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  • 欧盟诉韩国奶制品进口保障措施的纠纷
  • Korea — Definitive safeguard measure on imports of certain dairy products (Brought by EC)
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    Korea - Definitive Safeguard Measure on Imports of Certain Dairy Products - Report of the Panel
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    相关条款
    (Articles)
  • GATT 1994 XIX
  • GATT 1994 XIX.01.a
  • SG 02.01
  • SG 03
  • SG 04.02
  • SG 04.02.a
  • SG 05.01
  • SG 12
  • 机构
    (Bodies)
  • 争端解决机构 (Dispute Settlement Body)
  • Panel WTO : Korea - Definitive Safeguard Measure on Imports of Certain Dairy Products
  • 涉案国家
    (Countries)
  • 欧盟 (European Union)
  • 南韩 (South Korea)
  • 美国 (United States)
  • 涉案产品
    (Products)
  • 农产品 (agricultural products)
  • 乳制品 (dairy products)
  • 奶粉 (milk powders)
  • 主题词与国家
    (Subject_Country)
  • 争端解决 (DISPUTE SETTLEMENT) - 欧盟 (European Union)
  • 争端解决 (DISPUTE SETTLEMENT) - 南韩 (South Korea)
  • 手工业生产 (DOMESTIC INDUSTRY) - 南韩 (South Korea)
  • 应急措施 (EMERGENCY ACTION) - 南韩 (South Korea)
  • 伤害 (INJURY) - 欧盟 (European Union)
  • 专家组 (PANEL) - 欧盟 (European Union)
  • 专家组 (PANEL) - 南韩 (South Korea)
  • 配额制 (QUOTA SYSTEM) - 南韩 (South Korea)
  • 安全保障 (SAFEGUARDS) - 南韩 (South Korea)
  • 安全保障调查 (SAFEGUARDS INVESTIGATIONS) - 南韩 (South Korea)
  • 统计资料[数据] (STATISTICAL DATA) - 南韩 (South Korea)
  • 主题
    (Subjects)
  • 争端解决 (DISPUTE SETTLEMENT)
  • 安全保障 (SAFEGUARDS)
  • 专家组 (PANEL)
  • 配额制 (QUOTA SYSTEM)
  • 伤害 (INJURY)
  • 手工业生产 (DOMESTIC INDUSTRY)
  • 安全保障调查 (SAFEGUARDS INVESTIGATIONS)
  • 应急措施 (EMERGENCY ACTION)
  • 统计资料[数据] (STATISTICAL DATA)
  • 文书类别
    (Types)
  • 专家组报告 (Panel report)
  • 全文

    WORLD TRADE

    ORGANIZATION

    WT/DS98/R

    21 June 1999

    (99-2101)

    Original: English

    KOREA - DEFINITIVE SAFEGUARD MEASURE ON IMPORTS OF CERTAIN DAIRY PRODUCTS

    Report of the Panel

    The report of the Panel on Korea - Definitive Safeguard Measure on Imports of Certain Dairy Products is being circulated to all Members, pursuant to the DSU. The report is being circulated as an unrestricted document from 21 June 1999. Pursuant to the Procedures for the Circulation and Derestriction of WTO Documents (WT/L/160/Rev.1). Members are reminded that in accordance with the DSU only parties to the dispute may appeal a panel report. An appeal shall be limited to issues of law covered in the Panel report and legal interpretations developed by the Panel. There shall be no ex parte communications with the Panel or Appellate Body concerning matters under consideration by the Panel or Appellate Body.

    Note by the Secretariat: This Panel Report shall be adopted by the Dispute Settlement Body (DSB) within 60 days after the date of its circulation unless a party to the dispute decides to appeal or the DSB decides by consensus not to adopt the report. If the Panel Report is appealed to the Appellate Body, it shall not be considered for adoption by the DSB until after the completion of the appeal. Information on the current status of the Panel Report is available from the WTO Secretariat.

    TABLE OF CONTENTS

    Page

    I. INTRODUCTION 1

    A. BACKGROUND 1

    B. ESTABLISHMENT AND COMPOSITION OF THE PANEL 1

    C. PANEL PROCEEDINGS 1

    II. FACTUAL ASPECTS 2

    III. FINDINGS AND RECOMMENDATIONS REQUESTED BY THE PARTIES 2

    A. EUROPEAN COMMUNITY 2

    B. KOREA 3

    IV. MAIN ARGUMENTS OF THE PARTIES 3

    A. PROCEDURAL OBJECTIONS 3

    1. Lack of commercial interest and good faith by the European Communities 3

    2. Inadequacy of the EC request for establishment of a panel 4

    3. The nature of the EC case and its request for rulings by the Panel 7

    B. SUBSIDIARY ISSUES 11

    1. Burden of proof and standard of review 11

    2. What are the appropriate documents to be considered by the Panel in evaluating the analysis performed during the investigation? 22

    C. CLAIM UNDER ARTICLE XIX:1(a) OF GATT 26

    D. CLAIM UNDER ARTICLE XIX:1(a) OF GATT AND ARTICLE 2.1 OF THE AGREEMENT ON SAFEGUARDS 46

    E. KOREA'S APPLICATION OF SAFEGUARD MEASURES TO AGRICULTURAL PRODUCTS 49

    F. CLAIM UNDER ARTICLE 4.2(a) OF THE AGREEMENT ON SAFEGUARDS 51

    G. CLAIM UNDER ARTICLE 4.2(b) OF THE AGREEMENT ON SAFEGUARDS 96

    H. CLAIMS UNDER ARTICLE 5.1 OF THE AGREEMENT ON SAFEGUARDS 121

    I. CLAIMS UNDER ARTICLE 12 OF THE AGREEMENT ON SAFEGUARD 137

    V. THIRD PARTY ARGUMENTS 156

    A. UNITED STATES 156

    VI. INTERIM REVIEW 160

    VII. FINDINGS 160

    A. PROCEDURAL MATTERS 160

    1. Insufficiency of the EC Request for Establishment of the Panel 160

    2. Lack of Economic Interest 162

    3. Submission of the OAI Report 163

    4. The absence of a claim by the European Communities under Article 3 of the Agreement on Safeguards 164

    B. BURDEN OF PROOF 164

    C. STANDARD OF REVIEW 165

    D. GENERAL PRINCIPLES OF INTERPRETATION 166

    E. CLAIMS UNDER ARTICLE XIX OF GATT 167

    F. VIOLATION OF ARTICLE 2.1 OF THE AGREEMENT ON SAFEGUARDS - FAILURE TO ANALYZE "UNDER SUCH CONDITIONS" 170

    G. CLAIMS UNDER ARTICLE 4.2 OF THE AGREEMENT ON SAFEGUARDS 171

    1. Korea's examination of serious injury to the domestic industry 171

    2. Korea's examination of the causal link between increased imports and serious injury 180

    H. CLAIMS UNDER ARTICLE 5.1 OF THE AGREEMENT ON SAFEGUARDS 183

    I. CLAIMS UNDER ARTICLE 12 186

    1. Incomplete and Untimely Notifications 186

    2. Claim of inadequate consultations 194

    VIII. CONCLUSIONS AND RECOMMENDATIONS 195

    I.INTRODUCTION

    A.BACKGROUND

    1.1On 12 August 1997, the European Communities requested consultations with Korea regarding a definitive safeguard measure on imports of certain dairy products (WT/DS98/1). The European Communities made their request pursuant to Article 4 of the Understanding on Rules and Procedures Governing the Settlement of Disputes ("DSU"), Article XXIII:1 of the General Agreement.

    1.2On 25 August 1997 Australia, requested to be joined in the consultations (WT/DS98/2). The request was accepted by Korea on 28 August 1997 (WT/DS98/3).

    1.3Pursuant to this request, the European Communities consulted with Korea in Geneva on 10 September 1997 and 16 October 1997. Australia participated in these consultations as a third party. No mutually satisfactory solution was reached.

    1.4On 9 January 1998, the European Communities requested the establishment of a panel with the standard terms of reference provided by Article 7 of the DSU (WT/DS98/4). The European Communities made this request pursuant to Article XXIII:2 of the General Agreement on Tariffs and Trade ("GATT"), Articles 4 and 6.1 of the DSU, and Article 14 of the Agreement on Safeguards. At the Dispute Settlement Body ("DSB") meeting of 22 January 1998, the European Communities informed the DSB that they were for the time being not pursuing its Panel request.

    1.5On 10 June 1998, the European Communities reiterated its request for the establishment of a Panel.

    B.ESTABLISHMENT AND COMPOSITION OF THE PANEL

    1.6At its meeting on 22 July 1998, the Dispute Settlement Body ("DSB") established a panel pursuant to the EC's request (WT/DS98/5). The Panel's terms of reference are:

    To examine, in the light of the relevant provisions of the covered agreements cited by European Community in document WT/DS98/4 the matter referred to the DSB by the European Community in that document and to make such findings as will assist the DSB in making the recommendations or in giving the rulings provided for in those agreements.

    1.7The United States reserved its rights as to participate in the Panel proceedings as third party.

    1.8On 20 August 1998, the Panel was constituted with the following composition:

    Chairman: Mr. Ole Lundby

    Members: Ms. Leora Blumberg

    Ms. Luz Elena Reyes

    C.PANEL PROCEEDINGS

    1.9The Panel met with the Parties on 10/11 November 1998 and on 16/17 December 1998.

    1.10The Panel submitted its interim report to the parties on 3 March 1999. On 17 March 1999, both parties submitted written requests for the Panel to review precise aspects of the interim report. At the request of the European Communities, the Panel held a further meeting with the parties on 29 March 1999 on the issues identified in the written comments. The Panel submitted its final report to the parties on 8 April 1999.

    II.FACTUAL ASPECTS

    2.1This dispute concerns definitive safeguard measures imposed by Korea on imports of skimmed milk powder preparations ("SMPP") classified under tariff headings HS 0404.90.0000 and 1901.90.2000. On 17 May 1998, based on a request by the National Livestock Cooperatives Federation ("NLCF") filed on 2 May 1996, the Korean Trade Commission ("KTC") decided on the initiation of the requested investigation.

    2.2On 11 June 1996, Korea notified the WTO Committee on Safeguards under Article 12.1(a) of the Agreement on Safeguards regarding the KTC's initiation of a safeguards investigation and the reasons supporting initiation.1

    2.3On 23 October 1996, the KTC completed its Investigation Report on Industrial Injury Caused by the Increase of Certain Dairy Product Imports. A Notice of this fact was published in Korea's Official Gazette dated 11 November 1996. Non-confidential copies of the Investigation Report on Industrial Injury by the Office of Administration and Investigation ("OAI Report") were available on request prior to that date.

    2.4On 2 December 1996, Korea notified the Committee on Safeguards under Article 12.1(b) of the Agreement on Safeguards that the KTC had made a finding of serious injury to the domestic industry caused by the increased imports of dairy products.2

    2.5On 21 January 1997, Korea submitted a notification under Article 12(c) of the Agreement on Safeguards.3 The notification informed the Committee that Korea proposed to apply a safeguard measure on imports of certain dairy products.

    2.6On 31 January 1997, Korea filed a notification pursuant to Article 9, footnote 2 of the Agreement on Safeguards regarding the non-application of safeguard measures to developing countries.4

    2.7The final decision by Korea to apply the safeguard measure was made, and went into effect, on 7 March 1997. Notice of the application of the measure was published in Korea's Official Gazette.

    2.8On 24 March 1997, Korea submitted a supplemental notification to the Committee on Safeguards under Article 12(c) of the Agreement on Safeguards.5 In its notification, Korea informed the Committee that it had taken a final decision on the application of a safeguard measure on certain dairy products.

    III.FINDINGS AND RECOMMENDATIONS REQUESTED BY THE PARTIES

    A.EUROPEAN COMMUNITY

    3.1The European Communities requested the Panel to find that Korea has violated Article XIX:1(a) of GATT and Articles 2.1, 4.2(a), 4.2(b), 5.1 and 12(1) to (3) of the Agreement on Safeguards.

    B.KOREA

    3.2Korea requested the Panel to find that the European Communities has not discharged its burden of proving that Korea failed to examine relevant facts or failed to explain adequately the basis for its determination and, therefore, conclude that the safeguard measure on SMPP was imposed by Korea in a manner fully consistent with its obligations under the Agreement on Safeguards.

    IV.MAIN ARGUMENTS OF THE PARTIES6

    A.PROCEDURAL OBJECTIONS

    1.Lack of commercial interest and good faith by the European Communities

    (a)Objection of Korea

    4.1Korea raised a procedural objection alleging a lack of commercial interest by the European Communities as well as a failure to act in good faith on their part. The following are Korea's arguments in support of its objection:

    4.2Korea argues that the EC submission admits that it has little or no commercial interest in bringing this matter before the Panel.7 This admission coupled with the abortive settlement procedure suggests that the current procedure lacks any issue in dispute between the parties and is merely an attempt to use the DSU to establish a precedent on safeguards. Korea is also concerned that the European Communities interest in receiving an advisory opinion is especially onerous upon Korea given the substantive weakness of the EC case.

    4.3During the course of these proceedings, Korea urged the Panel to consider that the EC objective is not to preserve its rights with respect to its exports of SMPP, but to secure an advisory opinion from the Panel. Under these circumstances, the European Communities recourse to formal dispute settlement represents an abuse of the WTO dispute settlement system.

    4.4Korea requests that the Panel consider the EC motives underlying recourse to formal WTO dispute settlement proceedings. Korea considers that the EC actions during consultations and its expression of limited interest in its first submission are inconsistent with the object and purpose of the WTO dispute settlement proceedings.

    4.5The DSU expressly provides that formal dispute settlement should be reserved for disputes where Members consider, in good faith, that their interests are being impaired.8 Moreover, Article 3.7 of the DSU specifically instructs Members to exercise restraint in bringing dispute settlement cases and articulates a preference for mutually agreed solutions over resort to formal dispute settlement.9

    4.6It is important to note that a key strand of the EC case is that in some way Korea failed to provide the requisite information to the European Communities to enable them to enter into meaningful consultations that might lead to a settlement (which is, after all, the key objective of the DSU). While Article 12 of the Agreement on Safeguards has a specific series of requirements, Korea considers that the information provided to the Committee on Safeguards more than complied with the pro forma standards laid down by that Committee10, and that this enabled the European Communities to enter into meaningful but ultimately unsuccessful negotiations. Korea notes that if it had indeed abused its obligations to provide information and to permit meaningful consultations, then it is difficult to explain how the Director-General of DGI of the Commission of the European Communities could have provided the Korean delegation with a letter accepting a settlement.11 The fact that the Director-General had to later withdraw his acceptance of the settlement proposed by Korea is evidence of lack of good faith on the part of European Communities, rather than on the part of Korea.

    (b)Response of the European Communities

    4.7At the first meeting of the Panel with the parties the European Communities responded to Korea's procedural objection as follows:

    4.8As to the alleged lack of commercial interest of the European Communities in bringing this complaint, the European Communities would recall that in the EC - Bananas case the Appellate Body, in reply to an analogous objection by the European Communities, held that:

    "a Member has broad discretion in deciding whether to bring a case against another Member under the DSU. The language of Article XXIII:1 of the GATT and of Article 3.7 of the DSU suggests, furthermore, that a Member is expected to be largely self-regulating in deciding whether any such action would be 'fruitful' ".12

    4.9As to the alleged acceptance of a settlement offered by Korea, the European Communities assume that Korea is not seriously arguing that documents like the ones attached to its First Submission as Exhibit Korea-11 could be considered as a proposal and acceptance of a settlement for purposes of WTO provisions, nor, presumably, in any other legal system. In reality, it is apparent from that Exhibit that Korea cannot even demonstrate that it ever sent the European Communities a formal proposal in due form, let alone that the European Communities received and accepted it.

    2.Inadequacy of the EC request for establishment of a panel

    (a)Objection of Korea

    4.10Korea raises a procedural objection regarding the inadequacy of the EC request for establishment of a panel and requests the Panel to entirely reject the EC complaint on this basis. The following are Korea's arguments in support of this objection:

    4.11The EC request for the establishment of the Panel does not specify the nature of its dispute with sufficient clarity to permit Korea to conduct an effective defence. A detailed statement of the matter in dispute and the legal bases of the arguments is also necessary to permit third parties (who may not be intimately familiar with the details of the dispute) to assess whether or not to intervene.

    4.12In a request for establishment of a Panel under Article 6.2 of the DSU, a Complaining Party must 玴rovide a brief summary of the legal basis of the complaint sufficient to present the problem clearly.? In its request for the establishment of a Panel, the European Communities merely listed four articles of the Agreement on Safeguards. This listing of articles cannot satisfy the specific criteria of Article 6.2, especially in a request relating to the determination of a domestic authority under the Agreement on Safeguards.13

    4.13Korea acknowledges that the Panel in EC - Bananas found that simply listing the articles and the relevant agreements in that case satisfied the 玬inimum requirements?of Article 6.2 of the DSU. Korea suggests that the Panel should refrain from following this interpretation, because such an approach encourages the establishment of imprecise and potentially speculative terms of reference, and, taking into account the general purpose of the DSU, undermines the object and purpose of Article 6.2. In any event, the instant case is distinguishable from the EC - Bananas case because, inter alia,:

    (a)each Article under the Agreement on Safeguards does not identify 玜 distinct obligation,?but encompasses a multitude of distinct obligations regarding a domestic authority's investigation;14

    (b)the Panel's interpretation of Article 6.2 in EC - Bananas may have been influenced by its desire to prevent further delays in a dispute that had already been subject to two GATT Panel reviews and years of consultations;

    (c)the Panel in EC - Bananas did not explicitly consider Article 4.4 of the DSU in evaluating the appropriate context;15

    (d)the EC approach ignores the object and purpose of Article 6.2 because it does not identify the claims with sufficient precision to establish properly a Panel's jurisdiction or to give the parties and third parties sufficient notice of the claims at issue;16 and

    (e)previous GATT practice in antidumping and countervailing duty cases provides that the mere listing of articles is insufficient in cases involving a Panel review of a domestic authority's investigation.17

    4.14Further, Korea submits that the EC failure to comply with Article 6.2 of the DSU demonstrates the European Communities lack of any fundamental economic interest in this case, its negligent consideration of Korea's (and third-party Members') rights under the DSU, and its failure to give due consideration to the object and purpose of the WTO dispute settlement system. To preserve the integrity of the WTO dispute settlement system and the specific principles established therein, the Panel should find that the European Communities violated Article 6.2 of the DSU and should reject the European Communities complaint in its entirety.18

    (b)Response of the European Communities

    4.15At the first meeting of the Panel with the parties the European Communities responded to Korea's position as follows:

    4.16The European Communities recall that, in the EC - Bananas case, the Appellate Body

    "accept[ed] the Panel's view that it was sufficient for the Complaining Parties to list the provisions of the specific agreements alleged to have been violated without setting out detailed arguments as to which specific aspects of the measures at issue relate to which specific provisions of those agreements".19

    3.The nature of the EC case and its request for rulings by the Panel

    (a)Submission of Korea

    4.17Korea asserts that the European Communities cannot challenge, and has implicitly accepted, the report of the investigating authority because it has not made any claims under Article 3 and 4.2(c) of the Agreement on Safeguards. In support of its position, Korea makes the following arguments:

    (i)Article 3 of the Agreement on Safeguards

    4.18The EC claims must be viewed in the context of the terms of reference it sought when requesting the establishment of the Panel. The terms of reference serve as the basis upon which panels decide cases and panels can only rule on those issues that have been raised by the complaining party in the terms of reference.

    4.19Korea draws the Panel's attention to the terms of reference cited by the European Communities. These only refer to Articles 2, 4, 5 and 12 of the Agreement on Safeguards.20 Further, the European Communities in their First Submission and Oral Statement request that the Panel limits its request for a ruling to whether "Korea has violated Article XIX:1(a) of the GATT and Articles 2.1, 4.2(a) and (b), 5.1, and 12(1) to (3) of the Agreement on Safeguards."

    4.20It is therefore clear that the European Communities have not invoked Article 3 of the Agreement on Safeguards in its request for a ruling from the Panel. Failure to invoke Article 3 has significant implications for the EC case because Article 3.1 deals with the adequacy of the competent authorities' report. The final sentence of Article 3.1 of the Agreement on Safeguards states that:

    "The competent authorities shall publish a report setting forth their findings and reasoned conclusions reached on all pertinent issues of fact and law."

    4.21The EC failure to invoke Article 3, whether intentionally or erroneously, leads one to conclude that the European Communities are not challenging the OAI Report. The European Communities confinement of their request for a ruling to the adequacy of notification under Article 12 becomes all the more clear in reviewing its answer to one of the Panel's questions. In Korea's view, this question sought to clarify the nature of the EC case. 21Korea considered that the European Communities failed to answer this question, referring back to its answer in a previous question in which they state:22

    "A safeguard proceeding must be conducted in accordance with open and transparent procedures respecting the rights of defence of parties, which are the interested economic operators. It is for this purpose that Article 3 of the Agreement on Safeguards requires publication of a report 'setting forth their findings and reasoned conclusions reached on all pertinent issues of fact and law.'

    The proper forum for discussion between WTO Members concerning the compatibility of safeguard actions with the Agreement on Safeguards is however not the national investigating authority or courts, but rather consultations and dispute settlement. Accordingly, the European Communities consider that all the information should be found, or at least referred to, in the notifications. It notes in this respect that Article 12.2 requires a Member to include in its notification 'all pertinent information.' This can be presented in summary form, but must cover all issues and must make clear reference to the source of the more detailed information. It is only in this way that the objectives of Article 12 can be achieved."

    4.22The EC answer refers to Article 3 which had never been at issue between the parties. In the light of the Appellate Body's ruling in India - Patent Protection for Pharmaceutical and Agricultural Chemical Products23 and Argentina - Measures Affecting Imports of Footwear, Textiles, Apparel and Other Items24 that a claim "must be included in the request for establishment of a panel in order to come within a panel's terms of reference in a given case", the European Communities cannot augment the original terms of reference by invoking Article 3 at this stage of the proceedings.

    4.23The EC failure to invoke Article 3 leads to the conclusion that the European Communities references to serious injury in Article 4.2(a) and to causal link in Article 4.2(b) are used as standards of review in relation to the notification and consultation requirements of Article 12, which Korea maintains it has fully discharged.

    (ii)Absence of claims under Article 4.2(c) of the Agreement on Safeguards

    4.24The European Communities have not made any specific claims or put forward any arguments in relation to Article 4.2(c), and neither its First Submission nor its Oral Statement makes any reference to Article 4.2(c). Further, on both occasions where the European Communities have requested the Panel to make rulings or findings, it has omitted any reference to Article 4.2(c).

    4.25It is virtually impossible to understand what is being argued by asserting that the "relevant factors" and "causal link" have not been fully or correctly considered, yet accepting that the competent authorities promptly published "a detailed analysis on the case as well as the relevance of the factors examined." It is important for the Panel to note that the provisions of Article 4.2(c) detail a stage subsequent to the investigation of increased imports, serious injury and a causal link between the two. The conclusion that the European Communities accept the OAI Report is only strengthened by the EC failure to make any claims in relation to Article 3 which requires a competent authority to publish "a report setting forth their findings and reasoned conclusions reached on all pertinent issues of fact and law."

    4.26Korea points out that Article 4.2(c) of the Agreement on Safeguards cannot be raised at, or subsequent to, the rebuttal stage as an issue between the parties. The decisions by the Appellate Body in India - Patent Protection for Pharmaceutical and Agricultural Chemical Products25 and Argentina - Measures Affecting Imports of Footwear, Textiles, Apparel and Other Items26 clearly show that the admission of new arguments at the rebuttal stage would be a substantial violation of due process, and a significant violation of the respondent's ability to defend itself.

    4.27Strict adherence to that procedural requirement is important because the ability to understand and defend oneself against precise and comprehensible claims is vital to any system of law based on due process.27 The Appellate Body in Argentina - Textiles summarized the two-stage process under the DSU28 as follows:29

    "Under the Working Procedures in Appendix 3, the complaining party should set out its case in chief, including a full presentation of the facts on the basis of submission of supporting evidence, during the first stage. The second stage is generally designed to permit "rebuttals" by each party of the arguments and evidence submitted by the other parties."

    4.28Therefore, as requested by the European Communities in their First Submission and Oral Statement, Korea requests the Panel to limit its analysis of the EC claims to examining whether "Korea has violated Article XIX:1(a) of the GATT and Articles 2.1, 4.2(a) and (b), 5.1, and 12(1) to (3) of the Agreement on Safeguards."

    4.29Korea is of the view that the EC failure to invoke Article 3 and raise any claims under Article 4.2(c) in either its First Submission or Oral Statement can only be construed as meaning that Articles 4.2(a) and (b) are used as standards of review in relation to the notifications and consultations requirements of Article 12 of the Agreement on Safeguards. Thus, the Panel should only examine whether Korea's notification and consultations under Article 12 of the Agreement on Safeguards were timely and adequate and whether Korea imposed its safeguard measure in accordance with the requirements of Article 5.

    4.30At the second meeting of the panel with the parties, Korea further advanced its arguments regarding the nature of the EC case as follows:

    4.31In Korea's view, the unclear nature of the EC arguments stems from its apparently deliberate strategy of claiming that only the Notifications provided by Korea under Article 12 of the Agreement on Safeguards should be considered to determine whether the Korean safeguard measure is consistent with Article XIX of GATT 1994 and the Agreement on Safeguards. This lack of clarity in the EC arguments is further aggravated by confining its requests to Articles 2.1, 4.2(a), 4.2(b), 5.1 and 12(1) to (3). It does not cite Article 3, and has not made any claims in relation to Article 4.2(c).

    4.32Further, the European Communities expressly disregard the OAI Report, one of the central documents by which to evaluate the compliance of Korea's safeguard measure with the Agreement on Safeguards. Korea refers the Panel to the EC statement in its Rebuttal Submission:

    "The European Communities have already explained that the KTC report is not an appropriate source of information to evaluate Korea's compliance with its obligations arising under Article XIX of the GATT 1994 and the Agreement on Safeguards."

    4.33Accordingly, the Panel must consider the implications for the EC case of its failure to invoke Article 3, and its failure to make claims in relation to Article 4.2(c).

    4.34Korea is of the view that failure to invoke Article 3 implies that the European Communities have accepted that:

    "The competent authorities publish[ed] a report setting forth their findings and reasoned conclusions reached on all pertinent issues of fact and law."

    4.35Furthermore, failure to make claims under Article 4.2(c) implies that the European Communities have accepted that:

    "The competent authorities publish[ed] promptly, in accordance with the provisions of Article 3, a detailed analysis of the case under investigation as well as a demonstration of the relevance of the factors examined."

    4.36Combining the EC decision not to raise Articles 3 and 4.2(c) with its statement in its Rebuttal Submission noted above, Korea then concludes that the European Communities want the Panel to limit its review of the Korean investigation to its notifications under Article 12, and its obligations under Article 5. The EC failure to invoke Article 3 leads one to the conclusion that the European Communities references to serious injury in Article 4.2(a) and to causal link in Article 4.2(b) are used as standards of review in relation to the notification and consultation requirements of Article 12.

    4.37Korea cannot accept and the Panel should not accept that notifications under Article 12 have to include all documentation and analysis undertaken by the Korean competent authorities, including documents and analysis proving compliance with Articles 2, and 4.2(a) and (b). Clearly, Articles 2 and 4 have to be fulfilled by the competent authorities undertaking the investigations of increase in imports, serious injury and a causal link between the two. However, compliance with these requirements has to be judged against how the competent authorities conducted that analysis, and not against how their investigation was notified to Members.

    4.38However, the European Communities does not want to challenge the OAI Report as a relevant document, preferring to concentrate its argumentation to challenging the quality and nature of Korea's notifications under Article 12. The European Communities appear to want to disregard the facts established and analysis undertaken in the 85-page OAI Report, and instead judge Korea's compliance with the Agreement on Safeguards in relation to notifications that were only intended to summarise Korea's investigation.

    4.39In Korea's view, the purpose of Article 12 is to provide WTO Members with a summary of what happened during the investigation, including a summary of relevant facts established and analysis undertaken. The level of information provided should be at least sufficient to permit those Members to enter into meaningful consultations, but Article 12 is not the basis upon which the investigation undertaken by the national authority must be judged. Korea submits that, as with other proceedings, such as antidumping and CVD or safeguard measures in textiles, it is always the governmental measure, and not a communication to the WTO that is under review as to a Member's conformity with the substantive provisions of the agreement in question.

    4.40By way of conclusion, Korea requests the Panel to conclude that the European Communities are only questioning Korea's compliance with Articles 5 and 12 of the Agreement.

    (b)Response by the European Communities

    4.41At the second meeting of the panel with the parties, the European Communities replied as follows:

    4.42The European Communities agree with Korea that they are not bringing a complaint under Article 3 of the Agreement on Safeguards, nor is relying upon Article 4.2(c) thereof. Accordingly, it will not address the arguments developed by Korea in the first part of its Second Written Submission. It will only say that the absence of a complaint under Article 3 does not mean that the European Communities have accepted the content of the Investigation Report to be correct. The European Communities are complaining that Korea's measure does not satisfy the substantive conditions for such measures set out in Article XIX GATT 1994 and Articles 2.1, and 4.2 of the Agreement on Safeguards. This should be indication enough that it does not agree with the investigation report.

    B.SUBSIDIARY ISSUES

    1.Burden of proof and standard of review

    (a)Submission by Korea

    4.43Regarding the issues of burden of proof and standard of review Korea submits the following arguments:

    4.44As a preliminary matter, the Panel should properly assign the burden of proof to the parties. The burden of proof is the fundamental obligation 玱f each of the parties to a dispute before an international tribunal to prove its claims to the satisfaction of, and in accordance with the rules acceptable to, the tribunal?30 This fundamental obligation does not shift between the parties during the dispute.31 To discharge its burden of proof, the party assigned such burden must present conclusive evidence substantiating its claims, i.e., the party that is required to satisfy the burden of proof must present more convincing evidence than the opposing party, and if the evidence is in equipoise, the party required to satisfy the burden of proof must lose.32

    4.45The party claiming that a Member State exercised its rights inconsistently with the Agreement on Safeguards has the obligation to prove such inconsistency. Therefore, as the Complaining Party asserting claims that Korea acted inconsistently with the Agreement on Safeguards, the European Communities have the burden of proof throughout the course of this proceeding to present conclusive evidence that their claims are true.

    (i)Standard of review

    4.46In light of the way the European Communities have presented their arguments in their First Submission, it appears to be necessary for the Panel to confirm the standard of review applicable in this case. Korea suggests that the Panel's role is to examine the Korean safeguard measure to determine whether it was imposed in accordance with Korea's international obligations under the Agreement on Safeguards. In conducting this examination, Korea suggests that the Panel should not engage in a de novo review in which it assumes the role of the investigating authority and seeks to replace its analysis of the facts and law for those of Korea. Nor should the Panel engage in assessing speculative or conclusionary arguments submitted by the European Communities as to whether the measure is appropriate or not. Instead, Korea suggests that the Panel should restrict its analysis to making an objective assessment as to whether Korea reasonably considered all relevant facts and adequately explained how such facts support the determination made.

    4.47In United States - Restrictions on Imports of Cotton and Man-Made Fibre Underwear ("Underwear")33, Korea recalls the argument of the United States that a panel reviewing a safeguard measure under the special safeguard provisions of the Agreement on Textiles and Clothing ("ATC") should accord considerable deference to the determination by the US authorities. After citing the "Transformers" case where a panel refused to accord total deference to the domestic authority, the Panel stated the following:

    "7.12 We see great force in this argument. We do not, however, see our review as a substitute for the proceedings conducted by national investigating authorities or by the TMB. Rather, in our view, the Panel's function should be to assess objectively the review conducted by the national investigating authority, in this case the CITA. We draw particular attention to the fact that a series of panel reports in the anti-dumping and subsidies/countervailing duties context have made it clear that it is not the role of panels to engage in a de novo review. In our view, the same is true for panels operating in the context of the ATC, since they would be called upon, as in the context of cases dealing with anti-dumping and/or subsidies/countervailing duties, to review the consistency of a determination by a national investigating authority imposing a restriction under the relevant provisions of the relevant WTO legal instruments, in this case the ATC. In our view, the task of the Panel is to examine the consistency of the US action with the international obligations of the United States, and not the consistency of the US action with the US domestic statute implementing the international obligations of the United States. Consequently, the ATC constitutes, in our view, the relevant legal framework in this matter.

    7.13 We have therefore decided, in accordance with Article 11 of the DSU, to make an objective assessment of the Statement issued by the US authorities on 23 March 1995 (the 玀arch Statement? which, as the parties to the dispute agreed, constitutes the scope of the matter properly before the Panel without, however, engaging in a de novo review. [footnote omitted] In our view, an objective assessment would entail an examination of whether the CITA had examined all relevant facts before it (including facts which might detract from an affirmative determination in accordance with the second sentence of Article 6.2 of the ATC), whether adequate explanation had been provided of how the facts as a whole supported the determination made, and, consequently, whether the determination made was consistent with the international obligations of the United States. [footnote omitted] We note in this respect, that in response to a question by the Panel, the United States argued that the Panel had to examine whether the domestic authorities had based their determination on an examination of factors required by the ATC and whether the basis for the determination was adequately explained. In the US view, such an approach was compatible with the standard of review adopted in the 獸ur Felt Hat?case. [footnote omitted]34

    4.48The Panel in US - Underwear, therefore, expressly rejected that it should engage in a de novo review in examining the US safeguard measure under the ATC. The Panel then articulated a standard of review intended to account for the deference that should be accorded to national authorities in their conduct of a domestic investigation. In applying the standard of review in US - Underwear, however, the Panel interpreted the special safeguard provisions of the ATC as an 玡xception?to Article 2.4 of the ATC. As such, the Panel imposed on the United States the burden of proof to demonstrate it acted consistently with the ATC. Unlike Article 2.4 of the ATC, the Agreement on Safeguards and the terms contained therein should not be considered as an exception.

    4.49Therefore, consistent with the approach of the Panel in US - Underwear, in examining Korea's obligations in respect of the safeguard measure, Korea suggests that the Panel should restrict its analysis to making an objective assessment of the facts and law as provided under Article 11 of the DSU by examining whether Korea:

    (a) examined all relevant facts before it at the time of the investigation; and

    (b)provided an adequate explanation of how the facts before it as a whole supported the determination made.

    4.50In the view of Korea, use of the above approach would accord the proper amount of deference to Korea given that the Panel is reviewing a complex administrative investigation conducted by a Member's administering authority.

    4.51The Agreement on Safeguards requires a Member's competent authority to determine whether increased imports caused serious injury to the domestic industry. In assessing serious injury under Article 4.2(a), the competent authority is not required to give any specific weight or significance to any particular criterion. Under Article 4.2(a) of the Agreement, no criterion gives conclusive guidance as to whether serious injury occurred. The Agreement also does not require that each criterion be considered in isolation. Moreover, the Agreement on Safeguards contemplates that the competent authority may use other factors that are more relevant to a particular domestic industry in assessing serious injury.

    4.52The arguments raised by the European Communities in both the consultations under Article 12 of the Agreement on Safeguards and its submissions to the Panel imply that the European Communities are applying a very high (possibly an impossibly high) standard as to how the competent authorities of the Members should be permitted to conduct injury investigations. Korea submits that Members can set their own standards which may exceed those set out in Article 4.2.35 Each Member State of the Agreement on Safeguards is, however, only obliged to comply with the standard of that Agreement, and not the standards used by other WTO Members.

    4.53Throughout the Uruguay Round, most major trading nations, the European Communities included, recognized and accepted that the agricultural sector presented a number of unique issues requiring specific and detailed consideration, and, where appropriate, the adoption of specific rules. One of the ways in which the unique features of agriculture was recognized and dealt with was the Agreement on Agriculture, and Article 5 of the Agreement which contains a specific, detailed safeguard procedure.36

    4.54Korea could not invoke the special safeguard provisions of Article 5 of the Agreement on Agriculture in this case. Therefore, to the extent that its domestic industry was being seriously injured by increased imports, Korea had to impose a safeguard measure consistent with the Agreement on Safeguards.

    4.55As the general system of rules for imposing safeguard measures, the Agreement on Safeguards will be applied to a number of different product sectors and, thus, has a degree of flexibility built into its structure and individual terms.37 Certain injury criteria relevant to industrial or manufactured products may be irrelevant when applied to agricultural products, because those criteria are not objective and quantifiable or because they do not have a bearing on the situation of the particular agricultural industry, i.e., they do not reflect the unique nature of the agricultural sector.38 If particular criteria are not applicable to a specific agricultural sector, Members should be accorded the flexibility to examine other criteria that take into account the unique or specific nature of the products and industry under examination. Members should also be allowed to take into account criteria which are also relevant to the industry under examination.39 Provided that relevant criteria have been considered and an adequate explanation as to whether or not they indicate serious injury has been given, the Panel should defer to the Member's determination as to whether the relevant criteria, when considered as a whole, may lead to an affirmative determination of serious injury.

    4.56In the view of Korea, the European Communities do not and cannot discharge their burden of proof simply by disputing the outcome of Korea's examination of the relevant facts or by contending that Korea has to provide an explanation of its analysis and conclusions that goes beyond the requirement to provide an adequate explanation. The European Communities must present conclusive evidence that Korea failed to examine relevant facts or failed to give an adequate explanation as to how the facts as a whole supported its determination. Korea submits that the Panel should conclude that the European Communities have failed to present evidence of this nature and that the European Communities have, therefore, failed to discharge their burden of proof regarding their claims that Korea acted inconsistently with the Agreement on Safeguards.

    4.57At the first meeting of the panel with the parties Korea further advanced its arguments on the issue of standard of review as follows:

    4.58Article 11 of the DSU obliges the Panel to make an objective assessment of the facts of the case and the applicability of and conformity with the relevant covered agreements. In the absence of particular provisions on the standard of review in the Agreement on Safeguards and the GATT, these criteria need to be construed and considered in the light of the purpose and functions of the Agreement on Safeguards, past practices and precedents, and the allocation of the burden of proof.

    4.59By its very nature, the Agreement on Safeguards, as much as Article XIX GATT and other safeguard clauses, assists Governments in entering into trade liberalizing commitments, as they may call upon safeguards should subsequent economic difficulties arise in due course. By its very nature, this Agreement applies to complex and difficult constellations in difficult times. In applying the Agreement, Governments are, of course, bound by its rules and criteria. But they all share a common interest that these rules allow for adequate flexibility in responding to the difficult constellations and difficult times. In other words, the very function of safeguard clauses implies a considerable degree of discretionary powers to Governments in assessing the situation and in determining injury.

    4.60In reviewing safeguard measures imposed by Governments, panels therefore need to focus on whether the Government has exceeded its scope of discretionary powers. Within the bounds of discretionary powers, the matter therefore has to be assessed with considerable deference.

    4.61Such discretion and deference has been accorded to the operation of safeguard clauses in the past. The 150 measures notified under Article XIX GATT 194740 and the fact that they have not been challenged in dispute settlement but for two cases41 proves the point in state practice.

    4.62This tradition is equally reflected in the new Agreement on Safeguards. While there was a need to strengthen disciplines and to prevent an abuse of the instrument, it still provides for adequate flexibility. Thus, Article 4.2 does not set forth a closed list of relevant factors, but allows Governments, in assessing injury, to take into account additional criteria of particular relevance for the sector concerned. In the present case, it therefore was possible to look into factors of particular relevance for agriculture, consider specific problems and factors relating to the dairy industry. All of this implies certain choices and therefore discretionary powers in construing and applying the injury test.

    4.63In assessing a safeguard measure, the Panel therefore must merely engage in reviewing the measure and its justification within the discretionary bounds of the Agreement. It clearly must not engage in assessing the situation anew. It must not make an independent ex post determination based upon arguments set forth by the complaining party. Its task is a more limited one.

    4.64This is confirmed by recent panel practice relating to the application of safeguard clauses. In US - Underwear42, the Panel was equally faced with the issue of assessing its scope and standard of review. It was a matter of finding, based upon Article 11 DSU, an appropriate way between Scylla and Charybdis: between total deference and close scrutiny. The Panel found that total deference to national injury determination could not live up to the standard of Article 11 DSU, while equally rejecting the idea of full review set forth in the Transformers case.43 Instead, it set forth the task to "assess objectively the review conducted by the national investigating authority", to mean "to review the consistency of a determination by a national investigating authority imposing under the relevant provisions of the relevant WTO legal instruments" (para. 7.12).

    4.65Korea submits that the same standard of examining consistency should also apply to the Agreement on Safeguards. As the role and functions of safeguards are alike in different agreements, the standard of review defined and set forth by this panel should be of guidance in this first case on the Safeguard Agreement alike. It is therefore a matter to examine whether Korea remained within its bounds of discretion and had consistently examined all relevant facts before it at the time of the investigation, and provided an adequate explanation of how the facts before it as a whole supported the determination made.

    4.66Finally, the task of the Panel is further shaped and limited by the burden of proof in this case. While, in US - Underwear, it was for the United States to demonstrate compliance with the safeguard clauses of the Textile Agreement due to the fact that it had been invoked as an exception, the situation is different under the Agreement on Safeguards. Here, it is up to the complaining Party, the European Communities, to demonstrate that the review conducted by the national investigating authority does not live up to the legal requirements set forth by the Agreement and exceeds the bounds of discretion. It is up to it to demonstrate that Korea has acted inconsistently with and therefore in violation of the Safeguard Agreement.

    4.67The objective assessment by the Panel therefore needs to rely upon the facts and arguments put forth by Korea and those submitted by the European Communities. It is only to the extent the Panel concludes that facts, figures and arguments submitted by the European Communities demonstrate that Korea had failed to provide an adequate justification of the measure imposed, i.e., an adequate explanation as to how the facts invoked supported the determination, that a violation could be established. In other words, it will not be appropriate for the Panel to replace with its own figures and arguments the determination made by Korea.

    4.68The arguments put forward by Korea in this case are shaped in accordance with this standard of review and allocation of the burden of proof. It is not a matter of justifying anew the measure imposed. Instead, Korea's arguments demonstrate that the ERUOPEAN COMMUNITIES fails to provide evidence and arguments which would allow the Panel to conclude that Korea has acted beyond its discretionary powers under the Agreement on Safeguards, and thus inconsistently with its obligations under international law.

    4.69Korea also notes that most jurisdictions provide a significant degree of latitude to investigating authorities to make injury determinations after considering complicated economic facts. For example, the European Communities' courts give a very wide degree of discretion to the European Commission in arriving at similar general economic and trade policy judgements. These courts will only review the Commission's assessment of complex factual issues where:

    "the Commission has exceeded the scope of its discretion by a distortion or manifest error of assessment of the facts or by misuse of powers or an abuse of process".44

    4.70However, if the EC arguments are limited to the quality, depth and breadth of Korea's notification and consultations and are not requiring the Panel to conduct a de novo review of the Korean competent authorities investigation, then Korea is of the view that it has far exceeded the requirements of the Agreement on Safeguards.

    (b)Response of the European Communities

    4.71The European Communities respond to Korea's submission as follows:

    4.72Both the European Communities and Korea agree that the appropriate standard is that in Article 11 of the DSU, i.e.,

    "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"

    4.73However opposite conclusions are drawn as to what this means in the present case.

    4.74In its First Written Submission, Korea concluded that this requires examining whether Korea:

    (a)examined all relevant facts before it at the time of the investigation; and

    (b)provided an adequate explanation of how the facts before it as a whole supported the determination made.

    4.75Korea takes this formulation to mean that it need not seek out all the facts but may content itself with the "facts before it" and that even as regards the facts that it does have before it, it need only provide an "adequate" explanation of how these facts "as a whole" (that is viewed globally, rather than in detail) support its determination. The United States apparently does not draw the same conclusions as Korea from the same test because it comes to the conclusion that it was normally necessary to examine the whole of the defined domestic industry and that if Korea failed to evaluate relevant evidence, its determination would violate Article 4.2(a) of the Agreement on Safeguards.

    4.76The above formulation must be rejected since it results from Article 4.2(a) of the Agreement on Safeguards and the precedents set by the panel reports in US - Shirts and Blouses and US - Underwear45 that

    佛the investigating authority has to seek out and consider "all relevant facts" (and not rely on what is "before it"); and

    佛it is necessary, at a minimum, for a serious injury determination under the Agreement on Safeguards to demonstrate that the relevance or otherwise of each of the injury factors listed in Article 4.2(a) of the Agreement on Safeguards was properly analysed unless it is explained for what reason the injury factor may be disregarded. It is true that no injury factor "in isolation" can establish serious injury but that does not excuse a failure to examine them all.

    4.77Korea then argued that "the very function of safeguard clauses implies a considerable degree of discretionary powers to governments in assessing the situation and in determining injury" and that "the matter & has to be addressed with considerable deference".

    4.78It also claimed that most domestic jurisdictions "provide a significant degree of latitude to investigating authorities to make injury determinations after considering complicated facts" and even quoted a State aid case of the European Court of Justice in support.

    4.79On the first argument brought forward by Korea, the European Communities responded that the discretionary nature of safeguard measures which may have been accepted under GATT 1947 and is evidenced in the low number of disputes, is no longer compatible with the WTO. The Agreement on Safeguards has introduced an obligation to conduct a thorough investigation as a pre-condition for imposing measures and has removed the possibility of compensation during the first three years where the measure is held to be in conformity with the Agreement on Safeguards. In addition the WTO system, characterized by binding dispute settlement, is more based on the principle of legality and less on the principle of diplomacy than the former GATT.

    4.80The European Communities do not agree with the view that the intention of the Agreement on Safeguards was to increase the discretion allowed to Members. The preamble to the Agreement on Safeguards clearly contradicts this view since it recalls the intention of Members to reinforce the disciplines of Article XIX of GATT and to re-establish multilateral control over safeguards.

    4.81The European Communities also reject the attempt to import domestic standards of review of certain jurisdictions into the WTO dispute settlement.

    4.82First, the WTO dispute settlement system serves very different purposes to national administrative law systems. It is not designed to establish whether an investigating authority conducted itself in accordance with its duties but rather to adjudicate on the rights and obligations of Members of the WTO under the WTO Agreements.

    4.83Second, even if any of the principles applied by Member jurisdictions were relevant, the standards of all jurisdictions would have to be treated as equally valid and these standards are far too diverse to allow useful rules to be deduced. Terms such as "de novo" and "manifest error" have specific and often differing meanings in different legal systems and so are probably best avoided as they are susceptible of creating conflicting interpretations between Members.

    4.84Thirdly, the guiding text is Article 11 of the DSU, which requires a standard of objective assessment of the facts. This is the standard and the terminology to be applied by Panels.

    4.85In the present case, the European Communities are not contesting the basic economic data produced by Korea but only its completeness and the conclusions drawn from it. The European Communities submit that the "objective assessment of the facts" referred to in Article 11. DSU cannot be satisfied by verifying what conclusions the investigating authority came to but must include how it came to those conclusions, that is to say its reasoning.

    4.86The European Communities recall that Panel Report Brazil - Milk Powder, also established that it is not sufficient for an authority to refer to the evidence it considered and state its conclusion. In the words of that panel: "It was incumbent upon the investigating authorities to provide a reasoned opinion explaining how such facts and arguments had led to their finding." 46

    (c)Rebuttal response of Korea:

    4.87Korea makes the following rebuttal arguments:

    4.88First, as the complainant challenging a safeguard measure under the Agreement on Safeguards, it is for the European Communities to show that the claims it makes against Korea are proven.

    4.89Second, Korea reiterated its previously articulated standard of review in this case, as set in Paragraph 4.74 above and noted that the United States "agrees with Korea's assertions concerning the standard of review in safeguards cases."

    4.90At the second meeting of the panel with the parties Korea further advanced its arguments on the issue of standard of review as follows:

    4.91Based on the EC arguments on the standard of review in its Second Submission Korea believes that the European Communities is either:

    (a)seeking to challenge the quality of the investigation undertaken by the Korean competent authorities; or

    (b)whether intentionally or inadvertently, confusing the standard of review to be applied by the Panel in reviewing the Korea's investigation, with the standard of investigation applicable to the Korean investigating authority.

    4.92 Korea requests the Panel to conclude that the European Communities cannot challenge the quality of the Korean competent authorities' investigation after the closing of the first round of Oral Statements. This results from Korea's belief that the lack of claims under Articles 3 and 4.2(c) of the Agreement on Safeguards implies that the European Communities have not at any time during these proceedings challenged the quality of the investigation performed by Korea's competent authorities.

    4.93Korea submits that the European Communities are confusing the standard of review to be applied to the Panel's deliberations with the standard to be applied to the investigating authority. Korea notes that these are different concepts and require different analysis.

    4.94The EC arguments seek to obscure Korea's simple formulation of Standard of Review.

    4.95First, the European Communities argue that:

    "Korea takes this formulation to mean that it need not seek out all the facts but may content itself with the "facts before it" and that even as regards the facts that it does have before it, it need only provide an "adequate" explanation of how these facts "as a whole" (that is viewed globally, rather than in detail) support its determination."

    4.96This attempt to misconstrue Korea's argument must be corrected for the record. Clearly the standard of review articulated by Korea does not excuse the Korean investigating authority from conducting a thorough investigation of the facts. Korea's formulation of the standard of review requires the investigating authority to examine all relevant facts which have been uncovered by the investigation based on the requirements of the Agreement on Safeguards. The OAI Report is an 85 page document setting out numerous factual findings made by the OAI, and its analysis as to whether serious injury had been caused to the domestic industry, and whether this serious injury was caused by increased imports. It should be clear from this document alone that the Korean competent authorities undertook a thorough investigation of the case.

    4.97Second, the European Communities suggest that Korea has implied that the imposition of a safeguard measure is "discretionary". This is a complete misinterpretation of Korea's view of the nature of safeguards. Safeguard measures can only be imposed on the basis of the Agreement on Safeguards and not at the discretion of any national authority. The fundamental point is that the underlying purpose of safeguards imposed on the basis of the Agreement on Safeguards is to provide Members with recourse to emergency short-term measures. This specific purpose necessitates a reviewing body to accord a significant degree of deference to the investigating authority in relation to the factual, legal and economic analysis undertaken.

    4.98Third, the European Communities refer to the panel proceedings in Brazilian Milk Powder, both to challenge Korea's statement on standard of review, and its compliance with Article 4.2(a). Korea agrees with the earlier Panel's statements in relation to the nature and quality of examination that needs to be undertaken by an investigating authority, and is of the view that the Korean competent authorities met that standard in this case.

    4.99In fact, the Brazilian Milk Powder case demonstrates that the Panel should determine Korea's compliance with the Agreement on Safeguards based on the documents of the competent authorities. For the sake of completeness, the European Communities might also have referred the Panel to its own arguments on standard of review in paragraph 32 of that Panel report where it approved of:

    "paragraph 335 of the report of the panel on "United States - Softwood Lumber" [which] had stated that "[t]he Panel considered that in reviewing the action of the United States authorities in respect of determining the existence of sufficient evidence to initiate, the Panel was not to conduct a de novo review of the evidence relied upon by the United States authorities or otherwise to substitute its judgement as to the sufficiency of the particular evidence considered by the United States authorities. Rather ... [it] required consideration of whether a reasonable, unprejudiced person could have found, based upon the evidence relied upon by the United States at the time of initiation, that sufficient evidence existed of subsidy, injury and causal link to justify initiation of the investigation".47

    4.100However, the European Communities clear implication by referring to that Panel is that the quality and nature of the Korean authorities' analysis was similar to that of the Brazilian authorities. The European Communities comparison between three paragraphs of analysis in a two page document48 does a disservice to the 85 pages of findings and closely reasoned analysis found in the OAI Report and the 17 page April 1 Notification.

    4.101Moreover, the European Communities reference to the Brazilian Milk Powder panel report is misleading. For brevity, Korea noted only two material differences between the Brazilian case and the case under investigation, as these clearly show that there can be no meaningful comparison between the two:

    (a)the Panel found that Brazil had not undertaken any investigation whatsoever prior to the imposition of a provisional countervailing duty, therefore it could not have established that the relevant elements necessary for imposition of a duty were present;

    (b)the Panel found that although Brazil was required to examine certain injury criteria in establishing material injury, it only referred to one such factor in its published documents.

    4.102Fourth, the European Communities examine Korea's arguments concerning the level of deference shown in national review procedures. However, it misses or overlooks Korea's fundamental point. Korea was not asking the Panel to apply any specific definitions or legal terms when it suggested that a number of judicial systems, including those in the EU and United States, afford national authorities carrying out detailed economic analysis a great deal of discretion. Korea's point is not the precise level of deference provided, but the fact that it is provided at all by courts when reviewing complicated, factual, legal and economic analysis.49

    (d)Rebuttal response of the European Communities

    4.103At the second meeting od the Panel with the parties the European Communities made the following arguments:

    4.104The European Communities are not asking the Panel to redo the investigation, merely to examine the completeness and correctness of what was investigated and to verify the soundness and compatibility with the Agreement on Safeguards of the reasoning of Korea in imposing the measure. In applying this standard of review, the European Communities argue that Korea failed to investigate all the injury factors specifically mentioned in Article 4.2 and has drawn wrong conclusions from the facts which it did establish. In particular Korea failed to investigate profitability and employment of the major part of the domestic industry, the dairy farms and its causality analysis is fatally flawed by the fact that Korea ignored the protection offered the dairy farms and deliberately closed its eyes to the impact of the "milk quality scandal" on white milk consumption, by applying circular reasoning.

    4.105Korea's defence has generally been that it could not investigate certain injury factors because it did not have the data. The European Communities would make two comments: first, it should have obtained the data. The Safeguards Agreement requires an investigation (at a minimum) of all the injury factors listed in Article 4.2 of the Agreement on Safeguards; second, Korea cannot invoke its own failure to investigate in its defence.

    4.106A second line of defence used by Korea is to say that it could not collect the data since there was too much of it or it was too difficult. For example, it states that there are 20 000 dairy farms and it would have been impossible to investigate transaction prices for all of them. The European Communities would reply that the fact that it is difficult to obtain precise information does not mean that no attempt should be made to make an estimate. For example it is difficult to know how much damage is suffered by a person following a personal injury but this does not lead to judges dismissing claims for damage

    2.What are the appropriate documents to be considered by the Panel in evaluating the analysis performed during the investigation?

    4.107The European Communities in their first submission based their arguments concerning the lack of compliance by Korea with its obligations under Articles 2 and 450 of the Agreement on Safeguards on the notifications Korea had made to the Committee on Safeguards. This situation led to an inquiry by the Panel to the parties as to what document or documents should be considered by the Panel as evidence of the information used and the analysis performed by Korea's competent authorities in determining the imposition of a safeguard measure. 51

    (a)Response of the European Communities

    4.108In response to the panel's question the European Communities argued:

    4.109A safeguard proceeding must be conducted in accordance with open and transparent procedures respecting the rights of defence of the parties, which are the interested economic operators. It is for this purpose that Article 3 of the Agreement on Safeguards requires publication of a report "setting forth their findings and reasoned conclusions reached on all pertinent issues of fact and law".

    4.110The proper forum for discussions between WTO Members concerning the compatibility of safeguard action with the Agreement on Safeguards is however not the national investigating authority or courts, but rather consultations and dispute settlement under the WTO. Accordingly, the European Communities consider that all the information should be found, or at least referred to, in the notifications. It notes in this respect that Article 12.2 requires a Member to include in its notification "all pertinent information." This can be presented in summary form but must cover all issues and must make clear reference to the source of the more detailed information. It is only in this way that the objectives of Article 12 can be achieved.

    (b)Response of Korea

    4.111In the response to the Panel's question, Korea argued:

    4.112The Korean administrative process by which a safeguard measure is imposed has a number of stages.52

    4.113First, an interested party or parties files a petition with the KTC. The KTC reviews the petition to establish whether the petitioner has proper standing under Articles 32, 33 and 40 of the Foreign Trade Act and Articles 64, 65, 66 and 76 of the Enforcement Decree implementing the Act.

    4.114Second, the KTC deliberates the prima facie case to decide whether to initiate an investigation on industrial injury. With the Determination to Initiate an Investigation, the KTC publishes a Public Notice of Investigation in the Korean Official Gazette, Kwanbo, which provides a summary of the determination to proceed. The Notice also contains details of the investigation to be undertaken; the timetable for the various stages, and contact details for the KTC. The initiation also triggers a notification to the WTO Committee on Safeguards, in the form of a notice conforming to G/SG/N/6.

    4.115In this case, the KTC made the Determination to Initiate an Investigation on 17 May 1996 (see Exhibit Korea-3).53 The Public Notice of Initiation, which actually is a summary of the Determination (Exhibit Korea-3), was published in Kwanbo on 28 May 1996 (see Exhibit Korea-4), and this was the basis for the notification to the WTO Committee on Safeguards, G/SG/N/6/KOR/2 of 1 July 1996.

    4.116Third, the KTC forms an investigation team, normally led by an official from the Office of Administration and Investigation ("OAI"). This team undertakes the investigation and is responsible for the formulation of questionnaires, on-the-spot investigations, and the drafting of the interim report.

    4.117Fourth, prior to the finalization of the investigation report, the OAI holds a public hearing at which the findings in the investigation report are discussed with all relevant parties present at the hearing. Copies of the OAI's interim report are available to the interested parties prior to the hearing so that the OAI can take into account observations and comments made by interested parties at the public hearing before finalizing the investigation report. The date of the oral hearing is announced in Kwanbo to maximize transparency of this procedure.

    4.118In this case, the Notice of Public Hearing was published in Kwanbo on 25 July 1996 (see Exhibit Korea-13). The interim report was available from the KTC upon request as from 12 August 1996. The Public Hearing was held on 20 August 1996.

    4.119Fifth, taking into account the above interim stage, the OAI completes its report for final approval by the KTC commissioners. The report includes a detailed analysis of:

    (a)the product under investigation;

    (b)the domestic industry;

    (c)like or directly competing products;

    (d)increases in the level of imports;

    (e)threat of or actual serious injury to the domestic industry; and

    (f)the causal relationship between increased imports and serious injury.

    4.120The KTC deliberates the case for a determination on injury (including causal link) on the basis of the investigation report presented to it from the OAI. The KTC's determination of injury, whether affirmative or negative, is published in Kwanbo with a summary of the investigation result, the decision of injury, further schedules and other administrative information. The KTC's determination on injury also triggers a notification to the WTO Committee on Safeguards, in the form of notice conforming to G/SG/N/8. It is important to note that if the KTC makes a negative determination on injury on the basis of the consideration on increased imports, serious injury, or causation, the case is rejected and no further action is possible.

    4.121In this case, the OAI Report was completed on 23 October 1996, and a Notice published in Kwanbo on 11 November 1996 (see Exhibit Korea-7).54 The OAI Report was the basis for the notification to the WTO Committee on Safeguards of 2 December 1996, published by the WTO on 6 December 1996 (G/SG/N/8/KOR/1).55 This Notification stated:

    "The Korean Trade Commission has not made a decision to apply a safeguard measure yet. Therefore, there is no information on such a measure at this time. The KTC will recommend to the relevant Minister an appropriate remedial measure within 45 days of the injury determination."

    4.122Sixth, in accordance with Article 34(1) of the Foreign Trade Act and Articles 71, 72 and 76 of the Enforcement Decree of the Foreign Trade Act, the KTC Commissioners then consider the OAI Report and decide on appropriate relief measures for recommendation to the relevant Minister.56

    4.123In this case, the KTC Commissioners decided on the relief measure, namely the quota, on 2 December 1996, and recommended it on 6 December 1996 to the Minister for Agriculture and Forestry for his deliberation.

    4.124Seventh, taking into account the outcome of "prior consultations" under Article 12.3 of the Agreement on Safeguards, the relevant Minister takes a decision concerning the relevant relief measure. If the Minister uses any additional reasoning not found in the OAI Report, this is provided in the relevant Notice. However, if no additional reasoning is used, then the Minister's determination adopts all relevant elements of the OAI Report.

    4.125In this case, Korea issued another notification to the Committee on Safeguards on 21 January 1997, by G/SG/N/10/KOR/1, published on 27 January 1997. The notification stated:

    Pursuant to Article 12.3 of the Agreement on Safeguards, the Republic of Korea will consult with Members having substantial interest in the products covered by the safeguard measure, for the purpose of providing further information. A delegation from Korea will stay in Geneva during the week beginning 3 February 1997 to meet with those Members, before it makes a final decision on the measure by the week beginning 24 February 1997."

    4.126In addition, the letter enclosing the Notification reserved the right of Korea to make further submissions to the Committee concerning the imposition of any relief measures.

    4.127Further, on 31 January 1997, Korea filed a notification with the Committee on Safeguards concerning the application of the proposed safeguard measure to developing countries. This was done in accordance with footnote 2 of Article 9 of the Agreement on Safeguards (see G/SG/N/11/KOR/1 of 21 February 1997, and Exhibit EC-8).

    4.128The Minister of Agriculture and Forestry took his decision on 1 March 1997, and a Notice of the decision was published in Kwanbo on 7 March 1997 (see Exhibit Korea-9).

    4.129On 24 March 1997, Korea notified the Committee on Safeguards of an addendum to G/SG/N/10/KOR/1 (G/SG/N/10/KOR/1/Suppl.1), which was circulated on 1 April 1997.

    4.130Therefore, Korea concludes that the information used and analysis performed is found in the seven stages set out above, including, where relevant, any additional information contained in any of the Notifications made to the Committee on Safeguards. Although it may be possible to conclude that the OAI Report forms the fundamental basis of Korea's determination, it should be clear that the KTC and the relevant Minister together comprise the "competent authorities" and that any decision to impose a safeguard measure must take into account prior consultations. Accordingly, in response to the Panel's question as to where to find "the information used and analysis performed by the national authority of Korea in its determination of its safeguard measure," Korea considers that any "information used or analysis undertaken" at any time subsequent to the issuance of the OAI Report and prior to the Minister's final decision to implement relief measures is also relevant and needs to be considered as part of that decision.

    (c)Submission of the European Communities

    4.131In its second submission the European Communities further argued as follows:

    4.132The European Communities have based its attempts to show that Korea's measure was inconsistent with Article XIX of GATT and several provisions of the Agreement on Safeguards. In order to arrive at this conclusion the European Communities based themselves on Korea's 1 April 1997 Notification to the Committee on Safeguards, because it wanted to take into account all the facts and arguments on which the final position of its authorities was based. The European Communities assumed that all those facts and arguments would be reflected in the 1 April Notification in view of Korea's multilateral obligations, at least in summary and with appropriate reference to the relevant parts of other determinations of its competent authorities. Although the European Communities were prepared to accept the 1 April 1997 Notification as the ultimate source of the basis for Korea's determination, even that latest document could not sustain a close scrutiny.

    4.133The European Communities submit that, in any event, no other result is reached by looking at the documents which Korea refers to as its "final determination" or at the KTC's determination of injury. Indeed, in the course of its consultations with Korea the European Communities already challenged the WTO-legality of its intended measures before the 1 April Notification was published.

    4.134This was done on the basis of information available at that stage, which did not include the 1 April Notification but rather the information provided in Korea's documents and the explanations provided by Korea.

    4.135The European Communities further consider that its position as to the appropriate source of the information used and analysis performed by Korea's authorities is confirmed by Korea's replies to the questions of the Panel.

    4.136In its reply to the pertinent question of the Panel, Korea has described the various procedural steps leading to the imposition of the safeguard measure at issue in this dispute. In doing so, it has referred to, inter alia, several documents which were prepared by its competent authorities. It has also pointed out that according to its procedure these documents can be commented upon and revised accordingly, up to and including the draft final determination.

    4.137Furthermore, Korea itself admits that the final document in its procedure was the "Notice" of 7 March 1997 (produced as Exhibit Korea-9).

    4.138That document certainly fails to be "detailed" as required by Article 4.2(c) of the Agreement on Safeguards, be it directly, that is by the information included therein, or by reference, i.e., by the documents which it may refer to.

    4.139In particular, the 7 March Notice, issued after the bilateral consultations with the European Communities had taken place, does not refer to any of the information and aspects raised in those consultations. Thus, if the 7 March Notice and possibly prior documents are the relevant sources, Korea disregarded, inter alia, the information provided in the consultations and without any reason being provided. By contrast, the 1 April Notification does take account of some of the objections made by the European Communities at the consultations.

    4.140Accordingly, the European Communities consider that its reliance on the 1 April Notification was more favourable to Korea.

    4.141Korea is itself admitting that its 1 April Notification was made to inform WTO Members of the details of the relief measures and it intended to be a summary of the "OAI Report" and of the "additional findings" based on prior consultations. Thus, the April Notification is the one (and only) document accounting for those "additional findings".

    C.CLAIM UNDER ARTICLE XIX:1(a) OF GATT

    (a)Claim by the European Communities

    4.142The European Communities claim that Korea violated Article XIX:1(a) of GATT by failing to examine whether the import trends of the products under investigation were the result of unforeseen developments . The European Communities made the following arguments in support of its claim:

    4.143Article XIX:1(a) of GATT stipulates:

    "If, as a result of unforeseen developments and of the effect of the obligations incurred by a contracting party under this Agreement, including tariff concessions, any product is being imported into the territory of that contracting party in such increased quantities and under such conditions as to cause or threaten to cause serious injury to domestic producers in that territory of like or directly competitive products, the contracting party shall be free, in respect of such product, and to the extent and for such time as may be necessary to prevent or remedy such injury, to suspend the obligation in whole or in part or to withdraw or modify the concession." (emphasis added)

    4.144It clearly results from the wording of Article XIX:1(a) that in order to allow the imposition of a safeguard measure not any increase in imports is relevant, but only those which result from both "unforeseen developments" and compliance with GATT obligations, including tariff liberalization according to a party's schedules of concessions.

    4.145Tariff concessions and other obligations are listed in Article XIX of GATT as an additional element to "unforeseen developments", so it necessarily follows that liberalization cannot constitute by itself such unforeseen developments. 57 If it were otherwise, a WTO Member would be allowed to withdraw the very benefits which it had undertaken to afford e.g., by entering into tariff commitments as soon as those benefits materialize. This would neither be consistent with good faith interpretation of that provision nor with the liberalization aims pursued by GATT and the WTO Agreement overall. In any event, increased imports of the magnitude at issue in this case as a result of the tariff concessions agreed for SMPP cannot be considered "unforeseen" within the meaning of Article XIX:1(a).

    4.146The European Communities submit that, by failing to address how the increase in imports of milk powder blends and foodstuff preparations was the result of "unforeseen developments", Korea violated the obligations which it assumed under Article XIX:1(a) of GATT.

    (b)Response by Korea

    4.147Korea responds to the EC arguments as follows:

    4.148Following unsuccessful negotiations during the Tokyo Round and after years of negotiations during the Uruguay Round, WTO Members finally concluded the Agreement on Safeguards. It was intended to establish a final, complete and balanced system of rules for the imposition of safeguards, which achieved a delicate balance among the different interests of the various groups concerned. Article 1 of the Agreement on Safeguards expressly states that the Agreement on Safeguards 玡stablishes the rules for the application of safeguard measures.?Article 1 does not provide that any different or additional rules provided under Article XIX of GATT must also apply to the application of safeguard measures.58 Thus, in the view of Korea, the text of the Agreements supports the interpretation that the rules established in the Agreement on Safeguards are now the sole articulation of the rules that must be followed in the application of a safeguard measure59. Without prejudice to Korea's position that it complied with all of its international obligations in applying the safeguard measure at issue, Korea respectfully requests that the Panel examine this case in accordance with the interpretation of Korea.

    (c)Additional arguments by the European Communities made at the first meeting of the Panel with the parties

    4.149The European Communities responded to Korea's Argument by asserting that:

    4.150Korea relied on a very selective - and interpolated - quotation of Article 1. Thus, the original Article 1, reading "This Agreement establishes rules for the application of safeguard measures which shall be understood to mean those measures provided for in Article XIX of GATT" becomes "This Agreement establishes the rules for the application of safeguard measures", with the rest of the provision eloquently omitted. (emphasis added )

    4.151By doing so Korea simply refuses to face the fact that GATT was incorporated in the WTO system in its entirety. From the very inception of the new WTO system panels have recognized that the fragmentation of the multilateral trading system resulting from the independent co-existence of GATT 1947 and the so-called "side-agreements" is definitively over.60 Most recently, in Guatemala - Anti-Dumping Investigation Regarding Portland Cement from Mexico,61 the Appellate Body made clear in respect of dispute settlement provisions that

    "[a] special or additional provision should only be found to prevail over a provision of the DSU in a situation where adherence to the one provision will lead to a violation of the other provision, that is, in the case of a conflict between them". "[i]t is only where the provisions of the DSU and the special or additional rules and procedures of the covered agreement cannot be read as complementing each other that the special or additional provisions are to prevail" (emphasis in original)

    4.152It is precisely in those very same terms that the interpretative note to Annex IA to the WTO Agreement provides that: "In the event of a conflict between a provision of the General Agreement on Tariffs and Trade 1994 and a provision of another agreement in Annex IA & , the provision of the other Agreement shall prevail to the extent of the conflict." (emphasis added).

    4.153The European Communities failed to see how Article XIX:1(a), to the extent that it requires that the increase in imports must result from "unforeseen developments", could be said to be in conflict with the provisions of the Agreement on Safeguards. Clearly, the drafters of Article XIX had difficulties too, since they cumulated these requirements.

    4.154Furthermore, derogating from Article XIX is certainly not one of the aims of the Agreement on Safeguards. That agreement rather aims to "clarify and reinforce the disciplines of GATT and specifically those of Article XIX & to re-establish control over safeguards and eliminate measures that escape such control" and recognizes that "for these purposes a comprehensive agreement, applicable to all Members and based on the basic principles of GATT, is called for". (emphasis in original)

    4.155In response to a question by the Panel62, the European Communities further clarified their arguments:

    4.156The European Communities consider that the requirement in Article XIX that safeguard measures only be taken in the event of "unforeseen developments" remains applicable even if not repeated in the Agreement on Safeguards.

    4.157Article 1 of that Agreement provides that "This Agreement establishes rules for the application of safeguard measures which shall be understood to mean those measures provided for in Article XIX of GATT".

    4.158It is clear from the omission of the definite Article before the word "rules" in this provision that the Agreement on Safeguards is not intended to be the exclusive source of safeguard rules.

    4.159It is true that Article 2 of the Agreement on Safeguards does not repeat the requirement of unforeseen developments but this can be explained by the intention of the Agreement on Safeguards to provide procedures for investigations. Unlike increased imports, other conditions, injury and causation, the existence of unforeseen circumstances is something within the knowledge of governments and does not require investigation involving economic operators. It is of interest to note that the requirement that the increased imports result from trade liberalization is also not mentioned in the Agreement on Safeguards (liberalization is also of course a matter within the knowledge of governments). Both these factors either exist or do not and do not need an investigation to be established. As is clearly stated in the preamble, the purpose of the Agreement on Safeguards was to clarify and reinforce the disciplines of Article XIX of GATT. The requirements of unforeseen developments and indeed the consequences of trade liberalization were not requirements which the contracting parties considered needed to be clarified and reinforced.

    4.160Article 11.1(a) of the Agreement on Safeguards expressly requires that safeguard action conform both to Article XIX GATT and to the Agreement on Safeguards. This is especially so in view of the fact that GATT and the Agreement on Safeguards are both contained in Annex 1A of the WTO Agreement and the General Interpretative Note to the WTO Agreement provides that the provisions of an agreement such as the Agreement on Safeguards should prevail over the GATT in the event of conflict and to the extent of the conflict. The European Communities see no conflict between Article XIX GATT and the Agreement on Safeguards.

    4.161In response to a request from the Panel that it clarify its interpretation of the Brazil - Dessicated Coconut case refered to in paragraph 4.151 above, the European Communities responded as follows:

    4.162The European Communities have referred to the Brazil - Dessicated Coconut case in reply to the position taken by Korea on the issue of the "applicable law". Korea has argued that "the rules established in the Agreement on Safeguards are now the sole articulation of the rules that must be followed in the application of a safeguard measure", to the exclusion of Article XIX of GATT, because Article 1 of the Agreement on Safeguards does not provide that any different or additional rule under Article XIX of GATT must also apply.

    4.163The European Communities disagree with Korea and consider that the Brazil - Dessicated Coconut Panel Report, upheld by the Appellate Body, supports its view that such an express provision is not required, but rather that GATT and the Agreement on Safeguards:

    "represent an inseparable package of rights and disciplines that must be considered in conjunction".63

    4.164The Brazil - Dessicated Coconut Panel also stated:

    "Article VI of GATT and the SCM Agreement represent a new and different package of rights and obligations, as among WTO Members, regarding the use of countervailing duties. & The SCM Agreements do not merely impose additional substantive and procedural obligations on a potential user of countervailing measures. Rather, the SCM Agreements and Article VI together define, clarify and in some cases modify the whole package of rights and obligations of a potential user of countervailing measures." 64

    4.165The European Communities concur with the conclusion, drawn by the United States from this passage, that the "new package" made up by the Agreement on Safeguards and Article XIX of GATT is different from Article XIX of GATT 1947.

    4.166The European Communities however disagree with the additional conclusion drawn by the United States as a third party in this dispute that after the entry into force of the Agreement on Safeguards "those provisions of Article XIX that remain in force are incorporated into the Agreement on Safeguards" and that the requirement that "unforeseen developments" must have caused an increase in imports is no longer applicable. With this statement the United States seem to be attempting to reduce the "package" to the provisions of only one part, the Agreement on Safeguards. This is the opposite of what the Appellate Body meant when it agreed that the GATT provision and the specific agreement needed to be treated as an "inseparable package".

    4.167The European Communities added that, on the status of GATT in the WTO system, the Brazil - Dessicated Coconut Panel considered:

    "It is evident that both Article VI of GATT and the SCM Agreement have force, effect and purpose within the WTO Agreement. That GATT has not been superseded by other Multilateral Agreements on Trade in Goods ("MTN Agreements") is demonstrated by a general interpretative note to Annex 1A of the WTO Agreement. (footnote omitted) The fact that certain important provisions of Article VI of GATT are neither replicated nor elaborated in the SCM Agreement further demonstrates this point.65"

    4.168On the other hand, the European Communities recall that in that case the Panel did not have to decide on the precise content of the "new package", that is, on whether and to what extent the GATT provision at issue (Article VI) had been modified as a result of the relevant Agreement in Annex 1 A (the Agreement on Subsidies and Countervailing Measures). In fact, the Panel concluded for the inapplicability of the whole relevant "package" to the case before it.66

    (d)Additional arguments by Korea made at the first meeting of the Panel with the parties

    4.169In response to a question by the Panel67, Korea further clarified its arguments as follows:

    4.170Article XIX:1(a) of GATT 1947 provided that Contracting Parties could apply safeguard measures in response to "unforeseen developments" resulting in increased imports that threatened or caused serious injury to domestic producers of like or directly competitive products. GATT includes the text of GATT 1947, including Article XIX. The Agreement on Safeguards, however, does not include the condition of "unforeseen developments."

    4.171WTO dispute settlement panels and the Appellate Body have established that the language of GATT and the WTO Agreements should be interpreted in accordance with the rules of interpretation set forth in the Vienna Convention on the Law of Treaties68 ("Vienna Convention"). These rules require an examination of the ordinary meaning of the words of a treaty, read in their context and in the light of the object and purpose of the treaty involved.69

    4.172Accordingly, in its interpretation of the Agreement on Safeguards and Article XIX, Korea first addresses the respective texts. After having established the meaning of the texts in their context, Korea discusses the object and purpose of the provisions at issue. In light of the disagreement between the parties to this dispute, Korea also analyses supplemental sources of interpretation in accordance with the Vienna Convention in order to clarify the meaning of the texts and the object and purpose of the provisions at issue.70

    4.173Korea submits that the legal relationship between the Agreement on Safeguards and Article XIX is based on the text of Articles 1 and 11.1(a) of the Agreement on Safeguards. Article 1 states that:

    "[t]his Agreement establishes rules for the application of safeguard measures which shall be understood to mean those measures provided for in Article XIX of GATT." (Emphasis added).

    4.174Article 11.1(a) of the Agreement on Safeguards states that

    "[a] Member shall not take or seek any emergency action on imports of particular products set forth in Article XIX of GATT unless such action conforms with the provisions of that Article applied in accordance with this Agreement." (Emphasis added).

    4.175Thus, Articles 1 and 11.1(a) of the Agreement on Safeguards clearly and conclusively establish that safeguard measures originally provided for in Article XIX may only be applied in accordance with the rules established under the Agreement on Safeguards.

    4.176Pursuant to the express terms of Article 11.1(a), the Agreement on Safeguards and Article XIX must be read together, and applied in accordance with the provisions of the Agreement on Safeguards.71 The Appellate Body has established that, taken together, provisions of the GATT and the WTO Agreements create a new "package of rights."72 Accordingly, Korea submits that the provisions of Article XIX have been defined, clarified, and modified according to the new "package of rights" applicable under the Agreement on Safeguards.

    4.177Korea submits that conflicts between the provisions of Article XIX and the Agreement on Safeguards must be resolved according to the General Interpretative note to Annex 1A to the WTO Agreements (the "Interpretative Note"), which provides:

    "In the event of conflict between a provision of the General Agreement on Tariffs and Trade 1994 and a provision of another agreement in Annex 1A to the Agreement Establishing the World Trade Organization& , the provision of the other agreement shall prevail to the extent of the conflict."

    4.178The provisions of the Agreement on Safeguards, therefore, prevail to the extent of conflict with Article XIX.

    4.179Pursuant to Article 11.1(a), safeguard measures must be applied in accordance with the Agreement on Safeguards. The "unforeseen developments" condition cannot be applied in accordance with the Agreement on Safeguards, because such condition is not specified in the Agreement. Article XIX, on the other hand, does require "unforeseen developments." This conflict73 must be resolved according to the Interpretative Note, which requires that the Agreement on Safeguards must prevail to the extent of conflict with Article XIX.

    4.180Because the "unforeseen developments" condition of Article XIX does not conform with the provisions of the Agreement on Safeguards, Members are not required to consider such condition when taking or seeking the emergency actions on imports of particular products set forth in Article XIX of GATT.

    4.181In addition to the rule set forth in Article 11.1(a), Article 2 of the Agreement on Safeguards provides that "[a] Member may apply a safeguard measure to a product only if that Member has determined, pursuant to the provisions set forth below..." that the applicable criteria have been established (emphasis added). The "provisions below" of the Agreement on Safeguards do not include the "unforeseen developments" condition. Moreover, Article 2 continues to reiterate every provision of Article XIX:1(a) except those regarding "unforeseen developments" and "obligations incurred by a contracting party under [GATT], including tariff concessions." Thus, the language of Article 2 of the Agreement on Safeguards mandates the interpretation that the condition of "unforeseen developments" is not included in the new "package of rights" in effect under WTO law.

    4.182Korea considers that its interpretation of the WTO safeguards regime reflects the object and purpose of the Agreement on Safeguards together with Article XIX. The preamble to the Agreement on Safeguards includes the following as its object and purpose:

    佛to improve and strengthen the international trading system based on GATT; and

    佛to clarify and reinforce the disciplines of GATT, and specifically those of its Article XIX..., to re-establish multilateral control over safeguards and eliminate measures that escape such control.

    4.183Korea considers that its interpretation of the Agreement on Safeguards and Article XIX is also consistent with the object and purpose of the WTO Agreements as a whole. The Appellate Body has noted that "[t]he authors of the new WTO regime intended to put an end to the fragmentation that had characterized the previous system." This intent is evident in the preamble to the WTO Agreement, which states, in pertinent part:

    "Resolved, therefore, to develop an integrated, more viable and durable multilateral trading system encompassing the General Agreement on Tariffs and Trade, the results of past trade liberalization efforts, and all of the results of the Uruguay Round of Multilateral Trade Negotiations."

    4.184Thus, the object and purpose of the provisions at issue, and of the WTO Agreements generally, is to introduce changes to the GATT regime that improve and strengthen the multilateral trading system.

    4.185The object and purpose of the provisions at issue is further illustrated by practice of the parties under Article XIX and the Agreement on Safeguards.74 Practice under Article XIX confirms that the GATT Contracting Parties did not consider that the condition of "unforeseen developments" was required. For example, as early as 1951, the United States did not apply the "unforeseen developments" condition in determining whether to impose safeguard measures.75

    4.186Significantly, the lack of subsequent practice under Article XIX reflects the view held by many Contracting Parties that Article XIX's provisions were unrealistic and unusable. The proliferation of "grey area" measures since the inception of GATT 1947 is widely attributed to Contracting Parties' perception that the political and economic reality attendant to safeguard measures could not be accommodated under Article XIX.

    4.187Even if it is considered that "unforeseen developments" were required under GATT 1947, but were simply not complied with, practice by the parties confirms that "unforeseen developments" are not required under the Agreement on Safeguards. Safeguards practice subsequent to the WTO Agreements' entry into force is generally limited to Members' implementation of laws and regulations consistent with the Agreement on Safeguards, especially since the instant case is the first dispute to be brought under the Agreement on Safeguards. According to the notifications of legislation submitted to the Committee on Safeguards pursuant to Article 12.6 of the Agreement on Safeguards, the laws and regulations of the parties and third party to this dispute do not include the condition of "unforeseen developments76"

    4.188Under the presumption that these WTO Members have implemented the measures required under the Agreement on Safeguards in good faith, Korea submits that the absence of the "unforeseen developments" condition indicates that such condition in their domestic legislation is not considered to exist under the Agreement on Safeguards.

    4.189The object and purpose of the Agreement on Safeguards, as illustrated by the parties' practice, is to improve and strengthen the multilateral trading system by introducing effective means for applying safeguard measures. This object and purpose would be completely undermined by the inclusion of the "unforeseen developments" condition.

    4.190Korea considers that the relevant texts clearly do not require the condition of "unforeseen developments." To the extent that the texts are deemed ambiguous or unreasonable, however, Korea notes that preparatory work to the Agreement on Safeguards reinforces the negotiators' intent that the condition of "unforeseen developments" does not apply under the Agreement on Safeguards.77

    4.191The preparatory work to the Agreement on Safeguards provides additional guidance on the meaning of the texts and the object and purpose of the relevant agreements. In addition, Korea considers that the EC imposition of the "unforeseen developments" condition on Korea, but not on itself, would lead to a manifestly absurd and unreasonable result.78 which is not tolerated under the Vienna Convention rules, and should be rejected by the Panel.

    4.192In reviewing the preparatory work to the Agreement on Safeguards, Korea first looks to the language of the disputed provision. As indicated above, the Agreement on Safeguards reiterates every provision of Article XIX:1(a) except those regarding "unforeseen developments" and "obligations incurred by a contracting party under [GATT], including tariff concessions." The Agreement on Safeguards' negotiating drafts also reflect that the negotiators considered, and rejected, the "unforeseen developments" requirement.79

    4.193Several authors provide insight on the relationship of the Agreement on Safeguards and Article XIX under the new WTO safeguards regime. Professor Thi閎aut Flory has opined that Article XIX "functioned for many years in a defective manner - moreover the Community has only triggered the safeguard clause under Article XIX twenty times since the beginning of the 1980's. This very low number of inquiries displays the defective nature of the functioning of the safeguard clause under Article XIX of the General Agreement of 1947...."80 In the context of safeguard negotiations during the Uruguay Round, Pierre Didier has observed with respect to the "unexpected, sudden, and large" conditions contemplated by the negotiating group on safeguards, that "both the US and EU rejected this terminology as being too difficult to apply."81

    4.194Regarding the outcome of the Uruguay Round negotiations, Marco Bronckers notes that "exporting interests have also lost on a couple of points in the agreement, for example: - the triggering condition of injury no longer needs to be attributable to 'unforeseen developments' or to 'GATT obligations...."82 In addition, Janet A. Nuzum, former Commissioner of the US International Trade Commission, has noted the change from Article XIX's requirements that the Agreement on Safeguards does not require "unforeseeable developments and of the effect of obligations incurred by a contracting party under [GATT] including tariff concessions...."83 Finally, Edmond McGovern has expressed the view that "[t]he requirements in Article XIX:1 that the injury should occur "as a result of unforeseen developments and of the effect of obligations incurred... under this Agreement" were not repeated in the 1994 Agreement because they were no longer of practical significance."84 Thus, learned commentary on the matter in dispute also leads to the conclusion that the "unforeseen developments" condition required under the "defective" Article XIX does not apply under the Agreement on Safeguards.

    4.195Korea submits that the new "package of rights" in effect under the Agreement on Safeguards and Article XIX of GATT does not include the condition of "unforeseen developments."

    (e)Rebuttal arguments made by the European Communities

    4.196The European Communities made the following arguments in rebuttal:

    4.197In its reply to the Panel's question on Article XIX, Korea correctly refers to the interpretative criteria set out in Article 31 of the Vienna Convention.85 Their application, to the extent that it is correct, does not however improve Korea's case.

    4.198When examining the text of the provisions to be interpreted, Korea, which seems to focus exclusively on that of the Agreement on Safeguards, reiterates the same basic position: because the "unforeseen developments" requirement was not repeated in the Agreement on Safeguards, it cannot be applied "in accordance with" that Agreement and therefore has been modified (hence repealed) by the "new package" of rules resulting from the Uruguay Round negotiations.

    4.199The European Communities submit that lack of repetition does not amount to modification or abrogation, certainly not in the current WTO system. The Appellate Body has reconstructed the relationship between GATT and the other Annex 1A Agreements and has set the threshold below which a Member cannot arbitrarily diminish its obligations under the WTO, notably under GATT.

    4.200The European Communities consider that lack of repetition rather means that the Agreement on Safeguards has not elaborated on this particular requirement, which did not need special "clarification and reinforcement" in accordance with the agreement's avowed objectives. The Agreement on Safeguards does not, by its terms, represent the exclusive source of the WTO safeguards regime and the "unforeseen developments" requirement remains in force elsewhere in the WTO system.

    4.201With respect to the provisions of the Agreement on Safeguards upon which Korea specifically relies the European Communities asserted that the full text of Article 2.1, which is referred to by Korea, can clarify its real meaning:

    "1. A Member may apply a safeguard measure to a product only if that Member has determined, pursuant to the provisions set out below, that such product is being imported into its territory in such increased quantities, absolute or relative to domestic production, and under such conditions as to cause or threaten to cause serious injury to the domestic industry that produces the like or directly competitive products." (emphasis added)

    If some of the requirements of Article XIX of GATT are not even referred to it is hardly surprising that they are not elaborated upon in the provisions of the Agreement on Safeguards "set out below". Article 2.1 therefore adds nothing to Korea's case and by quoting it Korea falls in a rather circular argument.

    4.202With respect to the object and purpose of the provisions in question, Korea, again focusing on the Agreement on Safeguards, equally fails to support its case.

    4.203Korea rightly recalls that the objectives of that Agreement are to "improve and strengthen the safeguard regime", and effectively summarizes them as "to introduce changes to the GATT regime that improve and strengthen the multilateral trading system". The European Communities argue that, Korea has not yet demonstrated, how elimination of a requirement for the imposition of safeguard measures would weaken, rather than strengthen, the multilateral safeguards regime and would "completely undermine" the abovementioned objectives.86

    4.204As to the "practice" of some WTO Members the European Communities first observes that in order to reconstruct the "object and purpose" of a treaty in terms of the Vienna Convention that practice is irrelevant. The "practice in the application of the treaty" is relevant under Article 31.3(b) of the Vienna Convention as an autonomous interpretative tool, not to identify object and purpose.

    4.205Furthermore the practice which is relevant under the Vienna Convention is the one "which establishes the agreement of the parties" on the interpretation or the application of a given treaty provision. Korea has instead only quoted implementing legislation of a few WTO Members.87 Moreover, that unilateral practice does not establish the agreement of all WTO Members on the alleged repeal or "disappearance" of the "unforeseen developments" requirement. Domestic implementing legislations of other Members expressly refer to that requirement.88

    4.206Last, the European Communities recalled that they are not challenging Korea's legislation per se, but rather the application of a safeguard measure in a specific case, and inasmuch as it understands that Korea's legislation does not require Korean authorities to violate Article XIX requirements the European Communities took no position on their conformity with that Article.

    (i)The relationship between GATT and the other Annex 1A Agreements in the WTO system

    4.207The European Communities argue that the relationship between GATT and the other Annex 1A Agreements provisions has, on the one hand, been regulated in the WTO system itself, and, on the other hand, all the forms of this relationship have already been addressed in dispute settlement. Both WTO provisions and Panel and Appellate Body Reports make clear that as a rule GATT and the other Annex 1A Agreements apply cumulatively. It has also been made clear that to this effect it is not necessary that an Agreement in Annex 1A either repeat or specifically provide that a given provision of GATT is applicable although not repeated in its text. Thus, the rule is rather the opposite of that put forward by Korea in its First Written Submission.

    4.208The European Communities consider that already the Brazil - Dessicated Coconut Panel Report, upheld by the Appellate Body, supports their view that an express provision is not required, but rather that GATT and the Agreement on Safeguards

    "represent an inseparable package of rights and disciplines that must be considered in conjunction".89

    On the status of GATT in the WTO system, the same Panel considered:

    "It is evident that both Article VI of GATT and the SCM Agreement have force, effect and purpose within the WTO Agreement. That GATT has not been superseded by other Multilateral Agreements on Trade in Goods ("MTN Agreements") is demonstrated by a general interpretative note to Annex 1A of the WTO Agreement. (footnote omitted) The fact that certain important provisions of Article VI of GATT are neither replicated nor elaborated in the SCM Agreement further demonstrates this point.69

    69 For example, the SCM Agreement does not replicate or elaborate on Article VI:5 of GATT, which proscribes the imposition of both an anti-dumping and a countervailing duty to compensate for the same situation of dumping and export subsidization, nor does it address the issue of countervailing action on behalf of a third country as provided for in Article VI:6(b) and (c) of GATT. If the SCM Agreement were considered to supersede Article VI of GATT altogether with respect to countervailing measures, these provisions would lose all force and effect. Such a result could not have been intended."90

    The European Communities submit that with the interpretation of the Agreement on Safeguards which they proposes Korea is unduly restricting the scope of its obligations under the whole of the WTO "package".

    4.209As the Appellate Body observed still in the Brazil - Dessicated Coconut case:

    "The General Interpretative Note to Annex 1A was added to reflect that the other goods agreement in Annex 1A, in many ways, represent a substantial elaboration of the provisions of the GATT, and to the extent that the provisions of the other goods agreements conflict with the provisions of the GATT 1944, the provisions of the other goods agreements prevail. This does not mean, however, that the other goods agreements in Annex 1A, such as the SCM Agreement, supersede the GATT".91

    4.210Thus, the Appellate Body recognized that in the relationship between GATT and the other goods agreements in Annex 1A, the prevalence of the latter is only to the extent of the conflict and that otherwise this entails no "supersession". This is otherwise consistent with the principle of effective interpretation of treaties, which was also recognized by the Appellate Body, according to which every provision should be given its meaning and effect.

    4.211In Brazil - Dessicated Coconut the Panel had already stated that failure to repeat a provision is not dispositive and does not allow a departure from cumulative application of GATT and other Annex 1A Agreements.92 The Appellate Body in EC - Bananas made this point further clear when it had to decide whether both Article X:3(a) of GATT and Article 1.3 of the Agreement on Import Licensing Procedures applied to the European Communities import licensing procedures.93 Notwithstanding the fact that the Appellate Body found that "there are distinctions between [the] two articles" (that is, that the two provisions read differently), and at the same time that they have "identical coverage"94 (that is, regulate the same aspect of the same case in point), the Appellate Body did not consider that they conflicted and thus that the Interpretative Note to Annex 1A applied. As a consequence, it found that both Article X of GATT and Article 1.3 of the Agreement on Import Licensing Procedures were applicable.95

    4.212The European Communities submit that the hypothesis considered in the Appellate Body Report in EC - Bananas is different from the one at issue in the present dispute. In fact the Agreement on Safeguards and Article XIX of GATT do not overlap, in the sense that the "unforeseen developments" requirement is additional and therefore complementary to the matter regulated in the Agreement on Safeguards. In any event, even if these provisions overlapped, the EC - Bananas case law makes clear that the GATT provision is not eliminated by the system, but rather remains in force and is applicable cumulatively with the Agreement on Safeguards.

    4.213The Appellate Body in EC - Bananas also addressed the relationship between Article XIII of GATT and the Agreement on Agriculture,96 notably to decide "whether the provisions of the Agreement on Agriculture allow market access concessions on agricultural products to deviate from Article XIII of GATT".97 The European Communities had argued in this respect that concessions made pursuant to the Agreement on Agriculture prevailed over Article XIII of GATT, based on Articles 4.1 and 21.1 of the former agreement.98 The Appellate Body however upheld the Panel's conclusion that the Agreement on Agriculture

    "does not permit the European Communities to act inconsistently with the requirements of Article XIII of GATT." 99

    4.214The European Communities submit that, likewise, the Agreement on Safeguards does not authorize Korea to act inconsistently with the requirements of Article XIX of GATT. Indeed the contrary is the case since Article 11.1(a) requires Members to apply measures "in accordance with this Agreement."

    4.215The reasoning of the Appellate Body sheds light as to what is required for finding a derogation from GATT in another Annex 1A Agreement. When reviewing Article 4.1 of the Agreement on Agriculture, the Appellate Body observed:

    "we do not see anything in Article 4.1 to suggest that market access concessions and commitments made as a result of the Uruguay Round negotiations on agriculture can be inconsistent with the provisions of Article XIII of the GATT. (...) If the negotiators had intended to permit Members to act inconsistently with Article XIII of the GATT, they would have said so explicitly. The Agreement on Agriculture contains several specific provisions dealing with the relationship between articles of the Agreement on Agriculture and the GATT. For example, Article 5 of the Agreement on Agriculture allows Members to impose special safeguards measures that would otherwise be inconsistent with Article XIX of the GATT and with the Agreement on Safeguards. In addition, Article 13 of the Agreement on Agriculture provides that, during the implementation period for that agreement, Members may not bring dispute settlement actions under either Article XVI of the GATT or Part III of the Agreement on Subsidies and Countervailing Measures. With these examples in mind, we believe it is significant that Article 13 of the Agreement on Agriculture does not, by its terms, prevent dispute settlement actions relating to the consistency of market access concessions for agricultural products with Article XIII of the GATT. As we have noted, the negotiators of the Agreement on Agriculture did not hesitate to specify such limitations elsewhere in that agreement; had they intended to do so with respect to Article XIII of the GATT, they could, and presumably would, have done so. We note further that the Agreement on Agriculture makes no reference to & any 'common understanding' among the negotiators of the Agreement on Agriculture that the market access commitments for agricultural products would not be subject to Article XIII of the GATT." 100

    4.216By this reasoning the Appellate Body set the standard which is required to find a derogation from GATT: unless express derogating terms are found in an Annex 1A Agreement, no action inconsistent with GATT is allowed, even if "pursuant to" an Annex 1A Agreement. This is exactly the opposite of what Korea proposes when arguing that failure to repeat the "unforeseen developments" requirement in the Agreement on Safeguards authorizes to disregard such requirement.

    4.217The Appellate Body went further and also provided genuine examples of derogation from GATT found in the Agreement on Agriculture, all of which are drafted in explicit terms, very different from those of the Agreement on Safeguards. The European Communities note that the Appellate Body considered that measures authorized under one of these derogations, the special safeguard clause, would otherwise have been inconsistent with both Article XIX and the Agreement on Safeguards.

    4.218In the light of the foregoing, the European Communities consider that the language of the Agreement on Safeguards is not explicitly derogating from GATT, and therefore the standard set out by the Appellate Body is not met in the present case. Accordingly, Korea is not allowed to "act inconsistently with the requirements of" Article XIX of GATT, even if its measure had been adopted "pursuant to", or "in accordance with", the Agreement on Safeguards.

    4.219The Appellate Body further considered101 Article 21.1 of the Agreement on Agriculture, which expressly regulates the relationship with GATT in the following terms:

    "The provisions of GATT and of other Multilateral Trade Agreements in Annex 1A to the WTO agreement shall apply subject to the provisions of this Agreement." (emphasis added)

    In spite of the explicit and strong language of that provision, the Appellate Body could still reach the conclusion that the Agreement on Agriculture does not permit a WTO Member to act inconsistently with the requirements Article XIII of GATT.

    4.220The European Communities submit that a different conclusion cannot be warranted in the present case. The provisions of the Agreement on Safeguards referred to by Korea do not even include language as strong as the one emphasized above102, and aim more at restricting Members' conduct (Article 2.1, Article 11.1) or at setting out the general scope of the Agreement (Article 1) than at regulating the relationship with GATT.

    4.221In the light of the foregoing the European Communities reiterate that the Agreement on Safeguards does not include an express derogation from GATT. Therefore, it does not authorize WTO Members, including Korea, to act inconsistently with the requirements of Article XIX, and notably with the "unforeseen developments" requirement.

    4.222The fourth form of relationship between the provisions of GATT and those of other Annex 1A Agreements is one of conflict, not solved a priori by the system itself by a derogation rule. The General Interpretative Note to Annex 1A governs all cases not expressly regulated in the following terms:

    "In the event of a conflict between a provision of the General Agreement on Tariffs and Trade 1994 and a provision of another agreement in Annex 1A & , the provision of the other Agreement shall prevail to the extent of the conflict." (emphasis added).

    4.223The Appellate Body had most recently an opportunity to clarify the meaning of this criterion of relationship - conflict - in Guatemala - Anti-Dumping Investigation Regarding Portland Cement from Mexico. The Appellate Body made clear, in respect of dispute settlement provisions, that

    "[a] special or additional provision [laid down in a "covered agreement"] should only be found to prevail over a provision of the DSU in a situation where adherence to the one provision will lead to a violation of the other provision, that is, in the case of a conflict between them". "[i]t is only where the provisions of the DSU and the special or additional rules and procedures of the covered agreement cannot be read as complementing each other that the special or additional provisions are to prevail." 103

    4.224In the EC view, it is precisely in terms of "prevalence" and "conflict" that the General Interpretative Note to Annex 1A to the WTO Agreement is drafted.

    4.225The European Communities maintain that Korea has not shown how Article XIX:1(a), to the extent that it requires that the increase in imports and the conditions thereof must result from "unforeseen developments", could be said to be in conflict with the provisions of the Agreement on Safeguards. Clearly, the drafters of Article XIX thought that it was possible to meet all these requirements, since they cumulated them in the same provision.

    4.226In a case where a conflict cannot be shown, the Appellate Body confirmed that special and additional provisions apply together with the basic GATT provisions and complement each other.104 Accordingly, it reversed the Panel's finding that Article 17 of the Anti-Dumping Agreement "provides for a coherent set of rules for dispute settlement specific to dumping cases ... that replaces the more general approach of the DSU."105

    4.227In summary, in the EC view, the relationship between GATT and other Annex 1A Agreements is exhaustively regulated in WTO rules, as interpreted in Panel and Appellate Body decisions. That relationship can be expressed in terms of cumulation (the normal situation); differences (speciality); express derogation (conflict solved a priori by the Drafters of the WTO Agreement); conflict. Only in the latter two hypotheses listed do the provisions of other Annex 1A Agreements prevail over those of GATT. The use of the term "subsumption" merely confuses the issue. If this term means derogation or conflict, then the Agreement on Safeguards prevails. If not, it does not. In the case of the Agreement on Safeguards and Article XIX of GATT no case of derogation or conflict has been identified and therefore Article XIX and the Agreement on Safeguards apply cumulatively. Korea has not demonstrated that a conflict exists, and therefore that it was justified in not examining whether the increase in imports of SMPP was the result of "unforeseen developments". Accordingly, the Panel should find that it violated Article XIX:1(a) of GATT as it did not proceed to that examination before imposing the safeguard measure on SMPP at issue in this dispute.

    (f)Rebuttal arguments made by Korea

    4.228Korea makes the following rebuttal arguments:

    4.229Korea considers that the applicable law in this dispute is the Agreement on Safeguards. Korea considers that the provisions in Article XIX of GATT regarding "unforeseen developments" and "of the effect of the obligations incurred" are no longer part of the package of rights and obligations applicable to the imposition of safeguard measures. For the reasons set out in Paragraphs 4.170-4.195.

    4.230Korea expressed puzzlement with the EC statement that:

    "Unlike increased imports, other conditions, injury and causation, the existence of unforeseen circumstances is something within the knowledge of governments and does not require investigation involving economic operators. It is of interest to note that the requirement that the increased imports result from trade liberalization is also not mentioned in the Agreement on Safeguards(liberalization is also of course a matter within the knowledge of governments). Both these factors either exist or do not and do not need an investigation to be established."

    4.231Korea noted that, under the EC logic, "unforeseen developments" or "of the effect of the obligations incurred" either exist or do not exist, are strictly within the "knowledge" of each Member, and do not need an investigation to be established. Under this articulation, presumably, the only basis for the Panel to find that Korea violated Article XIX of GATT is if the factors "do not exist." As an alternative argument, Korea respectfully submits that such factors exist:

    (a)the increased imports resulted from "unforeseen developments" because Korea did not foresee that the European Communities would take the unprecedented step of emptying its inventories of SMPP on the Korean market in order to take advantage of the lower Korean tariff on SMPP versus milk powder negotiated pursuant to the Uruguay Round; and

    (b)the increased imports resulted from "the effect of the obligations incurred" because they resulted from the tariff concessions negotiated under the Uruguay Round and GATT balance-of-payments ("BOP") process.

    (g)Additional arguments by the European Communities made at the second meeting of the Panel with the parties

    4.232At the second meeting of the panel with the parties, the European Communities observed that:

    4.233Korea both dismissed the "unforeseen development" requirement as repealed by the Agreement on Safeguards, and tried to justify its measure under that clause. As the European Communities have constantly said, and Korea has not challenged, it is hard to see how a deep imbalance in the tariff bindings of two competing products like SMPP and milk powder would not lead to a relative change in imports. The European Communities would also recall in this connection that in cases where a WTO Member miscalculated its concessions and is facing difficulties as a result of its tariff commitments it is entitled to negotiate and modify its schedule under Article XXVIII of GATT. It may not however use safeguard measures to achieve this result where the conditions for their application are not met.

    4.234As to the negotiating history of the Agreement on Safeguards, the European Communities observed the following.

    4.235Korea's view is that the requirement of unforeseen developments in Article XIX was in conflict with the Safeguards Agreement and therefore not applicable was supported by Mr Didier in a book published in 1997 where he reported that an early draft contained a provision "that there has been an unexpected, sudden and large increase in the quantity of such product being imported" but that this was later dropped.

    4.236Mr Didier considered that this provision related to the requirement of unforeseen developments in Article XIX. Korea argues from this that there was an intention to delete the requirement of unforeseen developments. It is interesting to note that later in the same contribution Mr Didier develops his thesis further. He considers that there is a need for a requirement of unforeseen developments since it cannot be any increase of imports which can be argued to cause injury which should be allowed to justify safeguard measures, but only increases which result from abnormal or unexpected situations.106

    4.237In fact, a closer look at the deleted draft text demonstrates that it had nothing to do with the requirement of unforeseen developments. Mr Didier was mistaken and could have saved himself the trouble of trying to invent a replacement for "unforeseen developments". The draft in fact referred to an unexpected increase of imports not of unforeseen developments leading to an increase in imports.

    4.238One way of understanding the requirement of unforeseen developments is to consider the continuum of causality starting with trade liberalisation, running into unforeseen developments which result in increased imports which occur under conditions which are such that serious injury results. This starts with loss of sales, continues with loss of sales and production, falling capacity utilisation, losses and finally unemployment.

    4.239In fact one might say that unforeseen developments is a defining feature of safeguard measures since it defines the circumstances in which they may become justified. As Korea said, Article 1 of the Safeguard Agreement expressly refers Article XIX as defining what a safeguard measure is.

    4.240In other words, Article XIX tells you what a safeguard measure is and the Safeguard Agreement tells you how to apply it. The consequence of this was however not mentioned by Korea. It is that the Safeguard Agreement is not exhaustive.

    (h)Additional arguments by Korea made at the second meeting of the Panel with the parties

    4.241At the second meeting of the panel with the parties, Korea further advanced its arguments under Article XIX:1(a) as follows:

    4.242Korea has pointed out that this requirement was omitted from the Agreement on Safeguards, and maintains that it no longer applies. The European Communities refer to Article XIX GATT, and claims that the obligation to show "unforeseen developments" still exists.

    4.243First, if one looks at the Agreement on Safeguards, it is clear that it was meant to strike a new balance and move beyond Article XIX GATT, which had proved to be difficult to apply in practice. In its first Article, the Agreement states that it:

    "establishes rules for the application of safeguard measures which shall be understood to mean those measures provided for in Article XIX of GATT."107

    In other words, Article XIX GATT tells one what a safeguard measure is, and this new Agreement tells one how ('the rules for the application') to take those measures.

    4.244Second, in furtherance of the above purpose, Article 2 of the Agreement then goes on to lay out the 'conditions' for taking safeguard measures. Interestingly, it repeats almost verbatim what was said in Article XIX:1(a) GATT, except that:

    (a)it removes some language, specifically the "unforeseen developments" language and the requirement to show that the difficulties were the "result of . . . the effect of the obligations incurred by the contracting party under this Agreement, including tariff concessions"; and

    (b)adds some other language: that the increase in quantities of imports can be either "absolute or relative to domestic production"; and

    (c)makes explicit that the measures must be non-discriminatory, i.e., the safeguard should apply to imports from all sources.

    4.245Where a text is adopted almost word-for-word, but makes certain omissions and additions to it, it stands to reason that those omissions and additions were deliberate. The preparatory work to the Agreement on Safeguards further supports this conclusion. According to the respected academic Pierre Didier, "a 1990 draft of an agreement included ['unforeseen developments'] and amplified it by imposing the obligation to establish an 'unforeseen, sudden and significant increase'. Both the United States and the EU rejected this terminology as being too difficult or restrictive to apply."108 The entire reference to "unforeseen developments" was then dropped. However, now the European Communities want to characterize omission of the "unforeseen developments" criteria as a mere "failure to repeat" that language. Why would this deletion have happened, and why would the European Communities argue that it was too difficult and restrictive to apply if the obligation to consider "unforeseen developments" remained via Article XIX?

    4.246Third, contrary to the EC assertions, Korea considers that the removal of the obligation regarding "unforeseen developments" was intended to strengthen the multilateral safeguard regime. The European Communities contend that Korea has not demonstrated why this would be the case. As stated above, both the United States and the EU considered that the "unforeseen developments" requirement was too difficult and restrictive to apply, and Korea seriously doubts whether it still served in state practice. The inability of Members to determine the scope of their rights under Article XIX led to the proliferation of "grey area" measures. By improving the safeguard regime and eliminating unworkable obligations, the drafters intended to strengthen the safeguard regime by ensuring that Members resorted to emergency action under the Agreement on Safeguards, rather than use trade-disruptive and non-transparent "grey area" measures.

    4.247Fourth, the European Communities assert that if the drafters had wanted to deviate from Article XIX, they had to do so expressly, and cites the EC - Bananas109 Appellate Body report as support for this contention. Korea notes that EC - Bananas case dealt with a different agreement, the Agreement on Agriculture, in which the drafters made express derogations. An example is Article 5 of the Agreement on Agriculture, although, Korea noted that Article 5 only makes an express derogation from Article II:1(b) GATT, not from Article XIX and the Agreement on Safeguards.

    4.248However, nowhere in the Agreement on Safeguards is there an express derogation. While the Agreement is full of fundamental changes (see, for example, the requirement to wait three years before retaliating against certain safeguard measures110 (which is contrary to Article XIX:3(a)), or the requirement not to reduce the quantity of imports below that of a representative past period (which is contrary to Article XIX:1(a))111, the Agreement did not need to expressly signal every derogation. Any doubt as to the precedence of those provisions over the provisions of Article XIX GATT is resolved by the General Interpretative Note to Annex 1A of the WTO. Indeed, if express derogations were required, one would wonder why this Interpretative Note was included.

    4.249Furthermore, the European Communities fail to mention that the Appellate Body in EC - Bananas only addresses the situation where the relevant WTO Agreement does not specifically deal with the subject matter of the relevant Article under GATT. In its Second Submission, the European Communities quoted a lengthy paragraph from the Appellate Body's report in EC - Bananas. The European Communities, however, tellingly omitted the second sentence of the paragraph that states that '[t]here is nothing in Articles 4.1 or 4.2, or in any other Article of the Agreement on Agriculture, that deals specifically with the allocation of tariff quotas on agricultural products.' In other words, no Article of the Agreement on Agriculture addressed the subject matter of Article XIII of GATT. The Appellate Body went on to conclude 'Therefore, the provisions of the GATT, including Article XIII, apply to market access commitments concerning agricultural products, except to the extent that the Agreement on Agriculture contains specific provisions dealing specifically with the same matter.' 112 (emphasis added).

    4.250Here, the Agreement on Safeguards does explicitly deal with the conditions for adopting safeguard measures, under the very heading "conditions". The Agreement on Safeguards specifically lays out the conditions for adopting a safeguard. "Unforeseen developments" is not one of them.

    4.251Furthermore, if one reads the relevant texts according to the European Communities position, there would be a conflict between Article XIX and the Agreement on Safeguards. If one adheres to Article 2 of the Agreement on Safeguards and adopts a safeguard measure without meeting the "unforeseen developments" requirement, one would be in conformity with the Agreement on Safeguards but in violation of Article XIX. The General Interpretative Note to Annex 1A of the WTO clearly provides that in case of conflict between the GATT and an Agreement (like the Agreement on Safeguards), it is the Agreement, not the GATT, that takes precedence.

    4.252In that regard, this case is not the same as Guatemala - Anti-dumping Investigation Regarding Portland Cement from Mexico113, to which the European Communities refer. That case involved the overall rules applying to dispute settlement in the WTO and the specific rules applying to anti-dumping, and the Appellate Body found that both sets of rules fit together to form a 'comprehensive, integrated dispute settlement system for the WTO Agreement.'114 Even there, the Appellate Body said that if there were a conflict between the two sets of rules, the special anti-dumping rules would prevail in case of conflict. The Appellate Body clarified that a conflict would exist where "adherence to one provision will lead to a violation of the other provision".115 Korea believes that here, such a conflict exists.

    4.253Finally, Korea questioned whether the European Communities even really believed in its own argument, noting that it did not include the "unforeseen developments" requirement in its own rules for the application of safeguard measures.116 Its officials proceed with a set of rules that tell them everything they need to show in order to adopt a safeguard measure, yet that regulation does not mention or even refer to a couple of extra important requirements.

    4.254To shift attention from the discrepancy between its argument now and its own implementation of the Agreement on Safeguards, the European Communities refer to the legislation of a few other countries in which the "unforeseen developments" requirement was included. However, it is not disputed that WTO Members are permitted to adopt rules that are more restrictive of their use of safeguard measures than required by the WTO rules. What is at issue is what those WTO rules require. Korea maintains that those rules do not condition adoption of a safeguard measure on a showing of "unforeseen developments.

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