7.9 By virtue of AD Article 18.1, other types of "specific action against dumping" are not permitted. Thus, if the CDSOA is a "specific action against dumping", but not one of the three "permissible responses to dumping", it will violate AD Article 18.1. The issue before the Panel is whether or not the CDSOA is a "specific action against dumping".

7.10 The complaining parties submit that the CDSOA constitutes "specific action against dumping" because CDSOA offset payments are dependent on a finding of dumping. In this regard, the complaining parties rely on the following statement by the Appellate Body at para. 122 of its report on US – 1916 Act:

In our view, the ordinary meaning of the phrase "specific action against dumping" of exports within the meaning of Article 18.1 is action that is taken in response to situations presenting the constituent elements of "dumping". "Specific action against dumping" of exports must, at a minimum, encompass action that may be taken  only when the constituent elements of "dumping" are present.66

66. We do not find it necessary, in the present cases, to decide whether the concept of "specific action against dumping" may be broader.

7.11 The United States adopts a two-tier approach to this issue. First, the United States relies on the above Appellate Body statement to argue that AD Article 18.1 only applies in respect of actions that address dumping "as such". The United States submits that CDSOA offset payments are not made "in response to situations presenting the constituent elements of dumping", and that the CDSOA is therefore not based on a test that includes the constituent elements of dumping. Accordingly, the United States submits that the CDSOA does not address dumping "as such".

7.12 Second, the United States emphasises that AD Article 18.1 is restricted to specific actions "against" dumping. The United States asserts that the Appellate Body had no need to interpret this specific term in the 1916 Act, and argues that the Appellate Body should not be understood to have found that AD Article 18.1 applies to all "action that is taken in response to situations presenting the constituent elements of dumping". According to the United States, certain action may be "in response to" dumping, but not "against" dumping. The United States submits that, in order for action to be "against" dumping, and thereby fall within the scope of AD Article 18.1, such action must (1) apply to the imported good or importer, and (2) be burdensome (as was the case in the 1916 Act).

7.13 The issues raised by the parties require us to determine whether or not the CDSOA constitutes a "specific action against dumping" within the meaning of Article 18.1 of the AD Agreement. In identifying the appropriate standard for resolving this issue, we have had regard to the Appellate Body's treatment of this provision in US – 1916 Act.²⁶⁵ We note that there is disagreement between the parties as to whether or not the test applied by the Appellate Body in US – 1916 Act for the purpose of determining whether or not the measure at issue in that case was a "specific action against dumping" is conclusive of the issue before us. If the test set forth in para. 122 of the Appellate Body report in US – 1916 Act were conclusive, a measure would constitute "specific action against dumping" if it were "taken in response to situations presenting the constituent elements of dumping". This would be the case if the measure could be taken only when the constituent elements of dumping were present. We therefore begin our analysis by considering the relevance of the test applied by the Appellate Body in US – 1916 Act to these proceedings. Thus, we shall consider whether any "action that may be taken  only  when the constituent elements of 'dumping' are present" necessarily constitutes "specific action against dumping"? In particular, is an action necessarily "against" dumping simply because it is taken "in response to" dumping", or is it necessary to further determine that a measure taken "in response to" dumping is also "against" dumping? We then identify the appropriate standard for determining whether or not a measure constitutes "specific action against dumping" and apply it to the CDSOA. Finally, we examine the US argument that the CDSOA is permitted by footnotes 24 and 56 of the AD and SCM Agreements respectively.

2. The standard for determining whether or not a measure constitutes a "specific action against dumping"

7.14 For the reasons set forth below, we do not consider that the test applied by the Appellate Body in US – 1916 Act is conclusive of whether or not a measure constitutes "specific action against dumping". In our view, a measure is not "specific action against dumping" simply or only because it is taken in response to situations presenting the constituent elements of dumping, or because it may be taken only when the constituent elements of dumping are present. Such a measure will be "specific action" related to dumping, in the sense that it acts specifically in response to dumping, but it will not necessarily be "specific action" against dumping.

7.15 First, we note that, at para. 122 of its US – 1916 Act report, the Appellate Body was referring to Article 18.1 of the AD Agreement in order to clarify the scope of application of Article VI of GATT 1994. In other words, the Appellate Body was referring to Article 18.1 as context for the purpose of interpreting Article VI, which was the provision at issue in that case. The Appellate Body was not interpreting AD Article 18.1 per se.

7.16 Second, we do not consider that the circumstances of the US – 1916 Act proceedings were such that the Appellate Body was required to consider the meaning of the word "against" in AD Article 18.1. This is because there was no disagreement between the parties in that case that the measure at issue, which imposed criminal and civil liabilities on importers engaged in dumping, constituted action "against" dumping.²⁶⁶

7.17 Third, we do not consider that action "in response to" dumping will always necessarily be "against" dumping. In our view, the category of action "in response to" dumping is broader than the category of action "against" dumping. In this regard, the parties provided us with many definitions of the term "against". According to the United States, the ordinary meaning of "against" is "of motion or action in opposition", "in hostility or active opposition to", and "into contact with".²⁶⁷ Australia, the European Communities, India, Indonesia and Thailand note that the same dictionary also defines "against" as "in competition with", "to the disadvantage of", "in resistance to", and "as protection from".²⁶⁸ According to Canada, "[t]o take action against dumping or subsidies is to 'offset or prevent' the dumping or subsidy. In other words, action taken against dumping or subsidies is action taken to counteract or discourage the practice".²⁶⁹ Without necessarily providing a definitive statement of the meaning of the term "against", we conclude that action "against" dumping must have some adverse bearing²⁷⁰ on dumping. Thus, action "in response to" dumping will only constitute action "against" dumping to the extent that it has an adverse bearing on dumping.²⁷¹ Action which is in response to dumping, but also beneficial to dumping (or neutral in effect on dumping), is not "against" dumping.²⁷²

7.18 For these reasons, we do not consider that the test applied by the Appellate Body in US – 1916 Act is conclusive of the issue of whether or not a measure constitutes a "specific action against dumping". A measure is not a "specific action against dumping" simply because it "may be taken  only  when the constituent elements of 'dumping' are present", or because it is taken "in response to" dumping. A measure that may be taken only in situations presenting the constituent elements of dumping is clearly "specific action" in response to dumping. However, in order for that measure to constitute "specific action against dumping", something more is needed: the measure must also act "against" – and therefore have an adverse bearing on - dumping. In other words, a measure will only constitute "specific action against dumping" if (1) it acts specifically in response to dumping, in the sense that it may be taken only in situations presenting the constituent elements of dumping,²⁷³ and (2) it acts "against" dumping, in the sense that it has an adverse bearing on dumping. We shall now examine whether the CDSOA meets these two conditions.

3. Does the CDSOA act specifically in response to dumping, in the sense that CDSOA payments may be made only in situations presenting the constituent elements of dumping?

(a) Arguments of the parties

7.19 The complaining parties²⁷⁴ assert that CDSOA payments may be made only in situations presenting the constituent elements of dumping because:

• CDSOA offset payments are made only and exclusively to US producers that supported an application for an anti-dumping investigation:
   

• CDSOA offset payments are made only and exclusively to US producers "affected" by an instance of dumping which is the subject of an anti-dumping order;
   

• CDSOA offset payments are paid for "qualifying expenses" incurred by the affected domestic producers "after" the issuance of anti-dumping order; and
   

• the "qualifying expenses" must be related to the production of a product that is the subject of an anti-dumping order.

7.20 The United States denies that CDSOA payments may be made only in situations presenting the constituent elements of dumping. According to the United States, the CDSOA does not instruct US Customs to take action in response to situations or conduct presenting the constituent elements of dumping, and is therefore not directly based on the constituent elements of dumping. On the contrary, the CDSOA instructs US Customs to take action based on certifications from an "affected domestic producer" regarding its "qualifying expenditures". The United States asserts that the fact that an anti-dumping order is a necessary prerequisite, or condition, for CDSOA payments is not sufficient to make the CDSOA a "specific action against dumping". Nor is the fact that CDSOA distributions are funded by anti-dumping duties.

(b) Evaluation by the Panel

7.21 We note that, at first sight, the CDSOA contains no reference to the constituent elements of dumping. Nor are the constituent elements of dumping explicitly built into the essential elements of eligibility for offset payment subsidies. Nevertheless it is clear that CDSOA payments may only be made in situations where the constituent elements of dumping are present. Specifically, CDSOA offset payments follow automatically from the collection of anti-dumping duties, which in turn may only be collected following the imposition of anti-dumping orders, which may only be imposed following a determination of dumping (injury and causation). Thus there is a clear, direct and unavoidable connection between the determination of dumping and CDSOA offset payments. For domestic producers who have qualified for CDSOA payments by having supported the petition for an anti-dumping investigation, and having incurred qualifying expenses in the production of like products, the CDSOA offset payments flow as automatically from the presence of the constituent elements of dumping as do the anti-dumping duties themselves. For this reason, we find that CDSOA offset payments may be made only in situations presenting the constituent elements of dumping. Indeed, this conclusion is even suggested by the reference to "dumping" in the title of the CDSOA.

7.22 In order to avoid any misunderstanding, we wish to emphasise that our finding that CDSOA offset payments may be made only in situations presenting the constituent elements of dumping is in no way based on the fact that offset payments are funded from collected anti-dumping duties. Even if CDSOA offset payments were funded directly from the US Treasury, and in an amount unrelated to collected anti-dumping duties, we would still be required to reach the conclusion – for the reasons set forth in the preceding paragraph - that offset payments may be made only in situations presenting the constituent elements of dumping.

7.23 To conclude, therefore, we find that CDSOA offset payments act specifically in response to dumping, since they may be made only in situations presenting the constituent elements of dumping. For this reason, we find that the CDSOA is a "specific action" related to dumping. We must now consider whether or not the CDSOA is a specific action against dumping.

4. Is the CDSOA a specific action against dumping?

(a) Arguments of the parties

7.24 The complaining parties assert that the CDSOA acts against dumping because it upsets the competitive relationship between (imported) dumped and domestic products. According to the complaining parties, "specific action against dumping" need not necessarily impact directly on the entity connected to, in the sense of being responsible for, the dumped product. For example, Australia asserts that "the necessity of an 'adverse bearing' does not compel the conclusion that a measure 'against' dumping must apply exclusively to the dumped products, or to an entity connected with those products, or be burdensome to those products or entities".²⁷⁵ The EC, India, Indonesia and Thailand assert that "to be effective, a 'specific action against dumping' must be capable of having some adverse impact upon the dumped imports (or upon the 'entities engaged in dumping')", although "there is nothing in the US - 1916 Act panel reports or in the Appellate Body report which suggests that the notion of 'specific action against dumping' should be restricted to those types of measures which apply 'directly' to 'entities engaged in dumping'".²⁷⁶

7.25 The United States asserts that, in order to be "against" dumping, action "must apply to the imported good or the importer, and it must be burdensome".²⁷⁷ In particular, according to the United States, "the action must be directly against imported products. As a practical matter, imported goods are produced, exported, and imported by foreign producers, exporters, and importers. Therefore, the object of 'specific action' under Articles 18.1 and 32.1 extends to the entity connected to, in the sense of being responsible for, the dumped or subsidized good such as the importer, exporter or foreign producer."²⁷⁸

7.26 The complaining parties assert that the US approach to the phrase "against dumping" is overly restrictive. The complaining parties assert that the ordinary meaning of "against" is "in competition with", "to the disadvantage of", "in resistance to", "in opposition to" and "as protection from". They therefore argue that the notion of action "against" dumping may include not only actions that impose a direct liability on dumped imports, but also actions that afford protection to domestic producers by giving them an advantage over the dumped imports with which they compete. As contextual support the complaining parties refer to Articles VI:2 and VI:3 of GATT 1994, which refer respectively to the imposition of anti-dumping duties "in order to prevent or offset dumping", and countervailing duties "for the purpose of offsetting any bounty or subsidy". The complaining parties argue that the notion of "against" dumping must include, at a minimum, any actions which, like the levying of anti-dumping or countervailing duties, are taken "in order to" or "with the purpose of" "offsetting" (or "preventing") dumping or subsidization. They note that dumping and subsidization may be "offset" not only directly, but also indirectly, by granting an advantage to domestic producers which cancels out the price advantage enjoyed by imports as a result of dumping or subsidization. The complaining parties assert that CDSOA offset payments are therefore likely to precipitate changed behaviour on the part of the producers and importers of dumped or subsidised goods, as well as on the part of domestic producers, thereby altering the competitive relationship between imported goods and the domestic like products in ways not contemplated by GATT 1994 or the AD or SCM Agreements. CDSOA offset payments further strengthen the competitive position of domestic producers on top of the remedy that has already been provided in the form of anti-dumping/countervailing measures.

7.27 The complaining parties assert that the stated purpose of the CDSOA confirms that CDSOA offset payments constitute action "against" dumping/subsidization. They submit that the purpose of the offset payments is clearly described in Section 1002 of the CDSOA, which contains the “findings” of Congress providing the justification for the enactment of the CDSOA. The complaining parties assert that Section 1002 is an integral part of the CDSOA. They note that paragraph 1 of Section 1002 states that dumping and subsidisation “must be effectively neutralized”, that paragraph 3 contains the “finding” that the “remedial purpose” of the existing US anti-dumping and countervailing duty laws is “frustrated” because continued dumping and subsidisation “prevents markets prices from returning to fair levels”, and that paragraph 5 concludes that “United States trade laws should be strengthened to see that the remedial purpose of those laws is achieved”. According to the complaining parties, US Congress therefore asserted that the purpose of the offset payments is to “neutralize effectively” dumping and subsidisation by ensuring that prices “return to fair levels”. In other words, the purpose of the CDSOA is to “offset” dumping and subsidisation. The complaining parties assert that the name given by the US Congress to the act (“Continued Dumping and Subsidy Offset Act”) and to the payments made under the act (“offsets”) provides further confirmation of such purpose.

7.28 The United States asserts that the complaining parties have failed to demonstrate that the CDSOA acts "against" dumping. Instead, the complaining parties presume that the CDSOA will have negative effects on imported goods. The United States submits that the complaining parties would have the Panel rewrite AD Article 18.1 and SCM Article 32.1 to read "no specific action with a presumed negative effect on import goods or foreign producers …". The United States also asserts that the complaining parties' test is overly broad and unworkable, since any type of domestic legislation which improves the position of the domestic industry could be presumed to have a negative effect on imported goods. Nor does the United States agree that the CDSOA acts "against" dumping because of its supposed effect on the competitive relationship or the conditions of competition between domestic goods and imported – including dumped or subsidized – goods. According to the United States, a measure only acts "against" dumping or subsidy if it imposes a limitation or burden directly on the imported goods or the entity connected to, in the sense of being responsible for, the dumped or subsidized good such as the importer, exporter, or foreign producer.

7.29 According to the United States, the purpose or intent of the CDSOA is legally irrelevant. The United States submits that the resolution of this dispute does not depend upon what the CDSOA is intended to do but what it actually does. The United States relies on the following statement by the panel in US - 1916 Act to reject the argument that the intent or purpose of a measure is relevant in determining whether it constitutes a “specific action against dumping”:

While we agree that Article VI applies when Members have recourse to a given trade policy instrument, i.e. anti-dumping action, we do not agree that application of Article VI is dependent on the objective pursued by the Member concerned… Article VI is based on an objective premise. If a Member’s legislation is based on a test that meets the definition of Article VI:1 {dumping}, Article VI applies. The stated purpose of the law cannot affect this conclusion.²⁷⁹

7.30 The United States submits that the US – 1916 Act panel cited EC - Parts and Components, where the panel also rejected the argument that the policy purpose of a measure could determine whether it fell within the scope of the provisions in question.²⁸⁰ According to the United States, in that case the panel explained that “[o]nly at the expense of creating substantial legal uncertainty could the policy purpose of a charge be considered to be relevant in determining whether the charge falls under Article II:1(b) or Article III:2.”²⁸¹ According to the United States, despite US arguments that the 1916 Act was intended to remedy the antitrust problem of predatory pricing, the panel, which was affirmed by the Appellate Body, found that the purpose or intention of the law could not exclude it from the scope of Article VI.²⁸² According to the United States, it therefore must also be true that the stated purpose of a measure cannot bring it within the scope of Article VI and the Antidumping and SCM Agreements if the actual elements of the measure do not satisfy the test for the scope of those articles. The United States submits that the legislative history of the CDSOA would only be relevant to its interpretation if the statute were ambiguous and the Panel then needed it to determine the fact of the CDSOA. In this regard, the present case differs from the US – 1916 Act case, where the operation of the statute was claimed to be ambiguous, and the legislative history was consulted to determine whether the statute could be interpreted as only an antitrust statute, or something else.

7.31 The complaining parties assert that the US – 1916 Act panels did not say that the purpose of the measure is “legally irrelevant”, but rather that a measure which is objectively a “specific action against dumping” cannot escape condemnation simply because it has a different stated purpose.²⁸³ The panels in US - 1916 Act were concerned that if the legal characterisation of a measure as “specific action against dumping” were dependent upon its stated purpose, it would be extremely easy for Members to evade the prohibition contained in Article 18.1 of the Anti-Dumping Agreement simply by stating some spurious purpose in the legislation at issue. According to the complaining parties, that concern does not arise in the present case.

7.32 The complaining parties assert that even if the CDSOA is merely a “payment programme”,²⁸⁴ making payments is not an objective in itself, but rather an instrument to achieve some purpose. According to the complaining parties, the United States has not argued that the “findings” made by the US Congress in Section 1002 of the CDSOA are incorrect or false. Nor has the United States argued that the CDSOA is inapt to achieve the purpose reflected in those “findings”. Indeed, had the US submission argued that, it would be tantamount to saying that the US legislators were either incompetent or insincere. The complaining parties submit that since the United States has not disputed that the purpose of the CDSOA is that stated by the US Congress in the CDSOA, there is no reason why that purpose should be disregarded by the Panel.²⁸⁵ At any rate, even assuming that, as argued by the United States, the stated purpose of the CDSOA were “legally irrelevant” for the characterisation of the CDSOA, that would not prevent the Panel from taking into account the unquestionably informed views of the US legislators in assessing the factual issue of whether or not the offset payments are objectively capable of offsetting or preventing dumping or subsidisation and, therefore, constitute action “against” dumping or subsidisation.

(b) Evaluation by the Panel

7.33 In considering whether the CDSOA constitutes specific action "against" dumping, we note that AD Article 18.1 refers only to measures that act against "dumping" as a practice. There is no express requirement that the measure must act against the imported dumped product, or entities connected to, or responsible for, the dumped good such as the importer, exporter, or foreign producer.²⁸⁶ Nor do we consider that action may only be considered to be "against" dumping if its acts s directly against dumping. As noted above, we consider that a measure will only act "against" dumping if it has an adverse bearing on the practice of dumping.²⁸⁷ In our view, the ordinary meaning of the term "against", which is not qualified in any way in AD Article 18.1, encompasses any form of adverse bearing, be it direct or indirect.²⁸⁸ Thus, AD Article 18.1 applies to measures that specifically act either directly or indirectly against the practice of dumping. Indeed, were it otherwise, we do not see how the Appellate Body could have concluded in US – 1916 Act that "[s]pecific action against dumping could take a wide variety of forms".²⁸⁹

7.34 In our view, the CDSOA has an adverse bearing on dumping. This conclusion is based on the following considerations which, taken together, demonstrate that the CDSOA operates "against" dumping.

(i) Distortion of competition between dumped and domestic products

7.35 The CDSOA has an adverse impact on the competitive relationship between dumped/subsidized imports and goods produced by "affected domestic producers". In particular, the structure of the CDSOA (which combines offset subsidies with the collection of anti-dumping duties) is such that it will act against dumping by conferring on "affected domestic producers" incurring "qualifying expenses" an offset payment subsidy which would allow them to establish a competitive advantage over dumped imports. Although the United States has argued that there is no basis to include a "conditions of competition" test under AD Article 18.1/SCM Article 32.1, we note that the United States itself argued that conformity with those provisions should be determined inter alia on the basis of whether the measure at issue is "burdensome" for imported goods/entities responsible for their importation. In our view, a primary test of whether or not a measure is "burdensome" on imports is to determine whether the measure has had an adverse impact on the conditions under which the imported goods compete with like domestic goods. In other words, we consider that the US "burdensome" test requires rather than disallows a conditions of competition test.

7.36 "Qualifying expenses" are capital or operational expenditures that must relate to the production of the like domestic good to that subject to an order, and that must be incurred after the order is imposed and before it terminates. In other words, "qualifying expenses" are costs incurred by domestic producers in competing with dumped imports subject to an order. The amount of the offset subsidy is determined by the amount of duties collected, and therefore by the margin of dumping involved. The United States asserted that "dumping over time is evidence of a competitive advantage. The imposition of an anti-dumping duty levels the playing field; it does not place the dumped product at a disadvantage."²⁹⁰ We agree that dumping over time may be evidence of a competitive advantage. However, the combination of anti-dumping duties and offset subsidies is not merely to level the playing field, but to transfer that competitive advantage to "affected domestic producers".²⁹¹ To the extent that the competitive advantage enjoyed by dumped imports is transferred to "affected domestic producers", those imports, and the entities responsible for their commercialization, suffer a competitive disadvantage. This competitive disadvantage acts (albeit indirectly) against dumping and subsidization.

7.37 We note the US argument that there is no reason to believe that the CDSOA payments will necessarily change the competitive relationship between producers. According to the United States, an affected domestic producer can use the money for any purpose, including gifts to charity, payment of creditors, additional compensation or early retirement packages for workers, new product development, or new cafeterias. The United States submits that CDSOA payments will not necessarily be used by domestic producers to improve their competitive position with respect to the product subject to relevant anti-dumping or countervailing duty orders. While we accept that the CDSOA does not require "affected domestic producers" to use offset payments for any specific purpose, we would also note that offset payments will have been made to domestic producers because of a finding of dumping causing injury, and that it may be expected that most or many will use the payments, and the improvement in their competitive position these will allow, to address the injury caused by dumped imports in one way or another. It is not necessary to specify how this will be done. Moreover, since money is fungible, what the recipient actually does with the cash received is irrelevant.²⁹²

7.38 We also note that the CDSOA confers an advantage on "affected domestic producers" in respect of competition from all sources, not only that from dumped/subsidised imports subject to an order. However, we do not consider that a measure will only constitute "specific action against dumping" if it only acts exclusively against dumping. AD Article 18.1 does not refer to "specific action exclusively against dumping". Nor is the word "against" qualified by the word "specific", which instead dictates the type of action at issue (i.e., a measure may be caught by AD Article 18.1 if it is specific in nature, rather than specific in effect).²⁹³

7.39 We conclude however, that the CDSOA has a specific adverse impact on the competitive relationship between domestic products and dumped imports which does not apply to other products. While non-"affected domestic producers" and foreign producers/exporters not subject to orders are able to lower their prices in order to meet the improved competitive position of the "affected domestic producers" resulting from the offset payments, the fact that the offset subsidies are combined with anti-dumping orders means that foreign producers/exporters subject to orders are unable to do so. This is because any reduction in their prices will be nullified under United States law by the imposition by the United States of correspondingly increased anti-dumping duties. Since the CDSOA transfers the competitive advantage of dumped goods to "affected domestic producers", and prevents foreign producers/exporters from responding by lowering their prices, the CDSOA effectively penalises those entities if they continue to export dumped products (subject to orders) to the United States. It imposes a penalty on dumped imports by rendering them less competitive vis-à-vis the like products of "affected domestic producers". We are in no doubt that the imposition of a penalty on entities engaged in dumping acts against dumping. Furthermore, since the CDSOA combines the imposition of an anti-dumping order with the imposition of a penalty, the CDSOA operates such as to impose a double remedy on dumped imports. Such "double jeopardy" will doubtless dissuade foreign producers/exporters from continuing to dump following the imposition of an anti-dumping order. Exporters/foreign producers know that if they dump products in the United States, and if those products are subject to an anti-dumping order, not only will anti-dumping duties be levied, but those duties will be transferred to at least some of their US competitors in the form of CDSOA offset payments. These payments benefit the recipient companies, and therefore disadvantage the exporters/foreign producers engaged in dumping. Under the CDSOA, exporters/foreign producers determine by their own conduct whether US producers obtain offset payments. In order to eliminate the competitive disadvantage they suffer from offset payments to "affected domestic producers", exporters/foreign producers will clearly be dissuaded from dumping.²⁹⁴ Such dissuasive effect means that the CDSOA bears adversely on dumping, and therefore acts against dumping.²⁹⁵

7.40 Finally, we note that the consequences outlined above seem to be consistent with the intent of the US legislature in adopting the CDSOA – i.e., that it would act primarily against dumping or subsidisation, as opposed to import competition more generally. We refer in particular to the "Findings of Congress" set forth in Section 1002 of the CDSOA. Section 1002 provides in relevant part that "continued dumping or subsidization of imported products after issuance of anti-dumping orders or findings or countervailing duty orders can frustrate the remedial purpose of the laws by preventing market prices from returning to fair levels". According to Congress, the US trade laws "should be strengthened to see that the remedial purpose of those laws is achieved". In our view, therefore, Congress intended that the CDSOA should discourage the "frustrat[ion]" of the "remedial purpose" of US trade laws by "continued dumping or subsidization". We therefore understand that Congress intended that the CDSOA should act "against" continued dumping or subsidization (in order to safeguard the "remedial purpose" of US trade laws). Since the CDSOA was intended to act against dumping, and since it has been shown to act against dumping, we consider that it would be inappropriate for us to find that it does not do so simply because the CDSOA also has an effect on competition more generally. In particular, we do not consider that a Member is entitled to introduce a measure with the intent of acting against dumping, and then deny that the measure constitutes a "specific action against dumping" because the measure does not act exclusively against dumped imports.

7.41 We note the US argument that "the stated purpose of a measure cannot bring it within the scope of Article VI and the Antidumping and SCM Agreements if the actual elements of the measure do not satisfy the test for the scope of those articles".²⁹⁶ In this case, however, we are not relying on the stated purpose of the CDSOA as a basis for concluding that the CDSOA constitutes a "specific action against dumping". We consider that this conclusion can be securely based on other considerations to which we refer. That being said, the stated purpose of the CDSOA confirms our conclusion based on these other considerations, and we are therefore of the view that the stated purpose of the CDSOA should not be overlooked. In effect, acceptance of the US argument that the CDSOA is not a "specific action against dumping" would mean that the CDSOA does not do what the US Congress clearly intended it would do, namely to act against (continued) dumping. On the basis of the various factors we have considered, we do not accept that the CDSOA does not do what the US Congress clearly intended it should do. In any event, we note that the United States has not disputed the EC statement that "[a]t any rate, even assuming that, as argued by the United States, the stated purpose of the CDSOA were 'legally irrelevant' for the characterization of the CDSOA, that would not prevent the Panel from taking into account the unquestionably informed views of the US legislators in assessing the factual issue of whether or not the offset payments are objectively capable of offsetting or preventing dumping or subsidisation and, therefore, constitute action 'against' dumping or subsidisation".²⁹⁷

(ii) Financial incentive to file/support applications

7.42 The adverse bearing on dumping created by the offset payments is compounded by the additional consequence of the CDSOA that it will have the effect of providing a financial incentive for domestic producers to file anti-dumping/countervail applications, or at least to support such applications in order to establish their eligibility for offset payments. This will in all probability result in a greater number of anti-dumping/countervail applications and investigations than would have been the case without CDSOA, both because additional applications will be filed, and because the AD Article 5.4/SCM Article 11.4 standing requirements will likely be met in cases where there would not have been sufficient "support" absent the CDSOA.²⁹⁸ A greater number of anti-dumping/countervail investigations will likely result in a greater number of anti-dumping/countervail orders (since some of those additional investigations will on the balance of probability result in orders).²⁹⁹ The prospect of an increased number of investigations will disrupt the trading environment for foreign producers/exporters that may be engaged in dumping.³⁰⁰

7.43 The United States argues that since there is uncertainty at the time a petition is filed as to the quantum of duties, if any, which will be distributed under CDSOA, and since many years are likely to pass before any such distribution will take place, it is highly improbable that the CDSOA is a factor at all in a domestic company’s or union’s consideration of whether to support a petition. According to the United States, considered against the million plus US dollars it costs to bring an anti-dumping or countervailing duty case before the Department of Commerce and the International Trade Commission, and then to defend it against any possible court challenges, it would be irrational for domestic producers to bring a "frivolous" or "disingenuous" anti-dumping or countervailing duty case for a sum certain with the hope of a contingent and uncertain "payoff."

7.44 We acknowledge that the filing of an anti-dumping application is costly, and we have no reason to doubt the US estimate of the costs of an application.³⁰¹ We also acknowledge that, in certain cases, a significant period of time may elapse between the imposition of an order and the payment of offset subsidies to "affected domestic producers", and that, depending on a number of variables, the offset payments may not be significant. That being said, however, the potential "rewards" involved are significant. According to evidence submitted by certain complaining parties (not challenged by the United States), offset payments to "affected domestic producers" made as of December 2001 totalled over US$206,000,000. One "affected domestic producer" received US$60,000,000. Another received US$30,000,000. While not all "affected domestic producers" will receive offset payments of such magnitude, in some cases the US$1,000,000 plus cost of filing an application will clearly be immaterial. Furthermore, even though offset payments may not be made immediately after imposition of an order, in many cases such sums would be worth waiting for. Viewed in this light, we conclude that the CDSOA will provide a clear incentive to domestic producers to file anti-dumping/countervail applications. This is confirmed by concerns expressed by US Administration officials regarding the potential for "frivolous" applications resulting from an earlier bill on which the CDSOA was based. Thus, in 1999, US Secretary of Commerce William M. Daley stated "as to the compensation being given to the private sector, I think there is a question … of potential frivolous suits". US Trade representative Charlene Barshefsky stated that she "agree[d] fully with what Secretary Daley … said".³⁰²

7.45 We consider that the CDSOA creates an even greater incentive for domestic producers to support applications filed by others. This is because the cost of supporting an application is minimal, while "affected domestic producers" would be eligible for the same amount of offset payment whether they file or merely support an application. In other words, the "return" on supporting an application is greater than the return on filing an application. Even producers not necessarily interested in the "return" from CDSOA offset payments will in certain instances choose to support an application, so as not to be at a competitive disadvantage to other domestic producers (of the like product) by not sharing in the offset payment subsidies. While domestic producers may be expected to support petitions, even without the prospect of offset payment subsidies, there would be cases where they would not normally do so. We note, for example, Korea's argument that vertically-integrated producers often also import the product. We also note that producers may import particular model-types in order to plug a gap in their sales inventories. The imposition of an anti-dumping or countervail order would not necessarily be of economic benefit for such producers. Indeed, if support for applications were quasi-automatic, there would be no need for the standing provisions set forth in AD Article 5.4 and SCM Article 11.4. Overall we conclude that producers that might not normally have supported an application may well be induced to as a result of the CDSOA, given the potential for offset payment subsidies, especially since they would otherwise render themselves less competitive vis-à-vis other domestic producers that do receive offset payment subsidies.³⁰³ Finally, we note that, in support of this conclusion, the potential for the CDSOA to encourage domestic producers to support applications is illustrated by two letters submitted by Canada. In the first letter, a US producer seeks support from other producers for a proposed countervail application. In requesting support, the letter explains the operation of the CDSOA, 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."³⁰⁴ In the second letter, a US producer which initially filed a Prehearing Brief alleging lack of injury to US producers subsequently withdrew that Brief and expressed support for the petition "for purposes of qualification for consideration for benefits under the" CDSOA.³⁰⁵ In other words, the producer "changed its mind" (and expressed support for the application) in order to be eligible for offset payment subsidies.

7.46 In light of the above considerations, taken together, we find that the CDSOA has an adverse bearing on dumping, and therefore acts "against" dumping. Since the CDSOA is in response to dumping, in the sense that CDSOA offset payments may be made only in situations presenting the constituent elements of dumping, and since the CDSOA acts "against" dumping, the CDSOA constitutes "specific action against dumping" within the meaning of AD Article 18.1 (and "specific action against subsidy" within the meaning of SCM Article 32.1). We now turn to the US argument that the CDSOA is permitted by footnote 24 of the AD Agreement (and footnote 56 of the SCM Agreement).

5. Is the CDSOA permitted by footnotes 24 and 56 of the AD and SCM Agreements respectively?

(a) Arguments of the parties

7.47 The United States asserts that, even if the Panel were to find that the CDSOA is an action – but not specific action - against dumping/subsidization, footnotes 24 and 56 to Articles 18.1 and 32, respectively, operate to permit the CDSOA.

7.48 The complaining parties submit that the scope of Articles 18.1 and 32.1, on the one hand, and footnotes 24 and 54, 56, on the other hand, is mutually exclusive. Thus, a measure prohibited by Articles 18.1 or 32.1 cannot be permitted by footnotes 24 or 54. 56.

7.49 The United States submits that it is not seeking to rely on footnotes 24 and 56 as exceptions to Articles 18.1 and 32.1. The United States submits that Articles 18.1 and 32.1 do not cover all types of action against dumping or a subsidy, just "specific" action against dumping or a subsidy, since footnotes 24 and 56 cover "action" against dumping or subsidization under other relevant provisions of GATT 1994. According to the United States, the combination of (1) Articles 18.1 and 32.1 and (2) footnotes 24 and 56 creates an integrated scheme proscribing only certain actions against dumping and subsidization. Under that scheme, actions against dumping and subsidies as such must proceed under the Antidumping or SCM Agreement; other actions, however, such as actions under GATT Article XVI to address the effects of dumping and/or subsidies, are explicitly permitted by footnotes 24 and 56. The CDSOA, to the extent that the Panel were to find it to be an action against dumping and/or subsidies, is nevertheless clearly an action under GATT Article XVI to address the effects of such practices.

(b) Evaluation by the Panel

7.50 We do not understand the United States to argue that a measure prohibited by Articles 18.1 of the AD Agreement or 32.1 of the SCM Agreement may nevertheless be permitted by footnotes 24 or 56.³⁰⁶ Indeed, the United States has expressly asserted that footnotes 24 and 52 56 are not exceptions to Articles 18.1 or 32.1.³⁰⁷ Thus, the basis for the US reliance on footnotes 24 and 52 56 appears to be that the CDSOA is not a "specific" action against dumping or subsidy.³⁰⁸ In other words, the US arguments concern measures that constitute "action against dumping" or subsidy, rather than "specific action against dumping" or subsidy. However, insofar as we have already found that the CDSOA is a "specific action against dumping" or subsidy, in the meaning of AD Article 18.1 and SCM Article 32.1, arguments regarding the application of the abovementioned footnotes to non-specific action against dumping or subsidy are not relevant. Since the US does not argue that a measure inconsistent with Articles 18.1 and 32.1 could somehow be "saved" by footnotes 24 and 52, 56, it is not necessary to address the parties' arguments regarding the import of those footnotes.

6. Conclusion

7.51 In light of the above, we conclude that the CDSOA constitutes a specific action taken in response to situations presenting the constituent elements of dumping, and that the action taken pursuant to the CDSOA has an adverse bearing on dumping. We therefore conclude that the CDSOA is a non-permissible “specific action against dumping”, contrary to AD Article 18.1. We also conclude that the CDSOA is a non-permissible "specific action against a subsidy", contrary to SCM Article 32.1. Since the CDSOA is inconsistent with AD Article 18.1 and SCM Article 32.1, the CDSOA is also in violation of paragraphs 2 and 3 of Article VI of the GATT 1994.³⁰⁹

7.52 We wish to emphasise that our findings and conclusions relate exclusively to the CDSOA, which combines the imposition of anti-dumping/countervail orders with the bestowal of offset payment subsidies in very particular circumstances, such as to constitute "specific action against dumping"/subsidisation. Though we consider that subsidization should not generally be used as a surrogate contingent trade remedy, our conclusion (that the CDSOA constitutes "specific action against dumping") is not based on a finding that subsidization in and of itself necessarily constitutes "specific action against dumping"/subsidisation.

C. AD ARTICLE 5.4/SCM ARTICLE 11.4 - STANDING

1. Arguments of the parties

7.53 The complaining parties argue that the CDSOA is inconsistent with AD Article 5.4 and SCM Article 11.4. AD Article 5.4 provides as follows³¹⁰:

7.54 According to the complainants, the CDSOA provides a financial inducement to domestic producers to file applications or to express support for a petition since the payments are only made to those producers that support the petition. According to the complainants, AD Article 5.4 and SCM Article 11.4 require a Member to conduct an objective and good faith examination of the level of support for the application. Through the promise of offset payments, the complaining parties argue, the US government is unduly influencing the very facts which the authorities are required to examine in an objective manner. The complaining parties argue that Members must observe the general principle of good faith, recognized by the Appellate Body as a pervasive principle that informs the covered agreements, in the application and interpretation of the AD and SCM Agreements. According to the complainants, when a treaty provision specifies that actions of private parties are necessary to establish a Member's right to take action, government provision of a financial incentive for those private parties to act one way rather than another is inconsistent with the requirement that Members perform their treaty obligations in good faith. Therefore, the complaining parties are of the view that the CDSOA prevents the authorities from ascertaining, in an objective and good faith manner, whether an application is effectively made by or on behalf of the domestic industry as required by AD Article 5.4 and SCM Article 11.4.

7.55 The complainants submit that the CDSOA frustrates the object and purpose of AD Article 5.4 and SCM Article 11.4, which is to limit the initiation of investigations to those instances where the domestic industry has a genuine interest in the adoption of anti-dumping/countervail measures.³¹¹ According to the complainants, when the support of a domestic producer is bought with the promise of a financial reward, such support cannot be regarded as genuine and cannot be taken into account for the purposes of the determination required by AD Article 5.4 and SCM Article 11.4. The complaining parties submit that the formalistic position of the United States which reduces the standing provision to mere arithmetic leads to an absurd and unreasonable result. The complaining parties argue that they do not suggest that an investigating authority is to ascertain actively in each case the subjective motivations of a producer in expressing support for an application, but argue that if there is evidence calling into question the credibility of a declaration of support, the administrative authorities cannot ignore such evidence without violating AD Article 5.4 and SCM Article 11.4.

7.56 The complaining parties therefore request the Panel to find that by providing a financial incentive to support an application for the initiation of an anti-dumping/countervail investigation, the CDSOA is inconsistent with AD Article 5.4 and SCM Article 11.4.

7.57 The United States argues that AD Article 5.4 and SCM Article 11.4 contain objective numerical benchmarks for determining whether an application was made by or on behalf of the domestic industry. The United States asserts that the statutory provisions which have implemented these numerical benchmarks in the United States are not affected by the CDSOA. The United States further submits that there is no requirement in AD Article 5.4 or SCM Article 11.4 that administering authorities determine the reason why domestic producers support an application. Rather, the United States is of the view that the only obligation incumbent upon the authority is to determine in an unbiased and objective manner whether the quantitative benchmarks have been met. The United States notes that the complaining parties are not arguing that the United States is failing to abide by those benchmarks.

7.58 Finally, the United States argues that in any case the complaining parties have not presented any evidence that the CDSOA actually distorts the application of the standing requirements and that producers who would otherwise have opposed the application in the absence of the CDSOA are now supporting investigations and that their support was necessary to initiate the investigation. The United States therefore requests that the complaining parties' argument of violation of AD Article 5.4 and SCM Article 11.4 be rejected.

2. Evaluation by the Panel

7.59 The complaining parties claim that the CDSOA violates AD Article 5.4 and SCM Article 11.4. The text of these provisions stipulates that there must be sufficient support for the application before a Member may initiate an investigation. The CDSOA deals with the distribution of duties collected and the conditions for eligibility for receiving such distributions. As such, the CDSOA does not amend the United States' statutory provisions concerning standing which implement the United States' obligations under Article 5.4 AD and 11.4 SCM Agreement in United States law in sections 702(c)(4) and 732(c)(4) of the Tariff Act of 1930, as amended (19 U.S.C. §§ 1671a(c)(4), 1673a(c)(4)).

7.60 The issues before us however, are whether the CDSOA operates in such a manner that the US investigating authorities will be unable to conduct an objective and impartial examination of the level of support for the application; and whether in consequence the CDSOA has undermined the value of the provisions of AD Article 5.4 and SCM Article 11.4.

7.61 We note the argument advanced by the European Communities that “those two provisions [AD Article 5.4 and SCM Article 11.4] 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”.³¹²  In consequence the investigating authorities of a Member are obliged to have regard to two tests in determining the degree of support for a petition- i.e., the quantitative thresholds in AD Article 5.4/SCM Article 11.4; and the requirements under AD Article 5.2/SCM Article 11.2 that there be sufficient evidence concerning dumping/subsidization, injury and the causal link in order to ensure that investigations are not initiated on the basis of frivolous or unfounded suits. Specifically, in consequence of these provisions it may be presumed that investigations will not proceed in circumstances where there may be a small proportion of the domestic industry which is affected by dumped/subsidized imports, but they do not have the support of at least 50 per cent of the industry. This is the significance of the tests in AD Article 5.4 and SCM Article 11.4.

7.62 We conclude that in consequence of the CDSOA providing that offset payments will be made only to domestic producers who have supported dumping/subsidy petitions, there is a financial incentive for domestic producers of like products to initiate and, more importantly to support petitions for dumping investigations. This incentive will result in more petitions having the required level of support from domestic industry than would have been the case without the CDSOA. Indeed, 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, we could conclude that the majority of petitions will achieve the levels of support required under AD Article 5.4/ SCM Article 11.4. In this respect we again refer to the evidence referred to at paragraph 7.45 above, and especially the letter of a US company which after initiation of the investigation changed its position concerning the application and decided to express support for the application in order to remain eligible for possible offset payment subsidies. In our 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.

7.63 The consequences are several. We first note however, the United States argument that AD Article 5.4 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. This in itself is correct but in our view does not address the matter at issue. The first consequence of the operation of the CDSOA on AD Article 5.4/ SCM Article 11.4 is that it renders the quantitative tests included in the Article irrelevant, and leaves the investigating authority to make its decision on whether or not to pursue an investigation solely in terms of the requirements set out in AD Article 5.2 and 5.3/SCM Article 11.2 and 11.3, thus denying parties potentially subject to the investigation a meaningful test of whether the petition has the required support of the industry. It 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 if dumping is found in consequence of the investigation and anti-dumping duties imposed. In consequence 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.

7.64 The importance of the principle of good faith as a general rule of conduct in international relations is well established.³¹³ Good faith requires a party to a treaty to refrain from acting in a manner which would defeat the object and purpose of the treaty as a whole or the treaty provision in question.³¹⁴ In our view, AD Article 5.4 and SCM Article 11.4 have as their object and purpose to require the authority 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. In this case the question is whether the CDSOA defeats this object and purpose of AD Article 5.4 and SCM Article 11.4.

7.65 We consider that the CDSOA in fact implies a return to the situation which existed before the Uruguay Round Agreement and which led to the introduction of AD Article 5.4 and SCM Article 11.4 in their current form. As we discussed above, AD Article 5.4 was 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.

3. Conclusion

7.66 In sum, by requiring support for the petition as a prerequisite for receiving offset payments, the CDSOA in effect mandates domestic producers to support the application and renders the threshold test of AD Article 5.4 and SCM Article 11.4 completely meaningless. We are therefore of the view that the United States has failed to comply with its obligations under AD Article 5.4 Agreement and SCM Article 11.4. Therefore, we find that the CDSOA is inconsistent with AD Article 5.4 and SCM Article 11.4.

D. AD ARTICLE 8.3/SCM ARTICLE 18.3 - UNDERTAKINGS

1. Arguments of the parties

7.67 The complaining parties³¹⁵ argue that AD Article 8.3 and SCM Article 18.3 require the authority to objectively examine the appropriateness of accepting a price undertaking and to reject an undertaking offered only for a pertinent reason.

7.68 The complaining parties assert that, in the United States, domestic producers have an effective veto right when it comes to the acceptance of price undertakings by the investigating authority.³¹⁶ According to the complainants, because offset payment subsidies will only be distributed if duties are collected, the CDSOA will inevitably cause domestic producers to oppose the acceptance of price undertakings. Thus, the complainants submit that through the CDSOA, the United States is unduly influencing the outcome of the examination of the "appropriateness" of accepting an undertaking in a way which favours the interests of the petitioners over those of the exporters. The United States is therefore violating its obligation to have its authority undertake an objective examination of whether accepting an undertaking would be appropriate in the circumstances. According to the complainants, the CDSOA will also lead to the rejection of undertakings without a pertinent reason, since the domestic producers will oppose the acceptance of an undertaking for pecuniary reasons which have no bearing on whether an undertaking is an "appropriate" alternative remedy. The complainants argue that the CDSOA thus frustrates the object and purpose of AD Article 8 and SCM Article 18, namely to provide an alternative remedy to dumping which, while giving equivalent protection to the domestic producers, is more beneficial to the exporters.

7.69 The United States argues that the CDSOA does not introduce any changes to the United States statutory provisions relating to price undertakings. In the United States' view, the complaining parties have not demonstrated that the CDSOA requires United States administering authorities to breach AD Article 8 and SCM Article 18 in any way. The United States submits that there is no obligation under the AD or SCM Agreements for an authority to accept an undertaking. Moreover, the United States argues, neither Article circumscribes the reasons that may cause an administering authority to decline to accept a proposed undertaking. The United States is of the view that the only obligations contained in AD Article 8 and SCM Article 18 are certain procedural steps that are to be followed under certain circumstances if an undertaking is offered. According to the United States, since there are no limits on the reasons why the authority may believe the acceptance of an undertaking to be impractical, it is within the complete discretion of the authority to accept or reject that undertaking.

7.70 The United States concludes that, in any case, the complaining parties have not provided any evidence that the CDSOA had or will have any actual effect on the consideration of proposed undertakings by the USDOC. The United States further stresses that domestic producers do not have an effective veto right over proposed undertakings, as the rights afforded to domestic producers in the context of proposed undertakings are procedural in nature, not substantive.

2. Evaluation by the Panel

7.71 The complaining parties argue that the CDSOA is inconsistent with AD Article 8.3 and SCM Article 18.3. AD Article 8.3 provides as follows:³¹⁷

8.3 Undertakings offered need not be accepted if the authorities consider their acceptance impractical, for example, if the number of actual or potential exporters is too great, or for other reasons, including reasons of general policy. Should the case arise and where practicable, the authorities shall provide to the exporter the reasons which have led them to consider acceptance of an undertaking as inappropriate, and shall, to the extent possible, give the exporter an opportunity to make comments thereon.

7.72 AD Article 8.3 thus provides that if an undertaking is offered, such an undertaking may be rejected for a number of reasons, including reasons of general policy. We note that the complaining parties have challenged the CDSOA as such. We recall that we may find that the CDSOA as such is inconsistent with Articles 8 AD and 18 SCM Agreement only when it mandates a violation of these provisions. We believe this would be the case if the CDSOA either explicitly amends the statutory provisions relating to price undertakings in a manner inconsistent with the AD or SCM Agreement, or if its effect is such that the authority cannot possibly comply with its obligations in respect of price undertakings under the AD and SCM Agreement.

7.73 The CDSOA does not contain any provisions which amend the United States statutory provisions on price undertakings which are set forth in sections 704 and 734 of the United States Tariff Act of 1930, as amended (19 U.S.C. §§ 1671c, 1673c). The complainants argue however that the CDSOA provides an obvious monetary incentive for the domestic industry to object to the acceptance of an undertaking, which in light of the important weight of the domestic industry's opinion on this matter, effectively makes it impossible for an undertaking to be accepted. The complainants argue that AD Article 8.3 and SCM Article 18.3 provide that an undertaking offered need not be accepted if it is impractical to do so or for other pertinent reasons. However, it is argued, a Member may not outright refuse to accept an undertaking for completely unrelated reasons like the objection by the petitioners for pecuniary reasons.

7.74 We are of the view that the complainants' argument centers around the role of the domestic industry in the United States AD/CVD system when it comes to the acceptance of price undertakings. Indeed, it appears that in the complainants’ view, it is through the effect of the CDSOA on domestic producers and their role in the process of accepting or rejecting an undertaking that the CDSOA violates AD Article 8.3 and SCM Article 18.3. We will therefore first determine the role of the domestic industry in the United States with regard to the acceptance or rejection of price undertakings.

7.75 The US statutory provisions concerning price undertakings provide that an undertaking shall not be accepted unless the authority is satisfied that suspension of the investigation is (a) in the public interest and (b) effective monitoring of the suspension agreement by the US is practicable. Section 704 2 (B) of the United States Tariff Act of 1930 sets forth what the administering authority is to examine when deciding whether it is in the public interest to accept an undertaking.

7.76 It appears therefore that the United States does not as a matter of general policy always reject an undertaking offered. Nor can it be said that the reasons set forth in the relevant US statutory provisions for accepting or rejecting an undertaking (i.e., public interest and monitoring capacity) are not pertinent. In light of this analysis, we need not consider whether an authority may refuse to accept undertakings as a matter of general policy. Nor need we consider whether undertakings may be rejected for non-pertinent reasons.

7.77 In addition to these substantive requirements, the authority is to consult with the domestic producers and potentially affected domestic consuming industries before deciding whether to accept an undertaking. In particular, United States law provides that the investigating authority must notify the petitioner of its intention to suspend the investigation;³¹⁸ must provide a copy of the proposed suspension agreement to the petitioner at the time of the notification, together with an explanation of how the agreement will be carried out and enforced, and of how the agreement will meet the requirements laid down in US law;³¹⁹ and must “consult” with the petitioner concerning its intention to suspend the investigation.³²⁰

7.78 We note that the USDOC "Regulations on anti-dumping and countervailing duty proceedings" (the "Regulations") to which the complaining parties refer in support of their argument clarifies that although the position of the petitioners is an important consideration,

"the Department must assess the public interest based on all the facts, and we do not believe it appropriate to issue a regulation that singles out one factor [position of the petitioners] to the exclusion of others"³²¹.

With this statement, the USDOC rejected the suggestion that it should be required to consider domestic industry opposition to a suspension agreement as a strong indicator that the agreement is not in the public interest.

7.79 In both the statutory provisions and the Regulations, therefore, the objection of the petitioners to the acceptance of an undertaking is only one, be it important, factor in the authority’s assessment of whether it is in the public interest to accept an undertaking. In our view, the investigating authority thus remains free to accept an undertaking even if there is domestic industry opposition to such acceptance. We consider that the complaining parties have not been able to demonstrate either that the objection by the petitioners to the acceptance of an undertaking de facto always results in the rejection thereof. In fact, it seems that almost all suspension agreements have been entered into by the authority over the opposition of the domestic industry.³²²

7.80 Therefore, leaving aside the question whether a Member would be allowed to reject an undertaking simply because the domestic industry opposes its acceptance, we find that the CDSOA does not mandate a violation of AD Article 8.3 and SCM Article18.3 in light of the fact that the objection of the petitioners does not in any case impede the acceptance of an undertaking by the US authority in accordance with these provisions. AD Article 8 and SCM 18 provide that when offered, the investigating authority need not accept the undertaking if it considers it impractical or if for other reasons it does not want to accept the undertaking. The decision to accept an undertaking or not under the Agreements is one the investigating authority is to take, and it may reject an undertaking for various reasons, including reasons of general policy. The fact that domestic producers may or may not be influenced by the CDSOA to suggest to the authority not to accept the undertaking, does not affect the possibility for interested parties concerned to offer an undertaking or for that undertaking to be accepted, in light of the non-decisive role of the domestic industry in this process.

7.81 In addition we note that the text of AD Article 8.3 and SCM Article 18.3 does not require the authority to examine objectively any undertaking offered. Rather, it stresses that undertakings offered need not be accepted and that the reasons for rejecting an undertaking may be manifold and include reasons of general policy. In our view, the CDSOA cannot be found to impede the objective examination of the appropriateness of accepting an undertaking, in the absence of any such obligation under AD Article 8 and SCM 18.

7.82 In sum, whatever the impact the CDSOA may have on the position of the domestic industry with regard to undertakings, it does not lead to the conclusion that the CDSOA mandates a violation of AD Article 8.3 AD and SCM Article 18.3. We therefore find that the CDSOA is not inconsistent with AD Article 8.3 and SCM Article 18.3.

E. DEVELOPING COUNTRY ISSUE – AD ARTICLE 15

1. Arguments of the parties

7.83 India and Indonesia submit that the CDSOA undermines AD Article 15 on special and differential treatment for developing countries. In particular, Indonesia considers that the CDSOA undermines price undertakings as a constructive remedy, since it encourages domestic producers to oppose the acceptance of price undertakings.

7.84 The United States submits that AD Article 15 is not within this Panel's terms of reference as it was not identified in any of the complaining parties' requests for establishment of a panel. Therefore, the concerns raised by Indonesia and other developing countries should not be entertained. In any case, the United States submits that it fulfils its AD Article 15 "best efforts" commitment in all cases and will continue to do so. To the extent that AD Article 15 is a substantive requirement, it necessitates only that the developed countries "explore" constructive remedies before applying anti‑dumping duties. Moreover, the complaining parties have provided no evidence that the CDSOA will affect the administration of US laws governing undertakings. Therefore, the concerns of developing parties that the CDSOA will somehow affect commitments under AD Article 15 are similarly unfounded.

7.85 Indonesia submits that AD Article 15 does not have to be included in the Panel's terms of reference through express incorporation in the complaining parties' requests for establishment, since DSU Article 12.11 provides that:

Where one or more of the parties is a developing country Member, the panel's report shall explicitly indicate the form in which account has been taken of relevant provisions on differential and more-favourable treatment for developing country Members that form part of the covered agreements which have been raised by the developing country Member in the course of the dispute settlement procedures.

7.86 According to Indonesia, DSU Article 12.11 requires the Panel to give consideration to the special and differential treatment provision in the covered agreement raised by a developing country, even though this provision is not specifically indicated in the Panel’s term of reference.

2. Evaluation by the Panel

7.87 We note that there is no reference to AD Article 15 in the various requests for establishment of this Panel. Generally, therefore, AD Article 15 would not fall within our terms of reference.³²³ However, we note that DSU Article 12.11 requires panels to "explicitly indicate the form in which account has been taken of relevant provisions on differential and more-favourable treatment for developing country Members that form part of the covered agreements which have been raised by the developing country Member in the course of the dispute settlement procedures". Since we consider AD Article 15 to be relevant, and since that provision has been raised by developing country Members in the present proceedings, we are bound to consider that provision, even though it was not referred to in the various requests for establishment. In doing so, we note that certain developing country Members attach importance to price undertakings as a "constructive" alternative to anti-dumping duties.

7.88 That being said, we note that the concern expressed by India and Indonesia regarding Article 15 of the AD Agreement rests on those parties' understanding that the CDSOA will cause the domestic industry to oppose the acceptance of price undertakings, and therefore lead the USDOC to reject such price undertakings. In other words, the concern expressed by the relevant complaining parties is based on the premise that, under US law, the domestic industry is able to veto the acceptance of price undertakings by the USDOC. As stated in the preceding section, there is no factual basis for this premise, since the USDOC remains free to accept an undertaking, even if there is domestic industry opposition to such acceptance. Thus, even if the CDSOA were to lead domestic producers to oppose the acceptance of a proposed price undertakings, this would not necessarily cause the USDOC to reject such undertakings. Since the relevant complaining parties' reliance on AD Article 15 is based on a premise which has not been substantiated, we see no need to give any further consideration to AD Article 15 in these proceedings.

F. AD ARTICLE 18.4/SCM ARTICLE 32.5 & WTO ARTICLE XVI:4 - NECESSARY STEPS TO ENSURE CONFORMITY

1. Arguments of the parties

7.89 The complaining parties claim that, by being inconsistent with Articles 18.1, 5.4 and 8.3 of the AD Agreement, Articles 32.1, 11.4 and 18.3 of the SCM Agreement,³²⁴ and Article VI:2 and 3 of the GATT 1994, the CDSOA is necessarily inconsistent with AD Article 18.4 and SCM Article 32.5, and Article XVI:4 of the WTO Agreement.

7.90 The United States submits that the CDSOA is not inconsistent with AD Article 18.4, SCM Article 32.5, or WTO Article XVI:4, because it is not inconsistent with Articles 18.1, 5.4 and 8.3 of the AD Agreement, or Articles 32.1, 11.4 and 18.3 of the SCM Agreement.

2. Evaluation by the Panel

7.91 AD Article 18.4 and SCM Article 32.5 (both with identical wording) provide that

Each Member shall take all necessary steps, of a general or particular character, to ensure, not later than the date of entry into force of the WTO Agreement for it, the conformity of its laws, regulations and administrative procedures with the provisions of this Agreement, as they may apply to the Member in question.

7.92 Article XVI:4 of the WTO Agreement provides that

Each Member shall ensure the conformity of its laws, regulations and administrative procedures with its obligations as provided in the annexed Agreements.

7.93 There is no disagreement between the parties that a violation of AD Articles 18.1, 5.4 or 8.3, or a violation of SCM 32.1, 11.4 and 18.3, would also constitute a violation of AD Article 18.4, SCM Article 32.5, and WTO Article XVI:4. Since we have found that the CDSOA is inconsistent with AD Articles 5.4 and 18.1, and SCM Articles 11.4 and 32.1, we also find that the CDSOA is inconsistent with AD Article 18.4, SCM Article 32.5, and therefore WTO Article XVI:4.

G. ADVERSE EFFECTS – SCM ARTICLE 5

1. Arguments of the parties

7.94 Mexico claims that the CDSOA is inconsistent with Article 5(b) of the SCM Agreement because (1) it mandates the granting of specific subsidies in a manner and in circumstances that will necessarily nullify or impair benefits accruing to Mexico under Articles II and VI of the GATT 1994, and (2) it maintains subsidies in a manner and in circumstances that nullify or impair benefits accruing to Mexico under Articles II and VI of the GATT 1994.

7.95 Mexico submits that offset payments distributed under the CDSOA are specific subsidies within the meaning of SCM Article 2.1(a). Mexico asserts that the CDSOA and the operation of the granting authority explicitly limit access to the offset payments to certain enterprises and, on that basis, the subsidies are specific. According to Mexico, there are two elements in particular which clearly show that access to the subsidies under the Act is limited to certain enterprises: (a) that the subsidies are distributed through Special Accounts which are linked only to the respective order or finding; and (b) that the funds in those Special Accounts are only available to the manufacturers or producers of domestic like products who supported the application at the origin of the respective order or finding.

7.96 Mexico asserts that both the granting of subsidies under the CDSOA, and the maintenance of the CDSOA programme, per se cause adverse effects in the form of nullification or impairment of benefits accruing to Mexico under Articles II and VI of GATT 1994. Mexico asserts that both "violation" and "non-violation" nullification or impairment has been caused. With regard to "violation" nullification, Mexico relies on Article 3.8 of the DSU, whereby

[i]n 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. This means that there is normally a presumption that a breach of the rules has an adverse impact on other Members parties to that covered agreement, and in such cases, it shall be up to the Member against whom the complaint has been brought to rebut the charge.

Mexico asserts that, in view of DSU Article 3.8, nullification or impairment results from the fact that the CDSOA violates Articles VI:2 and X:3(a) of the GATT 1994.

7.97 Mexico asserts that, for the purpose of SCM Article 5(b), "non-violation" nullification or impairment shall be established "in accordance with the practice of application of" Article XXIII:1(b) of the GATT 1994. According to Mexico, past GATT 1947 and WTO practice indicates that three elements must be established in an Article XXIII:1(b) claim: (i) the application of a measure by a WTO Member; (ii) the existence of a benefit accruing under the applicable agreement; and (iii) the nullification or impairment of a benefit as a result of the application of the measure.³²⁵ Mexico submits that the fact that the CDSOA mandates the granting and maintenance of subsidies is sufficient to satisfy the first condition, i.e., the "application" of a measure, even if subsidies have not actually been granted under the CDSOA.

7.98 Regarding the second condition, which concerns the existence of benefit, Mexico relies on benefits accruing under Articles II and VI of the GATT 1994. With respect to Article II, Mexico refers to its legitimate expectations of improved market access opportunities resulting from the relevant United States’ tariff concessions under Article II:1 of the GATT 1994. In the context of the measure at issue, Mexico asserts that its legitimate expectations under Article II:1 must be viewed in the light of the application of anti-dumping and/or countervailing duties. With respect to Mexican exports to the United States that face such duties, Mexico legitimately expects that the competitive relationship between its products and like US products will be defined by, at most, the combined amount of the tariff concession of the United States pursuant to Article II:1, plus the anti-dumping and/or countervailing duties which Mexican exporters can legitimately expect to have to pay in addition to the MFN duty by virtue of Article II:2(b). With respect to Article VI of the GATT 1994, Mexico legitimately expects that the competitive relationship between its products and like US products will be modified by the imposition of the duties by, at most, the maximum anti-dumping and/or countervailing duties specified in Article VI:2 and 3. In Mexico’s view, the benefits accruing to Mexico under Articles II and VI with respect to the competitive relationship between Mexican and like US products apply to both current trade and to the creation of predictability needed to plan future trade.

7.99 Concerning the third condition, Mexico asserts that the abovementioned benefits are nullified or impaired by both the granting and maintenance of subsidies under the CDSOA, and that the CDSOA was not reasonably anticipated by Mexico. Mexico submits that the mandatory granting of subsidies under the CDSOA will per se cause adverse effects in the form of nullification or impairment of benefits accruing to Mexico under Articles II and VI of the GATT 1994 because the mandatory granting of subsidies under the CDSOA systematically upsets the competitive relationship legitimately expected by Mexico under GATT Articles II and VI. Mexico submits that the maintenance of subsidies under the CDSOA per se causes adverse effects in the form of nullification or impairment of benefits that concern the creation of predictability needed to plan future trade in situations where United States’ anti-dumping and countervailing duties apply. According to Mexico, the conferral of product-specific subsidies to the qualified domestic producers improves their competitiveness in the United States’ market and makes it more difficult for Mexican exporters to sell into that market in a manner that avoids the payment of anti-dumping duties or in a manner that enables sales to be made with the additional payment of anti-dumping and/or countervailing duties. Given the certainty that any anti-dumping or countervailing duties collected will be re-distributed to the producers of the directly competing domestic product and the uncertainty as to the magnitude of the subsidies, it is impossible for Mexican exporters to predict the relative conditions of competition between their products and like United States’ products when planning future sales. Mexico asserts that there is a presumption that a complainant should not be considered as having anticipated a measure where it is demonstrated that the measure was introduced after the conclusion of the tariff or other negotiations in question.³²⁶ In this case, the benefits in question accrued to Mexico on 1 January 1995, the date of entry into force of the WTO Agreement, whereas the CDSOA entered into force on 28 October 2000. Since this was considerably later than 1 January 1995, Mexico claims that it is entitled to rely on the presumption that it did not anticipate the introduction of the Act and its consequent upsetting of the expected competitive relationship between Mexican products and like US products.

7.100 The United States asserts that the CDSOA is not an actionable subsidy for the purpose of SCM Article 5(b), because it is not specific, and does not cause adverse effects. The United States submits that the CDSOA is not specific within the meaning of SCM Article 2.1(a) because the CDSOA is potentially applicable to any producer in any industry in the United States. The United States notes Mexico's argument that each CDSOA distribution is a de jure specific subsidy because the money is kept in separate accounts, is capped by the duties collected under a particular anti-dumping/countervail order, and is only distributed to enterprises that produce the domestic like product and were among the petitioners in the original proceeding. According to the United States, specificity analysis must be carried out for the challenged subsidy programme (here the CDSOA) as a whole rather than by focusing on individual disbursements. Otherwise, no matter how broadly available and broadly distributed benefits under a government programme may be, each disbursement would be considered a specific subsidy. The United States submits that this would render Article 2 of the SCM Agreement a nullity.

7.101 With regard to the existence of adverse effects, the United States expresses doubt whether a claim of "violation" nullification or impairment, based on DSU Article 3.8, was intended to be brought within the terms of SCM Article 5(b), because to do so would automatically create a presumption that a subsidy that violates another WTO provision is an actionable subsidy, without any showing of adverse effects. According to the United States, this eliminates the primary distinction between prohibited subsidies under Article 3 where effects are presumed and actionable subsidies under Article 5 where the complaining party must demonstrate adverse effects. The United States further asserts that, in any event, the CDSOA does not violate any other provision, including GATT 1994 Articles VI:2 and VI:3, which are the basis for Mexico’s "violation" nullification or impairment argument.

7.102 Concerning "non-violation" nullification or impairment under GATT Article XXIII:1(b), the United States notes the Appellate Body's statement in EC – Asbestos that "the remedy in Article XXIII:1(b) should be approached with caution and should remain an exceptional remedy.”³²⁷ The United States submits that, pursuant to footnote 12 in Article 5(b), the existence of nullification or impairment under Article 5 of the SCM Agreement is to be established in accordance with the practice of application of GATT Article XXIII. The United States submits that, under GATT and WTO practice, there are three requirements for a non-violation nullification or impairment claim under Article XXIII:1(b): (1) the application of a measure; (2) a benefit accruing under the relevant agreement; and (3) the nullification or impairment of the benefit as a result of the application of the measure that was not reasonably anticipated.

7.103 Regarding the need for the application of a measure, the United States asserts that GATT Article XXIII:1(b) limits non-violation claims to measures that are currently being applied. The United States submits that Mexico fails to satisfy this requirement because it has not challenged actual disbursements under the CDSOA.

7.104 Regarding the third requirement, the United States asserts that Mexic