UNITED STATES - TRANSITIONAL SAFEGUARD MEASURE ON
COMBED COTTON YARN FROM PAKISTAN

AB-2001-3
 

Report of the Appellate Body

(continuation)

C. Arguments of the Third Participants

1. European Communities

52. In its third participant's submission, the European Communities confines itself to the question of permissible evidence and submits that a panel's review concerns the work of the competent authority at the time of its determination.

53. The European Communities argues that panels are not empowered to evaluate the work of the competent authority on the basis of evidence that was objectively not available, for example, not in existence, at the time of the determination. This would go beyond the "independent duty of investigation" of the competent authority, which clearly cannot be asked to take into account what is not reasonably available to it while conducting a proper and thorough investigation. However, the European Communities considers that there may be cases where a panel needs to consider evidence that comes into existence after the competent authority's determination, in order to examine the sufficiency and thoroughness of the investigation. As an example, the European Communities refers to a statement from a statistical agency, dated after the investigation, to the effect that it could have produced reliable import statistics if asked, but that it was not. 

54. The European Communities emphasizes that, despite the irrelevance of information objectively not available at the time of the determination to assess the WTO-consistency of that determination, panels should strictly scrutinize the accuracy of the competent authority's investigation. This scrutiny is all the more necessary for safeguard measures taken under the ATC, since that Agreement does not provide for any right to seek removal of a measure that has been adopted without the necessary conditions being fulfilled. In the European Communities' view, this means, for example, that panels should review whether the competent authority seriously tried to verify data which did not come from official sources. 

2. India

(a) Standard of Review

55. India submits that the Panel correctly concluded that it could "examine any evidence … for the purpose of evaluating the thoroughness and sufficiency of the … [determination by the competent] authority."³¹ Article 6.2 of the ATC states that a safeguard action may be taken "when, on the basis of a determination by a Member, it is demonstrated " (emphasis added) that increased imports cause serious damage or actual threat thereof. A determination based on completely incorrect data does not provide this required demonstration. Moreover, under Article 6.3 of the ATC, the determination must be based on an examination of changes in specified economic variables. A determination based on an examination in which completely false data on those variables were used, does not meet that requirement. The role of a panel is, therefore, not merely to make an objective assessment of the competent authority's investigation. In India's view, a panel must also assess whether the results of that investigation are capable of demonstrating that the conditions for imposing the safeguard measure were met at the time the determination was made. 

56. India submits, therefore, that panels, pursuant to Article 11 of the DSU, may examine evidence not available or submitted to the competent authority at the time of the investigation for the purpose of determining whether the conditions for a safeguard action were satisfied at that time. The Panel further made it clear, in its ruling, that such evidence would be relevant under Article 6 of the ATC only if it related to crucial or decisive facts in existence at the time of the investigation. Accordingly, India requests the Appellate Body to find that the Panel's conclusions were consistent with the DSU and the ATC.

(b) Definition of the Domestic Industry

57. India requests the Appellate Body to uphold the Panel's finding that the United States' exclusion of captively produced yarn from the definition of the domestic industry is inconsistent with Article 6.2 of the ATC. This provision refers to the "domestic industry producing like and/or directly competitive products", not to the domestic industry selling those products. In India's view, the ATC defines the domestic industry as the entire domestic industry producing like and/or directly competitive products.

58. India, therefore, disagrees with the United States' interpretation of the domestic industry definition as allowing a range of different industry definitions. India submits that such flexibility would undermine the objective of the ATC of orderly transition and integration of the textiles and clothing sector into the framework of the GATT 1994. India stresses that vertical integration is one form of autonomous industrial adjustment in response to the liberalization of trade in textiles and clothing. The United States' interpretation of Article 6.2 of the ATC is prejudicial to meaningful liberalization of trade in textiles and to autonomous industrial adjustment. 

(c) Attribution of Serious Damage

59. India also requests the Appellate Body to uphold the Panel's finding that the United States acted inconsistently with Article 6.4 of the ATC by not examining the effect of imports from Mexico and other sources, while attributing serious damage of its industry to imports from Pakistan. The Panel correctly pointed out that the text of Article 6.4 of the ATC does not support the United States' interpretation that an importing Member may pick and choose the Member(s) for which it carries out an attribution analysis. 

60. India submits that the Panel correctly concluded that the application of safeguards on a "Member-by-Member" basis and the individual attribution of the damage in Article 6.4 of the ATC do not enable an importing Member to arbitrarily limit its attribution analysis to the imports of one Member only. India asserts that this Member would then suffer a disproportionate share of the effect of the safeguard measure. That result would also be the least consistent with the most-favoured-nation principle and hinder the progressive integration of the textiles and clothing sector into the framework of the GATT 1994. India submits that the Panel's conclusions are firmly based on the text of Article 6.4, its context and the object and purpose of the ATC. 

III. Issues Raised in this Appeal

61. This appeal raises the following issues:

(a) Whether the Panel erred and exceeded the mandate of WTO dispute settlement panels set forth in Article 11 of the DSU by finding that, in examining the conformity of a transitional safeguard measure with Article 6 of the ATC, it could consider evidence that was not in existence at the time of the Member's determination;

(b) Whether the Panel erred in finding that the United States acted inconsistently with Article 6.2 of the ATC by excluding from the scope of the domestic industry the production of combed cotton yarn by vertically integrated producers for their own internal use; and

(c) Whether the Panel erred in (i) stating that Article 6.4 of the ATC requires attribution to all Members whose exports cause serious damage or actual threat thereof, and (ii) finding that the United States acted inconsistently with Article 6.4 by failing to consider the effect of imports from Mexico.

IV. Standard of Review

62. The investigation by the competent authority of the United States leading to the imposition of the transitional safeguard measure on Category 301 imports of combed cotton yarn ("yarn") from Pakistan covered the period from January 1996 until the end of August 1998. The United States relied on data supplied by the American Yarn Spinners Association ("AYSA") and on official data collected by the United States' Bureau of Census for the period up to the end of 1997. For the eight-month period from January to August 1998, the competent authority relied exclusively on AYSA data because official Census data for the calendar year 1998 ("1998 Census data") were published only in the course of 1999, after the United States had made its determination within the meaning of Article 6.2 of the ATC.³² We note that the participants agree that the date of determination was 24 December 1998, when the United States published its Report of Investigation and Statement of Serious Damage or Actual Threat Thereof: Combed Cotton Yarn for Sale: Category 301 (December 1998) (the "Market Statement") and requested bilateral consultations with Pakistan pursuant to Article 6.7. ³³

63. Pakistan argued before the Panel that the determination made by the United States was based on "unverified, incorrect and incomplete data"³⁴, and submitted the 1998 Census data in support of its contention. The United States objected to the use of such data by the Panel because that data did not exist when it made its determination. The Panel concluded:

[W]e shall not examine any evidence for the purpose of reinvestigating the market situation, but we should examine any evidence, without regard to whether it was available or considered at the time of investigation, for the purpose of evaluating the thoroughness and sufficiency of the investigation underpinning the decision of the US authority. (footnote omitted, emphasis added)
…
Accordingly, in our view, the 1998 calendar year US Census data should be examined by the Panel, even though they were not available to the US government at the time of investigation, in order to confirm whether the reliance by the US investigation authority on the AYSA data is justifiable. ³⁵

64. The Panel, therefore, took into account the 1998 Census data, but concluded that the new data did not vitiate the determination of serious damage by the United States.³⁶ 

65. The United States argues on appeal that the Panel erred and exceeded the mandate of WTO dispute settlement panels set forth in Article 11 of the DSU by finding that, in assessing the conformity of the transitional safeguard measure with Article 6 of the ATC, it could examine evidence that was not in existence at the time the United States made its determination of serious damage or threat thereof to the domestic industry.

66. The United States' appeal does not concern the question whether a panel may consider evidence relating to facts that occurred subsequent to the determination.³⁷ Nor does this appeal relate to the question whether a panel may consider evidence which existed before the date of determination, but which was not submitted to the importing Member, or, although submitted, was not considered by that Member.³⁸ This appeal also does not concern the question whether the Member, before making its determination, could have and should have taken additional investigative steps to gather more evidence in order to verify data on all relevant economic variables pertaining to the state of the domestic industry.

67. The issue raised in this appeal is thus limited to whether a panel exceeds its mandate under Article 11 of the DSU by considering, in the context of reviewing a determination under Article 6.2 of the ATC, evidence relating to facts which predate the determination, but which was not in existence at the time the determination was made.³⁹ In other words, the question before us is whether a panel is entitled, in assessing the due diligence of an importing Member in making a determination under Article 6.2 of the ATC, to take into account evidence that could not possibly have been examined by that Member when it made that determination.

68. Article 11 of the DSU lays down the standard of review for panels in disputes under the covered agreements⁴⁰ in the following terms:

[A] panel should make an objective assessment of the matter before it, including an objective assessment of the facts of the case and the applicability of and conformity with the relevant covered agreements, and make such other findings as will assist the DSB in making the recommendations or in giving the rulings provided for in the covered agreements. … (emphasis added)

69. We have considered this standard of review on several occasions.⁴¹ In EC Measures Concerning Meat and Meat Products (Hormones), we stated:

So far as fact-finding by panels is concerned, their activities are always constrained by the mandate of Article 11 of the DSU: the applicable standard is neither de novo review as such, nor "total deference", but rather the "objective assessment of the facts".⁴² (emphasis added)

70. This is the first time we are required to consider a panel's standard of review under 
Article 11 in a dispute under the ATC. We note that the panels in United States - Underwear and United States - Shirts and Blouses considered this standard of review when examining the consistency of transitional safeguard measures with Article 6 of the ATC. The panel in United States - Underwear stated:

[A]n objective assessment would entail an examination of whether the CITA had examined all relevant facts before it …, whether adequate explanation had been provided of how the facts as a whole supported the determination made, and, consequently, whether the determination made was consistent with the international obligations of the United States.⁴³ 

71. We have, however, examined a panel's standard of review in several cases under the Agreement on Safeguards. In Argentina - Footwear Safeguard, we reiterated that a panel must not conduct a de novo review of the evidence nor substitute its analysis and judgment for that of the competent authority.⁴⁴ Yet, we emphasized:

[T]he Panel was obliged, by the very terms of Article 4 [of the Agreement on Safeguards], to assess whether the Argentine authorities had examined all the relevant facts and had provided a reasoned explanation of how the facts supported their determination.⁴⁵ 

72. In United States - Lamb Safeguard, we held that, in considering a claim under the Agreement on Safeguards, a "panel's objective assessment involves a formal aspect and a substantive aspect. The formal aspect is whether the competent authorities have evaluated 'all relevant factors'."⁴⁶ We stated further that, in reviewing determinations of competent authorities, panels should not simply accept the conclusions of that authority:

Panels must … review whether the competent authorities' explanation fully addresses the nature, and, especially, the complexities, of the data, and responds to other plausible interpretations of that data. A panel must find, in particular, that an explanation is not reasoned, or is not adequate, if some alternative explanation of the facts is plausible, and if the competent authorities' explanation does not seem adequate in the light of that alternative explanation.⁴⁷ (emphasis added)

73. In United States - Wheat Gluten Safeguard, concerning a claim under the Agreement on Safeguards, we considered the duties of competent authorities and stated that an investigation by a competent authority requires a proper degree of activity. Their "duties of investigation and evaluation preclude them from remaining passive in the face of possible short-comings in the evidence submitted".⁴⁸ They "must undertake additional investigative steps, when the circumstances so require, in order to fulfil their obligation to evaluate all relevant factors."⁴⁹ In describing the duties of competent authorities, we simultaneously define the duties of panels in reviewing the investigations and determinations carried out by competent authorities.

74. Our Reports in these disputes under the Agreement on Safeguards spell out key elements of a panel's standard of review under Article 11 of the DSU in assessing whether the competent authorities complied with their obligations in making their determinations. This standard may be summarized as follows: panels must examine whether the competent authority has evaluated all relevant factors; they must assess whether the competent authority has examined all the pertinent facts and assessed whether an adequate explanation has been provided as to how those facts support the determination; and they must also consider whether the competent authority's explanation addresses fully the nature and complexities of the data and responds to other plausible interpretations of the data. However, panels must not conduct a de novo review of the evidence nor substitute their judgement for that of the competent authority. 

75. Turning to the application of Article 11 of the DSU in the context of the ATC, we recall that Article 6.2 of that Agreement provides as follows: 

Safeguard action may be taken under this Article when, on the basis of a determination by a Member, it is demonstrated that a particular product is being imported into its territory in such increased quantities as to cause serious damage, or actual threat thereof, to the domestic industry producing like and/or directly competitive products. (footnote omitted, emphasis added)

76. Unlike Article 3 of the Agreement on Safeguards, which provides explicitly for an investigation by competent authorities of a Member, Article 6 of the ATC does not specify either the organ or the procedure through which a Member makes its "determination". Nevertheless, the above principles concerning the standard of review under Article 11 of the DSU with respect to the Agreement on Safeguards apply equally, in our view, to a panel's review of a Member's determination under Article 6 of the ATC. We note that Article 6 does not require the participation of all interested parties in the process leading to the determination. We consider, therefore, that the exercise of due diligence by a Member is all the more important in reaching a determination under Article 6 of the ATC.

77. The exercise of due diligence by a Member cannot imply, however, the examination of evidence that did not exist and that, therefore, could not possibly have been taken into account when the Member made its determination. The demonstration by a Member that a particular product is being imported into its territory in such increased quantities as to cause serious damage (or actual threat thereof) to the domestic industry can be based only on facts and evidence which existed at the time the determination was made. The urgent nature of such an investigation may not permit the Member to delay its determination in order to take into account evidence that might be available only at a future date. Even a determination on the existence of threat of serious injury must be based on projections extrapolating from existing data.⁵⁰

 78. In our view, a panel reviewing the due diligence exercised by a Member in making its determination under Article 6 of the ATC has to put itself in the place of that Member at the time it makes its determination. Consequently, a panel must not consider evidence which did not exist at that point in time.⁵¹ A Member cannot, of course, be faulted for not having taken into account what it could not have known when making its determination. If a panel were to examine such evidence, the panel would, in effect, be conducting a de novo review and it would be doing so without having had the benefit of the views of the interested parties. The panel would be assessing the due diligence of a Member in reaching its conclusions and making its projections with the benefit of hindsight and would, in effect, be reinvestigating the market situation and substituting its own judgement for that of the Member. In our view, this would be inconsistent with the standard of a panel's review under Article 11 of the DSU. 

79. Moreover, if a Member that has exercised due diligence in complying with its obligations of investigation, evaluation and explanation, were held responsible before a panel for what it could not have known at the time it made its determination, this would undermine the right afforded to importing Members under Article 6 to take transitional safeguard action when the determination demonstrates the fulfilment of the specific conditions provided for in this Article.

80. For these reasons, we find that the Panel exceeded its mandate under Article 11 of the DSU by considering United States Census data for the calendar year 1998. 

81. There is no need for the purpose of this appeal to express a view on the question whether an importing Member would be under an obligation, flowing from the "pervasive" general principle of good faith that underlies all treaties , to withdraw a safeguard measure if post-determination evidence relating to pre-determination facts were to emerge revealing that a determination was based on such a critical factual error that one of the conditions required by Article 6 turns out never to have been met.

32. Official United States' Census data are published on an annual basis only.

33. Participants' responses to questioning at the oral hearing.

34. Panel Report, para. 7.25.

35. Ibid., paras. 7.33 and 7.94, in relevant part. The Panel made a similar statement at paragraph 7.35:

[W]e will examine whether the US fact-finding is justifiable in light of all the facts submitted by the parties, including those which were not considered by, or not available to the US authority at the time of investigation. (footnote omitted)

36. Panel Report, paras. 7.98 and 7.101.

37. We note that the participants agree with the Panel that panels cannot consider "developments" subsequent to the determination. (Ibid., footnote 190 to para. 7.33)

38. The United States stresses that the question "whether a panel may consider evidence that might have been available to the national authority at the time of the determination but was not considered", is not before the Appellate Body. (United States' appellant's submission, para. 9)

39. In this dispute, we are dealing with evidence in the form of data that had not been compiled at the time of the determination and, hence, could not have been known. We do not rule on other kinds of evidence.

40. Article 1.1, first sentence, of the DSU. For disputes under the Anti-Dumping Agreement, Article 17.6 of that Agreement "prevails" over Article 11 of the DSU "[t]o the extent that there is a difference" between these provisions. (Article 1.2, second sentence, of the DSU) See, Appellate Body Report, United States – Anti-Dumping Measures on Certain Hot-Rolled Steel Products from Japan ("United States – Hot-Rolled Steel"), WT/DS184/AB/R, adopted 23 August 2001, paras. 50-62; and, Appellate Body Report, Thailand – Anti-Dumping Duties on Angles, Shapes and Sections of Iron or Non-Alloy Steel and H-Beams from Poland, WT/DS122/AB/R, adopted 5 April 2001, paras. 131-138.

41. Appellate Body Report, Argentina – Footwear Safeguard, WT/DS121/AB/R, adopted 12 January 2000, para. 118; Appellate Body Report, United States – Wheat Gluten Safeguard, WT/DS166/AB/R, adopted 19 January 2001, paras. 147-151; Appellate Body Report, United States – Safeguard Measures on Imports of Fresh, Chilled or Frozen Lamb Meat from New Zealand and Australia ("United States – Lamb Safeguard "), WT/DS177/AB/R, WT/DS178/AB/R, adopted 16 May 2001, paras. 101-116.

42. Appellate Body Report, WT/DS26/AB/R, WT/DS48/AB/R, adopted 13 February 1998, DSR 1998:I, 135, para. 117. We wish to emphasize that, although panels are not entitled to conduct a de novo review of the evidence, nor to substitute their own conclusions for those of the competent authorities, this does not mean that panels must simply accept the conclusions of the competent authorities. (Appellate Body Report, United States – Lamb Safeguard, supra, footnote 41, para. 106)

43. Panel Report, supra, footnote 29, para. 7.13. See also, Panel Report, United States – Shirts and Blouses, supra, footnote 13, paras. 7.16 and 7.21.

44. Appellate Body Report, supra, footnote 41, para. 121.

45. Ibid.

46. Appellate Body Report, supra, footnote 41, para. 103.

47. Ibid., para. 106.

48. Appellate Body Report, supra, footnote 41, para. 55.

49. Ibid.

50. See, United States – Lamb Safeguard, where we said as follows:

As facts, by their very nature, pertain to the present and the past, the occurrence of future events can never be definitively proven by facts. There is, therefore, a tension between a future-oriented "threat" analysis, which, ultimately, calls for a degree of "conjecture" about the likelihood of a future event, and the need for a fact-based determination. Unavoidably, this tension must be resolved through the use of facts from the present and the past to justify the conclusion about the future, namely that serious injury is "clearly imminent". (emphasis added)

(Appellate Body Report, supra, footnote 41, para. 136)

51. We do not rule upon other forms of evidence, such as an expert opinion submitted to a panel that is based on data which existed when the Member made its determination. (Appellate Body Report, United States – Lamb Safeguard, supra, footnote 41, paras. 114-116) See further, supra, footnote 39.

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