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WT/DS217/AB/R
WT/DS234/AB/R

16 January 2003

(03-0209)

Original: English

UNITED STATES - CONTINUED DUMPING AND SUBSIDY OFFSET ACT OF
2000


AB-2002-7


Report of the Appellate Body


(Continued)


C. Footnote 24 of the Anti-Dumping Agreement and Footnote 56 of the SCM Agreement

260. The United States challenges the way the Panel addressed footnote 24 of the Anti-Dumping Agreement and footnote 56 of the SCM Agreement , arguing that the Panel erred in declining to examine the import of the footnotes because it had already determined that the CDSOA was a "specific action" under Article 18.1 of the Anti-Dumping Agreement and under Article 32.1 of the SCM Agreement . The United States contends that these footnotes permit actions involving dumping or subsidies consistent with GATT 1994 provisions and not addressed by Article VI of the GATT 1994, and that these actions are not encompassed by the prohibitions against "specific action" in Article 18.1 of the Anti-Dumping Agreement and Article 32.1 of the SCM Agreement . In other words, according to the United States, an action that falls within footnotes 24 and 56 cannot be characterized as a "specific action" within the meaning of Article 18.1 of the Anti-Dumping Agreement and Article 32.1 of the SCM Agreement , and such action would, therefore, not be WTO-inconsistent.200

261. We disagree with this argument. We note, first, that, in US - 1916 Act , we commented on footnote 24 as follows:

Footnote 24 to Article 18.1 of the Anti-Dumping Agreement states:

This is not intended to preclude action under other relevant provisions of GATT 1994, as appropriate.

We note that footnote 24 refers generally to "action" and not, as does Article 18.1, to "specific action against dumping" of exports. "Action" within the meaning of footnote 24 is to be distinguished from "specific action against dumping" of exports, which is governed by Article 18.1 itself.201

262. The United States' reasoning is tantamount to treating footnotes 24 and 56 as the primary provisions, while according Articles 18.1 and 32.1 residual status. This not only turns the normal approach to interpretation on its head, but it also runs counter to our finding in US - 1916 Act . In that case, we provided guidance for determining whether an action is specific to dumping (or to a subsidy): an action is specific to dumping (or a subsidy) when it may be taken only when the constituent elements of dumping (or a subsidy) are present, or, put another way, when the measure is inextricably linked to, or strongly correlates with, the constituent elements of dumping (or of a subsidy). This approach is based on the texts of Article 18.1 of the Anti-Dumping Agreement and of Article 32.1 of the SCM Agreement , and not on the accessory footnotes. Footnotes 24 and 56 are clarifications of the main provisions, added to avoid ambiguity; they confirm what is implicit in Article 18.1 of the Anti-Dumping Agreement and in Article 32.1 of the SCM Agreement , namely, that an action that is not "specific" within the meaning of Article 18.1 of the Anti-Dumping Agreement and of Article 32.1 of the SCM Agreement , but is nevertheless related to dumping or subsidization, is not prohibited by Article 18.1 of the Anti-Dumping Agreement or Article 32.1 of the SCM Agreement .

D. Whether the CDSOA is in Accordance with the WTO Agreement

263. Having determined that the CDSOA is a "specific action against" dumping or a subsidy within the meaning of Article 18.1 of the Anti-Dumping Agreement and Article 32.1 of the SCM Agreement , we move to the next step of our analysis, which is to determine whether the action is "in accordance with the provisions of the GATT 1994, as interpreted by" the Anti-Dumping Agreement or the SCM Agreement.

  1. The Anti-Dumping Agreement

264. We interpreted "provisions of GATT 1994" as referred to in Article 18.1 of the Anti-Dumping Agreement in US - 1916 Act . In particular, we stated that the "provisions" are, in fact, the provisions of Article VI of the GATT 1994 concerning dumping:

We recall that footnote 24 to Article 18.1 refers to "other relevant provisions of GATT 1994". These terms can only refer to provisions other than the provisions of Article VI concerning dumping. Footnote 24 thus confirms that the "provisions of GATT 1994" referred to in Article 18.1 are in fact the provisions of Article VI of the GATT 1994 concerning dumping.202 (original emphasis)

265. We also stated in that appeal that "Article VI, and, in particular, Article VI:2, read in conjunction with the Anti-Dumping Agreement , limit the permissible responses to dumping to definitive anti-dumping duties, provisional measures and price undertakings."203 As CDSOA offset payments are not definitive anti-dumping duties, provisional measures or price undertakings, we conclude, in the light of our finding in US - 1916 Act , that the CDSOA is not "in accordance with the provisions of the GATT 1994, as interpreted by" the Anti-Dumping Agreement . It follows that the CDSOA is inconsistent with Article 18.1 of that Agreement.

  1. The SCM Agreement

266. As regards subsidization, the United States argues that Article VI:3 of the GATT 1994, read in conjunction with Article 10 of the SCM Agreement , does not limit the permissible remedies for subsidies to duties. The United States submits that the legal regime governing permissible responses to dumping is different from that governing the permissible responses to subsidization. Therefore, it is inappropriate to rely on the reasoning from US - 1916 Act to determine what is meant by "in accordance with the provisions of the GATT 1994" as that phrase relates to permissible responses to subsidies.

267. The United States also submits that the CDSOA is in accordance with Article VI:3 of the GATT 1994 and the provisions of Part V of the SCM Agreement , because those provisions do not encompass all measures taken against subsidization; they contemplate only countervailing duties (and by implication, provisional measures and price undertakings).204 Thus, it cannot properly be concluded that the CDSOA violates Article VI:3 of the GATT 1994 or the provisions of Part V of the SCM Agreement, because the CDSOA offset payments are not countervailing duties (or provisional measures or price undertakings), and, therefore, do not constitute an action covered by these provisions. In support of its submissions, the United States contrasts the language of Article VI:2 of the GATT 1994 and Article 1 of the Anti-Dumping Agreement with Article VI:3 of the GATT 1994 and Article 10 of the SCM Agreement.205 The United States argues, on the basis of textual differences, that the conclusion we reached in US - 1916 Act that Article VI of the GATT 1994 encompasses all measures taken against dumping, was based on the specific language of Article VI:2 of the GATT 1994 and Article 1 of the Anti-Dumping Agreement . Therefore, according to the United States, such a conclusion should not be extended to the textually different subsidy provisions of Article VI of the GATT 1994 and of Part V of the SCM Agreement , which are limited to the imposition of countervailing duties (and by implication, provisional duties and price undertakings). In particular, the United States argues that the permissible responses to dumping are limited to definitive anti-dumping duties, provisional measures and price undertakings, because Article 1 of the Anti-Dumping Agreement refers to anti-dumping measures, a generic expression that encompasses all measures taken against dumping, and not only duties. Article 10 of the SCM Agreement , by contrast, refers to countervailing duties, and thus only countervailing duties (and, by implication, provisional duties and price undertakings) are governed by Article VI:3 of the GATT 1994 and Part V of the SCM Agreement .

268. We disagree with these submissions for the following reasons. As the Panel noted, our analysis in US - 1916 Act "was not based on any particular AD provision in isolation, but on the AD Agreement as a whole."206 We agree with the Panel that:

Since the Appellate Body's analysis [in US - 1916 Act ] was not based exclusively on AD Article 1, we fail to see why a different approach should apply in respect of the permissible responses to subsidization, simply because of a difference between the text of AD Article 1 and SCM Article 10. In identifying the permissible responses to subsidization, we consider it important to have regard to the type of remedies foreseen by the SCM Agreement .207 (emphasis added)

As pointed out above, Article 32.1 of the SCM Agreement is identical in terminology and structure to Article 18.1 of the Anti-Dumping Agreement , except for the reference to subsidy instead of dumping. We endorse Canada's contention that "[t]his identical wording gives rise to a strong interpretative presumption that the two provisions set out the same obligation or prohibition."208

269. Article VI of the GATT 1994 and the Anti-Dumping Agreement identify three responses to dumping, namely, definitive anti-dumping duties, provisional measures and price undertakings. No other response is envisaged in the text of Article VI of the GATT 1994, or the text of the Anti-Dumping Agreement . Therefore, to be in accordance with Article VI of the GATT 1994, as interpreted by the Anti-Dumping Agreement , a response to dumping must be in one of these three forms. We confirmed this in US - 1916 Act . We fail to see why similar reasoning should not apply to subsidization. The GATT 1994 and the SCM Agreement provide four responses to a countervailable subsidy: (i) definitive countervailing duties; (ii) provisional measures; (iii) price undertakings; and (iv) multilaterally-sanctioned countermeasures under the dispute settlement system. No other response to subsidization is envisaged in the text of the GATT 1994, or in the text of the SCM Agreement . Therefore, to be "in accordance with the GATT 1994, as interpreted by" the SCM Agreement , a response to subsidization must be in one of those four forms.

270. We note that interpreting these provisions as limiting the permissible responses to a countervailable subsidy to the four remedies envisaged in the SCM Agreement and the GATT 1994 is consistent with footnote 35 to Article 10 of the SCM Agreement , and with the function of Article 32.1 of the SCM Agreement . Footnote 35 reads as follows:

The provisions of Part II or III may be invoked in parallel with the provisions of Part V; however, with regard to the effects of a particular subsidy in the domestic market of the importing Member, only one form of relief (either a countervailing duty, if the requirements of Part V are met, or a countermeasure under Articles 4 or 7) shall be available. The provisions of Parts III and V shall not be invoked regarding measures considered non actionable in accordance with the provisions of Part IV. However, measures referred to in paragraph 1(a) of Article 8 may be investigated in order to determine whether or not they are specific within the meaning of Article 2. In addition, in the case of a subsidy referred to in paragraph 2 of Article 8 conferred pursuant to a programme which has not been notified in accordance with paragraph 3 of Article 8, the provisions of Part III or V may be invoked, but such subsidy shall be treated as non actionable if it is found to conform to the standards set forth in paragraph 2 of Article 8. (emphasis added)

It is appropriate to emphasize the phrase "only one form of relief (either a countervailing duty, if the requirements of Part V are met, or a countermeasure under Articles 4 or 7) shall be available." It expressly sets out two forms of specific action, and provides that WTO Members may choose to apply one or the other against a subsidy. The assumption underlying the requirements of footnote 35 is that remedies under the SCM Agreement are limited to countervailing duties (and, by implication, provisional measures and price undertakings), explicitly envisaged in Part V of the SCM Agreement , and to countermeasures under Articles 4 and 7 of the SCM Agreement . Footnote 35 requires WTO Members to choose between two forms of remedy; such a requirement would be meaningless if responses to a countervailable subsidy, other than definitive countervailing duties, provisional measures, price undertakings and multilaterally-sanctioned countermeasures, were permitted under the GATT 1994 and the SCM Agreement .

271. Moreover, Article 32.1 of the SCM Agreement limits the range of actions a WTO Member may take unilaterally to counter subsidization. Restricting available unilateral actions against subsidization to those expressly provided for in the GATT 1994 and in the SCM Agreement is consistent with this function. The United States' reasoning would deprive Article 32.1 of the SCM Agreement of effectiveness. As we have stated on many occasions, the internationally recognized interpretive principle of effectiveness should guide the interpretation of the WTO Agreement209, and, under this principle, provisions of the WTO Agreement should not be interpreted in such a manner that whole clauses or paragraphs of a treaty would be reduced to redundancy or inutility.210 Accepting the United States' contention that Article VI:3 of the GATT 1994 and Part V of the SCM Agreement cover only countervailing duties would render Article 32.1 of the SCM Agreement redundant or inutile, because, under the United States' approach, Article 32.1 of the SCM Agreement would not provide additional discipline. Thus, a violation of Article 32.1 would flow only from a violation of another provision; violating Article 32.1 would be only a mechanical consequence of a violation of another provision.

272. Furthermore, Article 32.1 of the SCM Agreement would be inutile with respect to "specific action[s] against a subsidy" other than countervailing duties, as it would be impossible, in such case, to find a violation of Article 32.1. Given that Article VI:3 of the GATT 1994 and Part V of the SCM Agreement would, under the United States' reasoning, be limited to countervailing duties, such specific actions would always be in accordance with Article VI:3 of the GATT 1994 and Part V of the SCM Agreement and, therefore, consistent with Article 32.1. Consequently, we reject the United States' contention that Article VI:3 of the GATT 1994 and Part V of the SCM Agreement encompass only countervailing duties.

273. In our view, Article VI:3 of the GATT 1994 and Part V of the SCM Agreement encompass all measures taken against subsidization. To be in accordance with the GATT 1994, as interpreted by the SCM Agreement , a response to subsidization must be either in the form of definitive countervailing duties, provisional measures or price undertakings, or in the form of multilaterally-sanctioned countermeasures resulting from resort to the dispute settlement system. As the CDSOA does not correspond to any of the responses to subsidization envisaged by the GATT 1994 and the SCM Agreement , we conclude that it is not in accordance with the provisions of the GATT 1994, as interpreted by the SCM Agreement , and that, therefore, the CDSOA is inconsistent with Article 32.1 of the SCM Agreement.

274. Accordingly, we uphold, albeit for different reasons, the finding of the Panel that the CDSOA is a non-permissible specific action against dumping or a subsidy, contrary to Article 18.1 of the Anti-Dumping Agreement and Article 32.1 of the SCM Agreement .

VIII. Article 5.4 of the Anti-Dumping Agreement and Article 11.4 of the SCM Agreement

275. We turn now to examine whether the CDSOA is inconsistent with Article 5.4 of the Anti-Dumping Agreement and Article 11.4 of the SCM Agreement .

276. First, we consider the Panel's findings under Article 5.4 of the Anti-Dumping Agreement and Article 11.4 of the SCM Agreement , and then we examine whether the Panel's interpretation of those provisions is consistent with the customary rules of interpretation codified in Articles 31 and 32 of the Vienna Convention on the Law of Treaties (the "Vienna Convention"). In doing so, we begin with the words of Articles 5.4 and Article 11.4 and then turn to the object and purpose of the Anti-Dumping Agreement and the SCM Agreement . As a separate matter, we address the Panel's application of the principle of good faith.

A. The Panel's Findings on the Interpretation of Articles 5.4 and 11.4

277. The Panel's findings under Article 5.4 of the Anti-Dumping Agreement and Article 11.4 of the SCM Agreement may be summarized as follows. The Panel found that the CDSOA provides a financial incentive for domestic producers to file or support applications for the initiation of anti-dumping or countervailing duty investigations, because offset payments are made only to producers that file or support such applications. According to the Panel, the CDSOA will result in more applications having the required level of support from domestic industry than would have been the case without the CDSOA, and that "given the low costs of supporting a petition, and the strong likelihood that all producers will feel obliged to keep open their eligibility for offset payments for reasons of competitive parity, … the majority of petitions will achieve the levels of support required"211 under Article 5.4 of the Anti-Dumping Agreement and Article 11.4 of the SCM Agreement . In reaching its conclusion, the Panel relied, inter alia, on a letter in which a "US producer seeks support from other producers for a proposed countervail application ... and states that 'if the [CDSOA] is … applicable here, the total amount available to US lumber producers could be very large - easily running into hundreds of millions of dollars a year.'"212 The Panel also referred to another letter in which a domestic producer indicates, according to the Panel, that it changed its position concerning an application by deciding to express support for that application "in order to remain eligible for possible offset payment subsidies".213 In the Panel's view, "these letters are evidence of the inevitable impact of the CDSOA on the position of the domestic industry vis-à-vis anti-dumping/countervail applications."214

278. Notwithstanding these findings, the Panel agreed with the United States' argument that Article 5.4 of the Anti-Dumping Agreement "requires only that the statistical thresholds be met, and imposes no requirement that the investigating authorities inquire into the motives or intent of a domestic producer in electing to support a petition".215 The Panel went on to conclude, however, that this argument did not "address the matter at issue" because "the operation of the CDSOA … is [such] that it renders the quantitative tests included in [Articles 5.4 and 11.4] irrelevant"216 and "den[ies] parties potentially subject to the investigation a meaningful test of whether the petition has the required support of the industry."217 According to the Panel, in doing so, the CDSOA "recreates the spectre of an investigation being pursued where only a few domestic producers have been affected by the alleged dumping, but industry support is forthcoming because of the prospect of offset payments being distributed."218 The Panel concluded that the CDSOA "may be regarded as having undermined the value of AD Article 5.4/SCM Article 11.4 to the countries with whom the United States trades, and the United States may be regarded as not having acted in good faith in promoting this outcome."219

279. Turning to what it identified as the "object and purpose" of Article 5.4 of the Anti-Dumping Agreement and Article 11.4 of the SCM Agreement , the Panel found that those provisions require investigating authorities "to examine the degree of support which exists for an application and to determine whether the application was thus filed by or on behalf of the domestic industry."220 The Panel appears to have found that the CDSOA "defeats this object and purpose"221 by implying a return to the situation which existed before the introduction of Articles 5.4 and 11.4. According to the Panel, those Articles were "introduced precisely to ensure that support was not just assumed to exist but actually existed, and that the support expressed by domestic producers was evidence of the industry-wide concern of injury being caused by dumped or subsidized imports."222

280. The Panel went on to conclude that the CDSOA "in effect mandates"223 domestic producers to support applications for the initiation of anti-dumping and countervailing duties by making such support "a prerequisite for receiving offset payments"224 and thus renders the threshold test of Articles 5.4 and 11.4 "completely meaningless".225 Accordingly, the Panel found that the CDSOA is inconsistent with Article 5.4 of the Anti-Dumping Agreement and Article 11.4 of the SCM Agreement .

B. The Meaning of Articles 5.4 and 11.4

281. At the outset, we express our concern with the Panel's approach in interpreting Article 5.4 of the Anti-Dumping Agreement and Article 11.4 of the SCM Agreement . Specifically, we fail to see how the Panel's interpretation of those provisions may be said to be based on the ordinary meaning of the words found in those provisions, and hence we do not believe the Panel properly applied the principles of interpretation codified in the Vienna Convention. It is well settled that Article 3.2 of the DSU requires the application of those principles.226 Article 31(1) of the Vienna Convention provides in relevant part that:

… [a] treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.

Thus, the task of interpreting a treaty provision must begin with the specific words of that provision. Accordingly, we turn first to the texts of Article 5.4 of the Anti-Dumping Agreement and Article 11.4 of the SCM Agreement . Those provisions are identical and provide, in relevant part, that:

An investigation shall not be initiated … unless the authorities have determined … that the application has been made by or on behalf of the domestic industry. The application shall be considered to have been made "by or on behalf of the domestic industry" if it is supported by those domestic producers whose collective output constitutes more than 50 per cent of the total production of the like product produced by that portion of the domestic industry expressing either support for or opposition to the application. However, no investigation shall be initiated when domestic producers expressly supporting the application account for less than 25 per cent of total production of the like product produced by the domestic industry. (footnotes omitted)

282. Article 5.4 of the Anti-Dumping Agreement and Article 11.4 of the SCM Agreement thus require investigating authorities to "determine" whether an application for the initiation of an investigation has been "made by or on behalf of the domestic industry". If a sufficient number of domestic producers has "expressed support" and the thresholds set out in Articles 5.4 and 11.4 have therefore been met, the "application shall be considered to have been made by or on behalf of the domestic industry". In such circumstances, an investigation may be initiated.

283. A textual examination of Article 5.4 of the Anti-Dumping Agreement and Article 11.4 of the SCM Agreement reveals that those provisions contain no requirement that an investigating authority examine the motives of domestic producers that elect to support an investigation.227 Nor do they contain any explicit requirement that support be based on certain motives, rather than on others. The use of the terms "expressing support" and "expressly supporting" clarify that Articles 5.4 and 11.4 require only that authorities "determine" that support has been "expressed" by a sufficient number of domestic producers. Thus, in our view, an "examination" of the "degree" of support, and not the "nature" of support is required. In other words, it is the "quantity", rather than the "quality", of support that is the issue.

284. We observe that the Panel appears to have arrived at the same conclusion when it conducted its examination of the texts of Article 5.4 of the Anti-Dumping Agreement and Article 11.4 of the SCM Agreement . Specifically, the Panel concluded that the United States was correct in arguing that Article 5.4 of the Anti-Dumping Agreement "requires only that the statistical thresholds be met, and imposes no requirement that the investigating authorities inquire into the motives or intent of a domestic producer in electing to support a petition".228 Thus, it seems that, on the basis of a textual analysis of Articles 5.4 and 11.4, the Panel did not find that the CDSOA constitutes a violation of those provisions. The Panel went on to note, however, that this was not the "matter at issue".229 Instead, according to the Panel, the question was whether the CDSOA "defeats" what it identified as the object and purpose of Article 5.4 of the Anti-Dumping Agreement and Article 11.4 of the SCM Agreement .230

285. As mentioned above, we have difficulty with the Panel's approach. Clearly, the matter at issue before the Panel included whether the CDSOA is inconsistent with the Anti-Dumping Agreement and the SCM Agreement in the light of their object and purpose, since interpreting Articles 5.4 and 11.4 involves an inquiry into the object and purpose of those Agreements. In our view, however, the Panel dismissed all too quickly the textual analysis of those provisions as irrelevant.

286. We conclude, therefore, that the texts of Article 5.4 of the Anti-Dumping Agreement and Article 11.4 of the SCM Agreement do not support the reasoning of the Panel. By their terms, those provisions require no more than a formal examination of whether a sufficient number of domestic producers have expressed support for an application.

287. Having said this, we turn next to examine what the Panel identified as the "object and purpose" of Article 5.4 of the Anti-Dumping Agreement and Article 11.4 of the SCM Agreement .

288. According to the Panel, Article 5.4 of the Anti-Dumping Agreement and Article 11.4 of the SCM Agreement have as their "object and purpose" to require investigating authorities "to examine the degree of support which exists for an application and to determine whether the application was thus filed by or on behalf of the domestic industry".231 The Panel appears to have found that the CDSOA defeats this "object and purpose" because it "in fact implies a return to the situation which existed before the introduction of [Article 5.4 of the Anti-Dumping Agreement and Article 11.4 of the SCM Agreement ]."232 We understand the Panel to have suggested that the CDSOA "implies a return" to the situation in which an application could be "presumed" to have been made by or on behalf of the domestic industry.233

289. We do not agree with the Panel's analysis. By their terms, Articles 5.4 and 11.4 do not permit investigating authorities to "presume" that industry support for an application exists. For the thresholds set out in Articles 5.4 and 11.4 to be met, a sufficient number of domestic producers must have "expressed support" for an application. The CDSOA does not change the fact that investigating authorities are required to examine the "degree of support" that exists for an application and that an application shall be considered to have been made "by or on behalf of the domestic industry" only if sufficient support has been "expressed".234 Hence, we do not agree with the Panel that the CDSOA has "defeated" the object and purpose of Articles 5.4 and 11.4, even if we were to assume that the Panel's understanding of such object and purpose was correct. For the same reason, we also do not agree with the Panel that the CDSOA renders the quantitative threshold tests included in Articles 5.4 and 11.4 "irrelevant"235 and "completely meaningless."236

290. The Panel also took the view that Articles 5.4 and Article 11.4 "[were] introduced precisely to ensure … that support expressed by domestic producers was evidence of industry-wide concern of injury".237 Although we agree with the Panel that support expressed by domestic producers may be evidence of an "industry-wide concern of injury", we do not agree that such support may be taken to be evidence of such concern alone. Nor do we see anything in Articles 5.4 or 11.4 that would require support to be based on that concern alone. Indeed, there may be a number of reasons why a domestic producer could choose to support an investigation. For example, it may do so in the expectation that the protection afforded by future anti-dumping or countervailing duties would improve its competitive position in relation to importers of like foreign products. The Panel appears, however, to have considered that certain motives to support an application would be WTO-consistent, whereas others would not. We see no basis in Articles 5.4 and 11.4 for such an approach.

291. As we have noted, Article 5.4 of the Anti-Dumping Agreement and Article 11.4 of the SCM Agreement contain no requirement for investigating authorities to examine the motives of producers that elect to support (or to oppose) an application. Indeed, it would be difficult, if not impossible, as a practical matter, to engage in that exercise.

292. The Panel found that the CDSOA "will result"238 in more applications having the required level of support from domestic industry than would have been the case without the CDSOA and stated that "given the low costs of supporting a petition, and the strong likelihood that all producers will feel obliged to keep open their eligibility for offset payments for reasons of competitive parity", it "could conclude that the majority of petitions will achieve the levels of support required under AD Article 5.4/ SCM Article 11.4."239 The evidence contained in the Panel record, however, does not support the overreaching conclusion that "the majority of petitions will achieve the levels of support required" under Articles 5.4 and 11.4 as a result of the CDSOA. Indeed, we note that, in its first written submission to the Panel, the United States explained that "it is rare for domestic producers in the United States not to have sufficient industry support in filing antidumping or countervailing duty petitions."240 In support of its statement, the United States submitted to the Panel a survey241 that shows, for example, that during the year prior to the enactment of the CDSOA, all of the applications that were filed met the legal thresholds for support.242

293. We also believe that the Panel had no basis for stating that the CDSOA as such "in effect mandates domestic producers to support the application."243 Even assuming that the CDSOA may create a financial incentive for domestic producers to file or to support an application244, it would not be correct to say that the CDSOA as such "mandates" or "obliges" producers to do so. The fact that a measure provides an "incentive" to act in a certain way, does not mean that it "in effect mandates" or "requires" a certain form of action. Indeed, we are not considering here a measure that would "coerce" or "require" domestic producers to support an application. Such a measure might well be found to be WTO-inconsistent. It could be considered, inter alia, to circumvent the obligations contained in Article 5.6 of the Anti-Dumping Agreement and Article 11.6 of the SCM Agreement not to initiate an investigation without a written application "by or on behalf of the domestic industry" except when the conditions set out in those provisions have been met. However, the CDSOA is not such a measure.

294. For all these reasons, we reverse the Panel's finding that the CDSOA, as such, is inconsistent with Article 5.4 of the Anti-Dumping Agreement and Article 11.4 of the SCM Agreement .

C. The Panel's Conclusion on Good Faith

295. We address now the Panel's conclusion, in paragraph 7.63 of the Panel Report, that "the United States may be regarded as not having acted in good faith" with respect to its obligations under Article 5.4 of the Anti-Dumping Agreement and Article 11.4 of the SCM Agreement . However, given our conclusion that the CDSOA does not constitute a violation of Article 5.4 of the Anti-Dumping Agreement and Article 11.4 of the SCM Agreement , the issue of whether the United States "may be regarded as not having acted in good faith" in enacting the CDSOA does not have the relevance it had for the Panel.

296. On appeal, the United States maintains that there is "no basis or justification in the WTO Agreement for a WTO dispute settlement panel to conclude that a Member has not acted in good faith, or to enforce a principle of good faith as a substantive obligation agreed to by WTO Members."245 We observe that Article 31(1) of the Vienna Convention directs a treaty interpreter to interpret a treaty in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of the treaty's object and purpose. The principle of good faith may therefore be said to inform a treaty interpreter's task. Moreover, performance of treaties is also governed by good faith. Hence, Article 26 of the Vienna Convention, entitled Pacta Sunt Servanda, to which several appellees referred in their submissions246, provides that "[e]very treaty in force is binding upon the parties to it and must be performed by them in good faith."247 The United States itself affirmed "that WTO Members must uphold their obligations under the covered agreements in good faith".248

297. We have recognized the relevance of the principle of good faith in a number of cases. Thus, in US - Shrimp, we stated that:

The chapeau of Article XX is, in fact, but one expression of the principle of good faith. This principle, at once a general principle of law and a general principle of international law, controls the exercise of rights by states.249

In US - Hot-Rolled Steel, we found that:

… the principle of good faith … informs the provisions of the Anti-Dumping Agreement, as well as the other covered agreements.250

Clearly, therefore, there is a basis for a dispute settlement panel to determine, in an appropriate case, whether a Member has not acted in good faith.

298. Nothing, however, in the covered agreements supports the conclusion that simply because a WTO Member is found to have violated a substantive treaty provision, it has therefore not acted in good faith. In our view, it would be necessary to prove more than mere violation to support such a conclusion.

299. The evidence in the Panel record does not, in our view, support the Panel's statement that the United States "may be regarded as not having acted in good faith". We are of the view that the Panel's conclusion is erroneous and, therefore, we reject it.

IX. Article XVI:4 of the WTO Agreement, Article 18.4 of the Anti-Dumping Agreement, Article 32.5 of the SCM Agreement and Article 3.8 of the DSU

300. The United States asks that we reverse the Panel's finding that the CDSOA violates Article XVI:4 of the WTO Agreement on the grounds that the CDSOA is consistent with Articles VI:2 and VI:3 of the GATT 1994, Articles 5.4, 18.1 and 18.4 of the Anti-Dumping Agreement , and Articles 11.4, 32.1 and 32.5 of the SCM Agreement. For the same reason, the United States requests that we reverse the Panel's finding that the benefits accruing to the appellees under the WTO Agreement have been nullified or impaired.251

301. Article 18.4 of the Anti-Dumping Agreement and Article 32.5 of the SCM Agreement provide that "[e]ach Member shall take all necessary steps, of a general or particular character, to ensure … the conformity of its laws, regulations and administrative procedures with the provisions of this Agreement". Similarly, Article XVI:4 of the WTO Agreement provides that "[e]ach Member shall ensure the conformity of its laws, regulations and administrative procedures with its obligations as provided in the annexed Agreements", which include the Anti-Dumping Agreement and the SCM Agreement .

302. As a consequence of our finding that the United States has acted inconsistently with Article 18.1 of the Anti-Dumping Agreement and Article 32.1 of the SCM Agreement , we uphold the Panel's finding that the United States has failed to comply with Article 18.4 of the Anti-Dumping Agreement , Article 32.5 of the SCM Agreement and Article XVI:4 of the WTO Agreement.

303. Article 3.8 of the DSU provides, in relevant part, that:

In cases where there is an infringement of the obligations assumed under a covered agreement, the action is considered prima facie to constitute a case of nullification or impairment.

304. We conclude that, to the extent we have found that the CDSOA is inconsistent with Article 18.1 of the Anti-Dumping Agreement and Article 32.1 of the SCM Agreement , the CDSOA nullifies or impairs benefits accruing to the appellees in this dispute under those Agreements.

X. Article 9.2 of the DSU

305. The United States claims on appeal that the Panel acted inconsistently with Article 9.2 of the DSU by denying the United States' request for a separate panel report on the dispute brought by Mexico.

306. The Panel took the view that, although Article 9.2 of the DSU provides a general right to WTO Members to request a separate report, such requests "should be made in a timely manner, since any need to prepare separate reports may affect the manner in which a panel organises its proceedings."252 The Panel added that, in its view, "such requests should be made at an early juncture in the panel process, preferably at the time that a panel is established."253 Turning to the case at hand, the Panel observed that "the US request was received on 10 June 2002, approximately two months after issuance of the descriptive part of the Panel's report"254 and that the United States had provided "no explanation of why it was unable to submit its request at an earlier date".255 The Panel also noted that the United States had not referred to any prejudice that it would suffer if the Panel were not to issue a separate report on the dispute brought by Mexico.

307. Based on these considerations, the Panel concluded:

… that the preparation of a separate report on the dispute brought by Mexico would delay issuance of the Panel's interim report. Although the United States only requested a separate final report, we are not prepared to issue a separate final report without also issuing a separate interim report. This is because we are not entitled to issue a final report on the dispute brought by Mexico without first having issued an interim report on that dispute. Otherwise Mexico would be denied its right to request a review of precise aspects of its interim report (DSU Article 15.2).256 (original underlining)

Accordingly, the Panel rejected the United States' request.257

308. The United States appeals this finding of the Panel. The United States submits that Article 9.2 of the DSU gives WTO Members an "unqualified right to the issuance of separate panel reports upon request".258 According to the United States, Article 9.2 contains no requirement for a party to make its request for a separate panel report by any particular time in the panel proceeding. Nor does it require any party to demonstrate that it would suffer prejudice if its request is not accepted.

309. In our analysis of this issue, we begin by examining the ordinary meaning of the text of Article 9.2 of the DSU which provides, in relevant part, that:

The [ ] panel shall organize its examination and present its findings to the DSB in such a manner that the rights which the parties to the dispute would have enjoyed had separate panels examined the complaints are in no way impaired. If one of the parties to the dispute so requests, the panel shall submit separate reports on the dispute concerned. (emphasis added)

310. By its terms, Article 9.2 accords to the requesting party a broad right to request a separate report. The text of Article 9.2 does not make this right dependent on any conditions. Rather, Article 9.2 explicitly provides that a panel "shall" submit separate reports "if one of the parties to the dispute so requests". Thus the text of Article 9.2 of the DSU contains no requirement for the request for a separate panel report to be made by a certain time. We observe, however, that the text does not explicitly provide that such requests may be made at any time.

311. Having made these observations, we note that Article 9.2 must not be read in isolation from other provisions of the DSU, and without taking into account the overall object and purpose of that Agreement. The overall object and purpose of the DSU is expressed in Article 3.3 of that Agreement which provides, relevantly, that the "prompt settlement" of disputes is "essential to the effective functioning of the WTO." If the right to a separate panel report under Article 9.2 were "unqualified", this would mean that a panel would have the obligation to submit a separate panel report, pursuant to the request of a party to the dispute, at any time during the panel proceedings. Moreover, a request for such a report could be made for whatever reason-or indeed, without any reason—even on the day that immediately precedes the day the panel report is due to be circulated to WTO Members at large. Such an interpretation would clearly undermine the overall object and purpose of the DSU to ensure the "prompt settlement" of disputes.

312. In support of its argument, the United States relied on EC - Bananas III (US) where the panel granted the European Communities' request for "four separate panel reports". We note, however, as did the Panel, that the European Communities' request was made at the meeting at which the DSB established the panel.259 EC - Bananas III (US) is therefore distinguishable from the present case. Thus, we cannot agree with the United States that the right contained in Article 9.2 is "unqualified".260

313. Our view is supported by our decision in US - FSC, where we observed that:

The procedural rules of WTO dispute settlement are designed to promote … the fair, prompt and effective resolution of trade disputes.261 (emphasis added)

In the somewhat different context of the time by which procedural objections must be raised, we stated in Mexico - Corn Syrup (Article 21.5 - US), that:

When a Member wishes to raise an objection in dispute settlement proceedings, it is always incumbent on that Member to do so promptly. A Member that fails to raise its objections in a timely manner, notwithstanding one or more opportunities to do so, may be deemed to have waived its right to have a panel consider such objections.262 (emphasis added; footnote omitted)

314. In the case at hand, the United States made its request under Article 9.2 "approximately two months after the issuance of the descriptive part of the Panel's report"263 and more than seven months after the Panel had been composed.264 It therefore cannot be said that the United States made its request "promptly" or in a "timely manner, notwithstanding one or more opportunities to do so".

315. Finally we note that the first sentence in Article 9.2 provides that it is for the panel to "organize its examination and present its findings in such a manner that the rights which the parties to the dispute would have enjoyed had separate panels examined the complaints are in no way impaired." Our comments in EC - Hormones about panels' discretion in dealing with procedural issues are pertinent here:

… the DSU and in particular its Appendix 3, leave panels a margin of discretion to deal, always in accordance with due process, with specific situations that may arise in a particular case and that are not explicitly regulated. Within this context, an appellant requesting the Appellate Body to reverse a panel's ruling on matters of procedure must demonstrate the prejudice generated by such legal ruling.265 (emphasis added)

316. In our view, the Panel acted within its "margin of discretion" by denying the United States' request for a separate panel report. We do not believe that we should lightly disturb panels' decisions on their procedure, particularly in cases such as the one at hand, in which the Panel's decision appears to have been reasonable and in accordance with due process. We observe that, on appeal, the United States is not claiming that it suffered any prejudice from the denial of its request for a separate panel report.266 We also note that the first sentence of Article 9.2 refers to the rights of all the parties to the dispute. The Panel correctly based its decision on an assessment of the rights of all the parties, and not of one alone.

317. Accordingly, we reject the United States' claim that the Panel acted inconsistently with Article 9.2 of the DSU by not issuing a separate panel report in the dispute brought by Mexico.267

XI. Findings and Conclusions

318. For the reasons set out in this Report, the Appellate Body:

(a) upholds the finding of the Panel, in paragraphs 7.51 and 8.1 of the Panel Report, that the CDSOA is a non-permissible specific action against dumping or a subsidy, contrary to Article 18.1 of the Anti-Dumping Agreement and Article 32.1 of the SCM Agreement ;

(b) consequently upholds the Panel's finding, in paragraphs 7.93 and 8.1 of the Panel Report, that the CDSOA is inconsistent with certain provisions of the Anti-Dumping Agreement and the SCM Agreement and that, therefore, the United States has failed to comply with Article 18.4 of the Anti-Dumping Agreement , Article 32.5 of the SCM Agreement and Article XVI:4 of the WTO Agreement;

(c) upholds the Panel's finding, in paragraph 8.4 of the Panel Report, that, pursuant to Article 3.8 of the DSU, to the extent that the CDSOA is inconsistent with provisions of the Anti-Dumping Agreement and the SCM Agreement , the CDSOA nullifies or impairs benefits accruing to the Complaining Parties under those Agreements;

(d) reverses the Panel's findings, in paragraphs 7.66 and 8.1 of the Panel Report, that the CDSOA is inconsistent with Article 5.4 of the Anti-Dumping Agreement and Article 11.4 of the SCM Agreement ;

(e) rejects the Panel's conclusion, in paragraph 7.63 of the Panel Report, that the United States may be regarded as not having acted in good faith with respect to its obligations under Article 5.4 of the Anti-Dumping Agreement and Article 11.4 of the SCM Agreement ; and

(f) rejects the claim of the United States that the Panel acted inconsistently with Article 9.2 of the DSU by not issuing a separate panel report in the dispute brought by Mexico.

319. The Appellate Body recommends that the DSB request the United States bring the CDSOA into conformity with its obligations under the Anti-Dumping Agreement , the SCM Agreement , and the GATT 1994.

Signed in the original at Geneva this 17th day of December 2002 by:

_________________________
Giorgio Sacerdoti
Presiding Member

_________________________
Luiz Olavo Baptista
Member
_________________________
John Lockhart
Member



To continue with Annex 1

Return to Index


200 United States' appellant's submission, paras. 25-29.

201 Appellate Body Report, US - 1916 Act , para. 123.

202 Appellate Body Report, US - 1916 Act , para. 125.

203 Ibid., para. 137.

204 United States' appellant's submission, paras. 84-92.

205 The United States contrasts the terms "may levy … an anti-dumping duty" in Article VI:2 with "[n]o countervailing duty shall be levied" in Article VI:3; the United States also contrasts the reference to an "antidumping measure" and to "action … taken under anti-dumping legislation or regulations" in Article 1 of the Anti-Dumping Agreement with the use of the expression "countervailing duty" and "countervailing duties" in Article 10 of the SCM Agreement . (United States' appellant's submission, para. 87)

206 Panel Report, para. 7.7.

207 Ibid.

208 Canada's appellee's submission, para. 78.

209 See Appellate Body Report, US - Gasoline, at 21; Appellate Body Report, Japan - Alcoholic Beverages II, at 106; Appellate Body Report, US - Underwear, at 24; Appellate Body Report, US - Shrimp, para. 131 (referencing various authors); Appellate Body Report, Korea - Dairy, para. 81; Appellate Body Report, Canada - Dairy, para. 133; and Appellate Body Report, Argentina - Footwear (EC), para. 88.

210 See Appellate Body Report, US - Gasoline, at 21; Appellate Body Report, Japan - Alcoholic Beverages II, at 106; Appellate Body Report, Korea - Dairy , para. 80; Appellate Body Report, Canada - Dairy, para. 133; Appellate Body Report, Argentina - Footwear (EC), para. 88; and Appellate Body Report,
US - Section 211 Appropriations Act, paras. 161 and 338.

211 Panel Report, para. 7.62.

212 Ibid., para. 7.45 and footnote 304 thereto.

213 Panel Report, para. 7.62.

214 Panel Report, para. 7.62.

215 Ibid., para. 7.63.

216 Ibid.

217 Ibid.

218 Ibid.

219 Ibid.

220 Ibid., para. 7.64.

221 Ibid., paras. 7.64-7.65.

222 Ibid., para. 7.65.

223 Panel Report, para. 7.66.

224 Ibid.

225 Ibid.

226 Similarly, Article 17.6 (ii) of the Anti-Dumping Agreement provides that "the panel shall interpret the relevant provisions of the Agreement in accordance with the customary rules of interpretation of public international law."

227 We note that the parties' submissions do not suggest otherwise.

228 Panel Report, para. 7.63.

229 Panel Report, para. 7.63.

230 Ibid., para. 7.64.

231 Ibid.

232 Ibid., para. 7.65.

233 The Panel notes in this respect the argument advanced by the European Communities, India, Indonesia and Thailand that Article 5.4 of the Anti-Dumping Agreement and Article 11.4 of the SCM Agreement "were introduced in response to the controversial practice of the United States authorities of presuming that an application was made by or on behalf of the domestic industry unless a major proportion of the domestic industry expressed active opposition to the petition." (Panel Report, para. 7.61, referring to the European Communities', India's, Indonesia's and Thailand's first written submission to the Panel, footnote 49; underlining added). In our view, this is not, in itself, sufficient evidence of the "object and purpose" of Articles 5.4 and 11.4.

234 In this respect, we note that the United States does not contest that it continues to be bound by the obligation set out in Articles 5.4 and 11.4 to ensure that anti-dumping and countervailing duty cases are not initiated unless the levels of support set out in Article 5.4 of the Anti-Dumping Agreement and Article 11.4 of the SCM Agreement are met. (See United States' second written submission before the Panel, para. 81)

235 Panel Report, para. 7.63.

236 Ibid., para. 7.66.

237 Ibid., para. 7.65. (emphasis added)

238 Panel Report, para. 7.62.

239 Ibid. (emphasis added)

240 United States' first written submission to the Panel, para. 125.

241 Exhibit US-6 before the Panel.

242 In paragraph 116 of its appellant's submission, the United States also relies on the argument that a domestic producer can qualify for receipt of possible offset payments by expressing support as late as "the final injury investigation questionnaire, which can be issued more than 200 days after a petition is filed." Although we note that support, for purposes of qualifying for CDSOA distributions, need not necessarily be expressed prior to initiation of the investigation, the incentive to express support may well exist at the stage of the initiation of the investigation. This is because if an investigation is not initiated, for example, due to lack of support, that investigation cannot, by definition, lead to a finding of dumping or subsidization and later to CDSOA distributions. This, however, does not affect our conclusion that Articles 5.4 and 11.4 do not require investigating authorities to determine the motivations of producers that choose to support an anti-dumping or countervailing duty investigation (or indeed the motivations of producers that choose to oppose such investigations).

243 Panel Report, para. 7.66. (emphasis added)

244 We consider this to be a factual finding of the Panel.

245 United States' appellant's submission, para. 105.

246 Canada's appellee's submission, para. 101; the European Communities', India's, Indonesia's and Thailand's appellees' submission, para. 146; Japan's and Chile's appellee's submission, para. 96.

247 The United States said, in response to questioning at the oral hearing, that it has no difficulty with the notion that Article 26 of the Vienna Convention expresses a customary international law principle.

248 United States' second written submission before the Panel, para. 81. The United States reiterated this point in response to questioning at the oral hearing. See also, Appellate Body Report, EC - Sardines, para. 278.

249 Appellate Body Report, US - Shrimp, para. 158. See also, Appellate Body Report, US - FSC, para. 166.

250 Appellate Body Report, US - Hot-Rolled Steel, para. 101.

251 United States' appellant's submission, para. 133.

252 Panel Report, para. 7.4.

253 Ibid.

254 Ibid.

255 Ibid.

256 Ibid., para. 7.5.

257 bid., para. 7.6. In paragraphs 6.3-6.5 of its Report, the Panel provides further argumentation for why it rejected the United States' request.

258 United States' appellant's submission, para. 140.

259 Panel Report, para. 6.3.

260 United States appellant's submission, para. 138, referring to the Panel Report in EC - Bananas III (US),para. 7.55.

261 Appellate Body Report, US - FSC, para. 166.

262 Appellate Body Report, Mexico - Corn Syrup (Article 21.5 - US), para. 50. The Appellate Body also emphasized the need for procedural objections to be made in a timely manner in US - 1916 Act, para. 54.

263 Panel Report, para. 7.4.

264 The Panel was composed on 25 October 2001. See Panel Report, para. 1.7.

265 Appellate Body Report, EC - Hormones , footnote 138 to para.152.

266 The United States submits that a showing of prejudice is not required by the text of Article 9.2. In response to questioning at the oral hearing, the United States added that, although it was not aware of any prejudice that it would have suffered in this case, prejudice could have resulted if, for example, Mexico had chosen to cross-appeal the claim related to Article 5 of the SCM Agreement , which only Mexico raised before the Panel.

267 We express no view on the question whether the Panel was correct in concluding, in paragraph 7.5 of the Panel Report, that it was "not entitled to issue a final report on the dispute brought by Mexico without first having issued an interim report on that dispute". In this respect, we note moreover that the United States has not requested a finding with respect to whether the Panel erred in its interpretat