UNITED STATES - DEFINITIVE SAFEGUARD MEASURES
  ON IMPORTS OF WHEAT GLUTEN FROM THE
  EUROPEAN COMMUNITIES
  
  
  
  AB-2000-10
  
  
  Report of the Appellate Body

(continued)

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

45. Before the Panel, the European Communities argued that the USITC failed to evaluate "all relevant factors", as required by Article 4.2(a) of the Agreement on Safeguards, because the USITC did not examine the relationship between the protein content of wheat and the price of wheat gluten. According to the European Communities, this relationship is the "single, most important, factor determining the price of wheat gluten".³⁵ 

46. The Panel stated that Article 4.2(a) of the Agreement on Safeguards "requires a demonstration that the competent authorities evaluated 'all relevant factors' enumerated in Article 4.2(a) as well as other relevant factors."³⁶ The Panel added:

We read this requirement in Article 4.2(a) SA as mandating that the investigating authorities evaluate those "factors" enumerated in Article 4.2(a) SA as well as any other relevant "factors" -- in the sense of factors that are clearly raised before them as relevant by the interested parties in the domestic investigation.³⁷ (underlining added)

47. The Panel observed that the USITC "considered all the factors expressly enumerated in Article 4.2(a) SA"³⁸. The Panel also noted that the parties "do not dispute that the USITC [also] considered wages, inventories and price.³⁹" However, the Panel found that the USITC was not required to examine the relationship between the protein content of wheat and the price of wheat gluten, as regards "the post-1994 segment of the period of investigation", because this issue was not "clearly raised" before the USITC by the interested parties.⁴⁰ 

48. On appeal, the European Communities argues that the Panel erred in interpreting Article 4.2(a) of the Agreement on Safeguards to mean that the competent authorities need only evaluate the "relevant factors" listed in Article 4.2(a), as well as any other "factors" which were "clearly raised before them as relevant by the interested parties". According to the European Communities, the competent authorities should investigate "all the relevant facts that are available - and not only those presented to them - in order to conduct an assessment of the facts as a whole."⁴¹ (underlining in original)

49. The relevant part of Article 4.2(a) of the Agreement on Safeguards reads:

In the investigation to determine whether increased imports have caused or are threatening to cause serious injury to a domestic industry under the terms of this Agreement, the competent authorities shall evaluate all relevant factors of an objective and quantifiable nature having a bearing on the situation of that industry, in particular, the rate and amount of the increase in imports of the product concerned in absolute and relative terms, the share of the domestic market taken by increased imports, changes in the level of sales, production, productivity, capacity utilization, profits and losses, and employment. (emphasis added)

50. We have already had occasion to observe that:

… Article 4.2(a) of the Agreement on Safeguards requires a demonstration that the competent authorities evaluated, at a minimum, each of the factors listed in Article 4.2(a) as well as all other factors that are relevant to the situation of the industry concerned.⁴² (emphasis added)

51. In this appeal, we are asked to address further the scope of the competent authorities' obligation, under Article 4.2(a), to evaluate "all relevant factors". (emphasis added) The word "all" has a broad meaning which, if read alone, would suggest that the scope of the obligation on the competent authorities to evaluate "relevant factors" is without limits or exceptions.⁴³ However, the word cannot, of course, be read in isolation. As the European Communities acknowledges⁴⁴ , the text of Article 4.2(a) itself imposes certain explicit qualifications on the obligation to evaluate "all relevant factors" as it states that competent authorities need only evaluate factors which are "objective and quantifiable" and which "[have] a bearing on the situation of that industry".

52. The obligation to evaluate "relevant factors" must also be interpreted in light of the duty of the competent authorities to conduct an "investigation" under the Agreement on Safeguards. The competent authorities must base their evaluation of the relevance, if any, of a factor on evidence that is "objective and quantifiable". The competent authorities will, in principle, obtain this evidence during the investigation they must conduct, under Article 3.1, into the situation of the domestic industry. The scope of the obligation to evaluate "all relevant factors" is, therefore, related to the scope of the obligation of competent authorities to conduct an investigation.

53. We turn, therefore, for context, to Article 3.1 of Agreement on Safeguards, which is entitled "Investigation". Article 3.1 provides that "A Member may apply a safeguard measure only following an investigation by the competent authorities of that Member …". (emphasis added) The ordinary meaning of the word "investigation" suggests that the competent authorities should carry out a "systematic inquiry" or a "careful study" into the matter before them.⁴⁵ The word, therefore, suggests a proper degree of activity on the part of the competent authorities because authorities charged with conducting an inquiry or a study - to use the treaty language, an "investigation" - must actively seek out pertinent information.

54. The nature of the "investigation" required by the Agreement on Safeguards is elaborated further in the remainder of Article 3.1, which sets forth certain investigative steps that the competent authorities "shall include" in order to seek out pertinent information. (emphasis added) The focus of the investigative steps mentioned in Article 3.1 is on "interested parties", who must be notified of the investigation, and who must be given an opportunity to submit "evidence", as well as their "views", to the competent authorities. The interested parties are also to be given an opportunity to "respond to the presentations of other parties". The Agreement on Safeguards, therefore, envisages that the interested parties play a central role in the investigation and that they will be a primary source of information for the competent authorities.

55. However, in our view, that does not mean that the competent authorities may limit their evaluation of "all relevant factors", under Article 4.2(a) of the Agreement on Safeguards, to the factors which the interested parties have raised as relevant. The competent authorities must, in every case, carry out a full investigation to enable them to conduct a proper evaluation of all of the relevant factors expressly mentioned in Article 4.2(a) of the Agreement on Safeguards.⁴⁶ Moreover, Article 4.2(a) requires the competent authorities - and not the interested parties - to evaluate fully the relevance, if any, of "other factors". If the competent authorities consider that a particular "other factor" may be relevant to the situation of the domestic industry, under Article 4.2(a), their duties of investigation and evaluation preclude them from remaining passive in the face of possible short-comings in the evidence submitted, and views expressed, by the interested parties. In such cases, where the competent authorities do not have sufficient information before them to evaluate the possible relevance of such an "other factor", they must investigate fully that "other factor", so that they can fulfill their obligations of evaluation under Article 4.2(a). In that respect, we note that the competent authorities' "investigation" under Article 3.1 is not limited to the investigative steps mentioned in that provision, but must simply "include" these steps. Therefore, the competent authorities must undertake additional investigative steps, when the circumstances so require, in order to fulfill their obligation to evaluate all relevant factors.

56. Thus, we disagree with the Panel's finding that the competent authorities need only examine "other factors" which were "clearly raised before them as relevant by the interested parties in the domestic investigation."⁴⁷ (emphasis added) However, as is clear from the preceding paragraph of this Report, we also reject the European Communities' argument that the competent authorities have an open-ended and unlimited duty to investigate all available facts that might possibly be relevant.⁴⁸ 

57. In order to complete the Panel's analysis, we now examine the European Communities' claim that the USITC should have examined the overall relationship between the protein content of wheat and the price of wheat gluten as a "relevant factor", under Article 4.2(a) of the Agreement on Safeguards. We note that this overall relationship was not "evaluated" by the USITC as a "relevant other factor" under Article 4.2(a) of the Agreement on Safeguards. However, the USITC Report is not silent on the importance of the protein content of wheat. The USITC stated that:

… Demand for wheat gluten is closely tied to the protein content of each year's wheat crop. Should the quantity and quality of protein naturally occurring in the wheat supply be low, then bakers consume more wheat gluten to supplement the lack of protein in the wheat. …⁴⁹ (emphasis added)

The USITC also noted that "when the protein level in wheat is high, less wheat gluten is demanded to add to the baking flour."⁵⁰ (emphasis added) The USITC observed that a steep rise, in 1994, in the demand for, and price of, wheat gluten "resulted at least in part from a weather-related deficiency in protein content in the wheat crops of the major producing countries, including the United States, during 1993."⁵¹ 

58. In our view, the USITC clearly acknowledged that the protein content of wheat has an important influence on the demand for, and the price of, wheat gluten. However, the evidence of record indicates that it is only when the protein content of wheat is unusually high or low that this factor merits "evaluation" as a "relevant factor" because it is only in that situation that the protein content of wheat has a noteworthy effect on fluctuations in the demand for, and price of, wheat gluten. The only year of the investigative period in which the protein content of wheat was unusually high or low was in 1993, and this resulted in increased demand and higher prices for wheat gluten solely in 1994. There is no evidence to suggest that during 1996 and 1997, when the surge in imports occurred ,⁵² the protein content of wheat was unusual to such a degree that this factor had a noteworthy effect on fluctuations in the price of wheat gluten. It follows that there is no reason to conclude that the USITC was required to "evaluate" the protein content of wheat as a particular "relevant factor" under Article 4.2(a) of the Agreement on Safeguards in 1996 and 1997.

59. Accordingly, albeit for different reasons, we uphold the Panel's finding that the United States has not acted inconsistently with Articles 4.2(a) and 4.2(b) of the Agreement on Safeguards by not examining the overall relationship between the protein content of wheat and the price of wheat gluten with respect to the post-1994 segment of the period of investigation.⁵³ 

V. Article 4.2(b) of the Agreement on Safeguards

60. In addressing causation, the Panel described the issue before it as:

… whether … the USITC satisfied the requirements in Article 4.2(b) SA to demonstrate the causal link between the increased imports and the serious injury, and not to attribute to imports injury caused by other factors.⁵⁴ 

61. The Panel observed that Article 4.2(b) of the Agreement on Safeguards "contains an explicit textual link to Article 4.2(a)" of that Agreement. Reading these two provisions together, the Panel opined:

… Article 4.2(a) and (b) require a Member: (i) to demonstrate the existence of the causal link between increased imports and serious injury; and (ii) not to attribute injury being caused by other factors to the domestic industry at the same time to increased imports. We consider that, read together, these two propositions require that a Member demonstrate that the increased imports, under the conditions extant in the marketplace, in and of themselves, cause serious injury. This is not to say that the imports must be the sole causal factor present in a situation of serious injury. There may be multiple factors present in a situation of serious injury to a domestic industry. However, the increased imports must be sufficient, in and of themselves, to cause injury which achieves the threshold of "serious" as defined in the Agreement.⁵⁵ (underlining added)

62. The Panel reiterated this interpretation in other ways. It stated that:

… where a number of factors, one of which is increased imports, are sufficient collectively to cause a "significant overall impairment of the position of the domestic industry", but increased imports alone are not causing injury that achieves the threshold of "serious" within the meaning of Article 4.1(a) of the Agreement, the conditions for imposing a safeguard measure are not satisfied.⁵⁶ (underlining added)

63. The Panel concluded that "Article 4.2(a) and (b) SA require that increased imports per se are causing serious injury."⁵⁷ 

64. The United States argues, on appeal, that the Panel erred in interpreting Article 4.2(b) to mean that increased imports must be sufficient, in and of themselves, to cause injury that is "serious". It contends that the word "cause" means "to bring about a result, whether alone or in combination with other factors - not 'to cause on its own.' The plain meaning of 'causal link' in Article 4.2(b), first sentence, is consistent with this understanding of 'to cause'.⁵⁸ " According to the United States, the last sentence of Article 4.2(b) is intended to ensure that other factors do not negate the causal link found to exist, after examining the totality of the circumstances, between increased imports and serious injury.⁵⁹ 

65. The issue of causation plays a central role in any safeguards investigation. In that respect, Article 4.2(b) of the Agreement on Safeguards provides as follows:

The determination referred to in subparagraph (a) shall not be made unless this investigation demonstrates, on the basis of objective evidence, the existence of the causal link between increased imports of the product concerned and serious injury or threat thereof. When factors other than increased imports are causing injury to the domestic industry at the same time, such injury shall not be attributed to increased imports. (emphasis added)

66. In essence, the Panel has read Article 4.2(b) of the Agreement on Safeguards as establishing that increased imports must make a particular contribution to causing the serious injury sustained by the domestic industry. The level of the contribution the Panel requires is that increased imports, looked at "alone" ⁶⁰, "in and of themselves" ⁶¹, or "per se"⁶² , must be capable of causing injury that is "serious". It seems to us that the Panel arrived at this interpretation through the following steps of reasoning: first, under the first sentence of Article 4.2(b), there must be a "causal link" between increased imports and serious injury; second, the non-"attribution" language of the last sentence of Article 4.2(b) means that the effects caused by increased imports must be distinguished from the effects caused by other factors; third, the effects caused by other factors must, therefore, be excluded totally from the determination of serious injury so as to ensure that these effects are not "attributed" to the increased imports; fourth, the effects caused by increased imports alone, excluding the effects caused by other factors, must, therefore, be capable of causing serious injury.⁶³

 67. We begin our reasoning with the first sentence of Article 4.2(b). That sentence provides that a determination "shall not be made unless [the] investigation demonstrates … the existence of the causal link between increased imports … and serious injury or threat thereof." (emphasis added) Thus, the requirement for a determination, under Article 4.2(a), is that "the causal link" exists. The word "causal" means "relating to a cause or causes", while the word "cause", in turn, denotes a relationship between, at least, two elements, whereby the first element has, in some way, "brought about", "produced" or "induced" the existence of the second element.⁶⁴ The word "link " indicates simply that increased imports have played a part in, or contributed to, bringing about serious injury so that there is a causal "connection"⁶⁵ or "nexus" between these two elements. Taking these words together, the term "the causal link" denotes, in our view, a relationship of cause and effect such that increased imports contribute to "bringing about", "producing" or "inducing" the serious injury. Although that contribution must be sufficiently clear as to establish the existence of "the causal link" required, the language in the first sentence of Article 4.2(b) does not suggest that increased imports be the sole cause of the serious injury, or that "other factors" causing injury must be excluded from the determination of serious injury. To the contrary, the language of Article 4.2(b), as a whole, suggests that "the causal link" between increased imports and serious injury may exist, even though other factors are also contributing, "at the same time", to the situation of the domestic industry. 

68. It is precisely because there may be several factors, besides increased imports, contributing simultaneously to the situation of the domestic industry that the last sentence of Article 4.2(b) states that competent authorities "shall not … attribute" to increased imports injury caused by other factors. The opening clause of that sentence indicates, to us, that this sentence provides rules that apply when "increased imports" and certain "other factors" are, together, "causing injury" to the domestic industry "at the same time". The last clause of the sentence stipulates that, in that situation, the injury caused by other factors "shall not be attributed to increased imports". (emphasis added) Synonyms for the word "attribute" include "assign" or "ascribe".⁶⁶ Under the last sentence of Article 4.2(b), we are concerned with the proper "attribution", in this sense, of "injury" caused to the domestic industry by "factors other than increased imports". Clearly, the process of attributing "injury", envisaged by this sentence, can only be made following a separation of the "injury" that must then be properly "attributed". What is important in this process is separating or distinguishing the effects caused by the different factors in bringing about the "injury".

69. Article 4.2(b) presupposes, therefore, as a first step in the competent authorities' examination of causation, that the injurious effects caused to the domestic industry by increased imports are distinguished from the injurious effects caused by other factors. The competent authorities can then, as a second step in their examination, attribute to increased imports, on the one hand, and, by implication, to other relevant factors, on the other hand, "injury" caused by all of these different factors, including increased imports. Through this two stage process, the competent authorities comply with Article 4.2(b) by ensuring that any injury to the domestic industry that was actually caused by factors other than increased imports is not "attributed" to increased imports and is, therefore, not treated as if it were injury caused by increased imports, when it is not. In this way, the competent authorities determine, as a final step, whether "the causal link" exists between increased imports and serious injury, and whether this causal link involves a genuine and substantial relationship of cause and effect between these two elements, as required by the Agreement on Safeguards. ⁶⁷

70. The need to ensure a proper attribution of "injury" under Article 4.2(b) indicates that competent authorities must take account, in their determination, of the effects of increased imports as distinguished from the effects of other factors. However, the need to distinguish between the effects caused by increased imports and the effects caused by other factors does not necessarily imply, as the Panel said, that increased imports on their own must be capable of causing serious injury, nor that injury caused by other factors must be excluded from the determination of serious injury.

71. We consider that Article 4.2(a) of the Agreement on Safeguards, which is explicitly referred to in Article 4.2(b), indicates that "other factors" have to be taken into account in the competent authorities' determination of serious injury. Article 4.2(a) sets forth the factors which the competent authorities "shall evaluate" in "determin[ing] whether increased imports have caused or are threatening to cause serious injury to a domestic industry…". Under that provision the competent authorities must evaluate "all relevant factors … having a bearing on the situation of [the] industry". (emphasis added) In evaluating the relevance of a particular factor, the competent authorities must, therefore, assess the "bearing", or the "influence" or "effect"⁶⁸ that factor has on the overall situation of the domestic industry, against the background of all the other relevant factors.
 

72. The use of the word "all" in the phrase "all relevant factors" in Article 4.2(a) indicates that the effects of any factor may be relevant to the competent authorities' determination, irrespective of whether the particular factor relates to imports specifically or to the domestic industry more generally. This conclusion is borne out by the list of factors which Article 4.2(a) stipulates are, "in particular", relevant to the determination. This list includes factors that relate both to imports specifically and to the overall situation of the domestic industry more generally. The language of the provision does not distinguish between, or attach special importance or preference to, any of the listed factors. In our view, therefore, Article 4.2(a) of the Agreement on Safeguards suggests that all these factors are to be included in the determination and that the contribution of each relevant factor is to be counted in the determination of serious injury according to its "bearing" or effect on the situation of the domestic industry. Thus, we consider that Article 4.2(a) does not support the Panel's conclusion that some of the "relevant factors" - those related exclusively to increased imports - should be counted towards an affirmative determination of serious injury, while others - those not related to increased imports - should be excluded from that determination.⁶⁹ 

73. We believe that Articles 4.2(a) and 4.2(b) of the Agreement on Safeguards must be given a mutually consistent interpretation, particularly in light of the explicit textual connection between these two provisions. According to the opening clause of Article 4.2(b) - "The determination referred to in subparagraph (a) shall not be made unless…" - both provisions lay down rules governing a single determination, made under Article 4.2(a). In our view, it would contradict the requirement in Article 4.2(a) to evaluate - and, thereby, include in the determination - the "bearing" or effect all the relevant factors have on the domestic industry, if those same effects, caused by those same factors, were, with the exception of increased imports, to be excluded under Article 4.2(b), as the Panel suggested.

74. We note, in addition, that our understanding of the factors to be taken into account under Articles 4.2(a) and 4.2(b) is borne out by the definition of "serious injury" given in Article 4.1(a). The term "serious injury" is defined as "a significant overall impairment in the position of a domestic industry". (emphasis added) The breadth of this term also suggests that all factors relevant to the overall situation of the industry should be included in the competent authorities' determination.

75. We are further fortified in our interpretation of Articles 4.2(a) and 4.2(b) of the Agreement on Safeguards by our reading of Article 2.1 of that Agreement. That provision reads:

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. (emphasis added)

76. Article 2.1 reflects closely the "basic principles"⁷⁰ in Article XIX:1(a) of the GATT 1994 and also sets forth "the conditions for imposing a safeguard measure"⁷¹, including those relating to causation. The rules on causation, which are elaborated further in the remainder of the Agreement on Safeguards, therefore, find their roots in Article 2.1. According to that provision, a safeguard measure may be applied if a "product is being imported … in such increased quantities … and under such conditions as to cause …" serious injury. Thus, under Article 2.1, the causation analysis embraces two elements: the first relating to increased "imports" specifically and the second to the "conditions" under which imports are occurring.

77. Each of these two elements is, in our view, elaborated further in Article 4.2(a). While Article 2.1 requires account to be taken of the "increased quantities" of imports, both in "absolute" terms and "relative to domestic production", Article 4.2(a) states, correspondingly, that "the rate and amount of the increase in imports of the product concerned in absolute and relative terms, [and] the share of the domestic market taken by increased imports" are relevant. 

78. As for the second element under Article 2.1, we see it as a complement to the first. While the first element refers to increased imports specifically, the second relates more generally to the "conditions" in the marketplace for the product concerned that may influence the domestic industry. Thus, the phrase "under such conditions" refers generally to the prevailing "conditions", in the marketplace for the product concerned, when the increase in imports occurs. Interpreted in this way, the phrase "under such conditions" is a shorthand reference to the remaining factors listed in Article 4.2(a), which relate to the overall state of the domestic industry and the domestic market, as well as to other factors "having a bearing on the situation of [the] industry". The phrase "under such conditions", therefore, supports the view that, under Articles 4.2(a) and 4.2(b) of the Agreement on Safeguards, the competent authorities should determine whether the increase in imports, not alone, but in conjunction with the other relevant factors, cause serious injury.⁷² 

79. For these reasons, we agree with the first and second steps we identified in the Panel's reasoning; however, we see no support in the text of the Agreement on Safeguards for the third and fourth steps of the Panel's reasoning.⁷³ Therefore, in conclusion, we reverse the Panel's interpretation of Article 4.2(b) of the Agreement on Safeguards that increased imports "alone", "in and of themselves", or "per se ", must be capable of causing injury that is "serious"⁷⁴. And we also reverse the Panel's conclusions on the issue of causation, summarized in paragraph 8.154 of the Panel Report, as these conclusions are based on an erroneous interpretation of Article 4.2(b).

80. As we have reversed the Panel's conclusions regarding causation, we believe that we should now complete the legal analysis on this issue on the basis of the factual findings of the Panel and the undisputed facts in the Panel record. We note that the Panel narrated the findings of the USITC on four potential factors, other than increased imports, for their bearing on the situation of the domestic industry. These were the effects of: "co-product markets", "rising input costs", "importation of wheat gluten by United States domestic producers" and "capacity utilization"⁷⁵. Of these four factors, the Panel made most mention of the last, capacity utilization.

81. The uncontested facts of record relating to the capacity utilization of the domestic industry are as follows⁷⁶. During the period of investigation, 1 July 1993 to 30 June 1997, the average available capacity of United States' producers of wheat gluten rose by a little over 68 percent, with 55 percent of that increase being available by 30 June 1995. Total United States' consumption of wheat gluten rose, during the period of investigation, by 17.8 percent. The amount of wheat gluten produced by United States' producers rose by 12 percent during the first three years of the investigative period, before declining to a closing level that was 96 percent of the starting level. In the face of the increase in average capacity and the decrease in production, United States' capacity utilization levels fell from 78.3 percent, in 1993, to 44.5 percent, in 1997. During the investigative period, the volume of imports increased by nearly 38 percent, with the market share of imports rising from 51.4 percent to 60.2 percent.

82. In evaluating increased capacity and capacity utilization levels as "other possible causes of injury", the USITC said:

… The domestic wheat gluten market is very competitive. Producers have ample excess capacity to meet higher demand. Also, wheat gluten is a commodity product that sells primarily on the basis of price, and wheat gluten from different sources is highly interchangeable. One new domestic producer, Heartland, entered the market in 1996. In addition, the domestic industry added substantial new capacity early in the period of investigation. This increased capacity was added in anticipation of continued strong growth in domestic demand and consumption. Industry projections of continued growth in demand and consumption were largely correct, as apparent consumption increased nearly 18 percent between 1993 and 1997. As indicated above, but for the increase in imports, the industry would have operated at 61 percent of capacity in 1997, which is much closer to the level at which the industry operated early in the investigative period when it operated reasonably profitably. We therefore conclude that neither domestic competition nor increased domestic capacity was a more important cause of serious injury than increased imports.⁷⁷ (emphasis added)

83. In considering this same issue, the Panel noted certain "assertions" of the United States that the increase in the production capacity of the domestic industry "had a role" in the serious injury suffered by the industry.⁷⁸ The Panel then stated:

… To us, these assertions constitute an admission by the United States that at least one factor other than increased imports also contributed to the serious injury experienced by the domestic industry. However, we see no indication in the USITC Report that imports were not also held responsible for the injury caused by this factor.⁷⁹ 

84. We note that the USITC placed particular emphasis on the fact that, "but for the increase in imports", the domestic industry would have operated, in 1997, at nearly 61 percent of available capacity.⁸⁰ The USITC emphasizes this fact because, it says, at that rate of capacity utilization, the domestic industry would have been operating "much closer" to rates attained "early in the investigative period", when the industry was reasonably profitable.⁸¹ The USITC, therefore, makes an explicit link between the profitability of the domestic industry and the rate of capacity utilization.
We also note that, in arriving at the hypothetical figure of 61 percent capacity utilization, the USITC made certain assumptions which it explained in a footnote to the USITC Report.⁸² These assumptions were: first, that total United States' consumption was constant at 1997 levels, representing an 18 percent increase over 1993 levels; second, that the volume of imports was constant throughout the investigative period at 128,337,000 tonnes; and, third, that United States' domestic production satisfied "all of the [18 percent] increase in [United States'] consumption"⁸³. (emphasis added) We observe that, by assuming that domestic producers would supply all of the 18 percent increase in consumption, the USITC also assumed a hypothetical market share for imports that fell from 51.4 percent to 43.6 percent.

85. At the oral hearing, we asked the participants, the United States and the European Communities, to comment on two additional scenarios, based exclusively on the data contained in the USITC Report, that explore further the importance of increases in average capacity and rates of capacity utilization to the situation of the domestic industry. Under the first scenario, the participants both confirmed that the rate of capacity utilization of the domestic industry would have been 74.8 percent if the average capacity of the domestic industry had remained constant throughout the investigative period and had not increased by 68 percent.⁸⁴ At a rate of 74.8 percent, capacity utilization would have fallen by only 3.5 percent from the 1993 rate of 78.3 percent. In other words, but for the increase in available capacity and despite the increase in imports, capacity utilization rates would have remained extremely close to the 1993 rates which allowed the domestic industry to operate profitably.⁸⁵ 

86. Under the second scenario, both participants confirmed that the rate of capacity utilization of the domestic industry would have been 54.2 percent if the United States' producers, and importers, had held, throughout the entire investigation period, a constant market share, by quantity, equal to their respective market shares in 1993. Thus, instead of United States producers supplying all of the 18 percent increase in total consumption, as the USITC assumed in reaching its figure of 61 percent, under this scenario, the increase in total consumption was shared between United States' producers and importers according to their respective 1993 market shares.⁸⁶ In other words, we assume that the percentage increase in the volume of imports is 17.8 percent, the same as the percentage increase in total United States' consumption, and not 38 percent, the figure by which imports actually increased. In that event, the capacity utilization of the domestic industry would have been, as we said, 54.2 percent. Thus, even if imports had done no more than hold their position on the market, and had increased by less than half of the actual increase, the rate of capacity utilization would have fallen significantly and would have been just about 10 percent higher than the levels actually attained in 1997.

87. Although the United States confirmed, at the oral hearing, our understanding of the rates of capacity utilization in these two additional scenarios, it argued that these figures were irrelevant to the role of increased capacity and capacity utilization as possible other causes. According to the United States, the increases in capacity were largely in place by 30 June 1995, when the surge in imports started to occur. The increase in capacity is, therefore, simply a background circumstance and is not a relevant "other factor" causing injury "at the same time" as increased imports, under Article 4.2(b) of the Agreement on Safeguards. 

88. We note that average available capacity in the domestic industry continued to increase between 30 June 1995 and 30 June 1997, albeit at a slower rate than between 30 June 1993 and 
30 June 1995.⁸⁷ Thus, increases in capacity were occurring at the same time as imports were increasing. However, in any event, the relevance of an "other factor", under Article 4.2(b), depends on whether that "other factor" was, or was not, "causing injury" "at the same time" as increased imports. Therefore, the possible relevance of the increases in capacity added during the period of investigation does not depend on the moment in time when the increases in capacity occurred, but on when the effects of those increases are felt, and whether they are "causing injury" "at the same time" as increased imports. Thus, we do not accept the United States' position that the data in the USITC Report on increases in capacity and on capacity utilization are not relevant under Article 4.2(b) of the Agreement on Safeguards.

89. In our view, the two scenarios described above offer a revealing view of the data before the USITC. The first scenario shows that, but for the increase in average capacity, the rate of capacity utilization of the domestic industry would have been only slightly lower in 1997 than it was in 1993; the second scenario shows that, even if the increase in imports had been significantly lower than it actually was, the rate of capacity utilization would, nonetheless, have been significantly lower in 1997 than it was in 1993.

90. The data before the USITC, therefore, suggest that the increases in average available capacity in the domestic industry may have been very important to the overall situation of the domestic industry in 1997. We do not suggest that the increase in capacity utilization was the sole cause of the serious injury sustained by the domestic industry. Nor do we suggest that the increase in imports had no relevance to the situation of the domestic industry. Rather, we submit that the data relied upon by the USITC indicate that the relationship between the increases in average capacity, the increases in imports and the overall situation of the domestic industry was far more complex than suggested by the text of the USITC Report. On this issue, the USITC simply observed that "but for the increase in imports, the [domestic] industry would have operated at 61 percent of capacity in 1997, which is much closer to the level at which the industry operated early in the investigative period when it operated reasonably profitably."⁸⁸ 

91. We are not satisfied, in light of the data that was before the USITC, that the USITC adequately evaluated the complexities of this issue and, in particular, whether the increases in average capacity, during the investigative period, were causing injury to the domestic industry at the same time as increased imports. Under Article 4.2(b) of the Agreement on Safeguards, it is essential for the competent authorities to examine whether factors other than increased imports are simultaneously causing injury. If the competent authorities do not conduct this examination, they cannot ensure that injury caused by other factors is not "attributed" to increased imports. It follows, in this case, that the USITC has not demonstrated adequately, as required by Article 4.2(b), that any injury caused to the domestic industry by increases in average capacity has not been "attributed" to increased imports and, in consequence, the USITC could not establish the existence of "the causal link" Article 4.2(b) requires between increased imports and serious injury.

92. Accordingly, we find that the United States acted inconsistently with its obligations under Article 4.2(b) of the Agreement on Safeguards.

35. European Communities' other appellant's submission, para. 88.

36. Panel Report, para. 8.69.

37. Ibid.

38. Ibid., para. 8.41.

39. Ibid.

40. Ibid., para. 8.125.

41. European Communities' other appellant's submission, para. 80.

42. Appellate Body Report, Argentina – Footwear Safeguards, supra, footnote 22, para. 136.

43. The New Shorter Oxford English Dictionary, (Brown, ed.) (Clarendon Press, 1993), Vol. I, p. 52, indicates that, when the word "all" is used as an adjective preceding a noun in the plural form (as in "all … factors"), it means "The entire number of; the individual constituents of, without exception."

44. European Communities' other appellant's submission, para. 79.

45. The New Shorter Oxford English Dictionary, supra, footnote 43, Vol. I, p. 1410.

46. Appellate Body Report, Argentina – Footwear Safeguards, supra, footnote 22, para. 136.

47. Panel Report, para. 8.69.

48. See, supra, para. 48, for a summary of the European Communities' argument.

49. USITC Report, p. II-9.

50. Ibid., p. I-23.

51. Ibid., pp. I-22 and I-23.

52. USITC Report, p. I-23.

53. Panel Report, para. 8.127.

54. Ibid., para. 8.136.

55. Panel Report, para. 8.138.

56. Ibid., para. 8.139.

57. Ibid., para. 8.143.

58. United States appellant's submission, para. 54.

59. Ibid., para. 82.

60. Panel Report, para. 8.139.

61. Ibid., para. 8.138.

62. Ibid., para. 8.143.

63. We base our understanding of the Panel's reasoning on paragraphs 8.138, 8.139, 8.140 and 8.143 of the Panel Report.

64. The New Shorter Oxford English Dictionary, supra, footnote 43, Vol. I, pp. 355 and 356.

65. Ibid., p. 1598.

66. The New Shorter Oxford English Dictionary, supra, footnote 43, Vol. I, p. 145.

67. See, supra, para. 67.

68. The New Shorter Oxford English Dictionary, supra, footnote 43, Vol. I, pp. 199.

69. See, supra, para. 66, for our summary of the Panel's reasoning.

70. Preamble to the Agreement on Safeguards.

71. Appellate Body Report, Argentina – Footwear Safeguards, supra, footnote 22, para. 112.

72. We do not, of course, exclude the possibility that "serious injury" could be caused by the effects of increased imports alone.

73. Supra, para. 66.

74. Panel Report, paras. 8.138, 8.139 and 8.143.

75. Ibid., paras. 8.147 – 8.150.

76. All the relevant figures are derived from Table C-1, pp. C-3 and C-4, of the USITC Report.

77. USITC Report, p. I-17.

78. Panel Report, para. 8.151.

79. Panel Report, para. 8.151.

80. USITC Report, p. I-17.

81. Ibid. In 1993, the industry operated at 78.3 percent of capacity. In 1994 and 1995 the rates of capacity utilization were 67.4 percent and 56.2 percent, respectively. (USITC Report, Table C-1, p. C-4) The USITC said, at page I-28 of its Report, that the domestic industry was profitable in the period from 1993 – 1995.

82. Footnote 51, p. I-12, USITC Report.

83. Ibid.

84. In examining this scenario, all other figures are assumed to be as they were in 1997.

85. The USITC noted, in the passage quoted above, that the domestic industry was reasonably profitable at the levels of capacity utilization attained "early in the investigative period" (supra, para. 82).

86. In examining this scenario, all other figures are assumed to be as they were in 1997.

87. Average available capacity was: 162,856,000 pounds on 30 June 1993; 253,712,000 pounds on 30 June 1995 (an increase of 55.8%); and, 273,895,000 pounds on 30 June 1997 (a total increase of 68.2%). (USITC Report, Table C-1, p. C-4)

88. USITC Report, p. I-17.