into that Agreement. The United States accepts that, in some cases, a panel will need to assess whether the competent authorities failed to discharge their responsibilities to investigate and to make determinations based on objective evidence. In this case, however, the European Communities seeks to present a panel with information that it, and its wheat gluten producers, failed to present to the USITC. The United States adds that it is not clear that the USITC could itself have obtained the information that the European Communities presented to the Panel.

2. Article 11 of the DSU

33. The United States argues that the Panel acted in accordance with Article 11 of the DSU. In the view of the United States, the nature of the examination that a panel must conduct in order to make an objective assessment of the matter before it depends on the nature of the legal obligation at issue. A panel reviewing a matter arising under Article 4 of the Agreement on Safeguards must assess whether the competent authorities have, in their investigation, evaluated the relevant objective factors, demonstrated a causal link between increased imports and serious injury on the basis of objective evidence, and made a detailed analysis demonstrating the relevance of the factors examined. The only information pertinent to such an assessment is information the competent authorities considered in the course of their investigation and not, as the European Communities argues, information that was not before these authorities.

34. The United States contests the European Communities' claim that the Panel erred in finding that it had a sufficient basis to conduct an objective assessment. For the United States, this argument involves factual findings of the Panel and is thus outside the scope of appellate review. In any event, the United States argues that the Panel properly found that the USITC Report provides adequate, reasoned and reasonable explanations with respect to productivity and profits and losses. The United States contends that the Panel's findings with respect to the USITC consideration of productivity should be upheld because they were based on data and statements contained in the USITC Report regarding worker productivity and industry capital investment. Thus, the Panel correctly found that it is clear from the USITC Report that the USITC examined productivity as required by Article 4.2(a) of the Agreement on Safeguards. Similarly, as regards profits and losses, the USITC reviewed the allocation methodologies used by domestic producers and found them to be appropriate, and, before the Panel, the United States clarified and elaborated on the methodologies examined. In the view of the United States, the Panel was not required itself to verify the allocation of profits and losses as part of its objective assessment.

35. The United States further contends that, in its arguments on the protein content of wheat, the European Communities ignores the fact that the USITC fully examined trends in demand, including the possible impact of changes in the protein content. The USITC was only required to evaluate those factors enumerated in Article 4.2(a) of the Agreement on Safeguards as well as any other relevant factors "clearly raised" by interested parties. The competent authorities are not obliged to "guess"³¹ the relevance of factors not raised by the interested parties, particularly when, as here, the interested parties have clearly argued the relevance of some factors but not of others. The United States cautions that the ability of competent authorities to conduct investigations would be undermined if one Member could rely on the failure of its exporters to inform the competent authorities of a relevant factor in order to argue that another Member acted inconsistently with the Agreement on Safeguards.

36. The United States considers that the Panel acted within its discretion in declining to draw adverse inferences against the United States. The Appellate Body Report in Canada - Measures Affecting the Export of Civilian Aircraft ("Canada - Aircraft ")³² does not apply in this case, since the United States did not refuse to provide information. Rather, the USITC was obliged, under Article 3.2 of the Agreement on Safeguards, not to disclose confidential business information provided to it by interested parties. The United States also points out that the European Communities has not explained why an inference should have been drawn that the information requested was withheld because it was adverse to the United States' position in this case.

3. Judicial Economy

37. The United States submits that the Appellate Body should reject the European Communities' claims under Article XIX:1(a) of the GATT 1994, as well as under Article I of the GATT 1994 and Article 5 of the Agreement on Safeguards. The United States argues that the Appellate Body cannot examine either of these claims because they both involve factual matters upon which the Panel made no findings, and the relevant facts are disputed. The United States adds that, under Article XIX:1(a) of the GATT 1994, the USITC was not required to conduct a separate investigation and make a specific finding that the surge of wheat gluten imports resulted from "unforeseen developments". The United States also submits that it acted consistently with Article 5.1 and 5.2(a) of the Agreement on Safeguards in the application of its safeguard measure.

E. Arguments of the Third Participants

1. Australia

38. At the oral hearing, Australia recorded its agreement with the Panel's conclusions regarding the causation requirement set out in the Agreement on Safeguards, in particular the Panel's statement that "Article 4.2(a) and (b) SA require that increased imports per se are causing serious injury."³³ Australia considers that the approach proposed by the United States would effectively write the causation requirement out of the Agreement on Safeguards and undermine the effectiveness of the rules set out in that Agreement. Australia also urges the Appellate Body to dismiss the European Communities' appeal regarding the Panel's exercise of judicial economy in respect of the claims under Article 5 of the Agreement on Safeguards and Article I of the GATT 1994. Australia submits that, as a matter of law, the Appellate Body should not consider this issue unless it is necessary to resolve the dispute. However, in Australia's view, there are insufficient factual findings to allow the Appellate Body to resolve the issue.

2. Canada

39. Canada maintains that the Panel erred in concluding that the United States did not act consistently with Articles 2.1 and 4.2 of the Agreement on Safeguards by excluding imports of wheat gluten from Canada from the scope of its safeguard measure. Canada notes that, in Argentina - Footwear Safeguards, the Appellate Body said that Articles 2.1 and 4.1(c) "do not resolve the matter of the scope of application of a safeguard measure."³⁴ For Canada, it follows that, if the scope of application of a safeguard measure cannot be resolved with Article 2.1, then, logically, there can be no general rule of "symmetry" in that provision. The non-application of a safeguard measure to imports from a free-trade area partner is not inconsistent with Article 2.2 of the Agreement on Safeguards when - as in this case - a separate investigation determines that such imports are not contributing importantly to the serious injury. Such an approach ensures consistency between the scope of the measure and the products causing the serious injury, and gives the last sentence of footnote 1 to the Agreement on Safeguards a meaning consistent with Article XXIV of the GATT 1994. In this regard, Canada adds that the Panel should have examined the relevance of Articles XIX and XXIV of the GATT 1994.

40. As regards the appeal by the European Communities on the Panel's failure to draw adverse inferences from the refusal of the United States to provide certain requested information, Canada recalls that in Canada - Aircraft, the Appellate Body recognized that there are circumstances in which a refusal to provide information may be justified. Thus, Canada concludes, panels should exercise extreme prudence in drawing adverse inferences from a refusal to provide documents.

3. New Zealand

41. New Zealand submits that the Panel correctly found that the causation analysis applied by the USITC was inconsistent with Article 4.2(b) of the Agreement on Safeguards. For New Zealand, Article 4.2(b) requires a direct causal link between increased imports and serious injury. The second sentence of Article 4.2(b) requires that, when there are multiple causes of serious injury, injury due to other factors should not be counted towards, or attributed to, the injury caused by increased imports. For New Zealand, the causation analysis applied by the USITC is inconsistent with this standard because it allows injury caused by other factors to be imputed to increased imports, and licenses the USITC to ignore other factors contributing to serious injury, as long as the contribution of any individual such factor is less important than the contribution of increased imports.

42. As regards the exclusion of imports from Canada from the safeguard measure, New Zealand accepts that a member of a free-trade area may exclude its free-trade area partners from the application of safeguard measures, but insists that where a member of a free-trade area does so, it must, under the terms of the Agreement on Safeguards, ensure that the imports to which the safeguard measure is applied are the same imports that cause serious injury. New Zealand agrees with the Panel that, in this case, the United States failed to respect this requirement of "symmetry".

43. New Zealand argues that the Panel wrongly applied the standard of review set out in Article 11 of the DSU by excluding from its consideration evidence that would or should have been known to the competent authorities but was not specifically presented to the USITC by interested parties. New Zealand also submits that the Panel correctly interpreted Article 12 of the Agreement on Safeguards and concluded that the United States failed to comply with the notification and consultation requirements set out in that provision. In New Zealand's view, a notification under Article 12.1(c) of that Agreement must contain information concerning the proposed measure and be made at such time as to provide adequate opportunity for prior consultations.

III. Issues Raised in this Appeal

44. This appeal raises the following issues:

(a) whether the Panel erred in finding, in paragraph 8.69 of the Panel Report, that, under Article 4.2(a) of the Agreement on Safeguards, competent authorities are required to evaluate only the "relevant factors" listed in Article 4.2(a) of that Agreement as well as any other "factors" which were "clearly raised before [the competent authorities] as relevant by the interested parties in the domestic investigation";

(b) whether the Panel erred in interpreting Article 4.2(b) of the Agreement on Safeguards to mean that increased imports "alone", "in and of themselves", or "per se", must be capable of causing "serious injury";

(c) whether the Panel erred in finding, in paragraph 8.182 of the Panel Report, that the United States acted inconsistently with Articles 2.1 and 4.2 of the Agreement on Safeguards, by excluding imports from Canada from the application of the safeguard measure, after conducting an investigation embracing imports from all sources, including Canada, to determine whether increased imports of wheat gluten were causing or threatening to cause serious injury to the United States industry, and after subsequently conducting a separate examination of the importance of imports from Canada to the situation of the domestic industry;

(d) whether the Panel erred in its interpretation and application of Articles 8 and 12 of the Agreement on Safeguards, in particular, by finding that:

(i) the United States acted inconsistently with its obligations to make "immediate" notification under Article 12.1 of the Agreement on Safeguards;

(ii) the United States acted inconsistently with Article 12.3 of the Agreement on Safeguards by failing to provide an adequate opportunity for consultations on the measure prior to its implementation; and

(iii) the United States acted inconsistently with Article 8.1 of the Agreement on Safeguards;

(e) whether the Panel erred in its interpretation and application of Article 11 of the DSU, in particular:

(i) in its finding on the USITC's treatment of "productivity" in paragraph 8.46 of the Panel Report;

(ii) in its finding on the USITC's treatment of "profits and losses" in paragraph 8.66 of the Panel Report;

(iii) by failing to examine the arguments made by the European Communities concerning the overall relationship between the protein content of wheat and the price of wheat gluten; and

(iv) by declining to draw "adverse" inferences from the refusal of the United States to provide certain allegedly confidential information requested from it by the Panel under Article 13.1 of the DSU; and

(f) whether the Panel erred in its exercise of judicial economy, in paragraph 8.220 of the Panel Report, in not examining the claims of the European Communities under Article XIX:1(a) of the GATT 1994, and also under Article 5 of the Agreement on Safeguards and Article I of the GATT 1994.

 

26. Panel report, Thailand – Anti-Dumping Duties on Angles, Shapes and Sections of Iron or Non-Alloy Steel and H-Beams from Poland, WT/DS122/R, circulated 28 September 2000, para. 7.236. Thailand has appealed certain issues of law and legal interpretations in that panel report, WT/DS122/4, 23 October 2000.

27. European Communities' other appellant's submission, para. 25.

28. European Communities' other appellant's submission, para. 65.

29. Appellate Body Report, WT/DS98/AB/R, adopted 12 January 2000.

30. European Communities' other appellant's submission, para. 108.

31. United States' appellee's submission, para. 90

32. Appellate Body Report, WT/DS70/AB/R, adopted 20 August 1999.

33. Panel Report, para. 8.143.

34. Appellate Body Report, supra, footnote 22, para. 112.