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UNITED STATES - DEFINITIVE SAFEGUARD MEASURES (Continuation) (3) Evaluation by the Panel 7.92 In addressing Korea's claim, we note that the onus is on Korea, as the complaining party, to assert and prove that the line pipe measure exceeded what was "necessary to prevent or remedy serious injury and to facilitate adjustment", contrary to Article 5.1, first sentence.103 7.93 Korea's Article 5.1 claim that the line pipe measure exceeded what was "necessary to prevent or remedy serious injury and to facilitate adjustment" is based in part on a comparison of the line pipe measure with the measure recommended by the ITC and the measure proposed by Petitioners. We have some doubts as to whether any such comparison would be an appropriate basis for assessing compliance with the obligation contained in the first sentence of Article 5.1, primarily because there is no guarantee that the ITC recommendation or Petitioners' proposal are themselves in conformity with Article 5.1, first sentence. At most, these measures provide an indication of what the ITC and Petitioners respectively considered to be necessary for the purpose of Article 5.1, first sentence. In any event, the comparison proposed by Korea would only be determinative if the restrictive effect of either the ITC recommendation or the Petitioners' proposal was set at, or above, the maximum amount "necessary" within the meaning of Article 5.1, first sentence. (i) ITC recommendation104 7.94 In making its remedy recommendation, the ITC stated that the recommended action "will not exceed the amount necessary to remedy the serious injury we find to exist".105 Even assuming that the ITC correctly analysed the restrictive effect of the measure it recommended, there is nothing in this statement to suggest that the restrictive effect of the ITC recommendation was set at (or above) the maximum amount necessary under Article 5.1. The restrictive effect of the recommendation could have been set below the maximum amount necessary, and still the ITC's assertion (that the recommended action "will not exceed the amount necessary") would be accurate. Nor has Korea adduced any evidence (other than the aforementioned ITC statement) to suggest that the restrictive effect of the ITC recommendation is set at (or above) the maximum amount necessary. Since it is theoretically possible that the line pipe measure could be more restrictive of imports than the ITC recommendation, and yet still not exceed the maximum amount "necessary" under the first sentence of Article 5.1, an assertion that the line pipe measure is more restrictive of imports than the ITC recommendation is not indicative of a violation of the first sentence of Article 5.1.106 (ii) Petitioners' proposal107 7.95 The ITC found that the quota proposed by Petitioners "would exceed the amount necessary to prevent or remedy serious injury".108 Thus, assuming that the ITC correctly analysed the restrictive effect of the measure proposed by Petitioners, it is possible that the Petitioners' proposal could constitute an appropriate benchmark for the purpose of assessing the line pipe measure. That is to say, if the line pipe measure were shown to be more restrictive of imports than the Petitioners' proposal, one could perhaps infer from this that the line pipe measure also exceeded what was "necessary" for the purpose of Article 5.1, first sentence. 7.96 In this regard, Korea asserts that "assuming each of the seven individual suppliers (excluding Canada and Mexico) identified by the ITC at the time of the investigation supplies its 9,000 short tons of quota, the seven countries would account for a total quota of 63,000 short tons - far below even the quota requested by Petitioners of 105,849 short tons and rejected by the ITC as overly restrictive".109 Thus, in order to establish that the line pipe measure is more restrictive of imports than the Petitioners' proposal, Korea focuses on the quantitative element of the line pipe tariff quota, and compares it to the quantitative limit included in the quantitative restriction proposed by Petitioners. In doing so, Korea disregards the fundamental difference in the qualitative nature of the two measures, and more particularly the fact that the line pipe measure allows imports in excess of 63,000 short tons (albeit at a higher rate of duty), whereas the measure proposed by Petitioners would not allow any imports in excess of the 105,849 short ton quantitative limit. Korea also overlooks the fact that the line pipe measure applies for three years, while the quantitative restriction proposed by Petitioners would have applied for four years. 7.97 In our view, in order to demonstrate that the line pipe measure was more restrictive of imports than the measure proposed by Petitioners, Korea should have compared the application of the measures as a whole. Korea should not have compared the application of the separate constituent parts of the measures in isolation. Nor should Korea have ignored certain important qualitative differences between the two measures. In light of these considerations, we believe that Korea has failed to demonstrate that the line pipe measure as a whole is more restrictive of imports than the Petitioners' proposal. Thus, even if one assumes that one could establish a violation of Article 5.1, first sentence, on the basis of a finding that the line pipe measure is more restrictive of imports than the measure proposed by Petitioners, Korea has failed to demonstrate that this is the case. (iii) Inferential evidence 7.98 In support of its claim, Korea also refers to certain "inferential evidence of the intended impact" of the line pipe measure:
7.99 Korea asserts that total in-quota110 imports were projected to be approximately 63,000 short tons. Korea uses this figure as a basis for comparing the restrictive effect of the line pipe measure with that of the ITC recommendation and the Petitioners' proposal. This issue is addressed in the preceding section.
7.100 Korea argues that very limited out-of-quota imports could be expected at the 19 per cent tariff level. Korea notes that the 19 per cent tariff surcharge is six to 10 times the bound rate, and that the market would absorb in-quota imports before imports subject to the 19 per cent tariff surcharge. 7.101 We note the US assertion that the 19 per cent tariff surcharge would be expected to increase the average unit value of imports by $62-64 per short ton, to $393-401 per short ton. Domestic producers could either increase their own prices by the same amount and maintain market share relative to imports, or increase their prices by less than $62-64 per short ton and increase their market share relative to imports. If domestic producers were to increase their prices by the full $62-64 per short ton, their operating profit margin would increase to $15 to 17 per short ton on average, for an operating income ratio of 3 to 4 per cent. This would be close to, but not equal to, the industry's profitable years before the import surge. According to the United States, however, it is unlikely that domestic producers could increase their prices by the full $62-64 per short ton, as imports benefiting from the 9,000 short ton exemption would mean that the average unit value of imports would be unlikely to increase by as much as $62-64 per short ton. 7.102 Korea claims that the United States' analysis ignores the combined improvements on domestic producers' operating leverage of both price and volume increases. In our view, however, unless there is a sufficient increase in demand,111 it is economically impossible for domestic producers to increase their prices by the full amount of the increase in the average unit value of imports and obtain an increase in sales volume. In addition, the effect of the 9,000 short ton exemption would make it unlikely that the average unit value of imports would increase by as much as $62-64 per short ton. In light of these considerations, we do not consider that Korea has established that the 19 per cent tariff surcharge renders the line pipe measure more restrictive than "necessary".112
7.103 Korea has submitted actual import data for the period March 2000 - February 2001 (i.e., the 12 month period following imposition of the line pipe measure).113 During this period, 14,604 tons entered at the 19 per cent duty rate, and in-quota imports totalled 64,067 tons. Even if it were appropriate for the Panel to base any findings on this data - a matter which the Panel does not need to resolve - the data does not necessarily establish that the line pipe measure is more restrictive of imports than "necessary". Korea relies on the import data to show that imports under the line pipe measure decreased below the level of imports envisaged by the ITC recommendation or the Petitioners' proposal.114 As noted above, the ITC recommendation does not constitute an appropriate benchmark against which to analyse the consistency of the line pipe measure with Article 5.1, first sentence. 7.104 Even if the Petitioners' proposal did constitute an appropriate benchmark (and assuming that the ITC was correct to find that the Petitioners' proposal was "excessive"), no reliable conclusions can be drawn by comparing the quantitative limit on imports under the proposed measure (105,124 short tons) with actual imports after the imposition of the line pipe measure. This is because there is no telling what the volume of imports would have been in the absence of the line pipe measure. In other words, it is not certain that imports dropped to their actual level between March 2000 and February 2001 purely as a result of the line pipe measure. Other factors, such as unfavourable economic conditions causing a general slow-down in demand, could have contributed to the decline in imports of line pipe.115 Although the Petitioners' proposal envisaged imports of 105,124 short tons, one cannot be certain that 105,849 short tons of line pipe would have actually been imported had the United States applied the measure proposed by Petitioners. Since one cannot assume that 105,849 short tons would have been imported under the measure proposed by Petitioners, it makes no sense to compare that figure to actual imports under the line pipe measure. In addition, a simple year-to-year comparison of import volume fails to take into account the fact that the line pipe measure was applied for three years, whereas the measure proposed by Petitioners would have applied for four years. In light of these considerations, it would be highly speculative for the Panel to draw any conclusions (for the purpose of Article 5.1, first sentence) on the basis of a comparison between actual import data and the quantitative limit on imports proposed by Petitioners.
7.105 We understand Korea to argue that no economic analysis was performed upon imposition of the line pipe measure, and that the only economic analysis available at the time of imposition of the measure was that justifying the ITC recommended measure. As we understand it, therefore, this claim is based on Korea's argument that the United States was required to demonstrate at the time of imposition that the line pipe measure did not exceed what was "necessary to prevent or remedy serious injury and to facilitate adjustment". 7.106 We recall our finding, on the basis of the conclusions of the Appellate Body in Korea - Dairy Safeguard, that the United States was not required to demonstrate at the time of imposition that the line pipe measure did not exceed what was "necessary to prevent or remedy serious injury and to facilitate adjustment". Consistent with this finding, we consider that the United States would be entitled to provide an ex post economic analysis of the facts on the record at the time of imposition to demonstrate that the line pipe measure did not exceed what was "necessary to prevent or remedy serious injury and to facilitate adjustment". Although we find it difficult to imagine how a Member could ensure that its safeguard measure does not exceed what is "necessary to prevent or remedy serious injury and to facilitate adjustment" without performing some form of economic analysis at the time of imposition, failure to do so does not constitute a violation of Article 5.1, first sentence, which is the claim raised by Korea.
7.107
Korea asserts that the ITC recommendation and the ITC's economic memoranda
(from which it was drawn) addressed the injurious effects of the crisis in the
oil and gas industry. Korea notes the United States' assertion that the line
pipe measure was also based on the economic memoranda. According to Korea,
safeguard measures should be confined to addressing the injurious effects of
imports.
7.108 The United States denies that the line pipe measure was intended to
address the injurious effects of the crisis in the oil and gas industry. The
United States asserts that, in any event, the Safeguards Agreement does not
require safeguard measures to be confined to addressing the injurious effects of
imports.
7.109 Korea asserts that, because the United States does not consider that
safeguard measures should be confined to addressing the injurious effects of
imports, the Panel should assume that the line pipe measure was not so confined.
7.110 First, we note that Korea has failed to identify any aspect of the line
pipe measure which would suggest that it was intended to address the injurious
effects of the decline in the oil and gas industry. Second, even assuming for
the sake of argument that the remedy recommended by the ITC was intended to
address the injurious effects of the crisis in the oil and gas industry - and we
make no finding to that effect - this does not mean that the line pipe measure
was also intended to address the injurious effects of the crisis in the oil and
gas industry (especially given the significant differences between the ITC
recommendation and the line pipe measure). The fact that the ITC recommendation
and the line pipe measure are both based on the same economic memoranda, and
that those economic memoranda may have addressed the injurious effects of the
decline in the oil and gas industry,116 does not change this. For these reasons, we
are not persuaded by Korea's argument that the line pipe measure was intended to
address the injurious effects of the crisis in the oil and gas industry. There
is certainly no evidence before us that might prompt us to assume that this was
the case. Since Korea has failed to establish any factual basis for its
argument, it is not necessary for us to consider the substantive issue of
whether or not safeguard measures should be confined to addressing the injurious
effects of imports.
(iv) Conclusion
7.111 To conclude, we find that Article 5.1, first sentence, imposes a specific
obligation on a Member applying a safeguard measure to ensure that the measure
applied is commensurate with the goals of preventing or remedying serious injury
and of facilitating adjustment. We find that compliance by the United States
with this obligation is not to be assessed exclusively on the basis of any
determination made by the United States regarding the necessity of the line pipe
measure at the time of imposition.117 We further find that Korea has failed to meet
its burden to assert and prove that the United States violated Article 5.1,
first sentence, by imposing a measure that exceeds what is "necessary to prevent
or remedy serious injury and to facilitate adjustment".
(c) Article 7.1
7.112 Korea claims that the United States failed to comply with the requirements
of Article 7.1 concerning the duration of a safeguard measure. According to
Korea, "there was significant evidence that the temporary downturn in the
industry from the second half of 1998 until the first half of 1999 had reversed
by the time of the ITC's decision in October of 1999 and, therefore, no remedy,
let alone a measure for three years, was necessary".118
7.113 Article 7.1 provides that:
A Member shall apply safeguard measures only for such period of time as may be
necessary to prevent or remedy serious injury and to facilitate adjustment.
7.114 We understand Korea to argue that the duration of the line pipe measure
was excessive because the condition of the industry at the end of the period of
investigation was such that there was no serious injury, and therefore no
safeguard measure was justified, let alone a measure of three years. We
therefore understand Korea's Article 7.1 claim to be dependent on a finding that
the condition of the industry at the end of the period of investigation
precluded a determination of serious injury. We address this issue in section
VII.C.2, where we find no basis for any such finding. Since there is no basis
for a finding that a determination of serious injury at the end of the period of
investigation was precluded, we reject Korea's Article 7.1 claim that the
absence of serious injury at the end of the period of investigation prevented
the imposition of any safeguard measure, let alone a measure of three years.
(d) Article XIX:1(a)
7.115 In the context of its claims under Articles 5.1 (first sentence) and 7.1
concerning the extent and duration of the line pipe measure, Korea also alleged
an infringement of Article XIX:1(a). This provision authorizes the imposition of
safeguard measures "to the extent and for such time as may be necessary to
prevent or remedy" injury caused by increased imports. Korea's Article XIX:1(a)
claim is based on the same arguments advanced in support of its Article 5.1
(first sentence) and 7.1 claims. Since we have already rejected those claims, we
also reject Korea's Article XIX:1(a) claim regarding the duration and extent of
the line pipe measure.
4. Claims under Articles 3.1 and 4.2(c)
7.116 Korea asserts that the United States violated Articles 3.1 and 4.2(a) by
failing to demonstrate, at the time of imposition, that the line pipe measure
was in conformity with the requirements of Article 5.1, first sentence.119
7.117 It is somewhat unclear to us whether this assertion forms the basis of a
separate claim by Korea, or whether it forms part of its claim regarding Article
5.1, first sentence. Although the title of the relevant section in Korea's
second written submission states that "[t]he obligations of Article 5.1 of the
SA have to be read together with the obligations imposed by Articles 3.1 and
4.2(c)", the relevant section concludes with the statement that "the United
States has violated its obligations under Articles 3.1 and 4.2(c) as well as
under Article 5.1 of the SA" (emphasis supplied). Given Korea's contention that
the United States violated Articles 3.1 and 4.2(c) "as well as" Article 5.1, we
shall treat Korea's assertion regarding Articles 3.1 and 4.2(c) as a separate
claim.
7.118 In our view, Korea's Article 3.1 / 4.2(c) claim falls outside our terms of
reference, as defined by the Request for the Establishment of a Panel by Korea
contained in document WT/DS202/4.
7.119 In response to a question from the Panel, Korea asserted that the claim is
within our terms of reference because it is covered by Claims 3 and 9 in its
Request for Establishment:
3. The safeguard measure also violates Articles 5 and 7.1 of the Agreement on
Safeguards since the United States did not justify and could not justify that
the Measure was imposed only to the extent and for such period of time necessary
to prevent or remedy the injury and to facilitate adjustment.
9. The United States failed to provide critical information on which it relied
in its decision-making in violation of Articles 3 and 4 of the Agreement on
Safeguards. In this regard, the United States has failed to provide an adequate
public summary of critical confidential information relied on in reaching its
decision.
7.120 In respect of Claim 3, Korea asserts that its Article 5 claim is
"integrally linked" to Articles 3.1 and 4.2(c). In respect of Claim 9, Korea
asserts that the reference to "critical confidential information" includes "the
basis for the President's decision-making documents or any information at all
with respect to the justification of the safeguard measure",120 and that "[t]he
obligation to sufficiently explain why the measure was 'necessary' by reference
to the evidence that existed at the time that the Presidential decision was
taken is a 'pertinent issue of fact or law'"121 within the meaning of Article 3.1.
Korea relies on the Appellate Body's finding in EC -Bananas III that "Article
6.2 of the DSU requires that the claims, but not the arguments, must all be
specified sufficiently in the request for the establishment of a panel in order
to allow the defending party and any third parties to know the legal basis of
the complaint."122 Korea also asserts that the United States had not made any
claims of prejudice prior to the Panel's question, and that the United States
responded fully to Korea's claims regarding Article 3.1 as they related to
Article 5 since the first substantive meeting.
7.121 With regard to Korea's Claim 3, we are not persuaded that Korea's Article
5.1 claim is "integrally linked" to its Article 3.1 and 4.2(c) claims. There is
nothing in Claim 3, nor in the Safeguards Agreement, to suggest such a linkage.
Indeed, Korea argued in its second written submission that Article 3.1 contains
an "independent obligation", suggesting that there is no linkage between
Articles 3.1 and 5.1:
Whether or not Article 5.1 requires an explicit finding or holding regarding the
necessity of the measure under Article 5.1, Article 3.1 of the SA imposes an
independent obligation that the investigation itself and the findings and
conclusions of the competent authorities resulting from such investigation must
demonstrate that (sic) the legal and factual basis for the measure.123 (emphasis
supplied)
7.122 Korea argues that Article 5.1 "is textually related to Article 4.2(c) of
the SA since the 'necessary' level must be to alleviate the serious injury
contained in the 'detailed analysis' referred to in SA Article 4.2(c)." Korea
may be correct in linking what it calls the "'necessary' level" (Article 5.1) to
the serious injury identified in the "detailed analysis" (Article 4.2(c)).
However, this does not mean that a reference in the Request for Establishment to
a claim under Article 5.1 necessarily implies a claim under 4.2(c), since there
is nothing in the text of either provision to suggest that a claim under one
necessarily implies a claim under the other.
7.123 With regard to Claim 9, we note that reference is made to an alleged
failure to "provide critical information", and to an alleged failure to "provide
an adequate public summary of critical confidential information" (emphasis
supplied). We fail to see how a claim expressly referring to an alleged failure
to provide information could be interpreted to include claims of failing to
"publish a report setting forth � findings and reasoned conclusions reached on
all pertinent issues of fact and law" (Article 3.1), and failing to publish "a
detailed analysis of the case under investigation as well as a demonstration of
the relevance of the factors examined" (Article 4.2(c)). Since Articles 3.1 and
4.2(c) call for far more than the simple provision of information, no reasonable
reading of Claim 9 could encompass the more detailed requirements of those
provisions.
7.124 Korea asserts that its Article 3.1 and 4.2(c) claim should be included in
our terms of reference because the United States has not suffered any prejudice
in respect of those claims. It would appear that the question of prejudice, or
due process, has most commonly arisen in the context of the DSU Article 6.2
requirement to "provide a brief summary of the legal basis of the complaint
sufficient to present the problem clearly".124 We do not consider that the question
of prejudice arises in respect of whether or not Korea's Article 3.1 and 4.2(c)
claim falls within our terms of reference, since there is no question of whether
or not the legal basis of that claim, or the claim itself, was set forth with
sufficient clarity in the Request for Establishment. It is patently obvious to
us that the language used by Korea in its Request for Establishment, which forms
the basis of our terms of reference, simply does not include any such claim.
Thus, the issue of whether or not it was specified with sufficient clarity
simply does not arise.
7.125 Having found that Korea's claim under Articles 3.1 and 4.2(c) is not in
our terms of reference, we note the Appellate Body's finding in EC - Regime for
the Importation, Sale and Distribution of Bananas that
[i]f a claim is not specified in the request for the establishment of a panel,
then a faulty request cannot be subsequently "cured" by a complaining party's
argumentation in its first written submission to the panel or in any other
submission or statement made later in the panel proceeding.125
Thus, the inclusion of this claim in Korea's submissions to the Panel is not
sufficient to "cure" Korea's failure to include this claim in its Request for
Establishment and bring it within our terms of reference.
7.126 Accordingly, we find that Korea's Article 3.1 and 4.2(c) claim regarding
the alleged failure of the United States to demonstrate, at the time of
imposition, that the line pipe measure was in conformity with the requirements
of Article 5.1, first sentence, falls outside our terms of reference.
125 EC -Bananas III (AB) at para. 143.
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