VII. Drawing Adverse Inferences from Certain Facts

181. We come to the issue of whether the Panel erred in law in declining to draw adverse inferences from Canada's refusal to provide information to the Panel about the EDC's debt financing activities. The Panel's ruling on this issue needs to be quoted in extenso:

We note that Brazil asked us to make adverse inferences in light of Canada's refusal to provide details of the ASA transaction. In certain circumstances when direct evidence is not available, we consider that a panel may be required to make such inferences when there is sufficient basis to do so. This is especially true when direct evidence is not available because it is withheld by a party with sole possession of that evidence. In the present instance, however, we do not consider that there is sufficient basis for an inference that EDC debt financing in the Canadian regional aircraft sector confers a "benefit". In particular, Brazil has made no attempt to demonstrate that EDC debt financing was provided to ASA on below-market terms. Furthermore, Brazil has not demonstrated, on the basis of its arguments concerning statements by EDC officials and EDC's financial performance, that EDC debt financing generally confers a "benefit". Had Brazil done so, we may have been required to make the inferences requested by Brazil. ¹¹⁴

182. Brazil appeals this ruling of the Panel and claims that the Panel committed an error of law by failing to draw adverse inferences from Canada's refusal to submit information requested about the EDC's financing of the ASA transaction. Brazil believes that, in the circumstances of this case, the Panel was obliged to infer that the information Canada withheld was prejudicial to Canada's position. Brazil supports its arguments by reference to authorities cited from public international law. Brazil asks us to reverse the Panel ruling, to draw ourselves the adverse inferences which Brazil contends the Panel should have drawn, and to determine that the evidence of record, together with such adverse inferences, lead to the conclusion that the EDC's debt financing confers a "benefit" and hence fulfils that necessary element of a "subsidy". Canada maintains that the Panel did not err. Canada argues that adverse inferences may only be drawn by a panel, in the event of one party's refusal to provide information, if the other party has made out its case on a prima facie basis. Canada also argues that the Panel should not have requested information from it under Article 13.1 since Brazil had not yet established a prima facie case. The parties' arguments and counter-arguments on this issue raise a number of questions with fundamental and far-reaching implications for the entire WTO dispute settlement system. These questions relate to: first, the authority of a panel to request a party to a dispute to submit information about that dispute; second, the duty of a party to submit information requested by a panel; and, third, the authority of a panel to draw adverse inferences from the refusal by a party to provide requested information. We shall deal with these questions in that sequence.

(a) The authority of a panel to request information from a party to the dispute

183. Article 13 of the DSU reads as follows:

1. Each panel shall have the right to seek information and technical advice from any individual or body which it deems appropriate. However, before a panel seeks such information or advice from any individual or body within the jurisdiction of a Member it shall inform the authorities of that Member. A Member should respond promptly and fully to any request by a panel for such information as the panel considers necessary and appropriate. Confidential information which is provided shall not be revealed without formal authorization from the individual, body, or authorities of the Member providing the information.

2. Panels may seek information from any relevant source and may consult experts to obtain their opinion on certain aspects of the matter. With respect to a factual issue concerning a scientific or other technical matter raised by a party to a dispute, a panel may request an advisory report in writing from an expert review group. Rules for the establishment of such a group and its procedures are set forth in Appendix 4.

184. In Argentina � Measures Affecting Imports of Footwear, Textiles, Apparel and Other Items, we ruled that Article 13 of the DSU made "a grant of discretionary authority" to panels enabling them to seek information from any relevant source. ¹¹⁵ (emphasis added) In European Communities � Hormones, we observed that Article 13 of the DSU "enable[s] panels to seek information and advice as they deem appropriate in a particular case." ¹¹⁶ (emphasis added) And, in United States - Shrimp, we underscored "the comprehensive nature" of the authority of a panel to seek information and technical advice from "any individual or body" it may consider appropriate, or from "any relevant source." ¹¹⁷ (emphasis added) There, we stated that:

It is particularly within the province and the authority of a panel to determine the need for information and advice in a specific case, to ascertain the acceptability and relevancy of information or advice received, and to decide what weight to ascribe to that information or advice or to conclude that no weight at all should be given to what has been received. ¹¹⁸ (emphasis added)

�

The thrust of Articles 12 and 13, taken together, is that the DSU accords to a panel established by the DSB, and engaged in a dispute settlement proceeding, ample and extensive authority to undertake and to control the process by which it informs itself both of the relevant facts of the dispute and of the legal norms and principles applicable to such facts. That authority, and the breadth thereof, is indispensably necessary to enable a panel to discharge its duty imposed by Article 11 of the DSU to "make an objective assessment of the matter before it, including an objective assessment of the facts of the case and the applicability of and conformity with the relevant covered agreements � ." ¹¹⁹ (emphasis added)

185. It is clear from the language of Article 13 that the discretionary authority of a panel may be exercised to request and obtain information, not just "from any individual or body" within the jurisdiction of a Member of the WTO, but also from any Member, including a fortiori a Member who is a party to a dispute before a panel. This is made crystal clear by the third sentence of Article 13.1, which states: "A Member should respond promptly and fully to any request by a panel for such information as the panel considers necessary and appropriate." (emphasis added) It is equally important to stress that this discretionary authority to seek and obtain information is not made conditional by this, or any other provision, of the DSU upon the other party to the dispute having previously established, on a prima facie basis, such other party's claim or defence. Indeed, Article 13.1 imposes no conditions on the exercise of this discretionary authority. Canada argues that the Panel in this case had no authority to request the submission of information relating to the EDC's financing of the ASA transaction because Brazil had not previously established a prima facie case that the financial contribution offered by such financing conferred a "benefit" on ASA and therefore satisfied that other prerequisite of a prohibited export subsidy. This argument is, quite simply, bereft of any textual or logical basis. There is nothing in either the DSU or the SCM Agreement to sustain it. Nor can any support for this argument be derived from a consideration of the nature of the functions and responsibilities entrusted to panels in the WTO dispute settlement system � a consideration which we essay below.

(b) The duty of a Member to comply with the request of a panel to provide information

186. An important part of Brazil's appeal with respect to the issue of adverse inferences is Brazil's contention that Canada was under a duty to comply with the Panel's request to provide information relating to the EDC's financing of the ASA transaction. Canada denies that it was legally burdened with such a duty.
187. We note that Article 13.1 of the DSU provides that "A Member should respond promptly and fully to any request by a panel for such information as the panel considers necessary and appropriate." (emphasis added) Although the word "should" is often used colloquially to imply an exhortation, or to state a preference, it is not always used in those ways. It can also be used "to express a duty [or] obligation". ¹²⁰ The word "should" has, for instance, previously been interpreted by us as expressing a "duty" of panels in the context of Article 11 of the DSU. ¹²¹ Similarly, we are of the view that the word "should" in the third sentence of Article 13.1 is, in the context of the whole of Article 13, used in a normative, rather than a merely exhortative, sense. Members are, in other words, under a duty and an obligation to "respond promptly and fully" to requests made by panels for information under Article 13.1 of the DSU.
188. If Members that were requested by a panel to provide information had no legal duty to "respond" by providing such information, that panel's undoubted legal "right to seek" information under the first sentence of Article 13.1 would be rendered meaningless. A Member party to a dispute could, at will, thwart the panel's fact-finding powers and take control itself of the information-gathering process that Articles 12 and 13 of the DSU place in the hands of the panel. ¹²² A Member could, in other words, prevent a panel from carrying out its task of finding the facts constituting the dispute before it and, inevitably, from going forward with the legal characterization of those facts. Article 12.7 of the DSU provides, in relevant part, that "�the report of a panel shall set out the findings of fact, the applicability of relevant provisions and the basic rationale behind any findings and recommendations that it makes." If a panel is prevented from ascertaining the real or relevant facts of a dispute, it will not be in a position to determine the applicability of the pertinent treaty provisions to those facts, and, therefore, it will be unable to make any principled findings and recommendations to the DSB.
189. The chain of potential consequences does not stop there. To hold that a Member party to a dispute is not legally bound to comply with a panel's request for information relating to that dispute, is, in effect, to declare that Member legally free to preclude a panel from carrying out its mandate and responsibility under the DSU. So to rule would be to reduce to an illusion and a vanity the fundamental right of Members to have disputes arising between them resolved through the system and proceedings for which they bargained in concluding the DSU. We are bound to reject an interpretation that promises such consequences.
190. We believe also that the duty of a Member party to a dispute to comply with a request from the panel to provide information under Article 13.1 of the DSU is but one specific manifestation of the broader duties of Members under Article 3.10 of the DSU not to consider the "use of the dispute settlement procedures�as contentious acts", and, when a dispute does arise, to "engage in these procedures in good faith in an effort to resolve the dispute."
191. As noted earlier, Brazil alleges that Canada acted in disregard of its duties under Articles 13.1 and 3.10 of the DSU in refusing to comply with the Panel's request for information about the EDC's financing of the ASA transaction. Canada controverts this allegation and submits two justifications for its failure to provide the requested information. Canada's first justification is that Brazil had not, when the Panel issued its request for information on the EDC's financing for the ASA transaction, established by other evidence, a prima facie case that such financing constituted a prohibited export subsidy under Article 3.1(a) of the SCM Agreement. The second justification pleaded by Canada is that the information requested by the Panel constituted "business confidential information" and that the BCI Procedures adopted by the Panel were not adequate to ensure the protection of such information.
192. Canada's first justification rests on the assumption that a Member's duty to respond promptly and fully to a Panel's request for information arises only after the opposing party to the dispute has established a prima facie case that its complaint or defence is meritorious. A prima facie case, it is well to remember, is a case which, in the absence of effective refutation by the defending party (that is, in the present appeal, the Member requested to provide the information), requires a panel, as a matter of law, to rule in favour of the complaining party presenting the prima facie case. ¹²³ There is, as noted earlier, nothing in either the DSU or the SCM Agreement to support Canada's assumption. To the contrary, a panel is vested with ample and extensive discretionary authority to determine when it needs information to resolve a dispute and what information it needs. A panel may need such information before or after a complaining or a responding Member has established its complaint or defence on a prima facie basis. A panel may, in fact, need the information sought in order to evaluate evidence already before it in the course of determining whether the claiming or the responding Member, as the case may be, has established a prima facie case or defence. Furthermore, a refusal to provide information requested on the basis that a prima facie case has not been made implies that the Member concerned believes that it is able to judge for itself whether the other party has made a prima facie case. However, no Member is free to determine for itself whether a prima facie case or defence has been established by the other party. That competence is necessarily vested in the panel under the DSU, and not in the Members that are parties to the dispute. We are not, therefore, persuaded by the first justification Canada gave for its refusal to provide the information requested by the Panel.
193. This view is entirely consistent with our ruling in Japan � Agricultural Products. There, the complainant, the United States, claiming that the Japanese measure requiring varietal testing was inconsistent with Article 5.6 of the Agreement on the Application of Sanitary and Phytosanitary Measures (the "SPS Agreement"), had to show that there was an alternative measure which satisfied the three requirements of Article 5.6. The panel was not persuaded by the United States that "testing by product" was such an alternative measure. However, the panel "deduced" from statements made by experts advising it that there was another measure, the "determination of sorption levels", that met the requirements of the SPS Agreement � something which the United States had not even alleged or argued before the panel, let alone something on which the United States had submitted any evidence. The panel in that case proceeded to find that the Japanese measure was inconsistent with Article 5.6 of the SPS Agreement. In reversing this finding of the panel, we said:

In the present case, the Panel was correct to seek information and advice from experts to help it to understand and evaluate the evidence submitted and the arguments made by the United States and Japan with regard to the alleged violation of Article 5.6. The Panel erred, however, when it used that expert information and advice as the basis for a finding of inconsistency with Article 5.6, since the United States did not establish a prima facie case of inconsistency with Article 5.6 based on claims relating to the "determination of sorption levels". The United States did not even argue that the "determination of sorption levels" is an alternative measure which meets the three elements under Article 5.6. ¹²⁴ (emphasis added)

194. Thus, in Japan � Agricultural Products, the issue was not whether the panel there had the authority to request particular information from the responding Member, nor whether that responding Member was under a duty to comply with the panel's request. Nor, in that case, did any Member refuse to provide information to the panel. The issue of a panel's authority to draw adverse inferences from a party's refusal to provide requested information did not, therefore, arise. The panel in Japan � Agricultural Products had simply and erroneously relieved the complaining Member of the task of showing the inconsistency of the responding Member's measure with Article 5.6 of the SPS Agreement.
195. Canada's second justification for its refusal to comply with the Panel's request for information relates to the authority of the Panel to adopt special procedures for the additional protection of so-called business confidential information. Canada, with the acquiescence of Brazil, asked the Panel to adopt certain procedures, submitted by Canada, for the protection of such information. The Panel accommodated Canada's request, making only one change, at Brazil's request. We do not believe that, having requested such procedures in the first place, Canada was entitled unilaterally to reject the additional procedures adopted by the Panel and then to withhold information requested by the Panel on the ground that Canada found those procedures inadequate. Canada's position is inconsistent with the Panel's authority under the DSU to determine its own procedures. The Panel's decision to adopt the additional confidentiality procedures was in the nature of an interlocutory ruling made in the course of the proceedings before it. Canada has not appealed that interlocutory ruling and, accordingly, must be held bound by it.
196. Finally, we recall that Canada, jointly with Brazil, asked the Appellate Body to adopt mutatis mutandis the BCI Procedures in the course of proceedings before the Appellate Body. If Canada truly considered those procedures so inadequate as to compel it to reject the Panel's requests for information that Canada regarded as business confidential, then Canada's request that we adopt those very procedures on appeal appears to us a curious one. We find Canada's second justification for its refusal to provide requested information, just as we did its first one, less than persuasive.

To continue with The drawing of adverse inferences from the refusal of a party

¹¹⁴ Panel Report, para. 9.181.

¹¹⁵ Appellate Body Report, WT/DS56/AB/R, adopted 22 April 1998, para. 84.

¹¹⁶ Supra, footnote 64, para. 147.

¹¹⁷ Supra, footnote 24, para. 104.

¹¹⁸ Supra, footnote 24, para. 104.

¹¹⁹ Ibid., para. 106.

¹²⁰ The Concise Oxford English Dictionary, (Clarendon Press, 1995), p. 1283. See also The Shorter Oxford English Dictionary, (Clarendon Press, 1993), Vol. II, p. 2808, and Black's Law Dictionary, (West Publishing Co., 1990), p. 1379, which states that "should" "ordinarily impl[ies] duty or obligation; although usually no more than an obligation of propriety or expediency, or moral obligation, thereby distinguishing it from 'ought'."

¹²¹ European Communities � Hormones, supra, footnote 64, para. 133.

¹²² United States � Shrimp, supra, footnote 24, para. 106.

¹²³ See European Communities � Hormones, supra, footnote 64, para. 104.

¹²⁴ Supra, footnote 44, para. 130.